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Today, you told the “Democrats stop caving in . . . ” to the interests of corporations, the tea party,  wealthy individuals, and the Republicans in Congress. The only problem with your fiery statement is that you began it by “caving in” to them yourself. You did this by immediately legitimizing their frame of reference by saying:

“Here is something we all can agree on: Federal deficits are a serious problem.”

I'm sorry Bernie, we can't all agree on that, because it's just not true, and it's what the Republicans, the Blue Dogs, most Democrats and the Administration are all using to try to bully you and us into agreeing to spending cuts in key discretionary programs and programs like Social Security and Medicare, and also into not moving for more spending on jobs, better entitlement programs, including Medicare for All, and better discretionary programs we need to solve our many national problems.

The idea that Federal deficit spending is a serious problem is the idea, that along with the belief that the Federal debt is getting to be some kind of irresolvable problem, is in back of the whole anti-deficit/debt thrust of the deficit terrorists like Pete Peterson, David Walker, Alice Rivlin, and all the others in Washington including the President. In turn, this thrust has led to the Bowles-Simpson Catfood Commission, and the current so-called supercommittee that you've been fighting so hard 'lo these past months, and the constant drum beat that “There Is No Alternative” (TINA) to deficit cutting.

So, when are you going to learn that the only way for you and us to end this fight and to win it, is to deny their basic premises and particularly their foundational idea that the United States of America, the issuer of its own non-convertible floating fiat currency, with no external debt payable in anyone else's currency, and the ultimate source of all US Dollars existing in the world, can run out of the money needed to continue to deficit spend, and to pay all its bills including the principal and interest on all its debts, as well as all Congressional appropriations you and your colleagues may choose to legislate?

You say that the deficit is a serious problem. But I think it's not a real problem at all for at least three reasons that refute TINA.

-- First, because nothing bad needs to happen if we continue to run deficits, as long as we don't do so after our economy is operating at full capacity. But we are very far from that state right now with between 25 – 30 million people wanting full time employment and not being able to get it. So, we can't have demand-pull inflation now. It's impossible.

-- Second, because it's the Congress that is constraining the Government from generating  money for its debt repayment, or appropriated deficit spending using means other than taxing or borrowing, because Congress prohibits the Treasury from freely issuing Treasury Notes and also requires that it issue debt before it deficit spends, while at the same time imposing debt ceilings that interfere with borrowing to spend appropriations Congress has already made. So, there is no real problem because the constraints were made by Congress and can be lifted by it in a single afternoon, if it wants to.

There Is An Alternative (TIAA). And it is for Congress to stop requiring the Treasury to issue debt when it deficit spends, and to allow it instead to "mark up" its own accounts at the Fed when it needs to spend an already legislated Congressional appropriation, or to repay past debt and interest.

You should be making the truth of TIAA clear to the American people, Bernie, so that everyone knows that any shortage of money to spend is Congress's own fault, and that there is no debt/deficit problem in the sense of an inability to pay, or a need for China, Japan, or the bankers to lend the Government back the money the Government created in the first place, or a need to cut spending, or a need to raise taxes on anyone, or both, to avoid impending or future solvency.

But instead you're reinforcing their message that there is a serious deficit problem. Now that's what I call “loser liberalism,” Bernie.

-- And Third, there is no problem because even under current law, with its constraints on the Treasury's ability to spend what's required to repay debt or spend Congressional appropriations, it has been legal since 1996 for the Executive Branch to issue 1 oz. proof platinum coins having arbitrary face value in the amount of many Trillions of Dollars, deposit those coins at the Fed, and force the Fed to use its money-creating authority to credit Mint and Treasury Accounts with electronic credits equal to the value of the coin. The money placed in Treasury's accounts as a result of this action need not be spent. In fact, if the Executive minted a $60 T coin, then it could not all be spent because the authority for spending by the Treasury would not extend further than repayment of debt subject to the ceiling as it falls due, and payment implementing Congressional appropriations approved up to now.

So, even if such a coin were issued, spending by the end of the year would be limited to repayment of all intra-governmental debt, including all debt held by the Fed itself, and the Federal spending appropriated by Congress for the remainder of this calendar year. Most of the $60 Trillion would still remain unspent to be used for future debt repayment as the securities fall due, and payment for future Congressional appropriations that would not be covered by tax revenues.

As long as those appropriations don't outrun tax revenues more than is necessary to enable a full employment, full capacity utilization economy, no one has to worry about demand-pull inflation resulting from excessive Government spending. It won't happen. And if there is any inflation from other causes, which is possible, and even probable, if we don't prevent excessive commodity speculation through appropriate laws and their faithful enforcement, any cost-push inflation, won't have anything to do with Government spending.

You can find a more detailed explanation of this coin seigniorage idea and its implications here, here, here, and here. Without going into detail in this open letter, I'll just say that if the President uses coin seigniorage in the way I've outlined, he can fill the public purse with such a large volume of USD electronic credits that no one will be able to say, ever again, that the US has a deficit/debt problem because it is running out of money. And, additionally, in a very few years, the Treasury's payment of the Government's debts as they fall due, without any further debt issuance, to spend Congressional appropriations not covered by tax revenues or other sales, will result in most of the debt subject to the ceiling, except for long-term debt, being paid. There will be very low levels of debt subject to the ceiling and eventually no debt of this kind at all.

So, to summarize, it is not true that “. . . Federal deficits are a serious problem.” And it is not true that we have to do anything to reduce deficits defined as a gap between Federal spending and Federal tax revenues. The whole exercise in deficit reduction that the president and the other deficit terrorists have put this country through has been an immensely wasteful distraction.

As you say in your HuffPo piece:

“This is a pivotal moment in American history. The rich and large corporations are doing phenomenally well while the middle class is collapsing and poverty is increasing. Now is the time to answer the question that the Woody Guthrie song poignantly asked, "Which side are you on?" The Democrats must answer boldly that they are on the side of working families and the middle class and that they will fight to protect their interests.”

And you, Bernie, must also answer boldly with the truth. People who are on the side of working families and the middle class, like yourself, cannot continue to say that “we can all agree that there is a serious deficit problem”, because that has been the continuing most important element in the case the deficit terrorists are making.

To defend our ground, and the 99%, we need to deny and defeat that false framing. We cannot reinforce it! We need an alternative framing.

And that framing is, the Federal Government needs no money from anyone to pay its debts and to spend what Congress has appropriated. We are a fully sovereign nation, and as long at we retain that full sovereignty, including its fiscal aspects, the Government can spend/create any money it needs in accordance with the authority given to it by the Constitution of the United States. It is up to the Congress and to the Executive to use that authority as necessary to create and maintain full employment AND price stability, as well as all other aspects of the Public Purpose, as that purpose is defined and specified by the people of the United States of America.


Joseph M. Firestone, Ph.D.

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Comment Preferences

  •  Thank YOU, Letsgetitdone . Very important (1+ / 0-)
    Recommended by:

    message to an otherwise amazing Senate progressive voice and for those of us who fall for this frame.

    Related was a chant during ourOccupy Santa Fe march on Saturday:

    Want to solve the 'debt crisis'?
    Tax  the Rich, End the Wars
    •  Love Taxing the Rich, (0+ / 0-)

      Ending the Wars, and Medicare for All HR 676. Also big defense cuts.

      But I'm not for doing any of those things to reduce the deficit/debt. This is just not a real issue.

      I want to tax the rich, to lessen economic inequality because it is dangerous to our democracy. I want to end the two wars because they've killed too many innocents and have undermined the national interests of the United States. I want to pass Medicare for All because every American has a right to the nearly free Medical care provided by HR 676. And I want to cut defense spending to weaken the defense contractors who also are dangerous to democracy and whose non-lethal weapons have enabled repression of the 99%.

  •  Okay, you made me look up "seigniorage" . (1+ / 0-)
    Recommended by:

    Learn something here everyday.

  •  Please explain to me... (0+ / 0-)

    ...exactly how seignorage would not be massively inflationary and send the world's economy into a tailspin, likely resulting in the end of the dollar as the world's reserve currency and resulting in an even more significant loss of economic power by the US?

    "When I give food to the poor, they call me a saint. When I ask why the poor have no food, they call me a communist." --Dom Helder Camara, archbishop of Recife

    by JamesGG on Mon Nov 21, 2011 at 07:47:54 AM PST

    •  Seignorage is a silly word (0+ / 0-)

      Seignorage is a misapplied & misunderstood word. The value of any fiat currency financial asset is entirely "seignorage". The "mainstream" ideas, even those of many self-styled "Keynesians" on seignorage & money-creation are complete & preposterous gibberish. They have the crazy idea that printing currency is evil inflationary "seignorage" while printing bonds is good wholesome disinflationary "sterilization" - when centuries of data show that if anything, the reverse is true about inflationary effects. The truth is much simpler - and well known before the 60s-70s-80s - now dark age of economics.

      Joe is maybe a little misleading here. It really doesn't matter very much whether we "print money" (or use "coin seignorage") or "print bonds". Printing bonds & then exchanging them for currency is what is misnamed government borrowing. But what matters is that the printing, the spending, be done, not what form the savers save it in.  Money is a kind of bond. Bonds are a kind of money. The usual MMT word for both is "NFA".

      Think about you as an individual. Would you give a damn whether Santa Claus gave you a Treasury bond printing press or a dollar bill printing press, each guaranteed to spit out a billion dollars worth of money?  No.  Nobody else would either. With that much money, anybody would be happy to take your bonds or dollar bills for whatever you wanted to buy.  Just the same, it doesn't matter very much the type of financial assets the government injects into the economy, it matters how much it injects.

  •  "A nation is like a family" (5+ / 0-)

    You always hear that nonsense.  First of all, as the diarist points out, a nation that issues its own currency can never "go broke."

    Second, as Keynes pointed out, the time for austerity is during the boom, not the bust.

    Third, if a family goes on an "austerity" binge, it does not reduce its income.  For a nation (because austerity lowers employment and thus tax revenues) it always does.

    •  Excellent Points! eom (0+ / 0-)

      Just another faggity fag socialist fuckstick homosinner!

      by Ian S on Mon Nov 21, 2011 at 01:04:01 PM PST

      [ Parent ]

    •  Thanks kay dub (0+ / 0-)

      Glad to have help. Only one thing to add. When even when the nation is in a boom it may still have run a deficit to avoid a recession. the reason is that if the nation has a negative balance of payments and a high savings rate, this may lower aggregate demand enough that the Government has to run a deficit even at full employment. Given the levels of US imports and savings, it is likely that at full employment the Government would still have to run a deficit of roughly 3%.

  •  no (0+ / 0-)

    We cannot just coin money to pay off debts. Ever hear of a country coining too much money and going into an inflationary spiral? Like when the peso devalued in Mexico (which arguably led to most of their current problems?)

    Debt is a serious problem. The solution is for the government to stop pissing money away, not for us to attack the only senator standing up for us.

    •  I thought he answered that (1+ / 0-)
      Recommended by:

      in his post?

      First, because nothing bad needs to happen if we continue to run deficits, as long as we don't do so after our economy is operating at full capacity. But we are very far from that state right now with between 25 – 30 million people wanting full time employment and not being able to get it. So, we can't have demand-pull inflation now. It's impossible.
      •  oh I'm sorry (0+ / 0-)

        Did I address only part of what was said by someone snipping out only part of a Bernie Sanders speech to attack?

        •  Hey (0+ / 0-)

          Bernie's claim about there being a deficit problem stands on its own. It's a discrete claim. It wasn't taken out of context. it's not a distortion of what he thinks And it's a false claim. Also, it only supports Peterson's poisonous nonsense. Bernie should stop that!

          On the other hand you did ignore the point in my post where I addressed inflation. That was a deliberate distortion of what I said.

    •  That sort of inflation can only occur... (1+ / 0-)
      Recommended by:

      when the national economy is at or near full capacity. With our high un and under employment we're far from that. That said, what would happen in practice might differ from theory since there's no guarantee that a move like what the diarist suggests would be logically analyzed and accepted by the powers that be. Equally likely, the media would serve up so much BS that a market panic could ensue.

      Just another faggity fag socialist fuckstick homosinner!

      by Ian S on Mon Nov 21, 2011 at 01:00:01 PM PST

      [ Parent ]

      •  Any psychological reaction would subside (0+ / 0-)

        as the money was used to pay down debt. By the end of three months close to half the debt would be paid off, with no new debt issued. No one would be afraid of inflation then. They'd be worried about deflation instead.

        Really, the effect of expectations in economics is limited. For example, the Republicans keep talking about the lack of confidence business has because of all the uncertainty. But the truth is if sales were there, the businesses would quickly forget about their psychological state and start making more goods for sale. Demand drives confidence. the confidence fairt itself is a fantasy.

    •  No! No! and No! (0+ / 0-)

      Please read the links above at:

      Also, see:

      and references there.

      The bottom line is that creating money doesn't cause inflation. You also have to spend it in the private sector and spend enough of it that the capacity of the private sector to produce goods the money can buy is exhausted. Right now the economy here is operating at about 70% of capacity. Another, bottom line is that paying off debt is not inflationary, because it just replaces one kind of money debt instruments with another, bank reserves, and the loss of interest to the private sector is also deflationary.

      Please don't come back and repeat yourself. If you still disagree after reading the links I've asked you to read I'd be happy to read real arguments about the mistakes we've made and discuss them with you. Otherwise everybody'd just wasting their time.

    •  By the Way (0+ / 0-)

      here's a classic on deficit/debt scares:

      for your consideration.

  •  I have a different issue (0+ / 0-)

    I get that inflation is not a problem when operating under capacity.

    My question is: how do you get the extra dollars to the people who need them? You can invent as many new dollars as you want, but if they don't get into the hands of the people who actually need them, if instead they all just float to the top as so many dollars have before them, then you haven't boosted anything at all (for us).

    I basically agree with your premise: the US Government can make as many dollars as it wants. And that's so great. But unless you do other things (such as making it illegal to send our jobs overseas, or setting some limits on corporate compensation, or coercing investment in infrastructure and health-care), you haven't done anything useful.

    You need to also make the follow-on argument.

    Reality has a well-known liberal bias -- Stephen Colbert

    by ItsaMathJoke on Mon Nov 21, 2011 at 08:29:24 PM PST

    •  Good for you (0+ / 0-)

      raising this issue. The money from the $60 T coin would be partly for repaying debt without issuing new debt. So, the question is how should the rest be spent so it gets into the hands of the 99%. The answer is to spend it on payroll tax holidays, State revenue sharing to save State jobs, and, most importantly creating a Federal Job Guarantee (FJG). A program like that will end the recession in 6 months. Then pass HR 676 Medicare for All, and increase keep increasing the FJG miniwage from a beginning level of $10.00 per hour with full fringe benefits to about $18.00 per hour over the next 6 years. In addition increase SS payments by 50% to compensate for the loss in retirement funds experienced by the middle class over the past 5 years.

      Also, while this is going on. Take the big banks into resolution. They are insolvent. prosecute the criminals who defrauded the public and still continue to do so. Make banking a public function run by the Government, by cooperatives (like credit unions), state banks (like North Dakota), and small community banks. these moves will end the inter national gambling  casino in derivatives that caused the crash of 2008.

      While that's going on, lower credit card interest rates to 5 points over prime, and ensure that the Government controlled banks begin flowing credit again to small businesses.

      When cost-push inflation threatens control it by enforcing the laws against cornering markets in certain fields. prosecute and jail the speculators and ensure that commodities trade in a free market not one controlled by big speculators.

      Next, pass a law restricting total Executive compensation to 40 times that of the average worker in a company. That'll begin to fix inequality in a company. Finally, restore old style inheritance taxes. Wealth shouldn't be allowed to transfer from generation to generation. it's a threat to democracy. We need those inheritance taxes to maintain a healthy democracy.

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