- The debt ceiling crisis can be averted by enforcing the
Fourteenth Amendment, which mandates the government to pay its debts already
incurred, including pensions. That means Social Security, which IS an
"entitlement," in the original sense of the word. We're entitled
to it because we've paid for it with taxes.
-
- The game of Russian roulette being played with the U.S.
federal debt has been called a "grotesque political carnival"
and political blackmail. The uproar stems from a statute that is unique
to the United States and never did make much sense. First passed in 1917
and revised multiple times since, it imposes a dollar limit on the federal
debt. What doesn't make sense is that the same Congress that voted on
the statute votes on the budget, which periodically exceeds the limit,
requiring the statute to be revised. The debt ceiling has been raised 74
times since 1962, 10 of them since 2001. The most recent increase, to
$14.294 trillion by H.J.Res. 45, was signed into law on February 12, 2010.
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- Taxes aren't collected until after the annual budget
is passed, so Congress can't know in advance whether or how much additional
borrowing will be required. Inevitably, there will be some years that
the budget pushes the debt over the limit, requiring new legislation.
- And inevitably, now that this tactic has been discovered,
there will be a costly battle over the increase, wasting congressional
time, destabilizing markets, and rattling faith in the American financial
and political systems. There will be continual blackmail, arm-twisting
and concessions. The situation is untenable and cries out for a definitive
resolution.
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- Fortunately, there is one. A bevy of legal scholars
are recommending that the issue be eliminated altogether by playing the
Constitutional trump card. The Fourteenth Amendment provides at Section
4:
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- The validity of the public debt of the United States,
authorized by law, including debts incurred for payment of pensions and
bounties for services in suppressing insurrection or rebellion, shall not
be questioned.
-
- Where statute and the Constitution collide, the Constitution
prevails. Whether the government should pay the bills it has already incurred
is not a matter of negotiation. It is a Constitutional mandate. And those
are the bills we are talking about here, as President Obama stressed in
his remarks on the issue last Friday. He said:
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- Raising the debt ceiling simply gives our country the
ability to pay the bills that Congress has already racked up. I want to
emphasize that. The debt ceiling does not determine how much more money
we can spend, it simply authorizes us to pay the bills we already have
racked up. It gives the United States of America the ability to keep its
word.
-
- Ignoring the debt ceiling on Constitutional grounds would
not, as Michelle Bachmann declares, make President Obama a "dictator."
It would simply mean he is complying with his Constitutional mandate to
pay the government's bills on time and in full.
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- Social Security Is Not Welfare. It Is a Debt Due and
Owing.
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- The President could have a clean resolution of the issue,
but he is not jumping at the opportunity. Rather, he appears to be ready
to throw Granny under the bus by slashing Social Security, Medicare and
Medicaid, all in the name of "compromise."
- The Fourteenth Amendment says debts already incurred
shall not be questioned, "including debts incurred for payment of
pensions." That includes Social Security, which is an "entitlement"
in the true sense of the word: we're entitled to it because we've already
paid for it.
- In fact, the Social Security Act was originally sold
to Congress and the nation in 1935 not as a government benefit, but as
a retirement savings program. Earlier this year, the Urban Institute published
a study evaluating the program in this way, concluding that the average
worker who retires today will withdraw from Social Security just about
the same amount he put in over the years, with a modest 2% real interest
rate (after inflation).
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- A deal is a deal. We paid for it, we are owed it, and
the U.S. government is good for it. To change the terms of the deal ex
post facto is both a breach of contract and a violation of the Constitution.
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- Where to Get the Money: Ron Paul's Creative Plan
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- A sovereign nation can always find the money to pay debts
owed in its own currency. The U.S. could, if it wished, pay its bills
using debt-free U.S. Notes or Greenbacks, just as President Lincoln did
to avoid a crippling debt during the Civil War. Alternatively, it could
eliminate the deficit with Ron Paul's plan, which amounts to the same thing.
As Stephen Gandel explainsPaul's solution in Time Magazine:
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- In the last year or two the Fed has been buying up U.S.
Treasury bonds in an effort to lower interest rates and boost the economy.
The most recent round of that buying has been dubbed QE2, and has come
under a good deal of criticism, though most economists agree that it was
a generally helpful policy. The result is that the Fed now holds nearly
$1.7 trillion in U.S. debt. But that is really phony debt. The Treasury
pays the interest on the debt on behalf of the U.S. government to the Fed,
which in turn returns 90 percent of the payments it gets back to the Treasury.
Nonetheless, that $1.7 trillion in U.S. bonds that the Fed owns, despite
the shell game of payments, is still counted in the debt ceiling number,
which caps that amount of total federal debt at $14.3 trillion.
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- Paul's plan: Get the Fed and the Treasury to rip up that
debt. It's fake debt anyway. And the Fed is legally allowed to return the
debt to the Treasury to be destroyed. A trillion and a half dollars is
currently about what spending is expected to exceed tax revenue in 2011.
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- The biggest drawback to the plan, says Gandel, is just
that it "looks bad." It looks as if the government is paying
off its debts by printing money. But that is what government-issued money
is: a note acknowledging a debt due and owed from the public, good for
an equivalent value from the public, traded in the marketplace. A U.S.
Note or Greenback and a Federal Reserve Note or dollar bill are both forms
of promissory notes. The government can as easily issue a dollar bill
as a dollar note or a dollar bond, as Thomas Edison pointed out in the
1920s.
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- The objection to that solution is that it would be inflationary,
but as economist Richard Koo graphically demonstrates, the Fed's quantitative
easing has had virtually no inflationary effect on the money supply to
date:
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- Misdirected Fed policy has instead caused $1.6 trillion
in "excess reserves" to sit on bank balance sheets, as explained
in an earlier article. Conveniently, excess reserves can be used as collateral
for futures and derivatives contracts, and that is what some banks appear
to be doing with the money: backing trades in the financial markets.
- This sort of speculation, involving money making money
without increasing productivity, can and does drive up prices.
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- If the money had been delivered directly to the government
to be spent on the national budget, it might have gotten into the real
economy where it could do some good. The government's budget is spent
not on speculation but on goods and services. Increased government "demand"
- stimulates an increase in "supply," causing
supply and demand to increase together, avoiding price inflation while
stimulating economic activity.
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- Time to Close the Debt Ceiling Loophole
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- The debt crisis was created, not by a social safety net
bought and paid for by the taxpayers, but by a banking system taken over
by Wall Street gamblers. The gamblers lost their bets and were bailed
out at the expense of the taxpayers; and if anyone should be held to account,
it is these gamblers.
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- The debt ceiling crisis is a manufactured one, engineered
to extort concessions that will lock the middle class in debt peonage for
decades to come. Congress is empowered by the Constitution to issue the
money it needs to pay its debts. Abraham Lincoln did it; Barack Obama
could do it. He probably won't, but he does need to follow his Constitutional
mandate to pay the government's bills as and when due.
- The statute imposing a ceiling on the national debt is
trumped by the Fourteenth Amendment, making it redundant and unnecessary.
The statute should be repealed.
-
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- Ellen Brown is an attorney and president of the Public
Banking Institute, http://PublicBankingInstitute.org. In Web of Debt, her
latest of eleven books, she shows how the power to create money has been
usurped from the people, and how we can get it back. Her websites are http://webofdebt.com
and http://ellenbrown.com.
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