IMF "Economic Medicine" Comes to America
By Ellen Brown
URL of this article:www.globalresearch.ca/index.php?context=va&aid=17881
Global Research, March 2, 2010 Web of Debt - 2010-02-28
In addition to mandatory private health insurance premiums, we may
soon be hit with a mandatory savings tax and other belt-tightening
measures urged by the Presidents new budget task force. These
radical austerity measures are not only unnecessary, however, but
will actually make matters worse. The push for fiscal responsibility
is based on bad economics.
When billionaires pledge a billion dollars to educate people to the
evils of something, it is always good to peer closely at what they
are up to. Hedge fund magnate Peter G. Peterson was formerly
Chairman of the Council on Foreign Relations and head of the New
York Federal Reserve. He is now senior chairman of Blackstone
Group, which is in charge of dispersing government funds in the
controversial AIG bailout, widely criticized as a government giveaway
to banks. Peterson is also founder of the Peter Peterson Foundation,
which has adopted the cause of imposing fiscal responsibility on
Congress. He hired David M. Walker, former head of the Government
Accounting Office, to spearhead a massive campaign to reduce the
runaway federal debt, which the Peterson/Walker team blames on
reckless government and consumer spending. The Foundation funded
the movie I.O.U.S.A. to amass popular support for their cause, which
largely revolves around dismantling Social Security and Medicare
benefits as a way to cut costs and return to fiscal responsibility.
The Peterson-Pew Commission on Budget Reform has pushed heavily for
action to stem the federal debt. Bills for a budget task force
were sponsored in both houses of Congress. The Senate bill was
narrowly defeated, and the House bill was tabled; but that was not
the end of it. In Obamas State of the Union speech on January 27,
he said he would be creating a presidential budget task force by
executive order to address the federal governments deficit and debt
crisis, and that the task force would be modeled on the bills
Congress had failed to pass. If Congress would not impose fiscal
responsibility on the nation, the President would. It keeps me
awake at night, looking at all that red ink, he said. The Executive
Order was signed on February 17.
What the President seems to have missed is that all of our money
except coins now comes into the world as red ink, or debt. It is
all created on the books of private banks and lent into the economy.
If there is no debt, there is no money; and private debt has
collapsed. This year to date, U.S. lending has been contracting
at the fastest rate in recorded history. A credit freeze has struck
globally; and when credit shrinks, the money supply shrinks with
it. That means there is insufficient money to buy goods, so workers
get laid off and factories get shut down, perpetuating a vicious
spiral of economic collapse and depression. To reverse that cycle,
credit needs to be restored; and when the banks cant do it, the
government needs to step in and start monetizing debt itself, or
turning debt into dollars.
Although lending remains far below earlier levels, banks say they
are making as many loans as they are allowed to make under existing
banking rules. The real bottleneck is with the shadow lenders
those investors who, until late 2007, bought massive amounts of
bank loans bundled up as securities, taking those loans off the
banks books, making room for yet more loans to be originated out
of the banks capital and deposit bases. Because of the surging
defaults on subprime mortgages, investors have now shied away from
buying the loans, forcing banks and Wall Street firms to hold them
on their books and take the losses. In the boom years, the shadow
lending market was estimated at $10 trillion. That market has now
collapsed, leaving a massive crater in the money supply. That hole
needs to be filled, and only the government is in a position to do
it. Paying down the federal debt when money is already scarce just
makes matters worse. When the deficit has been reduced historically,
the money supply has been reduced along with it, throwing the economy
into recession.
Another Look at the Budget Reform Agenda
That raises the question, are the advocates of fiscal responsibility
merely misguided? Or are they up to something more devious? The
Presidents Executive Order is vague about the sorts of budget
decisions being entertained, but we can get a sense of what is on
the table by looking at the earlier agenda of Petersons Commission
on Budget Reform. The Peterson/Walker plan would have slashed
social security entitlements, at a time when Wall Street has destroyed
the home equity and private retirement accounts of potential retirees.
Worse, it would have increased the social security tax, disguised
as a mandatory savings tax. This added tax would be automatically
withdrawn from your paycheck and deposited to a Guaranteed Retirement
Account managed by the Social Security Administration. Since the
savings would be mandatory, you could not withdraw your money without
stiff penalties; and rather than enjoying an earlier retirement
paid out of your increased savings, a later retirement date was
being called for. In the meantime, your mandatory savings would
just be fattening the investment pool of the Wall Street bankers
managing the funds.
And that may be what really underlies the big push to educate the
public to the dangers of the federal debt. Political analyst Jim
Capo discusses a slide show presentation given by David M. Walker
after the I.O.U.S.A. premier, in which a mandatory savings plan was
proposed that would be modeled on the Federal Thrift Savings Plan
(FSP). Capo comments:
The FSP, available for federal employees like congressional staff
workers, has over $200 billion of assets (on paper anyway). About
half these assets are in special non-negotiable US Treasury notes
issued especially for the FSP scheme. The other half are invested
in stocks, bonds and other securities. . . . The nearly $100 billion
in [this] half of the plan is managed by Blackrock Financial. And,
yes, shock, Blackrock Financial is a creation of Mr. Peterson's
Blackstone Group. In fact, the FSP and Blackstone were birthed
almost as a matched set. It's tough to fail when you form an
investment management company at the same time you can gain the
contract that directs a percentage of the Federal government payroll
into your hands.
What Fiscal Responsibility Really Means
All of this puts fiscal responsibility in a different light. Rather
than saving the future for our grandchildren, as the President
himself seems to think it means, it appears to be a code word for
delivering public monies into private hands and raising taxes on
the already-squeezed middle class. In the parlance of the International
Monetary Fund (IMF), these are called austerity measures, and they
are the sorts of things that people are taking to the streets in
Greece, Iceland and Latvia to protest. Americans are not taking
to the streets only because nobody has told us that is what is being
planned.
We have been deluded into thinking that fiscal responsibility (read
austerity) is something for our benefit, something we actually need
in order to save the country from bankruptcy. In the massive
campaign to educate us to the perils of the federal debt, we have
been repeatedly warned that the debt is disastrously large; that
when foreign lenders decide to pull the plug on it, the U.S. will
have to declare bankruptcy; and that all this is the fault of the
citizenry for borrowing and spending too much. We are admonished
to tighten our belts and save more; and since we cant seem to impose
that discipline on ourselves, the government will have to do it for
us with a mandatory savings plan. The American people, who are
already suffering massive unemployment and cutbacks in government
services, will have to sacrifice more and pay the piper more, just
as in those debt-strapped countries forced into austerity measures
by the IMF.
Fortunately for us, however, there is a major difference between
our debt and the debts of Greece, Latvia and Iceland. Our debt is
owed in our own currency U.S. dollars. Our government has the
power to fix its solvency problems itself, by simply issuing the
money it needs to pay off or refinance its debt. That time-tested
solution goes back to the colonial scrip of the American colonists
and the Greenbacks issued by Abraham Lincoln to avoid paying 24-36%
interest rates.
Economic Fearmongering
What invariably kills any discussion of this sensible solution is
another myth long perpetrated by the financial elite -- that allowing
the government to increase the money supply would lead to hyperinflation.
Rather than exercising its sovereign right to create the liquidity
the nation needs, the government is told that it must borrow. Borrow
from whom? From the bankers, of course. And where do bankers get
the money they lend? They create it on their books, just as the
government would have done. The difference is that when bankers
create it, it comes with a hefty fee attached in the form of interest.
Meanwhile, the Federal Reserve has been trying to increase the money
supply; and rather than producing hyperinflation, we continue to
suffer from deflation. Frantically pushing money at the banks has
not gotten money into the real economy. Rather than lending it to
businesses and individuals, the larger banks have been speculating
with it or buying up smaller banks, land, farms, and productive
capacity, while the credit freeze continues on Main Street. Only
the government can reverse this vicious syndrome, by spending money
directly on projects that will create jobs, provide services, and
stimulate productivity. Increasing the money supply is not
inflationary if the money is used to increase goods and services.
Inflation results when demand (money) exceeds supply (goods and
services). When supply and demand increase together, prices remain
stable.
The notion that the federal debt is too large to be repaid and that
we are imposing that monster burden on our grandchildren is another
red herring. The federal debt has not been paid off since the days
of Andrew Jackson, and it does not need to be paid off. It is just
rolled over from year to year, providing the full faith and credit
that alone backs the money supply of the nation. The only real
danger posed by a growing federal debt is an exponentially growing
interest burden; but so far, that danger has not materialized either.
Interest on the federal debt has actually gone down since 2006 --
from $406 billion to $383 billion -- because interest rates have
been lowered by the Fed to very low levels.
They cant be lowered much further, however, so the interest burden
will increase if the federal debt continues to grow. But there is
a solution to that too. The government can just mandate that the
Federal Reserve buy the governments debt, and that the Fed not sell
the bonds to private lenders. The Federal Reserve states on its
website that it rebates its profits to the government after deducting
its costs, making the money nearly interest-free.
All the fear-mongering about the economy collapsing when the Chinese
and other investors stop buying our debt is yet another red herring.
The Fed can buy the debt itself as it has been stealthily doing.
That is actually a better alternative than selling the debt to
foreigners, since it means we really will owe the debt only to
ourselves, as Roosevelt was assured by his advisors when he agreed
to the deficit approach in the 1930s; and this debt-turned-into-dollars
will be nearly interest-free.
Better yet would be to either nationalize or abolish the Fed and
fund the government directly with Greenbacks as President Lincoln
did. What the Fed does the Treasury Department can do, for the
cost of administration. There would be no shareholders or bondholders
to siphon earnings, which could be recycled into public accounts
to fund national, state and local budgets at zero or near-zero
interest rates. Eliminating debt service payments would allow state
and federal income taxes to be slashed; and the public managers of
this money, rather than hiding behind a veil of secrecy, would be
opening their books for all to see.
A final red herring is the threatened bankruptcy of Social Security.
Social Security cannot actually go bankrupt, because it is a
pay-as-you-go system. Todays social security taxes pay todays
recipients; and if necessary, the tax can be raised. As Washington
economist Dean Baker wrote when President Bush unleashed the campaign
to privatize Social Security in 2005:
The most recent projections show that the program, with no changes
whatsoever, can pay all benets through the year 2042. Even after
2042, Social Security would always be able to pay a higher benet
(adjusted for ination) than what current retirees receive, although
the payment would only be about 73 percent of scheduled benets.
Today incomes over $97,000 escape the tax, disproportionately
imposing it on lower income brackets. Projections over the next
75 years show that just removing that cap could eliminate the
forecasted deficit. When the Democratic presidential candidates
were debating in the fall of 2007, Barack Obama and Joe Biden were
the only candidates willing to seriously consider this reasonable
alternative. President Obama just needs to follow through with the
solutions he espoused when campaigning.
The Mass Education Campaign We Really Need
What is really going on behind the scenes may have been revealed
by Prof. Carroll Quigley, Bill Clintons mentor at Georgetown
University. An insider groomed by the international bankers, Dr.
Quigley wrote in Tragedy and Hope in 1966:
[T]he powers of financial capitalism had another far-reaching aim,
nothing less than to create a world system of financial control in
private hands able to dominate the political system of each country
and the economy of the world as a whole. This system was to be
controlled in a feudalist fashion by the central banks of the world
acting in concert, by secret agreements arrived at in frequent
private meetings and conferences.
If that is indeed the plan, it is virtually complete. Unless we
wake up to what is going on and take action, the powers of financial
capitalism will have their way. Rather than taking to the streets,
we need to take to the courts, bring voter initiatives, and wake
up our legislators to the urgent need to take the power to create
money back from the private banking elite that has hijacked it from
the American people. And that includes waking up the President,
who has been losing sleep over the wrong threat.
Ellen Brown developed her research skills as an attorney practicing
civil litigation in Los Angeles. In Web of Debt, her latest book,
she turns those skills to an analysis of the Federal Reserve and
the money trust. Her eleven books include Forbidden Medicine, Natures
Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate
Health (co-authored with Dr. Richard Hansen). Her websites are
webofdebt.com, ellenbrown.com, and public-banking.com.
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B) Copyright Ellen Brown, Web of Debt, 2010
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