Most of Our Debt Is Fake - Let's Abolish It

[eridani]

http://readersupportednews.org/opinion2/279-82/15742-most-of-our-debt-is-fake-lets-abolish-it

Did anyone else wonder why the Obama administration quickly dismissed the trillion-dollar coin idea that Nobel Prize-winning economist Paul Krugman so vehemently endorsed? If you're unsure, here's a hint - despite JPMorgan, HSBC and UBS all knowingly committing major crimes last year, the Obama administration hasn't tried to jail one banker.

President Obama dismissed the trillion-dollar coin idea not because it isn't sound economics - if that were the case, knowledgeable economists like Paul Krugman and Dean Baker wouldn't have thrown their weight behind it in the past. The idea was dismissed because it would be a huge blow to the banks that have contributed lots of money to helping Obama keep his job. The appointment of Jack Lew, who got a $940,000 bonus before the bailout of Citigroup, to the Treasury Secretary position, is a slightly less appalling pick than Timothy Geithner. But it's still a pick that shows Obama's deference to the banks when it comes to economic policy.

<snip>

Coins are legal tender, and four quarters issued by the US Mint are interchangeable with one dollar issued by the Fed. So, if the US Mint made enough trillion-dollar coins to pay off the artificial debt created by fractional reserve banking, we could strike all of that debt and spend our tax dollars on jobs and infrastructure. And we would have plenty to pay debts that are owed to countries that actually lent us money, instead of debt created artificially by banks. In fact, as Chris Currie of Rhode Island suggested to me in an email, we could overhaul our paper currency system and issue US dollars electronically, doing away with the needless debt that the Fed creates when it issues paper money.

[cantbeserious]

1. Sounds Too Good To Be True

eom

[Demeter]

7. It isn't wrong

What's wrong is that the banksters have us by the privates. Making them go away would be an overdue miracle.

[Warren Stupidity]

2. As long as the fed met tbill obligations

No problem. But the only way to do that would be to have congress divert enough revenue to the fed to cover those payments. No difference.

The 1T coin was about the accounting fiction of the debt ceiling, not about magically disappearing current obligations.

[tama]

4. What it would have ment

is to concretely show that government aka we the people have power of money creation and if we want we can do it democratically for the benefit of all, and it is not god given monopoly of banks. And that is the greatest fear of banks, losing their monopoly of money creation.

[whistler162]

3. Just goes to show.....

drugs/alcohol and economic theory don't mix!

[tama]

5. Have a toke

and current economic theory blows to smithereens. Have another puff, hey dudes, what if money was created equally, as citizen salary instead of by monopoly of banks...?

[liberal N proud]

6. Considering Congress never intends to repay Social Security or other government accounts...

The monies borrowed from the SS trust fund should not be part of the calculated debt. That would lower the debt by $4.7 trillion.

http://www.gao.gov/special.pubs/longterm/debt/debtbasics.html#govaccounts

[FleetwoodMac]

9. Not only that, if we write off the combined intragovermental holdings and Federal Reserve debt...

... we're looking at an immediate $7 trillion reduction to the Federal debt.
We'll also be saving about $100 billion odd annually in intragovernmental interests.



Things are not as dire as it seems, and we certainly don't need the risk of creating a super-duper-hyper-inflation by printing trillion dollar coins.

The debts and deficits are a symptom - it is not the problem.
The problems are irresponsible spending and the long-term efforts at crippling the federal government by reducing tax revenue.

If the neocons did not steal the 2000 election, we would not be in this position.
Instead, the federal government lost $3 trillion from the Bush tax cuts, spent $4 trillion in Iraq, Afghanistan and Pakistan, and $1.8 trillion in interest payments (and that's just the major ones).

[dotymed]

14. Sadly, "our" president

has done nothing to reverse the bush financial terrorism and he won't. "they" say that the GOP is fixing the electoral college to ensure all GOP, all the time..
I don't see the reasoning. We are only allowed to vote for corporatists anyway. In four years we could do a lot to change that, but we won't....
greed

[FleetwoodMac]

23. I do understand where you're coming from.

I still have a little faith, though I hope it will not be shaken further...

[tclambert]

8. Most of our money is commercial bank-created through the process of loaning it out.

It's called fractional reserve banking. http://en.wikipedia.org/wiki/Fractional-reserve_banking shows an example of how a 20% reserve requirement with a an initial deposit of $100 allows creation of $400 in "new" money through relending. (People deposit the borrowed money back in the bank, and the bank loans it out again and again.)

[geckosfeet]

11. The three stooges (remember those noted economists) did a routine that was exactly that.

I am still looking for an online version but essentially one of the stooges has a five dollar bill. Stooge two takes it to satisfy a debt owed to him by stooge one. Stooge three takes it from stooge two to satisfy a debt owed to him by stooge two.

I would add the following scene as well - stooge one then borrows five dollars from stooge three, and stooge two borrows the five dollars from stooge one. This whole scenario loops repeatedly until they all die of starvation while passing the single five dollar bill around.

Anyway, the point is the stooges were using slapstick to explain this absurdity to America back in the 1930's. Now there are layers upon layers of obfuscation in place to make it look like something that only economists and business people with multiple degrees in finance can understand.

note - still looking for that clip - if anyone knows the episode that I am talking about please post!

Link to previous du poster that has a better memory then I do:
http://www.democraticunderground.com/10021107725

[geckosfeet]

10. Vehemently endorsed? When? He mentioned it in his blog.

This lady endorses it - A trillion-dollar game changer

Krugman discusses it in his blog: Be Ready To Mint That Coin but I don't read that as "vehemently endorsed".

Not to say we shouldn't do something about our national debt. I just think we should use daffodil and crocus bulbs instead of coins. At least they will bloom every year, and naturalize if you put them in a good spot.

[RevStPatrick]

13. Yeah, I caught that too...

Made me feel sort of "meh" about the rest of the piece.

[Yo_Mama]

19. The Tulip Spring

Very funny, but I think it went over a lot of heads.

I think our basic problem is that we keep trying to solve the economic effects of one bubble by blowing up another larger bubble.

[geckosfeet]

20. I think you are correct. But that is the nature of our economic system is it not?

We all "agree" on what is valuable and act accordiingly. Just like the tulip mania.

Glad you got a laugh out of the bulb based economy. It's almost as strange a thought as the economy we actually have.

[bemildred]

12. K&R. nt

[NoMoreWarNow]

15. well, the great Jon Stewart thought the coin was a ridiculous idea and chastised Krugman about it

and I'm sure the fact that Stewart's brother is COO of the NYSE has nothing to do with it.

http://blogs.reuters.com/summits/2010/03/29/jon-stewarts-brother-says-mom-pretty-happy-with-both/

[Loudestlib]

16. Money

Money has value because we all agree that it does. If our government undermined that agreement by treating it as if it does not have value then it will be treated as almost worthless. This would cause some serious inflation. Not to mention, our currency exchange rate would fall through the floor as other countries would not accept the value we place on our money .

[Lefty Thinker]

21. (American) Money has value because

anyone can use it to pay off the debts they incur to the federal government. Even if a specific person never incurs such a debt, he or she is surrounded by people who do, creating demand for our money (so long as taxes are high enough).

As long as the money created causes equivalent increases in production there is no inflationary pressure. Because of our current level of unemployment and un/underutilization of resources this can easily be accomplished.

[mother earth]

17. We are simply no longer represented, with zero accountability for what is now an oligarchy, and that

description is kind. If we lived in an actual democracy, BushCo would be behind bars for more than one reason & bankers and the corporations would not have the stranglehold they enjoy today. Campaign finance and election reform will never be taken on because they are the tools with which we ALL are controlled.

The divisiveness continues, GOP obstructionism, filibuster failed reform, status quo & the grand heist of the populace & the killing off of the middle class. Welcome to the new "normal".

[Warpy]

18. Most of our debt is to working people, especially the Boomers

and arises from half their OASDI payments being stolen for over 30 years by a Congress putting bandaids on the hemorrhage of money from the treasury that Republican tax cuts for plutocrats caused.

So no, don't abolish it. It's our money. It needs to be paid back in the benefits we all paid for.

Besides, the US defaults on one t-bill, it will cause a run on them worldwide as everybody panics and tries to unload them because the US will no longer back them up.

That way lies disaster.

[Lefty Thinker]

22. It is a terrible mistake to confuse

private debt with public debt. The federal government has one big advantage: it can create money out of nowhere (with consequences depending on the situation). So debt taken on by the government can always be repaid if there is the political will. This is separate from private debt, where one non-governmental party borrows money from another non-governmental party. In that case, despite what the fractional reserve apologists say, no money is actually created. A scheme that interferes with private lending will not fly because of the chaos it would cause in the financial world, hurting most Americans. But if the government wants to erase some debt with the big coins right now, I'm game. We can always raise the debt ceiling and roll it back.

[yurbud]

24. How crazy is it that we a private company INTEREST to make our money?

If a contractor is involved at all, it should be for cost.

[TheIronyLovesCompany]

25. Krugman on the job

Krugman's analysis is usually pretty good, including on this issue. My main point of contention is about the first causes--he tends to feel the liquidity crisis is what's holding us back, whereas I'd want to say that economic inequality is driving that liquidity imbalance, and that the economic power of concentrated wealth is the real first cause. If you have sufficient wealth, political change favoring your business investments, and allowing you and your property more influence, are quite possible.
Krugman's views on the debt vs. economic stimulus are very thoughtful also. I teach my economics classes out of Krugman's textbooks, which are slightly dense but quite right for a 200-300 level class. It's bizarrely lucky that the Times has given him such a forum. Especially since the Right hates him so vehemently.

[TheMadMonk]

26. Ask 1930's Germany or Zimbabwe right now,...

...what happens when you attempt to clear debt by printing/striking more money?

China, Japan, and even fucking Citibank et. al. do not care what the absolute numbers on promisory notes say, what they care about is that they currently hold a lien on X PERCENT of the American economy, and one way or another THEY WILL COLLECT.

You and I think in dollars and what we can purchase with them. The very top end of town has absolutely no compunctions about trashing the economy, not if they end up with a bigger proportion of the total pie.

So long as the government spends (doesn't matter if it's on nukes and other tools of war, bailing out bad debts, or even welfare) more than it collects in revenue, the problem will only continue to get worse.

e-dollars and their predecessors, (on)paper money with a notional value that has no basis in reality, (ie kited cheques) are what created this latest fucking mess, and what created most of the messes of the past.

[limpyhobbler]

27. Yeah money isn't real. The secret is out. They can just print it.

And they do so all the time if it means printing bonuses for big banking execs, who also happen to be the political cronies for Obama, Bush, etc. Same crew. It's a clear case of crony capitalism. Also known as normal capitalism.