Cheney Was Right About One Thing: Deficits Don't Matter
Wednesday 27 April 2011
by: Ellen Brown, Truthout
Deficit terrorists" are gutting governments and forcing the privatization of public assets, all in the name of "deficit reduction." But deficits aren't actually a bad thing. In today's monetary scheme, in which most money comes from debt, debt and deficits are actually necessary to have a stable money supply. The public debt is the people's money.
Former Vice President Dick Cheney famously said, "Deficits don't matter." A staunch Republican, he was arguing against raising taxes on the rich; but today, Republicans seem to have forgotten this maxim. They are bent on stripping social programs, privatizing public assets and gutting unions, all in the name of "deficit reduction."
Worse, Standard & Poor's has now taken up the hatchet. Some bloggers are calling itblackmail. This private, for-profit rating agency, with a dubious track record of its own, is dictating government policy, threatening to downgrade the government's long-held triple AAA credit rating if Congress fails to deal with its deficit in sufficiently draconian fashion. The threat is a real one, as we've seen with the devastating effects of downgrades in Greece, Ireland, and other struggling countries. Lowered credit ratings force up interest rates and cripple national budgets.
The biggest threat to the dollar's credit rating, however, may be the game of chicken being played with the federal debt ceiling. Nearly70 percentof Americans are said to be in favor of a freeze on May 16, when the ceiling is due to be raised; and Tea Party-oriented politicians could go along with this scheme to please their constituents.
If they get what they wish for, the party could be over for the whole economy. The Chinese are dumping US Treasuries and the Fed is backing off from its "quantitative easing" program, in which it has been buying federal securities with money simply created on its books. When the Fed buys Treasuries, the government gets the money nearly interest-free, since the Fed rebates itsprofitsto the government after deducting its costs. When the Chinese and the Fed quit buying Treasuries, interest rates are liable to shoot up; and with a frozen debt ceiling, the government would have to default, since any interest increase on a $14 trillion debt would be a major expenditure. Today, the Treasury is paying a very low .25 percenton securities of nine months or less, and interest on the whole debt is about 3 percent (a total of$414 billionon a debt of $14 trillion in 2010). Greece is paying4.5 percenton its debt, and Venezuela is paying18 percent- six times the 3 percent we're paying on ours. Interest at 18 percent would add $2 trillion to our tax bill. That would mean payingthree timeswhat we're paying now in personal income taxes (projected to be a total of$956 billionin 2011), just to cover the interest.
There are other alternatives. Congress could cut the military budget - but it probably won't, since this option is never even discussed. It could raise taxes on the rich, but that probably won't happen either. A third option is to slash government services. But which services? How about Social Security? Do you really want to see Grandma panhandling? Congress can't agree on a budget for good reason: there is no good place to cut.
Fortunately, there is a more satisfactory solution. We can sit back, relax and concede that Cheney was right. Deficits aren't necessarily a bad thing! They don't matter, so long as they are at very low interest rates; and they can be kept at these very low rates either by maintaining our triple A credit rating or by borrowing from the Fed essentially interest-free.
The Yin and Yang of Money
Under our current monetary scheme, debt and deficits not only don't matter but are actually necessary in order to maintain a stable money supply. The reason was explained by Marriner Eccles, governor of the Federal Reserve Board, in hearings before the House Committee on Banking and Currency in 1941. Wright Patman asked Eccles how the Federal Reserve got the money to buy government bonds.
"We created it," Eccles replied.
"Out of what?"
"Out of the right to issue credit money."
"And there is nothing behind it, is there, except our government's credit?"
"That is what our money system is," Eccles replied."If there were no debts in our money system, there wouldn't be any money."
That could explain why the US debt hasn't been paid off since 1835. It has just continued to grow and the economy has grown and flourished along with it. A debt that is never paid off isn't really a debt. Financial planner Mark Pash calls it aNational Monetization Account. Government bonds (or debt) are "monetized" (or turned into money). Government bonds and dollar bills are the yin and yang of the money supply, the negative and positive sides of the national balance sheet. To have a plus-1 on one side of the balance sheet, a minus-1 needs to be created on the other.
Except for coins, all of the money in the US money supply now gets into circulation as a debt to a bank (including the Federal Reserve, the central bank). But private loans zero out when they are repaid. In order to keep the money supply fairly constant, some major player has to incur debt that never gets paid back; and this role is played by the federal government.
Here is why. Private banks always lend at interest, so more money is always owed back than was created in the first place. In fact, investors of all sorts expect more money back than they paid. That means the debt needs to be not only maintained, but expanded, to keep the economy functioning. When the Fed "takes away the punch bowl" by tightening credit, there is insufficient money to pay off debts; people and businesses go into default; and the economy spins into a recession or depression.
Maintaining a deficit is particularly important when the private lending market collapses, as it did in 2008 and 2009. Then debt drops off and so does the money supply. Too little money is available to buy the goods on the market, so businesses shut down and workers get laid off, further reducing demand, precipitating a recession. To reverse this deflationary cycle, the government needs to step in with additional public debt to fill the breach.
The Heartless Way Conservatives Treat Young Women Who Choose to Have Babies
If you get pregnant outside of their very narrow parameters of what's acceptable (middle class, married, white), conservatives simply want you to suffer for it.
AlterNet / By Amanda Marcotte
Last week, “The Rachel Maddow Show” ran a story on Michigan politics that had footage so distressing it apparently created an avalanche of mail for the show. The new Republican governor of Michigan, Rick Snyder, signed a law that allows the state to functionally dissolve local governments and hand them over to “emergency managers,” who are using their new powers to enact a series of wish list items for conservatives under the guise of fiscal responsibility. It’s a project that’s been dubbed “fiscal martial law”, and the latest victims were a group of school girls that were manhandled by police and arrested, all because they wanted to keep their current educational opportunities. Maddow’s show ran the unnerving footage of police shoving, cuffing and pushing around teenage girls, while the sirens wailed over the girls’ shouts and cries.
The girls were arrested for holding a sit-in to protest the closing of their school, the Catherine Ferguson Academy, which was established to serve students who are pregnant or mothering. The school provides day care and parenting classes, and focuses on getting students to college and giving them skills that help future self-sufficiency. Supposedly “pro-life” conservatives should not only be supporting this school, but demanding that every high school in the country provide these services to teenage mothers. After all, these girls did what anti-choicers ask of them. They chose to have their babies. And now the very same conservatives that wax sentimental about “choosing life” are working to shut down the educational opportunities of young women who did what anti-choicers want, by having their babies.
The imminent shut down of Catherine Ferguson demonstrates the emptiness of Republican claims that they oppose reproductive rights because they value life. Instead, Republican policies are rooted in a sadistic desire to punish and control, and to deprive women---especially young women, poor women, and women of color---of any opportunities whatsoever. Lynn Paltrow, the executive director of the National Advocates for Pregnant Women, explained, “I think the range of actions being taken against pregnant women reflects what has been underlying attacks on Roe and abortion all along, a fundamental disrespect for pregnant women, regardless of what decisions they make. The combination of attacks that seek to deprive women not only of reproductive health care but food (through cuts to the WIC program) as well as education for pregnant teens makes clear that it is pregnant women's personhood and not just their right to choose that is being targeted.”
Michigan Republicans are trying to put pregnant women in a damned-if-you-do, damned-if-you-don’t situation. If you don’t want to have the baby, good luck to you trying to get an abortion in Michigan. The state already has been given an F by NARAL, especially for heavy restrictions on abortion access for young and low income women. The state also has onerous waiting periods, complete with false information about the risks of abortion. But some Republican legislators don’t think women who want to terminate pregnancies are hassled enough. State senator David Robertson has introduced a bill that would require abortion clinics not only to do an ultrasound, but to provide hard copy pictures of it to the patient before she’s allowed to have her abortion. This adds to the expense of an abortion, as well as creates time constraints that make it harder for clinics to serve all their patients with the best level of care. It also treats pregnant women making difficult decisions like they’re addled-minded morons, demonstrating further the amount of contempt that conservatives have for the personhood of pregnant women.
But just because they don’t want you to say no to having a baby means that Michigan Republicans want you to say yes, either, as the girls at Catherine Ferguson have learned. Young women trying to parent and finish high school face often insurmountable challenges. For one thing, being pregnant or mothering in high school is heavily stigmatized, and they face discrimination from school officials, teachers, and their fellow students. They also face a series of pragmatic problems. Balancing school and motherhood requires childcare, something most high school students can’t even begin to access or afford. Being a parent requires money, too. Trying to balance work, parenting, and school proves too much for many young mothers. Fewer than half of teenage mothers go on to complete high school.
Separate schools for teenage mothers draw criticism from people on the left as well as the right. Liberal critics say that teenage mothers should be integrated into their regular high schools, and the services offered at specialty schools should be available at ordinary high schools. While these critics have a point, the cold fact of the matter is that as long as services for teenage mothers are not integrated into regular schools, places like Catherine Ferguson serve a role. This particular school has a 90% graduation rate, more than twice the national average for teenage mothers. Most importantly, the girls themselves cherish the school, which is why they put their bodies on the line in order to save it.
Gov. Snyder claims to be “firmly pro-life”, but his governing decisions that led to multiple young mothers getting arrested because they want a better lives for themselves and their small children shows he is anything but. He and other Republicans who oppose reproductive rights are better understood as anti-choice and anti-woman. Their stance isn’t pro-fetus, but pro-punishment. If you get pregnant outside of their very narrow parameters of what’s acceptable (middle class, married, white), they simply want you to suffer for it. If your decision is terminate the pregnancy, they will make you suffer. But as the girls at Catherine Ferguson are learning, if you choose to have the baby, you will also be made to suffer. You may even find yourself hauled away in handcuffs if you dare suggest you deserve to have something as simple as a high school education.
I saw this report. It was disgusting to see the police abuse these women. Apparently, trying to better yourself, trying to overcome some mistakes you made is not allowed.
Doesn't it seem that all the vicious crap in this country is, somehow, always connected to conservatives and their attempts at trying to impose their ideological beliefs on everyone?
Thanks to Decades of Conservative Spin, Americans Are Hopelessly Confused About Taxes
Spending and the Deficit.
Conservatives have spent 30 years divorcing the taxes we pay from the services they finance -- no wonder the public doesn't know where their tax dollars go.
A few weeks back, Paul Krugman, a Nobel Prize-winning economist, felt compelled to take time out of what is presumably a busy schedule to explain that “taxes are, first and foremost, about paying for what the government buys.” That he felt compelled to do so is a sad reflection of the state of our economic discourse.
A good number of Americans are hopelessly confused about taxes, deficits and the debt. And it's no mystery why – conservatives have spent 30 years divorcing the taxes we pay from the services they finance. They've bent themselves into intellectual pretzels arguing that cutting taxes – on the wealthy – leads to more revenues in the coffers. They've invented narratives about taxes driving “producers” to sunnier climes, killing jobs by the bushel, and relentlessly spun the wholly false notion that we're facing “runaway spending” and are “taxed to death.”
And they've had great success. But they haven't done it alone – credit the media with an assist for muddying the waters around our fiscal situation. Consider a poll released this week by the highly respected Gallup organization. Their headline reads, “Americans Blame Wasteful Government Spending for Deficit.” Is that true? Well, here were the options – the only options – that respondents were offered:
Which do you think is more to blame for the federal budget deficit: Spending too much on government programs that are either not needed or wasteful, or not raising enough taxes to pay for needed programs? (Emphasis added.)
“Accordingly,” says Gallup, “Americans generally favor spending cuts rather than tax increases as the way for Congress to reduce the deficit going forward.” According to that distorted narrative – that false choice -- of course they do. I'm sure the results of a poll asking if people would prefer an ice cream sundae or a sharp stick in the eye would prove equally conclusive (not to mention bipartisan).
The problem is that after decades of anti-government rhetoric, there's very little in the way of “wasteful spending” left unless you look hard at the military budget, which neither party seems willing to do in any serious way.
We are, simply, under-taxed relative to the things we want the government to do. According to the Congressional Budget Office, the biggest driver of the projected deficits over the next ten years are not the wars in Afghanistan and Iraq or social safety net programs; it's the Bush tax cuts.
Last year, the revenues collected by the federal government were the lowest since 1950 (as a share of our overall economic activity). But it's important to understand that back then, we had no medicare program. The population was younger, and health care costs were a fraction of what they are today – in 1960, just before Medicare was established, we spent 5 percent of GDP on health-care; today, we spend about 17 percent.
As economist Dean Baker noted, if we spent the same per person on health-care as any one of the 35 countries with longer average life expectancies, our deficits would turn into surpluses in a few short years.
Offering health-care to children, seniors and the poor is anything but “not needed.” Is it wasteful? Health-care costs have skyrocketed for years in this country, but more slowly in the public sector than in the private.
While we're clearly under-taxed, the right's anti-tax crusaders have largely had their way shaping the discourse. About 7 in 10 Americans want the deficit to be addressed. Many believe that running a large, short-term deficit is hurting the economy when the opposite is true. We lost $14 trillion in wealth in the financial crash, and that – along with high unemployment and an ongoing foreclosure nightmare – has led to a huge drop in consumer demand. Public spending has, to a painfully inadequate degree, filled some of the gap.
Give the conservative message machine its due credit. While Americans really like the specific things government does – they want low-cost student loans, having fire-fighters and cops on the beat and a whole slew of other services – the abstract idea of “limited government” is quite appealing.
The right's victory in separating taxes from the services they pay for is apparent when citizens are asked what they'd like to see cut in order to cut that deficit. In January, Gallup released a poll on those specifics. They asked which of nine areas of government services they'd like to see cut. Only cutting foreign aid – which represents about two percent of the federal budget – met with the approval of a majority of those surveyed. Even majorities of Republicans opposed cuts to everything but foreign aid and arts funding.
Taken together, this shows how difficult it is for law-makers to arrive at good public policies. Their constituents wants their cake, they want to eat it, but they don't think they need to pay the tab for it. Politicos offer tax cuts to get themselves elected, but then face outraged constituents when they try to cut services. Small wonder that we've only managed to balance the budget in one brief period during the boom years of the 1990s.
We do face serious issues in this country. We need a serious debate about how best to solve them. But we're having that debate in a democracy populated by citizens who have little or no clue where their tax dollars go. And you can credit the anti-tax crusaders and their habitual mendacity for that sorry state of affairs.
This essay gets to the heart of the matter; propaganda. It works. When you are told something, even something outrageous, there is a good chance you will come to believe it if you hear it many times. History is replete with examples.
When people are asked if they want things they consider important cut they say no. But when things are mentioned in a vague way, mixed with scary emphasis, they tend to change their minds. Propaganda and misdirection.