The "fiscal cliff" has all the
earmarks of a false-flag operation, full of sound
and fury, intended to extort concessions from
opponents. Neil Irwin of the Washington Post calls
self-induced austerity crisis". David Weidner
in the Wall Street Journal calls it simply
theater, designed to pressure politicians into
a budget deal:
The cliff is really just a
trumped-up annual budget discussion. ... The
most likely outcome is a combination of tax
increases, spending cuts and kicking the can
down the road.
Yet the media coverage
has been "panic-inducing, falling somewhere
between that given to an approaching hurricane and
an alien invasion. In the summer of 2011, this
sort of media hype
succeeded in causing the Dow
Jones Industrial Average to plunge nearly 2,000
points. But this time the market is generally
ignoring the cliff, either confident a deal will
be reached or not caring.
The goal of the
exercise seems to be to dismantle Social Security
and Medicare, something a radical group of
conservatives has worked for decades to achieve.
But with the recent Democratic victories, demands
for "fiscal responsibility" may just result in
higher taxes for the rich, without gutting the
The problem is that no deal
is going to be satisfactory. If we go over the
cliff, taxes will be raised on everyone, and gross
domestic product is predicted to drop by 3%. If a
deal is reached, taxes will be raised on some
people, and some services will be cut. But the
underlying problems - high unemployment and a
languishing economy - will remain. More effective
solutions are needed.
governments that are pushed too far have been
known to resort to more radical measures, and
there are some on the table that could fix the
problem at its core. Here are a few that are
receiving media attention:
financial transactions tax. While
children's shoes and lunchboxes are taxed at
nearly 10%, financial sales have so far gotten off
scot-free. The idea of a financial transactions
tax, or Tobin tax, has been kicked around for
decades; but it is now gaining real teeth. The
European Commission has
backed plans from 10 countries - including
France, Germany, Italy and Spain - to launch a
financial transactions tax to help raise funds to
tackle the debt crisis. Sarah van Gelder of Yes!
Magazine observes that the tax would not only
help reduce deficits but would hit the highest
income earners, and it would cool the speculative
fever of Wall Street.
Simon Thorpe, a
financial blogger in France, cites figures
from the Bank for International Settlements,
showing total US financial transactions of nearly
US$3 QUADRILLION in 2011. Including other sources,
he derives a figure
of $4.44 QUADRILLION. Even using the more
"conservative" $3 quadrillion figure, a tax of a
mere 0.05% (1/20th of 1%) would be sufficient to
raise $1.5 trillion yearly, enough to replace
personal income taxes with money to spare.
2. The trillion dollar coin
trick. If Republicans insist on the letter
of the law, Democrats could respond with a law of
their own. The Constitution says that congress
shall have the power to "coin money" and "regulate
the value thereof", and no limit is put on the
value of the coins congress creates, as was
pointed out by a chairman of the House Coinage
Subcommittee in the 1980s.
suggested this solution in Web of Debt in 2007,
when it was just a "wacky idea". But after the
2008 banking crisis, it started getting the
attention of scholars. In a December 7 article in
the Washington Post titled "Could
Two Platinum Coins Solve the Debt-ceiling
Crisis?", Brad Plumer wrote that if congress
doesn't raise the debt ceiling as part of the
fiscal cliff negotiations, "then some of these
wacky ideas may get more attention".
Harrison summarized the proposal at Credit
Writedowns like this:
The Treasury mints a $1 trillion coin, or
whatever amount is desired.
The Treasury deposits the coin into the
Treasury's account at the Fed.
The Treasury buys back bonds.
The retirement of bonds is an asset swap, no
different from QE2.
The increase in reserve balances is not
inflationary, as credit easing 1.0, QE 1.0, and
QE 2.0 already have shown.
These operations by the Treasury create no
new net financial assets for the non-government
The debt ceiling crisis is
Plumer cites Yale Law
School Professor Jack Balkin, confirming the ploy
is legal. He also cites Joseph Gagnon of the
Peterson Institute for International Economics,
stating, "I like it. There's nothing that's
obviously economically problematic about it." To
the objection that it is a legal trick that makes
a mockery of the law, Paul Krugman responded,
"These things sound ridiculous - but so is the
behavior of Congressional Republicans. So why not
fight back using legal tricks?"
Declare the debt ceiling unconstitutional.
The 14th Amendment to the Constitution
mandates that congress shall pay its debts on time
and in full, and congress does not know how much
it will collect in taxes until after the bills
have been incurred. The debt ceiling was imposed
by a statute first passed in 1917 and revised
multiple times since. The Constitution
trumps it and should rule.
interest-free from the government's own central
bank. If the government refinanced its
entire debt through the Federal Reserve, it could
save nearly half a trillion dollars annually in
interest, since the Fed rebates its profits to the
government. The Fed's newly announced QE4
adds $45 billion monthly in government securities
purchases to the $40 billion for mortgaged-backed
securities declared in QE3, and no time limit has
been designated for ending the program; $45
billion monthly is over half a trillion yearly.
Added to the federal debt already held by the Fed,
the whole $16 trillion federal debt could be
bought back in 28 years.
This is not a
wild, untested idea. Borrowing interest-free from
its central bank was done by Canada
from 1939 to 1974, by France
from 1946 to 1973, and by Australia and New
Zealand in the first half of the 20th century, to
excellent effect and without creating price
5. Decommission some
portion of the military. When past costs
are factored in, nearly half the federal budget
goes to the military. The data speaks for itself.
I wrote about it here.
6. Debt forgiveness.
Economists Michael Hudson and Steve Keen
maintain that the only way out of debt deflation
is debt forgiveness. That could be achieved by the
Fed by buying
up $2 trillion in student debt and other
asset-back securities and either ripping them up
or refinancing the debts interest-free or at very
low interest. If the banks can borrow at 0.25%,
why not the people?
Publicly-owned state and local banks.
Municipal governments are facing cliffs of their
own. Ann Larson, writing in Dissent
Magazine, blames predatory Wall Street lending
practices, which have inflicted deep and growing
suffering on communities across the country.
Predatory Wall Street practices can be
avoided by establishing publicly owned state and
local banks, which leverage the public's funds for
the benefit of the public. The profits are
returned as dividends to the local government.
German researcher Margrit Kennedy calculates
that a whopping 40% of the cost of public
projects, on average, goes to interest. Publicly
owned banks slash borrowing costs by returning
this interest to the government, along with many
other advantages, detailed here.
Unshackle the hostages The
fiscal cliff has been said to be holding congress
hostage to conservative demands, but the real
hostages are the debt slaves of our financial
system. The demand for "fiscal responsibility" has
been used as an excuse to impose radical austerity
measures on the people, measures that benefit the
1% while locking the 99% in debt.
government did not demand fiscal responsibility of
the failed financial sector. Rather, congress
lavished hundreds of billions of dollars on it,
and the Fed lavished trillions more. No evident
harm from these measures befell the economy, which
has fared better than the austerity-strapped EU
countries. Another couple of trillion dollars
poured directly into the real, productive economy
could give it a serious boost.
to the Fed's figures, as of July 2010, the money
supply was actually $4 trillion LESS
than in 2008. (The shrinkage was in the shadow
banking system formerly reported as M3.) That
means $4 trillion could be added back into the
money supply before general price inflation would
be a problem.
The self-induced austerity
crisis is a diversion from the real crises,
including unemployment, the housing crisis, a
bloated military, and unrepayable debt. Slashing
services, selling off public assets, and raising
taxes won't cure these ills. To maintain a
sustainable and productive economy requires a
visionary leap into the new. A new economy needs
new methods of public financing.
posted on Truthout.org.
Brown is an attorney and president of the
Public Banking Institute, PublicBankingInstitute.org.
In Web of Debt, her latest of 11 books, she
shows how a private cartel has usurped the power
to create money from the people themselves, and
how we the people can get it back. Her websites
are WebofDebt.com and