from Vanity Fair
Inequality
Of the 1%, by the 1%, for the 1%
Americans have been watching protests against oppressive regimes that concentrate massive wealth in the hands of an elite few. Yet in our own democracy, 1 percent of the people take nearly a quarter of the nation’s income—an inequality even the wealthy will come to regret.
THE FAT AND THE FURIOUS The top 1 percent may have the best houses, educations, and lifestyles, says the author, but “their fate is bound up with how the other 99 percent live.”
It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. One response might be to celebrate the ingenuity and drive that brought good fortune to these people, and to contend that a rising tide lifts all boats. That response would be misguided. While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone. All the growth in recent decades—and more—has gone to those at the top. In terms of income equality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran. While many of the old centers of inequality in Latin America, such as Brazil, have been striving in recent years, rather successfully, to improve the plight of the poor and reduce gaps in income, America has allowed inequality to grow.
Economists long ago tried to justify the vast inequalities that seemed so troubling in the mid-19th century—inequalities that are but a pale shadow of what we are seeing in America today. The justification they came up with was called “marginal-productivity theory.” In a nutshell, this theory associated higher incomes with higher productivity and a greater contribution to society. It is a theory that has always been cherished by the rich. Evidence for its validity, however, remains thin. The corporate executives who helped bring on the recession of the past three years—whose contribution to our society, and to their own companies, has been massively negative—went on to receive large bonuses. In some cases, companies were so embarrassed about calling such rewards “performance bonuses” that they felt compelled to change the name to “retention bonuses” (even if the only thing being retained was bad performance). Those who have contributed great positive innovations to our society, from the pioneers of genetic understanding to the pioneers of the Information Age, have received a pittance compared with those responsible for the financial innovations that brought our global economy to the brink of ruin.
Some people look at income inequality and shrug their shoulders. So what if this person gains and that person loses? What matters, they argue, is not how the pie is divided but the size of the pie. That argument is fundamentally wrong. An economy in which most citizens are doing worse year after year—an economy like America’s—is not likely to do well over the long haul. There are several reasons for this.
First, growing inequality is the flip side of something else: shrinking opportunity. Whenever we diminish equality of opportunity, it means that we are not using some of our most valuable assets—our people—in the most productive way possible. Second, many of the distortions that lead to inequality—such as those associated with monopoly power and preferential tax treatment for special interests—undermine the efficiency of the economy. This new inequality goes on to create new distortions, undermining efficiency even further. To give just one example, far too many of our most talented young people, seeing the astronomical rewards, have gone into finance rather than into fields that would lead to a more productive and healthy economy.
Third, and perhaps most important, a modern economy requires “collective action”—it needs government to invest in infrastructure, education, and technology. The United States and the world have benefited greatly from government-sponsored research that led to the Internet, to advances in public health, and so on. But America has long suffered from an under-investment in infrastructure (look at the condition of our highways and bridges, our railroads and airports), in basic research, and in education at all levels. Further cutbacks in these areas lie ahead.
None of this should come as a surprise—it is simply what happens when a society’s wealth distribution becomes lopsided. The more divided a society becomes in terms of wealth, the more reluctant the wealthy become to spend money on common needs. The rich don’t need to rely on government for parks or education or medical care or personal security—they can buy all these things for themselves. In the process, they become more distant from ordinary people, losing whatever empathy they may once have had. They also worry about strong government—one that could use its powers to adjust the balance, take some of their wealth, and invest it for the common good. The top 1 percent may complain about the kind of government we have in America, but in truth they like it just fine: too gridlocked to re-distribute, too divided to do anything but lower taxes.
Economists are not sure how to fully explain the growing inequality in America. The ordinary dynamics of supply and demand have certainly played a role: laborsaving technologies have reduced the demand for many “good” middle-class, blue-collar jobs. Globalization has created a worldwide marketplace, pitting expensive unskilled workers in America against cheap unskilled workers overseas. Social changes have also played a role—for instance, the decline of unions, which once represented a third of American workers and now represent about 12 percent.
But one big part of the reason we have so much inequality is that the top 1 percent want it that way. The most obvious example involves tax policy. Lowering tax rates on capital gains, which is how the rich receive a large portion of their income, has given the wealthiest Americans close to a free ride. Monopolies and near monopolies have always been a source of economic power—from John D. Rockefeller at the beginning of the last century to Bill Gates at the end. Lax enforcement of anti-trust laws, especially during Republican administrations, has been a godsend to the top 1 percent. Much of today’s inequality is due to manipulation of the financial system, enabled by changes in the rules that have been bought and paid for by the financial industry itself—one of its best investments ever. The government lent money to financial institutions at close to 0 percent interest and provided generous bailouts on favorable terms when all else failed. Regulators turned a blind eye to a lack of transparency and to conflicts of interest.
When you look at the sheer volume of wealth controlled by the top 1 percent in this country, it’s tempting to see our growing inequality as a quintessentially American achievement—we started way behind the pack, but now we’re doing inequality on a world-class level. And it looks as if we’ll be building on this achievement for years to come, because what made it possible is self-reinforcing. Wealth begets power, which begets more wealth. During the savings-and-loan scandal of the 1980s—a scandal whose dimensions, by today’s standards, seem almost quaint—the banker Charles Keating was asked by a congressional committee whether the $1.5 million he had spread among a few key elected officials could actually buy influence. “I certainly hope so,” he replied. The Supreme Court, in its recent Citizens United case, has enshrined the right of corporations to buy government, by removing limitations on campaign spending. The personal and the political are today in perfect alignment. Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent. When pharmaceutical companies receive a trillion-dollar gift—through legislation prohibiting the government, the largest buyer of drugs, from bargaining over price—it should not come as cause for wonder. It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work.
America’s inequality distorts our society in every conceivable way. There is, for one thing, a well-documented lifestyle effect—people outside the top 1 percent increasingly live beyond their means. Trickle-down economics may be a chimera, but trickle-down behaviorism is very real. Inequality massively distorts our foreign policy. The top 1 percent rarely serve in the military—the reality is that the “all-volunteer” army does not pay enough to attract their sons and daughters, and patriotism goes only so far. Plus, the wealthiest class feels no pinch from higher taxes when the nation goes to war: borrowed money will pay for all that. Foreign policy, by definition, is about the balancing of national interests and national resources. With the top 1 percent in charge, and paying no price, the notion of balance and restraint goes out the window. There is no limit to the adventures we can undertake; corporations and contractors stand only to gain. The rules of economic globalization are likewise designed to benefit the rich: they encourage competition among countries for business, which drives down taxes on corporations, weakens health and environmental protections, and undermines what used to be viewed as the “core” labor rights, which include the right to collective bargaining. Imagine what the world might look like if the rules were designed instead to encourage competition among countries for workers. Governments would compete in providing economic security, low taxes on ordinary wage earners, good education, and a clean environment—things workers care about. But the top 1 percent don’t need to care.
Or, more accurately, they think they don’t. Of all the costs imposed on our society by the top 1 percent, perhaps the greatest is this: the erosion of our sense of identity, in which fair play, equality of opportunity, and a sense of community are so important. America has long prided itself on being a fair society, where everyone has an equal chance of getting ahead, but the statistics suggest otherwise: the chances of a poor citizen, or even a middle-class citizen, making it to the top in America are smaller than in many countries of Europe. The cards are stacked against them. It is this sense of an unjust system without opportunity that has given rise to the conflagrations in the Middle East: rising food prices and growing and persistent youth unemployment simply served as kindling. With youth unemployment in America at around 20 percent (and in some locations, and among some socio-demographic groups, at twice that); with one out of six Americans desiring a full-time job not able to get one; with one out of seven Americans on food stamps (and about the same number suffering from “food insecurity”)—given all this, there is ample evidence that something has blocked the vaunted “trickling down” from the top 1 percent to everyone else. All of this is having the predictable effect of creating alienation—voter turnout among those in their 20s in the last election stood at 21 percent, comparable to the unemployment rate.
- Keywords
- Society,
- Wealth,
- Inequality,
- Joseph E. Stiglitz
http://theeconomiccollapseblog.com/archives/can-a-family-of-four-survive...
When I was growing up, $50,000 sounded like a gigantic mountain of money to me. And it was actually a very significant amount of money in those days. But in 2010 it just does not go that far. Today, the median household income in the United States for a year is approximately $50,000. About half of all American households make more than that, and about half of all American households make less than that.
So if your family brings in $50,000 this year that would put you about right in the middle. So can a family of four survive on $50,000 in America today? The answer might surprise you. Twenty years ago a middle class American family of four would have been doing quite well on $50,000 per year. But things have changed.
You see, despite government efforts to manipulate the official inflation numbers, the price of everything just keeps going up. The price of food slowly but surely keeps moving up each year. The price of gas is far higher than it was 10 or 20 years ago. Taxes just keep going up. Utility bills just keep going up. Each year middle class American families have found themselves increasingly squeezed as their expenses have risen much more rapidly than their incomes.
So just how far will $50,000 go for a middle class American family of four today? Well, $50,000 breaks down to about $4,000 a month. So how far will $4,000 a month stretch for a family of four in today’s economy?….
First of all, the family of four needs some place to live. Even though house prices have come down a bit recently, they are still quite expensive compared to a decade ago. Let’s assume that our family of four has found a great deal and is only spending $1000 a month on rent or on a mortgage payment. In many of the larger U.S. cities this is a completely unrealistic number, but let’s go with it for now.
Next, our family of four has to pay for power and water for their home. This amount can vary dramatically depending on the climate, but let’s assume that the average utility bill is somewhere around $300 a month.
Our family is also going to need phone and Internet service. Cell phone bills for a family of four can balloon to ridiculous proportions, but let’s assume that our family of four is extremely budget conscious and has found a package where they can get basic phone service, Internet and cable for $100 a month. Most middle class American families spend far more than that.
Both parents are also going to need cars to get to work. Let’s assume that both cars were purchased used, so the car payments will only total about $400 a month. If the vehicles were purchased new this number could potentially be much higher.
If our family has two cars that means that they will also be paying for automobile insurance. Let’s assume that they both have exemplary driving records and so they are only spending about $100 a month on car insurance.
Our hypothetical family of four is also going to need health insurance. In the past, families could choose to go without health insurance (at least for a while), but now thanks to Barack Obama all American families will essentially be forced to purchase health insurance. Health insurance premiums are absolutely skyrocketing, but let’s assume that our family has somehow been able to find an amazing deal where they only pay $500 a month for health insurance.
Our hypothetical family is also going to have to eat. Let’s assume that our family clips coupons and cuts corners any way that it can and only spends about $50 for each member of the family on food and toiletries each week. That works out to a total of $800 a month for the entire family.
Lastly, the parents are also going to need to buy gas to get to and from work each week. Let’s assume that they don’t live too far from work and only need to fill up both cars about once per week. That would give them a gasoline bill of about $50 a week or $200 a month. Of course if either of them lived a good distance from work or if a lot of extra driving was required for other reasons this expense could be far, far higher.
So far our family has spent $3400 out of a total of $4000 for the month. Not bad, eh?
Wrong.
We haven’t taken federal, state and local taxes out of the paycheck yet. Depending on where our family lives, this will be at least $1000 a month.
So now we are $400 in the hole.
But to this point we have assumed that our family does not have any credit card debt or student loan debt at all. If they do, those payments will have to be made as well.
In addition, the budget above includes no money for clothing, no money for dining out, no money for additional entertainment, no money for medications, no money for pets, no money for hobbies, no money for life insurance, no money for vacations, no money for car repairs and maintenance, no money for child care, no money for birthday or holiday gifts and no money for retirement.
On top of all that, if our family of four has a catastrophic health expense that their health insurance won’t pay for (and health insurance companies try to weasel out of as many claims as they can), then our family of four is not just broke – they are totally bankrupt.
Are you starting to get the picture?
It is getting really, really hard out there for middle class American families these days.
And unfortunately, many American families now have at least one parent that is not working. In some areas of the nation it just seems like there are virtually no jobs available. For example, at 14.3%, the state of Nevada now has the highest unemployment rate in the nation. Michigan (which had been number one) is not very far behind.
But even those Americans who are able to find work are finding themselves increasingly squeezed. For many Americans, a new job means much lower pay. Millions of highly educated people who once worked in professional positions now find themselves working in retail positions or in the food service industry. Many are hoping that the economy will “turn around” soon and that they will be able to go back to higher paying jobs, but the truth is that the U.S. economy is simply not producing enough good jobs for everyone any longer.
So where did all the good jobs go? Well, millions of them have been shipped off to China, India and dozens of other nations around the globe. Today the United States spends approximately $3.90 on Chinese goods for every $1 that China spends on goods from the United States. A Chinese factory worker makes about a tenth of what an American factory worker makes. And China continues to keep their currency artificially low so that jobs will continue to flow into China and so that we will continue to run a massive trade imbalance with them.
In a previous article, “Winners And Losers“, I went into much greater detail about how globalism is destroying middle class jobs. We are rapidly moving toward an America where there will be a small group of “haves” and a very large group of “have nots”.
The middle class in America is going to continue to shrink and shrink and shrink in the years ahead. Not only are both parents going to have to work to pay the bills, but both parents in many families will be forced to take two or three jobs each just to make it each month.
So what do you think? Do you think that a family of four can make it on a middle class income in America today? Feel free to leave a comment with your thoughts….
The following article is a bit of an education and aslo has some very simple solutions but, since those solutions would cut the evil banking cabal out of our lives, no one will ever hear them (except us).
.Stop this economic insanity
by Jerre Kneip
Delusion has become the dominant mental state of the American people, a people once recognized as the example for the world in their clear thinking and high moral standards and the application of these attributes to their system of government and society in general. Perhaps this is a natural human trait in that we perceive what we wish the facts to be rather than what they truly are. Exactly when delusion became the dominant influence in our society is difficult to ascertain. It must have been a major factor in starting the so-called “Civil War” (which we prefer to think of as the War of Northern Aggression, or the war to restore the subjugation of the South). The ideals of self determination, personal responsibility and government responsive to the people as expressed in the Declaration of Independence only “four score and seven years” earlier were thoroughly trounced by Lincoln when he denied the great writ of Habeas Corpus, arrested discenters, initiated a war without the declaration of Congress (a practice which has become common in modern times), causing a conflagration which claimed the lives of more than a million Americans and changed our form of government from a federal entity formed by contract between, and subject to, the several sovereign states, to a national government preeminent over the subdivision states.
That the American people are rather easily deluded is further illustrated by Woodrow Wilson convincing us that somehow the Kaiser was a threat to this country and again by Roosevelt’s machinations to bring about a direct attack on the United States so that we could get involved in the war in Europe. The same could be said about our involvement in Korea, Viet Nam, up to and including Afghanistan, Iraq I and II and all those indecisive actions in between.
The real threat to this country is not some foreign tyrant residing in a palace or hiding in a cave. It is the acceptance by the people of domination by internal influences which have deluded us into supporting these wars and the massive social changes which are destroying our country. As Dr. Thomas Sowell so aptly put it in 1994, “The barbarians are not at the gates, they are inside the gates - and have academic tenure, judicial appointments, government grants, and control of the movies, television and other media. The question of the hour - and of the next century - is whether all this can be turned around.”
These influences have brought us the destructive measures of NAFTA, GATT, the World Court, the International Monetary Fund (IMF), The Patriot Act, the Homeland Security Department and now a super intelligence (surveillance) agency - all under the imposed delusion that they are required to “protect our freedom.”
About thirty years ago my friend, former congressman Bruce Alger of Dallas, told me that when he was confronted by someone who wanted to debate national policy, he would hand them a card on which he had listed ten books and told them, “Until you have read these books, we have no common understanding on which to begin our discussion.” I don’t remember all the titles, but they included Gary Allen’s “None Dare Call It Conspiracy” and Cleon Skousen’s “The Naked Capitalist.”
A list today would include Donn de Grand Pre’s Barbarians Inside the Gates, F.W. Maisel’s Great American Ripoff, Theodore Thoren and Richard Warner’s The Truth in Money Book, Jacques Jaikaran’s Debt Virus, James “Bo” Gritz’ A Nation Betrayed, Michael Collins Piper’s Final Judgment, Eustace Mullins two books The World Order and Secrets of The Federal Reserve, and Des Griffin’s two books Descent into Slavery and Fourth Reich of the Rich.
An understanding of the themes of these books would make it clear that the control of money permits control of everything else. This control in the United States was accomplished in 1913 with the passage of the Federal Reserve Act. By this act the Congress relinquished its constitutional obligation and authority to “coin money and establish the value thereof” to a privately owned system which could then use the issuance of money to further its own agenda and for its profit.
How many Americans understand that money is not wealth, but merely a medium of convenience for the exchange of wealth. Best-selling novelist Tom Clancy understands it as he wrote in Debt of Honor , describing the antics of the Federal Reserve Board at the opening of chapter 3:
“The remarkable thing was that everyone accepted the entire process, seemingly as normal as the physical laws of nature, despite the fact that it was really as ethereal as a rainbow. The money did not physically exist. Even “real” money was only specially made paper printed with black ink on the front and green on the back. What backed money was not gold or something of intrinsic value, but rather the collective belief that money had value because it had to have such value. Thus it was that the monetary system of the United States and every other country in the world was entirely an exercise in psychology, a thing of the mind, and as a result, so was every other aspect of the American economy. If money was simply a matter of communal faith, then so was everything else.”
Learned men and serious thinkers have warned the people throughout the ages of the dangers of a credit money system and control of the money supply by the “moneylenders.” These warnings can be traced back to the earliest recorded civilizations. Moses, instructing the Israelites at Mt. Sinai (Lev. 25:35-36) and again before entering the land of Canaan (Deut. 23: 19); Solomon in the Book of Proverbs (28:8); Nehemiah on the return of the Israelites to Jerusalem after the Babylonian captivity (Neh. 5:10); all warned the Israelite people of the evils of usury.
In more modern times we have been warned by Presidents , Congressmen, industrialists and even bankers that a debt-money system is doomed to failure; yet we persist in our belief that our economic problems can be resolved by manipulation of the tax system and the interest rate. The folly of this mendacity is illustrated by the words of these leaders:
Thomas Jefferson during the time of his presidency: “The system of banking (is) a blot left in all our constitutions, which, if not covered, will end in their destruction . . . I sincerely believe that banking institutions are more dangerous than standing armies; and that the principle of spending money to be paid by posterity . . . is but swindling futurity on a large scale.”
James A. Garfield, during his six months presidency in 1881 (perhaps so shortened by this comment): “Whoever controls the volume of money in any country is absolute master of all industry and commerce.”
Congressman Louis T. McFadden speaking before the House of Representatives, “The Federal Reserve (Banks) are one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that this Nation is run by the International Bankers.”
Horace Greeley, editor, publisher and founder of the New York Tribune, “While boasting of our noble deeds, we are careful to conceal the ugly fact that by an iniquitous money system we have institutionalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery.”
Woodrow Wilson, the President who signed the Federal Reserve Act, the 16th Amendment (Income Tax) and the 17th Amendment (direct election of Senators): “A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the Nation and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the world - no longer a Government of free opinion, no longer a Government by conviction and vote of the majority, but a Government by the opinion and duress of small groups of dominant men.” Just before his death, Wilson is reported to have stated to friends, “ I have betrayed my country,” referring to his part in the passage of the Federal Reserve Act.
Sir Joshua Stamp, President of the Bank of England in the 1920s and the second richest man in Britain: “Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear, and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your slavery, let them continue to create deposits.”
Thomas A. Edison, speaking on the occasion of the completion of the Muscle Shoals Dam: “People who will not turn a shovel full of dirt on the project nor contribute a pound of material, will collect more money from the United States than will the people who supply all the material and do all the work. This is the terrible thing about interest . . . But here is the point: If the Nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20 percent. Whereas the currency, the honest sort provided by the Constitution, pays nobody but those who contribute in some useful way. It is absurd to say our country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People. If the currency issued by the People were no good, then the bonds would be no good either. It is a terrible situation when the Government, to insure the national wealth, must go in debt and submit to ruinous interest charges at the hands of men who control the fictitious value of gold. Interest is the invention of Satan.”
Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta, Georgia: “This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.”
Murray Rothbard, Professor of Economics at the Polytechnic Institute of New York: “Commercial banks - that is, fractional reserve banks - create money out of thin air. Essentially they do it in the same way as counterfeiters. Counterfeiters, too, create money out of thin air by printing something masquerading as money or as a warehouse receipt for money [meaning gold or silver - Ed.]. In this way, they fraudulently extract resources from the public, from the people who have genuinely earned the money. In the same way, fractional reserve banks counterfeit warehouse receipts for money, which then circulate as equivalent to money among the public. There is one exception to the equivalence: the law fails to treat the receipts as counterfeit.” - Rothbard, The Mystery of Banking, Richardson & Snyder, 1983, pp 98-9.
The delusion that the nations economic problems can be resolved by adjusting the taxing system or the interest rate, or by limiting the governments spending will only lead to this nations ultimate destruction. Until the control of the money system is taken from the private bankers and replaced in the hands of the people through their elected representatives, there will be no escape from the ultimate economic collapse of the system and the resulting oppression of the people.
As Theodore Thoren points out in an article in an engineering magazine several years ago, the adjustments to the money supply is an engineering problem with known parameters and is certainly not as difficult as that of placing a satellite in orbit or sending a probe to Mars. The delusion that the control of money is some ethereal project that can only be accomplished by trial and error by carefully trained economists and bankers has led the American people to this precipice of the abyss.
When money is issued by the Treasury without bearing interest. to pay its legitimate expenses and to fund the improvement of infrastructure, and in sufficient quantity to support economic activity at stable prices, there will be no need for taxes on income or property. A small fee of one or two percent on the borrowing by states or private banks to fund privately owned expansion would be sufficient to withdraw excess supply and maintain stable prices. The “Federal Reserve” rather than being the primary lender for its own profit, would become merely a clearing house for the transfer of funds to support economic activity. The fraudulent system of fractional reserve banking would be abolished as would the Internal Revenue Service. Local property taxes would be abolished and prices would plummet due to the illumination of business expenses of taxes and interest.
California Attorney Ellen Brown, in an article written in 2005, describes the process in detail:
[Quote] Today, all of our money is ’fiat’ money (money ‘by decree’), issued by private banks as credit either to the government or to individuals and corporations.
The Greenback Solution
A $7.7 trillion debt tsunami is currently bearing down on the United States.[Note: - this was in 2005, currently (2011) is over $14 trillion] Congress needs to liquidate it before it liquidates the United States. But how? The debt was created by sleight of hand. It can be eliminated by sleight of hand. Fractional reserve lending can be abolished by legislative fiat. The Federal Reserve can be made what most people think it now is – a truly ‘federal’ institution – and the power to create money can be returned to the people.
The $7.7 trillion federal debt was created with accounting entries on a computer screen. It can be eliminated in the same way. The simplicity of the procedure was demonstrated in January 2004, when the US Treasury called a 30-year bond issue before its due date. The Treasury’s action generated some controversy, since government bonds are generally considered good until maturity. (7) But calling (or paying off) a bond before its due date is done routinely by other issuers. Corporations and municipalities buy back their bonds whenever it is advantageous for them to do so. When interest rates fall, they call their bonds in order to refinance their debt at lower rates. The difference between a bond called by a corporation and one called by the US Treasury is that the Treasury has the power to make payment solely with a bookkeeping entry, without ‘real’ money backing it up. And that appears to be exactly what was done in this case. The Treasury cancelled its promise to pay interest on these particular bonds simply by announcing its intention to do so (or by fiat, as they say in French). Then it paid the principal with an accounting entry. Here is its January 15, 2004 announcement:
TREASURY CALLS 9-1/8 PERCENT BONDS OF 2004-09
"The Treasury today announced the call for redemption at par on May 15, 2004 of the 9-1/8% Treasury Bonds of 2004-09, originally issued May 15, 1979, due May 15, 2009 (CUSIP No 9112810CG1).
There are $4,606 million of these bonds outstanding, of which $3,109 million are held by private investors. Securities not redeemed on May 15, 2004 will stop earning interest.
These bonds are being called to reduce the cost of debt financing. The 9-18% interest rate is significantly above the current cost of securing financing for the five years remaining to their maturity. In current market conditions, Treasury estimates that interest savings from the call and refinancing will be about $544 million.
Payment will be made automatically by the Treasury for bonds in book-entry form, whether held on the books of the Federal Reserve Banks or in Treasury /Direct accounts." (8)
The provision for payment ‘in book entry form’ means that no dollar bills, cheques or other paper currencies are to be exchanged. Numbers will simply be entered into the Treasury’s direct online money market fund (‘Treasury Direct’). The investments will remain in place and intact and will merely change character – from interest-bearing to non-interest-bearing, from a debt owed to a debt paid.
Where did the government plan to get the money to ‘refinance’ this $3 billion bond issue at a lower interest rate? Whether it was from the private banking system on the open market, or from the Bank of Japan with notes printed up for the occasion, or from the Federal Reserve as the purchaser of last resort, the money was no doubt created out of thin air. As Federal Reserve Board Chairman Marriner Eccles testified before the House Banking and Currency Committee in 1935:
"When the banks buy a billion dollars of Government bonds as they are offered …. they actually create, by a bookkeeping entry, a billion dollars."
Treasury securities
If the Treasury can cancel its promise to pay interest on its bonds simply by announcing its intention to do so, and if it can pay off the principal just by entering numbers in an online database, it can pay off the entire federal debt in that way. It just has to announce that it is calling all of its bonds and securities, and that they will be paid ‘in book-entry form’. No cash needs to change hands.
The usual objection to this solution is that it would be dangerously inflationary, but would it? Paying off the US federal debt by ‘monetising’ it would not change the size of the money supply, because the US money supply already includes the federal debt; in fact, it consists of the federal debt. Treasury debt takes the form of Treasury securities (bills, bonds and notes); and Treasury securities are a major component of the money market funds and other time deposits included in the Fed’s calculations of M2 and M3. Converting bonds (government promises to pay) into cash (actual payment) would not change the total of these money measures. It would just shift the funds from M2 and M3 into M1. Treasury securities are already treated by the Fed and the market itself just as if they were money. These are traded daily in enormous volume among banks and other financial institutions around the world just as if they were money. People put their money into highly liquid Treasury bills in money market funds because they consider this to be the equivalent of holding cash. Converting Treasury bills and other securities into actual cash (US Notes) would not affect the size of the money supply. It would just change the label on the funds. The market for goods and services would not be flooded with ‘new’ money that inflated the prices of consumer goods, because the bond holders would not consider themselves any richer than they were before. The bond holders presumably had their money in bonds in the first place because they wanted to save it rather than spend it. They would no doubt continue to save it, either as cash or by investing it in some other interest-generating securities.
A Newer Deal
In 1933, President Roosevelt pronounced the country officially bankrupt, exercised his special emergency powers, waved the royal Presidential fiat, and ordered the promise to pay in gold removed from the dollar bill. The dollar was instantly transformed from a promise to pay in legal tender into legal tender itself. Seventy years later, Congress could again acknowledge that the country is officially bankrupt and propose a plan of reorganisation. By simple legislative fiat, it could transform its ‘debts’ into ‘legal tender’.
Roosevelts’s plan of reorganisation was called the ‘New Deal’. In this ‘Newer Deal’, foreign creditors would actually be getting the best deal possible. They have enormous amounts of money tied up in US government bonds, which the US cannot possibly pay off with tax revenues. If America’s creditors were to propel it into bankruptcy, the US government would have to simply walk away from its debts, and the creditors would be out of luck. If the United States pays off its debts with real ‘legal tender’, the creditors will have something they can take to the bank and spend in the global market. If it looks like a dollar, and feels like a dollar, it is a dollar. The only difference will be that the dollar will have been issued by the federal government rather than ‘borrowed’ from a bank.
One objection that has been raised to paying off the federal debt by ‘monetising’ it is that foreign investors would be discouraged from purchasing US bonds in the future. But once the government reclaims the power to create money from the banking cartel, it will no longer need to sell its bonds to investors. It will no longer even need to levy income taxes. It will have other ways to finance its budget.
A Modest Proposal for Eliminating the Personal Federal Income Tax
Returning the power to create money to the government and the people it represents would generate three new sources of revenue for the public purse:
1. The interest earned on loans would be returned to the government
Using the figures for 2002 (the last relatively normal year before the United Sates was at war in Iraq), total assets in the form of bank credit for all US commercial banks were reported to be $5.89 trillion. (9) Assuming an average interest rate of 6 percent, about $353 billion in interest income was thus paid to commercial banks. This interest was earned, not by lending anything of their own, but by advancing the ‘full faith and credit of the United States.’ Returning this interest to the collective body of the people to whom it properly belongs would thus have generated revenue for the government of $353 billion in 2002.
2. Congress could issue new interest-free US Notes (Greenbacks) to the extent (and only to the extent) needed to ‘grow’ the money supply in order to cover productivity and interest charges.
In the monetary scheme of Benjamin Franklin, paper money was issued ‘in proper proportions to the demands of trade and industry’. What is the ‘proper proportions’ of monetary growth? One way to approach the problem is to look at current growth. The money supply (M3) grew from $7.96 trillion in November 2001 to $8.49 trillion in November 2002, an increase of $529 billion or 6.6 percent. (10) Under the present system, the expansion in the money supply needed to keep up with productivity and interest charges must come from federal borrowing, since private borrowing zeroes out on repayment. If the government were to quit ‘borrowing’ money into existence, this source of growth would dry up, and there would be insufficient money to cover the interest due on commercial loans. Like in a grand game of musical chairs, some borrowers would have to default.
If the average collective interest rate is 6.6 percent, and if the government can no longer ‘borrow’ that money into existence, it will need to issue enough new Greenbacks to increase the money supply by 6.6 percent just to keep the system in balance. In 2002, that would have meant creating $529 billion in new debt-free US Notes.
3. If the government were to pay off the federal debt with new Greenbacks, it would no longer need to budget for interest on the debt.
Using 2002 figures, money paid in interest on the federal debt came to $333 billion. Paying off the debt would have reduced the collective tax bill by that sum.
Combining these three sources of funding - $353 billion in interest income, $529 billion in new US Notes to cover annual growth in the money supply, and $333 billion saved in interest payments on the federal debt – the public coffers could have been swelled by $1,215 billion in 2002. Total personal income taxes that year came to only $1,074 billion. Thus by reclaiming the power to create money from the private banking system, Congress could have eliminated individual income taxes in 2002 with $141 billion to spare. How much is $141 billion? According to the Unites Nations, a mere $80 billion added to existing resources in 1995 would have been enough to cut world poverty and hunger in half, achieve universal primary education and gender equality, reduce under-five mortality by two-thirds and maternal mortality by three-quarters, reverse the spread of HIV/AIDS, and halve the proportion of people without access to safe water world-wide (11) [End of Quote]
All this can be accomplished, but only through the removal of the delusions regarding the nature of money. It is the responsibility of the people to bring about these changes through the education of the people and their elected representatives.
NOTES to the above excerpt:
(7) US Treasury Defaults on 30 Year Bond Holders’, www.rense.com (January 20, 2004)
(8) Department of the Treasury, ‘Public Debt News’, Bureau of the Public Debt, Washington, DC 20239 (January 15, 2004).
(9) Federal Board of Governors, ‘Total Bank Credit Outstanding’, see W Hummel, ‘Financial Data Current and Historical: Money Stock’, www.wfhummel.cnchost.com/linkshistoricaldata.html
(10) Federal Reserve Statistical Release, ‘Money Stock Measures’ (January 2, 2003)
(11) Jan Vandermoortele, Are the MDG’s Feasible (New York: United Development Program Bureau for Development Policy, July 2002)
[Ellen Brown, J.D., 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." She shows how this 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 http://www.webofdebt.com/ and http://www.ellenbrown.com/. Her eleven books include the bestselling "Nature's Pharmacy," co-authored with Dr. Lynne Walker, which has sold 285,000 copies. Article Source: http://EzineArticles.com/?expert=Ellen_Brown]
[This article will appear in the April issue of The Free Press, published monthly since 1994, 12 issue for $25, P. O. Box 2303, Kerrville, Texas 78029, Jerre Kneip, Publisher]
If this doesn't look like hyper-inflation, what does? (you'll have to click on the 5 year button after you follow the link)
Wendy
http://www.goldline.com/silver-charts
I missed the part where the wealthy will come to regret the inequality. Where is that explained?
Since they designed the system, they're not likely to regret it unless their plan backfires to their detriment.
I think the regrets come along because their plan has to backfire. The 1% will soon realize that they actually do much better when we all do better. Getting rich off of making others poor doesn't work in the long run - nature always strives for balance, the poor will end up fighting back and the rich will end up wasting energy, trying to keep them in line. The 1% can actually live much freer, richer lives by knowing that the 99% are happy and comfortable and not about to storm the Bastille. America's vast wealth during the 50's & 60's is a good example - the working classes drive the economic engine, feed them well and the engine goes fast moving everyone toward greater prosperity. The 1%'s real threat is the other 90% of the top 10%. These wealthy people are huge loosers in this game and are beginning to wake up to that fact. The Magna Carter was forced upon the king by the Barons, Dukes and Earls not the commoners.
As the economy collapses, assuming the internet can stay up and running, we will find ways to help each other out through barter, gifts and finding ways to sidestep the old economy through new collaberation on the internet. Craigslist and ebay will replace Walmart as the new way to find less expensive goods and services.
Wendy
If the system collapses, Wendy, yes it would be a great help for the Internet to remain intact. But as far as a collapsing/collapsed economy goes, the nearest resources to us will be what sustains us. If the Internet can lead us to local sources of whatever we need, great. But chances are we won't be able to order something from EBay or some other distant vendor. Will there be trucking companies or airlines working that will ship it to us? Can't take that for granted. It would be good for us to begin supporting our local encomies now and making connections locally. That seems to be the bright spot in the future.
This keeps gnawing at me so I share here to get it out. I keep getting this vivid image of the 1%. the article says this,
"their fate is bound up with how the other 99 percent live"
what if what they will REALLY be sore about is discovering that they were never ever really part of the elite... not the real one anyway, the one pulling the strings for the matrix the 1% and the other 99% are contained in via a very keen understanding of human nature. to find out you're in the game instead of conducting the game. to find out you are one of the pieces on the chessboard when you thought you owned the chess board and controlled all the pieces.
to finally find out they are unavoidably part of the us that are the 99% & the 1%
the other thing that hit me is that this illuminati, this incunabula, whoever or whatever they are, they could actually be convinced that they were doing what is so perfect and so right to do. this would be a perfect example how easily a "self-professed to be of the Light do gooder" could end up being as bad as "so called of the dark side evil"
so much of what is happening is based upon the play of electromagnetic polarities. it will be interesting to see how all this plays out...