The Super-Duper Congressional Deficit Committee held its first meeting as if its conclusions are not already decided, the unhappy truth is that the economic recovery remains in a weakened state thanks to usury interest payments ($1.4 billion a day) to financial institutions like the Fed Bank and its Wall Street cronies. Mandated by the debt ceiling agreement to cut $1.5 trillion from the $14 trillion deficit ($7 trillion of which belongs to George Bush), the Super Dupers can be expected to fulfill President Obama’s long sought goal of $4 trillion in cuts facetiously known as the Grand Bargain.
You can bet your bottom dollar that these cuts will not include the President’s irrational allegiance to multiple proxy wars worth over $1 trillion or increased revenues from tax cuts for the wealthy which have added $1.8 trillion to the deficit.
Perhaps the most positive outcome of the 2008 economic meltdown is that the American taxpayer, heretofore blissfully uninformed, has now taken a sudden interest in economic matters after being rudely awakened by a long overdue reality check. Beyond the usual pablum provided by the ‘lamestream’ media (thank you Sarah Palin), President Obama continues to skillfully avoid the fact that the American people have been exploited by the same Big Banks who are major campaign contributors to his campaign and that his glib pronouncements have avoided explaining why and how this catastrophe occurred.
The American public may not yet fully understand that when the Government borrows to pay its bills, one option is the Federal Reserve Bank. Despite a name chosen to evoke a Federal agency, the Federal Reserve Bank is a privately-held financial institution with certain vague quasi-governmental functions, independent of Government regulations. While the Fed Chair is appointed by the President and attending Congressional hearings are part of the façade that the Fed is being accountable, Congress has no authority to require the Fed or its Chair do anything. The recent one year one-time audit “required” by the Paul/Grayson/Sanders amendment (as a result of public outrage at Congress which the Fed dared not ignore) revealed a $16 trillion interest-free ‘loan’ to the Too-Big-to-Fail Banks at a time when the nation’s states facing their own deficit crisis were denied Fed assistance. .
Organized to resemble a central bank, the Fed is more like a cartel of shared financial interests as it artfully dodges the appearance of an unholy concentration of power and wealth. Since the Fed is not a bona fide agency within Government, the country would be better served by a public banking function entrusted to the Treasury Department with the ability to ‘forgive’ national and state debts. Some economists estimate that the amount of the $14 trillion debt owed to the Fed varies from 10% to 40 %.
The two institutions are nevertheless deeply entwined as the Federal government is a major revenue source for the Fed. Here’s one example of how taxpayer money benefits the Fed but the reverse is not true. If the government borrows $10 billion, the Fed has accrued a significant asset on its books not just in the form of interest due on the $10 billion but, thanks to the fractional reserve system, the Fed now has an extra $100 billion to loan out – creating massive new interest opportunities. As a privately-held institution, the Fed’s sole raison d’etre is to create profits and/or interest-free loans for its members rather than accommodate the needs of its country of origin.
The American people would also benefit from a better understanding of the motivation to cut Social Security benefits. With assertions that the Social Security Trust Fund is solvent for the next 25 years since it is a pay-as-you-go system paid for with payroll deductions, the Fund has collected more in payments than it has been paid out in benefits for the last 27 years. What the American public has yet to discover is that the Federal government has looted, raided and “borrowed” from the Fund for the last 30 years and by the end of 2010, the Federal government owed the Fund $2.6 trillion (18% of the country’s current $14 trillion deficit). That debt owed is why the White House, Congress and assorted Deficit Commissions have put Social Security on the table – and if Obama, the Super-Duper Twelve and Congress agree to reduce Social Security benefits, sleight-of-hand legislative tricks will translate into a reduced repayment owed to the Fund and voila! reduce the deficit.
With SS cost-of-living increases frozen since 2009, can America’s soon-to-be seniors expect the Federal government to honor its legal and moral obligation to replenish the Fund? When Congress felt the need to dip into the Social Security Trust Fund for some quick cash, did they also dip into their own Federal pension system?
Even as the Preamble to the Constitution to ‘promote the general welfare’ established the Government’s legitimate role to serve the public interest, efforts to frighten the American public that if the nation’s People Programs are not unmercifully slashed and the deficit not reduced, unspeakable events may occur. Not to disregard the bitter reality of unemployment statistics and home foreclosures, what has been lost in all the histrionics is a rational presentation by the President offering economic facts and fundamentals that shed more light on our current predicament.
Obviously, a deficit has resulted from borrowing to fund Federal programs. Without a deficit, public investments in education and technological innovation would be lost. Without deficit spending, Government, as we know it, would cease to support the needs of its citizens and even cease to exist. History has proven that public investments like infrastructure improvements generate jobs and revenue that pays back government debt.
Some of the country’s largest and most profitable private sector businesses accrue high levels of debt as a reasonable cost of doing business as their contribution to growing the economy. One measure of an institution’s economic health is its debt-to-equity ratio comparing money borrowed to annual income. As GE operates with a 3 to 1 ratio borrowing three times more than its income for investment purposes, the United States generates a $14 trillion GDP (Gross Domestic Product which represents the market value of goods and services produced) while carrying a $14 trillion debt for a healthy debt ratio of 1 to 1.
Another measure of fiscal condition is debt compared to GDP. According to the CIA World Factbook and Eurostat, the US debt to GDP of 70% may provide little comfort but fares better than expected when compared to the UK at 76%, Canada at 84%, Germany at 83% and France at 82%
By comparison, after WWII with debt at 120% of GDP and a $260 billion war debt (equivalent to $3 trillion in 2011) which was rolled over, the Federal government had the political will to invest in a GI Bill and a Federal Highway system that stimulated the economy faster than it created debt. The country remained in goods hands as the US debt was reduced every year from 1947 until 1980 when Ronald Reagan sold the idea that debt was ‘out of control’ as he increased the Federal debt by $1.8 trillion.
As the Government teeters on an obscure economic brink with erratic stock market swings, huge
majorities of the public disapproving of Congressional and Presidential efforts on the economy as a mere 19% believe the country is headed in the right direction, both institutions have failed in their fiduciary responsibility. As the American public accurately perceives that at the heart of the failed economy is a badly mismanaged and corrupt Government, not one contemporary politician or mainstream economist has a clue of what should be done, that the true picture of Government indebtedness may be more severe than we know and that an imminent economic catastrophe will disintegrate what remains of civil society.
Demoralized and discouraged, the American people, with too few real choices on Election Day, will either vote for the candidate who honors them with truth-telling and a concrete employment policy and a plan to stem the rate of foreclosures or they may instead opt to take in a double feature at the neighborhood theatre. And you can take that to the bank.