As I continued to poll the voters, lowering taxes and reducing government spending rose to the top of the list of voter’s concerns. This is why I dealt with those issues first. Next in line was social security. A very large percentage of the voters I talked to are either receiving social security and Medicare benefits or soon will be. There is also a considerable number of people whose pensions are in the Pension Benefit Guarantee Corporation (PBGC). (This is the under-funded government agency that administers the pensions that are abandoned by the private sector.) To all those voters, I would like to say that I am in the same situation as you. And, if I am elected, I will certainly fight to make sure these vitally important programs are made solvent, permanently.
If I am elected, my position as a state Representative does not preclude my interaction with federal politicians. Social security, Medicare, pensions and taxes are high on the list of concerns of the voters in the 44th Legislative District. My job, as their Representative, is to address these concerns.
How can we make social security, Medicare and the PBGC permanently solvent? We can do it by using the financial system given to us by the founding fathers of this country: Article one, section eight, paragraph five of the U.S. Constitution gives Congress (not the Federal Reserve) the authority to “coin money and regulate the value thereof.” In 1862, Congress, in compliance with this Constitutional mandate, authorized the Treasury to issue $449,338,902 worth of United States Notes (Greenbacks.) No debt was incurred by the government and there was no inflation despite the fact that it was a 25% increase in the national money supply.
This monumental act of fiscal responsibility has all but disappeared from the historical record, but it is there. Congress still has the legal authority to “coin” -- that is, create money without burdening the taxpayers with debt. Does this mean that the Federal Reserve should be done away with? No. The Federal Reserve can function largely unchanged. However, it must not be in a position to create money based on debt.
My proposal for permanent solvency of social security, Medicare and the PBGC is simple. Have an honest, public audit of the social security, Medicare and PBCC trust funds to determine exactly how much money is missing. Then, using the authority of the Legal Tender act of 1862, simply replace the missing money with debt free, United States Notes (Greenbacks.) This will put a stop to all the talk of cutting social security in order to reduce the federal deficit. Social security has nothing to do with the deficit.
If trust fund money is money that we (and our employers) put into the social security system, how can politicians say these entitlements increase the federal deficit? (By the way, we are entitled to the trust fund money because it’s our money.) How does our money add to the national debt?
Every cent that isn’t paid out in benefits is spent by the politicians. When the politicians spend our trust fund money, they put an IOU, a government bond, into the trust fund to account for the money they spent. This bond is a liability against the federal government. Who is liable for the bond debt and the “interest?” We, the taxpayers, are. Incredibly, the politicians want us to pay back the money that they spent because the bond liability is added to the total federal debt. When those bonds default because of the $12.5 trillion national debt, the result is that we never get our money back. This is the legacy of the 1983 Reagan/Greenspan Commission.
How can we get permanent solvency of the trust funds without cutting benefits, raising the retirement age, borrowing money or raising taxes? First, we reverse every cut that has ever been made to social security benefits. This makes sense because cutting benefits is breech of contract between the government and the people covered under FICA, the Federal Insurance Contribution Act. Then, a cost of living adjustment is factored in and that amount is what the retirement benefit will be, permanently. The same logic applies to Medicare and the PBGC. When money is raided from a trust fund and that results in a cut in promised benefits, that is a breech of contract. When an economic downturn causes a cut in promised benefits, that is a breech of contract. When lack of money in the PBGC results in a reduction of pension benefits negotiated by employees, that is also a breech of contract.
Where will the money come from to pay for the benefits earned by the people in the social security system, the Medicare system and the PBGC? Legal tender United States Notes is the short answer to that question. However, that answer is not so simple given our current economic situation.
The first problem is that employers are required to contribute to the mythical social security trust fund and they don’t want to do that. They say that makes them uncompetitive in the global economy. More about that later. Second: wage stagnation/decline, wage inequality and the Great Recession have significantly reduced the revenue available to the social security system. Third: as we know, the trust fund “surplus” has been spent by the politicians to make the budget deficit appear smaller that it actually is. Fourth: the money that is spent by politicians is “replaced” with IOUs. Can these IOUs ever be redeemed in an economy permanently crippled by the Great Recession and globalization?
With a $12.5 trillion national debt, foreign aid, corporate welfare, two, on-going, endless wars, military commitments around the world, a massive security apparatus to protect against terrorism, and a permanently crippled economy (the “new normal”), it is certain that those bonds will never be redeemed. Can we say that $2.5 trillion has been stolen from the social security system? Unfortunately, the money is gone and the politicians have no clue as to how they will replace it.
A perfect illustration of this fact emerged at a town hall meeting held by my Congressman Tim Murphy. I asked Mr. Murphy: “Why don’t you politicians put the money back into the social security trust fund that you have been spending since 1970.” He said: “I would have to raise your taxes to do that.” He wants to take more of our money to “pay back” the money that he took from us in the first place?
At that same meeting, I tried to give Mr. Murphy a letter explaining how he could replace the raided money with Constitution based, legal tender, debt free United States Notes. The letter was intercepted by one of Mr. Murphy’s aids who promised to give the letter to the Congressman. After waiting for about three week without a response, I called his office. The same aid who intercepted my letter told me that he never gave the letter to the Congressman. He simply read it and threw it away.
I submitted another letter and several E-mails but Congressman Murphy refused to even acknowledge my correspondence. I am still waiting for a response. This stonewalling is the reason I am running for public office.
The obvious short answer to the question of how do we replace the missing $2.5 trillion is: replace the money with United States Notes. Unfortunately, the problem is much bigger than a mere $2.5 trillion. The real problem that the American people are faced with is the “new normal” that the economic pundits have begun talking about in the media. The new normal is a permanently crippled American economy. The new normal is permanent austerity for a large percentage of the American people. To save time and space, I won’t write a dissertation on the new normal. (I recommend an Internet search of the subject.) I will simply say that the only way back to the old normal is by stimulating the economy with debt free United States Notes. I will explain how we can do this in the articles dealing with “building a strong economy” “good paying jobs” and “strengthening small business” .
We must stop running our economy solely on debt. Borrowed money is money that doesn’t exist when the debtor can’t repay the loan and his or her net worth drops to zero. This is why the global economy collapsed in 2007. A debt based economy is the economic fantasy that brought us to the new normal of permanent austerity or worse.
I know enough about mainstream economic thinking to realize that my monetary reform proposals will be rejected as inflationary. After the 2007/2008 global credit meltdown and the Great Recession, I think I have a right to question mainstream economic thinking.
According to mainstream economists, increasing the money supply devalues the currency and causes inflation. This is the rule of supply and demand that we, supposedly, see every day in the commodities markets. This idea is simply wrong. Dollars are not a commodity like corn, wheat, soy beans or gold. Dollars are just paper with no intrinsic value. The dollar gets its value from the law and the law gets its authority from the Constitution. The value of the dollar is regulated, according to the Constitution, by Congress, not currency speculators. Ironically, the enumerated power (“and regulate the value thereof”) that is ignored by the politicians in Congress is used by the Chinese to manipulate the value of their currency in order gain an advantage in the global marketplace. More about this later.
What does the historical record tell us about the relationship between the money supply and inflation? Abraham Lincoln increased the money supply by 25% and there was no inflation. To counter the disastrous “deleveraging” brought on by the 2007/2008 global credit meltdown, central banks around the world pumped multi trillions of dollars worth of liquidity (money) into the global financial system. Not only was there no inflation, we are still facing the threat of ruinous deflation.
Many people point to the hyperinflation experienced by Germany in the 1920s as a reason to limit our money supply. The German economic conditions in 1922 and 1923 have no correlation to the American economy in 2010. War reparations imposed by the Treaty of Versailles weakened the German currency and started the downward cascade of value of the German mark. Uncontrolled, rampant speculation in commodities caused price inflation. A small segment of the population actually profited from the inflation. People with access to strong foreign currencies could buy assets at bargain prices. People could pay off their debts with plentiful money. Internal and external economic forces and social instability drove up prices. The German government printed more money in a vain attempt to maintain adequate liquidity in the economy. The massive amount of money in circulation was the result of the hyperinflation, it was not the cause.
The American economy in July, 2010, is being starved of money. (Banks and corporations are sitting on $2.7 trillion of cash.) It is preposterous to say putting debt free money into the trust funds will cause inflation. Increased social security, Medicare, Medicaid and pension benefits along with debt free money injected into the community banking system is exactly the economic stimulus America needs.
Social security, Medicare, Medicaid, the PBGC, the Veterans Administration, NASA, schools, hospitals, firefighters, police, libraries, social workers, public transportation, infrastructure, small businesses, state budgets, etc. all need money. Do we raise taxes? No. Do we get America deeper in debt by borrowing from the capital markets? No. We must do the smart thing and look to the Constitution for a way out of this fiscal train wreck. If debt free money made sense to presidents Abraham Lincoln and John F. Kennedy, it should make sense to president Barack Obama.