To Refurbish Modern Monetary Theory (MMT), One Must Admit That Lockdowns Were Indeed Harmful On Balance

Modern Monetary Theory (MMT) has been taking quite a drubbing lately.  Some say it has been thoroughly discredited since it was de facto practiced (to an extent) during the pandemic, and massive inflation resulted.  But that glib commentary misses the real root cause of the inflation:  the shortages of goods, services, and labor resulting from the massive global supply chain disruptions, which in turn resulted from the lockdowns and related restrictions. 

(And it's not entirely due to ignorance, since those naysayers actually DO admit as much about the lockdowns, but yet they still speciously put most, if not all, of the blame on MMT, because reasons.)

MMT per se was never the problem.  But to refurbish it, one must admit that lockdowns and related restrictions did very real harm, something that the pseudo-left is loath to do.  Not that MMT is flawless, by any means.  But Rodger Malcolm Mitchell's related theory, Monetary Sovereignty (MS), essentially fixes those flaws, especially when he (belatedly) jettisoned the specious idea of interest rate hikes (which only deepened the stagflationary quagmire) as an inflation-fighting tool.  A good essay about the differences between the two can be found here.

In a nutshell, when you literally shut down the broader economy in most of the world for an extended period of time (which greatly disrupts and shrinks supply), AND then try to paper over it by printing unprecedented amounts of money (which stokes demand), that WILL be inflationary.  But the money printing was NOT the root cause, and remember that if the powers that be didn't do that, there would have been a full-blown depression, if not a complete collapse of civilization as we knew it, and within a couple weeks the masses would have been furiously calling for their heads with torches and pitchforks.  Or, they could have simply adopted the "flu strategy" and NOT imposed any restrictions, and perhaps implemented a more modest (but more brief and front-loaded) stimulus package, and this whole stagflationary quagmire could have been avoided.  And as the experience of Sweden and other countries has famously shown, it would not have resulted in any more excess deaths than occurred with lockdowns.  Hindsight is quite literally 2020.

It's not that lunch cannot ever be free.  It actually can be, at least to a point.  But truly lockdowns can never be a free lunch, no matter how much money gets printed to paper over the massive holes they make.

As for the specious notion that MMT (and by extension, MS) is a "luxury belief", well, we know that the real luxury beliefs are austerity and artificial scarcity.  Not to mention lockdowns as well.

A "Job Guarantee", Without The Guarantee?

The TSAP has once endorsed the MMT idea of a Job Guarantee (JG), which is exactly what it sounds like.  Of course, we also supported Universal Basic Income (UBI) with NO strings attached as well for years now, but still maintained that a JG would be good in addition to that.  However, we no longer support that idea anymore.  JG, in all of its flavors, has far too many conceptual, logistical, and ontological problems to be workable at scale, as Rodger Malcolm Mitchell notes in his article, and several others.

So what do we at the TSAP support instead of JG?  Well, we clearly support UBI, hands down.  But beyond that, we support a scaled-up version of something like Job Corps, and which is basically a Job Guarantee but without the "guarantee" part.  That is, simply a jobs program, both for finding and creating jobs as needed, and one that provides only useful work rather than the Sisyphean make-work boondoggles that would inevitably occur in a true JG program.  Otherwise, it is guaranteed to fail.

The Root Cause Of All Economic Woes Of The Past Half-Century: "Financialization" Of The Economy

The year was 1971, just over half a century ago.  The utterly costly (in both lives and money) and protracted Vietnam War was gradually winding down but still raging, inflation was getting out of control, and the Bretton-Woods system of an international (fool's) gold standard and fixed currency exchange rates was rapidly collapsing on itself due to rampant cheating and attrition.  On August 15, 1971, President Richard M. Nixon decided to effectively suspend the gold standard, first temporarily, though it would soon become permanent by 1973.  And by 1975, any nominal and vestigial links between gold and the dollar had been severed completely.   

Since this "Nixon Shock" of 1971, the money creation capability of the federal government and the Federal Reserve were no longer constrained by gold or anything else (except the remaining arcane and archaic rules of Congress left over from the defunct gold standard, and thus no longer make any sense).  Thus, Congress could really create as much money as they wanted from then on, and the Fed could create as much as Congress would allow them to.   The money supply had clearly exploded exponentially since then, and a fortiori after 2008 and 2020.  

So where did nearly all of those newly-created dollars go?

Wall Street, of course.  The result?  A perpetually yawning chasm between the financial sector (which grew exponentially along with the money supply) relative to the real, physical economy (which has basically stagnated and hollowed-out ever since).  That absolute and relative advantage was then weaponized against the bottom 99% of Americans, as the financial sector is dominated by the top 1% and especially the top 0.01%.  Extreme inequality and very much harm followed.  Decades of utterly remarkable progress against poverty stalled and even reversed somewhat.  And that, ladies and gentlemen, is the real root of all economic woes of the past half-century.

Prior to 1971, the financial sector moved largely in lockstep with the rest of the economy.  And not coincidentally, prior to 1973, wages grew largely in lockstep with labor productivity as well.  But ever since then, both have seen an ever-widening divergence, to the detriment of the greater working class.  While the oligarchs literally laughed all the way to the bank.  And that was clearly no accident, but rather by design.

Imagine if even a fraction of all that newly created-out-of-thin-air money since 1971 was rained down upon We the People directly instead of Wall Street and the big banks.  How different would America, and indeed the world, be today?  If that doesn't make you feel RIPPED OFF, check your pulse 'cause you might be dead!

The cure for this disease is indeed very, very simple.  All it takes is a simple Act of Congress to 1) scrap the remaining arcane and archaic rules that prevent Overt Congressional Financing, 2) implement Overt Congressional Financing, and then 3) use it to benefit We the People instead of the oligarchy.  UBI, Medicare For All, expanded Social Security, free college, debt cancellation, Green New Deal, oh my! Basically, the entire progressive economic agenda and more can be paid by the federal government for without any borrowing or taxes unless Congress wants to.  

That is the real logical conclusion of Monetary Sovereignty:  when a government issues it's own currency, by definition it has infinite money, which is constrained only by the laws that the government passes.  Time to end the Big Lie and act like it for once.

(And no, going back on the gold standard now would be a dumb idea, as that would only lead to artificial scarcity of money.)

As for inflation, that can be cured by 1) raising interest rates (in the short term), and 2) counterintuitive as it sounds, increased federal spending to cure shortages by incentivizing increased production of goods and services that are experiencing shortages (food, energy, labor, computer chips, etc.) in the longer-term.  Problem solved.  Next.

(And of course, stop creating shortages via supply chain problems due to lockdowns!)

So what are we waiting for?

UPDATE:  We would be remiss if we did not also enumerate the more proximal causes in addition the more distal root cause of financialization.  Those include:  

• Legalization of usury (lifting of federal 12% usury cap on interest rates) (1978)
• Union-busting re-legitimized by Reagan against the PATCO strike, which made an example of them for the private sector going forward (1981)
• Legalization of stock buybacks (1982)
• General deregulation and tax cuts for the ultra-rich and corporations (1980s)
• General deregulation of big banks and Wall Street (1980s)
• Shrinking the social safety net by stealth, letting it lag behind inflation (1970s through 1990s))
• NAFTA (1994)
• Shrinking the social safety net again via welfare deform (1996)
• Repeal of Glass-Steagall Act, the firewall between commercial banks and investment banks (1999)
• China joining the WTO as a "most favored nation" (2001)
• More tax cuts for the rich (2001-2003)
• NOT learning the lessons of 2008, particularly the moral hazard created by the Wall Street bailouts (2008-2009)
• Offshoring/outsourcing of manufacturing jobs (ongoing)
• Pandemic relief money disproportionately going to, and benefitting, Wall Street much more than Main Street (2020-2021)
• And of course, the lockdowns which, when combined with the above, constituted the largest wealth transfer in history, from the poor and middle class to the ultra-rich and Wall Street, both nationally and globally (2020-2021)

To Both Parties: Stop Playing "Chicken" With The Economy!

The elephant and jackass corporate duopoly in Congress are at it again.  They are, for the gazillionth time, playing a dangerous game of "chicken" with the "debt ceiling" and therefore with the economy.  Even merely hinting that the US government might default on its obligations is enough to cause real and broad economic damage.  And to add insult to injury, they also risk a government shutdown at the same time.  And to them we say, KNOCK IT OFF!  Yesterday!

We are officially being "governed" by overgrown children now, it seems.  In both parties, no less.

Not only is it a stupid and dangerous game to play, but it is 100% unnecessary.  The USA is the only country on Earth that has a separate vote for the debt ceiling and the budget, and one of only two countries that even has a formal "debt ceiling" at all.  And being Monetarily Sovereign, the USA would only default on the debt if it wanted to, since they could literally just print (or keystroke) the money.  Really.  (Just like that "gaffe" that Trump made back in 2016.)  And even the "debt" itself isn't really debt like occurs in the private sector or households--it is literally nothing more than deposits in Treasury security accounts, which are functionally equivalent to glorified savings accounts for investors.  That's it.  Otherwise, they simply keystroke money into existence every time they pay a bill, all while pretending otherwise of course.

And only due to arcane and archaic rules left over from the now-defunct gold standard (that functionally ended on August 15, 1971), which no longer make sense, is there any reason for this sort of utterly pointless dog and pony show, which means there really are only political reasons for it.  Which thus means there are no good reasons for it.  All they have to do is add the following text to any budget appropriations bill, per Dr. Joseph M. Firestone:

Paging Dr. Firestone indeed!  That would render "teh debt" a non-problem overnight.  And if Congress won't do that, the White House can always simply direct the US Treasury to #MintTheCoin.  Due to a little-known loophole in the law, the US Mint is allowed to mint platinum coins in literally ANY denomination as legal tender.  That means they can mint a trillion-dollar coin, or even a $100 trillion coin for that matter, and use such seigniorage as revenue to pay any bills.  The current White House, however, does not seem to be even the least bit interested in doing so, alas.

The US Constitution makes it crystal clear that the government must never call the public debt into question.  So what are we waiting for?

UPDATE:  The predictable howling about how the platinum coin loophole doesn't really exist (and that using the face value of such a coin as revenue is somehow technically illegal) is back again, and it is neither true nor necessarily in good faith.  This particular criticism appears to hinge entirely on the technical legal definition of "bullion coin" and the relative lack of precedent, but that doesn't mean it is necessary illegal.  Simply call it a "proof coin", and the face value is valid regardless of the value of the metal used to make it.  And the Federal Reserve would have no choice but to accept it as legal tender when deposited at the New York Fed, and thus fill the Treasury's own spending account there with the equivalent amount of paper/electronic dollars of revenue for spending.  Problem solved.  Next.

By the way, if the loophole doesn't really exist, then why did Republican Senator Mike Lee introduce a bill explicitly to close that very same loophole?

Even failing that, other things the President can do is invoke the 14th Amendment to nullify the debt ceiling, issue a new and special kind of bond to make an end-run around the debt ceiling, or even simply issue more debt in the short-term interim as the "least illegal" option under the Constitution, as the Constitution clearly prohibits defaulting on the debt.

In other words, President Biden can end this madness all by himself if he wanted.  So what is he waiting for?

Setting The Record Straight: Austerity Is NOT Good For The Economy

The evidence is overwhelming now.  Austerity is NOT good for the economy, for the same reason that applying leeches to cure anemia is not a good idea.  Money is the lifeblood of any economy, and cutting "deficit" spending (via tax hikes, spending cuts, or both) effectively shrinks the money supply.  And for a Monetarily Sovereign government like our own federal government, there is literally no good reason to do so at all, in good economic times or bad.

Never was, and never will be.  At least not in the post-gold standard world since August 15, 1971.

The infamous Reinhart and Rogoff (2010) outlier study that suggested that a debt/GDP ratio reaching some arbitrary level was inherently bad for the economy was roundly debunked in 2013 by a 28 year old grad student who discovered that the results were due to a coding error in the spreadsheet.  And even when Reinhart and Rogoff claimed that there still was a correlation (albeit much weaker), that was most likely due to reverse causation (i.e. due to countercylical policy responses to recessions) and residual or unmeasured confounding.

As for the Canadian experience that suggests that their austerity in the 1990s and early 2000s was somehow good for the economy has also been debunked.  The inherently harmful effects of austerity were masked by 1) an increase in the money supply, 2) a massive devaluation of the Canadian dollar, 3) a sharp cut in interest rates, 4) lag effects of previously massive deficit spending, and 5) secular global trends during that time period.  And of course, there was also the Alberta oil boom as well that continues to this day.  And they still experienced adverse effects in spite of their economic growth, particularly from the ruthless cuts to their otherwise legendary and stellar healthcare system that led to a "brain drain" and the notoriously longer "wait times" that opponents of single-payer Medicare For All disingenuously luuurve to scare ignorant Americans about.

As for Iceland in the wake of their 2008 financial crisis, they actually did more austerity than any country not named Greece.  But their austerity cuts did not begin in earnest until 2010, and the effects were essentially masked by a sharp devaluation in their currency as well as lag effects from previous deficit spending.  Thus, their massive recovery still occured in spite of budget cuts and tax hikes.

And how about the biggy:  the postwar surpluses in the late 1940 and early 1950s in the USA?  That was a deficit spending cut of a whopping 35% of GDP, yet the economy still grew like gangbusters.  But again, that growth was in spite of, not because of, their massive deficit reduction.  It was masked by massive increases in private-sector debt, lag effects of the previously massive deficits of WWII, and of course the relatively short-lived unique competitive advantage the USA had as the only major developed economy that was not devastated by the war.  And there were some fairly deep deflationary recessions during that time in 1948-1949 and 1954-1955, and before long, the federal government saw the need to run deficits once again to keep the secular economic boom going (which it did).

Thus, these exceptions really only prove the rule.  Not only is the conventional "wisdom" about austerity inaccurate, but it is in fact 100% wrong at least as far as federal finances go.  If anything, so called "deficit" spending is needed to ensure robust economic growth in the long run.  All the more reason to put an end to the Big Lie and finally decouple federal spending from taxes and Treasury securities yesterday.

In fact, since a growing economy requires a growing supply of money, and the fact that GDP = Federal Spending + Nonfederal Spending + Net Exports, one can therefore argue that a deficit/GDP ratio of at least 3% on average is needed to maintain robust economic growth of 3% per year or higher.  And to cure recessions, depressions, or secular stagnation, an even higher ratio is needed, perhaps as high as 7% or 8% even.  No wonder the EU has been persistently in the doldrums:  they actually set a 3% ceiling on their members' deficit/GDP ratios, they all have painfully high and regressive taxes such as VAT, and worse still, those nations who use the Euro are monetarily non-sovereign and cannot create their own money.

And for any country who is still contemplating fiscal austerity in spite of all this: at the very least, the growth of the money supply needs to be maintained by other means, namely the loosening of monetary policy.  Failure to do so will risk a recession or even a depression.  Note that GDP growth (or lack thereof) tends to lag the growth (or lack thereof) of the money supply by four quarters (one year) on average, sometimes even longer if there is a lot of momentum, so any apparent lack of immediate adverse effects should really not lull one into complacency.

Please note that until about 2014, the TSAP once did support austerity as well as a return to the gold standard.  We no longer do, and deeply regret ever giving any sort of credence to these outmoded ideas based on fundamental ignorance of economics.

What MMT Gets Wrong, And Monetary Sovereignty Gets Right (Part Deux)

Recently, we wrote an article discussing the theoretical and practical differences between Modern Monetary Theory (MMT) and Monetary Sovereignty (MS).  But still, some may wonder why there is essentially no correlation between deficit spending and inflation, at least not in the post-gold standard era and not even during WWII.

Surely there must be some connection, right?  Well, there technically is, but essentially only at the extremes.  Why?  Because of the "velocity of money", spending (sources of dollars) need NOT be symmetrical with taxes (sinks of excess dollars), only that enough dollars are clawed back in the long run (with the definiton of "enough" being quite elastic).  And as the velocity of money increases along with actual or potential inflation, so too does the tax take, narrowing the gap between sources and sinks.

For example, if the velocity of money factor is 7 (i.e. newly created dollars changing hands seven times on average, before being destroyed), spending can theoretically exceed tax revenues at any given time by up to a whopping factor of seven (!) before the excesses begin to accumulate year after year to the point where inflation increases when demand for goods and services grows much faster than supply, all else being equal.  Of course, the velocity will vary, and all else may not be equal, but that only makes it even more of an automatic stabilizer overall.

(Of course, it sure didn't hurt that during WWII, taxes were collected in real time (i.e. withholding) and the tax base was greatly broadened as well, despite record-high yawning deficits.)

And of course, another major sink is the FERAL Reserve draining excess bank reserves, while raising interest rates increases the demand for dollars and thus the relative value of dollars.  And paying down debts of any kind is another major sink as well.  And of course, a growing economy requires a growing supply of money, just to prevent recession and/or deflation, so the sources can still exceed sinks of all kinds by quite a large margin before inflation begins to bite, and we are currently nowhere near that point.

And of course, banks create money out of "thin air" all the time every time they make loans.  The difference is they don't create the interest that is owed, which must come from somewhere when it is paid back.  And if this were the only method of money creation (which it would be, if federal "deficit" spending money into existence interest-free were zero or negative, that is, a so-called "balanced budget" or "surplus"), then there would NEVER be enough money to pay it back, leading to net destruction and artificial scarcity of money.  And that would be VERY harmful for any economy--it was, after all what turned the mild-at-first 1929 recession into the full-blown Great Depression by the time 1930 had come and gone.

So it's no wonder we don't see any robust correlation between deficit spending  (i.e. money creation) and inflation in either the short or long run.  Thus, another myth bites the dust.

What "Give People Money" Gets Right--And Wrong at the Same Time

One of our favorite journalists, Annie Lowrey, recently wrote a book called Give People Money:  How a Universal Basic Income Would End Poverty, Revolutionize Work, and Remake the World.  As its self-explanatory title suggests, she is clearly in favor of the idea, at least in principle, and notes all of the many benefits to society that a Universal Basic Income (UBI) would have.  She does a great job of delineating such benefits and thoroughly debunks numerous myths about this big idea.  So overall, it is a good book.

That said, while her thesis starts out practically on fire in terms of ambition, it really starts to coast towards the end when the practical issue of cost starts to seep in.  Then, her proposals start to get significantly less ambitious than a true UBI, namely a negative income tax (like the kind Nixon once proposed and was ultimately weakened into what became the Earned Income Tax Credit) and/or a smaller UBI-style payment for children only.  True, those weaker versions would indeed be cheaper, and far better than doing nothing at all.  And it would certainly be more likely to pass through Congress, no doubt about that.  But the larger point is still being missed in terms of the nature of the cost issue.

And that larger point is that since the United States federal government is Monetarily Sovereign, the whole cost issue is really a non-issue when you think about it.  It is a Big Lie that federal taxes actually pay for federal spending, and that the federal government can somehow run short of dollars.  They can literally create infinite money, thus money is literally no object in that regard, if only they would act like it and dispense with the Big Lie once and for all.

In fact, Rodger Malcolm Mitchell himself advocates a form of UBI that he calls the Economic Bonus (EB), which is Step #3 of his recommended Ten Steps to Prosperity.  It is similar to Social Security for all, but without the FICA tax (which he believes should be abolished), and paid for entirely via money creation (i.e. spending it into existence).  Though the figures he provides are not set in stone, he advocates that we start with $1000/month for everyone over the age of 21 and $500/month for everyone below that age.  The TSAP fully agrees, except that we think the age threshold for the full amount should be 18 instead.  Or perhaps give the same amount (say, $500) to everyone regardless of age to start with.  Either way, once it is started, the numbers can be easily adjusted.  And $1000/$500 is a very handy number since that is roughly the amount that would be enough to eliminate poverty as well as give workers much more bargaining power than they have currently, while still not being so ludicrously high as to trigger runaway inflation or other adverse effects.  And best of all, it wouldn't cost the taxpayer one penny.

And Presto!  The square has thus been circled--or is that the other way around?

Oh, and about that inflation thingy, keep in mind that despite three rounds of QE, nearly $30 trillion in secret bailouts for the banks, $21+ trillion in national debt, and the Pentagon "losing" another $21 trillion despite putting two (or four) wars on the proverbial credit card, all of this money created out of thin air in fact, and economic growth finally roaring back to life (for now), we are still nowhere near the point of runaway inflation.  Not by a long shot.  If anything, we are still under the shadow of what Larry Summers calls "secular stagnation" thanks to chronic, extreme economic inequality and related socioeconomic ills.  And if ever we did get anywhere near that point, we know now exactly how to prevent and cure such inflation via interest rate control, and failing that, simply create less new money going forward.

So what are we waiting for?

The $21+ TRILLION Question

Although the government shutdown and debt-ceiling brinksmanship has been averted (for now), the $21+ TRILLION question remains:  what are we going to do about the national debt?  Especially now that it is set to skyrocket even further into the stratosphere due to both massive tax cuts (mainly for the rich and mega-corporations) and spending increases, including on our already over-bloated and over-extended military.  It is now mathematically impossible to pay it off at this point.  So what is the solution, then?

Obviously, if we find ourselves in a hole (especially one as deep as this), the very first thing we should do is stop digging.   That is known as the First Law of Holes.  That means no more deficit spending for the foreseeable future, period. But unfortunately, that's a lot easier said than done. Taxes will have to go up and spending will have to go down--dramatically.   And that would do more harm than good at the levels it would need to be done.  There is really no way around that.

However, there actually is a painless (albeit unconventional) method of paying off the debt in one fell swoop.  Not just this year's deficit, but ALL of the cumulative $21 trillion of the debt. It's called the Noble Solution (named after its creator, Richard E. Noble) and does not involve any significant tax hikes or spending cuts. So what is it? It's something we never would have advocated just a few years ago:  printing (electronically creating) money out of thin air to pay it off all at once.  Alas, the genie is out of the bottle now, as the Feral Reserve has been creating money out of thin air for decades (including that recent whopping $16 trillion secret bailout of the banks, which eventually rose to nearly $30 trillion) so we might as well put this practice to productive use.  Money is really nothing more than an accounting entry nowadays, so let's make the entry and be done with it for good.

But wouldn't that lead to hyperinflation? Not if it is properly done with due diligence.  Noble points out that while creating money is undoubtedly inflationary, using it to pay off the debt (which is in Treasury bonds and is thus already part of the money supply) would be deflationary in that it would shrink the money supply by an equal amount. Thus, the two effects would cancel each other out, as paper (electronic data) would be exchanged for paper (data). Of course, we would have to bypass the Feral Reserve to avoid creating more debt in the process, such as #MintTheCoin. Or better yet, abolish or nationalize the FERAL Reserve entirely and return the power of money creation to its rightful owners, our elected representatives in Congress and the Department of the Treasury.  America would then be free and clear for the first time in history since Thomas Jefferson.

Of course, while doing it once may not be harmful, doing it regularly can be.  To make sure we never have to do this again, we must make sure the debt never, ever, reaches such stratospheric levels again, period.  In addition to nationalizing the Feral Reserve to make it a public national bank that creates interest-free currency, fiscal policy must be tightened after the Noble Solution is implemented and the debt is paid off.  We have already outlined in previous posts what must be done as far as taxes and spending are concerned.  Alternatively, or in addition to the above, there is also the legendary Warren Buffett's clever idea:  make a law that anytime the budget deficit exceeds 3% of GDP, all sitting members of Congress are ineligible for re-election, period.  Problem solved.

Of course, the longer-term drivers of future debt obligations are the programs that make up so-called "entitlement" spending, mainly Social Security, Medicare, and Medicaid.   But even here, there is less than meets the eye.  For Social Security, that can be resolved by 1) scrapping the wage cap on FICA taxes (or raising it to an arbitrarily high level like $1 million or $10 million), 2) indexing initial benefits to prices or median wages instead of average wages, and 3) very gradually raising the full retirement age to 70 for those born after 1980 or so.  In fact, if we did all those things plus a very slight 0.2% hike in the FICA tax, we could even expand Social Security (and perhaps briefly lower the retirement age a bit in the short term) while still keeping it solvent for the foreseeable future.  For Medicare and Medicaid, the only real long-term solution to their burgeoning fiscal woes is a truly universal single-payer healthcare system that can bend the cost curve downward by taking the profit out of healthcare and especially tackling the price-gouging of Big Pharma.  Any other proposed solutions are mere window-dressing at best.

Of course, Rodger Mitchell has an even better, more fundamental idea that makes it so the government would never need to borrow a single penny ever again, and it doesn't require raising taxes OR cutting spending.  Not only that, but it would guarantee that Social Security and Medicare, and any other program, would remain fully funded indefinitely as well without the use of FICA taxes (or any other tax for that matter).  The solution, in his exact words:

The best way is to eliminate the federal budget deficit and debt: Ending government borrowing. The government has the unlimited ability to create and spend money without borrowing. The process will be: 

1) Congress will create an account called "Money." 

2) Congress will determine how much money this account contains. The process will be similar to the way Congress now determines the debt ceiling. 

3) Federal agencies will write checks against this account according to budgets decided by Congress. If any federal agency needed additional funds, Congress would decide whether or not to allow this spending, in the same way that Congress votes for additional spending by the military et al. 

This would eliminate concerns about "our grandchildren paying for the federal debt." There would be no federal debt.

And as long as such money were created without any interest or related fees (as per Ellen Brown) such a solution would actually work.  Modern Monetary Theory indeed supports such an idea.  But before we can do that, of course, we must first have an independent Treasury and/or a public national bank in place of the privately-owned FERAL Reserve.  (And since he mentioned the debt ceiling, that is another thing we should really get rid of as well in the meantime, since it does far more harm than good.)

But the bottom line is that the debt must be defeated, and soon.  We simply cannot afford to continue kicking this can further down the road.  Otherwise we may very well go the way of the Romans.  The greatest tragedy of which being the fact that it was all 100% contrived and therefore 100% avoidable all along.

How to Prepare for the Next Big Crash (Part Deux)

As we have noted before, things are really not looking good for the global economy this year.  Whether we actually experience another financial crisis on the order of 2008 or even 1929 (or worse) is a matter of debate, but the time to prepare for such a scenario is yesterday.  At the very least, another recession is inevitable at this point by 2019 at the very latest, since no economic expansion has lasted much more than eight years straight in this country (with the notable exception of 1991-2001 that lasted exactly ten years).  Granted, the expansion from July 2009 to the present mostly benefited the rich, and until around 2014 practically entirely benefited the rich, but it was still technically an expansion of the economy even if the growth was largely uneconomic in practice.  And expansions can only go on so long before a contraction (i.e. recession or depression) inevitably occurs--it's just a fundamental truth of the business cycle.

One thing is for sure--things are very different this time around at least in terms of monetary policy.  At least in 2008, interest rates were well above-zero, and could be cut to stimulate the economy (or, more accurately, stop or slow down the hemorrhaging).  When that proved to be futile, then the Feral Reserve and many of the world's other major central banks resorted to "quantitative easing" (i.e. creating money out of thin air and giving it to the banks directly).  In late 2014, the USA tapered off and ended its QE policy, and in December 2015 ended its zero interest-rate policy by raising the Fed Funds Rate to 0.25-0.50%.  Since then, the FERAL Reserve has raised rates five more times, most recently on March 21, 2018 to 1.50-1.75%, and many more hikes are on their way.  And combined with Trump's new trade war against China, that may have been enough to finally lance the massive bubble--make that the festering BOIL--that the stock market has been in for years now.  And since they now have a little bit of room to cut it--if they don't wait too long to do so--they probably seriously think that they can somehow engineer a soft landing if (and that's a VERY big "if") that is even possible at this point.  But not much room, really.

But many of the central banks of the world are still starting from zero or close to zero--and some banks including the European Central Bank and the Bank of Japan have even resorted to negative interest rates (!) by 2016.  That means they are effectively charging depositors for the "privilege" of depositing money, and effectively paying borrowers to borrow money, which basically turns the world of finance upside-down.  Such negative rate territory is uncharted waters, since until a few years ago no country has ever dared to do such a thing.  And there is currently no evidence to suggest that such a move will be beneficial in the long run, and may in fact turn out to do more harm than good overall.

So monetary policy basically needs a new set of tools and a new game plan to deal with the next crisis, whenever it occurs.  The Feral Reserve and the other central banks of the world are basically still using an outdated playbook.  In the near-term, two things need to change yesterday.  First of all, they need to abandon interest-rate targets altogether for the time being, and instead focus on targeting the growth of the overall economy.  Like Paul Volcker did in 1979-1982, but done in reverse since the "inflation dragon" is not the problem this time (unless the Trump tariffs really begin to bite). Secondly, implement Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money into everyone's bank accounts.  Granted, the latter measure would probably require an Act of Congress to allow it to occur legally, but as the Feral Reserve was just two years ago seriously debating the legality of negative interest rates, I'm sure they could find some sort of a loophole to allow it in an emergency such as a massive financial crisis.  And of course fiscal stimulus would likely be necessary as well, in additional to much needed reforms to regulate Wall Street and the big banks (a law that rhymes with "brass seagull" comes to mind, as well as a financial transactions tax and better regulation of the shadow banking system), but those two changes to monetary policy would go a long way towards preventing the next recession/crisis from turning into another 2008 or 1929 or even worse.  And the silly idea of negative interest rates really needs to be abandoned as well.

More fundamentally, of course, we need to nationalize the FERAL Reserve to make it a truly public national bank that creates money interest-free, and take the power back from the big banks.  Ellen Brown has written books about that very subject.  In the meantime, though, the aforementioned recommendations would still work in the near term.

But let's be brutally honest here.  What we are really witnessing these days is the slow and painful death of a woefully obsolete system, one that has been kept on life support for many years now.  And eventually we will have to pull the plug on it, sooner or later.  It's just a matter of time.

How to Prepare for the Next Big Crash

As we have noted in the previous article, the risk of the next big economic crash continues to loom larger than ever before, and it is most likely too late to actually prevent it from occurring entirely.  That's not to say that there aren't things that should be done to prepare for it to make it less catastrophic, though.  Back in 2014, the TSAP had predicted that a crash would occur within a few short years, and we had written an article then discussing how to prevent it before it occurs or at least take the edge off of it, while ending the previous economic "stagpression" for good.  We also reiterated such ideas in 2016 as well, the year for which the insightful Thom Hartmann predicted the epic crash that was his book's namesake.  (Being off by two years or so is still fairly accurate in our book.)  And we should note that these things would indeed help take the edge off of the next looming financial crisis as well.

Two things come to mind right away:  1) a Universal Basic Income Guarantee for all, an idea that is LONG overdue, and 2) Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money directly into everyone's bank accounts and/or via debit card.  Additionally, we need to better regulate the Wall Street casino so such a crisis could never, EVER happen again, and also JAIL the banksters who caused the crisis (instead of bailing them out) like Iceland did.  A complete debt jubilee would be even better still (in general, but especially for student loans), but even the things we just mentioned are a fairly tall order for a government who is bought and paid for by the banksters/oligarchs.  While other things need to be done as well in the long run, such as critical investments in infrastructure and education, the aforementioned measures would go a long way towards fixing our soon-to-be-ailing economy.

Those are the things that should be done at the government level, of course.  At the individual level, there is really not much one can do except get OUT of the stock market while you still can, and take at least most of your money OUT of the big banks (before the "bail-ins" begin) and put it into smaller banks, credit unions, or even under your mattress.  Or even in a big, brown bag inside a zoo (what a thing to do!)

One Weird Trick, Part Deux

It just so happens that the very next day after we posted our "One Weird Trick to Rescue Economy" article, the highly progressive former Democratic Congressman Dennis Kuchinich posted an article of his own at The Nation.  Titled "Our Political Economy Is Designed to Create Poverty and Inequality", the article discusses how the economy is currently rigged in favor of the top 1% (especially the top 0.01%) at the expense of the ever-growing poor and ever-shrinking middle class.  This rigging is done through the tax code, obviously, but also through more subtle machinations such as the privatization racket (where formerly public services and utilities are privatized, at the expense of the people and for the benefit of the rich) which also includes our monetary system and the privately-owned FERAL Reserve that has controlled it for over a century now.

And most notably, he discusses a bill that he himself sponsored in 2011-2012 called the NEED Act, which would have ended this monetary racket via an independent Treasury (much like Ellen Brown's public banking idea) and the abolished the scam known as fractional-reserve banking.   The newly-created greenbacks would then be used to create full employment via funding much-needed improvements in infrastructure as well as education, healthcare, and other government spending, which would have been a great stimulus to the economy.   The bill would also restore the federal usury cap to an even lower 8% (it was 12% before it was removed in 1978) as well.  It even had the potential to also create a citizen's dividend (aka a Universal Basic Income), provide universal healthcare, shore up Social Security, and solve so many other problems at once.  Overall, an excellent bill.  But of course, the cowardly and venal Congress unfortunately did not pass it.

In case you were worried whether such an idea would create hyperinflation, allow us to put that fear to rest.  Currently, the private banks create new money out of thin air all the time, every time they make a loan.  The FERAL Reserve does this too, most notably the secret $16 trillion (which eventually became more like $29 trillion) bailout of the banks just a few years ago.  So why not have this process be publicly controlled and used for the benefit of We the People rather than the oligarchs?

As Ellen Brown notes, the Weimar hyperinflation in Germany from 1921-1924 occurred while the money was being created by the private banks.  Germany had been punished with crippling debt by the Allies in the aftermath of WWI, and they needed to create a lot of money to pay it.  The biggest problem, though, were the speculators who shorted their currency (betting that it would go down in value), which became a self-fulfilling prophecy. And the banks just kept on printing more and more marks to satisfy the speculators' demands, creating a vicious cycle of runaway hyperinflation.  The madness only stopped once the government got a handle on it by finally taking back control of the money supply in 1924, which was followed by a few years of relative prosperity before the deflationary Great Depression began in 1929.  And Brown also notes, as we noted in our previous article, that Germany got out of the Depression by using the "one weird trick" themselves (too bad they didn't do it much sooner, that is, before you-know-who took over in 1933).

(And just in case anyone predictably tries to play the "Jew card" after reading this, keep in mind that most oligarchs/banksters are actually WASPs rather than Jews, and have been for quite a while now.  Even the Vatican has their own bank now.  And the TSAP does not condone anti-Semitism of any kind.)

So what are we waiting for?  Let's finally put an end to artificial scarcity and artificially-created unemployment for good. Yesterday.