Or will the world end recessions by taking a now-contemplated step?
Could a single step end global recessions? Some say the bold Chicago Plan, now enjoying a resurgence among economists, would do so. That would be a “major tune up” to the world’s major monetary systems, to be sure, and some think over-kill. If that is so, then – when our economic engine conks out, leaving us stranded – how small an adjustment can be made to get it running?
The central bank monetary systems of the advanced nations are of the same basic design, like car engines off the same assembly line. An adjustment needed by one is eventually needed by all. The correction of a basic design flaw is dependent on it being recognized by many. Many economists abroad as well as at home have noticed the same design flaw, and some are well ahead of us in joining together to do something about it. If we join this emerging international consensus, we have a very good chance of staving off the threatening international recession. At the end of this article, we will comment on the creation of the Global Monetary Forum, through which scholars in the US and abroad will discuss these emerging monetary reforms. Never before have the stars so aligned in the US (as noted here) and internationally (as noted in the attached addendum) to prompt change – quite possibly the biggest story in economics of the upcoming year.
As we have pointed out in these pages before, with just 5% of our money supply taking the form of old-fashioned government – issued rather than government – borrowed money…the norm of history in most countries throughout most of history… we can eliminate our current deficit and make headway toward reducing our national debt. Last month we solicited a vote from our readers as to which they think is the better plan for dealing with the long-term debt problem – the plan of Policy Winners and friends, employing government – issued money get our current deficit under control, or the plan of the Brookings Institution – using massive cuts to Social Security, Medicare and Medicaid as its first-cited step. Just as Congress has essentially rejected the Brookings approach for a decade now, our readers did, too, voting for the approach of Policy Winners and its many friends overwhelmingly over Brookings (which in fact got no votes!).
Pick your own theory as to why some think members are not willing (or not allowed) to discuss the subject. It may be Wall Street funders, as many believe. In the absence of any explanation from the source, who knows? One of them told us, “I have not thought deeply about the issue.” He could speak for many! A think tank panel member billed as an expert on the debt crisis said, “I don’t know anything about United States Notes” (a form of debt-free government-issued money carried in his own wallet until 1971, when they were last issued, and he was 33 years old). European scholars seem to know much more about the subject, which we find very embarrassing. Were too many American economics students of the hippie era allowed to opt for Advanced Basket Weaving instead of Economic History? Whatever is the case, it’s time for those who must plead ignorance to get in step with those more knowledgeable who have gained the world stage. A confluence of events will increasingly force the issue. Consider:
We have now exhausted our bag of tricks in the form of non-sustainable borrowing rates and levels of quantitative easing, leaving us with no workable plan for bringing the debt under control long-term; we have a tepid recovery hobbled by increasing income and wealth inequality, we see slips in educational and competitiveness standards, and we have no way of funding essentials like infrastructure maintenance, climate change costs and quite possibly emerging national security crises. We face a very possible global recession within a matter of months which could reverse our gains. We have no meaningful agreement on the budget, only calls for further austerity likely to weaken the economy and diminish social cohesion.
Taken together, these things constitute a “perfect storm”. Is this a harbinger for disaster plain and simple, or is it also a “perfect storm” of such dramatic parameters as to crystallize issues and compel change?
How difficult would necessary change be? If we give the subject a bit of deep thought as our new friend admits he has not, the truth is that the issue is no more complicated than the 50-year debate over whether to require seat belts in cars … and the cure no more difficult than doing so. Using government–issued rather than government–borrowed money to fund a given deficit amount is, after all, the norm of history, the Constitutionally– described way Congress is supposed to provide for a national money supply (Article 1, Section 8). It is the way that allowed for the economic development of the colonies (Colonial Scrip), the way that allowed adequate funding of the War of Independence and of the establishment of our national economy (the Continentals), the way that allowed for the preservation of the Union and an adequate Reconstruction (United States Notes), and the resource that permitted essential New Deal programs to be conceived. Government–issued money has played and continues to play vital roles in other countries. So re-instituting it is nothing new, simply a return to an orthodoxy that worked. We tried a radical, 100% money creation privatization “improvement” that didn’t work. With 5% of our money supply provided in the form of government-issued money, we can cap new deficits and reduce our national debt without ruinous austerities. And please do note that nothing in this paragraph calls for spending a cent more or causing “hyperinflation”; in fact, by avoiding a raid on the capital markets to fund federal deficits, we can leave more money invested in the real economy at lower rates of interest, reducing inflationary pressures.
So why aren’t we doing this? In one word, it’s corruption – the corrupting influence of special interests Abraham Lincoln called “the money power”. In two words – which are more fully descriptive – it’s corruption and ignorance – the lubricant without which corruption cannot work. When people don’t know any better, corruption can easily overwhelm. With a little knowledge and a little communication, with some modern-day “committees of correspondence” arising, we can correct the flaws in our institutions.
A drawback of the format we are using for Policy Winners is that it is difficult for us and for others who might speak up to know what other readers are thinking. The “committees of correspondence” were able to bring about change because they could know the minds of those with whom they were corresponding. At this time, a number of scholars and organizations from across the globe are joining together to form an umbrella organization to facilitate discussion of the core idea of re-introducing at least some government –issued money in places where it is not currently being used. Some advocates envision a full-blown Chicago Plan. Some advocate a system minimally changed, like our proposal for the issuance of up to 5% of the money supply as government –issued money and an unchanged Fed. There are varied ideas about coordinating monetary policy. The new umbrella organization in which we will be participating – tentatively to be called the Global Monetary Forum – will enjoy the participation of recognized, published authorities from respected institutions in the US, in Europe and in other nations participating in discussions and, ultimately, in the governance of the organization.
The goal is to facilitate a broader conversation among influential experts of note. We expect that some participants will be skeptical, raising only questions or critiques, and that’s OK. Some of those will join others and find common ground for action either initially or in time. The new organization’s newsletters are to comprise a forum for substantive questions and comments among qualified participants like our readers, today, rather than the scatter-shot of a “chat room” open to the general public. We do, however, want those who wish to receive that newsletter it to request it. Look for a kickoff early in the new year - but do e-mail us at any time if you would like to be on the e-mailing list, which we are helping to facilitate through info@policywinners.org.
As an addendum to this newsletter, next page, you will find a brief write-up on the subject of the international recession many predict, and why we think the situation on the international stage is ripe for the increasing calls for the re-introduction of government-issued money in the leading economies.
Our “other” December draft, mindful of the season, concerned the sacred Christmas story and its long interrelationship with human struggles to better the practical circumstances of life. It left off with patient slavery foe William Wilberforce stepping into a cold winter’s night in Dickens’s London, grateful for his sense of direction as symbolized by the evening star, a grace sufficient for him. We cannot let that thought go, with yet a line to capture it. The call upon him is a call upon us all. God bless us all, each and every one.
Appendix
National Debts and the International Economy
A one-page AP news article by Elaine Kurtenbach appeared on AOL News on 11/17/2014,
The article addresses the recession that commenced in Japan during the July-September quarter, 2014. This is, of course, the latest in a string of recessions in Japan from which there has been no real recovery going back over 20 years. Kurtenbach relates this most recent recession to a globally weak economy in which austerity measures to contain national debts in a number of countries has led to instances of worrisome deflation and threats of a global recession. She writes that the Japanese recession is “not just bad news for Japan, as it deepens uncertainty about China where growth is slowing and for the 18-country euro zone that grew only 0.2 percent in the same quarter.”
This is of relevance to a discussion of the re-introduction of government-issued money which sometimes elicits a conditioned response of “Zimbabwe” or “Weimar Republic”. We do not know why some people think these are more apt examples than the dozens of others in which the use of government-issued money has resulted in long term non-inflationary growth and that far more closely resemble our situation that that of a failed dictatorship (Zimbabwe) or that of post World War I Germany. In the latter case it was, in fact, not government-issued money that was the culprit but rather lose monetary policy enacted through a central bank system using private bank-created money very much like our own system, but functioning under a set of extraordinary circumstances resulting from Germany’s loss of the war. The oft-cited example of the Weimar Republic is particularly ironic because it was only when Germany did introduce government-issued money patterned after Lincoln’s Greenbacks that they brought hyper-inflation under control and created the economic miracle that … well, we all know, they didn’t put to the best of purposes.
In our present-day reality, with a CBO-determined trillion dollar output gap in the US (we could spend that much more without worries of undesirable inflation), and with rampant concerns about deflation throughout the world, we (the world) would do well to pursue policies that would encourage investment and growth without increasing national debts. Can anyone think of any reason why governments around the world cannot issue sovereign money today as they have throughout history?
No one ever has, or at least put such an answer in writing, according to exhaustive searches by thousands of people. We have not proposed spending a penny more using government-issued money like our historic United States Notes than we would use by borrowing Federal Reserve Notes, so inflation simply is not an issue except for the inflation avoided by not raiding the capital markets. But in the event other countries did spend more, would a threat of global hyper-inflation immediately arise in the context of a world long beset by and on the brink of a global recession because of deflation? Or should the world agree to shoot itself in the foot this year on the theory that embracing an unnecessary debt penalty will make it less likely it will stub its toe next year by turning to inflationary spending? (This is not a great likelihood in this country, with ultra–conservatives in control of Congress and hardly likely to pivot to a wild spending spree – part of our argument that we are in a golden moment of opportunity to re-introduce government – issued money).
Some may say government will always spend too much money, but they argue against themselves by pointing out the government is doing deficit spending now but in a way that unnecessarily builds the debt service line item. There are plenty of examples more apt than Zimbabwe to examine, like Canada’s debt-free emergence from its period of massive World War II spending. For that matter, Germany emerged from World War II bombed to smithereens, but not in debt. There is no substitute for sound scholarship, no matter how comfortably words revealing false preconceptions or false sophistication slip from the mouth (“Congress can’t do anything right”, “nothing good can be expected to happen in the current political climate”). We have reached the point where recent conventions supported by intellectual mush reinforced by Wall Street dollars are obviously unsustainable in the real world, and where those who burrow their heads in the sand present just too tempting a target for the public’s boot. Fa-la-la, La-la-la, La-la-la!
Could a single step end global recessions? Some say the bold Chicago Plan, now enjoying a resurgence among economists, would do so. That would be a “major tune up” to the world’s major monetary systems, to be sure, and some think over-kill. If that is so, then – when our economic engine conks out, leaving us stranded – how small an adjustment can be made to get it running?
The central bank monetary systems of the advanced nations are of the same basic design, like car engines off the same assembly line. An adjustment needed by one is eventually needed by all. The correction of a basic design flaw is dependent on it being recognized by many. Many economists abroad as well as at home have noticed the same design flaw, and some are well ahead of us in joining together to do something about it. If we join this emerging international consensus, we have a very good chance of staving off the threatening international recession. At the end of this article, we will comment on the creation of the Global Monetary Forum, through which scholars in the US and abroad will discuss these emerging monetary reforms. Never before have the stars so aligned in the US (as noted here) and internationally (as noted in the attached addendum) to prompt change – quite possibly the biggest story in economics of the upcoming year.
As we have pointed out in these pages before, with just 5% of our money supply taking the form of old-fashioned government – issued rather than government – borrowed money…the norm of history in most countries throughout most of history… we can eliminate our current deficit and make headway toward reducing our national debt. Last month we solicited a vote from our readers as to which they think is the better plan for dealing with the long-term debt problem – the plan of Policy Winners and friends, employing government – issued money get our current deficit under control, or the plan of the Brookings Institution – using massive cuts to Social Security, Medicare and Medicaid as its first-cited step. Just as Congress has essentially rejected the Brookings approach for a decade now, our readers did, too, voting for the approach of Policy Winners and its many friends overwhelmingly over Brookings (which in fact got no votes!).
Pick your own theory as to why some think members are not willing (or not allowed) to discuss the subject. It may be Wall Street funders, as many believe. In the absence of any explanation from the source, who knows? One of them told us, “I have not thought deeply about the issue.” He could speak for many! A think tank panel member billed as an expert on the debt crisis said, “I don’t know anything about United States Notes” (a form of debt-free government-issued money carried in his own wallet until 1971, when they were last issued, and he was 33 years old). European scholars seem to know much more about the subject, which we find very embarrassing. Were too many American economics students of the hippie era allowed to opt for Advanced Basket Weaving instead of Economic History? Whatever is the case, it’s time for those who must plead ignorance to get in step with those more knowledgeable who have gained the world stage. A confluence of events will increasingly force the issue. Consider:
We have now exhausted our bag of tricks in the form of non-sustainable borrowing rates and levels of quantitative easing, leaving us with no workable plan for bringing the debt under control long-term; we have a tepid recovery hobbled by increasing income and wealth inequality, we see slips in educational and competitiveness standards, and we have no way of funding essentials like infrastructure maintenance, climate change costs and quite possibly emerging national security crises. We face a very possible global recession within a matter of months which could reverse our gains. We have no meaningful agreement on the budget, only calls for further austerity likely to weaken the economy and diminish social cohesion.
Taken together, these things constitute a “perfect storm”. Is this a harbinger for disaster plain and simple, or is it also a “perfect storm” of such dramatic parameters as to crystallize issues and compel change?
How difficult would necessary change be? If we give the subject a bit of deep thought as our new friend admits he has not, the truth is that the issue is no more complicated than the 50-year debate over whether to require seat belts in cars … and the cure no more difficult than doing so. Using government–issued rather than government–borrowed money to fund a given deficit amount is, after all, the norm of history, the Constitutionally– described way Congress is supposed to provide for a national money supply (Article 1, Section 8). It is the way that allowed for the economic development of the colonies (Colonial Scrip), the way that allowed adequate funding of the War of Independence and of the establishment of our national economy (the Continentals), the way that allowed for the preservation of the Union and an adequate Reconstruction (United States Notes), and the resource that permitted essential New Deal programs to be conceived. Government–issued money has played and continues to play vital roles in other countries. So re-instituting it is nothing new, simply a return to an orthodoxy that worked. We tried a radical, 100% money creation privatization “improvement” that didn’t work. With 5% of our money supply provided in the form of government-issued money, we can cap new deficits and reduce our national debt without ruinous austerities. And please do note that nothing in this paragraph calls for spending a cent more or causing “hyperinflation”; in fact, by avoiding a raid on the capital markets to fund federal deficits, we can leave more money invested in the real economy at lower rates of interest, reducing inflationary pressures.
So why aren’t we doing this? In one word, it’s corruption – the corrupting influence of special interests Abraham Lincoln called “the money power”. In two words – which are more fully descriptive – it’s corruption and ignorance – the lubricant without which corruption cannot work. When people don’t know any better, corruption can easily overwhelm. With a little knowledge and a little communication, with some modern-day “committees of correspondence” arising, we can correct the flaws in our institutions.
A drawback of the format we are using for Policy Winners is that it is difficult for us and for others who might speak up to know what other readers are thinking. The “committees of correspondence” were able to bring about change because they could know the minds of those with whom they were corresponding. At this time, a number of scholars and organizations from across the globe are joining together to form an umbrella organization to facilitate discussion of the core idea of re-introducing at least some government –issued money in places where it is not currently being used. Some advocates envision a full-blown Chicago Plan. Some advocate a system minimally changed, like our proposal for the issuance of up to 5% of the money supply as government –issued money and an unchanged Fed. There are varied ideas about coordinating monetary policy. The new umbrella organization in which we will be participating – tentatively to be called the Global Monetary Forum – will enjoy the participation of recognized, published authorities from respected institutions in the US, in Europe and in other nations participating in discussions and, ultimately, in the governance of the organization.
The goal is to facilitate a broader conversation among influential experts of note. We expect that some participants will be skeptical, raising only questions or critiques, and that’s OK. Some of those will join others and find common ground for action either initially or in time. The new organization’s newsletters are to comprise a forum for substantive questions and comments among qualified participants like our readers, today, rather than the scatter-shot of a “chat room” open to the general public. We do, however, want those who wish to receive that newsletter it to request it. Look for a kickoff early in the new year - but do e-mail us at any time if you would like to be on the e-mailing list, which we are helping to facilitate through info@policywinners.org.
As an addendum to this newsletter, next page, you will find a brief write-up on the subject of the international recession many predict, and why we think the situation on the international stage is ripe for the increasing calls for the re-introduction of government-issued money in the leading economies.
Our “other” December draft, mindful of the season, concerned the sacred Christmas story and its long interrelationship with human struggles to better the practical circumstances of life. It left off with patient slavery foe William Wilberforce stepping into a cold winter’s night in Dickens’s London, grateful for his sense of direction as symbolized by the evening star, a grace sufficient for him. We cannot let that thought go, with yet a line to capture it. The call upon him is a call upon us all. God bless us all, each and every one.
Appendix
National Debts and the International Economy
A one-page AP news article by Elaine Kurtenbach appeared on AOL News on 11/17/2014,
The article addresses the recession that commenced in Japan during the July-September quarter, 2014. This is, of course, the latest in a string of recessions in Japan from which there has been no real recovery going back over 20 years. Kurtenbach relates this most recent recession to a globally weak economy in which austerity measures to contain national debts in a number of countries has led to instances of worrisome deflation and threats of a global recession. She writes that the Japanese recession is “not just bad news for Japan, as it deepens uncertainty about China where growth is slowing and for the 18-country euro zone that grew only 0.2 percent in the same quarter.”
This is of relevance to a discussion of the re-introduction of government-issued money which sometimes elicits a conditioned response of “Zimbabwe” or “Weimar Republic”. We do not know why some people think these are more apt examples than the dozens of others in which the use of government-issued money has resulted in long term non-inflationary growth and that far more closely resemble our situation that that of a failed dictatorship (Zimbabwe) or that of post World War I Germany. In the latter case it was, in fact, not government-issued money that was the culprit but rather lose monetary policy enacted through a central bank system using private bank-created money very much like our own system, but functioning under a set of extraordinary circumstances resulting from Germany’s loss of the war. The oft-cited example of the Weimar Republic is particularly ironic because it was only when Germany did introduce government-issued money patterned after Lincoln’s Greenbacks that they brought hyper-inflation under control and created the economic miracle that … well, we all know, they didn’t put to the best of purposes.
In our present-day reality, with a CBO-determined trillion dollar output gap in the US (we could spend that much more without worries of undesirable inflation), and with rampant concerns about deflation throughout the world, we (the world) would do well to pursue policies that would encourage investment and growth without increasing national debts. Can anyone think of any reason why governments around the world cannot issue sovereign money today as they have throughout history?
No one ever has, or at least put such an answer in writing, according to exhaustive searches by thousands of people. We have not proposed spending a penny more using government-issued money like our historic United States Notes than we would use by borrowing Federal Reserve Notes, so inflation simply is not an issue except for the inflation avoided by not raiding the capital markets. But in the event other countries did spend more, would a threat of global hyper-inflation immediately arise in the context of a world long beset by and on the brink of a global recession because of deflation? Or should the world agree to shoot itself in the foot this year on the theory that embracing an unnecessary debt penalty will make it less likely it will stub its toe next year by turning to inflationary spending? (This is not a great likelihood in this country, with ultra–conservatives in control of Congress and hardly likely to pivot to a wild spending spree – part of our argument that we are in a golden moment of opportunity to re-introduce government – issued money).
Some may say government will always spend too much money, but they argue against themselves by pointing out the government is doing deficit spending now but in a way that unnecessarily builds the debt service line item. There are plenty of examples more apt than Zimbabwe to examine, like Canada’s debt-free emergence from its period of massive World War II spending. For that matter, Germany emerged from World War II bombed to smithereens, but not in debt. There is no substitute for sound scholarship, no matter how comfortably words revealing false preconceptions or false sophistication slip from the mouth (“Congress can’t do anything right”, “nothing good can be expected to happen in the current political climate”). We have reached the point where recent conventions supported by intellectual mush reinforced by Wall Street dollars are obviously unsustainable in the real world, and where those who burrow their heads in the sand present just too tempting a target for the public’s boot. Fa-la-la, La-la-la, La-la-la!
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