Wall Street Took Your House and Your Retirement,
Now They're After Your Social Security
Wall Street tycoon
Pete Peterson wants to bring IMF-style economic insanity to the
U.S. The scary part? He might get away with it.
March 5, 2010 |
AFL-CIO /
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Photo Credit: Flickr Creative Commons
In addition to mandatory private health insurance premiums, we
may soon be hit with a "mandatory savings" tax and other
belt-tightening measures urged by the president's new budget
task force. These radical austerity measures are not only
unnecessary, but will actually make matters worse. The push for
"fiscal responsibility" is based on bad economics.
When billionaires pledge a billion dollars to educate people to
the evils of something, it is always good to peer closely at
what they are up to. Hedge fund magnate Peter G. Peterson was
formerly chairman of the Council on Foreign Relations and head
of the New York Federal Reserve. He is now senior chairman of
Blackstone Group, which is in charge of dispersing government
funds in the controversial AIG bailout, widely criticized as a
government giveaway to banks. Peterson is also founder of the
Peter Peterson Foundation, which has adopted the cause of
imposing "fiscal responsibility" on Congress. He hired David M.
Walker, former head of the Government Accounting Office, to
spearhead a massive campaign to reduce the runaway federal debt,
which the Peterson/Walker team blames on reckless government and
consumer spending. The Foundation funded the movie "I.O.USA." to
amass popular support for their cause, which largely revolves
around dismantling Social Security and Medicare benefits as a
way to cut costs and return to "fiscal responsibility."
The Peterson-Pew Commission on Budget Reform has pushed heavily
for action to stem the federal debt. Bills for a budget task
force were sponsored in both houses of Congress. The Senate bill
was narrowly defeated, and the House bill was tabled; but that
was not the end of it. In Obama's State of the Union speech on
January 27, he said he would be creating a presidential budget
task force by executive order to address the federal
government's deficit and debt crisis, and that the task force
would be modeled on the bills Congress had failed to pass. If
Congress would not impose "fiscal responsibility" on the nation,
the president would. "It keeps me awake at night, looking at all
that red ink," he said. The executive order was signed on
February 17.
What the president seems to have missed is that all of our money
except coins now comes into the world as "red ink," or debt. It
is all created on the books of private banks and lent into the
economy. If there is no debt, there is no money; and private
debt has collapsed. This year to date, US lending has been
contracting at the fastest rate in recorded history. A credit
freeze has struck globally; and when credit shrinks, the money
supply shrinks with it. That means there is insufficient money
to buy goods, so workers get laid off and factories get shut
down, perpetuating a vicious spiral of economic collapse and
depression. To reverse that cycle, credit needs to be restored;
and when the banks can't do it, the government needs to step in
and start "monetizing" debt itself, or turning debt into
dollars.
Although lending remains far below earlier levels, banks say
they are making as many loans as they are allowed to make under
existing banking rules. The real bottleneck is with the "shadow
lenders" - those investors who, until late 2007, bought massive
amounts of bank loans bundled up as "securities," taking those
loans off the banks' books, making room for yet more loans to be
originated out of the banks' capital and deposit bases. Because
of the surging defaults on subprime mortgages, investors have
now shied away from buying the loans, forcing banks and Wall
Street firms to hold them on their books and take the losses. In
the boom years, the shadow lending market was estimated at $10
trillion. That market has now collapsed, leaving a massive
crater in the money supply. That hole needs to be filled and
only the government is in a position to do it. Paying down the
federal debt when money is already scarce just makes matters
worse. When the deficit has been reduced historically, the money
supply has been reduced along with it, throwing the economy into
recession.
Another Look at the Budget Reform Agenda
That raises the question: are the advocates of "fiscal
responsibility" merely misguided? Or are they up to something
more devious? The president's executive order is vague about the
sorts of budget decisions being entertained, but we can get a
sense of what is on the table by looking at the earlier agenda
of Peterson's Commission on Budget Reform. The Peterson/Walker
plan would have slashed social security entitlements at a time
when Wall Street has destroyed the home equity and private
retirement accounts of potential retirees. Worse, it would have
increased the Social Security tax, disguised as a "mandatory
savings tax." This added tax would be automatically withdrawn
from your paycheck and deposited to a "Guaranteed Retirement
Account" managed by the Social Security Administration. Since
the savings would be "mandatory," you could not withdraw your
money without stiff penalties; and rather than enjoying an
earlier retirement paid out of your increased savings, a later
retirement date was being called for. In the meantime, your
"mandatory savings" would just be fattening the investment pool
of the Wall Street bankers managing the funds.
And that may be what really underlies the big push to educate the
public to the dangers of the federal debt. Political analyst Jim Capo
discusses a slide show presentation given by Walker after the "I.O.USA."
premier, in which a mandatory savings plan was proposed that would be
modeled on the Federal Thrift Savings Plan (FSP). Capo comments:
"The FSP, available for federal employees like congressional staff
workers, has over $200 billion of assets (on paper anyway). About half
these assets are in special non-negotiable US Treasury notes issued
especially for the FSP scheme. The other half are invested in stocks,
bonds and other securities.... The nearly $100 billion in [this] half of
the plan is managed by Blackrock Financial. And, yes, shock, Blackrock
Financial is a creation of Mr. Peterson's Blackstone Group. In fact, the
FSP and Blackstone were birthed almost as a matched set. It's tough to
fail when you form an investment management company at the same time you
can gain the contract that directs a percentage of the Federal
government payroll into your hands."
What "Fiscal Responsibility" Really Means
All of this puts "fiscal responsibility" in a different light. Rather
than saving the future for our grandchildren, as the president himself
seems to think it means, it appears to be a code word for delivering
public monies into private hands and raising taxes on the
already-squeezed middle class. In the parlance of the International
Monetary Fund (IMF), these are called "austerity measures," and they are
the sorts of things that people are taking to the streets in Greece,
Iceland and Latvia to protest. Americans are not taking to the streets
only because nobody has told us that is what is being planned.
We have been deluded into thinking that "fiscal responsibility" (read
"austerity") is something for our benefit, something we actually need in
order to save the country from bankruptcy. In the massive campaign to
educate us to the perils of the federal debt, we have been repeatedly
warned that the debt is disastrously large; that when foreign lenders
decide to pull the plug on it, the US will have to declare bankruptcy;
and that all this is the fault of the citizenry for borrowing and
spending too much. We are admonished to tighten our belts and save more;
and since we can't seem to impose that discipline on ourselves, the
government will have to do it for us with a "mandatory savings" plan.
The American people, who are already suffering massive unemployment and
cutbacks in government services, will have to sacrifice more and pay the
piper more, just as in those debt-strapped countries forced into
austerity measures by the IMF.
Fortunately for us, however, there is a major difference between our
debt and the debts of Greece, Latvia and Iceland. Our debt is owed in
our own currency - US dollars. Our government has the power to fix its
solvency problems itself, by simply issuing the money it needs to pay
off or refinance its debt. That time-tested solution goes back to the
colonial scrip of the American colonists and the "Greenbacks" issued by
Abraham Lincoln to avoid paying 24-36 percent interest rates.
Economic Fear Mongering
What invariably kills any discussion of this sensible solution is
another myth long perpetrated by the financial elite - that allowing the
government to increase the money supply would lead to hyperinflation.
Rather than exercising its sovereign right to create the liquidity the
nation needs, the government is told that it must borrow from private
lenders. And where does their money come from? Ultimately from banks,
which create it on their books just as the government would have done.
The difference is that when bankers create it, it comes with a hefty fee
attached in the form of interest.
Meanwhile, the Federal Reserve has been trying to increase the money
supply; and rather than producing hyperinflation, we continue to suffer
from deflation. Frantically pushing money at the banks has not gotten
money into the real economy. Rather than lending it to businesses and
individuals, the larger banks have been speculating with it or buying up
smaller banks, land, farms and productive capacity, while the credit
freeze continues on Main Street. Only the government can reverse this
vicious syndrome, by spending money directly on projects that will
create jobs, provide services and stimulate productivity. Increasing the
money supply is not inflationary if the money is used to increase goods
and services. Inflation results when "demand" (money) exceeds "supply"
(goods and services). When supply and demand increase together, prices
remain stable.
The notion that the federal debt is too large to be repaid and that we
are imposing that monster burden on our grandchildren is another red
herring. The federal debt has not been paid off since the days of Andrew
Jackson and it does not need to be paid off. It is just rolled over from
year to year, providing the "full faith and credit" that alone backs the
money supply of the nation. The only real danger posed by a growing
federal debt is an exponentially growing interest burden; but so far,
that danger has not materialized either. Interest on the federal debt
has actually gone down since 2006 - from $406 billion to $383 billion -
because interest rates have been lowered by the Fed to very low levels.
They can't be lowered much further, however, so the interest burden will
increase if the federal debt continues to grow. But there is a solution
to that too. The government can just mandate that the Federal Reserve
buy the government's debt and that the Fed not sell the bonds to private
lenders. The Federal Reserve states on its web site that it rebates its
profits to the government after deducting its costs, making the money
nearly interest-free.
All the fear mongering about the economy collapsing when the Chinese and
other investors stop buying our debt is yet another red herring. The Fed
can buy the debt itself - as it has been stealthily doing. That is
actually a better alternative than selling the debt to foreigners, since
it means we really will owe the debt only to ourselves, as Roosevelt was
assured by his advisers when he agreed to the deficit approach in the
1930s; and this debt-turned-into-dollars will be nearly interest-free.
Better yet would be to either nationalize or abolish the Fed and fund
the government directly with Greenbacks as President Lincoln did. What
the Fed does the Treasury Department can do, for the cost of
administration. There would be no shareholders or bondholders to siphon
earnings, which could be recycled into public accounts to fund national,
state and local budgets at zero or near-zero interest rates. Eliminating
debt service payments would allow state and federal income taxes to be
slashed; and the public managers of this money, rather than hiding
behind a veil of secrecy, would be opening their books for all to see.
A final red herring is the threatened bankruptcy of Social Security.
Social Security cannot actually go bankrupt, because it is a
pay-as-you-go system. Today's social security taxes pay today's
recipients; and if necessary, the tax can be raised. As Washington
economist Dean Baker wrote when President Bush unleashed the campaign to
privatize Social Security in 2005:
"The most recent projections show that the program, with no changes
whatsoever, can pay all benefits through the year 2042. Even after 2042,
Social Security would always be able to pay a higher benefit (adjusted
for inflation) than what current retirees receive, although the payment
would only be about 73 percent of scheduled benefits."
Today, incomes over $97,000 escape the tax, disproportionately imposing
it on lower income brackets. Projections over the next 75 years show
that just removing that cap could eliminate the forecasted deficit. When
the Democratic presidential candidates were debating in the fall of
2007, Barack Obama and Joe Biden were the only candidates willing to
seriously consider this reasonable alternative. President Obama just
needs to follow through with the solutions he espoused when campaigning.
The Mass Education Campaign We Really Need
What is really going on behind the scenes may have been revealed by
Prof. Carroll Quigley, Bill Clinton's mentor at Georgetown University.
An insider groomed by the international bankers, Dr. Quigley wrote in
Tragedy and Hope in 1966:
"[T]he powers of financial capitalism had another far-reaching aim,
nothing less than to create a world system of financial control in
private hands able to dominate the political system of each country and
the economy of the world as a whole. This system was to be controlled in
a feudalist fashion by the central banks of the world acting in concert,
by secret agreements arrived at in frequent private meetings and
conferences."
If that is indeed the plan, it is virtually complete. Unless we wake up
to what is going on and take action, the "powers of financial
capitalism" will have their way. Rather than taking to the streets, we
need to take to the courts, bring voter initiatives and wake up our
legislators to the urgent need to take the power to create money back
from the private banking elite that has hijacked it from the American
people. And that includes waking up the president, who has been losing
sleep over the wrong threat.
Ellen Hodgson Brown's latest Book is "Web of Debt."
This article originally published at:
http://www.alternet.org/story/145896/?page=entire |