By Aaron Krowne
The mess that is Ellen Brown’s latest article “Cheney Was Right … Deficits Don’t Matter” shows the folly of extending theoretical arguments for public banking to any and all discussions involving monetary problems.
It should raise red flags that Brown is advertising agreement with Dick Cheney. Cheney’s intent in making his infamous “deficits don’t matter” statement had nothing to do with monetary soundness; it was a display of extreme hubris: “deficits don’t matter because the US can throw its weight around (militarily and otherwise) to convince the reticent that they had better hold Treasuries (and other dollar-denominated securities) — or else.” It was also an observation that deficits hadn’t seemed to matter in the past — because of the US’s hegemony — so couldn’t possibly matter in the future (especially given that Cheney himself was spearheading a super-aggressive, ultra-militarized re-launch of US foreign policy).
Oddly enough, Brown doesn’t even bother making the customary argument that the US should switch to national (non-lent) money and/or public banking and (somehow) invalidate our debt and deficit problems — she simply states that the US government is getting a “great rate” on borrowing right now, due to the Fed’s “zero interest rate policy” (ZIRP), so we “should” simply continue this.
The fly in that ointment, of course, is S&P warning that it may have to eventually downgrade US sovereign debt. The nerve. How dare a filthy capitalist-pig private market company (belatedly) tell the truth about the great and powerful United States government’s debt! [Presumably, Brown did not mind when S&P and its peers (belatedly) downgraded private bank-issued subprime toxic waste. I guess Brown would have private debt rating agencies take direct orders from world governments (even more than they already do).]
Brown in fact states:
Deficits aren’t necessarily a bad thing! They don’t matter, so long as they are at very low interest rates; and they can be kept at these very low rates either by maintaining our triple A credit rating or by borrowing from the Fed essentially interest-free.
Well isn’t that just perfect — as long as we manipulate interest rates lower and coerce debt rating agencies into artificially preserving a ‘AAA’ rating for that debt, we’ll be home free! And me having to work for a living isn’t necessary either — as long as I plan to keep finding $100 bills on the street a few times every day. Fweew.
I’m not sure what happened to Brown’s virtuous, cure-all public banks and national money in this calculation, but perhaps the purpose of her article is to just be contrarian. She even gets in bed with those who argue that we need growing debt to have a growing economy — a viewpoint that is largely (if not completely) at odds with national money and public banking (it is also at odds with data that shows rising debt per unit of GDP in the last 50 or 60 years in the US, a curve which has gone negative in the last few years).
And weirdly, she cites one Mark Pash in claiming that a growing debt account “isn’t really a debt”, because it’s “never paid off”. But the individual bonds ARE paid off. In fact I am quite sure that, if they were informed that the government didn’t plan on paying off their bonds, the majority of Treasury holders would rush for the exit so fast they’d do in 5 minutes far worse damage than a downgrade from ‘AAA’ could ever do.
The truth is, we don’t have a pure “monetized” debt system. In fact, the extreme monetization is only recent. We have a hybrid system, where we depend heavily (it used to be primarily) on private market buyers and the governments of major trading partners to buy our government debt. If we had not been doing this, the dollar would have fallen dramatically long ago (or alternatively, we would not have gotten so much cheap stuff from overseas).
I WISH we did not have this debt-based “dollar recycling system” in place — it has created such extreme imbalances — but 40+ years of damage cannot simply be wished away by saying “deficits don’t matter” (or that the net debt doesn’t).
Let me be clear: I don’t like odious debt, debt peonage and Draconian austerity any more than Brown does — especially when there are vast areas of waste and graft that could be cut to balance the budget instead. But it’s irresponsible to argue that “deficits don’t matter” in order to justify cutting nothing. We need an honest focus on the key areas that could (and SHOULD) be cut and do the least real damage to the domestic economy, so that people can start agitating for that course of action. All these innumerate fiscal apologetics from “progressives” do is provide cover for the military and banking looters at the public trough.
There is going to HAVE to be pain to wean us off this system and into an arrangement that is more stable and healthy… don’t let the “pain-free” economic reform snake oil that Brown is continually selling fool you. Some combination of dollar devaluation, debt repudiation, and (preferably) a hard backing for the dollar will be needed to right the ship. Debt-based money should be abolished, as we have seen the troubles it can cause. Even having the Treasury print unbacked currency is more honest and leads to fewer long-term problems.
Of course, that would be unconstitutional — a technical detail the Fed was founded to end-run around (yet another argument for sticking to the Constitution in the first place). Brown’s public banks — set up as they could be in every single state — would not be. But then we’d still be left with $16 trillion in public debt ($14 trillion federal plus at least $2 trillion state), now wouldn’t we?