The debt ceiling crisis can be averted by enforcing the Fourteenth Amendment, which mandates the government to pay its debts already incurred, including pensions. That means Social Security, which IS an “entitlement,” in the original sense of the word. We’re entitled to it because we’ve paid for it with taxes.
The game of Russian roulette being played with the U.S. federal debt has been called a “grotesque political carnival” and political blackmail. The uproar stems from a statute that is unique to the United States and never did make much sense. First passed in 1917 and revised multiple times since, it imposes a dollar limit on the federal debt. What doesn’t make sense is that the same Congress that voted on the statute votes on the budget, which periodically exceeds the limit, requiring the statute to be revised. The debt ceiling has been raised 74 times since 1962, 10 of them since 2001. The most recent increase, to $14.294 trillion by H.J.Res. 45, was signed into law on February 12, 2010.
Taxes aren’t collected until after the annual budget is passed, so Congress can’t know in advance whether or how much additional borrowing will be required. Inevitably, there will be some years that the budget pushes the debt over the limit, requiring new legislation. And inevitably, now that this tactic has been discovered, there will be a costly battle over the increase, wasting congressional time, destabilizing markets, and rattling faith in the American financial and political systems. There will be continual blackmail, arm-twisting and concessions. The situation is untenable and cries out for a definitive resolution.
Fortunately, there is one. A bevy of legal scholars are recommending that the issue be eliminated altogether by playing the Constitutional trump card. The Fourteenth Amendment provides at Section 4:
“The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
Where statute and the Constitution collide, the Constitution prevails. Whether the government should pay the bills it has already incurred is not a matter of negotiation. It is a Constitutional mandate. And those are the bills we are talking about here, as President Obama stressed in his remarks on the issue last Friday. He said:
“Raising the debt ceiling simply gives our country the ability to pay the bills that Congress has already racked up. I want to emphasize that. The debt ceiling does not determine how much more money we can spend, it simply authorizes us to pay the bills we already have racked up. It gives the United States of America the ability to keep its word.”
Ignoring the debt ceiling on Constitutional grounds would not, as Michelle Bachmann declares, make President Obama a “dictator.” It would simply mean he is complying with his Constitutional mandate to pay the government’s bills on time and in full.
Social Security Is Not Welfare. It Is a Debt Due and Owing.
The President could have a clean resolution of the issue, but he is not jumping at the opportunity. Rather, he appears to be ready to throw Granny under the bus by slashing Social Security, Medicare and Medicaid, all in the name of “compromise.”
The Fourteenth Amendment says debts already incurred shall not be questioned, “including debts incurred for payment of pensions.” That includes Social Security, which is an “entitlement” in the true sense of the word: we’re entitled to it because we’ve already paid for it. In fact, the Social Security Act was originally sold to Congress and the nation in 1935 not as a government benefit, but as a retirement savings program. Earlier this year, the Urban Institute published a study evaluating the program in this way, concluding that the average worker who retires today will withdraw from Social Security just about the same amount he put in over the years, with a modest 2% real interest rate (after inflation).
A deal is a deal. We paid for it, we are owed it, and the U.S. government is good for it. To change the terms of the deal ex post facto is both a breach of contract and a violation of the Constitution.
Where to Get the Money: Ron Paul’s Creative Plan
A sovereign nation can always find the money to pay debts owed in its own currency. The U.S. could, if it wished, pay its bills using debt-free U.S. Notes or Greenbacks, just as President Lincoln did to avoid a crippling debt during the Civil War. Alternatively, it could eliminate the deficit with Ron Paul’s plan, which amounts to the same thing. As Stephen Gandel explains Paul’s solution in Time Magazine:
“In the last year or two the Fed has been buying up U.S. Treasury bonds in an effort to lower interest rates and boost the economy. The most recent round of that buying has been dubbed QE2, and has come under a good deal of criticism, though most economists agree that it was a generally helpful policy. The result is that the Fed now holds nearly $1.7 trillion in U.S. debt. But that is really phony debt. The Treasury pays the interest on the debt on behalf of the U.S. government to the Fed, which in turn returns 90 percent of the payments it gets back to the Treasury. Nonetheless, that $1.7 trillion in U.S. bonds that the Fed owns, despite the shell game of payments, is still counted in the debt ceiling number, which caps that amount of total federal debt at $14.3 trillion.
“Paul’s plan: Get the Fed and the Treasury to rip up that debt. It’s fake debt anyway. And the Fed is legally allowed to return the debt to the Treasury to be destroyed. A trillion and a half dollars is currently about what spending is expected to exceed tax revenue in 2011.”
The biggest drawback to the plan, says Gandel, is just that it “looks bad.” It looks as if the government is paying off its debts by printing money. But that is what government-issued money is: a note acknowledging a debt due and owed from the public, good for an equivalent value from the public, traded in the marketplace. A U.S. Note or Greenback and a Federal Reserve Note or dollar bill are both forms of promissory notes. The government can as easily issue a dollar bill as a dollar note or a dollar bond, as Thomas Edison pointed out in the 1920s.
The objection to that solution is that it would be inflationary, but as economist Richard Koo graphically demonstrates, the Fed’s quantitative easing has had virtually no inflationary effect on the money supply to date:
Misdirected Fed policy has instead caused $1.6 trillion in “excess reserves” to sit on bank balance sheets, as explained in an earlier article. Conveniently, excess reserves can be used as collateral for futures and derivatives contracts, and that is what some banks appear to be doing with the money: backing trades in the financial markets. This sort of speculation, involving money making money without increasing productivity, can and does drive up prices.
If the money had been delivered directly to the government to be spent on the national budget, it might have gotten into the real economy where it could do some good. The government’s budget is spent not on speculation but on goods and services. Increased government “demand” stimulates an increase in “supply,” causing supply and demand to increase together, avoiding price inflation while stimulating economic activity.
Time to Close the Debt Ceiling Loophole
The debt crisis was created, not by a social safety net bought and paid for by the taxpayers, but by a banking system taken over by Wall Street gamblers. The gamblers lost their bets and were bailed out at the expense of the taxpayers; and if anyone should be held to account, it is these gamblers.
The debt ceiling crisis is a manufactured one, engineered to extort concessions that will lock the middle class in debt peonage for decades to come. Congress is empowered by the Constitution to issue the money it needs to pay its debts. Abraham Lincoln did it; Barack Obama could do it. He probably won’t, but he does need to follow his Constitutional mandate to pay the government’s bills as and when due. The statute imposing a ceiling on the national debt is trumped by the Fourteenth Amendment, making it redundant and unnecessary. The statute should be repealed.
__________________
Ellen Brown is an attorney and president of the Public Banking Institute,
http://PublicBankingInstitute.org
. In Web of Debt, her latest of eleven books, she shows how the power to create money has been usurped from the people, and how we can get it back. Her websites are
http://webofdebt.com
and
http://ellenbrown.com
.
[...] Forget Compromise: The Debt Ceiling Is Unconstitutional [...]
I have great respect for you, Ms Brown, so I am surprised and dismayed to see the first sentence of your post here: “The debt ceiling crisis can be averted by enforcing the Fourteenth Amendment”.
Why am I dismayed? Well, a couple of reasons. First off, the 14th amendment itself is unconstitutional because it was never legally ratified. Secondly, it was implemented in tandem with the Federal Reserve act as an essential component of the fraudulent and unconstitutional scam to strip the sovereign right of the US Congress to coin money – stipulated in the constitution – and hand it over to private banks.
The 14th amendment provided the mechanism (the federal income tax) to force taxpayers to pay the interest on debt illegally incurred to private banks. I know that you know this perfectly well, but it seems that you have failed to make this obvious connection in reaching for an argument against the Republican obstructionism over raising the debt ceiling.
I would say that a much more compelling argument is that the debt ITSELF is illegal… and the whole absurd manufactured crisis over the debt ceiling is therefore irrelevant.
I think you’re discussing the 16th amendment. Ellen was discussing the 14th amendment.
My bad, I did get the 14th and 16th amendments mixed up. However, the point remains that allowing private banks to usurp the right of the US Congress to “coin” (create) our money (via the Federal Reserve Act of 1913) is inherently unconstitutional. Therefore, the “debt” of the US government to private financial institutions is itself illegal, and this makes the whole question of raising the debt ceiling irrelevant. This so called debt is illegitimate!
Well said, Ellen; thank you.
This crisis is “manufactured” and thereby a series of lies in omission and commission that directly involve political and corporate media “leadership.” It also involves criminal fraud by the experts who either know, or should know, the basic facts.
I have to whole-heartedly agree with that assessment. It is just a media circus to distract the public and keep us divided so we never question the real issues.
I wish the media were no longer owned by the banking, finance, and major corporate interests. Then perhaps the public would see through the lies and our problems would get fixed.
All questions of the theory of money and banking or bond ratings aside, there is a question of priorities here. In a rational scheme of things, debt service and Social Security should be the last things to ever get cut; Obama and the dems are threatening to make them the first things cut and that’s basically criminal and is clearly politically motivated.
You’re entirely correct. The people should be paid before the other creditors – especially when they contributed to a program that was supposed to repay them for what they put in!
I’ve been thinking that Obama is actually a Republican in disguise and all this Dems vs Repubs is just for show …
[...] webofdebt.wordpress.com/forget-compromise-the-debt-ceiling-is-unconstitutional/ [...]
I object to the very use of the word “debt” in this context as a true contract offering consideration by the involved parties has not been concluded. If it was called by its real name, it would have to be something like “Conjured interest-bearing purchasing power drawing rights drafted by neo-feudal lords”, but I have to admit that formulation is a little awkward.
Yet by the subversion of language we are indeed subverted.
I would call the debt a collateral default swap.
Re: Inflation. Maybe if the graph plotted M3, another story would be told. Yes, it appears that the finance economy benefitted the most from QE, whilst the real economy suffers. What’s new?
Moving away from a jungle mentality (separation, fear, competition and survival of the fittest), and toward a cellular mentality (oneness AND separation, love, collaboration and sharing) is necessary if we want to change the nature of the game we’re playing. Knowledge gives us power and how we use it leads to desirable or undesirable, sane or insane behavior.
In the game of Monopoly, when one person owns all the money and property, the game’s over. Money, like blood, needs to circulate for the game to continue. It’s time for us to grow up or, “Rise Above The Bull$#!t”, as my son likes to say.
Very good point – when one person owns everything the game is over.
At present the Fed profits are returned to the treasury. If the US treasury defaults on (or cancels) Fed debt. This will result in a loss for the Fed.
Questions
1 Is a Fed loss also returned the treasury ie would the Fed have to account for this loss in their books as they do a Fed profit
2 Can the treasury treat a default as income. My guess would be no
At best I suspect Ron Paul’s suggestion would cancel out. At worse it would result in a bigger treasury deficit
The best solution by far is to simple print US dollar notes and treat these as Govt revenue. As noted in this article
http://www.correntewire.com/coin_seigniorage_and_irrelevance_debt_limit
To put it another way, if the Federal Reserve sends money directly to the Tsy General Fund, it is counted on the budget. If the Federal Reserve sends money to the Tsy General Fund that stops in the US Mint Public Enterprise Fund first, it is not counted on the budget. That seems anomalous.
Seeing as the Mint stated in the Federal Register that 31 USC 5136 allows the Secretary to deposit Mint seigniorage “as miscellaneous receipts in the Treasury, the drawing of funds from which are subject to appropriation by Congress”, I would argued that it should be counted on the federal budget as revenue in like manner as Federal Reserve seigniorage, which as you know, is deposited as miscellaneous receipts in the Treasury, the drawing of funds from which are subject to appropriation by Congress.
http://www.law.cornell.edu/uscode/31/usc_sec_31_00005112—-000-.html
It looks to me as if the U.S. Mint is limited in what they can mint — maybe $1 million/year.
But maybe not . . .
http://www.correntewire.com/proof_platinum_coin_seigniorage_a_political_game_changer_for_progressives#more
On Ron Paul’s solution, see here –
http://thehill.com/blogs/floor-action/house/174953-rep-paul-introduces-bill-to-cancel-public-debt-held-by-the-fed
“But Paul has argued that Fed purchases of Treasury debt represent a debt that the government owes to itself, and one that also leads to an unwanted and inflationary increase in the money supply.”
It seems to me that tearing up the bonds would actually inflate the money supply, because the money would still be out there that the Fed used to buy the bonds. I like the idea myself; it looks like a backdoor Greenback solution. But I doubt that’s how Ron Paul is seeing it.