Guest Post by Ron Paul
The debt ceiling debate is providing plenty of opportunity for political theater in Washington. Proponents of raising the debt ceiling are throwing around the usual scare tactics and misinformation in order to intimidate opponents into accepting more debt and taxes. It is important to distinguish the truth from the propaganda.
First of all, politicians need to understand that without real change default is inevitable. In fact, default happens every day through monetary policy tricks. Every time the Federal Reserve engages in more quantitative easing and devalues the dollar, it is defaulting on the American people by eroding their purchasing power and inflating their savings away. The dollar has lost nearly 50% of its value against gold since 2008. The Fed claims inflation is 2% or less over the past few years; however economists who compile alternate data show a 9% inflation rate if calculated more traditionally. Alarmingly, the administration is talking about changing the methodology of the CPI calculation yet again to hide the damage of the government's policies. Changing the CPI will also enable the government to avoid giving seniors a COLA (cost of living adjustment) on their social security checks, and raise taxes via the hidden means of "bracket creep." This is a default. Just because it is a default on the people and not the banks and foreign holders of our debt does not mean it doesn't count.
Politicians also need to acknowledge that our debt is unsustainable. For decades our government has been spending and promising far more than it collects in taxes. But the problem is not that the people are not taxed enough. The government has managed to run up $61.6 trillion in unfunded liabilities, which works out to $528,000 per household. A tax policy that would aim to extract even half that amount of money from American families would be unimaginably draconian, and not unlike attempting to squeeze blood from a turnip. This is, unequivocally, a spending problem brought about by a dramatically inflated view of the proper role of government in a free society.
Perhaps the most abhorrent bit of chicanery has been the threat that if a deal is not reached to increase the debt by August 2nd, social security checks may not go out. In reality, the Chief Actuary of Social Security confirmed last week that current Social Security tax receipts are more than enough to cover current outlays. The only reason those checks would not go out would be if the administration decided to spend those designated funds elsewhere. It is very telling that the administration would rather frighten seniors dependent on social security checks than alarm their big banking friends, who have already received $5.3 trillion in bailouts, stimulus and quantitative easing. This instance of trying to blackmail Congress into tax increases by threatening social security demonstrates how scary it is to be completely dependent on government promises and why many young people today would jump at the chance to opt out of Social Security altogether.
We are headed for rough economic times either way, but the longer we put it off, the greater the pain will be when the system implodes. We need to stop adding more programs and entitlements to the problem. We need to stop expensive bombing campaigns against people on the other side of the globe and bring our troops home. We need to stop allowing secretive banking cartels to endlessly enslave us through monetary policy trickery. And we need to drastically rethink government's role in our lives so we can get it out of the way and get back to work.
A Commentary Follows:
The Federal Reserve System
The Federal Reserve System constitutes the central bank of the United States. Created in secret in 1913, it was passed by Congress in a controversial holiday session near Christmas of that year. Initially the Fed was restricted by a relationship between currency and gold but there is a good deal of evidence that from the very beginning, the Fed was printing more money than it was legally allowed. The Great Depression itself was likely set off by Fed overprinting of money and led ultimately to the abrogation of the gold standard, which has allowed the Fed, unfettered, to issue even more currency.
The Fed's main duties are to provide a level of employment while maintaining financial stability and low inflation. Of course it is Fed money printing that is responsible for inflation in the first place and one could argue, generally, these goals are at cross-purposes, but when it comes to the Fed, logic seems to have little to do with its activities.
The Fed is composed of the Board of Governors (Board), the Federal Open Market Committee (FOMC), and twelve regional Federal Reserve Banks. Its membership includes numerous U.S. member banks and councils. The FOMC sets monetary policy, or at least that's how it is suppose to work. In fact, the Fed chairman has enormous clout and virtually dictates Fed policy in the modern era. While the Fed's decisions do not have to be "ratified by the President or anyone else in the executive or legislative branch of government," according to the Fed, it has considerable congressional oversight and many of its top members are presidential appointees.
The government sets the salaries of the top people as well. But in practice, little impedes the Fed. By some estimates, the Fed has dumped up to US$20 trillion or more into the world economy since the 2008 economic crisis. The Fed it could be said has virtually reliquified the dollar reserve system on its own, a feat so massively arrogant that many outside critics believe it cannot help but end badly.
The Fed under Ben Bernanke, the current chairman, is confident that it can "mop up" excess liquidity (though how one mops up US$20 trillion is questionable at best). More likely, the Fed – as all central banks do – will misjudge the advent of price inflation because the signals that indicate that price inflation has taken hold are all backward looking. In other words by the time the Fed brain trust has figured out that price inflation has taken hold, it will be spread throughout the system making it difficult if not impossible to combat.
Because it is so obvious that the Fed has basically placed a ticking time bomb at the center of the world's economy, some have accused the Fed of intending to destroy the dollar reserve economic system on purpose. The logic is that the powers that be, the Anglo American monetary elite that stands in the shadows behind the Fed, intend to replace the current system with a more globalized currency, perhaps run by the IMF. Using this logic leads one to the conclusion that the Fed is purposefully cooperating in its own demise and the demise of the currency it is supposed to protect and nurture.
In fact, such an outcome would be no surprise as the Fed has proven itself to be a vile manager of the US dollar, which has devalued by some 95 percent or more during the Fed's tenure. If the Fed is in fact putting itself out of business, it surely will not be missed. It has presided over the hollowing out of the American economy and the emphatic debasement of the currency via a series of disastrous booms and busts. There is almost nothing positive to say about the Fed except that its demise would surely be a blessing to the struggling, hard-working people of America who deserve better than this treacherous and deceitful organization.