I recently read an article right here on Huffington Post that really made my blood boil; it is so full of the usual establishment descriptions about the economy: We are broke! The States are going Bankrupt! There is nothing to be done but to raise taxes and cut spending! We have to tighten our belts! Above all, cut, Cut, CUT!!!
Wrong, Wrong, and WRONG!
We are really talking a tale of two economies here. The official line is that there are strapped states and cities, taking them at their word that this is so. I say it is not only not so, but that there is money, and then some to spare, only it's tied up in several places where the local governments are not allowed to go. More on why that is later, but first:
1. I recently identified some of these places in my presentation to the Trilevel Jobs Task Force here in NYC in October. It shows several pertinent things, but first, start by reading Ellen Brown's article:
The Mysterious CAFRs: How Stagnant Pools of Government Money Could Help Save the Economy.
She -- but not only her -- documents how "the (California) State Treasurer's website says that he manages a Pooled Money Investment Account (PMIA) tallying in at nearly $71 billion as of the same date, including a Local Agency Investment Fund (LAIF) of $24 billion." This is clearly way more than the current $26 billion shortfall! And this is only scratching the surface. Look at this statement form page 17 of the California Annual Financial Report for 2009 (a bad year; things are better now): For the year ended June 30, 2009, the fiduciary funds' combined net assets were $334.3 billion, a $102.8 billion decrease from prior year net assets. The decrease in net assets for these funds was mainly attributable to a decline in investment income that actually resulted in a net loss for the year and a decrease in the fair value of the funds' investments of $113.2 billion (23.9%).
Now, this is just the fiduciary funds, mostly from the pension fund, but other agency funds too. Since ALL agencies must allocate sufficient money to get them through the year at the beginning of the fiscal year, there is always considerable money available to be invested throughout the year. If they don't spend all of it? Well, then it gets carried over into the following year, but politicians only count current revenues against current and often future expenses. What happened to the carry over money? It's as if it isn't there!
So, that kind of puts the $26 billion deficit in perspective, doesn't it? While citizens are being asked to tighten their belts, the managers of these funds have no pants at all!
This kind of mismanagement, and not "extravagant spending" is the real reason for so-called budget shortfalls. Money managers promise 8% a year, which they have profoundly failed to deliver, and cannot realistically make up for now, but one needs to go beyond that and question whether this tail-wags-the-dog fiscal policy is workable any longer (more on that later too).
In New York State, for example, the state spent about net $5 billion on pension costs in 2009, yet they had $110 billion in the state pension fund, down from $155 billion the year before (it has since climbed back to $134 billion in FY 2010, thanks to a booming stock market. And NOW you know why the government, including the Federal Reserves will do absolutely anything to boost the stock market. See, I told you I would get back to that later!
But, if the Federal Reserve can create money at will to boost the financial sector and the stock market indirectly, then why can't Congress, under Article 1, Section 8 of the Constitution, which gives them -- and only them -- explicit power to "coin money" do the same for the real economy? (More on that later too). Click on the links in my petition here:
http://www.change.org/petitions/view/let_the_empire_state_finance_its_own_budget_gap
to see New York's budget and where the hundreds of billions really lie. All CAFRs are online now, making research easier than ever.
But here is the real question: why do we need a wildly fluctuating fund of $155-$110-$134 billion, in just 3 years, in order to pay a relatively steady stream of $5 billion or so in pension costs? The draw-down from the pension fund doesn't change that much -- panicky layoffs like those in New York, California, and New Jersey not withstanding. See the article "Pension shortfall is Wall Street's Doing" by Michael Mulgrew in Crain's which describes the state and city pension shortfalls of $100 million. You can argue that the author from the United Federation of Teachers is biased, but his numbers check out and besides, who is unbiased? Wall Street, which profits in the millions, no matter what the return on the people's money?
2. Okay, now another question: why do we have to have a debt-based economy at all? As I said above, the constitution, Article 1, section 8, gives Congress and only Congress the power to "coin money" (despite this, president Lincoln "coined money" during the Civil War when NY banks wanted up to 36% interest, saving the country by issuing the nation's first "Greenbacks" http://en.wikipedia.org/wiki/United_States_Note). We could pay off our debt in a year by simply issuing money from congress instead of the Fed, which after all, didn't exist until 1913. Think this is a pipe dream? Well, Congressman Dennis Kucinich http://www.kucinich.house.gov/ is about to sponsor the N.E.E.D. Act in the next session of Congress that would do exactly that, based on Stephen Zarlenga's American Monetary Act. Debt is a tool for banks to make money, and as such it is unnecessary in a modern fiat money system. Worried about inflation? Don't be. We have deflation in the sectors that would benefit directly from this act, in infrastructure, education and healthcare (we have deflation in the 20% of Americans who have no health insurance). Inflation there would be a good thing, plus it would put people to work. There are millions of people waiting to work and millions of jobs to be done. The only thing standing in their way is money. Yet money, in a fiat system, is not something we can actually run out of. So, why the self-inflicted pain? Do we secretly like flagellating ourselves?
See some ways we could fix the economy here without severe austerity measures.
We could use the abundant money in the CAFRs, for example, to set up a State Bank, as North Dakota has done (see the balance sheet of North Dakota, and pay attention to how they made money even during the fiscal crisis, by NOT securitizing loans, using derivatives etc. By law ALL state revenues must be deposited in the bank. The Bank of North Dakota has been around since 1919 and is not even FDIC insured, yet is is run far more conservatively than any of the Money Leveraging Institutions (my term for the TBTF megabanks), and has deposits AND assets greater than its loan portfolio.
3. Taxes. Nothing is more certain than taxes, right? Well, what if there was a good tax, a tax that actually stimulated the economy, caused productivity to go up, was green and promoted efficiency while lowering poverty to the ground? There is! It's the Land Value Tax, aka the Single Tax. The Single tax taxes natural resources alone, and untaxes productive activities (wages, sales, capital). By taxing natural resources, you force resource-holders to develop the resource, especially land, or sell it to someone who can. This is progressive because the rich have and use more resources. It is anti-poverty because it frees natural opportunities for people to make a living upon. It is freedom and liberty promoting because it untaxes actual production.
This is what we talk about at the Henry George School, where I am a third year student, and at the other economic reform groups I belong to. I hope you'll join us.
To see how this would work, check out this proposal for a Land Value Tax in California
Set up a Land Value Tax & untax ALL productive activities to make California Healthy, Wealthy, and Prosperous.
There is so much more to discuss. The economy does not have to be the way it is. We do not have to live in scarcity while the elite 1% accrue all the wealth, leading to modern feudalism. Debt-based economies simply cannot endure. Despite the banks' wanting to sell us still more of the only product they really have: debt, there is only so much debt people can withstand.
There are other ways. I've just scratched the surface. Unfortunately, both the Left and the Right have fallen into the scarcity and austerity trap, accepting panicky and deliberately misleading pronouncements by those who keep the books for their own purposes...and keep the money too. We have to unite our forces against the real enemy, the elite 1-5% who control nearly everything, especially what we think.
The only question now is: Will you take the Red Pill or the Blue Pill?