{"id":1135092,"date":"2023-07-15T05:45:16","date_gmt":"2023-07-15T05:45:16","guid":{"rendered":"https:\/\/dissidentvoice.org\/?p=142125"},"modified":"2023-07-15T05:45:16","modified_gmt":"2023-07-15T05:45:16","slug":"the-federal-debt-trap-issues-and-possible-solutions","status":"publish","type":"post","link":"https:\/\/radiofree.asia\/2023\/07\/15\/the-federal-debt-trap-issues-and-possible-solutions\/","title":{"rendered":"The Federal Debt Trap: Issues and Possible Solutions"},"content":{"rendered":"

\"\"<\/a><\/p>\n

\u201cRather than collecting taxes from the wealthy,\u201d wrote the New York Times<\/em> Editorial Board in a July 7 opinion piece, \u201cthe government is paying the wealthy to borrow their money.\u201d<\/p>\n

Titled \u201cAmerica Is Living on Borrowed Money<\/a>,\u201d the editorial observes that over the next decade, according to the Congressional Budget Office (CBO), annual federal budget deficits will average around $2 trillion per year. By 2029, just the interest on the debt is projected to exceed the national defense budget, which currently eats up over half of the federal discretionary budget. In 2029,\u00a0net interest on the debt is projected to total $1.07 trillion<\/a>, while defense spending is projected at $1.04 trillion.\u00a0By 2033, says the CBO, interest payments will reach a sum equal to 3.6 percent of the nation\u2019s economic output.<\/p>\n

The debt ceiling compromise did little to alleviate that situation. Before the deal, the CBO projected the federal debt would reach roughly $46.7 trillion in 2033. After the deal, it projected the total at $45.2 trillion, only slightly less \u2013 and still equal to 115% of the nation\u2019s annual economic output, the highest level on record.<\/p>\n

Acknowledging that the legislation achieved little, House Speaker Kevin McCarthy said after the vote that he intended to form a bipartisan commission \u201cso we can find the waste and we can make the real decisions to really take care of this debt.\u201d The NYT Editorial Board concluded:<\/p>\n

Any substantive deal will eventually require a combination of increased revenue and reduced spending \u2026. Both parties will have to compromise: Republicans must accept the necessity of collecting what the government is owed and of imposing taxes on the wealthy. Democrats must recognize that changes to Social Security and Medicare, the major drivers of expected federal spending growth, should be on the table. Anything less will prove fiscally unsustainable.<\/p><\/blockquote>\n

The Elephant in the Room<\/strong><\/p>\n

Omitted was any mention of trimming the defense budget, which\u00a0currently accounts<\/a>\u00a0for more than half of the federal government\u2019s discretionary spending and nearly two-thirds of its contract spending. Rep. Ro Khanna (D-CA), who cast the sole dissenting vote on the recent $886 billion defense budget in the House Armed Services Committee, has\u00a0detailed some of the Pentagon\u2019s excesses<\/a>. For decades, he writes, legacy military contractors have charged the federal government exorbitant sums for everything from fighter jets to basic hardware. Lockheed Martin, for example, has used its monopoly on F-35 fighter jets to profit from maintenance that only they can provide, with the work needed to support and upgrade existing jets projected to cost taxpayers over $1.3 trillion. TransDigm, another contractor responsible for supplying spare parts for the military, was found to be charging the Pentagon more than four times the market price for their products.<\/p>\n

Rep. Khanna concludes, \u201cKeeping America strong starts at home. It means ensuring access to quality, affordable healthcare and education, strengthening our economy with good-paying jobs, and giving Americans the tools they need to pursue the American Dream.\u2026 Bloated military spending is not the answer.\u2026 We can\u2019t continue to sign a blank check to price-gouging defense contractors while Americans struggle here at home.\u201d<\/p>\n

In an\u00a0address to the UN Security Council<\/a>\u00a0on Ukraine aid on June 29, 2023, Max Blumenthal added fuel to those allegations. He said:<\/p>\n

Just June 28th, as emergency crews work to clean up yet another toxic train derailment in the United States, this time on the Montana River, further exposing our nation\u2019s chronically underfunded infrastructure and its threats to our health, the Pentagon announced plans to send an additional $500 million worth of military aid to Ukraine\u2026.<\/p>\n

This policy, \u2026 which sees Washington prioritize unrestrained funding for a proxy war with a nuclear power in a foreign land \u2026 while our domestic infrastructure falls apart before our eyes, exposes a disturbing dynamic at the heart of the Ukraine conflict \u2013 an international Ponzi scheme that enables Western elites to seize hard-earned wealth from the hands of average U.S citizens and funnel it into the coffers of a foreign government that even Transparency International ranks as consistently one of the most corrupt in Europe.<\/p>\n

The U.S. government has yet to conduct an official audit of its funding for Ukraine. The American public has no idea where their tax dollars are going. And that\u2019s why this week we at the Grayzone published an independent audit of U.S. tax dollar allocations to Ukraine throughout the fiscal years 2022 and \u201923.<\/p><\/blockquote>\n

Among other dubious payments they found were $4.5 million from the U.S. Social Security Administration to the Kiev government, and $4.5 billion from USAID to pay off Ukraine\u2019s sovereign debt, \u201cmuch of which is owned by the global investment firm BlackRock. That amounts to $30 taken from every U.S citizen at a time when 4 in 10 Americans cannot afford a $400 emergency.\u201d<\/p>\n

The Black Hole of the Pentagon Budget<\/strong><\/p>\n

The Pentagon\u00a0failed its fifth budget audit<\/a>\u00a0in 2022 and was unable to account for more than half of its assets, or more than $3 trillion. According to a CBS News report, defense contractors overcharged the Defense Department by nearly 40-50%; and according to the Office of the Inspector General for the Defense Department, overcharging sometimes reached more than 4,000%. The $886 billion budget request for FY2024 is the highest ever sought.<\/p>\n

Following repeated concerns about fraud, waste and abuse in the Pentagon, in June 2023 a bipartisan group of senators introduced legislation to ensure the Defense Department passes a clean audit next year. The\u00a0Audit the Pentagon Act of 2023<\/a>\u00a0would require the Defense Department to pass a full, independent audit in fiscal 2024. Any agency within the Pentagon failing to pass a clean audit would be forced to return 1% of its budget for deficit reduction.<\/p>\n

Sen. Bernie Sanders (I-Vt.) observed that the Pentagon \u201cand the military industrial complex have been plagued by a massive amount of waste, fraud, and financial mismanagement for decades.\u2026 [W]e have got to end the absurdity of the Pentagon being the only agency in the federal government that has never passed an independent audit.\u201d<\/p>\n

Sen. Chuck Grassley (R-Iowa) said the Pentagon \u201cshould have to meet the same annual auditing standards as every other agency\u2026. From buying $14,000 toilet seats to losing track of warehouses full of spare parts, the Department of Defense has been plagued by wasteful spending for decades. \u2026 Every dollar the Pentagon squanders is a dollar not used to support service members, bolster national security or strengthen military readiness.\u201d<\/p>\n

But defense audits have been promised before and have not been completed. In 2017, Michigan State University Prof. Mark Skidmore, working with graduate students and with Catherine Austin Fitts, former assistant secretary of Housing and Urban Development, found\u00a0$21 trillion\u00a0in unauthorized spending in the departments of Defense and Housing and Urban Development for the years 1998-2015. As\u00a0reported in\u00a0MSUToday,<\/a>\u00a0Skidmore got involved when he heard Fitts refer to a report indicating the Army had $6.5 trillion in unsupported adjustments (or spending) in fiscal 2015. Since the Army\u2019s budget was then only $122 billion, that meant unsupported adjustments were 54 times the spending authorized by Congress. Thinking Fitts must have made a mistake, Skidmore investigated and found that unsupported adjustments were indeed $6.5 trillion.<\/p>\n

Four days after Skidmore discussed his team\u2019s findings on a\u00a0USAWatchdog\u00a0podcast, the Department of Defense announced it would conduct its first-ever department-wide independent financial audit. But it evidently failed in that endeavor. As Bernie Sanders observes, the Pentagon has\u00a0never\u00a0passed an independent audit. It failed its fifth audit in 2022. Whether it will pass this sixth one, or whether the audit will lead to budget cuts, remains to be seen. The Pentagon budget seems to be untouchable.<\/p>\n

Tackling the Other Elephant: The Interest Monster<\/strong><\/p>\n

If the sacrosanct military budget cannot be trimmed, what about that other massive budget item, interest on the federal debt? Promising proposals for clipping both the interest and the debt itself were made in conjunction with earlier debt ceiling crises. In November 2010,\u00a0Dean Baker, co-director of the Center for Economic and Policy Research in Washington,\u00a0wrote<\/a>:<\/p>\n

There is no reason that the Fed can\u2019t just buy this debt (as it is largely doing) and hold it indefinitely. If the Fed holds the debt, there is no interest burden for future taxpayers. The Fed refunds its interest earnings to the Treasury every year. Last year the Fed refunded almost $80 billion in interest to the Treasury, nearly 40 percent of the country\u2019s net interest burden. And the Fed has other tools to ensure that the expansion of the monetary base required to purchase the debt does not lead to inflation.<\/p><\/blockquote>\n

In 2011, Republican presidential candidate Ron Paul proposed dealing with the debt ceiling by simply voiding out the $1.7 trillion in federal securities then held by the Fed. As Stephen Gandel\u00a0explained<\/a>\u00a0Paul\u2019s solution in\u00a0Time Magazine<\/em>, the Treasury pays interest on the securities to the Fed, which returns 90% of these payments to the Treasury. Despite this shell game of payments, the $1.7 trillion in US bonds owned by the Fed is still counted toward the debt ceiling. Paul\u2019s plan:<\/p>\n

Get the Fed and the Treasury to rip up that debt. It\u2019s fake debt anyway. And the Fed is legally allowed to return the debt to the Treasury to be destroyed.<\/p><\/blockquote>\n

Congressman Alan Grayson, a Democrat,\u00a0also endorsed this proposal<\/a>.<\/p>\n

Taxing the Bubble Economy<\/strong><\/p>\n

In a July 8, 2023 article on\u00a0Naked Capitalism\u00a0titled \u201cThe United States\u2019 Financial Quandary: ZIRP\u2019s Only Exit Path Is a Crash<\/a>,\u201d economist Michael Hudson points to the speculative bubbles blown by the Fed\u2019s Zero Interest Rate Policy, dating back to the Great Recession of 2008-09. The result is a Ponzi scheme, says Hudson, and there is no way out but to write down the debt or let the economy crash.<\/p>\n

According to Fed insider Danielle DiMartino Booth, it is those speculative bubbles that Fed Chair Jerome Powell has attempted to pop with the drastic interest rate hikes of the last year, eliminating the \u201cFed Put,\u201d the presumption that the Fed will always come to the rescue of the speculative market. That tack actually seems to be working; but the approach has resulted in serious collateral damage to mainstream businesses and the productive economic base. (See my earlier article\u00a0here<\/a>.)<\/p>\n

Another way to trim the fat from the \u201cfinancialized\u201d economy is a small financial transactions tax. That solution was also discussed in an earlier article (here<\/a>), drawing on a 2023 book titled\u00a0A Tale of Two Economies<\/a>: A New Financial Operating System for the American Economy<\/em>\u00a0by Wall Street veteran Scott Smith. He argues that we are taxing the wrong things \u2013 income and physical sales. We actually have two economies \u2013 the material economy in which goods and services are bought and sold, and the monetary economy involving the trading of financial assets (stocks, bonds, currencies, etc.) \u2013 basically \u201cmoney making money\u201d without producing new goods or services.<\/p>\n

Drawing on data from the Bank for International Settlements and the Federal Reserve, Smith shows that the monetary economy is hundreds of times larger than the physical economy. The budget gap could be closed by imposing a tax of a mere 0.1% on financial transactions, while eliminating not just income taxes but every other tax we pay today. For a financial transactions tax (FTT) of 0.25%, we could fund benefits we cannot afford today that would stimulate growth in the real economy, including not just infrastructure and development but free college, a universal basic income, and free healthcare for all. Smith contends we could even pay off the national debt in ten years or less with a 0.25% FTT.<\/p>\n

Funding Infrastructure through a National Infrastructure Bank<\/strong><\/p>\n

Another way to fund critical infrastructure without tapping the federal budget is through a 1930s-style work-around on the model of Roosevelt\u2019s Reconstruction Finance Corporation.\u00a0HR 4052<\/a>, a proposal for a national infrastructure bank on that model, is currently before Congress and has widespread support. The proposed bank is designed to be a true depository bank, which can leverage its funds as all banks are allowed to do: with a 10% capital requirement, it can leverage $1 in capital into $10 in loans.<\/p>\n

For capitalization, the bill proposes to follow the lead of Alexander Hamilton\u2019s First U.S. Bank: shares in the bank will be swapped for existing U.S. bonds. The shares will earn a 2% dividend and are non-voting. Control of the bank and its operations will remain with the public, an independent board of directors, and a panel of carefully selected non-partisan experts, precluding manipulation for political ends.<\/p>\n

America achieved its greatest-ever infrastructure campaign in the midst of the Great Depression. We can do that again today, and we can do it with the same machinery: off-budget financing through a government-owned national financial institution.<\/p>\n

Granted, these proposals are not likely to be implemented until we are actually facing another Great Depression, or at least a Great Recession; but Michael Hudson and other pundits are predicting that outcome in the not-too-distant future. It is good to have some viable alternatives on the table for consideration when, as in the 1930s, politicians are compelled to seek them out.<\/p>\n

\u2022 First published on ScheerPost<\/a>.<\/p>\n


\r\nThis content originally appeared on Dissident Voice<\/a> and was authored by Ellen Brown.
<\/p>\n

This post was originally published on Radio Free<\/a>. <\/p>","protected":false},"excerpt":{"rendered":"

\u201cRather than collecting taxes from the wealthy,\u201d wrote the New York Times Editorial Board in a July 7 opinion piece, \u201cthe government is paying the wealthy to borrow their money.\u201d Titled \u201cAmerica Is Living on Borrowed Money,\u201d the editorial observes that over the next decade, according to the Congressional Budget Office (CBO), annual federal budget [\u2026]<\/p>\n","protected":false},"author":127,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[42657,43302,724,30691,27398,43524,397,1069,42278,4245,42834,65405,19217,56428,27150,42603,615,43381,201,42617],"tags":[],"_links":{"self":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/1135092"}],"collection":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/users\/127"}],"replies":[{"embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/comments?post=1135092"}],"version-history":[{"count":2,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/1135092\/revisions"}],"predecessor-version":[{"id":1135128,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/posts\/1135092\/revisions\/1135128"}],"wp:attachment":[{"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/media?parent=1135092"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/categories?post=1135092"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/radiofree.asia\/wp-json\/wp\/v2\/tags?post=1135092"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}