Follow the Money

In the April 17 Messenger, Kleinbard of the LA Times argues that the recent tax reform bill adopted by Congress worsens the nations finances. Lowering tax revenues and increasing the federal deficit by about 50%, to about $1 trillion, appears to be an intentional effort by the Republican Congress to “asphyxiate the working class” by forcing a decrease in federal spending on Medicare and Social Security. When that happens, except for the very wealthy, we all lose.

Kleinbard suggests several very reasonable changes that would increase government revenues. We should be electing representatives to Congress who will enact these measures. At present, that means electing Democrats, independents or minority party candidates.

But the problem runs deeper. The deficit problem was with us long before this tax “reform.” It arises because Congress outsourced its Constitutional authority to create money. Instead of borrowing, by creating Treasury bonds, government could create money. Such money would be spent into circulation on infrastructure and Medicare and stay in circulation; but that’s not the way money is created today. Congress outsourced money creation with the Federal Reserve Act, giving banks the authority to create the money we use.

Banks create money as they lend it. Since all our money is created in the form of loans, no wonder both government and private sectors have record levels of debt. Without debt there would be no money, except for the coins which the government does produce! This massive debt systematically transfers money in the form of interest from the many, most of us, to the few (0.01%?) who are the creators and lenders of the money.

The total money supply is currently about $14 trillion. Multiply that by the average interest rate. You get a very big number, which is the wealth that is being sucked out of the economy by the financial sector.  Only a small fraction of goes back into the economy to increase production of goods and services. Driven by lending, the money supply increases faster than the production, and our money is devalued by inflation, another way we all suffer.

It doesn’t have to be that way. Congress could reclaim its authority to create money. It would fund infrastructure, social and physical, and reduce debt, both public and private. Ask your congressional candidates about that.

If you want to understand our current fiscal problems, follow the money – back to its creation.

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