Category Archives: Federal Debt

Abolish the Federal Reserve

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I am often impressed to see the power that some Americans have to influence the lives of the rest of us. Look at the recent strike at the GM plant in Dayton. Here was a single facility making only one of hundreds of different parts for GM cars. The union workers at that facility went on strike, and the whole nation’s industry began to slow down for lack of those parts. Now that’s leverage.

There is one little understood institution in America whose power over our economy dwarfs that of the autoworkers in Dayton: The Federal Reserve System. Whenever the czars at the Fed have a meeting, Presidents, industrial giants, investors, home buyers, everyone with an interest in our economy awaits their verdict with bated breath. If they decide to raise interest rates, politicians and industries could fall, homes will not be purchased, jobs will be lost. If they decide to lower the rates, officeholders, industries and consumers may prosper, but the inflation rate may increase. That’s a lot of power and responsibility for a handful of people whose names would not be recognized by one in 10,000 Americans. Too much by far.

The Federal Reserve System was conceived in 1910 by a group of notorious robber barons at a then-secret meeting at J. P. Morgan’s estate on Jekyl Island, Georgia. After three years of political machinations, Congress passed the Federal Reserve Act in 1913. The bill was promoted publicly as a plan to reform the nation’s monetary system and stabilize the currency by taking control of it out of the hands of big bankers. In reality, of course, the Act was written by the bankers for the purpose of solidifying their control over our currency.

The people of the United States granted to Congress the power “to coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures” in Article I, Section 8 of the Constitution. Wisely, we never gave them the constitutional power to delegate this money-creating and regulating responsibility to any private group. Yet this is exactly what the Federal Reserve Act did. It created a cartel of private banks, managed by a Board appointed for long terms of office by the president. This group of banks became the sole issuer of U.S. money, with full control over its quantity and thus its value.

How has the Federal Reserve performed in its stated purpose of stabilizing our currency? Soon after its formation, the management of the Fed created the conditions that led to the depression of the 1930s. It has presided over the loss of the gold backing of our money, and the consequent loss of about 90% of the value of the dollar. Booms and busts have been worse after the advent of the Fed than before.

If the system hasn’t accomplished its stated goals, what then has it been able to do? It has been the tool used by the major bankers to gain control over the smaller banks. It has been able to bail out many international banks when their reckless overseas lending policies brought them to the brink of bankruptcy. It has been the financing agency for Congress’ unprecedented deficit spending on the welfare state and war. Many people believe that it has intentionally manipulated the economy in order to influence the results of our presidential elections.

Our government doesn’t need the help of any private banking cartel to manage money. We need to repeal the Federal Reserve Act and return control of our currency to Congress. Then we need a serious national discussion about how real currency reform can be achieved, giving consideration to restoring the gold backing to our money. As long as the Federal Reserve has control over our nation’s money, Congress’ control of the purse-strings will not have the benefits the Founders intended.

How to Bring Federal Spending Under Control

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The “Republican Revolution” ushered in by the 1994 election started with a powerful head of steam. The small minority of veteran conservatives in Congress were joined by a new crop of conservative freshmen to create a powerful voting block. This group started the year determined to bring our bloated government back down to size.

One year later, we see that things have not gone according to the hopes of congressional conservatives. The Republican leadership has squandered the conservatives’ political capital in support of a huge budget that merely slows the rate of growth in spending. Even if President Clinton finally agrees to some version of the Republican budget, the responsibility for making the real cuts that are needed for balancing the budget and paying the debt will be placed on the shoulders of some future generation of congressmen.

Since the President and much of Congress are so resistant to even this weak-kneed attempt to curb spending, it is obvious that any omnibus budget bill containing serious cuts would be doomed in the 104th Congress. Does this mean that conservatives in Congress should just give up and wait for the 1996 election in hopes of getting some reinforcements? Heaven forbid! If the conservatives are seen to accomplish nothing in this Congress, they are more likely to have their ranks thinned in 1996 than reinforced.

Thankfully, there is more than one way to skin a cat. Here is a two-pronged strategy for achieving real spending reform immediately. The first requirement is to replace Newt Gingrich as Speaker of the House. Gingrich’s main function this year has been to keep the “radical freshmen” representatives from doing anything to rock the boat in Washington. As long as the present Speaker holds sway in the House, conservatives will accomplish little.

The second part of the strategy is to break up the budget battle into much smaller pieces. Instead of trying to pass an omnibus budget in one or a few pieces, Congress should tackle spending issues one at a time. Using the first rule of saving, “pay yourself first,” Congress should make at least a token payment on the principal of the national debt. Then they should proceed to consider spending items in increasing order of controversy.

For example, since defense is the most basic function of government, it should be dealt with first. The first defense budget bill should cover only the spending that everyone can agree on. After the President has signed that, Congress can pass further bills if they want to add more spending for B2 bombers or the like. If the President fails to sign the further bills, so be it. We will at least have safely passed the basics. The same procedure would work in every other part of the budget. Pass a bare-bones version, then enhance it with whatever will pass all the hurdles.

This strategy has two major things to commend it. First of all, it is the right way to legislate. Making the President and each member of Congress consider a hodgepodge of unrelated items en masse always results in passing much that is bad along with the necessary. Each measure should always have to stand on its own merits. Each elected official should be held accountable for each spending item, not allowed to say “but if I had voted against that, I would have been forced to vote against this.”

The other benefit of the piecemeal budgeting strategy is that it puts the burden of passing liberal spending bills on the liberals. If the President and his allies in Congress want a welfare bill, this strategy forces them to accept whatever Congress passes. The alternative is to pass no welfare bill at all. It is a take-it-or-leave-it approach that can be used effectively by one House of Congress. Using this strategy, a non-veto-proof majority in the House of Representatives could take back control of the purse-strings, as intended by the Framers of the Constitution.

Let’s Draw the Line at $5 Trillion

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Every now and then in politics, there comes a psychologically important moment. Some are satisfying, like our bicentennial in 1976. Others are less so, like the time a few years ago when our national debt surpassed the one trillion dollar mark. If that one made us nervous, the moment that is coming upon us this month should make us shrink in terror. For if we let it happen, in September the US Congress will authorize pushing the national debt beyond the five trillion dollar mark.

At any given time, there is always some legal limit to the national debt. Since the debt has been growing out of control for decades, it periodically grows up to the legal limit. Whenever that happens, Congress has the choice of controlling their spending to prevent further growth of the debt, or increasing the legal limit, or “debt ceiling.” So far, Congress has always chosen to increase the ceiling.

In September, we are again faced with the choice: do we cut federal spending at least enough to stop adding to the debt; or do we allow the government to continue its uncontrolled spending and growth? This time, the limit is five trillion dollars. The current debt is 4.9 trillion dollars. I say that five trillion dollars is enough: let’s draw the line right here. Let’s put our Senators and Representative on notice that we expect them to vote against any increase in the federal debt ceiling.

Naturally, at any suggestion that we stop raising the debt ceiling, defenders of big government pour out of every crack in the woodwork. We are “irresponsible” even to think about such an action. Why, it would shut down the government to cut it off at five trillion dollars of debt! What a disaster!

The plain fact is that “only” about ten percent of the government is funded by debt. So only ten percent of the government would be “shut down” by cutting off that debt. Would you call that a disaster? It might be a crisis; but after all, Congress seems to prefer letting problems grow to crisis proportions before acting on them. Maybe this crisis is just what they need to get moving on the debt problem.

Conservatives are always accused of being simplistic. Okay, here is a simplistic suggestion for dealing with this situation. First, remove Social Security from the revenue and spending sides of the budget. That is a problem that should be dealt with separately, after careful planning. It need not complicate the debt question that we face right now. Second, cut the remainder of the spending side of the budget, across the board, by ten or whatever percent is needed to avoid violating the debt ceiling. Finally, reshuffle spending priorities for the ninety percent or so that is left.

It is time to stop dancing around the debt problem. If we let Congress go beyond five trillion, then ten trillion will be just around the corner. Sooner or later, we will reach the point where the interest on the debt will consume all of our tax dollars. Where will Congress’ favorite boondoggles be then? Unfortunately, at that point, we won’t be able to spend anything: Constitutionally authorized or not.

There isn’t much time to act on this. Congress could vote to increase the debt ceiling any day now. It is important that we all contact our Senators and Representative today, urging them to vote against any increase in the debt ceiling. This problem isn’t going to be easier to solve at the ten trillion or fifty trillion dollar level. Let’s put a stop to the growth of federal debt in September, 1995.