The mind-boggling Incompetence of the Debt Ceiling debate: If a Default scares you, what about a Depression?
“A sudden, relatively convulsive reorganization of the world’s finances, monetary systems and trade-relations, is the only hope to be seen among those nations which prefer that their nations survive.”
—Lyndon LaRouche [emphasis added]
[Ours] “is a struggle to maintain in the world, that form, and substance of government, whose leading object is, to elevate the condition of men—to lift artificial weight from all shoulders—to clear the path of laudable pursuit for all. . .”
—Abraham Lincoln, 1861 [emphasis added]
In 1970, the last year before the abolition of the fixed exchange-rate Bretton Woods Monetary System, total U.S. government debt stood at $372 billion. By 2000, this had risen to $5.73 trillion, and today U.S. sovereign debt is a staggering $31.78 trillion. Numerous studies have posited that in the next decade that debt will grow by $1.3 trillion per year, minimally, to $45 trillion by 2033. As of May, 2023, U.S. government debt is 121 percent of America’s Gross Domestic Product (GDP), a figure which itself represents a massively inflated depiction of the health of the productive U.S. economy. At the same time, annual government deficits have grown from $3 billion in 1970 to $1.5 trillion in 2023, and annual interest payment on U.S. Government debt is now $570 billion, i.e., more than one-third of the entire deficit. The Congressional Budget Office (CBO) now predicts that annual budget deficits will grow to $2.7 trillion by 2033.
Even worse, amid all of the talk of U.S. Government debt, what is usually ignored is the explosion of financial, corporate and consumer debt. Total U.S. debt—public and private—now stands at over $90 trillion. Corporate debt, which has been growing rapidly, has now reached $10 trillion. For a nation of 330 million people, this $90 trillion of debt equals $273,000 per man, woman and child in the nation. This is a trajectory which is not sustainable.
As we near the June 1 Debt Ceiling deadline, a few things are clear. First, what is being discussed in Congress as a stop-gap temporary remedy to this crisis is utter rubbish. Kevin McCarthy and many others are simply ignoring how we arrived at such a disastrous situation. There is no discussion, whatsoever, of the deeper economic problems of the nation or how we can begin to rebuild our productive economy. There is no discussion of the precipitous decline in manufacturing and real wages since 2007, nor the escalating crisis in energy, water management and transportation. Donald Trump is the only public figure to address these paramount concerns with the proposals he has put forward in his Agenda 47. (See LaRouche PAC May 18 dialogue Will Trump’s Agenda 47 Solve the Debt Ceiling Crisis?) Yet, Congress ignores all this. Instead, our elected officials bluster, pontificate, and act like a bunch of community college graduates with degrees in bookkeeping.
Rather than serious thinking, we are being treated to the same tired and discredited litany of “cutting spending.” This is all a transparent charade, a Danse Macabre for the credulous. Certainly, the entirety of Biden’s “Green Agenda” should be de-funded, all of the “Woke” programs jettisoned, and U.S. Defense spending could be sharply reduced if we stop acting as the imperial “policemen of the world.” Proposals to cut Medicaid or reduce payments to the Supplemental Nutrition Assistance Program (SNAP) will have no effect, whatsoever, on restoring our nation to economic or financial health; but such cuts will result in intense human suffering and an accelerated death rate. Bear in mind, those now proposing to cut “entitlements” are the same ones who voted for $113 billion in aid to Ukraine in 2022.
What about the Depression?
Federal food assistance expenditures—what used to be called Food Stamps and is now called SNAP—rose from $28 billion in 2005 to $57 billion in 2018, a 100 percent increase. Now, various knuckle-brained Congressmen are proposing to save a few billion dollars by imposing restrictions which will have the effect of kicking millions of Americans off of food assistance. Yet no one seems to ask the obvious question: why are millions more Americans eligible for food assistance today, and why have SNAP expenditures doubled in the last 20 years?
Why is no one discussing the devastating collapse of our productive economy?
In 1960 there were 17.2 million manufacturing jobs in the United States. Today there are 13.1 million manufacturing jobs; this despite the fact that the population has almost doubled—from 179 million to 332 million—during the past 63 years.
Much of our major manufacturing has either closed or moved overseas. Our cities have been hollowed out and left to die, and our trade deficit now stands at $1.2 trillion per year. Our nation’s infrastructure is rotting and collapsing under our feet. Water rationing and electricity blackouts have become routine in many states.
Additionally, as stated above, corporate and consumer debt is a ticking time bomb, and we are walking directly into the jaws of a financial/economic catastrophe. Tens of millions of Americans have already been reduced to debt slaves with a credit card. But the worst—far worse—is yet to come.
How to reverse this collapse? In the words of Donald Trump, there is only one way out: “Build baby, build.” Trump is defining a pro-growth agenda with his Agenda 47. It is the right approach. However, for this to work, Lyndon LaRouche’s call for “a sudden, relatively convulsive reorganization of the world’s finances, monetary systems and trade-relations” must be acted upon. To do this, certain axiomatic issues of American System economics must be grasped.
The Fundamental Issue
On both the political right and the left, the term “globalization” has become a dirty word. Klaus Schwab’s World Economic Forum is regularly pilloried by both “progressives” and activists of the MAGA movement. Despite this, however, most critics don’t really understand what they are looking at. In addition to the Davos gatherings, consider also the annual Jackson Hole Economic Symposiums (hosted by the U.S. Federal Reserve), as well the current meeting of the Bilderberg Group, now taking place in Lisbon, Portugal. Look also at the murderous policies of the European Central Bank. Read through the roster of attendees at these gatherings: central bankers; financial elites from London, Amsterdam, New York and elsewhere; representatives of the Silicon Valley tech billionaires; various spooks from the intelligence community; and a plethora of oligarchical flunkies. Misguided people refer to these individuals as “elites” or “globalizers,” but the correct term is an Imperial Financial Oligarchy—the modern-day version of the 250 year-old British Financial Empire. What this oligarchy controls—and imposes on nation-states—is what Lyndon LaRouche called an “ultramontane system of monetary imperialism.”
Constitutionally, the American Republic is a nation of “We the People,” and the government is held responsible to only the people. Our Republic is absolutely sovereign in monetary matters, and no private banking or monetary interest has the authority to dictate the rules by which it operates. Yet, the imperial financiers insist that not only is their “free market” of speculative finance “independent” from Government of the People, but that nations are in reality subservient to the “laws” of the financial marketplace. Thus, it is their view, echoed by many in Congress, that it is okay to cut Social Security, but that the payment of interest on the National Debt is sacrosanct.
Prior generations of Americans understood clearly that the American Republic was absolutely sovereign in all matters related to banking and finance. Thus, Hamilton established a National Bank, Lincoln issued unsecured Greenbacks, and Roosevelt freed us from the slavery of the imperial British Gold Standard. Today, however, we see the unelected International Monetary Fund or the European Central Bank dictate terms to allegedly sovereign nations. This is the tail wagging the dog. And it is killing the dog.
Under the Principles adopted in 1776 and 1788, all monetary policy is determined by agreements among absolutely sovereign nations. All domestic financial policy is governed by a sacred bond between the People and their elected representatives. No, allegedly independent, private financial power has any authority—of any kind—over this Constitutional system.
An Unconstitutional Budget [i]
There is no mention in the United States Constitution of a “budget” for the national government. It may come as a shock to some to discover that for the first 145 years of our Republic’s existence, under George Washington, John Quincy Adams, Abraham Lincoln and William McKinley, there was no such thing as a national budget—no such thing at all. Abraham Lincoln fought and won the Civil War and unleashed the greatest industrial revolution in human history without a national budget. The practice, during those decades, was that Congress would enact a project, while specifying an income stream to finance the project.
Far more important, as Lincoln demonstrated with the Greenback policy, our Republic has the Constitutional power to coin (and print) money and to emit credit for the economic development of the nation. The security of that credit is grounded in the future-oriented expansion of the productive economy of the nation. Such emissions of Credit are Sovereign to the elected Representatives of the people, and are not subject to the accounting “rules” of private financial oligarchs.
The idea for an overall “federal budget” was first introduced by the Woodrow Wilson administration and finally signed into law in 1921, when the Bureau of the Budget was created. In reality, the very concept of a “federal budget” was imported from Britain and was only made possible by the earlier establishment of the Federal Reserve. The entire U.S. budget was to be consolidated into one gigantic blob and then made subservient to the financial “rules” of the Federal Reserve, the City of London, and the major New York and Boston banks.
Previously, the economic development of the nation—manufacturing, agriculture and science—were the priority. After 1921, the financial interests of London and New York became hegemonic. All of this was laid out by Woodrow Wilson in his 1884 book, Congressional Government, where he explicitly attacks the American System policy of tariffs and internal improvements, and he praises the central role of the British Exchequer for prioritizing finance over economic development. Wilson wrote:
“The object of our financial policy (i.e., the United States) has not been to equalize receipts and expenditures, but to foster the industries of the country. . . This obviously constitutes a very capital difference between the functions of the British Chancellor of the Exchequer and those of our Committee of Ways and Means. In the policy of the former, the support of the government is everything; with the latter the care of the industries of the country is the beginning and the end of duties.”
When the Bureau of the Budget was established in 1921, Congressman John J. Fitzgerald (D-NY) stated, “Many who are urging the adoption of a budget in the United States are really in favor of a very revolutionary change in our whole system of government.” [emphasis added]
Between 1921 and 1974 budgetary oversight existed, but it was somewhat loose and non-binding. But then, in the wake of the abandonment of the Bretton Woods System, Richard Nixon signed into law the Budget and Impoundment Control Act of 1974. This established the procedure of running the government on a stringent budget, subject to Congressional review, a practice that did not exist until that time. Henceforth, every piece of legislation would be judged as to how it would affect the budget, and the Congressional Budget Office (CBO) was established to enforce this. This bad situation was made even worse with the passage of the Gramm-Rudman-Hollings Balanced Budget Act in 1985. Thankfully, this latter was declared unconstitutional, but many of its provisions were later enacted separately.
One effect of this madness has been to annihilate the American principle of Public Credit, as enunciated by Alexander Hamilton. Under the provisions of a “balanced budget,” the “Greenback” policy of Abraham Lincoln would be ILLEGAL.
The Lost Art of Capital Budgeting
Lyndon LaRouche referred to our current “balanced budget process” as “a slop-jar package which lumps short-term and long-term balances together indifferently, in a single silly lump, as a common budget,” and concluded that this procedure could only have been designed by “unbalanced minds” or by “enemies of our Republic who would wish to induce us to destroy ourselves.”
In his 2005 paper, Deficits as Capital Gains: How to Capitalize a Recovery, LaRouche identifies the now nearly-lost practice of the Capital Budget as the key to resolving the current budget fiasco. What LaRouche points to is the—once standard—practice of large commercial enterprises and private entrepreneurships of separating day-to-day operating expense from a separate and distinct “Capital Budget” for long-term investments in the acquisition and maintenance of new plant and equipment, new technologies, or other physical improvements.
Viewing our nation’s economy, hypothetically, as one giant nation-state economic enterprise, about half of the annual product of this enterprise should be invested in capital and related expenditures for the creation and maintenance of investments in long-term physical improvements of the total economy. This would include a broad definition of what is termed “infrastructure,” as well as other key areas related to energy, water, transportation, etc. It would also mean supporting and promoting similar long-term investment among suitable private entrepreneurs. All of these would be long-term investments of about a 25-year duration.
The intention is to reverse the post-1968 affliction of the “services economy” and to begin to rebuild actual physical productivity.
However, there is no way that this approach can be accomplished either through the current budget process, or under the present speculative financial practices imposed by the Federal Reserve. The only pathway that will work is through Hamiltonian methods of National Banking and Public Credit.
Once the Federal Reserve is put into receivership and its criminally incompetent directors shown the door, a new National Bank will become the vehicle through which large long-term projects will be funded in critical areas for the physical improvement of the economy.[ii] The Bank will also be authorized to provide loans into the private sector for similar long-term productive investment. These initiatives will be made possible through the issuance of new U.S. Treasury Notes, to be placed on deposit in the National Bank. In essence, this will define the Nation’s “Capital Budget.”
The issuance of large amounts of new U.S. Treasury Notes—as was the case with the Greenbacks—will represent new government debt, but it is debt of a different sort. Long-term capital investments are not to be confused with annual costs. As long as the debt has the effect of generating leaps in the nation’s productivity and provided that payment is not postponed to a point beyond the physical life of the capital investment, the debt will be easily managed and eventually retired.
All of this is based on the crucial, Constitutional principle that the creation and issue of legal currency is a monopoly of the Federal government. Money only exists, legitimately, as a creation and a responsibility of the sovereign nation-state republic. However, that function of government is, itself, accountable to the people as a whole [not the financial oligarchy]. The people’s elected representatives are, in turn, bound by the supreme Constitutional principle of the promotion of the General Welfare of all present generations and their posterity.
Other measures toward recovery must also be taken. The ruthless re-imposition of Glass-Steagall will end much of the destructive financial practices of the last 30 years, and lead to a restoration of sound commercial banking. The $60 trillion of commercial and private debt will have to be sorted out. This debt burden is strangling business investment and impoverishing the people. Much of it is the result of financial practices that should never have been legalized and will probably have to be written off as part of a Glass-Steagall reorganization. Other steps will have to be taken.
As the productive economy begins to recover and wages and profits surge, tax revenues should prove more than adequate to meet the day-to-day operating expenses of the Federal government, while paying down and eventually liquidating the present Federal debt. At the same time, millions of people will be able to reverse their slide into poverty and government assistance will no longer be required by millions of American families.
We have to build. We have to progress. We have to advance the opportunities for the people. That is the proper approach to situating any discussion of the “debt ceiling.”
[i]. Material in this section is taken from “Why Congress Doesn’t Work Anymore,” by Susan Kokinda, The New Federalist, September 13, 1988
[ii]. For more on this subject, see this author’s book National Banking