Both Fiscal and Monetary Policy

In Washington, D.C., the saga of the Federal debt ceiling, resulting from ever growing budget deficits, continues. Unfortunately, the story that fiscal policy alone is not enough to solve this problem remains largely untold.

On March 16, 2006, freshman Senator Obama pointed out, “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.” And, as Democratic Senate leader Reid said just a short while before Obama spoke that same day, “President Thomas Jefferson said: I place economy among the first and most important government virtues, and public debt as the greatest of the dangers to be feared.”

As we near yet another vote on increasing the debt ceiling, we should keep in mind 2 facts: (1) not increasing the ceiling does not equate to a default, and (2) it is a myth that the Federal government has never defaulted in the past.

On the fiscal policy front, a number of serious proposals have been made to address the budget and debt problems, such as Dr. Ron Paul’s Plan to Restore America and Dr. Rand Paul’s bill S.162 introduced in 2011. (There are a number of other proposals, e.g., the Paul/DeMint/Lee budget, the Tea Party Debt Commission budget, the Cato Institute budget, and the proposals published by the Heritage Foundation mentioned in my earlier article.) Also see Congressman Broun’s bill H.R. 2409 from 2011 to lower the debt ceiling.

But that of course leaves out the monetary policy. Previously, I have pointed out that we cannot honestly address the debt problem unless we follow the 3 part solution offered by Warren T. Brookes in the 1986 Heritage Foundation symposium on cutting the budget:

  • returning to the gold standard (as Bill Clinton has pointed out, going off the gold standard has had a number of deleterious effects),
  • allowing for competing currencies, and
  • abolishing the Federal Reserve.

Congressman Paul Broun has introduced legislative proposals in the House that would address these issues by following most of the solutions proposed by Brookes.

An additional measure would be the passage of a modified version of Dr. Paul’s bill from 2011, H.R. 2768 -- the Debt Crisis Resolution Act, which would “cancel public debt held by the Federal Reserve System and ... lower the public debt limit by an equal amount.” I would modify the original bill to make sure that the second part of its stated purpose is carried out. My addition to the original bill would be a new section:

SEC. 3. LOWERING OF THE PUBLIC DEBT LIMIT

(a) Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection; and inserting in lieu thereof an amount equal to the difference between the stricken out dollar limitation, and the amount equal to the amount of obligations described in Section 2(a) of this Act.

(b) The amendment made by Section 3(a) of this Act shall take effect immediately upon the execution of Section 2 of this Act.

While many “deficit hawks” focus on “entitlements,” the untold story continues to be monetary policy, including the potential $1 trillion per year interest payment debt bomb.

We will soon see who the true “deficit hawks” are.

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Exclusive Interview With John Mueller, one of the most important aides to Rep. Jack Kemp and an intimate participant in the formulation and implementation of what became known as "Supply Side Economics," Part 3

November 17, 2014, 2014

An extended interview with John Mueller,, one of the most important aides to Rep. Jack Kemp and an intimate participant in the formulation and implementation of what became known as "Supply Side Economics," Part 3

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Signs Of The Gold Standard Emerging From Great Britain?

by Ralph Benko

... Given Kwarteng’s current and, likely, future importance to the world monetary discourse it really would be invaluable were he to master the arguments of Jacques Rueff, and of Lewis Lehrman, as well as those of Triffin (who shared the same diagnosis while offering a different prescription).

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Exclusive interview with Prof. Lawrence White, Part 3

Ralph J. Benko  |  Oct 20, 2014
Lawrence H. White is an  economics professor at George Mason University who teaches graduate level monetary theory and policy. Lawrence White As described by the Wikipedia, "White earned his BA at Harvard University (1977) and PhD at the University of California at Los Angeles (1982). Before his current role at George Mason...
The Federal Reserve System's James Narron and David Skeie, career officials with the Federal Reserve System, are two eminent historically erudite figures.  Writing in the New York Federal Reserve Bank's online publication, Liberty Street Economics, they recently provided a continuation of their valuable historical "revue," Crisis Chronicles: The Collapse of the...
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An article headline in Saturday’s Wall Street Journalread “Rate Talk Heats Up Within The Fed.” As Journalreporters Jon Hilsenrath and Michael Derby...
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Eichengreen (2012, p 128) writes of “gold's inherent price volatility” making it unsuitable to “provide a basis for...
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In Memoriam
Professor Jacques Rueff
(1896-1978)

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