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.”
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.
Today’s economic conditions reflect a fiat monetary system held together by many tricks and luck over the past 40 years. The world has been awash in paper money since removal of the last vestige of the gold standard by Richard Nixon when he buried the Bretton Woods agreement — the gold exchange standard — on August 15, 1971.
Since then we’ve been on a worldwide paper dollar standard. Quite possibly we are seeing the beginning of the end of that system. If so, tough times are ahead for the United States and the world economy.
The new Federal Reserve chairman, Janet Yellen, gave a policy speech today at Chicago, where, in a startling gesture, she mentioned three working individuals by name — Jermaine Brownlee, Vicki Lira, and Doreen Poole. They lost their jobs the Great Recession and have been struggling ever since. It was a refreshing, even affecting demarche by Mrs. Yellen, who has made a return to full employment a public priority. She underscored her sincerity by telephoning Mr. Brownlee and Ms. Lira and Ms. Poole before delivering her speech.
Publisher's Note: Originally released in June/July of 1991, this detailed report discusses Jacques Rueff's economic theories and applies them to modern economic events.
By John D. Mueller
Who Was Jacques Rueff?
... Trained in science and mathematics at the Ecole Polytechnique, Rueff devoted his first theoretical work to showing that the same scientific method applies to “moral” or “social” sciences like economics as to the physical sciences (Des Sciences Physiques aux Sciences Morales, 1922). In both cases, he pointed out, individual acts can be “indeterminate,” but the pattern of large numbers of individual acts can be predicted as a matter of probability. And so in economics no less than physics, as he later wrote, “A scientific theory is considered correct only if it makes forecasting possible.”
"Forerunners of man lived upon the planet several million years ago. But the unique, modern, social order of man – civilization – emerged only four to five thousand years ago. Historical and archaeological evidence suggests that the institution of money evolved coterminously with civilization. From the standpoint of the 100,000-year history of Homo sapiens, civilization and money are but young and fragile reeds. Today their very existence is threatened by financial disorder."
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