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    $Trillion Coin – More Deceit, Debt and Dereliction of Duty

    01/12/2013
    Democracy and Power 108: Obfuscation

    Wherever politics intrudes upon economic life, political success is readily attained by saying what people like to hear rather than what is demonstrably true. Instead of safeguarding truth and honesty, the state then tends to become a major source of insincerity and mendacity. —Hans F. Sennholz

    $Trillion Coin – More Deceit, Debt and Dereliction of Duty

    Politics is all about power.  President Obama and the Republican House are in a major power struggle.  Obama has exploded the national debt and will substantially increase spending.  Most House Republicans are seeking to reduce the debt by decreasing spending.  Already, America has exceeded the promulgated debt-ceiling law and Republicans are seeking to extract spending cuts in exchange for a higher ceiling.

    Entering from off-stage are some bright and knowledgable policy wonks who fantasized, “why not mint a platinum coin, declare it is worth a trillion dollars and place it in the treasury.”  According to the law, this would technically not be considered borrowing.   Thus, the debt-ceiling stand-off would be pushed back and Republicans would be stripped of their power and leverage against the President.  Many  members of the mainstream media have supported this ruse, which has not been ruled out of consideration by the White House. 

    Wisely, Kevin Drum at Mother Jones has warned Democrats not to twist the law.  Drum calls this a horrible and lawless act:   

    Do we really want to be on record endorsing the idea that if a president doesn't get his way, he should simply twist the law like a pretzel and essentially do what he wants by fiat? My recollection is that we didn't think very highly of this kind of thing when we thought George Bush was doing it.

    Yes, the law should not be twisted like a pretzel.  However, probably unknown to Mr. Drum, America's debt has been persistently manipulated, concealed, and distorted.  Republicans and Democrats have repeatedly twisted language, labels and truth like a pretzel.

    Laurence Kotlikoff of Boston University has consistently been the most honest critic of the way government measures our debt and how language – contorted labels and deceptions – distorts our real  debt.  According to professor Kotlikoff our actual debt, which he calls the “the fiscal gap”is more than $200 trillion.  Presently, our politicians claim the debt is just over $16 trillion.  How can there be such a difference?  [Read my post in early 2011:  When Pretending Fails to Hide Bankruptcy]

    It’s only the value of the infinite horizon fiscal gap that is unaffected by our choice of labels. Take this year’s payroll tax contributions, for example. We'll call these "transfers" from workers to Uncle Sam “borrowing” by the government, rather than “payroll taxes” since the money will be paid back as future benefits.

    If the future payback isn’t in-full (equal to principal plus interest), we can call the difference a “retirement tax.”  Presto! With the change of words, our 2011 deficit of close to10 percent of GDP is now boosted another five points to 15 percent.  Thus, politicians manipulate the labels to obscure the actual debt. Clinton, Bush II and now Obama are all guilty.

    In terms We the People can grasp:  government must tax or cut spending at 12% of the annual GDP forever.  In comparison, the FICA tax paid by employers and employees for Social Security and Medicare is presently at 5% of GDP.

    Clinton, Bush, Obama and every competent Member of Congress knows that government is contorting language, accounting methods and time horizons to “cook the books” and deceive the American public.  Again from 2011:

    Kotlikoff has personally witnessed the political conniving and mendacity.  In 1993, Kotlikoff and other economists were asked by Alice Rivlin of the Office of Management and Budget to analyze the fiscal  gap.  After months of study the report exposed rapidly increasing debt. However, the report was never published.  It was squashed by the Clinton Administration, which didn’t like the negative repercussions.  The next attempt was by Treasury Secretary Paul O’Neill in 2002 (Bush II's reign).  O’Neill and the report were annihilated in favor of pushing tax decreases and prescription drugs.  Now the Obama Administration is claiming the 12% fiscal gap is only a 1.8% deficit.  This is mainly because in 2014 the Independent Payment Advisory Board will adjust the payments of Medicare and Medicaid.  A reduction that has no historical precedent, and even the Medicare’s chief actuary Richard Foster said:
     

    “The financial projections shown in this report for Medicare do not represent a reasonable expectation…in either the short range…or the long range.”

    Yes, the $trillion dollar coin gimmick is juvenile and ridiculous.  Unfortunately, it is merely par for the political course.  Finally, as I wrote in February 2011:

    Dear fellow Americans, we have a momentous problem.   America’s elected elites have willfully, wrongfully and harmfully damaged America.  These political power addicts - Republicans, Democrats, progressives, liberals, and conservatives - all seek the immediate gratification of power over long-term, good policy.

    Hopefully, the $trillion coin deception brings more notice and better results than my 2011 post.

     

    Related posts:

    Debt and government deceit:

    Political Accounting Gimmicks are Destroying America

    Debt and National decline:

    The West and the Tyranny of Public Debt

    Cut Spending to Reduce the Debt Burden:

    The Right Way to Balance the Budget