Marshall Auerback: Barack Obama – The Nation’s First Tea Party President

By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Economic Perspectives

For all its talk of the importance of averting a debt default, Barack increasingly signaling that major deficit reduction has become more than just a bargaining chip to bring Republicans aboard a debt deal. He actually believes that cutting entitlements and reducing the deficit are laudable goals, which would mark “transformational” moments in his President. Let’s face it: the man is not a progressive in any sense of the word; he’s a Tea Party President through and through.

To be sure, it’s tough to make the case that the Tea Party has anything like a genuinely coherent political platform. They hate entitlements, but one of their leading voices in the Senate, Rand Paul, conspicuously avoided any talk of cutting Medicare during his campaign (unsurprising, given how much of his income as an ophthalmologist involved treating Medicare patients). You have Presidential candidate, Michelle Bachmann, pledging never to raise the debt ceiling, yet proposing to slash the federal corporate income tax and eliminate the capital gains and estate taxes.

But for the most part, all share a visceral dislike of “excessive” government spending, buy into the notion that the federal debt levels are “unsustainable” and that entitlements, really need to be “reformed” (i.e. cut back). In that regard, their aspirations appear to have more in common with the President, than their ostensible GOP allies, one of whom, Senator Mitch McConnell, has proposed giving President Obama the power to raise the debt limit on his own through the end of his first term, but to force Democrats to take a series of votes on the debt limit in the months leading up to the election. This would stave off the threat of defaulting on national obligations, but would force the President to be responsible for all subsequent spending cuts and/or tax increases.

On the surface, this would seem to be a great deal for President Obama. He could in theory simply take up Senator McConnell’s offer, raise the debt ceiling and avoid the self-inflicted insanity of draining $4 trillion of aggregate demand from an economy still reeling from massive underemployment and wasted resources. Or the President could, as we and others have suggested in the past), simply invoke the 14th amendment and refuse to enforce a statute that he believes violates the Constitution.

Professor Scott Fullwiler has suggested an even more creative way around the debt ceiling: Fullwiler notes that Fed is the monopoly supplier of reserve balances, but that the US Constitution bestows upon the US Treasury the authority to mint coins (particularly platinum coins). Future deficit spending by the federal government could thereby continue to be carried out by minting coins and depositing them in the Treasury’s account at the Fed (for more details see here).

Curiously, the President won’t pursue any of these options. Why?

If, for example, the President genuinely believes that the 14th Amendment does not give him the right to ignore the debt ceiling, he has been loath to give any reasoning for this publicly. He is, after all, a constitutional law professor. Much like the single payer option in health, the President refuses to even put it on the table, even as a negotiating posture. Is it caution, or does the President genuinely believe this guff about the deficit?

By the same token, the President might well dismiss Professor Fullwiler’s idea as nothing more than a “gimmick”. But if the alternative is the economic apocalypse regularly described by Treasury Secretary Geithner, then why not deploy this “gimmick” if the alternative is (in the words of Mr Geithner), “catastrophic damage across the American economy and across the global economy”?
As Bill Mitchell has pointed out:

[T]he whole edifice surrounding government spending and bond-issuance is also ‘just an accounting gimmick’. The mainstream make much of what they call the government budget constraint as if it is an a priori financial constraint when in fact it is just an accounting statement of the monetary operations surrounding government spending and taxation and debt-issuance.

There are political gimmicks too that lead to the US government issuing debt to match their net public spending. These just hide the fact that in terms of the intrinsic characteristics of the monetary system the US government is never revenue constrained because it is the monopoly issuer of the currency. Which makes the whole debt ceiling debate a political and accounting gimmick.

The fact is that when a President really wants to spend money, he can resort to all sorts of “gimmicks”. During the Clinton Administration, Treasury Secretary Rubin and Deputy Treasury Secretary Summers did an end-around Congress (which was seeking to prevent the use of government money as support for a bailout of Mexico – or more accurately, a bailout for Wall Street banks which had foolishly lost money investing in Mexico) through the deployment of the little known “Exchange Stabilization Fund”. Until then, the ESF had been an obscure entity, the Treasury’s own honey pot, established by an obscure provision in the Gold Reserve Act of January 31, 1934 for the purpose of stabilizing the exchange value of the dollar. The ESF was certainly not created simply help the President go around the backs of Congress. Yet the President did it and in effect called the GOP’s bluff.

To be sure, one can argue that Mr. Clinton was also serving his patrons on Wall Street, when he performed this action. But whatever the motivations underlying the use of the ESF, it made clear that Bill Clinton wanted to spend government money and got his Administration to find ways around the opposition of Congress. Call it a gimmick, or call it unconstitutional (though, in fact, the constitutionality of the action was in fact never queried). However dubious the action (or questionable the motives underlying it), President Clinton evinced a genuine desire to spend money, rather than have the government “live within its means”, whilst invoking the foolish household analogy so beloved of this President. His motives may have been impure, but his intent was clear.

Likewise with this President, who has apparently fallen in love with the idea of being the biggest deficit hawk in Washington, DC. In fact, last Sunday, the White House chief of staff, William M. Daley, said on “This Week” on ABC that Mr. Obama would continue to push for a major deal to reduce the deficit. “Everyone agrees that a number around $4 trillion is the number that will make a serious dent in our deficit,” Mr. Daley said. “He didn’t come to this town to do little things. He came to do big things.”

“Big things” – like destroying the New Deal and what’s left of The Great Society. Who knew this is what Obama meant when he said he wanted to be a “transformational President” like Ronald Reagan? He actually believes this poisonous nonsense about the US on the verge of becoming “the next Greece”. He fails to understand that if private spending is lagging then public spending has to fill the gap. Otherwise output and employment growth will be sluggish if not negative. To cut into the huge pool of unemployed and underemployed labor, employment growth has to be faster than labor force growth, which means that real GDP growth has to be faster than the sum of labor force and labor productivity growth.

These facts are very simple and indisputable. Cutting public spending “at this time” is the last thing the US government should be doing. Yet this President is pushing for the largest possible cuts that he can on the Federal government debt. He is moving ahead of the GOP on this issue. He is providing “leadership” of the sort which is infuriating his base, but should endear him to the Tea Party. This is “the big thing” for Barack Obama, as opposed to maximizing the potential of his fellow Americans by seeking to eliminate the scourge of unemployment. Instead, his big idea is to become the president who did what George Bush could not: cut Medicare, Medicaid and Social Security. What more could the Tea Party possibly want?

Print Friendly, PDF & Email


  1. km4

    Kucinich nails it !
    Debt Political Theater Diverts Attention While Americans’ Wealth is Stolen

    his best nuggets
    1) Mark my words — Wall Street cashes in whether we have a default or not….

    2) These are symptoms of a government which has lost its way, and they are a challenge to the legitimacy of the two-party system.

    Ron Paul Exclusive: Who’s Regulating Washington?

    money quote from Ron Paul….
    “We have drifted because we had so much prosperity, but we can’t drift forever. We can’t live on borrowed money and printed money forever ”

    America’s AAA Rating Not Worth Saving Because “We Are Insolvent”

    David Stockman said last Oct : “I think the Fed is injecting high grade monetary heroin into the financial system of the world, and one of these days it is going to kill the patient”

    IMO QE3 or QE4 will do it!

  2. Peter T

    Only a nominally democratic president could cut Medicare, Medicaid and Social Security. No democratic president would, before the other possibilities (taxes, military) have been fully considered.

    I don’t think Obama is a Tea Party president. He is an establishment Republican like Romney who likes corporations, Wall Street and the status quo in general. If those two run against each other November 2012, would it really matter who could fulfill their ambition to be president from 2013 to 2017?

    1. PghMike

      I used to think that Obama is a Rockefeller Republican, but I’m not sure that even Nelson would have pushed to destroy social security.

  3. Abe, NYC

    While I agree with Marshall’s point, Obama himself would have probably taken great satisfaction in being called a Tea Party president. That’s because he’s matter-of-factly called a socialist by the right wing (Mish immediately comes to mind). He can therefore claim the hallowed middle ground.

    That this “middle” ground is far to the right of Teddy Roosevelt or Nixon seems to be completely lost on most voters, not to mention MSM.

  4. Paul Tioxon

    Money is made, even larger sums than ever, in the middle of this complete chaos. But the hysterical Tea Party Prez name calling is more of the He-is-not-an-American bullshit. I am not sure I am on the right blog site. There seems to be some hope that by constantly attacking Obama for not being progressive enough, maybe influential people will see this, and then report that his feet were set afire yet again. Maybe if the whining perfectionists here on Naked Capitalism went as far out of their way to point out that Eric Cantor, Grover Norquist and other republican cogs in the doomsday machine that the republican party has morphed into initiate and represent this entire austerity, debt reducing self medication in a time of crisis catastrophe and not how poorly Obama reacts to their insane extortion, maybe, you would be putting some pressure on the people who need to feel something tightening around their necks other than ties.

    Read my sentence: Paul Ryan wants to destroy Social Security in its entirety. Sen. Pat Toomey, who was just elected, has a book, outlining his plan for destroying SSI. Bush tried and failed. Obama is not doing ANYTHING remotely close to WHAT the republicans have come out into the open against in the last few years and have been against for 75 years. I would like to see the bloodlust against Grover Norquist, I would like to see the same ridiculous accusations that there should be psychological testing to allow anyone to run federal office, in addition to have a birth certificate on file. I would like to see the Social Security loophole closed that stops contributions at the arbitrary income level of $107k and I would like to see Social Security MEANS TESTED SO THAT HEDGE FUND MANAGERS PAY INTO THE FUND FOR THE THEIR $5BB incomes and not get a penny of it. And I don’t give a shit what the keepers of the flame of FDR think about fundamentally challenging the philosophical underpinnings of FICA as an insurance fund that we all pay into. It is not a free market business, but a political act of Congress creating a de facto retirement fund for the workers of America who are ripped off by the billionaire assholes who do not pay us enough wages or health benefits or pensions. This is my way of knowing I am getting it and others like me are getting it also and that the rich, who already have theirs do not get any from this fund. If that makes me a tea party nuts, you need to stop reading time magazine or limo liberals digest and find out what the real underpinnings of the New Deal are, hint, they are not bold ideas, a deal means better terms, more money, you can keep your philosophical implications and let me know when I can use them to pay my bills.

    1. pj

      Wow, quite the rant there, Paul. I think you feel passionately about what you say – and what’s more, I agree with you.

      This is about power differentials and unchecked greed – and survival. If the powerful make the rules and they rule that they get to keep all the money for themselves, then government must step in to protect the working man, who has no power to make the rules.

      It is government’s responsibility to regulate commerce between the states and the people.

      1. ambrit

        Dear doom;
        Problem is, if the present dynamic is allowed to continue, the choices left will be between ‘Junta’ or ‘Constituant Assembly.’

    2. The lives of others

      Thank you, Paul.
      The entire blogosphere is going nuts. All politicians are corrupt or corruptible, but Republicans are antisocial physchopaths.
      For me, a silver lining: This global (so-called) “economic” fiasco and the prevailing irrational and criminal behavior, is proof absolute of the non-existence of god (or gods). A just god would strike the lot out with a single bolt!

      1. ambrit

        Dear tloo;
        Considering the ‘free will’ debate in Theological circles, it is quite possible that any competent Diety is allowing us all to do the work ourselves, just like any good psychotherapist.

    3. Tigercrane

      Why means-test Social Security? Why not just raise the cap so the hedge-fund managers are suddenly paying hundreds of thousands into it with every paycheck?

      There’s a game of good cop-bad cop going on here. Yes, the Republicans want to completely destroy Social Security. Obama only wants to partly destroy it, which makes him look “moderate” in comparison. But we were starting from a position in which Social Security was politically off-limits. Obama is doing his job to move the window rightward. Once he moves it, the next President can move it farther. That’s why he must be opposed.

    4. Susan the other

      Social Security, Medicare/aid need to be protected from the predations of a bankrupt treasury, an insolvent nation and corrupt and stupid politicians who are still playing the game like it was 1975. News flash! It is 2011 already. Obama said, many times, that there is too much waste in the system. There is. You cannot economize if you do not trim the fat. And if the whole retirement system is examined the wasteful spending will be found. Our health care is the most expensive and least cost effective system in the industrialized world. It is full of grifters. It can be set right. I’m sure we well have single payer and it will be brought about because of the intense confrontation now going on in Washington. Businesses and Corporations have been in favor of single payer for several years now. Big Pharma cannot hold us hostage forever.

      Social Security works well and should not be cut but it does need to be protected and a close look now could do just that. I haven’t seen the particulars of the deals they are passive-aggressive-deliberating. But the stubborn opposition of our Dear Republicans tells me that their loopholes are being closed up. If it is a just a game of brinksmanship by the likes of Boehner, et. al. I’m all for calling their bluff. Let’s just see what they come up with on August 3rd.

    5. Eureka Springs

      Wow Paul, Thank you so very much. I’ve seen the light now. Obama takes things further to the right than the tea bagger wing of the GOP could if there was an honest attempt to dispute them. And the pres. utilizes debt cieling lies to further neo liberal shock doctrine failure.

      Yes siree, I’m dropping my cup of coffee on the office floor right now and running to Berryville to register as a Democrat today. We the people, especially liberal or progressives who have not one reason to appreciate president worse than Hoover… must make sure Ryan doesn’t get to do what Obama is doing.

      You wouldn’t happen to have a used car for sale would you?

    6. Doug Terpstra

      Paul, you’ve been drinking too much theater Kool-Aid. If you can’t recognize the wolf under the fleece, then you are surely inebriated. And if you can’t see past the staging of the lunatic fringe as framing of Wall Street’s and the Pentagon’s waterboy as the opposite of what he is, giving him cover to do worse than any conservative before him, then you need a reality check. Just say no to more Kool-Aid; have some coffee instead.

      Marshall Auerback also has been toking a bit too much and gives Obama too much credit when he writes, “He actually believes this poisonous nonsense about the US on the verge of becoming “the next Greece”. He fails to understand that if private spending is lagging then public spending has to fill the gap.”

      One more time, folks, Obama is no fool. He knows exactly what he is doing. Unlike every one of his promises, his two-and-a-half-year record as a neolib, neocon warmonger is now unbroken, and all of the steps he has taken to achieve these ends have involved methodical and calculated deceit. This has shock doctrine strategy for the Homeland written all over it.

      You too, Mickey?

    7. JTFaraday

      “Maybe if the whining perfectionists here on Naked Capitalism went as far out of their way to point out that Eric Cantor, Grover Norquist and other republican cogs… you would be putting some pressure on the people who need to feel something tightening around their necks other than ties.”

      It’s kind of hard to tighten anything around Eric Cantor’s neck with so many of you busy on all fours licking the feet of the new head of the Tea Party.

      But, as it’s entirely immaterial to me who gets to head up the crazy right wing, you can keep slavering all you want.

      Have at it. It’s a free country.

  5. attempter

    Barack increasingly signaling that major deficit reduction has become more than just a bargaining chip to bring Republicans aboard a debt deal. He actually believes that cutting entitlements and reducing the deficit are laudable goals, which would mark “transformational” moments in his President. Let’s face it: the man is not a progressive in any sense of the word; he’s a Tea Party President through and through.

    It’s always good to see people gradually, agonizingly coming around to realization of the truth. But the fact that Obama’s a right-winger was evident since long before the inauguration. And it doesn’t make much sense to call him a tea party president. As the post mentions, the “tea party” has no intellectual coherency whatsoever; it’s purely a knee-jerk tantrum of resentment against something vague, on the part of those who are too cowardly to direct their anger against the real criminals.

    Obama’s actions now are completely consistent with all of his actions since becoming president. He’s a neoliberal corporatist ideologue who believes the purpose of civilization is to serve as a resource mine and waste dump for the rich and for big corporations. That’s it. Nothing more, nothing less.

    And even if for once he ever chose political advantage over kleptocratic ideology, it would be a purely temporary, provisional thing. And even if he had a sincere change of heart and really decided to become a reformist, this wouldn’t avail because we already know that reformism is at best merely a holding action in corporatism’s inexorable war of attrition which it must totally win in the end if it continues to exist.

    Therefore, we must reject Auerback’s call to expand the imperial presidency yet further:

    If, for example, the President genuinely believes that the 14th Amendment does not give him the right to ignore the debt ceiling, he has been loath to give any reasoning for this publicly.

    As I said above, there’s no sufficient reason for such action. (At least not for it to be described in principle like this; Obama should just go ahead and do it.)

    And I really hope this was sarcastic:

    He is, after all, a constitutional law professor.

    We know that Obama’s nothing but a mediocrity, a hack. Not that being even a real constitutional law professor matters anymore, but he was clearly never that. His attitudes toward the Bailout, war, civil liberties, “intellectual property”, money, and the imperial presidency in general, just to give a few examples, certainly demonstrate a peculiar attitude toward the constitution, to say the least, on the part of someone alleged to be a “scholar” of it. That’s assuming he ever actually read the thing at all.

    1. Doug Terpstra

      Well said, attempter; glad you’re back. But I do miss DownSouth. I hope he’s healthy, happy and enjoying a wonderful vacation.

  6. Patrick

    An articulate Bush…Bush 3 in fact.

    African Americans and progressives have been swindled by the current President.

    Only the decades long debt that the democratic party owes to the loyalty of african american voters stops there being a strong primary challenge to him.

    If the Republicans put up a half decent candidate, a big if, then he will be a one term president. Which might be no bad thing given his current policy stance on the economy and financial reform.

    1. ambrit

      Dear Patrick;
      I live in the Deep South, and the word going around ‘on the Street’ is that Obama is an ‘Uncle Tom.’ This from the people suffering the most from his policies, who are slowly but discernably understanding that the present situation is ‘class’ based, and not ‘race’ based. Unfortunately, the upwardly mobile African American cohort has yet to voice any understanding of this phenomenon. One thing to watch; the locals are becoming worried about the coming re-collapse of the housing market. The MSM is doing a pretty good job of preparing the ‘masses’ for a step decline in their standards of living. Who are the idiots who think the people aren’t going to reach their breaking point soon?

  7. Max424

    I think Obama should recall Larry Summers.

    Hey! Stop laughing. Come on, now … stop that. I’m serious.

    I just saw Jabba the Hutt Summers on Charlie Rose, and Larry has become, in his time away from Washington, a committed New Dealer.

    Larry has had … his Saul of Tarsus moment. He has seen the light. He understands now, for the first time in his long and pointless career, the most basic of kindergarten concepts; 1942 was to economic prosperity in the United States, as the birth the Christ was to Christianity.

    Note: Please don’t conflate the year 1942 with war. War has nothing to do with anything. The 3rd, 4th, and 5th Marine divisions could have gone to Iwo Jima in 45 to plant daisies, instead of landing there to slaughter Japs.

    This not about war, this is about money, as in, who controls it. In 1942, the United States took control of its money supply, and used it to produce 18% growth, and basically, zero percent unemployment.

    You don’t need to fight a war to be prosperous; you only have to summon the courage, as a nation, to arrest control of your money supply away from the banks.

    *Do we have the courage, as a nation, to take on the banks? FUCK NO, in my humble opinion. We are nation of cowards, led by whores.

    1. Cedric Regula

      So…you’re saying the USG should take the money and give it to defense contractors?

    2. pj

      “Do we have the courage, as a nation, to take on the banks?”

      See now, this is what confuses me: we read every day how Congress has been bought and purchased (I say it, too) but in reality – who has the power?

      Congress has the power to change things, bankers have none.

      I fail to see where any Alpha man would give up his power and position of authority for a little bit of money from a banker.

      The fault and responsibility lies with government. Let’s not lose sight of that.

      1. jwbeene

        pj, its simple politicians cannot run or win office without huge sums of money. Plus if politicians offend; some well funded group will put someone up to run against them.

        Good example is Obama runs un-opposed.

    3. Susan the other

      I saw that Charlie Rose show too. Larry Summers has such a weird smile I wondered if he has parkinsons. And his timing is so hurky-jerky Charlie couldn’t ask him a complete question. Summers is really a twitch. I didn’t know this. And you’re right, he was expounding on the virtues of building the infrastructure which just 2 weeks ago in London he claimed he “hated.” So it probably wasn’t Obama who made Summers do this about-face on TV. Was it the “big banks?” They wanted Larry to instill confidence that unemployment “isn’t so bad” (right) and infrastructure jobs will cure everything but not today. Strange. The only reason the banks would get on this bandwagon is because they are finally admitting they are toast. And they want to be loved again. Scorpion love.

  8. Ransome

    It is probably time to take money out of the market and beat the rush before the Mellon Moment. Egan says Ryan is an anarchist. This is his chance to unseat the President, there is a bit of alpha dog-ness to this. This is pure Hayek and Rand, after collapse, the alpha dog takes over. Bachmann is getting excited. The Superclass with fast money are moving into cash.

  9. Jo

    ‘We are nation of cowards, led by whores.’


    I would add ‘and shilled by liars such as Auerback.’

    1. Cedric Regula

      Anyone against accounting is ok in my book. Stupid accounting stuff always turns into a gimmick anyway – and who needs that?

      I’m just starting to learn Zen, but already I know it’s all about flow and flow is a 4 dimensional thing. It just stands to reason if you muck around with flow you just bend Karma all out of shape. That can’t be good. To much goes one place and not enough another. Unless we have a Karma generator…not sure about that. But there are other commenters around here that know more about Zen than I do.

      1. Uehara

        Best way to learn Zen, shut up and sit on that zafu, let go of your thoughts and stare at the wall! :)

  10. John in MD

    There’s nothing in the Constitution giving the Treasury Department the power to mint coins or even noting the existence of a Treasury Department. Congress is given basically all power regarding money. I believe the Treasury power you refer to was delegated by Congress in one of the Coinage Acts.

  11. Middle Seaman

    Couldn’t agree more. Sadly, I was at this place from about the middle of 2008 and after I sent money to Obama being the young new face. Obama is an empty suit, lacks values, of average or below intelligence who became president despite his obvious lack of qualifications. (A Canadian and Australian colleagues asked in June 2009, why do you Americans insist on electing first W and the Obama consecutively unproven entities for president?)

    When you believe in nothing and your analytical skills are sub par, you tend to follow the winds (to the extent that you can detect them, which also is questionable). Let it then be the Teas and screw those poor schmucks who need SS and Medicare.

  12. Jim Haygood

    The delusional Chartalist messiah Bill Mitchell states:

    There are political gimmicks too that lead to the US government issuing debt to match their net public spending.

    DUH — strange how governments all over the world do this, if they don’t have to!

    Retreating from MMT’s plushly-furnished fiat fantasyland back to our own native planet, Merrill Matthews at Forbes explains why the debt limit constrains Social Security spending, despite its alleged possession of a $2.6 trillion trust fund:

    Social Security status-quo defenders have assured us for the past 25 years that Social Security is fully funded — for the next 25 years, or 2036. So if there are real assets in the Social Security Trust Fund —- $2.6 trillion allegedly —- then how could failure to reach a debt-ceiling agreement possibly threaten seniors’ Social Security checks?

    The answer is that the federal government has borrowed all of that trust fund money and spent it. And the only way the trust fund can get some cash to pay Social Security benefits is if the federal government draws it from general revenues or borrows the money —- which, of course, it can’t do because of the debt ceiling.

    Thus … the president is telling the truth now in the sense that he is conceding there’s no money in the trust fund to pay benefits; but he and other Social Security status-quo defenders have been deceiving the public for decades.

    Had we shifted to a system of pre-funded, personal Social Security retirement accounts years ago, this wouldn’t even be an issue —- because retirees would have their own money in their own accounts.

    Sure, the Fed could just print bales of currency to make the August 3rd Social Security payment. But that, of course, would be an inflation tax on all holders of dollar balances. There is no free lunch — all government spending is ultimately funded by taxation or borrowing.

    1. Tigercrane

      Or, you know, the government could get more revenue by raising taxes on rich people and making corporations pay their fair share of taxes. Wonder why those options are omitted from the discussion?

      The kleptocracy borrowed against the trust fund to fund its wars and banker bailouts over the last 11 years. Now they want to default on the payback, but somehow not make it look like a default — it’s “deficit reduction,” or some such rot, instead of premeditated thievery.

    2. Cedric Regula

      The way SS was set up by law was that the surplus we’ve been accumilating in the trust fund MUST be lent to the USG. (my emphasis)

      The USG is also supposed to repay it’s loans.

      I also don’t know why the bulk of the checks get held up by the ceiling because on a cash flow basis to current retirees it only has gone slightly negative the past couple years. That’s because of high employment, many people forced into early retirement and taking the 62 years old option, and also our wizards in DC gave a FICA holiday and that money is being made up by treasury borrowing.

      Also, its the only thing in Washington that’s not a free lunch (yet – for them). We paid for it – 100% thru 2036, then if you are big believer in 75 year forcasts, you can show a shortfall there.

      These talking heads are trying to pull off the biggest heist in history – $2.5 Trillion.

    3. Doug Terpstra

      Jim, Merill of Forbes is right, “the federal government has borrowed all of that [SS] trust fund money and spent it.” —on senseless wars and bailouts for the financial oligarchy. The blindingly obvious solution is not to cut SS benefits, punishing the victims, as this president is hell-bent on doing, but to tax the beneficiaries of all that corporate welfare, banksterism, murder, and piracy.

      How can this president possibly fail to see that? The answer should be equally obvious to anyone not intoxicated by partisan Kool-Aid.

    4. Ming

      I would like to address your paragraph:
      Sure, the Fed could just print bales of currency to make the August 3rd Social Security payment. But that, of course, would be an inflation tax on all holders of dollar balances. There is no free lunch — all government spending is ultimately funded by taxation or borrowing.

      You have an unstated premise, and that is  that inflation of the money supply via printing will automatically lead to price inflation (higher prices), which is effectively a tax on all holders of the currency. But your premise is incorrect. I would generalize that actual price inflation occurs from four possible factors that need to be assessed before one can conclude that price inflation will occur. The factors are
      Factor A) if Demand outstrips Supply (for whatever reason and there are many),
      Factor b) our ‘friends’ in the financial industry foster massive commodity speculation, which inflates the monetary cost of production of the supplier 
      Factor c) stealthy/deceitful  non-market based operations occur to browbeat or panic buyers into accepting higher prices. On the supply side this can manifest itself as
      creating artificial supply shortages to browbeat or panic the buyers into accepting higher prices (I. E Enron energy traders encouraging/ colluding with  electrcity supplier in califrnia to shutdown, causing brownouts, to justify higher electricy prices in order to pay for better maintenance and system upgrades…. I am suprised that none of those traders were brought before congress). On the demand side, the  transmission of misinformation to buyers to foster speculation or panic buying due to a perception of a future shortage (I.e the once popular myth stating that ‘one NEVER loses when investing in housing’…).  
      Factor d) government policy or regulation that unnecessarily restricts the flexibility of either the supply or demand side to adapt to the other.

       So, what would be the impact to the USA of fiscal spending via printing. Concerning Factor A,  at present aggregate demand is declining among the  majority of the population due to low income and poor employment stability. Should aggregate demand be stoked by governmen fiscal spending, there is plenty of spare labour capacity to absorb before wage push inflation can occur; the high U3@9% and U6@16% unemployment stats indicate there is plenty of labour available to work.

      Concerning Factor B, there is already rampant financial speculation on commodities, via private speculators, pension funds, and banks. Although Fiscal spending would result in new private sector wealth, which could be used to propel more financial speculation,  appropriate financial regulation and taxation, and maximal leverage restrictions could constrict much of the speculation. 

      Concerning Factors C and D, government fiscal spending itself is irrelevant, it is corrupt individuals within the government or the private sector which affect these factors…. Only courageous whistleblowers, an alert media, sound regulations and alert auditors,  and competent justice system can prevent this, as this is corruption of the market system itself. (sadly, America seems to be lacking in this area)

      1. Ming

         Another important issue to address is revulsion to the currency… If the US prints, will it cause users to dump their holdings and seek to conduct transactions in other currencies. They may fear that once the the governement gets into the habit of spending without self imposed constraints, it may, due to political pressure, start to print currency in huge quantities to satisfy any  initiative that political pressure deems worthy. An excessive quantity of money spent on useless initiatives would devalue the currency and cause price inflation, as  then many people would have money to spend or to speculate in ‘investment assets’, and foreigners would desire to not hold US dollars. But the some key issues to consider are:

        A) on what is the money being spent on … Will it create or sustain long term prosperity in an environmentally sustainable manner? Are there intangible and / or widely distributed benefits that are being created?
        B) How much money is spent, relative to the state of the economy and the existing money supply’, and how much real resources need to dedicated to the objective.
        C) on the aggregate, how do we determine if there is too much spending(either in the government or in the private sector”, and how do we curb the excess 
         D) Is the money spent or (resources consummed/utilized)  effectively and efficiently? 
        The answers to these questions, must be answered through political dialogue and some consultation with the private sector, is what will determine if holders of the currency eventually feel revulsion for the currency. An America that dedicates it’s considerable resources (via fiscal spending) to building a more sustainable and healthy and technologically adavanced future,
        would not instill revulsion in the holders of it’s currency.

        1. Cedric Regula

          Don’t forget the happy ending – the government taxes the money back out of circulation if inflation starts to rise, which is what makes it all ok.

          It’s almost poetic how simple it all really is when one uses the MMT path to get there!

          Course there is that little law we would have to change about the Fed not being allowed to print money without buying an asset, typically a treasury bill, note or bond. But shouldn’t be a problem to ram that thru in the next week or two.

          1. ming

            Your comment:
            ‘It’s almost poetic how simple it all really is when one uses the MMT path to get there! ‘

            Maybe it is that simple. It is still is difficult to do…it is perhaps the straight and narrow path but fraught with conflicts, and confusion, and much argument on what ‘actual things need to be done’ and much resistance from vested interests…but it certainly can be done.

    5. pezhead9000

      “The delusional Chartalist messiah Bill Mitchell” – hahaha

      Chartalist – how to turn money into toilet paper

  13. Dan Duncan

    “A creative way around the debt ceiling”…that is bullshit offered by MMT and New Economic Perspectives.

    Just like MERS was a “creative” way around mortgage recording statutes.

    Is the Debt Ceiling Constitutional? If so, then our President shouldn’t be looking for “creative ways around it” via MMT gimmickry.

    If the Dems truly believe it’s not Constitutional, then put it before the Supreme Court. If successful, the Dems will render this inconvenient law as factually Unconstitutional. Then, our President and Congress can proceed with their budgetary mandate without the histrionics.

    Or maybe…if this all too complicated, just by-pass it with this Directive:

    The Rule of Law applies, so long as its not inconvenient.

    And there you have it. No debate. No consensus. Just an orgy of MMT Goodness.

  14. Rodger Malcolm Mitchell

    Good article, as always, from Mr. Auerback. Unfortunately, not one person in 1,000 will understand it. I should know. I’ve been writing the same thing for 15 years, and the “man-in-the-street” is clueless about economics.

    Unfortunately, they do not understand Monetary Sovereignty ( ), and refuse to learn.

    Those who do not understand Monetary Sovereignty do not understand economics.

    Rodger Malcolm Mitchell

  15. ScottW

    If McCain had been elected and implemented the same policy decisions on the economy, military, and social safety net as Obama, the citizens supporting the Democrats would be outraged. Instead, Obama pushes Senator McCain further to the right, as McCain and his fellow Republicans pull Obama further to the right. It is as if they are each trying to outdo each. And all the while Obama supporters label him a pragmatist, realist and great compromiser.

  16. PQS

    Time to read “The Grapes of Wrath” again…

    Or Studs Terkel’s “Hard Times”. Same as it ever was: bankers stealing from everybody, and the powerlessness of the looted.

  17. ep3

    good call. tho yves is much more blunt.

    yes, he doesn’t care about anything. He wants to be remembered for other things besides being the first black president. he wants to do “big things” to secure those campaign dollars from wall street.

    But also i want to focus on SS and medicare. They are in a trust fund. That is money owed to future beneficiaries. So if you cut future benefits, that trust fund does not have to be paid back. So in essence, you have cut both the budget and the debt in one great ax swing. That will make him beloved by wealthy elite everywhere. You don’t have to borrow those excess funds to pay benefits and you don’t have to pay those benefits. So that money can continue to be used for wars for oil, etc. I guess it’s a choice between oil and starving and being sick.

  18. Hugh

    This post seems to have brought an extraordinary number of Obama defenders so it struck a nerve. We all can see that the country is in a mess and going in the wrong direction. If we are honest about it, this has been true when Republicans were in control under Bush and when Democrats were in control under Obama. There is great anxiety because the ongoing crisis hits us at every crucial point in our lives: in our jobs, will we keep them, can we find one; in healthcare, can we get it and can we afford it; in housing, can we keep or afford what we have; in our retirements, the death of pensions and attacks on Social Security; and increasingly, in education, can any but the rich afford it anymore?

    What is so hard to admit, and many refuse to admit because it is so stressful, is that there are no viable solutions currently on the political scene. Such solutions do exist but both parties have taken them off the table because they do not fit their agendas.

    In healthcare, it was amazing that no one would even mention single payer even though some form of it is used in most industrial countries and delivers better outcomes at half the cost we are paying. Equally amazing, given the crying need, there has been no jobs bill and no push to refinance mortgages to bring them in line with the actual value of the properties. Then there are the simply unbelievable. We are told that Social Security with a $2.6 trillion surplus is broke. We are told there is no money despite the trillions spent on wars and bailouts and the trillions more, if needed, to continue these.

    At some point we the people are going to have to wake up and deal with reality. If we back Republicans, we are going down. If we back the Democrats, we are going down. Continue with either of the two parties and you are committing to be dragged down by them. That is not a comfortable truth, but it is the truth. The only real choice we have is to create an alternative to the two parties or fail. It is that simple and that stark.

  19. Mickey Marzick in Akron, Ohio

    First, when the the author, a portfolio investment strategist, throws out the word “entitlements” and then proceeds to include Social Security and Medicare within such nomenclature further on down in the same piece, it should tell you something. That he and many self-proclaimed progressives and/or leftists use the word “entitlement” interchangeably with Social Security and Medicare is a blatant distortion resorted to by swine like Grover Norquist.

    Why is it that this “leftist” and the latter use the same terminology? You would think that there would be a difference… especially since OASDI and FICA are constant reminders of this difference for Americans still fortunate enough to be employed. Why doesn’t he make this distinction? Perhaps Marshall is exempt from OASDI because he has already exceeded the cap for 2011 and no longer pays into it? In fact, isn’t the failure to distinguish entitlement from SSI and Medicare testimony to just how far too the right progressives like Mr. Auerback have moved FROM the LEFT since 1968 – much like the rest of country?

    Most of us expected more from Mr. Obama and are quite disappointed. But we can also argue that the political context must be taken into account. Obama is not working in a vacuum and has, with the exception of healthcare perhaps, been on the defensive for most of his three years in office. Why? And to ask one individual to do more without asking more of yourself at the same time is hypocritical. Obama is failing because we are failing. One election does not make a revolution. It must be sustained over time. How many of us have already decided not to vote for him or not vote at all?

    Look at the right’s resurgence and growing influence in American politics since 1968 if you want a textbook case of grassroots organizing, etc., and its subsequent impact on this country. Is there a lesson there for those of us on the LEFT opposed to their agenda?

    Ask yourselves why the deficit was never a problem before 2008 and now suddenly it’s all that matters? And don’t forget the 2010 midterm elections in which many progressives failed to vote or voted for anyone but a Democrat to punish the party for failing to deliver with the result that Congress is now comprised of more reactionaries committed to eliminating Social Security and Medicare once and for all.

    So what is the point of Auerback in referring to Mr. Obama as a Tea Party President if not to further erode support for Democrats and thereby ensure that Social Security and Medicare are eliminated? He’s nothing more than fifth-columnist shill for Grover Norquist and reactionaries, fostering the very disillusionment and apathy that make the their agenda a self-fulfilling prophecy. To the extent that his gibberish conduces to this negativity trap which results in a further withrawal of leftists/progressives from politics who benefits more? Certanly not the average American!

    And even his suggestion that unemployment/underemployment is the real problem [IT IS!] and requires immediate action – stimulus – is lame. Why? Because he knows damn well the political capital in Washington DC for additional stimulus is overshadowed by the defict hysteria and would only confirm the perception of “tax and spend” Democrats in many Americans’ eyes, further eroding their support. Why aren’t any progressive/leftist the likes of Auerback et al discussing a mandated reduction in the 40 hour work week reminiscent of the FLSA [1938!] or talking about technological unemployment on this site? Why isn’t capital investing in the United States? It sure as hell isn’t for want of capital. Because such thinking is outside the ever shrinking box of legitimate political discourse fostered by the likes of Auerback and company.

    No, Mr. Auerback’s pattern of disparaging Obama and the Democrats on this site can only have one purpose: to weaken whatever opposition still exists to this right-wing bullet train to austerity [RBTA] by fostering the very disillusionment and apathy that enabled it to arise in the first place. And to the extent that many here concur with his analysis and prescriptions he has succeeded.

    Paul Tioxon is correct. Bernie Sanders and Dennis Kucinich have only one vote apiece. Effective opposition requires an electoral base that votes and holds their elected representatives’ feet to the fire. What frightens me more is not that we cannot organize and vote to change things around but that too many progressives/leftists think like Marshall Auerback without even realizing it. That testifies to why the RIGHT is ascendant and why we are where we are at this point in this country’s history.

    1. JTFaraday

      “And to the extent that many here concur with his analysis and prescriptions he has succeeded.”

      I don’t trust liberal policy entrepreneurs like Auerbach as far as I can throw them.

      However, nobody needs Auerbach to see that Obama became the head of the Tea Party wing of the Republican Party the other week when he held social security and medicare hostage to the phony debt ceiling issue.

      I find it odd, to say the least, that a few of you seem more perturbed that Auerbach made this (frankly obvious) observation than you are perturbed at the part that Obama himself has chosen to play.

      Whether Obama has freely chosen this part out of the depths of his craven soul or is merely responding to the bidding of “favorite banker” Jamie Dimon and his Goldman Sachs handlers in the Treasury, is immaterial to the end result of transforming the D-Party into the new T-Party.

      What do you want us to do? Ignore it?

    2. attempter

      Obama is not working in a vacuum and has, with the exception of healthcare perhaps, been on the defensive for most of his three years in office.

      You’d better go back and retake elementary school arithmetic. The Democrats had a de facto one-party dictatorship for two years. By definition anything they did was exactly what they wanted to do, and anything that happened was exactly what they wanted to happen.

      Obama is failing because we are failing.

      I think you meant to say, Obama is SUCCEEDING AT EXACTLY WHAT HE ALWAYS WANTED TO DO because we are failing.

      At any rate I corrected it for you.

      1. ming

        Well said Attempter!

        And I would add, if Obama properly attempted to punish the financial industry for their recklessnss (i.e. full scale inquiry involving the little guys, only bailed out depositors, forced transparency on the numerous ‘obligations’ of the industry, numerous convictions)…even the members of the tea party would have loved him. And he had the power and the momentum…when the banks threatened a financial apocalypse, he could have demanded temporary presidential powers to investigate and resolve the issue, and the democrat congress and senate would have given it to him (or oppose him and show reveal their true allegiances….). He deliberately squandered the opportunity, and served his real masters very well.

  20. Almost Ghetto

    I can’t understand why Yves lets Marshall Auerback post on her site. This guy is terrible. In this article he advocates that the president subvert the law and do whatever he wants. He uses an example of how Clinton secretly looted the treasury to funnel bail-out money to banks who foolishly lost money in Mexico. He points out that this was a good thing and something that should serve as a model for Obama to follow. What a creep. I also find it ironic that he calls Obama a “deficit hawk.”

    The statement about Rand Pual is ridiculous, since doctors tend to make less money off of Medicare patients. That is why many doctors refuse to see Medicare patients. Rand Paul could have probably made MORE money if he had refused to see those patients and instead only saw people with private insurance.

    It is unlikely that he was thinking about additional income he received from Medicare patients when he avoided the issue in his campaign. He possibly had a political motivation to avoid the issue, but not financial. Few politicians are going to show off the social services they want to cut or reduce during their campaigns. That would be political suicide in an election season.

  21. MikeW

    President Obama can be the first, even the greatest Tea Party president. But nothing he can do will ever “endear” him to the Tea Party. The Tea Party has too much invested in hating the image they’ve constructed of President Obama. So the Tea Party and the rest of Republicans are right about one thing. Barack Obama is a one term president, simply because he will never get even one vote in ten from the right to replace the votes he will be losing in 2012 from his own 2008 voters.

Comments are closed.