Money”: Trump’s “Reckless” Proposal Echoes Franklin
By Ellen Brown
money” has been called crazy talk, but it may be the
only sane solution to a $19 trillion federal debt
that has doubled in the last 10 years. The solution
of Abraham Lincoln and the American colonists can
still work today.
“alarming,” “disastrous,” “swashbuckling,” “playing
with fire,” “crazy talk,” “lost in a forest of
nonsense”: these are a few of the labels
applied by media commentators to Donald Trump’s
latest proposal for dealing with the federal debt.
On Monday, May 9th, the presumptive Republican
presidential candidate said on CNN, “You print
was in response to a firestorm created the previous
week, when Trump was asked if the US should pay its
debt in full or possibly negotiate partial
repayment. He replied, “I would borrow, knowing that
if the economy crashed, you could make a deal.”
Commentators took this to mean a default. On May 9,
Trump countered that he was misquoted:
said I want to go and buy debt and default on
debt – these people are crazy. This is the
United States government. First of all, you
never have to default because you print the
money, I hate to tell you, okay? So there’s
never a default.
wasn’t exactly crazy. It echoed one by former
Federal Reserve Chairman
Greenspan, who said in 2011:
United States can pay any debt it has because we
can always print money to do that. So there is
zero probability of default.
government’s debts by just issuing the money is as
American as apple pie – if you go back far enough.
Benjamin Franklin attributed the remarkable growth
of the American colonies to this innovative funding
solution. Abraham Lincoln revived the colonial
system of government-issued money when he endorsed
the printing of $450 million in US Notes or
“greenbacks” during the Civil War. The greenbacks
not only helped the Union win the war but triggered
a period of robust national growth and
saved the taxpayers about $14 billion in
But back to
Trump. He went on to explain:
if we can buy back government debt at a discount
– in other words, if interest rates go up and we
can buy bonds back at a discount – if we are
liquid enough as a country we should do that.
he was referring to the fact that when interest
rates go up, long-term bonds at the lower rate
become available on the secondary market at a
discount. Anyone who holds the bonds to maturity
still gets full value, but many investors want to
cash out early and are willing to take less.
As explained on MorningStar.com:
bond with a 5% coupon and a ten-year maturity is
sold on the secondary market today while newly
issued ten-year bonds have a 6% coupon, then the
5% bond will sell for $92.56 (par value $100).
still were not satisfied. In an article titled “Why
Donald Trump’s Debt Proposal Is Reckless,”
federal government doesn’t have any money to buy
debt back with. The U.S. already has $19
trillion in debt. Trump’s plan would require the
U.S. Treasury to issue new debt to buy old debt.
however, was not talking about borrowing the money.
He was talking about printing the money. CNNMoney’s
can cause inflation (or even hyperinflation),
and send prices of everything from food to rent
Hyperinflation that Wasn’t
CNN was not
alone in calling the notion of printing our way out
of debt recklessly inflationary. But would it be?
The Federal Reserve has already
bought $4.5 trillion in assets, $2.7 trillion of
which were federal securities, simply by “printing
Fed’s QE program was initiated, critics called it
recklessly hyperinflationary. But it did not even
create the modest 2% inflation the Fed was aiming
for. QE was combined with ZIRP – zero interest rates
for banks – encouraging borrowing for speculation,
driving up the stock market and real estate. But the
Consumer Price Index, productivity and jobs barely
Fed has stopped its QE program for the time being,
the European Central Bank and the Bank of Japan have
jumped in, buying back massive amounts of their own
governments’ debts by simply issuing the money.
There too, the inflation needle has barely budged.
As noted on CNBC in February:
banks have been pumping money into the global
economy without a whole lot to show for it other
than sharply higher stock prices, and even that
has been on the downturn for the past year.
remains anemic, and worries are escalating that
the U.S. and the rest of the world are on the
brink of a recession, despite bargain-basement
interest rates and trillions in liquidity.
Money Goes Mainstream
economists and central bankers are wringing their
hands over what to do about a flagging economy
despite radical austerity measures and increasingly
unrepayable debt. One suggestion gaining traction is
“helicopter money” – just issue money and drop it
directly into the economy in some way. In QE as done
today, the newly issued money makes it no further
than the balance sheets of banks. It does not get
into the producing economy or the pockets of
consumers, where it would need to go in order to
create the demand necessary to stimulate
productivity. Helicopter money would create that
demand. Proposed alternatives include a universal
national dividend; zero or low interest loans to
local governments; and “people’s QE” for
infrastructure, job creation, student debt relief,
buying back federal securities with money issued by
the central bank (or the U.S. Treasury) would also
get money into the real economy, if Congress were
allowed to increase its budget in tandem.
As observed in The Economist on May 1, 2016:
Advocates of helicopter money do not really
intend to throw money out of aircraft. Broadly
speaking, they argue for fiscal stimulus—in the
form of government spending, tax cuts or direct
payments to citizens—financed with newly printed
money rather than through borrowing or taxation.
Quantitative easing (QE) qualifies, so long as
the central bank buying the government bonds
promises to hold them to maturity, with interest
payments and principal remitted back to the
government like most central-bank profits.
Dean Baker, co-director of the Center for
Economic and Policy Research in Washington, wrote in
response to the debt ceiling crisis in November
is no reason that the Fed can’t just buy this
debt (as it is largely doing) and hold it
indefinitely. If the Fed holds the debt, there
is no interest burden for future taxpayers. The
Fed refunds its interest earnings to the
Treasury every year. Last year the Fed refunded
almost $80 billion in interest to the Treasury,
nearly 40 percent of the country’s net interest
burden. And the Fed has other tools to ensure
that the expansion of the monetary base required
to purchase the debt does not lead to inflation.
cleaner solution would be to simply void out the
debt held by the Fed. That was the 2011 proposal of
then-presidential candidate Ron Paul for dealing
with the debt ceiling crisis. As his proposal was
explained in Time Magazine, today the Treasury
pays interest on its securities to the Fed, which
returns 90% of these payments to the Treasury.
Despite this shell game of payments, the $1.7
trillion in US bonds owned by the Fed is still
counted toward the debt ceiling. Paul’s plan:
Fed and the Treasury to rip up that debt. It’s
fake debt anyway. And the Fed is legally allowed
to return the debt to the Treasury to be
Alan Grayson, a Democrat,
also endorsed this proposal.
Richard Duncan makes a strong case for going
further than just monetizing existing debt. He
argues that under current market conditions, the US
could actually rebuild its collapsing infrastructure
by just printing the money, without causing price
inflation. Prices go up when demand (money) exceeds
supply (goods and services); and with automation and
the availability of cheap labor in vast global
markets today, supply can keep up with demand for
decades to come. Duncan observes:
combination of fiat money and Globalization
creates a unique moment in history where the
governments of the developed economies can print
money on an aggressive scale without causing
inflation. They should take advantage of this
once-in-history opportunity . . . .
Power to Create Money to the People
of government to issue its own money was one of the
principles for which the American Revolution was
fought. Americans are increasingly waking up to the
fact that the vast majority of the money supply is
no longer issued by the government but
is created by private banks when they make
loans; and that with that power goes enormous power
over the economy itself.
that should be debated is one that dominated
political discussion in the 19th century
but that few candidates are even aware of today:
should creation and control of the money supply be
public or private? Donald Trump’s willingness to
transgress the conservative taboo against public
money creation is a welcome step in opening that
Brown is an attorney, Founder of the Public Banking
Institute, and author of twelve books, including the
best-selling Web of
Debt. Her latest book, The
Public Bank Solution, explores successful public
banking models historically and globally. Her 300+
blog articles are at EllenBrown.com.
She can be heard biweekly on “It’s
Our Money with Ellen Brown” on PRN.FM.