This Radical Plan to Fund the ‘Green New Deal’ Just Might Work (Part 1)By Ellen Brown December 31, 2018 With what Naomi Klein calls “galloping momentum,” the “Green New Deal” promoted by newly-elected Rep. Alexandria Ocasio-Cortez (D-NY) appears to be forging a political pathway for solving all of the ills of society and the planet in one fell swoop. It would give a House Select Committee “a mandate that connects the dots between energy, transportation, housing, as well as healthcare, living wages, a jobs guarantee” and more. But to critics even on the left, it is just political theater, since “everyone knows” a program of that scope cannot be funded without a massive redistribution of wealth and slashing of other programs (notably the military), which is not politically feasible. Michael Hudson, professor of economics at the University of Missouri, Kansas City, has studied the hyperinflation question extensively. He writes that those disasters were not due to government money-printing to stimulate the economy. Rather, “Every hyperinflation in history has been caused by foreign debt service collapsing the exchange rate. The problem almost always has resulted from wartime foreign currency strains, not domestic spending.” The Public Bank Option: The Precedent of Roosevelt’s New Deal Infrastructure projects of the sort proposed in the Green New Deal are “self-funding,” generating resources and fees that can repay the loans. For these loans, advancing funds through a network of publicly-owned banks will not require taxpayer money and can actually generate a profit for the government. That was how the original New Deal rebuilt the country in the 1930s at a time when the economy was desperately short of money.
The Central Bank Option: How Japan Is Funding Abenomics with Quantitative Easing
The Federal Reserve is another funding option before the Green New Deal. The Fed showed what it can do with “quantitative easing” when it created the funds to buy $2.46 trillion in federal debt and $1.77 trillion in mortgage-backed securities, all without inflating consumer prices. The Fed could use the same tool to buy bonds ear-marked for a Green New Deal; and since it returns its profits to the Treasury after deducting its costs, the bonds would be nearly interest-free. If they were rolled over from year to year, the government would in effect be issuing new money. This is not just theory. Japan is actually doing it, without creating even the modest 2 percent inflation the government is aiming for. “Abenomics,” the economic agenda of Japan’s Prime Minister Shinzo Abe, combines central bank quantitative easing with fiscal stimulus (large-scale increases in government spending). Since Abe came into power in 2012, Japan has seen steady economic growth, and its unemployment rate has fallen by nearly half; yet inflation remains very low, at 0.7 percent. Social Security-related expenses accounted for 55 percent of general expenditure in the 2018 federal budget, and a universal healthcare insurance system is maintained for all citizens. Nominal GDP is up 11 percent since the end of the first quarter of 2013, a much better record than during the prior two decades of Japanese stagnation; and the Nikkei stock market is at levels not seen since the early 1990s, driven by improved company earnings. Growth remains below targeted levels, but according to the Financial Times in May 2018, this is because the fiscal stimulus has actually been too small. While spending with the left hand, the government has been taking the money back with the right, increasing the sales tax from 5 percent to 8 percent.
Abenomics has been declared a success even by the once-critical International Monetary Fund. After Prime Minister Shinzo Abe crushed his opponents in October 2017, Noah Smith wrote in Bloomberg, “Japan’s long-ruling Liberal Democratic Party has figured out a novel and interesting way to stay in power – govern pragmatically, focus on the economy and give people what they want.” He said everyone who wanted a job had one, small and midsized businesses were doing well, and the BOJ’s unprecedented program of monetary easing had provided easy credit for corporate restructuring without generating inflation. Abe had also vowed to make both preschool and college free. Filling the Gap Between Wages, Debt, and GDP Rather than stepping up its bond-buying, the Federal Reserve is now bent on “quantitative tightening,” raising interest rates and reducing the money supply by selling its bonds into the market in anticipation of “full employment” driving up prices. “Full employment” is considered to be 4.7 percent unemployment, taking into account the “natural rate of unemployment” of people between jobs or voluntarily out of work. But the economy has now hit that level and prices are not in the danger zone, despite nearly 10 years of “accommodative” monetary policy. In fact, the economy is not near either true full employment or full productive capacity, with Gross Domestic Product remaining well below both the long-run trend and the level predicted by forecasters a decade ago. In 2016, real per capita GDP was 10 percent below the 2006 forecast of the Congressional Budget Office, and it shows no signs of returning to the predicted level. In 2017, US gross domestic product was $19.4 trillion. Assuming that sum is 10 percent below full productive capacity, the money circulating in the economy needs to be increased by another $2 trillion to create the demand to bring it up to full capacity. That means $2 trillion could be injected into the economy every year without creating price inflation. New supply would just be generated to meet the new demand, bringing GDP to full capacity while keeping prices stable. This annual injection of new money not only can be done without creating price inflation; it actually needs to be done to reverse the massive debt bubble now threatening to propel the economy into another Great Recession. Moreover, the money can be added in such a way that the net effect will not be to increase the money supply. Virtually our entire money supply is created by banks as loans, and any money used to pay down those loans will be extinguished along with the debt. Other money will be extinguished when it returns to the government in the form of taxes. The mechanics of that process, and what could be done with another $2 trillion injected directly into the economy yearly, will be explored in Part 2 of this article. ___________ This article was first posted on Truthdig.com. Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including Web of Debt and The Public Bank Solution. A 13th book titled Banking on the People: Democratizing Finance in the Digital Age is due out early next year. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.
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Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, and Forbidden Medicine. Her websites are www.webofdebt.com and www.ellenbrown.com . Visit Ellen Brown's website at http://ellenbrown.com/
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