The state is teetering on the edge of bankruptcy, and others are not far behind, largely because of unfunded pension liabilities. But solutions exist.
In a landmark infrastructure bill passed in December, Congress finally tapped into the Federal Reserve for infrastructure funding. Some experts say legislators should go further and authorize funds to be issued directly.
Economists predict that we will soon see the direct injection of central bank-created money into the real economy worldwide. All other options having failed, governments will cover budget deficits by issuing money outright.
Mortgage debt overhang from the housing bust has meant lack of middle-class spending power, and low consumer demand is preventing the economy from growing. The problem might be fixed by a new approach from the Fed. But if the Fed won’t act, counties will, as seen in the latest developments on eminent domain and litigation over MERS.
Congress has the power to amend the Fed -- just as it did in 1934, 1958 and 2010. For the central bank to satisfy its mandate to promote full employment and become an institution that serves all the people -- not just the 1% -- the Fed needs fundamental reform.
Rather than expanding the money supply, quantitative easing has actually caused it to shrink by sucking up the collateral needed by the shadow banking system to create credit. This “failure” has prompted the Bank for International Settlements to urge the Fed to shirk its mandate to pursue full employment, though the sort of QE that could fulfill that mandate has not yet been tried.
The Federal Reserve will continue to buy bonds at a rate of $85 billion a month, but Chairman Ben Bernanke said better economic indicators mean the central bank could end its quantitative easing policy in 2014.
Only one proposal promises relief for millions of students whose loan interest rates will double from 3.4 percent to 6.8 percent this July -- Sen. Elizabeth Warren’s “Bank on Students Loan Fairness Act.”
Money today is simply a legal agreement between parties. Nothing backs it but “the full faith and credit of the United States.” The United States could issue its credit directly to fund its own budget, just as our forebears did in the American colonies and as Abraham Lincoln did in the Civil War.