Ray Uhric
Copyright c 9-17-2005 (Abridged 1-14-08) by Raymond Uhric
Former Federal Reserve Chairman Alan Greenspan’s testimony to Congress on February 25, 2004, was a
perfect example of the fundamentally flawed premise of the entire social security/Medicare funding debate.
Greenspan told members of the House Budget Committee that we “don’t have the resources” to fulfill the
government’s promises to the American people regarding social security and Medicare because the “baby
boomer” generation will overtax the system. Is this breach of contract really necessary? Is it true that we don’t
have the resources?
Common sense tells us that the baby boomer’s population spike funded the social security “trust fund” with a
proportionally larger amount of money that should have covered the proportionally larger number of retirees.
The current workers should not be supporting the current retirees; they should be funding their own retirement
and Medicare. What happened to the money the baby boomers paid into the trust fund over the last forty
years for their retirement and Medicare?
There is a simple answer to this question. Approximately 2 trillion dollars has been raided from social security
and spent by politicians. Of course, there are 2 trillion dollars worth of IOUs in the “trust fund” but,
unfortunately, future retirees can’t pay their bills with IOUs. Since replacement of the money is never
discussed, we must assume there is no intention of ever repaying the money. Until the money is returned, in
cash, we can consider our social security trust fund money stolen. When I asked Congressman Tim Murphy
why Congress doesn’t return the money to the trust fund to cover the IOUs, he said he “would have to raise
my taxes” to do that! What? He wants to pay back what was stolen from taxpayers by taking more of our
money and then giving it back to us? Despite claims to the contrary, that social security money is the personal
property of the people insured by social security, and we have a right to demand that the money be returned.
On our W-2 forms, Federal tax withholding is found in box number 2. FICA social security withholding is
found in box number 4. Common sense tells us that every penny that goes into box number 4 should be spent
only on social security. Now that our FICA money has been permanently factored into the federal budget,
how can the stolen 2 trillion dollars be replaced without raising our taxes?
The answer is simple. It is a well-kept secret that Congress can replace the missing 2 trillion dollars and
insure that the social security system, Medicare, and the under-funded Pension Benefit Guarantee
Corporation (PBGC) are never under-funded again.
The date of this essay, September 17 -- Constitution Day, is appropriate. Article One, Section 8, Paragraph 5
of the United States Constitution grants Congress the power “to coin money, regulate the value thereof, and of
foreign coin.” By issuing United States Notes (Greenbacks), Congress can replace the stolen 2 trillion dollars
and not increase our national debt one penny, as was done in 1862 by President Abraham Lincoln. This
would not cause “currency inflation” because Congress, not currency speculators, has the constitutional
mandate: to “regulate the value thereof” and, thus, control the value of our money. Treasury-issued United
States Notes would be an inflation free/debt free stimulus to the economy; the social security retiree’s buying
power could be increased with no increase in costs to producers or sellers and, consequently, there would be
no cost inflation. If inflation does occur, it would actually be “greed inflation.” The currency-destroying greed
inflation could be controlled by taxing those ill-gotten profits back into the Treasury where the money could be
used to benefit the American people, not just a greedy few.
It was claimed, incorrectly, for many years that the phrase “to coin money” referred only to specie, i.e., silver
and gold coin. Abraham Lincoln proved this self-serving (for the bankers) interpretation wrong in 1862 when
he first issued United States Notes. During the course of the Civil War, $449,338,902 worth of Greenbacks
was issued, with no debt incurred by the federal government, and no hyperinflation. Unfortunately, our debt
loving politicians withdrew this debt free legal tender from circulation in 1986.
Obviously, Abraham Lincoln was smarter than Alan Greenspan.
……………………………………………………………….
[The purpose of the essay below is to address any concerns or objections that inflation or
even hyperinflation would result from the monetary reform proposals outlined in my 9-17-
2005/1-14-2008 abstract.]
Increasing the money supply without incurring debt or inflation
Federal Reserve Chairman, Ben Bernanke, as recorded on the business program “Morning Call,” stated: “The
Federal Reserve was created by Congress in 1913 and it was entrusted with the power, granted originally to
the Congress by the Constitution, to coin money and regulate the value thereof.” Without a Constitutional
amendment, this action by the Congress was obviously unconstitutional. My purpose is not to recommend the
dissolution of the Federal Reserve, (as many others have in the past). My point is simply to remind the
Congress that they still have the power as stated in Article One, Section 8, Paragraph 5 of the United States
Constitution “to coin money, regulate the value thereof, and of foreign coin.” This fact irrefutably validates the
monetary reform proposals outlined in my 9-17-2005/1-14-2008 abstract.
The meaning of the above mentioned part of the Constitution has been hotly debated for many years. It was
claimed, incorrectly, that the phrase “to coin money” referred only to specie i.e., silver and gold coin.
Abraham Lincoln proved this interpretation wrong in 1862 when he first issued United States Notes
(Greenbacks). During the course of the Civil War, $449,338,902 worth of Greenbacks was issued, with no
debt incurred by the government, and no hyperinflation. If the US Treasury issued Greenbacks today, to
replace the money raided from social security, to fund Medicare and other legitimate domestic expenditures,
would that be inflationary? If proper action is taken by the government, the answer to this question is no.
The two main causes of inflation (excluding shortages of products for the market) are: cost inflation and
currency inflation. Cost inflation occurs when a producer, seller or any business incurs increased costs - for
labor, supplies, materials, etc. and passes the increase on to the consumer in the form of higher prices. The
size of the profit margin (and the size of the profit) of the company, of course, determines if this is necessary.
Currency inflation or “greed inflation” occurs when businesses raise prices because of a perceived “excess” of
money in circulation. Economists use the excuse that there are “too many dollars chasing too few products” to
justify greed inflation. A classic example is when the prices in the community around a steel mill suddenly go
up when the steelworkers get a pay increase in their new contract. This is a cruel manifestation of a free
market economy. The workers fight for a pay raise and only the local merchants benefit. The merchants
should be satisfied that the workers can afford to buy more of their goods and services.
Greed inflation is the mechanism that caused the “hyperinflation” in Germany in the 1920s. The German
government issued huge amounts of currency and it was said that it took a wheel barrel full of money to buy a
loaf of bread. There are certain aspects of this hyperinflation that should be considered. The first question is:
why did the government continue to issue more and more money when it was obvious that the business
people were arbitrarily raising their prices? The businesses were incurring no increase in costs; thus, this was
greed inflation. The second question: why were there no price controls?
Another part of the problem was “floating” currency exchange rates. During the period of hyperinflation the
value of the German mark was plummeting in value in relation to the US dollar. A point rarely considered is
that the German people didn’t think their money was worthless; it was currency speculators in New York and
London who were devaluing the mark. (As was the case with the Asian financial crisis of 1997-98.) And the
“weak” or collusive German government took no action until it was too late to avert economic disaster. To
make matters worse, the few Germans with access to dollars or other strong foreign currencies could buy up
the country at fire sale prices. (A similar but less severe situation is occurring today in the United States.)
Consequently, the vast majority of the German people lost everything and then turned to the Nazis for redress
of their grievances.
The above examples illustrate the point that increasing the money supply (i.e., increasing “liquidity”) does not,
in itself, undermine the value of a currency. This is exactly why the framers of our Constitution inserted the
phrase “regulate the value thereof, and of foreign coin” to prevent currency speculators from arbitrarily
attacking the value of our currency. It is a little known fact that Congress, per Constitutional mandate, has the
responsibility to protect the value of our money. But they do just the opposite by subjecting us to
floating exchange rates that are arbitrarily set by currency speculators and allowing the Chinese to “peg” their
currency to the dollar. When foreign manufacturers use a currency advantage to destroy entire American
industries, the blame starts at the doorstep of the United States Congress.
Why does the US Congress let currency speculators trash the value of our dollar while simultaneously
standing meekly and idly by as the Chinese ignore floating exchange rates and wreck havoc by “pegging” their
currency to the dollar? It is time for the Congress to stand up and do their job and take control of our
monetary policy. This power is specifically enumerated in the Constitution. Our 9.5 trillion dollar national debt
is the main excuse that currency speculators use to justify devaluing the dollar. By issuing United States
Notes, instead of borrowing, Congress can finally act to arrest our exploding national debt and stop much of
the downward pressure on the dollar. Irresponsible borrowing by Congress enriches their friends in the
financial markets but it will surely lead to national financial disaster if it is not stopped.
The main objection to using United States Notes to replace the two trillion dollars raided from the social
security “trust fund” is that this action would be inflationary. Interestingly, as far as I have heard, there has not
been a single word of objection to the recent 160 billion dollar economic stimulus package on the grounds that
it would be inflationary. Where will this stimulus package money come from? It will come either from borrowing
in the form of Treasury notes and bills or tax money. Wouldn’t it have been better to issue 160 billion dollars
of United States Notes as Abraham Lincoln did in 1862? United States Notes are debt free legal tender.
Why has no one in the government, the media, or academia offered or even discussed this solution to the
current economic downturn? Why has this issue never come up in any of the Presidential debates?
Before we consider how the government would fight greed inflation, we should take a close look at the under-
funding problem of social security.
The FICA contribution, which is deducted from a worker’s paycheck, is not a tax and it should not be called,
or treated as, a tax. FICA is an acronym for “Federal Insurance Contribution Act”. The FICA money is a
government insurance premium payment. Somewhere along the way, the FICA acronym disappeared from the
W-2 form. It now says “social security tax” in box number 4. However, the federal tax withheld is found in box
number 2. Common sense tells us that every penny that goes into box number 4 should be spent only on
social security.
Much has been said about the “low savings rate” of the American people. The two trillion dollars that has
been raided from the “trust fund” was the savings of the American people! The only way to replace that
money without raising taxes is to issue United States Notes and put this debt free, legal tender in the trust
fund.
It is possible for Congress to raid money from the social security trust fund because Congress passed
something called the “unified budget.” The IOUs that the politicians kindly place in the fund to “replace” the
raided money are actually government bonds. The principal and “interest” on these bonds will be “redeemed”
from future tax revenues! What a deal, the politicians pay back what they took from us with our money.
The politicians could demand that all the trust fund money that was spent on foreign aid, corporate welfare or
anything other than social security, be returned, with interest, to the trust fund. This, of course, isn’t going to
happen. The only other alternative is for the US Treasury to issue United States Notes and put this debt free
legal tender in the trust fund.
It should also be pointed out that US Notes could also be used to fund many other necessary domestic
government operations and commitments such as rebuilding and maintaining our national infrastructure. This
would be far better than borrowing the money from foreign governments and individuals and paying billions of
dollars in unnecessary interest. What is worse, the holders of our enormous government debt can undermine
our economy any time we don’t act in accordance with their wishes.
It is important to remember that the US notes should only be used for domestic government spending. Also,
to avoid roiling the global financial markets, US Notes should not be used to pay off foreign holders of our
federal government debt obligations.
If the Treasury Department followed the example of Abraham Lincoln and began issuing US notes to finance
domestic government spending, how would the government combat the greed inflation that might result? The
answer is simple. All the profits that would be generated from greed inflation would be taxed back into the
Treasury. This would not cause a bureaucratic nightmare because the mechanism is already in place to do
this. Our economy is already micro monitored by the Federal Reserve, the Commerce Department, Labor
Department, Treasury and other government agencies. Their data could easily be sent to the IRS and the
unjustified, inflationary, currency-destroying profits could be quickly identified. This is one way to fight greed
inflation.
As was implied above, the issuance of US Notes could solve virtually all of our fiscal problems. No longer
would lack of money be the excuse for letting our infrastructure fall apart. Necessary scientific and medical
research could be fully funded, schools and hospitals could be fully staffed and properly equipped, universal
health care could finally come to American workers and their families, Medicare and Medicaid could be fully
funded and the under-funded Pension Benefit Guarantee Corporation could be made solvent so that we won’t
have to work until we drop dead on the job. All this and more, is guaranteed by the Constitution, with no
inflation and no increase in the national debt.
After the Treasury issues the US Notes to the government agencies that need the money for legitimate
domestic spending, if the inflation fighting tax policy is unable to stop the greed inflation, what other course of
action would be available to protect the value of our currency? The answer would be for the Treasury to
withdraw the US Notes out of circulation. The President would then explain the reason for this action to the
American people. When the people see how the greed inflation is destroying their standard of living and
quality of life (as was the case in the Weimar Republic of Germany in the 1920s), public pressure will force the
irresponsible members of the business community to back off the price increases. When the greed inflation
stops, the Treasury can reissue the US Notes.
This is how the money supply can be increased with no debt and no inflation. Abraham Lincoln did it in 1862
and we can do it in 2008. These reforms are perfectly legal and long overdue.
Ray Uhric May 4, 2008
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