More than half of Americans think our nation's economic recovery will take at least six years, if it happens at all. ABC's Scott Goldberg tells Gregg and Manda, we apparently need a pep talk.
The American people are increasingly frustrated by the inability of Washington to cut spending. The side of limited government has been on the losing end of every fiscal battle under President Barack Obama. Meanwhile, the Democrats in Congress have been so embarrassed by the deficits they have sanctioned during the last four years that they have made no effort to adopt an actual budget.
How does this reckless approach to governing sustain itself?
A more precise way of asking that question is: Who will pay for the $1 trillion deficit projected for 2013? The answer is the Federal Reserve. The Fed plans to buy roughly $1 trillion in government securities this year, meaning that it will absorb Congress's deficit spending by purchasing the equivalent in bonds used to finance it. The simple fact is that Congress relies on the Fed to provide the money for its uncontrollable spending binge, and the Fed is a willing partner.
During the last four years, Fed Chairman Ben Bernanke has made a special effort to keep interest rates as close to zero as possible. He's said it's supposed to lift the economy, but all we've seen during that time is a painfully slow recovery. Low interest rates, rather than benefiting families and small businesses that are the lifeblood of the economy, have mostly helped the government by enabling it to borrow more. The federal government is larger than ever but the average interest rate it has to pay to service its debt - 2 percent - is at a historic low thanks to the central bank's actions.
It's pretty clear that we won't get any sanity on spending in D.C., as long as this is the case. Congress does not have the willpower to resist easy money from the Fed, the same way spendthrift folks end up abusing credit cards. As long as the Fed can create money on a whim, this linkage will continue. Bad monetary policy will reinforce bad fiscal policy.
What can we do about it? After all, Obama and his allies at the Fed aren't going anywhere. In the next four years, there's little chance that the Fed will consider using some set of rules rather than its own discretion in printing money. The value of the Federal Reserve Note - which has lost 82 percent of its purchasing power since its link to gold was severed in 1971 - will continue to decline with the federal government as the main beneficiary.
Fortunately, there is another dollar-denominated currency available to us that the Fed cannot debase. In 1985, President Ronald Reagan signed a law to mint American Eagle gold and silver coins. These are legal tender even though a gold or silver dollar is worth much more than a paper dollar because their values have never declined like the Federal Reserve Note. Though they have primarily been used as an investment, we have them at our disposal to use as money. A bill in Wyoming, House Bill 198 also known as "The Wyoming Legal Tender Act," would do just that.
How can a state like Wyoming do this? Because the framers of the Constitution put an important check on the possibility of the federal government debasing the dollar. Article I Section 10 gives states the power to declare "gold and silver coin a tender in payment of debts." Until recently there was no concerted effort in the states to enforce this check - but when Utah adopted a law based on this provision in 2011 it proved that they could make a contribution to better monetary policy far from Washington. Like the Utah Legal Tender Act, HB198 would monetize U.S.-minted gold and silver coin in Wyoming by declaring it legal tender and removing taxes on it. Citizens should have the freedom to choose hard money as currency, a principle that stretches from Alexander Hamilton to Ronald Reagan.
One reason this choice is appealing is because it is the complete opposite of the broken fiscal-monetary system in Washington. It is based on a currency of independent value which the government can't print more of when it wants to spend more money than it takes in. It offers the discipline and objectivity that the Fed disregards. To sum it up, it is money at the service of the people rather than at the service of the government.
We can't expect everyone to rush out and pay for things with coins when this bill passes, but we can expect the hard money option to become part of financial life as more states take this path and the private sector integrates it into electronic payment methods like debit cards. As this happens, it will become harder for the Fed and Congress to sustain a scheme that so blatantly cuts against the wishes of Americans for sound money and sensible fiscal policy, which go hand in hand.