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How Can Our Senators and Representatives Vote for Giving Away Our Monetary Sovereignty?

letsgetitdone's picture

Right now the US fulfills the three essential conditions for monetary sovereignty: 1) it issues its own non-convertible currency, 2) which it allows to float on international currency markets; and 3) it owes no debts in any currency other than dollars. Because it is monetarily sovereign, and can always meet its obligations the US can never be forced into insolvency.

It can become insolvent due to Congressional decisions such as failing to raise or repeal the debt ceiling, or Executive decisions such as failing to use its platinum coin minting authority to fill the public purse and then pay its bills once it has reached the debt ceiling. But again, it cannot be forced into solvency by external financial or economic factors that are beyond the control of the Federal Government (including the Congress).

Monetary sovereignty is of tremendous value to us. As long as the United States retains it, then for example, we can never become Greece, or for that matter, Weimar Germany, since the latter's hyperinflation was in large part caused by the fact that it owed its war reparation debts in goldmarks, or in currencies convertible to gold, and could not repay them in its own non-convertible currency, the Mark, which it could freely issue.

It also means, that the US has greater policy space for deficit spending and debt issuance than nations that have given up their currency, have fixed exchange rates, and owe debts in foreign currencies whose price in international markets it cannot control. Given all the current problems of the US, that may require deficit spending to solve, giving up monetary sovereignty is a monumentally risky thing to do, and exhibits the casual and foolish thoughtlessness of the President proposing it and the Congress seriously considering the Trans- Pacific Partnership (TPP) Agreement.

Passing the TPP would compromise the monetary sovereignty of the United States and subject us to the influence of currency markets on the prices we may have to pay for foreign currency under a plausible scenario allowed by the Agreement. Specifically, I don't see anything in the TPP investment chapter requiring that damages be awarded by the Investor State Dispute Settlement (ISDS) tribunals in the sovereign currency of nations incurring damage awards for lost profits, but only that they be awarded in a “freely usable currency” as specified by the IMF. So, complainants in these tribunals could ask for and win damages payable in foreign currencies, rather than US dollars, which the US would then owe in that foreign currency.

So, it flows from these considerations that passing the TPP would create the conditions for ending US monetary sovereignty for the first time since the international gold window was closed in 1971. The seriousness of this compromise of monetary sovereignty would depend upon the frequency and magnitude of judgments against the United States Government. So, how bad can it get?

No one knows. But we do know that “ . . . the TPP would empower another 25,000 foreign corporations to use the investor state tribunals, against the United States . . . an expansion many times the US's current level of exposure.

We also know that Ecuador is currently facing a judgment against it awarded to Occidental Petroleum in the amount of $2.3 Billion for Ecuador's lawful termination of a contract for drilling rights. For Educador, a judgment of that size is comparable to one of $340 Billion against the United States, denominated in a foreign currency it cannot issue. (The Dollar is Ecuador's unit of account and official currency right now, but, of course, it is a currency Ecuador cannot issue.)

If you think this possibility is far-fetched, consider that ISDS actions are a business for multinational corporations experiencing rapidly accelerating and perhaps exponential growth. They and the ISDS Courts, staffed by lawyers who play the roles of judges for those Courts one day, and representatives of the potential plaintiffs in these Courts the next, have little incentive not to expand this line of business to the maximum the traffic can bear. Here's what Elizabeth Warren thinks about this issue:

ISDS advocates point out that, so far, this process hasn’t harmed the United States. And our negotiators, who refuse to share the text of the TPP publicly, assure us that it will include a bigger, better version of ISDS that will protect our ability to regulate in the public interest. But with the number of ISDS cases exploding and more and more multinational corporations headquartered abroad, it is only a matter of time before such a challenge does serious damage here. Replacing the U.S. legal system with a complex and unnecessary alternative — on the assumption that nothing could possibly go wrong — seems like a really bad idea.

The deficit terrorists among us worry needlessly all the time about the bond vigilantes driving bond interest rates beyond what is fiscally sustainable for the United States, and use this argument to call for crippling deficit reduction and austerity, even though they must know by now that the result is economic stagnation and growing inequality. But they are strangely silent about what the TPP's attack on US monetary sovereignty, making us subject to market-determined prices of foreign currencies, would do to fiscal sustainability, and equally silent about the issue of whether the compromising of our monetary sovereignty is fiscally responsible or not. It looks like they don't care about fiscal responsibility and fiscal sustainability when it comes to a choice between these things and the possible frustration of the “expectations of profits” of multinational corporations.

Which brings us back to our erstwhile Representatives and Senators in Washington. How they can even consider Fast Track Authority for the President without extensively considering and debating the sovereignty-infringing aspects of the TPP is beyond me. Its potential infringement on Monetary Sovereignty is only one of these. There are many others, as well. And it is hard to understand how people who swear fealty to the United States can justify their apparent complete lack of concern for these issues when they make trade agreements.

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jo6pac's picture
Submitted by jo6pac on

don't care about fast track, the whole F$$$$$$ idea is wrong for the citizens of the planet. People are arguing about this miner problem of fast track, it is a shiny object to the real problem the whole idea of tpp.

Abbe in Japan will rollover on his citizens on 0 visit and the ball will begin to roll and all the F$$$$$$ phone calls from citizens won't matter to congresscritters. The only thing that matters to them is the $$$$$$ they receive from their pay masters.

Potomac Oracle's picture
Submitted by Potomac Oracle on

The real problem is that MSM economists are in denial about monetary sovereignty and sectoral fianacial balances. They hypocritically go along with with the MSM editorial boards that deficits need to be reduced and grandchildren spared. Only when these mavens of neo-con orthodoxy are called out will there be a sea change in the false fiscal policy memes mouthed by Congress and the White House.

letsgetitdone's picture
Submitted by letsgetitdone on

If they get the Fast Track, it will be easier for them to get TPP passed. That's why FTA is important. Block FTA and the bill's gone. Very few of them will dare to vote for it in the light of day.

joebhed's picture
Submitted by joebhed on

Thanks so much for weighing in on the global corporatist agenda behind these so-called 'trade' undertakings. With Senator Warren and others digging in against Obama's audacious behavior, it's time that the public learns to navigate this latest path to the destruction of the rights of the creators of real wealth ..... stuff that ain't financial in nature.
But, a word of caution regards monetary sovereignty.
The definition used by Rodger M. Mitchell (monetary sovereignty) and others is just plain wrong, and your three points are embracing those errors.
In other words, as long as we are a nation we will never be able to give up our monetary sovereignty. Monetary sovereignty is a inherent function of sovereignty, which can only be 'surrendered'.
You cannot be sovereign in money without sovereignty.
And you can only have monetary sovereignty if you are a sovereign nation.
That which a sovereign nation CAN give up, only voluntarily through law (or a TPP Agreement), is monetary autonomy and monetary independence.
Those three qualities you attribute to 'sovereignty', are in fact the qualities of monetary autonomy.
A monetarily sovereign country can subscribe to a monetary union, thereby giving up its autonomy over money, and 30 years later, BECAUSE it maintains sovereignty, un-join that union and begin to issue its own currency once again. When Greece makes that decision, hopefully soon, it will be because they are still sovereign with regard to money.
So the matter of a nation issuing its money can be transitory, and very easily lost by national agreement, while maintaining monetary sovereignty.
Sorry, but this brings up a bigger issue to me.
A nation can also, by law, end the issuing of its sovereign currency, without joining a currency union, via the transfer of its issuing authority over to anyone, like a group of private, privileged, banksters who operate under the cloak of a 'federal' corporate identity.
That's the takeaway, Joe.
That's what we did.
The only vote to ever end our monetary sovereignty would have taken place had we lost the American Revolutionary War for Independence. Which was, in reality, a war for monetary sovereignty, which we won.
But we have 100 Percent given up both our monetary independence and our autonomy via the privatization of our national money system, meaning that if we want to have a money system that grants to the wealth creators the wealth and income they deserve, we need to take it back from the bankers.
Because it's our money system.

letsgetitdone's picture
Submitted by letsgetitdone on

Joe, I agree with your argument generally. But here are some caveats. You're saying you adhere to a different definition of " monetary sovereignty" than I used here. That's fine, I even agree that your is better. However, the way I used the term is current in both MMT and monetary sovereignty circles, so, fo now, I prefer to use the term in a way convenient for most of my audience.

And second, adhering to the TPP brings with it conditions about how nations can withdraw from the pact. for the United States it would require super-majorities in Congress. We can say that since it's possible to withdraw we still have our monetary sovereignty, but it's also possible to say that since we have the right of revolution we still retain our popular sovereignty under the TPP. This is theoretically true, but may not mean very much in reality.

Submitted by jawbone on

given any of the goodies allotted to the good servants of the master class, aka Big Money. They become unemployable for the Big Bucks.

They must adhere to the desires, objectives, commands of the Big Money Providers or they will not be getting the chance to make enough money to take advantage of what the elites can hand out to those who serve them well.

They understand full well what they will be giving up. Most of us will never be in their position, but the economy is now structured so than we all realize the full terror of being made unemployed.

A Bernstein may try to put forth a few ideas which will benefit the lower economic quintiles, but he or she may not do much more than ameliorate the economic disparity just a tiny bit, the tiny bit the elites will put up with to keep the peasants from taking up pitchforks and tar against them. Just enough to keep them from turning to the example of the French Revolution.

The Big Money wants all the power it can get from being as wealthy as possible, since they must buy their politicians, which is becoming more expensive with each passing year. To them it is not than big, proportionally, but they must have enough under their thumbs to pass the legislation necessary to become a fascist state and have the military/police on their sides to keep order when the peasants do get pissed off enough to risk their lives to attack those controlling the economy.

joebhed's picture
Submitted by joebhed on

This is responsive to JoeF back to me (doesn't seem to be a 'reply' button there).
Joe, you are correct that this mis-defintion is the one used by MMT and "some", like RMM, in the monetary sovereignty world out there.
But it's just plain wrong.
I cite "The Legal Aspect of Money", by F.A. Mann, wherein the 'legal' actions of the sovereign are defined, being non-transferable, once a nation has advanced its money-system statutes (currency units and legal tender laws and practices.)
Also I cite the book titled "Monetary Sovereignty - The Politics of Central Banking in Western Europe" by Euro-economist Dr. John B. Goodman, wherein he describes the matter exactly as to the relationships that various European Union countries have advanced (????).
It is only perhaps OK, Joe, to postulate a non-truth because the limited MMT money-school USES its own errant definitions to advance its own errant conclusions ..... here that the sovereign can readily issue its own income.
Only by passing the Kucinich Bill could that happen.

The result is the spread of mis-information and misunderstandings, and ESPECIALLY, for me, wipes out the importance of sovereign monetary "autonomy" and 'independence' with regard to the advancement of public policy.

Some day, some one, of the MMT belief system, will turn around and look them square in the eye, and say, "hey, that's just not accurate", and demand accuracy.
Marc Lavoie did the former. We need more like his "Friendly critique of MMT".

I have run these truisms by RMM a dozen times ..... he doesn't care what these legal and monetary economic leaders have to say, he already has the title of his website, and he ain't gonna change.

Of course, the best source of information with regard to exactly what sovereign money is all about, and how to fix this crappy private-issuance system is what German Economist Dr. Joseph Huber has put together over at his website.

Thanks, Joe

letsgetitdone's picture
Submitted by letsgetitdone on

Thanks you, Joe. Sometimes I argue over definitions, when I think the arguments are important from a political point of view. I think I understand why you're arguing for the definition you think is "accurate." But definitions aren't accurate or inaccurate, though they are fallible and can be false if they distort the way the world is.

In this case, however, the MMTers, me included are clear. MS = non-convertible fiat currency + floating exchange rate + no debts in any foreign currency. Then the statements they (we) make in relation to that definition do work and don't distort the world. So, from my point of view I don't have to call that monetary sovereignty, I can call it a case of a government using a sovereign fiat currency and distinguish two types within that category. Type 1 is a sovereign fiat currency system in which government institutions create all the money, while type 2 is a sovereign fiat system where in which private institutions authorized and regulated by the government create most of the money, but where the government has the legal means to create as much money as it wants to.

I argue that while there are important differences between these two types of sovereign fiat currency systems, neither one is subject to government insolvency. So, now we can forget about that and begin to discuss the differences between the two types.