Part 2 of 2: Killer touch for market capitalism

By Henry C K Liu

Part I: US government throws oil on fire

US Treasury Secretary Henry Paulson asserts that the full resources of the Treasury Department are being used to ensure the success of its US$700 billion Troubled Assets Relief Program (TARP). The "full resources of the Treasury Department" commands the full faith and credit of the United States anchored by Treasury's taxing authority as approved by Congress. Tax payments in the US are made to the US Treasury via the Internal Revenue Service.

The Congress can approve taxes for and spending by the Administration, but Congress cannot create money like the Federal Reserve can. The Treasury's money can only come from future taxes approved by Congress. Article I - Section 7.1 of the Constitution stipulates that "All Bills for raising revenue shall originate in the House of Representatives". The Federal Reserve has the authority to create money as part of its monetary policy prerogative but the Treasury does not have any constitutional authority to expand the money supply. The Treasury must depend on tax revenue for funds beyond which the Treasury must sell sovereign debt to raise funds up to the national debt ceiling approved by Congress. Section 8.2 stipulates that only Congress has the power to borrow money on the credit of the United States. Proceeds from sovereign debt are advances on sovereign liability and not revenue, and must be paid back from future tax revenue.