More and more I see articles pop up which amplify the middle class squeeze and such. Bloomberg also has been all over the financial crisis, Fed. Honestly, I think this is going on because us lowly bloggers give them some competition. Fiction no longer gets much of an audience, as we see by CNBC super low ratings.
Marketwatch, consistently gets the economic reports mostly right as well. Cannot say that about many other MSM who cover them.
His writing is firmly in what is known in business circles as the Apocalypse Chic genre, which one would think would be printed by something called Armageddon Publishers. Instead, he is given space on Market Watch, which is owned by The Wall Street Journal, which is in turn owned by News Corp., whose principal shareholder is Rupert Murdoch.
Murdoch's publishing empire is so big that you have to take his word for it that he doesn't monitor the editorial or opinion statements of his writers and broadcasters, including Roger Ailes. That is probably not true when it comes to Ailes - Murdoch's son is said to be a firm opponent of Ailes and FOX News. Paul Farrell could easily slip under the radar, except that he has a popular following on Market Watch. He makes a very compelling case for the rottenness in the American capitalist system, which has turned into crony capitalism found commonly in banana republics. Farrell is thriving in a main stream outlet with the sort of stuff we've been writing about in the blogosphere for nearly 10 years. Since Murdoch is a quintessential crony capitalist, what is this all about?
1) The evidence for capitalism gone off track is too pervasive to ignore any longer.
2) Large numbers of professionals in politics, finance, and business in general now appear to share the same anxieties as the average person over the direction of the global economy and the potential for another crash.
3) People like Lloyd Blankfein and Jamie Dimon are so steeped in the workings of the system that they can't see what the professionals under them are beginning to realize. I still can't get it out of my head that Dimon told Congress not one of his executives predicted the housing collapse - group think at the very highest levels is allowing these firms to carry on trying to patch up the system as if nothing major needs to change.
4) Some of the elite, however, are not subject to group think. Entrepreneurs like Murdoch, caught up as he is in advancing his interests through special deals and lobbying, nonetheless like to hedge their bets. He dumped the Tories when it looked like Tony Blair was going to win big, and he cozied up to Hillary Clinton during the 2008 primaries. He may or may not read Paul Farrell, but he has got to be thinking how to save his business empire if global capitalism collapses. Can he still get deals done if major political parties are thrown out of office, and no one party is trusted to have the answers to the general level of misery afflicting so many people? He has to see from one country to another that voters are beginning to search for a new way and perhaps new political parties, some of which will be deliberately set up to quash crony capitalism.
5) Paul Farrell and David Stockman are excellent fellow travelers. They see the damage that has been done and they probably see that the Republicans and Democrats may not survive in their current form when the next crash arrives. These guys are finding main stream platforms, in part because their message is so compelling that it already gets a wide following on various blogs, YouTube, etc. I'm waiting next for Paul Craig Roberts to be allowed to come in from the wilderness. He was banished from the Republican Party for saying the sorts of things Stockman is now saying, and there have been deliberate attempts to deprive him of a platform. People want to read Roberts not just because he makes sense, but because they want to prepare themselves for major changes coming.
It seems, therefore, only a matter of time before we read other writers in major media outlets publishing material similar to Farrell and Stockman. This is going to make it harder, though not impossible, for crony capitalists to steal taxpayer money in the collapse to come. They will try to do it by stealth through the central banks, all done under the scenes with no publicity whatever. It may prove to be the end of central banking as we know it, which is something Ron Paul has been calling for, and writers like Farrell, Stockman and Roberts are beginning to explore.
The deficits run at compound interest meaning at some point they become unsustainable without a change in the future that allows the loan to be repaid. The next step is to strip assets in the same way that wars were waged only now it will force the selling of prime assets and destruction of public programs to pay for the debt. We see this situation in Greece today. The process is called "privatization". Every money-saving plan of the GOP is tagged with a corporate tax cut of the same amount. It is not a problem for the GOP to target the elderly in this "war" by depriving them of their medicare and social security. All democratic government is targeted. Decisions will be made by those who extended credit. When the bonds come due, we shall see the results of this plan to use debt in place of war. Perhaps Europe will lead the way with the collapse of the EU. The question is why were some so eager to extend credit or run up deficits knowing they were creating an unsustainable situation? Who are the predatory lenders?
(2) Have consumers choosing electric/hybrid E85 passenger vehicles that get 100 miles per gallon of E85 fuel and 700 or more miles per gallon of gasoline.
(3) Be free of dependence on foreign sources of fuel.
Solutions
1. Begin to pay down the national debt by taxing derivatives. A 0.5% tax on the buyer and seller of each transaction would raise substantial revenue. There are over $600 trillion of derivatives in circulation currently, and the tax could pay off the existing $13 trillion national debt within the lifetime of most people alive today. This would avoid passing the debt on to future generations.
2. Initiate a 5% stake for the federal government in companies accepting Small Business Administration loans for new business start-ups. In addition to paying back the full amount of the loans, the businesses would grant a 5% ownership interest to the Small Business Administration (SBA) as compensation for providing the venture capital. The program is already a success at creating employment and tax revenues for the country. It should be significantly expanded, and retaining a piece of the new company would contribute to the social benefit of the operation.
3. Loss of freedom is a fair sanction for criminal behavior. Warehousing humans is a societal waste of resources. Prisoners should be offered the opportunity of doing community service while doing their time. It would be administered by prison personnel and selectively granted to some prisoners at the discretion of the authorities. Reduction of the cost of incarceration should be one of the objectives.
4. End the oil depletion allowance. It is an accounting lie. No out of pocket expenditure is incurred, and it constitutes a double charge off for tax purposes. Not only are true costs being deducted, a fictional phantom is engendered by legal definition. It was created during World War I to stimulate exploration at a time of national emergency—an emergency that no longer exists. Now it destructively diverts market resources to oil away from alternative energy sources, which are disadvantaged by this subsidy. Renewable energy does not enjoy a level playing field against this institutionalized bonus for petroleum because of the preferential tax treatment.
5. Federal budgets should be in surplus four years out of every five. The only exceptions should be for recession, war, or disaster. Deficit spending should be rare and only used when truly justified. This principle should not be enshrined as a constitutional amendment; but, rather, as a pledge to voters signed by candidates to elective federal public office.
6. American military troops based overseas should be reduced by 75% within five years to reduce expenses. Staffing fixed bases in Germany, Japan, and South Korea with tens of thousands of soldiers is an outmoded method of exercising power. Those expenditures could be better used for communications, mobility, new weapons systems, and readiness. Better to keep those forces within the United States, ensure that the money contributes to our economy, and make the troops available for use in potential conflicts.
7. Cheap transportation is essential to economic prosperity. The target for miles per gallon of gasoline on new cars sold in the United States should be raised from 25 in 2010 to a range approaching 700–1000 by 2020. This is achievable if consumers stop buying gasoline-only powered vehicles and buy electric/hybrid engines that utilize E85 for fuel. Most trips are shorter than forty miles and could be completed on battery power alone. For longer distances, the fuel would be mostly non-corn ethanol with a small percentage derived from oil. A forty-fold increase in miles per gallon of gasoline would reduce our dependence on oil, free us from foreign suppliers, and stimulate the economy simultaneously.
A New Quasi-Governmental Agency:
Federal Assets and Liabilities Board
(1) The purpose of the FALB is to pay off the national debt of the United States.
(2) It will be a private business for the public good.
(3) It will not be financed by or a part of the federal government.
(4) It will receive revenue from a 0.5% transaction fee assessed on all derivatives transactions executed within the United States.
(5) Salaries and expenses will be paid from a 2% cut of revenues Operations Fund. All the remainder 98% will be used to pay off the national debt.
(6) The Chair and Vice-Chair will be elected by voters in all states.
(7) Regional Presidents will be elected from geographical locales coterminous with the Federal Reserve Districts. All voters in those areas will be eligible to vote for their Regional President.
(8) A Venture Capital Committee will consist of the Chair, Vice-Chair, and three of the Regional Presidents in a rotating order. They will have monies available from the 2% Operations Fund. They will make loans to individuals and companies who apply for funding. These loans will require a repayment of 100% of the monies borrowed and the transfer of a 5% stake in the borrowing firm to the Federal Assets and Liabilities Board (FALB). No taxes will be paid by the FALB. Instead, 98% of the fees received from the transaction fee on derivatives will go directly toward paying off the national debt.
(9) The FALB will be directly responsible to the voters. Annual reports will detail transactions for the period and make activities transparent to the public.
(10) After ten years of operation, the charter of the FALB will be reviewed by the voters for renewal or dissolution.
Derivatives
One of the simplistic explanations of the Great Recession (Great Panic) that we just went through chalks up much of our trouble to sub-prime mortgages. Ben Bernanke was right about that. The sub-prime mortgage market was not big enough to sink the American economy. What Bernanke missed is that there were much larger dollar amounts of derivatives based on sub-prime mortgages in existence that could and did help trigger the meltdown.
The amount of derivatives in circulation now is over $600 trillion. To put that in perspective, the entire output of the U.S. economy in 2010 will be $14 trillion. That means the value of derivatives is over forty times the U.S. GDP.
Derivatives are financial instruments that derive their value from other events. Crop futures for farmers are one type. The value of the contract is derived from a future value of corn, for example. If a corn farmer wants to take out an insurance policy against a decline in corn prices, she can buy a "put" derivative based on the future price of corn. If the price of corn goes below her "strike" price, she will collect compensation based on how much below the strike price the market goes. If an airline wants to hedge against an increase in aviation fuel costs, it can buy a "call" derivative to offset the increase above the strike price.
Those are socially beneficial derivatives.
An example of evil derivatives would be slicing and dicing mortgage baskets of specific properties so that the buyer and seller have no insurable interest. They neither own the property nor the mortgage, but they can "bet" on whether a certain amount of the mortgages will default. That is why some critics referred to the Wall Street derivative marketplace after this crash as a "casino" for rich people.
Derivatives are a market where you can place a bet on an event that you have no stake in. I could place a bet on whether your house will burn down. I don't own your house; I don't have a loan against your house; I cannot buy a fire insurance policy on your house because there are laws against that since I have no insurable interest; but I could buy a derivative for a million dollars that your house will burn down. If your house burns down, I collect a million dollars as long as I have paid the ridiculously low premium! This manner of gamboling is unregulated.
That is why derivatives are more dangerous than all the other issues, such as globalization, sub-prime loans, or liar mortgages, that our recent meltdown has been blamed on.
Probably fewer than 5% of Americans have any concept of what derivatives are or that they are anywhere near as sizable, dollars-wise, as they are.
Many real problems contributed to the crisis. They deserve thoughtful discussion and attempts at resolution:
1. A person went from the insurance industry to a derivatives desk at a hedge fund. His annual compensation increased from $100,000 to $30,000,000 in 1 year. The sad part of the story is he did not even know what he was selling. He got a tiny commission, but his sales were in the billions of dollars.
2. Incentives to go into finance are misaligned with social values.
3. The middle class is vanishing. The gap between the lowest paid and the highest paid is widening to the point that it is destructive.
4. Interests of owners are divorced from the interests of their agents who work for them.
5. Values beyond dollars are not built into measurements such as the GDP, bonuses, damage to the environment externalities, and other metrics we use for decision making.
6. Political leaders are chosen by a faulty campaign funding process.
7. Measurements of risk are flawed, and rating agency compensation is based on a conflict of interest where the debt issuers pay for their own product ratings.
8. Damage to the whole economy (systemic risk) by certain big corporations is poorly understood or monitored. Nothing has been done to eliminate the concept of “too big to fail.”
Attention to these issues deserves public discussion and resolution. But having the financial wherewithal to deal with them (by eliminating the national debt) is the cornerstone to ensuring against a repeat of the disaster we have just found ourselves in.
Growth
It’s the Economy, Stupid
The way out of the Great Recession (Great Panic) is through growth.
The Great Depression was stalled by Keynesian economics, but the efforts were too slow, too timid, and too halting. It took the unbridled deficit spending of World War II to turn record high unemployment and underutilization of production capacity into the greatest engine of productivity the world has ever seen. The U.S. economy was a time bomb waiting to explode. We had a trained work force and facilities waiting to be put to use. The war gave our leaders the excuse we needed to deficit spend with gusto. Matching capacity to need was Herculean but doable. The danger of the military threat gave us just cause to engage in stimulus that would have never otherwise been adopted by political leaders for fear of a public outcry.
We again face large unemployment, inactive funds, and an underutilized capacity to produce. We have huge, unmet economic needs. It is a new time bomb ready to unleash a new round of economic prosperity—it’s about to explode; we just need the national unity to light the fire. What we lack is will—the will to turn our potential into reality.
The United States has been satisfied with long-term growth of 3–5%. That has been considered high. It should be twice that. And we can target that growth rate with an objective to keep inflation below 2%, or thereabouts. China has sustained that level of growth for decades. We should do no less. Many problems go away when we have sufficient resources to solve our long list of needs.
Central to making this happen is eliminating our national debt. As long as our financial resources are constricted, property values will be depressed, the stock market will languish, jobs will be scarce, the environment will suffer, and a whole host of issues will not be dealt with. If we have the money to spend on national prerogatives, we can put unemployed people to work. We can profitably invest billions of dollars of capital, which is sitting on the sidelines. And we can start making socially desirable progress in areas where we decide to set our priorities.
Money (not greed) is good. Money is the facilitator; money makes things happen; money makes half of the problems go away.
Supply-side economics got it half right: free markets are essential to prosperity. What Supply-side economics left out was regulation. Supply-side economics (and the Austrian School of economics) was too often married to deregulation—private enterprise was king, government was bad. The Arch of Success requires two columns of support: free markets and effective regulation.
Putting a driver in the backseat (free markets absent effective regulation) is what drove us into the ditch. The stimulus plans of our new administration have barely gotten us out of the ditch, and there are no considerations as to how to make our vehicle soar. What will make us soar is a thoughtful plan with numbers, time frames, and dollar amounts to put America back to work. That is the plan we seek to lay out in this Financial Telesis project. Idle workers and plants are a social waste.
Let us stop discussing lowering benefits for people on Social Security, restricting executive salaries, delaying retirement, and postponing environmental rescue.
Let us start talking about how to get rid of foreign oil dependence; remake our transportation system; finance new small businesses; and afford to keep our entitlements to dignified retirement, medical care, and education.
"Dow 30k by 2020" could become a platform for both political parties. Creating jobs, eliminating the national debt, eradicating our dependence on oil at the same time as reducing our dependence on foreign sources of energy supplies are priorities we can unite on together as a nation. The right will criticize this agenda as too liberal because it seeks to emphasize the role of government and break the back of Big Oil. The left will criticize it as too conservative because it emphasizes profits and free markets. I hope the political center will embrace it as a modicum of common sense, jobs and prosperity for all.
Our resources are great. Our needs are great. Is it really rocket science for Americans to figure out how to match the two? We have the talent. What we lack is political civility, which would allow us to cooperate on matters that benefit all, and the impetus to stop wrangling about what we disagree on. We need less controversy and more trusting cooperation on what will help everybody.
No wonder everybody is angry. The stock market went down over $5 trillion, depending on when you measure the losses. The value of real estate is down over $7 trillion. We have the highest unemployment since the Great Depression. We came very close to having even worse unemployment (we could have been looking at unemployment of 25% or higher instead of 10%). The median family standard of living has gone down. We consume more than we produce. Foreclosures and bankruptcies are sky-high.
When can we come together and decide we want to rewrite the prescription for progress intelligently planed?
The key is how we can pay off the national debt. Then we can begin the renewal process.
Demand-Side Economics
Keynes Got It Right
Aren't you tired of tightening your belt? I am.
If we want to light up the economy, we must change the national purpose. We need to identify what it is we want and where we are going to go.
Free market idolaters have convinced us that the national government has no role in setting the agenda. The government is not allowed to “pick winners and losers” in business.
The National Railway System was a conscious decision of the government under Lincoln. Similarly, the Interstate Highway System was a decision made by President Eisenhower. These transportation systems were built by private corporations. Fortunes were made by private individuals, but the vision came from the top of government. There is nothing unholy about politicians setting the national agenda.
Will individuals and corporations get rich? I hope so.
Free markets are necessary for prosperity. That is a truism. Even former Communist countries such as Russia and China have some form of free market economy now. It is stupid to think otherwise.
But constantly banging that free market drum and ignoring the role of the government in setting business priorities is equally stupid. We have let the notion of "tax cuts, tax cuts, and tax cuts," along with deregulation, lead us to the edge of the cliff. We have been to that place where two women with smiles on their faces are driving us over the edge of the Grand Canyon, high-fiving each other. It is the road to perdition.
“I want to earn a profit because of low taxes” is not a job creator. “I want to sell something because I will earn a profit” is a job creator. Demand for your product or service not low taxes is the reason to create jobs.
It is no accident that both of the examples of government driven priorities for growth I cited earlier (National Railroads and the Interstate Highway System) relate to transportation (we could also look at the national parks, the space program, or the abolition of slavery as top down choices, but those are not as instructive in terms of demonstrating economic engines that are game changers over time).
Our new agenda should be business choices that free us from oil dependence. Waiting for the free market to decide this is not good enough. And waiting fifty years is not acceptable. We need to do it in less than ten years. Is that crazy? I think not. But we must, as a society, get behind making it happen, or it won't.
General Motors is coming out with the Volt this year. That is a game changer. And, by the way, America owns a major interest in General Motors right now. Isn't that nice? There are, of course, other electric cars and hybrid cars on the market already, but the Volt seems to be of a different caliber.
Guess who buys the largest number of cars in the United States each year: The federal government. What if we set a national policy that at least 50% of new government vehicles are electric or hybrids? Would that create instant demand for alternative-fuel autos? Certainly. Do we need to do economic studies and endure bureaucratic red tape to make that decision? No; it is a choice at hand.
New car purchasers can influence the economy immediately by selecting electric/hybrid cars. A 30- to 40-fold improvement in petroleum per mile efficiency (over current levels) is on the market now, and many more models are scheduled for imminent introduction. By selecting electric or hybrid-powered passenger vehicles, an economic stimulus revolution is available that requires no deficit spending by the government!
Running on electric power only is practical for trips shorter than 40 miles and uses no oil. And if longer distances are required, using a fuel composed of 85% non-corn ethanol will magnify fuel efficiency by 7 times, as compared to gasoline. Corn-sourced ethanol is of negligible benefit because the energy returned on energy invested (EROEI) provides near zero improvement over gasoline. The energy used to produce it is roughly as much as the energy that it yields. Ethanol from other sources is more advantageous.
Some have advocated big trucks switching to natural gas from diesel for fuel. Is that something we can do now? Yes. We need to look at environmental degradation, however, before engaging in exploitation of additional natural gas sources willy-nilly. That is a genuine concern. But we already have plenty of capacity. We need the will to make the decision, and we can do that right away. Oh, and guess which country has a seemingly limitless supply of natural gas: the United States. These are domestic supplies, which will help us get off oil and reduce our dependence on foreign suppliers at the same time. What a concept.
The economic impact from these changes is immediate, long term, and pervasive. Fortunes will be made. New jobs will sprout. The return of a prosperous middle class can be achieved. Opportunities presented by kicking our addiction to foreign oil dependence are abundant. Oil companies may resist change. Energy companies will see a pot of gold within reach. It is up to our petroleum corporations to define themselves. Are they oil companies or energy companies? Let the free market decide.
"Dow 30K by 2020" could become a platform for both political parties. Rapid economic expansion is what we need. Creating jobs, eliminating the national debt, eradicating our dependence on oil at the same time as reducing our dependence on foreign sources of energy supplies are priorities we can unite on together as a nation. The right may criticize this agenda as too liberal because it seeks to emphasize the role of government and break the back of Big Oil. The left may criticize it as too conservative because it emphasizes profits and free markets. I hope the political center will embrace it as a modicum of common sense, jobs and prosperity for all.
Our resources are great. Our needs are great. Is it really rocket science for Americans to figure out how to match the two? We have the talent. What we lack is political civility, which would allow us to cooperate on matters that benefit all, and the impetus to stop wrangling about what we disagree on. We need less controversy and more trusting cooperation on what will help everybody.
Small Business: The Engine
The Small Business Administration is the only part of the federal government that makes money. It doesn't make money itself, but the guaranteed loans generate more income to the country in tax revenue than the dollar losses on the few business loans it makes that default. So the net operation is a winner.
It is very well known that the small business sector of the economy is the most productive job creator. The fact that the SBA is also profitable is less well known. The question remains: why, if it is the secret to solving a lot of our problems, don't we do more underwriting of start-ups?
The biggest source of finance for new businesses is private individuals. Add to that the banking industry, the SBA, Venture Capital companies, and charitable groups and there is a huge driver of business activity.
As the cheerleader for capitalism, however, we still make it awfully hard to get money to grow the economy. It is quite hard to get a loan from the SBA if you are not expanding an existing business. Venture capital firms are notoriously difficult to do business with unless you want to surrender the majority ownership (sometimes they are called the Vulture Capitalists). Plus, the transaction costs involved in obtaining start-up funds are excessive.
If we, as a society, wish to grow at a faster pace, we can make it easier to create start-up enterprises that have the business fundamentals and prospects for success. We know enough about what it takes to move this creative solution to rapid expansion. Prosperity is something Americans understand very well. Facilitating the pieces of the puzzle coming together is an area which we need to strengthen.
The current SBA program is very efficient. Why does the country take the risk in guaranteeing the loans, though, and then just walk away when the loans are paid back? Why do we not keep a residual, small piece of the ownership? There is a built-in prejudice against the government owning a part of a private business. We do it when the IRS takes over operations of a company that has not paid its taxes, but it is always limited to an exit strategy. As soon as we can sell it we do. We do it in a bankruptcy case in which a trustee operates the enterprise for a while—but, again, it is just as an exit strategy.
It would seem to make sense that when we make start-up loans to foster businesses we should be able to retain a small portion of ownership in consideration for taking on the original risk. Keep the transaction costs very small (unlike the Vultures), but claim an equity position for the agency that made the loan possible. The SBA or the FALB.
Real Estate
Most analysts attribute the onset of the Great Recession to the housing market. When Treasury Secretary Paulson and Fed Chair Bernanke went to congress to get $700 billion for the Troubled Asset Relief Program, the rationale was to buy up toxic mortgage assets. That didn't happen. And there was precious little explanation why. They underestimated how serious the crisis was by a large margin of error.
They only obtained authorization for $700 billion. The problem necessitated over $7 trillion (some estimate it was even higher than that). You can't correct an amputation wound with a Band-Aid. Therefore, they had to figure out what they could do to fix the problem with what money they had. Saving the "too big to fail" banks and two auto companies was what they settled on.
The "underwater mortgages" problem never went away. The federal government still does not have enough money to buy up the mortgages that are upside down or even make up the difference between market value and mortgage value. The banks are unwilling to engage in mitigations, which include lowering principal, because accounting rules would require them to take immediate losses on their books. Banks are willing to extend the terms of the loans and lower interest rates, but not deal directly with the fundamental problem of lower market value compared to mortgage value. The loss mandated if they write down the principal gives them good reason to avoid the necessary solution to underwater mortgages. The final resolution of the housing crisis, unfortunately, remains beyond the horizon. We have no plan on the table as to how to make it go away.
One solution would be to end the Great Recession by making the national debt anchor disappear and begin an era of rapid economic expansion. Property values would rebound somewhat if we could accomplish that. Rising property values would make the underwater mortgages problem diminish dramatically. It would still take too long by most peoples' judgment, but there is little else on the table for discussion.
Rapid inflation could be used, but I don't think many would subscribe to that—the dangers of runaway inflation are too well understood.
Letting housing prices crash is another alternative that would solve the problem in the long run. But few would want that solution either. In the long run we are all dead.
Selling off properties to the government is still possible, but undesirable. It’s the same story with setting up a "bad bank" to take on all the underwater loans.
In short, we have a lot of inadequate solutions to the housing problem other than making the economy sizzle through concerted action by the government. That is a viable panacea for real estate reinflation.
Some have suggested that the problem of declining property values posing a threat to the entire economy can be mitigated with put derivative provisions that would become part of standard mortgages. This would insure home buyers from suffering losses if the home prices decline below the strike price. For a modest premium, buyers and mortgage companies alike would be protected. It is a win-win-win proposition. The buyer, Mortgage Company, and public all come out ahead. Only the insurer on the put derivative policy loses. But because they will construct a profitable business model that includes adequate loss provisions it is presumed they will profit overall even though they have to pay off some losses.
Missed Opportunities
There is a vast wasteland of missed opportunity—work at home jobs.
Sources of workers:
1. Stay-at-home moms
2. Disabled people
3. Retired people
4. People below the age of fifteen
5. Prisoners
6. People with time to kill
Some suggested new and improved industries just to scratch the surface of the possibilities include:
1. Tutoring
2. Remote security camera monitoring
3. Test administration and scoring
4. Writing projects
5. Research
6. Companionship service for the elderly
7. Conflict mediation
8. Anything which can be done from a distance.
In the age of the Internet, it remains for some clever entrepreneurs to harness these assets to everyone’s advantage. There is gold in them-there hills.
Gold versus the Power Grid
The value of gold is meaningless; it has no intrinsic value. The power grid, on the other hand, represents a real and tangible threat to the American standard of living. Yet the price of gold appears in the news media frequently. The power grid is seldom mentioned.
The power grid is not well understood by the public. Many do not know what the grid is to begin with, and even more do not understand what a significant danger it is to our way of life. The electric power grid is the system of wires that distributes electricity across the country.
If you watch the stock market channel, they quote the price of gold constantly. Gold has been valued for thousands of years, all over the world and across cultures. Currently an ounce is priced over $1,000. Compare that to the annual income of people in some poor countries of $100–300 per year (e.g., Zimbabwe and the Congo). An ounce of "worthless" metal could support a person for up to ten years in those countries? Two pounds of "worthless" metal could support a person nicely for a year in the United States? That is nonsense.
The destruction of our way of life due to catastrophic failure of the power grid is a little-known fact. And there is a significant possibility of such an event happening. In August, 2003 Cleveland, Ohio experienced a heat wave that caused the power lines to sag into the trees below. The drooping wires caused an electrical short that brought down the eastern section of the grid which serves 50 million people in Canada and the United States and cost about $6 billion.
The disparity between attention paid to something of little consequence (gold) and something of major consequence (the power grid) is incredible. How do we know that the grid is more important than gold? Think about the impact on your daily life if you had to go without gold for three years. Private ownership of gold was actually outlawed in the United States for several decades without much change in everyday life. Now think about the impact on your daily life if you had to go without electricity for three years. Our lifestyle would be hardly recognizable.
The High Cost of Foreign Military Bases
The United States maintains tens of thousands of soldiers in Germany, Japan, and Korea even though conflicts with those countries ended decades ago. The cost to keep those troops abroad each year certainly exceeds $100 billion. That expense has a negative impact on our Current Accounts and the Balance of Trade Deficit. It lowers our standard of living in the United States.
During the Cold War, these deployments may have had a beneficial effect on our national security. A reexamination of the cost–benefit analysis of vast foreign bases has never been published by the military leadership of our country since the Cold War ended. It is hard to believe it makes sense now.
Just returning the troops to home bases would mean that the money they spend would add to our economy rather than add to the Balance of Payments Deficit. It would be a huge boost to domestic demand, which would mean sizeable increases in available jobs and American prosperity.
The foreign bases in Germany and Japan were of little use during the Korean, Vietnam, or Middle East wars. Likewise, they weren’t terribly useful for other military actions since the end of World War II. If we used forces from these bases for those military conflicts, they were replaced by others. The large force deployments there did not add to our ability to defend ourselves.
Our allies like the military bases in their countries for the most part. It means they do not have to provide for their own defense with their own forces. But it is a subsidy to our friends we can no longer afford if we are to fix our problems at home.
Remedy for the Great Recession
(1) Begin to pay off the national debt by taxing the buyers and sellers of derivatives. Paying off the debt should be earmarked for 98% of the proceeds, and the overhead should be limited to 2%.
(2) Bring the troops home from Germany, Japan, and Korea and station them in the United States.
(3) Make it federal government policy to buy 50% electric or hybrid cars for 3 years.
(4) End the oil depletion allowance for tax purposes.
(5) Allow the federal government to retain a 5% interest in companies to which it grants venture capital loans or loan guarantees—whether it is to the Small Business Administration (SBA) or the Federal Assets and Liabilities Board (FALB).
(6) Utilize prisoners as volunteers in community service activities that reduce the price of incarceration.
(7) Have candidates for federal office pledge to pass balanced budgets four years out of every five unless there is a recession, war, or disaster. They must be accountable to the voters.
(8) Establish the FALB to collect the transaction fee on derivatives and pay off the national debt, as well as provide start-up loans for new businesses.
(9) Create incentives for owners of big rig trucks to switch to natural gas from diesel fuel—especially when ordering new equipment.
(10) Take steps to make the national electric grid less susceptible to catastrophic failure. This should include aspects of smart grid technology for conservation purposes and to reduce our defense vulnerability.
(11) Reductions in the interest payments on the national debt should be directed to tax rate reductions which produce the highest bang for the buck in growing aggregate demand for the economy.
(12) Revise the method of financing elections to reduce influence peddling and corruption.
(13) Audit the efficiency of the current use of national assets—public lands, buildings, employees, organizations, vehicles, practices, and capabilities—to build the economy and create jobs.
(14) Reconsider entitlement programs.
(15) Revisit mortgage policy in light of upside down property values. This includes all agencies such as Fanny Mae, Freddie Mac, HUD, Veterans Benefits, and the FDIC.
(16) Audit the long-term effectiveness of regulatory agencies.
(17) Change standard mortgage agreements to provide an insurance provision derivative against declining home values.
(18) Foster methods which enable work at home enterprises for jobs and income possibilities to groups which are not part of the workforce such as retirees, minors, the disabled, and people with time to kill.
(19) New car buyers should select electric/hybrid models to diminish both our dependence on oil and our dependence on foreign energy.
We are at a turning point as a society which resembles where we were at the end of The Depression and before the start of World War II. We have excess capacity galore. Unemployment, Capital "sitting on the sidelines", and businesses operating below potential are everywhere. We seem to be waiting for a Pearl Harbor incident before we summon the courage to let loose the wealth generation machine within reach.
Let us not wait for a catastrophe like a foreign invasion to strike the match igniting rapid economic growth and increased wealth for everybody.
Well, you have it right. The economists (most of them) did not see the Recession coming, and could not predict ways to counter it, and also did not see it leaving. What else are economists supposed to do? Shake hands and have a cup of coffee with it?!
The American people finally have their interests recognized, by the Supreme Court of the land, asserting that Arizona's federal mandatory E-Verify was upheld. Today it’s a major victory for the American workers and a killing stroke to the US Chamber of Commerce and an attempt by the Department of Justice to protect illegal aliens in the workplace. This will strengthen enforcement by attrition in every business and control penalties with businesses that don't comply. It gives all states the right to implement and mandate the E-Verify program and open the door to hefty fines, loss of business licenses, assets and the risk of prison.
Other states will now follow the example of Arizona and those who don't, will be in the forefront of mass evacuations from these hard policing states to states as the Sanctuary State of California, Nevada and Utah. In a 5-3 victory the justices, repudiated the pro-illegal politicians, Governors, Mayors and lower ranks of leftist and Rino Republicans.
Nothing will do more, including the fence, to retard future illegal immigration occupation and accelerate the departure of the current 20 million illegal populations than taking away the job magnet. This is a significant win as other States following Arizona's lead, could have been crushed if the verdict had gone the alternative route. The American workers now have the impetus, to push the Congress and with the help of the monolithic Tea Party to mandate E-Verify nationwide. This will mean the propagation of E-Verify, with audits on all manner of business, including contractors and sub-contractors in every occupation. American labor must unite to uncover unscrupulous companies from large to small, who are using discount services. More and more patriotic Citizens and residents are joining other "Whistle Blowers" in contacting ICE and local police, of illegal aliens working in construction, manufacturing and thousands of other industries.
Another issue that many states see as a major peril to our sovereignty rights is illegal aliens using the absentee ballot system to vote in elections. New York, Colorado, New Jersey, Texas are being investigated by state Attorney General commissions. Acorn is still a major player and although dissolved on paper, is still involved in the registration racket. There are occurrences in California and Nevada of manipulation of voter rolls.
Can any American citizen or green card holder imagine what this country was like thirty years ago, before the illegal immigrant invasion? How many hundreds of billions of dollars, perhaps even a Trillion in three decades? Fewer illegal aliens meant fewer taxes to support the huge support mechanism that we have today? An example would be California, was a less congested place, where there was room to breathe? Just think were those taxes to subsidize illegal immigrants today could be highly beneficial, if it was spent on our own population. Education, for instance is forced on us, by a federal court that we must pay the schooling for every child of illegal immigrants. Then we have health care that the courts say, that anybody who breaks the law to come here is entitled to treatment. Remember in1912 the Titanic sunk, but not because of the iceberg above the Atlantic Ocean, but what was ominously concealed beneath the surface?
This is the same story with illegal immigration and the failure to place, 5000 "boots on ground. “of the each border States Nation Guardsman permanently? I was astounded to read a "Wikileaks" secret document, that the border is intentionally left open for the clandestine arrangement to merge Canada, Mexico and the United States. You have a chance to read these reports at Wikileaks website, under the headline, "Viewing cable 05OTTAWA268, PLACING A NEW NORTH AMERICAN INITIATIVE." This is a serious situation concocted by the Canadian Paul CELLUCCI and American Ambassador, which seems to never have been observed by Congress.
From both parties are hundreds of thousands, tens of millions finding that the TEA PARTY, doesn't discriminate against race or religion. That these people are delusion by the Liberals, democrats and Republicans, that are not doing enough to stop the in-sourcing of illegal immigrants or outsourcing of jobs to foreign countries. Cafta and Nafta was a massive mistake as the whole “FREE TRADE AGEEMENTS” have been detrimental to our society. We are importing everything from a nail file to steel, at far below the cost of doing business here? Once a lender of billions of dollars, we must now go cap in hand to Communist China, that owns our debts. We are the greatest market in the world, but our commerce is undercut by artificially engineering their currencies. The only winners in this commercial game are the importers of inferior products, who are profiting.
As Billionaire Donald Trump we should place a 25 % import tax on everything coming to our country, and begin to rebuild our manufacturing industries again. An intentional failure of every administration to secure our borders or enact laws that would obstruct foreign national at the border, or a tracking system to deport visa overstays. E-Verify will eradicate this problem of the issuance of a Secure Communities law, to enforce that every police department fingerprint and send those scans to ICE. If you want less government, a fair Tax system, individual responsibility and the return of federal excessive power to the states, join the Tea Party in your local area. Tell your Federal, State or local lawmaker, unless they join the TEA PARTY, they will be out of office in 2012.
Contact them at Senate—202-224–3121/ House—202-225–3121.
Pretend, just for a second, that Republicans and only Republicans held all seats in the House and Senate and also the presidency the last 30 years.
Wouldn't it be fair to say that under this scenario they would have delivered on all 3 planks? In other words defense increase yes, tax cuts yes, but ALSO cuts in domestic and entitlement spending.
So if this is true, isn't it then the presence of Democrats that prevented the domestic spending cuts? Are you telling me that Republicans would have kept the Dept of Education if no Democrats existed? Likewise wouldn't they have cut whole swaths of social spending and government if they could have?
Aren't we seeing now with the Mediscare tactics exactly why they couldn't? Wouldn't they have been savaged at the polls for doing so? Wouldn't the media have joined Democrats in tearing them apart?
So then, if we buy that Democrats did indeed have the power to prevent Republicans from making these cuts, then it seems reasonable that they could have used this same power to prevent the military spending and the tax cuts. But they didn't. Didn't the Democrats ALSO want to look strong on defense back in their district? Didn't they ALSO enjoy the moniker of being tax cutters? Bet your sweet they did.
It always takes two to tango. But now, according to Stockman we're supposed to believe that it only took one to tango. Given that between the House and Senate literally hundreds of seats have been in Democratic hands the last 30 years, and Clinton + Obama = 10 years of the presidency, this doesn't add up.
Sorry, now there is a lot of spin, B.S. and denial through numbers that goes on, but if one really digs, there are more than a few real economists who do understand the economy and get it right.
The problem is they are buried, come to light with a few papers and then are buried again by those who spew the corporate lobbyist agenda or plain don't have a clue.
Also, if you don't understand the money system, as it exists, well, this site is in part to educate people. You cannot blast something you do not understand. First, crack a few textbooks and read up on Wikipedia and so on.
Then, start seeing the power, flaws and lies but first one needs to be able to identify the truth.
At least he is one of the few in the MSM showing that it was Reagan who really started the downward economic spiral.
Nice call out on the fallacy that America was born as the land of the free, home of the brave, uh, only if you were a white male landowner was that true.
Another byproduct of high unemployment is a worker glut. The supply goes way up while the demand goes down, so prices (that is, wages) go way down. You Can Be Replaced, no doubt by someone who will take a lower salary.
Economist do not live in the real world... they live in theoryland and thus only interest themselves in questions and answers that make sense in theoryland. They only occasionally make sense accidental... and not very often.
However, unless you or your brother-in-law, or anyone else who proffers opinions on economic matters understand how money is created you're likely to miss the mark.
It's so simple that nearly everyone misses it... and when it's pointed out exclaim it simply can't be that simple... But it is. ALL modern money is debt. All debt entails an interest charge. Answer this question - Where's the interest come from?
Who creates money?
How does the gov get money?
Where does power reside, with the debtors or the creditors?
Answer those questions correctly and you'll know more that 99% of all economist. Follow the answers with the consequences and know why we all are so truly fooked.
Good overview why a product and innovation economy is the foundation of wealth.
President Regan sponsored a project called 'Socrates' that looked at the future of the US economy and what should be done to maintain competitiveness - the project and its recommendations are interesting and a good blueprint if you wanted to try and breath life into the US economy. This project concluded that a cost, service and debt driven economy would fail (and it has) and that what was required would be an 'innovation' economy based on invention and excellence in product design and development - exactly the things competitors to the US are doing.
But guess what, when Bush senior got in he scraped the project and capitulation to Wall Street was the outcome. The rest they say is history.
The real problem is that the US elites - US transnationals, political establishment, defense contractors, etc, can make money both ways - either through investment, production innovation, etc, or by cost reduction through off shoring capacity, off shoring jobs/services or in-sourcing cheap Indians to do US jobs. However, the second option is the easiest as it driven buy the calculus of the lowest cost input no matter where that is.
Well, how about if we just start by changing it's name. Since 99.9% of Americans have been duped into thinking that farce is actually a government agency, I propose this as a new name:
The Cabal Of Private Bankers Partly Owned By The Rothschild Banking Family And JP Morgan Which Was Given Control Of The Public Currency By Congress On Christmas Eve 1913 In The Middle Of The Night As Congress Voted With One Hand And Opened Their Little Envelopes Of Goodies From JP Morgan With The Other Reserve
Just finished 'The (mis)behavior of Markets (Mandelbrot/Hudson).
Seems there is good reason to question if those (supposedly) in charge of financial matters actually understand risk.
As important, do voters (anywhere you can vote) question the ideas and policies of those ( supposedly) in charge?
Should not the approach of modern science be at least made public, even if controversial? Maybe help with all the surprises in the financial news. Just a thought.
In the past, the word was, "How can unions get the benefits we don't get as managers?" The answer was benefits to managers that equaled union benefits. The perverse reversal of that is really appalling. The outcome, while maybe not the intention, is people get sick more and die earlier. Nice system.
Excellent essay Mark. This has to be said and read.
Or if they do vote, the people they think might help them do nothing to change the system. The rich still get the bulk of the nation's income at extremely low tax rates. Still, none of this is possible without the ability of the United States to borrow massive amounts of money indiscriminately, at extremely low rates that the US itself sets, without any consequences to the politicians who approve trillion dollar annual deficits. The system would collapse if the Republican model of borrow and spend began to have any short term consequences.
A second linchpin to this system is the ability of Republicans and the media to frame this as class warfare. Notice how unions are demonized as selfish and lazy workers who feed off the taxpayer's dime. Non-union middle and lower class workers are taught to be jealous and envious of generous pension and other benefits granted to unions. Usually the argument is coached as "How can these union people get such generous health and pension benefits while the rest of us have to cope with nothing?" The media never frame the argument the other way: "We once had the same generous health and pension benefits as the unions. How did that get stripped away from us as non-union workers, and who is trying now to strip it away from union workers?"
The Problem is THE People
We have a government that is elected by the people. No one forces them to vote for e.g Barnie Frank. The autoworkers were thanking and praising Obama yesterday. They will donate to him and vote for him. When the people want change, they have the means to get it. This is not Egypt etc. The Constitution is a brillient document.
The question is: Why don't the people use it? To my mind, the answer is "Bread and Circus". They have necssities (food) and television (circus). Obesity is a problem and there is 24/7 sports, movies, etc. on TV.
More and more I see articles pop up which amplify the middle class squeeze and such. Bloomberg also has been all over the financial crisis, Fed. Honestly, I think this is going on because us lowly bloggers give them some competition. Fiction no longer gets much of an audience, as we see by CNBC super low ratings.
Marketwatch, consistently gets the economic reports mostly right as well. Cannot say that about many other MSM who cover them.
His writing is firmly in what is known in business circles as the Apocalypse Chic genre, which one would think would be printed by something called Armageddon Publishers. Instead, he is given space on Market Watch, which is owned by The Wall Street Journal, which is in turn owned by News Corp., whose principal shareholder is Rupert Murdoch.
Murdoch's publishing empire is so big that you have to take his word for it that he doesn't monitor the editorial or opinion statements of his writers and broadcasters, including Roger Ailes. That is probably not true when it comes to Ailes - Murdoch's son is said to be a firm opponent of Ailes and FOX News. Paul Farrell could easily slip under the radar, except that he has a popular following on Market Watch. He makes a very compelling case for the rottenness in the American capitalist system, which has turned into crony capitalism found commonly in banana republics. Farrell is thriving in a main stream outlet with the sort of stuff we've been writing about in the blogosphere for nearly 10 years. Since Murdoch is a quintessential crony capitalist, what is this all about?
1) The evidence for capitalism gone off track is too pervasive to ignore any longer.
2) Large numbers of professionals in politics, finance, and business in general now appear to share the same anxieties as the average person over the direction of the global economy and the potential for another crash.
3) People like Lloyd Blankfein and Jamie Dimon are so steeped in the workings of the system that they can't see what the professionals under them are beginning to realize. I still can't get it out of my head that Dimon told Congress not one of his executives predicted the housing collapse - group think at the very highest levels is allowing these firms to carry on trying to patch up the system as if nothing major needs to change.
4) Some of the elite, however, are not subject to group think. Entrepreneurs like Murdoch, caught up as he is in advancing his interests through special deals and lobbying, nonetheless like to hedge their bets. He dumped the Tories when it looked like Tony Blair was going to win big, and he cozied up to Hillary Clinton during the 2008 primaries. He may or may not read Paul Farrell, but he has got to be thinking how to save his business empire if global capitalism collapses. Can he still get deals done if major political parties are thrown out of office, and no one party is trusted to have the answers to the general level of misery afflicting so many people? He has to see from one country to another that voters are beginning to search for a new way and perhaps new political parties, some of which will be deliberately set up to quash crony capitalism.
5) Paul Farrell and David Stockman are excellent fellow travelers. They see the damage that has been done and they probably see that the Republicans and Democrats may not survive in their current form when the next crash arrives. These guys are finding main stream platforms, in part because their message is so compelling that it already gets a wide following on various blogs, YouTube, etc. I'm waiting next for Paul Craig Roberts to be allowed to come in from the wilderness. He was banished from the Republican Party for saying the sorts of things Stockman is now saying, and there have been deliberate attempts to deprive him of a platform. People want to read Roberts not just because he makes sense, but because they want to prepare themselves for major changes coming.
It seems, therefore, only a matter of time before we read other writers in major media outlets publishing material similar to Farrell and Stockman. This is going to make it harder, though not impossible, for crony capitalists to steal taxpayer money in the collapse to come. They will try to do it by stealth through the central banks, all done under the scenes with no publicity whatever. It may prove to be the end of central banking as we know it, which is something Ron Paul has been calling for, and writers like Farrell, Stockman and Roberts are beginning to explore.
The deficits run at compound interest meaning at some point they become unsustainable without a change in the future that allows the loan to be repaid. The next step is to strip assets in the same way that wars were waged only now it will force the selling of prime assets and destruction of public programs to pay for the debt. We see this situation in Greece today. The process is called "privatization". Every money-saving plan of the GOP is tagged with a corporate tax cut of the same amount. It is not a problem for the GOP to target the elderly in this "war" by depriving them of their medicare and social security. All democratic government is targeted. Decisions will be made by those who extended credit. When the bonds come due, we shall see the results of this plan to use debt in place of war. Perhaps Europe will lead the way with the collapse of the EU. The question is why were some so eager to extend credit or run up deficits knowing they were creating an unsustainable situation? Who are the predatory lenders?
How to Pay Off the National Debt
© 2010 James F. Kainz
Within Ten Years:
(1) Pay off $4 trillion of the national debt.
(2) Have consumers choosing electric/hybrid E85 passenger vehicles that get 100 miles per gallon of E85 fuel and 700 or more miles per gallon of gasoline.
(3) Be free of dependence on foreign sources of fuel.
Solutions
1. Begin to pay down the national debt by taxing derivatives. A 0.5% tax on the buyer and seller of each transaction would raise substantial revenue. There are over $600 trillion of derivatives in circulation currently, and the tax could pay off the existing $13 trillion national debt within the lifetime of most people alive today. This would avoid passing the debt on to future generations.
2. Initiate a 5% stake for the federal government in companies accepting Small Business Administration loans for new business start-ups. In addition to paying back the full amount of the loans, the businesses would grant a 5% ownership interest to the Small Business Administration (SBA) as compensation for providing the venture capital. The program is already a success at creating employment and tax revenues for the country. It should be significantly expanded, and retaining a piece of the new company would contribute to the social benefit of the operation.
3. Loss of freedom is a fair sanction for criminal behavior. Warehousing humans is a societal waste of resources. Prisoners should be offered the opportunity of doing community service while doing their time. It would be administered by prison personnel and selectively granted to some prisoners at the discretion of the authorities. Reduction of the cost of incarceration should be one of the objectives.
4. End the oil depletion allowance. It is an accounting lie. No out of pocket expenditure is incurred, and it constitutes a double charge off for tax purposes. Not only are true costs being deducted, a fictional phantom is engendered by legal definition. It was created during World War I to stimulate exploration at a time of national emergency—an emergency that no longer exists. Now it destructively diverts market resources to oil away from alternative energy sources, which are disadvantaged by this subsidy. Renewable energy does not enjoy a level playing field against this institutionalized bonus for petroleum because of the preferential tax treatment.
5. Federal budgets should be in surplus four years out of every five. The only exceptions should be for recession, war, or disaster. Deficit spending should be rare and only used when truly justified. This principle should not be enshrined as a constitutional amendment; but, rather, as a pledge to voters signed by candidates to elective federal public office.
6. American military troops based overseas should be reduced by 75% within five years to reduce expenses. Staffing fixed bases in Germany, Japan, and South Korea with tens of thousands of soldiers is an outmoded method of exercising power. Those expenditures could be better used for communications, mobility, new weapons systems, and readiness. Better to keep those forces within the United States, ensure that the money contributes to our economy, and make the troops available for use in potential conflicts.
7. Cheap transportation is essential to economic prosperity. The target for miles per gallon of gasoline on new cars sold in the United States should be raised from 25 in 2010 to a range approaching 700–1000 by 2020. This is achievable if consumers stop buying gasoline-only powered vehicles and buy electric/hybrid engines that utilize E85 for fuel. Most trips are shorter than forty miles and could be completed on battery power alone. For longer distances, the fuel would be mostly non-corn ethanol with a small percentage derived from oil. A forty-fold increase in miles per gallon of gasoline would reduce our dependence on oil, free us from foreign suppliers, and stimulate the economy simultaneously.
A New Quasi-Governmental Agency:
Federal Assets and Liabilities Board
(1) The purpose of the FALB is to pay off the national debt of the United States.
(2) It will be a private business for the public good.
(3) It will not be financed by or a part of the federal government.
(4) It will receive revenue from a 0.5% transaction fee assessed on all derivatives transactions executed within the United States.
(5) Salaries and expenses will be paid from a 2% cut of revenues Operations Fund. All the remainder 98% will be used to pay off the national debt.
(6) The Chair and Vice-Chair will be elected by voters in all states.
(7) Regional Presidents will be elected from geographical locales coterminous with the Federal Reserve Districts. All voters in those areas will be eligible to vote for their Regional President.
(8) A Venture Capital Committee will consist of the Chair, Vice-Chair, and three of the Regional Presidents in a rotating order. They will have monies available from the 2% Operations Fund. They will make loans to individuals and companies who apply for funding. These loans will require a repayment of 100% of the monies borrowed and the transfer of a 5% stake in the borrowing firm to the Federal Assets and Liabilities Board (FALB). No taxes will be paid by the FALB. Instead, 98% of the fees received from the transaction fee on derivatives will go directly toward paying off the national debt.
(9) The FALB will be directly responsible to the voters. Annual reports will detail transactions for the period and make activities transparent to the public.
(10) After ten years of operation, the charter of the FALB will be reviewed by the voters for renewal or dissolution.
Derivatives
One of the simplistic explanations of the Great Recession (Great Panic) that we just went through chalks up much of our trouble to sub-prime mortgages. Ben Bernanke was right about that. The sub-prime mortgage market was not big enough to sink the American economy. What Bernanke missed is that there were much larger dollar amounts of derivatives based on sub-prime mortgages in existence that could and did help trigger the meltdown.
The amount of derivatives in circulation now is over $600 trillion. To put that in perspective, the entire output of the U.S. economy in 2010 will be $14 trillion. That means the value of derivatives is over forty times the U.S. GDP.
Derivatives are financial instruments that derive their value from other events. Crop futures for farmers are one type. The value of the contract is derived from a future value of corn, for example. If a corn farmer wants to take out an insurance policy against a decline in corn prices, she can buy a "put" derivative based on the future price of corn. If the price of corn goes below her "strike" price, she will collect compensation based on how much below the strike price the market goes. If an airline wants to hedge against an increase in aviation fuel costs, it can buy a "call" derivative to offset the increase above the strike price.
Those are socially beneficial derivatives.
An example of evil derivatives would be slicing and dicing mortgage baskets of specific properties so that the buyer and seller have no insurable interest. They neither own the property nor the mortgage, but they can "bet" on whether a certain amount of the mortgages will default. That is why some critics referred to the Wall Street derivative marketplace after this crash as a "casino" for rich people.
Derivatives are a market where you can place a bet on an event that you have no stake in. I could place a bet on whether your house will burn down. I don't own your house; I don't have a loan against your house; I cannot buy a fire insurance policy on your house because there are laws against that since I have no insurable interest; but I could buy a derivative for a million dollars that your house will burn down. If your house burns down, I collect a million dollars as long as I have paid the ridiculously low premium! This manner of gamboling is unregulated.
That is why derivatives are more dangerous than all the other issues, such as globalization, sub-prime loans, or liar mortgages, that our recent meltdown has been blamed on.
Probably fewer than 5% of Americans have any concept of what derivatives are or that they are anywhere near as sizable, dollars-wise, as they are.
Many real problems contributed to the crisis. They deserve thoughtful discussion and attempts at resolution:
1. A person went from the insurance industry to a derivatives desk at a hedge fund. His annual compensation increased from $100,000 to $30,000,000 in 1 year. The sad part of the story is he did not even know what he was selling. He got a tiny commission, but his sales were in the billions of dollars.
2. Incentives to go into finance are misaligned with social values.
3. The middle class is vanishing. The gap between the lowest paid and the highest paid is widening to the point that it is destructive.
4. Interests of owners are divorced from the interests of their agents who work for them.
5. Values beyond dollars are not built into measurements such as the GDP, bonuses, damage to the environment externalities, and other metrics we use for decision making.
6. Political leaders are chosen by a faulty campaign funding process.
7. Measurements of risk are flawed, and rating agency compensation is based on a conflict of interest where the debt issuers pay for their own product ratings.
8. Damage to the whole economy (systemic risk) by certain big corporations is poorly understood or monitored. Nothing has been done to eliminate the concept of “too big to fail.”
Attention to these issues deserves public discussion and resolution. But having the financial wherewithal to deal with them (by eliminating the national debt) is the cornerstone to ensuring against a repeat of the disaster we have just found ourselves in.
Growth
It’s the Economy, Stupid
The way out of the Great Recession (Great Panic) is through growth.
The Great Depression was stalled by Keynesian economics, but the efforts were too slow, too timid, and too halting. It took the unbridled deficit spending of World War II to turn record high unemployment and underutilization of production capacity into the greatest engine of productivity the world has ever seen. The U.S. economy was a time bomb waiting to explode. We had a trained work force and facilities waiting to be put to use. The war gave our leaders the excuse we needed to deficit spend with gusto. Matching capacity to need was Herculean but doable. The danger of the military threat gave us just cause to engage in stimulus that would have never otherwise been adopted by political leaders for fear of a public outcry.
We again face large unemployment, inactive funds, and an underutilized capacity to produce. We have huge, unmet economic needs. It is a new time bomb ready to unleash a new round of economic prosperity—it’s about to explode; we just need the national unity to light the fire. What we lack is will—the will to turn our potential into reality.
The United States has been satisfied with long-term growth of 3–5%. That has been considered high. It should be twice that. And we can target that growth rate with an objective to keep inflation below 2%, or thereabouts. China has sustained that level of growth for decades. We should do no less. Many problems go away when we have sufficient resources to solve our long list of needs.
Central to making this happen is eliminating our national debt. As long as our financial resources are constricted, property values will be depressed, the stock market will languish, jobs will be scarce, the environment will suffer, and a whole host of issues will not be dealt with. If we have the money to spend on national prerogatives, we can put unemployed people to work. We can profitably invest billions of dollars of capital, which is sitting on the sidelines. And we can start making socially desirable progress in areas where we decide to set our priorities.
Money (not greed) is good. Money is the facilitator; money makes things happen; money makes half of the problems go away.
Supply-side economics got it half right: free markets are essential to prosperity. What Supply-side economics left out was regulation. Supply-side economics (and the Austrian School of economics) was too often married to deregulation—private enterprise was king, government was bad. The Arch of Success requires two columns of support: free markets and effective regulation.
Putting a driver in the backseat (free markets absent effective regulation) is what drove us into the ditch. The stimulus plans of our new administration have barely gotten us out of the ditch, and there are no considerations as to how to make our vehicle soar. What will make us soar is a thoughtful plan with numbers, time frames, and dollar amounts to put America back to work. That is the plan we seek to lay out in this Financial Telesis project. Idle workers and plants are a social waste.
Let us stop discussing lowering benefits for people on Social Security, restricting executive salaries, delaying retirement, and postponing environmental rescue.
Let us start talking about how to get rid of foreign oil dependence; remake our transportation system; finance new small businesses; and afford to keep our entitlements to dignified retirement, medical care, and education.
"Dow 30k by 2020" could become a platform for both political parties. Creating jobs, eliminating the national debt, eradicating our dependence on oil at the same time as reducing our dependence on foreign sources of energy supplies are priorities we can unite on together as a nation. The right will criticize this agenda as too liberal because it seeks to emphasize the role of government and break the back of Big Oil. The left will criticize it as too conservative because it emphasizes profits and free markets. I hope the political center will embrace it as a modicum of common sense, jobs and prosperity for all.
Our resources are great. Our needs are great. Is it really rocket science for Americans to figure out how to match the two? We have the talent. What we lack is political civility, which would allow us to cooperate on matters that benefit all, and the impetus to stop wrangling about what we disagree on. We need less controversy and more trusting cooperation on what will help everybody.
No wonder everybody is angry. The stock market went down over $5 trillion, depending on when you measure the losses. The value of real estate is down over $7 trillion. We have the highest unemployment since the Great Depression. We came very close to having even worse unemployment (we could have been looking at unemployment of 25% or higher instead of 10%). The median family standard of living has gone down. We consume more than we produce. Foreclosures and bankruptcies are sky-high.
When can we come together and decide we want to rewrite the prescription for progress intelligently planed?
The key is how we can pay off the national debt. Then we can begin the renewal process.
Demand-Side Economics
Keynes Got It Right
Aren't you tired of tightening your belt? I am.
If we want to light up the economy, we must change the national purpose. We need to identify what it is we want and where we are going to go.
Free market idolaters have convinced us that the national government has no role in setting the agenda. The government is not allowed to “pick winners and losers” in business.
The National Railway System was a conscious decision of the government under Lincoln. Similarly, the Interstate Highway System was a decision made by President Eisenhower. These transportation systems were built by private corporations. Fortunes were made by private individuals, but the vision came from the top of government. There is nothing unholy about politicians setting the national agenda.
Will individuals and corporations get rich? I hope so.
Free markets are necessary for prosperity. That is a truism. Even former Communist countries such as Russia and China have some form of free market economy now. It is stupid to think otherwise.
But constantly banging that free market drum and ignoring the role of the government in setting business priorities is equally stupid. We have let the notion of "tax cuts, tax cuts, and tax cuts," along with deregulation, lead us to the edge of the cliff. We have been to that place where two women with smiles on their faces are driving us over the edge of the Grand Canyon, high-fiving each other. It is the road to perdition.
“I want to earn a profit because of low taxes” is not a job creator. “I want to sell something because I will earn a profit” is a job creator. Demand for your product or service not low taxes is the reason to create jobs.
It is no accident that both of the examples of government driven priorities for growth I cited earlier (National Railroads and the Interstate Highway System) relate to transportation (we could also look at the national parks, the space program, or the abolition of slavery as top down choices, but those are not as instructive in terms of demonstrating economic engines that are game changers over time).
Our new agenda should be business choices that free us from oil dependence. Waiting for the free market to decide this is not good enough. And waiting fifty years is not acceptable. We need to do it in less than ten years. Is that crazy? I think not. But we must, as a society, get behind making it happen, or it won't.
General Motors is coming out with the Volt this year. That is a game changer. And, by the way, America owns a major interest in General Motors right now. Isn't that nice? There are, of course, other electric cars and hybrid cars on the market already, but the Volt seems to be of a different caliber.
Guess who buys the largest number of cars in the United States each year: The federal government. What if we set a national policy that at least 50% of new government vehicles are electric or hybrids? Would that create instant demand for alternative-fuel autos? Certainly. Do we need to do economic studies and endure bureaucratic red tape to make that decision? No; it is a choice at hand.
New car purchasers can influence the economy immediately by selecting electric/hybrid cars. A 30- to 40-fold improvement in petroleum per mile efficiency (over current levels) is on the market now, and many more models are scheduled for imminent introduction. By selecting electric or hybrid-powered passenger vehicles, an economic stimulus revolution is available that requires no deficit spending by the government!
Running on electric power only is practical for trips shorter than 40 miles and uses no oil. And if longer distances are required, using a fuel composed of 85% non-corn ethanol will magnify fuel efficiency by 7 times, as compared to gasoline. Corn-sourced ethanol is of negligible benefit because the energy returned on energy invested (EROEI) provides near zero improvement over gasoline. The energy used to produce it is roughly as much as the energy that it yields. Ethanol from other sources is more advantageous.
Some have advocated big trucks switching to natural gas from diesel for fuel. Is that something we can do now? Yes. We need to look at environmental degradation, however, before engaging in exploitation of additional natural gas sources willy-nilly. That is a genuine concern. But we already have plenty of capacity. We need the will to make the decision, and we can do that right away. Oh, and guess which country has a seemingly limitless supply of natural gas: the United States. These are domestic supplies, which will help us get off oil and reduce our dependence on foreign suppliers at the same time. What a concept.
The economic impact from these changes is immediate, long term, and pervasive. Fortunes will be made. New jobs will sprout. The return of a prosperous middle class can be achieved. Opportunities presented by kicking our addiction to foreign oil dependence are abundant. Oil companies may resist change. Energy companies will see a pot of gold within reach. It is up to our petroleum corporations to define themselves. Are they oil companies or energy companies? Let the free market decide.
"Dow 30K by 2020" could become a platform for both political parties. Rapid economic expansion is what we need. Creating jobs, eliminating the national debt, eradicating our dependence on oil at the same time as reducing our dependence on foreign sources of energy supplies are priorities we can unite on together as a nation. The right may criticize this agenda as too liberal because it seeks to emphasize the role of government and break the back of Big Oil. The left may criticize it as too conservative because it emphasizes profits and free markets. I hope the political center will embrace it as a modicum of common sense, jobs and prosperity for all.
Our resources are great. Our needs are great. Is it really rocket science for Americans to figure out how to match the two? We have the talent. What we lack is political civility, which would allow us to cooperate on matters that benefit all, and the impetus to stop wrangling about what we disagree on. We need less controversy and more trusting cooperation on what will help everybody.
Small Business: The Engine
The Small Business Administration is the only part of the federal government that makes money. It doesn't make money itself, but the guaranteed loans generate more income to the country in tax revenue than the dollar losses on the few business loans it makes that default. So the net operation is a winner.
It is very well known that the small business sector of the economy is the most productive job creator. The fact that the SBA is also profitable is less well known. The question remains: why, if it is the secret to solving a lot of our problems, don't we do more underwriting of start-ups?
The biggest source of finance for new businesses is private individuals. Add to that the banking industry, the SBA, Venture Capital companies, and charitable groups and there is a huge driver of business activity.
As the cheerleader for capitalism, however, we still make it awfully hard to get money to grow the economy. It is quite hard to get a loan from the SBA if you are not expanding an existing business. Venture capital firms are notoriously difficult to do business with unless you want to surrender the majority ownership (sometimes they are called the Vulture Capitalists). Plus, the transaction costs involved in obtaining start-up funds are excessive.
If we, as a society, wish to grow at a faster pace, we can make it easier to create start-up enterprises that have the business fundamentals and prospects for success. We know enough about what it takes to move this creative solution to rapid expansion. Prosperity is something Americans understand very well. Facilitating the pieces of the puzzle coming together is an area which we need to strengthen.
The current SBA program is very efficient. Why does the country take the risk in guaranteeing the loans, though, and then just walk away when the loans are paid back? Why do we not keep a residual, small piece of the ownership? There is a built-in prejudice against the government owning a part of a private business. We do it when the IRS takes over operations of a company that has not paid its taxes, but it is always limited to an exit strategy. As soon as we can sell it we do. We do it in a bankruptcy case in which a trustee operates the enterprise for a while—but, again, it is just as an exit strategy.
It would seem to make sense that when we make start-up loans to foster businesses we should be able to retain a small portion of ownership in consideration for taking on the original risk. Keep the transaction costs very small (unlike the Vultures), but claim an equity position for the agency that made the loan possible. The SBA or the FALB.
Real Estate
Most analysts attribute the onset of the Great Recession to the housing market. When Treasury Secretary Paulson and Fed Chair Bernanke went to congress to get $700 billion for the Troubled Asset Relief Program, the rationale was to buy up toxic mortgage assets. That didn't happen. And there was precious little explanation why. They underestimated how serious the crisis was by a large margin of error.
They only obtained authorization for $700 billion. The problem necessitated over $7 trillion (some estimate it was even higher than that). You can't correct an amputation wound with a Band-Aid. Therefore, they had to figure out what they could do to fix the problem with what money they had. Saving the "too big to fail" banks and two auto companies was what they settled on.
The "underwater mortgages" problem never went away. The federal government still does not have enough money to buy up the mortgages that are upside down or even make up the difference between market value and mortgage value. The banks are unwilling to engage in mitigations, which include lowering principal, because accounting rules would require them to take immediate losses on their books. Banks are willing to extend the terms of the loans and lower interest rates, but not deal directly with the fundamental problem of lower market value compared to mortgage value. The loss mandated if they write down the principal gives them good reason to avoid the necessary solution to underwater mortgages. The final resolution of the housing crisis, unfortunately, remains beyond the horizon. We have no plan on the table as to how to make it go away.
One solution would be to end the Great Recession by making the national debt anchor disappear and begin an era of rapid economic expansion. Property values would rebound somewhat if we could accomplish that. Rising property values would make the underwater mortgages problem diminish dramatically. It would still take too long by most peoples' judgment, but there is little else on the table for discussion.
Rapid inflation could be used, but I don't think many would subscribe to that—the dangers of runaway inflation are too well understood.
Letting housing prices crash is another alternative that would solve the problem in the long run. But few would want that solution either. In the long run we are all dead.
Selling off properties to the government is still possible, but undesirable. It’s the same story with setting up a "bad bank" to take on all the underwater loans.
In short, we have a lot of inadequate solutions to the housing problem other than making the economy sizzle through concerted action by the government. That is a viable panacea for real estate reinflation.
Some have suggested that the problem of declining property values posing a threat to the entire economy can be mitigated with put derivative provisions that would become part of standard mortgages. This would insure home buyers from suffering losses if the home prices decline below the strike price. For a modest premium, buyers and mortgage companies alike would be protected. It is a win-win-win proposition. The buyer, Mortgage Company, and public all come out ahead. Only the insurer on the put derivative policy loses. But because they will construct a profitable business model that includes adequate loss provisions it is presumed they will profit overall even though they have to pay off some losses.
Missed Opportunities
There is a vast wasteland of missed opportunity—work at home jobs.
Sources of workers:
1. Stay-at-home moms
2. Disabled people
3. Retired people
4. People below the age of fifteen
5. Prisoners
6. People with time to kill
Some suggested new and improved industries just to scratch the surface of the possibilities include:
1. Tutoring
2. Remote security camera monitoring
3. Test administration and scoring
4. Writing projects
5. Research
6. Companionship service for the elderly
7. Conflict mediation
8. Anything which can be done from a distance.
In the age of the Internet, it remains for some clever entrepreneurs to harness these assets to everyone’s advantage. There is gold in them-there hills.
Gold versus the Power Grid
The value of gold is meaningless; it has no intrinsic value. The power grid, on the other hand, represents a real and tangible threat to the American standard of living. Yet the price of gold appears in the news media frequently. The power grid is seldom mentioned.
The power grid is not well understood by the public. Many do not know what the grid is to begin with, and even more do not understand what a significant danger it is to our way of life. The electric power grid is the system of wires that distributes electricity across the country.
If you watch the stock market channel, they quote the price of gold constantly. Gold has been valued for thousands of years, all over the world and across cultures. Currently an ounce is priced over $1,000. Compare that to the annual income of people in some poor countries of $100–300 per year (e.g., Zimbabwe and the Congo). An ounce of "worthless" metal could support a person for up to ten years in those countries? Two pounds of "worthless" metal could support a person nicely for a year in the United States? That is nonsense.
The destruction of our way of life due to catastrophic failure of the power grid is a little-known fact. And there is a significant possibility of such an event happening. In August, 2003 Cleveland, Ohio experienced a heat wave that caused the power lines to sag into the trees below. The drooping wires caused an electrical short that brought down the eastern section of the grid which serves 50 million people in Canada and the United States and cost about $6 billion.
The disparity between attention paid to something of little consequence (gold) and something of major consequence (the power grid) is incredible. How do we know that the grid is more important than gold? Think about the impact on your daily life if you had to go without gold for three years. Private ownership of gold was actually outlawed in the United States for several decades without much change in everyday life. Now think about the impact on your daily life if you had to go without electricity for three years. Our lifestyle would be hardly recognizable.
The High Cost of Foreign Military Bases
The United States maintains tens of thousands of soldiers in Germany, Japan, and Korea even though conflicts with those countries ended decades ago. The cost to keep those troops abroad each year certainly exceeds $100 billion. That expense has a negative impact on our Current Accounts and the Balance of Trade Deficit. It lowers our standard of living in the United States.
During the Cold War, these deployments may have had a beneficial effect on our national security. A reexamination of the cost–benefit analysis of vast foreign bases has never been published by the military leadership of our country since the Cold War ended. It is hard to believe it makes sense now.
Just returning the troops to home bases would mean that the money they spend would add to our economy rather than add to the Balance of Payments Deficit. It would be a huge boost to domestic demand, which would mean sizeable increases in available jobs and American prosperity.
The foreign bases in Germany and Japan were of little use during the Korean, Vietnam, or Middle East wars. Likewise, they weren’t terribly useful for other military actions since the end of World War II. If we used forces from these bases for those military conflicts, they were replaced by others. The large force deployments there did not add to our ability to defend ourselves.
Our allies like the military bases in their countries for the most part. It means they do not have to provide for their own defense with their own forces. But it is a subsidy to our friends we can no longer afford if we are to fix our problems at home.
Remedy for the Great Recession
(1) Begin to pay off the national debt by taxing the buyers and sellers of derivatives. Paying off the debt should be earmarked for 98% of the proceeds, and the overhead should be limited to 2%.
(2) Bring the troops home from Germany, Japan, and Korea and station them in the United States.
(3) Make it federal government policy to buy 50% electric or hybrid cars for 3 years.
(4) End the oil depletion allowance for tax purposes.
(5) Allow the federal government to retain a 5% interest in companies to which it grants venture capital loans or loan guarantees—whether it is to the Small Business Administration (SBA) or the Federal Assets and Liabilities Board (FALB).
(6) Utilize prisoners as volunteers in community service activities that reduce the price of incarceration.
(7) Have candidates for federal office pledge to pass balanced budgets four years out of every five unless there is a recession, war, or disaster. They must be accountable to the voters.
(8) Establish the FALB to collect the transaction fee on derivatives and pay off the national debt, as well as provide start-up loans for new businesses.
(9) Create incentives for owners of big rig trucks to switch to natural gas from diesel fuel—especially when ordering new equipment.
(10) Take steps to make the national electric grid less susceptible to catastrophic failure. This should include aspects of smart grid technology for conservation purposes and to reduce our defense vulnerability.
(11) Reductions in the interest payments on the national debt should be directed to tax rate reductions which produce the highest bang for the buck in growing aggregate demand for the economy.
(12) Revise the method of financing elections to reduce influence peddling and corruption.
(13) Audit the efficiency of the current use of national assets—public lands, buildings, employees, organizations, vehicles, practices, and capabilities—to build the economy and create jobs.
(14) Reconsider entitlement programs.
(15) Revisit mortgage policy in light of upside down property values. This includes all agencies such as Fanny Mae, Freddie Mac, HUD, Veterans Benefits, and the FDIC.
(16) Audit the long-term effectiveness of regulatory agencies.
(17) Change standard mortgage agreements to provide an insurance provision derivative against declining home values.
(18) Foster methods which enable work at home enterprises for jobs and income possibilities to groups which are not part of the workforce such as retirees, minors, the disabled, and people with time to kill.
(19) New car buyers should select electric/hybrid models to diminish both our dependence on oil and our dependence on foreign energy.
We are at a turning point as a society which resembles where we were at the end of The Depression and before the start of World War II. We have excess capacity galore. Unemployment, Capital "sitting on the sidelines", and businesses operating below potential are everywhere. We seem to be waiting for a Pearl Harbor incident before we summon the courage to let loose the wealth generation machine within reach.
Let us not wait for a catastrophe like a foreign invasion to strike the match igniting rapid economic growth and increased wealth for everybody.
James F Kainz, MBA
President
Hermosa Strategic Planning Group, Inc.
819 Eighteenth St.
Hermosa Beach, California 90254-3109
520-494-9915 jamesfkainz@yahoo.com
Well, you have it right. The economists (most of them) did not see the Recession coming, and could not predict ways to counter it, and also did not see it leaving. What else are economists supposed to do? Shake hands and have a cup of coffee with it?!
A VICTORY FOR ALL JOBLESS AMERICANS
The American people finally have their interests recognized, by the Supreme Court of the land, asserting that Arizona's federal mandatory E-Verify was upheld. Today it’s a major victory for the American workers and a killing stroke to the US Chamber of Commerce and an attempt by the Department of Justice to protect illegal aliens in the workplace. This will strengthen enforcement by attrition in every business and control penalties with businesses that don't comply. It gives all states the right to implement and mandate the E-Verify program and open the door to hefty fines, loss of business licenses, assets and the risk of prison.
Other states will now follow the example of Arizona and those who don't, will be in the forefront of mass evacuations from these hard policing states to states as the Sanctuary State of California, Nevada and Utah. In a 5-3 victory the justices, repudiated the pro-illegal politicians, Governors, Mayors and lower ranks of leftist and Rino Republicans.
Nothing will do more, including the fence, to retard future illegal immigration occupation and accelerate the departure of the current 20 million illegal populations than taking away the job magnet. This is a significant win as other States following Arizona's lead, could have been crushed if the verdict had gone the alternative route. The American workers now have the impetus, to push the Congress and with the help of the monolithic Tea Party to mandate E-Verify nationwide. This will mean the propagation of E-Verify, with audits on all manner of business, including contractors and sub-contractors in every occupation. American labor must unite to uncover unscrupulous companies from large to small, who are using discount services. More and more patriotic Citizens and residents are joining other "Whistle Blowers" in contacting ICE and local police, of illegal aliens working in construction, manufacturing and thousands of other industries.
Another issue that many states see as a major peril to our sovereignty rights is illegal aliens using the absentee ballot system to vote in elections. New York, Colorado, New Jersey, Texas are being investigated by state Attorney General commissions. Acorn is still a major player and although dissolved on paper, is still involved in the registration racket. There are occurrences in California and Nevada of manipulation of voter rolls.
Can any American citizen or green card holder imagine what this country was like thirty years ago, before the illegal immigrant invasion? How many hundreds of billions of dollars, perhaps even a Trillion in three decades? Fewer illegal aliens meant fewer taxes to support the huge support mechanism that we have today? An example would be California, was a less congested place, where there was room to breathe? Just think were those taxes to subsidize illegal immigrants today could be highly beneficial, if it was spent on our own population. Education, for instance is forced on us, by a federal court that we must pay the schooling for every child of illegal immigrants. Then we have health care that the courts say, that anybody who breaks the law to come here is entitled to treatment. Remember in1912 the Titanic sunk, but not because of the iceberg above the Atlantic Ocean, but what was ominously concealed beneath the surface?
This is the same story with illegal immigration and the failure to place, 5000 "boots on ground. “of the each border States Nation Guardsman permanently? I was astounded to read a "Wikileaks" secret document, that the border is intentionally left open for the clandestine arrangement to merge Canada, Mexico and the United States. You have a chance to read these reports at Wikileaks website, under the headline, "Viewing cable 05OTTAWA268, PLACING A NEW NORTH AMERICAN INITIATIVE." This is a serious situation concocted by the Canadian Paul CELLUCCI and American Ambassador, which seems to never have been observed by Congress.
From both parties are hundreds of thousands, tens of millions finding that the TEA PARTY, doesn't discriminate against race or religion. That these people are delusion by the Liberals, democrats and Republicans, that are not doing enough to stop the in-sourcing of illegal immigrants or outsourcing of jobs to foreign countries. Cafta and Nafta was a massive mistake as the whole “FREE TRADE AGEEMENTS” have been detrimental to our society. We are importing everything from a nail file to steel, at far below the cost of doing business here? Once a lender of billions of dollars, we must now go cap in hand to Communist China, that owns our debts. We are the greatest market in the world, but our commerce is undercut by artificially engineering their currencies. The only winners in this commercial game are the importers of inferior products, who are profiting.
As Billionaire Donald Trump we should place a 25 % import tax on everything coming to our country, and begin to rebuild our manufacturing industries again. An intentional failure of every administration to secure our borders or enact laws that would obstruct foreign national at the border, or a tracking system to deport visa overstays. E-Verify will eradicate this problem of the issuance of a Secure Communities law, to enforce that every police department fingerprint and send those scans to ICE. If you want less government, a fair Tax system, individual responsibility and the return of federal excessive power to the states, join the Tea Party in your local area. Tell your Federal, State or local lawmaker, unless they join the TEA PARTY, they will be out of office in 2012.
Contact them at Senate—202-224–3121/ House—202-225–3121.
Pretend, just for a second, that Republicans and only Republicans held all seats in the House and Senate and also the presidency the last 30 years.
Wouldn't it be fair to say that under this scenario they would have delivered on all 3 planks? In other words defense increase yes, tax cuts yes, but ALSO cuts in domestic and entitlement spending.
So if this is true, isn't it then the presence of Democrats that prevented the domestic spending cuts? Are you telling me that Republicans would have kept the Dept of Education if no Democrats existed? Likewise wouldn't they have cut whole swaths of social spending and government if they could have?
Aren't we seeing now with the Mediscare tactics exactly why they couldn't? Wouldn't they have been savaged at the polls for doing so? Wouldn't the media have joined Democrats in tearing them apart?
So then, if we buy that Democrats did indeed have the power to prevent Republicans from making these cuts, then it seems reasonable that they could have used this same power to prevent the military spending and the tax cuts. But they didn't. Didn't the Democrats ALSO want to look strong on defense back in their district? Didn't they ALSO enjoy the moniker of being tax cutters? Bet your sweet they did.
It always takes two to tango. But now, according to Stockman we're supposed to believe that it only took one to tango. Given that between the House and Senate literally hundreds of seats have been in Democratic hands the last 30 years, and Clinton + Obama = 10 years of the presidency, this doesn't add up.
Not buying it.
Just in case, one needs about 2.5% GDP growth to create jobs, so this is god awful.
Sorry, now there is a lot of spin, B.S. and denial through numbers that goes on, but if one really digs, there are more than a few real economists who do understand the economy and get it right.
The problem is they are buried, come to light with a few papers and then are buried again by those who spew the corporate lobbyist agenda or plain don't have a clue.
Also, if you don't understand the money system, as it exists, well, this site is in part to educate people. You cannot blast something you do not understand. First, crack a few textbooks and read up on Wikipedia and so on.
Then, start seeing the power, flaws and lies but first one needs to be able to identify the truth.
At least he is one of the few in the MSM showing that it was Reagan who really started the downward economic spiral.
Nice call out on the fallacy that America was born as the land of the free, home of the brave, uh, only if you were a white male landowner was that true.
Another byproduct of high unemployment is a worker glut. The supply goes way up while the demand goes down, so prices (that is, wages) go way down. You Can Be Replaced, no doubt by someone who will take a lower salary.
Economist do not live in the real world... they live in theoryland and thus only interest themselves in questions and answers that make sense in theoryland. They only occasionally make sense accidental... and not very often.
However, unless you or your brother-in-law, or anyone else who proffers opinions on economic matters understand how money is created you're likely to miss the mark.
It's so simple that nearly everyone misses it... and when it's pointed out exclaim it simply can't be that simple... But it is. ALL modern money is debt. All debt entails an interest charge. Answer this question - Where's the interest come from?
Who creates money?
How does the gov get money?
Where does power reside, with the debtors or the creditors?
Answer those questions correctly and you'll know more that 99% of all economist. Follow the answers with the consequences and know why we all are so truly fooked.
eom.
That name is longer that most sentences written by Max Weber, and that's saying something. Cover's the waterfront;)
Good overview why a product and innovation economy is the foundation of wealth.
President Regan sponsored a project called 'Socrates' that looked at the future of the US economy and what should be done to maintain competitiveness - the project and its recommendations are interesting and a good blueprint if you wanted to try and breath life into the US economy. This project concluded that a cost, service and debt driven economy would fail (and it has) and that what was required would be an 'innovation' economy based on invention and excellence in product design and development - exactly the things competitors to the US are doing.
http://ezinearticles.com/?Ronald-Reagan-Had-It-Right---Bring-Back-Projec...
But guess what, when Bush senior got in he scraped the project and capitulation to Wall Street was the outcome. The rest they say is history.
The real problem is that the US elites - US transnationals, political establishment, defense contractors, etc, can make money both ways - either through investment, production innovation, etc, or by cost reduction through off shoring capacity, off shoring jobs/services or in-sourcing cheap Indians to do US jobs. However, the second option is the easiest as it driven buy the calculus of the lowest cost input no matter where that is.
Well, how about if we just start by changing it's name. Since 99.9% of Americans have been duped into thinking that farce is actually a government agency, I propose this as a new name:
The Cabal Of Private Bankers Partly Owned By The Rothschild Banking Family And JP Morgan Which Was Given Control Of The Public Currency By Congress On Christmas Eve 1913 In The Middle Of The Night As Congress Voted With One Hand And Opened Their Little Envelopes Of Goodies From JP Morgan With The Other Reserve
Kind of has a ring to it.
Just finished 'The (mis)behavior of Markets (Mandelbrot/Hudson).
Seems there is good reason to question if those (supposedly) in charge of financial matters actually understand risk.
As important, do voters (anywhere you can vote) question the ideas and policies of those ( supposedly) in charge?
Should not the approach of modern science be at least made public, even if controversial? Maybe help with all the surprises in the financial news. Just a thought.
In the past, the word was, "How can unions get the benefits we don't get as managers?" The answer was benefits to managers that equaled union benefits. The perverse reversal of that is really appalling. The outcome, while maybe not the intention, is people get sick more and die earlier. Nice system.
Excellent essay Mark. This has to be said and read.
Or if they do vote, the people they think might help them do nothing to change the system. The rich still get the bulk of the nation's income at extremely low tax rates. Still, none of this is possible without the ability of the United States to borrow massive amounts of money indiscriminately, at extremely low rates that the US itself sets, without any consequences to the politicians who approve trillion dollar annual deficits. The system would collapse if the Republican model of borrow and spend began to have any short term consequences.
A second linchpin to this system is the ability of Republicans and the media to frame this as class warfare. Notice how unions are demonized as selfish and lazy workers who feed off the taxpayer's dime. Non-union middle and lower class workers are taught to be jealous and envious of generous pension and other benefits granted to unions. Usually the argument is coached as "How can these union people get such generous health and pension benefits while the rest of us have to cope with nothing?" The media never frame the argument the other way: "We once had the same generous health and pension benefits as the unions. How did that get stripped away from us as non-union workers, and who is trying now to strip it away from union workers?"
The Problem is THE People
We have a government that is elected by the people. No one forces them to vote for e.g Barnie Frank. The autoworkers were thanking and praising Obama yesterday. They will donate to him and vote for him. When the people want change, they have the means to get it. This is not Egypt etc. The Constitution is a brillient document.
The question is: Why don't the people use it? To my mind, the answer is "Bread and Circus". They have necssities (food) and television (circus). Obesity is a problem and there is 24/7 sports, movies, etc. on TV.
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