The Weiner Component Vol.2 #10 – The Fed: Saving the Country & the Future

English: Janet Yellen being sworn in by Fed Ch...

English: Janet Yellen being sworn in by Fed Chair Ben Bernanke (Photo credit: Wikipedia)

Ben Bernanke, the Federal Reserve Chairman from 2006 to 2014, had developed the Bernanke thesis based upon his conclusions about the reasons for the Great Depression of 1929.

 

Official portrait of Federal Reserve Chairman ...

He found that the financial disruptions of 1930 to 1933 reduced the efficiency of the credit allocation process. The Fed had raised interest rates and made borrowing money more expensive. This resulted in higher costs and reduced availability of credit, which acted to depress aggregate demand. When banks face a mild downturn they are likely to significantly cut back on lending and other risky ventures. This further hurts the economy and creates a vicious cycle turning a mild recession into a major depression. When the Federal Reserve did that it far worsened conditions during the 1929 Depression.

 

Or to state the above simply: fear of a depression can turn a mild recession into a giant depression. Seemingly this is what occurred again in 2008. It would seem that Ben Bernanke was in the right place at the right time. He was able to utilize his principles and bring about a softening of the 2008 Crash from a major depression into a Great Recession.

 

What he did was drop the interest rate that the Fed charges banks to 0 and in his last two years as Fed Chairman he added 80.5 billion dollars a month to the National Cash Flow.

********************************

There were two major problems that emerged from the 2008 Housing Disaster. One dealt with the billions of pieces of mortgage paper that the banks had created from the mortgages. Left to itself it would take decades for this problem to be resolved. No one really owned the mortgages that had been broken up into hundreds of pieces and applied to multitudinous Hedge Funds. There were not even real records of their existence. The assorted houses would eventually go to foreclosure for none payment of property taxes. And no one knew when that could occur for the majority of them. They then would or could be sold for the price of the back taxes. The deserted homes would go first, after three of so years. The others, several years after people stopped paying property taxes on them. It was an impossible mess.

 

The second problem was that there was not enough money in circulation and the banks did not consider home loans safe investments. Money had to be loosened up.

 

What Bernanke did during his last two years in office was to add 85 billion dollars a month to the economy, an additional 40 billion was deposited in the banks, causing them to loosen up with financing new homes and refinancing old ones and 45 billion was spent buying up the multitudinous mortgage pieces.

 

The program was ended in 2014 by reducing the amount spent each month until 0 was reached in both categories. In February 2014, when Janet Yellen became the new Chairperson in charge of the Federal Reserve, she spent the first two months of her four year tenure ending the program. She also gave herself the option of renewing the program if she and the Fed Board felt it was necessary.

 

The mortgage pieces were at some point or points destroyed by the Fed. The Federal Government did not want to go into the real estate business, it wanted to get rid of this quagmire that was hanging over real estate in the U.S. After a little over two years this problem largely disappeared. Two years after that when Donald J. Trump became President no one seemed to remember it.

 

In essence while the Federal Reserve spent about six trillion, three hundred billion dollars straightening out the mortgage debacle a good percentage of that money came back in taxes. It was spent within the country on goods and services indirectly creating jobs and increasing the GDP. The Government did not waste the money; they expanded a shrinking economy.

 

The same can be said for the 40 billion a month being deposited in banks across the country. The approximately five trillion six hundred million dollars spent here tended to loosen up the banking attitude toward housing and got that industry growing again. It also added positively to the economy. In addition it also did not stir up any real inflation in the economy. Neither policy did.

 

This was the application of the Bernanke economic principle. It prevented the economy of the United States from collapsing and similar actions did the same thing for foreign economies. This action also made use of money as a tool to keep countries functioning and avoiding major depressions. Money was no longer an object of value for governments. Each government could produce it at will. It now became a means that could be used to control economic conditions. This action became Bernanke’s contribution to the principles of economics.

*******************************

Janet Louise Yellen assumed office as the Chair of the Federal Reserve on February 3, 2014. She had been the Vice Chair from October 4, 2010 to February 3, 2014. Prior to that she was President of the Federal Reserve Bank of San Francisco from January 11, 2004 to October 4, 2010.

 

Dr. Yellen is married to George Akenlof, a Noble prize-winning economist who is a professor at Georgetown University. Their son, Robert Akenlof teaches economics at the University of Warwick.

 

During her nomination hearings on November 14, 2013 Janet Yellen defended the more than three trillion dollars in stimulus funds that the Fed had been injecting into the U.S. economy. She also testified that U.S. Monetary Policy would revert toward more traditional monetary policy once the economy returned to normal.

 

Yellen is the first woman to hold the position of Chairperson of the Federal Reserve. On December 16, 2015, with Yellen as Chairperson, the Federal Reserve raised its key interest rate from 0% to ¼ of one percent. Since that time the interest rate has been raised twice, each time by ¼ of one percent. It now stands at ¾ of one percent. It has been announced by the Fed that there will be additional increases over the year 2017.

 

My overall impression of the Chairlady is that she is very caucus in all her actions. She initially misinterpreted the overall effects of the 2008 Housing Debacle feeling that it would not be that serious. She doesn’t want to make another mistake.

 

While the cost of a non-existent or very low interest rate has kept the cost of borrowing money down and has led to a resurgence in home buying it has also kept down the cost of interest the banks pay their depositors from whom they get the funds to lend out. Banks have and are paying as little as 1/10 of one percent interest to many of their depositors. In essence interest that the banks pay to their depositors is so low that the financial institutions are just about getting their money for free.

********************************

After the Presidential Election in 2016 of Donald J. Trump to the presidency Dr. Yellen vowed to protect Dodd-Frank, the law that limited the actions of the banks that was passed after the Housing Debacle of 2008.

 

Trump had denounced Dodd-Frank, stating that he will do away with it. Trump has also stated that he will not reappoint Janet Yellen in 2018, when her current term ends.

 

Janet Yellen is a Keynesian economist and advocated the use of Monetary Policy in stabilizing the economic activity of the business cycle. She has also stated that occasionally letting inflation rise could be a “wise” and humane policy if it increases output. She has stated that each percentage point drop in inflation results in a 4.4% loss of the Gross Domestic Product (GDP).

*************************************

Dr. Janet Yellen’s term ends in 2018. It is then up to the President to reappoint her or to appoint someone else as Chair of the Federal Reserve. President Donald Trump, if he is still President and if he follows his pattern of appointments, will probably appoint a non-economist to that position. It might even be a banker. What will the result be both to the country and to the Federal Reserve?

The Weiner Component Vol.2 #10 – Part 9: The Fed: Saving the Country & the Future

 

Ben Bernanke, the Federal Reserve Chairman from 2006 to 2014, had developed the Bernanke thesis based upon his conclusions about the reasons for the Great Depression of 1929.

 

He found that the financial disruptions of 1930 to 1933 reduced the efficiency of the credit allocation process. The Fed had raised interest rates and made borrowing money more expensive. This resulted in higher costs and reduced availability of credit, which acted to depress aggregate demand. When banks face a mild downturn they are likely to significantly cut back on lending and other risky ventures. This further hurts the economy and creates a vicious cycle turning a mild recession into a major depression. When the Federal Reserve did that it far worsened conditions during the 1929 Depression.

 

Or to state the above simply: fear of a depression can turn a mild recession into a giant depression. Seemingly this is what occurred again in 2008. It would seem that Ben Bernanke was in the right place at the right time. He was able to utilize his principles and bring about a softening of the 2008 Crash from a major depression into a Great Recession.

 

What he did was drop the interest rate that the Fed charges banks to 0 and in his last two years as Fed Chairman he added 80.5 billion dollars a month to the National Cash Flow.

********************************

There were two major problems that emerged from the 2008 Housing Disaster. One dealt with the billions of pieces of mortgage paper that the banks had created from the mortgages. Left to itself it would take decades for this problem to be resolved. No one really owned the mortgages that had been broken up into hundreds of pieces and applied to multitudinous Hedge Funds. There were not even real records of their existence. The assorted houses would eventually go to foreclosure for none payment of property taxes. And no one knew when that could occur for the majority of them. They then would or could be sold for the price of the back taxes. The deserted homes would go first, after three of so years. The others, several years after people stopped paying property taxes on them. It was an impossible mess.

 

The second problem was that there was not enough money in circulation and the banks did not consider home loans safe investments. Money had to be loosened up.

 

What Bernanke did during his last two years in office was to add 85 billion dollars a month to the economy, an additional 40 billion was deposited in the banks, causing them to loosen up with financing new homes and refinancing old ones and 45 billion was spent buying up the multitudinous mortgage pieces.

 

The program was ended in 2014 by reducing the amount spent each month until 0 was reached in both categories. In February 2014, when Janet Yellen became the new Chairperson in charge of the Federal Reserve, she spent the first two months of her four year tenure ending the program. She also gave herself the option of renewing the program if she and the Fed Board felt it was necessary.

 

The mortgage pieces were at some point or points destroyed by the Fed. The Federal Government did not want to go into the real estate business, it wanted to get rid of this quagmire that was hanging over real estate in the U.S. After a little over two years this problem largely disappeared. Two years after that when Donald J. Trump became President no one seemed to remember it.

 

In essence while the Federal Reserve spent about six trillion, three hundred billion dollars straightening out the mortgage debacle a good percentage of that money came back in taxes. It was spent within the country on goods and services indirectly creating jobs and increasing the GDP. The Government did not waste the money; they expanded a shrinking economy.

 

The same can be said for the 40 billion a month being deposited in banks across the country. The approximately five trillion six hundred million dollars spent here tended to loosen up the banking attitude toward housing and got that industry growing again. It also added positively to the economy. In addition it also did not stir up any real inflation in the economy. Neither policy did.

 

This was the application of the Bernanke economic principle. It prevented the economy of the United States from collapsing and similar actions did the same thing for foreign economies. This action also made use of money as a tool to keep countries functioning and avoiding major depressions. Money was no longer an object of value for governments. Each government could produce it at will. It now became a means that could be used to control economic conditions. This action became Bernanke’s contribution to the principles of economics.

*******************************

Janet Louise Yellen assumed office as the Chair of the Federal Reserve on February 3, 2014. She had been the Vice Chair from October 4, 2010 to February 3, 2014. Prior to that she was President of the Federal Reserve Bank of San Francisco from January 11, 2004 to October 4, 2010.

 

Dr. Yellen is married to George Akenlof, a Noble prize-winning economist who is a professor at Georgetown University. Their son, Robert Akenlof teaches economics at the University of Warwick.

 

During her nomination hearings on November 14, 2013 Janet Yellen defended the more than three trillion dollars in stimulus funds that the Fed had been injecting into the U.S. economy. She also testified that U.S. Monetary Policy would revert toward more traditional monetary policy once the economy returned to normal.

 

Yellen is the first woman to hold the position of Chairperson of the Federal Reserve. On December 16, 2015, with Yellen as Chairperson, the Federal Reserve raised its key interest rate from 0% to ¼ of one percent. Since that time the interest rate has been raised twice, each time by ¼ of one percent. It now stands at ¾ of one percent. It has been announced by the Fed that there will be additional increases over the year 2017.

 

My overall impression of the Chairlady is that she is very caucus in all her actions. She initially misinterpreted the overall effects of the 2008 Housing Debacle feeling that it would not be that serious. She doesn’t want to make another mistake.

 

While the cost of a non-existent or very low interest rate has kept the cost of borrowing money down and has led to a resurgence in home buying it has also kept down the cost of interest the banks pay their depositors from whom they get the funds to lend out. Banks have and are paying as little as 1/10 of one percent interest to many of their depositors. In essence interest that the banks pay to their depositors is so low that the financial institutions are just about getting their money for free.

********************************

After the Presidential Election in 2016 of Donald J. Trump to the presidency Dr. Yellen vowed to protect Dodd-Frank, the law that limited the actions of the banks that was passed after the Housing Debacle of 2008.

 

Trump had denounced Dodd-Frank, stating that he will do away with it. Trump has also stated that he will not reappoint Janet Yellen in 2018, when her current term ends.

 

Janet Yellen is a Keynesian economist and advocated the use of Monetary Policy in stabilizing the economic activity of the business cycle. She has also stated that occasionally letting inflation rise could be a “wise” and humane policy if it increases output. She has stated that each percentage point drop in inflation results in a 4.4% loss of the Gross Domestic Product (GDP).

*************************************

Dr. Janet Yellen’s term ends in 2018. It is then up to the President to reappoint her or to appoint someone else as Chair of the Federal Reserve. President Donald Trump, if he is still President and if he follows his pattern of appointments, will probably appoint a non-economist to that position. It might even be a banker. What will the result be both to the country and to the Federal Reserve?

The Weiner Component Vol.2 #8 – The Federal Reserve During the Bernanke Years: 2006 – 2014

English: President Barack Obama confers with F...

English: President Barack Obama confers with Federal Reserve Chairman Ben Bernanke following their meeting at the White House. (Photo credit: Wikipedia)

In 1935, Cret designed the Seal of the Board o...

In 1935, Cret designed the Seal of the Board of Governors of the Federal Reserve System. (Photo credit: Wikipedia)

On January 31, 2006, Alan Greenspan retired or resigned as Chairman of the Federal Reserve and on February 1, 2006, Ben Bernanke became the new Chairman. He served two four year terms, initially being nominated by George W. Bush and being re-nominated the second time by President Barack Obama. Chairman Bernanke would find, among other things, the means to avoid a depression far greater than that of 1929. He would do this through the use of Creative Monetary Policy; that is, essentially by flooding the economy of the United States with money.

 

To understand in detail what he did one has to read his 2015 book, The Courage to Act. In this work he explained how the world’s economies came close to collapse in 2007 and 2008. Bernanke explained how it was the efforts of the Federal Reserve utilizing Monetary Policy and cooperating with other national agencies of the U.S. and agencies of foreign governments that prevented an economic catastrophe far greater than the Great Depression of 1929 which lasted for over ten years.

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Generally speaking: in 2008 the Housing Crash came. It had gradually been developing since the 1980s. While President George W. Bush and his Secretary of the Treasury, Hank Paulson, made large loans to banking houses to keep them from failing Bernanke bailed out AIG, the largest insurance company throughout the United States.

 

If AIG went bankrupt millions of people would have lost their insurance coverage and the premiums they had paid over the years. AIG had also insured some of the Hedge Funds that went under. They had wanted some of the profits that the banks were making from the Housing Market and their actuaries had no experience in dealing with Hedge Funds. I assume that Bernanke wanted to avoid the misery this would cause nationwide.

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It is important to keep in mind that the Federal Government under Presidents Bush and Obama were making loans to the banks, AIG and to the auto industry. These loans were repaid by all three groups with interest.

 

President Obama set a condition on the loans that Bush did not. That was to limit compensation packages for the executives of these struggling institutions. To the President it seem ridiculous that CEOs and other bank executives should continue to receive salaries of over a million dollars after bring the banking houses to the point of bankruptcy.

 

The CEO of the Bank of America complained bitterly about this. He wanted to pay off the Government loan quickly so the leading executives could go back to salaries in the multi-millions. Today in 2017, and for a number of prior years, their remunerations go from about four million up.

 

It should also be noted that the banks, taken together, have paid multimillions in fines for illegal practices. And no one has ever gone to jail but the banks have paid at times massive fines.

***************************************

The Housing Debacle and the increase in unemployment (up to 10%) that accompanied it should have been handled by both the Federal Reserve applying Monetary Policy and the Congress and the President applying Fiscal Policy, Congress passing spending bills and the President signing them. From 2011 on, when the Republicans gained control of the House of Representatives there were no Fiscal Policy Bills passed through Congress.

 

The year 2011 on was an ideal time to begin rebuilding the infrastructure of the United States. Most of the infrastructure had been built in the late 19th and the first half of the 20th Century. The population had practically doubled since then and a good part of the infrastructure of the country was well out of date.

 

The National Highway System had been built by President Eisenhower in the 1950s. By 2009 most of the airports, railroads, government buildings, the electric grid, many public schools, even the education system was/is grossly out of date. In fact, for what it’s worth, President Donald Trump has defined the infrastructure of the country as a “disaster.”

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After the bank bailouts the Obama Administration expected the banks to return to a reasonable level of what they had been doing before the crash. This did not happen. The banks became ultra conservative in their lending policy. People buying new homes had to have a fairly large percentage of the cost of the new home. Chairman Bernanke lowered the interest rate the Fed charges banks to 0% giving them free money.

 

From this point on in approximately 2010 the banking houses looked for new way to make profits with their funds. What they came up with, among other things, was the Futures Market.

 

Future Markets are exchanges that buy and sell future contracts. A future contract gives the buyer an obligation to purchase an asset and the seller an obligation to sell an asset at a set price which is to be delivered at a future point in time. The purchasers are interested in selling the asset the future time at a profit. They are often blamed for big price swings in the Futures Market.

 

The assets underlying future contracts include food commodities, stocks and bonds, grain, precious metals, electricity, oil, beef, orange juice and natural gas to name a few. They are bets that the price of the product at the eventual delivery price will far exceed the earlier purchase price.

 

It can be assumed that the rise in food and gasoline prices after 2010 exceeded what they would have been if the banks had not been involved. In essence the banks exploited the general homeowner up until 2008 and from 2010 on they exploited the general public whose tax dollars had bailed them out of the economic disaster which they had caused in their perennial search for more and more profits.

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In the year 2010 the American public elected a Republican majority to the House of Representatives. With their ascension to the House in 2011 all possibilities of Fiscal Policy Bills ceased. The Republicans wanted to reduce government spending and make President Obama a one term president by not allowing him to succeed in anything. In fact what the House of Representatives did was to worsen the Housing Debacle by reducing, forcibly at the time, government spending. They even shut the government down by not funding it.

 

President Obama offered an Infrastructure Bill that never even came up in the House of Representatives. The fact that President Obama and Chairman Bernanke were able to turn the Housing Crash and limit initial unemployment to only 10% with actual opposition from the Republican House of Representatives was itself miraculous. What the Fed and the President did was to turn a possible depression into the Great Recession. Even though economic conditions were far from ideal this was truly an act of wonderment.

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What happened with the Housing Crash was a situation that looked like it might take decades to straighten out. Virtually overnight the value of homes deflated at the speed of an exploding balloon. Many people who had financed and refinanced their property more than once suddenly discovered that they were underwater, that is, that they owed more on their homes than they were worth. A percentage of these people just walked away from their property, leaving it deserted.

 

This raised an interesting problem both for these properties and for those in which the people continued living. Who owned these mortgages? Remember the mortgages had been divided up into innumerable fractional pieces. In order to control any one of these property mortgages one needed to own over 50% of it. No Hedge Fund owned that much of any one property. The records of mortgage ownership were highly inaccurate. Consequently in point of fact no one really owned these properties.

 

Most of the banks that had been charging endless fees to administer these mortgage loans felt that they could foreclose on these properties, either because they were deserted empty houses or because the inhabitants could, for one reason or another, no longer afford to make their monthly payments. A goodly number of these people had lost their jobs.

 

The banks used their computers to generate the needed documents since no real records of ownership existed. The banks had earlier been in too great a hurry to generate loans than to keep accurate records.

 

Some of these cases went to court and initially the judges felt that a solid institution like a bank would do nothing illegal. Some of the attorneys who made this point were declared to be in “contempt,” and were disbarred. Eventually after a large number of cases were determined in favor of the banks the evidence of their wrongdoing was acknowledged by the Courts. Whether the disbarred lawyers got their licenses back I don’t know, but the banks were severely fined for wrongdoing and the illegal foreclosing ended leaving a lot of people living in homes for which they were not paying.

 

The problem was left up in the air. As long as the people living in these homes paid their property taxes no one could legally disposes them even if they never made another house payment on the mortgage. Most of the Hedge Funds had gone bankrupt; they didn’t own enough of any property to foreclose on it. Of course no one knew which properties these were and which actually had owners of the mortgages. Some of the banks had owned some of the Hedge Funds.

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What generally happened across the nation from that point in time on was interesting. Numerous individuals, generally not being employed, no longer paid their mortgages. If they were reemployed or eventually got a job they still did not make payments. Why bother? No one had foreclosed on them. In essence these people now had extra cash which they tended to spend. Suddenly, among other things, eating out with their families became very popular. A good part of their housing funds were being spent. The National Cash Flow or the amount of money available in the general society increased with all this spending and it helped keep the level of national unemployment to no higher than ten percent. This was an interesting irony that was initially funded by the banks but ultimately payed by the taxpayers in the bail outs.

 

Had the House and Senate passed the Infrastructure Bill that President Barack Obama suggested then the overall effects of the Great Recession would have disappeared by the end of his first term in office and the country would have dropped to a 2 ½ percent unemployment level which is considered full employment because it is the rate generated by people normally retiring, changing jobs, and first entering employment.

 

The result would have been more taxes being paid which would have largely offset the increased government spending. But the Republicans dominated House of Representatives was penny smart and dollar stupid. By forcing down government expenditure they also cut down the Gross National Product (GDP) and shrank taxable income throughout the United States, keeping unemployment higher.

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On August 25, 2009, President Barack Obama announced he would nominate Bernanke to a second term as the Chairman of the Federal Reserve. He stated, with Ben Bernanke standing at his side that Bernanke’s background, temperament, courage and creativity helped to prevent another Great Depression in 2008.

The Weiner Component Vol.2 #8 – Part 5: Alan Greenspan & the Federal Reserve

Former Chairman of the Federal Reserve Alan Gr...

Former Chairman of the Federal Reserve Alan Greenspan, receiving a Presidential Medal of Freedom in 2005 (Photo credit: Wikipedia)

In 1935, Cret designed the Seal of the Board o...

In 1935, Cret designed the Seal of the Board of Governors of the Federal Reserve System. (Photo credit: Wikipedia)

On August 11, 1987, Alan Greenspan became the Chairman of the Federal Reserve. He was appointed by President Ronald Reagan and served until January 31, 2006, when he retired from that office. There was a rumor that he had lobbied for the position.

 

After four years in office he was reappointed by President George H. W. Bush who later claimed he lost his reelection bid because of Greenspan’s Monetary Policy. Bill Clinton also reappointed him and so did George W. Bush.

 

Greenspan was a Republican conservative with a classical education in economics, who got his P.H.D. from N.Y.U. He supported privatizing Social Security and tax cuts which, according to the Democrats, would increase the deficit. In fact it has been suggested that the easy money policies of the Fed during Greenspan’s tenure there was a leading cause of the subprime mortgage crisis that occurred in 2008, after he left the Federal Reserve as Chairman.

 

Alan Greenspan was nominated by President Reagan on June 2, 1987 and was confirmed by the Senate on August 11 of that year. To Congress he quickly assumed the role of a seer, generally when he was questioned by Republican members of either House of Congress, they spoke to him with a large degree of reverence, as though his answers to their questions were the absolute ones. He was considered the maestro of economics; his words being gems of economic wisdom. This occurred throughout his entire term as Chairman of the Federal Reserve.

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The issue that Greenspan did not deal with, which, in fact, he stated that the Fed could not control or even really deal with was the amount of money in the National Cash Flow. His successor, Ben Bernanke did not have this problem and he both increased the amount available for over a two year period and solved an economic quagmire that the banks had created in 2008 following Greenspan’s easy money policy.

 

According to the late economist Paul Samuelson the process of splitting mortgages began during the late 1970s. For innumerable reasons banks had traditionally allowed people to take out second mortgages on their homes charging them slightly more in interest than they were paying on their first mortgage. Occasionally the banks would sell these mortgages to individuals in order to get their money back for a more profitable use. In the late 1970s many banks broke these mortgages up into large pieces in order to sell them and sold each one to a multitude of Hedge Funds who then used them as securities.

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In 1981 Ronald Reagan became President of the United States. He and his aids believed in a totally free Market where all economic decisions were made by the Market. The basis by which the Market operated was the profit motive. It had been explained by Adam Smith in his preindustrial revolution book that he published in 1776. The Reagan Administration did away with virtually all government regulation that controlled the form and actions of the banks, giving them a complete free hand in dealing with the public; but they kept the FDIC in which the Federal Government insured all bank deposits up to ½ million dollars.

 

Regulations limiting the form and actions of banks were brought in during and after the Great Depression. Among other things many bankers had abused their positions and used depositor’s money to make individual profits for their executives. When the stock market crashed in 1929 so did numerous banks and multitudes of depositors lost their savings. The Roosevelt Administration from 1933 on brought about legislation to stop this from occurring again. Apparently the Reagan Administration in 1981 on believed this was no longer a problem.

 

During the Reagan Administration the major banking houses in the United States like J. P. Morgan-Chase, Bank of America, Wells Fargo, and others decided to break up the mortgages into fractional shares, split the shares among Hedge Funds, and sell shares in the Hedge Funds. This included both first and second mortgages.

 

This was a good bet since people valued their homes. What happened was that the banks encouraged people to use the equity in their houses as bank accounts, mortgaging and remortgaging their homes. With the constant action, following the economic laws of supply and demand, the value of properties continued to rise like hot air balloons. The value of the homes kept growing, allowing people to take more and more money out of their homes to buy anything they desired. By this action the banks created trillions of dollars of new money and presumably everyone prospered.

 

On the one hand Greenspan stated he could not control the amount of money in circulation but on the other hand the Fed’s low interest rates encouraged this behavior. What the banks did was to issue and reissue mortgages which they, in turn, split into hundreds of pieces, placing them into different Hedge Funds from which these funds paid the banks endless service charges. The banks then used the money for new mortgages but serviced the accounts, charging fees for each action.

 

In essence the banks lent the initial funds, sold the mortgages to innumerable Hedge Funds, got their initial investment back, and lent it out again, endlessly repeating the process and endlessly charging innumerable fees for the continuing processing. Many banks also owned many of the Hedge Funds.

 

The bank and everyone in the bank involved in this process did well financially. As home prices rose the homeowners kept getting their equity back and could afford to remortgage their homes. It seemed like an endless Christmas!

 

Ordinarily every change in any property has to be registered in the city or county where it occurs. This is a fairly slow system. The banks were able to set up their own record keeping agency that they could use quickly. The problem here was that there was endless amounts of information. This system made innumerable errors in their bookkeeping. In 2008, when the system crashed, the records were worthless. There was no reliable information on all the transactions.

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By 2007 it was fairly obvious that the system was tottering and could fail. For the last quarter of a century this had been going on. It spanned the entire career of most bankers. They were in a state of denial that the housing bubble could burst. Some banks offered loans of 125 percent of the appraised value of homes.

 

The Housing Bubble burst late in 2008 while George W. Bush was still President of the United States. Suddenly many banks were on the verge of bankruptcy. President Bush and his Secretary of the Treasury lent some of the banks enough money to keep them solvent.

 

The new Chairman of the Federal Reserve, Ben Bernanke, authorized a loan to AIG, the leading insurance company in the United States. It seems they felt left out of all the money making and wanted their share. They insured a number of loans for high premiums. Their actuaries underestimated the risk involved. When the collapse came they didn’t have the funds to pay off the claims and without additional funds would have gone under costing a large percentage of the American public both the premiums they had paid and the protection these premiums bought.

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It is important to note that the flow of money in the United States and the rest of the industrial world, whether credit or cash, is through the banking system. If the major banks were to go under the flow of currency would be a dribble. In addition every bank account is insured up to ½ million dollars by the Federal Government.  The banks paying a small premium to the Federal Deposit Insurance Corporation (FDIC). If the banks go bankrupt the Government is still liable for those monies.

 

In addition AIG (American International Group) is the major insurance company in the nation, insuring, among many other things, millions of insurance policies throughout the nation. If it were to go under billions in premiums paid for years by countless Americans would suddenly be lost. It would be a major negative catastrophe in the country. AIG was literally too big to fail.

 

The failure of both the banks and the insurance company could easily bring down the economy of the United States. These concerns are necessary for the United States to function. They are not only too big to fail but also too important, in relation to the country.

 

This is the position in which President George W. Bush and Chairman Ben Bernanke found themselves in toward the end of 2008. And this is the position that Barack H. Obama inherited when he became President of the United States on January 20, 2009.

 

As Chairman of the Federal Reserve Alan Greenspan had supported an easy money policy. He retired shortly before the results of this policy exploded. Did he foresee the occurrence?   Was he responsible for it?

**********************************

From the 1980s on the American economy needed a greater Cash Flow. There literally wasn’t enough money available throughout the economy. Historically the Federal Reserve had never directly supplied money to the overall country. In fact up until 1933 all monies were comprised of gold and silver. All gold mines in the United States were required to sell all the gold they mined to the Federal Government for $16 an ounce. It was then minted into gold coins. Paper money could be issued: ones and five dollar bills were silver certificates and technically could be exchanged for silver coins at any time. Tens, twenties, fifties, and hundred dollar bills, and higher denominations could be exchanged for gold coins. From 1933 on gold disappeared and from ten dollar bills up money became Federal Reserve Notes. Later the five would also become a Federal Reserve Note. Thereafter the gold was stored in depositories and presumably stood behind the dollar.

 

In 1933 Roosevelt raised the value of money by law from $16 an ounce for gold to $32 an ounce. By doing this he doubled the available money in the United States and easily paid for the New Deal.

 

Consequently from that time on gold being behind the dollar was a fiction. Theoretically any Federal Reserve Chairman and his Board thereafter could have added money to easily to the National Cash Flow. But none did. During World War II the Federal Government spent a lot more than it took in in taxes. But it never just added money to the economy. In fact it used various devices such as War Bonds to attempt to limit the amount of money people could spend.

 

From what he has said and written Alan Greenspan did not believe that the government could just add money to the economy. That power was reserved to banks who could do so through their lending policies. Greenspan tended to understand economics as it was and had been. He ran the Federal Reserve on that basis. He lacked the imagination to do things any other way.

 

Possibly he suspected a crash in 2008 and so he retired before it came. Possibly he did not and felt he had been in that office long enough. Only he can answer that question.

The Weiner Component Vol.2 #7 – Part 4 – The Fed & the Inflationary Spiral

English: Former President Jimmy Carter and his...

English: Former President Jimmy Carter and his wife Rosalynn, wave from the top of the aircraft steps as they depart Andrews Air Force Base at the conclusion of President Ronald Reagan’s inauguration ceremony. (Photo credit: Wikipedia)

English: President Ronald Reagan, the 40th pre...

English: President Ronald Reagan, the 40th president of the United States of America, delivers his inaugural address from the specially built platform in front of the Capitol during Inauguration Day ceremony. (Photo credit: Wikipedia)

The Chairperson of the Federal Reserve heads this bank. Currently Janet Yellen is the chairwoman. She has held this position since 2014 when she was appointed by President Barack Obama. Prior to that Ben Bernanke was chairman from 2006 to 2014. He was appointed by George W. Bush and completed his term under President Obama. Alan Greenspan was the prior Chairman. His term was the second longest in the history of the Federal Reserve going from 1987 to 2006, 19 years. He was preceded by Paul Volcker, who served from August 1979 to August 1987. He was appointed by President Jimmy Carter and left toward the end of the Reagan administration. Paul Volcker served as Chairman for two terms, from August 6, 1979 to August 11, 1987.

 

These are the most recent people to serve as chairpersons on the Federal Reserve. If we go back to the Presidency of John Fitzgerald Kennedy, January 20, 1961 to November 22, 1963, the Fed Chairman was William M. Martin who had been appointed by Harry S Truman and served from April 2, 1951 to February 1, 1970.

 

The problem, when Kennedy became President, was that the country was in a recession cycle. By using fiscal policy President Kennedy was able to turn that economic phase into a recovery phase of the business cycle. At this time unemployment was slowly increasing and consumption was slowly decreasing. The economy needed an impetus. What the President proposed and Congress passed was a tax decrease. The result was that people had more money which they spent and the amount of Federal taxes collected actually increased. This move fairly quickly took the nation from recession to recovery.

 

Since that time, over fifty years ago, almost every Republican President has tried to follow that fiscal policy. In no case has it worked as announced. Instead from the time of President Ronald Reagan on it has allowed the National Debt to mushroom into the trillions of dollars. And during the last year of President George W. Bush’s presidency this tax reduction process led to the bursting of the Housing Bubble or the Great Recession in 2008. In the process of avoiding a Second Great Depression President Barack Obama was forced into excessive spending. It was the President and the Fed Chairman, Ben Bernanke, who enabled the country to squeak through the 2008 and 2009 Housing Crash or bubble bursting.

 

Currently President Donald J. Trump is proposing a massive tax cut for business and the wealthy. It has been suggested that this could bankrupt the U.S. Government. Whether his decrease in taxes and proposed increase in spending for the military comes about, if it does, then to what extent it will do so is still up for debate. Trump and some members of his Cabinet are claiming they can significantly lower taxes and increase production without adding to the National Debt. It should be an interesting experiment.

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President Lyndon B. Johnson, who had been President Kennedy’s Vice-President and succeeded him at his death in 1963, when he was reelected to office in 1965 massively accelerated the war in Viet Nam. He would have America, the strongest nation in existence, force North Viet Nam to accede to the wishes of the United States. And, at the same time, he would not lower the standard of living of any American. The country could both afford to fight a major war and care for its population as though it were still at peace; we would have both guns and butter. His only requirement was a small addition by everyone to their income taxes. This led to the beginnings of an inflationary spiral that would reach fifteen percent by the end of the 1970s. The inflation spiral would be broken by the Fed by taking drastic action in the very early 1980s.

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Paul Volcker was appointed was appointed Federal Reserve Chairman on August 6, 1979 by President Jimmy Carter. He began a process to end the inflationary spiral by making the borrowing of money so expensive that it would cause the percent of interest to rise to where it would cost too much to borrow. This, in turn, would cause the price of interest to drop toward zero.

 

If the inflation rate rises too high, like to 12 or 15 percent or more the way to reduce it is by raising the prime rate, the interest level the Fed charges banks, to a very high level. This forces the banks to raise their interest level to 20 percent or more. Money becomes too expensive to borrow.

 

Unfortunately many businesses have dormant periods during the year when they have to borrow money in order to meet their expenses. If the interest rate on loans is too high they cannot afford to borrow any money and consequently they go bankrupt. This causes an almost instant recession, with massive layoffs throughout the country. But it will end an inflationary spiral.

 

Early in this process President Jimmy Carter received innumerable complains from people around the country about what was happening to them and their businesses. He asked Volcker to back off and Volcker did so. The high inflation continued throughout President Carter’s term in office.

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Paul Volcker served two four year terms as Chairman of the Fed. He retired from that position on August 11, 1987, when Ronald Reagan was President of the United States. Reagan succeeded Carter in 1981 and remained in office for two terms, until 1988. He allowed Volcker to break the back of the inflationary spiral.

 

Under Reagan the monetary policies of the Federal Reserve Board led by Volcker were credited with curbing the rate of inflation and the expectations that inflation would continue. The United States rate of inflation peaked at 14.8 in March of 1980 and fell below 3 percent by 1989. The Fed Board raised the federal funds rate that had averaged 11.2 percent in 1979, to a peak of 20 percent in June of 1981. The prime rate also rose to 21.5 percent in 1981. All of this lead to the 1980-1982 recession, in which the unemployment rate rose to over 10 percent.

 

All of this elicited strong political attacks and wide spread protests. There were high interest rates on construction, farming, and the industrial sectors. U.S. Monetary Policy eased in 1982, leading to a resumption of economic growth.

 

Perhaps the most unfortunate part of this necessary readjustment of the economic base of the United States was the fact that President Ronald Reagan made a presentation on television one weekend in 1981 in which he held up the business section of the Sunday Times and stated that there were twenty full pages of job offers in the Times. If a person lost their job then they should go to where there was jobs available. President Reagan did nothing else. He could or should have set up some federal agency that could offer reliable job information. But he did not do so.

 

What followed was that sections of cities became deserted as people filled their cars with their belongings and followed rumors going from place to place looking for work. Mostly there were no jobs. Temporary agencies did a land-office business that year. I remember reading about an instance where a man with a wife and small child, having stopped for a red light, opened the passenger door, and pushed his wife and child out of the vehicle. When the light changed he drove on.

 

Cars moved from city to city that year, following rumors. While there had been some homeless before 1981 they became very visible from that year on; there were so many of them. The problem is still with us.

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What followed from 1981 on was the Fed’s tight money and the expansive fiscal program of the Reagan Administration: large tax cuts, and a major increase in military spending. While the middle class got some tax relief the tax cuts were essentially for the upper echelon of society who had their taxes reduced substantially. While the inflation rate stayed low, which it still is today, President Reagan’s spending produced large Federal budget deficits.

 

This combination of growing deficits and other economic imbalances led to the growing Federal debt and a substantial rise in Federal costs. Under Reagan’s spending the debt would reach over one trillion dollars for the first time.

 

Presumably Paul Volcker was fired or replaced in August 1987 after serving two four year terms in office because the Reagan Administration didn’t believe he was an adequate deregulator. Volcker was replaced on August 11, 1987, by Alan Greenspan.

The Weiner Component Vol.2 #6 – Part 3: The Purpose of the Federal Reserve

The title page to Keynes' General Theory.

Unemployment rate in the US 1910–1960, with th...

Unemployment rate in the US 1910–1960, with the years of the Great Depression (1929–1939) highlighted. (Photo credit: Wikipedia)

The Federal Reserve was established on December 23, 1913. Its major mission was to avoid panics or major recessions in the future. It would at that time do this by being able to move money quickly anywhere throughout the National Economy. In essence since the nation functioned through its banking system the new Fed would protect its financial institutions from runs or panics where the depositors could all withdraw their funds, generally following a rumor that the bank was on the edge of failing.

 

In addition the United States economy had/has systematically gone through regular business cycles of recession, slump or depression, recovery, and boom. Invariably each of these stages of the economy leads to the next stage. During a boom period overproduction is invariably reached, workers are laid off, there is less income available, which accelerates the recession. This, in turn leads to a trough or low economic point which can be a depression with high unemployment. Eventually there is a shortage of goods and the amount of money being spent in the National Cash Flow increases; people are hired; there is more and more money available and recovery begins, continuing until a peak or production boom is reached again. The duration of the cycles can and do vary, going from less than a year to over ten years as the Great Depression did from 1929 to 1940. It was ended by World War II. These depressions can be regional or they can cover the entire nation, if not the world, as it did in 1929. They generally last between the two periods given above.

 

In simple terms this is the economic pattern of every industrial nation. Does it have to continue? That’s an interesting question. The probability is that it can be controlled by the Central Government’s actions.

 

In 1929 the science of economics was generally not understood well enough to determine exactly or why the depression was happening. In 2008 when the country had what is now called the Great Recession, enough was understood to avoid a greater depression than that of 1929. This depression was avoided by actions of the Federal Government.

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Even today economists disagree as to what caused the Great Depression and how it should have been dealt with. There are numerous theories. Probably The Keynesian theory is the most accepted. Keynesian economics deal with the various theories about how in the short run, mainly during recessions, economic output is strongly influence by aggregate demand or total spending. Aggregate demand does not necessarily equal the productive capacity of the economy. Instead it is influenced by a host of factors that can behave erratically, affecting production, employment, and inflation.

 

Keynes theories were first presented during the Great Depression in his 1936 book, The General Theory of Employment, Interest, and Money. Keynes’ approach contrasted with classical economics. Keynesian economists believe that the private sector’s decisions sometimes lead to inefficient economic outcomes which require active policy responses by the public sector (government). It is a combination of the two that stabilize output with the government exercising control over the private sector. Monetary policy actions are needed at times by the Central Bank and fiscal policy actions (Government spending.) in order to stabilize output over the business cycle. Consequently Keynesian economics requires a mixed economy, predominantly private sector with a strong role for government interventions during recessions and depressions.

 

Traditional or classical economics as developed by Adam Smith in his 1776 book, An Enquiry Into The Wealth of Nations, set the Market making all the societal decisions. The motivating force, according to Smith was the “invisible hand,” the profit system. Adam Smith was responding to an economic system called mercantilism, where gold was considered the basic wealth of the nation and the economic decisions were being made by the kings of the various countries.

 

John Maynard Keynes during the world economic disaster called the Great Depression was questioning the validity of this system, saying what was needed to solve this problem was a combination of private enterprise balanced by state control of the marketplace. To him unfettered classical economics had brought about the Great Depression.

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The actual causes of the 1929 Great Depression have been extensively discussed by economists and remains a matter of intense debate. In fact they are part of the larger debate about economic causes. The economic events that took place at that time have been studied thoroughly: a deflation in assets and commodity prices, dramatic drops in demand and credit, disruption of trade, widespread unemployment, over 13 million by 1932 the lowest point of the economic decline, and hectic poverty.

 

There is no consensus as to overall causes other than it started with the initial stock market crash that began on Black Tuesday, October 29, 1929 when panic selling of securities led to a continued dropping of value of the securities until the end of 1932 when it reached its lowest point. The Crash triggered the depression which had reached a high level of deteriorating economic conditions such as rising unemployment, over production, a totally unequal distribution of incomes, under consumption, and extremely high debt.

 

Both the stock market and the economy would slowly improve after 1933 with the new President, Franklin D. Roosevelt. It would rise to new heights after 1939 with the outbreak of World War II in Europe. The stock market and the economy would rise to new heights with a massive infusion of money for goods and services within the United States. War will have brought about its end within the U.S. It is interesting to note that it was the money spent during the war, first by European and Asian nations, then after December 7, 1941 also by the United States that specifically ended the Great Depression.

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Once the Great Depression had started there were massive mistakes made by the Federal Reserve. The Fed actually caused a shrinkage of the money supply and greatly exacerbated the economic situation. Deflation caused people and businesses to owe ever increasing amounts upon money they borrowed actually shrinking the money supply in the U.S. by about 1/3.

 

With the election of Franklin D. Roosevelt to the presidency in 1932 a form of Keynesian economics became the policy of the President from 1933 on when he assumed power. Roosevelt’s policy was the “3 R’s: Relief, Recovery and Reform.” This comprised Roosevelt’s “New Deal;” his attack upon the Great Depression, which essentially lasted from 1933 to about 1938. The Federal Government put itself in a position to help turn the country around. It brought about great improvement but not a complete end to the Great Depression.

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Toward the end of 2007 in the last year of the George W. Bush’s Presidency what is generally called the Great Recession began. The Housing Market in the United States collapsed. A great many people had been using their home as bank or checking accounts generally from the 1980s on, constantly refinancing their home and taking their equity out as property values continually increased. People bought the toys they always wanted: new cars, fancy trucks, boats, expensive vacations; just about anything they felt was desirable.

 

This had been going on for about thirty years, the entire career of many people in banking had taken place during this period. Housing loans or second mortgages were divided into miniscule fractions, put into a multitude of different Hedge Funds and sold to the general public as safe interest paying loans. The process brought the value of the home loans up millions, if not billions of dollars. The banks were earning large amounts in fees as the demand for loans actually forced up the value of the homes. By 2007 the end had been reached, property values had been raised beyond the point of sanity. The bankers were in denial that conditions could possibly change. Some banks were lending out 125% of the appraised value of the properties, working on the premise the housing values would rise endlessly.

 

The economic collapse began during the second week of March, 2008. It tended to be worldwide. In the United States, on Tuesday, with the encouragement of the President, George W. Bush and the Secretary of the Treasury, Hank Paulson, the Chairman of the Federal Reserve, Ben Bernanke injected $236 billion dollars into the American banking system. Citigroup, the world’s largest bank spent one billion dollars bailing out six of its hedge funds. Lehman Brothers, America’s fourth largest bank went under. AIG, the world’s largest insurance company, had moved into the business of insuring leveraged debt right at the time when the financial system was at the point of collapse. When the Housing Bubble burst Ben Bernanke, as chairman of the Fed, announced an $85 billion loan for them. Hank Paulson, the Secretary of the Treasury proposed buying up hundreds of billions of dollars’ worth of toxic assets.

 

With the accession of Barack Obama on January 20, 2009 as President of the United States that country and the rest of the Industrial Nations continued to hover on the point of economic collapse. This would have occurred if the governments had not interceded with masses of cash. They prevented, using taxpayer money, a depression that would have made the Great Depression of 1929 look like a weekend holiday. It would have been the total collapse of the banking systems which, in essence, run the economies of all those nations.

 

(Interestingly Donald Trump’s administration wants to do away with all the regulation in the U.S. which came about to avoid a repeat of this situation. Memories are short!)

 

President Barack Obama continued the bailout, saving the banks from their own stupidities, and he added the American automobile industry which was also on the point of total collapse. The governments of the various countries spent a lot of money saving their economies and returning the world to economic sanity.

 

Recently President Donald Trump commented in one of his speeches that President Barack Obama increased the National Debt more than any other prior President. He did so cleaning up the financial messes that they had helped to create.

 

We have passed beyond Keynesian economics to the point where the Free Market is today a farce. The governments of the United States and of the other industrial nations have assumed responsibility for the welfare of both the rich and the poor within their societies. How long will it take for the populations to understand this?

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In the United States and in most industrial nation there are groups that want to return to the good old days. Whatever they were. Everything is changing. The 21st Century will be completely different from the 20th Century.

 

It should also be noted that it was the Federal Reserve, under Chairman Ben Bernanke, who used creative Monetary Policy in a period of a little over 24 months, with strong encouragement from President Obama, to buy up the toxic mortgage pieces throughout the United States at the rate of 45 billion dollars’ worth a month and also he added another 40 billion dollars a month directly to the National Cash Flow.

 

The Republican dominated House of Representatives from 2011 on did nothing to help the situation. They should have applied Fiscal Policy, creating jobs by spending money on infrastructure modernization. Instead they tended to cut government spending and worsen the Great Recession. Mitch McConnell, the Republican majority leader in the Senate, announced that they would make Obama a one term president by not cooperating with him on anything. To them no price was too high in order to make Obama a one term president. Somehow the needs of the American people were lost.

 

It was the Federal Reserve and the President who saved the country from falling into the worst depression in its history. The Republicans, once they got control of the House of Representatives, refused to pass anything that would make President Obama look good. This was true even if it had a negative effect on the country and hurt the majority of its citizens. President Obama offered a Bill that would engender spending on our decaying infrastructure. It did not even come up for discussion in the House of Representatives.

The Weiner Component Vol.2 #6 – Part 2: The Federal Reserve

Description: Newspaper clipping USA, Woodrow W...

Description: Newspaper clipping USA, Woodrow Wilson signs creation of the Federal Reserve. Source: Date: 24 December 1913 (Photo credit: Wikipedia)

English: A map of the 12 districts of the Unit...

English: A map of the 12 districts of the United States Federal Reserve system. (Photo credit: Wikipedia)

The Federal Reserve System (Fed) was established in December of 1913 as the central banking system of the United States by the passage of the Federal Reserve Act. It came into existence largely in response to a series of financial panics, particularly the Panic of 1907. Its purpose was to establish a semi-independent agency that would control and regulate Monetary Policy within the United States. At that time it meant mainly being able to freely and quickly move currency around as needed in the country.

 

The Fed consists of twelve regional banks that cover the entire nation. They are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Each of the twelve sections has its own Federal Reserve Bank, generally with at least one auxiliary bank. For example: California has the main Fed Bank located in San Francisco and an auxiliary one in Los Angeles. The Federal Reserve Banks are located throughout the United States, with the main branch in Washington, D.C. Each can also handle and make the other branches cognizant of any problems within its region.

 

The Fed was initially establish to devise and implement Monetary Policy. In 1913 this meant to control the supply of currency available throughout the nation. This was and still is its main function. But after 1913 the law establishing it was gradually expanded, generally as the need existed, expanding the definition of Monetary Policy, and giving the Fed numerous other responsibilities.

 

Today Monetary policy remains its primary function but today the Federal Reserve System’s mandate is also to promote economic growth, high levels of employment, stability of prices, to help preserve the stability of the dollar, and to moderate long-term interest rates. We can say that the Fed’s mission is, in addition to regulating Monetary Policy, to foster a sound banking system and a healthy economy throughout the nation. That in order to accomplish this the Fed serves as the banker’s bank, the government’s bank, the regulator of financial institutions, and as the nation’s money manager. We can also say that all of this is the current definition of Monetary Policy.

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The problem here is that economics is not an exact science and that the regulators of the Fed have to continually read and interpret what’s happening in the economy. The different Federal Reserve members do not always agree upon what should be done. The agency is run by consensus with the Fed Chair being in charge.

 

In 1908 Congress enacted the Alrich-Vreeland Act which established the National Monetary Commission to study banking and currency reform. The Bill set up two commissions, one to study the American monetary system in depth and the other to study the European Central Banking system and to report on them. Thereafter Congress took two years to come up with the Federal Reserve Bill. It was passed late in 2013 and signed by President Woodrow Wilson the same day it passed Congress. The Bill was constructed largely by bankers as a necessary reform of the U.S. financial system.. It set up a fairly independent entity, The Federal Reserve.

 

In its initial period it was opposed by agrarian interests. They stated that it favored the mercantile class over the farmers. It has long since passed beyond this period of discontent within the United States. While it is still at times opposed by many Republicans largely for being too independent it has stood the test of time as a necessary entity of the U.S. Federal Government.

 

Interestingly the Republicans who still oppose it feel that it should be under rigid control of the Congress. But Congress is afraid to mess with it. An error on their part could bring about a massive depression. And that would bring about a voter rebellion at the next election.

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As was pointed out even though the Fed has control of the money supply that aspect of the Fed’s power is fairly limited. They cannot always control completely or even handle all the factors that are affecting the economy. It is a very difficult process to predict what is occurring within the nation, virtually from day to day, and to make exact changes that can or will always affect it in a positive fashion.

 

Also Congress, by its actions can strongly affect the economy by, among other things, its spending policies. This is called Fiscal Policy, where Congress can increase or decrease the amount of money it spends upon various programs like decreasing aid to the poor in Affordable Health Care or perceptibly increasing military spending. Decreasing aid programs to the needy takes large amounts of spending out of the overall economy while increased spending on the military will substantially increase the amounts of money that go to the upper class. This can make for a redistribution of income from the poor to the upper class.

 

All these changes, plus others that have not been mentioned, become reasons for differences in the economic flow. They become factors that the Fed has to consider in mapping out its policy. And they are dynamic changes that all always going on. This means that the Fed is in a constant state of studying the economy and continually fine-tuning what is happening in the country. It is a constant process and the changes can take months to come about or not come about. It takes a steady hand to deal with this process.

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The United States Government probably is the largest spender in the world. It has a checking account with the Fed through the U.S. Treasury Department. All revenue generated by Federal taxes, licenses, etc. and all outgoing government payments are handled through this account. In addition the Fed sells and redeems government securities such as savings bonds and Treasury bills, notes, and bonds. It does this to raise money, or to limit the amount of money in the National Cash Flow, and otherwise adjust the economy.

 

The factor that deals with this is the overall rate of inflation in the country. If it starts going up the Fed has to reduce the amount of money in the National Cash Flow. There is too much money chasing too few goods and services, forcing prices up as more and more people bid for the same products and/or services. At this point the Fed sells more bonds and Treasury Bills than it redeems. It does this by raising the interest rate it pays for the money. If, on the other hand, there is not enough money in the National Cash Flow then the Fed will increase the amount by buying back more bonds and Treasury bills than it sells. Or for that matter the Fed can just add money to the National Cash Flow making more cash available for everyone as it did for over two years under the Obama administration.

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The Fed also issues all coins and paper currency. The U.S. Treasury prints and mints the cash and the Fed distributes it to its financial institutions. This includes replacing worn-out and torn bills. In fact if one visits and takes a tour of one of the Federal Reserve Banks, they get a little package a shredded old money as a souvenir.

 

The Federal Reserve Board also has regulatory and supervisory responsibilities that include monitoring banks that are members of the system and the international banking facilities in the U.S., the banking activities of member banks and the U.S. activities of foreign owned banks. In addition the Fed helps to ensure that banks act in the public’s interest by helping to develop federal laws governing consumer credit. Such laws as The Truth in Lending Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, and the Truth in Savings Act are examples of this. The Fed is supposed to be the policeman for banking activities for the U.S. and abroad.

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The Chairperson of the Federal Reserve heads this bank. Currently Janet Yellen is the Chairwoman. She has held this position since 2014 when she was appointed by President Barack Obama. The term of this office is four years. President Trump has stated that he will replace her when her term expires in 2018.

 

Chairperson Yellen tends to be overly cautious in her approach. She gradually ended the policy of the Fed contributing money to the National Cash Flow and has been overly cautious in terms of raising the interest rate that the Fed charges it member banks, bring about two quarter of a percent raised while threatening three further quarter of a percent increases. The Fed has gone from a 0% charge to banks borrowing money from it to one half of one percent which it is at present. This has kept interest rate that the banks charge low but has gotten their depositors a rate of one tenth of one percent interest on the money they have deposited into the banks. Consequently the Commercial and Saving Banks are practically getting free money from their depositors, and feeing their depositors for everything thing they do for them, and while charging a lower interest than they used to still making millions in interest. It would seem that the banks are not operating in the interest of their depositors.

The Weiner Component Vol.2 #6 – The Federal Reserve: Part 1

English: Monthly changes in the currency compo...

English: Monthly changes in the currency component of the U.S. money supply as reported by the Federal Reserve at the St. Louis Fed’s F.R.E.D. website at: http://research.stlouisfed.org/fred2/data/CURRNS.txt The data was copy/pasted into an OpenOffice.org Calc spreadsheet, the monthly changes were calculated using a simple formula, then this image was generated from that data. (Photo credit: Wikipedia)

Every industrial nation or group of countries like the Euro-pact, which uses a common currency, has a Central Bank that largely controls that controls its Monetary Policy, the flow of currency within its borders. In Europe it’s called the Central Bank and in the United States it is called the Federal Reserve System or the Fed.

 

Initially when the United States was founded under the Constitution in 1789 the Secretary of the Treasury, Alexander Hamilton, suggested that a Bank of the United States be established; and it was in 1791. The bank served as a repository for federal funds and as the government’s fiscal agent.

 

The bank was privately owned, as money for it was subscribed by private citizens, but its prime function was to serve the new government. It was granted a twenty year charter by Congress and had branches in eight cities. Consequently in addition to acting for the government the bank also conducted general commercial business. Although it was well managed and profitable critics charged that it was favoring the mercantile class over agrarian interests. This brought about its temporary termination after its charter expired in 1811. In 1816 the Bank of the United States was reestablished because the country had faced financial problems during the War of 1812 and it received a new twenty year charter.

 

The Second Bank of the United States would exist until and through most of the second term of Andrew Jackson’s presidency. It’s President, Nickolas Biddle, attempted to force Jackson to sign a Congressional bill chartering another twenty year extension to the bank. President Jackson reacted to this by moved all new government income to a group of western banks, that became known as his “pet” banks, and spent the funds already deposited in the Bank of the United States before withdrawing funds from his “pet” banks to pay for the needs of the Federal Government. The Second Bank of the United States got a state charter and would eventually go bankrupt. The western “pet” banks went on a lending spree which inflated the sale of western land by hundreds of percent, resulting in a depression, when the bubble burst, that affected the entire United States during the tenure of the next President, Martin Van Buren. In any event the nation no longer had a Central Bank.

 

In 1913, during the Presidency of Woodrow Wilson, a new Central Bank was set up by Congress. It was called the Federal Reserve and was supposed to regulate the flow of currency within the nation in order to avoid the large and regular economic dips of recession and depression.

 

Its initial mission was to control Monetary Policy, the flow of money through the entire economy. Gradually Congress extended it purpose by new legislation. These gradual extensions were a broadening of Monetary Policy.

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Keep in mind that at this point in the history of the United States money or currency was specie; that is, it was gold or silver in the form of coins. Paper money did exist but it was a promissory note that could be exchanged at any bank, theoretically at any time, for gold and silver coins. However if this was done on a massive scale there would be a run on the bank and it would run out of money and go bankrupt. In order for business to properly occur more bank notes were printed than there was gold available.

 

Basically these metals, gold and silver, were purchased by the National Government and then minted into different denominations. The coins denoted the weight of the metal. A one ounce gold coin was a $20 gold piece. A one ounce silver coin was a silver dollar. Money, then, was exchanging value for value. The basic value of the metals was agreed upon international; so money as gold or silver could be used anywhere in the world.

 

In 1929, for various reasons, the Great Depression occurred. Under a Republican administration, that of President Herbert Hoover, the country, and, for that matter, the world, went economically downhill for the next decade. Each industrial nation had to work out its own deliverance from the Great Depression.

 

In 1932, the Democrat, Franklin D. Roosevelt was elected President of the United States. He introduced the “New Deal.” His basic program was the three R’s: relief, recovery, and reform. He attempted to offer employment to many of the unemployed, an end to the reasons for the depression, and reform by legislation or otherwise so it could never happen again.

 

Roosevelt was the longest serving President in the history of the nation. He served for four terms, through the Great Depression and most of World War II, dying in office during his fourth term.

 

Sometime during his first administration he had a bill passed by Congress that changed the use of money, first in the United States and then it was copied throughout the rest of the world. The Federal Government collected all the gold coins, with the exception of a small number that could be kept as souvenirs, issued paper silver certificates for one and five dollar bills and Federal Reserve Notes for any amount above that. The gold coins were melted down into bars of gold and stored in underground depositories like Fort Knox, situated around the country, with gold certificates issued for the gold, which the government kept on deposit to verify the value of the Federal Reserve Notes.

 

In essence money being worth its weight in gold became a myth. The gold certificates were never on display or otherwise available. There was never any record kept of actual gold being added or subtracted from the gold supply in the depositories. Money became paper, a token of no real value; everything else was a fiction.

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Early on in World War II the countries that were to become allies of the United States shipped their gold supplies to the U.S. I don’t believe the gold was ever returned to those nations. They spent the gold on buying supplies with which to fight the war. After the gold was spent the United States used a system called “lend lease” to supply its allies with the necessary food and war materials. Those goods were never really paid for monetarily. But World War II ended the last hangovers of the Great Depression. The United States and later the rest of the world emerged in different levels of economic fitness in 1945. All actual money had become paper tokens that were used to exchange goods and services for goods and services. The basic world currency, upon which all the other national currencies were based, after the war was the American dollar. It is still that today.

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The Federal Reserve came into being because of the depression or panic of 1907 and other extreme downturns in the economy. Attempts had been made during the late 19th and early 20th Centuries, by the moneyed class, mainly bankers, to control the economy mainly for reasons of profit. These, in turn, particularly when they failed, had exacerbated economic shifts within the economy, usually in a downward direction.

 

The Panic of 1907 and 1908 was also known as the 1907 Bankers Panic or Knickerbocker Crisis. Its causes took place initially over a three week period when the New York Stock Exchange fell almost 50% from its peak the previous year. It lasted for slightly over a year.

 

Monetary panics occurred during this time of economic recession and there were numerous runs on banks and trust companies. It spread throughout the nation with many state and local banks and businesses going bankrupt. The primary cause of the run was a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors, exacerbated by unregulated side bets of bank funds by banking executives.

 

The panic was begun in 1907 by a failed attempt to corner the market on stock of the United Copper Company. When this failed, banks that had lent money to the cornering scheme suffered runs that later spread to affiliated banks and trusts, leading a week later to the downfall of the Knickerbocker Trust Company, New York City’s third largest trust. The collapse spread throughout the city trusts as regional banks withdrew reserves from New York City banks. Panic extended across the nation as vast numbers of people withdrew their deposits from regional banks.

 

To simply state what happened was that the object was for a group of investors to gain control of the stock shares of United Copper Company. The group concerned controlled numerous banks and trust companies. They believed that a large number of shares had been borrowed and sold short. (To sell short is to sell a stock at a higher price before one owns it, then when the price drops buy the stock at a lower price, and eventually pocket the profit.)

 

The group believed that a majority of the stock was held by the Heinze family and that a significant number had been borrowed and sold short on the belief that the price would drop considerably. Their aggressive purchasing would drive up the price of the stock. The short sellers would be forced to come to them in order to purchase stocks that they had already sold and they could charge whatever they wished.

 

United Copper rose in one day from $39 to $52 a share. It then went up to nearly $60 a share, but the short sellers were able to able to find United Copper from other sources. The group has misread the Market and the stock price began to collapse. It closed at $30 and then dropped to $10 a share. The manipulators and the banks they represented were ruined. As news of the collapse spread depositors rushed to pull their money out of these banks. The run on banks spread throughout the city. A week later many regional stock exchanges throughout the nation were closing or limiting trading.

 

The hero of the crisis was J.P. Morgan. He coordinated the heads of the banks and trust companies and was able to keep the total economy of the United States from collapsing. The Panic of 2007 was from May 2007 to June 2008, 13 months. While it started and was centered in New York City the entire nation was involved. There was bank panic, runs on banks and trusts with crowds of depositors withdrawing all their funds, and falling stock prices that resulted in massive economic disruption. Production fell 11% in the nation, imports went down by 26%, and unemployment rose to 8% from under 3% two years earlier. Even immigration dropped to 750,000. It had been 1.2 million two years earlier. J. P. Morgan lost about $21 million straightening the situation out.

 

The frequency of economic crises and the severity of the 1907 panic led to a national debate on reform of the system. In May 1908 Congress passed the Aldrich-Vreeland Act that established a National Monetary Commission to investigate the panic and propose legislation to regulate banking.

 

It was discovered that the major difference between European and American banking systems was the existence of a Central Bank which controlled Monetary Policy. They could easily move money to where it was needed. The European nations all had one, the United States did not. The European states were able to extend the supply of currency during periods of low cash reserves. The United States had a great problem doing this.

 

The final report of the National Monetary Commission was on January 11, 1911. For nearly two years Congress debated the proposal. On December 23, 1913 Congress passed the Federal Reserve Act. President Woodrow Wilson signed the bill immediately and the legislation was enacted on the same day, December 23, 1913, creating the Federal Reserve System as the Central Bank within the United States.

 

 

English: Flag of the United States Federal Res...

English: Flag of the United States Federal Reserve Bank (Photo credit: Wikipedia)

The Weiner Component Vol.2 #5 Part 2 – President Donald J. Trump

Imagine a 17 year old adolescent in an over-fed 70 year old body with all sorts of insecurities who thinks of himself as being king of the world, and is surrounded by “yes men,” and you have an image of Donald J. Trump.

 

President Donald J. Trump is a Dorf.  In certain areas he is very secretive, while in other areas he makes constant dramatic public announcements, always talking about his great achievements.  Thinking back over former President Barack Obama’s eight year tenure as Chief Executive one remembers a formal signing of the Affordable Health Care Bill during his second year in office.  Looking back after Donald Trump being in office for three weeks there have been innumerable signings of his many Executive Orders.  He seems to take the position of a 16th Century European monarch, continually giving orders to the country.  But we are in the 21st Century and many of his Executive orders end up being suggestions for Congress to pass bills, which they may or may not do.  Most of his Executive Orders do not initiate anything.  Others are like his tweets: single sentences that tend to be fairly to very general in the area in which he is dealing.  The results of these can be obscure as his language use may not be clear.  All of them are in a black folder ready to be put on a shelf in his library after he retires from office.

 

Among other things President Trump ordered the Environment Protection Agency (EPA) to not make any public reports about pollution or anything that would upset his plans to limit the industrial expansion by increasing pollution.  He also ordered other units of government to not release or publish any similar type of information.  In turn when the general public became aware and protested loudly Trump backed down.  One wonders how much repression he is going to attempt.

 

In addition all ads urging sign-ups for Affordable Health Care (Obamacare) were cancelled.  And this includes those that had been already paid for.  His actions in this area threaten to undermine the nation’s medical insurance market by continually changing the parameters under which these policies are written, causing the insurance companies to lose their predictability factors as to what to charge for their services.

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On Friday, January 24th, just four days after he had assumed the presidency, Donald Trump issued an Executive Order suspending the issuing of visas to Muslims for 90 days from seven specific countries: Iraq, Iran, Syria, Yemen, Libya, Sudan, and Somalia.  He did not bother with our close ally, Saudi Arabia from which Osama bin Laden, the organizer and head of al-Qaeda, came.

 

The Secretary for Homeland Security is in charge of this move that is protecting the United States from foreign terrorist’s entry into the country.  No refugee will be admitted into the country for the next 120 days.  No one will be allowed in from Syria at all.  Muslim students, who are in the process of going to a U.S university and have gone to visit their parents over the holidays, generally will not be allowed back into the country.  Non-Muslims (Christians) from these countries will be allowed into the U.S.  Trump has stated that this is not a Muslim ban.

 

The result of this has been mass confusion at the nation’s airports.  The immediate effect has been to cause immediate confusion since a number of people from these seven countries were already in airplanes flying to the U.S.  Also the Home Security Agents at the airports stopped all Muslims coming into the country even those who ordinarily live in the United States and are returning home to their families. 

 

The Executive Order was passed with no warning.  Military officers are contending that it will hurt their relations with members of these countries who are fighting ISIS.  In fact an Iraqi legislator wanted to bring up a bill that would exclude all Americans from that country.  Inside the State Department some officials are contending in a document that closing the nation’s doors to 200 million people in order to weed out a handful of would-be terrorists will not make the nation safer but might instead increase the threat of violence.  The State Department affirmed the existence of this internal memo on Monday, January 29th. 

 

Meanwhile it’s been madness at the airports across the nation with millions of Americans peacefully and loudly protesting Trump’s edict.  The ACLU has been present at all these airports ready to represent the incoming Muslims.  It should be noted that even some top Republicans criticized the directive. 

 

The White House defended the Executive Order rollout as a success.  On Friday it led to the detention of more than 100 people landing at airports across the nation with valid entry documents.  Well over 200 individuals with valid visas were denied permission to board flights to the United States.   

 

An emergency stay was issued by a Federal Judge in Brooklyn, New York on Saturday.  In other areas of the country four other Federal Judges issued temporary stays.  Trump tweeted about Senators John McCain and Lindsey Graham objections that despite a rigorous existing security process, arrivals until now have not been properly vetted. 

 

The interesting note or irony to all this is that under President Barack Obama vetting of immigrants could take up to two years.  But under President Trump it is currently limited to 120 days.  Apparently Trump has a need to direct everything as President.  It as though in his mind nothing happened before he entered his new office.  In any event he does have the ability to increase his negative image among the American people.  He is probably the only president in the history of the country who can continually increase his unpopularity level among the people of the country.  And this during his first week in office.

                         

During the first week of February a Seattle Judge issued a national temporary restraining order on the ban after Washington State and Minnesota sued.  The Justice Department appealed to the 9th Circuit Court.  They argued that the president has the Constitutional power to restrict entry into the United States and that the courts cannot second-guess his determination that such a step was needed to prevent terrorism.  The states argued that Trump’s ban harmed individuals, businesses, and universities.  They cited Trump’s campaign promise to stop Muslims from entering the U.S., stating that the ban unconstitutionally blocked entry to people based upon religion.  All three Judges on the Appeals Court sided with the states.  The cancelation of the ban was continued. 

 

Trump stated that he will appeal the case.  If the second appeal goes before the Supreme Court with four conservative Judges and four liberal Judges and the result is a tie then the 9th Court Appeal’s decision stands.  The probability, however, is that at least one or two of the conservative Judges will probably uphold the Appeals Court decision, then it will be 5 to 3 or 6 to 2 in favor of upholding the lower court’s verdict.  Trump has a problem with rejection.  What does he do then?

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During his first twenty days in office President Trump has gone from crisis to crisis.  In all probability each new crisis was supposed to wipe out all objections on the preceding one.  In all it’s been a strong emotional ride for the American public.

 

First came his non-resolution for his conflict of interest.  He refused to get rid of his business interests and set up a blind trust.  Instead he turned all his business interests over to his older sons.  Presumably he will have nothing to do with them while he is president.  But as President-Elect he charged a multi-thousand dollar entry fee to anyone who wanted to spend New Year’s Eve at his party with him in his Florida club.  He brought back the Keystone XL pipeline which Obama had canceled and in which he invested quite a bit of money.  He also took on Nordstrom because they dropped his daughter’s business.

 

On his first full day in office there was the Women’s Protest March throughout the major and many minor cities of the United States and throughout Europe.  This was a historical first in the United States. 

 

Meanwhile he disrupted relations with our neighbor Mexico by insisting that Mexico will pay for the 12,000 mile Wall he is going to build between the two nations.  The Mexican President cancelled a diplomatic visit with the “world’s greatest negotiator,” as Trump has defined himself.

 

He has insisted that Obamacare is a disaster and that it will be replaced by a better plan.  The Republican Congress has begun the process of defunding Affordable Health Care but there doesn’t seem to be any replacements.  In fact the only plan there is in existence now is a voucher system, which has been discussed but not acted upon.  This will cost the recipients more every year since the probability is that medical costs will rise but the costs paid out in vouchers will not go up.  The Republicans talk about making access to what will be Trumpcare available to all but not about helping fund it for those who cannot afford to buy it.

 

Trump generated the Muslim Travel Crisis to the U.S. without any warning to anyone.  In essence he has shut the nation’s door to most refugees.  Even though, at least, five Federal Judges have put temporary bans upon the order from Brooklyn to Los Angeles, Trump has declared his ban a success.  He has threatened to make it permanent.  An Appeals Court has found it unconstitutional.  To Trump the point that it not constitutional would seem to be beside the point.  He says that it is necessary to keep terrorism out of the country.

 

The former Acting Attorney General has refused to defend Trump’s Executive Order in Court.  His response has been to fire her.  An interesting note of interest here is the fact that when the Acting Attorney General, Sally Yates, was being questioned by the Senate, Senator Jefferson Beauregard Sessions, the current, as of a few days ago,  Attorney General asked her who was primary in her carrying out her function in the Department, the President or the rule of law?  Her answer was the rule of law.  Trump fired her for doing just that.  He placed another person in her position who would use the Department to support the President rather than the rule of law.  And now that Jeff Sessions is Attorney General where will he place the emphasis?

 

Trump has appointed a reactionary individual, Judge Neil M. Gorsuch, to replace the former conservative Justice, Antonin Scalia, who died about a year ago.  A large percentage of Democrats believe the Trump has stolen a Supreme Court seat that should have come under the jurisdiction of President Barack Obama since Scalia died about a year ago and Trump has been President for a little over three weeks.

 

We are also dealing with the question of lifting sanctions placed upon Russia after she invaded and seized sections of some of her neighboring countries.  And the issue of Sanctuary Cities where the local enforcement authorities cannot be used by the Federal Government to enforce Federal Immigration laws or edicts against Muslims.  The California Legislature is currently dealing with a bill to make the entire state a Sanctuary one.

 

The interesting note of irony here is that the Republican Party is the minority political party in the United States.  They have essentially gotten control of Congress by gerrymandering political districts and the presidency with a minority vote.  Can Trump and the Republicans continue to enforce their will upon the American People?  There is a midterm election in November of 2018 and a Presidential Election in 2020. 

The Weiner Component Vol. 2 #4: Part 1 – President Donald J. Trump

speaking at CPAC in Washington D.C. on Februar...

As of January 20, 2017 the United States had a new president and he certainly seemed different from any that had come before.  On his second day in office a good percentage of women in the county with the aid of some men held protest marches in all the major and a lot of minor cities, not only in the United States but also throughout the world.  Celebrities and female members of Congress came out with anti-Trump speeches.  One march was held within sight of the White House.   Instead of acknowledging this as a First Amendment right, Trump ignored the happening.  On a much smaller scale this has been repeated within the United States every day since, throughout Trump’s first two weeks in office.

 

At the Women’s Marches the women judged Trump, who had previously, over most of his life, judged them on a 1 to 10 scale according to his sexual preference, and found him as president on a scale of 1 to 10 rating below zero.

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Now that Trump has been elected President of the United States he is a very nervous head of state.  He can’t seem to get it out of his head that Hillary Clinton received 2.8 million more popular votes than he did.  With absolutely no evidence but a hurt ego, he has stated that he believes that all those extra votes that Clinton got were cast by non-citizens, people registered in more than one state, or by people voting in the name of dead individuals.  He also stated that many people who are registered in two or more states, vote in each. 

 

His daughter, Tiffany is registered in two states.  So is one of his advisors, Steve Bannon. And so is one of his son-in-laws who he is now using as one of his advisors.   People reregister when they move out of a state or to different residences within a state.  There is no mechanism to unregister.  Apparently, one’s name is removed from the voting rolls if an individual does not vote for a number of years.  Somehow Steve Bannon recently got his name removed from a Florida registration.

 

But Trump seems to feel that all this is a plot that kept him from getting both the electoral vote and the popular vote.  He cannot believe that a large number of voters did not really purposely vote for him.  Instead they voted against Hillary Clinton.  The improper balance of votes and false or fake news brought about her defeat.  Trump just happened to benefit from these.  He is the least popular or most disliked candidate in the history of the United States to have run for president.

 

Now, as President, he has ordered an investigation of the voting practices in the last Presidential Election.  The results should be interesting.  All the current evidence implies that all the cheating on voting is a very small fraction of one percent, certainly not the almost three million votes that Trump did not get.  I suspect the public will never hear the results of this investigation if it is even carried out.

 

During the campaign one long-time reporter on the staff of the Wall Street Journal defined Trump as a perennial adolescent who never really grew up.  Apparently what he learned up to that time he still knows.  Anything that has happened to him since that time just reinforces what he already knows. 

 

For some unknown reason this reminded me that Trump, who has never been in the military, was sent by his parents to a Military High School for his education.  Why would New York City parents send their child to a military high school?  The answer would be to get rid of a child who was essentially out of control.  If he misbehaved there he would be sent to the guard house, something his parents could not necessarily do.  Trump is very proud of his high school years which, he believes, gave him a knowledge of the military, since he never served in the armed forces.

 

Most people if they find things in their lives that they don’t like try to change that aspect of their lives.  But Donald Trump does not do this.  Instead he lives in an alternate reality.  If he finds something he does not like he innately knows that it is wrong and takes action accordantly.  With a contractor he has hired for something he knows that he has paid him enough and stops paying him, usually on the last instalment.  With the popular presidential vote he knows that he really won it.  Therefore people must have cheated at the ballet box.  As President he can call forth the forces of the nation to discover his alternate truths.  As a result President Trump is unique and totally scary.  There is no telling what he might do with his alternate reality.

 

If we assume the Wall Street reporter’s analysis of Trump was correct then is the man today any different from the adolescent high school student?  He is thin skinned, generally verbally attacks anyone who criticizes him, ignores group protests protected by the first Amendment, and can be erratic with constantly changing decisions.  Like many adolescents he seems to be incapable of being briefed with by the Intelligence people or, for that matter, by anyone else.  His concentrative ability seems to be relatively short where he is not directly involved in what is going on.

 

Lynden B. Johnson, when he became President of the United States, after the assassination of John F. Kennedy, fulfilled what seemed to be his lifelong ambition.  He became the most powerful man on earth.  What he found was that even though he had the power he couldn’t use it.  He ended up losing the Viet Nam War even though he escalated that war.  Donald J. Trump may not be smart enough to realize that limitation.  And that is really scary as he will be President until 2020, unless he is impeached prior to that time.

              

One thing Donald Trump does do is to project some of his own negative aspects upon any opponent.  For example, during his campaign struggle with Hillary Clinton, Trump called her “Crooked Hillary.”  It seems that he and the Clintons both ran altruistic Foundations.  His was run according to his rules which in many cases legally had nothing to do with the way a Foundation is supposed to function.  Much of what he did with the funds that were contributed by others benefited him directly.  Since the Foundation the Clinton’s had was ten or more times larger than his they must have been at least ten times more dishonest than he was.

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Trump believes in secret prisons outside of the country and that, in interrogating prisoners, torture inevitably works in gaining information from them, as was done under the President George W. Bush’s administration.  Even though the majority of military, CIA and FBI interrogators are against the use of torturing prisoners and do not believe it is an effective way to get information out of enemy prisoners.  The use of this type of “enhanced interrogation,” to quote former Vice President Dick Cheney, is now illegal.  I suspect both Donald J. Trump and Dick Cheney know it works because they feel if they were tortured they would tell the person questioning them whatever they wanted to know.  He is, however, willing to not push this point since his Secretary of Defense does not believe in the use of torture or secret prisons.  But he knows, without any evidence or experience, that torture absolutely works.

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During most of his presidential campaign Donald Trump boasted that as President he would build a high wall between the United States and Mexico to keep thieves, rapists, and murderers from coming into this country from Mexico.  He also boasted that Mexico would pay for the wall.  The Mexican government stated that under no circumstances would Mexico pay for such an enterprise.

 

On Wednesday, January 25, 2017, five days after Trump officially became President of the United State, he signed an executive order beginning work on this enterprise.  The Mexican president then cancelled an official visit to the U.S. and blatantly stated that under no circumstances would Mexico pay for the wall. 

 

Trump stated that it would be complicated getting Mexico to pay for the wall.  On Thursday, January 26 he announced his plan.  There would be a 20% tax on all imports into the United States from Mexico.  Whether this is his opening position or final position is unknown at this time.  In either case it would cancel out the NAFTA agreement with Mexico and make the United States a non-dependable trading partner since it would thereafter have a reputation for changing international trade rules arbitrarily by ignoring its own Trading Treaties.

 

It should be noted that the two countries share a twelve hundred mile border and while some areas in connecting cities where the two country’s border touch, currently have fences; these may not come up to Trumps expectations.  Depending on the fence or wall that Trump wants to build the costs will be anywhere from 3 billion to 33 billion or somewhere above that.  Imagine how much it cost to build a fence around a home property.  There the fence or wall will be, at most, six feet high.  The wall Trump is talking about would be fifteen to twenty feet high and extend for 1,200 miles. 

 

As of Wednesday January 26th the United States would pay for the WALL but will eventually get its money back from a 20% tax on all goods coming into the country from Mexico.  That was the plan on Thursday morning but by Thursday late afternoon the plan had disappeared.  However on the next day, Friday, it was being touted again.  It disappeared again the day after.

 

This so-called wonderful plan of Trump’s will firmly place the cost of building the Wall on the backs of the American taxpayers by placing the payment of the wall firmly on Americans in the U.S.  It will also significantly reduce the purchasing of Mexican products in this country by raising the price of all goods imported from Mexico twenty percent.  Mexico will reciprocate by placing a similar tax upon American goods coming into Mexico.  The result will be a trade war that freezes out a large percentage of purchasers in both countries for people who can no longer afford the assorted items being shipped from one country to the other and both countries will be harshly effected since today both have major trade with the other . 

 

This will be particularly troublesome because Mexico currently is the second largest export market for the United States.  One of the many types of products that comes to the United States from Mexico are fresh fruits and vegetables, particularly during the winter season.  With a twenty percent increase in cost many people will no longer be able to afford these products.  This will take the U.S. back thirty or more years when people had fresh fruits and vegetables in season only, instead of all year.  Not only Mexican farmers and American consumers will be hurt but the entire pattern of trade will be hurt negatively affecting people in both countries.  It may also disrupt trade with many of our other trade partners and destroy the NAFTA agreement between the two counties which has been highly effective for both sides.

 

In addition, once the wall is completed it will have to be constantly monitored.  This will require a large number of crews monitoring it over all twelve hundred miles.  It will cost billions to build and additional billions to care for it.  Even if the United States could get it built at no cost it would still cost vast amounts to maintain it.

 

The entire plan is crazy.  The U.S. will be putting out multi billions of dollars, increasing the National Debt, which may or may not get all its investment back over an unknown number of years; meanwhile standards of living in both countries will drop with the rise in prices.  It is a sad use of resources while the U.S. has a fair sized homeless population of which just the city of Los Angeles, according to a recent count, had 47,000 homeless, many of whom will die of exposure during the winter season.  In addition there are far more things to be done in the U.S. particularly regarding its infrastructure that should take priority over a wall separating both nations.  

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Donald J. Trump has been very busy during his first week in office signing executive orders, each neatly placed in a black leather folder.  The problem here is that the majority of these single page documents are not executive orders, they are, if anything, requests to Congress to pass laws that will put these statements into practice.  Of the smaller percentage that are executive orders many contain contradictions that make carrying out the order impossible.  The problem here is that Trump and his staff need to learn what the parameters of executive orders are before he or they start writing them.

 

President Trump has retired or fired the entire upper echelon of the career diplomats at the State Department who have served under both Republican and Democratic presidents.  When the new Secretary of State takes command of that department he will be missing a whole layer of career executives who run the departments on a daily basis as well as many of the trained negotiators.  Of course Trump, who considers himself the world’s greatest negotiator, may appoint a whole new cadre of people to run it but they would not have any experience at doing so.  It would be like bringing back the 19th Century Spoils System into the 21st Century.  These positions are too important to give to loyal amateurs.

 

In addition a large percentage of the individuals who work for the State Department have signed letters of protest against one of Trump’s executive orders baring the entrance of Muslims from entry or reentry into the United States.  They have stated that this order will do more harm than good.  Trump’s press secretary has stated that they can either carry out the order or leave the Department of State.  With the career leadership already having been removed from the State Department and a mass quitting or firing among the rest of the personnel Trump could well begin his tenure with a Secretary of State and a non-functioning Department behind him.  In either case the moral at the Department has never before been as low as it currently is. 

 

So far, after about two weeks in office, Trump would seem to be his own worst enemy as far as running the United States.

The Weiner Component Vol.2 #3 – The Purpose of Government

English: Citizens registered as an Independent...

English: Citizens registered as an Independent, Democrat or Republican. Derived from :Image:Party affiliation USA.jpg. (Photo credit: Wikipedia)

If the question of what is the primary purpose of government in the 21st Century is raised then depending upon which major political party you adhere to you get different answers. 

 

Historically people have always been social animals, always functioning in groups with some form of social organization.  Traditionally governments have functioned to provide a framework in which people have lived.  They have provided rules or laws that have allowed them to live together, kept them safe within the society and from foreign invaders, provided the necessities for reasonable living conditions and protected their property.  These governments have provided a currency and regulated trade within and with other nations.  Other than that people have provided for their individual needs for themselves.  This, in essence, is the Republican concept of the function of government.

 

In 1929, through following these concepts and unlimited growth on the stock market, the United States economy crashed and billions of dollars were lost almost overnight in the 1929 Great Depression.  From 1929 through 1932 feeble attempts were made by the Republican dominated government to allow the Stock Market to adjust itself.  Instead it kept dropping lower.  This occurred from 1929 through 1932, when it and the rest of the economy reached its lowest level.  The Market Model was unable to adjust itself; it had been abused too much.

 

In 1933, the Democrat, Franklin D. Roosevelt became President, replacing the Republican, Herbert Hoover.  Roosevelt, in dealing with the massive unemployment problem, extended the purpose of the Federal Government, by having the Federal Government assume responsibility for those people who could no longer function successfully within the broken society.  He created mechanisms whereby these people could again function with a measure of success within the economy.  The Federal Government had now assumed responsibility for the people in the country who could no longer provide for themselves.  This now became the new additional function of the Central Government. 

 

While conditions improved considerably the Great Depression did not end until about 1940 with the outbreak of World War II when first European and Asian nations bought unlimited goods from America and at the end of 1941 when the Federal Government began unlimited spending in fighting the war. 

 

The government had dedicated itself to a new purpose which would continue on after the war had ended, more or less, depending upon which political party controlled the Central Government.  The Republicans tended to favor business and the wealthy, limiting social spending as much as possible, while the Democrats favored the middle and lower class extending this practice as much as they could.

 

Currently with the Republicans in control of Congress and the Presidency they are moving to get rid of Obamacare (Affordable Health Care).  They are presumably going to replace it with Trumpcare, whatever that is.  Probably it will be a voucher system that will be cheaper for the government to operate, but will gradually become more and more expensive for its recipients as medical costs increase but government vouchers do not.

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Two events occurred: one began in the 1970s, an increasing need for more money to be available in the National Cash Flow; and the other in the 1980s with the election of Ronald Reagan to the presidency.  In the earlier decade the major banking houses in the country began packaging mortgages in small fractions and selling them.  They did this gradually on a larger and larger scale.  The process took off in the 1980s with the Reagan White House.  This, in turn, increased the value of the homes.  In essence a percentage of the population began mortgaging and refinancing the ever increasing value of their houses over and over again.  At no time during the 30 years of this period was there any real inflation in the country.  For the first 10 years the country was in an inflationary cycle that began with the Viet Nam War.  This was ended at the beginning of the 1980s.

 

Reagan was the first of the really Conservative Presidents.  Forty-five years earlier he had majored in economics as an undergraduate in college.  Since that point in history economics had developed far from where it had been when Reagan was a college senior.  Much more about its functioning was understood in the 1980s.

 

Adam Smith began modern economics with the publication of his work,  “An Inquiry into the Wealth of Nations,” in 1776.  In this work, among other things, he developed the Market Model, which functioned through the use of the “invisible hand.”  The invisible hand is the profit motive.  Smith believed that the profit motive would best make all the Market decisions of what to produce and how to produce it. 

 

President Ronald Reagan and a good percentage of Republicans in Congress also believed this.  During his presidency hey did away with all bank regulatory laws that had been developed during the 1930s and beyond to avoid another Great Depression.

 

In the period before the 1929 Stock Market Crash many bank executives had taken depositors monies and invested them in stocks.  Shortly thereafter when the price went up they had sold the stocks and pocketed the profits.  People could also buy stocks on margin; all an investor needed was 10% of the value of the stock he/she bought, the banks would lend the remaining 90%.   The problem here was that many people were in love with the concept of the stocks, not with their true value, and they kept forcing up the value of all the stocks by continually buying and selling them.  This created a bubble that had to burst at some time.  When it did, from 1929 on, it not only bankrupted innumerable stockholders but also innumerable banks with unbelievable negative effects upon the overall economy.

 

The result of what Reagan considered reforms was that a multitude of banking organizations began an almost limitless level of refinancing homes, allowing people to take their ever increasing equity out of their properties to buy whatever, and countless billions of dollars were created in the National Cash Flow allowing almost endless spending.  All of this occurred until 2008 when the bubble burst.  Interestingly some of these companies insured the bank loans, charging generous premiums.  These companies and many banks faced immediate bankruptcy with the crash.

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In the year 2008 the Housing Bubble, that had been developing over the last forty years, burst, bringing about an almost instant and complete drop in home property values.  People’s home values virtually dropped overnight hundreds of thousands of dollars per single unit leaving a percentage of homeowners underwater, suddenly owing more on their home properties than they were worth.

 

This process had been slowly building since the 1970s, with it massively accelerating during the Reagan administration in the 1980s, when virtually all banking laws, many of which came into being during The Great Depression in the 1930s, were done away with and the country followed the administration’s mantra of letting the Free Market make all the economic decisions.  A good percentage of the population, with strong encouragement from the banks, had gone through a wild period of spending.

 

Specifically what happened was that the country did not have enough money in the National Cash Flow to meet its needs.  There was a shortage of money in the overall society.  The banks, among the many services they perform for the general society, also can increase or decrease the amount of cash available within their specific regions.  They do this through their lending or non-lending practices.  Most exchanges of cash at this time was through the transfer of funds by writing checks, bringing about an exchange of numbers in different columns of different bank ledgers.

 

People discovered the advantages of their equity in their home loans by taking out First, Second, and Third mortgages based upon their equity.  Over the forty year period as people borrowed upon their homes the value of their homes went up continually.  It seems the continual borrowing created a desire in people who rented living space to attempt to buy homes, forcing up the value of the homes even more for this forty year period.  Properties that were purchased for well under one hundred thousand dollars, because of the sudden great demand, were worth hundreds of thousands of dollars. 

 

For the forty year period, well into the year 2008 home values kept rising.  People refinanced their properties over and over again buying whatever they wanted.  The overall economy prospered.  People bought all the toys they ever wanted: boats, mobile homes for traveling, whatever.  There was no real inflation.

 

By the year 2007 the indications of a collapse were present for those in a position to understand what was going on.  But the bankers, who had taken home millions in compensation, were in total denial.  They were incapable of understanding that conditions could change.  To encourage further refinancing many banks raised the level of refinancing homes to 125% of the appraised value of the property.

 

Toward the end of the year 2008 the bubble burst or the crash came.  Many homeowners suddenly discovered that they were underwater, owing more on their home than they were then worth.  Some just walked away from their properties, leaving a deserted house behind them.  Others just stopped making payments they could no longer afford.  Unemployment rose significantly. 

 

Hedge Funds that had been developed from some of this mortgage paper were suddenly worthless.  Banks foreclosed upon properties that they both owned or had owned and sold to hedge funds.  The entire situation was a total mess.  Hedge funds were suddenly worthless, many banks were on the point of bankruptcy.  It looked like the entire economy was on the point of collapse.

 

At this point President George W. Bush and his Treasury Secretary, Hank Paulson, arranged for bank loans to keep many financial institutions from going bankrupt.  Then Bush was replaced by President Barack Obama who continued the bank loans and also bailed out the American auto industry which was also at the point of bankruptcy at that time.  With President Obama’s massive spending efforts what could have been a greater depression than the Great Depression of 1929 turned into what has been called the Great Recession, from which the country is still on its way out of.  By January of 2017 unemployment in the United States had dropped to 4.8%. 

 

The problem that existed here is that from the 1970s on more money was needed in the economy that should have been supplied by the Federal Reserve on a more gradual level.  A controlled increase of funds for the nation would have allowed for a slow healthy economic growth with no crash in 2008.  Allowing the banks to do this with just the profit motive led to unlimited and reckless greed as the major factor controlling the economy.

     

English: Franklin Delano Roosevelt and Herbert...

English: Franklin Delano Roosevelt and Herbert Hoover in convertible automobile on way to U.S. Capitol for Roosevelt’s inauguration, March 4, 1933 (Photo credit: Wikipedia)

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Th

e Great Depression was caused by the Republican’s legislating after World War I.  This was from the election of Warren Harding to the presidency through Herbert Hoover.  They created the necessary laws and general milieu that allowed it to come about.  The Housing Crash of 2008 was set forth by the policies of President Ronald Reagan.  He inspired and brought about the environment that allowed the financial institutions to go berserk through the unhampered use of the profit motive.  Now, with the election of Donald J. Trump to the presidency an equally horrible situation exists with the Republican legislature and Trump promising to do away with Affordable Health Care and the distinct possibility of taking medical care away from about 30 million citizens.

 

During his first year as President in 1993 William Jefferson Clinton, among other things, attempted to set up a system of Universal Health Care for all the people in the United States.  He placed his wife, Hillary, in charge of a task force that was supposed to develop a plan for this.  The Republicans were strongly against it.  They tried everything they could to kill this plan.  Finally they succeeded when they came up with a slogan: “There has to be a better way.”  The “better way” ended up being: No way.  With this mantra they successfully ended the plan for universal health care in 1993.

 

During President Barack Obama’s first two years in office he had a Democratic majority in Congress.  Together, they came up with a plan for the majority of people in the country to achieve health care.  The plan had been developed by a Republican think tank for Mitt Romney, when he was governor of Massachusetts.  I imagine that President Obama assumed that a Republican Plan would gain some Republican support in both Houses of Congress.  But by that time the Republican members of Congress had in a caucus and taken an oath to make Obama a one term President by not supporting anything he supported or for which he could take credit.  As a consequence they have vigorously opposed and continually denounced Obamacare (Affordable Health Care), which was in actuality their plan.  Affordable Health Care was passed in Congress strictly on a party basis, not one Republican Congressman voted for it.

 

In 2011 the Republicans gained a majority in the House of Representatives.  From then on the House passed bills to do away with Affordable Health Care; this was over fifty times.  While the Democrats controlled the Senate the bill was not even taken up there.  In 2014 the Republicans also gained the majority in the Senate.  In 2016 they gained Donald J. Trump as the new Republican President.  They are promising to replace Obamacare with a new and better policy.  But no specific plan seems to be on the horizon.  Meanwhile the first steps have been taken to begin the process dismantling Affordable Health Care.

 

Interestingly even the Republicans are now stating their sense of responsibility for the medical welfare of the general public.  But Affordable Health Care was their plan for universal health care.  It entails using private enterprise to bring universal medical care into existence. 

 

What is interesting or strange is that in 2012 when President Barack Obama ran for reelection, his Republican adversary, Mitt Romney and his fellow Republicans seem to have totally forgotten the Crash or Great Recession of 2008.  When elected they were going to do away with the laws passed in 2009 and 2010 to avoid that situation from occurring again.  And the same is true about the Presidential Election of 2016.  It would seem that the Republicans have some sort of collective amnesia about their own past.  The difference is that in 2016 the Republican candidate, Donald Trump and his fellow Republicans won the election, not only the presidency but also both Houses of Congress.  What will they do?  It seems that the Republicans themselves are not sure