The Weiner Component #146 Part 2 – The Republican Party & the Future

English: Woodrow Wilson.

English: Woodrow Wilson. (Photo credit: Wikipedia)

4 U.S. Presidents. Former President Jimmy Cart...

4 U.S. Presidents. Former President Jimmy Carter (right), walks with, from left, George H.W. Bush (far left), George W. Bush (second from left) and Bill Clinton (center) during the dedication of the William J. Clinton Presidential Center and Park in Little Rock, Arkansas, November 18, 2004 (Photo credit: Wikipedia)

Franklin Delano Roosevelt, 1933. Lietuvių: Fra...

Franklin Delano Roosevelt, 1933. Lietuvių: Franklinas Delanas Ruzveltas (Photo credit: Wikipedia)

One of the effects of the American Civil War was the industrial concentration of large groups of people needed to manufacture the goods required by the military confrontation.  This slowly began the movement which would become, through the rest of the 19th and early 20th Centuries, known as the Rise of the Cities. This Industrial Revolution would increase after the War, people would leave the rural areas and numerous immigrants would come to the ever-growing cities and the United States would become mainly an urban nation.

 

From 1877 on, when the Southern occupation or Reconstruction by a Northern army of occupation ended as a result of a deal made during the disputed Presidential Election of 1876 in which the Republicans got the presidency and Reconstruction ended, with the South becoming freely again a part of the Union.  The Senate barely remained Republican and the House had a Democratic majority.

 

A Republican, James A. Garfield was elected in 1881.  He was assassinated four months into his term and was replaced by his Vice President, Chester A. Arthur, who served out the four years.  The Senate had an equal number of Republicans and Democrats and the House had a Republican majority.

 

There were an equal number of Republican and Democratic presidents after until you get to the reform presidents, Theodore Roosevelt and William Howard Taft, who are both Republicans.  They are followed by the Democrat, Woodrow Wilson, and World War I.  He will be succeeded by three Republican Presidents: Warren G. Harding, Calvin Coolidge, and Herbert Hoover.  At that point we have the Great Depression of 1929 which lasts until World War II.  The Congress will generally follow the lead of the reigning president.

 

The next President in 1933, by a landslide, was the Democrat, Franklin D. Roosevelt.  Both the House and Senate maintained a Democratic majority during his terms in office.  He is reputed to have brought unemployment down from 25% to 2%.

 

After his death, during his fourth term, his Vice President, Harry S. Truman, served the rest of his fourth term and an additional one of his own through 1953.  During his last two years in office the Congress had a Republican majority.

 

Republican President, Dwight D. Eisenhower, during his eight years in office, intermittently had both Democratic and Republican majorities in both Houses of Congress.  Democratic Presidents, Kennedy and Johnson had Democratic majorities in Congress.  The same is true of Republicans, Richard M. Nixon and Gerald Ford.  From January 1977 to 1981 President Jimmy Carter had Democratic majorities in both Houses of Congress.  Ronald Reagan had Democratic majorities in the House and mostly the same in the Senate.  George H.W. Bush had to work with Democratic majorities during his four years in office while Bill Clinton had them only during his first two years in office.  George W. Bush had both during different times and Barack Obama had a Democratic majority only during his first two years, then a Democratic Senate and a Republican House, and a Republican majority in both Houses of Congress during his last two years in office.

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In the post-Civil War period, as earlier, recessions and depressions came, at the best, every few years or at the worst, almost successively, with occasional major downturns like the Bankers’ Panic of 1907 at the New York Stock Exchange.

 

On December 23, 1913 Congress passed and President Woodrow Wilson signed the Federal Reserve Act bringing financial regulation into existence in the United States.  Prior to this time Adam Smith’s “invisible hand,” which he defined as the motivating force behind the Market System, determined which way the Stock Market would run.  The “invisible hand,” self-interest, individual greed, had historically caused continual large fluctuations in the Stock and other Markets.

 

The mission of the Federal Reserve was through Monetary (money) Policy to maximize employment, keep prices stable, and moderate long term interest rates.  This purpose was extended with bank regulation during FDR’s New Deal.  In the 1980s the Reagan administration canceled the bank regulation.  This, in turn, led to the Real Estate Bubble two decades later.  And because of the banking-caused Real Estate Debacle of 2008 the Federal Reserve’s purpose was again expanded to supervising and regulating banks, maintaining stability of the financial structure, and providing financial services to depository institutions, the United States Government, and foreign official institutions.

 

Of course the banks objected to the 2009 reforms and in the 2014 Federal Government’s Finance Bill, Citibank was able to slip in a section into this 1,600 page law limiting this power.  This was done the night before the bill had to be voted upon.  Naturally the banks object to any regulation that limits them.  I would also suppose that their executives would equally object if any of them were sent to jail for illegal activities instead of having the bank just paying fines as they have been doing since 2009.

 

In the 2012 Presidential Election the Republican Candidate, Mitt Romney, publically stated, more than once, that after he was elected he would do away with the Dodd-Frank Banking Reform Bill that was passed in 2009.  His statements called for a return to the good-old-days before the 2008 Real Estate Crash when the banks and bankers were making inordinate amounts of money and getting phenomenal compensation packages.

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If we look at the economic patterns that occurred during the last hundred and some years what emerges is the fact that the major economic downturns were preceded by Republican Presidents.  The three presidents during the last three major downturns were: Theodore Roosevelt, Herbert Hoover, and George W. Bush.

 

While they were not individually responsible for the depressions it was both the Republican policies and the general ignorance of how the economy works that brought the economic collapses into being.  In 1907, there was no central bank, money, in the shape of gold coins, moved freely according to the needs of the nation.  The Panic of 2007, also known as the Banker’s Panic, more or less, began in October of that year when the New York Stock Market dropped about 50%.  There had been an assault upon the Stock Market that blew up the economy and there was no Central Bank at that time to infuse currency into the National Cash Flow.  A few years later in 1913 this depression brought about the establishment of the Federal Reserve.

 

For 1929s depression, and all the minor recessions up to that time, there was a bland reliance upon the forces of the Marketplace to continually determine what had supposedly been long term prosperity.  In essence the Market forces, the “invisible hand,” self-interest, was the determinate.  After years of pushing stock prices upward the Stock Market was severely overpriced.  This could not go on forever and it collapsed in 1929 dropping to a fraction of what it had been earlier, and in the process bringing the entire economy down.

 

In 1933 the new Democratic President, Franklin D. Roosevelt, doubled the money supply by collecting all the gold coins, melting them down into gold blocks, burying them in depositories like Fort Knox, legally doubling their value, and issuing paper money presumably backed by gold.  It was a fiction that lasted until 1969 when, then President Richard M. Nixon took away the last bit of gold supposedly behind the dollar.

 

This action by Roosevelt, doubling the money supply easily paid for the New Deal but it wasn’t enough to offset the 1929 Depression.  It would have taken four to eight times the money then in circulation to end the economic situation.  Unfortunately the problem wasn’t understood properly at that time and it took a major war from 1939 to 1945 to offset and end the Great Depression.

 

The explosion of the 2008 Real Estate Bubble toward the end of that year also occurred during a Republican presidency.  Here the next President, Barack Obama, applied all the money needed; and what could have been a Greater Depression than that of 1929 became a major recession that should have been resolved in a year or two with applications of both Monetary and Fiscal Policy.  But the Republicans, following their historic philosophy which had caused most of the economic downturns, exacerbated the situation by refusing to pass any Fiscal Policy laws.  Virtually every economic move they made tended to worsen economic conditions.  It took the efforts of the President and the Federal Reserve to keep a depression from happening.

 

If the Republicans had been solely in charge, not only the United States but the entire world would currently be in a Great Depression that would  make 1929 look like a weekend holiday.

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Much has been learned and understood as to how National Economies work from the latter half of the 20th Century on.  Economic changes like recessions and depressions can be lightened or even avoided.  The National Economies are not like wild animals that inevitably rear their heads and bring about indiscriminately varied levels of misery to their populations.  In 2009 a multi-gigantic depression was avoided by actions of the Central Government.  Economic catastrophe or lack of prosperity can be avoided and controlled.  It was in 2009 by President Obama and his administration.

 

Yet none of these practices are or have been accepted by the members of the Republican Party.  They still follow Adam Smith’s late 18th Century work, An Inquiry into the Wealth of Nations, which in itself was, in part, a reaction against the 16th Century economic practice known as Mercantilism.  Smith defined the Free Market controlling entity as the “invisible hand,” self-interest.    What Smith did not foresee was that the Free Market led to Monopoly and Oligopoly, which led to societal economic decision-making by the few who were still motivated by self-interest.

 

This is the Free Market in which Ronald Reagan and the Republicans believe.  This is what the Reagan and his administration utilized for their newly discovered Supply Side Economics.  Lower taxes, particularly for the upper echelon of society (the rich), and they will automatically invest that new income in new industry, creating new jobs, and new productivity which will supply new goods and jobs for everyone.  And everyone will live happily ever after.  A nice fairy tale!  It never happened.

 

What did happen was that a very large percentage of the people who benefited from the tax cut gave these new savings to financial experts who invested them in old productivity, stocks and bonds.  New startup companies, when they came into existence and had proved their durability, tended to be financed by the large banking houses.

 

The theory was nonsense.  It never worked.  But the 2016 Republican candidates for the presidency are all still adhering to it.  They want to cut taxes for the very rich which currently stops being graduated after their income reaches $400,000, with the percentage the Federal Government receives staying fixed no matter how many millions or billions it goes into.

 

Why is it important for the Republicans to be Supply Siders?  Because these people are their main financial contributors.  They are the ones who pay for their political campaigns.  And the Republicans are very good at combining need (endless contributions) with political philosophy.

 

This is also true with most pharmaceutical companies.  Their products can be purchased at lower prices outside of the United States.  Congress has passed laws fixing their prices in this country and not allowing any government agency to negotiate with the pharmaceutical industry.  They are large contributors to political campaigns, particularly Republican political campaigns and Republican Congressmen are utilizing the principle of self-interest.

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Of the two major political parties in the United States the Republicans are the minority party; there are far less of them than there are Democrats.  But they are far more vociferous than the Democrats, never ceasing their loud complaining about the other party.  While the Democrats seem to keep a more or less polite silence.  The Democrats are blamed for everything wrong with the country, particularly those items caused by Republican actions.  The Republicans never take responsibility for any adverse action; they are either ignored or blamed on the Democrats.  Their theories of economics are self-serving and absurd.  And ultimately in percentage of the population they are actually shrinking in number as time moves forward and they become slowly an ever-decreasing minority.

 

They, the Republicans, have been successful politically in the last six years mainly through voter apathy and disgust.  They have done far better in Midterm Elections than in Presidential ones when a good percentage of the citizenry in disgust or disappointment for what has not happened during the last two years don’t bother to vote.  This has been added to by various forms of voter suppression in states the Republicans control.  In essence they have greater political victories when more people stay home on election days.

 

In addition to this in order to gain the support of the evangelicals the Republicans have incorporated the concept of the holiness of life from conception onward into their philosophy.  Statements have been made about passing an amendment to the Constitution giving the fetus full Constitutional rights from conception on.  This will never happen but it gives them a certain credence with the far right evangelicals.

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In the 1973, the Supreme Court found, by a 7 to 2 decision, in the Roe v. Wade case that abortions were legal; that women had a right to make their own decisions about their own bodies.  The evangelicals (religious right) have resisted this decision from the beginning.  At some point the Republicans latched onto this cause and made it their own, gaining the support of this group.

 

To many Republicans today, women are not capable of dealing with their own bodies.  They state and believe there should be no abortions allowed, not even in cases of rape, incest, or where the pregnancy endangers the woman’s life.  It would seem that they have and are trying to endanger women’s lives, both psychologically and physiologically.  In their view women are not capable of making certain decisions concerning their own lives.  It must be done by elderly white men who make up the bulk of the Republican Party.  This is, without question, War on Women,

 

In addition to this the Republicans are an extension of the National Rifle Association.  They tend to be against any laws regulating weapons, ammunition, and magazine size in any way.  No atrocity will deter them from this belief.  A goodly percentage of their blue collar membership, more or less, holds this belief.  To many members of the NRA the fact that this hasn’t happened is proof that it will happen if they allow any changes to occur to the gun laws.

 

It seems, if we consider the group in Oregon which has recently taken over the Malheur National Wildlife Refuge, that having weapons, like thousand dollar plus assault rifles, will keep the Government respectful.  Of course the fact that the Federal Government doesn’t want another blood bath is beside the point.  They have been there since January 2, 2016 and the few that have not been arrested and are still remaining there have stated that they will stay until the Federal Government gives the land to the original owners, the local ranchers.  It must be nice to just sit around indefinitely and wait for the Federal Government to give the land to the local ranchers.  Of course following their argument the land really belongs to the local Indians who have inhabited the area for at least the last two thousand years and claim it as their own.

 

It would seem that the Republican battle cry for a large number of its members is God and Guns, or is it Guns and God?  It’s often hard to tell which should come first.  I suppose it depends upon which Republican you ask.

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The American society has needs which have to be handled by necessary legislation.  These societal needs have been avoided by the Republican dominated legislature and in many cases by Republican dominated state law making bodies.  Congress has attempted to deal with these problems by ignoring them, especially since 2011 when the Republicans, by gerrymandering the states where they had a majority in the legislatures, gained control of the House of Representatives.

 

If anything what the House of Representatives has done is to shorten its meeting days until 2016 when they were reduced to 110 days for the year, to a three day week with holidays.  This allows the new Speaker, Paul Ryan, to spend four days a week home with his family: wife and two children, in Wisconsin and three days in Washington, D.C., as Speaker of the House.  A good job, if you can get it!

 

The Republican dominated Senate will meet a bit more often for the year.  Both Houses of Congress are ignoring the needs of the people within the nation and expect to maintain their majorities in both Houses of Congress after the 2016 Presidential Election and get a Republican elected to the presidency.  And they believe they can do this by antagonizing most of the other minorities and the one remaining majority, the women of the United States.

 

Speaker Paul Ryan has stated that after having passed a law doing away with Affordable Health Care (Obamacare) which the President vetoed, they will continue to pass laws embarrassing the President by forcing him to veto them.  They do not have enough votes to override his vetoes.  And in that way they, the Republicans, will show the public what they will get in the way of new laws in 2017 if they elect Republicans in both Congress and the Presidency.  I would imagine that if Donald J. Trump were to become the next President of the United States then all bets are off!

 

So much for Republicans!  They are, after all, the minority party which tends to win elections when only a minority vote in Midterm Elections.  2016 is a Presidential Election.  The majority of the population will be voting in that election.  The probability is that the Republicans, at best, will retain the House of Representatives; and that is because in 2011 they gerrymandered the Districts within the states they controlled.  In this way they choose their own voters instead of having the voters choose them.  Remember in the 2014 Midterm Election well over a million more votes were cast throughout the United States for Democrats in the House, but the Republicans still retained control of that body.

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It should also be noted that large, and, in some cases almost unlimited, contributions give immediate access to legislators and Congress by those making them.  These contributors to elections can and have influenced legislation or the direction the government is going.  The Republicans have integrated into their psyches the desires or needs of most of these individuals or corporations. For example, the Koch brothers of Wichita, Kansas, who are involved with oil, have had their state pass legislation against green energy.  Citibank has written financial regulation which has been inserted into Congressional Bills and become laws.

 

The Republicans are after all the party of business and of the individual.  They believe in everyone having as much freedom as possible.  Their solution to adding jobs is to increase pollution and other unsafe conditions.  No one forces anyone to take a job.  Everyone has choices, even the choice to starve or live in the street.

 

Finally it should be noted that even with voter suppression the Democrats are the majority party.  States like Texas have been able to limit rural voters by two or three hundred thousand by making it very difficult and expensive for these people living in rural areas, mostly, if not all, Democrats, to get proper identification and/or register to vote.  This was proven in the last Midterm Election of 2014.  But even so, the probability is that the Democrats will gain back the Senate and keep the presidency.  The probability is that the House is the one body the Republicans may still be able to control.  If my prediction is correct we will have total gridlock in the Congress for an additional four years.  It’s a depressing thought!

The Weiner Component #130 – The World Economies & the Greek Crisis

On Monday, June 29 2015, the leading indicators on the American stock market took a sharp dive; the DOW dropped 350.33 points and the NASDAQ went down 122.04 points.

All this because Greece was at the point of near bankruptcy, with a massive payment that was due Tuesday June 30, which the government couldn’t and didn’t meet. Negotiations for a new loan broke down the Friday before, when the Greek negotiating team walked out of the meeting. The Greek Prime Minister, Alexis Tsipras and the leftist Syriza party who were elected to end austerity, called for a referendum to be held a week later, letting the people decide what to do. The next day, Tuesday June 30th 2015, Greece defaulted on its debt.  On Wednesday, July 1, the Greek government attempted to come to an agreement with the European Central Bank. When the referendum was held a week later the majority of Greek citizens voted against paying back the debt.

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The Greeks through nefarious practices for the last decade or so were able to hide the fact that the government was spending far more than it was taking in in taxes. They continually kept spending far more than the GDP (Gross Domestic Product), the amount of wealth the country produced. In addition Greece apparently has a lot more tax cheaters than any of the other European nations, consequently they estimate that about 20 million euros worth of taxes and their earnings were/are going into numbered Swiss bank accounts.   The American firm, Goldman Sacks, had earlier engendered creative economics for multi-million dollar fees and allowed the government and people of Greece and other countries, some of which were part of the 19 nations of the Eurozone, to engage in picturesque bookkeeping and spend far more than they should have.

At the beginning of 2010 it was discovered that Greece had paid Goldman Sacks and other banks millions of dollars in fees since 2001 for arranging transactions that hid the actual level of borrowing. The most notable is a major currency swap that hid billions worth of Greek debts and loans which were factiously converted into yen and dollars, thus hiding the true extent of the debt. The purpose of this and similar actions was that these various Greek governments could continue spending. An interesting short term solution to an ever growing long term problem that would eventually explode.

The process of paying back its debt, currently set at 270 billion dollars, began toward the end of 2008 with a massive economic collapse. The financial crash that occurred at this time in the United States and beyond, diversely effected Greece, Portugal, Spain, and Italy of the Eurozone Nations. These countries had been working since that time to get themselves out of debt. They have not succeeded, actually Greece has significantly increased her level of debt.

Greece has now essentially defaulted on a repayment instalment of 1.7 billion dollars that was due on June 30, 2015. She could only meet this payment if she borrowed all of the funds from the European Central Bank plus an addition 50 to 60 billion dollars to keep herself functioning.  It’s a movement of figures in different columns of the banks bookkeeping that seems to go on forever with the debt never disappearing but continually growing.

On the first Saturday in July the people of Greece voted on a referendum determining whether or not they should pay back their debt to the nations of the Eurozone.  I understand that the referendum was fairly complex and that a lot of people had a problem determining exactly what it meant.  Also the government recommended a no vote.  They came out with a strong no vote.  Consequently the Greeks defaulted upon their debt but may still un-default it.

Currently Greece’s unemployment level is over 25%.  For the last six years the government has been paying back this debt without really diminishing the principle because she has to borrow to do so.  And the country has undergone ever increasing levels of privation in order to do this and accomplished nothing.  The banks were closed in Greece by government order and the amount of cash that could be taken out of ATM machines was very limited. The country essentially limped along close to total bankruptcy.  Much more money was needed than the country had in order to make the installment payments that Greece seemed to have or could reasonable get.  A real solution to this matter seemed highly problematic.

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One of the major basic questions dealing with Greece and the Eurozone is what is really National Wealth?  Is it money or the goods and services produced within a given amount of time, usually a fiscal year, stated in terms of money value?

Money, for about the last fifty years has had nothing behind it but the word of the government issuing it.  Its domestic value is determined by what people will sell or take for it and internationally by what other countries will trade for it.  Basically, today, it is a tool, which allows the exchange of goods and services within the particular nation and throughout the world.  In essence it is the grease that allows the economies to function. Without an acceptable form of currency a nation faces complete economic disaster.

The problem with printing more money, which is a power the Greek Government does not have as a member of the Eurozone, is that too much money in circulation tends to force up the price of goods and services as people compete for these items.  It will eventually bring about a depression.  On the other hand too little money in circulation tends to reduce the amount of goods and services needed, as people are limited in what they can afford.  This can also bring about a recession leading to a depression. The trick is to have enough in circulation so that maximum productivity can be reached and maintained.  This also has to be gradually increased as the population of the nation increases.  In Greece today there is not enough funds left to service either the needs of the country or the debt.

People are taking their funds out of the country leaving the banks with a shortage of cash. The banks were closed several weeks ago to end a run on them with long lines waiting to withdraw their cash. The country was either days or hours away from total bankruptcy when the banks were closed.  Currently Greece is trapped in an ever increasing cycle of growing debt in order to just maintain its existence.

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The Eurozone today is in a situation fraught with contradictions.  When the Eurozone were first formed in 1999 the 19 nations agreed to function as a single economic unit with a single currency working through a central bank.  Meanwhile, with the exception of currency control, each of the 19 independent states gave up none of their sovereignty and still continued to act as an independent entity. Some of these 19 nations were far more economically secure than others.  Greece was one of the poorer nations that acted like the wealthier states and continually spent more money than it could realistically afford.

Up until the end of 2008 the U.S. and other industrial nations were a-flow with money. Then, starting with the United States, the Housing Bubble burst and property values in that country went down the toilet.  Internationally the flow of money tightened.  Suddenly Greece and these other countries were heavily in debt.  In order to meet these debt payments the governments had to divert a good percentage of their taxes.  An ever larger percentage of the GDP left these countries and there was not enough left to perform the regular services which the governments ordinarily provided.  This in turn forced the governments to lay off large numbers of government employees which, in turn, exacerbated unemployment and decreased the GDP.  In order to meet these payments Greece had to borrow more funds from the European Central Bank, actually increasing its debt.  With a shrinking economy the government had to further economize in an attempt to meet its payments.  This caused more and more economic shrinkage in the country.

What currently exists in Greece is a lose, lose situation with no hope in sight and well over 50% of the population in the referendum have voted for permanent default.  But if the Central Bank in the Eurozone grants this then Portugal, Italy, Spain and Ireland may demand the same treatment.  In fact it could become a pattern with some of its members.  Yet if it doesn’t grant relief they also face an impossible situation.  Greece is currently just days ahead of its banks running out of money and going into bankruptcy. It’s quite a dilemma.

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In the United States toward the end of 2008 a similar situation existed.  This was caused by the explosion of the Real Estate Bubble brought about by the large banks in the country over a thirty year period.  The banks had divided each of the many home mortgages into hundreds of pieces and the different pieces were combined and sold in a multitude of different Hedge Funds.  Actually no one owned the mortgages, just fractional pieces of them.  The large banks financed or refinanced the mortgage paper, then sold the pieces, administered everything and charged fees for everything they did. Once the mortgages were sold the money was lent out again.  It was an endless process with the banks collecting multimillions in fees. In this way a million dollars could fund one hundred million or more in mortgages.  The banks were in such a hurry to continue the process that they devised an unbelievable sloppy system of record keeping that was fraught with error.  This meant there was no accurate record keeping of the multitude of transactions.

When the Real Estate Bubble burst in late 2008 the large banks began foreclosing on properties that they did not own.  It took a while for the courts to realize the fraud and all the large banking houses were fined heavily for these and other illegal actions.  What the country faced was a possible twenty years or more of insane confusion in the housing industry and a depression greater than that of 1929.  With the addition factor that most of the large banking houses in the U.S. could go under and the movement of money throughout the country would become a trickle.

The first actions were taken by President George W. Bush during his last few months in office when the Federal Government began the process of bailing out most of the banks. This was followed by President Barak Obama who successfully continued bailing out most of the large banking houses and also the auto industry and avoided a deep depression.

The housing crisis was largely solved by the Federal Reserve under the sterling leadership of Ben Bernanke, who for a period of over two years bought 45 billion dollars’ worth of mortgage paper every month, spending well over a trillion dollars.  The mortgages came from all 50 states and were all fractional shares of an endless number of properties.  In essence what the FED did was to contribute well over a trillion dollars to this enterprise with no way of collecting any of it back.  In fact it contributed this amount of money to the general welfare and growth of the economy.  And the process brought back a level of prosperity and solved the mortgage dilemma in a period of just a few years.

The difference between this solution and the current problem in the Eurozone is that no one in the United States has ever mentioned what was being done.  All that the FED announced was that they were buying back mortgage paper.  There was never any discussion about the morality of the issue or the fact that they would never be able to cash these mortgages.  To my knowledge no one questioned the meaning of this statement.  If the country and Congress had been aware of what was happening we might still be in the middle of the mortgage crisis that the banks in their greed caused. People do not like someone else to get something for free even if it indirectly benefits them.

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Over the July 4th Weekend the majority of the Greek population voted to reject the current austerity negotiations with the other Eurozone nations.  As a result the European, American, and other stock markets dropped on the following Monday.

Basically the issue is with what is the Central European Bank dealing? Is the issue the Greek default on an impossible debt?   Or is it a problem the Eurozone is facing regarding one or some of her members?  If it’s the former then default is inevitable sooner or later with the lack of stability that would follow this action.  If, on the other hand, the issue is the latter then it becomes a problem of the entire Eurozone and its solution is one involving all the states of the Eurozone.  The result of this could be a new stability for all the states within the Eurozone.

We’ve seen that dealing with this issue totally as a Greek problem is insolvable from any aspect.  If other members of the Eurozone want to punish Greece for excess spending over a decade that ended 6 or 7 years ago they are not only hurting Greece but also themselves and their own futures.  But if this issue is dealt with as a Eurozone problem then there are possible solutions from which all of the Eurozone states can benefit.

What is required is a consortium of all the Eurozone states to handle not just Greece’s economic problem but also that of Spain, Portugal, and Italy. They are also in debt to the European Central Bank. If it is everyone’s problem they all need to participate in its solution.

Basically what these states have to deal with is the setting up of a central legislative body representing all of the states that can determine what is best for all of the states. They need to bring about a United States of Europe that has the authority to function for the benefit of all the states within the Eurozone.  And all the states need to give up some of their sovereign rights for the good of the union. This, incidentally, was their original goal

Numerous problems will have to be faced and resolved, particularly in terms of the extent of representation each state will have in this new union.  With a union each state would be stronger than it currently is and the euro would be back on a solid footing as one of the world’s safest forms of money. The European Central Bank would be the European version of the American Federal Reserve and the world’s stock markets would again be more stable.

Is this possible? That’s a good question. There are innumerable problems that have to be solved before this can come about.  But if the answer is, yes, then there would be more stability not only in the Eurozone but also throughout all the industrial nations.

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It would seem that the interests of Germany, France, and some of the other members are against Greece defaulting and exiting from the Eurozone.  Rather than fall out of the Eurozone on Thursday, July 9, 2015 the Greek government capitulated by delivering a new package of economic reforms to the ECB, raising taxes and the retirement age. Faced with the collapse of the country’s banking system and total economic catastrophe the government yielded on the issues that led to the previous collapse on a new rescue plan.  The retirement age is being pushed to 67 and government pensions are being cut by 15% for government workers who retired at age 62 after 40 year of employment.  The government will also withhold more taxes from state salaries and pensions and deduct a 6% healthcare premium from retirees’ checks.  The reforms are projected to generate at least 13.2 billion dollars in revenue over the next two years.

Currently the Greek debt is over 175% of its GDP.  It needs to be reduced or rescheduled over a longer period of time with the interest rates kept low to prevent the debt from growing. The Greek people need to take a more realistic attitude about repayment.

On Monday, July 13, 2015, after long hours of deliberation, with some states of the Eurozone arguing that the Greek prime minister’s word could not be trusted, the other states agreed to bail out Greece with a loan of about 50 billion euros.  Presumably Greece will pass further economizing measures and the loan will be implemented gradually. There is a payment due on the debt in about two years and Greece will be able to reduce her debt somewhat at that time if she adheres to her agreement.

The problems that the Greek government has to meet at this time is to economize enough to at least make a payment on her debt and also to restore the confidence of her own population in her banking system. The probability is that as soon as the banks are reopened within the country there will be at least a light run on them.  Presently the Greek Government’s solution is to reopen the banks and only allow very limited withdrawals.  Many people with large enough incomes may deposit the salaries in other countries, fearing that the bank closure could happen again.  It will take time for domestic confidence to be restored.  And a payment must be met in about two years.

Another problem which effects the entire Eurozone is one dealing with the declining value of the euro. The euro when it first appeared was worth about 1.5 dollars.  Last year with the infusion of a large amount of euros by the European Central Bank into the national flow of the Eurozone it dropped to about 100.3 percent of the dollar. On Monday July 13 with the current solution to the Greek Crisis the euro was worth 90.51 cents to the dollar. On Tuesday, July 14, the euro had risen to 1.1034 to the dollar. What will happen to its value in the future?  I suppose that is dependent on how well the Eurozone continues to function.

Greece will have a payment due in about two years. If she is able to make a payment  and not have to borrow more money then, the Eurozone will function properly and the value of the euro will have risen.  If, on the other hand, Greece has to borrow money again to just stay alive then there is no telling what the disaster will be for the Eurozone.

On Monday, July 20, 2015 the banks in Greece reopened; but the amount that could be withdrawn from any account was severely limited. What does this portend for the immediate future?  We’ll have to wait and see.

(Footnote:  To my readers: you must forgive me for not responding to your enquiries.  I get innumerable requests daily.  If I answered all of them I wouldn’t have time left to write the blog.  Virtually all your enquiries are answered in The Weiner Component #122 – Responding To Your Enquiries.)

English: Alexis Tsipras in a press conference ...

English: Alexis Tsipras in a press conference in Komotini. Ελληνικά: Συνέντευξη Τύπου του Αλέξη Τσίπρα στο ξενοδοχείο Ξενία στα πλαίσια της επίσκεψης του στην Κομοτηνή 13.11.2008 (Photo credit: Wikipedia)

 

English: Greece's recent debt history, between...

English: Greece’s recent debt history, between 1999 and 2010. (Photo credit: Wikipedia)

 

The Weiner Component #117A – The United States & the Eurozone: Growing Interdependence: Working For the Common Good

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)

Countries using the Euro de jure Countries and...

Countries using the Euro de jure Countries and territories using the Euro de facto Countries in the EU not using the Euro (Photo credit: Wikipedia)

Toward the end of the year 2008, while George W. Bush was still President of the United States, the Real Estate Bubble exploded in the U.S. causing phenomenal economic misery throughout that nation and, on a slightly lesser level, throughout the Industrial World.  Many of the major European banks and many European citizens had purchased and held onto Hedge Fund Real-Estate bonds that now became worthless or nearly worthless. In essence the entire civilized world took a downward economic fall. This included for both banks and many individuals, particularly in Greece, Spain, Portugal, Iceland and Italy. In fact the three major banking houses in Iceland all went bankrupt. Some nations fared better than others but all were hit to some extent.

The real estate hedge fund sales, dividing up mortgages into microscopic parts, selling them through numerous hedge funds, and continually driving up real estate values,   had been going on for over thirty years. The process had existed through the entire careers of many bankers and investors. It had been a traditional safe hedge or investment which paid reasonable dividends. Suddenly all this ended with trillions of dollars’ worth of bonds being virtually worthless.

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The Federal Reserve tends to supervise the United States and the European Central Bank controls the Eurozone. They can add or subtract money from within their domains. Unfortunately this process can work toward solving economic problems but within a relatively slow period of time.

Economics tends to be a loose science that seemingly becomes better understood as time and situations happen.  Economic recovery is a gradual process and the FED or ECB does not have total control of the tools of recovery.  In the case of the United States the legislators, whether they understand it or not, control fiscal policy and by some of the laws they pass can hinder or aid recovery . In the case of the ECB there are 19 separate nations, with separate histories, languages, and a sense of nationalism, that have agreed to cooperate together with a single currency, for the mutual benefit of all of them.

Some of these 19 nations are currently in a dire economic condition with high unemployment and heavy debts exceeding their GDP and undergoing extreme austerity as they attempt to pay off their killing loans to those members who have supported the bailouts of their economies. Greece, for example currently is the worst off of all the nations in the Eurozone. She has 25% unemployment, has been bailed out at least twice by the ECB and is needing another loan in order to not go bankrupt.

In addition the agencies within each country that control the currency flow, and can increase or decrease it by their actions, are the banks within each nation.  These operate separately and for profit. Under both the Federal Reserve and the ECB the interest they can charge is largely controlled. They, however, until the end of 2008, were the instruments that filled the void where the societies needed freer flowing cash. They did this for three decades and finally continued forcing the process in such a way as to bring about the recessions of 2009 throughout most industrial nations.

In the United States the Federal Reserve, despite the actions of the Republican led House of Representatives whose policies tended from 2011 on to shrink the size of the Federal and State Governments creating even more unemployment, was able by creative Monetary Policy to work toward improving economic conditions within the country

The Federal Reserve largely solved this problem for the United States by both adding money at the rate of 40 billion dollars a month to their economy and by buying up 45 billion dollars a month’s worth of mortgage paper. Without ever announcing what they were doing the Fed forgave the mortgage holders their property debts. This, in turn, added much of this money to the cash flow as it was spent on new productivity rather than retiring debt.

The European Central Bank is currently facing a similar problem; they are currently facing the beginnings of deflation. Their GDP is actually decreasing while their population is increasing. The ECB’s immediate solution for all 19 nations in the Eurozone is to add 60 billion euros to the overall economies every month until September 2016. This is a giant economic stimulus plan that will hopefully boost the sagging economies and fend off deflation bringing about recovery.

Will this help countries like Greece, Spain, Portugal, and Italy who are currently following intense austerity programs in order to pay back their debts to other Eurozone countries?  This is an interesting question?  These nations have been directly aided by the ECB.  At different levels they are undergoing stringent living in order to pay off individual and government debt.  Will the people in these states continually be willing to undergo a lower standard of living than the rest of the Eurozone?

Greece, which is probably in the worst shape of all of these countries, has voted No in its last election. Their new government, with the support of the bulk of their population, is currently attempting to negotiate an easing off or forgiveness of some or all of the debt.  Will they succeed?

If the negotiations break down and nothing is resolved then Greece will be forced to leave the Eurozone and probably, sooner or later, declare bankruptcy and the ECB will collect nothing. If the ECB attempts to force payments from Greece, who currently needs a further bailout of a billion or more euros and attempts to make the repayment even more stringent than its current state, then the Greeks will be forced to withdraw from the Eurozone. If a compromise is reached then, at least, part of the debt will have to be forgiven.

If that happens then the other countries that are in extreme debt to the Eurozone will also want and expect their debts to be modified.  Spain, for example, has an extreme left party that will be running in the next election on a platform of ending stringent living in Spain.

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There are certain factors we should keep in mind.  Up to the 2008 Crash virtually all the banking houses were encouraging all the people and governments to borrow money. Times were good and could only get better was the popular belief. Not all the nations within the Eurozone took this up; some were much more conservative in their borrowing and spending habits than others. Five or six within the Eurozone did take it up and carried the borrowing as far as they could. There was a similar situation within the United States and in some of the other industrial nations.

It should also be remembered that money is no longer gold coins. That ended in the 1930s. Today money is paper which is used as a means of exchange and has nothing behind it except the word of the government that prints it. Also that the amount in circulation is determined by the particular government or the ECB or in the case of the United States by the Federal Reserve.

The amount is arbitrary and can be increased or decreased at any time. The Federal Reserve forgave many of its debtors and the country now seems to be rapidly moving toward recovery. The ECB needs to rethink its position. Many of its members still have the fixation that money is gold or that those who had been living freely through 2008 must pay their debts. It is time for these people to mentally enter the 21st Century and ask themselves what is best for all of its members. After all, Europe is probably one of the major industrial centers of the world and cash or money serves only as a means of exchange. Punishing the people of a country for careless living which was encouraged by the financial institutions does not solve major economic problems. It can, if fact, exacerbate them so that everyone will economically suffer.

In the United States a goodly percentage of the homeowners in 2008 ended up owing more on their properties than they were worth. The Federal Reserve forgave many of them what they owed. It never admitted that it did this. If it had there might have been a hue and cry against this action.   If that had happened the U.S. would probably still be in a deep recession or another Great Depression.

This is a strange issue. Given a choice, what would the American people have chosen? Allowing a large number of people undeservedly to be forgiven their debts and see the country head in the direction of a return to prosperity or fair and equal treatment of everyone and a major depression.

This is actually the problem the Eurozone is facing now. Currently the Greek government is negotiating to either reduce or be forgiven its debts. Germany and France want it to pay its debts.  After all, they have to be punished for overspending prior to 2009.

Is the issue economic justice or a solid return to prosperity for all the nations in the Eurozone? Which is more important to see immediate justice or deal with what is best for all the nations within the Eurozone? An interesting question!

Fortunately the Federal Reserve in the United States was able to act surreptitiously. The European Central Bank does not have that option. The only realistic action it can take is to partially forgive the loan in the present and eventually drop it completely. If it does this, combined with the stimulus the Eurozone will once again reach a high level of prosperity. If the ECB demands the full return of what is currently owed in order to negotiate a further stimulus, that is, equal fairness for every country; then these nineteen countries face a hard economic future.

On Friday, February 20, 2015 at a negotiating meeting of Eurozone finance ministers a compromise was reached giving Greece four more months on its bailout. One result of this temporary compromise sent the Dow Jones industrial average and S&P 500 to new highs. The Euro resounded to $114 and Germany’s DAX index closed at a record high.

Depending upon the actions of ECB in June the situation could be back to where it was a week before the temporary compromise. By then it should be obvious to everyone involved that rigid enforcement of the original agreement would have strong adverse effects upon all the nations involved. What will happen will depend upon the ability of all these people to define the best common goal for all of the Eurozone.

English: The European Central Bank. Notice a s...
English: The European Central Bank. Notice a sculpture of the euro sign. (Photo credit: Wikipedia)