The Weiner Component #144 – The Federal Reserve & the Rising Interest Rate

English: President George W. Bush and Presiden...

In late 2008 the major banking houses in the United States, like the Bank of America, Wells Fargo, JP Morgan Chase, and others by their reckless and irresponsible actions during the prior 28 years, virtually destroyed the Real Estate Industry bringing it to a giant crash.  Not only Real Estate but also the major banking houses themselves, like the like those already mentioned and numerous other banks stood upon the edge of total disaster.  Many of the banking houses were initially saved by President George W. Bush during his last year in office and then, with restrictions, by President Barack Obama.

 

(The CEO of Bank of America complained venomously about the restrictions, cutting executive salaries well below a million dollars.  He wanted to pay-off the government debt so executive salaries could get back to normal.)

 

For the first year of Obama’s Presidency the Fiscal Policy applied by the Democratic Congress dealt mostly with bailing out banks and other industries.  President Obama also saved the auto industry in the United States.  Ford was able to just make it without any government help but its stock tanked to under $5.00 a share for a period of time and then went up to over $14 a share.  General Motors took government loans and its stock, in a bankruptcy suite, was declared valueless by a judge.  Bail out funds and a new issue of stock saved the company.  The original stock holders lost their investment.  Chrysler was saved by a bail out.

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Household property values dropped like large bombs and exploded.  During 2008, when all the indicators foretold oncoming disaster, the bank executives were in denial, in order to continue, financing and refinancing, they raised loan values on properties to 125% of appraised value.  When the Crash came, in September of that year, a goodly percentage of the home mortgages were far above the newly appraised value of the homes.

 

Many of the banks were overextended, too much money had been invested in mortgages which had not yet been converted into fractional pieces and sold to hedge funds.  Many homeowners suddenly discovered that their homes carried greater loans than they were suddenly worth.  A number of them decided to start over and walked away from their properties, leaving empty houses behind.  Values dropped overnight; employment across the country fell significantly.  There was massive unemployment and it was continuing to decrease.  The nation was in a deep recession ready to continue falling into a deeper depression than that of 1929.  It would take at least a decade or more for the housing crisis to be resolved and for the banks to be willing to finance new construction again.

 

At first the banks generated documents on properties they administered but did not own, selling these houses, and keeping the profits for themselves.  This went on until the Courts realized or discovered what was happening; then the different banking houses stopped the illegal process.  The ownership of these homes had been so fractionalized that no one really owned them.  The records on these structures had been so sloppily put together by the banks that it was impossible to establish ownership on many of these structures.

 

The banks, in their rush to make profits, had been in such a hurry to finance and refinance their numerous deals that tracing the ownership of many of these houses was like going through an impossible maze.  They could not find fifty plus percent of the mortgage ownership.  These empty houses would be sold in a few years for back taxes.  The original hedge fund owners lost their investments as their hedge funds became valueless.

 

Many who were able to hold onto their homes would eventually see their properties rise in value.  And many who held on to their homes would eventually lose them by not being able to afford the monthly payments.  It was an impossible mess!

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From 2009 to 2010 the Federal Government had a Democratic majority in both Houses of Congress and was able to apply Fiscal Policy.  In those two years Congress with the aid of the President, Barack Obama, was able to pass Fiscal Polity bills and make executive decisions that slowed down the recession gradually turned the country in the direction of recovery.

 

After the 2010 Midterm Election the Republicans achieved a majority in the House of Representatives.  From 2011 on no Fiscal Policy Bills were passed by the House of Representatives.  In fact, at one point they refused to fund the government, effectively shutting it down for a period of time, and costing the taxpayers several billion dollars in this process.

 

The prospective of the Republicans tended to be and generally still is, what’s happening right now, this minute.  The future to them seems to be an abstraction that they do not deal with.  They seem to be penny wise and dollar stupid.  Immediate savings would be the limit of their understanding.

 

They have wasted millions on pointless hearings such as on investigating Benghazi and other causes which seem to be mainly political, attempting to embarrass a Democratic leader or cause.  And they seem to like to hold their government refinancing bills to the last moment where the bill must be passed or the government will face some sort of disaster.  In 2014 they spent over a trillion dollars financing the government for 2015 and including earmarks for every other cause they supported with friendly legislation all combined into one giant bill of over 1,000 pages that cost the government billions of dollars.  For 2016 they spent 1.25 trillion dollars effecting a 2,200 page compromise bill with the Democrats.  So much for fiscal responsibility!

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In dealing with the 2008 Real Estate Crash the Federal Reserve utilized Monetary Policy.  What happened with the Crash is that the value of a dollar dropped to five or ten cents virtually overnight.  Many people lost their employment.  Most people were also confused as to what was happening.

 

The Chairman of the Federal Reserve at this time was Ben Bernanke.  He had been originally appointed by President George W. Bush.  One of the first things he did was to lower interest rates that the FED charges banks to 0%.  The current Chairperson is Janet Yellen.  On December 16, 2015 she and her Board, which consists of the Presidents of the twelve regional Banks, raised the interest rate from 0 to ¼ of 1%.  They had held it at zero for about seven years.  The average bank account in the U.S. was receiving interest at the rate of 1/10th of 1% per year.  Generally that is not even enough yearly interest to have taxes paid on it.  Most accounts received under $10 a year.  This amount was too small to be reported to the IRS which requires a ten dollar minimum.

 

The object of this move, after the 2008 Real Estate Crash, was to make money very inexpensive to borrow.  Theoretically it was to encourage the banks to loosen their lending policies and encourage economic expansion and thus reverse the Great Recession.  That didn’t happen.  Suddenly the banks became super cautious with their lending policies.  What the banks seemed to go into at this time was investing in the futures market.  This is buying items like food crops that are still growing and assorted raw materials that have not yet been mined months in advance of their coming on the market for sale and then selling these items when they came on the market with a goodly amount of profit added to them.  Here the virtually free money lent by the Federal Reserve to the banks, actually by the taxpayer indirectly, allowed them, the banks, to raise prices on much of the goods the public needed to survive and make a goodly profit on it.

 

It should also be noted that during this period the banks were also paying millions in fines for illegal practices they were and had been engaging in.  I don’t think any of the major banking houses escaped paying numerous multimillion dollar fines.  In all, these fined added up to billions of dollars; but no one went to jail for these breaches of the laws.

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Both Bernanke and Obama had tried to get the Republican House of Representatives to pass Fiscal Policy, laws that would create jobs.  President Obama had presented them with a plan for infrastructure improvement which would create jobs and Chairman Bernanke had stated the need in numerous Congressional hearings and public speeches.  Congress not only ignored them, it passed various measures shrinking the Federal Government and actually exacerbating the recession by causing more unemployment.

 

As the cheap money policy wasn’t working on a large enough scale to noticeably affect the overall economy what was needed was a new plan to encourage economic growth. This was a new creative use of Monetary Policy and the FED came up with one that would loosen currency in the economy and end the “Housing Mess” created by the banks.  This was Creative Monetary Policy.

 

We don’t know who deserves credit for it, whether it was the President, the Chairman of the Federal Reserve, or members of his Board, or for that matter a combination of the three.  But we do know that it worked.  What they did for a period of well over two years was to add 85 billion dollars each month to the National Cash Flow or the available amount of currency in the entire economy, ending the process in 2015 by decreasing the amount by 10 billion monthly until it reached 0.  Of this money 45 billion was used to buy mortgage paper and 40 billion was just added to the existing currency in circulation.

 

In all the Federal Reserve spent over 2 trillion 7 hundred billion dollars in getting rid of the “Housing Mess” created recklessly by all the major banking houses.  If we add to that another 2 trillion dollars we get an image of what the Federal Government spent through the Federal Reserve turning the country around toward economic recovery.  These are the profits the banks and their executives made from the 1980s to late 2008.

 

Somehow I don’t remember anyone in the banking industry publically expressing any remorse.  Particularly I don’t remember any banking executive being sorry about the 2.7 trillion dollars that the public paid indirectly to end the Housing Disaster in a relatively short time.  The only public complaints that came from banking executives was that, under President Obama, they had to take enormous cuts in their million or multimillion dollar compensation packages.  The fact that millions lost their homes and savings was immaterial to them.

 

The weakening of the Dodd-Frank Bill that was passed in 2009-2010 to do away with the causes that had brought about the 2008 Real Estate Crash was going to be done away with when Mitt Romney became President in 2013.  Romney lost that election.  When the Republican dominated House of Representatives passed the bill in 2014 funding the government for the oncoming year on December 11, the Thursday before the yearly Congressional session ended, one of the measures added to the Bill slightly weakened the Dodd-Frank Law.  I suspect they had originally hoped to do completely away with the legislation in 2015 with the last minute Finance Bill that year but it got dropped at some point in the negotiations between the two political parties.

 

Why is it that I feel like a victim from both the banks and Congress?

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In all the Federal Government added trillions of dollars to the currency in circulation and rather rapidly, in a little over two years resolved the “Housing Mess” created by the banks.  By 2015 there were very few houses empty houses in the country and new construction was occurring within all 50 states.  Conditions had moved in the direction of normalization and unemployment had dropped to 5% in the United States.

 

Of the 45 billion dollars that was spent buying up fractional pieces of mortgages throughout the fifty states each month there was no direct way for the Federal Government to ever directly recoup this money.

 

Originally the banks did not like having the properties having to be registered in the counties where they were situated; it was too slow a process.  They set up their own registration agency to handle all these exchanges and were able to get the Congress to pass the legislation that they needed in order to do this.  Their major problem was that the agency was not large enough to handle all these transactions throughout the fifty states.  There had to be at least a 20% error margin; it was probably much higher.  Either the agency was too small to properly record everything or it was too understaffed to properly do this and the assorted banks were not paying enough to fund it properly, or it was a combination of these.  In any event the records were rife with inaccuracies.  It would have taken an incalculable amount of time to straighten out the mess.

 

What the government bought for its 45 billion dollars in mortgage paper a month was billions of fractional pieces of mortgages that were virtually impossible to sort.  Further these came from houses situated throughout the entire United States and its territories.  There was no way sense could have been made out of these.  What the government was doing was buying up the “Housing Mess” that the banks had created and removing “the Mess” from the market where the banks had dumped it.  They were removing “the Mess” from the society and absorbing the loss.

 

The former owners of these houses who were still living in them and paying their property taxes but making no mortgage payments were living in houses that nobody owned and upon which nobody could legally foreclose.  They were, in essence, living for free in these homes that they had formally owned.  They could keep the house for the rest of their lives.  They could even sell the property if they could find a bank that would put a mortgage on the house.  Basically they could spend the rest of their lives in these houses without paying another cent on the original mortgage as long as they paid their taxes.

 

The problem here was that no one knew who really owned those houses.  It could be the Federal Government or it could be a mortgage company or, for that matter, it could be a bank.  It could also be an individual who had purchased the full mortgage from a bank.  If an individual or a mortgage company owned the entire property they would eventually make their presence known and resolve the ownership problem.  But if the mortgage had been fractionalized it was either the government or a defunct hedge fund and impossible to determine ownership.

 

Generally the behavior of these people, who were making no more mortgage payments, was to live well.  Suddenly they had more disposable income and they tended to spent much or all of it.  The result was that this money added significantly to the amount of currency in circulation and helped to eradicate much of the results of the 2008 Real Estate Crash.  It can also be stated that these people who were paying no mortgage could no longer deduct the interest on their housing loans.  Consequently nationally the IRS collected additional billions in taxes from these people across the nation.

 

This was the creative Monetary Policy that the Federal Reserve and its Chairman, Ben Bernanke, came up with.  It worked and with some Fiscal Policy applied by Congress could have totally returned this nation to full economic health.

 

Instead the nation is still at 5% unemployment.  The Republican candidates, like Jed Bush talk about doing away with the Environmental Protection Agency (EPA) as a mean of increasing employment in the United States.  It would seem that they would like to see parts of the U.S. look like some of the Chinese cities, dark with smog at noon, filled with unbreathable air.  But they believe this would increase employment in the country, even if it does shorten lives.

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It should also be noted that the interest rate that the Federal Reserve charged banks was at 0%.  In December of 2015 the new Chairperson, Janet Yellen, announced that they were raising it to ¼ of 1% that is .025%.  That will mean that the banks will raise the interest they pay on bank deposits from 1/10th of 1% to possibly 3/10th of 1%.  For the last seven or so years the public has been funding the banks practically for free.  With this increase the interest paid by the banks might rise enough so that some people, but not too many, will have to pay the IRS a few dollars in taxes on their bank deposits in 2016.

 

We, the public, have been funding the banks with our funds, checks and so forth, practically for nothing.  These monies, up to ½ million dollars per account are guaranteed by the Federal Government through the FDIC, but the banks can and do use the money they continually receive from us in almost any way they see fit for their own profit.  In 2015 the banks are reporting significant profits.  Their executive salaries are in the millions and multi millions.  And for contributing these monies the public ends up not only paying endless fees to the banks but also considerable amounts as middle men in the Futures Market.  The banks freely take a share of the money you earn and spend for your food and other necessary products as the Middle Men in the sale of many of the items people need to survive.

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It should also be noted that with 0% interest paid by the banks mortgage rates dropped to, in some cases, below 3%.  With the Federal Reserve’s action of raising the interest rate charged banks a fraction mortgage rates still dropped.  The amount the banks now pay to the FED is minuscule.  I would assume that they will continue to rise, at least, at the same rate as the first increase.  The public does deserve some return for letting the banks use their monies.

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As a sort of footnote we should remember that the banks are necessary for the national and international economies to properly work.  But we should also note that the major reason for all the banks is to serve the public.  Today it would seem that the major banking houses of the United States and much of the Industrial World serve mainly themselves.  The public seems to be exploited for the benefit of their self-interest, profit.  We, as a nation, might be better off if there was an alternative to the current privately run banking houses in this country.  If nothing else giving the public an alternative to the current banking situation might generate a certain amount of humility in the current banking houses.

 

An alternative does exist; and that is the Federal Reserve.  All the Congress has to do is extend their powers so that they can also deal directly with the public.  They are a government agency that was created in on December 23, 1913 as a result of numerous financial panics.  Their major objective is to serve the public; that is still their major purpose.  The FED has undergone an evolution, particularly in the 1930s after the Great Depression.  If the Congress were to extend their powers they could easily take on the same functions as the private banking houses and allow the public to have a positive banking experience that would operate for the benefit of the public.

 

There are twelve Federal Reserve Districts covering the entire United States.  They can easily establish banking facilities throughout the nation.  This would also give them more ability to positively control the economy.  And they need not totally replace the current private banking houses; they could function alongside them giving the public a choice of where they want to do their banking.  Their existence in this fashion would also insure that the public gets a reasonable return on their banking accounts and it would force the private banks to stay honest.

 

It should also be noted that finances in most industrial nations are run by state owned public banks, like the bank of England or France.

Congress & the Problems of the United States: Are We Getting Our Money’s Worth?

English: Breakdown of political party represen...

English: Breakdown of political party representation in the United States House of Representatives during the 112th Congress. Blue: Democrat Red: Republican This SVG file was originally hand-written. It contains comments suggesting how to amend it to reflect future changes in Congress. Inkscape reads this file as corrupted, thus changes must be made with a text editor or other program and checked with a browser. (Photo credit: Wikipedia)

There are 435 members of the House of Representatives.  Their combined salaries, taken together is $73,950,000 taxpayer dollars per year.  Of these 247 currently are Republicans.  They receive $41,990,000 taxpayer dollars in compensation for serving in the House of Representatives.  Of these 247 House members 40 belong to the Freedom Caucus.  They make up the ultra-conservative far right end of the party.  These people understand compromise as the other side coming to their position; to them anything else in largely unacceptable.

 

On the issue of passing a bill to continue to fund the government the Freedom Caucus, which is made up of Tea Partiers, plus a number of other Republicans had refused to act until funding Planned Parenthood was removed from the bill.  If Planned Parenthood were removed from the bill President Barak Obama stated he would veto the proposed new law.  This brought about the resignation of the Speaker of the House, John Boehner, at the end of September, effective October 31st.  A bill was brought through the Senate and later, the House, continuing the funding of the government through December.  In each case with heavy Democratic participation.  There were not enough Republicans supporting it in either House for the bill to pass without Democratic support.

 

As an aside, the evidence presumably proving Planned Parenthood was guilty of breaking the law in performing abortions and selling fetus tissue for research was highly edited video tapes that were the equivalent of a man entering a house, then in the next scene he or someone entered an apartment, greeted a woman, the camera would switch to an image of a bedroom, and finally the man would exit the house, presumably in the morning.  This was the level of the edited video evidence presented against Planned Parenthood, which the anti-abortion groups took as absolute proof.  In addition some of the video were made by paid actors, hired by an anti-abortion group, discussing the sale of fetus parts.   Planned Parenthood has been investigated numerous times by Congressional Standing Committees and others and has never been legally proven of doing anything illegal.

 

To get back to our primary subject, what we spend on Congress and what we are now getting in return.  If we include the Senate in the cost we are adding an additional $170,000 one hundred times, that’s 17 million dollars.  This does not include the fact that each congressperson in either House has a staff in Washington that can employ up to eighteen permanent members and have an office in their home state.  We are spending well in excess of ½ billion dollars annually upon our law-makers.  For this, especially since they take an oath to uphold the Constitution, we should be able to expect them to do their jobs.  Are they passing laws that help the country develop and prosper?  Are they doing things to lower unemployment?  Is the country moving forward to a better tomorrow?  Are they repaying the taxpayers for electing them to office or are they serving their large contributors who have funded their political campaigns or are many carrying out their own specific agendas?

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My impression is that most, if not all, of the Republicans elected to Congress have no real understanding of what makes up economics; that they think of the Federal Government functioning on the same level as their households, that so much money comes in every month and once that’s gone the government has to borrow money to spend more, and that additional money has to eventually be paid back.  That is how Microeconomics (small economics) works but that is not how the Federal Government works.

 

The Federal Government, all national governments for that matter, operate under the principles of Macroeconomics (Big Economics).  There is today nothing behind the dollar but the word of the National Government; they own the printing presses.  Money has no intrinsic value today; the government can print any amount it wishes.  They do this by legislating the amount that can be printed and the Federal Reserve determines when, if, and how much to release to the banks.  Money to the Federal Government is a tool that is supposed to be used to enhance productivity within the country.  Its expenditure has nothing to do with its taxable income.  The true value or wealth of the country is the goods and services produced within a fiscal year determined in terms of dollars and cents.

 

If the members of Congress do not understand this concept then they are working against the welfare of the nation.  They are not doing what they were elected to do, run the country positively.  What has existed since the House of Representatives achieved a Republican majority in 2011 has essentially been inaction, or when legislation occurred it has been mainly to hamper economic recovery.

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From the year 2008 on the major banks, first in the United States and then throughout most of the Industrial world, were suddenly on the point of collapse.  In the U.S. one trillion dollars of real estate value disappeared virtually overnight.  The major banking houses were suddenly facing ruin, were ready to go under.  They had speculated in real estate from the 1980s on to the point of insanity in late 2008.  Overnight there was massive unemployment; many people’s homes had larger mortgages than they were then worth.  The country was on the brink of a massive depression.  Banking in the U.S. could conceivably diminish to a trickle.

 

First in 2008, when this madness, brought about by the large banks, both commercial and investment banks occurred, George W. Bush and his Treasury Secretary, Hank Paulson, made massive loans to the banking houses; then this was continued by President Barak Obama in 2009.  Some investment and commercial banks were allowed to go under, their loans and deposits taken over by other big banking houses; but most were saved with additional loans.  (If you’re interested in the specifics of what happened Ben Bernanke the former chairman of the Federal Reserve, has just published a book dealing with all of this.)

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What have the Republicans achieved?  In 2011, through a process known as gerrymandering, favorably setting up voting districts in states they controlled politically, based upon the party registration of the voters, they were able to gain control of the House of Representatives, and they have kept it ever since.  In the Senate they gained control in 2014.  They could conceivably lose it in 2016 when 1/3d of the Senate will run for reelection.

 

The Republican prospective in dealing with the Real Estate Disaster has been to ignore it.  Mitt Romney, when he ran as the Republican Candidate in 2012, spoke about doing away with the banking reform bills passed after the 2008 Crash.  It seems that one of his goals was to bring America back to where it was before the 2008 Disaster.  Fortunately he didn’t get elected or we might be back to the Crash now with the major banking houses again destroying the economy.

 

Since they gained control of the House of Representatives in 2011 the Republicans in the House of Representatives and, for that matter, also in the Senate have strictly followed a policy of Microeconomics (small economics), attempting to run the country as they each run their own households.  The result of this from 2011 on has been to exacerbate the recession, costing additional hundreds of thousands of jobs lost throughout the United States in the federal and state governments and in the general population from monies not spent by these unemployed former government employees.  They have done everything possible to worsen the overall situation.  Luckily the President and the Federal Reserve, despite the Republican actions, have been able to generally put the country well in the direction of economic reform.  The cost of this has been a 53% increase in the National Debt spent by President Barak Obama during his first six years in office.  This included an economic stimulus package, both cutting taxes and extending unemployment benefits to avoid another Great Depression.  He has also increased defense spending and brought about the Parent Protection and Affordable Care Act (Obamacare).

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The National Debt is now 18.4 trillion dollars.  If we go back to the Republican Presidency of Ronald Reagan we get a good idea of why it is so high now.  When Reagan became President in 1981 the National Debt was just under one trillion dollars.  His great fear was that the Soviet Union was militarily ahead of the United States.  He wanted to militarily catch up to them and possibly get ahead of them.  In eight years he added 1.86 trillion dollars, over 100% to the 998 billion debt level bringing it up to well over 2 trillion dollars.

 

In point of fact we actually were well ahead of the Soviet Union in our military preparedness.  The Soviet Union bankrupted itself trying to keep up with the United States.  The problem with the U.S. was that the leadership instinctively knew how well armed the Soviets were and that the contrary information that the government intelligence agencies could provide was supposedly inaccurate and ignored.

 

Under George H.W. Bush, through faulty or stupid use of diplomats, the President of Iraq, Saddam Hussein, got the impression that he could invade Kuwait and the United States would ignore the incident.  After the invasion we had operation Desert Storm.  This war could have been avoided with proper use of diplomacy.  Bush Sr. added 1.554 trillion dollars to the National Debt, an addition 54% in just 4 years as president.

 

Interestingly, I would suspect in reprisal, Saddam Hussein attempted to have George H.W.  Bush assassinated.  The attempt failed.  But apparently his oldest son never forgot this fact.

 

The National Debt increased under Bill Clinton but during the last year of his second term he not only balanced the budget he also reduced the Debt slightly.

 

Shortly after George W. Bush became President he got the U.S. involved in two wars: one in Afghanistan as a result of the destruction of the Twin Towers in New York City and another one in Iraq because, I would suspect, to get even with Saddam Hussein for attempting to kill his “daddy.”  The intelligence agencies in the U.S. felt, I understand, that the “weapons of mass destruction” theory or belief was pure fantasy.  Bush Jr. in eight years added 5.849 trillion to the National Debt increasing the National Debt 101% during his eight year period as president.  A good part of this money was spent fighting a pointless war which destabilized the Middle East and brought into existence such groups as ISIS and what seems hopeless confusion and endless civil war that we are stuck with today in the Middle East.

 

While Obama increased the Debt another 53%, 6.167 trillion dollars, during his first six years in office he did so to keep the country from falling into a deep depression, which had been gradually brought about by doing away with banking restriction laws that had been passed from 1933 on, during the years of the Reagan Presidency.  Reagan and his group apparently believed in a Free Market economy; with all economic decisions being made by the actions of the market.  He allowed the big banking houses, with no Government controls to create a maelstrom.

 

Despite all the Microeconomic moves of the Republican House of Representatives during the first six years of the Obama Presidency he has largely worked the nation toward economic recovery.  Had the Republicans understood basic economics the country could now be undergoing a period of full employment with a much higher tax base that might even be high enough to start reducing the National Debt.

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Other questions loom up here: What exactly is the National Debt?  How does it affect the nation?

 

According to a member of the Freedom Caucus who was interviewed on MSNBC he would vote for Paul Ryan as the new Speaker of the House of Representatives when the current one, John Boehner, leaves at the end of October 2015 if he would acknowledge the seriousness of the National Debt, over 18 trillion dollars, and work to reduce it rather than allow the country to continue to move toward bankruptcy.

 

This seems to be a basic value of most Republicans.  They don’t acknowledge that their party was mainly responsible in raising the National Debt to where it is today.  They seem to blame it on the Democrats and want to reduce Federal Government nonessential spending, particularly spending on the poor and aged.

 

This attitude keeps the country on the edge of disaster seemingly going from legislative crisis to legislative crisis.  The Debt Limit bill that was passed with strong Democratic help after the Speaker, John Boehner resigned from the House of Representatives.  In it Congress had to raise the current Debt Limit or face default by legally running out of money with which to pay its bills.  The Treasury Department had stated that Congress must raise the debt limit beyond 18.1 trillion dollars or not be able to meet all its bills by November 3, 2015.  That crisis was resolved in both Houses of Congress with help from the Democrats.  Also in both Houses of Congress funding the Federal Government will come up again in December.  Will Planned Parenthood again create a crisis there?

 

Former Speaker Boehner was able to get such a bill raising the National Debt through Congress before his Speakership ended and only with Democratic help.  The same holds true with the Senate.  The bill was for two years.  President Obama had stated that he will veto any short term bills.

 

The National Debt consists of two parts, one public and one private.  The public part of the Debt is owned in various ways by the Federal Government and is held by the Federal Reserve and such entities as Social Security that currently holds probably over 3 trillion dollars’ worth of these securities, Medicare, the Federal Savings and Loan Corporation Resolution Fund, as well as a number of other government agencies.  These debts held by governmental accounts represent cumulative surpluses, including interest earnings of these accounts.  In 2012 there were at least two direct transfers of 89 billion dollars from the FED to the Treasury that constituted interest paid on the National Debt.

 

The Federal Government admits to owning 40% of its own debt.  The probability is that it is more like 50% or 60% of the money it owes.  For example, besides massive unemployment and the loss of value of the dollar in the 2008 Real Estate Crash there was an intense mortgage problem: since a very large percentage of the mortgages issued had been broken up into microscopic size and the pieces issued by innumerable Hedge Funds into countless securities, the question that arose was who owned all that mortgage paper?

 

At first the bank computers generated documents and most of the banks foreclosed upon homes they did not own.  After this was discovered the banks stopped the foreclosures.  Then the question arose: Who did own these properties?  The answer was no one.  Each property could have been divided into hundreds of pieces, each issued to a different Hedge Fund.  It should have taken twenty of more years to straighten out this mess.  The housing industry, both old and newly constructed homes, would have been in a state of practical nonexistence.  Many older homes whose mortgages were far above their actual value had been deserted by their former owners and stayed empty, and construction companies would have found it nearly impossible to fund their projects.

 

By the Federal Reserve stepping into this problem and dealing with it they were able to largely resolve it in a period of just a few years.  I would guess that the price of resolving this problem cost the Federal Government well over ½ trillion dollars.  What the FED bought was trillions of fractional pieces of mortgage paper that the banks had created over a thirty year period.  Sorting them out would have been unbelievably expensive and probably totally impracticable.

 

Using imaginative monetary policy Ben Bernanke, the Chairman of the Federal Reserve, over a period of several years, solved this problem by pumping billions of dollars into the economy.  For a period of well over two years.  The Fed pumped 85 billion dollars into the economy monthly.  Forty billion bought back Government loans and Forty-five billion bought mortgage paper from all 50 states, literally trillions of mortgage pieces each month.   What happened to all this mortgage paper?  The probability is nothing.  It would have been prohibitive to sort all these microscopic pieces of mortgages.  An even then it would have required over 50% of the pieces for any action to be legally taken against the homeowner.  The banks had been in such a rush to continually refinance these properties that record keeping became farcical.

 

I would suspect that after two or three years most, if not all, of the deserted homes were sold for back unpaid taxes.  As for the people who stayed in their homes and couldn’t afford the continued payments, they probably waited for foreclosure that never came.  These people could no longer legally deduct their home interest from their income taxes but they still had quite a bit of extra income which they freely spent adding to the National Cash Flow, and encouraging more employment, within the United States.

 

The private section of the National Debt, the forty billion spent monthly, is money previously borrowed for short to long periods of time by the Federal Government from individuals, both in the United States and foreign countries, by foreign nations, and by numerous other entities.  By this action the Federal Government both allowed long term purchasers of this government paper to purchase long term paper at higher rates of interest and cash them out almost at will.  This process allowed the Federal Government to add all this money to the National Cash Flow continuously for this period.

 

The amount of money available to the public grew at an expediential rate.  Interestingly there was no inflationary increase with all these billions of dollars added to public spending.  Instead this Creative Monetary Policy of the Federal Reserve largely solved the bank mortgage disaster of 2008, made more cash available for economic growth, and moved the nation well into the direction of economic recovery by 2015 from the Real Estate Disaster.

 

It is also well to keep in mind that pretty much the same result could have been achieved, probably at a lower cost, by Congress passing fiscal policy as was requested by President Obama during the third year of his presidency, 2011.  This bill and others that could have been passed later would also have modernized much of our infrastructure and moved this country into the 21st Century.  But the Republicans in Congress have done nothing to really help the country or the bulk of its population.  If anything they have been penny wise and dollar stupid.

 

If the question were raised: Have we as a nation gotten our money’s worth from the ½ billion or so we spend to keep Congress functioning?  The answer is definitely negative.  In fact the situation seems to continually get worse.  With the retirement of the current Speaker of the House of Representatives will the new Speaker, Paul Ryan, be able to get positive legislation passed?  Being a very conservative Republican will he want to do this?

 

The question is currently up in the air.  The Republicans have 247 representatives out of 435.  But 40 of them belong to the Freedom Caucus.  The majority of them presumably support Ryan.  But they are far more conservative than the very conservative 207 other conservative Republicans.  In order to elect a new Speaker 218 affirmative votes were needed.  Ryan was willing to be Speaker if the Freedom Caucus  backed him as Speaker.  The majority of them have voted for him.  What will happen?

 

Meanwhile what about the bill funding the government that has to be passed before the middle of December?  The Treasury will not be able to legally pay the Governments bills unless the funding bill is passed by December of 2015.  It has been kicked down the road for three months.  If the Republicans insist that funding Planned Parenthood be removed from the bill President Obama will veto it.  Also if it is again a short term bill the President will also veto it. What will Ryan do?  What will he want to do?  It was Ryan who originally proposed using the leverage of necessary bills to force its agenda upon the President.