The Weiner Component V.2 #50 – Cycles of Wealth: Part 2

English: President Barack Obama confers with F...

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

Mitt Romney, when he ran against Barack Obama for President of the United States in 2012, specifically stated, more than once, that had the major banks faced bankruptcy when he became President he would have allowed them to go into partial bankruptcy.

 

 

He would have had them to go into Chapter 7, wherein the courts would have declared their common stock worthless.  That way the stock holders would have taken the loss but the banks would have continued to function.  The banks, where they were retrievable, would have been able to release a new issue of stock which could have been sold to raise necessary funds.  That way the banks could have continued to function and would not need funding or loans by the Federal Government.

 

Would it have worked?  That’s an interesting question.  We’ll never know the answer because it wasn’t tried.  Had it been tried and failed then the entire financial system of the United States would have collapsed.  Apparently President Barack Obama and Fed Chairman, Ben Bernanke, were not willing to take the chance that it might not work.  Their method of reform was far safer.

 

In addition a number of banks like Countryside were allowed to go under.  Their remaining assets were taken over by continuing financial institutions like the Bank of America.

 

Romney’s method of reform has been invariably tried out.  In many instances it has worked, one relatively recent case was with General Motors which took loans from the Federal Government and also utilized Chapter 7.  Their common stock was declared by the Court as having no value.  They eventually sold a new issue of common stock and the company continued to function.

 

But there have been many cases wherein the public refused to buy the new issue of stock and that particular company has gone under.  No one can totally predict the future.  There is no way of absolutely knowing what will happen.  A bad guess would have thrown the country into a long period of economic disaster.  President Barack Obama and Fed Chairman, Ben Bernanke did not take the chance.

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The results of Obama and Bernanke’s decision further slanted the distribution of the National Income in the direction of the well-to-do.  If we consider what the next President, Donald J. Trump, has done with taxes we are seeing the bulk of the money go to the upper one percent of the population.  They are in the process of having their taxes reduced while the remaining middle and lower classes will have their taxes gradually raised.

 

Interestingly the American public is currently in an historical situation not unlike France was in 1789 just before the French Revolution.  Since there is a midterm election coming up the first Tuesday in November of 2018, ten months from now, we will be able to miss all the excitement the French had and vote out those individuals who would cause us unhappiness by extending the unfair situation.  In fact we can begin the process of reversing the situation.  This was historically done by Theodore Roosevelt after he became President at the beginning of the 20th Century.  He had the Progressive Movement functioning on a Federal level.

 

Currently as we’ve seen from the few special elections, both statewide and nationally, the elections, even in strong Republican Districts like the state of Alabama, have gone to Democratic candidates.

 

In the 2016 Presidential Election the Republicans achieved a majority in the House of Representatives.  They got 239 seats.  The Democrats were able to get 193 seats.  There were 3 vacancies.  In the Senate the Republicans were able to get 52 of the 100 seats.  The Democrats got 46 and the Independents got 2.  They always voted with the Democrats.  That gave the Republicans a majority of 2 seats in the Senate.  They lost one of those seats when Jeff Sessions became Attorney General.  A Democrat was elected in his place giving the Republicans a majority of one seat in the Senate.

 

Using that majority and voting strictly on a party basis the Republicans were able to pass their tax relief bill for the rich strictly on a party basis.  Every Republican voted for the bill and every Democrat voted against it.  The Republican President happily signed the tax lowering bill for the rich which, no doubt, saved him millions of dollars in a tax bill which was funded by deficit spending.

 

After the Midterm Election of November 2018 the probability is that the Senate will pass to a Democratic majority and the House of Representatives may also do so.  A number of Republican House members are retiring. Particularly those in Districts that voted for Hillary Clinton in the 2016 Presidential Election.  Will enough Democrats win to make up a majority in the House?  There’s a good chance.  But we’ll have to wait and see.

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Prior to the 2018 Midterm Election the probability is that the Republicans will attempt to pay for the tax relief for the rich by gutting Medicare and attempting to privatize Social Security.

 

There is a lot of needed legislation.  For example a needed functioning immigration policy is long past due.  A realistic Dacca program is desperately needed for those who were brought to this country as small children.   While they know no other country and are not citizens of the United States they are currently being used by the Republicans as a form of blackmail.  There are also needs to upgrade the infrastructure, help states and regions like Puerto Rico recover from massive storms.  This is to just name a few of the present needs.  It does not count military operations or other needs.  The United States is at war in the Middle East but Congress has taken no responsibility for this military action.  The probability is that the current Congress will ignore these and other needs and spend its last year in office trying to fund its tax relief for the rich.  It would seem that the Republicans are more interested in serving their own needs than those of the country to which they have taken an oath to serve.

 

If we take a close look at the images that emerge from Congress we come to a very disheartening conclusion.  Our current Republican dominated Congress is paying back its major contributors for money they have given in recent political campaigns.  The wealthy members of Congress are also reducing their own taxes.  The large contributors are being encouraged to share their future reductions in taxes with their favorite political party.  The whole thing smells like a room full of rotten fish.  One can ask: What happened to honor and integrity, and an oath to the Constitution of the United States?  Are we truly back to exploiting the poor for the benefit of the rich?

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There is an interesting note of irony to all of this.  Many of the well-to-do may be sadistic and enjoy seeing homeless in every major city living under bridges out in the weather, essentially doing without many of their needs.  But by limiting the potential for increased productivity they, the rich, are also limiting their own potential for becoming richer.

 

The wealthy tend to store their excess funds leaving them dormant while with a reasonable or fairer distribution of funds to all classes of society the money tends to be spent over and over again producing a far greater Gross Domestic Product than would otherwise be made.  With a more general distribution of the funds there is a far greater GDP and everyone does better, including the rich.

 

The country seems to be entering a new period of greed.  The laws now passed by the Republicans in Congress and signed by the President are moving the country in the direction of Government of, by, and for the Rich.  This can continue through 2018 but the next Congress will be better balanced.  The Republican control will again be limited.  In order for laws to be passed the government will have to have the cooperation of both political parties.  We will either have cooperation or total inactivity between the two parties, with no laws being passed.  If it’s the later Congress will not even be able to fund the Federal Government.

 

It would seem that even with a Republican President and a Republican majority in both Houses of Congress there are still problems getting bills through Congress.  For example it would seem that some ultra conservative Congress members in both Houses of Congress are against funding the Federal Government.  In order to get a bill passed the Republicans need Democratic help.  But if the Democrats cooperate with the Republicans they want something in return.  These trades take serious negotiating.  They are not easy to do nor are necessarily always successful.  There may be problems just funding the current government, even with a Republican majority.

The Weiner Component V.2 #48 – Cycles of History

English: US derivatives and US wealth compared...

English: US derivatives and US wealth compared to total world wealth 1995-2007 (Photo credit: Wikipedia)

English: United States wealth compared to the ...

English: United States wealth compared to the rest of the world in the year 2000. (Photo credit: Wikipedia)

In certain respects cycles of history do at times, more or less, repeat themselves.  Following the Civil War massive changes in industrial production coupled with a great increase in immigration from Eastern Europe changed the country in a relatively short period of time from a rural society to an urban one.  In just a few decades the nation went through the Industrial Revolution and the Rise of Cities.

Real GDP for the United States 1920-1940 in 19...

Real GDP for the United States 1920-1940 in 1999 constant dollars, (Photo credit: Wikipedia)

Since there were no laws at this time the period pertaining to urban growth, building construction, or social conditions this period became one of unfettered corruption as the country worked its way through gradually developing labor laws, urbanization and integrating the new population.  As mentioned this was also a period of intense immigration which allowed for the construction of slum dwellings throughout many of the industrial urban centers.

 

The period was known for monopolies and oligopolies and for Boss Politics by both political parties.  New York City had Democratic Boss Tweed and Tammany Hall while upstate there were Republican bosses and political organizations.  This pattern existed throughout the United States.

 

In response, on a grass roots basis, a Progressive Movement began locally in state politics, reaching Congress and the Presidency around the turn of the century.  Reform would continue until the outbreak of World War I, which was called the Great War at that time.

 

Among the population, a very small percentage, probably less than 2% of the population was extremely wealthy, getting richer all the time and controlling upwards of 80 to 90% of the available wealth.  The bulk of the population: small middle class and lower class, lived upon the balance.

 

A similar situation developed from the 1980s on with the upper part of the richest 1% eventually controlling 90 or more percent of the wealth particularly toward the end of the first year of the presidency of Donald J. Trump when the Republican dominated Congress passed the so-called tax reform which was a giant tax give-away to the rich.

 

Among the various so-called reforms was one measure which attempted to radically limit Affordable Health Care (Obamacare) and another measure that did away with or radically reduced the amount of taxes that could be used for a property deduction.  The object of this measure when it was first introduced many years ago was to encourage people to buy their own home.  Without this measure it is easier to rent than to buy property.

 

Doing away with this right changes the complex of home ownership.  There are no longer any real advantages to owning one’s own home.  Instead renting becomes easier and creates a market for those that have excess cash.  This, of course, will be the upper small percentile that is acquiring 90% of the GDP.  It is a simple and safe investment.  And it adds to the money these people acquire, giving them, in time, well over the 90% of the GDP.  In fact it creates a super-rich, a very small middle class, and everyone else.  It is probably the most unproductive distribution of the wealth of the nation.

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Following different studies on and about 2017 the GDP (Gross Domestic Product) in the United States goes from 18,624,475 to 19.3 trillion dollars per fiscal year.  That is the amount of wealth produced in the nation in the period of a year translated into dollars; the value of all the goods and services utilized in a twelve month period.  It is the highest level of any nation on the planet.  Currently 90% of it is controlled by the upper part of the top 1% of the population.

 

This is still a strange distribution of the National Wealth, particularly since the current tax system focuses more and more of it in the hands of fewer and fewer people each year.  These people tend to keep most of this money dormant, simply stored away or put into safe investments like real-estate.  The money is not being used productively.  The society functions on the non-dormant ten percent plus the little this wealthy group is willing to spend.

 

For a society to be healthy there should be a wide distribution of its wealth.  Money that is distributed to the entire society is spent over a number of times, usually from three to twelve times.  It creates numerous times its basic amount of value.  While money going to the upper class generally does not create more than its face amount.  A wide distribution of income means a wide increase in wealth in which everyone benefits, including the very wealthy.  A narrow distribution of wealth does very little for the growth of the society or the living conditions for most of its population.

 

If we consider the GDP, taking the average projection 19 trillion dollars and divide what is probably the average population of the United States, 230 million according to the U.S. Census Bureau.  Thinking back to the errors made at the last Census in 2010 this is probably a conservative figure; 250 million would be more accurate.  With 230 million we get an equal distribution of 82.6 thousand dollars per person.  If the population is 250 million then the distribution is 76 thousand dollars per person.

 

With a narrow distribution of wealth, mostly going to the upper fraction of 1% the mean income is far below the amount stated above.  The current society includes a sizable homeless population which can barely afford to stay alive.  The United States today is anything but a healthy society.

 

While these amounts are approximate they do give an indication of what would be spent upon new productivity.  It would be overwhelming.  Everyone would benefit from the progress and no one, whether they worked or not, would suffer from any kind of want.  To my knowledge no society has ever functioned on this level.  There are always winners and losers within each society.  But do the losers have to be so poor that the depth of their standard of living is questioned by members of the United Nations?

 

Keep in mind that the Federal minimum hourly wage, which was set in 2009, is $7.25 an hour.  While many states have raised their minimum wage well above that figure there are still a large number of states where this is paid to a goodly percentage of their workers.

 

This is $290 a week before anything is taken out for Social Security or Medicare or anything else.  One well known Republican Senator, Orrin Hatch of Utah has stated that the poor are poor because they don’t want to work.  He stated this after serving 42 years in the Senate.  I doubt if he ever tried to live on $290 a week.

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As a rule governments tax their populations in order to raise money to meet their operating expenses.  The Trump tax reform is the first time a government has given a tax reduction based upon deficit spending.  The current tax bill presumably, if no changes occur, will in a decade increase the National Debt by 1 ½ trillion dollars.  The reductions to the wealthy and the large corporations are presumably permanent while the changes to the middle and lower classes are temporary, ending in 2025.

 

Obviously with the Republicans having a majority of one Senator in the Senate the probability is that the Democrats will gain leadership there in the Midterm Election of 2018.  Since the Tax Reform Bill is highly unpopular with the general public it is very possible that the Democrats could also gain control of the House of Representatives in 2018.  This could allow the Democrats to force Trump to allow changes in his current Tax Law in 2019.

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The concept of taxation goes back to the beginnings of civilization.  There is a cost factor to the existence of any form of governmental organization.  Historically there has always been a means established of raising funds, either in kind or financially to pay for this.  Usually the societal leaders figure the cost and tax the people accordingly.

 

Trump’s use of deficit spending is a new variant to taxation.  Here, presumably, a future generation will pay for the tax relief in the present or continue to pay interest upon the amount.

 

Another important use of taxation, which developed over the years, is to attempt to more or less equalize incomes so that everyone in that country can maximize the benefits of that particular society.  Today this would be many of the European nations where everyone has socialized medicine as well as a guaranteed minimum standard of living whether they are employed or not.  Here, unlike the United States, the wealthy pay a larger percentage of their incomes in taxes than those who earn far less.  It is a far more realistic approach than that of America.

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Currently the United States, with Donald J. Trump as President, has a government far more like the one that existed in the late 19th Century than the one that existed after World War II, when the Federal Government turned the country into a middle class nation. His Cabinet consists of millionaires and billionaires, many of whom seem more interested in their own welfare than that of the United States.

 

Lately President Trump has come out with strange statements like the Justice Department was his instrument to use as he saw fit rather than follow the Constitution and the laws.  Trump is attempting to emerge as an absolute autocrat running the United States.  He does not seem to understand the meaning or function of the Constitution.  This type of behavior could lead, even with the current Republican majority in the House of Representatives, to a possible future impeachment.