The Weiner Component #89 – Money, Economic Growth, & The National Debt

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)

According to the last time I checked the Census Bureau the population of the United States was increasing at the rate of one person every 11 seconds. This included births, deaths, and immigration. This increases the overall population by about 117,818 people per year. In order for the per capita level to remain at 0% it must rise several points every year. In order for the economy to grow it has to rise beyond this point.

In order for the economy to function positively there must be a reasonable level of growth. For this to occur there must be a reasonable yearly growth of the money supply. If the amount of currency in circulation is stultified or decreases the country is in recession moving toward depression.

By the mid1970s the money supply in circulation was not increasing at a rate needed by the country for economic growth. At this point the banks by their lending policies, gradually began to fill the currency void. They gradually discovered that they could bundle their mortgages, dividing them up into infinitesimal pieces, set up hedge funds, sell the mortgage shares like stock, recover their investment, lend the money out again, and continue to do this endlessly, charging assorted fees on every level of this process. In doing this they created first billions of dollars and then trillions, always keeping a good percentage of this in the form of fees. While this process was needed for growth within the nation eventually, thirty odd years later, it had become a mad race for endless profits by the banks.

In 2008 this housing bubble the banks created burst and the country fell almost instantaneously into economic depression. What had been a dollar in value a few days earlier now became worth a nickel or at most a dime in value. The country was headed for a depression deeper than that of 1929.

Newly elected President Barak Obama and his administration stepped into the void and the Federal Government made massive loans to the banks and later to the dying American auto industry. Where did they get the money? They printed it and temporarily took on additional massive debt. All the loans were repaid within a few years with interest.

A word about the National Debt. What is it and where does it come from? The Debt is money the government spends in excess of the taxes it collects. It is currently more than 17 trillion dollars. The money is borrowed and has interest paid on it. This money is owed to individuals in and out of the United States, it is owed to countries like China and Japan, to both of whom is owed in excess of one trillion dollars, and mostly the money is owed to itself and its agencies such as Social Security, who is owed well over 2 1/2 trillion dollars, and Medicare. In fact just about all government agencies that have a surplus have had their excess taken and used in the General Fund. The interest on all of this is paid by the Federal Reserve to the General Fund. I remember reading several months ago about 88 or 89 billion dollars being transferred from the FED to the Treasury.

The National Debt is divided into two parts, public and private. Public would be what is owned by individuals or countries like China and Japan, generally acquired to balance international trade. Private ownership of the Debt is what the Federal Government owes itself. It admits to owning about 50% of its own debt. By my estimate the Federal Government directly or indirectly through its agencies actually owns roughly about 75% of its own debt.

Where does it get all this money? Simple! It prints it and issues the currency as needed. After all there is nothing behind the United States dollar but the word of the U.S. Government. There is nothing behind any currency but the word of the government using it.

By the year 2000 the banks had created trillions of dollars and were going strong with mortgages, both new ones and refinanced ones. Money that had been needed for economic growth and development was being readily supplied with the banks taking a good share of this currency. Large numbers of people were using their homes as bank accounts, refinancing again and again. The major banks were making billions in fees and wanted profits of many more billions. The mortgages were considered safe investments and they sold like shares of stock with a promised safe return. These were the Hedge Funds bought nationally and internationally that were touted as hedges against any type of financial loss and they paid nice dividends.

The situation grew more-tense as time went by with many bankers encouraging homeowners to lie on their applications. After all prices had been and were continually rising on real estate. Anything that could be mortgaged was mortgaged more than once. The situation grew more and more chaotic, until toward the end of 2008 when the entire economy collapsed. Shortly thereafter Barak Obama took office as the 45th President of the United States.

His theme had been “It’s time for a change.” By 2010 the economy had been saved but there wasn’t enough “change” to satisfy the majority of the voting population and the Republicans gained control of the House of Representatives. The Tea Party was in control of the Republican Party, moving its position far to the reactionary right. All possibility of fiscal policy ended. There would be no more government projects. In fact the Republicans had two specific goals: one was to shrink the economy by curtailing spending and the other was to make Barak Obama a one term president by not allowing him any legislative victories or successes.

They successfully achieved their first goal of contracting government expenditures, particularly on entitlement programs to the poor and to the states, forcing state governments to shrink their services, and they added to the unemployment caused by the Real Estate Bubble bursting. The House of Representatives would not even take up fiscal policy, keeping unemployment high and forcing the country to continue with an infrastructure well over fifty years old. They left any possible improvement to the economy to the Federal Reserve which, under Chairman Ben Bernanke’s guidance, used imaginative Monetary Policy to bring about some recovery.

Two major problems developed from the 2008 economic crisis: first the amount of money in circulation had to be increased significantly and second, many people were underwater on their mortgages; that is, they owed more on their property than it was worth. Something had to be done to alleviate the housing crisis. An additional crisis was who controlled the mortgages that had been broken into hundreds of pieces and attached to innumerable hedge funds. What the FED came up with was to add 85 billion dollars to the economy; 45 billion was spent buying up mortgage paper and 40 billion was used to buy up government debt. This was done monthly for several years, adding trillion of dollars in currency to the economy.

Toward the end of his tenure as chairman of the Federal Reserve, Ben Bernanke announced that the FED would decrease its purchases by 10 billion monthly. The new chairperson of the FED, Janet Yellen, stated that she would continue the policy, ending it in October of 2014.

Many prices had been gradually rising and the fear was that the country might fall into an inflationary spiral, too much money being in circulation and forcing prices up.

Toward the end of 2013 the housing crisis seems to have leveled off. There has been new construction throughout the United States and property values have gradually risen, taking a lot of people out from being underwater.

On Tuesday, July 16, 2014 Federal Reserve Chairperson Janet Yellen announced in her report to Congress that the FED might not completely stop buying debt and mortgage paper at the end of October.

What will happen should be very interesting. Following October is the 2014 Midterm Election. How will the country react if there is a stoppage of all Monetary Policy? Will there be a significant drop in the Stock Market, which today is far higher than it was just before the 2008 Crash?

How will the country react? Will they even notice the change? Will the election be affected in any way? The times are certainly changing!

There is enough money now in circulation, far more than there was in 2008. The problem is its distribution. More and more of it seems to go to the upper 20% of the population, forcing many in the middle class economically downward. Unemployment has dropped to a fraction above 6%. What the country needs is a redistribution of the National Income downwards and a rebuilding of its infrastructure. Affordable Health Care should have a single entity running it and not for profit. This would be the Federal Government and it should be paid for out of taxes like Social Security and Medicare. Instead we allow private companies to become richer running it. We need a greater level of fairness in this country.







The Weiner Component #64 – So Called Economic Prosperity & Economic Disaster

English: Monthly changes in the currency compo...

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)

Economic growth has been increasing at a phenomenal rate; with the United States in the last quarter of 2013 reaching a point where there was a surplus, more money coming in in taxes than was being spent.  Dr. Ben Bernanke, the then chairman of the Federal Reserve felt that it was growing too rapidly.  Apparently complete economic recovery with a 6 ½  to 7 percent unemployment level does not really denote a healthy economy.  This would mean that we have an excess surplus percentage of the population that exists within our so-called healthy economy.

The question is how can you have economic recovery with 6 ½% to 7 % of the population still actively looking for employment?  And what about the group that has given up looking for work or those that are underemployed?  While we don’t know the exact numbers of these people they could make up another 6 ½ to 7 percent, or for that matter, the number could be greater.

Can we truly have prosperity with 10 to 14 percent unemployment and underemployment?  If we look at the statistics the amount of money available in the country, the GDP, has increased exponentially but the distribution of these massive funds have been and are in the process of changing with a greater and greater percentage going to the upper echelon of society and a smaller and smaller percentage going to everyone else.  General wages have essentially stayed the same or risen very slowly with prices rising at a slightly more rapid rate.  People are finding that their incomes, which may be slowly rising, are buying less and less each year.  This situation is reminiscent of the 16th Century when inflation existed for a 90 year period.  Wages remained essentially the same but the value of money, which was gold coins at that time continually decreased in value; that is, every year it bought less.

The 16th Century was the time that Spain looted the gold supply from the New World, the Americas, and yearly brought to Europe shiploads of gold that were almost immediately turned into coins and circulated throughout the continent.  As the amount of gold in circulation rose the value of the money dropped.  A small group became fabulously wealthy while the rest of society suffered without having an inkling of what was causing their misery.

We are essentially in the same position today.  A small group, the upper earning percentage of the population of the United States, is seeing their incomes explode while the bulk of the population is being pushed slowly economically downhill.  The country is recovering, both from the Real Estate Debacle of 2008 in terms of the amount of currency in circulation and seeing a growth of funds beyond that point, but the distribution of those dollars is giving that money to the upper echelon with a fractional increase to the general population and the high unemployment level continuing.

This is a scary scenario for the welfare of the country. We have more money available in the general society but a goodly number of people are excluded from any part of it.  The minimum wage remains at $7.25 an hour and we still have unacceptable levels of unemployment throughout the country.  As a note of irony we have couples working in the U.S. at the minimum wage level and still having to apply and receive Government aid in order to survive with a family of four.

The country seems to be returning to prosperity and misery at the same time.  Recovery would be better at a slower pace with unemployment decreasing as economic recovery is increasing.  Massive changes are necessary if overall economic health is to come about.

We are currently living in a society where the bulk of the population has no real understanding of economics.  They see everything in terms of their household budgets.  They see the government spending money it supposedly does not have, therefore throwing the country deeper and deeper into debt.

This, common sense approach, is all nonsense.  Most people still think of money as gold.  This is untrue.  There is nothing behind the dollar but the word of the government.  It prints and issues money as needed.  It also, through it many agencies like Social Security and Medicare and otherwise owns at least fifty percent of its own debt.  In 2013 the Federal Reserve turned over, well over seventy billion dollars to the Treasury.  Most, if not all of this, was interest from the National Debt which the Federal Government owes and owns.

Recovery would be better at a slower pace, but whether or not it occurs, changes are necessary if massive economic health is to come about.  We have to decide whether all people have a right to a minimum level of economic functionality or if one group deserves to have all the benefits that society can provide and the rest deserve to persist as best they can.  Actually if nothing is done the latter will occur.

Today money is a tool of the Federal Government used to effect economic health within the society.  There is no gold behind the dollar.  The Government prints what is needed for the society to function.  Its value is based upon the word of the Central Government.  The amount in circulation in the United States is controlled by the debt limit which is set by Congress.

Also the amount of money in circulation is determined by an inflation factor.  If there is too much money available, more money than goods and services available, then the value of the money decreases.  If, on the other hand, there is too little cash circulating in the general society then the value of the money increases and deflation occurs.  The Federal Reserve monitors this and attempts to keep a proper balance.

To the individual, the members of Congress, money has value.  It provides for their and their family’s needs.  If the members of Congress apply this position to National Expenditures then they are actually shrinking the economy and exacerbating negative conditions, tightening government spending and adding to unemployment.

It is an interesting conundrum.  Applying “common sense” family budgetary rules to the running of the United States could possibly bring about a recession or depression.

The basic principle, which is a hard one to comprehend and accept, is that consumption is as important as production.  Without consumption there is no need for production.  By allowing an ever increasing majority of the National Income to go to the upper percentage of the population there is less and less money available to the rest of the population.  Consequently the amount of goods and service they can consume is continually decreasing.  The system is working against itself.

Are we having real economic prosperity or is the country working toward economic disaster?  An interesting question!




Enhanced by Zemanta