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!

 

 

 

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The Weiner Component #47 – The Tea Party & The Debt Ceiling

  

English: The holders of the United States nati...

English: The holders of the United States national debt as of December 2008. (Photo credit: Wikipedia)

On October 17th the United States Government will reach its authorized Debt Ceiling unless the House of Representatives passes the bill raising it.  According to the analysis released Tuesday by the Bipartisan Policy Center the Federal Government will be unable to pay its bills and face default as early as October 22 and no later than November 1.  

The Treasury Secretary warned Congress that the 16.7 trillion dollar debt limit must be raised by October 17th or the Federal Government will face default.  At that point the Treasury would have to depend on cash on hand, about 30 billion, and incoming revenues to pay its bills on any given day.  Unfortunately all its multi-thousands of bills are paid by computers that can’t be reprogrammed to pay selectively or partially.

According to some Tea Party members of the House of Representatives this problem is no big deal.  These people’s knowledge of government and economics is non-existent.  They have said that they don’t trust economists who all have different opinions.  One member stated that his knowledge of economics is based upon the fact that he raised a family.  Rand Paul said that the Federal Government has so much money coming in it doesn’t have to worry about having enough funds to pay its bills.  Others have stated that this change won’t even be noticed.  Another’s statement was that the default would stabilize international finances.  Of course all these individuals offered no proof for their inspired statements.

The economic awareness or sophistication of the people in the Tea Party is non-existent; they function by “common sense” based upon limited experience with no awareness of what they don’t know or understand.  I am reminded of the man who didn’t believe in or trust doctors.  His wife came out with a cancerous growth on her neck. His experience with illness had to do with occasional headaches and for these he took three to four aspirins each time he had one.  Since his wife’s problem was more serious than a headache he gave her six to eight aspirins to solve her medical problem.  No doubt she died of cancer.

If the default problem were a burning house and what to do about it then their solution would be to pour gasoline on the flames in order to put out the fire; that way it would burn out faster.  They have a strange solution to a problem that they themselves have created.  Basically they would destroy the economy if they can’t get their way.  And what is their way?  They want to get rid of the Affordable Health Care Law, reduce entitlement programs, reduce taxes for the upper few percentage of the population and force other unpopular programs down the throat of the American public.  Since they can’t do this by taking over the presidency and Congress the will do it by extortion, the House will force the rest of the government to do what it wants.  And in trying to achieve this nefarious goal they are wasting billions of dollars and disrupting not only he United States but also all the other industrial societies that use the dollar as a basis of value.

There has never been a Debt Default before in the entire history of the United States.  We can only guess what will happen.  The guesses go from a complete disruption to a total breakdown of the economy, far worse than the Great Depression of 1929 affected the world.  We are talking about ever-growing massive unemployment, disruption and possible destruction of all VA programs, crashing financial markets, virtually destroying a major part of the national economy, plus disrupting Europe and Asia.  This is what the Tea Party seemingly is willing to bring about if they don’t get their way.  This is extortion greater than any ever committed by any criminal.

If we ignore everything above then not increasing the Debt Limit will freeze the Federal Reserve’s ability to use Monetary Policy.  The Fed has been adding 85 billion dollars monthly to the National Cash Flow.  This has been going on for well over a year.  The increased flow of currency has allowed for most economic growth since 2011.  That also includes the housing recovery.  There has been no fiscal policy, spending by Congress to increase employment.  Stopping this flow of currency will cause immediate stoppage of all recovery.  The economy will instead begin a process of ever-growing shrinkage with an ever-increasing level of unemployment.

Will Barak Obama allow this to happen?  I don’t see how he can.  If the Republicans refuse to give in unless they get their way then he is left with two choices: (1) He can give the Tea Party Republicans what they demand and set a precedent for extortion, or (2) He can invoke Section 4 of the 14th Amendment to the Constitution, which states:

“The validity of the public debt of the United States, authorized by law, including debts incurred for payment Of pensions and bounties for services in suppressing Insurrection or rebellion, shall not be questioned.”

The next sentence states essentially that the United States shall not be held responsible for paying for the freed slaves and the last section gives Congress the power to enforce this Amendment by proper legislation.

Can the President then authorize paying the public debt or does only Congress retain this power?  It’s an interesting question that in the end can only be answered by the Supreme Court.  And their decision, depending upon the makeup of the Court, could go either way and even be reversed by a future Court. 

But if Congress is irresponsible does the President really have a choice?  He swore an oath to uphold the Constitution of the United States.  He assumed responsibility for the welfare of the nation.  For him to allow this to happen would be breaking his oath.

Currently and each day increasingly there is greater pressure on the Tea Party and other Republicans in the House of Representatives to end the Debt Ceiling and provide a budget for the United States, to again fund the government.  Currently the Tea Party group within the House is reluctant to do this but the more moderate Republicans seemingly are willing.  If the Speaker, John Boehner would bring a clean bill on both of these issues up before the House then, with Democratic support, it should easily pass.  Up to this point he has not been willing to do this.  Doing so will probably cost him the speaker-ship of the House of Representatives.

And when both the Debt Ceiling and the budget problems are resolved there is still the Sequester.

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The Tea Party Group is actually living in the wrong century.  They would have been happy and well adjusted in the late 18th Century, around the time of the American Revolution.  Government then was far away and bothered you very little except for taxes.  Many of the people living then considered taxes a gift that they gave to the government.  The people were very independent, building their own houses, clearing their fields, raising their own food, making their own furniture, running their own stills, bringing meat to the table by the use of their muskets.  They were an independent lot, standing tall, and proud of it.

The problem with the Tea Party is that they are now living in the 21st Century where everyone is interdependent upon everyone else.  The muskets have become automatic weapons capable of firing over 100 rounds a minute and there are specialists to do all the other tasks.  People are crowded in society and function best through endless compromise.  The Tea Partiers see compromise as a sign of weakness.  Real men don’t compromise; they push until they get their way.

Unfortunately for them the group that financially backed the Tea Party, the billionaires like the Koch Brothers and the large corporations are withdrawing their support, which means their money contributions.  I imagine these people thought they could control the Tea Partiers and have just discovered that they created Frankenstein Monsters that are out to destroy the country if they can’t get their own way.

What I suspect we will be seeing in the near future is an inept Tea Party breaking away from the Republican Party and forming its own third party.  They will then be like the No Nothing Party of the 1840s and 1850s, appearing noisily for a decade or two and then disappearing.  Their influence will wane to nothing as time passes.

tea party

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