The Weiner Component #101 – Democracy & The Vote

English: Logo of the Democratic Party of the U...

On Tuesday, November 4th the people of the United States will vote in the Midterm Election of 2014. What they, as a majority, decide in each state will determine what happens in the country over the next two years and even possibly beyond that time.

The Founding Fathers, when they established the United States set aside the funds from a section of all government land sold to be used to set up public schools. They believed that an educated electorate would vote intelligently and elect the best possible people for public office. Unfortunately over the years life and politics have gotten quite complicated and many people do not have the time and inclination to delve into the issues and vote intelligently. As a result of this we have the thirty second or less adds on TV, both being generally a fountain of misinformation and also telling people how to vote.

Today we have two major parties and a number of minor ones that may or may not exist in all 50 states. The largest political party is the Democratic Party. It has the most members but is not as aggressive as the Republican Party which also is better financed and represents mainly the upper echelon of the country. The Republican Party includes a good percentage of the top 20% of the population and also tends to contain the evangelical element within the society. They can be at any economic level going from poverty to super-rich. Together they are well less than 50% of the population, probably from 30 to 40%.

In the states where the Republicans have been successful, controlling both the legislature and the governorship they have both gerrymandered the voting districts in 2010 and attempted also to pass voter restriction laws to limit the voting of non-Republicans. They have been partly successful. The probability is that if the electoral process had been truly democratic President Obama would have gotten a much larger vote in 2012. As it was, in that year, the Democrats cast 125,000 more votes than Republicans for members of the House of Representatives but the Republicans were able to win the majority in the House through gerrymandering, adjusting the voter districts in the states they controlled so they would come out ahead.

The third largest group is the independents; people belonging to no political party. These people don’t trust any of the political parties. Then, but not necessarily in order of size, there are the Libertarian Party, the Green Party, and the Peace and Freedom Party. There are also the American Elect Party and the American Independent Party. We probably have a few more that are limited to a small number of states.

Not all political parties are represented in all 50 states. In the United States we have 50 plus separate elections. One in each state and in the territories and other areas the Federal Government controls. Each state sets its own general rules for the elections. They are not always fair and reasonable.

People vote for candidates and referendums and initiatives. The candidates are easy. One votes either by party or for the candidate he or she prefers. The referendums are propositions passed by the state legislature, whereby the legislators want the people to assume responsibility for particular measures or for amendments to the state or Federal Constitution. Initiatives are potential laws that have been issued after a voter signing process. They are done by individuals or groups. An example in California would be Proposition 13, passed in 1979, which lowered all property taxes in the state. This was put through essentially by a landlord’s association.

The meanings of these referendums and initiatives is another matter entirely. In many cases one has to take time reading them to fully understand them. Sometimes a No vote can mean yes or a yes vote can mean no. One has to be careful and read them thoroughly.

The ballots tend to be long, particularly on Presidential Election Years. For example: being a Midterm Election the current California ballot is only five pages. It contains thirty-nine items. The first ten deal with political party entries, starting with the governor and ending with who will be a Member of the State Assembly. Here the political party each person belongs to is listed with their name. Nonpartisan offices follow. There are twenty-four of these, going from different levels of judges through the Director of the Municipal Water District. We have the Governing Board of the local school district and the City Council of the local city. After that comes the referendums and the initiatives. On this ballot there are six of them, two referendums and three initiatives. There is also one Legislative Constitutional Amendment. The last three items deal with county issues.

The Referendums often deal with long term financing and taxing issues. The legislatures wants the public to approve state financing and their own tax increases. The initiatives deal with issues deemed important by specific groups.

There is a pamphlet that was sent to the voters explaining Proposition 1: State of California Water Bond, Funding for Water Quality, Supply, Treatment, and Storage Projects. It explains the referendum and ends with an argument for the proposition and one against it. These pamphlets are sent out several weeks before the election with a sample of the ballot.

Proposition 2 is a Legislative Amendment to the State Constitution: State Budget. Budget Stabilization Account. This referendum requires the state to set up a reserve fund in good financial years that can be used in lean times. This has been a pet project of Governor Brown since he was elected to office.

Proposition 45 is an initiative statue: HealthCare Insurance Rate Changes. This will require among other things approval from the Insurance Commissioner for insurance companies to facilitate rate increases. It gives state officials the authority to deal with the issue.

Proposition 46 is also an initiative which deals with drug and alcohol testing of doctors and raising the current fixed rate in medical negligence lawsuits to $250,000.

Proposition 47 is an initiative that deals with Criminal Sentences and Misdemeanor Penalties. My position on this initiative is expressed in The Weiner Component #92 – The American Prison System.

Proposition 48 is an Indian Gaming Compact. A   Referendum that requires the approval of the voters of California. It allows two tribes whose reservations are on unusable land to open their own casinos outside of the reservation. The legislature has approved the referendum; the voters have to make the final decision by a yes or no vote.

There are also local city and county matters that need to be voted on.

Registering to vote can be done online with the online form Register to Vote.(list your state abbreviation).gov). Voter registration applications are also available at most post offices, public libraries, city and county government offices, and from the State Secretary of State’s office. In order to receive the voter literature a person should be registered at least a month prior to the election.

A democracy is supposed to be a society where the will of the majority determines what the government does. Each vote should be, more or less, equal. This has not happened over a number of years. The wealthy have been able to predominate. It is time for the government to again become the instrument of the majority.


The Weiner Component #79 – A Letter to Elizabeth Warren


English: Elizabeth Warren speaking at March 29...

English: Elizabeth Warren speaking at March 29, 2010, at the Women in Finance symposium. Warren was part of a five-woman panel discussion. (Photo credit: Wikipedia)

On Tuesday, April 22, 2014, Senator Elizabeth Warren appeared on two television programs, the Rachel Maddow Show and with Jon Steward on Comedy Central. She was promoting her new book, A Fighting Chance, and in approximately fifteen minute interviews explained her position in the Senate and the meaning of her book, which, from what I understand, deals with the great financial burdens the Federal Government places upon those youngsters with their college loans, charging them extensive interest when they pay them off over goodly periods of time. She concentrated upon the unfairness of this.

(As a footnote it is interesting to remember that the reason the college loan interest rates are so high is because the Republican dominated House of Representatives refused pass a bill to lower them. Both the Democratic majority in the Senate and the President wanted to lower the rates.)

I sent the following letter to Senator Elizabeth Warren.

April 28, 2014

Dear Senator Warren:

I felt a need to communicate with you for two reasons:

First to tell you how much I enjoyed watching you on the two Tuesday broadcasts stating your position and promoting your new book. My son-in-law, who was present for the Maddow interview, said he would vote for you for president.

My second, and more important reason, was your position on education and student debt. This obviously was one of the main purposes of your new publication. I particularly appreciated your point about paying $15 a semester as an undergraduate and comparing that amount with the current costs of a college education.

If we go back to the 1950s and 60s many cities and states valued an educated citizenry and were willing to pay for it from a far smaller GDP than we have today. The Federal Government in 1945 also inaugurated the GI Bill which allowed a large number of returning veterans to go back to school and eventually graduate from college. At that time the country on all levels put money behind its words.

Today, with an irrational distribution of the national income, the majority of college students, with help from their parents, do not have the funds available to go to college. The Federal Government has allowed them to borrow the money with usurious rates of interest. This puts the student after graduation in a position where most of their newly earned income is devoted to paying back debt for a large number of years. They cannot really get on with their lives, living the American dream, instead they are debt encumbered.

The overall effect of this upon the society is also very negative. This process impedes economic growth. These graduates cannot afford to buy houses, decent auto-mobiles, or what is needed for middle-class living. A large

Percentage of their earnings go back to the government limiting economic growth in the economy. Money spent in the general society is re-spent a number of times generating six to eight times the initial amount while money used to pay off debt remains at the initial level. In addition these students will live for years in this fashion.

In your comments you spoke of lowering student debt by new legislation and you also stated that the funds spent for any purpose have to be made up. You suggested closing tax loopholes. While this would be worthwhile it is not really necessary. The two items are not interdependent or are they in any way related. One can be done without the other. For example a massive rebuilding of the infrastructure of the United States does not require new taxes. In fact if it were done it would generate, after an initial increased expenditure, a great deal of new wealth and probably lower the national debt below its present level.

Historically, the only time the country spends freely without any concern to debt is during time of war. Where did all the money expended during World War II come from? The Government created it and the nation became more prosperous. How was the Government able to pay for the GI Bill after the end of the Second World War and the Marshall Plan in 1948 that brought Europe out of the decay caused by W.W.II? We can also consider George Bush’s two wars in Afghanistan and Iraq or, for that matter, the Korean and Viet Nam Police Actions.

These were done by the government simply creating the funds needed. The money was not the wealth; it was and is the productivity. The goods and services brought about by the expenditure of these funds is the real wealth. It would be the new and refurbished bridges and roads, the new electric grids and structures that would bring the country into the 21st Century. All this would increase the wealth of the United States and its people. Fiscal policy expenditures would actually decrease the dollar value of the national debt. It would act similar to the Kennedy tax cut which substantially increased the GDP.

A bill that would begin this process would be one that forgave most of the student debt. One, for example, that wiped out the student debt of all students who graduated with a C or better average or who completed training for some specific occupation. The money these individuals would spend over the years becoming and being part of the middle-class or better would more than pay for the small amount of the GDP the government would have spent on their educations.


Bernard Weiner

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The Weiner Component #66 – Macroeconomics & the GDP

Imagine a giant caldron or pot as high and as large as the tallest building you’ve ever seen,

The western front of the United States Capitol...

The western front of the United States Capitol. The Capitol serves as the seat of government for the United States Congress, the legislative branch of the U.S. federal government. It is located in Washington, D.C., on top of Capitol Hill at the east end of the National Mall. The building is marked by its central dome above a rotunda and two wings. It is an exemplar of the Neoclassical architecture style. (Photo credit: Wikipedia)

filled[ with money, paper bills, with over 17 trillion dollars in it.  This is the Gross Domestic Product, the GDP, the amount of wealth produced in one year in the United States.  It represents the monetary value of all the goods and services produced and consumed in a twelve month period.  The money is a paper means of exchanging all this wealth and productivity, all the goods and services produced in one fiscal year.  It has no real value except as a token of transfer, goods and services for goods and services.  There is nothing behind the dollar except the word of the Federal Government.  Gold, which has a high value, cannot be used for money because there is not enough of it in existence to meet the financial needs of any of the many industrial nations.

The real wealth is what is produced and exchanged.  The money is merely the means of exchange that rates one unit of productivity against another and is used nationally or internationally.  The currency, then, is the tool through which this system of exchange occurs.  It can be used immediately or stored in institutions like banks or credit unions and used at some point in the future.  Money can also be used as a commodity, loaned or rented out with interest for a period of time or it can be used for all sorts of investments that pay interest or dividends.  It is in every case a tool to satisfy different types of wants and needs.

To consider money as the source of wealth is to be naïve.  The amount one has through earnings or inheritance can be used as a sort of score to determine one’s level of success against that of all other people in the society.  It is a government supplied tool that allows for the productive functioning of society.

It is the responsibility of the Federal Government to keep enough of it in circulation, a constant cash flow, so that full productivity occurs.  A shortage of the money supply in the nation can cause economic recession and eventual depression.  An excess amount of money in the National Economy can bring about run-away inflation, too much money available for the goods and services produced.  The Federal Government’s task is to provide just enough for full employment and full creation of the goods and services needed for the highest possible standard of living for the entire population.

This is not easy and requires constant readjustment because, according to the U.S. Census Bureau the population of the nation is increasing at the rate of one additional person every eleven seconds.  This figure includes births, immigration, and deaths.  In 2010, the time of the last National Census, the estimated population was 308,745,536, and this was considered a low count.  While an adjustment upward was made a year later this figure was used for the apportionment of seats in the House of Representatives.

One has to keep in mind that in addition to this number the population since then has increased at the rate of 5.46 people per minute, 327.27 per hour, 7,854.55 per day, 54,981.81 per week, 2,866,911 per year, plus another 7,854 for leap years.  The money supply has to be continually increased to keep up with these ever-growing numbers or the country moves in the direction of economic constriction, unemployment, recession, and finally depression.  All this is supposed to be done by the Federal Reserve with the aid of Congress and the President.

The Federal Reserve continually monitors the economy and continually makes its adjustments through Monetary Policy.  It can strongly but not completely affect the amount and flow of currency. The other section of the Federal Government that is supposed to continually affect the level of economic prosperity in the country is Congress.  They do this through fiscal policy; passing laws that can diminish or create employment throughout the United States by either increasing or decreasing government spending.  In essence through the passage of laws they can constrict or expand the cash flow and the level of employment

If we look at the actions of the Republicans in the House of Representatives from 2011 on, when they gained control of that body, it would seem that they by their actions are working very hard to bring this country into an economic depression and not allow for any recovery from the Real Estate Debacle of 2008.  We are still, six years later at seven plus percent unemployment.  Millions of people are still not earning enough to maintain a decent standard of living.  There is growing hunger in America, that many people are not food secure.  What are the Republicans proposing and trying to push through Congress?  Massively reducing food stamp and other programs that are vital for the proper survival of fifteen or more million people.

Their version of job creation is to massively reduce Federal spending for entitlement programs while wasting twenty-five billion dollars on shutting down the Federal Government for a period of time.  If one looked for a plan to destroy the United States or make it into a third rate nation then one would do exactly what the Republicans in Congress have been and are trying to achieve, to bring a large part of the population into despair and desolation.

The Republicans are acting like the Hoover Administration did from 1929, when the Great Depression broke, until 1933, when the Roosevelt Administration came into being.  Is it an act of maliciousness or just simply economic ignorance?  They are attempting to run the country as they run or ran their household budgets.  One Tea Party Congressman stated that he understood economics because he had raised a family.  They are making money the object of value and ignoring the potential productivity of the nation.  They are actually using the principles of Microeconomics, which works well with households, businesses, and state and municipal governments but can create disaster if it is used to run an industrial nation of over 300 million people.



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The Weiner Component #57D – The Federal Reserve (Part 5 of 5)

English: A map of the 12 districts of the Unit...

English: A map of the 12 districts of the United States Federal Reserve system. (Photo credit: Wikipedia)

It became obvious during the Panic of 1907 that the Federal Government had no controls over banking practices in the United States.  The Panic was caused by speculators attempting to corner the market on United Copper Company stock.  Failure to do this led to the collapse of the Knickerbockers Trust Company, New York City’s third largest trust.  The failure spread fear throughout the City’s Trusts.  Panic extended across the nation as large numbers of people withdrew their deposits from regional banks.  At the time the United States did not have a central bank to inject liquidity back into the market.  The following year a Senate commission investigated the crisis and proposed future solutions, leading to the creation of the Federal Reserve System in 1913.

The Federal Reserve (FED) is the central banking system of the United States.  It was created in December of 1913 by the passing of the Federal Reserve Act.  This was largely in response to a series of financial panics, particularly the Panic of 1907.  It consists of twelve regional Federal Reserve Banks located throughout the United States, with the main branch in Washington, D.C.  The chairman of the Federal Reserve heads this bank.  Over time the roles and responsibilities of the FED have expanded and its structure has evolved.  It is still in this process of evolution as new financial crises occur.

It was through the Federal Reserve and the Treasury, with the compliance of Presidents Bush and Obama that the nation was saved from total economic disaster caused by the Real Estate Debacle of 2008 that was brought about by the Financial Institutions within the United States.  The assorted banking houses had been bundling and selling mortgages for about the last thirty years; maintaining control over these mortgages with no cash investment in them and then continually using the funds from the sales to issue new mortgages. The banks made fat profits from continually handling all this paper.

There had been a need for more funds in the National Cash Flow and, in this manner; the banks kept adding money to the economy.  By 2007 the level of money creation reach a point of insanity with a larger and larger percentage going to the banks.  At this point most bankers were in denial that the system could crash and the insanity continued until the crash came toward the end of 2008.

The problem that existed from the 1970s on was a great need for a continual increase in currency in the National Cash Flow to keep up with needed economic growth.  The FED was not in a position to fulfill this need; the banks did so; and the process became a way of life until it was abused and over-abused and the bubble burst to the point of destroying the economy, if the Federal Government had not interceded and saved it.

Paul Volcker headed a committee that proposed new laws that would reign in bank excesses and put the country on a solid financial footing again but bank lobbyists got these proposals watered down and since 2009 the major banking houses have again endangered the economy by their excesses.  This does not even consider the damage that has been done to a multitude of individual households where, in many cases, the homeowners have lost their homes through bank foreclosures, a number of which were illegal.  The Federal Government has responded with massive fines for malfeasance but with no criminal cases against any banks or individuals who have brought these abuses into being.  It is time for a change in the situation. For one or many forms of reform to bring these banks into line with the needs of the American public.

The only way this can be done is to upgrade the powers of the Federal Reserve so they can fully and effectively carry out their function of keeping the public safe from the excesses of the financial institutions and also keep the economy at a healthy level.

How can this be done?  The major banking houses must once again become institutions that deal specifically with people and businesses.  They must become either commercial banks or investment banks; they can no longer be both.  And if some or many continue as investment banks then the FDIC (Federal Deposit Insurance Corporation) must no longer insure their deposits.

Also the Federal Reserve must have its power extended to be able to instantly add or subtract currency from or to the National Cash Flow.  In addition Congress needs to take a revolutionary step, it has to increase the power of the FED so that it is able to lend money directly to homeowners and small businesses.  Each of the Twelve Federal Reserve Banks must also get the power to set up their own lending banks within each of the Twelve FED Zones.

After the 2008 & 2009 Bailouts the banks did not function as they had before the crash.  They hoarded their funds and looked for investments that would give them large returns; these were largely in the futures market.  In essence from 2009 on the major banks, which had been saved by the Federal Government and indirectly the taxpayers, found ways to exploit the general public for their own benefit.  They actually worked against economic recovery.  The contention at that point in 2009 that once the Financial  Institutions were saved they would return to their traditional roll was a myth since the large banks were solely motivated by the profit motif and could care less about the welfare of the individual worker and homeowner, or for that matter, the welfare of the country.

Since private enterprise, particularly private enterprise backed economically by the Federal Government cannot be trusted with the welfare of the nation it has become necessary for the Government to insure that welfare and that can only be done by the Government taking over the financial structure of the nation in the name of the “People” for the “Common Good” and not for profit.

There will be problems in establishing this system but they can gradually be resolved.  There are the smaller banking houses and the Credit Unions that have generally functioned for the welfare of the general public.  Should they continue to be part of the system?  Do they continue to have FDIC insurance?  These questions will be answered as we go along.

The major banks in the United States, JP Morgan Chase, the Bank of America, Wells Fargo, to cite a few examples, have grown in size since the 2008 Disaster.  They are today too big to fail.  Their demise could bring down the economy of the United States and possibly also some of the European nations.  In essence they hold the world prisoner while they act making all sort of economic decisions for their own benefits using public funds.

We need, at this point, to take a closer look at the banks and their ownership and control.  The stockholders obviously own the financial institutions but the people who control these companies and make all the decisions would be the CEO and all the upper management.  The actual owners of the banking concerns have almost no say in what happens in these companies.

The compensation packages of the upper echelon runs into the multi-millions of dollars. The stock dividends of a company like the Bank of America runs into the pennies.  The Bank of America pays one cent per share per quarter or four cents per share of stock each year.  One hundred shares of stock that cost anything from $14 to $17 per share pay four dollars a year.  For an investment of $1,500 the shareholder earns $4.00 per year.  For an investment of $15,000 he earns $40.00 a year.  That is a return of .0027%, twenty-seven thousands of one percent.  By putting that much money in a commercial bank the return is at least one tenth of one percent.  So much for owning stock in The Bank of America!  The other major banks pay more but not significantly more in dividends.

What happens to all the fabulous profits that the Bank of America makes?  Most of it goes to management as salaries, compensation, and bonuses.  If the Bank of America is a true example of American banking then the financial institutions are making money for the sake of making money.

It is a sad commentary if one remembers President Franklin D. Roosevelt’s comment that he made once during the Great Depression and again later during World War II that an individual can only spend so much during a year, that to earn far more is a total waste in terms of society and that this excess should be taxed.

The heads of the various banks earn more, in many cases, in one year than they can reasonably spend in a lifetime.  Jamie Dimon, the CEO of JP Morgan Chase had his yearly compensation package cut, after bank losses, from 22 million to only 11 million a year.  This, then, becomes the function of banks in the United States and beyond.  It is a silly or stupid reason for running the finances of a nation.

The American economy deals with the needs of over 350 million people.  This is a complex issue.  The large banking houses have failed the public.  To what extent should they be allowed to continue to exploit them?  Or should these major Financial Institutions go off on their own in a Free Market System, functioning within the law and succeeding or failing without protection from the Federal Government and the taxpayers?

Taken together all the games, illegal and otherwise, that the banks have played have been in the trillions of dollars, the fines that the banks have paid have been in the billions of dollars.  How many trillions have the banks extorted; how many average Americans have the banks ruined; and how many additional trillions will they extort before this current system is changed?  Even with new Volcker rules the current system is bankrupt, incapable of working for the welfare of the people.

It is time for a basic, realistic change in the way finance works within the nation.  The needs of the people are far more important than the quirks of the modern day bankers.


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The Weiner Component #57 – The Rapaciousness of Banks, Solutions (Part 4 of 5)

In 1935, Cret designed the Seal of the Board o...

There is a basic contradiction in banking within capitalism in a Market Economy.  Adam Smith, in his classic work, speaks about the “invisible hand,” the motivating force of the market system.  This is the profit motif; people do things under capitalism because they come out ahead monetarily.  We work for pay; we create businesses to make profits.  Everything we do under this system increases our level of wealth.

This motive applies to banking as well as every other business enterprise.  In fact the major banking houses work toward phenomenal profits.  Yet the rules of the Free Market do not apply to banking.

There are different types of banks; the lines between them in recent years have become obscured.  Commercial banks take in deposits from their customers, pay a small amount of interest on these monies, and then use the money for all sorts of loans, private and commercial.  Since the Great Depression the Federal Deposit Insurance Corporation insured all bank deposits up to a certain amount that has been increased over the years.  Currently all bank deposits are insured up to $250,000.  For this the banks are required to pay a minimal premium.  In the event of a major economic collapse in which the banks fail the Federal Government or the taxpayer would be responsible for paying or repaying these funds.

Investment banks like Goldman Sachs have investors who put their money in these banks hoping to make a profit.  These funds are not insured by the Federal Government.  The investment bankers are supposed to be experts in financial management.  They make their money from assorted fees.  They also invest their own funds.

Today, with an easing of banking laws, the lines between the various banks are very gray.  At the tail end of 2008, with the Real Estate Debacle, the U.S. economy came very near almost total collapse.  Federal bailouts saved the banks and the economy.

The Financial Institutions have never accepted responsibility for their acts of economic mayhem.  They function like bodies of water always flowing downhill, except the banks are always flowing in the direction of the greatest profits.  In 1929, the ten percent margin investments stopped for a period of time, then began again, but by law, then, margin could not be less than 50% of the investment.  This is still true today.

After the Great Depression all sorts of banking regulations came into existence; and they persisted well into the second half of the 20th Century.  From the 1980s on, with Reaganism, where “the problem” in society “was the government,” which presumably held back progress in a free society, banking regulations began to disappear.  This attitude, combined with a need in the economy for a much greater flow of cash, brought the country to the disaster of 2008.  Paul Volcker, a former Federal Reserve Chairman, led a committee to come up with new regulations for the banks.  These new regulations were largely watered down by bank lobbyists and this brought us to the current situation.

The Volcker Rules are again being reconsidered.  Will they, if instituted, stop the current bank abuses?  They will certainly help do so for at least a period of time.  Of course the bank lobbyists will still be arguing to members of Congress against them.

Currently the Federal Government is not only financially penalizing a bank; it is also considering indicting one of its executives.  If it does so and this action becomes a common practice, then whether the man is found guilty or not by a jury, the illegal activities that the banks perform for profit will slow down.

Will these actions change bank policies?  Will the flow toward phenomenal profits cease?  The answer, at best, is temporarily.  Laws and government practices can be changed gradually.  The reform that came about after the Great Depression lasted for about half a century.  The same could be true of these reforms.  The nature of private banking is profit, the more the better.  What is needed is a new system of banking whose ultimate goal is to serve the public and the welfare of the overall society.

In essence the Commercial Banks are taking risks with other people’s money, the executives are making fabulous salaries, and they are calling on the Federal Government if their investments fail.  Also up until now there has been no chance of anyone being held liable for mistakes or for most criminal activities in which they may engage.  In fact outside of specific criminal acts like using insider information no one has been held criminally responsible even for narcotic money laundering or supporting terrorism.  The banks pay massive fines that represent a small percentage of what they have made and the executives apologize one or more times and promise not to do it again.  But from what I gather the profits are so great that most of these banks do perform these acts again.  One might say that all people are equal before the law but bankers consider themselves more equal than anyone else.

Where, then, is the Free Market when it comes to banking?  Obviously, there isn’t one.  Banking operates outside the Free Market System.  The big banks cannot lose, they are supported by the United States Government; which, in doing so, is protecting the small investor.

Banking, as we’ve seen, as it occurs in the United States, and for that matter in most European countries, is ridiculous.  It is government backed “so called” free enterprise – a contradiction of terms and concepts, a system of irresponsibility, supported by the government.  The way it functions allows all sorts of economic downturns and upturns that keep the assorted economies in a state of confusion or near-confusion and it exists mostly for the benefits of the profit-hungry banking executives.

What we need is a system of continual growth, a system where the government controls and can constantly fine-tune the economy of the nation.  The Federal Government does not operate for profit but, rather, for the benefit of the people, for the “common good.”

Can this be done?  The answer is, YES.  Not only can it be done but also the agency that can rectify the current situation exists.  It was created exactly one hundred years ago because of constantly occurring economic disasters, particularly then because of the Panic of 1907.  This agency is the Federal Reserve.  It, after the Midterm Elections of 2010, has not only kept the nation afloat but has also brought about economic growth despite a recalcitrant House of Representatives that has refused to utilize fiscal policy to bring about any economic recovery.

The Federal Reserve needs to have its powers expanded to the point where it can do away with the contradictions in the U.S. banking system.


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The Weiner Component #37 – The Concept of Money


Cash, currency, paper bills, checks, credit cards, electronic deposits and transfers are all examples of money.  But what is it really?  What is its real value? 

Money, the currency of each nation, is the means of exchange used within that society, the means of exchanging goods and or services earned in the present or at some time in the past and saved for present or future use.  It is also a means of setting up the economic pecking order of individual levels within a society.  In the United States, for example, the more you earn, the more successful you are.  Generally it also denotes to which economic class you belong, what level of economic prosperity an individual has or has not achieved. 

Determining the actual value of money is interesting.  There is nothing behind any currency other than the word of the nation that issues it or the National Debt of that particular country.  Up until 1933 when Roosevelt took the country off the gold standard by collecting all the gold coins, had them melted down into gold bricks, buried them in depositories, issued gold certificates to the Treasury, and had the banks issue paper bills denoting that they were “Federal Reserve Notes,” money had been exchanging value for value.  A one ounce gold coin was a twenty dollar piece which could be exchanged anywhere for $20 worth of goods or services throughout the world.  The Roosevelt Administration changed the value of gold from $18 dollars an ounce to $36 and required that all gold mined in the United States be sold to the Federal Government.

Historically, the problem was that there never, with the exception of the Sixteenth Century when the gold in the New World was looted and sent to Europe, enough gold available to serve the business needs of the various industrial nations.  As a result of this, the amount of gold available for all commerce both within and between nations had been and was stretched by using paper bills that theoretically could be exchanged for gold at anytime.  Of course when this was done there was a run on the banks, causing bankruptcies and a depression. 

The amount of currency needed in circulation today has to be enough to allow for a full exchange of all needed goods and services in the society.  The money itself has no real intrinsic value; it is merely a tool that allows for this exchange.  The amount in circulation has historically been arbitrary, generally determined by the amount of gold coinage available, and then partially controlled by the state and by the financial institutions within the society that have continually operated on the basis of pure profit for themselves regardless of the consequences to the general society. 

This lascivious control, mostly by private enterprises has led to innumerable economic disasters such as the Great Depression of 1929 and the Real Estate Debacle of 2008; both of which almost toppled the entire society.  The two economic disasters were based upon an ever-increasing frantic race for increasing immediate gains, banks and a part of the general population rapidly acquiring massive amounts of currency for themselves.  This issue was not understood until well into the Twentieth Century and the assorted nations have never yet exercised their sovereign power to totally control or regulate the money supply. 

In the United States the myth that is constantly being propagated is that the Federal Government is inefficient or incapable and that only private enterprise and the Market System can properly run the economic system within the country.  It is bogus nonsense!  It was the Federal Government that both in 1933 and in 2009 saved the country from total economic collapse.  And, in both cases,  it was private enterprise and the Free Market System that almost destroyed the economy.

The reason we have had recovery since the bank caused disaster of 2008 has been through the actions of the Obama Administration and the creativity of the Federal Reserve in utilizing imaginative Monetary Policy.  In 2009 and 2010 the President and Congress saved the nation from total economic collapse.  Since 2011, when the Republicans gained control of the House of Representatives they have done everything they could to hamper economic recovery by their austerity program which has tended to actually shrink a recovering economy.  They seem to be more concerned with discrediting the Obama Administration than working to bring about recovery.  Their constant cry is to cut government spending, particularly in discretionary programs, and reduce the National Debt.  One direct result of their austerity program has been the collapse of a fifty some year old bridge in Washington along a major highway.

Money has no real value; it is a tool that the society uses to exchange some form of labor for goods and services needed for comfortable living.  As long as there is no wild inflation, more money being available in the general society than products that can be produced, there is no danger from rapid inflation.  .

In the crazy escalation of currency during the Real Estate Bubble that exploded in the latter end of 2008, where people utilized their homes as bank accounts, there was no real inflation, only economic growth.  The money supply shrank enormously as real estate values collapsed.  We have still not fully recovered from that bank-induced recession that could have toppled the entire economy.

It is time to stop treating money as the ultimate object of wealth and begin treating it as an object of exchange, as a tool that can be utilized to create and maintain a healthy economy with everyone prospering. 

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The Weiner Component #26 – Monetary Policy & The Real Estate Market

English: President Barack Obama confers with F...

According to an article on the first page of the Business Section in the Sunday, February 17, 2013 issue of the L.A. Times there is now a shortage of residences available in the Inland Empire housing market, the epicenter of the Southern California housing crash.  There was earlier a profusion of foreclosed housing available there, many more than there were people available to occupy them.  The paper’s position is that “there is a flood of all-cash offers from investors,” with “some backed by Wall Street war chests.”  Now there is a large shortage of properties and new construction is occurring.

Is this true?  Yes, but it doesn’t make the point that they are indicating in their article. These houses have been in the process of being bought-up since shortly after the Housing Crash in 2008 for virtually pennies on the dollar, many of them illegally since the banks that sold them in short sales or otherwise did not really own them; their mortgages had been broken up into innumerable real estate bundles that were then marketed as Hedge Funds.

In point of fact the banks after the 2008 crash and during the government financial bailouts were funding mortgages on a very reduced level.  They required buyers to have good financial records and put down at least twenty percent of the cost of the houses in cash; something most people could not do.  They always accepted full cash payments for the properties they sold.  Actually, in many cases, the banks accepted far less than appraised cash values; thus helping to further reduce property values.

Even with the cash buyers the available housing properties were in the many hundreds.  The syndicates that bought them took over just a fraction of what was available.  What happened?

Currently and for a considerable period of time the major purchaser of real estate in the United States has been the Federal Reserve; they are and have been spending forty-five billion dollars a month purchasing distressed housing which the banks originally sold in bundles after breaking up each mortgage into one hundred to a thousand parts.

Since the midterm Election of 2010 the extreme end of the Republican Party has been in control of The House of Representatives and has passed no bill to aid the housing dilemma or to increase employment.  The Republican minority in the Senate has been able to filibuster anything it didn’t like, particularly bills that had to do with job creation and housing.  There has been no fiscal policy, the Federal Government spending money to upgrade the economy.

The only way possible for money to be added to the economic flow of cash in the nation has been through the Federal Reserve’s use of Monetary Policy.  Under the chairmanship of Dr. Ben Bernanke there have been extremely imaginative uses of Monetary Policy.  The Fed is and has been spending $85 billion a month on Monetary Policy.  Forty billion dollars is being used to repurchase government debt and forty-five billion dollars is going to buy real estate paper.

In essence they are adding $40 billion each month to the National Cash Flow and reducing by $45 billion the number of properties available.  This has allowed for both a slow economic growth and enough of a shortage of houses to allow for new construction throughout the country.

The result of this is phenomenal in slowly bringing about a number of economic solutions.  First off, the banking mortgage debacle created a situation where no one really owned the majority of the houses that defaulted on their loans.  The individual mortgages had been divided into multitudinous pieces where no mortgage owner has more than a very small fraction of ownership in the property and the records kept of these dealings where unbelievably sloppy.  There was no one to legally foreclose on anything.  In point of fact it will take a decade or two to sort this out.  These are the properties upon which the banks were foreclosing.  They did this by computer generating documents that the courts, for a while, assumed to be sacrosanct.  The Fed, by gradually buying up all these mortgages, can sort them slowly, as they get them, putting the pieces together.

The purchase of the real estate paper allows the Fed to do a number of things.  As we’ve seen above it can sort the mortgages and eventually define ownership on these bundled houses.  In the process it has and continues to create a shortage of properties and restart housing construction throughout the country.

Because of the need for more money in the National Cash Flow the FED will not foreclose on any of these properties.  Many of them are not only underwater they are at the bottom of the ocean.  By 2008, before the Crash, many banks were refinancing mortgages at 125 percent of their appraised value.  A large number of these foreclosed properties dropped to half or less of their pre-crash value.

The recipients of these properties pay full taxes on their incomes; they cannot deduct for the interest they do not pay.  The governments, state and Federal, are receiving at least 25% of the money that would have been deducted in interest payments as taxes.  This is adding billions to the National Cash Flow.  It is, as we’ve seen creating a shortage in national housing.  In a period of four to five years the Federal Government is more than getting its investment back in financial benefits for the entire economy.  The Government will eventually be getting back far more than the $45 billion it is spending every month.

Once the bundles are sorted out and the government has full ownership of these properties they will not foreclose because that would take money out of the economy.  The people will live in these properties until they decide to leave or pass on.  Then the property will revert to the government being worth, at that time, far more than they are at present.  Then also the housing debacle will no longer exist.

The Federal government, working through Monetary Policy in order to grow the economy, is bringing about the current housing situation in the United States. It, as we’ve seen, a new creative use of Monetary policy, which has never been done before, and it will effectively solve the bank-created housing dilemma.

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The Weiner Component #18 – Myth & Reality

Washington DC - Capitol Hill: United States Ca...

Today, December 31, 2012, the Republicans and the Democrats in the U.S. Senate are currently attempting to negotiate a compromise to prevent the nation from going over the fiscal cliff; that is, to prevent automatic tax increases from throwing the nation into a recession and possible depression.  Will they succeed?  At this point, 12 noon, Washington time, it’s anybodies guess.

The so-called compromise isn’t really a compromise; it’s a process of each side giving in to some of the other side’s demands.  A compromise is where both sides  can accept and live with an agreement that is somewhere between their initial positions.  What is happening here are that the Republicans are being forced, in their opinions, to give in to some of the Democratic positions.  As a result of the 2012 Presidential Election they have to give in to the other side to some extent.  Given another election, probably in 2014, they believe a victory would allow them to totally get their way.  One Republican candidate for the Senate, who lost the race, stated that compromise, to him, was the other side coming to his position.

The arguments, mostly Republican, are based upon faulty reasoning and a total misunderstanding of economics.  I was surprised last night listening to some eminent newscasters discussing the state of the economy.  They sounded like they had never taken a course in economics or read a book about the subject.  They were talking about the National Debt and they were doing so from the prospective of Microeconomics, equating the National Economy with their household budgets.  This was on MSNBC not on Fox news, which is a fountain of misinformation.  The were respected reporters on “Meet The Press.”  It struck me that everyone, with the exception of the Administration, has taken a Microeconomic view of the National Economy.

Some senator stated that he was not going to burden his grandchildren with current deficit spending.  What he missed was the deficit spending in World War I, the Great Depression, World War II, the Marshall Plan, the Korean War, the Viet Nam Police Action, Reagan’s “Star War” military spending, and the three Bush wars.  Have these sunk us into enormous debt?  Are we still economically suffering and paying for all of these events?

In dealing with this issue there are numerous factors to consider.  One is population growth.  According to the Census Bureau official population clock the population of the U.S. increases at the rate of one person every eleven seconds; this includes births, deaths, and immigrations.  That causes the population to grow at approximately 5 ½ people per minute, 330 people per hour, 7,920 a day, 55,440 for a week, 221,760 for a month, and 2,661,120 people per year.  The Bush Economic growth and Tax Relief Reconciliation Bill of 2001 was passed twelve years ago and extended for two more years in 2010 under President Oboma.  The population increase in the last twelve years is about 34,573,440 people.  The prices of most items have doubled during this period.  Going back to the 2001 level, even if it’s for a short period of time, would bring large-scale unnecessary hardship upon the majority of the population of this country.

This increase in the population requires a significant increase in the Gross Domestic Product in order for the economy to just stay even.  For anyone, be he a Senator, member of the House of Representatives, TV Reporter, or anyone else to talk about the future in terms of conditions today is not only nonsense, it is blatant naivety or ignorance.  And to project to when one’s grandchildren will reach adulthood is utter nonsense.  The entire nation, its population, and the value of money will be different at that time.

Another, and perhaps more important factor is the concept of Macroeconomics.  We think of money in terms of our household budgets.  Anything we buy we have to pay for; but is this true for the Federal Government?  What is the purpose of money to it?  In fact, what is or are the purposes of the Federal Government?

According to the Preamble to the Constitution of the United States:  “We the People, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”

Nowhere in the Preamble or the Constitution is Microeconomics or anything about it mentioned.  The Constitution gives Congress the power to “Coin money,” and “regulate the Value thereof.“  If we consider the power given to Congress and the purposes stated in the Preamble, then we can understand the function of the Federal Government in dealing with money. It is to control the money supply to allow for, or insure the greatest prosperity for the people of the United States.  That is the function of Macroeconomics.  Money is the tool that the government uses to achieve the greatest functionality of the economy of the country.

The argument of the National Debt getting so large it will drive this country to bankruptcy is also nonsense.  If we ask the question: Who owns the bulk of the National Debt, 70 to 80 percent of it?  The answer to that is the Federal Government and its agencies.  For example Social Security owns over 2 ½ trillion dollars worth of the debt.  Can an entity owe itself money that it borrowed from itself?  The question points out the irrationality of the concept.  After all, who prints and issues the money?  It is the National Government.  There is nothing behind the dollar but the word of the National Government.

Money is, after all, a tool that the National Government uses to enhance the level of productivity in the nation.  It is supposed to allow for full employment and a certain level of prosperity for all the people in the country.  The National Government’s goal is not to pay off its debts but to allow the nation to function to it highest possible level.

Currently the Federal Reserve, under Chairman Ben Bernanke and his Board of Directors in Washington, D.C., are spending four hundred billion dollars a month on real estate paper and four hundred and fifty billion dollars a month on government bonds.  This is a very creative use of Monetary Policy.  With the multiplier effect, money is spent numerous times before it becomes part of the National Flow through the economy; this adds trillions of additional dollars monthly to the available currency.  Is it working?  The economy is improving new housing is being built throughout the country, employment is increasing and unemployment is gradually shrinking.  As long as there is no inflation, too much cash chasing too few goods, the economy needs the currency to grow.  We are having a healthy development.

It would be nice if we don’t go over the cliff.  It would be even nicer if all the Congressmen understood Macroeconomics and the proper functioning of the Federal Government.  With full employment much more wealth would be produced and much more would be collected in taxes on all levels of government.  We might even be able to pay off some of the “so-called” debt.  In order for this to happen the government has to spend more money than it takes in.

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The Weiner Component #17 – Medicare, Social Security, & the National Debt

Benefit Security Card .. HALF of the U.S live ...

Initially, when Medicare first came into existence in 1965, during the Administration of President Lyndon Baines Johnson, it was part of Social Security.  During the early part of his first Administration President Ronald Reagan fixed Social Security by raising the rates paid by both the employees and employers.  Social Security did not have a problem funding the people it covered at the time but it was felt that this change would allow the system to operate well into the future.  The new funding completely covered both Social Security and Medicare.

In 1988, the last year of the Second Reagan Administration, Medicare was separated from Social Security; and thereafter funded separately.  Social Security continued to be funded at its current rate: 4.2% of incomes up to $110,100 paid by the workers with 6.2% contributed by the employer.  The self-employed pay 10.4% of their incomes.  No adjustment was made to lower the funding now that Medicare was a separately funded entity.  Medicare was funded independently by a 2.9% payroll tax, both workers and employers each paying 1.45%.  Taken together each employee pays, directly or indirectly, 13.3% of their incomes.

Question: When the Republican Congressmen talk about fixing Social Security are they talking about reducing its rates to bring it in line with the amount it pays out or are they talking about taking the excess funds such as the 2 ½ plus trillion dollars that the government has borrowed from social Security and put into the National Debt; or are they considering reducing the payments to the recipients of Social Security and keeping the excess still being paid into it?

In point of fact, Social Security has nothing to do with the National Debt except that part which is owed to it.  One reasonable way to fix Medicare today would be to reduce Social Security by one or more percent and increase the payment to Medicare by that same amount.  Any other argument at this time is based in ignorance of the actual situation.  Are the members of Congress who are proposing these changes being devious and dishonest or are they just ignorant of the actual situation?  If the answer is ignorance then they and their staffs, which cost the taxpayer well over a million dollars a year, are ill equipped to serve as Representatives of the American people, if they are being devious and dishonest then they do not belong in Congress but rather should be incarcerated.

The National Debt is another interesting subject.  Is it real?  If not what is it?  The Federal Government admits to holding 40% of the National debt.  By my reckoning the figure is more like 70%. The Chairman of the Federal Reserve recently announced that the Fed is buying 400 billion dollars worth of real estate paper a month and 450 billion dollars worth of bonds each similar period..

Can an entity owe itself money?  The answer legally is No.  It can be argued that agencies within the government and the Federal Reserve hold most of the debt and that it will someday have to be paid back.  But isn’t all that that sophistry?

Obviously there is a National Debt, but it is far less than what it is officially stated as being.  If we deduct the percentage of the National Debt that the Federal Government holds through it agencies and otherwise the actual Debt is less than 5 trillion dollars.  That is far more manageable than $16 trillion.  Of course that is by my calculation and includes all the Monetary Policy applied during the Obama Administration.  If we just take the 40% the Federal Government acknowledges it owns then the figure is slightly under $10 billion.

In either case what we have to keep in mind is that the Federal Government controls the flow of currency in the economy and that there is nothing behind the dollar except the National Debt.  Money as used by the Federal Government in Macroeconomics is a tool that is supposed to engender growth and health within the economy.

Up to this point the Federal Reserve has been utilizing Monetary Policy in both regular and imaginative ways to try to bring about recovery from the 2008 Real Estate Debacle.  It has been successful in helping to turn the economy around and bring about partial recovery.  In order to bring about total economic recovery all that has to be done is to apply Fiscal Policy by both Houses of Congress and the President.  This would increase the so-called National Debt but it would generate a large volume of new productivity and new wealth, and, in all probability, lower the Debt in a short period of time.

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