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 #49 – The Tea Party: Hypocrisy, Intolerance, & Extortion

English: Sarah Palin at the Americans for Pros...

On Wednesday, October 1, 2013, Darrel Issa, the California Tea Party Republican, who chairs the House Oversight & Government Reform Committee, was addressing the Executive Park Ranger, who heads all the National Parks in the nation, at a committee meeting. He asked him why the Parks had been closed during the Government Shutdown. Several Democrats on the Committee responded negatively to Issa’s comments. One held up a hand mirror and said something to the effect of: “If you want to see who shut down the Parks look at me.” Issa’s statement at the end of the questioning was that the head of the National Park Service should resign over his handling of the government shutdowns of the public national parks.

It’s an interesting behavior pattern. Blaming someone else for what you helped bring about. It shows Issa to be as sensitive as a boulder rolling down a mountainside. Is it gall, hypocrisy, or just insensitivity to the rest of the world? Does Darrel Issa feel that his view of the world is the right one and that everyone who holds a contrary view is wrong and should change their prospective to match his? Is he the perfect representative of the Tea Party?

Ted Cruz, Michelle Bachmann, Sara Palin, and other prominent Tea Party Republicans were in shock, several days earlier when they usurped a veteran’s meeting at the new World War II Veteran’s Memorial in Washington, D.C., to protest both the fact that it was closed during the Government Shut Down and that the Obama Administration had done this. The fact that Cruz and the Republican House of Representatives led the charge for the Government Shut Down was beside the point. It’s amazing how these people can set up a negative situation and then blame the Government for what they themselves have done. It’s like, with a straight face, claiming that white is really black and black is really white. They are arrogant with no sense of shame for their own inappropriate behavior.

The Tea Party’s actions are reminiscent of the functioning of the old Communist Party. The member or adherents of that group were so sure they were right in their beliefs and that everyone else was wrong that anything they did to advance their cause was acceptable, even to robbery, murder, or even blatantly sacrificing the lives of any number of people. Their cause was the ultimate cause; the next step in the inevitable flow of history, to them the destiny of mankind. It justified any behavior that enhanced its cause.

The old Communist Party of the late Nineteenth and Twentieth Centuries are gone now and so are their doctrines, all casualties of historic change. Russia (the old Soviet Union). China (The People’s Republic), and Vietnam like the United States, Great Britton, Germany, and France are all combinations of both Socialism and Capitalism.

This historic change will also happen to The Tea Party, they will, like the Know Nothing Party of the 1840s and 1850 eventually become casualties of history. But before they disappear they can cause all sorts of havoc to the current generation. Up until the end of the possible government default they, a small minority of elected government legislators, had achieved control of the Republican Party moving it to the far reactionary right. They have done this by essentially controlling the money contributions that the politicians need to stay in office and by threatening their fellow Republicans with having more extreme candidates run against them in the primaries when they came up for reelection. This mode has been successful, first in shutting down the government by not passing an acceptable budget, and then up until the day of the default when the Speaker of the House brought up a Senate Bill that would extend the debt ceiling and reopen the government, created great negative problems for the Government. While the Tea Party members voted against this measure both the Democrats and moderate Republicans passed the bill and almost immediately it became law.

Various far right groups like the Heritage Foundation threatened primary runoffs against any Republicans who supported this bill. This means so far that there should be runoffs in the primaries against the majority of Republican Senators who are running for office in 2014 and the House of Representative members who supported the bill.

The 2014 Midterm Election will be very interesting and important. Particularly since the question of the Debt Ceiling will come up again in February of 2014. Hopefully by then the country will have a new budget to finance the running of the Government. Ted Cruz, among others, has threatened a Government Default. Many of the current Tea Partiers are very angry over losing the current battle over this twenty-four billion dollar fiasco. Will the far right and the Tea Party have the clout to bring about another twenty-four billion dollar crisis?

To date Tea Party control of the Republican Party has lasted three years. The Heritage Foundation and other far right organizations will have to spend billions of dollars to get their way in the primary races. They will again have to spend that much money in the actual elections against Democratic candidates. Will their contributors be that generous, particularly since the banks and other corporate contributors lost a lot of money in the first Government Shut Down and the near-default by the Federal Government.

Meanwhile the public is going to be subjected to all sorts of rhetoric about what the Tea Party will and will not do. They will be regaled with hypocrisy and intolerance.

Refusing to deal with the budget and bringing the country to the edge of default over the Debt Ceiling cost the government of the United States twenty-four billion dollars and about 250,000 jobs. This does not count other losses in industry and consumption, which could bring the lost amount to over a trillion dollars. I haven’t heard anyone in the Tea Party taking responsibility for these actions. In fact the Tea Party members in the House of Representatives all voted against raising the debt limit and funding the government. Do they even understand what they are doing? Are these the actions of a group claiming to want to reduce Government spending and increase employment? They seem to want to bend the government to their will by any means. They would destroy the state if they can’t get their way and their means of enforcing their will is blatant extortion. They feel they are that right and everyone else is that wrong. They are very much like the old Communist Party.

English: US Representative Michele Bachmann (R...

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The Weiner Component #40 – The Water/Money Pump

Franklin D. Roosevelt

Cover of Franklin D. Roosevelt

Before we had in-house sinks and faucets from which water could freely run and after we used buckets in wells to bring up the liquid, we had the mechanical water pump that allowed people to pump water up from a sealed well.  If you wanted the water pump to work you had to prime it with water, pour some water into the pump to break any air locks, otherwise nothing flowed through it.

Unfortunately the same principle applies to money in the society.  If you want a level of prosperity for all the citizens there has to be enough money available in circulation to hire and pay them.  Once they all work they spend their earnings to supply their needs and wants and there is an ever-increasing flow of money through the economy, the same currency being used by different people numerous times.  Everyone, on all levels of society, benefits from this growing cash flow.  But without this infusion of currency there is stultification within the society, massive unemployment, very limited economic growth, and basically hard times for a large percentage of the people within the country.

During the Great Depression of 1929 John Maynard Keynes wrote The General Theory of Employment, Interest, and Money. He propounded what became known as Keynesian Economics, which supported large-scale government planning and spending to promote employment during times of recession or depression.  This was watering the trough of unemployment with government funds to bring about recovery.  It was argued that during times of prosperity the National Debt could be reduced but during a period of economic decline the government must step in and spend.

This is what Franklin Delano Roosevelt did with his New Deal program from 1933 on, helping to bring about recovery.  However since the concept was new the Roosevelt Administration was not able to spend enough to bring about full recovery.  This did not happen until World War II.

Keep in mind that since 1933 in the United States and shortly after that in all other industrial nations money was paper, printed by the government presumably as needed.  At first there was the fiction that there was gold behind the paper dollar but that totally ended in 1969 in the U.S. when the last smidgen of gold was removed from supposedly being behind the dollar.  After that date there was nothing behind the dollar but the word of the government.  This is true for all currencies of all nations today.

What then is the problem of not printing more currency when the country needs it to properly function?  There are two reasons for this.  The first and primary reason is the great fear that exists of run-away inflation, that is, the extent to which currency is available throughout the entire economy.  If far more money is circulated then there are goods and services available in the society then prices are bid up and the currency decreases in value.  It can descend to a point where it becomes worthless as it did in Germany in the early 1920s.  If that occurs the entire economy goes berserk and the people can revert to a form of barter and there is economic chaos.  A balance is needed in each country.  There has to be enough money in circulation so there is full employment and full production of all the goods and services needed by the population with very low, if any, inflation. 

If, at any time, prices begin to rise rapidly then there is too much money available in the National Cash Flow and we are moving toward a run-away period of inflation.  The government has to restrict the amount of in the Flow and bring it in line with the needs of the country.

The second reason for limiting the amount of currency in circulation is the fact that money had been actual gold up until 1933 when the U.S. left the gold standard and went completely over to paper money.  All the gold coins, with the exception of a few that people could keep for souvenirs, were collected, melted into heavy blocks, and buried in places like Fort Knox.  Most people still maintain the myth in their minds that money is gold.  It is to the extent that one ounce of gold, which in 1933 was a twenty dollar gold piece weighinf one ounce and is now worth between sixteen and seventeen hundred dollars an ounce.  We have to pass beyond this mythic notion.

Today the Federal Reserve monitors all spending within the entire country, recording daily what is happening throughout the entire economy.  They essentially know what the nation needs to attain and maintain a level of prosperity; but only partially and indirectly do they control the instruments that allow them to do this. 

The Federal Reserve affects the economy through Monetary Policy.  It, more or less, controls through various means the money supply within the United States.  The term “more or less” is used because there are limits upon this control.  The FED cannot add money to the economy by directly adding to the National Debt but it can buy government debt on the secondary market from individuals or entities that have previously purchased these bonds, like private corporations or the Bank of China or Japanese individuals or companies.

For, at least, the last year the FED has been utilizing Monetary Policy by purchasing monthly 40 billion dollars worth of government paper (bonds) from primary purchasers and by buying 45 billion dollars worth of mortgage paper.  This has both added needed funds to the economic currency flow and created a shortage in housing, which, in turn, has created a housing shortage and allowed for new construction throughout the nation.  In May of 2013 the Fed announced that it might increase its purchases in the future.

The effect of this has been to allow for economic growth in the country even though the sequester and other state and Federal legislative actions have caused economic shrinkage by reducing spending in both Federal and state governments.

The other entity that the Federal Government uses during an economic contraction of the economy, which was used in 2009 when President Obama took office and the Democratic Party had a majority in the House of Representatives, was fiscal policy.  This action saved the country from going into a deep depression from the Real Estate Fiasco caused by the major Financial Institutions in the country.

Since the Republicans took the leadership of the House of Representatives in 2011 there has been no application of fiscal policy even though a section of a fifty-year-old bridge collapsed and the country’s infrastructure is badly out of date and needs massive repair and renewal.  I heard comments over TV that the Republicans are willing to spend whatever is necessary to fight additional wars in Syria, Iran, and even North Korea but they are unwilling to spend anything to upgrade the United States and create jobs for a percentage of the unemployed.

In terms of controlling the economy the Federal Reserve is supposed to use Monetary Policy and Congress and the President should utilize fiscal policy. It is interesting to note that any improvements in the condition of the country would accrue to President Obama and the Democratic Party but additional wars would add to the overall glory of the United States.

Somehow the basic function of Congress has been lost in the current yearning for power by the leaders of the Republican Party.  The welfare of the country and its people has become secondary.  The Republican goals have been to curtail Federal spending and strangely enough to limit the control women have over their own health, with the Republicans acting as father figures to a goodly percentage of the female population.  Economic prosperity has become lost.

The House of Representatives met in 2012 for 120 out of 365 days; in 2013 it will meet for 125 days.  Thirty-nine of those 120 days were devoted to continually getting rid of the Affordable Health Care Act (Obama Care) even though that bill will never come up in the Senate and would be vetoed by the President.  At least one day was spent officially declaring that “in God we trust” is whom we trust.  Currently a bill is coming up in the House making abortions illegal after twelve weeks and accepting the concept that pregnancy, in cases of rape, is truly rape only when that rape is reported officially to the police at the time it happens.  An interesting comment on the ability of all women in the United States!

Isn’t it time for Congress to get back to its original purpose, passing laws for the welfare of the people in the United States!  The mechanical water pump required, requires priming for the water to flow.  The same is true of the economy.  It needs priming.  The government has to spend money to generate a new flow of cash and welfare throughout the United States.

The title page to Keynes' General Theory.

I suppose if nothing happens before the Mid-term Election of 2014 then the People of the United States, state by state, can decide what they want over the next two years: a return to prosperity or more of what we have now.

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The Weiner Component #38 – The National Debt

To most people the National Debt is an unimaginable amount, over sixteen trillion dollars

United States Capitol

that the United States Government or the taxpayers owe to foreign entities like China and Japan, whose interest payments alone will eventually bankrupt the nation.  This also seems to be the image projected by the Republicans in Congress.  It is total misinformation and nonsense, more mythical than real.

The initial debt was incurred during the Revolutionary War and under the Articles of Confederation.  With the exception of the year 1835, the United States has continually held a public debt since the Constitution went into effect on March 4, 1789. 

The National or Public Debt of the United States consists of two components.  The first is debt held by the public and the second is debt held by government accounts or intergovernmental debt.  Debt held by the public consists of Treasury securities held by investors outside the Federal Government.  These include individuals, corporations, foreign states like China and Japan, and local governments, both in and out of the United States.

Debt held by government accounts includes non-marketable Treasury securities held in accounts administered by the Federal Government that are owed to program beneficiaries such as the Social Security Trust Fund.  This account currently exceeds 2.7 trillion dollars.  Other large intergovernmental holders include the Federal Housing Administration, the Federal Savings and Loan Corporation’s Resolution Fund, and the Federal Hospital Insurance Trust Fund (Medicare).  Debts held by governmental accounts represent the cumulative surpluses, including interest earning of these accounts that have been invested in Treasury securities.  In 2012 there were at least two direct transfers of 89 billion dollars from the FED to the Treasury that were mostly interest paid on the National Debt.

By my estimate the Federal Government owns well over fifty percent of its own debt.  Dr. Ben Bernanke, the Chairman of the Federal Reserve, recently stated (May 2013) that the FED, which had monthly been investing 85 billion dollars in the National Debt for well over the last twelve months, 40 billion in re-buying government securities and 45 billion in purchasing mortgage paper, would increase or decrease the monthly amount according to the nation’s needs.  He indicated that this would depend upon whether or not Congress would utilize fiscal policy, which it has not done since 2011.

It is interesting to note that the deficit under President Obama, which increased when he took office in 2009 because of the economic disaster facing the nation, has been dropping significantly and could by 2015 reverse itself and generate a surplus as it did in President Clinton’s last year in office.

Up to the end of 2008 there seemed to be endless amounts of money available.  Banks were refinancing real estate at 125 percent of their appraised value and in the process creating endless amounts of money.  People were spending like there was no tomorrow.  All of this ended when the Real Estate Bubble burst.  Every dollar in circulation suddenly became a nickel.  Virtually overnight there wasn’t enough money available to meet the needs of the economy.  If Presidents Bush and Obama had not bailed out the banks the nation would have been in a far worse depression than that of 1929.  The government, under the guidance of President Obama saved the economy from total ruin.  This was done by bailing out the financial institutions that had brought about the crash and then by bailing out some core industries like the automobile companies.  Where did the money come from?  The government created it and gave the needing companies the financial backing to recover.

Foreign trade has been unequal; we buy far more than we sell to others.  The two foreign nations that hold large amounts of the National Debt are Japan and China; each holding about 1.1 trillion dollars worth. 

Keep in mind that each nation has its own currency that has value only within the boundaries of that nation.  While money can be exchanged internationally if the trading is totally out of balance/unequal, then an international exchange of currency following the laws of supply and demand, could drop the value of the money fifty or more percent causing the nation that has acquired it to take a substantial loss in its profits.  Actually the money becomes a prisoner in the country of the sale and has to be invested there.  The value of this to the country making the massive purchases is that it gets the goods it wants and in a slightly convoluted fashion retains the funds it has spent for these items.

Several decades ago Japanese businessmen purchased large amounts of real estate in the United States, particularly in Hawaii.  They actually bought high and ended up eventually having to sell much of it far below what they had originally paid.  While China is very adept at selling goods and services to the rest of the world she has problems with certain aspects of her economy.  On 2012 many thousands of pigs died, presumably from drinking polluted water.  China has the largest population in the world and has to be able to successfully feed them.  It seems that she is in the process of buying food-producing companies in other nations (June 2013).  She is currently in the process of buying Smithfield Foods, the largest producer of pork in the U.S., for 4.7 plus billion dollars.  She is probably doing this also with countries other than the United States.  She will be importing what she needs from companies all over the world that she will own.

The Federal Government utilizes Macroeconomics.  Here money is the tool that it uses to allow the economy to function properly.  Ultimately the government prints/creates the money it needs to allow the economy to work.  It can do this knowingly or blindly.  The manner in which the state performs and controls the process determines the success of its economy.

On April 2, 2013, the National Debt was 16,805 trillion dollars.  What is the significance of this massive amount of money that the government has created?  Does this in any way hamper the productivity of the nation?  The answer to the first question is that there isn’t any real significance other than functionality.  The answer to the second question is NO.  It has become, as far as many of our conservative legislatures are concerned, the tail that is wagging the dog!  

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The Weiner Component #34 – The Function of Government: Adding money to the Economy

English: Detail from Government. Mural by Elih...

English: Detail from Government. Mural by Elihu Vedder. Lobby to Main Reading Room, Library of Congress Thomas Jefferson Building, Washington, D.C. Main figure is seated atop a pedestal saying “GOVERNMENT” and holding a tablet saying “A GOVERNMENT / OF THE PEOPLE / BY THE PEOPLE / FOR THE PEOPLE”. Artist’s signature is “ELIHU VEDDER / ROMA–1896”. (Photo credit: Wikipedia)

One of the functions of government, according to the Preamble to the Constitution is to “provide for the common welfare” of all the people.  In addition to other means of doing this the Federal Government is supposed to supply enough currency to meet the needs of the population, always keeping the amount below an inflationary spiral. 

 In times of recession when there is not enough money in the National Cash Flow the government has and should utilize its two major means of adding currency to the flow.  These are Monetary Policy and Fiscal Policy.  The Federal Reserve controls Monetary Policy.  Through it, by various means, money can be added or subtracted from the economy depending upon the immediate needs of the country.  Congress and the President control Fiscal Policy.  They can also add or limit the money supply by various legislative means.

 Government spending also includes other factors than the health of the economy such as the cost of government, as well as expensive items like wars and natural disasters or rebuilding the infrastructure of the nation.  They can terminate recessions or periods of inflation by passing legislation, at these times spending money to reinvigorate the economy.

 Currently the country is presumably facing two major problems: massive debt and massive unemployment.  Whether the massive debt is real or not is an academic question.  If unemployment is significantly lowered through government spending then we increase the National Debt and if the National Debt is lowered then we further increase unemployment.  Which way makes the most sense?

 The Federal Reserve is adding forty-five billion dollars a month in currency to the National Cash Flow.  That is 540 billion dollars a year by buying up, on the secondary market, U.S. debt.  It is also purchasing forty billion dollars worth of real estate paper (mortgages) per month.  That is 480 billion dollars a year buying bundled real estate.  These moves are adding money to the economy, unraveling the housing bundling fiasco, creating a shortage of housing in the United States, bringing about economic growth by causing new construction throughout the country, and adding a substantial amount to income taxes in monies that are no longer being deducted for interest from housing loans.  This process has gone on for well over a year causing gradual and continual growth in the economy.

 New Money added to the economy has a multiplier effect; that is, the money is spent a number of times before it becomes part of the naturally enriched cash flow.  The amount of new productivity is three to six times the amount spent.  This spending, in addition to the advantages we’ve seen above, is adding no less than one trillion dollars a year to the GDP and probably the amount is well over two trillion dollars annually.

 All of this is Monetary Policy, which is generated by the Federal Reserve.  Dr. Ben Bernacke, an economist, who was appointed by a Republican president, heads the FED.

 Monetary Policy has improved conditions within the economy.  The GDP is very gradually improving but it is not doing so fast enough.  In order for complete recovery to occur Fiscal Policy is needed.  At present the goal of the Republicans is to reduce the deficit.  They have been successful in turning the problem from a need for more employment to reducing the debt, which has not occurred.  This has been done by forcing the president to cut programs in order for them to raise the debt limit and have the government pay its bills.  In essence their policy has been to economize and limit economic growth, the opposite of fiscal policy.  This is a program working against economic recovery, in that, among other things, it has reduced government employment.

 Because they could not reduce the cost of the social programs the Republicans came up with the sequester around eleven months ago which gradually will cut, across the board, all government programs; that is, the different programs that both the Republicans and the Democrats favor, being both social and military, reducing virtually everything upon which the government spends money.  The result will be to gradually and continually reduce employment, both militarily and among civilians who are dependent upon military contracts.  Some of this job loss will probably be picked up by private economic growth but there will still be an increase in unemployment.

 What is needed is an acceptance of unemployment as the major problem the nation is currently facing and the application of fiscal policy to solve it.  Economizing may be worthwhile but not at the cost of hurting a goodly percentage of the population. 

 A number of people in Washington are applying Microeconomics, their own household budgets, as the means of operating this country.  They need to understand that the United States Government operates through Macroeconomics.  It can issue currency as needed to increase employment and grow the economy.  A larger economy with the bulk of the population employed will be paying much more in taxes and could conceivably reduce the National Debt.  This would also be a successful means of economizing.  It would successfully rebuild the infrastructure and phenomenally increase productivity.

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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 #8 – Banks & Capitalism: The Ultimate Rip-off

NEW YORK, NY - OCTOBER 02:  People pass a sign...

The concept of banks and banking was that the people could safely deposit their funds into these institutions and receive a small reward in the form of interest.  The banks could use these funds for the benefit of the community, charging a slightly higher level of interest.  Everyone would benefit from this practice.

Historically as the banking houses grew in Europe initially many looked for better ways to gain more profit, This led to some banking houses growing inordinately large and financing trade between nations and even some European governments at larger rates of interest.  It allowed for economic growth but much of its original purpose became secondary.  Today many large banks have reached a level where their primary purpose is the greatest profits they can achieve.  The Real Estate fiasco, which almost destroyed the economy of the United States and numerous other industrial nations, was caused by the large banks in a frenzied grab for greater and greater bonuses, fees, and profits; knowingly selling, at times, securities they knew were faulty and prone to failure.  This insane greed brought the industrial world to the point of almost total collapse that would have made The Great Depression of 1929, which lasted ten years, look like a friendly weekend break.

One of the many perpetrators, Bear Stearns & Co., which was taken over by JP Morgan Chase & Co. after its bankruptcy, is currently being sued on the basis that the quality of the mortgaged backed securities sold during the sub prime housing boom was “a sham.  New York Attorney General Eric T. Schnaderman in September of 2012 filed the first lawsuit by a task force investigating misconduct by banks in the run-up to the financial crisis.  The securities fraud suit goes to the heart of the misconduct that created the housing bubble and caused the crash of 2008.  The suite against JP Morgan Chase & Co. alleged that Bear Stearns misled investors when the bank said it had carefully evaluated the quality of mortgages it packaged into securities from 2005 to 2007.  “Defendants in fact had no legitimate basis for any of the numerous representations about the quality of loans in their securities because their systems for assaying were a sham,” stated Schneiderman.

The suit alleged that Bear Stearns knew that many of the loans it was selling to investors were defective.  It quotes an internal email from one Bear Stearns executive referring to a security as “a dog.”

In October of 2012 the U.S. Government also brought suit against Wells Fargo through its U.S. attorney’s office in Manhattan for defrauding a government backed mortgage insurance program of hundreds of millions of dollars over more than a decade by improperly underwriting more than 100,000 home loans.

What existed during the Real Estate Boom was a frenzy of activity that grew wilder and wilder, particularly during the Second Administration of George W. Bush when any semblance of regulation virtually disappeared.  All the major banks seemed to be interested in were their commissions and bonuses that ran into the billions of dollars.

With the Crash of 2008 and the bailouts under both Presidents Bush and Obama, the banks became more cautious about the types of real estate loans and available money tightened in that direction.  The big banks still felt a need for inordinate profits and they came up with a new ploy, the futures market.

Suppliers of goods and services need to be sure of a constant source of raw materials and commodities for their customers.  Guaranteeing this supply eventually became the Futures Market.  Individuals can bid on the future supply of beef, corn, grain, gas, oil, electricity, on almost any item that can be sold and of which there is a continuous need.

For example Goldman Sacks may purchase a barrel of oil (56 gallons) at sixty dollars to be delivered three months in the future.  They, then, sell that barrel of oil at ninety something dollars a barrel three months later.  At one point, and possibly still, Goldman Sacks was/is making 40 to 45 cents on every gallon of gasoline sold.

JP Morgan Chase & Co. had been dealing with electricity, selling it to the California companies and has been found to have lied or made a gross error in its testimony to the government commission looking into these future sales.  They are being threatened with being forced out of the business in California.  Their profit was in excess of 200 percent of their investment.  JP Morgan Chase’s response was that if the government commission were going to be so unreasonable then losing the sale of electricity, which is such a small part of their business, would not be significant to the company.  This is arrogance from a corporation that lost well over two billion dollars in a foreign investment and ultimately has and continues to use its depositor’s money for its investments.

Many, if not most, of the items the consumers use for daily living, beef, pork, chicken, orange juice, assorted crops, many fabrics, lumber, sugar, etc., are controlled by the futures market, and the large banks with a giant footstep have inserted themselves between the producers and the consumers.  A goodly percentage of the cost of living is taken from the householders by the large banking houses.

There is an interesting note of irony here.  People deposit or have their checks deposited in the banks.  The banks, whose business is dealing with money, take these funds and use them to make massive profits for themselves utilizing their depositor’s own money to exploit the very people who are their depositors.  I would estimate that the banks are betting at least a one hundred percent profit over each three-month period.  It’s like being taken advantage of in every direction; the consumer is not only the victim but also pays for the privilege of being abused.

Do the banks still serve their original purpose?  Are they serving the public in their communities?  If the answer to these questions is No, then something is needed to resume these services.

On the one hand the banks and many bankers have been voluminously fined for these abuses; but to my knowledge no one has gone to jail.  If a bank makes a billion dollars and is subsequently fined two hundred million then, where is the penalty?  Why should they stop these practices?  If the fines are no more than a small percentage of what is made by the violation then there is no real reason to stop these types of practices, especially if no one ever goes to jail.  What is needed here are strict laws and heinous penalties for the crimes.

Since it seems that individual and company greed permeate the public sector it is time to find a new solution to public banking.  That something is a new system of banking that will serve the general public and function totally according to their and their communitie’s needs.  The institution, which exists for that purpose, is the Federal Reserve.  Currently, through Monetary Policy, they control the money supply in the country.  The Fed monitors the banks and, as far as they can, also monitor economic conditions in the United States.  They need to have their power and purpose extended.

The Federal Reserve has the U.S. divided into twelve banking regions with annexes in other cities.  The one located in San Francisco has a branch in Los Angeles.  Currently, among other things, they serve the public banks.  Their power can be extended to where they establish a system of banks throughout the country, which would serve the general public.  One of the purposes of the Constitution is to “promote the common good.”

Each of the twelve Federal Reserve banks has a Board of Directors.  Also the chairman of the Fed has a Board of Directors.  All of these boards contain an inordinately large number of bank presidents.  What they need for reform are less bank presidents and more economists who don’t have a conflict of interest.  This would tend to make the boards more prone to serve the general public.

Bringing this about would allow the Fed to almost totally control the economy for the public good.  They would be able to limit or cease occasional rapid jumps in the economy and they would certainly not allow a situation as developed in 2008.  The Federal Reserve like the rest of the government’s object is to serve the public and not to exist for private profit for the few.

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The Weiner Component #5 – Money & the National Debt

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

Currently the National Debt is in excess of 16 trillion dollars. Is it real? That is an interesting question. If it’s real then the United States would seem to be spending itself into oblivion. If it’s not real, then what’s the great problem?

The answer to that question is both yes and no. How can we have something both ways?

Before we resolve that issue let us consider some other related problems. Can an entity, any entity, owe itself money? The answer is legally, no. No one can legally owe itself money. If it were possible then we could claim bad debt losses on our yearly income taxes.

There are two levels of economics. The first is called Microeconomics (small economics). It is what most people deal with; what they understand economics to be about. The individual states, municipal and local governments function with it; the corporations and all levels of businesses utilize it; all individuals and households see it as the way economics and their lives are.

States and local governments utilize their taxes to pay all their expenses. It is their income, which provides the necessary services to their citizens and everything else the state needs. What the states can spend is limited to the money they collect with all their taxes; and also what the state can borrow. But borrowed money cost interest and has to eventually be paid back.

Businesses and individuals utilize it their incomes to measure their levels of success as functioning entities in the overall economy. Profit for businesses and the level of their “standard of living for individuals. Among other things economics is to them a “score card,” which allows both people and companies to measure their levels of achievement against those of the rest of society.

This, to most people and apparently to most members of Congress, is “common sense” economics; it is what the subject is all about. When they think economics, this is how they think.

The second part of economics is called Macro-economics (big economics). It concerns the Federal Government and allows it to monitor and make adjustments to the economy. There are two parts to Macroeconomics: (1) The Federal Reserve utilizes Monetary Policy and (2) Congress and the President use Fiscal Policy. Both of these are tools, which can slow the economy down during periods of inflation or speed it up during periods of recession or depression.

To understand how Macroeconomics works we have to understand what money is in the 21st Century and how it actually works.

In 1933, when Franklin D. Roosevelt became President of the United States he effectively took the United States off the gold standard. Up to that point money was gold and silver of equal value to the goods and services it was exchanged for. President Roosevelt collected all the gold and exchanged it for Federal Reserve Notes. The gold was melted down and buried in large bars in places like Fort Knox. Roosevelt also changed the value of the gold from $16 an ounce to $32 an ounce, thus doubling the money supply in the United States. Gold certificates were then issued to the Federal Reserve, which presumably stood behind the new Federal Reserve Notes. A fiction was created that gold stood behind the Federal Reserve Notes, but they were stored in 500-pound bars. How someone was supposed to get his 20 or 50 or 100-dollar worth of gold is an interesting if not impossible question. Also the amount of paper money issued never matched the amount of gold stored.

In 1969 Richard M. Nixon legally removed the last symbolic piece of gold and silver from money. It all became tokens with nothing presumably behind it except the word of the Federal Government. Some people have argued that the National Debt is what stands behind the dollar today. Also all coins became copper sandwiches, no longer containing any silver.

The amount of money that can be printed and released by the Federal Government is determined by an act of Congress that is then signed by the President of the United States.

Let us now consider Macroeconomics. The Federal Reserve was created by an act of Congress in December 1913. It can independently act and initial objectives were maximum employment, stable prices, and moderate long-term interest rates. Its duties have expanded over the years and today include conducting the nation’s monetary policy, supervising and regulating banking institutions, maintaining the stability of the financial system, providing financial services to depository institutions, and the U.S. government. It also conducts research into the economy, which it releases and utilizes as basic information for its decision making process.

The Federal Reserve is headquartered in Washington, D.C., and consists of twelve regional banks distributed throughout the United States, with auxiliary banks attached to the twelve main ones Its current Chairman is Dr. Ben Bernanke, who was appointed by President W. H. Bush with the advice and consent of the U.S. Senate. He replaced Alan Greenspan, the retiring chairman.

In 2010 the Federal Reserve made a profit of $82 billion and transferred $79 billion to the U.S. Treasury. The following year, 2011, it transferred $77 billion to the U.S. Treasury.

Today the functions of the Federal Reserve System are:

  • To address the problem of banking panics
  • To serve as the central bank for the United States
  • To strike a balance between private interests of banks and the centralized responsibilities of the government
  • To supervise and regulate banking institutions
  • To protect the credit rights of consumers
  • To manage the nation’s money supply through monetary policy and to achieve the sometimes conflicting goals of maximum employment, stable prices, including prevention of either inflation or deflation, moderate long-term interest rates
  • To maintain the stability of the financial system and contain systemic risk in financial markets
  • To provide financial services to depository institutions, the U.S. government, and foreign official institutions
  • To facilitate the exchange of payments among regions
  • To respond to local liquidity nee4ds
  • To strengthen U.S. standing in the world economy

The Fed has systematically added money to the National Cash flow during the last few years of the Obama Presidency. In addition to calling upon the Congress to pass legislation that would stimulate the economy Dr. Ben Bernanke recently announced that the Fed would attempt to strengthen the economy by buying up mortgages throughout the United States.

The Fed’s use of monetary policy has caused the U.S. economy to grow during the current presidential administration.

Fiscal Policy is the use of taxation and expenditure to influence the economy. Both Congress and the Presidency are responsible for administering it.

During periods of recession and/or depression expansionary fiscal policy, which involves government spending exceeding tax revenue is undertaken such as it was during the tail end of the George W. Bush Administration and the first year of the Obama Administration. These steps avoided a dire depression and virtually saved the country from economic collapse.

The Republican Party, both in the House of Representatives where they are the majority in the second- half of President Oboma’s first term, and in the Senate, where they have enough votes to filibuster any bill or appointment to office, which they do not approve, has taken the position that the U.S. can not afford any excess expenditures because of the size of the National Debt and have not allowed to pass any legislation that would enable the economy to grow and unemployment to substantially decrease.

The key to all of the arguments for and against economic expansion lies in the question of: What is Macroeconomics? The answer would be that it is the tool by which the Federal Government adjusts the society to allow it to reach its greatest potential for both employment and productivity. The greatness of the National Debt is nonsense since the government owns over fifty percent of its own debt.

What is paramount here is that full employment will grow the Gross Domestic Product, he amount of goods and services produced in the United States and allow, after creating full employment and massively increasing productivity, the National Debt to be paid down.

Money, to the National Government, is a tool, whose value is to enhance the growth and welfare of the country. If we allow the government to utilize it in this was we can look forward to at least a century of prosperity for the citizens of this country.

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