The Weiner Component Vol.2 #6 – Part 3: The Purpose of the Federal Reserve

The title page to Keynes' General Theory.

Unemployment rate in the US 1910–1960, with th...

Unemployment rate in the US 1910–1960, with the years of the Great Depression (1929–1939) highlighted. (Photo credit: Wikipedia)

The Federal Reserve was established on December 23, 1913. Its major mission was to avoid panics or major recessions in the future. It would at that time do this by being able to move money quickly anywhere throughout the National Economy. In essence since the nation functioned through its banking system the new Fed would protect its financial institutions from runs or panics where the depositors could all withdraw their funds, generally following a rumor that the bank was on the edge of failing.

 

In addition the United States economy had/has systematically gone through regular business cycles of recession, slump or depression, recovery, and boom. Invariably each of these stages of the economy leads to the next stage. During a boom period overproduction is invariably reached, workers are laid off, there is less income available, which accelerates the recession. This, in turn leads to a trough or low economic point which can be a depression with high unemployment. Eventually there is a shortage of goods and the amount of money being spent in the National Cash Flow increases; people are hired; there is more and more money available and recovery begins, continuing until a peak or production boom is reached again. The duration of the cycles can and do vary, going from less than a year to over ten years as the Great Depression did from 1929 to 1940. It was ended by World War II. These depressions can be regional or they can cover the entire nation, if not the world, as it did in 1929. They generally last between the two periods given above.

 

In simple terms this is the economic pattern of every industrial nation. Does it have to continue? That’s an interesting question. The probability is that it can be controlled by the Central Government’s actions.

 

In 1929 the science of economics was generally not understood well enough to determine exactly or why the depression was happening. In 2008 when the country had what is now called the Great Recession, enough was understood to avoid a greater depression than that of 1929. This depression was avoided by actions of the Federal Government.

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Even today economists disagree as to what caused the Great Depression and how it should have been dealt with. There are numerous theories. Probably The Keynesian theory is the most accepted. Keynesian economics deal with the various theories about how in the short run, mainly during recessions, economic output is strongly influence by aggregate demand or total spending. Aggregate demand does not necessarily equal the productive capacity of the economy. Instead it is influenced by a host of factors that can behave erratically, affecting production, employment, and inflation.

 

Keynes theories were first presented during the Great Depression in his 1936 book, The General Theory of Employment, Interest, and Money. Keynes’ approach contrasted with classical economics. Keynesian economists believe that the private sector’s decisions sometimes lead to inefficient economic outcomes which require active policy responses by the public sector (government). It is a combination of the two that stabilize output with the government exercising control over the private sector. Monetary policy actions are needed at times by the Central Bank and fiscal policy actions (Government spending.) in order to stabilize output over the business cycle. Consequently Keynesian economics requires a mixed economy, predominantly private sector with a strong role for government interventions during recessions and depressions.

 

Traditional or classical economics as developed by Adam Smith in his 1776 book, An Enquiry Into The Wealth of Nations, set the Market making all the societal decisions. The motivating force, according to Smith was the “invisible hand,” the profit system. Adam Smith was responding to an economic system called mercantilism, where gold was considered the basic wealth of the nation and the economic decisions were being made by the kings of the various countries.

 

John Maynard Keynes during the world economic disaster called the Great Depression was questioning the validity of this system, saying what was needed to solve this problem was a combination of private enterprise balanced by state control of the marketplace. To him unfettered classical economics had brought about the Great Depression.

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The actual causes of the 1929 Great Depression have been extensively discussed by economists and remains a matter of intense debate. In fact they are part of the larger debate about economic causes. The economic events that took place at that time have been studied thoroughly: a deflation in assets and commodity prices, dramatic drops in demand and credit, disruption of trade, widespread unemployment, over 13 million by 1932 the lowest point of the economic decline, and hectic poverty.

 

There is no consensus as to overall causes other than it started with the initial stock market crash that began on Black Tuesday, October 29, 1929 when panic selling of securities led to a continued dropping of value of the securities until the end of 1932 when it reached its lowest point. The Crash triggered the depression which had reached a high level of deteriorating economic conditions such as rising unemployment, over production, a totally unequal distribution of incomes, under consumption, and extremely high debt.

 

Both the stock market and the economy would slowly improve after 1933 with the new President, Franklin D. Roosevelt. It would rise to new heights after 1939 with the outbreak of World War II in Europe. The stock market and the economy would rise to new heights with a massive infusion of money for goods and services within the United States. War will have brought about its end within the U.S. It is interesting to note that it was the money spent during the war, first by European and Asian nations, then after December 7, 1941 also by the United States that specifically ended the Great Depression.

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Once the Great Depression had started there were massive mistakes made by the Federal Reserve. The Fed actually caused a shrinkage of the money supply and greatly exacerbated the economic situation. Deflation caused people and businesses to owe ever increasing amounts upon money they borrowed actually shrinking the money supply in the U.S. by about 1/3.

 

With the election of Franklin D. Roosevelt to the presidency in 1932 a form of Keynesian economics became the policy of the President from 1933 on when he assumed power. Roosevelt’s policy was the “3 R’s: Relief, Recovery and Reform.” This comprised Roosevelt’s “New Deal;” his attack upon the Great Depression, which essentially lasted from 1933 to about 1938. The Federal Government put itself in a position to help turn the country around. It brought about great improvement but not a complete end to the Great Depression.

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Toward the end of 2007 in the last year of the George W. Bush’s Presidency what is generally called the Great Recession began. The Housing Market in the United States collapsed. A great many people had been using their home as bank or checking accounts generally from the 1980s on, constantly refinancing their home and taking their equity out as property values continually increased. People bought the toys they always wanted: new cars, fancy trucks, boats, expensive vacations; just about anything they felt was desirable.

 

This had been going on for about thirty years, the entire career of many people in banking had taken place during this period. Housing loans or second mortgages were divided into miniscule fractions, put into a multitude of different Hedge Funds and sold to the general public as safe interest paying loans. The process brought the value of the home loans up millions, if not billions of dollars. The banks were earning large amounts in fees as the demand for loans actually forced up the value of the homes. By 2007 the end had been reached, property values had been raised beyond the point of sanity. The bankers were in denial that conditions could possibly change. Some banks were lending out 125% of the appraised value of the properties, working on the premise the housing values would rise endlessly.

 

The economic collapse began during the second week of March, 2008. It tended to be worldwide. In the United States, on Tuesday, with the encouragement of the President, George W. Bush and the Secretary of the Treasury, Hank Paulson, the Chairman of the Federal Reserve, Ben Bernanke injected $236 billion dollars into the American banking system. Citigroup, the world’s largest bank spent one billion dollars bailing out six of its hedge funds. Lehman Brothers, America’s fourth largest bank went under. AIG, the world’s largest insurance company, had moved into the business of insuring leveraged debt right at the time when the financial system was at the point of collapse. When the Housing Bubble burst Ben Bernanke, as chairman of the Fed, announced an $85 billion loan for them. Hank Paulson, the Secretary of the Treasury proposed buying up hundreds of billions of dollars’ worth of toxic assets.

 

With the accession of Barack Obama on January 20, 2009 as President of the United States that country and the rest of the Industrial Nations continued to hover on the point of economic collapse. This would have occurred if the governments had not interceded with masses of cash. They prevented, using taxpayer money, a depression that would have made the Great Depression of 1929 look like a weekend holiday. It would have been the total collapse of the banking systems which, in essence, run the economies of all those nations.

 

(Interestingly Donald Trump’s administration wants to do away with all the regulation in the U.S. which came about to avoid a repeat of this situation. Memories are short!)

 

President Barack Obama continued the bailout, saving the banks from their own stupidities, and he added the American automobile industry which was also on the point of total collapse. The governments of the various countries spent a lot of money saving their economies and returning the world to economic sanity.

 

Recently President Donald Trump commented in one of his speeches that President Barack Obama increased the National Debt more than any other prior President. He did so cleaning up the financial messes that they had helped to create.

 

We have passed beyond Keynesian economics to the point where the Free Market is today a farce. The governments of the United States and of the other industrial nations have assumed responsibility for the welfare of both the rich and the poor within their societies. How long will it take for the populations to understand this?

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In the United States and in most industrial nation there are groups that want to return to the good old days. Whatever they were. Everything is changing. The 21st Century will be completely different from the 20th Century.

 

It should also be noted that it was the Federal Reserve, under Chairman Ben Bernanke, who used creative Monetary Policy in a period of a little over 24 months, with strong encouragement from President Obama, to buy up the toxic mortgage pieces throughout the United States at the rate of 45 billion dollars’ worth a month and also he added another 40 billion dollars a month directly to the National Cash Flow.

 

The Republican dominated House of Representatives from 2011 on did nothing to help the situation. They should have applied Fiscal Policy, creating jobs by spending money on infrastructure modernization. Instead they tended to cut government spending and worsen the Great Recession. Mitch McConnell, the Republican majority leader in the Senate, announced that they would make Obama a one term president by not cooperating with him on anything. To them no price was too high in order to make Obama a one term president. Somehow the needs of the American people were lost.

 

It was the Federal Reserve and the President who saved the country from falling into the worst depression in its history. The Republicans, once they got control of the House of Representatives, refused to pass anything that would make President Obama look good. This was true even if it had a negative effect on the country and hurt the majority of its citizens. President Obama offered a Bill that would engender spending on our decaying infrastructure. It did not even come up for discussion in the House of Representatives.

The Weiner Component Vol.2 #3 – The Purpose of Government

English: Citizens registered as an Independent...

English: Citizens registered as an Independent, Democrat or Republican. Derived from :Image:Party affiliation USA.jpg. (Photo credit: Wikipedia)

If the question of what is the primary purpose of government in the 21st Century is raised then depending upon which major political party you adhere to you get different answers. 

 

Historically people have always been social animals, always functioning in groups with some form of social organization.  Traditionally governments have functioned to provide a framework in which people have lived.  They have provided rules or laws that have allowed them to live together, kept them safe within the society and from foreign invaders, provided the necessities for reasonable living conditions and protected their property.  These governments have provided a currency and regulated trade within and with other nations.  Other than that people have provided for their individual needs for themselves.  This, in essence, is the Republican concept of the function of government.

 

In 1929, through following these concepts and unlimited growth on the stock market, the United States economy crashed and billions of dollars were lost almost overnight in the 1929 Great Depression.  From 1929 through 1932 feeble attempts were made by the Republican dominated government to allow the Stock Market to adjust itself.  Instead it kept dropping lower.  This occurred from 1929 through 1932, when it and the rest of the economy reached its lowest level.  The Market Model was unable to adjust itself; it had been abused too much.

 

In 1933, the Democrat, Franklin D. Roosevelt became President, replacing the Republican, Herbert Hoover.  Roosevelt, in dealing with the massive unemployment problem, extended the purpose of the Federal Government, by having the Federal Government assume responsibility for those people who could no longer function successfully within the broken society.  He created mechanisms whereby these people could again function with a measure of success within the economy.  The Federal Government had now assumed responsibility for the people in the country who could no longer provide for themselves.  This now became the new additional function of the Central Government. 

 

While conditions improved considerably the Great Depression did not end until about 1940 with the outbreak of World War II when first European and Asian nations bought unlimited goods from America and at the end of 1941 when the Federal Government began unlimited spending in fighting the war. 

 

The government had dedicated itself to a new purpose which would continue on after the war had ended, more or less, depending upon which political party controlled the Central Government.  The Republicans tended to favor business and the wealthy, limiting social spending as much as possible, while the Democrats favored the middle and lower class extending this practice as much as they could.

 

Currently with the Republicans in control of Congress and the Presidency they are moving to get rid of Obamacare (Affordable Health Care).  They are presumably going to replace it with Trumpcare, whatever that is.  Probably it will be a voucher system that will be cheaper for the government to operate, but will gradually become more and more expensive for its recipients as medical costs increase but government vouchers do not.

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Two events occurred: one began in the 1970s, an increasing need for more money to be available in the National Cash Flow; and the other in the 1980s with the election of Ronald Reagan to the presidency.  In the earlier decade the major banking houses in the country began packaging mortgages in small fractions and selling them.  They did this gradually on a larger and larger scale.  The process took off in the 1980s with the Reagan White House.  This, in turn, increased the value of the homes.  In essence a percentage of the population began mortgaging and refinancing the ever increasing value of their houses over and over again.  At no time during the 30 years of this period was there any real inflation in the country.  For the first 10 years the country was in an inflationary cycle that began with the Viet Nam War.  This was ended at the beginning of the 1980s.

 

Reagan was the first of the really Conservative Presidents.  Forty-five years earlier he had majored in economics as an undergraduate in college.  Since that point in history economics had developed far from where it had been when Reagan was a college senior.  Much more about its functioning was understood in the 1980s.

 

Adam Smith began modern economics with the publication of his work,  “An Inquiry into the Wealth of Nations,” in 1776.  In this work, among other things, he developed the Market Model, which functioned through the use of the “invisible hand.”  The invisible hand is the profit motive.  Smith believed that the profit motive would best make all the Market decisions of what to produce and how to produce it. 

 

President Ronald Reagan and a good percentage of Republicans in Congress also believed this.  During his presidency hey did away with all bank regulatory laws that had been developed during the 1930s and beyond to avoid another Great Depression.

 

In the period before the 1929 Stock Market Crash many bank executives had taken depositors monies and invested them in stocks.  Shortly thereafter when the price went up they had sold the stocks and pocketed the profits.  People could also buy stocks on margin; all an investor needed was 10% of the value of the stock he/she bought, the banks would lend the remaining 90%.   The problem here was that many people were in love with the concept of the stocks, not with their true value, and they kept forcing up the value of all the stocks by continually buying and selling them.  This created a bubble that had to burst at some time.  When it did, from 1929 on, it not only bankrupted innumerable stockholders but also innumerable banks with unbelievable negative effects upon the overall economy.

 

The result of what Reagan considered reforms was that a multitude of banking organizations began an almost limitless level of refinancing homes, allowing people to take their ever increasing equity out of their properties to buy whatever, and countless billions of dollars were created in the National Cash Flow allowing almost endless spending.  All of this occurred until 2008 when the bubble burst.  Interestingly some of these companies insured the bank loans, charging generous premiums.  These companies and many banks faced immediate bankruptcy with the crash.

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In the year 2008 the Housing Bubble, that had been developing over the last forty years, burst, bringing about an almost instant and complete drop in home property values.  People’s home values virtually dropped overnight hundreds of thousands of dollars per single unit leaving a percentage of homeowners underwater, suddenly owing more on their home properties than they were worth.

 

This process had been slowly building since the 1970s, with it massively accelerating during the Reagan administration in the 1980s, when virtually all banking laws, many of which came into being during The Great Depression in the 1930s, were done away with and the country followed the administration’s mantra of letting the Free Market make all the economic decisions.  A good percentage of the population, with strong encouragement from the banks, had gone through a wild period of spending.

 

Specifically what happened was that the country did not have enough money in the National Cash Flow to meet its needs.  There was a shortage of money in the overall society.  The banks, among the many services they perform for the general society, also can increase or decrease the amount of cash available within their specific regions.  They do this through their lending or non-lending practices.  Most exchanges of cash at this time was through the transfer of funds by writing checks, bringing about an exchange of numbers in different columns of different bank ledgers.

 

People discovered the advantages of their equity in their home loans by taking out First, Second, and Third mortgages based upon their equity.  Over the forty year period as people borrowed upon their homes the value of their homes went up continually.  It seems the continual borrowing created a desire in people who rented living space to attempt to buy homes, forcing up the value of the homes even more for this forty year period.  Properties that were purchased for well under one hundred thousand dollars, because of the sudden great demand, were worth hundreds of thousands of dollars. 

 

For the forty year period, well into the year 2008 home values kept rising.  People refinanced their properties over and over again buying whatever they wanted.  The overall economy prospered.  People bought all the toys they ever wanted: boats, mobile homes for traveling, whatever.  There was no real inflation.

 

By the year 2007 the indications of a collapse were present for those in a position to understand what was going on.  But the bankers, who had taken home millions in compensation, were in total denial.  They were incapable of understanding that conditions could change.  To encourage further refinancing many banks raised the level of refinancing homes to 125% of the appraised value of the property.

 

Toward the end of the year 2008 the bubble burst or the crash came.  Many homeowners suddenly discovered that they were underwater, owing more on their home than they were then worth.  Some just walked away from their properties, leaving a deserted house behind them.  Others just stopped making payments they could no longer afford.  Unemployment rose significantly. 

 

Hedge Funds that had been developed from some of this mortgage paper were suddenly worthless.  Banks foreclosed upon properties that they both owned or had owned and sold to hedge funds.  The entire situation was a total mess.  Hedge funds were suddenly worthless, many banks were on the point of bankruptcy.  It looked like the entire economy was on the point of collapse.

 

At this point President George W. Bush and his Treasury Secretary, Hank Paulson, arranged for bank loans to keep many financial institutions from going bankrupt.  Then Bush was replaced by President Barack Obama who continued the bank loans and also bailed out the American auto industry which was also at the point of bankruptcy at that time.  With President Obama’s massive spending efforts what could have been a greater depression than the Great Depression of 1929 turned into what has been called the Great Recession, from which the country is still on its way out of.  By January of 2017 unemployment in the United States had dropped to 4.8%. 

 

The problem that existed here is that from the 1970s on more money was needed in the economy that should have been supplied by the Federal Reserve on a more gradual level.  A controlled increase of funds for the nation would have allowed for a slow healthy economic growth with no crash in 2008.  Allowing the banks to do this with just the profit motive led to unlimited and reckless greed as the major factor controlling the economy.

     

English: Franklin Delano Roosevelt and Herbert...

English: Franklin Delano Roosevelt and Herbert Hoover in convertible automobile on way to U.S. Capitol for Roosevelt’s inauguration, March 4, 1933 (Photo credit: Wikipedia)

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Th

e Great Depression was caused by the Republican’s legislating after World War I.  This was from the election of Warren Harding to the presidency through Herbert Hoover.  They created the necessary laws and general milieu that allowed it to come about.  The Housing Crash of 2008 was set forth by the policies of President Ronald Reagan.  He inspired and brought about the environment that allowed the financial institutions to go berserk through the unhampered use of the profit motive.  Now, with the election of Donald J. Trump to the presidency an equally horrible situation exists with the Republican legislature and Trump promising to do away with Affordable Health Care and the distinct possibility of taking medical care away from about 30 million citizens.

 

During his first year as President in 1993 William Jefferson Clinton, among other things, attempted to set up a system of Universal Health Care for all the people in the United States.  He placed his wife, Hillary, in charge of a task force that was supposed to develop a plan for this.  The Republicans were strongly against it.  They tried everything they could to kill this plan.  Finally they succeeded when they came up with a slogan: “There has to be a better way.”  The “better way” ended up being: No way.  With this mantra they successfully ended the plan for universal health care in 1993.

 

During President Barack Obama’s first two years in office he had a Democratic majority in Congress.  Together, they came up with a plan for the majority of people in the country to achieve health care.  The plan had been developed by a Republican think tank for Mitt Romney, when he was governor of Massachusetts.  I imagine that President Obama assumed that a Republican Plan would gain some Republican support in both Houses of Congress.  But by that time the Republican members of Congress had in a caucus and taken an oath to make Obama a one term President by not supporting anything he supported or for which he could take credit.  As a consequence they have vigorously opposed and continually denounced Obamacare (Affordable Health Care), which was in actuality their plan.  Affordable Health Care was passed in Congress strictly on a party basis, not one Republican Congressman voted for it.

 

In 2011 the Republicans gained a majority in the House of Representatives.  From then on the House passed bills to do away with Affordable Health Care; this was over fifty times.  While the Democrats controlled the Senate the bill was not even taken up there.  In 2014 the Republicans also gained the majority in the Senate.  In 2016 they gained Donald J. Trump as the new Republican President.  They are promising to replace Obamacare with a new and better policy.  But no specific plan seems to be on the horizon.  Meanwhile the first steps have been taken to begin the process dismantling Affordable Health Care.

 

Interestingly even the Republicans are now stating their sense of responsibility for the medical welfare of the general public.  But Affordable Health Care was their plan for universal health care.  It entails using private enterprise to bring universal medical care into existence. 

 

What is interesting or strange is that in 2012 when President Barack Obama ran for reelection, his Republican adversary, Mitt Romney and his fellow Republicans seem to have totally forgotten the Crash or Great Recession of 2008.  When elected they were going to do away with the laws passed in 2009 and 2010 to avoid that situation from occurring again.  And the same is true about the Presidential Election of 2016.  It would seem that the Republicans have some sort of collective amnesia about their own past.  The difference is that in 2016 the Republican candidate, Donald Trump and his fellow Republicans won the election, not only the presidency but also both Houses of Congress.  What will they do?  It seems that the Republicans themselves are not sure

The Weiner Component #169 – Part 2: The Presidencies & Political Parties in the United States

English: Partisan makeup of the Senate at the ...

English: Partisan makeup of the Senate at the beginning of the 107th United States Congress, January 3, 2001. Democratic Party – 50 Republican Party – 50 Tie broken by the Vice President of the United States (Al Gore to 2001-01-20, Dick Cheney thereafter) (Photo credit: Wikipedia)

English: Seal of the President of the United S...

English: Abraham Lincoln, the sixteenth Presid...

If you draw a horizontal line across a sheet of paper and put a mark in the center then the right side proceeding to the end of the line tends to be conservative getting more reactionary as you move farther toward the right end and the left side tends to be liberal, getting more radical as it moves to the left end.  Today the left side represents the Democratic Party and the right side is the Republican Party.

 

This model of right and left was initially created by the way the Chamber of Deputies placed themselves in the hall during the period of the French Revolution in late 18th Century.   The difference then was that the legislative body was divided into three groups, the right were the reactionaries who wanted to bring back the king and his form of government; the left were the radicals who wanted to get rid of the king and brought about the “Reign of Terror.”  They wanted a representative government, essentially led by a dictator.  The majority of the Chamber was called the Mountain.  It was the center which contained the majority of delegates.  They were the moderates.  France would eventually become a Representative Democracy.

 

Today in the United States legislature there is no center.  We have a right, the Republicans and a left side, the Democrats.  And between the two major groups, in the center, there is an empty space, which, in turn, makes it difficult for any type of compromise to be reached or even for any real communication to occur.  As far as the far right is concerned compromise is giving in to their position.

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In 1797, when the Constitution was written, there were no thoughts of political parties.  By 1789, when it took effect, Alexander Hamilton, the First Secretary of the Treasury, had organized the Federalist Party, which basically supported the tidewater mercantilist groups rather than inland yeoman farmers.  Thomas Jefferson, who supported the latter group at the very tail end of the 18th Century organized the Republican Party as a solution to the Federalists and ran as its first candidate for the presidency in the year 1800.  The Federalists, as an insult, rechristened it as the Democratic-Republican Party.  This first name has stuck through the years and is still used today.  The Presidential campaign in the year 1800 was a very raucous one with Jefferson being denounced, among other things, as an atheist.

 

Jefferson won the election and the Federalists were never again able to win a Presidential Election.  They ceased to exist as a political party after the War of 1812.  In that war with England they had refused to support the government against Great Britain.

 

President Thomas Jefferson, following his philosophy of leading a country of small yeoman farmers, in 1803 bought the Louisiana Territory from France for $11,250,000, adding 828,000 square miles to the new United States and doubling its size.  He calculated that he had added enough land to allow it to freely grow with small farms for at least one hundred years.

 

The Federalist position had been favoring a strong central government, close ties with Great Britain, a centralized banking system and close links between the government and men of wealth.

 

What followed after the War of 1812 was the Era of Good Feelings which ended in 1824 when John Quincy Adams was appointed to the Presidency by the House of Representatives after an election in which none of the four regional candidates achieved enough of a majority to win the election.

 

In 1828 the Democratic-Republican Party split into Jacksonian Democrats and the Whig Party.  The Jacksonian Democratic Party became the modern Democratic Party.  They supported the primacy of the President over the other branches of government.  The Whig Party advocated the primacy of Congress over the executive branch.  In the 1850s the Whig Party declined.  Its leaders had died out and it split over the issue of slavery.  The Democratic Party also split into two section, Northern and Southern, anti-slave and pro-slave.

 

In the Election of 1860 the remnants of the Whig Party and remnants of other third parties like the Abolitionists and other dissatisfied groups coalesced into the new Republican Party while the Democrats split into two separate political parties, one Northern and Western and one Southern.  The Northern Democrats ran Stephen A. Douglas while the Southern Democrats put forth John C. Breckenridge.

 

Douglas and Breckenridge had over 50% of the vote together but neither one had as much as Lincoln.  Lincoln won the election with under 50% of the popular vote.  No one Southern State had his name on their ballot.  It was as though two totally separate elections had occurred.  In point of fact one can easily say that the Civil War actually began with this election.

 

At the end of the Civil War Radical Republicans dominated both Houses of Congress.  The President of the United States was a former Southern Democrat, Andrew Johnson.  He had been a senator from Tennessee who remained in Washington and refused to join in the Secession from the Union.  Johnson ran with Lincoln during his second term as the Vice-presidential candidate under the slogan of the National Unity Ticket.

 

Lincoln was assassinated early during his second term and Andrew Johnson became president from 1864 to 1867.  The Radical Republicans had a super majority in both Houses of Congress; consequently they were able to do whatever they wanted.  Johnson was unsuccessfully impeached toward the end of his term.  In 1868, the Republican, former General Ulysses S. Grant, became the 18th President of the United States.

 

In the election of 1876 the Republican Rutherford B. Hayes ran against the Democrat, Samuel J. Tilden.  The Republicans desperately wanted to retain the presidency.  Tilden had the greater number of popular votes.  Several states ended up electing two sets of electors, both Democratic and Republican.  The crisis was not resolved until the night before the new President was to take office.  A back-door deal was made by which the Republicans got the presidency and the Southern States had the Northern armies of occupation removed and became independent states again, ending all the remnants of the Civil War.  The United States reemerged as a two party nation.  At this time the Blacks systematically lost their rights as freedmen, although they kept that title.

 

The Republican Party adopted many of the economic policies of the Whigs: national banks, railroad expansion, and high tariffs.  They were the businessman’s political party.  Their anti-slave policy and the Civil War had brought the Black population, the freedmen, into their party and kept them dominant in Congress until this time.  The Southern States returned to the Democratic Party which maintained its traditional values.  The Republicans also attracted shop owners, skilled craftsmen, clerks, and professionals who were attracted to the party’s modernization policies.  These political coalitions lasted almost to the end of the 19th Century.

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The Civil War expedited economic change in America.  From its end through the 1920s there was a rush of new immigration into the United States, mainly from Eastern Europe and Ireland.  The Industrial Revolution in all forms of rapid economic growth took hold of the country at this time generating a rapid settlement of the entire continental United States.  The late 19th Century was the period of the Gilded Age, rapid industrial growth, the confluence of money into the hands of a few brought about the rise of the “robber barons,” monopoly and oligopoly; phenomenal affluence for a small number and sweat-shops and twelve to fifteen hour shifts for large groups of children, women, and men in factories.  The country went from a rural nation to an urban one during this period.

 

Small towns became cities virtually overnight with almost no understanding or regulations about supplying clean water to large populations and housing or sewerage or food regulation laws.  The government performed no social services.  Political machines developed by both political parties in the urban areas.  Epidemics became common, particularly in warmer weather.  Death tolls, particularly in slum areas were inordinately high, especially among infants and young children.

 

Among this environment, within the urban areas, individual states, and the Federal Government the Progressive Movement developed and grew.  It would continue until the United States got involved in the Great War (World War I).  Both major political parties would at different times lead this movement, which, to a large extent, would be fed by magazine articles and books demonstrating the horrific conditions that existed in the factories, slums, and cities.

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All the presidents from Lincoln’s death until Teddy Roosevelt’s accession were decent men but weak presidents.  They and Cabinet members were continually hounded by jobseekers and political machine operators looking to collect on campaign promises.

 

The major issues of this period were the protective tariff, currency reform, and civil service reform.  President James A. Garfield was shot by a dissatisfied job seeker.  Even with this civil service reform came slowly over the course of the late 19th Century.

 

Tariff and currency reform lasted throughout this period and led to the Progressive Movement.  Business interests supported protective tariffs and tight or hard money (gold).  They lobbied and spent freely to achieve these goals, which the Republicans tended to support.  The Democrats largely backed a loose money policy, using both gold and silver.

 

From 1876 through 1900, Congress was known for being rowdy and inefficient and the Presidents as more or less capable of doing their jobs but not much more.  The two major political parties tended to be similar in their outlook with the exception that the Republicans favored business and the Democrats vied slightly toward farmers.  And the government was considered highly corrupt.

 

With one exception, and that was Grover Cleveland, the Democratic candidate, who was twice elected to a four year term in 1884 and in 1892, all the other presidents had been Republicans.  All of them, from both political parties had served in the Civil War.

 

In addition, among the farmers, at this time, the Granger Movement gradually developed and it in turn become part of the Populist Movement, which pushed for Agrarian Reform in the United States.  The Populist Movement and urban conditions and corruption throughout the country gave birth to the Progressive Reform Movement which existed on the both the state levels and on the national level.

 

The early Progressive Movement rose on a grass root level.  It was supported by the farmers who wanted a loose money policy.  This would allow them to pay back their debts with less expensive currency.  The businessmen and bankers preferred a tight money policy.  They wanted the debts paid back with more expensive money than they had initially spent or loaned out.  Into this mix came magazine and book writers, the muckrakers, who tended to expose the corruption that existed on all levels of society.  Also at this time the giant industrial cities came into existence with no initial rules or regulations on how they had to be governed or function, in areas like hygiene, sanitation, and city government and social services to the newly arrived immigrants.

 

All this gradually ended with the accession of Theodore Roosevelt to the presidency after the assassination of William McKinley by an anarchist in 1901.  Teddy Roosevelt, a Republican, would be the first of the Progressive Presidents.  He would be followed by William Howard Taft, another Republican.  The third Progressive President would be Woodrow Wilson, a Democrat.  This period would end with the First World War

 

During this period corruption was exposed in numerous aspects of the nation and a certain amount of regulation was promulgated throughout the various levels of the society: local, state, and national.  The Senate up to 1913 had been appointed by the different state legislatures and had become, usually by bribery, largely an extension of large corporations like Standard Oil’s attorneys.  It thereafter, through the 17th Amendment to the Constitution, was directly elected by the people within the individual states.  Oregon introduced in 1902 the initiative and the referendum process, which, in turn, was copied by numerous other states.  The recall election was also introduced whereby an elected official could be unelected from his office.  In addition Women Suffrage (the vote) came about at this period.  The tide of reforms ended with the World War.

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At the end of the war Woodrow Wilson went to Europe to develop the Treaty of Versailles.  He brought the treaty to Washington where it was rejected by the Republicans in the Senate.  There was a struggle to pass the Treaty, and, during that time, President Wilson suffered a heart attack from which he never totally recovered.

 

The Treaty could have been modified to satisfy the Republicans but Wilson refused to compromise.  The United States never signed it.  Instead they eventually signed a separate treaty with Germany.  The major item in the Treaty was the establishment of a League of Nations, which the United States never joined.

 

At the end of his term the invalid, Woodrow Wilson, was replaced by the Republican, Warren Harding, who died in office after a number of corruption scandals emerged.  He was replaced by his Vice President, Calvin Coolidge, who later ran on his own and won.  He, in turn, was replaced by Herbert Hoover.  These three Republican presidents fully believed Adam Smith’s theory that the market-place would make all the proper economic decisions for how the country should be run.

 

The motivating force according to Adam Smith was the “invisible hand,” the profit motive.  This brought the country in 1929 to the Great Depression.  Neither Hoover nor his staff knew how to really deal with this situation.  The United States and numerous other industrial nations went through periods of unbelievable misery with the governments trying to function in periods of massive unemployment and chaos.

 

In 1933, four years later, the new President, the Democrat Franklin D. Roosevelt, working on almost an experimental basis saved capitalism and the country by adopting socialistic principles.  He called his policy “The New Deal,” a term taken from poker.  The Federal Government assumed responsibility for those who could not care for the mselves.  They created jobs and projects like Hoover Dam, which was originally called Boulder Dam, throughout the United States and he brought about social security.  It was a time of rapid experimentation, anything that worked and solved problems was utilized.

 

But even with all this many of the aspects of the Great Depression remained.  The country was better off but many still suffered.  What ended the last remnants of the Great Depression was World War II.  The spending required to fight and win the war and the army the U. S. raised ended the last remnants of the massive economic turndown.  In point of fact, the country entered the war in December of 1941 with the majority of the population being in the lower class and ended the war in 1945 with the majority of the population belonging to the middle class.  The economy had changed considerably.

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During the Second World War both political parties concentrated on fighting the war.  Roosevelt died during the last year of the fighting and was replaced by his Vice President, the Democrat: Harry S. Truman.

 

Truman in 1945, after the war ended, sponsored, what he called, the Fair Deal, as a continuation of the prewar New Deal.  The Republicans derided Truman and his program as a poor man’s version Roosevelt’s politics.  In 1948 they ran Thomas E. Dewey against him.  They also passed the 12th Amendment to the Constitution, which limited presidential tenure to two terms in office.  While the Amendment did not affect Truman; it would come into being with the next president; still it gave him a strong hint.  Franklin D. Roosevelt had died in office during his fourth term in office.

 

In 1948 the Republicans were positive that they would win the election.  At that time, before television, victory celebrations were held on radio.  On the night of the election there was a victory celebration for Dewey.  The Chicago Tribune headline the next morning was “Dewey Wins.”  But when the votes were counted Harry S. Truman had won and was still President of the United States.  All the polls had predicted Dewey as the winner; they all ate crow that year.

 

For the next four years there were a lot of frustrated Republicans in both Houses of Congress; but Congress still worked.  The fear after the war was that with the massive return of the military to civilian life the country would go into a deep recession with massive unemployment as it did directly after World War I.  But with intense rationing, the continual sale of war bonds, and unlimited employment during the war there was lots of money available.  All the automobile factories had been producing only for the war effort for the last four years; they now converted to civilian production, everyone wanted a new car.  A new industry, television came into being.  Other positive things happened.  There was no recession.  The returning veterans found jobs, started their own small business, returned to school: finishing high school and colleges.  The country smoothly went back to peacetime.  In fact, veterans received a government allowance if they went back to school.

 

Unfortunately, even with the new Organization, The United Nations, to which all the allied nations now belonged, peace did not come.  On June 25, 1950 until July 27, 1953 the United States and other United Nation countries were involved in the Korean War, which ended at the 38th Parallel, where it had begun.  This was the line splitting Korea into two parts: Communist in the North and non-communist in the South.  It would seem that almost every succeeding president from Truman on would have their own specific war.

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Truman was followed in the presidency in 1953 by Dwight David Eisenhower, the general who had led the war in Europe.  Eisenhower, initially had never voted in a presidential election.  He did not know which political party he belonged to.  Finally he decided he was a Republican and ran as their presidential candidate.

 

Eisenhower ended the Korean War by threatening to use atomic weapons.  It ended in a draw, which still continues to this day.

 

As a replacement for Truman the Democrats came up with Adlia Stevenson, the governor of Illinois.  Stevenson ran against Eisenhower twice and lost both times.  Eisenhower considered himself a middle-of-the-road Republican, that is, a moderate or liberal Republican.  The two parties functioned well together during his eight years in office.

 

In 1960 Richard M. Nixon, Eisenhower’s Vice President, ran against the Democrat, John F. Kennedy, who was a member of the House of Representatives from Massachusetts.  Kennedy won that election by less than one per cent of the vote.  The two parties were able to function together and more or less pass all the necessary legislation.  /there were problems with his civil rights reform attempts.  In Viet Nam There was action, but not a major crisis.  It was during Kennedy’s presidency that the Bay of Pigs debacle occurred and later the Cuban Missile Crisis came about.  The Soviet Union had installed atomic missiles in Cuba.  Kennedy, short of war, got Russia to remove them.  His frustration came about in being limited in passing civil rights legislation.

 

Kennedy, while getting ready to run for a second term in 1963, was in a motorcade in downtown Dallas, Texas, when he was shot by an assassin.  His Vice President, Lyndon B. Johnson became the next President of the United States.  President Johnson was reelected in 1964.  He ran against the arch-conservative Barry Goldwater and overwhelmingly defeated him.  Johnson attempted to force the war in Viet Nam toward an American victory by massively increasing U.S. forces there.  He was not successful.  In the United States he declared War on Poverty.  Again he was not successful.  As an essentially defeated man Johnson announced that he would not run for the presidency in 1968.

 

Where Johnson was eminently successful was in pushing through Congress both his and John F. Kennedy’s plan for civil rights reform in the nation.  Segregation was essentially legally ended throughout the South and in other parts of the country.  The statement that “all men are created equal” in the Declaration of Independence was expanded to include Blacks and Women.  It was a major achievement.

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In the 1968 Election the Republican Richard M. Nixon ran against the Democratic Vice President, Hubert Humphrey.  A third party candidate, former Alabama Governor, George Wallace, ran representing the American Independent Party, which supported separation of the races in public education.  Nixon won with 43.4% of the vote; Humphrey got 42.7%, and Wallace received 13.5%.

 

The election year was tumultuous, being marked by the assassination of Martin Luther King and Robert F. Kennedy.  The Democratic Convention had open warfare between Viet Nam protestors and the Chicago police.  Nixon won the popular vote by .07 percentage points and the Electoral College vote by 301 to 191 for Humphrey.

 

Besides economic problems Nixon faced a massive protest throughout his presidency over the Viet Nam War.  He presumably had a secret plan to end the war.  This came down to a return of American prisoners of war and withdrawing with honor.  That was making a defeat in war not look like a defeat.

 

Negotiations were begun.  The initial problem was the shape of the Negotiating Table.  There were people from North Viet Nam, from South Viet Nam, and from the United States, and there was also the National Liberation Front, who were from South Viet Nam but favored the North.  The issue was resolved by using a round table with two smaller ones nearby.

 

Nixon’s strategy was to bring increasing pressure on Communist North Viet Nam by increasing the war so they would be willing to compromise.  He expanded the war to Cambodia and bombing along the Ho Chi Minh Trail.  Supplies were being brought into North Viet Nam into the South over this route.  There was both warfare and peace negotiations that would be going on during Nixon’s term as President.

 

In 1972 Nixon ran for a second term as the Republican candidate.  The Democratic candidate was the highly liberal senator from South Dakota, George McGovern.  The Republicans were so sure he could not win that they contributed money secretly to his campaign wanting to make sure he was the Democratic candidate.

 

McGovern ran on an Anti-War Campaign against the incumbent, Richard Nixon.  McGovern was perceived by many voters as a left-wing extremist.  Nixon won in a landslide, gaining 60.7% of the popular vote.  He received 18 million more votes than McGovern, carrying 49 states.

 

Unfortunately, during the election, because of some paranoid tendencies of Nixon, a group of his employees called the plumbers  burgled Democratic Headquarters at the Watergate Hotel in Washington, D.C. several times in order to find out what the Democrats were doing and planning.  The final time they did this they were caught and arrested.

 

The question became: What did Nixon know?  And when did he know it?  It took two years for this to unravel.  And then the answer was that he knew about the burglary from the very beginning.  Nixon resigned from the presidency two years after being elected for a second term.  He resigned the day before a Bill of Impeachment was to be voted upon in the House of Representatives.

 

Interestingly his vice president, Spiro Agnew, had resigned earlier.  The government had an 80 page inditement against him for extortion, going back to when he was governor of Maryland.  Because of the Watergate controversy the Justice Department allowed him to plead, no contest, and resign from the vice-presidency.

 

The irony was that Nixon chose a new Vice-President, Senator Gerald Ford, who assumed the Presidency in 1974.  President Ford later issued a Proclamation on September 8, 1974 pardoning Richard Nixon from any crimes he may have committed.

 

President Gerald Ford ended the Viet Nam War.  This was the first war that the United States lost.  Today Viet Nam trades with the United States and is a relatively inexpensive tourist attraction.  It cost a lot less to visit Ho Chi Minh City (formerly Saigon) than to go to a city in Hawaii.

 

In 1978 Republican President Gerald Ford ran against the Democratic contender, James Earl (Jimmy) Carter.  Jimmy Carter won by a margin of 57 Electoral votes.  He had a Democratic majority in both Houses of Congress during both congressional terms.  On his second day in office President Carter pardoned all evaders of the Viet Nam War.  He created the Departments of Energy and Education.  He brought about the Camp David Accords between Israel and the Palestinians.

 

The country suffered from Stagflation at this time, a combination of both high inflation and high unemployment.  Carter could not bring himself to allow the Draconian program that would solve this problem.  The next President, Ronald Reagan would do this and bring about a large homeless problem throughout the United States which still exists today.

 

President Carter signed the Panama Canal Treaties, giving the canal to Panama.  It was during his term in office that the Iranian Revolution occurred and the American Embassy personnel were held as captives by the new government of Iran.  They were returned to the U.S. shortly after the next president took office.  Carter was defeated in the 1980 Election by Ronald Reagan.

 

Ronald Reagan was elected to the presidency on January 20, 1981 and served two terms through January 20, 1989.  He was a Republican and a conservative, bringing about changes that the conservatives had wanted for years.  He was also the oldest man elected to the presidency.

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Forgetting the post-Civil-War Period when the Radical Republicans, wanting to punish the South and controlled Congress from 1865 to 1878 when Rutherford Hayes stole the presidency from the Democrat, Samuel Tilden.  At that time the Republicans had a super majority in both Houses of Congress and could and did pass any law they put forth without the President’s signature.

 

Outside of this relatively short period in the nation’s history the two major political parties essentially got along and, more or less, cooperated with one another in passing the necessary laws for the nation.  The point has been made in an earlier blog that Democratic President Jimmy Carter was more conservative that Gerald Ford’s Republican Vice President, Nelson Rockefeller.  On the political line mentioned at the beginning of this blog Rockefeller would be placed left of center and Carter would go right of center.

 

This was true of many Congressmen.  There have historically been many conservative Democrats and moderate or liberal Republicans.  There was no separate void between them in terms of political positions.  There was always a slight difference in basic philosophy but there was always open communication and the possibility of compromise.

 

This has been a fact of United States history.  There was generally cooperation between both political parties.  The Conference Committee, which met after a bill was passed in slightly different versions in the two Houses of Congress, has been able to continually come up with a compromise bill for both Houses of Congress to successfully vote upon.

 

This system has existed until Barack Obama became President of the United States.  What has occurred from that time on has essentially been the development of the Tea Party, an extreme right arm of the Republican Party that is largely uneducated in the function of government and modern economics.  In the House of Representatives they are the Freedom Coalition.  In point of fact their aim seems to be to do away with the Federal Government

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The Weiner Component #147 Part 1 – Development of Money & Its Uses

Various Federal Reserve Notes, c.1995. Only th...

Various Federal Reserve Notes, c.1995. Only the designs of the $1 and $2 (the latter not pictured) are still in print. (Photo credit: Wikipedia)

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Probably the most misunderstood entity that exists today is money, currency, what it is and all the ways it works in the existing societies.  The problem with money is its history, what it was and is, and how the concept is generally understood by most people today.

 

Originally money was an object of value like gold, silver, or some other precious entity.  Presumably, in places like early Phoenicia, well over two thousand years ago, goods were traded for precious metals.  This was done with scales; gold or silver would have a fixed value and an equal value of goods would be traded for a set amount of the precious metal.  Eventually someone or a group of someones came up with the idea of stamping a set weight on the gold and coins came into existence.  They were gradually refined, as time went on, with stamped pictures of the rulers profile and with these specific coins with set amounts of money came into existence.  From this, over the centuries, with occasional breaks in the sequence, the concept and use of money, set amounts of gold or silver, developed.  It was until the end of the first third of the 20th Century an exchange of value for value, the goods and services for the coins (money).  Money was as good as gold because it was gold.

 

The problem that developed over time was that the amount of gold and silver available for currency was dependent upon mining discoveries or exploitations of different parts of the world.  For example in the 16th Century Spain gutted the New World of its gold supply causing a 90 year period of inflation in Europe that lasted through most of the fifteen hundreds.  By the 17th Century there was again a shortage of the gold supply in Europe and not enough money (gold coins) available to supply all the monetary needs for economic growth on the Continent.  Consequently the value of gold rose and periods of deflation occurred, the value of the gold coins increased.

 

The problem here was that there were two totally different processes which were supposed to balance each other but never did.  Precious metals had to be discovered and mined at the same rate that business between and within nations expanded.  This never happened.  Added to this were economic systems like mercantilism, which hoarded gold by creating royal monopolies within European nations.  Economically much was not understood then.  And the amount of gold was never enough to cover all the needs for monetary growth.

 

The use of paper came into existence largely during the Renaissance with letters of credit, which allowed simple transfers of large amounts of currency.  This would eventually become paper money and checks.  Paper money was initially issued by banks and could, presumably, always be exchanged for gold or silver.  Of course if everyone decided to exchange their paper money for gold at the same time there would be a run on the bank and it would go bankrupt since generally they issued a lot more paper than they had gold.

 

Paper money was also issued by governments during times of crises when gold was in short supply, like the United States government did during the Revolutionary War or the Northern and Southern Governments during the American Civil War.  They did not have adequate gold or silver supplies to pay the cost of the wars.  Since the South lost the Civil War its money became worthless while the Northern greenbacks were eventually redeemed for gold coins.

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Up until 1933, when Franklin D. Roosevelt had assumed office as President, money was mostly gold and silver.  Other metals like nickel and copper were used for smaller coins.  The paper one and five dollar bills could be redeemed for silver; they were silver certificates.  The larger denominations were presumably redeemable for gold; they were Federal Reserve Notes.

 

Actually after 1933, the use of large bills being exchanged for gold ceased.  In the U.S. the Roosevelt administration collected all gold coins, melted them down into gold bars, issued paper gold certificates that were held by the Federal Government, and issued paper money starting with the ten dollar bill and going up.  These were Federal Reserve Notes which the banks distributed then and thereafter.  They were used in place of the gold coins.

 

The gold standard was essentially a fiction.  In 1933 the money supplied was doubled as the value of gold was legally doubled, going from $16 an ounce to $36 an ounce.  This essentially paid for Roosevelt’s New Deal.  Similar actions would also be done in other industrial nations.  The problem that existed was that there still was not enough money in circulation to meet the actual needs of most nations.  There would not be enough money available until World War II when it tended to be freely printed by the various governments.  During the war, since most production was going toward the war effort, there was more money available than the goods and services that could be purchased.  People worked double shifts in the factories and earned lots of currency, far more than they could spend.  At the end of the war there would be a large buying splurge that would create jobs for a good percentage of the returning veterans.

 

In 1969, under President Richard M. Nixon, the last limited amount of stored gold behind the dollar would be removed and the Federal Government would sell a large percentage of its gold supply.  It would cease to legally buy all gold mined within the country.  Gold would within a relatively short period of time, several years, go from $36 an ounce to $800 an ounce.  It would later go to well over $1,000 an ounce and eventually rise to $1,800 an ounce.  At this time one of the agencies in Texas would buy gold and set up its own depository.  Later, gold would drop down to around $1,100 an ounce, where, with continued slight oscillations in price, it would remain in 2016.

 

This entire process has been going on for the last 46 years.  The value of gold is determined by the economic laws of supply and demand.  The value of gold, silver, platinum, titanium, and other precious metals are determined by the amount of supply and the demand for that supply.

 

In 1969 the silver would also be removed from new coins and all money would become tokens, generally copper sandwiches, having almost no value within themselves.  All money became a valueless instrument for the exchange of goods and services, having no real innate value in itself except that of the word of the nation issuing it.

 

Today money of one country has to be exchanged for that of another when one visits Europe or Asia or, for that matter anyplace else that isn’t part of one’s country.  With very few exception it has no relevance in another country but it does have an exchange value in the banks of other countries, where generally, for a small fee, it can be exchanged for the currency of that particular nation.

 

Money is no longer as good as gold, there is no longer any gold behind it.  The metal has become too expensive and its supply is too limited to be used for a base for currency.

 

This in a nutshell is a short simplified history of money and its uses.

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Now, in terms of the modern world what is money and what are it uses?  Today money serves a myriad of purposes.  While it is no longer an object of intrinsic value it still serves as an object of inherent value.  It is, first of all, a form of score-card which demonstrates ones’ standing in the overall society, like Donald J. Trump the billionaire.  Mainly it allows the traditional exchange of goods and services within the society and between nations.  But in addition to this money also functions within the nation in relatively new ways.

 

According to most economists there are various forms of economics.  For our purposes the two more important ones are Microeconomics (small) and Macroeconomics (large).  Everything that has so far been considered falls into the area of Microeconomics (small economics).  In essence an individual has so much wealth (gold) or earnings that comprises what he/she possesses and earns.  That can be spent to satisfy needs and wants or saved for a future time of need or desire.  Some of it can be used as a commodity and invested in income gaining property or stocks and bonds or anything that will pay an income.

 

Virtually every individual or family unit fits into this category.  So also do government entities like municipalities and individual states.  Their incomes would be comprised of taxes and fines.  If any of these people or entities need more money than they are taking in or have then they can borrow.  For individuals and families there are banks and credit unit loans or credit cards.  For municipalities and states there are short and long term bond issues.  These eventually must be paid off with interest.  This is usually tax free for state and local governments and ridiculously high for credit cards.

 

Of course the object with individuals and families is to live within their incomes.  There are big-ticket purchases like automobiles and homes that generally do require long term payments or occasional emergencies like a large auto repair bill or a sick child.  With cities and states the taxes are supposed to be high enough to cover their expenses.  But they also have long term expenditures like roads and bridges which are inordinately expensive and must also be paid off over the long term.

 

The problem that comes up with individuals and families is when too many short-term expenses are charged to credit-cards, much more than can possibly be paid off in a billing cycle.  Then the recipients are paying 18 or more percent interest on these loans and life becomes an uncomfortable struggle to survive.  Particularly since the standard of living for many people will continually exceed their incomes.  This is not unusual with many families.

 

With municipalities and states the same pattern can occur.  The entities income does not match their expenditures.  This can be caused by a large number of reasons besides irresponsibility on the part of the city fathers.  Industry can move out of the area drastically reducing the tax base or other changes that drastically affect the tax base such as a natural disaster or a recession or depression.

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All this, prior to 1933, would also include the individual nations.  They would also be funded by their incomes in taxes and fines.  But from that point on, by changing from money being precious metals to printed paper, the situation became different for all the industrial nations that had switched to paper money.  And in the United States, particularly since 1969, all printed money is just that, official paper with numbers stamped upon it which in itself has no real value; it has become merely a means of trading goods and services for goods and services.

 

Federal or Central Governments still follow the age old practice of Microeconomics, collecting taxes and issuing fines for different forms of misbehavior.  But, more importantly, now in addition they also practice Macroeconomics, wherein they attempt to control the amount of money continually present within the nation.  They tend to try to keep inflation low and economic growth at a steady pace of about 3 to 4%.  Countries like modern China prefer a growth rate of 8% which they are no longer able to maintain.

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Economics is concerned chiefly with the description and analysis of the production, distribution, and consumption of goods and services.  What we have mainly looked at so far has been Microeconomics, dealing with individuals, families, local and state governments.  Macroeconomics deals with the National or Federal Government and applies these principles to the entire economy of the nation.  Its ultimate purpose is to use this knowledge to positively regulate the economy of the entire state in order to avoid economic downturns and keep the nation at its level of highest efficiency.

 

Consequently Macroeconomics (Big Economics) is now, in addition to collecting, controlling revenue, and attempting to maintain a regular level of growth a regulatory device, attempting to even out the overall incomes of the majority of the population.  Income taxes are graduated, that is, the more the individual earns the higher is his/her tax rate.  This is truer in European and Asian nations than in the United States where the graduated income tax rate is currently toped-off at $400,000 and the percentage of income paid at that amount stops rising regardless of how high the income is beyond that amount.

 

It would seem that the bulk of the Congressional Legislators, particularly the Republican legislators, have no real knowledge of modern economics and are still functioning with only an awareness of Microeconomics.  Some of the far-right, Tea Party, legislators have publically stated that they totally understand economics because they have raised families.  Consequently their reaction to economic downturns is to use a “common sense” approach which, in turn, worsens conditions.

 

It would seem that in the United States the one occupation that requires no knowledge of economics or government is that of a Republican Congressman.  Since taking over the House of Representatives in 2011 they have just passed one bill in 2015 that applied Fiscal Policy; and that was a continuation of a law that expired which added a small tax to the purchase of gasoline that has been used for road maintenance.  Every other bill dealing directly or indirectly with employment actually decreased it, adding to the level of unemployment within the nation.  One can safely say they have been penny wise and dollar stupid.  They have favored government economizing over growing employment.  And even here they have not been consistent, going on mad spending splurges like the 1.145 Trillion Dollar Funding Bill of 2015.

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Basically the Central Governments issues paper money as it is needed by their particular society.  The National Debt is itself partly a fiction since the Government owns the majority of its own National Debt and will use it at times to adjust conditions within the nation.  The amount of money in circulation within the society is supposed to be the full amount needed for the nation to operate at its highest level of efficiency.

 

The Agency, in the United States, that does this is the Federal Reserve.  It continually monitors the entire economy throughout the fifty states and territories belonging to the nation.  On a constant basis it is supposed to continually fine tune the overall economy.  The Federal Reserve has twelve districts that cover the entire nation.  To a certain extent its powers are limited.  It can make adjustments to the economy but the changes or corrections it makes generally are slow in coming about.  Even though its’ Board of Directors meet once a month and carefully considers what is happening in the overall economy it can miss or misconstrue important economic changes within the society.

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The Democrats, the political party begun by Thomas Jefferson in the late 18th Century which still persists, during the Great Depression of 1929 took control of the Federal Government in 1933.  They tended to totally dedicate themselves to helping the public pull out of the Great Depression.  They dedicated or rededicated themselves to helping the ‘forgotten men” survive in what had become almost overnight an alien world.  They became responsible for the welfare of all their citizens, creating what Franklin D. Roosevelt called a “New Deal” for everyone, caring for those who could no longer properly care for themselves.

 

Freedom to the Democrats meant freedom from want and need.  President Barack Obama’s Affordable Health Care (Obamacare) meant an extension of these rights.  To the Republicans, on the other hand, freedom means government withdrawal from the public lives, giving them, among other things, the right to starve, freeze, and die.

 

In solving societal problems the Federal Government in 2009 and 2010, with the Democrats controlling both Houses of Congress and the Presidency, saved the banks and the United States auto industry by extending them massive loans and the Public by enacting Affordable Health Care.

 

According to Mitt Romney, speaking for the Republicans during his 2012 Presidential Campaign, he would have done neither of these.  It should be noted that the Affordable Health Care Law was modeled after a similar law which Romney had signed into law during his one term as governor of Massachusetts.

 

The probability would have been in 2009, if Republican actions were taken by the Republican candidate, John McCain that the United States and the industrial world would have fallen into a depression far greater than that of 1929.

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What we are dealing with here is Macroeconomics (Big Economics).  The application of vast amounts of money to parts of the economy to avoid an economic disaster that would affect everybody in the U.S. society.  President Obama did this upon assuming office over a two year period.  At the end of that time two important events occurred: first, for various reasons during the Midterm Election of 2010 the Republicans achieved a majority in the House of Representatives and second, 2010 was a census year in which the seats in the House of Representatives were reapportioned to adjust for the increase in the national population.  In those states which the Republicans controlled they gerrymandered the new voting districts to their advantage whereby they were able to get enough seats in the House to maintain control of that body.  In fact they were able to get and keep their majority in the House even though more votes were cast for Democrats throughout the United States in the next Midterm Election.

 

What followed from 2011 on was that no fiscal policy bills were passed.  In fact what the Republicans did in Congress was to shrink the size of the Federal Government when possible and actually increase the unemployment problem by decreasing funding for both federal and state governments.  The chairman of the Federal Reserve at this time was Ben S. Bernanke.  After unsuccessfully requesting that Congress pass Fiscal Policy laws numerous times he came up with Creative Monetary (Money) Policy.

 

Both Bernanke and Obama were able to work through the Great Recession and point the country toward recovery by the use of massive blocks of spending, adding large amounts of currency to the National Cash Flow.  What was being dealt with here is called Macroeconomic (Big Economics), the Federal Government controlling the economics of the nation and freely spending money in order to avert disaster.

 

The question arises: How much currency can the Federal Government print and distribute without destroying the economy?  That’s an interesting question?  Remember the money itself has no inherent value.  Theoretically any amount can be printed and issued.  But if it is done endlessly growing inflation will occur and the value of the currency will systematically decrease until it becomes valueless.

 

The limitation in terms of the amount issued would be determined then by the rate of inflation.  Once inflation reaches some single digit point, say 5 or 6%, then the limit would be reached.  But this limit was never reached.  Inflation stayed at 2 to 3%.  In 2009 President Obama added well over a trillion dollars through bank and auto loans, plus other forms of expenditure and the inflation rate stayed at its original level.  Later in the Presidency the FED for a period of well over two years added 85 billion dollars a month to the Nation Cash Flow, $45 billion buying up pieces of mortgage paper and adding $40 billion directly to the National Cash Flow. The FED added well over a trillion dollars.   Again there was no change to the inflation rate.

 

Interestingly, with all this cash being added the indication was that the country had a phenomenal need for additional money to circulate so that economic growth could occur.  Congress should have been the agency applying most of these funds.  If they had the monies could have been more focused on upgrading the dated infrastructure of the United States.  Instead over half the funds resolved the Housing Dilemma created by the deregulated banks from the 1980s on.

 

It should be noted that the money spent on mortgage paper, unlike the bank and auto loans which were repaid with interest, was never directly recovered.  The mortgages in all 50 states had been fractionalized into well over a hundred parts each and applied to many different Hedge Funds.  The record-keeping that the banks had set up to expedite the financing and refinancing was unbelievably sloppy.

 

In essence no one owned a fair percentage of those houses because it was almost impossible to put enough pieces of mortgage paper together to make up over 50% of the ownership in these properties.  Consequently how could anyone foreclose on any of these homes?  The spread sheet or sheets that the government would need to determine when it owned enough of any property would probably cost more to generate than the properties were worth.  In any event the Federal Government was more interested in solving the Housing Problem than in collecting on its debt.

 

In addition all those people would no longer be deducting their interest payments on their income taxes.  And a percentage of the home owners suddenly had more disposable income which they spent on short term activities like more eating out, infusing the additional currency into the National Cash Flow which, in turn, increased productivity and employment in the nation.  The government would indirectly get a good part of this money back in increased taxes across the nation.  Here the Federal Government was spending vast amounts of money, which Congress refused to do, upgrading the entire nation.

 

 

 

 

The Weiner Component #146 Part 2 – The Republican Party & the Future

English: Woodrow Wilson.

English: Woodrow Wilson. (Photo credit: Wikipedia)

4 U.S. Presidents. Former President Jimmy Cart...

4 U.S. Presidents. Former President Jimmy Carter (right), walks with, from left, George H.W. Bush (far left), George W. Bush (second from left) and Bill Clinton (center) during the dedication of the William J. Clinton Presidential Center and Park in Little Rock, Arkansas, November 18, 2004 (Photo credit: Wikipedia)

Franklin Delano Roosevelt, 1933. Lietuvių: Fra...

Franklin Delano Roosevelt, 1933. Lietuvių: Franklinas Delanas Ruzveltas (Photo credit: Wikipedia)

One of the effects of the American Civil War was the industrial concentration of large groups of people needed to manufacture the goods required by the military confrontation.  This slowly began the movement which would become, through the rest of the 19th and early 20th Centuries, known as the Rise of the Cities. This Industrial Revolution would increase after the War, people would leave the rural areas and numerous immigrants would come to the ever-growing cities and the United States would become mainly an urban nation.

 

From 1877 on, when the Southern occupation or Reconstruction by a Northern army of occupation ended as a result of a deal made during the disputed Presidential Election of 1876 in which the Republicans got the presidency and Reconstruction ended, with the South becoming freely again a part of the Union.  The Senate barely remained Republican and the House had a Democratic majority.

 

A Republican, James A. Garfield was elected in 1881.  He was assassinated four months into his term and was replaced by his Vice President, Chester A. Arthur, who served out the four years.  The Senate had an equal number of Republicans and Democrats and the House had a Republican majority.

 

There were an equal number of Republican and Democratic presidents after until you get to the reform presidents, Theodore Roosevelt and William Howard Taft, who are both Republicans.  They are followed by the Democrat, Woodrow Wilson, and World War I.  He will be succeeded by three Republican Presidents: Warren G. Harding, Calvin Coolidge, and Herbert Hoover.  At that point we have the Great Depression of 1929 which lasts until World War II.  The Congress will generally follow the lead of the reigning president.

 

The next President in 1933, by a landslide, was the Democrat, Franklin D. Roosevelt.  Both the House and Senate maintained a Democratic majority during his terms in office.  He is reputed to have brought unemployment down from 25% to 2%.

 

After his death, during his fourth term, his Vice President, Harry S. Truman, served the rest of his fourth term and an additional one of his own through 1953.  During his last two years in office the Congress had a Republican majority.

 

Republican President, Dwight D. Eisenhower, during his eight years in office, intermittently had both Democratic and Republican majorities in both Houses of Congress.  Democratic Presidents, Kennedy and Johnson had Democratic majorities in Congress.  The same is true of Republicans, Richard M. Nixon and Gerald Ford.  From January 1977 to 1981 President Jimmy Carter had Democratic majorities in both Houses of Congress.  Ronald Reagan had Democratic majorities in the House and mostly the same in the Senate.  George H.W. Bush had to work with Democratic majorities during his four years in office while Bill Clinton had them only during his first two years in office.  George W. Bush had both during different times and Barack Obama had a Democratic majority only during his first two years, then a Democratic Senate and a Republican House, and a Republican majority in both Houses of Congress during his last two years in office.

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In the post-Civil War period, as earlier, recessions and depressions came, at the best, every few years or at the worst, almost successively, with occasional major downturns like the Bankers’ Panic of 1907 at the New York Stock Exchange.

 

On December 23, 1913 Congress passed and President Woodrow Wilson signed the Federal Reserve Act bringing financial regulation into existence in the United States.  Prior to this time Adam Smith’s “invisible hand,” which he defined as the motivating force behind the Market System, determined which way the Stock Market would run.  The “invisible hand,” self-interest, individual greed, had historically caused continual large fluctuations in the Stock and other Markets.

 

The mission of the Federal Reserve was through Monetary (money) Policy to maximize employment, keep prices stable, and moderate long term interest rates.  This purpose was extended with bank regulation during FDR’s New Deal.  In the 1980s the Reagan administration canceled the bank regulation.  This, in turn, led to the Real Estate Bubble two decades later.  And because of the banking-caused Real Estate Debacle of 2008 the Federal Reserve’s purpose was again expanded to supervising and regulating banks, maintaining stability of the financial structure, and providing financial services to depository institutions, the United States Government, and foreign official institutions.

 

Of course the banks objected to the 2009 reforms and in the 2014 Federal Government’s Finance Bill, Citibank was able to slip in a section into this 1,600 page law limiting this power.  This was done the night before the bill had to be voted upon.  Naturally the banks object to any regulation that limits them.  I would also suppose that their executives would equally object if any of them were sent to jail for illegal activities instead of having the bank just paying fines as they have been doing since 2009.

 

In the 2012 Presidential Election the Republican Candidate, Mitt Romney, publically stated, more than once, that after he was elected he would do away with the Dodd-Frank Banking Reform Bill that was passed in 2009.  His statements called for a return to the good-old-days before the 2008 Real Estate Crash when the banks and bankers were making inordinate amounts of money and getting phenomenal compensation packages.

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If we look at the economic patterns that occurred during the last hundred and some years what emerges is the fact that the major economic downturns were preceded by Republican Presidents.  The three presidents during the last three major downturns were: Theodore Roosevelt, Herbert Hoover, and George W. Bush.

 

While they were not individually responsible for the depressions it was both the Republican policies and the general ignorance of how the economy works that brought the economic collapses into being.  In 1907, there was no central bank, money, in the shape of gold coins, moved freely according to the needs of the nation.  The Panic of 2007, also known as the Banker’s Panic, more or less, began in October of that year when the New York Stock Market dropped about 50%.  There had been an assault upon the Stock Market that blew up the economy and there was no Central Bank at that time to infuse currency into the National Cash Flow.  A few years later in 1913 this depression brought about the establishment of the Federal Reserve.

 

For 1929s depression, and all the minor recessions up to that time, there was a bland reliance upon the forces of the Marketplace to continually determine what had supposedly been long term prosperity.  In essence the Market forces, the “invisible hand,” self-interest, was the determinate.  After years of pushing stock prices upward the Stock Market was severely overpriced.  This could not go on forever and it collapsed in 1929 dropping to a fraction of what it had been earlier, and in the process bringing the entire economy down.

 

In 1933 the new Democratic President, Franklin D. Roosevelt, doubled the money supply by collecting all the gold coins, melting them down into gold blocks, burying them in depositories like Fort Knox, legally doubling their value, and issuing paper money presumably backed by gold.  It was a fiction that lasted until 1969 when, then President Richard M. Nixon took away the last bit of gold supposedly behind the dollar.

 

This action by Roosevelt, doubling the money supply easily paid for the New Deal but it wasn’t enough to offset the 1929 Depression.  It would have taken four to eight times the money then in circulation to end the economic situation.  Unfortunately the problem wasn’t understood properly at that time and it took a major war from 1939 to 1945 to offset and end the Great Depression.

 

The explosion of the 2008 Real Estate Bubble toward the end of that year also occurred during a Republican presidency.  Here the next President, Barack Obama, applied all the money needed; and what could have been a Greater Depression than that of 1929 became a major recession that should have been resolved in a year or two with applications of both Monetary and Fiscal Policy.  But the Republicans, following their historic philosophy which had caused most of the economic downturns, exacerbated the situation by refusing to pass any Fiscal Policy laws.  Virtually every economic move they made tended to worsen economic conditions.  It took the efforts of the President and the Federal Reserve to keep a depression from happening.

 

If the Republicans had been solely in charge, not only the United States but the entire world would currently be in a Great Depression that would  make 1929 look like a weekend holiday.

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Much has been learned and understood as to how National Economies work from the latter half of the 20th Century on.  Economic changes like recessions and depressions can be lightened or even avoided.  The National Economies are not like wild animals that inevitably rear their heads and bring about indiscriminately varied levels of misery to their populations.  In 2009 a multi-gigantic depression was avoided by actions of the Central Government.  Economic catastrophe or lack of prosperity can be avoided and controlled.  It was in 2009 by President Obama and his administration.

 

Yet none of these practices are or have been accepted by the members of the Republican Party.  They still follow Adam Smith’s late 18th Century work, An Inquiry into the Wealth of Nations, which in itself was, in part, a reaction against the 16th Century economic practice known as Mercantilism.  Smith defined the Free Market controlling entity as the “invisible hand,” self-interest.    What Smith did not foresee was that the Free Market led to Monopoly and Oligopoly, which led to societal economic decision-making by the few who were still motivated by self-interest.

 

This is the Free Market in which Ronald Reagan and the Republicans believe.  This is what the Reagan and his administration utilized for their newly discovered Supply Side Economics.  Lower taxes, particularly for the upper echelon of society (the rich), and they will automatically invest that new income in new industry, creating new jobs, and new productivity which will supply new goods and jobs for everyone.  And everyone will live happily ever after.  A nice fairy tale!  It never happened.

 

What did happen was that a very large percentage of the people who benefited from the tax cut gave these new savings to financial experts who invested them in old productivity, stocks and bonds.  New startup companies, when they came into existence and had proved their durability, tended to be financed by the large banking houses.

 

The theory was nonsense.  It never worked.  But the 2016 Republican candidates for the presidency are all still adhering to it.  They want to cut taxes for the very rich which currently stops being graduated after their income reaches $400,000, with the percentage the Federal Government receives staying fixed no matter how many millions or billions it goes into.

 

Why is it important for the Republicans to be Supply Siders?  Because these people are their main financial contributors.  They are the ones who pay for their political campaigns.  And the Republicans are very good at combining need (endless contributions) with political philosophy.

 

This is also true with most pharmaceutical companies.  Their products can be purchased at lower prices outside of the United States.  Congress has passed laws fixing their prices in this country and not allowing any government agency to negotiate with the pharmaceutical industry.  They are large contributors to political campaigns, particularly Republican political campaigns and Republican Congressmen are utilizing the principle of self-interest.

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Of the two major political parties in the United States the Republicans are the minority party; there are far less of them than there are Democrats.  But they are far more vociferous than the Democrats, never ceasing their loud complaining about the other party.  While the Democrats seem to keep a more or less polite silence.  The Democrats are blamed for everything wrong with the country, particularly those items caused by Republican actions.  The Republicans never take responsibility for any adverse action; they are either ignored or blamed on the Democrats.  Their theories of economics are self-serving and absurd.  And ultimately in percentage of the population they are actually shrinking in number as time moves forward and they become slowly an ever-decreasing minority.

 

They, the Republicans, have been successful politically in the last six years mainly through voter apathy and disgust.  They have done far better in Midterm Elections than in Presidential ones when a good percentage of the citizenry in disgust or disappointment for what has not happened during the last two years don’t bother to vote.  This has been added to by various forms of voter suppression in states the Republicans control.  In essence they have greater political victories when more people stay home on election days.

 

In addition to this in order to gain the support of the evangelicals the Republicans have incorporated the concept of the holiness of life from conception onward into their philosophy.  Statements have been made about passing an amendment to the Constitution giving the fetus full Constitutional rights from conception on.  This will never happen but it gives them a certain credence with the far right evangelicals.

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In the 1973, the Supreme Court found, by a 7 to 2 decision, in the Roe v. Wade case that abortions were legal; that women had a right to make their own decisions about their own bodies.  The evangelicals (religious right) have resisted this decision from the beginning.  At some point the Republicans latched onto this cause and made it their own, gaining the support of this group.

 

To many Republicans today, women are not capable of dealing with their own bodies.  They state and believe there should be no abortions allowed, not even in cases of rape, incest, or where the pregnancy endangers the woman’s life.  It would seem that they have and are trying to endanger women’s lives, both psychologically and physiologically.  In their view women are not capable of making certain decisions concerning their own lives.  It must be done by elderly white men who make up the bulk of the Republican Party.  This is, without question, War on Women,

 

In addition to this the Republicans are an extension of the National Rifle Association.  They tend to be against any laws regulating weapons, ammunition, and magazine size in any way.  No atrocity will deter them from this belief.  A goodly percentage of their blue collar membership, more or less, holds this belief.  To many members of the NRA the fact that this hasn’t happened is proof that it will happen if they allow any changes to occur to the gun laws.

 

It seems, if we consider the group in Oregon which has recently taken over the Malheur National Wildlife Refuge, that having weapons, like thousand dollar plus assault rifles, will keep the Government respectful.  Of course the fact that the Federal Government doesn’t want another blood bath is beside the point.  They have been there since January 2, 2016 and the few that have not been arrested and are still remaining there have stated that they will stay until the Federal Government gives the land to the original owners, the local ranchers.  It must be nice to just sit around indefinitely and wait for the Federal Government to give the land to the local ranchers.  Of course following their argument the land really belongs to the local Indians who have inhabited the area for at least the last two thousand years and claim it as their own.

 

It would seem that the Republican battle cry for a large number of its members is God and Guns, or is it Guns and God?  It’s often hard to tell which should come first.  I suppose it depends upon which Republican you ask.

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The American society has needs which have to be handled by necessary legislation.  These societal needs have been avoided by the Republican dominated legislature and in many cases by Republican dominated state law making bodies.  Congress has attempted to deal with these problems by ignoring them, especially since 2011 when the Republicans, by gerrymandering the states where they had a majority in the legislatures, gained control of the House of Representatives.

 

If anything what the House of Representatives has done is to shorten its meeting days until 2016 when they were reduced to 110 days for the year, to a three day week with holidays.  This allows the new Speaker, Paul Ryan, to spend four days a week home with his family: wife and two children, in Wisconsin and three days in Washington, D.C., as Speaker of the House.  A good job, if you can get it!

 

The Republican dominated Senate will meet a bit more often for the year.  Both Houses of Congress are ignoring the needs of the people within the nation and expect to maintain their majorities in both Houses of Congress after the 2016 Presidential Election and get a Republican elected to the presidency.  And they believe they can do this by antagonizing most of the other minorities and the one remaining majority, the women of the United States.

 

Speaker Paul Ryan has stated that after having passed a law doing away with Affordable Health Care (Obamacare) which the President vetoed, they will continue to pass laws embarrassing the President by forcing him to veto them.  They do not have enough votes to override his vetoes.  And in that way they, the Republicans, will show the public what they will get in the way of new laws in 2017 if they elect Republicans in both Congress and the Presidency.  I would imagine that if Donald J. Trump were to become the next President of the United States then all bets are off!

 

So much for Republicans!  They are, after all, the minority party which tends to win elections when only a minority vote in Midterm Elections.  2016 is a Presidential Election.  The majority of the population will be voting in that election.  The probability is that the Republicans, at best, will retain the House of Representatives; and that is because in 2011 they gerrymandered the Districts within the states they controlled.  In this way they choose their own voters instead of having the voters choose them.  Remember in the 2014 Midterm Election well over a million more votes were cast throughout the United States for Democrats in the House, but the Republicans still retained control of that body.

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It should also be noted that large, and, in some cases almost unlimited, contributions give immediate access to legislators and Congress by those making them.  These contributors to elections can and have influenced legislation or the direction the government is going.  The Republicans have integrated into their psyches the desires or needs of most of these individuals or corporations. For example, the Koch brothers of Wichita, Kansas, who are involved with oil, have had their state pass legislation against green energy.  Citibank has written financial regulation which has been inserted into Congressional Bills and become laws.

 

The Republicans are after all the party of business and of the individual.  They believe in everyone having as much freedom as possible.  Their solution to adding jobs is to increase pollution and other unsafe conditions.  No one forces anyone to take a job.  Everyone has choices, even the choice to starve or live in the street.

 

Finally it should be noted that even with voter suppression the Democrats are the majority party.  States like Texas have been able to limit rural voters by two or three hundred thousand by making it very difficult and expensive for these people living in rural areas, mostly, if not all, Democrats, to get proper identification and/or register to vote.  This was proven in the last Midterm Election of 2014.  But even so, the probability is that the Democrats will gain back the Senate and keep the presidency.  The probability is that the House is the one body the Republicans may still be able to control.  If my prediction is correct we will have total gridlock in the Congress for an additional four years.  It’s a depressing thought!

The Weiner Component #136 – Part 1: Thoughts About the 2016 Election – Effect Upon the Supreme Court

Ruth Bader Ginsburg, U.S. Supreme Court justice.

Ruth Bader Ginsburg, U.S. Supreme Court justice. (Photo credit: Wikipedia)

For a variety of reasons it is important whether a Republican or Democrat gets elected to the Presidency in 2017.   One institution that may be strongly affected is the Supreme Court, the third arm of our government.  Currently there are four liberal Justices appointed by Democratic presidents and five conservative ones appointed by Republican presidents in the Court.

 

The four liberal Justices are, in order of their age, at 2017 when the new President takes office: Associate Justice Ruth Bader Ginsburg (84), Associate Justice Stephen G. Breyer (79), Associate Justice Sonya Sotomayer (61), and Associate Justice Elena Kagan (57).  The five conservative Justices are: Associate Justice Antonin Scalia (81), Associate Justice Anthony M. Kennedy (81), Associate Justice Clarence Thomas (69), Associate Justice Samuel Alito (67), and Chief Justice John G, Roberts (62).  Both Justices Kennedy and Roberts have occasionally supported more liberal positions at different times but currently the overall cast of the Court is Conservative.

 

There is no retirement age.  Even though former Presidents like Franklin D. Roosevelt threatened to have such a law passed Supreme Court Judges serve for life.  They can, if they wish, retire with full pay; but many do not.

 

William H. Rehnquist, the former Chief Justice died while still on the court four weeks before his 81st birthday in September of 2005.  He had served eighteen years as Chief Justice and before that he was an Associate Justice on the Supreme Court for a number of years.

 

Sandra Day O’Connor, the first woman who was appointed to the Supreme Court by President Ronald Reagan, retired in 2006.  She retired because her husband was ill, diagnosed with Alzheimer’s disease; he died in 2009.  Her husband needed her and she wanted to spend more time with her three children and grandchildren.  Today she is 86 and still functioning in legal circles.

 

Associate Justice John Paul Stevens was born in 1920.  He was appointed by President Gerald Ford, a moderate Republican.   Stevens served on the Supreme Court from 1975 to 2010, thirty-five years and retired from the court at the age of ninety.  Toward the end of his career when he was considered a liberal judge he was asked if he still thought of himself as a Republican.  Stevens did not answer that question.

 

In the case of Gore vs. Bush, where the majority of votes had been nationally and in Florida for Gore, Stevens wrote a scathing dissent in that 2000 case where a 5 to 4 decision ended the troubled vote count and made George W. Bush president with a minority of both the national and troubled Florida vote.

 

Associate Justice Ruth Bader Ginsburg was born on March 3, 1933, shortly after Franklin D. Roosevelt came to office as President of the United States, during the depth of the Great Depression.  She was appointed to the Supreme Court by President Bill Clinton on August 10th 1993.  Despite two different bouts with cancer which she has overcome she seems currently in good health at the age of 82.  In 2012 she stated that she would like to serve four more years on the Court.  Now she seems ready for another four years.  I would suspect that the job itself keep her alert and functioning.

 

Both Justices Antonin Scalia and Anthony M. Kennedy were born in 1936 and both are 80 years of age.  Scalia tends to be a rigid conservative on all his cases and Kennedy has gone both ways in 5 to 4 decisions.

 

In 2016 the average age of judges on the Supreme Court will be 72¾ years old with the age limits going from 84 to 58.  The mean age tends to be toward the higher number.  This mean that of the nine judges eight could legitimately retire if they so desire during the next 4 year presidency.  Will they?  Probably not.  But through natural causes the country could lose one or more Justices of the Supreme Court.

 

The significance of this loss could determine the direction of Supreme Court decisions for the next decade or more.  The probability is that a Democratic President will appoint a liberal candidate to the Supreme Court while a Republican President would appoint a conservative one.  If the person to pass were to be Justice Ginsburg who will be 87 by the end of the next Presidential term, then a Republican President would change the balance of the Court to 6 to 3 in favor of the conservatives.  A Democratic President would maintain the current balance.  On the other hand if one of the two senior Republican appointees were to die or retire over the next four years then a Democratic President would appoint a liberal candidate and the current balance would swing to 5 to 4 in favor of a less rigid interpretation of the Constitution.

 

If for no other reason than for the future of the Supreme Court, the choice of a president in 2016 is all important.  The majority party in the United States is the Democratic one.  Yet, through gerrymandering, suppression of the vote, endless financing, (since a relatively recent Supreme Court decision has made the endless spending of money in elections a first Amendment right by individuals,) and vociferously denouncing the Democrats, the Republicans have made themselves appear more important.  It struck me as blatantly unfair that the Democrats cast a million and a quarter more votes for their House of Representative candidates in the 2014 Midterm but through the 2011 gerrymandering election boundaries the Republicans set they ended up with the majority of Candidates in the House of Representatives.

 

Depending upon your political position the outcome of the 2016 Presidential Election is all important.  The potential Democratic candidates are all challenging the 2010 Citizen’s United Case that made almost unlimited political contributions an extension of the First Amendment’s free speech clause and the 2014 McCutcheon v. Federal Election Commission Case which further extended this right.  The probability is that the next elected president will appoint one or more new replacement justices to the Supreme Court.  Whether the next President is liberal or conservative could very well determine the direction in which this country could go for the next decade or more.

English: The United States Supreme Court, the ...

English: The United States Supreme Court, the highest court in the United States, in 2010. Top row (left to right): Associate Justice Sonia Sotomayor, Associate Justice Stephen G. Breyer, Associate Justice Samuel A. Alito, and Associate Justice Elena Kagan. Bottom row (left to right): Associate Justice Clarence Thomas, Associate Justice Antonin Scalia, Chief Justice John G. Roberts, Associate Justice Anthony Kennedy, and Associate Justice Ruth Bader Ginsburg. (Photo credit: Wikipedia)

The Weiner Component #81 – The Concept of National Wealth

Franklin Delano Roosevelt, 1933. Lietuvių: Fra...

Franklin Delano Roosevelt, 1933. Lietuvių: Franklinas Delanas Ruzveltas (Photo credit: Wikipedia)

The question of wealth is confusing. To an individual it appears to be the amount of money he or she possesses; but to a nation it would be the goods and services they produce in a given period of time, usually a fiscal year measured in terms of dollars and cents. This is the Gross Domestic product, the GDP. Which is the actual wealth? The productivity or the money?

Looking at a small area of United States’ history should answer this question.

On Tuesday, Black Tuesday, October 29, 1929 the New York Stock Market collapsed. Over a period of time the value of the Market dropped from 89 billion dollars to 18 billion dollars. (This was when a one ounce gold coin was a $20 gold piece and was officially worth $16.) That event was concurrent with downturns in all the other industrial nations. The rest of the U.S. economy would follow the stock market with massive unemployment, part time employment, and underemployment. Unemployment would drop to 25% of the working population. The President, Herbert Hoover, and his Secretary of the Treasury, Andrew Mellon, believed that the Market Mechanism would eventually bring the Market back to where it had been before the crash. It did not.

From October 1929 until the end of 1932 the country sank into deeper and deeper depression. The President and his Secretary of the Treasury kept stating that “Prosperity was just around the corner.” That corner was never reached.

John Maynard Keynes, an English economist, developed the theory of Keynesian Economics. Government, during times of recession and depression must spend more than they collect in taxes. During times of prosperity it can pay off its debt. Some of this was attempted on a small scale by President Hoover.

In 1933 Franklin Delano Roosevelt was elected President of the United States. He began, what he called, The New Deal; a process of massive spending that it was hoped would bring about recovery.

Roosevelt funded this in a very interesting way. Money at that time was gold and silver coins. All the gold coins in the country, with the exception of a small number held as souvenirs, were collected, melted down into gold bars, and stored in depositories like Fort Knox. Gold certificates, equaling the value of the gold coins, were issued to the Federal Reserve. The value of the gold was then by Act of Congress doubled from $16 an ounce to $32 an ounce. The ounce of gold had traditionally been the $20 gold piece. Each one was replaced by two $20 dollar paper bills marked Federal Reserve Notes. In one simple act the money supply of the United States had been doubled.

We were actually off the gold standard but the fiction of its continued existence remained. The money was as good as the gold that stood behind it. Roosevelt could now easily fund the early New Deal. All it took was a simple act of Congress and the money supply was doubled.

As the New Deal progressed, from 1933 to 1940 shortly after World War II broke out, Congress authorized spending by the Roosevelt Administration far beyond the amount of taxes that were collected or the extent of the money supply. The government followed the principles of Keynesian economics. This did not get the country out of the depression. In order to do that the money supply would have had to have been more than quadrupled. But it did allow recovery to begin. It took World War II for complete recovery to occur.

From the outbreak of W.W.II in 1939 to the end of 1941 when the U.S. became directly involved in the war the country could not meet the demands of Europe and Asia for goods. The depression ended; there was full employment. The Allied nations shipped their gold (money) to the U.S. to pay for their purchases of goods (food and assorted war materials) until they ran out of money, then purchases were made on credit until that became too large. At this point the Roosevelt Administration evolved the concept of Lend Lease, which was a fiction. From this point on the United States gave the necessary war materials to the Allied Powers.

World War II was a very expensive enterprise. How great was the cost to the United States? The best we can do is an approximate answer to this question. According to the Oxford Companion to WWII the cost to the U.S. was $306 billion. President Truman in an address to a joint session of Congress stated that the U.S. contributed $341 billion to World War II. This did not include the $50 billion given out in Lend Lease.

During WWII the United States became the “Arsenal of Democracy,” supplying all the allied nations with food and the materials of war. Within the country all efforts were aimed at fighting and winning the war. Practically all manufacturing was for the war effort. Farmers could not produce enough food. Many people set up “victory gardens,” growing vegetables on their lawns, while those in apartments used window boxes. Virtually everyone on the home front was involved in the war effort. Children collected scrap metal and old newspapers that could be reconstituted and used again. Housewives saved their used grease from cooking and turned it in to their butchers. It was used in the production of munitions.

With everyone on the home front employed, men, high school students after school, and women, and many people working double shifts money was readily available but there was little upon which to spend it. People could not freely spend money; most items were rationed or not produced; everything was focused upon the war effort.

The government, presumably to raise money for the military effort, sold war bonds. They could be bought in numerous denominations. The smallest was a $25 bond which cost $18.75 and was redeemable after ten years. School children bought 50 cent war stamps that they collected in books, until they saved $18.75, then turned them in for war bonds. All the resources in the country was focused upon the war effort.

Where did all this money come from? What was its effect upon the economy of the United States? Obviously Congress passed bills and the President signed them. And the money was created. Also all this currency that the country created was spent upon goods and services in the U.S. It was all this spending that took the country out of the depression and into a new level of economic prosperity. During the war people had money, many for the first time in their lives, but could not spend it.

In 1944 the Serviceman’s Readjustment Act (G.I. Bill) was passed by Congress and signed by the president. It was a law that provided a range of benefits for returning WWII veterans: low cost mortgages, low interest loans to start a business, cash payments of tuition and living expenses to attend college, high school, or vocational training, as well as up to one year of unemployment compensation. It was available to every veteran who had been on active duty during World War II for at least 90 days and had not been dishonorably discharged. Combat was not required.

By 1956 about 2.2 million veterans had used these benefits to attend colleges and universities. An additional 6.6 million had taken some kind of training program. This does not count the number who started small businesses with low government interest loans or who bought a house with a low interest VA loan.

In April 1948 Congress passed the European Recovery Program, generally called the Marshall Plan. In this bill the United States gave economic support to help rebuild European economies after the end of WWII in order to prevent the spread of communism. During the four years that the plan was operational the U.S. donated $13 billion in economic and technical assistance to help the recovery of the European nations.

If we consider the inflation factor in terms of the value of gold, then an ounce of gold was worth $32; today an ounce of gold is worth in the area of $1,300. If you divide $32 into $1,300 you get an idea of the level of inflation since 1948.

How was all this paid for? The answer is by an acts of Congress. The government legislated the funds into being. What then is the real wealth of the United States? The goods and services it produces.

What happened to all this debt that Congress generated? How did the U.S. pay for the depression, WWII, the GI Bill, and the Marshall Plan? Of course the answer is obvious. Congress approved the expenditures and the government printed and issued the money.

Before we consider the National Debt there are some other factors to consider. First the population of the U.S. in 1930, several months before the census was taken, was 122,775,046. By 1940 it had gone up approximately by ten million people; and by 1940 by another eighteen million. By 1960, the year of the next census the population was 179,323,175 Americans, an increase of over twenty-five million. While the executive in each introduction to the official census has apologized for the sloppy enumeration, this number of individuals was actually counted.

With the constantly increasing population the economy needs an ever growing amount of money in the National Cash Flow. In no year, from the beginning of the Great Depression on, did the economy increase by less than one million people, generally the number was larger. If money had not been added to the economy there would have been mad inflation and total economic collapse.

What the Federal Government did was to add by acts of fiat multi-billions of dollars to the national economy. The initial cost of the New Deal was covered by doubling the money supply and creating the fiction of gold being behind every dollar. Later paper money was simply created for the latter part of the New Deal, Lend Lease and W.W.II, the G.I. Bill and the Marshall Plan. There was never any real gold behind the dollar. In fact, there was never enough gold in existence to make up an adequate gold supply for money.

What was the advantage of using this token money? It allowed full productivity to occur within the United States and the industrial world. World War II, forgetting for the moment its horrors, put everyone back to work. The G.I. Bill made this country into a middle-class nation by educating millions of people with college and providing for them to start their lives on a more secure level than their parents had lived. The Marshall Plan, in addition to allowing European nations to recover from the devastation of war, was also a six plus billion dollar checkbook of funds to be spent in the U.S. creating an endless number of well-paying jobs.

 

The wealth all this paper money produced was the production of goods and services that allowed America and a good part of the world to emerge after the Second Great War.

 

The Weiner Component #54 – The History & Use of Money

Money cash

Over most of human history money, gold coins, have been an object of value that have been exchanged for either goods or services of equal value.  This changed in 1933 when money became essentially a paper note with symbolic intrinsic value, which was still used for the exchange of goods and services.  Finally in 1969 the last vestige of theoretical gold was removed from paper money and all coins became copper sandwiches where before they had contained silver.  Since that time there has been nothing behind the dollar except the word of the United States Government.

Economics exists on two levels: one, which affects everybody, is Microeconomics, and the other, which effects only the Federal Government, is Macroeconomics.  Microeconomics deals with individuals and family incomes and budgets; with any entity that lives on a fixed specific income, be it taxes, rents, dividends, or earnings.  Macroeconomics deals with the government adjusting and fine-tuning the entire economy of the nation.  It has to do with adjusting the money supply, interest rates, and the functioning of the nation.

Money, the amount of money one has or earns, determines where that individual fits in the general society.  If one has an adequate amount with which to live then it is not overly important; but if one never has quite enough, then its lack supplies an endless pressure on an individual and his family’s life.  Unfortunately the majority of the population does not ever have quite enough.

What is the problem with having enough money?  Better yet, what is money?  What is it really worth?  Why is money unequally distributed among the population?

Historically, during ancient times, precious metals like gold and silver were exchanged for goods.  This was done in addition to barter.  The metal would be weighed and the weight would determine the value.  Probably the Phoenicians, who traded along the Mediterranean Sea, began this practice well over two thousand years ago.  They traded value for value.

At some point in history, again probably by the Phoenicians, money was invented.  A set amount of gold or silver was stamped with some image, usually a ruler of some dominion.  The coins were uniform, always having the same weight, thus being of a constant value.  This eliminated using scales for the exchange of goods and services.  It made doing business easier.  The basic concept remained the same, trading something of value for a metal of equal value.

The invention of coins, as less valuable metals were gradually used, allowed over time for an end of barter and an extension of the exchange of goods and services for money, which could be traded at any times for other goods and services in virtually any region or state.

How long did it take for this system to become established throughout the ancient world?  Probably it took at least hundreds of years for it to become common practice.

What developed was a system of exchanging goods and or services for an equal value in metals (coins, money).  Once this was established business could occur anywhere.

Probably from its inception or shortly thereafter there were never enough coins to handle the amount of business possible.  This kept the value of the metal high and allowed for slow economic growth.

The Roman Emperor, Nero, from what we know, was the first or at least one of the first rulers to “water the money;” that is, to add a less expensive metal to the molten gold from which the coins were cast.  The process increased the amount of money the state could spend but I also resulted in a continuous inflation during his reign by lowering the value of the coins.

With the exception of the 16th Century, when Spain looted the New World and brought seemingly endless shiploads of gold to Europe that were immediately turned in currency (gold coins). This brought about a period of inflation that lasted about ninety years.  During this period wages stayed the same but the value of the money continually decreased.  It was a time of rapacious inflation

Outside of this period there has always been a shortage of gold in relationship to the amount of trade (business) that could be done.  Also By the 16th Century Letters of Credit were developed in Europe by banking houses, which made the transfer of money in large amounts fairly simple.  In fact, the Hanseatic League and the Renaissance banking houses created a form of checking.  In essence modern capitalism began here.

In order to stretch the needed money supply and increase their profits banking houses issued paper money that, presumably, could be turned into gold (coins) at any time.  Of course, if any negative rumor occurred, and all the depositors brought their paper money in to exchange it for gold there would be a run on the bank.  The bank would run out of gold, the balance of the paper would become worthless, and the bank would become bankrupt.  These periods brought about the business cycle, periods of prosperity and depression within the respective nations.  Modern capitalism thus came into existence.

The Great Depressions of 1929 and 2008 were results of this type of action.  The great banking houses of the United States brought them both about.  Prior to 1929 the banks lent endless amounts of money to people with which to buy stock.  The margin rate was 10%.  For every dime the citizen invested he could buy one dollar’s worth of stock.  This drove the price of stocks through the ceilings, creating multi-billions of dollars.  With the competition to get rich quickly stock prices continually rose until they reached a point in 1929 when this whole house of cards collapsed and the investors and the banks went bankrupt within a relatively short period of time.  The nation teetered on the point of economic collapse until 1933 when Roosevelt became president.  He was able to bring about partial recovery until 1939 when World War II broke out.  The war ended the Great Depression in 1939 in the United States since there were endless orders for war supplies and food production coming into the U.S.

What Roosevelt did in1933 was to double the money supply by collecting all gold coins and issuing paper in their place.  He also doubled the value of gold from $16 an ounce to $32 dollars an ounce, thereby doubling the money supply and giving the government the ability to spend billions in economic recovery.

But, if we go by the value of the Stock Market, it was not enough.  The value of the Stock Market went from 86 billion dollars to 16 billion dollars.  Roosevelt needed to increase the value of gold to 64 dollars an ounce to match the amount of money that existed in circulation before the 1929 Crash.  This he could not do.

With the Real Estate Debacle, which occurred late in 2008 the situation was similar.  The banks over a thirty-some year period had discovered that they could bundle mortgages into massive packages and sell them as hedge funds, supposedly as safe interest paying investments to innumerable investors.  What the banks did was to issue the mortgages, sell them off in bundles, get their original investments back, and then process the funds for fees on several levels.  In essence they controlled the mortgages without having any money invested in them.  This was continued until the banks were issuing loans based upon 125% of the appraised value of the real estate.  This process continued over three decades until the bubble burst and property values dropped like lead weights from tall buildings, leaving many of the homeowners underwater, owing more on the property than it was suddenly worth.  Both Presidents Bush and Obama pumped money into the banks, bailing them out before the entire financial structure of the United States collapsed.

In both the above cases the banks were motivated by intense greed, endless profits, exploiting the system to become super-rich.  In 2008 the bankers were earning in the multi-millions as their compensation packages, and those below them were not far behind them earning lesser million in fees.  The real estate industry was going berserk with the multitude of fees they were earning.  Many homeowners were happily using their real estate as bank accounts and industry was prospering.  It was a happy “twilight state” that lasted until the bubble burst and the economy tanked.  Then if not for the steps taken by the Obama Administration, the entire nation would have collapsed.

The major historic problem still exists, even though the government prints and issues money as needed, there is not enough money in circulation to allow for all the exchange of goods and services needed within the society.  Can this problem be rectified?  The answer is easily by the Federal Government using both fiscal and monetary Policy.

The major problem here as far as the overall population is concerned is that most people still think of money in terms of gold.  With Macroeconomics it is a tool that the government uses to enhance productivity.  In itself money has no real value except that assigned to it by the government as a token of exchange.  The Federal Government can issue as much as it feels is needed.  The only limitation on this is inflation.  If there is too much money in circulation, more money that goods and services needed then we could have a rabid inflation.  This and this only would limit the amount of currency that the government can circulate.  Money is not gold and should not be treated as such.  This behavior can limit productivity and bring about a continuing recession as it has since the end of 2008.

Unfortunately the Tea Party Republican controlled House of Representatives has not only not used fiscal policy but has also seriously restrained Federal spending, exacerbating the problem of unemployment.  We are still in a recession with a seven plus percent level of unemployment.  This could easily be rectified if the Federal Government could take proper action.

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The Weiner Component #7 – Taxes: Franklin Delano Roosevelt & the Graduated Income Tax

Franklin D. Roosevelt

There are essentially two categories of taxes that a citizen of the United States pays: one group is called progressive and the other is regressive. A progressive tax is one that is “gradually increasing as an individual’s income increases beyond a certain minimum level. The income tax is an example of this type of tax. The more one earns the higher percentage of his/her salary the individual has to pay in taxes. In the case of State and Federal income tax the earnings have to be above a certain minimum for the person to pay any tax and then as the income rises so does the percentage paid to the government(s). Of course there are deductions which lower the income and the amount paid. Mitt Romney, with an income running into the multimillions in 2011 paid 14.1 % of his yearly income. It should be noted that he paid that much because he refused to take a two million deduction on his charitable contributions. In 2010 he paid thirteen something percent. The average earner getting about above fifty something thousand dollars a year, pays somewhere, after deductions, between twenty and thirty percent of their yearly compensation in income taxes.

(Parenthetically Romney has three years to file an amended tax return to claim and get money back for the two million in contributions he did not use in his 2011 income tax. If he loses the 2012 Presidential Election, or, for that matter, even if he wins the election he can still claim that amount and bring his percentage down to eleven or twelve percent of his income for that year.)

Most other taxes: sales, excise, etc. are regressive taxes. Paying this tax has nothing to do with your income. Everyone buys food and the assorted items needed for daily living; and they all, more or less, pay equally for these items. Consequently the more one earns the less a percentage of their income is spent on these items. These taxes are regressive in form because the smaller the income the higher a percentage is paid in taxes. Those people who are earning too little to pay income taxes are spending a large part of their resources on these survival items and paying a goodly percentage of their incomes on these taxes.. Both the poorest and richest people around must have food and shelter to survive. The difference that they would spend on these items is astronomical.

The other tax that seems to fall between these two areas is property tax. In order to pay this tax one has to own property and the appraised value of the property determines the amount of the tax. In the state of California there is an exception to this principle. In 1979 Proposition 13 was passed which lowered everyone’s tax rate and there after only allowed it to increase two or two-and-a-half percent per year. Everyone, who bought property after that point, paid and has continued to pay a higher tax rate than the people or corporations who owned property before the measure was passed. Still the category of this tax is somewhere between progressive and recessive taxes. For example Mitt Romney owns five houses, each valued at well over a million dollars. I own one house valued at well under one million dollars. In addition I have owned this house in California since 1970. I pay far less in property taxes than Mitt Romney. My neighbors, who have purchased similar houses after 1979 pay more than double what I pay. A person, who does not want to purchase or cannot afford property and rents, pays his/her share in their rent.

The question raised by Franklin Delano Roosevelt in his first Administration, during the low point of the Great Depression was: How much does a person need to live comfortably for a year? Roosevelt felt that beyond a certain point the amount of money being earned was ridiculous; after all, how much could any individual spend, for himself and possibly for his family, in a year. Amassing large amounts of funds for their own sake was ridiculous, particularly in a dire time of need. He felt that the balance should be taxed. To Roosevelt, the progressive or graduated income tax should be a means of serving the entire nation. Both Houses of Congress refused to go along with this idea and it never even came to a vote in either House of Congress.

In his Third Administration, during World War II, Roosevelt brought the same point up again in terms of war profits. Again Congress refused to consider the idea. It was not really an issue then because anyone who could or wanted to work was employed helping the War Effort. The problem then, with the war, was that there were not enough goods for everyone who had money to spend.

The problem seems to deal with the concept of what is really wealth. Is the money spent to acquire the goods and services produced or is it really the goods and services produced? Is it the productivity of the nation or the money, which the government prints?

If it’s the money then some individuals can amass great amounts of currency in their lifetime and they will then be very wealthy. But if the true wealth is the productivity of the nation, then the wealth is determined by both the level of productivity, and the prosperity of everyone in the nation.

The issue is confusing. Obviously the answer is on two levels: one, money determines an individual’s level of success within the economy. Also money has value in that it can be exchanged for goods and services in the present or in the future. Actually the currency is really a means of exchange. In itself, money has no real value except that arbitrarily assigned to it by the state. In a manner of speaking, money is the tail that wages the dog, the economy.

Roosevelt’s point is well taken: there are only so many goods and services that can be used in a year or even in a lifetime. If there is much more money than is needed, then those amounts are superfluous funds and should be taxed and used for the common good. Money ceased to have any real value when it became paper with nothing behind it but the word of the government.

It can and has been further argued that if tax policy stuck to its principles and was truly graduated for the rich then why should anyone create new industries. Take for example Bill Gates, one of the enervators of Microsoft. Gates is today a billionaire, who is currently spending his life giving millions away to assorted charities. And he and his wife are trying to upgrade the human condition, through medical, educational, and assorted other charities.

Another justification for gathering wealth is so that it can be used for inheritance purposes to create a future dynasty. Mitt Romney is a good example of that category; he has set up a trust fund for his five adult sons and their families of one hundred million dollars; and he has kept for himself and his immediate family between one hundred and ninety to two hundred and fifty million dollars, which was mostly “harvested” from his years as CEO of Bain Capital. In addition he has a ten million dollar retirement fund, from which he should start collecting soon, since he is in his sixties. It’s interesting to note that no one in his family even has to get out of bed to live comfortably for countless generations. Parenthetically, I would wonder if he’s really doing them a favor? What is needed there is a stout inheritance tax for a number of generations!

To the individual, monetary success is important; to the Federal Government economic prosperity is necessary. These two forces contradict one another. What we are dealing with, here, is microeconomics vs. macroeconomics. Microeconomics is the individual and his level of success, which, unfortunately, has led to economic winners and losers. In 2012 the estimate is that twenty percent of the population in the U.S., one in five people, are food insecure and go to bed hungry or without proper nutrition every night, while one percent lavish in lush wealth.

Money, itself, as we have seen, has no real intrinsic value: it is all token, fancy printed paper and cheap metal coins that have only the word of their government behind them. As long as everybody, nationally and internationally, agree on the value of the currency, it exists. To the Federal Government money is a tool to enhance productivity. In a manner of speaking the Federal Government owns the printing press and all it takes to issue more dollars is an act of Congress signed by the President. The amount of money in circulation has to be great enough to allow for full possible productivity and just short of the amount that will start a spiral of inflation.

The question then is: What is more important Macroeconomics or Microeconomics? Where should the emphasis be placed? Should it be with the prosperity of the country, or with the prosperity of a small number of the population?

I don’t think there’s any question that the prosperity of the entire population should be primary and Franklin Delano Roosevelt’s point about the graduated income tax is valid. The Federal Government should control the money supply and its continuous goal or mission should be the welfare of the entire population.

We desperately need realistic tax reform!

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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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