The Weiner Component #98 – Income Inequality

Income inequality and mortality in 282 metropo...

Income inequality and mortality in 282 metropolitan areas of the United States. Mortality is correlated with both income and inequality. (Photo credit: Wikipedia)

The United States and, for that matter, most industrial nations are today facing numerous major problems, economic and otherwise, that can and will definitely affect their futures negatively if they are not, more or less, solved in the near future.

According to the World Economic Forum: the gap between the rich and the poor is one of the major global risks we face today. The upper ten percent of most of these countries are expeditiously getting richer while the rest of the populations are either maintaining their level of income or finding it continually decreasing. How long can these conditions continue until the consumer base can no longer purchase the goods and services needed to reasonably survive and violence erupts from the level of subsistence more and more people find themselves living. The 21st Century could be bloodier than the 20th Century. The coming depressions could be deeper and far bitterer than that of 1929, the Great Depression of the 20th Century.

Over the last year or so in the United States many food prices have risen significantly, particularly the cost of many protein products have gone up 20 to 45 percent. Meanwhile the minimum wage remains at $7.25 an hour and has been at that level for the last five years. Someone with a family earning that much and working a full forty hour week needs government aid to survive. This is true even if his wife is also earning that much.

In order for this family to survive it has to be subsidized by federal and state entitlement programs which the taxpayers subsidize. One can say that a percentage of companies like Walmart’s profits, are indirectly supplied by the taxpayers.

Rand Paul, a hopeful presidential candidate for 2016, who like his father, is essentially a libertarian, in a recent interview, stated that to raise the minimum wage would be to increase the level of unemployment in the United States. Here someone who is opposed to government interference in the marketplace is supporting a system that is ultimately socialistic, with the government paying the difference between the family earnings and what is needed for survival.

Of course the overall Republican attitude toward all entitlement programs, like payments to the unemployed and aid to dependent children, is to reduce these government programs. They seem to want to bring about more privation than already exists.

I fail to understand the thinking here. These people are loudly and dramatically supporting a system that they adamantly oppose, indirect government support of the marketplace. It would seem that the Republicans are totally ignorant of some of the basic principles of economics; they cannot think far enough ahead to realize that they are espousing socialism, having the government provide for people, by their definition of a free marketplace. Wouldn’t it be easier to raise the minimum wage to a level where people can earn enough to pay for their family’s basic needs without needing to apply for government help?

Another interesting area pertains to student college loans. It is estimated that student loan debt has surpassed one trillion dollars.   Approximately three of every five college students have taken out student loans in order to pay for their tuition and books. These loans are strung out over their university career and have to be paid back after they graduate. The average college graduate has over $26,000 in student loan debt at graduation.

Many students can end up owing many more thousands of dollars at a good rate of interest which they generally have to begin paying back six months after graduation. It can, in many cases, take a decade or more to repay these loans and the interest charged on them, in some cases it can be even longer. Even if the ex-student declares bankruptcy it is practically impossible to have the college loan removed from his/her record.

People like Senator Elizabeth Warren have tried to reduce the interest rates but Republicans have refused to go along and support such legislation. I remember one such legislator commenting publically that the interest rate can’t be reduced because the government needs the money. This, of course, is pure idiocy because it means that whole generations of former college graduates have to wait years before they can afford to marry or otherwise start their lives. They have to spend their early work years for a decade or more paying back their college loans. But even more than that it also means that these young people will not really contribute to the economic growth of the nation unit they have freed themselves from debt.

There is in economics a principle called the multiplier effect. This means that money spent in the society tends to be spent numerous times. The amount, for example, that I spend at the supermarket is spent again as salaries or for the purchase of more goods, which, in turn, is spent as rent or a mortgage payment by the employee who receives it. It can then pay for the bank’s utilities or be used as salaries, and so on. The money is spent over and over again until it becomes part of the natural flow of currency creating for the GDP up to six or eight times the original amount. This principle also works in the reverse, negatively, on monies not spent. Dormant or non-spent funds can subtract six to eight times their initial amount from the GDP. All the ex-student payments to their college loans have this effect on the GDP, not allowing it to grow as it would if these people did not have this debt. The overall effect of the payment of these loans actually shrinks the GDP.

From comments made by a House of Representatives Republican and by the minority leader in the Senate, Mitch McConnell, the young college graduates rather than the upper 10 or 20% of the population are needed to help fund the government. Their paying the interest on their college loan debts will importantly help the government financially. The concept is inane. Interest on the debt should be mostly reduced or completely done away with. Having the ex-students spend their earnings on goods and services that will allow them to live in a positive and normal fashion will most aid the nation by adding to the GDP. Their welfare adds to everyone’s welfare and the monies they pay in taxes will exceed what they have to pay on their college loans.

By succeeding in completing college they put themselves on an earning level far greater than they would earn as high school graduates. The government has actually invested in them and the return over their lifetimes will be far greater than the cost of their education. This is a good argument for actually forgiving the loans. People invest their money to make a profit; so does government in its population with the use of taxes.

To get back where we started, the ever increasing gap between rich and poor is one of the biggest problems currently existing within the United States. The Congress is largely at a state of gridlock with the Republicans actually continuously trying to pass legislation to expand the economic space between the two groups. And, of course, many of the conditions causing this problem already exist in law. The conservative right in Congress will allow no reform of archaic legislation, some of which was passed during World War II to encourage oil production. Unless there is change this country will eventually find itself a second rate nation with a largely growing unemployed poor not able to afford the basic needs of survival.

The oncoming Midterm Election can help or worsen already negative conditions. The people of the United States will decide our immediate future. If they don’t vote or do vote for the conservative Republicans they will be asking for continued gridlock in Washington and continued misery for many of themselves and the rest of the population. It will be interesting to see what happens!

The Weiner Component #84 – The Republicans & the American Infastructure

Franklin D. Roosevelt

Official portrait of United States House Speak...

The purpose of Congress in the United States is to serve the people, not to play politics. The Republicans in Congress are not carrying out their proper function. The American people deserve better. Either the Republican Congressmen have no knowledge of Macroeconomics or they are plain vicious, caring only for themselves and the welfare of heir party.

John Boehner, the Speaker of the House of Representatives has come out with statements to the effect that Harry Reed and the Senate Democrats have not picked up any of the job creation bills that the House of Representatives have passed. The question here is what job creation bills? The only ones that come to mind are the fifty bills they passed to do away with Affordable Health Care. They claim that this law is a job busting one. How, they never say.

The fact is that eight million plus people, many who have never before been able to afford medical insurance, now have health coverage. If anything, Obamacare has created more jobs in the medical field. Just the paper work involved would require many more clerks

I am reminded of one of President Roosevelt’s 1936 campaign speeches where he stated sarcastically the Republican position at that time. The Republicans wanted to be elected so they could administer the New Deal. They said, in effect, that they would do it better and there would be more of it. Boehner wants to get rid of Obamacare so they can pass a bill creating Boehner Care that would be better and include more medical coverage for everyone. Of course there are no details of what this bill would contain. Probably they would be as efficient in passing it as they are in solving the illegal immigrant problem or a minimum wage bill.

In 1929 it was Republican Administrations that brought the Great Depression into being. In 2008 it was also Republicans who had brought the Real Estate Bubble into existence. Now they are going to solve this problem by bringing back conditions that brought this situation about.

How do we know this? In the 2012 Presidential Election Mitt Romney, the Republican candidate, promulgated this plan. It was the Republican Platform. They acted as though there had never been an economic crash in 2008 during the Bush Republican Administration.

Everything the House of Representatives has done since it gained a Republican majority in 2011 has been aimed at exacerbating the conditions brought about by the Real Estate Disaster. They have not passed one jobs bill since that time. There has been no fiscal policy. Instead the House has shrunken government services, particularly to the poor, starting a chain reaction which forced state governments to do away with multitudes of state jobs. The Republicans have been hypocrites, saying one thing and doing the opposite. Paul Ryan has stated, in effect, that he would not feed a hungry person because the dependence would take his dignity away from him. Really!

What we need are programs to get rid of hungry, homeless people by providing jobs for them. Up to this point when we thought of the infrastructure of this country we believed how upgrading it would decrease unemployment in the United States and help bring prosperity to all its people. Isn’t it time to consider the actual needs of the nation? Going into the 21st Century with a 20th Century Infrastructure is just plain dumb. Most of our infrastructure was built well over fifty years ago and is outdated or inadequate.

Also, whether because of man’s abuses or for reason of natural changing conditions the weather patterns have and are changing and bringing phenomenal strain upon these structures. In the winter of 2013—2014 there were some radical changes in weather conditions within some areas of the United States. These changes or others like them, whether caused by natural climate changes or by pollution, could become normal in the future.

Temperatures dropped to 16 below zero in Chicago, during early January and set record lows across the eastern U.S. A fifth of all power generating capacity in a grid serving 50 million people went suddenly offline, as coal piles froze. Sensitive electrical equipment went haywire and utility operators had serious problems finding enough natural gas to keep power plants operating. The wholesale price of electricity jumped to more than forty-times its normal rate. The retail price became insane. One customer received a bill for $1,250 for January that was eventually reduced to $750. Another one with a $654 bill got no relief.

The problem with the cost of the electricity was the result of an antiquated grid and the pacific vortex, the cold air mass that settled over the nation. It exposed a growing fragility in the U.S. electricity grid. We need a modernization of the system or we are open to facing all sorts of emergencies in the near future.

The infrastructure is the basic facilities, services, and instillations needed for the proper functioning of the nation, such as communications and transportation systems, water and power lines, and public institutions including schools, post offices, and other needed public entities.

In April tornados hit sections of the central United States. Billions of dollars in property was damaged and destroyed. People were killed. The basic problem here is that the warning system is only fifteen minutes before the storm strikes. We have the knowledge and technology to do far better than that. Cities susceptible to these storms all need tornado warning systems and storm shelters. Since damage seems to be higher in mobile home parks these all need storm shelters. The cost of installing all this would not be that great and the savings in human lives would most likely be considerable.

Both urban and rural highways need constant maintenance. While constant construction does go on in some areas this does not occur. Also many highways are old, built decades ago, containing numerous pot holes and insufficient lanes. The population using them has increased considerably and improvements, if any, have been minimal. It’s time for a revamping of our nation’s roads and highways. We need a modern transportation system to supply the needs of today’s citizenry and to allow for rapid and easy movement of goods and people.

Public schools, both primary and secondary, in many cases were built during the first half of the 20th Century. They need to be refurbished or in some cases rebuilt so they can function as modern educational institutions. State colleges and universities also, in many cases, are dated structures. They need to be enlarged and modernized in order to serve the needs of today’s students.

Municipal, state, and federal buildings, proper and adequately built aqueducts to carry clean water to all the urban and rural areas of the country are needed. Most bridges in the country are over fifty years old. Some are in danger of collapsing; a section of one did a few years ago dropping several automobiles into the river. Luckily no one died.

At the rate we’re going most industrial nations will bypass the United States in their infrastructures.  Do we go forward with modernization or patch after each disaster?

 

 

 

 

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 #73 – The Problem of the Distribution of the National Income

Manhattan Panoramic View, NYC

One of the greatest misnomers to come out of the 2008 Real Estate Debacle was that the CEOs’ large compensation packages and the massive spending by the general public were closely interrelated.  The spending affected the extent of the salaries but it was separate from them.  The bundling of mortgages caused the Real Estate Bubble.  Going back to the last two decades of the 20th Century many individuals and families began to add their home equity to their incomes in order to enjoy all the comforts possible.  With the continual rise of real estate values over a thirty plus year period this seemed infinitely possible.  With the ever-growing demand for major and minor items by the general property owning public the country was in a period of immense profit for all types of retail concerns.  People bought cars, boats, bigger houses in better neighborhoods.  They frequented restaurants, bought new clothing, TVs, almost anything.  As corporate profits increased CEOs demanded and got greater and greater bonuses and overall compensation packages.  There was full employment; banks were earning greater and greater profits.  The country, the world was living in a sort of fairyland that would presumably go on forever.

And then, at the tail end of 2008, the bubble burst and hard reality set in.  Property values dropped, in many cases, well over fifty percent.  Demand for products fell and there was massive unemployment.  People could not meet their bills.  Many owed far more on their homes than they were worth.  Everyone, including the CEOs faced disaster.  Then the government jumped in with $900 billion worth of loans and saved both the banking industry and the country from a massive depression.

The CEOs were very frustrated.  They had gotten these phenomenal salaries and now they were gone or practically gone.  For some bonuses had been cut in half.  The CEO of Bank of America was very upset particularly after President Obama had insisted that no bailout money be used to pay bonuses.

In addition corporate profits dropped significantly at the end of 2008.  The country was in unbelievable economic pain.  By 2010 the economy was expanding again.  This continued through 2011, 2012, 2013, and 2014.  During 2011 Congress slowed growth with the Debt Ceiling crises.  The next year the fiscal cliff held the economy hostage, again reducing job growth.  By 2013 many workers had left the labor force, because of constant inability to find almost any kind of work, supposedly reducing the unemployment rate.

In 2008, with the crash, the Gross Domestic Product was $14,720.3 trillion.  The GDP per capita was $48,951.  The following year it dropped to $14,417.9 trillion with the per capita level at $47,041.  In 2010 it slightly exceeded the 2008 level and in 2011 it was $15,533.8 trillion with the per capita rate at $48,282.  By 2012 the country was in the $16 trillion level and by 2914 it has reached $17 trillion with the per capita level also rising.

The unemployment level increased significantly from the end of 2008 on rising to 9.9% of the workforce and then gradually dropping by 2013 to about 6.7%.  Keep in mind that this percentage does not include those that are underemployed or who have given up looking for work.  We can only guess at these numbers.

Of course the irony of all this is the level of the per capita income which would give a family of four if it existed in real life a little under two hundred thousand dollars a year.  What exists is a wide distribution of incomes with the bulk of the $17 trillion going to a very small percentage of the population.  For example a person working at Wal-Mart for $7.25 an hour with a family of four would have to apply for food stamps and other government aid in order to survive while the CEO of any giant corporation would be earning about a million dollars a month or more.  If I remember correctly the CEO of Hewlett Packard received about $15 million in 2013.  The general compensation for CEOs could be more or slightly less.

Interestingly in cases like that of Wal-Mart it is the taxpayer, who generally is earning a lot less than the per capita level of income, that pick up the difference needed for the Wal-Mart worker’s family to survive through the various entitlement programs the federal and state governments provide.

Wages, salaries, compensation packages vary greatly.  Only a very small percentage would reach the actual level of the per capita income.  And a much smaller percentage would be above it.  And still a much smaller number, perhaps a hand-full, would have their income in the millions of dollars.  There are even a few in the billion dollar category.

President Franklin Delano Roosevelt, during the Great Depression and again during World War II, stated that a person could only spend so much during a year or during a lifetime.  There was no need for them to earn that much more.  He wanted to tax excess profits.  Congress in neither case would go completely along with him.

Currently the tax system is set up so that anyone earning over $140,000 a year pays a fixed rate on everything earned over this amount.  The more he earns over this the smaller is the percentage of his income that he pays in taxes.  This means that the average family earning under $140,000 a year, which is most of us, pays a greater percentage of their income in federal taxes.  In essence the rich can store endless barrels of money for countless future generations or use some of the money to buy elections while everyone else can do without and just generally survive, with some people not even really surviving.  In the case of corporate subsidies, this money can be used for lobbying and political campaigns to buy influence in the federal and state governments even though it is indirectly paid by the taxpayer.

Obviously there is something wrong with this system.  Something in the way of reform has to be brought about or eventually tragedy will occur.  People will accept a lot of inequities but eventually these inequities become so blatant and their misery so great that they will violently be objected to.

The rich seemingly have endless amounts of money.  They are using some of it to influence the general public in elections.  In essence they are buying influence in government which is being used for their own benefits.

 

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The Weiner Component #67 – Monetary & Fiscal Policy & The National Debt

During the late 18th Century, when the United States first came into existence and for the majority of the 19th Century, the U.S. Government followed a policy of laissez faire; with the exception of import duties, used to run the government, they kept hands off all economic activity within the nation.  Toward the end of the 19th Century, with the growth of cities, rapid industrialization and the emergence of monopolies, society became too complicated to be left alone by the Federal Government.  State and   National regulations began to come about attempting to control the economic ravages brought about by the moneyed classes which had and continued to lead to miserable conditions for the masses, and included both recessions and depressions.

In addition to assorted laws regulating conditions with the society in 1913 the Federal Government created the Federal Reserve as a semi-autonomous agency whose mission was to control the National Cash Flow, the amount of money available throughout the economy.  They were to add or subtract cash as needed to keep economic growth regular and avoid rapid upturns or downturns in the economy.

This became one of the major tools in attempting to control economic conditions within the nation.  Were they always successful in what they did?  The answer is obviously, No.  Witness the Great Depression of 1929 and the Real Estate Debacle of 2008.

The other major tool which the Federal Government had/has was Fiscal Policy.  This is the power to spend money by passing a law.  Congress, with the signature of the President can appropriate money for any purpose it deems necessary.  This was done during the Great Depression and enabled Roosevelt to propagate his New Deal and later to pay for World War II.  Congress, at the time, spent much more money than it took in in taxes.  Eisenhower did the same thing in the 1950s, both to build a national highway system across the United States and to fight the Korean War (police action).  This use of fiscal policy has been used over the years of our history to do numerous things, generally for the benefit of the entire country.

During the Great Depression the economist, John Maynard Keynes, promulgated what is called Keynesian Economics, which stated that during periods of economic contraction the government has to spend more money than it takes in in taxes and during periods of expansion or growth it can balance that by taking in more money than it spends.  He is considered the progenitor of Macroeconomics.

While this is not always true, generally because of war or police actions, still, historically, the economy has grown to the point of decreasing the percentage of debt in relation to the Gross Domestic Product, the amount of wealth produced in one fiscal year.  The National Debt has never been a problem in our history for future generations.

It should be noted that the Debt reached its astronomical level beginning with the Administration of Ronald Reagan and his Star Wars policy.  It went from 848 billion in 1981 to 2.698 trillion by 1989, a 218% increase.  Then it continued to zoom with George H.W. Bush and his Desert Storm operation increasing another 55% to 4.188 trillion.  It increased another 37% with Bill Clinton and was actually reduced during his eighth year in office.  The Nation Debt took off like a high flying rocket with the Administration of George W Bush and his policy of two wars, one in Afghanistan and the other in Iraq, while at the same time he lowered taxes.  It rose 86% to 5.778 trillion.  With Barak Obama the amount of the Debt initially increased but by the end of 2013 reached a surplus.  The National Debt grew voluminously under Republican presidents and tended to decrease under Democratic Presidents after rising somewhat.

The National Debt is currently at about 17.3 trillion dollars.  Is this too high?  Is this amount endangering the country in any way?

It should be noted that the nation began in debt.  During the Revolutionary War the Continental Congress issued paper money, called Continentals, to pay its debts.  The value of this money varied depending on how well we were doing in the war at the time; it never commanded full face value.  The British paid for everything in gold. After the war the new government, under the first Secretary of the Treasury, Alexander Hamilton, redeemed this paper for full face value.  There had been speculation with the Continentals and a number of people, not the original possessors of the funds, made a fortune on this.  They had bought up the currency for pennies on the dollar. (See Charles Beard, The Economic Interpretation of the Constitution.)

Jefferson hated the debt and tried to get rid of it, but under his presidency the United States got involved in an undeclared war with the Barbary Pirates, the North African nations along the Mediterranean.  Other presidents had similar occurrences, facing military crises not of their making.  There have been a few short periods over our history when there was no National Debt; but generally the United States has always had one.  The question in terms of today is: Does the current debt endanger the welfare of the nation?

The National Debt consists of two parts, one public and one private.  The public part of the debt is owned in various ways by the Federal Government, the private section is money borrowed for short to long periods of time by individuals, foreign nations, and other entities.

The Federal Government admits to owning, through various government agencies like Social Security and Medicare at least 40% of its own debt.  Social Security, for example, holds well over 1 ½ trillion dollars in debt paper.  This was several years ago.  Today, I would estimate, the Federal Government holds 60 to 70% of its own debt.  I would be inclined to quote the higher figure.

During the last quarter of 2013 the Federal Government collected more in taxes than it spent.  There was a surplus.  This would indicated that the GDP has grown to a point where it is or can handle the National Debt and in all probability very gradually decrease it.

It should also be noted that since 2011 when the Republican majority first took over the House of Representatives there has been no fiscal policy.  If anything Congress has reduced government spending to the point of shrinking the government and entitlement spending.  This process together with the shrinkage of State governments because of decreased taxes has phenomenally decreased government employment on all levels and exacerbated the 2008 Recession.  What has saved the country from another Great Depression has been imaginative Monetary Policy.

Had there been Fiscal Policy since 2011 unemployment would have dropped to about 3% or less and the Gross Domestic Product would have been far higher than it is.  Virtually everyone in the country would have been better off.

With Republican help we are doing a good job of holding back economic growth and not bringing the United States solidly into the 21st Century.

 

 

 

 

 

The Weiner Component #66 – Macroeconomics & the GDP

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

The western front of the United States Capitol...

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

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

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

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

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

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

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

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

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

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

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

 


 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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The Weiner Component #57A – The Rapacious Banks (Part 1 of 5)

Photo of Bank of America ATM Machine by Brian ...

Perhaps the most predatory group of institutions within the United States are the major banking houses.  They are rapacious, grasping, taking, plundering and in many cases outright dishonest.  These financial institutions place themselves between the general public and all the goods and services they need to live, using the money put into the banks by businesses and the general public to game the public and force up the prices of all the goods and services they need.  When caught in illegal acts by the government these banks pay large fines that represent a small percentage of what they have made from these activities.

We have in earlier articles discussed the Great Depression of 1929 and the Real Estate Debacle of 2008.  To review briefly prior to 1929 the banks created hundreds of billions of dollars through the use of ten percent margin stock purchases, that continually kept inflating the stock market over a period of many years, until through exaggerated excess it crashed and over a relatively short period of time the overall value of all stocks dropped from about 86 billion to about 19 billion dollars, and the entire economy collapsed, reaching about 25% unemployment.  (Keep in mind that gold, which was money at the time, was worth $16 an ounce in 1929.)

The major banks that had been bundling mortgages for decades also brought about the Real Estate Debacle of 2008, selling the bundles, and reinvesting the original funds into new mortgages, which were subsequently bundled and sold again.  This process continued infinitely creating multi-trillions of dollars in new revenue, a good percentage of which went to the banks as profits and fees.  The process continued until the bubble burst toward the end of 2008.  If not for government bailouts the entire economy would have collapsed.  With the bailouts unemployment hit about 12%.  Here in late 2013 we still have only partial recovery with both the Republicans in Congress and the Republican dominated states holding it back.  Unemployment is currently hovering at about 7%.

Since the bank bailouts these institutions have looked for and found innumerable other ways to up their profits and compensation packages.  None of these methods have had anything to do with serving the general public, whose insured money they use for their machinations.

As a footnote, consider that if the banks had been allowed to fail in 2008 the Federal Government through the Federal Insurance Deposit Corporation (FDIC) would have been responsible for paying all deposits in these banks up to $250,000, a quarter of a million dollars.  The money the government spent on the bailout was probably less than this amount would have been and it has since been paid back with interest.

Banking foreclosures from 2009 on, after the Real Estate Bubble burst, and housing prices dropping rapidly and significantly caused a large number of homeowners to be far underwater on the amount of money they owed on their property.  The banks had encouraged them to use their homes as bank accounts and continually refinance, even toward the end refinancing in many cases up to 125 percent of the appraised value of the property.

As we’ve seen the banks did not hold the mortgages on a large number of these properties.  The paper had been divided into fractional pieces and become part of innumerable hedge funds.  The banks had formerly issued and sold the paper but still serviced these loans.  Non-ownership of these mortgages did not stop many of the large banking houses from foreclosing on these properties they did not own.  Any money they made on the foreclosure was pure profit.

The banks computers generated the papers they needed for foreclosures and they used robo-signers to foreclose on these properties.  Interestingly for a while the courts considered the bank’s papers and efforts sacrosanct, even to the point of holding many attorneys, who represented homeowners, in contempt for questioning bank documents.  Eventually the evidence came out about the false documentation and the robo-signing of multi-thousands of these foreclosures.  At this point virtually all the major banking houses stopped foreclosing.  The banks were fined in the millions of dollars but these amounts were a fraction of what they had made from their illegal activities.  No one in the banking industry went to jail for any of the illegal activities they committed.  Eventually the Federal Government began buying up the mortgage paper.

Under the Obama Administration the main executives of the banks that accepted bailout money could not receive multi-million dollar compensation packages.  The CEO from the Bank of America complained about this and stated that the B of A would pay off its loan as quickly as possible so they could resume proper pay packages.

After the bailout the banks became very cautious with their funds.  It became difficult for ordinary consumers to receive loans.  In order to purchase a house they had to have a significant down payment.  Small business entrepreneurs found it impossible to borrow money for almost any purpose.  The banks had essentially stopped serving the public; they were looking for ways to make large profits.  One of the areas they moved into was the futures market.

Almost all commodities, be they necessary food items such as beef or wheat and corn, lumber, financial currencies, oil, or electricity, are sold on the Futures Exchange.  The futures market is a central financial exchange where banks or individuals can buy specific quantities of a commodity or financial instrumens at a specified price with delivery set at a specified time in the future.

Since the Real Estate Debacle of 2008 the large banks in the United States have gone into this in a large way.  J. P. Morgan Chase stated, when they were accused of lying to a U.S. Government investigative committee, that the eight or ten million dollars a month that they would lose from selling electricity in California was insignificant.  Someone from Goldman Sacs said about a year or so ago that they made forty-nine dollars from every barrel of oil sold in the United States.  And this does not include beef, pork, or any other products sold on the future markets.  Somehow I get a rather sick feeling when I think that the major banks are using the money we deposit in them to squeeze dollars out of us for all the products we need to live.

Toward the end of 2013 the city of Los Angeles accused banking giants Wells Fargo & Co, and Citigroup Inc. of a “continuous pattern and practice” of mortgage discrimination that led to a wave of foreclosures, reduced property tax revenue, and increased costs for city services.  The two lawsuits accused both banks of engaging in predatory lending and saddling minorities with loans they couldn’t afford and resulted in a high percentage of foreclosures, The suits cited reports for low income and minority neighborhoods that claimed the mortgage crisis resulted in more than 200,000 foreclosures in LA from 2008 through 2012 and depressed property values, leading to an estimated loss of 48 million dollars in tax revenue for the city.  The suit alleges that the banks predatory lending started in 2004 and still continues.  What will happen here should be very interesting.

Also a federal judge is currently considering a possible 165.8 million dollar penalty against Bank of America Corporation after a jury found its Countrywide Unit fold defective loans to Fannie Mae and Freddie Mac.  U.S. lawyers requested that the bank pay 863.8 million dollars, which is as much as the government agencies lost in the loans.

The banks do not serve us instead they use us, squeezing every possible dime they can out of the public and the Federal Government.

 

 

 

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The Weiner Component #53 – My Book: Economics in the 21st Century

Forex Money for Exchange in Currency Bank

If you have enjoyed and/or found my articles useful there is a book that I have written that deals with all these subjects in much greater detail and depth.  It’s called Economics in the 21st Century.  The work was published in 2012 in Kindle and can be downloaded on either a Kindle or any computer for a small fee.  You go to Amazon.com, scroll to Kindle and follow the instructions for locating and downloading the book.

The work begins by examining the Real Estate Fiasco of 2008, its origins in the 1970s, its successful growth and insane collapse toward the end of 2008, thirty-eight years later.  It provides an analysis of what brought about the 2008 economic boom and crash, the results and scenarios for change.

The book looks at popular but misguided economic (values) beliefs and common misperceptions that arise from them.  It shows how Microeconomics – the so-called common sense economics – that deals with business functionality, local and state taxes, and household budgets is now perversely interpreted and used as the basis for entire societies to operate; that is the governments of the United States and Europe.  It explores how Macroeconomics, the way that nations should operate, has been overlooked and usually ignored.  The fact that governments largely control their money supply (the amount of money in circulation) because they can print currency as needed.  This look at economics from an historical perspective provides a broader and deeper comprehension of today’s crisis and gives possible scenarios for the future of this century.

The study examines the current economic ongoing recession in the United States, minutely investigates the 2008 Real Estate Debacle from its beginnings, tracing it from the 1970s to the present.  The work concludes that the monetary increases over the years were necessary for a growing economy but utilized faulty means for the needed monetary increases.

The book’s underlying premise is that the prosperity of the nation is based upon the amount of money in circulation and its distribution among the general population.  The bundling and sale of mortgages from the 1970s on massively increased the amount of currency in circulation without causing any real inflation.  The Real Estate Debacle at the end of 2008 significantly reduced that amount.  People had been using their homes as bank accounts, many constantly refinancing them.  With the sudden decrease in property values the country fell into a recession that could have easily become a depression far worse than 1929.  We should note that the bottom twenty percent of the population did not share in this prosperity.  They were renters and had no houses to use as bank accounts.

In 2008, when Barak Obama was elected President of the United States, he got in on a campaign that stressed “Change.”  But the economy had been so damaged by prior Administrations that most of the first two years were spent in recovery and in passing the Affordable Health Care Bill.  In the 2010 Midterm Election the Republicans were able to take control of a number of states.  Because it was a census year they gerrymandered those states in their favor.  Having also taken control of the House of Representatives they were able to maintain that control for two more years, even though the popular vote favored the Democrats by 1.4 million votes.  From 2011 on they passed no legislation that would favor any additional employment.  Actually they further exacerbated the problem of unemployment in the nation by shrinking necessary government employment and further limiting the money supply in circulation.  What has kept this country economically afloat has been the creative Monetary Policy of the Federal Reserve, adding 85 billion dollars to the economy every single month.  This has countered the restrictive actions of Congress but has not been enough to bring about full recovery.  We still have slightly over seven percent unemployment.

Historically the work examines other economic crises and their causes, particularly the Great Depression of 1929.  It shows how the National Cash Flow, the amount of money in circulation in the nation determines the level of prosperity or hardship in the country.  International trade and money are handled from totally different viewpoints than those traditionally taught and/or widely believed.  The reality of the National Debt is questioned and explored in terms of private and public debt.  Public Debt is held directly by the Federal Government and its agencies.  Private Debt is that held by outside entities such as individuals, companies, foreign nations such as China and Japan.

Can the Federal Government, which owns fifty percent or more of its own debt, owe itself?  The contradictions in our economic system are examined.

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The Weiner Component #40 – The Water/Money Pump

Franklin D. Roosevelt

Cover of Franklin D. Roosevelt

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The title page to Keynes' General Theory.

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

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