The Weiner Component #143 – President Obama & the Republicans

With his family by his side, Barack Obama is s...

With his family by his side, Barack Obama is sworn in as the 44th president of the United States by Chief Justice of the United States John G. Roberts, Jr. in Washington, D.C., Jan. 20, 2009. More than 5,000 men and women in uniform are providing military ceremonial support to the presidential inauguration, a tradition dating back to George Washington’s 1789 inauguration. VIRIN: 090120-F-3961R-919 (Photo credit: Wikipedia)

During the Republican Presidential Debates, which are being held nearly a year before the next Presidential Election, one of the constantly recurring themes that a number of the Republican Presidential candidates continually bring up is that the current President, Barack Obama, is a failed president, not capable of running the country.  Of course if he’s that bad one would expect a movement to impeach him.  But I haven’t heard of that happening.  So what we have is an interpretation by the prospective Republican candidates who of late have tied Hillary Rodham Clinton to President Obama as a failed Secretary of State.  I suppose the more they denounce him the greater they feel they themselves are.

 

Also after denouncing President Obama and Clinton the Republican candidates announce generally what they will do, the results from their handling of specific problems.  How they will solve military issues by sending in American troops, create a no-fly zone over Syria, create increased employment by getting rid of the Environmental Protection Agency (EPA).  But more pollution will not necessarily produce more jobs.  It will successfully, however, shorten a number of lives.  It must be wonderful to be that sure of oneself.

 

In essence most of the potential candidates are blowing in the wind!  Most, if not all, that they say they will do requires either an act of Congress or an Amendment to the Constitution.  According to what Donald Trump says as to what he will do would need a new document of government to drastically increase the powers of the president and limit Congress’ powers.  In the case of Carley Fiona I keep remembering that after she became CEO of Hewlett Packard the stock dropped to half its original value and she argued that she was a positive force even though she lied to her employees to get them to reduce their wages and thus reduce company costs.  She left the company or was fired by the Board of Directors not too long after with a buy-out package worth about 15 million dollars.  She has also lied or fabricated in her public announcements as a Presidential candidate.  Ted Cruz, it seems to me from much of what he has said, would like to become leader or fuhrer of the United States rather than just President.  He seems to have some of the elements of the late Senator Joseph McCarthy.

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I have often wondered what would have happened if in 2008 Senator John McCain had become President of the United States.  First off, he would have inherited a full-fledged Great Recession or potential Great Depression from former President, George W. Bush.  While Bush had temporarily initially bailed out many of the banks at the end of his presidency the question that arises is would McCain have continued the process?  According to the current Republican Presidential candidates no business is too big to fail.  The indication is that McCain would probably not have bailed out the banks.  The result would have been that the major banks in the United States would have gone under.  The movement of money through the economy would have slowed to a trickle and the country would have gone into a major depression that would make the Great Depression of 1929, which did not end until 1939 with the outbreak of World War II, look like a mild recession.  We would still today be feeling its strong negative effects.

 

In addition since the FDIC (Federal Deposit Insurance Corporation) insured every bank account up to a half million dollars the Federal Government would have had to pay out all the accounts of the bankrupt banks or take over and continue to operate those banks.  Either solution would have disrupted the dollar internationally and brought about major depressions in all the major industrial nations.

 

Unemployment in most if not all of these nations would have dropped to over 75%.  It was only 50% at the depth of the Great Depression.

 

In addition there would have been no bail out of the automobile industry and all the American car producing companies would have gone under in the U.S.  Mitt Romney distinctly made the point in 2012 when he ran for the Presidency, as the Republican candidate, that the auto companies should have been allowed to have gone through bankruptcy.  His point there is that in a bankruptcy the court generally declares the stock worthless.  The judge uses the value of the stock to pay off the company’s debt.  The same management that initially made the decisions that caused the bankruptcy stays in control of the company.

 

Way to go Mitt!  Your group stays in control of the company and the stockholders who trusted your leadership all get screwed.  It sounds very much like what Donald Trump did with his casinos in New Jersey.

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Barak Obama, in 2008, ran for President on a platform of change.  And it was indeed time for a change after the disasters brought about by the George Bush Jr. administration.  Presumably Bush had declared war against Iraq because they had secreted away weapons of mass destruction.  Actually he had the military invade the country because its leader, Saddam Hussein, had attempted to have his father, former President Bush Sr., assassinated and he was also acting as Sheriff of the Middle East, bringing American Democracy to Iraq.  The CIA was amazed when they heard his reasons for the act.  The United Nations, at the time, was legally searching Iraq for weapons of mass destruction.  Bush ended that with the U.S. invasion.

 

President Obama inherited a country ready to slip into total disaster.  Employment was rapidly dropping.  Property values were falling like a major landslide.  While he had been elected to bring about change his immediate problem was literally keeping the society functional.  He had to return to normality before he could inaugurate any real changes.  The fact that he also inaugurated Universal Health Care at this time is a demonstration of his level of competence.

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In periods of economic recession the government has two major weapons to fight the economic down-flow.  One is Monetary Policy which is controlled by the Federal Reserve (FED).  Here the FED can increase the amount and movement of currency in the general society by lowering the interest rates it charges banks.  This, in turn, forces the banks to lower their interest rates on the monies they lend out.  The effect of this is to loosen up the flow of currency through the economy, making the cost of borrowing cheaper, and thus encouraging growth or economic expansion.  Will this always happen?  The answer is generally; there are occasionally other variables which can hinder growth.

 

Under normal conditions there will be economic expansion and the GDP (Gross Domestic Product) would increase helping to end or counter-act the recession.  Going along with this is an increase in employment.

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The FED, which has twelve distinct branches throughout the fifty states, constantly monitors the entire economy.  It’s as though it has a thermometer throughout the nation and can interpret what’s happening in every part of the country.  Its main function is to keep the economy as healthy as possible.

 

Another tool the FED has is its control of how much money banks can led out.  This amount can be raised or lowered.  Every commercial bank or credit union has to keep a small percentage of every loan it makes.  The average is about 5% of all the monies it lends out.  For every $100.00 the bank lends out it has to keep $5.00 in cash.  If that is deposited in the bank then it has to keep 5% of that and so on until it has a $100.00 in cash.  By that time the bank has lent out $1,000.  If this amount is raised by the FED to 10% it then lowers the amount that can be lent out by 50%.  If it is lowered to 2 ½ % it increases the amount to $2,000.00 for every hundred dollars deposited into the bank.

 

The FED also controls the money flow in the U.S. by using the National Debt as a tool, buying and selling government bonds.  When the FED buys back government bonds and does not issue as much in new bonds it can increase the amount of money in circulation.  Doing the reverse of this decreases the amount of money available.  It can also, as it did after 2011, just issue currency to the National Cash Flow.  All this would be done with the concurrence of the President.  During Jimmy Carter’s four year administration he had the FED reverse its policy because of its adverse effect upon a segment of the population.

 

All of these are powerful tools for regulating the economy.  But in some instances they are not enough to bring about the needed positive change.  Such an instance was the 2008 Real Estate Crash.  At that time what was also needed was the other major Federal Government weapon that could help regulate the economy and that was Fiscal Policy.  Fiscal Policy would be one or more laws authorizing government spending passed by Congress and signed by the President.

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From 2009 through 2010, during President Obama’s first two years in office, he worked upon limiting the effects of the Great Recession.  This was done through an intensive use of fiscal policy with a Democratic Congress, continuing the bank bailouts and also bailing out the American automobile industry, among numerous other things.  During this period the Affordable Health Care Bill was passed.  This was the major visible change; the others, keeping the economy from crashing, were mainly invisible.  To many people who voted for him in 2008, the changes he had promised did not come about.

 

In the year 2010 the Midterm Election was held.  A large number of people who had supported President Obama in the Election of 2008 apparently were disgusted with him for not bringing about enough visible change in the society and stayed at home, not voting in the election; this resulted in the Republicans gaining control of the House of Representatives.

 

2010 was a census year in which the population of the country was counted so that the seats in the House of Representatives which are fixed in number could be properly reapportioned.  That year Republicans also won control of a number of states.  Those states and other Republican controlled states were then gerrymandered with new Voting Districts that would give Republicans an advantage in the future elections.

 

The new House of Representatives met as a caucus and took an oath not to cooperate with President Obama in anything.  The former minority Party in the House of Representatives, where the Democrats had had a majority, had taken the same oath two years earlier.  The Republicans had wanted to make him a one term president.  The new House of Representatives would not pass any Fiscal Policy laws.  When presented with a plan by President Obama they totally ignored his recommendations.  In fact they all opposed Obamacare and swore to rescind the Affordable Health Care law and passed such bills over 50 times from 2011 to 2014.  All these bills were ignored by the Senate.

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Because of the nature of what President Obama and his administration were doing there was very little publicity given to most of the changes they were bringing about, keeping the country from falling into a major depression and slowly bringing about recovery from the Housing Crash.  Visibly the President and the Democratic Congress seemed to be doing very little.  The one thing that emerged from that two year period was the Affordable Health Care Law, which was loudly denounced by the Republicans and passed strictly on a political party basis.  All Republicans voting against it and all Democrats, who had the majority in both Houses, voting for it.

 

As a note of irony the Affordable Health Care Bill (Obamacare) was modeled upon a Republican plan developed by a Republican Think Tank and originally applied in the state of Massachusetts by its then governor, Mitt Romney.  The plan, rather than have a single insurer, the Federal Government, relied on private enterprise, the many insurance companies across the country, in order to be put into operation.  It was a means of increasing the amount of business that the insurance companies did with some patient protective limitations.

 

To get Republican support on this bill President Obama and the Democrats had bent backwards to give the Republicans something they could easily support.  The Republicans have continued up until the present to oppose and denounce this law.  Ted Cruz has sworn to end this program when he becomes President.  The term Obamacare was originally stated as a put-down.

 

With the 2011 Midterm Election the Republicans were able to achieve a majority in the House of Representatives.  The voter turnout was very low.  A number of people who had voted for Obama in 2008, particularly among the Hispanics stayed at home and didn’t bother voting.  Thereafter virtually nothing President Obama supported was passed in the House of Representatives.

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One of the major problems within the United States has to do with its infrastructure.  The National Highway System was built in the 1950s during the Eisenhower administration.  Most of the ports are too small to allow the new giant container ships to use them.  Many if not most of the bridges built in the U.S. were done in the early part of the 20th Century if not earlier.  The majority of airports are inadequate in dealing with all the air traffic.  The electric grid throughout the United States is totally dated and in winter parts of it have stopped functioning by freezing up and parts of the country has lost electric power.  Most of the utility companies don’t have the resources to fix this problem, leaving it to the Federal Government.  These are just some of the infrastructure problems, there are many more.  Ultimately most of these come down to the Federal Government as the only source that has the resources to really upgrade the nation.

 

Most of these repairs would in a relatively short period of time pay for themselves by increasing the GDP and significantly increase the tax base on all levels of government.  With one exception, and that is renewing a functioning plan that already existed, both the House and the Senate have ignored these problems.  Ultimately a total upgrade would cost trillions of dollars.  And at some point it will have to be begun and ultimately done.

 

President Obama presented Congress with a detailed plan that would at the same time have begun work on the infrastructure and ended all the effects of the 2008 Real Estate Crash by totally ending unemployment in the country.  The plan would have reduced unemployment to about 2% which is the rate of people changing jobs.

 

The House of Representatives totally ignored the plan and did not even consider it.  To them spending government money they didn’t have to would be anathema; their basic problem was that they could only understand the present which meant that they would be spending additional funds.  The fact that the nation would get that money back with interest in the next decade or so was out of their realm of comprehension.

 

In fact what the Republicans have done in passing legislation in the House of Representatives and in the Senate has been to increase unemployment in the United States.  Using economy or reduced government spending as their excuse they have forced through bills that significantly reduce government spending.  Their final and most important cut was Sequestration which was passed when they could get no agreement with the Democrats in Congress to cut anything else.  This law automatically cuts by a specific percentage every year from just about every program unless a law is pass to stop a section of it from happening.

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The President requires the “advice and consent” of the Senate on most of his appointments of officials to government jobs; particularly supervisory positions such as judges, heads of government departments, etc.  There are more open judgeships now or unappointed heads of departments that at any other time in the history of the United States.

 

An individual that comes to mind is someone that both the Democrats and Republicans approve of whose expertise deals with a phase of banking wherein he can trace the movement of currency through terrorist organizations like ISIS and interrupt that movement.  The current Senate, that has a slight Republican majority, has refused to bring his name up for a vote.  Apparently they don’t want President Obama to have any successes regardless of the cost to the country.

 

However, even though the media just mentioned a small number of these incidents, U.S. explosive drones have killed most of al-Qaeda leaders as was Osama bin Laden in a military raid in Pakistan. They are no longer the military terrorist force they were when they blew up the Twin Towers during the Bush Republican administration.

 

President Obama has just signed a 1.15 billion dollar compromise with the Republican Congress that will keep the Federal Government going and achieve a number of Democratic programs.  It was a compromise bill and will also achieve a number of Republican goals.

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If we examine the achievements of the last dozen or so Presidents, Barak Obama emerges as one of our top leaders.  This is amazing in the respect that for the last five of his eight years in office Congress has consistently worked to keep him from achieving anything.  He emerges as a man among men who has achieved much regardless of the limitations continually set for him by the Republicans in Congress.

 

During most of his administration he has bent backwards to get the cooperation of the Republicans in Congress.  It hasn’t happened.  I suspect that by this time he had had it and will only accept positive results from Congress as he did with the 1.15 trillion dollar budget compromise.

 

In this bill the Republicans have added significantly to the National Debt, a principle they supposedly oppose.  They spent almost as much in 2014 with their last minute bill then to finance the Federal Government through 2015.  They achieved a number of their objectives but they did not defund Planned Parenthood or keep Syrians from immigrating to the United States.  They did however keep Planned Parenthood from getting an increase in funding from the government.

 

Personally I am glad that Barak Obama is President of the United States.  I would hate to think of what might have happened if John McCain or Mitt Romney had won.  President Obama has carried the United States through a very difficult time in our history.

The Weiner Component #122 – Jobs: A Successful United States

n the United States today we have about 5.5% known unemployment plus, at least, if not more than 5 percent hidden unemployment. That is much too much in a country as wealthy as the U.S.  The known unemployed, register and are actively looking for work; the unknown unemployed have given up, feeling ultimate defeat they are no longer looking for jobs.

 

The existence of both these groups is a sad comment upon this country.  For a nation as rich as ours, with all the needs it has for constantly improved infrastructure there is no excuse for this situation.  We are a modern nation that is still living largely in the last century when most of our infrastructure was created.  In a manner of speaking we are like the young man who has just acquired his first automobile and expects it to last forever without any real care or maintenance.

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In late 2008, under a Republican Administration, after thirty some years of at first gradual and then accelerated economic growth in the Housing Market, the Real Estate Bubble burst and the entire economy of the United States was about to crash, beginning with the major banking houses within the country.  The Treasury Department, under a Republican Administration, extended hundreds of billions of dollars in loans to these banks to keep them solvent and functioning.

In Europe and Asia, on a smaller scale, the nations there underwent the same crisis with similar solutions.  Some of the nations of Europe like Greece and Spain, had lived richer than others on this new wealth that the banking houses had created and were far more in the red than others countries.  This was particularly true in the Eurozone.  Some of those nations underwent extreme austerity measures in order to be bailed out by the European Central Bank or the other nations in the Eurozone.  This was done in 2009. They are still in extreme economic troubles.

In the United States we went from at least 12% unemployment in 2009 to 5.5% by 2015. What saved the country from falling into a deep depression, deeper than that of 1929, was the Federal Government bailouts of the banks and the auto industries, plus innovative use of Monetary Policy by the Obama Administration.

Unemployment today, in early 2015, is still a problem in the U.S., particularly for the young and unskilled.  Another problem tends to be rates of pay.  The Federal minimum wage in the U.S. is $7.25 per hour before social security, assorted taxes, and unemployment insurance are taken out.  While many states have a higher minimum wage the Republicans in Congress refuse to raise the National minimum wage.  It has existed for several years now while prices have gradually increased.

What’s interesting or odd here is that Scott Walker, the governor of Wisconsin, is attempting to gain the Republican presidential nomination on a platform of “right to work” laws.  These laws mean that no business can have a closed union shop; no worker has to join a union where ever he works.  The object of these laws is to break the power of the unions across the U.S. and he probably would like to get rid of the minimum wage, as was suggested during the Reagan Administration.

Henry Ford, in his early factories, discovered or realized that if you pay your workers enough they will buy the product they are producing.  The same premise holds true today: if workers earn more they will spend more.  In essence increased spending equals increased production, and consequently more profit for everybody. Growing productivity creates jobs and raises the standards of living within the country.  And conversely the lower the national income distribution the lower the productivity and the higher the unemployment.

No one can buy goods and services with money they don’t have.  Somehow the Republican understanding of the situation throughout the country is backward; their goal, regardless of what they say or believe, is actually to reduce productivity throughout the nation and increase unemployment.  This they have very effectively done since 2011 when they achieved dominance in the House of Representatives.

If we look at their current goal of keeping the minimum wage at $7.25 an hour.  Working at that rate for 40 hours a week allows an individual to earn $290.00 a week, which works out to about $1,160 a month, and $15,080.00 for a 52 week year before assorted government withholdings.  This puts this person living alone slightly above the poverty line, which is $12,300 for one adult, $15,853 for two adults is slightly below the poverty line, $19,055 for two adults and one child is well below the poverty line, and $24,008 for two adults and two children.  If that amount is doubled by both adults working full time at that rate of pay then their condition improves but who will take care of the child or children.  It’s a sad comment upon a society that will not pay a goodly percentage of its workers enough to not live in poverty or to live just above the poverty level when they are fully employed.  We are a nation with a good percentage of employed being working poor.

There is an interesting note of irony here.  The working poor person earning the $7.25 an hour is almost below the legal poverty level.  In most states this person qualifies for food stamps and government medical aid, as well as other programs.  All these aid programs are paid for by tax dollars.  Ultimately, then, the tax payers in the country are subsidizing those businesses or industries that pay the minimum legal wage.  Consequently a good percentage of these companies’ profits are being paid indirectly by the American taxpayer.

In the April 16, 2015 issue of the L.A. Times there was an article dealing with this subject which cited a UC Berkeley Center for Labor Research study.  They reported that 56% of all state and public assistance in the United States now goes to working families.  That adds up to 153 billion a year, including 25 billion in state funding.  Individually California spends 3.7 billion, New York 3.3 billion, and Texas 2 billion on public assistance programs.  These go to, among others, fast food employees, child and home care workers, and part-time college faculty.

To quote the L.A. Times: “Last week the Colorado Fiscal Institute said 600,000 Colorado employees, or a quarter of the state’s working force earned less than $12 an hour. As a result taxpayers ante up about 304 million a year to cover their healthcare costs… It’s clear these big employers are shifting their costs to the taxpayers.”

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George W. Bush’s presidency ended in 2008 and Barak Obama became president in 2009.  Most of his early efforts were aimed at keeping a deep depression from happening.  Unemployment still increased but it was minor compared to what it might have been.

Today are there enough jobs in the society to keep everyone who wants to work fully employed?  There were jobs for everyone up until the end of 2008 before the Real Estate Bubble burst.  At that time the banking houses in the United States were encouraging people to use their homes as bank accounts and constantly withdraw their equity from their homes and spend it.  The society was flowing with money.  Once the Bubble Burst there was an intense shortage of funds and unemployment was well over 12% overnight.

There has been a large percentage of recovery since 2009 but the bulk of the National Income has gone to the upper echelon of society with very little going to the middle class and even less than that going to the bottom of society.  The distribution of the National Income is completely out of kilter.  It is encouraging, with Republican help, a shrinkage of economic prosperity.  If it were not for the creative Monetary Policy the Federal Reserve used this country would now be in the doldrums with everyone, all Republicans and Democrats, currently well off and otherwise, suffering considerably.

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The odd part of all this is that the country could easily be well off with full employment and everybody having at least a decent standard of living.  The key here is expending money in Fiscal Policy which Congress controls.  The Republicans are loath to spend money on things other than the military.  They are very conscious of the National Debt that they have mushroomed since Reagan took office but for which they claim no credit.

Interestingly the Federal Government currently owns well over 50% of its own debt. Legally, it seems, no one, with the exception of the Federal Government, can owe itself money.

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The infrastructure of the United States is still in the 20th Century.  Some of it was installed over a hundred years ago.  Underground pipes and sewers are continually breaking down and being repaired to the level where they are just usable again.  It’s currently a Band-Aid approach; barely maintaining but no really improving anything.

President Obama had a plan in 2011 to drop unemployment that the Republican House of Representatives chose to ignore for two reasons: one, He presented it and two, it cost money, which they are loath to spend on anything except the military and business expansion like the Keystone project.

The prime example of Fiscal Policy is the New Deal that Franklin D. Roosevelt inaugurated in 1933 when he became President during the Great Depression.  While the Republican, Herbert Hoover was President when the Great Depression broke in 1929, he was incapable of such massive spending Roosevelt began in 1933.

Roosevelt was able to fund the New Deal by doubling the money supply in the nation.  He had government officials collect all the gold coins in circulation and replace them with paper money. The value of the gold was then doubled from $18 an ounce to $36. And suddenly the money supply doubled; there was twice as much money in circulation.

While this did not get the country out of the depression it did significantly improve economic conditions.  In order to end the Great Depression the Roosevelt Administration would have had to, at least, quadruple the money supply beyond that level. That situation occurred during the 1940s when World War II broke out.

The New Deal was a series of domestic programs encompassing Relief, Recovery, and Reform and enacted from 1933 on.  It included laws passed by Congress and executive orders issued by the President.  Programs like the Works Progress Administration (WPA), the Civilian Conservation Core (CCC) made the government the largest employer in the nation.  Others like Social Security, the Fair Labor Standards Act that set maximum hours and minimum wages for most categories of workers and the Tennessee Valley Authority (TVA) are with us today.  Banking reform was reconstituted after the 2008 Banking Debacle.  There were a myriad of other agencies mostly denoted by the letters; all of which created jobs, upgraded whole sections of the nation, and brought about

Did the government have to do this?  Obviously not; but in so doing the Federal Government took on the responsibility of providing for the common man (forgotten man) where he could not then provide for himself.  It was in the mind of Roosevelt and his administration necessary in order to save our free capitalistic society.

This is what the current Republican Congress seems to be incapable of doing. They feel this country cannot afford this luxury today.  I suspect they also feel that the unemployed are really themselves responsible for being in that condition.  Whether there are jobs available or not is immaterial.

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Fiscal Policy is something the Federal Government is going to have to get involved with sooner or later whether they want to or not.  The infrastructure of the United States was built during our period of urbanization and industrial development, from the late 19th Century through the 20th Century.  Our growing needs then were a lot smaller than they are now.  We grew then from a country of 140 plus million to over 350 million people today.  Some of the sewerage pipes in many cities are over 100 years old.  Roads, freeways, and interstate highways have to be maintained and improved.  The electric grid that runs throughout the nation has to be upgraded.  Many schools are antiquated and should be replaced or upgraded.

All of this is mentioning only a small portion of what needs to be done.  We can take a piece-meal approach, fixing things as they break down and wait until a point comes when much of the infrastructure can no longer be repaired or the Congress can begin a process of bringing the infrastructure into the 21st Century, rebuilding for today’s population..

Money is not really the problem for the Federal Government since it owns most of its own debt.  Actually spending money would increase government tax receipts.  In fact it would significantly increase the amount of taxes received on all levels of government, city, state, and federal.

What the Republican Congress is doing by refusing to even consider fiscal policy is exacerbating unemployment, encouraging the growing wealth of the upper ten percent, working to shrink the middle class, and radically increase the lower classes.  They are working to bring back the conditions of the 1880s and 1890s when there were massive divisions between the different classes within society.

Interestingly Grover Norquist, the president of Americans for Tax Reform, who has successfully gotten the Republican members of Congress to sign a pledge that they will, under no circumstances, raise taxes, has stated that his favorite period in U.S. history was the last two decades before the 20th Century.  It would seem he has been working very hard to bring us back to that period of inequality.

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More jobs are needed.  The current Congress will do nothing to alleviate the problem; instead they will by their actions increase it.  What will determine our future direction will be decided by the 2016 Presidential Election.  If we reelect a Republican Congress and also vote for a Republican President then conditions will continue as they are now, probably getting far worse.  If, on the other hand, both Houses of Congress are Democratic, then fiscal policy should bring about a radical lowering of unemployment and an overall return of prosperity for all levels of society.

It will be all in the hands of the voting public.  If they all vote their interests then the problem can be solved or, at least, move in the direction of a solution.  If enough people vote their beliefs or prejudices or stay at home and refuse to vote then the country will continue as we are now and probably go downhill economically.

To me the unemployment problem is ridiculous.  It can so easily be solved.  We can have full scale employment and solve our infrastructure problems at the same time.

 

 

 

The Weiner Component #116 – The U.S. & the Federal Reserve

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

English: Janet Yellen being sworn in by Fed Ch...

English: Janet Yellen being sworn in by Fed Chair Ben Bernanke (Photo credit: Wikipedia)

By Friday January 9, 1915, the Federal Reserve had turned over $98.7 billion to the Treasury for the year 2014. In 2013 it was $79.6 billion and in 2012 it was $88.4 billion. All of this was the interest on the National Debt bonds, much of which the Federal Reserve had purchased since 2009.

In 2008, the last year of the Bush Administration, the country faced the explosion of the Real Estate Bubble that had been gradually building over the prior thirty years. The big banks had been going crazy with denial in 2007 with their abuses when the oncoming failure became obvious. In essence every dollar in circulation suddenly dropped in value to about a dime. The Obama Administration did two major things in 2009 and 2010. They were able to avoid through rapid action an economic crash potentially larger than the Great Depression of 1929 and they passed Affordable Health Care (Obamacare). In 2010 the country elected a Republican majority in the House of Representatives and thereafter nothing was done by the House to alleviate conditions caused by the Real Estate Bust. In fact Congress passed laws to exacerbate the negative conditions.

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It should be noted that the Federal Government has two major tools to deal with downturns in the economy. One, used by the Federal Reserve, is Monetary Policy and the other, used by Congress and the President, is Fiscal Policy. This is Macroeconomics.

Fiscal Policy has to do with Congress passing bills that add money to the economy. Keep in mind that all currency has nothing behind it other than the word of the National Government. All money is now a means of exchanging something of value for something else of value, goods and services for goods and services.

In 2011 or 2012 President Obama proposed a bill that would create jobs by updating the infrastructure of the United States. The electric grid across the U.S. is well over fifty years old, much of it predating World War II, and parts of it are in constant danger of breaking down. It has not dealt with the changes in demography or increases in population that have occurred over that period. The country has come close to power outages because of cold weather conditions or for other reasons. Many of the bridges throughout the nation are also well over fifty years old. A number have collapsed; many are still waiting to be refurbished.  Also many schools, some of which were built over one hundred years ago, also need refurbishing or replacement throughout the country. Many of the sewers in cities are well over one hundred years old; a few have collapsed in parts.

All of these and many other projects will have to be done at some point in the future. Maintenance is required to keep all aspects of society properly functioning. From 2011 on the House of Representatives with its Republican majority has tended to squeeze the society, downsizing government and adding to unemployment, in fact at one point it closed down the Federal Government by refusing to fund it. The present is an ideal time to do a lot of these fiscal projects as interest rates are at just barely above 0.

Monetary Policy is a tool of the Federal Reserve. It can be used to increase or decrease the amount of money in circulation. Ordinarily the Fed adjusts the money flow in the economy by increasing or decreasing the amount of money it borrows through the sale of bonds. What happens is decided by the rate or non-rate of inflation. The Fed is always cashing out and selling bonds. There are short term, medium term, and long term bonds, lasting from a few months to a number of years. The rate of sale is determined by the level in interest paid on these bonds. The higher the interest the greater the sale and the lower the interest the less the sale. These interest rates are determined by the level of inflation in the country. The higher the inflation the higher the interest. Here money is taken out of the national cash flow so that there is less available to be spent, thus gradually forcing down the rate of inflation. If the opposite is true then the Fed will sell less bonds than it cashes out and continually add currency to the national cash flow.

With no help from Congress during a period of recession or depression the Fed under the chairmanship of Ben Bernanke had to be quite innovative to pull the nation out of the Real Estate Debacle. This was done by the Fed buying $85 billion worth of bonds each month for well over two years: $45 billion in mortgage paper and $40 billion in government bonds. The effect of these two actions was to add well over a trillion dollars to the national cash flow per year; and also to essentially resolve the big banks activity in splitting up individual mortgages into well over one hundred parts. By my estimate it would have taken well over twenty years to straighten out the housing mess if the Fed had left it alone. The Fed did it in a relatively short time by buying most of the pieces. We again have new construction and older houses are being resold.

What is interesting to note here is that 40 billion was utilized on traditional monetary policy while 45 billion dollars was used to purchase mortgage paper from the assorted hedge funds which each owned fractional pieces of mortgages in each of their funds that had been very sloppily catalogued. For the Fed to collect or foreclose on any of these properties it would have to set up a table of all the homes on which it held mortgages within the 50 states and gradually build up its portfolio to the point where it owned over fifty percent of each particular mortgage. The cost of setting up this information bank would have been prohibitive even for the Federal government. The probability is that the Fed did nothing with this paper and a percentage of the population ended up living in their homes for nothing, in essence the government forgave these loans.

Of course the people living in these houses still had to pay property tax. If they did not the municipality would eventually foreclose on the property and sell it for back taxes. These people would suddenly have a lot of disposable income, which many of them spent freely, and they could not claim any home interest payments on their income taxes. This, in turn, added billions of dollars circulating in the National Cash Flow throughout the country.

The practice of adding money to the economy was ended in October of 2014. Janet Yellen, the new Fed chair left the ending of the policy tentative. It could be started up again if the need arose.

Interest rates had also been dropped to a fraction of one percent, practically giving the banks free money from all the savers and checking accounts which they could lend out at a decent rate of interest. Currently the Fed is considering when to raise interest rates. Meanwhile most of the larger banks have announced large profits for 2014.

What is interesting here is that the Federal Reserve used part of the National Debt as a means of positively controlling the amount within and the flow of national currency. They actually increased over time the flow of money by trillions of dollars and, in this way, diminished the effects of the Real Estate Debacle caused recession.

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What Bernanke did was to use part of the National Debt as a means of getting the country out of a serious recession. Since Congress would not act he used the Debt itself as the tool by which a large percentage of recovery was gradually brought about.

The National Debt is divided into two parts: public debt which the government owns and private debt which is held by private countries and by individuals. For example the two largest holders of U.S. debt are China which as of November 2014 held 1.25 trillion and Japan had 1.24 trillion.

All foreign holdings at that time were 6.11 trillion dollars. It should be noted that the National Debt currently is 18 plus trillion dollars. Who owns the balance? Private individuals and companies within the United States and elsewhere would hold at least another trillion dollars. The balance would then be held by the U.S. government and its agencies. For example Social Security has well over 2 1/2 trillion in government debt. All this means that the Federal Government holds well over 50 percent of its own debt and pays the interest on that debt to the U.S. Treasury.

It should be noted that Treasury securities are seen as one of the world’s safest investments. This has been the situation in the world and will, in all probability, remain so.

The 114 Congress, which recently met for the first time and has a Republican majority in both Houses, shows no indication that it is even slightly interested in fiscal policy. While unemployment is down to 5 plus percent for the first time in the nation since the 2008 Debacle it still could be a lot lower with fiscal policy.

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Another factor of importance here is population; it is always gradually increasing. According to the Census Bureau’s Population Clock: there is one birth every 8 seconds, one death every 12 seconds, and one international migration every 33 seconds. The result of all this is a net gain of one person every 16 seconds.

That is an increase in the population of the United States of 3.75 people per minute, 225 per hour, 5,400 persons per day, and 1,965,600 people per year, if we count each month as 30 days and do not allow for each leap year. The current overall number of people in the country is in excess of 350 million people.

Most of these new settlers will reside along either of the coastal areas. In order for standards of living to not decrease with this additional population the GDP (Gross Domestic Product) has to increase one or two points yearly. If it stays at exactly the same point or decreases slightly then the overall standard of living has dropped for the bulk of Americans.

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What will happen with this new Congress should be interesting and economically uninspiring. From now until July 2016 when the Republicans hold their Presidential Convention there will be a lot of jockeying for the lead position in the Republican Party. The major issues like immigration, fiscal policy, job creation, plus whatever else comes up will be largely ignored. They will try forms of blackmail with the President in order to achieve some of their goals. This will be done by attaching riders that he will not approve of to necessary bills. That means that President Obama will probably have to veto the necessary legislation causing all sorts of economic and other problems. The question there is who will take the blame for causing all these disasters?

The Republicans will certainly not be creating any new jobs. Janet Yellen, the current chair of the Federal Reserve may have to restart the program of buying bonds for economic recovery to continue since the Republicans will be doing their dandiest to constrict the economy and inadvertently increase unemployment. What will probably occur between the present and the next presidential election is two years that the future historians will in all likelihood essentially ignore.

Description: Newspaper clipping USA, Woodrow W...

Description: Newspaper clipping USA, Woodrow Wilson signs creation of the Federal Reserve. Source: Date: 24 December 1913 (Photo credit: Wikipedia)

The Weiner Component #97 – Legislative Gridlock: The Non-Functioning of the United States Congress

Traditionally over the 200 and some year old history of the United States there have been two major political parties; sometimes for a short period of time there has been a third or even a fourth one. There has even been two very short periods when there was only one political party.   Interestingly the founding fathers never visualized such a thing.

These political parties have served as a check upon each other, sometimes working together and sometimes against each other. Their purpose has been to further the growth of the United States.

Today we are facing a strange situation, two major political parties, but so far apart on the political spectrum that they cannot even communicate one with the other.

The Republicans are controlled by the far right element (the Tea Party) and by the evangelicals, people who believe in a literal interpretation of the Bible. To them compromise consists of the other side giving in. Recently one of their members in the House of Representatives stated on conservative talk radio about there being a “War Against Whites” by the President, Blacks, and all other minorities. Even the conservative woman who was hosting the program was shocked by the statement.

It would seem that once a member of the far right gets elected to political office he becomes directly inspired by God. Without any awareness of economics or how the Federal Government works he has instant inspiration on what should or shouldn’t be done. Innately he knows he is right and everyone else is wrong. His idea of compromise is having the other side, generally the Democrats, accept his position.

How do you reason with a person like this? He will see a doctor and largely follow his directions but he is anti-scientific, knowing the scientists are wrong about most of their discoveries. He is also anti-intellectual, knowing what is right; reason and logic to him are instruments of the devil, used to trick honest people.

An example of scientific knowledge would be the beliefs of former Congressman, Todd Akin who believed that rape cannot lead to pregnancy. He stated that the body of a raped woman shut down during the act and she couldn’t conceive. Then following his fallacious reasoning: any woman who became pregnant during a forced sexual encounter had not been legitimately raped. Or one can follow the beliefs of another former Congressman, Richard Murdock, who knew that in a case of rape in which the woman conceived, God wanted her to have the child. To me and I suspect to a large percentage of the population, it is rather presumptuous for anyone to deliver direct messages from God.

The modern day far-right Republicans, or for that matter it would seem, the entire Republican Party seem to hold to these levels of non-intellectualism. The current House of Representatives and filibustering Senate, the 112th Congress, has done less to serve the needs of the country than any other Congress in the history of the United States.

If one looks at the placards held up by many members of the Tea Party, one of their major statements deals with the concept of the less government the better. One of their major goals since 2011, when they gained control of the House of Representatives, has been to shrink the Federal Government. And in this they have been largely successful. They are very good at not taking action on needed problems like bringing the early 20th Century infrastructure into the 21st Century, unemployment, the immigration problem, the young refugee dilemma, and climate change, to name just some of the problems this country needs that Congress should fix. Incidentally this also includes filibustering necessary presidential appointments like ambassadors to Russia and other important nations that do not presently have ambassadors.

If the House of Representatives were to authorize the President to utilize fiscal policy; that is, just begin the process of modernizing the infrastructure of the United States, we would end the unemployment problem throughout the country and stop having emergences whenever a part of the system fails. This happened recently in Los Angeles where a hundred year old system of underground water pipes collapsed causing extensive damage. We also faced a situation in the winter of 2013-2014 where extreme cold froze coal reserves so that they could not be used to generate electricity over part of the central United States. Luckily they were able to shift power from other parts of the grid. They may not be that lucky next time.

According to the majority of economists this country could reach a high level of prosperity for practically all of its population throughout the 21st Century. The poor could earn enough to live properly, the middle class could grow and increase their level of prosperity, and the rich could get richer. All it would take for this to happen is for Congress, particularly the House of Representatives to properly exercise their responsibilities. Will this occur? That depends upon the Midterm Election of 2014. If the Republicans maintain control of the House and they maintain 41 or more votes in the Senate the gridlock will remain for at least two more years. It will take an overwhelming majority of Districts voting for the Democratic candidates and a small number of additional Democratic Senators for the legislature to be able to pass progressive laws that would turn this country around.

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In 1944 Franklin Delano Roosevelt was elected for the fourth time as President of the United States. Within a year he was dead and Harry S. Truman, his Vice-President, had succeeded him as the 33rd President of the United States. In 1948 Truman ran for the presidency on his own. He was perceived by many as a loser. The Republican candidate, Thomas E. Dewey, was expected by all the experts and pole-takers to easily beat Truman. Many Republicans announced that they expected to do away with most of the remnants of the New Deal shortly after the election.

Prior to the election President Truman recalled Congress, which had adjourned earlier, to a special session in order to pass legislation that he felt was badly needed by the country. The returning Congress did essentially nothing; and President Truman named them “The Do Nothing Congress.” He and the Democrats ran their campaign against the “Do Nothing Congress.”

The presidential election of 1948 is considered by many historians as the greatest election upset in American history. Just about every prediction and poll indicated that the incumbent President, Harry S. Truman, would be defeated by the Republican candidate, Thomas E. Dewey. Truman won. Both Houses of Congress acquired Democratic majorities.

While the 2014 Election is not a presidential one, it still represents a similar opportunity to the 1948 Election. In fact, the 2014 Congress has passed far less bills than that of the 1948 Congress. If the President and the Democrats in both Houses of Congress were to propose a series of needed reform legislation in September when the vacationing Republicans return to Congress and continually verbally challenge the Republicans they could get similar results with 1948. However shortly after returning from their September vacation and doing almost nothing, except authorize the President to bomb ISIS in Iraq and Syria, the House voted to take another break until after the November election.

One of the major problems faced by this Congress was the fact that the President and the Democrats in Congress proposed legislation and then when it was filibustered in the Senate and not even considered in the House. Also the Republicans never ceased verbally attacking both the President and the Democrats largely for problems they themselves caused.

What the Republican House of Representatives has done in September, when their members returned to Congress, was to again take up the issue of Benghazi for the fourth or fifth time in order to again attempt to discredit President Barak Obama and Hillary Clinton. This led nowhere and did nothing. They ignored issues like war against ISIS, but did approve bombing ISIS in Iraq and Syria. They are now busy, back on vacation, trying to get reelected so that for two more years they can continue the gridlock and blame it on President Obama and the Democrats. The Republicans approved the first step in a war against a terrorist group but avoided approving a declaration of war.

The country is currently in a sad state. We are engaged in the first stage of a war without Congressional approval, the infrastructure of the United States is continually getting older and less efficient and there are enumerable social and economic problems that need to be resolved. The inept Republican members of the House and Senate are campaigning to get reelected. The country is in deep trouble.