.The Weiner Component V.2 #37 – Money & the Presidents: Part 3

(George H.W. Bush riding in a Humvee with Gene...

(George H.W. Bush riding in a Humvee with General Schwarzkopf in Saudi Arabia, November 22, 1990) (Photo credit: Wikipedia)

When Ronald Reagan became President in 1981 the National Debt was $997 billion 885 million.  In 1989, when he left office eight years later, it was $2 trillion 857 billion 431 million.  If

Jimmy Carter had won the 1981 election it would still have gone up but, certainly, not as much.

 

President Ronald Reagan was followed into office by his Vice President, George H. W. Bush in 1989.  His initial goal was to lower the Nation Debt; but he had a Democratic majority in both Houses of Congress.  They also wanted to lower the debt but their approach was totally different from that of the Republican President, George H. W. Bush and the Republicans.

 

Bush and his fellow Republicans in Congress wanted to lower the cost of funding entitlement programs for the poor and middle class.  This was unacceptable to the Democrats who wanted to raise taxes, particularly income taxes for the upper echelon and reduce loopholes for the well to do.  During his presidential campaign Bush had stated once in exasperation: “Read my lips.  No new Taxes.”  In order to raise additional funds he had to go back on his word and raise taxes.  This alienated a large number of Republican voters.

 

The Berlin Wall fell in 1989 and Germany was unified within a year after that.  By 1991 the Soviet Union dissolved.  For the United States President George H.W. Bush negotiated the North American Free Trade Agreement with Canada and Mexico which ended tariffs between the three countries.

 

The Gulf War broke out in August 2, 1990.  Saddam Hussein, the ruler of Iraq, invaded this oil rich neighbor, Kuwait.  With the United Nation’s approval President Bush announced operation Desert Storm.  A coalition of nations under U.S. leadership would liberate Kuwait.

 

On January 17, 1991 Allied forces launched the first air attack.  There would be 4,000 bombing raids by coalition aircraft for four weeks.  Then essentially American forces landed at Kuwait on February 24, 1991.  The offensive stopped at the border of Iraq after 100 hours.

 

The war was expensive.  When Bush left office on January 20, 1993 the National Debt was $4 trillion 411 billion 489 million.  President George H.W. Bush had just about doubled the Reagan National Debt.

 

In addition in 1991 there was a mild six month recession.  Unemployment edged upward.  President Bush signed a bill providing additional benefits for the unemployed.  Welfare increased at that time as more people lost their incomes.  Unemployment reached 7.8%.  Because of the negative economic conditions many corporations reorganized, laying off numerous employees.  Many of them were Republicans who had voted for Bush and had expected their jobs to continue indefinitely.  These people found themselves suddenly unemployed.  The Census Bureau reported that 14.2% of Americans lived in poverty.

 

Could the Gulf War have been avoided?  The answer is: Yes.  President Bush sent a plenipotentiary, who did not have much authority, to Iraq to meet with Saddam Hussein.  He chose a female to emphasis women’s rights, which meant to Saddam that Bush did not consider the matter important.  From what I understand the two verbally fenced for a while.  When she left Saddam assumed that Bush did not consider the invasion important and would ignore it.

 

When the invasion occurred Bush’s response was the opposite.  Saddam would attempt to get even later by unsuccessfully attempting to assassinate Bush.  And, of course his son, President George W. Bush would several years later get even by invading Iraq and spending another few trillion dollars on that.

*********************************

In 1992 Bush ran as the Republican Candidate for another term.  This election ended up having three candidates, in addition to George H.W. Bush, the Democrats ran William Jefferson (Bill) Clinton, the former governor of Arkansas, as their candidate, and Ross Perot, the Texas billionaire businessman, ran as an Independent.  He financed his own campaign.

 

Ross Perot received 18.91% of the popular vote, 18,943,321 votes, and zero electoral votes.  President George H.W. Bush got 37.45% of the popular vote, 39,104,550 votes, and 160 electoral votes.  Bill Clinton achieved 43.01% of the vote, 44,369,806 popular votes, and 370 electoral votes.  He became the 42nd President of the United States, serving from January 20, 1993 to January 20th 2001.

 

Clinton was the first Democratic President since Jimmy Carter.  He was the 42 when he became President; the second youngest man to assume the presidency, Theodore Roosevelt had been the youngest.  Clinton would preside over the longest period of peacetime expansion in American history.

 

The National Debt was 4 trillion 400 billion 489 million when he assumed office.  During his last three years in office he was able to reduce the debt.  In 1998 there was a $69 billion surplus at the end of the fiscal year.  In 1999 it was $126 billion and in 2000 it had grown to $236 billion.  All of this reduced the debt slightly for the first time.

 

Somehow he thought that the military was large enough and that he didn’t need to increase it or maneuver it into a major war activities.  While he utilized the military in United Nation activities in the Near East to try to lessen genocide and violence he did not involve the U.S. in any actual wars.

 

President Bill Clinton signed the North American Trade Agreement with Canada and Mexico which President Bush had initiated.  He attempted early, during his first term. Unsuccessfully to pass a national health care bill.  Interestingly the Democrats had a majority in both House of Congress at this time but lobbying prevailed against it.  The slogan that defeated it was: “There has to be a better way.”  He did later get a State Children’s Health Program passed.

 

During his first term (1993 – 1997), within two months of becoming President, Clinton signed the Family and Medical Leave bill that allowed unpaid leave for pregnancy or serious medical conditions.  The Bill had bipartisan support.

 

He revised restrictions on domestic and international family planning, allowing programs that Reagan and Bush had restricted or gotten rid of.  He allowed abortions which declined during his administration by 18.4 percent.

 

He also signed the Omnibus budget Reconciliation Act of 1993.  This bill cut taxes for the 15 million lowest income people.  It made tax cuts available to 90% of small businesses in the country and he raised taxes on the wealthiest 1.2% of taxpayers.  The Bill passed without getting one Republican vote.

 

Following Nixon’s initiation of relations with Communist China, Clinton signed the U.S.-China Relations Act of 2000; this law granted permanent normal trade relations and trade status to the People’s Republic of China.

 

In the Midterm Election of 1994 the Republicans gained control of the House of Representatives which they kept thereafter through the rest of Clinton’s presidency.  After that it was very difficult getting any legislation he supported passed.

 

Newt Gingrich, as Speaker of the House of Representatives initially led the campaign to impeach President Bill Clinton.  He was tried shortly after the seating of the 106th Congress on February 1999.  But the charges against him were brought by the 105th Congress in late 1998.  By the time the vote was taken Newt Gingrich, for legitimate reasons had resigned from the House of Representatives.

 

The process of impeachment is that the House of Representatives votes a Bill of Impeachment against the President and a 2/3d vote is required by the Senate after functioning as a jury to impeach him, that is 67 votes.  Bill Clinton was charged with perjury and obstruction of justice.  On the perjury charge, 45 Republicans voted guilty and 55, practically all Democrats, voted not guilty.  On the obstruction of justice charge the vote was 50 for and 50 against.  It missed finding him guilty by one vote.

 

Clinton served out the rest of his term in office.  He was a very popular President before, during, and after his trial.  There was a lot of animus against him by the Republicans, particularly those in Congress. To a large extent they were able to vent their spleen though the attempted impeachment.

 

The National Debt, when Clinton left office, was $5 trillion, 678 billion, and 178 million.  It had been $4 trillion, 411 billion, and 490 million when he became President in 1993 and for his last three years as President, Clinton had lowered the debt almost a half-trillion dollars.  Actually the Clinton years were good years for the American public.

The Weiner Component V,2 #34 – The Concept of Money: Part 2

One of a number of posters created by the Econ...

One of a number of posters created by the Economic Cooperation Administration to promote the Marshall Plan in Europe (Photo credit: Wikipedia)

Logo used on aid delivered to European countri...

Logo used on aid delivered to European countries during the Marshall Plan. (Photo credit: Wikipedia)

Marshall Plan

Marshall Plan (Photo credit: Wikipedia)

If one draws a horizontal line in United States history both before and after World War II one gets an interesting perspective.  Before the war the U.S. was a poor country still working its way out of the Great Depression with a large lower class, a small middle class, and a smaller upper class.  After the war the country still had a lower class but it was much smaller than it had been before the war, a large ever-growing middle class, and a smaller upper class.  What happened was an infusion of paper money during the Great Depression, World War II and afterwards which reconstituted the nation as it had never been before and turned it into a middle class country.

 

After the war there was also intensive government spending in the form of free education for veterans, the GI Bill.  Veterans were also funded who didn’t go to school, so they could start their own businesses and buy homes.  There was continued intensive government spending.  Also from 1948 this was added to, with the Marshall Plan or European Recovery Plan, for the next four years.  The European countries rebuilt their infrastructures with goods from the United States.

 

Where did all this money come from?  It came from the Federal Government printing presses.  What it did was unleash the productive capacities of the population.  Specifically it was the tool that allowed massive production of goods and services which freed the labor potential of the people within the country and helped create the new growing middle class.  The spending greatly increased the National Cash Flow throughout the nation and also brought in an immense increase, on all levels, of taxes.  We were by this process a much richer nation.

 

There had been rationing during the war.  Not much had been made available to the general public, most of the goods produced went overseas to the armies fighting the war.  Excess money had been put into war bonds; many of these were now cashed in.  There were new industries, like television; radio had existed before the war; now there were two major home entertainment entities.  Only military vehicles had been manufactured during the war.  As the automobile industry was converted to civilian use people bought new cars for the first time in years.  There were jobs or new businesses for the returning veterans.  It was a new era.

**********************************

To move to an earlier period: during the Civil War money had been gold and silver coins.  The Federal Government bought and minted all the gold that was mined in the United States.  Consequently the legal tender that existed in society at that time was both the gold and silver that could be mined and minted.  Since wars are expensive and their cost generally exceeds the amounts of money that exists or could be collected in taxes or minted, the government had an immediate need for more cash.  This problem was solved by issuing paper currency called greenbacks.  The reason they were called greenbacks was because one side was green and they were legally made into currency.  There was nothing behind these bills except the word of the U.S. Government.  From 1861 through part of 1862 they were Demand notes.  From 1862 through 1865 they were United States notes.  After the war the greenbacks were gradually retired, replaced by gold and silver coins.

 

Since more money had been needed to fight the Civil War the Federal Government had arbitrarily created it and spent it fighting the war.  Once the war was over the Government gradually withdrew and replaced that money with gold and silver coins.  It was actually a form of no interest borrowing.  But this process began the growth of the Industrial Revolution in the United States.  After the war we were a much richer country than we had been before it started.

*****************************************

Toward the end of World War II from July 1 through July 22, 1944, the Bretton Woods Conference or the United Nations Monetary and Financial Conference met at Bretton Woods, New Hampshire.  It consisted of 730 delegates from 44 Allied nations.

 

The basic currency in the world then and during the post war period was the American dollar.  All the Allied currencies were pegged against the dollar, generally taking their value as a percentage of the dollar.   Bretton Woods established the rules for international trade that would continue from the end of World War II on.  After the Marshall Plan all these nations functioned on a higher plain than they had before the war.

 

It should be noted that none of these nations, with the exception of the United States initially had any gold.  All the currencies of all these nations were based upon the productive ability of each of the nations.  Their currencies values nationally and internationally were based upon their credit.

***********************************

In addition another thing to keep in mind has been and is population growth.  According to the U.S. Census Bureau on July 1, 1929, the year the Great Depression began the United States population consisted of 121.77 million people.  By 1933, when Franklin D. Roosevelt became President it had grown to 125.58 individuals.  By 1945, the end of World War II, it had reached 139.93.  By July 1, 1970, it was 205.05 million people.  By 1980, the year Ronald Reagan was elected President, the population was 227.22 million people.  By the year 2,000, when George W. Bush was elected to the presidency it was 282.16 million people.  By 2010 the population was 309.35 million people.  By July 1, 2017 the Census Bureau estimates the population in the United States to be 325.34 million people.  Also keep in mind that in every official census introduction there is an apology for the people who were somehow missed, that is, not counted.  The estimate in 2010, admitted by the Census Bureau, was that they had missed millions of homeless people throughout the country and the estimate was much closed to 350 million people.

 

While we are not considering the fact here the world population has also phenomenally increased.  It is estimated today to be somewhere above 7 ½ billion people.  It is also continuing to grow.

 

The overall count in the United States has tended to increase each year by about 2 ½ million.  This includes deaths, births, and immigration.  According to the Census Bureau there is one birth every 7 seconds; one death every 12 seconds; one international migrant every 32 seconds.  The net gain is one additional person every 12 seconds.  And this includes periods of peace and war.

 

In order for the country to function properly as the population grows there has to also be an increase in the amount of money available in the National Cash Flow otherwise the country would be facing a gradual growing deflation, seeing the amount of money available per person decreasing in amount and increasing in value.

 

The Federal Reserve controls the money supply.  It can increase or decrease the amount of money available in the general society by its open market operation and otherwise.  From 1987 to 2006 Alan Greenspan was Chairman of the Federal Reserve.  He had stated that it was not his job to deal with the money supply.

 

To be fair the powers of the Federal Reserve have evolved from its founding in 1915 to the present.  Certain powers have been granted to it by Congress over the years, other powers it has taken on.  Under Alan Greenspan it choose not to deal with the need for more money within the society.

**********************************

The banks, which operate for a profit, have the power to expand or contract the amount of currency available to the general public.  Probably beginning slowly sometime in the 1970s the banking houses gradually created a new type of hedge fund based upon the value of homes owned by people throughout the United States; they began using mortgages as investment securities.  In the 1980s, with the Reagan Administration supporting Free Markets or theories of pure capitalism, these hedge funds took off and the country underwent a binge of refinancing that would not explode until the Housing Crash of 2008.  Homeowners were encouraged to use their homes as bank accounts that they could freely spend. By doing this they caused the homes to shoot up in value while massively expanding the economy and the value of their homes.  In the process a housing bubble was created which gigantically inflated the values of the houses allowing many people to constantly refinance their homes during this period.  When the crash finally came in 2008 a large number of people were underwater on their homes; that is, they owed more on the mortgages than the properties were worth.

 

Many, if not most, of the banking houses began foreclosing on these properties until it was discovered that the banks didn’t own the mortgages on these houses, they merely serviced them.  They belonged to the hundreds of people who had shares in these Hedge Funds.  Actually they didn’t belong to anyone because numerous Hedge Funds, each consisting of hundreds of owners, actually owned the houses and there was virtually no way of discovering who held 50+ percent of an individual property.  Virtually all the banks paid hundreds of millions of dollars in fines for their illegal seizures and sales of these properties.  It should be noted that the banks solved their illegal behavior totally with fines; no one went to jail for these illegal acts by the banks.

 

It was an unbelievable mess that defied straightening out.  For a period of a little over two years the Federal Reserve, under Chairman Ben Bernanke, with the support of President Barack Obama, bought up 50 billion dollars’ worth of mortgages a month and also added 50 billion dollars a month directly to the National Cash Flow.  At the end of this period the new Chairperson, Janet Yellen ended the practice gradually over a period of months by systematically decreasing the amount of the monthly purchase until it reached zero.

 

If we ask what happened to all the mortgage pieces that the Federal Government purchased at this time?  Logistically the cost of matching up all the multitudinous pieces of mortgage paper would have been impossible.  And the government did not want to put any additional hardships upon these people.  The mortgage paper was destroyed.  Nobody whose paper the government held was foreclosed upon.  If a house was deserted because it was under water it would eventually be sold for back taxes.  If the people stayed in the house no one foreclosed upon them as long as they paid their property taxes.

 

The problem was that the Federal Government made no announcement about what it had done or was doing.  People found that they could live in their former home without making any further payments.  Many tended to generally spend the money they would have used toward their mortgages.  There was an increase in overall spending due to the generosity of the Federal Government.  People couldn’t sell their homes because they no longer owned them but they could continue to live in them as long as they paid their property taxes.  If they were elderly and eventually passed on the homes would eventually be sold for back taxes.  Some people who had cash and figured this out made a lot of money.

 

Were these funds the Federal Government spent added to the National Debt?  The probability is negative.  These funds were just added to the Cash Flow.  They supplied needed money to the economy and helped the country get out of what was called The Great Recession.  They also helped avoid a greater depression than that of 1929.

********************************

The level of the National Debt today is over 19 trillion dollars and continuing to grow.  The Federal Government has added additional billions of dollars to the National Cash Flow which were not counted as part of the National Debt.  This was from the period of the Great Depression on, through World War II, the post war period, and particularly through the Obama Administration.  By and large the country has moved forward positively during all this going from being a lower class nation to a middle class one.

 

The basic problem that seems to exist is that the understanding of the general public, and seemingly most members of Congress and even a good percentage of the ruling administrations, still have an early Twentieth Century concept of money being an object of wealth rather than a tool that allows the society to operate.  Money defines an individual’s level of wealth but it is not viable until it is used.  This has and can cause confusion in national development.  A true understanding of money and of the true wealth of the nation throughout the country would make a significant positive difference.

The Weiner Component #154 – President Obama & the Republican Party

Official photographic portrait of US President...

Traditionally the Republicans stand for smaller government and the Democrats for a system responsible for the welfare of it citizens.  This means that the Republicans want more individual freedom and choice for the citizens, including the right to starve or go without proper medical care through a lack of funds.  The Democrats are more socially responsible and feel a need to take care of those who cannot take care of themselves.

 

Perhaps one of the most ardent Republicans was President Ronald Reagan who continually talked about “government being the problem.”  He voiced a desire for less government but left Washington at the end of his two terms in office with a far larger government than that with which he had begun eight years earlier.

 

In line with their desire to lower federal costs and weaken or do away with Obamacare, which was based upon a Republican model, the Republicans have recently won a pyrrhic victory against the 2010 law, Affordable Health Care.  Around May 12, 2016 a Federal Judge, initially appointed by a Republican President, found the practice of the Federal Government of helping to subsidize premium payments for those who cannot afford to make them, illegal since it was not specifically mentioned in the law.  The 38 page decision by the judge who reasoned that since the law did not specifically state this practice, the act of doing so was illegal.  The judge, however, did not put her decision into immediate operation.  Instead she allowed the practice to continue until after her decision is appealed.  Way to go Republicans, attempting to balance the budget on the backs of the poor who may lose their medical coverage!

**********************************

Watching the progress of Congress by both the Republicans and the Democrats one gets the impression that nothing ever gets done.  No necessary laws ever get passed.  The House of Representatives has given itself a 110 day legislating year; they are working a three day week, not including holidays.  The Senate will meet for a somewhat longer period.

 

The two political parties began the preliminary process of choosing their presidential candidates early in 2016.  In the Republican state preliminary elections and caucuses the initial debate between the possible candidates dealt with how bad the present administration is and how a Republican president would make the country great again.  It’s as though nothing has happened since 2009 when Barack Obama was elected to the presidency.  It would seem, according to the Republican candidates that there is no history behind the present campaign.  This, of course, is not true.  The history has been ignored or edited, particularly by the Republican Party.

 

The Great Recession, which could easily have been the Greatest Depression in our history, began under the reign of the Republican President, George W. Bush toward the end of 2008, his last year as president.  He took some action but mainly left the problem for the next President, Barack Obama.

 

During his first two years in office, 2009 and 2010, President Obama changed a potential massive depression into a recession, restored the major banking houses in the United States and the automobile industry from bankruptcy by massive government loans and signed the Affordable Health Care Bill into law.

 

At the time both the House of Representatives and the Senate had Democratic majorities.  In the 2010 Midterm Election a large number of Democrats did not bother to vote and the Republicans achieved a majority in the House of Representatives, actually killing any chance for further reform since the Republican philosophy of government tends to be the opposite of that of the Democrats .  In addition since 2010 was a Census Year, the Republicans gerrymandered the states where they controlled the governorships and the legislatures making it easier for them to keep control of the House of Representatives.  In the 2012 Presidential Election the Democrats cast a million-and-a-quarter more votes were cast for Democratic candidates than for the Republican members of the House of Representatives but the Republicans still retained control of the House.  The same thing is likely to happen in the 2016 Presidential Election.

*******************************

In the 2016 Primary Elections the Republicans are quite vociferous in stating what President Obama didn’t do.  What they don’t state is that most of the things he is blamed for not doing are functions of Congress.  Congress passes the laws in the United States.  The President can sign or veto a law.  If he vetoes a law Congress can still pass it with a 2/3 majority in both Houses.

 

Basically the current Congress, which has a Republican majority in both Houses, has done virtually nothing since they achieved a Republican majority in 2014 or since the Republicans won control of the House of Representatives in 2011.  Today we have the Tea Party which is an extremely conservative section of the conservative Republican Party that is totally against Big Government and sees all economics as Micro, small economics.  Unfortunately they represent a number of seats in the House and Senate.

 

Economists today understand depressions and recessions and how to properly deal with them.  Economics exists upon two major levels: one is called Microeconomics, which deals with household finances, city, state, and business funding.  The other is Macroeconomics which deals with the Federal Government, which owns the printing presses that print and issue money.  They are two totally different entities.  Except the Republicans do not understand or accept the concept of Macroeconomics.

 

Money today has nothing behind it except the word of the government that printed it.  There is no gold or other precious metal that today stands behind any currency.  The amount in circulation is supposed to be regulated so that there is enough to easily carry out all the business functions within the nation and between nations.  Unfortunately this does not always happen and inflation or deflation can occur.  In the United States the Federal Reserve controls the amount of cash in circulation.  In most other nations there is generally a National Bank that does this.  This process is Macroeconomics.

 

The National Debt, of which the Federal Government owns over 50% of its own debt and will, at times, use it to control the amount of currency in circulation.  This was done recently by the former Chairman of the Federal Reserve, Ben Bernanke, for over a two year period adding 85 billion dollars a month to the National Cash Flow.  It was gradually ended by the current Chairperson, Janet Yellen.

 

The members of the Republican Party do not appreciate or understand any of this.  From statements made by various Congressional members of the Tea Party and other Republicans their understanding of economics is based upon raising a family, Microeconomics.  They see everything in those terms.  One has an income, taxes, and one can spend it.  If an individual or country wants to spend more he has to borrow money which, in turn, has to be paid back with interest.

 

That seems to be the limit of their understanding.  It can lead to recessions and depressions.  Donald Trump has added another level to this misunderstanding.  He seems to think the government can renege on part of its debt as he has done in business with three bankruptcies.   Statements like that can destroy the value of the dollar, particularly if he were to be elected president.

**************************

To say that the Republicans have done nothing is to give them positive credit.  Instead they were able to get through the Budget Control Act of 2011 which began on March 1, 2013.  This was the sequester, automatic cuts across the board on all government programs with the exception of Social Security, Medicaid, federal pensions, and veteran’s benefits.  These would cover all other military and discretionary programs every year until the year 2021.  Medicare rates were reduced 2%.  Sequestration also resulted in unpaid time off to many federal government workers, this was known as furloughs.

 

These cuts during a recession tended to shrink the economy and slow recovery.  Interestingly by 2015 the military was complaining that with the sequester cuts their effectiveness was significantly decreasing.  From that time on Congress tended to pass yearly bills ignoring the effects of sequestration upon the military.

 

Also in 2013 the House of Representatives, with hefty leadership by Senator Ted Cruz who is not even a member of the House, shut down the Federal Government from October 1st through the 16th.  Government operations resumed on October 17, 2013.  800,000 government employees were indefinitely furloughed.  1.3 million other government employees were required to report for work without a known payment date.  The Republican led House wanted to defund the Patient Protection and Affordable Care Act.  They attached this to the Government Funding Bill.  The Democratic led Senate removed it from their version of the Bill before they passed it.  The Conference Committee, which consisted of representatives from both Houses of Congress, reached an impasse.  The cost of this shutdown is estimated at $20 billion.  So much for Republican frugalness!

***********************************

It should be noted that our understanding of economics has come a long way since 1929 and the Great Depression.  We understand the root causes for the economic waves that bring about these changes and we understand how to deal with them when they occur to lessen or mitigate their effects upon society.  But in order to do this we need both the President and Congress acting together as a cooperating unit.  This we have not had since 2011.

**********************

By 2008 the Real Estate Hedge Fund industry crashed in the United States.  Properties like individual homes dropped almost overnight to a fraction of their inflated values.  Millions of people, who had been encouraged by the financial institutions to use their homes like bank accounts by continually remortgaging them, were suddenly underwater on their loans, owing more on the property than it was then worth.  Employment also phenomenally decreased.  Most banking houses were over-extended and on the point of bankruptcy.  The Bush Administration in its last year in office lent public funds to some of the banks to keep them afloat.

 

In 2009 and 2010 there were both a Democratic President and a Democratic Congress.  The massive depression that would have been greater than that of 1929 was avoided by further public loans to the banking industry.  Patient Protection and Affordable Health Care or Obamacare, which incidentally was based upon a Republican plan, came into existence.  It was passed strictly on a party basis; no Republican voted for it in either House of Congress.  The American auto industry was also saved from bankruptcy by public loans.  Incidentally it should be noted that all these loans were eventually repaid with interest.

 

From 2011 on the Republicans achieved a majority in the House of Representatives.  Thereafter no bill was passed by the House that would lessen what was then the Great Recession.  In fact the bills passed by the House tended to exacerbate the unemployment by not only shrinking the Federal Government but also curtailing the amounts of monies that went to the individual states, forcing them to reduce            some of their programs and lessoning their levels of employment.

 

Mitch McConnell, the then minority leader in the Senate, stated that the Republican goal was to make Barack Obama a one term president.  The Republican attitude from that time on was to support absolutely nothing that President Obama supported.  Economic conditions in the country became secondary next to this goal.  The House Republicans did nothing that might reflect positively upon President Obama.  When he proposed a bill to create jobs by improving the outdated infrastructure of the U.S. the bill never even came to the floor of the House of Representatives for consideration; it was totally ignored.

 

President Obama continued to attempt to work with the Republicans for the next two years with no success.  By 2012, when he ran for a second term, it would seem that he understood that there was no cooperating with the Republicans.

 

President Obama and the Chairman of the Federal Reserve, Ben Bernanke, were able to use Creative Monetary Policy to improve economic conditions in the country.  The Federal Reserve added $85 billion a month for over two years to the National Cash Flow.  They did this by spending $45 billion a month buying up mortgage paper and also by purchasing back $40 billion in government bonds monthly for over two years.  The program was finally reduced by 10 billion a month until it was completely withdrawn.

 

The effect of this action was to buy back millions of pieces of mortgages in all fifty states, each one of which had been split into hundreds of pieces.  In essence these properties belonged to no one, as no one owned over 50% of the mortgages.  Without this action by the Federal Reserve these properties would have been lingering throughout the economy for the next decade or more before they were sold for back property taxes by the local governments.  This act gave the people who had not walked away from their underwater properties and still lived in these homes the ability to continue living in them without the possibility of foreclosure.  There was no way the government could have matched up all the pieces of all the properties in all 50 states to claim ownership of any of them.  Generally the money that would have been used in paying off the loans was spent in the overall economy creating more employment.  It was a giveaway by the Federal Government which was probably more than returned in local, state, and federal taxes.

*******************************

With the upcoming Presidential Election the Republicans are blaming President Obama and the Democrats for not doing anything to run the country properly.  They seem to have forgotten the Real Estate Crash of 2008 which took off during the Reagan Administration and continued from there until the 2008 crash.  They seem to have forgotten President George W. Bush’s unnecessary war with Iraq which destabilized the Middle East and began the situation which exists there at present.  Actually they have forgotten everything negative that can be attributed to them.  And all of these things have been blamed upon President Obama and the Democrats.

******************************

The actual Presidential Election should be interesting.  If Donald Trump is elected president he has practically promised to get rid of ISIS quickly and make America Great Again.  He seems to feel that he can solve all major international problems, whether he understands them or not, within the first 100 days or less.

 

If Hillary Clinton is elected and she has a Democratic Congress she can be expected to move successfully in the direction of solving many of America’s domestic and international problems.  If, however, the House of Representatives retains its Republican majority then the country will probably experience the same gridlock it has under President Barack Obama.

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

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

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

Embed from Getty Images

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

 

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

 

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

 

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

 

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

 

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

****************************

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

****************************

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

 

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

 

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

 

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

 

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

 

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

*******************************

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

 

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

****************************

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

 

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

 

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

 

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

***********************

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

 

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

****************************

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

 

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

 

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

 

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

 

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

*******************************

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 

Congress & the Problems of the United States: Are We Getting Our Money’s Worth?

English: Breakdown of political party represen...

English: Breakdown of political party representation in the United States House of Representatives during the 112th Congress. Blue: Democrat Red: Republican This SVG file was originally hand-written. It contains comments suggesting how to amend it to reflect future changes in Congress. Inkscape reads this file as corrupted, thus changes must be made with a text editor or other program and checked with a browser. (Photo credit: Wikipedia)

There are 435 members of the House of Representatives.  Their combined salaries, taken together is $73,950,000 taxpayer dollars per year.  Of these 247 currently are Republicans.  They receive $41,990,000 taxpayer dollars in compensation for serving in the House of Representatives.  Of these 247 House members 40 belong to the Freedom Caucus.  They make up the ultra-conservative far right end of the party.  These people understand compromise as the other side coming to their position; to them anything else in largely unacceptable.

 

On the issue of passing a bill to continue to fund the government the Freedom Caucus, which is made up of Tea Partiers, plus a number of other Republicans had refused to act until funding Planned Parenthood was removed from the bill.  If Planned Parenthood were removed from the bill President Barak Obama stated he would veto the proposed new law.  This brought about the resignation of the Speaker of the House, John Boehner, at the end of September, effective October 31st.  A bill was brought through the Senate and later, the House, continuing the funding of the government through December.  In each case with heavy Democratic participation.  There were not enough Republicans supporting it in either House for the bill to pass without Democratic support.

 

As an aside, the evidence presumably proving Planned Parenthood was guilty of breaking the law in performing abortions and selling fetus tissue for research was highly edited video tapes that were the equivalent of a man entering a house, then in the next scene he or someone entered an apartment, greeted a woman, the camera would switch to an image of a bedroom, and finally the man would exit the house, presumably in the morning.  This was the level of the edited video evidence presented against Planned Parenthood, which the anti-abortion groups took as absolute proof.  In addition some of the video were made by paid actors, hired by an anti-abortion group, discussing the sale of fetus parts.   Planned Parenthood has been investigated numerous times by Congressional Standing Committees and others and has never been legally proven of doing anything illegal.

 

To get back to our primary subject, what we spend on Congress and what we are now getting in return.  If we include the Senate in the cost we are adding an additional $170,000 one hundred times, that’s 17 million dollars.  This does not include the fact that each congressperson in either House has a staff in Washington that can employ up to eighteen permanent members and have an office in their home state.  We are spending well in excess of ½ billion dollars annually upon our law-makers.  For this, especially since they take an oath to uphold the Constitution, we should be able to expect them to do their jobs.  Are they passing laws that help the country develop and prosper?  Are they doing things to lower unemployment?  Is the country moving forward to a better tomorrow?  Are they repaying the taxpayers for electing them to office or are they serving their large contributors who have funded their political campaigns or are many carrying out their own specific agendas?

*******************************

My impression is that most, if not all, of the Republicans elected to Congress have no real understanding of what makes up economics; that they think of the Federal Government functioning on the same level as their households, that so much money comes in every month and once that’s gone the government has to borrow money to spend more, and that additional money has to eventually be paid back.  That is how Microeconomics (small economics) works but that is not how the Federal Government works.

 

The Federal Government, all national governments for that matter, operate under the principles of Macroeconomics (Big Economics).  There is today nothing behind the dollar but the word of the National Government; they own the printing presses.  Money has no intrinsic value today; the government can print any amount it wishes.  They do this by legislating the amount that can be printed and the Federal Reserve determines when, if, and how much to release to the banks.  Money to the Federal Government is a tool that is supposed to be used to enhance productivity within the country.  Its expenditure has nothing to do with its taxable income.  The true value or wealth of the country is the goods and services produced within a fiscal year determined in terms of dollars and cents.

 

If the members of Congress do not understand this concept then they are working against the welfare of the nation.  They are not doing what they were elected to do, run the country positively.  What has existed since the House of Representatives achieved a Republican majority in 2011 has essentially been inaction, or when legislation occurred it has been mainly to hamper economic recovery.

*************************

From the year 2008 on the major banks, first in the United States and then throughout most of the Industrial world, were suddenly on the point of collapse.  In the U.S. one trillion dollars of real estate value disappeared virtually overnight.  The major banking houses were suddenly facing ruin, were ready to go under.  They had speculated in real estate from the 1980s on to the point of insanity in late 2008.  Overnight there was massive unemployment; many people’s homes had larger mortgages than they were then worth.  The country was on the brink of a massive depression.  Banking in the U.S. could conceivably diminish to a trickle.

 

First in 2008, when this madness, brought about by the large banks, both commercial and investment banks occurred, George W. Bush and his Treasury Secretary, Hank Paulson, made massive loans to the banking houses; then this was continued by President Barak Obama in 2009.  Some investment and commercial banks were allowed to go under, their loans and deposits taken over by other big banking houses; but most were saved with additional loans.  (If you’re interested in the specifics of what happened Ben Bernanke the former chairman of the Federal Reserve, has just published a book dealing with all of this.)

***************************

What have the Republicans achieved?  In 2011, through a process known as gerrymandering, favorably setting up voting districts in states they controlled politically, based upon the party registration of the voters, they were able to gain control of the House of Representatives, and they have kept it ever since.  In the Senate they gained control in 2014.  They could conceivably lose it in 2016 when 1/3d of the Senate will run for reelection.

 

The Republican prospective in dealing with the Real Estate Disaster has been to ignore it.  Mitt Romney, when he ran as the Republican Candidate in 2012, spoke about doing away with the banking reform bills passed after the 2008 Crash.  It seems that one of his goals was to bring America back to where it was before the 2008 Disaster.  Fortunately he didn’t get elected or we might be back to the Crash now with the major banking houses again destroying the economy.

 

Since they gained control of the House of Representatives in 2011 the Republicans in the House of Representatives and, for that matter, also in the Senate have strictly followed a policy of Microeconomics (small economics), attempting to run the country as they each run their own households.  The result of this from 2011 on has been to exacerbate the recession, costing additional hundreds of thousands of jobs lost throughout the United States in the federal and state governments and in the general population from monies not spent by these unemployed former government employees.  They have done everything possible to worsen the overall situation.  Luckily the President and the Federal Reserve, despite the Republican actions, have been able to generally put the country well in the direction of economic reform.  The cost of this has been a 53% increase in the National Debt spent by President Barak Obama during his first six years in office.  This included an economic stimulus package, both cutting taxes and extending unemployment benefits to avoid another Great Depression.  He has also increased defense spending and brought about the Parent Protection and Affordable Care Act (Obamacare).

****************************

The National Debt is now 18.4 trillion dollars.  If we go back to the Republican Presidency of Ronald Reagan we get a good idea of why it is so high now.  When Reagan became President in 1981 the National Debt was just under one trillion dollars.  His great fear was that the Soviet Union was militarily ahead of the United States.  He wanted to militarily catch up to them and possibly get ahead of them.  In eight years he added 1.86 trillion dollars, over 100% to the 998 billion debt level bringing it up to well over 2 trillion dollars.

 

In point of fact we actually were well ahead of the Soviet Union in our military preparedness.  The Soviet Union bankrupted itself trying to keep up with the United States.  The problem with the U.S. was that the leadership instinctively knew how well armed the Soviets were and that the contrary information that the government intelligence agencies could provide was supposedly inaccurate and ignored.

 

Under George H.W. Bush, through faulty or stupid use of diplomats, the President of Iraq, Saddam Hussein, got the impression that he could invade Kuwait and the United States would ignore the incident.  After the invasion we had operation Desert Storm.  This war could have been avoided with proper use of diplomacy.  Bush Sr. added 1.554 trillion dollars to the National Debt, an addition 54% in just 4 years as president.

 

Interestingly, I would suspect in reprisal, Saddam Hussein attempted to have George H.W.  Bush assassinated.  The attempt failed.  But apparently his oldest son never forgot this fact.

 

The National Debt increased under Bill Clinton but during the last year of his second term he not only balanced the budget he also reduced the Debt slightly.

 

Shortly after George W. Bush became President he got the U.S. involved in two wars: one in Afghanistan as a result of the destruction of the Twin Towers in New York City and another one in Iraq because, I would suspect, to get even with Saddam Hussein for attempting to kill his “daddy.”  The intelligence agencies in the U.S. felt, I understand, that the “weapons of mass destruction” theory or belief was pure fantasy.  Bush Jr. in eight years added 5.849 trillion to the National Debt increasing the National Debt 101% during his eight year period as president.  A good part of this money was spent fighting a pointless war which destabilized the Middle East and brought into existence such groups as ISIS and what seems hopeless confusion and endless civil war that we are stuck with today in the Middle East.

 

While Obama increased the Debt another 53%, 6.167 trillion dollars, during his first six years in office he did so to keep the country from falling into a deep depression, which had been gradually brought about by doing away with banking restriction laws that had been passed from 1933 on, during the years of the Reagan Presidency.  Reagan and his group apparently believed in a Free Market economy; with all economic decisions being made by the actions of the market.  He allowed the big banking houses, with no Government controls to create a maelstrom.

 

Despite all the Microeconomic moves of the Republican House of Representatives during the first six years of the Obama Presidency he has largely worked the nation toward economic recovery.  Had the Republicans understood basic economics the country could now be undergoing a period of full employment with a much higher tax base that might even be high enough to start reducing the National Debt.

************************

Other questions loom up here: What exactly is the National Debt?  How does it affect the nation?

 

According to a member of the Freedom Caucus who was interviewed on MSNBC he would vote for Paul Ryan as the new Speaker of the House of Representatives when the current one, John Boehner, leaves at the end of October 2015 if he would acknowledge the seriousness of the National Debt, over 18 trillion dollars, and work to reduce it rather than allow the country to continue to move toward bankruptcy.

 

This seems to be a basic value of most Republicans.  They don’t acknowledge that their party was mainly responsible in raising the National Debt to where it is today.  They seem to blame it on the Democrats and want to reduce Federal Government nonessential spending, particularly spending on the poor and aged.

 

This attitude keeps the country on the edge of disaster seemingly going from legislative crisis to legislative crisis.  The Debt Limit bill that was passed with strong Democratic help after the Speaker, John Boehner resigned from the House of Representatives.  In it Congress had to raise the current Debt Limit or face default by legally running out of money with which to pay its bills.  The Treasury Department had stated that Congress must raise the debt limit beyond 18.1 trillion dollars or not be able to meet all its bills by November 3, 2015.  That crisis was resolved in both Houses of Congress with help from the Democrats.  Also in both Houses of Congress funding the Federal Government will come up again in December.  Will Planned Parenthood again create a crisis there?

 

Former Speaker Boehner was able to get such a bill raising the National Debt through Congress before his Speakership ended and only with Democratic help.  The same holds true with the Senate.  The bill was for two years.  President Obama had stated that he will veto any short term bills.

 

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 and is held by the Federal Reserve and such entities as Social Security that currently holds probably over 3 trillion dollars’ worth of these securities, Medicare, the Federal Savings and Loan Corporation Resolution Fund, as well as a number of other government agencies.  These debts held by governmental accounts represent cumulative surpluses, including interest earnings of these accounts.  In 2012 there were at least two direct transfers of 89 billion dollars from the FED to the Treasury that constituted interest paid on the National Debt.

 

The Federal Government admits to owning 40% of its own debt.  The probability is that it is more like 50% or 60% of the money it owes.  For example, besides massive unemployment and the loss of value of the dollar in the 2008 Real Estate Crash there was an intense mortgage problem: since a very large percentage of the mortgages issued had been broken up into microscopic size and the pieces issued by innumerable Hedge Funds into countless securities, the question that arose was who owned all that mortgage paper?

 

At first the bank computers generated documents and most of the banks foreclosed upon homes they did not own.  After this was discovered the banks stopped the foreclosures.  Then the question arose: Who did own these properties?  The answer was no one.  Each property could have been divided into hundreds of pieces, each issued to a different Hedge Fund.  It should have taken twenty of more years to straighten out this mess.  The housing industry, both old and newly constructed homes, would have been in a state of practical nonexistence.  Many older homes whose mortgages were far above their actual value had been deserted by their former owners and stayed empty, and construction companies would have found it nearly impossible to fund their projects.

 

By the Federal Reserve stepping into this problem and dealing with it they were able to largely resolve it in a period of just a few years.  I would guess that the price of resolving this problem cost the Federal Government well over ½ trillion dollars.  What the FED bought was trillions of fractional pieces of mortgage paper that the banks had created over a thirty year period.  Sorting them out would have been unbelievably expensive and probably totally impracticable.

 

Using imaginative monetary policy Ben Bernanke, the Chairman of the Federal Reserve, over a period of several years, solved this problem by pumping billions of dollars into the economy.  For a period of well over two years.  The Fed pumped 85 billion dollars into the economy monthly.  Forty billion bought back Government loans and Forty-five billion bought mortgage paper from all 50 states, literally trillions of mortgage pieces each month.   What happened to all this mortgage paper?  The probability is nothing.  It would have been prohibitive to sort all these microscopic pieces of mortgages.  An even then it would have required over 50% of the pieces for any action to be legally taken against the homeowner.  The banks had been in such a rush to continually refinance these properties that record keeping became farcical.

 

I would suspect that after two or three years most, if not all, of the deserted homes were sold for back unpaid taxes.  As for the people who stayed in their homes and couldn’t afford the continued payments, they probably waited for foreclosure that never came.  These people could no longer legally deduct their home interest from their income taxes but they still had quite a bit of extra income which they freely spent adding to the National Cash Flow, and encouraging more employment, within the United States.

 

The private section of the National Debt, the forty billion spent monthly, is money previously borrowed for short to long periods of time by the Federal Government from individuals, both in the United States and foreign countries, by foreign nations, and by numerous other entities.  By this action the Federal Government both allowed long term purchasers of this government paper to purchase long term paper at higher rates of interest and cash them out almost at will.  This process allowed the Federal Government to add all this money to the National Cash Flow continuously for this period.

 

The amount of money available to the public grew at an expediential rate.  Interestingly there was no inflationary increase with all these billions of dollars added to public spending.  Instead this Creative Monetary Policy of the Federal Reserve largely solved the bank mortgage disaster of 2008, made more cash available for economic growth, and moved the nation well into the direction of economic recovery by 2015 from the Real Estate Disaster.

 

It is also well to keep in mind that pretty much the same result could have been achieved, probably at a lower cost, by Congress passing fiscal policy as was requested by President Obama during the third year of his presidency, 2011.  This bill and others that could have been passed later would also have modernized much of our infrastructure and moved this country into the 21st Century.  But the Republicans in Congress have done nothing to really help the country or the bulk of its population.  If anything they have been penny wise and dollar stupid.

 

If the question were raised: Have we as a nation gotten our money’s worth from the ½ billion or so we spend to keep Congress functioning?  The answer is definitely negative.  In fact the situation seems to continually get worse.  With the retirement of the current Speaker of the House of Representatives will the new Speaker, Paul Ryan, be able to get positive legislation passed?  Being a very conservative Republican will he want to do this?

 

The question is currently up in the air.  The Republicans have 247 representatives out of 435.  But 40 of them belong to the Freedom Caucus.  The majority of them presumably support Ryan.  But they are far more conservative than the very conservative 207 other conservative Republicans.  In order to elect a new Speaker 218 affirmative votes were needed.  Ryan was willing to be Speaker if the Freedom Caucus  backed him as Speaker.  The majority of them have voted for him.  What will happen?

 

Meanwhile what about the bill funding the government that has to be passed before the middle of December?  The Treasury will not be able to legally pay the Governments bills unless the funding bill is passed by December of 2015.  It has been kicked down the road for three months.  If the Republicans insist that funding Planned Parenthood be removed from the bill President Obama will veto it.  Also if it is again a short term bill the President will also veto it. What will Ryan do?  What will he want to do?  It was Ryan who originally proposed using the leverage of necessary bills to force its agenda upon the President.

The Weiner Component #135 – The Republicans & the First Primary Debate

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

English: Seal of the President of the United States Español: Escudo del Presidente de los Estados Unidos Македонски: Печат на Претседателот на Соединетите Американски Држави. (Photo credit: Wikipedia)

Recently the first Primary Republican Debate of the ten leading Republican potential candidates in the upcoming 2016 Presidential Election ended.

 

speaking at CPAC in Washington D.C. on Februar...

It was supposed to consist of the ten most popular Republican candidates out of the 17 attempting to run for the presidency.  The top ten were chosen based upon the last five national poles.  But the fifth pole tied the percentage of the 10th and 11th candidates, making the number chosen eleven.  Consequently Fox News, who ran the debate, skipped the 5th pole and used a 6th pole that did not have a tie in the last place and ended up with ten potential candidates.

 

Fox News, the official new arm of the Republican Party, devised the format of the debate that was not really a debate.  It consisted of questions addressed to specifically candidates.  And these questions were not always friendly, particularly many of those aimed at Donald Trump who was the most popular of all the candidates.

 

Probably because of intense outside pressure, Fox held a separate session for the losing or less popular seven candidates earlier in the day.  They treated them obliquely with contempt, using a large empty stadium and calling them by their first names as the Fox commentators asked them questions.  It was going along with popular pressure in a put-down fashion.

 

It should also be noted that Fox News sold the candidates a lot of advertising space for the candidates to make themselves popular among national Republicans.  Because Republicans watch Fox News nationally this was the only way the candidates could sell themselves to the general Republican public.  Fox devised the method and certainly profited from it.  Interestingly the one exception here was Donald Trump.  He apparently was known to everybody and needed no additional publicity.

***************************

The main event in the evening, which was probably watched by more people than any other broadcast in the history of television was hardly a debate.  It featured three of Fox’s leading commentators asking specific questions and quickly moving on to another participant with another question.  All the speakers seemed well prepared and their answers, even though generally dealing with the topic of the question, did not really answer it.  There was only one  instance of a follow-up question and the answer given still did not reply to that specific question.

 

The leading Republican candidate for the presidency in terms of being the most popular among Republicans was Donald Trump.  I suspect the overall assumption among the millions of TV watchers was that he would blow his cool at some point and verbally erupt at someone or something.    The closest he came to that was with one of the Fox commentators, Megan Kelly, when she asked him about some of the negative statements he has made about woman.

 

The candidates attempted to define themselves and denounce President Obama and the Democratic Party.  President Obama was denounced as a week and failed president who essentially did everything wrong and bowed to the Iranians in giving them everything they wanted in order to become the leader of terrorism around the world, giving Iran the money to finance this process and allowing them to develop in order to become an atomic bomb nation.  And all these positive statements were made, I got the impression, without even bothering to read a draft of the 100 plus page agreement.  Most of these candidates practically or directly guaranteed we would go to war with Iran if one of them was elected.

 

It seemed as though the forthcoming election was all about them, the individual Republican candidates, and not about the disaster they could bring about if elected.  Most practically stated that they would straighten out all the world’s problems.  Their implied method was that they would do this by the use of military force if necessary.  They seemed to also not know that the United States is one of six nations that negotiated the treaty with Iran over a two year period, that if the U.S. rejects the agreement it will likely be the only one of the six nations on the United Nations Security Council to do so.

*********************************************

Basically what was heard in the debate was demagoguery.  They, the Republicans, have taken no responsibility for any of their past actions and blame everything on President Obama and the Democrats.  My response to all this is: Get real!

 

Mostly by implication and sometimes directly, the ten hopeful Republican candidates for the 2016 Presidential Race blamed President Obama for virtually everything wrong in the society today..  It was as though the Republicans have done nothing to bring about the problems or conditions that exist today.  They would do away with Affordable Health Care (Obamacare) and the Dodd-Frank banking reforms that came about after the 2008 economic crash, or anything else.  I suspect if the weather was inclement it would have been Obama’s fault.

 

The Dodd-Frank Banking Reform Law was a washed down version (Washed down because of intense bank lobbying.) of what a finance committee, headed by Paul Volker, a former Federal Reserve Chairman, had proposed in order to do away with the causes that had brought about the economic disaster of 2008 which could have sent the nation into a depression far deeper than the Great Depression of 1929.  Today many banking executives feel economically inhibited by some of the few things they can no longer legally do and would like a totally free hand again.

 

While most of the participants in the so-called debate stated that they would do away with the Affordable Health Car Law, which incidentally has greatly reduced the rate of medical costs by slowing down the rate of medical cost increases, only one of them, Donald Trump, seemed to have a plan for its replacement.  He would, he said, make the insurance companies for its plan members function on a national instead of state level and for those who could not afford to buy insurance he implied obliquely that he would have the government provide a single payer plan for them.  Would he be able to do this if elected?  An interesting question.  Especially if Congress retained its Republican majorities in both Houses.

 

Of the faults of Obama as a failed president, one by implication was the National Debt.  After all aren’t the Republicans the party that espouses a balanced budget?

 

Since 1980, when Ronald Reagan was elected to the presidency, the Republicans controlled the presidency for 20 years and the Democrats for 15.  The country had Reagan for 8 years, Daddy Bush for 4 years, and Bush Jr. for 8 years.  The two Democratic presidents were Clinton and Obama, each for 8 years.

 

Reagan started with a National Debt of $1 trillion and raised it to $2.8 trillion, almost tripling it.  Ever since President John F. Kennedy had lowered taxes during his administration and the government had then collected far more in revenue than it had before the decrease in taxes other presidents had unsuccessfully attempted to do the same thing.  Reagan cut taxes, especially for the well-to-do and upped government spending, particularly military spending.  He believed, wrongly, that the Soviet Union was far ahead of us militarily and that we had to catch up and get ahead.  He introduced the concept of “star wars” and other science fiction type concepts which our scientists were supposed to develop.

 

What President Reagan inadvertently did was to force the U.S.S.R. to militarily keep up with the United States and that brought them to the edge of bankruptcy and to the fall of the Soviet Union.

 

But what Reagan did for the United States was to almost triple the National Debt to $2.8 trillion.   George H.W. Bush with his inept diplomacy actually encouraged Iraq’s Saddam Hussein to invade Kuwait and then he organized operation Desert Storm to liberate them.  This and his other actions cost the U.S. Government an additional $1.55 trillion.  Bush Jr. by engaging in two military operations (wars), one totally unnecessary, added another $6.1 trillion to the National Debt bringing it to $11.8 trillion.  And at the same time President George W. Bush also lowered taxes, particularly for the rich.  In fact today anyone earning over $400,000 a year pays no taxes on any amount over $400,000.  Welfare for the very well-to-do.

 

What has happened is that taxes for the upper 1% has been gradually cut in half or more and the ever increasing deficit has been used to force cuts in services for the middle class and the poor while the middle class with gradual inflation has found its income tax bill increasing.  Currently the Sequester, a law that automatically makes cuts across the board yearly unless Congress passes a bill stopping a part of it like certain cuts to the military for that year is enacted, is slowly decreasing funding for most programs including the military that is now at the lowest point of readiness than it has been for many years.  So far these cuts, which the Republicans insist on having, have been largely invisible.  At some time, probably around the end of this current year or at the most next year, many of them will become blatantly visible and the blame game will begin between the two political parties, with the Republicans, who have brought it about, screaming the loudest.

 

Under President Bill Clinton the deficit actually decreased slightly.  President Barak Obama inherited a heavy recession from Bush Jr. and had to spend quite a bit to avert a greater economic decline than the Great Depression. Among other things he bailed out the banks, who by their irresponsible behavior had brought this negative economic condition about, and the auto industry.  And, with phenomenal negative interference from 2011 on by the Republican majority in the House of Representatives, President Obama has brought the economy back from the Republican induced total disaster.  In this process he has increased the deficit but he may end his last year in office with a surplus paying down a small percentage of the Republican induced debt.

 

Taken together the three Republican presidents over their 20 year tenure raised the National Debt 13.5 trillion dollars and left the nation on the edge of a greater depression than that of 1929 which persisted for over ten years.  Electing a Republican president will probably mean another war in the Middle East with Iran.  That will make three separate wars being fought there and the national deficit will shoot up even more.

******************************************

In the various questions and answers discussed during the debate, with one exception, the economy was not mentioned.  Jed Bush stated that he can achieve 4% economic growth over his 8 year tenure as President and create 19 million new jobs.  He would do this by simplifying the tax code, repealing the 2010 Health Care Law, reducing regulations on the oil and gas industries and putting people in the country illegally on the legal jobs tax rolls.  While Climate change was not mentioned Jed Bush’s proposal would worsen the conditions that bring it about.  Student loan debt and affordable college were also not mentioned.  Gun violence in the United States was also ignored.

 

In terms of the War on Women, Scott Walker was against all abortions: rape, incest, and even where birth could terminate the life of the mother.  He felt that the medical profession, in every case, could save her life.  Mike Huckabee wants a Constitutional Amendment giving the fetus full protection before the law from conception on.  Apparently the question of choice for women is nonexistent.  Marco Rubio wants no exceptions for abortions in cases of rape or incest.  These men know absolutely what is right for all women; but they will not have the government share in the responsibility for raising or providing for any of these women or children.

 

The solution to illegal immigration was Donald Trump’s plan to build a wall between Mexico and the United States and have Mexico pay for it.  Apparently he doesn’t understand that a goodly percent of illegals come from all over the world including Canada.  Technically he would need fences on all areas where the United States borders on another country as well as a careful check upon all visitors to the country and how long they are legally allowed to stay in the U.S.

 

Among the ten candidates none stood out as a dynamic leader.  If anything some of their comments tended to insult a large part of their audience.  Donald Trump kept rationalizing about the disadvantages of being “politically correct,” as if it were some sort of disease.  He justified his verbal abuse of women by naming one.

******************************

As I’ve stated, what was most significant was what was not mentioned, global warming was one example.  Bush, if he were to become president, could do away with the EPA (Environmental Protection Agency).  That could create jobs because adding the additional pollution to the United States and the world would probably create a multitude of new jobs.

 

What came to my mind as I watched the performance was the phrase “Myth & Reality?”  These people were prefabricating and defining conditions that did not exist.  They were creating a situation where verbally everyone would live “live happily ever after” if one of them were elected to the presidency.  Well some people just like them had been elected to the presidency in the past and many people, both Americans and those we were fighting, died or were maimed for life and the National Debt rose like a hot-air balloon.  What we must remember is that they are pandering to the extreme right of the Republican Party in order to be chosen as the Republican candidate in the primary elections.  Whoever gets chosen will still have to defeat the Democratic candidate in the general election.  Are they purposely lying or stating nonsense?  Or do they actually believe the myths they are espousing?  That’s an interesting question.

 

In any case what is needed is reality.  If that so-called debate is the best they can do then it becomes everyone’s duty to vote against all or any of those self-important candidates, particularly if they want to see their version of changes within our society.

 

 

The Weiner Component #89 – Money, Economic Growth, & The National Debt

English: President Barack Obama confers with F...

English: President Barack Obama confers with Federal Reserve Chairman Ben Bernanke following their meeting at the White House. (Photo credit: Wikipedia)

According to the last time I checked the Census Bureau the population of the United States was increasing at the rate of one person every 11 seconds. This included births, deaths, and immigration. This increases the overall population by about 117,818 people per year. In order for the per capita level to remain at 0% it must rise several points every year. In order for the economy to grow it has to rise beyond this point.

In order for the economy to function positively there must be a reasonable level of growth. For this to occur there must be a reasonable yearly growth of the money supply. If the amount of currency in circulation is stultified or decreases the country is in recession moving toward depression.

By the mid1970s the money supply in circulation was not increasing at a rate needed by the country for economic growth. At this point the banks by their lending policies, gradually began to fill the currency void. They gradually discovered that they could bundle their mortgages, dividing them up into infinitesimal pieces, set up hedge funds, sell the mortgage shares like stock, recover their investment, lend the money out again, and continue to do this endlessly, charging assorted fees on every level of this process. In doing this they created first billions of dollars and then trillions, always keeping a good percentage of this in the form of fees. While this process was needed for growth within the nation eventually, thirty odd years later, it had become a mad race for endless profits by the banks.

In 2008 this housing bubble the banks created burst and the country fell almost instantaneously into economic depression. What had been a dollar in value a few days earlier now became worth a nickel or at most a dime in value. The country was headed for a depression deeper than that of 1929.

Newly elected President Barak Obama and his administration stepped into the void and the Federal Government made massive loans to the banks and later to the dying American auto industry. Where did they get the money? They printed it and temporarily took on additional massive debt. All the loans were repaid within a few years with interest.

A word about the National Debt. What is it and where does it come from? The Debt is money the government spends in excess of the taxes it collects. It is currently more than 17 trillion dollars. The money is borrowed and has interest paid on it. This money is owed to individuals in and out of the United States, it is owed to countries like China and Japan, to both of whom is owed in excess of one trillion dollars, and mostly the money is owed to itself and its agencies such as Social Security, who is owed well over 2 1/2 trillion dollars, and Medicare. In fact just about all government agencies that have a surplus have had their excess taken and used in the General Fund. The interest on all of this is paid by the Federal Reserve to the General Fund. I remember reading several months ago about 88 or 89 billion dollars being transferred from the FED to the Treasury.

The National Debt is divided into two parts, public and private. Public would be what is owned by individuals or countries like China and Japan, generally acquired to balance international trade. Private ownership of the Debt is what the Federal Government owes itself. It admits to owning about 50% of its own debt. By my estimate the Federal Government directly or indirectly through its agencies actually owns roughly about 75% of its own debt.

Where does it get all this money? Simple! It prints it and issues the currency as needed. After all there is nothing behind the United States dollar but the word of the U.S. Government. There is nothing behind any currency but the word of the government using it.

By the year 2000 the banks had created trillions of dollars and were going strong with mortgages, both new ones and refinanced ones. Money that had been needed for economic growth and development was being readily supplied with the banks taking a good share of this currency. Large numbers of people were using their homes as bank accounts, refinancing again and again. The major banks were making billions in fees and wanted profits of many more billions. The mortgages were considered safe investments and they sold like shares of stock with a promised safe return. These were the Hedge Funds bought nationally and internationally that were touted as hedges against any type of financial loss and they paid nice dividends.

The situation grew more-tense as time went by with many bankers encouraging homeowners to lie on their applications. After all prices had been and were continually rising on real estate. Anything that could be mortgaged was mortgaged more than once. The situation grew more and more chaotic, until toward the end of 2008 when the entire economy collapsed. Shortly thereafter Barak Obama took office as the 45th President of the United States.

His theme had been “It’s time for a change.” By 2010 the economy had been saved but there wasn’t enough “change” to satisfy the majority of the voting population and the Republicans gained control of the House of Representatives. The Tea Party was in control of the Republican Party, moving its position far to the reactionary right. All possibility of fiscal policy ended. There would be no more government projects. In fact the Republicans had two specific goals: one was to shrink the economy by curtailing spending and the other was to make Barak Obama a one term president by not allowing him any legislative victories or successes.

They successfully achieved their first goal of contracting government expenditures, particularly on entitlement programs to the poor and to the states, forcing state governments to shrink their services, and they added to the unemployment caused by the Real Estate Bubble bursting. The House of Representatives would not even take up fiscal policy, keeping unemployment high and forcing the country to continue with an infrastructure well over fifty years old. They left any possible improvement to the economy to the Federal Reserve which, under Chairman Ben Bernanke’s guidance, used imaginative Monetary Policy to bring about some recovery.

Two major problems developed from the 2008 economic crisis: first the amount of money in circulation had to be increased significantly and second, many people were underwater on their mortgages; that is, they owed more on their property than it was worth. Something had to be done to alleviate the housing crisis. An additional crisis was who controlled the mortgages that had been broken into hundreds of pieces and attached to innumerable hedge funds. What the FED came up with was to add 85 billion dollars to the economy; 45 billion was spent buying up mortgage paper and 40 billion was used to buy up government debt. This was done monthly for several years, adding trillion of dollars in currency to the economy.

Toward the end of his tenure as chairman of the Federal Reserve, Ben Bernanke announced that the FED would decrease its purchases by 10 billion monthly. The new chairperson of the FED, Janet Yellen, stated that she would continue the policy, ending it in October of 2014.

Many prices had been gradually rising and the fear was that the country might fall into an inflationary spiral, too much money being in circulation and forcing prices up.

Toward the end of 2013 the housing crisis seems to have leveled off. There has been new construction throughout the United States and property values have gradually risen, taking a lot of people out from being underwater.

On Tuesday, July 16, 2014 Federal Reserve Chairperson Janet Yellen announced in her report to Congress that the FED might not completely stop buying debt and mortgage paper at the end of October.

What will happen should be very interesting. Following October is the 2014 Midterm Election. How will the country react if there is a stoppage of all Monetary Policy? Will there be a significant drop in the Stock Market, which today is far higher than it was just before the 2008 Crash?

How will the country react? Will they even notice the change? Will the election be affected in any way? The times are certainly changing!

There is enough money now in circulation, far more than there was in 2008. The problem is its distribution. More and more of it seems to go to the upper 20% of the population, forcing many in the middle class economically downward. Unemployment has dropped to a fraction above 6%. What the country needs is a redistribution of the National Income downwards and a rebuilding of its infrastructure. Affordable Health Care should have a single entity running it and not for profit. This would be the Federal Government and it should be paid for out of taxes like Social Security and Medicare. Instead we allow private companies to become richer running it. We need a greater level of fairness in this country.

 

 

 

 

 

 

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 #64 – So Called Economic Prosperity & Economic Disaster

English: Monthly changes in the currency compo...

English: President Barack Obama confers with F...

English: President Barack Obama confers with Federal Reserve Chairman Ben Bernanke following their meeting at the White House. (Photo credit: Wikipedia)

Economic growth has been increasing at a phenomenal rate; with the United States in the last quarter of 2013 reaching a point where there was a surplus, more money coming in in taxes than was being spent.  Dr. Ben Bernanke, the then chairman of the Federal Reserve felt that it was growing too rapidly.  Apparently complete economic recovery with a 6 ½  to 7 percent unemployment level does not really denote a healthy economy.  This would mean that we have an excess surplus percentage of the population that exists within our so-called healthy economy.

The question is how can you have economic recovery with 6 ½% to 7 % of the population still actively looking for employment?  And what about the group that has given up looking for work or those that are underemployed?  While we don’t know the exact numbers of these people they could make up another 6 ½ to 7 percent, or for that matter, the number could be greater.

Can we truly have prosperity with 10 to 14 percent unemployment and underemployment?  If we look at the statistics the amount of money available in the country, the GDP, has increased exponentially but the distribution of these massive funds have been and are in the process of changing with a greater and greater percentage going to the upper echelon of society and a smaller and smaller percentage going to everyone else.  General wages have essentially stayed the same or risen very slowly with prices rising at a slightly more rapid rate.  People are finding that their incomes, which may be slowly rising, are buying less and less each year.  This situation is reminiscent of the 16th Century when inflation existed for a 90 year period.  Wages remained essentially the same but the value of money, which was gold coins at that time continually decreased in value; that is, every year it bought less.

The 16th Century was the time that Spain looted the gold supply from the New World, the Americas, and yearly brought to Europe shiploads of gold that were almost immediately turned into coins and circulated throughout the continent.  As the amount of gold in circulation rose the value of the money dropped.  A small group became fabulously wealthy while the rest of society suffered without having an inkling of what was causing their misery.

We are essentially in the same position today.  A small group, the upper earning percentage of the population of the United States, is seeing their incomes explode while the bulk of the population is being pushed slowly economically downhill.  The country is recovering, both from the Real Estate Debacle of 2008 in terms of the amount of currency in circulation and seeing a growth of funds beyond that point, but the distribution of those dollars is giving that money to the upper echelon with a fractional increase to the general population and the high unemployment level continuing.

This is a scary scenario for the welfare of the country. We have more money available in the general society but a goodly number of people are excluded from any part of it.  The minimum wage remains at $7.25 an hour and we still have unacceptable levels of unemployment throughout the country.  As a note of irony we have couples working in the U.S. at the minimum wage level and still having to apply and receive Government aid in order to survive with a family of four.

The country seems to be returning to prosperity and misery at the same time.  Recovery would be better at a slower pace with unemployment decreasing as economic recovery is increasing.  Massive changes are necessary if overall economic health is to come about.

We are currently living in a society where the bulk of the population has no real understanding of economics.  They see everything in terms of their household budgets.  They see the government spending money it supposedly does not have, therefore throwing the country deeper and deeper into debt.

This, common sense approach, is all nonsense.  Most people still think of money as gold.  This is untrue.  There is nothing behind the dollar but the word of the government.  It prints and issues money as needed.  It also, through it many agencies like Social Security and Medicare and otherwise owns at least fifty percent of its own debt.  In 2013 the Federal Reserve turned over, well over seventy billion dollars to the Treasury.  Most, if not all of this, was interest from the National Debt which the Federal Government owes and owns.

Recovery would be better at a slower pace, but whether or not it occurs, changes are necessary if massive economic health is to come about.  We have to decide whether all people have a right to a minimum level of economic functionality or if one group deserves to have all the benefits that society can provide and the rest deserve to persist as best they can.  Actually if nothing is done the latter will occur.

Today money is a tool of the Federal Government used to effect economic health within the society.  There is no gold behind the dollar.  The Government prints what is needed for the society to function.  Its value is based upon the word of the Central Government.  The amount in circulation in the United States is controlled by the debt limit which is set by Congress.

Also the amount of money in circulation is determined by an inflation factor.  If there is too much money available, more money than goods and services available, then the value of the money decreases.  If, on the other hand, there is too little cash circulating in the general society then the value of the money increases and deflation occurs.  The Federal Reserve monitors this and attempts to keep a proper balance.

To the individual, the members of Congress, money has value.  It provides for their and their family’s needs.  If the members of Congress apply this position to National Expenditures then they are actually shrinking the economy and exacerbating negative conditions, tightening government spending and adding to unemployment.

It is an interesting conundrum.  Applying “common sense” family budgetary rules to the running of the United States could possibly bring about a recession or depression.

The basic principle, which is a hard one to comprehend and accept, is that consumption is as important as production.  Without consumption there is no need for production.  By allowing an ever increasing majority of the National Income to go to the upper percentage of the population there is less and less money available to the rest of the population.  Consequently the amount of goods and service they can consume is continually decreasing.  The system is working against itself.

Are we having real economic prosperity or is the country working toward economic disaster?  An interesting question!

 

 

 

Enhanced by Zemanta

The Weiner Component #18 – Myth & Reality

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Enhanced by Zemanta