The Weiner Component V.2 #49 – Cycles of National Wealth: Part 1

Homeowners could always raise money by getting second mortgages on their properties.  Sometime during the 1970s someone, probably in banking, came up with the idea of splitting these mortgages up into many different pieces and selling each piece to a different owner.  By the early 1980s, and this was the time of President Ronald Reagan and pure capitalism, Hedge Funds were set up which took fractional shares of each mortgage putting them into different Hedge Funds.  The point here was if some of the mortgages didn’t pay occasionally the dividends would still be large enough to justify the existence of the Hedge Fund.  These were considered absolutely safe investments.  American mortgages had become a form of massive investment securities.

 

Meanwhile executive pay rose into the multimillions and wages rose very slowly and very slightly, not even keeping up with increases in productivity.  Most banks, particularly the larger ones like Bank of America or Wells Fargo, encouraged their customers to finance and refinance their homes, to use their domiciles as bank accounts, in order to buy whatever they desired.  One of the arguments being that continued refinancing continually raised the value of the property, therefore what they withdrew was practically free money.  People were spending the ever increasing profit in their homes, not worrying about ever paying off their mortgages.  Consequently the continued fees in doing this were also absorbed by the continued increases in the value of the property.  Seemingly it was a no lose situation for both the banks and their customers.

 

In places like California people tended to move every five years, replacing their home with a larger more expensive abode.  A lot of individuals bought into this continual refinancing program.  Many of these people made up the group that the banks needed and wanted to carry out their programs.  The banks and many of their employees made fortunes in fees and refinancing.  The homeowners tended to live as though they were earning three or four times as much as they actually earned.  It created a housing fantasy or bubble that lasted until 2007.

 

Actually the crash did not come until 2008.  Most of the bankers were in denial that the system could fail; it had lasted for twenty-seven years, most if not all of their careers.  When the crash came many of the banks were suddenly at the point of bankruptcy.  President George W. Bush and his Secretary of the Treasury, Hank Paulson, lent money to the banks to keep them solvent.

 

Basically what happened was that the distribution of funds throughout the economy broke down; most of the wealth went to the upper few percent of the society; it was not shared.  More money was needed for the country to function properly.  Much more of the wealth produced should have been applied to wages.  In addition the Federal Reserve, which is a dynamic institution, should have supplied more cash to the economy but its longtime chairman, Alan Greenspan, did not believe in doing this, particularly since it had not been done earlier.  Also the increases in worker productivity should have been compensated in increased wages.  Instead they went into increased profits which ended up in greater compensation for executives and higher dividends for stockholders.

 

What occurred from the 1980s was a more rapid separation between worker salaries and executive compensation.  More and more of the wealth produced in dollars went to the upper few percent.  More and more inequities were being built into the society.  The general public were being compensated by the flow of cash being supplied by the banks in creating the housing bubble.  This would last until 2008 when it all came crashing down.

 

In 2008 practically overnight the value of the dollar dropped like a heavy lead weight.  Many people suddenly owed more on their homes than they were then worth.  A percentage of these homeowners just took off, deserting their domiciles, others stayed but could no longer afford to make the payments.  They were either unemployed or had lost a large percentage of their commissions.

 

The pattern many banks had followed was to issue mortgages, then sell the mortgages to Hedge Funds or set up their own Hedge Funds, retrieve the cash they had invested, and lend out the money again.  This pattern was repeated over and over again.  It was practically an endless process.  The banks got their initial cash back and administered the loans for an endless cycle of fees.

 

Since the banks believed in speed and efficiency they had set up their own recording concern.  Going through the traditional process of recording all these transactions was too slow.  The problem that came into being was that the endless recording that this agency did was fraught with errors so that when the time came to check out the ownership of the financing and continued refinancing, the records were worthless.  In actuality there were no real records.  Mortgages could have been split into a hundred pieces or more, each going to a different Hedge Fund.  In essence there were so many owners that no one owned enough of a mortgage to have any control of it.  Actually no one owned these mortgages.

 

Initially the banks had shredded their mortgages once they had been sold to the various Hedge Funds.  After the crash a number of banks printed up new documents of ownership to the homes they processed but did not own and then began a process of foreclosure and resale of these homes, keeping the money they made from this process.  The entire transaction was illegal.

 

Seemingly there was no objection on homes that had been deserted.  But where people continued to reside many were illegally pushed out of their homes by banks that didn’t really own the mortgages on these houses.  Cases came up and were heard at the local courts.

 

Interestingly a number of lawyers were disbarred for daring to suggest that the banks were dishonest.  It seemed that many judges could not believe that banks would forge documents.  I would assume that when this was later proven many former lawyers got their licenses back.  The banks were heavily fined in the hundreds of thousands of dollars and some homeowners did collect some money for having lost their homes; no one went to jail for the fraud committed.

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

What happened, when Barack Obama became President in 2009, the country was on the edge of going into a depression that could have been far worse than the Great Depression of 1929.  The entire economy of the United States could have totally collapsed.  It was, after all, based upon the use of the banks.  This could have spread to Europe and Asia bringing about a massive world depression.

 

If the U.S. banks had been allowed to go bankrupt the entire movement of money in the country would have practically stopped.  The collapse of businesses would have accelerated as massive funding would have disappeared.  Unemployment could have reached 75% or higher.  There would have been starvation and riots as the economic system disintegrated.  It would have taken years both in property ownership and bank usage for the country to work its way out of the disaster caused by the banks.

 

Instead President Obama and his administration took control of the situation and changed what could have been a massive depression into the Great Recession.  Unemployment which could have been unimaginably high in 2007 was at 4+%.  By 2009, President Obama’s first year in office, it reached 8%.  In 2010 it rose to 10%.  Thereafter if gradually dropped to 5% by 2016.  Through the use of money a potential massive depression was changed into the Great Recession which returned the economy to essentially normal conditions by the end of President Obama’s second term in office.

 

The period was known as the Great Recession.  By, among other things, lending massive amounts of money with interest charges to the banks and the American automobile industry the President brought the country out of imminent disaster and back to recovery over his two terms in office.

 

In addition for a little over two years during his second term in office President Obama and his Chairman of the Federal Reserve, Ben Bernanke, bought back 50 billion dollars’ worth of housing loans pieces monthly and shredded them while adding another 50 billion dollars to the economy.  By the end of this period, when Janet Yellen became Chair of the Federal Reserve the amounts were reduced 10 billion monthly until they reached zero.

 

This process supplied money to the economy.  A goodly percentage of people, for one reason or another, had stopped making mortgage payments on their homes.  Some had lost their jobs and didn’t have money, others had reduced funds, and still others had retirement funds dry up.  For whatever reason payments were no longer being made and people were not being dispossessed.  Generally there was money available which should have been allocated to home payments but was being kept by some of the homeowners.  Much of this money was being spent on other things like restaurant dinners and entertainment.  There was quite a bit of money out in the society which the Federal Government was indirectly supplying.

 

No one, not even the government, knew specifically which homes the Federal Government owned.  People were able to live in these houses without making any payments.  Those that had money largely spent it.  As long as property taxes were paid on these homes the people could freely live in them.  Where property taxes were not paid the houses were picked-up by wealthy retailers for payments of back taxes, generally fixed up, and rented out or sold.

 

Some rich people got much richer in this process.  No doubt these people started out in that condition.  A percentage of the homes ended in their possession as rentals.  They could also sell the houses.  The process helped to rebalance wealth in the hands of the few and further reduce the middle class.

 

In any event largely in a decade or less it would solve the ownership problem for most of these unowned homes.  Without this solution the problem could have dragged on for thirty or forty years or longer.  The banks did a fantastic job of fouling everything up.  President Obama solved the problem and brought order to the economy.  The price of doing this was indirectly paid by the taxpayers.  A relatively small group within the country made billions of dollars.  It was expensive but it avoided a depression greater than that of 1929.

The Weiner Component V.2 #19 – The Trump Budget

Not too long ago President Trump came out with his proposed budget for the year 2018.  It was heavy with a ten percent increase for the military, had draconian cuts for Social Services cutting some programs and illuminating a large number of others.  It also cut out programs for the arts and for scientific research.  It contained what Trump calls Tax Reform.  This is actually a massive cut for the top Two percent of earners and large corporation decreases in taxes.

 

Looking at his Cabinet the indication is that Trump wants a government of the rich, by the rich, and for the rich.  The groups really harmed by his proposal would be the poor who are totally dependent upon the Federal Government for numerous services and the elderly living upon a fixed income like Social Security or a set retirement that decreases year by year as prices slowly rise due to inflation or otherwise.  Their medical insurance would rise significantly but their coverage or protection by the state would decrease significantly.

 

One can suppose a rapid rise in their death rate of the elderly would benefit the government as their producing days are over and they are only consuming.

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

In a recent article on the internet a staunch conservative congratulated President Trump for his stance on the budget but then stated that he did not go far enough.  He apparently felt that Trump’s proposed massive cuts to the United States social programs would still be costing too much money.

 

Trump’s Treasury Secretary, Steven T. Mnuchin, was originally a Wall Street financier.  According to his and several other people who are involved in finance and working for Trump have stated and may well believe that following Trump’s budget will raise the Gross Domestic Product (GDP) to 3%.  It was .075 in 2015.

 

These people come from the world of finance.  They are not economists.  To many economists this is wishful thinking nonsense; it’s not about to happen.  In fact with all the Trump cuts, increases in spending, and lowering of taxes for the wealthy the deficit will increase considerably in 2017 and 2018.  Thus significantly upping the National Debt which is currently 19 trillion plus dollars.

 

The National Debt is currently approaching 20 trillion dollars but what it actually is is misunderstood by most people in the country.  Most people consider that this is money owed to countries like China and Japan for the uneven trade that goes on with them.  But this is only partly true.

 

The National Debt consists of two parts: one public and one private.  The public part is the money that the government owns.  It is money that it has lent itself.  The question here is can an entity owe itself money?  In terms of the Federal Government obviously it can.  Several times a year the Federal Reserve transfers billions of dollar in interest to the Treasury.

 

Entities within the government transfer their surplus funds to the general fund.  The government then gives them credit for the transferred funds.  The largest entity to do this is Social Security.  In the 1980s, when Ronald Reagan was President, Social Security was in trouble.  It could conceivably run out of money in the near future.  Congress raised the amounts paid into Social Security by both the individuals and their employers.  And in 1989 Medicare was separated from Social Security.  Additional separate amounts were paid into it by both employers and employees from then on.  Also at this time people who did not pay into Social Security could make payments into Medicare and have it when they retired.

 

From that time on Social Security has had a relatively large surplus.  It is today the largest debt holder of part of the National Debt.  Interestingly Al Gore, when he ran against George W. Bush, has as part of his platform, a lockbox, which would have been banking surplus Social Security funds rather than putting them into the General Fund and spending them.  However with George W. Bush as President the surplus went into the General Fund and was spent.

 

China, Japan and other nations have many individuals and companies within their countries that hold U.S. Government loan papers.  That and loan bonds held by individuals within the United States and other countries would make up the privately held National Debt.

 

The Federal Reserve admits to owning about 50% of the National Debt.  I would estimate it to be more like 60% to 70% of the actual National Debt.

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

The FED sells these bonds continually, increasing or decreasing the amount of currency in circulation.  Money is not only cash; it is also credit and debit cards and checks.  The FED regulates the amount of currency in order to control value and limit inflation.  Too much money in circulation decreases the value of the money and too little money being available creates deflation.  The FED has to maintain a balance between the amount of money in circulation and the population of the country.

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

In the minds of most people money is an object of value.  It allows people to have what they need and want.  In fact for most of its history money itself was an object of value acceptable all over the world.  Eventually the amount of gold and silver, which was money in the form of coins, was insufficient in terms of all the business that went on in a country.  There wasn’t enough gold and silver available to conduct the necessary business for the country to function properly.  As a result of this the government of each individual nation withdrew the precious metal and began printing its own currency which functioned within its borders..

 

This began at about the first third of the 20th Century and has continued since then.  Money today in the U.S. is a Federal Reserve Note.  It has no real intrinsic value.  It is merely a means of exchange for goods or services.

 

Adam Smith in 1776 published “An Inquiry into the Wealth of Nations.” In this work, which was strongly influenced by French economists called the physiocrats, Smith developed the basis of the modern capitalistic economics.  The true wealth of a nation is what it produces; its goods and services.  These are it Gross Domestic Product.  They are defined as all the goods and services the nation produces in terms of dollars and cents within a given period of time, a fiscal year.

 

This brings us to the basic concept.  What is the actual wealth of a nation?  Today the United States is the wealthiest nation that has ever existed.  Yet according to our current President we cannot afford to take care of our overall population.  I sometimes think that all modern day Republicans would be much happier if they had lived hundreds of years ago when every individual was responsible for himself and for his family and government merely existed to protect him from foreign invasion.  Looking back historically I wonder if such a time ever really existed.

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

By following Trump’s budget the government will massively reduce its spending.  The military will have much more to spend.  Trump has indicated that he will massively increase U.S. presence and involvement in the Middle East.  Much of the military funding will be spent overseas and a large percentage of the tax decrease will go to the upper two percent of the population.  They have not noticeably increased their expenditures when their incomes have increased in the past and the probability is that they will not do so in the present.

 

What will happen with his tax cut, if it comes into existence, is that there will be far less money available in the economy for the purchase of goods and services.  The probability is that because of a lack of funds less money will be spent and less goods and services demanded.  The GDP will actually decrease and it could achieve 0 growth or possibly .01% actual growth or even hit a minus figure,

 

There is also the fact that there is a velocity to money spent in the National Cash Flow.  Money when spent is usually spent three to twelve times.  For example a person shops in a supermarket.  He or she spends twenty dollars.  That money may be used to pay the salary of an employee.  The employee spends that money on dinner in a restaurant.  It can again pay an employee’s salary.  The money keeps getting spent until it becomes part of the Natural Cash Flow that can be three to twelve times.  The $20 can generate $60 to $240 worth of increased productivity.  Conversely if the money is not spent that amount of productivity is cut from the GDP.  All of Trump’s cuts will subtract trillions of dollars from the economy.

 

In addition to bringing a tremendous amount of misery Trump could also bring about a tremendous recession of depression.  We are still working our way out of the Great Recession of 2008.  Trump also wants to get rid of the laws that were passed to avoid that situation from ever occurring again.  Concievably the country could be brought back to the point we had reached in 2008 that almost brought the nation to a worse situation than occurred in 1929, with the Great Depression, which was also brought about by a Republican run government,.  This can be done by following what today could be called Trumponomics.

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.