The Weiner Component Vol.2 #14 – Trump & Kim Jong-un: The Problem of Atomic War

Nuclear weapon test Mike (yield 10.4 Mt) on En...

English: North Korean leader Kim Jong-il.

English: North Korean leader Kim Jong-il. (Photo credit: Wikipedia)

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

Dropping atomic bombs on Hiroshima and Nagasaki was done 72 years ago in 1945 to end WWII.  In essence this happened two years before President Donald Trump was born.  Most of the people who were alive at that time have passed on.  The memory of the end of World War II exists mainly in books and film; so does the memory of dropping two atomic bombs.  Only a very small percentage of the population, who were alive then, are still around and they are very old.  Neither the President of the United States nor the Supreme Leader of North Korea were alive then.

 

The Hiroshima bomb was dropped on August 6, 1945.  Three days later, August 9, the Nagasaki bomb was dropped.  They were exploded approximately 2,000 feet above their targets.  Both were fission devices.  Their energy was released by breaking matter apart into simpler elements.  The two bombs killed approximately 129,000 people and damaged countless others.  The objective of dropping them was to end World War II.

 

Basically what the bomb did was generate the sun’s heat 2,000 feet above the surface of their target, creating a vacuum directly under the explosion, which immediately sucked in dirt and dust from all around, throwing it up as a radioactive mushroom cloud.  The cloud itself was deadly with radioactivity; some of it would be blown up into the higher atmosphere and be spread innumerable miles in one direction or another, actually adding a measure of radioactivity to the atmosphere, while most of it would eventually drop back into the general area from which it came originally.  All this residue would be highly radioactive and deadly to people.

 

Those caught directly under the bomb and their possessions, houses, clothing, whatever, would immediately die or burn-up from the fire or heat.  The people, as one moves away from the center would all have radioactive burns over their bodies, the amount depending upon how far away they were from the center.  The entire process was pure horror.

 

On November 1, 1952 the United States test exploded a Hydrogen bomb at Eniwetok atoll, an empty island in the Pacific Ocean.  A Hydrogen bomb is a thermonuclear device which is a fusion bomb.  It takes simpler elements and makes them into more complicated ones.  It is also 1,000 times more powerful than an atomic bomb.  In fact it uses an atomic bomb to start its process.

 

While the simple atomic bomb releases the equivalent of 20,000 tons of TNT the H bomb releases 10 million tons of dynamite.  The island the Hydrogen bomb was exploded over melted and disappeared under the Pacific Ocean.

 

A few years later the Soviet Union, under Nikita Khrushchev, exploded two similar devices somewhere in Siberia and Khrushchev reported to the American President that the explosion had been greater than they thought it would be.

 

The radioactivity has a half-life of over 5,000 years.  This means that it can be lethal for over four times that length of time.  If enough atomic bombs were to be exploded they could poison the overall atmosphere of the planet with excess radioactivity and kill all organic life forms that are affected by radioactivity.

 

While shooting the film, The Conqueror, in 1959 John Wayne and ninety other members of the production company eventually came down with some form of cancer.  The film was shot at St. George, in Southwest Utah, east and downwind from the site of U.S. Government nuclear weapons tests.  I understand that one day they all felt a warm wind pass over them.  Susan Hayward and Agnes Morehead, as well as the director, Dick Powell also eventually came down with cancer.

 

It took a while but by 1963 there was a Partial Nuclear Test Ban Treaty that restricted all nuclear testing to be done underground, usually in old deserted mines, to prevent contaminating the atmosphere with nuclear fallout.  It seems that every time an atomic weapon is tested it adds poisonous radioactivity particles to the atmosphere.   Even nations that did not sign the treaty have tested their atomic bombs since then underground.  This included North Korea.

 

Donald Trump, shortly after he became President of the United States, suggested that the U.S. arm countries surrounding North Korea with atomic bombs and missile systems.  Somehow after mentioning this strategy once he has not brought it up again.

 

He may have been properly briefed.  The problem with an atomic or nuclear war is that it could conceivably contaminate the entire planet.

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North Korea or to use its official title, The Democratic People’s Republic of Korea is probably one of the most dictatorial ruled states in the world today.  Its currency, the won, is not accepted in other nations and its value and distribution within the DPRK is totally determined by the government.  There is a different issue of currency for foreign visitors.  International trade and the distribution of currency within the country for goods and services is totally controlled by the central government.

 

The leaders or rulers since the inception of the Communist state has been the Kim family: father, son, and grandson.  Each has come to power after the death of his father.

 

At the end of World War II Korea was split into two sections at the 38th parallel.  The Northern half was organized by the Soviet Union.  The Southern part essentially by the United States.  In the North a Communist government was set up; in the South a Democratic one.  On June 25, 1950 Northern Koreans crossed the 38th parallel and invaded the Southern section.  The war ended with a truce at the 38th parallel in July 1953 with each side occupying the territory they held before the war started.  The truce continues to exist to this day with American troops still stationed at the 38th parallel.

 

On September 9, 1948 the Democratic People’s Republic of Korea was established with Kim Il-Sung as the Supreme Leader.  After his death on July 8, 1994 his son, Kim Jong-il became ruler with numerous titles.  And after he passed away on December 17, 2011 his son Kim Jong-un became the Supreme Leader.  With Asian names the family name comes first and it is followed by the given name.

 

Kim Jong-un assumed office on April 11, 2012.  He was born in 1984, which currently makes him 33 years old.  He has a wife, who is somewhere in her twenties, a daughter and he is the Chairman of the Workers Party of Korea and the Supreme Leader of the Military.

 

His older brother, Kim Jong-chul, was poisoned in Malaysia in 2017 by suspected Korean agents.  In December 2013, Kim Jung-un had his uncle, who was a high government official, arrested for treachery and executed.  He also put to death all the members of his family, including children and grandchildren of all close relatives.  It seems, like many rulers of old, once the crown was inherited the possible competition was wiped out.

 

The Korean War ended in a truce that was never resolved.  Since that time the Northern Koreans have dug in, in their territories, digging deep concrete reinforced fortification facilities throughout their country.  In addition they have developed nuclear weapons and run underground tests of these weapons.  They have also developed and tested missiles that could deliver atomic bombs to their enemies in any type of war.  They claim, without actually testing one, to have developed their own Hydrogen Bomb.  This is given very low credence by U.S. Intelligence agencies.

 

As far as the United States is concerned North Korea currently has atomic bomb capacity and medium range missiles.  They are attempting to develop a long range missile that can reach the United States.  The U.S. has unsuccessfully attempted to halt their experimentation.  The United Nations has condemned it and issued economic sanctions.  Northern Korea continues with its rocket and bomb experimentation.

 

Under no circumstances can the U.S. allow them to develop a long range missile.  The Obama Administration issued sanctions against the ruler, Kim Jong-un and nine other N. Korean individuals.  According to one of the ministers, in doing this the U.S. “crossed the red line.”  DPRK considers that a state of war now exists with the United States.  Most people in the U.S. are not aware of this.  This probably includes Donald J. Trump.

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Despite economic sanctions by numerous members of the United Nations North Korea persists in moving forward with its program.  It would seem that North Korea sees its nuclear arsenal as essential in deterring an attack by its enemies, which include most of the nations in the world.

 

Traditionally the Democratic People’s Republic of Korea has spent 25% of its Gross Domestic Product, of the goods and services it produces each year, upon the military.  It currently has the fourth largest army in the world.  All this despite the fact that the country is relatively poor.  From 1994 to 1998 there were severe food shortages and a number of people died of starvation.

 

North Korea’s border mostly faces China, with a smaller section facing Russia.  When the Soviet Union crashed and became Russia, North Korea lost that country as a provider of goods and services.  Her major trading partner today is China, who to a large extent she is dependent upon.  Does this give China a strong hand in determining her policies?  We will see.

 

China’s President, Xi Jinping, on a recent visit to the United States, was asked to help make North Korea back-off it’s nuclear and missile research.  Does China have enough clout to do this?  Or is China willing to do this?

 

The People’s Democratic Republic of Korea is ruled by Kim Jong-un, a 33 year old in charge of what is today a pure communist country where the Central Government controls the lives of all its people.  What do we know about him?  The answer is not very much.  He is reputed to never back down.  Is he capable of beginning an Atomic War?

 

In the United States the President is Donald J. Trump, who had earlier threatened a preemptive strike upon North Korea if they don’t stop their atomic and missile tests.  Trump has bombed with missiles an airport in Syria because Assad’s military presumably used chemical warfare against children.  He also dropped a massive non-atomic bomb over ISIS in Pakistan that destroyed everything within a mile, killing about one hundred people within the area.

 

Kim Jong-un is a young erratic dictator who has also threatened a preemptive attack.  His representative at the U.N. recently accused the U.S. of creating a situation for atomic war.

 

The problem with a preemptive attack by North Korea is that its target or targets would probably be South Korea or/and Japan, who are both within missile range of North Korea.

 

North Korea could be eradicated by just a few nuclear devices but so could other countries in that area of the world.  And how damaging would the results be for the rest of the people left alive?

 

Currently the situation rests in the hands of President Donald Trump and the supreme ruler of North Korea, Kim Jong-un.  Will we see some form of resolution to the problem or could we see a nuclear war?  Anything is possible.  And either of these two men is capable of starting a major war.

 

Trump has sent a naval armada, consisting, among other ships, of an aircraft carrier and a submarine capable of launching atomic missiles into that region.  They may participate in joint exercises with the South Korean navy.

 

North Korea has stated that this action would be an act of war. Trump has publicly stated that the United States may become involved in an actual war with North Korea.  He has further said that under no conditions can North Korea be allowed to develop long range missiles.  With these two leaders anything may happen.

 

The Weiner Component #134 – China Devaluating the Yuan

Initially it is important to keep in mind that China today is the second greatest exporter and importer, coming after the United States, in the world.  She is a highly developed, mature, industrial nation.  She is no longer an aspiring Third World nation in the process of catching up with the rest of the world.  From June of 2014 to relatively recently the international value of her currency, the yuan, rose 25%.  For China to think or act like a Third World nation is idiocy.

 

However the Communist rulers of China and their economists have been very disturbed by their recent Gross Domestic Product (GDP) which has decreased from an average of about 8% per year to 2% or lower.  Since the rulers of China are more absolute than those in most other industrial nations the solution they agreed upon has been to devaluate their currency.  This process was begun on Tuesday, August 11th 2015.

 

When the news of this currency decrease hit the United States and other industrial nations the overall effect for their stock markets was to drop significantly, in the U.S. well over 200 points.  The U.S. DOW consists of the combined value of 30 chosen stocks.  Each point on the DOW is the equivalent of one dollar.  Their combined value dropped well over $200.  On Thursday, August 20th the Stock Market in the U.S. dropped again, this time 358.04 points bring it to its lowest level in a long time   Across Europe and Asia other countries Stock Markets also fell significantly.  On Friday, the 21st there was still another significant fall of an additional 530 points in the U.S. and additional negative results in other industrial nations around the world.

 

The only stocks in danger of seriously dropping in real value were those for companies that are based in China or those multinational companies that sell large amounts of goods to China.  And these particular stocks will later probably increase far above their initial value when the yuan eventually reaches a new state of equilibrium with all the other currencies.

 

For Apple and other companies who do quite a bit of their manufacturing in China, their profits should increase significantly in the short run because their labor costs will drop rapidly as the yuan is devaluated against their currencies.  The price of their goods sold in China will rise and that could affect their sales there.   Of course that will eventually reach a new equilibrium as wages catch up to the inflation in China.

 

If the leaders of China are successful in lowering the value of the yuan then Chinese goods and services shipped to other countries will be considerably less expensive and there will be a significant increase in their sales, overseas sales presumably increasing their GDP to 8% or better.  However many other Asian country seem to be following China’s lead.  The results should be interesting and confusing.

 

Three days after China began this policy she had dropped the value of the Yuan 1.9%.  The next day she devaluated it another 1.6%.  Will she be able to continue this process?  Probably not at that rate of decline.  Wanting to do something and being able to do it are two entirely different things.  The control the Chinese leaders would like to have over their economy does not really exist.  It is an erratic force.  It is almost like driving a car at high speed on an American freeway.  One can constantly go around slower vehicles easily if they continue at their set speed but one cannot predict when the speed of any of these automobiles change.  Sooner or later one or more accidents will occur.

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I remember as a youngster learning, in elementary and high school, about the discovery of the New World in the 16th Century and the phenomenal amount of gold and silver brought to Europe at that time over the century.  It was a heroic period.  What was never taught was the fact that all this precious metal in the form of money, gold and silver coins, entering the economies of Spain and the other European nations rapidly brought about a 90 year period of inflation while wages remain largely fixed.  The general population of ordinary citizens underwent great hardship for the duration of that century.

The Chinese government could be doing the same thing if they can successfully devaluate their currency sufficiently.

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For a nation to decrease the value of its currency significantly against that of other nations is a fairly complicated process.  The government economists and the leaders of China apparently made that decision in order to force an increase in national productivity, to bring the GDP back up to where it has been historically.  Their current rate of economic growth to them denoted the beginnings of a recession.  They seem to feel an intense need for more rapid expansion.  Reducing the value of their currency against the fixed general values of all other currencies, they believe, would bring about the desired outcome.

 

First of it is important to remember that money/currency has no real intrinsic value.  Each nation prints its own and that its money is only usable within its borders.  Specific monies are simply a means of exchange within the boundaries of each specific nation.  Its actual value is determined by the credit rating of each particular country.  And internationally the value of each currency continually oscillates slightly against the value of all the other currencies.

 

On July 1-22, 1944 toward the end of World War II, 730 delegates from the 44 Allied Nations met at Bretton Woods, New Hampshire, in the United States to establish the rules for commercial and financial relations among the world’s major industrial nations.  It was the first instance of a fully negotiated monetary system intended to govern monetary relations among independent nations.  Among other things they set the standards for all national currencies.  These standards were based upon the value of the U.S. dollar.  The dollar is still the base standard today.

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There are three possible ways for China to devaluate the yuan.  The first is to substantially increase the money supply within its own nation.  By over-increasing the National Cash Flow there is more money available than there are goods and services.  Here the laws of Demand and Supply apply.  People, in order to get what they need and want, will bid up the prices of virtually everything and the country goes into an inflationary spiral.  All prices rise quickly except wages and the value of the yuan now buys less.  Internationally the value of the Yuan will also slowly plummet.  This solution brings a lot of hardship to the people of the country initialing this move.

 

A second method is for the nation to rapidly increase its purchase of raw materials and goods from other nations.  Again the laws of Supply and Demand apply.  If much more materials are suddenly demanded/purchased than are ordinarily bought in regular trade then the prices of these items will become more expensive and prices will increase rapidly.  In this fashion the money paying for these raw materials and goods decreases in value.  This is the slowest of all methods of devaluation.

 

The third and probably most important method for devaluation is direct currency exchange.  Each individual nation has one or more banking houses, some of which are directly controlled by the government of the particular nation.  These financial institutions trade currencies with one another, regularly making large profit from slight oscillations in the value of their monies.  All currencies tend to rise and fall the equivalent of pennies in value continually.  This is caused by the laws of Supply and Demand.  If one bank buys several million in a currency that has dropped a half penny in the morning from another country and sells it for an additional half penny that evening or the next day then the bank has earned several million half pennies.  All in the period of one day.  Of course all these banks function mainly to exchange currencies for people visiting other countries or doing business between nations.  And all these exchanges are done for fees.

 

It should also be noted that the value of the yuan had been slowly rising at the rate of about 1% a month for the prior year and any nation that had an excess of yuans gradually reaped a goodly profit.

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If a country, like China for example, wants to cheapen the value of its currency then it sells an excess amount of yuans to currency dealers of other nations.  As the excess over what is needed for an ordinary exchange of goods and services between different countries grows then the value decreases and continues doing so until the yuan is reduced in international value to the level the Chinese government wants it to be.

 

Of course the process may take days or weeks or even months.  And as it goes on there may be potential chaos in one or more national stock markets.  This seems to be happening at present.  These operate upon the perceptions of many of the stockholders.  Many of which seem to function totally upon rumor or blind fear.

 

As of Monday, August 17th 2015 there had been two devaluations by the People’s Bank of China (PBOC).  The first was 1.9% against the U.S. dollar and the second was for 1.6%, making a total of 3.5%.   Will there be further currency devaluations?  The answer is possibly.  What will the result be?  Further chaos in financial markets and greater hardship for a goodly percentage of the Chinese population.

 

As a note of irony one of China’s current problems is that the yuan appreciated in value by 12% since June 2014.  If she had quietly devaluated the yuan by a ¼% on a monthly bases she might well have achieved the same devaluation without any other nation noticing what she was doing.   It is also worth noting that a Chinese company looking for a source of cheap labor is currently investing the equivalent of five billion dollars in a facility in India.  It seems that their profits would be greater by producing their goods in India rather than in China.  In the United States a Chinese entrepreneur bought a bankrupt auto parts company and he intends to produce all electric automobiles in his new company located on the West Coast, in Nevada. His comment was that labor was far more expensive but the workers are far more sophisticated.  He intends to sell his product in the Western United States.

 

China is no longer a country filled with cheap labor; it has become a modern industrial country; in fact, as stated earlier, China has the second largest economy in the world after the United States.  In the U.S. a 2% GDP is not overly exciting but it can be acceptable.  It still denotes economic growth.  China may have to make the same adjustments that other industrial nations have made and live with a far lower GDP.   She cannot recreate her past.

 

The world’s stock markets have gone essentially into a state of disaster or terror from China’s 3 ½% devaluation of the yuan.  What does this tell us about the sanity of the free market in stock sales?   As of Wednesday, August 25th 2015 the stock market in the U.S. reversed its downward spiral which had been well over 1,000 points and began to rise again.   This did not happen in Asian stock markets. On Thursday the U.S. rose again significantly. On Friday the U.S. stock market seemed to level off.

 

What will the following week bring?  An interesting question.  If the Chinese government and economists do nothing then the stock markets, including their own should continue to rise.  If on the other hand the Chinese government does something dramatic then there’s no telling what may happen.  It has been announced that they will lower their interest rate.

The Weiner Component #98 – Income Inequality

Income inequality and mortality in 282 metropo...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Weiner Component #81 – The Concept of National Wealth

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

 

The Weiner Component #79 – A Letter to Elizabeth Warren

 

English: Elizabeth Warren speaking at March 29...

English: Elizabeth Warren speaking at March 29, 2010, at the Women in Finance symposium. Warren was part of a five-woman panel discussion. (Photo credit: Wikipedia)

On Tuesday, April 22, 2014, Senator Elizabeth Warren appeared on two television programs, the Rachel Maddow Show and with Jon Steward on Comedy Central. She was promoting her new book, A Fighting Chance, and in approximately fifteen minute interviews explained her position in the Senate and the meaning of her book, which, from what I understand, deals with the great financial burdens the Federal Government places upon those youngsters with their college loans, charging them extensive interest when they pay them off over goodly periods of time. She concentrated upon the unfairness of this.

(As a footnote it is interesting to remember that the reason the college loan interest rates are so high is because the Republican dominated House of Representatives refused pass a bill to lower them. Both the Democratic majority in the Senate and the President wanted to lower the rates.)

I sent the following letter to Senator Elizabeth Warren.

April 28, 2014

Dear Senator Warren:

I felt a need to communicate with you for two reasons:

First to tell you how much I enjoyed watching you on the two Tuesday broadcasts stating your position and promoting your new book. My son-in-law, who was present for the Maddow interview, said he would vote for you for president.

My second, and more important reason, was your position on education and student debt. This obviously was one of the main purposes of your new publication. I particularly appreciated your point about paying $15 a semester as an undergraduate and comparing that amount with the current costs of a college education.

If we go back to the 1950s and 60s many cities and states valued an educated citizenry and were willing to pay for it from a far smaller GDP than we have today. The Federal Government in 1945 also inaugurated the GI Bill which allowed a large number of returning veterans to go back to school and eventually graduate from college. At that time the country on all levels put money behind its words.

Today, with an irrational distribution of the national income, the majority of college students, with help from their parents, do not have the funds available to go to college. The Federal Government has allowed them to borrow the money with usurious rates of interest. This puts the student after graduation in a position where most of their newly earned income is devoted to paying back debt for a large number of years. They cannot really get on with their lives, living the American dream, instead they are debt encumbered.

The overall effect of this upon the society is also very negative. This process impedes economic growth. These graduates cannot afford to buy houses, decent auto-mobiles, or what is needed for middle-class living. A large

Percentage of their earnings go back to the government limiting economic growth in the economy. Money spent in the general society is re-spent a number of times generating six to eight times the initial amount while money used to pay off debt remains at the initial level. In addition these students will live for years in this fashion.

In your comments you spoke of lowering student debt by new legislation and you also stated that the funds spent for any purpose have to be made up. You suggested closing tax loopholes. While this would be worthwhile it is not really necessary. The two items are not interdependent or are they in any way related. One can be done without the other. For example a massive rebuilding of the infrastructure of the United States does not require new taxes. In fact if it were done it would generate, after an initial increased expenditure, a great deal of new wealth and probably lower the national debt below its present level.

Historically, the only time the country spends freely without any concern to debt is during time of war. Where did all the money expended during World War II come from? The Government created it and the nation became more prosperous. How was the Government able to pay for the GI Bill after the end of the Second World War and the Marshall Plan in 1948 that brought Europe out of the decay caused by W.W.II? We can also consider George Bush’s two wars in Afghanistan and Iraq or, for that matter, the Korean and Viet Nam Police Actions.

These were done by the government simply creating the funds needed. The money was not the wealth; it was and is the productivity. The goods and services brought about by the expenditure of these funds is the real wealth. It would be the new and refurbished bridges and roads, the new electric grids and structures that would bring the country into the 21st Century. All this would increase the wealth of the United States and its people. Fiscal policy expenditures would actually decrease the dollar value of the national debt. It would act similar to the Kennedy tax cut which substantially increased the GDP.

A bill that would begin this process would be one that forgave most of the student debt. One, for example, that wiped out the student debt of all students who graduated with a C or better average or who completed training for some specific occupation. The money these individuals would spend over the years becoming and being part of the middle-class or better would more than pay for the small amount of the GDP the government would have spent on their educations.

Sincerely,

Bernard Weiner

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

Manhattan Panoramic View, NYC

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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The Weiner Component #60 – The Duck Dynasty & Race in the United States

English: Photograph of Rosa Parks with Dr. Mar...

The former controversy in late 2013 with Phil Robertson, the patriarch of the TV live action or unrehearsed program “Duck Dynasty” brought to my mind a number of issues about him and about race relations in the United States over the years.

In an interview he equated homosexuality with terrorism and he stated that he remembered his happy youthful days in backcountry Louisiana, before government programs and welfare, when the happy darkies lived there and sang all the time.  One wonders what Robertson’s definition of terrorism is?  And one wonders about his powers of observation, especially during his youth.  And why is he a patriarch rather that an old timer or senior citizen?

Robertson is 67 years old, which means he was born in 1946; one year after World War II ended.  His memories seem to be of an idealized past reminiscent of the period after World War I rather than that of the Second World War.  How far back in the backcountry did he live?

The scenes he talks about I remember from movies made in the 1930s, Like the Marx Brothers’ “A Day at the Races,” which is still occasionally shown on TV, where in one scene the happy “darkies,” who presumably took care of the horses at the Race Track, sat around singing songs and eating watermelons.  I don’t think that situation ever existed outside of the movies.

After the Civil War blacks were immediately given full civil rights.  They were protected by an army of Northern occupation.  They voted and even sent some of their members to Congress and the State legislatures.  This continued until 1876 when Samuel Tilden, a Democrat, ran against Rutherford Hayes, a Republican, for President of the United States. Even though Tilden received the majority of the votes the Republicans insisted that Hayes had won the election.  Three states, Florida, Louisiana, and South Carolina, had two set of electoral returns, one for the Democratic candidate and one for the Republican candidate.  Oregon had one elector declared illegal and replaced by a Republican.  On the night before the inauguration was to be held the two parties reached a compromise agreement.  Hayes, the Republican, would be the next president and the occupation troops would be withdrawn from the Southern states.  All the questionable electoral votes were counted for the Republican candidate.

The Klu Klux Klan had come into being earlier.  From 1867 on it would operate freely throughout the Southern States.  The Jim Crow South now came into being, stripping from the blacks whatever rights they had and subjecting them to abject subservience.  This was then finalized.

In 1896 the Supreme Court of the United Stated rendered the Plessy v. Ferguson Decision that made so-called separate but equal Constitutional.  This legalized segregation in the nation and legally brought about all the “Jim Crow” laws.  Blacks from this point on legally became, what they had been before, second class citizens.  In the Southern States there was total segregation.  In the North there were black ghettos and equally restricted areas.  The two groups were kept separate within the society.  In fact, if I remember correctly, an early movie where a black man and a white woman danced together on a split screen (Two separate images of people dancing were brought together as a single image.) caused a minor riot when it was shown in a movie nickelodeon.

World War II, the war to keep the world free, inadvertently brought about change.  In order to meet war production goals in the Northern States blacks were hired to work in factories by 1943. Winning the war became more important than keeping the races separate.  In many instances they worked alongside whites.  There was a massive movement of blacks from the segregated South to the ghettoes in the North.  This brought about a rearranging of the wartime population of the United States.  It gave employment to people who had trouble finding decent jobs.  And once the war was over conditions had changed; there was no going back.

In the military backs were treated differently overseas, particularly in Europe, than they had been in the U.S.  The military was segregated in this war and for the first time blacks became officers in the air force.  All pilots in the military automatically became officers.  This created all sorts of problems. In military bases located in the South the soldiers were told that they salute the uniform and not the man wearing it.   Shortly after W.W.II President Truman desegregated the armed forces.

The nation was changing.  The U.S. entered W.W.II with the Great Depression still lingering and the bulk of the population being lower class, with, at best, a high school education.  We emerged from the war with the depression over and full employment.  The Federal Government offered free education or a business start to the returning veterans.  We emerged after the war as a middle class nation.  With the Supreme Court decision in 1954 of Brown v. Board of Education of Topeka, Kansas, separate but equal became inherently unequal and unconstitutional.  Legally the Jim Crow Era was ended and segregation became illegal.

In the 1960s the Civil Rights Movement would begin with sit-ins and marches.  Rosa Parks would begin the bus boycott in 1955 in Montgomery, Alabama.  Martin Luther King, Jr. would become the leader of the movement.

The process was difficult and still has not been totally accepted throughout the United States.  The black is still essentially a second class citizen.

Throughout the United States there was and to a certain extent still is defacto segregation, separation which occurred because of where people lived.  I remember hearing or reading about an incident sometime in the late 60s where Lena Horne went to the restaurant in the Waldorf Astoria in New York City.  She was seated and waited forty-five minutes for service before she left in disgust without being served.  In a sense that is still the situation with blacks throughout the United States.

From the 1970s on enterprising real estate entrepreneurs were able to desegregate expensive housing tracts by initially selling to a black family and then forcing the other white families out by telling them how their property values would drop if they stayed in the tract.  Conditions are somewhat better today.

Robinson was a teenager after W.W. II when many of these events took place and even growing up in rural backwater Louisiana glimmers of what was happening must have come down to him.  If they did and he didn’t understand them, then that tends to define what kind of patriarch he is.

The A&E channel that runs the unrehearsed “Duck Dynasty” cancelled the show, then after a short period of time changed its executive minds.  Profit, it seems, is more important than ignorance.  The program has several million watchers and is inexpensive to produce and highly profitable for the network.

 

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

Money cash

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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The Weiner Component #30 – Irony: The GDP & the National Debt

National-Debt-GDP

National-Debt-GDP (Photo credit: Wikipedia)

The Gross Domestic Product (GDP) is the dollar and cents value of all the goods and services produced and consumed or purchased in one fiscal year.  It is a measure of the productivity of the nation expressed as a number, which is reported quarterly and allows us to see growth or shrinkage in the overall economy.  It can also be measured by a comparison of all yearly incomes and is, then, a statistic that tells us the immediate economic condition of the nation.

Toward the end of 2008, with the Real Estate Debacle, the National Economy crashed.  The country was saved from falling into a deep depression by the actions of Presidents Bush, Obama, and Congress.  Even though the economy was saved from disaster unemployment fell to over ten percent, with many other people being either partly employed or under employed.  The value of most homes fell with many either being underwater or, with constant refinancing, being at the bottom of the ocean.  From 2010 on, with the election of a Republican majority in the House of Representatives, nothing was done to alleviate the poor economic situation.  In fact there was more job shrinkage with the Republicans in the House and the filibustering Senate minority undergoing a policy of economizing.  There has been no fiscal policy from Congress since 2011.  In the Federal Reserve, imaginative ways have been utilized to increase the amount of money in circulation and help solve the housing disaster.

What has happened since 2009 is that there has been economic recovery but today unemployment is hovering just below eight percent.

The hue and cry around Congressional Washington D.C. is that we have to economize, gain control over our National Debt.  The U.S. currently owes over sixteen trillion dollars and is spending more than it is taking in taxes.  The current argument is that we cannot bankrupt our children by leaving them owing this inordinate amount of money.

If we go back to the amount of money this country spent fighting World War I and the amount we lent to our allies then which, after 1929, was never paid back; to the amount spent by the Roosevelt Administration from 1933 on, when he assumed office; fighting the Great Depression; to World War II when we were the Arsenal of Democracy and paid for ourselves and our allies fighting the war; to the European Recovery Act of 1948 (The Marshall Plan), and to Korea and Viet Nam.  All of these required negative financing, presumably spending money we did not have.  Yet none of these massive expenditures brought poverty or hardship to future generations of Americans.  In fact what these outputs of money did was to greatly grow the economy so that debt as a percentage of the GDP actually diminished because of the economic growth. 

After World War II the United States emerged as a middle class nation with full employment and there was a much higher standard of living for everybody.  The Marshall Plan was a checkbook to European countries to enable them to recover from the war by spending the money we gave them in the U.S.  In both the Korean and Viet Nam Wars the United States was able to produce both guns and butter, fight the wars and provide for the population of the country.

In none of these cases was any real debt transferred to future generations.  What occurred was a growing standard of living for everyone.  Why would the situation be different now if the government used fiscal policy to create jobs by rebuilding the infrastructure of the United States?  The result would be a lessening of unemployment and a lessening of the National Debt as a percentage of the GDP.  A little bit of money spent would create a lot of money collected by all levels of government in taxes.

As a footnote: the National Debt consists of two parts, private and public debt.  Public debt is the money the government has borrowed from many of its own agencies that have surplus funds, like social security which holds over two and a half trillion dollars of the debt.  The Federal Reserve is and has been spending forty billion dollars a month purchasing its own debt.  In fact the government admits to holding over forty percent of the National Debt.  By my estimate it owns well over sixty percent of its own debt.  Twice, that I’m aware of, in 2012 the Federal Reserve quietly transferred 89 billion dollars to the Treasury.

Where are the real economic problems?  The Republicans are creating them by their actions in Congress.  They and a number of Democrats agree that the major problem is the Debt and not creating jobs for the unemployed.  What these people have created is a sense of irony, creating problems that exacerbate the negative aspects of our current situation.  Isn’t it time to take a realistic look at the economic problems of the United States and focus on job creation rather than shrinking the economy to attempt to pay off the National Debt?

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The Weiner Component #27 – Subsidies & Taxes: Is There a Difference?

End crop subsidies

In order for any government to function it must have some source of revenue that allows it to pay its expenses.  In addition, for a nation to grow, both during periods of peace and war, it must have a means of encouraging the development of new or fledgling industries.  A major method of doing this is through subsidies, which reduce taxes in specific areas of economic growth.  These are tax subsidies that are supposed to be used only when they are needed.  Once the fledgling industry can compete on a world-trading basis or can supply the needs of its-own country these subsidies are no longer needed and should be done away with.  Unfortunately that is not always the case.

During the early days of the United States the source of government income was mostly tariffs, a small tax on all goods being imported.  As the country grew so did its need for money to fund its operation and other things within the nation were taxed.  Eventually, with wars, beginning with the Civil War, individual gross income was taxed.  The Supreme Court eventually declared this income tax unconstitutional.  Early in 20th Century the Constitution was amended, Article XVI, legalizing the income tax.  It has existed ever since as one the main sources of revenue for the Federal Government and also for most of the state governments.

This tax, from its beginning was supposed to be a graduated tax; the amount people paid was to be based upon their ability to pay, the more one earned the greater the percent the individual paid.  Thus the amounts paid were based upon the individual or household’s ability to pay.

During the later part of the 20th Century taxable income, the income tax, was divided into two major categories, regular income and capital gain or active and passive income.  Active income was money directly earned by some form of employment; passive income was an increase in value of something, stock, property, art or anything increasing in value over a passage of time.  The object of this was to encourage the sale of the property or stock or whatever the item was, since it could only be taxed when it was exchanged for money.

Also with capital gain the increase in value had to be significant if it were to be sold, otherwise the profit would be eaten up by the amount of the tax.  Consequently capital gain was considered a reasonable extension of the income tax laws.  However over the years many accountants have been able to extend it to cover a goodly percentage of the upper echelon’s income and subsequently have considerably reduced the percentage of their earnings paid in taxes.  Someone like Mitt Romney pays fourteen percent or less of his million plus income while the ordinary citizen earning far less than one hundred thousand dollars a year will pay twenty to twenty-five percent of their income in these taxes.  There is now a move to reduce the capital gains tax and/or increase the tax base of anyone earning a million dollars or more a year.

On the other hand the Federal Government is and has been giving subsidies to many people and companies investing in green forms of power, saving or producing devices like those that make electricity or hot water from light.  These devices are usually installed on the roofs of homes or they can be money invested in electricity producing windmills that generate electricity or similar resource creating devices.  The individual’s benefit derived from this type of investment is not to decrease his overall taxable income by the amount spent on the device but a direct deduction from the money owed to the government.  If you owe fifteen thousand dollars in income taxes that year and the power-saving device cost ten thousand dollars to buy and install, then the tax owed is reduced to five thousand dollars.  If the cost of the device is greater than your taxes then you can carry the difference over to the next year.  It is a means of economically encouraging households “to go green” and inexpensively increase the amount of available resources for the country

In the case of businesses or corporations this encouragement is carried out by “subsidies.”  Subsidies according to Webster’s dictionary are “grants of money by a government to a private person or company to assist an enterprise advantageous to the public.”    Usually these grants are supposed to function as long as it is advantageous for the country to fund that entity.  This usually means allowing a fledgling company to grow large enough to become competitive with similar concerns from other nations or to allow forms of exploration that the concern cannot itself afford, such as drilling for oil in the Gulf of Mexico.  The oil subsidies, for example, were begun in the early 1940’s to allow for rapid exploration during World War II.  With some modifications and additions they are still going on today.  If the government were to stop or limit these subsidies in no way is it taxing these companies which today are making profits in the billions of dollars.

For practical reasons over the years many corporations were given innumerable subsidies, generally for very good reasons.  These subsidies are, in most cases, no longer practical, as currently most of these corporations are multi-profitable.  In point of fact many, like the oil interests, tend to use some of their subsidy money to hire lobbyists and for contributions to both political parties.  While this is not legally bribery, it comes awfully close to being both coercion and bribery.

The current argument in Washington between the Democratic and Republican Parties defines these subsidies as being taxes.  If they were cancelled, John Boehner has argued, it would be raising taxes on “the job creators.”

As we’ve seen the large corporations that get these subsidies use the money mainly to fund lobbyists and to make financial contributions to both parties in both Houses of Congress.  What they are mining is the American taxpayer who indirectly ends up paying their bills.  Isn’t it time we stopped subsidizing companies that are making many billions of dollars in profits.  Subsidies are not taxes and should not be treated as such.  Let’s have a more reasonable system of taxation!

 

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