The Weiner Component V.2 #36 – Money & the President: Part 2

Official Portrait of President Ronald Reagan

English: US President Ronald Reagan and Soviet...

English: US President Ronald Reagan and Soviet General Secretary Mikhail Gorbachov at the first Summit in Geneva, Switzerland. Česky: Americký prezident Ronald Reagan a sovětský generální tajemník Michail Gorbačov na prvním summitu v Ženevě. (Photo credit: Wikipedia)

Up until the Reagan Administration the National Debt had been below one trillion dollars.  During Reagan’s time it reached and went beyond the above figure and with succeeding presidents, particularly Republican ones, has gone far beyond that figure.  Today, in late 2017, it exceeds 19 trillion dollars and if the plans of the current President, Donald J. Trump, are carried out it will take a sudden jump of at least 3 additional trillion dollars.

 

The National Debt has been the means by which the amount of currency in circulation has been controlled.  The Federal Reserve uses the Debt to control the amount of cash in circulation.  It continually sells and cashes out long and short term bonds.  By selling less new bonds than it cashes out the FED increases the amount of money in circulation.  By selling more bonds than it cashes out it reduces the amount of money in circulation.  The amount it sells is controlled by the interest it pays on the bonds.

 

The problem, of course in controlling currency in circulation is that there are other necessary expenditures which can throw off the above process.  Today it would seem that the National Debt is completely out of control and currently getting ready to zoom even further in that direction.  Basically what this means is a redistributing of the Gross Domestic Product or National Wealth upward to those who can afford to buy the Government Bonds.  They get additional benefits upon money they invest.  This spending phenomena began on a large scale with Ronald Reagan’s Presidency.

 

Up until this time the Federal Reserve was generally able to control the amount of money in circulation but during the Reagan years the National Debt went to one trillion dollars and then passed beyond that.  The adjustment power did not work with that much debt.  Other presidents, mostly Republican, took the debt far beyond that point so that it is today over 19 trillion dollars and growing.  The current President, if he gets his way with a Republican Congress, could increase it another 3 trillion dollars with his so-called tax reform.

 

Can the country ever get out of this cycle?  That’s an interesting question.  The National Debt consists of two groupings: the public debt and the private debt.  Over the years the Treasury has taken any funds left over by any Department of the Government at the end of the fiscal year and put that money into the General Fund.  They have then credited the particular Department with those excess funds.  Technically each Department still has access to those funds which the Government has spent.  Over the years this has reached a point of at least 50% of the National Debt.  It could even be as high as 70%.  On a quarterly or by-yearly basis the Federal Reserve turns over to the Treasury Department the interest on that part of the National Debt it owes itself.

 

Interestingly Social Security holds the largest amount of the National Debt.  It is well over one trillion dollars and could be well over two trillion dollars.  During the Reagan Administration the Federal Government was facing the possibility of reaching a break-even or worse level with Social Security payouts.  The Reagan People adjusted the amounts collected so that there was a fairly large surplus from that point on.  We are now looking forward to running short of the amount needed in another 20 or 30 years.  In fact, rumor has it that many of the people today paying into Social Security will not have it in existence when they retire.  Is this true?  I doubt it.

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Ronald Reagan was born in 1911.  He became President in 1981, which put him at 70 years of age when this event occurred.  Up to that time he was the oldest man to assume the presidency.

 

Reagan apparently went to college in the late 1920s and early 1930s, the time of the Great Depression.  When he was questioned at the end of his presidency over the illegal Iran-Contra Deal, beyond stating that he had done something illegal, Reagan stated that he had majored in economics in college.  Economics, during this period was still a relatively new science.  Much was not understood.  When a similar condition occurred in 2008 and 2009 the Obama Administration was able to tone down a potentially greater depression than the one in 1929, making it into a recession.

 

President Reagan did not have the sophistication to understand what had happened in 1929.  He believed in simple answers to most problems.  To him economics functioned best under a totally Free Market system.  He did away with the laws that had been passed during the Roosevelt Administration to keep the country from the banking abuse that had brought about the Great Depression.

 

Reagan kept stating that the problem of government was the government, which we had to get out of the way for real economic growth to occur.  He did this while increasing the size of the Federal Government.  It was this action that brought about the Real Estate Bubble in 2008, and caused the government to bail out the banks which had caused the situation, and to pass laws to avoid a greater depression than that of 1929.

 

It is interesting to note that under the Republican President, Donald J. Trump, the country is again hearing the same arguments that brought about the Real Estate Crash of 2008 and the Great Depression of 1929.  It will be fascinating to find out what eventually happens.  Apparently the Republicans have no memory of the past!

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When Ronald Reagan assumed the presidency he firmly believed that the Soviet Union, which he later called the Evil Empire, was far ahead of the United States in military weaponry and men.  His military goal was to catch up and get ahead of them.

 

In point of fact the United States was far ahead militarily of the Soviet Union.  Their keeping up with us would eventually bankrupt them.

 

Reagan had been a movie actor earlier.  He seemed to believe that the weaponry used in science fiction movies could be developed by American scientists as they were needed.  His program, which was named after a Sci-Fi movie was called “Star Wars.”  Trying to do this in real life can be inordinately expensive, even if the chances of success are low to zero.  Luckily none of these hypothetical weapons were required during his presidency.

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During the Reagan years a very small number of economists came out with the theory of supply-side economics.  It began with the concept that Supply determines Demand; that is, if a good or item is manufactured people will want to buy it.  The basic economic theory has been and still is among most economists that Demand determines Supply.  The theory here is that if people want something it will be supplied.  This has been espoused by most economists in the 20th and 21st centuries.

 

The Reagan Administration coming out of the stagflation of the 70s, the combination of unemployment and large increases in the prices of all goods, came out with this theory.  It was called Supply-Side Economics or Reaganomics.  According to this macroeconomic theory economic growth can be most effectively created by lowering taxes and decreasing regulation.  This, in turn, will increase income for the general public and give the wealthy more money to invest in new production.  Everyone would benefit from a greater supply of goods and services that would cost less to produce and, at the same time, increase employment.

 

One of the so-called proofs of this was what happened during the Kennedy Presidency.  In response to a recession income taxes were lowered and people spent more with the government collecting increased taxes.  Unfortunately Reaganomics did not work during Reagan’s eight years as President.  The Nation Debt would rise to over a trillion dollars.

 

This Trickle-down Economics resulted in the wealthy taking their new additional funds and investing them in old productivity like the stock market.

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On August 5, 1981 President Ronald W. Reagan fired all striking air traffic controllers in the United States, 11,345 of them.  In doing this he would undermine the labor movement and help bring about the wage and salary inequities between labor and management.

 

Two days earlier nearly 13,000 airport air controllers walked out after talks collapsed with the Federal Aviation Administration.  7,000 flights were cancelled across the nation.

 

Technically the strike was illegal. But there had been 39 prior illegal work stoppages against the Federal Government from 1962 to 1981.  President Reagan called the strike illegal and threatened to fire any controllers who did not return to work within the next 48 hours.  Federal judges fined the union one million dollars a day.  11,345 controllers stayed out and were fired.

 

Some 3,000 supervisors joined 2,000 controllers who returned to work, with an additional 900 military controllers in manning the airport towers across the nation.

 

Reagan broke the union at considerable risk.  An air disaster might have resulted from the replacing of the striking workers.  It didn’t happen.  It would take several years and a cost of billions of dollars to return the system to a pre-strike level.  More would be spent doing this than the workers had demanded.

 

Presumably Reagan showed how tough he could be to both workers and foreign leaders.  In all probability the Soviet leader, Gorbachev, was impressed by his action or, at least, the recklessness of his action.  At the time I was daily waiting for an air accident to occur.

 

Reagan arranged that none of the striking air controllers ever be rehired.  In 1993 when Bill Clinton became President he countermanded that order.  About 800 of the former air controllers were rehired.  They joined a different union since Reagan had broken their former union.  Also American labor has not done that well since that time.

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Initially Reagan was going to be a one term president but in 1983 he was so popular that the Republican Party decided to have him run for a second term.  President Reagan easily won against the Democratic former Vice President, Walter Mondale.  Mondale received 40.1 percent of the popular vote but, since the electoral vote was on a winner take all basis, practically all of the electoral votes went to Ronald Reagan, 525 out of 538.

 

Ronald Reagan would begin his second term as President at the age of 74.  It came out at that time that occasionally he would fall asleep at times during staff meetings.

 

During this term Reagan concentrated more on foreign relations.  Because he had believed that the Soviet military was better equipped than that of the U.S. he continued to upgrade the American military.  The truth was that the U.S, was far ahead of Russia.  This move forced the Russians to engage in a military buildup, actually an arms race with the U.S.  This started during his first term.  Russia could not afford the race.  In America it would bump the National Debt to over one trillion dollars.  In Russia it bankrupted the U.S.S.R. and caused it to collapse.  It also created a situation where parts of the Soviet Union broke off into separate nations.

 

Reagan saw other nations as good or evil; the Libyan leader, Gaddafi, was the evil leader supporting terrorism.  Using that premise he had the American Air Force bomb the Libyan capital.  There had been earlier incidents between the Libya and the U.S. military but war had not been declared.  The immediate justification for the air raid, on April 14, 1986, was a Berlin terrorist bombing at a nightclub frequented by American military personal.  Reagan in his speech to the American people held Gaddafi personally responsible for the bombing.

 

While Reagan did not approve of the government of Nicaragua he did support the revolutionary Contras against the government.  Congress passed a law barring the use of funds for the purpose of overthrowing the government of Nicaragua.  In January 1984 the CIA mined the harbor in the capital of Nicaragua.  Suggestions from people in the Administration got countries like Saudi Arabia to contribute money to the Contras.  Obliquely, going against the will of the majority of Congress, the Contras or “Freedom Fighters” as President Reagan called them got some funding.

 

Toward the end of his second term in office President Reagan authorized what has historically been called the Iran-Contra Affair.  With the approval of the President arms were illegally sold to Iran and the money obtained bought arms and other military materials illegally for the Contras to use in overthrowing the government of Nicaragua.  While Nicaragua may not have been that friendly to the United States at that time they had a democratically elected government.

 

From what I remember the Contras were terrorists attempting to gain power.  Reagan unsuccessfully attempted to get Congress to appropriate funds for them.  Reagan was sure he was right and the Congress was wrong.  He needed the funds for a group “Freedom Fighters” so they could fight for freedom.  A group of people illegally sold arms to Iran.  The money from that transaction was used to fund the Nicaragua revolution unsuccessfully.  The Reagan people disregarded the arms embargo the U.S. had placed on Iran and used the money gotten illegally.

 

The person handling the operation was an army officer, Colonel Oliver North, whose political leanings were to the far right.  I got the impression that he saw himself in the middle of a James Bond adventure.

 

When the news of this broke, toward the end of the Reagan presidency Reagan gave a speech in which he stated that he couldn’t believe that he had done something illegal.  Reagan has been called the Teflon president, nothing unpleasant stuck to him.  Apparently the American public also couldn’t believe he was capable of doing something illegal.

 

No impeachment charges were brought against him.  After his term as President he was never charged with an illegal act.  This fact also saved most of his staff who had also been involved in the crime.  Colonel North had testified before Congress.  Nothing in his testimony could be used against him.  This made it impossible to develop a case against him.  He ended in talk-radio, ran for the Senate, lost, and returned to talk-radio.

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President Ronald Reagan changed not only the politics of the world by inadvertently ending the Cold War, he also changed the economic functionality of the United States.  The Federal Reserve would lose much of its ability to control the amount of currency in circulation from his presidency on.  Thereafter much of the money added to the National Cash Flow would be done because of the size of the debt.  It would obliquely help bring about conditions that would help the banks bring about the Real Estate Crash of 2008.  Labor and management relations would change to the detriment of labor.  The levels of wealth between the rich and those below them would change, with labor economically crawling upward while the rich became far richer.  America would begin to change with a very gradually decreasing middle class.  The distance of separation between the rich and everyone else would widen.  While Reagan cannot get credit for all of this he is still responsible for the country moving in this direction.

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