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'We Are Crushing the Next Generation': Young Millenials Saddled With $1,005,000,000,000 in Student Debt

Published on Monday, February 25, 2019

by Common Dreams

New data fuels call for progressive solutions

by Andrea Germanos, staff writer

 

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"Student debt is at a crisis level in this country," said Sen. Kirsten Gillibrand (D.N.Y.). (Photo: thisisbossi/Flickr/cc)

Underscoring the need for progressive proposals like tuition-free college and debt relief, new data shows young Americans are being crushed by debt.

In the last quarter of 2018, outstanding student loan debt went up $15 billion to $1.46 trillion. Credit card balances shot up as well, raising $26 billion to $870 billion, according to (pdf) the most recent quarterly housefold debt report from the Federal Reserve Bank of New York's Center for Microeconomic Data.

The youngest age bracket in the report, those aged 19-29, had over $1 trillion in debt in 2018. "That's the highest debt exposure for the youngest adult group since late 2007," Bloomberg reported. Moreover, "Student loans make up the majority of the $1,005,000,000,000 owed by this cohort, followed by mortgage debt," the reporting adds.

"We are crushing the next generation with debt," tweeted Democratic presidential hopeful and Universal Basic Income proponent Andrew Yang in response to the findings.

 

In a tweet last week, another Democratic 2020 contender, Sen. Kirsten Gillibrand (D.N.Y.), said, "Student debt is at a crisis level in this country, and it holds our whole economy down."

Among the roughly one in four Americans facing that crisis—a problem a bipartisan majority of Americans want Congress to do something about—is Melissa Haggerty, a Loyola University Chicago alumna.

Being "strapped with student loan debt," she recently wrote that she's "barely getting by, and looking for solutions from lawmakers." She added:

In cities across Illinois, borrowers are putting 10 percent or more of their paychecks towards paying down student loan debt. The consequences of this means financial stability will continue to be out of reach for young people like me unless bold policies are implemented that make college more affordable for future students, and provide meaningful relief to borrowers like me. In Illinois, borrowers now have a Student Loan Bill of Rights, which provides basic consumer protections to defend them against bad practices by student loan companies. But we need to go further. Incoming policymakers should hold greedy student loan lenders accountable for their deceptive practices, and consider debt forgiveness programs for current borrowers. Borrowers should also be allowed to file for bankruptcy. Saddled with tens of thousands of student loans, filing for bankruptcy would be a welcome relief.

"It's time our policymakers take these challenges seriously, and offer meaningful solutions to help borrowers get ahead," she concluded.

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The Fed's Dramatic About-Face

by Ellen Brown, from truthdig, February 20, 2019

LeoLondon / CC BY-NC-ND 2.0

LeoLondon / CC BY-NC-ND 2.0

“Quantitative easing” was supposed to be an emergency measure, but the Federal Reserve is now taking a surprising new approach toward the policy. The Fed “eased” shrinkage in the money supply due to the 2008-09 credit crisis by pumping out trillions of dollars in new bank reserves. After the crisis, the presumption was the Fed would “normalize” conditions by sopping up the excess reserves through “quantitative tightening” (QT)—raising interest rates and selling the securities it had bought with new reserves back into the market.

The Fed relentlessly pushed on with quantitative tightening through 2018, despite a severe market correction in the fall. In December, Fed Chairman Jerome Powell said QT would be on “autopilot,” meaning the Fed would continue to raise interest rates and sell $50 billion monthly in securities until it hit its target. But the market protested loudly to this move, with the Nasdaq composite index dropping 22 percentfrom its late-summer high.

Worse, defaults on consumer loans were rising. December 2018 was the first time in two years that all loan types and all major metropolitan statistical areas showed a higher default rate month over month. Consumer debt—including auto, student and credit card debt—is typically bundled and sold as asset-backed securities similar to the risky mortgage-backed securities that brought down the market in 2008 after the Fed had progressively raised interest rates.

Powell evidently got the memo. In January, he abruptly changed course and announced QT would be halted if needed. On Feb. 4, Mary Daly, president of the Federal Reserve Bank of San Francisco, said it was considering going much further. “You could imagine executing policy with your interest rate as your primary tool and the balance sheet as a secondary tool, one that you would use more readily,” she said. QE and QT would no longer be emergency measures but would be routine tools for managing the money supply. In an article on Seeking Alpha titled “Quantitative Easing on Demand,” Mark Grant writes:

If the Fed does decide to pursue this strategy it will be a wholesale change in the way the financial system in the United States operates and I think that very few institutions or people appreciate what is taking place or what it will mean to the markets, all of the markets.

The Problem of Debt Deflation

The Fed is realizing that it cannot bring its balance sheet back to “normal.” It must keep pumping new money into the banking system to avoid a recession. This naturally alarms Fed watchers worried about hyperinflation. But QE need not create unwanted inflation if directed properly. The money spigots just need to be aimed at the debtors rather than the creditor banks. In fact, regular injections of new money directly into the economy may be just what the economy needs to escape the boom and bust cycle that has characterized it for two centuries. Grant concludes his article by quoting Abraham Lincoln:

The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.

The quote is apparently apocryphal, but the principle still holds: new money needs to be regularly added to the money supply to avoid an overwhelming debt burden and allow the economy to reach its true productive potential. Regular injections of new money are necessary to avoid something economists fear even more than inflation—the sort of “debt deflation” that took down the economy in the 1930s.

Most money today is created by banks when they make loans. When overextended borrowers pay down old loans without taking out new ones, the money supply “deflates” or shrinks. Demand shrinks with it, and businesses lacking customers close their doors, in the sort of self-feeding death spiral seen in the Great Depression.

As Australian economist Steve Keen observes, today the level of private debt is way too high, and that is why so little lending is occurring. But mainstream economists consider the rate of growth of debt to be irrelevant to macroeconomic policy, because lending is thought to simply redistribute spending power from savers to investors. Conventional economic theory says that banks are merely intermediaries, recirculating existing money rather than creating spending power in their own right. But this is not true, Keen said. Banks actually create new money when they make loans. He cites the Bank of England, which said in its 2014 quarterly report:

[B]anks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits …

In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

Loans create deposits, and deposits make up the bulk of the money supply. Money today is created by banks as a debt on their balance sheets, and more is always owed back than was created, since the interest claimed by the banks is not created in the original loan. Debt thus grows faster than the money supply. When overextended borrowers quit taking out the new loans needed to repay old loans, the gap widens even further. The result is debt deflation—a debt-induced reduction in the new money needed to stimulate economic activity and growth. Thus comes the need for injections of new money to fill the gap between debt and the money available to repay it.

However, the money created through QE to date has not gone to the consuming public, where it must go to fill this gap. Rather, it has gone to the banks, which have funneled it into the speculative financialized markets. Nomi Prins calls this “dark money”—the trillions of dollars flowing yearly in and around global stock, bond and derivatives markets generated by central banks when they electronically fabricate money by buying bonds and stocks. She writes, “These dark money flows stretch around the world according to a pattern of power, influence and, of course, wealth for select groups.” In a piece for Daily Reckoning, she shows graphically that the rise in dark money is directly correlated with the rise in financial markets.

QE has worked to reverse the debts of the banks and prop up the stock market, but it has not relieved the debts of consumers, businesses or governments; and it is these debts that will trigger the sort of debt deflation that can take the economy down. Keen concludes that “no amount of exhorting banks to ‘Intermediate’ will end the drought in credit growth that is the real cause of The Great Malaise.” The only way to reduce the private debt burden without causing a depression, he says, is a Modern Debt Jubilee or People’s Quantitative Easing.

QE-Funded Debt Relief

In antiquity, as professor Michael Hudson observes, debts were routinely forgiven when a new ruler took the throne. The rulers and their advisers knew that debt at interest grew faster than the money supply, and that debt relief was necessary to avoid economic collapse from an overwhelming debt overhang. Economic growth is arithmetic and can’t keep up with the exponential growth of debt growing at compound interest.

Consumers need that sort of debt relief today, but simply voiding out their debts as was done in antiquity will not work, because the debts are not owed to the government. They are owed to banks and private investors who would have to bear the loss. The alternative suggested by Keen and others is to fill the debt gap with a form of QE dropped not into bank reserve accounts but digitally into the bank accounts of the general public. Debtors could then use the money to pay down their debts and non-debtors would receive a cash injection.

Properly managed, these injections need not create inflation. (See my earlier article here.) Money is created as loans and extinguished when they are paid off, so the money used to pay down debt would be extinguished along with the debt. Cash injections not used to pay down debt would just help fill the gap between real and potential productivity, allowing demand and supply to rise together, keeping prices stable.

A regular injection of money into personal bank accounts has been called a “universal basic income,” but it would be better to call it a “national dividend”—something all citizens are entitled to equally, without regard to economic status or ability to work. It would serve as a safety net for people living paycheck to paycheck, but the larger purpose would be as economic policy to stimulate demand and productivity to keep the wheels of industry turning.

Money might then indeed become a servant of humanity, transformed from a tool of oppression into a means of securing common prosperity. But first the central bank needs to be made a public utility, responsive to the needs of the people and the economy.  In other words, it needs to become a public servant once and for all.

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Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of twelve books including "Web of Debt" and "The Public Bank Solution." A thirteenth book titled "The Coming Revolution in Banking" is due out soon. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.

Off the Top of My Head

US Pays Half Trillion Annually Just for Interest on National Debt

by John Lawrence, October 26, 2018

Even with record low interest rates, the US pays about a half a trillion dollars each year in interest on the national debt. This is money that could be spent on infrastructure, but it's not. It could be spent in many ways to give Americans a better quality of life, but it's not. Why is the government so short of funds? It's because rich people and corporations pay hardly any taxes. The projection is that for FY 19, government revenues from corporations or in other words corporate taxes will account for only 7% of the US government's total revenues. Taxes from individuals (mostly poor and middle class individuals) account for 49%, and another third, $1.238 trillion, comes from your payroll taxes. This includes $905 billion for Social Security, $275 billion for Medicare, and $47 billion for unemployment insurance. Trump's tax plan cut taxes for corporations much more than it did for individuals. In 2017, corporations paid 9 percent and income taxpayers paid 48 percent.

Long story short. Middle class and poor individuals and families pay the bulk of US government taxes while the rich and corporations do not pay their fair share. The shortfall in tax revenues creates an almost trillion dollar deficit each year. The debt itself is 21 trillion, and that has been going up by about a trillion dollars a year. The NY Times reported:

The federal government could soon pay more in interest on its debt than it spends on the military, Medicaid or children’s programs.

The run-up in borrowing costs is a one-two punch brought on by the need to finance a fast-growing budget deficit, worsened by tax cuts and steadily rising interest rates that will make the debt more expensive.

With less money coming in and more going toward interest, political leaders will find it harder to address pressing needs like fixing crumbling roads and bridges or to make emergency moves like pulling the economy out of future recessions.

Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs. Already the fastest-growing major government expense, the cost of interest is on track to hit $390 billion next year, nearly 50 percent more than in 2017, according to the Congressional Budget Office.

It is becoming clear that the Federal Reserve is printing money to buy up US debt and that as time goes on and there are fewer buyers for that debt, it will have to print more and more. Also it must keep interest rates near zero to keep the interest on the debt as low as possible. Printing money by the Federal Reserve will become the main way of funding the US government.

Off the Top of My Head

What Will Happen to the US Dollar When Its Not the World's Reserve Currency Any More?

by John Lawrence, September 13, 2018

The dollar is the world's reserve currency by virtue of the fact that Saudi Arabia agreed to sell its oil only for dollars in return for US military protection, a deal struck by President Nixon in 1971 when he took the dollar off the gold standard. Other nations had to buy and sell goods in dollars to get enough dollars to buy oil. But the world is changing. For one thing the world is converting to renewable energy so the price of oil will eventually plummet just as the US with its shale oil is becoming the world's leading oil exporter.

However, other nations are losing faith in the US as the world's moral arbiter. US imposed sanctions, brought about because the US controls international financial institutions like SWIFT, have caused the nations that are usually the target of US sanctions to form their own alliances, form their own financial, institutions and trade among themselves using other currencies. Eventually the dollar will only be one of many instead of being the only reserve currency. Eventually, other nations may even impose sanctions on the US, something unheard of at the present time.

So the US dollar may well lose value with respect to other currencies making imports to the US more expensive. However, exports would be cheaper for other countries to buy and that would boost exports which would help manufacturing in the US. If the US dollar loses value with respect to other currencies, other nations will not be as willing to park their savings in US Treasury bonds which means that the Federal Reserve will have to raise interest rates to attract buyers of US debt. Or the Fed could just print dollars and give the money to US banks to buy up US debt which is just what it has been doing with its quantitative easing policy.

The US will be stuck with its enormous national debt with creditors not willing to fund any more of it. Paying it off with "conjured money" will cheapen the US dollar and even perhaps result in the same sort of austerity that has been imposed on Greece and other countries that get behind in their payments to investors. We'll see. In any event it won't happen any time soon. But by mid century as hurricanes, floods and wildfires take their tolls, the paucity of dollars in the US Treasury and the reluctance of investors to fund more US debt may not augur well.

Ending the Secrecy of the Student Debt Crisis

From Yes Magazine:

Activists are building meaningful connections among borrowers to counter the taboo of admitting they can't pay their bills.

 

 

by Daniela Senderowicz, posted Sep 05, 2018

 

Gamblers and reality TV stars can claim bankruptcy protections when in financial trouble, but 44 million student loan borrowers can’t. Unemployed, underpaid, destitute, sick, or struggling borrowers simply aren’t able to start anew.

With a default rate approaching 40 percent, one would expect armies of distressed borrowers marching in the streets demanding relief from a system that has singled out their financial anguish. Distressed student debtors, however, seem to be terror-struck about coming forward to a society that, they say, ostracizes them for their inability to keep up with their finances.

When we spoke to several student borrowers, almost none were willing to share their names. “I can’t tell anyone how much I’m struggling,” says a 39-year-old Oregon physician who went into student loan default after his wife’s illness drained their finances. He is terrified of losing his patients and reputation if he speaks out about his financial problems.

Debtors blame themselves and self-loathe when they can’t make their payments.

“If I shared this with anyone they will look down upon me as some kind of fool,” explains a North Carolina psychologist who is now beyond retirement age. He explains that his student debt balance soared after losing a well-paying position during the financial crisis, and that he is struggling to pay it back.

Financial shame alienates struggling borrowers. Debtors blame themselves and self-loathe when they can’t make their payments, explains Colette Simone, a Michigan psychologist. “There is so much fear of sharing the reality of their financial situation and the devastation it is causing in every facet of their lives,” she says. “The consequences of coming forward can result in social pushback and possible job–related complications, which only deepen their suffering.”

Debtors are isolated, anxious, and in the worst cases have taken their own lives. Simone confirms that she has “worked with debtors who were suicidal or had psychological breakdowns requiring psychiatric hospitalization.”

With an average debt of just over $37,000 per borrower for the class of 2016, and given that incomes have been flat since the 1970s, it’s not surprising that borrowers are struggling to pay. Student loans have a squeaky-clean reputation, and society tends to view them as a noble symbol of the taxpayers’ generosity to the working poor. Fear of facing society’s ostracism for failure to pay them back has left borrowers alienated and trapped in a lending system that is engulfing them in debt bondage.

“Alienation impacts mental health issues,” says New York mental health counselor Harriet Fraad. “As long as they blame themselves within the system, they’re lost.”

“Connection is the antidote to alienation."

Student debtors can counter despair by fighting back through activism and political engagement, she says. “Connection is the antidote to alienation, and engaging in activism, along with therapy, is a way to recovery.”

Despite the fear of coming forward, some activists are building a social movement in which meaningful connections among borrowers can counter the taboo of openly admitting financial ruin.

Student Loan Justice, a national grassroots lobby group, is attempting to build this movement by pushing for robust legislation to return bankruptcy protections to borrowers. The group has active chapters in almost every state, with members directly lobbying their local representatives to sign on as co-sponsors to HR 2366. Activists are building a supportive community for struggling borrowers through political agitation, local engagement, storytelling, and by spreading a courageous message of hope that may embolden traumatized borrowers to come forward and unite.

Julie Margetaa Morgan, a fellow at The Roosevelt Institute, recently noted that student debt servicers like Navient have a powerful influence on lawmakers. “Student loan borrowers may not have millions to spend on lobbying, but they have something equally, if not more, powerful: millions of voices,” she says.

A recent manifesto by activist and recent graduate Eli Campbell calls for radical unity among borrowers. “Young people live in constant fear that they’ll never be able to pay off their debt. We’re not buying houses or able to afford the hallmarks of the American dream,” he explains.

Ending the secrecy of the crisis through massive national attention may destigmatize the shame of financial defeat.

In his call for a unified national boycott of student loan payments, inevitably leading to a mass default on this debt, Campbell hopes to expose this crisis and instigate radical change. In a recent interview he explained that the conditions for borrowers are so bad already that debtors may not join the boycott willingly. Instead, participation may simply happen by default given the lack of proper work opportunities that lead to borrowers’ inability to pay.

While a large-scale default may not happen through willful and supportive collective action, ending the secrecy of the crisis through massive national attention may destigmatize the shame of financial defeat and finally bring debtors out of the isolation that causes them so much despair.

Activists are calling for a significant conversation about the commodification of educating our youth, shifting our focus toward investing into the promise of the young and able, rather than the guarantee of their perpetual debt bondage. In calling for collective action they soothe the hurt of so many alienated debtors, breaking the taboos that allow them to say, “Me, too” and admit openly that in this financial climate we all need each other to move forward.

Off the Top of My Head

How Is Money Created?

by John Lawrence, March 30, 2018

The money supply is added to whenever a bank creates a loan. They do this with a few keystrokes on a computer. It is a fallacy that this money is money that they already have that they loan to you. No, this is new money that is created by a private bank. That money is deposited in your account supposedly to be used for a good purpose. Else the money would not have been loaned to you. That money must be paid back with interest so it ends up finally as the property of the bank which loaned you the money. The borrowed money is used to expand a business, make home improvements and other worthwhile activities that will supposedly generate the money to pay back the loan. So, theoretically at least the loan is a win-win situation. The bank makes money both from principal and interest and the person borrowing the money makes money from an expanded business or is better off and more productive in other ways. As a consequence, the money supply is increased. It is thought that this situation is not inflationary as long as the money is used for a constructive purpose which leads to an expansion of the economy.

The government, supposedly, does not get involved in creating money or adding to the money supply. That is thought to be inflationary. However, in recent years the Federal Reserve, with its quantitative easing policy, has done just that. It has added to the money supply by creating money and shoveling it out to the Big Banks in order to keep them afloat. They have contended that this policy has not been inflationary because wages and the cost of living have not gone up. But they are fooling themselves. While wages have not gone up, the cost of living surely has if you include rent and real estate prices. Real estate and also stocks are considered to be assets. Asset prices have gone up tremendously. The stock market is in a bubble because the Fed has kept interest rates at zero in order to supply money to corporations, hedge funds, banks and the wealthy class in general. This has not filtered down to Joe Six Pack, so it isn't considered inflationary. But it is inflationary if you consider asset classes.

So money given to the wealthy is not considered inflationary but quantitative easing for the people where money would just be given to average citizens - so-called helicopter money - would be considered inflationary. Another reason the Fed won't raise interest rates is that that would increase the national debt. The Federal government, which is $21 trillion in debt, borrows more every month just to make interest payments on that debt. The market for US Treasuries used to be big enough that other countries and sovereign wealth funds would buy it all up. As of December 2017, $6.3 trillion or approximately 45% of the debt held by the public was owned by foreign investors, the largest of which were Japan (about $1.06 trillion) and China (about $1.18 trillion). The US Federal appetite for debt has increased so much that foreign investors are no longer willing to buy it all up. Therefore, US entities must buy it with free money supplied by the Fed. In other words the Fed is just printing money.

This is not a good situation. Giving free money to the wealthy only drives up the economic divide. Asset bubbles inevitably will burst causing chaos and losses to pension funds. The US Federal government could become a subservient debtor to the Chinese among others with US taxpayers holding the bag. Wealthy speculators and investors will already have taken an immense amount of money out of the system and into their private coffers in the Cayman Islands and other tax shelters so Joe Six Pack will end up with the bill.

Trump's recent tax cuts for the rich enacted by Congress will make the situation immeasurably worse as the discrepancy between government tax revenues and outlays grows.

Fortune reported:

In the absence of decisive, quick action to tackle this slow-motion crisis, the best-case scenario for the next few years is that America becomes a much riskier place to do business. A high debt load will limit our flexibility to keep the economy on an even course. “Countries with high debt don’t respond aggressively to downturns,” says Harvard economist Kenneth Rogoff. If the U.S. slips into recession, we’ll lack the option of lowering taxes or increasing spending on infrastructure, for example, as tools to revive growth. And as the debt load grows, efforts by the Federal Reserve to stimulate the economy with lower rates would be more likely to feed runaway inflation. “Then, investors will dump Treasuries,” says John Cochrane, an economist at the Hoover Institution. “That will drive rates far higher, and make the budget picture even worse.”

According to wolfstreet .com:

The US gross national debt jumped by $72.8 billion in one day, on Thursday, the Treasury Department reported Friday afternoon. This March 16 is a historic date of gloomy proportions, because on this date, the US gross national debt punched through the $21 trillion mark and reached $21.03 trillion.

The US national debt spiked $1.2 trillion in six months. This is totally unsustainable. They are acting as if US debt can be unlimited without any consequences just as they acted like climate change doesn't matter. Until it does.

US Consumers Head Over Heels in Credit Card Debt

From Wallethub:

Credit Card Debt Study, based on Federal Reserve data released yesterday afternoon.

Given this ominous data, WalletHub also released the results of its 2018 Credit Card Debt Survey, which provides a nationally representative look at consumer sentiment. You can find highlights from both reports below.

• The average household owes a record $8,600 – $138 more than at the height of the Great Recession.
   
• The $67.6 billion in credit card debt that we added in Q4 2017 is the highest quarterly accumulation in 30 years – 68% higher than the post-Great Recession average.
   
• Despite Federal Reserve data painting a dark picture, consumers are optimistic about their credit card debt, with 92% thinking they’ll have less debt at the end of the year.
   
• 35% of people think travel is worth getting into debt for, and more than 1 in 10 people with credit card debt don’t remember why they got into it.
   
• 7 in 10 people think we’re 2+ years from another recession.
   
• 88% of Americans say their personal finances are run better than the federal government.

Off the Top of My Head

Student Loan Debt: The Old Are Eating the Young

by John Lawrence

It doesn't pay to be young any more or to be a student, at least a non-independent student stuck in a classroom where you run the risk of being murdered. That's not to say that you can't study independently which is an option these days. Most of the people that made great intellectual contributions were independent scholars. That being said, if you survive being shot at school, you can look forward to piling on an insane amount of student loan debt in college just to obtain an increasingly worthless piece of paper that amounts to a Good Housekeeping Seal of Approval.

We have gone from being a nation of employees to a nation of entrepreneurs. To be an entrepreneur you don't need a college diploma. Those steel mill employee jobs are not coming back. All the rust belt manufacturing jobs are not coming back. However, there are still many jobs out there for skilled trades people. But for these jobs you have to be an entrepreneur; you have to be self-employed. As long as there are houses and cars, there are skilled jobs taking care of such. Handymen can claim quite a bit of wages these days. They're just not employed by a big corporation any more.  Employee benefits are not worth it. 401(k)s amount to just gambling in the stock market not a guaranteed pension.

Until the US becomes a nation where education is guaranteed as a right and paid for by the government, it's becoming increasingly obvious that a paid college education is a humungously bad deal. Better to acquire skills and study on your own and start your own business. The is what America is all about and is becoming more so. There are certain jobs that will require certification, but let the rich kids whose parents can actually pay for college take those jobs. There are a lot of millionaire plumbers our there. There are some billionaire pizza makers out there too.

For profit and even non-profit colleges prey on young people these days. They sell them a bill of goods and lead them down the garden path that a college degree is going to make them happy and prosperous. Instead the probability is that it will leave them under a ton of debt and depressed just as they start out in life. There are better paths to take, roads to go down that don't involve acquiring a huge load of debt.

Or you could go to Germany and get a free college education. Having to learn German would be a small price to pay. Broaden your horizons!

Off the Top of My Head

College Ends Up in Debt and Servitude for Many Black Students

by John Lawrence

A new in depth study by the Brookings Institution shows that the student loan debt crisis is worse than previously thought. As many as 40% of students default on their loans. The crisis is particularly disastrous for black students. The study found "Debt and default among black college students is at crisis levels, and even a bachelor’s degree is no guarantee of security: black BA graduates default at five times the rate of white BA graduates (21 versus 4 percent), and are more likely to default than white dropouts."

For profit colleges are literally sucking the blood out of black students, and determining that they will have a future mired in debt. White students aren't that much better off. Although most debts can be discharged in bankruptcy, student loan debt cannot. They are stuck with a noose around their neck for life in some cases. Free money for college is just too much of a false incentive for poor people who are sold a bill of goods which envisions for them a life in which they have pulled themselves out of poverty. Instead they get a life in which escalating payments on their debt guarantees a life of debt servitude, a high class form of slavery.

The Incredible Rise of Student Loan Debt in America

It doesn't have to be this way. Many countries guarantee free education from preschool to graduate school. The key for higher education is does the student's past history merit the state investing in further higher education. If so, they can get the education debt free. If not, they will have to settle for the education they've already received. Not everyone is PhD material. For for profit colleges in the US everyone is PhD material as long as they borrow the money for the education they are about to receive. This does not make sense.

Guidance counselors should guide students to the level and type of education that best suits them and prepares them for a job that they will be happy and successful in. Instead guidance and admission officers at for profit colleges are basically salesmen telling prospective students how much better their lives will be if they only attend their college. They even qualify for financial assistance, a euphemism for taking out a loan and going into debt. The admission officers never tell them about the history of student loan debt, nor do they tell them about their shortcomings as a student which might make it inadvisable to attend college at all. Maybe they would be better off as a tradesman or woman.

Trades people make very good money and their skills are in constant demand. Anything dealing with houses or cars will never go out of style. Mechanics, electricians, plumbers, solar installers, carpenters ... these are the jobs of the future. One can become a skilled tradesman for very little money. In many cases companies will even pay for the necessary training and education. One can be independent and self-employed as an option. A person can work for an employer and do jobs on the side. There are many possibilities. You don't need a piece of paper signifying that you have a college degree. If that piece of paper comes from a for profit college, it's probably worthless anyway. Even if it comes from a prestigious institution, it's no guarantee of employment.

As a tradesman, you have practical skills which can be used to build wealth as well as make a living. There are no guarantees with a corporate job which is mainly what the college degree is useful in getting. Self-employed people don't need a degree. Tradespeople only need a set of skills which are quickly apparent to any employer.The US should emulate European countries which attempt to place people in appropriate careers whether they be trades or college educated depending on their aptitudes and preferences. Either way their education is free.

Student Debt Slavery: Bankrolling Financiers on the Backs of the Young

Posted on December 26, 2017 by Ellen Brown

Higher education has been financialized, transformed from a public service into a lucrative cash cow for private investors.

The advantages of slavery by debt over “chattel” slavery – ownership of humans as a property right – were set out in an infamous document called the Hazard Circular, reportedly circulated by British banking interests among their American banking counterparts during the American Civil War. It read in part:

Slavery is likely to be abolished by the war power and chattel slavery destroyed. This, I and my European friends are glad of, for slavery is but the owning of labor and carries with it the care of the laborers, while the European plan, led by England, is that capital shall control labor by controlling wages.

Slaves had to be housed, fed and cared for. “Free” men housed and fed themselves. For the more dangerous jobs, such as mining, Irish immigrants were used rather than black slaves, because the Irish were expendable. Free men could be kept enslaved by debt, by paying them wages that were insufficient to meet their costs of living. On how to control wages, the Hazard Circular went on:

This can be done by controlling the money. The great debt that capitalists will see to it is made out of the war, must be used as a means to control the volume of money. . . . It will not do to allow the greenback, as it is called, to circulate as money any length of time, as we cannot control that.

The government, too, had to be enslaved by debt. It could not be allowed to simply issue the money it needed to meet its budget, as Lincoln’s government did with its greenbacks (government-issued US Notes). The greenback program was terminated after the war, forcing the government to borrow from banks – banks that created the money themselves, just as the government had been doing. Only about 10% of the “banknotes” then issued by banks were actually backed by gold. The rest were effectively counterfeit. The difference between government-created and bank-created money was that the government issued it and spent it on the federal budget, creating demand and stimulating the economy. Banks issued money and lent it, at interest. More had to be paid back than was lent, keeping the supply of money tight and keeping both workers and the government in debt.

 

Latest Student Loan Debacle Is Ultimate Example of Trump's Campaign Con

The president ran against debt predators, drug makers and big banks – once elected, he immediately got in bed with all of them

by Matt Taibbi, Rolling Stone

President Trump with Education Secretary Betsy DeVos, in February. AP Photo/Evan Vucci

Last October, just about a week after the release of the infamous Access Hollywood "pussy" tape, Donald Trump gave a surprising speech in Columbus, Ohio.

RELATED

Taibbi: The Great College Loan Swindle

How universities, banks and the government turned student debt into America's next financial black hole

While the entire Republican Party was running sideways away from his cratering campaign, Trump was scrambling to find a way back in the race. One of his strategies – and I remember watching this on the trail – was to tack back to the populist themes he'd used to great effect in the Republican primaries.

In Columbus, with Hillary Clinton running away with the election, Trump unveiled what even The Washington Postdescribed as a "pretty radical student debt plan." The basic idea was income-based repayment capped at 12.5 percent, then total loan forgiveness after 15 years of payments.

"Students should not be asked to pay more on the debt than they can afford," Trump said. "And the debt should not be an albatross around their necks for the rest of their lives."

Trump hasn't gone back on that proposal, not exactly, anyway. The 12.5 percent-times-15-years concept was indeed part of a plan he submitted this past summer, at least for undergraduates.

But that same plan proposed a wipeout of five other existing income-based repayment plans, and grad students would be pushed into a harsher program requiring payments for 30 years.

Moving forward, Trump and the Republican Party have all but buried the campaign-trail "fairly radical" plan under a series of other student-bashing decisions.

On Monday, Fortune reported that Department of Education head Betsy DeVos is seeking to end a program to cancel the debt of students defrauded by ripoff diploma-mill universities.

This came just as the inspector general of the Department of Education issued a blistering report showing that DeVos had already essentially stopped processing such claims under the existing program.

Trump, pictured in October 2016, floated on the campaign trail what was described at the time as a "pretty radical student debt plan." AP Photo/ Evan Vucci

The IG report shows that the Trump administration has received 25,991 such claims since Inauguration Day, and approved exactly none of them.

None of this is a surprise. After all, Donald Trump himself ran one of the more notorious higher-education scams, settling a lawsuit for $25 million last year. And DeVos has spent much of her tenure walking back Obama-era initiatives to rein in diploma-mill scams.

The latest DeVos move comes in sync with a nasty piece of legislation introduced by House Republicans this month. Billed as a measure to "simplify" the student loan system, HR 4508, a.k.a. the PROSPER Act, would repeal and prevent the re-adoption of the "Borrower Defense" program that DeVos has already stalled.

continue reading Latest Student Loan Debacle Is Ultimate Example of Trump's Campaign Con

Off the Top of My Head

The National Debt: Why Worry?

by John Lawrence

The US national debt is about $20 trillion. That's money American tax payers owe to investors including foreign investors and governments. It is also money owed to other governmental agencies like the Social Security Trust Fund. About 30% of the national debt falls into this category. Of the remaining debt which is owned by the public, about half is owned by foreign investors and governments. Some people worry that the government will not be able to keep on borrowing money to roll over its debt which is added to each year by the deficit. People worry that foreigners will own the US.

Well, foreigners already do own much of the US. According to Robert Reich, about 35 percent of stock in U.S. corporations is now held by foreign investors. So if foreign governments and investors refused to buy any more Treasury bonds and wanted to cash out on the bonds they now own, the Federal Reserve would just print the money to pay them. So what would they do with the money then? They could either buy more US goods and services (unlikely) or they could buy more US assets as they already have been doing. So instead of owning just 35% of American corporations they might own practically all US corporations. However, the total value of the stock market is $25 trillion. Since foreigners own about $6 trillion of US debt, they could convert that to another approximately 30% ownership of the stock market. That would still leave about one third of US corporations owned by Americans.

So what? Who cares who owns American corporations? As Reich points out, corporations are global and have no particular allegiance to American taxpayers. In fact their whole aim is to avoid paying American taxes. Trump is about to give them their ultimate wet dream.

So what if the foreign owners of US debt, like China and Japan which each own about a trillion dollars of US Treasuries, took their money out of US debt and bought US real estate? They are already doing that of course. The solution would still be the same. The shortfall in selling new Treasury bonds to roll over old ones and pay interest would be made up by the Federal Reserve simply printing more money. Since the total value of US real estate is about $30 trillion, there is little to fear that foreign governments will soon be landlords to most American renters.

So what about that portion of the $5.6 trillion the US government owes to the Social Security Trust Fund and other governmental agencies? Again, if worse came to worse and investors, sovereign wealth funds and other domestic and foreign entities refused to loan us the money, the solution is the same: the Federal Reserve could just print it. Of course the Federal Reserve has already used this tactic of printing money when it bailed out the big Wall Street banks with its policy of quantitative easing. Quantitative easing has the secondary effect of keeping interest rates, and therefore US government deficits, low.

So if the Federal Reserve can print money, the question is why couldn't they spread some around to the American people in the form of a Universal Basic Income (UBI). American jobs are being displaced by robots so that the economic divide between rich and poor is growing. One way to redress the balance is to tax the rich and by means of various programs use the money to benefit the poor. Another way is for the Fed to just print the money ("helicopter money" some call it) and give it to the poor. This might cause some inflation, but again nothing serious.The money given to the big banks caused inflation in the asset markets (stock and real estate) but nobody worries about that. That's a far bigger threat to the US economy than the price of milk going up.

The real reason why the Fed won't use quantitative easing for the people is that the Fed is privately owned by the big Wall Street banks so they are not in the business of helping the people with their monthly bills. Secondly, if the American people could pay their bills, there would be much less debt. But debt is the main product of Wall Street banks. If there were no debt, Wall Street would not have a product to sell, and, therefore, would go broke. The less debt the American people are in, the less profits Wall Street makes.

A truly public central bank, one owned by the people not private corporations, could ease the indebtedness of the American people while, at the same time, easing the indebtedness of the US government. The judicious printing and the wise distribution of dollars could end the Web of Debt as Ellen Brown calls it.

 

How to Wipe Out Puerto Rico’s Debt Without Hurting Bondholders

From Counterpunch, OCTOBER 13, 2017

by ELLEN BROWN

 

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Photo by The National Guard | CC BY 2.0

During his visit to hurricane-stricken Puerto Rico, President Donald Trump shocked the bond market when he told Geraldo Rivera of Fox News that he was going to wipe out the island’s bond debt. He said on October 3rd:

You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be — you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.

How did the president plan to pull this off? Pam Martens and Russ Martens, writing in Wall Street on Parade, note that the U.S. municipal bond market holds $3.8 trillion in debt, and it is not just owned by Wall Street banks. Mom and pop retail investors are exposed to billions of dollars of potential losses through their holdings of Puerto Rican municipal bonds, either directly or in mutual funds. Wiping out Puerto Rico’s debt, they warned, could undermine confidence in the municipal bond market, causing bond interest rates to rise, imposing an additional burden on already-struggling states and municipalities across the country.

True, but the president was just pointing out the obvious. As economist Michael Hudson says, “Debts that can’t be paid won’t be paid.” Puerto Rico is bankrupt, its economy destroyed. In fact it is currently in bankruptcy proceedings with its creditors. Which suggests its time for some more out-of-the-box thinking . . . .

Off the Top of My Head

Puerto Ricans Will Be Fleeing the Island in Droves

by John Lawrence

It's not just the fact that Puerto Rico has been devastated by Hurricane Maria. Even before the hurricane made any semblance of human civilization a thing of the past, Puerto Rico was mired in a debt crisis. Now the hurricane has left the people of Puerto Rico facing a double whammy.

The LA Times reported: "Two weeks after the storm devastated Puerto Rico, tens of thousands of hurricane evacuees are packing scheduled flights and charter jets in what officials there and in states across the U.S. fear is the beginning of a mass exodus of historic proportions. The mainland had already been absorbing record numbers of Puerto Ricans fleeing economic decline and a mounting debt crisis, with more than 700,000 migrating between 2006 and 2015."

Any Puerto Rican with half a brain in their head will take any means of transportation possible and head for the mainland. After all they are American citizens, and they need no visa or passport. They are essentially refugees with a ticket to the Promised Land unlike refugees from the Middle East, Africa and Asia.

Puerto Rico's government is more than $70 billion in debt plus $50 billion in pension obligations. People staying on the island would be stuck with it just like the Greeks were. Problem for the Greeks was that they were not American citizens so could not get out of paying the debt by leaving Greece. They were subjected to austerity.

Puerto Rico partied hearty, but now the party's over. It's time to call it a day. Or is it? Puerto Ricans can get out of paying the debt simply by moving to Orlando. The poor suckers left behind will have to deal with it.

Hedge funds own a lot of the debt, and they will probably be hung out to dry because they aren't going to get paid back by the few Puerto Ricans left on the island.They are on the hook for billions in Puerto Rican debt. Ha. Ha.

For instance, Autonomy Capital, a New York hedge fund run by former Lehman Brothers banker Robert Gibbins, owns nearly $1 billion of Puerto Rican general obligation bonds. FCO Advisors, a hedge fund run by former Goldman Sachs municipal banker Hector Negroni, is sitting on more than $400 million of Puerto Rican bonds as well. Another key player is Aurelius Capital Management, a New York hedge fund that lists nearly $500 million in Puerto Rican bonds. Aurelius, run by Mark Brodsky, won big by playing hardball with Argentina for years following that country's default.

The typical scenario where the hedge funds will subject their debtors to the harsh conditions of austerity will force Puerto Ricans to say, "Naa, who needs it?", and the hedge funds will be left holding the bag.

As Wall Street Vultures Circle, Demands for Immediate Puerto Rico Debt Relief

Published on Friday, September 29, 2017 by Common Dreams

"Washington must abandon its austerity agenda and support the removal of all manmade obstacles to Puerto Rico's recovery and reconstruction."

by Jessica Corbett, staff writer

 

32 Comments

A resident surveys her neighborhood as people deal with the aftermath of Hurricane Maria on September 27, 2017 in Corozal, Puerto Rico. (Photo: Joe Raedle/Getty Images)

While Wall Street vultures circle amid an ongoing humanitarian crisis and try to entice Puerto Rico with "relief" offers in the form of more debt, advocates for economic justice are demanding immediate debt relief and federal stimulus spending to rebuild the island's devastated infrastructure.

"For the president to bring up Puerto Rico's economic crisis and its debt to corporate America during a time of tremendous suffering is shocking, even for Trump. The fact that he accompanied this statement with very little action to actually help Puerto Ricans intensified the cruelty of his words." - Sonali Kolhatkar, Truthdig

"Puerto Rico needs immediate humanitarian assistance before many more lives are lost thanks to America's latest climate catastrophe, and reconstruction aid to help them rebuild their infrastructure," Wenonah Hauter, executive director of Food & Water Watch, wrote for Common Dreams on Friday. She continued:

The hurricane only made a bad situation much, much worse: Puerto Rico has been reeling from austerity measures for years that were put in place by Wall Street, which has been calling to recoup the debt. One of Donald Trump's first responses to the mounting humanitarian crisis was to remind people of the "billions of dollars" the territory owes to the bank, "which must be dealt with"—signaling what the priorities will be.

"Instead, we should consider forgiving Puerto Rico's debt and federally fund its reconstruction," Hauter added. "It's important to demand federal funding for our precious water infrastructure before disasters happen as well; indeed, this funding was cut off to Puerto Rico because of its debt, making a bad situation much worse when the hurricane hit."

Since Hurricane Maria struck the island last week, nearly half of the commonwealth's 3.4 million residents remain without access to potable water and 97 percent remain without electricity—which its governer has warned may not be fully restored for up to six months.

Meanwhile, President Donald Trump, as Common Dreams reported Tuesday, has continuously offered assurance that the recovery efforts are "doing well" while also suggesting the government can offer only limited assistance because of Puerto Rico's debts.

A Wake-Up Call for Students

From Angry Bear Blog | September 18, 2017 8:00 pm

Guest Author: Alan Collinge, StudentLoanJustice.Org,

Both Alan and I have written various posts on the student loan crisis. Alan has been featured on Angry Bear Blog from time to time.

If you are in college and looking for something worthy to fight for today; as a student, you should consider the student loan issue. Student loans and how they are administered are the national injustice of our time reaching threatening proportions and impacting the livelihood of young adults going forward. While at first glance, the problem appears complicated, confusing, and overwhelming; it is actually quite simple and its debt genesis hearkens back to the creation of this country. This problem transcends partisan and cultural divides and could serve to bring together those on the left and right on campus.

George Washington, Thomas Jefferson, and others were in debt up to their eyeballs to British banks and merchants. They came to understand how a lending system could be used against the citizens. Of course it was not just the Founders who were being exploited, many early settlers were indebted to English banks as well. John Adams famously remarked;

“There are two ways to enslave and conquer a country. One is by the sword. The other is by debt”

.When the Founders created the Constitution, they made it a point to reflect on bankruptcy rights prominently. Few people realize that a uniform bankruptcy system is called for before the power to raise an army or a navy, ahead of the power to coin currency, and even ahead of the power to declare war in Article I, Section 8 of the Constitution.
Obviously, bankruptcy rights were very important to these men.

Free men are not forced into any type of behavior by the government that We The People established and ordained. The government is to serve the people – not to force them into servitude and obedience. The people are sovereign, as the people came before the government and the Constitution that gave rise to the government.

Adam Smith, the founder of free market economics provided the basis for western economic theory, was compelled to advocate for bankruptcy protection as a means to encourage entrepreneurship, risk taking, and also a means to compel good faith in a lending relationship.

When an individual or firm goes bankrupt, a legal process is instigated to discharge debts that cannot be repaid. In former times such debtors might have been put into a debtors’ prison and languished there for years. The process weighs assets against liabilities and allows the debts to be discharged at some fraction of their nominal value, leaving the debtor free of the burden, albeit subject to rules of financial behaviour and with a blemish on their credit record which can last for years.

WHY WE SHOULD ABOLISH THE DEBT CEILING

 

Thursday, September 7, 2017

Congressional Democrats have pulled a fast one on Republicans by striking a deal with Trump to raise the federal debt ceiling only until the end of the year. This will give them bargaining leverage in December to strike a bigger bargain with Republicans: Democrats will agree to raise the debt ceiling then in return for Republican cooperation on legalizing Dreamers (unauthorized immigrants brought into the U.S. as children), making small but necessary fixes in the Affordable Care act, and other things Democrats seek.  

Raising the debt ceiling is always a political football, used by whichever party is in the minority to extract concessions from the majority party or from the majority party’s president.

The debt ceiling is how much the government is allowed to borrow. It shouldn’t be a political football. It should be abolished. It serves absolutely no purpose.

When the debt ceiling was first adopted in 1917, it might have been a useful way to prevent a president from spending however much he wanted. But since 1974, Congress has had a formal budget process to control spending and the taxes needed to finance it.

There’s no reason for Congress to authorize borrowing for spending that Congress has already approved, especially when a failure to lift the debt ceiling would be so horrific.

Having a debt ceiling doesn’t discipline government, anyway. The national debt is obligations government has already made to those who lent it money. Discipline has to do with setting spending limits and legislating tax increases, not penalizing the lenders.

Which is why most modern democracies don’t have debt ceilings. Britain, France, Germany, Canada, Australia – they do just fine without explicit borrowing limits.

Even more basically, the nation’s debt is a meaningless figure without reference to the size of the overall economy and the pace of economic growth.

After World War II, America’s debt was larger than our entire Gross Domestic Product, but we grew so much so fast in the 1950s and 1960s that the debt kept shrinking in proportion. 

Today’s debt is about 77 percent of our total national product. The reason it’s a problem is it’s growing faster than the economy is growing, so it’s on the way to becoming larger and larger in proportion.

This is what we ought to be focusing on. Fighting over whether or not to raise the debt ceiling is a meaningless and dangerous distraction. So abolish it.

Sovereign Debt Jubilee, Japanese-Style

Posted on June 27, 2017 by Ellen Brown

Japan has found a way to write off nearly half its national debt without creating inflation. We could do that too.

Let’s face it. There is no way the US government is ever going to pay back a $20 trillion federal debt. The taxpayers will just continue to pay interest on it, year after year.

A lot of interest.

If the Federal Reserve raises the fed funds rate to 3.5% and sells its federal securities into the market, as it is proposing to do, by 2026 the projected tab will be $830 billion annually. That’s nearly $1 trillion owed by the taxpayers every year, just for interest.

Personal income taxes are at record highs, ringing in at $550 billion in the first four months of fiscal year 2017, or $1.6 trillion annually. But even at those high levels, handing over $830 billion to bondholders will wipe out over half the annual personal income tax take. Yet what is the alternative?

Japan seems to have found one. While the US government is busy driving up its “sovereign” debt and the interest owed on it, Japan has been canceling its debt at the rate of $720 billion (¥80tn) per year. How? By selling the debt to its own central bank, which returns the interest to the government. While most central banks have ended their quantitative easing programs and are planning to sell their federal securities, the Bank of Japan continues to aggressively buy its government’s debt. An interest-free debt owed to oneself that is rolled over from year to year is effectively void – a debt “jubilee.” As noted by fund manager Eric Lonergan in a February 2017 article:

The Bank of Japan is in the process of owning most of the outstanding government debt of Japan (it currently owns around 40%). BoJ holdings are part of the consolidated government balance sheet. So its holdings are in fact the accounting equivalent of a debt cancellation. If I buy back my own mortgage, I don’t have a mortgage.

If the Federal Reserve followed the same policy and bought 40% of the US national debt, the Fed would be holding $8 trillion in federal securities, three times its current holdings from its quantitative easing programs.

America is not Broke!

Why Banks Love Public Debt

China's 'Belt and Road' Plan for Economic Development

by John Lawrence

Under the “One Belt, One Road” plan, China is remaking global trade and nurturing geopolitical ties.

One Belt One Road initiative to connect China to Europe (credit:YouTube)

The plan promises more than $1 trillion in infrastructure investments that span 60-plus countries across Europe, Asia and Africa.

While Trump touts "America First" as his watchword, China is undertaking a massive development program that will expedite trade and benefit China and its partners economically as it gains influence throughout much of the world. The US Trans Pacific Partnership which is now defunct was supposed to counter growing Chinese influence, but now China will become the dominant player in the world economy gaining friends and alliances along the way.

An Up-To-Date Silk Road

The Silk Road was an ancient network of trade routes that were for centuries central to cultural interaction originally through regions of Eurasia connecting the East and West. The Silk Road derives its name from the lucrative trade in silk carried out along its length, beginning during the Han dynasty (207 BCE – 220 CE). Trade along this corridor did much to promote political and economic ties among China, Asia, Africa and Europe. China now seeks to build a modern version of the Silk Road.

Unlike the US which seems to impose its western, capitalist democratic values on the rest of the world, China is out to prove that its model is more viable because it is stimulative of commerce without demanding fealty or allegiance to western values in return. Major countries participating include Russia, India, the Philippines, Iran and Iraq. These countries working together will form a relationship that will counterbalance US influence which will be relegated to its allies in Europe, which is having second thoughts about the US thanks to Trump, and South America much of which is a basket case. Trump's insistence on renegotiating NAFTA is sure to distance both Mexico and Canada. His building a wall between the US and Mexico will further anger south and central American countries.

Trump's withdrawal from the Paris climate change accords signals the moment when the US lost its hegemony over the rest of the world. Now China is positioned to fill the void. The US seems incapable of coming up with the $4.6 trillion needed to repair its own infrastructure according to the American Society of Civil Engineers, much less build infrastructure in the rest of the world like China is doing. It's clear that the contingent landmass of Asia, Russia and Africa will fall under Chinese geopolitical influence.

Credit: Dave Simmonds

The American model of loaning money to other nations via Wall Street banks and then demanding austerity measures and privatization of governmental assets when their payments fall short will soon be a thing of the past in terms of appealing to developing nations. Even Europe, notably Germany, is distancing itself from the US. Angela Merkel said recently, "And that is why I can only say that we Europeans must really take our fate into our own hands - of course in friendship with the United States of America, in friendship with Great Britain and as good neighbors wherever that is possible also with other countries, even with Russia." Germany gets a large percentage - about 40% - of its natural gas from Russia. They might decide to participate in China's Belt and Road program now that they seem to be detaching themselves from Great Britain and the US or rather it's the other way around. Britain and the US have detached themselves from Germany thanks to Brexit and Trump.

Bill to Protect California Consumers From Predatory Lending is Held by Assembly Appropriations

Published May 26, 2017 19:32 by California Reinvestment Commission

Earlier today, Assembly Bill 784 was “held” in the suspense file by the Assembly Appropriations Committee, effectively killing the bill.

Liana Molina, director of community engagement at the California Reinvestment Coalition, released this statement:

“It was deeply disappointing to see AB 784 (Dababneh) held in suspense today by the Assembly Appropriations Committee. AB 784 called for reasonable interest rate caps to protect California’s working families from predatory lenders who are currently allowed to charge unlimited interest rates for loans greater than $2,500.

There is a groundswell of support for ending predatory lending, including over 100 community, faith, and civil rights organizations who support an interest rate cap. We will continue building that support, and educating the public about the financial heartaches created by these loans.

It's worth noting the industry spent a great deal of money to oppose this bill, suggesting their profits are far more important than treating their customers fairly. Reforming predatory lending practices, which disproportionately harm Californians in communities of color, would be a concrete way for the California legislature to demonstrate its commitment to building a refuge of justice here in our state."

Additional Background on Harm of High-Cost Lending

There are no limits the APRs that high-cost lenders can charge Californians for loans that are greater than $2,500.

In 2015, more than half the loans to Californians for loans of $2,500 to $4,999 came with interest rates of more than 100% APR, according to the California Department of Business Oversight.

According to research by the CFPB, one out of five car title borrowers will have their cars repossessed.

Over 30 states already have interest rate caps, according to research by the National Consumer Law Center.

The New, New Economic Model

by John Lawrence

From Peoria

Quantitative Easing Becomes the Status Quo

After the Great Recession of 2008, the privately owned central bank of the US, the Federal Reserve, found a new way to get the economy moving again. They would simply create money and give it to the large Wall Street banks and even to some foreign banks like Deutsche bank. This newly created money would allow the big banks to cover all their collateralized debt obligations, interest rate swaps and other risky derivatives that had gone sour. They paid cash and then took the banks' risky trash onto their own, namely the Feds', balance sheet in the expectation that some day they would get rid of the stuff by selling it back into the market and then extinguish the cash which had been created with a few computer keystrokes. Here we are nine years after the massive bail-out of the big banks, and the Fed's once radical policy to save the world's financial system has become the status quo. The initial fear was that printing all that money and then effectively giving it to the Big Banks would create all kinds of inflation which money printing had done in the past most notably during the hyperinflation in Germany after the First World War.

US Fed Money Printing Didn't Cause Inflation Why?

So the fear of inflation turned out to be groundless because the Fed didn't spend that money into the everyday economy. They didn't help out Joe Six Pak. They didn't help out those with underwater mortgages. Essentially they gave all the money to rich people, and by this device averted inflation. Hmmm, said the Fed. We found out that, as long as you print money and give it to the Big Banks ^i.e. rich people, the money printing won't be inflationary. Instead, the Fed was successful in reinflating the economy as we had known it before the Great Recession. They created an asset bubble in the stock market since all this cash that had been given to rich people (also know as investors) found its way back into the stock market. The Big Banks had been bailed out. The world economic system was no longer in danger of collapse so things could hum along nicely with business as usual. The Fed was confident in the knowledge that it could print money at will as long as it gave that money to people who were already rich, and, therefore, wouldn't spend it in the real economy. These people would only invest it.

Economic Reality for the Little Guy

So the Fed in their basic function to prop up the Big Banks, and to hell with the little guy, adopted the policy of ongoing cash infusions to the Big Banks known as Quantitative Easing. They continued to buy on a monthly basis the bad debts of the banks thus continually infusing them with new cash. In addition they kept interest rates near zero. This allowed the banks to borrow money at extremely low rates and loan it out at much higher rates thus adding additionally to their bottom lines. The debt based economy was again in full swing. GDP continued to go up. The Fed knew that, if there were another recession, it could bail out the Big Banks again by just printing more money and inflation would not be a problem as long as the money went to rich people and was not spent into the real economy like job creation by a government program would do. The little guy would just have to be satisfied with being a permanent debtor. This was his role: to keep the economy going by borrowing money to consume more since consumption is 2/3 of GDP.

Student Loan Debt Hits $1.4 Trillion

The little guys, convinced they needed a college education, continued to borrow money and go into debt just to pay for the promise of a college degree and a good job one day. The poorer the person was, the more student loan debt they would have to go into, and the more motivated they were to pull themselves out of poverty. Car loans and credit card debt continued apace building up the debt based economy. Even car title loans based on equity in a car came into play.

Wall Street continued to play derivative games with all that debt turning it into asset backed securities and offloading it onto investors. Keeping interest rates low meant that savers were essentially screwed. Older Americans with savings accounts but no stocks got what amounted to no interest on their savings. So they were forced to go into the stock market thereby adding to Wall Street profits. Pension funds could not increase the value of their funds with conventional safe investments so they had to deal in riskier financial instruments as well.

Fed Policy Drives Economic Inequality

Fed policy is exacerbating income and wealth inequality since it basically gives money to rich people - to Wall Street and not to Main Street. And why should they give money to the little guy? They are a wholly owned subsidiary of Wall Street. They are a private entity not a publicly owned asset. They look out for the people who own them and nobody else. They are convinced that the USA and the world will keep running along very smoothly as long as there is no inflation which would occur if they gave money not to the rich but to the poor or middle class. That would drive up wages and create what economists fear most: wage inflation! The prevailing wisdom has replaced the conventional Keynesian wisdom which was to prime the pump by putting money into the little guy's hands. They know that now they can print as much money as they like as long as they give it to the already rich and no inflation will occur. As far as their supposed mandate to keep unemployment low, there is enough demand for low paying service jobs to do that even though the higher paying manufacturing jobs have by and large disappeared. So unemployment of the masses is not a problem. So what if a good paying job is replaced by a low paying job. That still counts as one unit of employment as far as the unemployment statistics are concerned.

Zerohedge reports the following:

The Fed has not even announced the framework of what its balance sheet "normalization" would look like, and already Boston Fed president Rosengren is talking about the next Fed QE program.

In a speech titled “The Federal Reserve Balance Sheet and Monetary Policy” delivered to Bard College on Wednesday afternoon, Rosengren said that structural changes in the macroeconomy "may necessitate more frequent use of large-scale asset purchases during recessions" and he said it is "quite likely" that the use of central bank balance sheets will be necessary in future economic downturns.

The reason?  A combination of low inflation, low rates of productivity growth, and slow population growth may imply an economy "where equilibrium short-term interest rates remain relatively low" by historical standards. In other words, the natural rate, or r-star, is so low, the Fed will only be able to hike rates a handful of times before it tips the economy over into contraction, requiring a new easing regime.

As a result, reductions in short-term rates to combat recessions will encounter the zero boundary and "will not be sufficient," Rosengren said – so "it is likely to be more common for central banks to engage in asset purchases to stimulate the economy by reducing longer-term rates."

Long story short: the Fed can only raise interest rates a small amount before they have to lower them again due to a looming recession. There is not enough interest rate leverage to keep the economy going so quantitative easing will continue to be the main tool in their toolbox.

As Long as People Keep Borrowing Money to Consume, Wall Street Will Be Happy

It's just Wall Street's job to keep the money spigot open. They need to keep money in the form of loans flowing. Then people will have every consumer item they desire, and they will continue to be in debt to Wall Street. The prevailing debt based model will continue to work until it doesn't. At that point there will be another financial crisis, but the Fed will just print money, give it to the banks and - voila! - the crisis will be over. The net result is that debtors will lose whatever items secured their debt including houses, cars and other assets. So the investor class will take over ownership and former middle class owners will in turn become renters. Eventually, all debtors will lose what they thought they owned because they are in over their heads and cannot make the payments.

The National Debt - No Problem

Conservatives used to be all upset over the $20 trillion national debt, but no more! They know the Fed can print any amount of money to make payments on the debt. There is nothing to fear about money running out. It has nothing to do with GDP or taxes. In fact the Fed could go from $4.5 trillion on its balance sheet to $20 trillion, the size of the national debt, without any problems as long as they keep feathering the nests of the rich. That would mean more billionaires and a greater wealth and income gap with the middle class. Current Fed policy will only fuel economic inequality, but they don't care about economic inequality. Their mandate only mentions inflation and unemployment. As long as they keep those two things in check, they are only too happy to create more billionaires and support financial manipulation as a source of wealth. After all they are owned by the very rich Wall Street billionaires who benefit from their policies.

Central Banks' Balance Sheets

 A Problem Emerges: Central Banks Injected A Record $1 Trillion In 2017... It's Not Enough

 The experts are now predicting that the Fed can't raise interest rates much or the whole stock market asset bubble will explode. If that were to happen, we'd be right back in another Great Recession or worse. So now the world's central banks are at the behest of Wall Street and other world financial centers such as the City of London.

Former Republican Tax Hawks Now in Favor of Cutting Taxes on the Rich and To Hell With the National Debt

In their perennial bait and switch on budget deficits, Republicans who criticized the Obama administration for overspending, now are content to run up the deficit even more as long as they get their tax cuts for the rich and increased military spending. Oh and the border wall, a completely superfluous and gratuitous expenditure.

According to a report in the New York Times:

From an office high above Manhattan, the billionaire Peter G. Peterson has warned for years that the federal government is borrowing too much money. So have other Republican grandees, like former Senator Alan K. Simpson, who made dire predictions about the federal debt in a 2010 report. Republicans in Congress have been eager to sing from the same hymnal so long as a Democrat was in the White House.

But when Republicans take charge, their fiscal rectitude sometimes starts to waver. The broad Republican support this week for President Trump’s plan to sharply reduce taxes suggests that those who hang on to austere concerns about debt will now be facing former allies who want to chase economic growth.

Some Republicans are rallying around the idea that less taxation is more important than less debt, just as they did during the Republican presidencies of Ronald Reagan and George W. Bush. That shift is a break with the die-hard hawks of the anti-deficit industrial complex, who have long warned of calamitous consequences to the American economy.

“This is about math, not mystery and magic,” said Mr. Simpson, who was a chairman of President Barack Obama’s bipartisan commission on the federal debt in 2010. “It’s madness to think that you can have a tax cut without some reduction in spending or some increase in revenue.”

Mr. Trump’s proposal, while short on details, calls for cutting taxes on corporations and individuals, including reducing the corporate tax rate from 35 percent to 15 percent and doubling the size of the standard deduction for individuals. Analysts estimated that it could add as much as $7 trillion over a decade to the federal debt, depending on what Congress eventually packs into a tax bill.

So Republicans care more about their tax cuts than they do about the National Debt. Who knew? But they do care about it if there is a Democratic administration in charge. They love tax cuts, but they hate Democratic government programs to help the poor and middle class. They hate anything public and that includes public schools, public parks, public roads, public libraries etc etc. You get the picture. They want to shrink government down to the size where "you can drown it in a bathtub." Overspending on tax cuts suits their agenda entirely because in a few years they'll be saying, "There's not enough money for social security or Medicare (two programs they really want to get rid of) or anything else except the military." By then the Trump administration will have gotten rid of all regulations thus creating a veritable "Buyer Beware" economy whether it comes to food, water, medical care, toys, air bags or anything else.

The Brave New World of American Capitalism

So the American consumer will be bought off with cheaper goods produced by low paid workers in other countries or robots, whichever is cheaper. No inflation here either in the price of stuff or in wages. The rich will continue their function of keeping the economy going by investing in asset bubbles. From time to time the Big Banks will totter on the brink of failure but will be bailed out by the Fed. Debts will be exinguished by foreclosure and bankruptcy which will only add to the largesse of the investor class which will be able to pick up assets like houses at bargain basement prices. The middle class will become renters and the poor will become homeless. That's the new reality.

Steve Fraser in his book, "The Age of Acquiescence," talks about how the former proletariat has become a precariat, working in the gig economy without unions, without worker protections, totally free in their labor, not having a boss standing over them. Labor just like capital has been freed from restraints and constraints, from regulations, from obligations. In this economy one might have to work 2 or 3 gig like jobs, but that's OK as long as one's role as a consumer promises that new and exciting purchases can be had relatively cheaply. Consumers have been bought off so that there's no need to struggle for social justice. What more could a person possibly want?

05/15/2017   5:07:31 PM

Free College Tuition in New York State?

by John Lawrence from the San Diego Free Press

Even in the Age of Trump There is Good News (at the State Level)

Taking a page out of the Bernie Sanders playbook, Governor Andrew Cuomo, with Bernie Sanders standing by his side, proposed free university tuition in New York state for residents making less than $125,000 a year. New York on the east coast and California on the west are taking the lead in preserving and advancing progressive values in the Trump era which will probably see conservative values extolled at the Federal level. But Democrats like Chuck Schumer, Elizabeth Warren and others will do all they can to block Republican efforts to shred the safety net for poor and middle Americans. Meanwhile, state and local governments in progressive states will do all they can to advance the cause of values that benefit average Americans.

Cuomo's proposal would cover state colleges, universities and two year colleges. Cuomo, who is thought to have Presidential ambitions, is tacking left on a number of issues including raising the minimum wage and paid family leave. Bernie Sanders made an issue of free college tuition during his Presidential campaign in light of the exploding student loan debt of over $1 trillion. Indeed, Sanders praised the announcement by saying, “That is a message that is going to provide hope and optimism for working-class families all across the state.”

 Regarding student loan debt, Cuomo said “It’s like starting a race with an anchor tied to your leg,” adding that many students in New York and elsewhere left college $30,000 or more in debt. “This society should say, ‘We’re going to pay for college because you need college to be successful,’” he added. “And New York State is going to do something about it.”

Tennessee and Oregon Lead Nation in Free Community College

Tennessee and Oregon already have programs to cover the costs of community college. Governor Cuomo's plan would include four-year schools as well as the city’s university system — a once-free network whose tuition has risen and reputation has fallen over the last decade.

The New York Times reported:

Mr. Cuomo hopes for a quick start for his idea, with a three-year rollout beginning in the fall, with a $100,000 income limit, rising to $125,000 by 2019, a timetable the administration billed as more speedy than the one embraced by Mrs. Clinton during her presidential campaign. (On Twitter, Mrs. Clinton said she was “delighted” by the governor’s proposal, calling it a plan that she and Mr. Sanders had “worked hard on.”)

It's unclear how much this program will cost. New York already offers in-state students one of the lowest tuition rates in the nation. Current full-time tuition at four-year State University of New York schools for residents is $6,470; at two-year community colleges, the cost is $4,350. Full-time costs for City University of New York schools are about the same. Cost estimates put the price of the new program at $163 million.

There are an estimated 940,000 New York households with college age children who would be eligible for this program. New York state has the nation's largest public university system with 440,000 students and 64 campuses. As student loan debt is greater than a trillion dollars and rising rapidly, something must be done or a whole generation is doomed to debt peonage. A college degree is no guarantee of a job, however. Students need to carefully consider their talents, abilities and interests before committing themselves to years of study in an area in which they might be ill suited. Therefore, high school guidance and career counseling is most important.

Bernie Sanders Suggested It First

Bernie Sanders was effusive in his praise of Mr. Cuomo’s idea, calling it “a revolutionary idea for higher education” that he envisioned would be emulated elsewhere. “Here’s my prediction,” the senator said. “If New York State does it this year, mark my words, state after state will follow.” Well, the blue states perhaps. But not in the south or the midwest. This proposal might appeal to a lot of Trump voters who have some college education but found the financial hurdles involved in getting a college degree just too insurmountable.

College students would still have to pay for room and board as well fees and books. So it is not a total panacea. Living at home would make getting a college education doable. Undoubtedly, many would move to New York just in order to be able to participate in such a program. Students would have to graduate in either two or four years or else lose their eligibility. They would also have to be qualified academically in order to gain admission to the colleges and universities in the first place. That means they would have to do pretty well in high school or they wouldn't even be accepted. But not everybody is college material, something that for profit colleges seem to ignore. They take everybody and sign them up for a student loan. Many do not even graduate, but still are stuck with a lot of debt.

Private For Profit Colleges Drive Student Debt

If this idea catches on, it could put the for profit private colleges out of business. They are the ones mainly responsible for driving up student loan debt. Good riddance to them, I say. Just this week SAGE college in San Diego abruptly closed shop leaving hundreds of students, some close to graduation, in the lurch. Students said Sage College withheld information and in some cases continued to collect federal student loan funds and tuition payments as recently as a few days before closing. That's money students will have to pay back despite the fact they never got their degree or credential.

The San Diego Union reported:

“They told us in October that we had 18 months and that they would take care of us,” said Marissa Maginnis, a single mother from Spring Valley working toward her court-reporting certification. “We were supposed to have finals next week. A lot of us feel like we’ve just been scammed.”

Maginnis said she owes $23,000 in student loans — money she thought was a good investment because court reporters can earn $80,000 a year or more in San Diego. She hopes to get all or part of her loan forgiven.

While Trump appoints an Education Secretary devoted to privatizing the public schools, Betsy DeVos, Governor Cuomo of New York is taking the opposite tack by expanding the public school system. We'll see how this plays out over the next four years as political rivals seek to influence the American people towards either free public education or private charter schools run with public money.

Is the Green Party a Good Alternative?

by John Lawrence from the San Diego Free Press

Noam Chomsky advocates voting for Dr Jill Stein of the Green Party in states which are securely Democratic and voting for Hillary in swing states where every vote counts. This makes a lot of sense to me as it's one way, maybe the only way, to build a third party in this country. Due to our antiquated voting system, a third party can never be successful. However, it could conceivably replace one of the two present day mainstream parties at some point.

Jill Stein stands for a lot of the things that Bernie and other Progressives stand for. But even if, by some stretch of the imagination, she were to be elected in November, she would still face a Republican Congress. Hillary is right when she seeks to tone down Bernie's rhetoric and make more modest claims because, if elected President, she will face an intransigent Congress which will thwart her at every turn. Even though the Dems might be able to take back the Senate, it will not be filibuster-proof, and they probably will not be able to take back the House. So the Repubs will block all the good stuff in the Democratic party platform, and Hillary will be blamed for not delivering what she had promised.

If Hillary is not able to implement any bit of the Democratic platform, a platform shaped by Bernie Sanders, the high expectations of those who will vote for her will be smashed with the result that people will turn on her, and Donald Trump could come back to haunt us in four years.

Dr Jill Stein doesn't have that dilemma. She can state her positions clearly and unequivocally knowing that she will never have to try to get them implemented because she probably will never gain the Presidency. But still it's worthwhile to get those viewpoints out there before the public and let the public ruminate on them the same way Bernie Sanders did. If he had gained the Democratic nomination, he would have been in even worse shape than Hillary who at least had the perspicacity to tone down claims of what she would do as President to be somewhat more in tune with reality.

What does Jill Stein Stand For?

So what does Dr Jill Stein stand for? Here is a sampling:

1) Guarantee economic human rights, including access to food, water, housing, and utilities, with effective anti-poverty programs to ensure every American a life of dignity.

This is none other than the implementation of Article 25 of the UN Declaration of human rights which states

Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.

Economic human rights are something Republicans are dead set against. They say it's not in the Constitution and it's unAmerican; only political rights are mentioned in the Constitution. Jill Stein's plan to implement economic human rights would end poverty and guarantee everyone a basically decent existence. The crux of the matter is that those of us who have been fortunate enough to accumulate great wealth should use some of that wealth to support those of us who are less fortunate, not by means of philanthropy or charity, but through the intermediary of government and the tax code. So far human greed has made this outcome impossible. Will human nature change and in particular the American psyche become less selfish? We'll see, but I wouldn't count on it. It would entail rewriting the Constitution to reflect those values.

2) Create living-wage jobs for every American who needs work, replacing unemployment offices with employment offices. Advance workers' rights to form unions, achieve workplace democracy, and keep a fair share of the wealth they create.

In Sweden unemployment offices have been replaced by employment offices. These offices can be found in Stockholm and other cities and towns and are state run. In order to get a job all one must do is go in to this office, input one's qualifications and credentials, and they will help you search a database of every available job in the whole country. If a suitable job comes up, the applicant has a right not to accept it, and a new search is undertaken. However, after three rejections, his or her welfare is cut off. In other words you have to accept one out of three proposed jobs or else. This extensive job search should be implemented in this country in order to facilitate everyone's working to the greatest extent possible. If no suitable private sector job can be found, then public sector jobs at minimum wage can be created. There's no end of trash that needs to be picked up along the streets and freeways. I'm sure productive jobs can be created ala FDR's Civilian Conservation Corps and Works Progress Administration.

3) Create millions of jobs by transitioning to 100% clean renewable energy by 2030, and investing in public transit, sustainable agriculture, and conservation.

Global warming is serious and needs to be addressed in a serious manner. Dr Stein's platform would do this although the date needs to be moved up to 2025.

4) Establish a foreign policy based on diplomacy, international law, and human rights. End the wars and drone attacks, cut military spending by at least 50% and close the 700+ foreign military bases that are turning our republic into a bankrupt empire. Stop U.S. support and arms sales to human rights abusers, and lead on global nuclear disarmament.

The US has to be weaned away from being the world's foremost militarist nation if there is ever to be peace on the planet. Peace making activities such as the Peace Corps need to be stepped up. The money saved by slashing the military budget and closing bases can be used to transition to renewable energy and provide other social benefits.

The US military bases in almost every country of the world give credence to the fact that the US is an occupying power that occupies the whole world. It's world domination pure and simple, something we fought against in WWII when the Axis powers tried to do it. A lot of these countries, for example the Phillipines, don't want our bases on their territory. Converting US military occupation to Peace Corps related activities would go a long way to creating world peace. We create enemies and then beef up the military budget to defend against them. Even Russia has been recreated as a new old enemy when friendship would have been and still is possible. Those in power miss the good old days of the Cold War; they want it back so bad.

5) Establish an improved “Medicare For All” single-payer public health insurance program to provide everyone with quality health care, at huge savings.

With Aetna pulling out of Obamacare, Obamacare's days are numbered. The big insurance companies are not interested in playing that game leaving the whole program in jeopardy. It was a jury rigged, Rube Goldberg jumble of incompatible compromises in the first place. Medicare-for-all is the only sane solution. Let's get on with it.

6) Abolish student debt to free a generation of Americans from debt servitude. Guarantee tuition-free, world-class public education from pre-school through university. End high stakes testing and public school privatization. 

5) and 6) agree with Bernie Sanders' proposals.

7) Set a $15/hour federal minimum wage. Break up “too-big-to-fail” banks and democratize the Federal Reserve. Reject gentrification as a model of economic development. Support development of worker and community cooperatives and small businesses. Make Wall Street, big corporations, and the rich pay their fair share of taxes. Create democratically run public banks and utilities. Replace corporate trade agreements with fair trade agreements.

The Federal Reserve created $17 trillion out of thin air via a few keystrokes on a computer in order to bail out the big banks, domestic and foreign, in the 2008 financial crisis. It's obvious they don't know what they're doing. They're in uncharted waters, and the only thing they know is to preserve the system as it already exists until the next financial crisis. That's the only time when things might change. Until then they are holding on to the current system such that it is for dear life.

The Rich Need to Pay Taxes Sufficient to Reduce Inequality

The rich need to pay their fair share which I define as sufficient to diminish income and wealth inequality. If the US is to remain a democratic country and not become a plutocracy, this needs to happen.

Reagan's and Alan Greenspan's tax breaks for the rich had a lot to do with the increasing economic divide between rich and poor. The balance needs to be regained by taxing the rich to support the poor until wealth and income is more evenly distributed.

There are other parts to Dr Jill Stein's plan, but the above are the main "planks" in my opinion. She mentions public banking which I have written about extensively in the San Diego Free Press. The champion of public banking is Ellen Brown who has run on the Green Party ticket previously for State Treasurer of California. Public banking is an important concept that would make it possible for the US and its citizens to get away from the debt based economy they now suffer under. It also is a non-violent way to diminish the power Wall Street has over the economy.

In Ellen's latest blog: Can Jill Carry Bernie’s Baton? A Look at the Green Candidate’s Radical Funding Solution she says:

Bernie Sanders supporters are flocking to Jill Stein, the presumptive Green Party presidential candidate, with donations to her campaign exploding nearly 1000% after he endorsed Hillary Clinton. Stein salutes Sanders for the progressive populist movement he began and says it is up to her to carry the baton. Can she do it? Critics say her radical policies will not hold up to scrutiny. But supporters say they are just the medicine the economy needs.

...

As with Sanders’ economic proposals, her plan has been challenged as unrealistic. Where will Congress find the money?

But Stein argues that the funds can be found. Going beyond Bernie, she calls for large cuts to the bloated military budget, which makes up 55% of federal discretionary spending; and progressive taxation, ensuring that the wealthy pay their fair share. Most controversial, however, is her plan to tap up the Federal Reserve. Pointing to the massive sums the Fed produced out of the blue to bail out Wall Street, she says the same resources used to save the perpetrators of the crisis could be made available to its Main Street victims, beginning with the students robbed of their futures by massive student debt.

If the Fed Can Create Money for Wall Street, They Can Create It for Main Street

The Fed came up with trillions of dollars to bail out Wall Street and they did it with a couple keystrokes on a computer. So why can't the same thing be done for Main Street? Dr Jill Stein and Ellen Brown say it can. Bernie Sanders demanded that the Government Accounting Office conduct an audit of the Fed which revealed that it had provided a whopping $17 trillion to bail out American and foreign banks during the economic crisis. “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else,” said Sanders in a press release.

If the Fed can create money that it doesn't really have just by a few keystrokes on a computer and give it to the rich, it begs the question why can't the Treasury Department issue the money directly to the people? Right now they are forbidden by law from doing so, but there is a way around this since the Treasury can issue coins. It has been proposed that the Treasury could mint a trillion dollar coin and then go from there. Better yet change the law so that the Treasury Department, not the Wall Street controlled Fed, has control over the money supply. If it did this, it wouldn't have to borrow money and pay interest on its bonds which goes mainly to Wall Street. Taxpayers would save billions of dollars in interest charges. Ellen continues:

The alternative is to do what governments arguably should have been doing all along: issue the money directly to fund their budgets.

Central bankers have largely exhausted their tool kits, prompting some economists to  recommend some form of “helicopter money” – newly-issued money dropped directly into the real economy. Funds acquired from the central bank in exchange for government securities could be used to build infrastructure, issue a national dividend, or purchase and nullify federal debt. Nearly interest-free loans could also be made by the central bank to state and local governments, in the same way they were issued to rescue an insolvent banking system.

Just as the Fed bought federal and mortgage-backed securities with money created on its books, so it could buy student or other consumer debt bundled as “asset-backed securities.” But in order to stimulate economic activity, the central bank would have to announce that the debt would never be collected on. This is similar to the form of “helicopter money” recently suggested by former Fed Chairman Ben Bernanke to the Japanese, using debt instruments called “non-marketable perpetual bonds with no maturity date” – bonds that can’t be sold or cashed out by the central bank and that bear no interest.

The Bernanke proposal (which he says could also be used by the US Fed in an emergency) involves the government issuing bonds, which it sells to the central bank for dollars generated digitally by the bank. The government then spends the funds directly into the economy, bypassing the banks.

The US government need not borrow money for its expenditures thus driving up the national debt. It could issue the money directly essentially the way the Fed did. The Fed then bailed out the banks, but won't bail out Main Street. The Federal government could do just that: provide money interest free for rebuilding infrastructure, buying up student loan debt and other worthwhile activities. The result would be increased economic stimulus and full employment. This coupled with a financial transactions tax on Wall Street, eliminating the "carried interest" loophole for hedge funds, would decrease the economic divide between the 1% and the 99%.

Bernie Sanders had the right ideas; Jill Stein has the right ideas. But none of these ideas can be implemented with a corporate controlled Congress which likes things just the way they are. After all it serves their interests very well. They are getting rich off it, and they could care less about the middle class or the poverty stricken. The Repubs have their southern "tribe" locked up and fully imbued with the idea of voting against their own interests. They are busy ginning up anger against the less rugged. This seems to be sufficient for getting people to vote against their own interests. Corporate Democrats like their perks too like going to work as lobbyists after they quit their "public service."

Financial Parasites Have Become Neo-Feudal Landlords

by John Lawrence

Classical economics divided income into two types: earned and unearned. Earned income came from productive labor combined with capital investment. Unearned income was considered parasitical and consisted of rent, interest and dividends. It was not considered as adding to GDP but as subtracting from it. It was money made by manipulating money much as feudal landlords made their money in what has been called a rentier economy.

Today most of the money earned by the 1% which is driving the income inequality gap is made in the financialized, rentier economy but is now considered earned income. New methods have been devised to make money not by productive labor and investment but by manipulating financial instruments. One such manipulation consists of stock buybacks.

Why would a company buy back its own stock, stock that was issued in the first place supposedly to give the company money it needed for productive investment to produce goods and services. The answer is very simple. When a corporation buys its own stock (often with borrowed money), the stock usually goes up at least temporarily. That gives the executives of the company and activist hedge funds time to cash in their stock grants, options and garden variety stocks and make a killing. The boost in stock value also impresses Wall Street which cares solely about the short term financial indicators for a company and not at all about what the company did to achieve those indicators.

When a company uses its profits or even borrowed money to buy back its own stock, that's money that is not being used for research and development or to expand production or to make a better product. The money that the executives and hedge funds make is strictly because of financial manipulation, but in a financialized economy it's considered to be additive to GDP. The measurement of GDP is no longer linked wholly or even mainly to production, but now consists to a large extent of income that is made in the rentier economy.

Carl Icahn, a big investor in Apple, is always trying to get them to buy back their stock so he can cash in. The billionaire activist investor lobbied Apple to buy back billions worth of its shares to boost value to shareholders. In April 2014 Apple boosted its buyback plans by $30 billion and even split its stock for the first time in nine years. Satisfied? Never. Icahn's taking another swing at getting Apple to buy back even more stock, saying the shares could double to more than $200 apiece.

Another way the parasites make money which makes the GDP figures look good is to not pay taxes. The tax code has been completely captured by the large corporations and their lobbyists which has shifted the burden away from corporations and onto the average working person - the 99%. Both Democrats and Republicans are complicit in this arrangement, one example of which is the tax giveaway they are getting ready to implement.

William Greider in an article entitled Democrats and Republicans Are Quietly Planning a Corporate Giveaway—to the Tune of $400 Billion writes the following:

The bad news is that key leaders of the Democratic Party—including the president—are getting on board with Republicans, despite some talk about confronting income inequality. Influential Democrats intend to negotiate with Republican counterparts on the size and terms of post-facto tax “forgiveness” for America’s globalized companies. This is real money they’re talking about—a giveaway of hundreds of billions

Why haven’t voters heard about this from candidates? Because Republicans and Democrats both know it would make angry voters even angrier.

The major multinationals complain about a tax problem that most citizens would love to have for themselves: Thanks to a loophole in the tax code, the companies do not have to pay US taxes on profits they have earned in foreign countries until they bring the money home to American shores. Altogether, the globalized US companies have accumulated $2.1 trillion in untaxed profits, most of it parked in overseas tax havens.

The multinationals are waiting for Congress to forgive them their debts.

Oh, but forgive the debts of the little guy? Never!! While corporations expect to have their debts forgiven, there is no such help for for the average American or average debtor nation like Argentina or Greece.  For the rest of us the commandment is "Thou shalt PAY UP." Wall Street has adamantly stuck to this first Principal of Finance which is sancrosanct, so sancrosanct in fact that bankruptcy rules for the average American are being tightened while at the same time they are being loosened for corporations. You think student loan debtors can go bankrupt? Guess again.

After all part of the vulture capitalist's playbook is to buy a company with borrowed money, load it down with debt, strip its assets, raid its pension fund, then take it into bankruptcy in order to destroy its union. Having accomplished all that and by the way added to GDP while so doing, the company can then be taken out of bankruptcy, taken private and then taken public again in order to get another infusion of cash from an Initial Public Offering (IPO) which is immediately gobbled up by the hedge fund (another name for vulture capitalist) itself. All of these shenanigans make money off of money, do nothing for productive investment but do add to GDP.

Congress let these corporations have a "tax holiday" in 2004 on the hope and promise that these corporations would spend their largesse doing research, investing in America and creating jobs. What happened? The 15 companies that benefited the most from a 2004 tax break for the return of their overseas profits cut more than 20,000 net jobs and decreased the pace of their research spending. One of the beneficiaries was Qualcomm, a major whiner for another tax holiday. On his way out the door Paul Jacobs exhorted his employees and shareholders to “Send your Congress people your opinion that you’d like American companies to be able to bring offshore money back to the United States to either reinvest or return to shareholders.” Qualcomm had $21.6 billion in overseas profits in 2014. And those poor shareholders - most of them in the 1% - are having to make do without their money. Oh, Boo Hoo.

As a result GDP is no longer a measure of the health of an economy. If a tornado wipes out a town, the money spent to rebuild that town adds to GDP, but does not constitute a contribution to the economy that adds anything except to restore what was already there. In the same way hedge funds add nothing productive to the American economy, but they do increase GDP. So GDP as a measure of anything productive is passe. It is merely a measure of the cash that changes hands regardless if it changed hands as a result of winning a bet in a casino or in the casino of Wall Street or it changed hands because someone bought something that was actually useful.

And don't forget the second Principle of Finance - "If Wall Street fucks up, thou shalt bail us out" in which case taxpayers will restore their financial rectitude and well-being like we did in 2008. Or maybe this time it will be a bail-in in which case citizens will make Wall St whole again with money from their savings accounts which by the way are the property of the banks. The bank has merely issued you what amounts to an IOU, and, what's more, you're treated to practically zero interest rates on your savings. How's that you thrifty senior savers?

If GDP doesn't measure the exchange of productive goods and services or productive investment, why does every politician and pundit insist on "growing the economy" meaning increasing GDP? We would be better off in some ways if GDP were diminished and the emphasis was on a sustainable economy, an economy which valued the health and welfare of the average person instead of the 1%. All the money that is made from the oil and gas industries needs to diminish if we are to make any progress with global warming. All the money made by Wall Street on fees, interest and derivatives needs to diminish if the economy is to be placed on a more solid financial footing.

Consumers contribute 70% of GDP. If we start growing our own food and fixing our own cars and buying less junk, this will diminish GDP, but the average American will be better off. They would have less debt. If we stop going into debt, GDP would go down. But so would the inequality gap as corporations earned less profit and Americans took on less debt. How to make America great again? Pay down your debt, do more for yourself instead of buying goods and services in the cash economy, buy and work local and stop patronizing large corporations and Wall Street banks.

The only way that the central bank of the US, the Fed, knows to grow the economy is to lower interest rates and force more debt on American citizens. This is what monetary policy amounts to. Fiscal policy, in which the government would create jobs directly by providing money for infrastructure revitalization, is non-existant thanks to Republicans who won't approve expenditures by government that would actually create jobs and the military-industrial complex which gobbles up every available dollar.

If American citizens don't take on more debt, the economy goes to hell in a handbag. The only way around this is to start a public bank. Then the local economy can be served directly including creation of good jobs without reliance on Wall Street. By the way sports fans, the plan for the new San Diego "Convadium" would involve the City of San Diego issuing a billion dollars in bonds, a plan they are touting as requiring no taxpayer funding, but which will involve huge payments to Wall Street for fees and interest. These bonds will be backed by nothing except hotel taxes. Who's liable here if the plan goes south?

Michael Hudson writes in his book, Killing the Host - How Financial Parasites and Debt Destroy the Global Economy:

"Trying to rise into the middle class these days is a road to debt peonage. It involves taking on mortgage debt to buy a home of one's own, student loans to get the education needed to get a good job, an automobile loan to drive to work, and credit card debt just to maintain one's living standards as the debtor falls deeper and deeper into the hole. Many recent graduates find that they have to pay so much on their student loans that they must live at home with their parents and cannot afford to get married and start a family, much less qualify for a mortgage. That is why consumer spending has not risen since 2008. Even when income rises, many families find their paychecks eaten up by debt service."

Bernie Sanders is addressing the problem of debt peonage, which is gradually enslaving the American middle class, directly by calling for free public education and Medicare For All. He is also addressing the US tax code which has been rigged in favor of the wealthy and the corporations starting with Ronald Reagan's and Alan Greenspan's meddling. Republican Presidential candidates would only hasten the descent of the American middle class into debt peonage by giving further tax breaks to the rich while transferring even more of the tax burden onto the middle class and the poor.

The American dystopia that is becoming more likely is one in which a small percentage owns the means of production and rent producing assets while the vast majority eke out a living doing menial labor that can't be done by robots and automatons. Andrew F. Puzder, CEO of the parent company of Carl’s Jr., has announced he’s investing in machines because he doesn't want to pay employees $15 an hour or to pay for their health care. Puzder makes more in one day ($17,192) than one of his minimum-wage employees working full time makes in a year ($15,080), The Nation reported last year.

Work for nothing or be replaced by a robot - that's the choice for the 99%. But robots are taking middle class jobs now and will take more in the future, minimum wage or no minimum wage. So what's the solution? Start your own business, become self-employed, stay away from student loan debt or start or become a member of a cooperative enterprise. You have no future as a minimum wage employee regardless of the minimum wage. Take the bull by the horns instead of trying to convince the cow not to shit on you.

The American dystopian vision of the future is even more appalling than the feudal era in which human labor was actually needed to make the economy work. Sure the 1% controlled the wealth; it was a rentier economy but human labor was necessary. Now humans as well as their labor are expendable. The future could hold a life of abundance and leisure for everyone but that is not likely unless wealth is more evenly distributed. It won't be more evenly distributed unless consumers stop consuming, take matters into their own hands and start producing for themselves. The sad truth is you can make more money as a self-employed laborer than you can working a 40 hour week for MacDonald's even if you just do a couple of jobs per week! Why work for $10. an hour for someone else when you can make five times that much as a self-employed doing exactly the same work?

It's Time for Quantitative Easing for People Instead of Banks

by John Lawrence from the San Diego Free Press

Income Inequality is Getting Worse

Income and wealth inequality is only getting worse. It's not hard to understand why. Certain corporations have a lock on economic activity throughout the world. Mom and Pop operations have been forced out of business or have merged with the Big Guys. Artificial intelligence, automation, robots and computers have taken over many menial but used-to-be-better-than-minimum-wage jobs like check-out clerks, bank tellers and customer service operators. Other jobs have been off shored to cheaper labor jurisdictions.

The rest of us, college graduates included, have been reduced to being expendable appendages of the large corporate machines to be sucked in and spit out at their pleasure. When our skill sets are outmoded, we will be laid off and fresh talent will be acquired. The job pool is shrinking because the number of necessary jobs is shrinking. Today, there are approximately 1.2 million fewer jobs in mid-and higher-wage industries than there were prior to the 2008 recession, while there are 2.3 million more jobs in lower-wage industries. According to the Bureau of Labor Statistics most jobs in the next decade won't even require a college education. They are jobs that can't be done by robots: care givers, nurses, house cleaners, gardeners, retail.

Another reason for income and wealth inequality is that the US Federal Reserve's quantitative easing policy screws savers who get zero interest on their life savings while injecting money into the largest Wall Street banks. This money is siphoned off by wealthy investors and hedge funds. It never enters the real economy. It only encourages the average Joes and Janes to take on more debt. Ninty percent of the money supply is created by private banks who loan money into the economy through their policy of fractional reserve banking. As the money supply increases, so does debt.

Wall Street Banking Giants Create Most of the US Money Supply

Fractional reserve banking is a simple concept that has become more complicated and convoluted as it has evolved over the years. In its simplest terms, if a bank takes in a deposit of $100 from 10 people or $1000 total, it loans out $900 of that keeping $100 back as a reserve in case someone wants their deposit back before the principal and interest on the loans start flowing in. Their premise is that not everyone will demand their deposit back at the same time. If, however, everyone does want their money back at the same time, there could be a run on the bank unless the bank can borrow the money from some other entity like another bank or the Federal Reserve

Thus money is created by the bank with a few keystrokes on a computer and is fed into the economy as debt. The banks are at the top of the food chain since they create the money and loan it out on interest. Thus the US economy is a debt based economy. Bad things happen when people all demand their money back at the same time or collective debt becomes so big and untenable that it can't be paid back. This is what happened in the 2008 financial crisis when mortgages were given to people who couldn't pay them back and hence defaulted. Eventually this whole financial structure, which was a house built upon sand instead of a rock, to use a Biblical metaphor, collapsed.

It is to be noted that when a bank creates money, it is not backed by gold. Nixon took us off the gold standard in 1971. Money not based on anything but the government's say so is called fiat money. Thus all money created by private banks is fiat money, and, although the government says it is all good, it is the private banks that actually create it, not the supposedly democratically elected government.

The Federal Reserve has also been involved in money creation recently with a process called quantitative easing (QE). When the government needs money beyond the revenues it takes in by means of taxes, it goes into debt by issuing bonds. Sometimes those bonds are bought by Joe and Jane Average Investor or sometimes by other countries like Japan. However, much of the time they are bought by Wall Street banks. Then the Federal Reserve turns around and pays cash for those bonds taking them off the hands of the big banks. The result is that the banks end up with more money and the loans disappear on the Federal Reserve's balance sheet which is sort of like a black hole. Effectively, the government never has to pay those loans back.

Quantitative Easing for the People

There is another way that money could be created and injected into the economy. It might be called quantitative easing for the people (PQE) as Britain's Leader of the Labor Party, Jeremy Corbyn has termed it. He proposes to give the Bank of England a new mandate to upgrade the economy to invest in new large scale housing, energy, transport and digital projects. The investments would be made through a National Investment Bank set up to invest in new infrastructure and in the hi-tech innovative industries of the future.

The money creation (or printing if you like) would entail the government issuing a bond that a National Investment Bank would buy. Then the central bank would take that loan on its balance sheet in return for cash that the bank would then use to pay for infrastructure. The end result is that the government would owe the central bank the amount of the loan, but because the central bank is a financial black hole, it would never have to pay.

In Addition to Pocketing the QE, Wall Street Bankrupts Cities

The City of Los Angeles is paying a Wall Street bank $200. million annually in fees just to manage its money. The Huffington Post revealed:

LOS ANGELES, CA- At a lively downtown rally in front of the Bank of NY Mellon in Los Angeles, the Fix LA Coalition unveiled a groundbreaking research report, entitled "No Small Fees: LA Spends More on Wall Street than Our Streets," revealing that Wall Street charges the City of Los Angeles more than $200  million in fees. Coalition members called for action to reduce the high fees and put that money back into neighborhood services. After the rally, Fix LA Coalition members delivered the report to elected officials in City Hall.

In addition LA like a lot of cities that have gone bankrupt (Birmingham, Alabama for instance) has been snookered into interest rate swaps that end up costing much more money than  if they had kept the original loan at the original rate. Then to get out of these toxic deals, they have to pay a substantial "termination fee."

Lisa Cody, SEIU 721 Research Analyst and report co-author stated: "Based on what we know, there are some concrete steps we can take to save LA millions. For example, we can start with Mellon Bank to renegotiate a 'swap' deal that was supposed to save the city money, but is instead costing LA almost $5 million a year. To fix this toxic deal, the bank wants $24 million more in fees. In 2012, NY Mellon charged the city $26 million in termination fees for another swap they had sold us that turned out to be a terrible deal for LA." 

LA is not the first and probably won't be the last to be tricked into engaging in a fancy derivative deal that was way over the heads of the city employees that were talked into it by Wall Street hit men. If they had formed their own Public Bank of Los Angeles, they could not only have avoided being ripped off, but they could have actually made money and then be in a position to fix all those potholes they've been screaming about. And they could have created their own money supply the way Wall Street does it: fractional reserve banking.

In August 2014 the Fix LA coalition released the following statement:

Los Angeles Becomes Largest U.S. City to Take Action on Toxic Bank Deals; Unanimous Vote Requires City to Renegotiate or Terminate Multi-Million Dollar Interest Rate Rip-Off on Behalf of Taxpayers

Unanimous City Council vote sends strong message to Bank of NY Mellon, Wall Street: LA is not your ATM

The Los Angeles City Council voted 14-0 Wednesday to renegotiate or terminate without penalty a toxic swap deal the City entered into with two Wall Street banks, Bank of New York Mellon and Dexia. The measure, advanced by Fix LA, a coalition of clergy, unions and community groups aligned to restore city services and expand middle class jobs in the public sector, could save the City as much as $138 million. The International Business Times, noting the significance, reported that Los Angeles is now the largest city in the nation "to challenge ballooning Wall Street levies that accompany similar interest rate swap deals throughout the nation."

The motion further calls on the banks to return unfair profits and fees paid since 2008, estimated at more than $65 million to date. The deal costs taxpayers $4.9 million annually.

Los Angeles is now spending $290 million a year in financial fees or more than the entire city budget for maintaining its vast array of streets and highways. LA isn't the only sucker to enter into an interest rate swap in 2007 which was essentially a bet that interest rates would not fall below 2%. Then when the Federal Reserve, with its policy of QE, lowered interest rates to zero, LA and many other jurisdictions found themselves on the wrong end of a bet and were forced to shell out much more than they would have if they had kept the interest rate on the original loan.

The next sucker: Puerto Rico.  Puerto Rico ran itself into debt and then tried to make up for it with interest rate swaps. Recent credit downgrades allowed Wall Street to demand hundreds of millions more in short-term lending fees, credit-default-swap termination fees, and higher interest rates. Between 2012 and 2014, Puerto Rico paid nearly $640 billion to terminate swaps in addition to $12 million annual swap payments. As a result Puerto Rico is in the same situation as Greece - borrowing money in order to make debt payments which is the same as borrowing money on one credit card to make the payments on another.

The Chicago Public School Teachers' Pension and Retirement Fund has brought suit against 10 of Wall Street's biggest banks including Goldman Sachs, JPMorgan Chase, Citigroup and Bank of America for colluding to prevent the trading of interest rate swaps with the result that it cost the Fund more money.

I could go on ... about Birmingham, San Bernadino, Stockton and others ... but I won't.

If these jurisdictions - whether they be cities, counties or states - formed public banks as the state of North Dakota did, there would be no outflow of cash to Wall Street. Money would stay at the local level and could be used to support local businesses and create jobs repairing and building infrastructure.

An Infrastructure Bank Would Mean Good Jobs in a Much Needed Enterprise

If the government creates money and puts it in an infrastructure bank, that money would be spent into the economy by creating jobs to build and repair infrastructure. Thus good jobs would be created at the low and middle parts of the economic spectrum. This money would have a multiplier effect as the job holders would spend their paychecks on the necessities and luxuries of life. American GDP is based on 70% consumer spending so that would go up. Thus the democratically elected government - not private banks - would be in charge of creating the money supply and it would be to the advantage of average workers not high end financiers. Since the big banks are the current recipients of the QE largesse, that money goes into the pockets of billionaires in various ways and drives wealth and income inequality.

Or the government, instead of the private Wall Street banks, could create money itself directly and inject it into the economy in a variety of ways as Abraham Lincoln did when he had the American government create and spend greenbacks into the economy. This money, therefore, does not create debt as money created by private banks and loaned into the economy does. It's a bottom up rather than a trickle down method. Problem is that most money created today does not trickle down into the real economy.

Ellen Brown says in Time for the Nuclear Option: Raining Money on Main Street:

Australian blogger Prof. Bill Mitchell agrees that PQE is economically sound. But he says it should not be called “quantitative easing.” QE is just an asset swap – cash for federal securities or mortgage-backed securities on bank balance sheets. What Corbyn is proposing is actually Overt Money Financing (OMF) – injecting money directly into the economy.

Mitchell acknowledges that OMF is a taboo concept in mainstream economics. Allegedly, this is because it would lead to hyperinflation. But the real reasons, he says, are that:

It cuts out the private sector bond traders from their dose of corporate welfare which unlike other forms of welfare like sickness and unemployment benefits etc. has made the recipients rich in the extreme. . . .

It takes away the ‘debt monkey’ that is used to clobber governments that seek to run larger fiscal deficits.

So the government could just create money and inject it into the economy in one of two ways: directly to the people in the form of a basic guaranteed income or through an infrastructure bank that creates jobs. In the first instance money would be transferred directly to people to bolster consumption. In the second case jobs would be created that would get needed work done. Or a combination of both could be used.

A third way of reducing income inequality would be to redistribute money from the 1% to the 99% through the tax code. This is the method that Bernie Sanders advocates. Taxes on wealth and financial transactions would provide additional monies which could be  transferred to the 99% through social programs such as Medicare-For-All, or it could be given directly in terms of a deposit to checking accounts as was done in the Economic Stimulus Act of 2008. Money was deducted from tax liabilities or deposited directly to American citizens.

 

The Concept of a Basic Guaranteed Annual Income

The concept of a Basic Income in the U.S. goes back to Thomas Paine, one of the driving forces for independence and reducing inequality during the American Revolution. More recently, it’s been supported by very non-liberal individuals like Fredrick Hayek, Milton Friedman, and Richard Nixon. This would eliminate poverty in one fell swoop. All the anti-poverty programs could be rolled into one with much fewer administrative costs. Just as Medicare-For-All would simplify and reduce medical costs, a basic guaranteed income would amount to Social-Security-For-All. The state of Alaska already has such a program called the Alaska Permanent Fund which hands out money to each resident on an annual basis. In 2015 each man, woman and child received $2,072.00. For a family of four that was a nice basic income of approximately $8000. Sweet!

In the Netherlands a number of cities are experimenting with a basic income after the city of Utrecht announced that it would give no-strings-attached money to some of its residents. Tilburg, a city of 200,000 inhabitants close to the border with Belgium, will follow Utrecht’s initiative, and the cities of Groningen, Maastricht, Gouda, Enschede, Nijmegen and Wageningen are also considering it. A recent study conducted in 18 European countries concluded that generous welfare benefits make people likely to want to work more, not less.

In Switzerland, the necessary 100,000 signatures have been obtained for holding a referendum on whether Swiss citizens should receive an unconditional basic income of €2,500 per month, independently of whether they are employed or not. Other countries such as Finland and Catalonia are also moving in the direction of a no-strings-attached guaranteed income. This would do more to reduce inequality and poverty than perhaps any other measure.

According to The Dutch “basic income” experiment is expanding across multiple cities:

If Tilburg’s basic income project gets the green light from Netherland’s state secretary of social affairs, the town will provide an extra paycheck to a pilot group of 250 people starting in January 2016, Tillburg officials said. The city has not confirmed the amount of the stipend, but in Utrecht checks will range from around €900 ($1,000) for one adult to €1,300 ($1,450).

Although the classic basic income theory proposes universal payments across the population, the two Dutch experiments will only focus on residents who are already recipients of social assistance. Those in the program will be exempt from the severe job-seeking requirements and penalties in Dutch law.

Authorities aim to test how citizens react without that sword of Damocles over their heads. Will the money encourage them to find a job or will they sit on their couches comfortably?

A guaranteed income could be means tested. Why not? Rich people don't need an extra $1000. a month. It would reduce poverty, increase consumption and bolster GDP. Rich corporations would probably increase the price of staples as people had more money to buy them causing inflation. That's why the behemoth world wide franchise operations need to be broken up so they don't collude to raise prices on staples thus defeating the purpose of the basic income. With fiat money entering the real economy instead of the billionaire economy, inflation could become a concern.

Hyperinflation is always a concern when fiat money is created. When that money is spent by consumers, it will still wind up in the hands of a few major corporations, and that would be a problem. They could just keep raising prices. That's why breaking up those large behemoths by using the Sherman Anti-Trust Act is important. Money can also be pulled back by the government by taxation if inflation threatens to get out of hand.

As Ellen Brown says: "Thus there are many ways to recycle an issue of new money back to the government. The same money could be spent and collected back year after year, without creating price inflation or hyperinflating the money supply."

However, when fiat money ends up in the pockets of billionaires as has been the case with QE, inflation is not a concern because it doesn't enter the real economy and prices don't rise. Income inequality though becomes a major concern as does the influence of big money on the political system. Billionaire money has bought and paid for the political system through lobbying and campaign donations with the result that the US is effectively no longer a democracy but a plutocracy.

Trickle Down Economics Trickles Up Instead

As the article The Case for Universal Basic Income states:

What’s really scary is the general acceptance of a status quo in which most people are getting poorer and poorer, even while recent studies demonstrate that so-called “trickle-down” economics actually means an upwards flow of income until it stagnates as hoarded wealth. This stymies wealth creation in the economy, as the Institute for Policy Studies concluded after using standard economic multiplier models to show that every extra dollar paid to low-wage workers adds about $1.21 to the US economy. If this dollar went to a high-wage worker it would add only 39 cents to GDP. In other words, if the $26.7 billion paid in bonuses to Wall Street punters in 2013 had gone to poor workers, GDP would have risen by some $32.3 billion. ...

One of the main advantages of a universal basic income is that it would free people from the tyranny of the job market in which they are mere commodities by guaranteeing the most basic human right of all, that of material existence.

With inequality increasing some way or ways must be found to redress the balance. The alternative is to wake up and find ourselves in a neo-feudal society controlled by a few behemoth corporations employing only a few high level people at good wages. The rest of the population would be employed in low level service type jobs and live in relative poverty. What money they had would be spent in the troughs of the giant corporations and end up in the pockets of the 1%. Even if the 99% were given money to spend, it would still end up there - in the pockets of a few. An infrastructure bank funded by government created fiat money would provide people with decent jobs in which workers could maintain a sense of dignity and improve the quality of the nation's infrastructure at the same time.

In addition recipients of a basic income should have to give something back in terms of creating a better life for poor people around the world. Instead of armies with guns and weapons which have cost trillions and produced mainly negative results, a Peace Army could help poor people around the globe attain at least a minimally acceptable lifestyle in terms of clean water and sanitation, adequate nutrition, energy and education.

Installing solar around the world will not only provide energy for people who don't have anything but the most primitive kind while cleaning up the environment at the same time. The commitment of rich nations to help poorer nations convert to renewable energy could be manifested by funding unemployed and underemployed Americans to help build such infrastructure around the world.

It's not good for people to be idle. If they have no other job, they should at least be required to perform community service. If they have another job so that the basic income is just a supplement, this would be the ideal situation.

Income inequality will only increase as long as Wall Street banks control the money creation process, and the rest of US citizens keep going into debt whether it be with mortgages, student loans, car loans or credit cards. Local jurisdictions should take back the money creation process from Wall Street by creating their own public banks. Then the people will have the say in who gets the QE.

Bernie Sanders, American Socialist

by John Lawrence from the San Diego Free Press

Bernie for President

Bernie Sanders has been drawing huge crowds to his rallies. The American media cannot ignore that. But they will never use the S word to describe Bernie even though that is how he describes himself. Bernie represents those who would tax Wall Street to preserve social security and a host of other common sense proposals. He dares to suggest that college should be free rather than the first stage of a life of indentured servitude and indebtedness.

People are listening - especially young people. Bernie has been saying these things for years but the media for the most part has been ignoring him. Now he has a bigger megaphone. His decision to run for President in order to get his message out there is paying off.

As Bernie himself has said: “the ideas and the points that we are making are reverberating very strongly with the American people.” Whoever would have thought that Bernie Sanders, Socialist, would be reverberating with the American people, the American people who love freedom and think that society should be set up in such a way that everybody has a chance, no matter how small, of getting rich?

On the other hand Bernie points out that social security is not in danger of running out of money. All you have to do is lift the cap and let rich people pay the same percentage of their income into it as do poor people. That is pretty reverberating if you can just get the message out. Bernie is getting the message out.

The media wants to call Bernie a "populist." Well, in this instance populism equals socialism. The notion that rich people should pay a higher percentage of their income in taxes as they did during the Eisenhauer administration, that there should be a tax on financial transactions and that taxes on the rich should support programs that aid the poor, is that populism or socialism, or both?

But then Americans have always been hypocritical about socialism. Even when they are enjoying the benefits from it, they don't want to acknowledge it. In an article in the New York Times, Socialism, American Style, Gar Alperovitz and Thomas M Hanna point out that socialism is a way of life in many American states including those that are considered "conservative." Only you can't call it that. That would not be politically correct.

Conservative Alaska is a Hotbed of Socialism

Take Alaska, for example. In this ultra conservative state there is a little socialist program known as The Alaska Permanent Fund. The Alaska Permanent Fund, established by a Republican governor in 1976, combines not one, but two socialist principles: public ownership and the provision of a basic income for all residents. The fund collects and invests proceeds from the extraction of oil and minerals in the state. Dividends are paid out annually to every man, woman and child in the state. Even Sarah Palin's family collects them.

This is from an article I wrote titled The Alaska Permanent Fund: Socialism in a Republican State:

Alaska is a land of rugged individualists - Republicans all the way. However, a little known fact is that Alaska taxes the oil and gas corporations operating there and distributes the proceeds on an annual basis equally among every man, woman and child living in the state. The biggest farce of all is that Tea Party touter, Governor Sarah Palin, slapped an excess profits tax on the state's oil companies in 2008, the year she ran for vice-President alongside John McCain, so that every person in Alaska received a dividend of $3269 that year. That was a pretty good haul for a family of four: $13,076. For Palin's family - husband Todd, sons Track and Trig and daughters Bristol, Willow and Piper - it came to an even better haul - $22,883!

We have also written about the Alaska Permanent Fund here. With global warming heating up the climate, more people will be moving to Alaska, not only in search of a moderate climate, but also to take advantage of the yearly stipend which might grow to the point that citizens of Alaska wouldn't have to work at all especially in view of the minerals that are becoming available due to the melting of the Arctic ice cap. Of course, that oil should stay in the ground if the earth has a chance of not warming up by 2 degrees C and causing widespread calamity.

Political correctness and hypocrisy demands that neither Palin nor any Republican politician mention the Alaska Permanent Fund nor any other socialist program from which money is taken from corporations and redistributed to the people. After all other states might get the idea that, if Alaska can do it, their state might be able to do the same thing. Well, in ultra conservative Texas, they've already figured that out: give lip service to conservative, rugged individualist principles while employing de facto socialist ones.

Texans Don't Mind Benefiting from a Socialist Policy

As Alperovitz and Hanna state:

Texas is another example of conservative socialism in practice. Almost 150 years ago the Texas Permanent School Fund took control of roughly half of all the land and associated mineral rights still in the public domain. In 1953, coastal “submerged lands” were added after being relinquished by the federal government. Each year distributions from the fund go to support education; in 2014 alone it gave $838.7 million to state schools. Another fund, the $17.5 billion Permanent University Fund, owns more than two million acres of land, the proceeds of which help underwrite the state’s public university system.

You'd think that Bernie Sanders would have plenty of supporters in Texas, namely all those who benefit from the Texas Permanent School Fund and Permanent University Fund, but instead they're all supporters of ultra conservative Governor Rick Perry, at least the majority consisting of white Texans are. Again lip service to conservatism while the actual reality they benefit from is socialism.

It's the same with Obamacare. All those southern conservatives who are benefiting from it love the reality while at the same time calling for its repeal. As a Washington Post article stated: "When the political history of the Affordable Care Act is written, Kentucky will occupy a special place in the tale. The implementation of the ACA there has helped produce the second steepest drop in the uninsured rate of any state. Yet even though that’s occurring in one of the most unhealthy regions in the country, the general idea of 'Obamacare' remains deeply unpopular."

Many countries employ the same principles, but without the hypocrisy. These funds are called sovereign wealth funds. Norway imposes a 50% tax on oil extraction which is put into its sovereign wealth fund which provides pensions and benefits for the Norwegian people. There's no talk there of "ending social security" because they don't have the money. Norwegians have plenty of money since they have profited from their co-owned public wealth in the form of oil extraction.

Only in America is there talk about the nonviability of social security. Most people don't even realize that if the rich paid into social security at the same rate as the poor, social security would be overfunded not underfunded and senior citizens could get a nice raise especially the needy ones.

Frank Thomas has written knowledgeably about Norway's sovereign wealth fund here:

The sovereign wealth fund in which Norway saves its oil-gas income is invested internationally primarily in stocks, bonds, and, starting recently, real estate. The strict primary goal is to save for future generations, when hydrocarbons run out.  Investing abroad also helps to avoid overheating the Norwegian economy. In 2009, the fund advanced 34% to recover most of the bubble losses.The fund now owns more than 1% of the world’s shares in over 8000 companies. It is Europe’s biggest equity investor. Strategically, the fund takes a 30 year investment horizon. Thus, not surprisingly,the fund is  currently investing aggressively in green industries. Helped by the past 30 year petroleum revenues that have been well-invested, Norway has become the 2nd richest nation per capita.

What if California Had Invested in a Sovereign Wealth Fund?

What if California would have taken control of its oil and gas revenues and invested in a sovereign wealth fund? There would be no budget problems today and there would be plenty of money to invest in infrastructure like desalination plants. California would have had the money to deal with its water shortage problems. Instead it became a debt based economy owing what amounts to a mortgage to Wall Street.

Another example: The Permanent Wyoming Mineral Trust Fund, with a market value of more than $7 billion accumulated from mineral extraction, has helped to eliminate income taxes in the state. The basic principle is that the mineral resources of the state belong to the citizens of that state not some private corporation. The idea is that the state should endeavor to enter into a relationship that adequately compensates the citizens for the extraction of their property.

One of the largest “socialist” enterprises in the nation is the Tennessee Valley Authority, a publicly owned company with $11 billion in sales revenue, nine million customers and 11,260 employees that produces electricity and helps manage the Tennessee River system. It seems that some socialist enterprises are not only very successful but are also very popular with the citizens who collectively profit from such enterprises.

Another example is publicly owned utilities. There are, in fact, already more than 2,000 publicly owned electric utilities that, along with cooperatives, supply more than 25 percent of the country’s electricity, now operating throughout the United States. In one of the most conservative states, Nebraska, every single resident and business receives electricity from publicly owned utilities, cooperatives or public power districts. Partly as a result, Nebraskans pay one of the lowest rates for electricity in the nation.

Perhaps the best example of public ownership or socialism, if you will, is the Public Bank of North Dakota (BND). Instead of shipping money to Wall Street, North Dakota uses the profits from its state owned bank to reduce taxes, invest in infrastructure and provide reasonable student loans. Many cities, counties and states are waking up to the fact that the profits that have heretofore been reaped by Wall Street from operations in their states should instead be reinvested in the state or public entity itself. The BND is serving as an example for them to follow. Private profit that goes into out of state investors' pockets is replaced by public profit which benefits citizens locally whether in a state or a city or other public entity.

The American People Should Derive Part of their Income From Public Wealth

As I said in the aforementioned article: Rich people live off of dividends, rent or interest paid to them in one form or other from their accumulated wealth. Public wealth is owned by the citizens of the US collectively. To receive a dividend from their co-owned wealth would tend to ameliorate the growing inequality of wealth ownership in the US and supplement poor and middle class incomes. Every citizen should be in a position of deriving at least a part of their income from co-owned wealth, especially since income from jobs is going downhill due to automation and outsourcing. This would eliminate poverty, provide a basic income guarantee, stimulate the economic system from the bottom up and restore the middle class.

The US is a debt based country which by virtue of the dollar's place as the world's reserve currency can continue to go into debt. Most other countries don't have this luxury so they start sovereign wealth funds which invest in American debt among other things so that their citizens are in the position of being investors while American citizens are essentially debtors for whom the chickens have not yet come home to roost.

Bernie Sanders' message is starting to make good sense to thousands of American people who are fed up with the BS Republicans have been feeding them. They are listening to Bernie, Elizabeth Warren, the Pope and the Dalai Lama and beginning to take seriously the facts of climate change, free public education up to the university level, Medicare for all and a beefed up social security program. Ownership of wealth and assets should not be only for the rich. Socialism provides that public wealth shall be redistributed to the poor and middle class as well.

The Greek Tragedy: A Labyrinth of Debt

by John Lawrence from the San Diego Free Press

Wall Street's Stranglehold on Greece

How to figure out the ongoing crisis that is Greece? What exactly is going on there? As per usual it's another chapter in the strange saga that involves Wall Street's stranglehold over the world economy. What happened to Greece is similar to what happened to American mortgage holders after they were encouraged to go in over their collective heads borrowing more money than they could reasonably expect to be in a position to pay back. Greece did the same.

Will Greece default soon? Will they stay in the Eurozone or be ejected out of it. These questions have been hanging in the air for what seems like an interminably long time. Is Greece having a liquidity crisis or an insolvency crisis? That is the question. If the former, a short term loan should be able to get them over the hump. If the latter no loans or bailouts of any kind will ever solve their problem.

It all started when Goldman Sachs assisted Greece in lying their way into the Eurozone in the first place. They really didn't qualify for admission but Goldman hid that small detail under a heap of trompe l'oeil, sleight of hand and financial shananigans that got past the critical eyes of the European ministers. They manufactured a highly questionable derivative scheme involving a currency swap that used artificially high exchange rates to conceal Greek debt. Goldman then turned around and hedged its bets by shorting Greek debt just as they had done with the mortgage crisis in the US. Predictably, these derivative bets went very wrong for the less sophisticated of the two players, namely, Greece. A 2.8 billion loan to Greece in 2001 became a 5.1 billion debt by 2005. In the US mortgage fiasco they packaged subprime loans in portfolios, after having loaned money to people with questionable ability to pay back the loans, and then bet that they would default. Goldman made tons of money that way.

Now this operation on the part of Goldman should come as no surprise to those familiar with Goldman's shenanigans leading up to the debt crisis of 2008 in which they packaged a bunch of mortgages that were designed to fail into collateralized debt obligations, sold them off to unsuspecting investors and then turned around and placed bets against them. Such a deal was the Abacus fund designed by John Paulson who made billions on it. The American government then bailed out the too big to fail Wall Street banks while leaving the underwater mortgagees to dangle from a fiscal rope.

They did the same thing with Greece. They loaned Greece big bucks for its 2004 Olympic Games. Greece also borrowed a lot of money for its military. In retrospect it was foolish of Greece to borrow all this money. It never got a return on its investment from the Olympic games which it thought would encourage tourism. The Olympic site essentially became a heap of trash and rubble.

While Greeks Suffer, Big Banks Are Made Whole

With Greece owing tons of money to Wall Street, the European Central Bank (ECB) stepped in with loans ostensibly to the suffering Greek people but not really. Instead the borrowed money went straight to Wall Street to pay off Greek debts to them. The debt never really went away. Instead it was converted to debt owed to the ECB. Private debt was converted to public debt with the Greek people left hanging just as American mortgagees were.

Mario Draghi, President of the ECB, is a former employee of Goldman Sachs. So he represents Wall Street interests. It's in Wall Street's interests that austerity be imposed on Greece and that Greece be forced to sell off public assets to private investors at fire sale prices. Draghi was vice chairman and managing director of Goldman Sachs International from 2002 to 2005 so he is a natural to protect Wall Street interests, not the interests of the Greek people.

Just as a poor person who cannot pay his debts is forced to sell off his assets at fire sale prices, Greece has been forced into what is called a debt deflation spiral. Greek assets and bank collateral get deflated meaning they decrease in value making it even more onerous to make debt payments or borrow new money. Interest rates for Greece go up because the deflation of assets makes their situation even more precarious. Finally, the poor person having sold off all his assets hits the road and becomes homeless. This is also the prospect for Greece.

There is one ray of hope for Greece, however. It's primary balance - meaning its financial situation before debt and interest payments are taken into account - has become positive in the last couple of years. The Greek government is actually taking in more in revenues than it's paying out in expenses which means it is no longer in recession. There is positive GDP growth. That means that if Greece repudiated or defaulted on all its debts, it would actually be in the black. When debt payments are taken into account, however, the situation is hopeless: Greece is insolvent.

Since the ECB is not designed to do fiscal policy ala John Maynard Keynes, who believed in deficit financing to prime the pump of a down and out economy as ostensibly happened during the Great Depression when the US government borrowed money and spent it into the economy in order to get it moving again, Greece is left in the position that a) it can't borrow any more money at reasonable interest rates and b) it can't print money and spend its way out of debt. It is in the position of the average household which must balance its budget and pay its bills. If it can't pay its bills, its creditors will demand that its assets be sold.

The question is, if Greek debt were nullified by default, would Greece be in a position to have a functioning economy in which government revenues would be sufficient for it to pay its bills? Evidently, the answer is yes because Greece has a positive primary balance. In that case Greece would not be insolvent. But when Greek debt is taken into account without it being written down by the ECB which is highly unlikely, Greece cannot pay its bills and is, therefore, insolvent.

Greek taxpayers have been notorious for not paying taxes. The ECB will not and should not let Greece become a money pit for the rest of the Eurozone countries. Having no central bank of its own and the inability to just print money like the US does, Greece is stuck between a rock and a hard place. For sure it needs to start collecting taxes especially from the rich who should be prevented from taking their money out of the country and putting it in secret Swiss bank accounts like rich Americans do.

The anti-austerity Syriza Party, that took control of Greece recently, has not been able to convince the ECB to cut Greece a break by writing down its debt to a level that the Greek government could manage. The ECB is holding most of the cards. Therefore, Syriza will not get any further than its predecessors did with the ECB. The EU, however, must consider the implications of a Greek default either within the Eurozone or one in which they leave the Eurozone completely and perhaps become aligned with Russia, something that the US would not be too happy about either.

The ECB has been reluctant to print money as the US Fed does except to bail out Wall Street. Controlled basically by Germany which underwent hyperinflation in the 1920s, the ECB is reluctant to risk that happening again. So they are on the horns of a dilemma. From Greece's point of view, it might make more sense to default on its loans, exit the Eurozone and start over with structural reforms it imposes on itself. It could obtain liquidity financing elsewhere like Russia or China. But it wouldn't have the heavy foot of the ECB standing over it and almost guaranteeing that Greece will become a perpetual debtor.

Hit The Road Jack

The noose around Greece's neck is this: the ECB will not accept Greek bonds as collateral for the central bank liquidity all banks need until the new Syriza government accepts the very stringent austerity program imposed by the troika (the EU Commission, ECB and IMF). That means selling off public assets (including ports, airports, electric and petroleum companies), slashing salaries and pensions, drastically increasing taxes and dismantling social services, while creating special funds to save the banking system. Just as the person who loses his job and cannot make his mortgage payment must hit the road, the Greek people through no fault of their own are being told to hit the road. Many young Greeks are doing just that and emigrating.

This could all have been avoided if Greece had a public central bank not beholden to Wall Street or the ECB for money. A public bank can create its own money and spend it into the economy thereby avoiding paying interest to Wall Street or the ECB. This gets people back to work and gets around the predicament of having to borrow money to get the economy running again as Keynesian economics would necessitate.

Greece doesn't have the luxury of Keynesian pump priming.

Germany’s Bild newspaper claims that Athens is planning a special tax on the country’s 500 richest families. Bild says the measure is included on the Greek finance ministry’s list of reforms, which also includes a luxury tax on items such as expensive cars and trips to Greek islands, and higher taxes on workers earning over €30,000 per year.

This is a step in the right direction no doubt. It's a conundrum facing the US as well: how to tax the wealthy in order to help out the poor and middle class. Syriza probably would not mind forcing austerity on the rich. It just doesn't want to balance its budget on the backs of the poor by cutting their pensions and the minimum wage any more than they've been cut already.

The Financial Times  reported on May 6 that Greece will rehire 13,000 civil servants whose jobs were cut in an overhaul of the public administration agreed with bailout lenders. Clearly, Syriza will not be bullied by the Troika. Hopefully, Greece will get its house in order by balancing its budget on the backs of the rich not on those of the poor.

There is additional possible cooperation between Russia and Greece and even the possibility of Russia providing financial assistance. And where there's financial assistance, military association would not be far behind. Military cooperation would not only be a thorn in the side of the EU but one also in the side of the US which has only one military base in the Greek island of Crete. Financial and military cooperation go hand in hand as we have recently seen with the Obama championed free trade deal know as the TPP. It's as much about reducing China's influence in the Asian sphere as it is about economic cooperation.

This is from Business Insider:

Additionally, Russia and Greece's new government have taken initiatives to explore their military and economic relationship (for example, here, here, and here).

In fact, the new Greek Prime Minister Alexis Tsipras even said in early February: "Greece and Cyprus can become a bridge of peace and cooperation between the EU and Russia."

So this part of the world could soon become very interesting — and a huge pain for Europe.

The EU has to consider the implications to a Greek default which might not only be a harbinger of future defaults for other weak EU states such as Spain and Portugal, but might increase Russia's influence in countries surrounding the Eurozone which are becoming increasingly friendly with Russia. Could China be far behind as well in offering financial help?

Can Greece Master Its Debt, Deflation, Insolvency Trap?

By Frank Thomas from the San Diego Free Press

Greece’s Solvency Problem

The Western world is moving out of a public debt-deflation crisis of the worst sort … and Greece is still in the middle of it as the worst example of a dire fiscal crisis in a weaker member country that can destabilize the entire euro zone.

Greece is simply de facto insolvent …as was Lehman Brothers in the recent Great Recession and the U.S. at the start of the Great Depression. The Troika (ECB [European Central Bank], IMF [International Monetary Fund], EU Commission) has been mistakenly treating the Greek bailout debt problem as a liquidity issue – optimistically hoping this in combination with tough reform measures would enable Greece to achieve debt sustainability and economically grow out of its debt problem. That’s failed … so far.

It’s not a liquidity issue. It’s an immediate and long term solvency crisis – an inability to generate adequate tax revenues and asset values (whether pledged or sold) to repay debts, especially those due in short term. Having just met a euro 750 million debt payment, Greece’s cash chest is empty. By June, two debt payments are due of euro 1.6 billion and euro 7.0 billion. Debt default is on the horizon.

Most of the euro 240 billion ‘bailout’ funds went to foreign creditor banks, not to fund Greek government operations. Even if Greece had ongoing access to ECB’s Emergency Liquidity Funds temporary funds, this wouldn’t solve underlying problem of excessive debt obligations and overall deficits after debt service, intensified by austerity measures aimed at improving the country’s competitiveness. During 2009-2014, wage, pension, and spending cuts shrunk GDP 26% . This and higher debt skyrocketed the debt/GDP ratio from 130% of GDP in 2009 to 175% in 2014. Greece’s tendency to be in budget deficit and debt troubles started long before the 2008-2013 great recession. This history and the great recession have pushed Greece into a disastrous “over-indebtedness, deflation and insolvency trap.”

Over-indebtedness and deflation are the two dominant drivers in recessions and depressions. Disturbances in debt and purchasing power trigger disturbances in most other economic variables. The spiral process develops along following lines: over-indebtedness leads to liquidation and stress selling of assets, leads to contraction of deposits and velocity of money circulation, leads to price deflation, leads to decline in net worth of businesses, leads to bankruptcies and lower business profits or losses, leads to a reduction in output and employment to cut losses.

When over-indebtedness does not reduce prices or deflation rises from other than debt causes, then the resulting cycle will be much softer or much less destructive. But, when the debt and deflation diseases occur together, as is happening in Greece, they act and react on each other. Then over-indebtedness leads to deflation and deflation leads to more debt owed – the more debtors pay, the more they owe. (See: “Debt-DeflationTheory of Great Depressions,” by Irving Fisher; “Falling Into a Liquidity Trap?” ECO-Societe Generale, Dec. 2013).

The more Greece cuts fiscal spending and hikes taxes, the more growth gets hit and deflation expands, the harder it becomes to meet ECB deficit and debt targets … leading to more debt required. The combination of extreme over-indebtedness and a policy of internal devaluation of assets, wages, pensions and other costs leads to deflation. Unchecked so far, this has brought Greece to insolvency where debts cannot be met by assets, even if sold.

When over time an economy with a rising high debt level has been depressed 26% by an internal devaluation, then the debt/GDP ratio will go UP, not DOWN … as is Greece’s story. It’s not just recession and deflation that push up debt. The existing huge public debt overhang acts as a drag on the economy. This is the circular debt and deflation economic stagnation Greece is stuck in. An economy caught in such a trap doesn’t easily return to a growth path and healthy debt/GDP ratio as Japan has demonstrated.

What Is Historical Origin of Greece’s Fiscal Troubles?

Greece has had a long history of fiscal trouble – an economy constantly burdened with excessive debt, budget deficits, bureaucracy, restrictive regulations, poor transparency, flaky statistics, and rampant corruption. Carmen Reinhart and Kenneth Rigoff in their book, “This Time is Different,” a history of financial crises, conclude Greece has spent half of the past two centuries in default.

Since WWII through 1998, Greece had hardly a balanced year without relying on heavy subsidies from abroad. Greece entered the euro zone in 2001 – using falsified debt and deficit numbers ignored by the banking establishment. During 2001-2007, the door opened for long term funds at low interest rates and under-pricing of default risk (supported by Germany’s credit worthiness). Thus, a sharp reduction in debt service costs gave Greece some fiscal space to reduce its debt burden. Instead, Greece went on a spending and debt splurge that placed its debt burden on an unsustainable path – where the primary budget deficit soared to over 10% of GDP in 2009 and the debt/GDP ratio jumped from 100% in 2001 to 130% in 2009.

Adding fuel to the fire, in 2002 investment banks like Goldman Sachs were offering complex, secret derivative products including cross currency swaps used to guarantee government revenues from bond issues in foreign denominations. These specially designed swaps provided a hedge against exchange rate oscillations using a fictional exchange rate, allowing a country to exchange its dollar (or Yen) loans into a greater number of euros. In Greece’s case, this hedge transaction created a credit (covert loan) of nearly $1 billion to the Greek government. Reporting of the credit in the balance sheet was not required by European accounting rules.

Since these swaps weren’t registered as debt, the Greek government and other EU governments were enticed to spend beyond their means. Greece exploited cross currency swaps presumably to help avoid the huge fines levied under the Maastricht Treaty for violating the 60% debt/GDP ratio limit and the 3% overall budget deficit limit.

The Greek people were neither aware of nor a party to the financial risks their government officials were exposing them to. Yet they, as taxpayers, are responsible for paying the price of a euro 240 billion European bailout debt. Social costs stemming from the government’s fiscal mismanagement have been excruciating – a 26% joblessness, massive homelessness, an educational system in shambles, a serious brain drain, a generational dead-end future for many.

Why Wasn’t Keynesian Pump-Priming Utilized?

One reasonable answer to this question comes from a Eurobank Research report: (See: Eurobank Research, “Is Deflation a Risk For Greece?”)

“Avoiding monetary and/or fiscal contraction during the recession and allowing automatic stabilizers to work, as suggested by Keynesian thinking, was not an option. Greece has purposefully implemented internal devaluation in order to reclaim price competitiveness losses against trade partners. Even if this was not the case, participation in a Monetary Union (i.e., loss of autonomy in the exercise of monetary policy) implies that the country would be unable to combat inflation via monetary means. In addition, given the huge size of public deficits and the explosive path public debt had embarked on, a fiscal expansion would only enlarge the fiscal crisis and the ensuing collapse of output. Loss of access in international capital markets meant a fiscal expansion was not feasible anyway. Instead, the country had to implement a draconian fiscal consolidation program which led to a contraction of the primary budget balance from a deficit of -10.5% in 2009 to a primary surplus of 2.1% in 2013.”   (Editor’s note: 2.1% excludes huge 10.1% one-time recapitalization cost; primary budget surplus was 1.7%% in 2014 and a 2.9% primary surplus is expected in 2015).

 An important point to stress here is that for the first time in more than a decade Greece is on a path of reporting a primary budget surplus (before debt payment) for the years 2013, 2014, and an expected surplus in 2015. After 6 years of a deep recession and 26% GDP decline, Greece appears to be emerging slowly out of the recession. Its economy grew 0.8% in 2014 and is forecast to grow more than 2.5% in 2015.

TABLE 1 shows Greece’s impressive fiscal adjustment ^i.e. significant improvement in its primary budget balance since 2009:

 

SOURCE: (“Should Other Eurozone Programme Countries Worry About A Reduced Greek Primary Surplus Target?” - Feb. 2015 Forecast of the European Commission)

The structural primary balance excludes both one-off measures (e.g., bank recapitalization costs) and impacts of the economic cycle. Greece’s 2009-2014 primary balance improvement of 11.9 percentage points from a -10.2% primary deficit in 2009 to a 1.7% primary surplus in 2014 is astonishing enough. A 2.9% primary surplus is expected in 2015. The structural primary balance improvement of 16.1 percentage points – is even more astonishing. It’s TWICE that of Ireland, Portugal and Spain. To stabilize Greece’s debt situation, the ECB and IMF believe the country must achieve a debt-stabilizing primary surplus target of 4.5% of GDP. This, however, does not negate fact Greece is insolvent and will still need constructive debt relief to reverse its debt-deflation spiral and spur economic growth.

Greece has two ills propelling insolvency: the Exceptional Scale of its Debt and the Weak Quality of its Assets supporting that debt. A state of insolvency occurs when an entity’s debts (liabilities) exceed its assets making it almost impossible to raise funds to meet financial obligations or to pay debts as they come due – regardless whether assets are sold or mortgaged. Greece’s Finance Minister himself has said, “Greece is bankrupt.” Mention of the ‘insolvency’ word makes creditors nervous and complicates ECB’s task as it’s apparently illegal to extend Emergency Liquidity Assistance (ELA) to an insolvent country. Greece is cash-strapped and can’t meet upcoming heavy debt repayments in July/August. So desperate is the situation, consideration is being given to tapping into the euro 1.5 billion reserve funds of local municipalities to stay afloat until end of May. Even temporary use of pension and social security funds is being reviewed.   

And funding crunch pressures could get much worse. For example, a staggering outflow of over euro 20 billion of bank deposits has occurred since last November. Where will the funds come from to match this outflow? Another potential money pressure is that four big banks hold a huge euro 18 billion of capital in the form of Deferred Tax Assets and Deferred Tax Credits owed by the Greek state.  If the banks request this money, it must be provided in cash, not government bonds. So over 50% of the Greek banking system – which is owned largely by the Greek state – is in the form of a cash IOU from the Greek state. This tight interconnectedness between the Greek state and its banks, operating under a “patronage” culture rather than a meritocratic system, has long magnified Greece’s gross mismanagement of its finances.(See: “ECB Asks: Are Greek Banks Solvent,” by Raoul Ruparel, Feb. 20, 2015)

Continuing an all-out austerity program to return Greece to a sustainable fiscal path needs to be rethought. Persistent deflationary pressure could hurt the country’s fragile debt sustainability now at 175% of GDP (vs. 130% in 2009). I believe internal deflation and enormous size of Greek debt make it impossible to grow out of that debt. Accepting more loans to meet debt service obligations worsens matters by further squeezing income and increasing debt. Still, despite 5 years of severe austerity, Greece’s broad economic picture is getting better, but life is much worse for most Greeks.

An excessive public debt curse constrains government actions by the need to service debt – which seriously compromises or crowds out critically vital investments in infrastructure, education, health care, child welfare, etc. The negative financial and social impact would have been much more disastrous without the bailout funds.

If a government is running primary budget deficits, it needs to borrow money to continue running. That has been the Greek government’s argument to its citizenry, namely, austerity is necessary to keep bailout funds coming to fund basic services like infrastructure, education, health care.

However, if a government is running primary budget surpluses as Greece now is, it’s much easier to get by without access to foreign debt markets. This depends on the timing and amounts of debt that must be paid to official creditors who are not about to accept a ‘haircut’ on the Greek debt owed them.

If Greece can raise recent trend of primary surpluses to 4.5% target of GDP, it will be able to finance its current level of consumption and investment, including government and private spending, without depending much on foreign capital inflows. That surplus will cover an interest cost of 4% of GDP, leave some fiscal space for economic growth incentives, for unforeseeable adverse cost events but not for high one-time costs which occur often in Greece. And it leaves little fiscal  space to reduce debt principle and no space to meet large debt payments.

Where Are We Now?

Greece’s problem is insolvency, not a temporary liquidity shortfall. Funds are being lent to Greece to meet current debt service obligations on assumption this will bring Greece to renewed growth and income adequate to meet long-term debt obligations. Despite Greece’s weak economy and giant debt burden, 5 years of draconian austerity did produce a 1.7% primary budget surplus in 2014. BUT, the debt level still expanded to 175% of GDP from 130% in 2009.

This dramatizes how serious Greece’s insolvency problem is. Tough austerity measures and a huge euro 240 billion bailout injection of ‘liquidity’ funds – of which +85% went to creditor banks, not to fund Greek operations (except freeing up funds for basic social services) – can’t solve the over-indebtedness and deflation and insolvency trap. A crisis of distrust prevails, pitting debtor and creditor against each other. Many feel official lending by ECB and IMF is only worsening crisis and insuring a certain default and “haircut” for creditors.

ECB President Mario Draghi has laid down the financial ‘Maginot Line’ to Greece regarding bailout funds. In essence, his message to Greece is move fast on concessions and key reforms (e.g., inflated pensions, huge tax evasion, accounting irregularities) or you are on your own. In latter event, an ‘orderly default’ and ‘friendly exit’ from the euro currency zone, but not necessarily the EU, is the only recourse.

The ECB has cut off Greek access to the normal lending process where loan risk is divided among the 19 euro zone countries. For years, Greece has failed to meet a very important lending provision, namely, that the supporting collateral must be sound. In the ECB’s opinion, Greek bank collateral is not worth much. Accordingly, the ECB has stopped accepting Greek bonds as collateral. In essence, access to capital markets by the Greek government and Greek banks has been closed down.

In prior bailouts, the ECB waived the collateral provision. But, upon hearing of Premier Tsipras’ refusal to continue with key reforms, the ECB has withdrawn its waiver. Greece now only qualifies for Emergency Liquidity Assistance which the ECB is tightly limiting. ELA comes at a higher interest rate, and the Greek Central Bank assumes formal risk liability, not the euro zone countries. But, if something goes wrong, the euro zone is the ultimate backup.

According to Draghi, ELA support will be given providing Greek banks have adequate collateral and are solvent – two conditions that are not being met. A slowly developing bank run has brought the financial backup level of Greek banks below the peak-crisis level in 2012 – driving the interest rate on 3-year Greek securities to 30% range. In Draghi’s words, “Collateral is being destroyed.”

Greece’s interest payments are relatively low thanks to a low 2.2% average interest rate on its outstanding debt. If Greece had to borrow at the 8% market rate for its 10-year government bonds, its overall budget deficit would explode to over 15%. Despite the low 2.2% interest rate on public debt, total interest payments are still a substantial 4.0% of GDP due to Greece’s extravagant debt build-up.

Generally, a country’s national debt grows by the size of its overall budget deficit or surplus and strength of its economy. If Greece can consistently achieve a positive 2-4% primary budget surplus, its debt burden as a % of GDP will eventually decline so long as the GDP growth rate exceeds the average interest rate (now 2.2%) on government debt. (See: Martin Feldstein, Harvard Prof. of Economics – “The Greek Budget Myth,” Nov. 2013)

But, the Greek economy remains weak, not helped by severe austerity measures. Unless Greece can increase its rate of annual growth +2% and stabilize deflation, its overall budget deficit after debt payment will be high and the current 175% debt/GDP ratio will hardly change.

Where To Go From Here?

Greece’s acute insolvency is not being solved by spending and amassing debt far beyond its means and ability to grow itself out of the interest and principal debt payments. Result? Since the 2009 crisis, Greece has been forced to borrow more and more from the EU in an ‘ad hoc manner’ in emergency situations.

Daniel Gros and Thomas Mayer deftly address the problem of balancing of moral hazard by sharing EU support and risks vs. relying purely on financial markets to resolve an “excess debt-insolvency” crisis like Greece is experiencing.(See: “How To Deal With The Threat of A Sovereign Default in Europe,” March/April 2010; “Debt Reduction Without Default?” Feb. 2011). In Gros and Mayer’s opinion:

This ‘ad hoc manner’ (piecemeal liquidity) approach is unsatisfactory. The European Monetary system should be made robust enough to minimize the disruption caused by the failure of one member. The drafters of the Maastricht Treaty failed to appreciate that, in a context of fragile financial markets, the perceived (and real) danger of a financial meltdown makes a ‘pure’ no-bailout response unrealistic … The EU needs to design a scheme capable of dealing with the threat of sovereign default and capable of organizing an orderly default as a last resort … The strongest negotiating asset of a debtor is always that default cannot be contemplated because it would bring down the entire financial system.

For a Greek type of insolvency crisis, Daniel Gros and Thomas Mayer propose an innovative, fair market-based debt reduction option without a formal default. The concept shows promise for vastly mitigating disruption in financial markets caused by a foreign sovereign default. An orderly debt workout framework would help prevent a taxpayer bailout of a sovereign. Also, contagion effects would become very limited since market participants could estimate ex ante their maximum risk exposure by lending to another country. Some variation of the Gros-Mayer market-based debt reduction concept deserves reexamination by ECB authorities, if that has not already been done.

Greece is locked into a debt, internal deflationary economic stagnation that has all the ingredients of lasting as long as Japan’s 20 year economic stagnation! The ad hoc manner of accepting more loans to pay current debt service obligations only makes matters worse … as does an ongoing crushing austerity on the Greek people.

As to what to do now, I would give first priority to quickly and decisively restructuring Greece’s debt, including upcoming euro 1.6 billion and euro 7 billion payments.

The restructuring should provide real debt relief that allows Greece fiscal space to resume productive investment while also executing reforms selectively aimed at systemically poor tax collection, restrictive and regulatory labor practices raising the cost of doing business, inflated pension funds, absence of financial transparency and discipline, lack of confidence in statistical data, a governance and banking system functioning under an egregiously dishonest culture of ‘patronage’ rather than ‘meritocracy.’

The task is finding right balance between debt relief and limited austerity while not losing momentum with reforms, not increasing moral hazard or disrupting Greece’s real economy. The overall aim should be to improve Greece’s ‘economic model’ for responsible growth and access to capital markets.

Restructuring can take many forms, combinations: implementing a variation of the Gros-Mayer market-based debt reduction concept, swapping a portion of existing debt for bonds, linking interest payments to future economic growth as proposed by Greek Finance Minister Yanis Varoufakis, replacing Greek debt owned by the ECB with “perpetual bonds,” adopting a new Greek currency but keeping Greece in euro zone, rolling debt over, extending debt maturities or deferring debt payments.

If at the end of the negotiating process, parties cannot agree to an acceptable civil, humane, debt restructuring, debt relief and reforms in everyone’s best interest, then an orderly, friendly well-managed EXIT of Greece from the euro is the only option … leaving responsibility to Premier Tsipras’s government to resurrect an economy sunk in a sea of bureaucracy and debt.    

An exit will hurt. Greece will eventually gain a more competitive currency, but this will not come cheaply without contagion impacts and some concrete costs. The current ECB euro 240 billion bailout averages euro +-600 per person for euro zone countries. How much this rises depends on the debt restructuring actions and reforms undertaken and how sound the exit process is risk-controlled. In this regard, the ECB has made a commitment to do “whatever is necessary to protect the euro.”

But, If Greece’s exit is judged a ‘least-worse’ scenario, what to do if the Portuguese, Spaniards, and Italians want a similar divorce? Greece out of the euro zone – given its geostrategic position at the crossroads between East and West – brings some indefinable risks.

Besides the economic issue, there’s a fundamental political issue … HOW IMPORTANT IS GREECE STRATEGICALLY TO EUROPE?

Frank Thomas May 18, 2015 The Netherlands

Wall Street's Latest Scam: Subprime Auto Loans

by John Lawrence from the San Diego Free Press

Wall Street needs to get people into debt. That's one way they make their money - by collecting interest on people's debts. They had a field day with subprime mortgages, and then those government bailouts were the sweet icing on the cake. Then they moved on to student loans. Now they are making a killing off of subprime auto loans. Anyone can buy a used car, even those with no credit, the same way you used to be able to get a mortgage. They are also called liar loans which is the appropriate name for them because loan applications are falsified in the same way that mortgage loan applications were falsified.

Chairman of the Federal Reserve, Janet Yellin, knows no other way of keeping the economy humming or even getting it moving than to shove money at zero interest at the big banks in the hopes that they will loan it out making a profit off the spread. The theory is that, if the interest rate is low enough, people will go into debt in order to buy consumer goods whether it's a mortgage, a student loan, a car or a big screen TV. Every time someone goes into debt to buy something, GDP goes up, and since 70% of GDP is consumer spending, Janet is pulling out all the stops to get people to spend and go into debt.

For example there is the case of 60 year old Rodney Durham, a man who stopped working in 1991 after which he declared bankruptcy. His only income is social security. But that did not stop Wells Fargo from lending him $15,197 to buy a used Mitsubishi sedan. “I am not sure how I got the loan,” Mr. Durham said. A real head scratcher that one.

And subprime auto loans don't come cheap.

The New York Times examined more than 100 bankruptcy court cases, dozens of civil lawsuits against lenders and hundreds of loan documents and found that subprime auto loans can come with interest rates that can exceed 23 percent. The loans were typically at least twice the size of the value of the used cars purchased, including dozens of battered vehicles with mechanical defects hidden from borrowers. Such loans can thrust already vulnerable borrowers further into debt, even propelling some into bankruptcy, according to the court records, as well as interviews with borrowers and lawyers in 19 states.

Auto loans to people with lousy credit have risen more than 130 percent in the five years since the immediate aftermath of the financial crisis, with roughly one in four new auto loans last year going to borrowers considered subprime — people with credit scores at or below 640. Just like the good old days of subprime mortgages, Wall Street is making another killing - this time off of auto loans. And when the suckers can't make the payments, there is no need to go through the messy process of foreclosing on a house. The bank just reposseses the car.

And getting the car back is easy. After defaulting on the loan, the unsuspecting Happy Motorist goes out to start his car and the car won't start. Oh, the miracles of modern technology. Lenders use the starter interrupt device, which has been installed in about 2 million vehicles, according to The New York Times, to deactivate car ignitions remotely if borrowers are late on payments. Lenders can also track cars' movements using the GPS on the device, and the device emits beeps when a payment due date is approaching. Nothing like being prompted to make a payment by a beeping ignition device sort of like the beep from your cell phone when you have a text message. Are we being overbeeped yet?

Cars have been disabled while the unsuspecting motorist is out on the highway. And you thought GM had a problem with that. Or they have been turned off on the way to the hospital in life threatening situations. But the brighter side is that, when the motorist makes his payment, the car is miraculously turned back on. Oh happy day!

Used car salesmen are having a field day pushing cars out the door based on falsified borrower's income and employee information. Then the loans are pushed off the books, sliced, diced and securitized and made palatable for investors like the big pension funds. You'd have thought that the pension funds, who were screwed in the subprime mortgage fiasco, would be casting a wary eye on subprime auto securities. But like Phineas T Barnum said, "There's a sucker born every minute", and these days it seems that most of the suckers are pension funds.

So the American economy is dependent on big loan scams perpetrated at the highest level by Janet Yellin who shoves money at the big banks. But the big banks are constipated. They can't shit out the filthy lucre fast enough to keep the economy humming. Their anal retentiveness requires them to siphon off the money Janet wants spent in the real economy - which would boost GDP - and gamble it in the disconnected financial economy where it ends up going into the pockets of the very rich. 

Most of Janet's money is going into the financialized economy where it sits or gets sat on or gets gambled in the casino. The big corporations are sitting on their billions refusing to "repatriate" them unless they get a big tax cut. These multinational companies have accumulated $1.95 trillion outside the U.S. And then there are corporations that are sitting on huge amounts here in the US while they refuse to pay their workers squat. For example, Apple is sitting on $159 billion. Rich investors are constipated with their stash. Anal-retentiveness is taking precedence over good bowel movements which metaphorically would necessitate their releasing it into the real economy. That's why Janet Yellin's shit gifts to Wall Street do very little good. A big load of crap money pushed out the Fed's door results in only small shits in the real economy, and those are scams like subprime auto loans.

Norman O Brown in his book Life Against Death comments on the anal retentiveness of the filthy rich:

The most scandalous of Freud's ideas is anality and the anal state of development [which most Wall Street bankers are in]. For Freud excrement can represent property or money, the child's gift to the parents, a plaything, a symbolic penis, a symbolic child, a weapon used for aggression, [a tactic familiar to simians], or a means of mastering and controlling the world. These meanings converge in the idea of the anal character, marked by an obssessive orderliness, thrift and stubborness.

...

Modern Western culture is dominated by capitalism and the desire to increase monetary wealth. Money is an intrinsically useless object that is given fantastic value; this is just what little children do with their excrement.

Another component of GDP is government spending which doesn't result in individual Americans taking on more debt in order to keep the economy humming. However, Republican politicians have effectively negated any government spending except defense spending. There will be no infrastructure spending, for example, which could provide good-paying jobs and put money in American consumers' pockets without the necessity of their going into debt. But the Federal Reserve will not take the approach of creating fiat money and giving it to the government to spend on infrastructure. Instead they create fiat money and give it to the Wall Street banks to loan out to Americans thus putting them in debt for their consumer spending.

Janet Yellin's strategy has limited effectiveness due to the fact that the big banks would rather gamble with her QE (quantitative easing) money than loan it out to the 99%. QE acts as a laxative to free up the shit money and ease its way through the (Wall Street) colon to a final exit creating debt for the American people. But instead the money ends up going into the pockets of the 1% thus contributing to increased constipation and, not to mention, inequality. The laxative doesn't work, much to Janet Yellin's chagrin.

Easy money loans have always been a temptation for average Americans who want or need stuff so much that they are willing to go into debt to have it. The problem is that there will always come a day of reckoning when the music stops, the jig is up and it's pay back time. Then will come the harrassing phone calls, the wage garnishments and the repossessions. A better way is for the government to invest in infrastructure with money created by the Fed to do so instead of the Fed's fiat money creation activities being funneled through Wall Street into the pockets of the rich. Or better yet create a public bank that wouldn't be beholden to Wall Street and could easily spend money on those things the 99% really wants and needs.

Student Loan Debt: The Only Debt You Can't Discharge in Bankruptcy

by John Lawrence from the San Diego Free Press

Today's students are being crushed with John Bunyan's proverbial burden on their backs - student loan debt. Until relatively recently this debt could have been discharged in bankruptcy. Then all that changed when Sallie Mae, the Student Loan Marketing Association, was privatized in 2004. Albert Lord the new CEO and his lobbyists went to work to change the laws so that student loans could not be discharged in bankruptcy. Today the cumulative student loan debt is over $1 trillion. While a generation ago a high school diploma was considered sufficient for a decent middle class entry level job, today it's a college diploma even if the job itself could be easily accomplished by a person with just a high school education.

In Sallie Mae annual reports, CEO Albert Lord has boasted that the company's extraordinary financial growth could be attributed  to fees collected from defaulted loans, as well as loan origination growth. Lord, who personally invested hundreds of thousands of dollars (on the books) in politicians and PACs involved with education legislation is probably the largest individual beneficiary of student loan privatization. In 2001, US News reported that Mr. Lord's compensation for the year 2000 had skyrocketed to over $33 million. From 1999-2004, Sallie Mae’s top two executives, Al Lord and Tom Fitzpatrick, received compensation worth $225 million and $245 million, respectively. Both men have regularly topped Fortune Magazine's list of highest paid CEO's in the Washington D.C. Area. Albert Lord also put in a bid to purchase a major league baseball team, the Washington Nationals, with the wealth he extracted from defaulted borrowers.

While Albert Lord and others have profited handsomely from student loan privatization, many of the students themselves have been driven to despair after they graduate and payments on the loans become due. Similar to the pilgrim in John Bunyan's Pilgrim's Progress, they enter the slough of despond. And God forbid they miss a payment or even go into default. Severe penalties double and triple and before they know it, they are owing three or four times the amount of their original student loan. Many student loan debtors including a writer for the San Diego Free Press have taken the only route out of this living hell they could think of: suicide. It seems that law students are particularly vulnerable to the privatized loan scam since their aspirations are so high and their actual results after graduation are so devastating.

This is from Huffington Post:

Suicide is the dark side of the student lending crisis and, despite all the media attention to the issue of student loans, it's been severely under-reported. I can't ignore it though, because I'm an advocate for people who are struggling to pay their student loans, and I've been receiving suicidal comments for over two years and occasionally hearing reports of actual suicides. More people are being forced into untenable financial circumstances as outstanding student loan debt has surpassed $1 trillion. And people simply aren't able to pay all the money they owe. In the past few years, the rate of defaults for federal loans has increased at an alarming rate. According to the Department of Education, those recent graduates who began repayments in 2009, 8.8 percent had already defaulted on their federal loans. That compares to 7 percent in 2008. Currently, 36 million Americans have outstanding federal loans. I can't help but wonder how many of those millions are feeling distressed or suicidal, or how many have attempted suicide because of all that debt hanging over their heads.

Taking advantage of low income students who want a better life for themselves than their parents had and the siren call of easy money loans that don't have to be paid back for many years - after the student supposedly has snagged a lucrative professional job, the private loan industry has suckered unsophisticated high school graduates and led them down the garden path of a future filled with prestige and high wages. Problem is when (and if) that student has obtained that degree, they find that (a) they can't get that lucrative job because either that job isn't available or their degree is worthless or (b) they have to move back in with their parents in order to afford the payments on their student loan.

And don't even think about getting married and raising a family if you have a substantial amount of student loan debt. Each spouse is responsible for the other's debts including student loan debts. Sort of a dowry in reverse. This is from abovethelaw.com

Good luck getting married with your large student loan debt. In the good old days, love conquered all. But today, love is a necessary but not sufficient condition for a lasting relationship. Now that student loan debt exceeds $1.2 trillion and shows no signs of stopping, it is probable that your future spouse will have considerable student loan debt. And you may have to face the possibility that by getting married, you may have to pay your spouse’s student loan debt — possibly for life.

It is common knowledge that large student loan debt is forcing young people to delay getting married and starting families. If both partners have small to moderate student loan debt, they can find a way to deal with it eventually. But those who paid off their student loans will be reluctant to marry someone with large student loan debt unless they have a good job and a realistic plan for paying it off in a short period of time.

Colleges and universities themselves are a major part of the problem. Over the last three decades, the price of a year of college has increased by more than 1,200%. They are selling the American dream especially to students from poor financial backgrounds. As we have reported previously, University of Phoenix and Ashford University are particularly culpable.

This is from an article, "For-Profit Colleges as American Dream Crushers and Factories of Debt":

As Cornell professor Noliwe Rooks and journalist Kai Wright have reported, black college enrollment has increased at nearly twice the rate of white enrollment in recent years, but a disproportionate number of those African-American students end up at for-profit schools. In 2011, two of those institutions, the University of Phoenix (with physical campuses in 39 states and massive online programs) and the online-only Ashford University, produced more black graduates than any other institutes of higher education in the country. Unfortunately, a recent survey by economist Rajeev Darolia shows that for-profit graduates fare little better on the job market than job seekers with high school degrees; their diplomas, that is, are a net loss, offering essentially the same grim job prospects as if they had never gone to college, plus a lifetime debt sentence.

Instead of climbing out of poverty and creating a better life, the students that attend for profit universities end up more bogged down in the poverty muck and being worse off than they would have been if they had never gone to college. It seems that the American Dream has become the American Scam enriching ambitious entrepreneurs whose combination of privatized education fueled by student loans has contributed to the American nightmare for many of those who would have been better off forsaking high end job fairy tales and instead learned a trade such as carpentry, plumbing, electrical work, nursing, teaching or masonry. The for profit institutions are all about maximizing returns for their shareholders, not maximizing the results of the educations they provide for their students.

For-profit colleges can be up to twice as expensive as Ivy League universities, and routinely cost five or six times the price of a community college education. The Medical Assistant program at for-profit Heald College in Fresno, California, costs $22,275. A comparable program at Fresno City College costs $1,650. An associate degree in paralegal studies at Everest College in Ontario, California, costs $41,149, compared to $2,392 for the same degree at Santa Ana College, a mere 30-minute drive away.

A lot of these subprime schools spend more money on lobbying and recruiting subprime students than they spend on their students' educations. And many of these students never actually graduate although their accumulated student loan debt stays with them for life. Instead of a leg up in the world they get a kick in the backside. They become mired in debt and poverty. Today's college graduates are in debt and not able to find a job.

The public universities themselves have seemingly taken a stupid pill. They have cozied up to Wall Street lusting after huge gains in the stock market and using fancy derivatives.

Beginning in the 1990s, universities, public and private, began working ever more closely with Wall Street, which meant using tuition payments not just as direct revenue but also as collateral for debt-financing. Consider the venerable but beleaguered University of California system: a 2012 report out of its Berkeley branch, “Swapping Our Futures,” shows that the whole system was losing $750,000 each month on interest-rate swaps - a financial product that promised lower borrowing costs, but ended up draining the UC system of already-scarce resources.

In the last decade, its swap agreements have cost it over $55 million and could, in the end, add up to a loss of $200 million. Financiers, as the university’s creditors, are promised ever-increasing tuition as the collateral on loans, forcing public schools to aggressively recruit ever more out-of-state students, who pay higher tuitions, and to raise the in-state tuition relentlessly as well, simply to meet debt burdens and keep credit ratings high. So Wall Street is directly responsible for high tuition rates. Who would have thunk it? Calling Occupy Wall Street.

Student tuition has had to bear the burden of the university's gambling binge on Wall Street. When will they ever learn that a public bank could not only save them money but reduce the volatility associated with Wall Street?

The Department of Education (DOE), which could provide debt relief for student loan debtors is instead acting as a debt collector.

Mat Taibbi of Rolling Stone reports:

Another debtor, a 38-year-old attorney who suffered a pulmonary embolism and went into default as a result, is now more than $100,000 in debt. Bedridden and fully disabled, he accepts he will likely be in debt until his death. He asked that his name be withheld because he doesn't want to incur the wrath of the government by disclosing the awful punch line to his story: After he qualified for federal disability payments in 2009, the Department of Education quickly began garnishing $170 a month from his disability check.

"Student-loan debt collectors have power that would make a mobster envious" is how Sen. Elizabeth Warren put it. Collectors can garnish everything from wages to tax returns to Social Security payments to, yes, disability checks. Debtors can also be barred from the military, lose professional licenses and suffer other consequences no private lender could possibly throw at a borrower.

On the brighter side, an offshoot of Occupy Wall Street called Rolling Jubilee is helping to pay off medical and student loan debt. They buy up the debt on the secondary market, the way collections agencies do, for pennies on the dollar and then simply pay it off. Why can't the students themselves (or their agents) buy up their own debt this way and pay it off? Good question and maybe we'll see more of that in the future.

In Judaism and Christianity, the concept of the Jubilee is a special year of remission of sins and universal pardon. In the Biblical Book of Leviticus, a Jubilee year is mentioned to occur every fiftieth year. In that year slaves and prisoners would be freed and debts would be forgiven. However, there is no jubilee year in capitalism. Society is less humane today.

Debt collectives or debtors' unions may be the next step in fighting off the predatory lenders' penchant for turning college graduates into indentured servants. Collective action can empower individual debtors who feel hopeless, powerless and desperate. You can congregate and share your story with others at studentloanjustive.com, a website started by Alan Collinge who is fighting for the repeal of the law that prevents you from discharging your loan in bankruptcy.

Or it might be better to just liberate yourself from the debt by refusing to pay it and living with the consequences. You would have to abandon whatever employment your degree bought you. You might have to leave the country in which case your future education will ironically be free. Or you can be self-employed working on a cash basis. Actually, self-employment is not a bad option. Knowing what you know now about the student debt rat race, you probably would have chosen that over a college degree in the first place. Students of the world unite. You have nothing to lose but the burdens on your backs!

You can join a DIY Resistance movement as San Diego Free Press writer Will Falk has and become modern day Robin Hoods taking from the rich to help the poor:

Part of my recovery from suicidal depression involves me recognizing poisoned thought patterns. Guilt over debt is poison. I have decided I will not pay my student loans back. I refuse to pay an illegitimate, occupying, imperial government engaged in genocide around the world for an education that should rightfully be free anyway. Now, when Heather-from-Sallie-Mae-Department-of-Education-Loan-Services leaves me a message, I am empowered to laugh.

Lately, for smiles, I’ve called myself a post-modern Robin Hood. Not paying my student loans is like stealing my education from the government. Just like Robin Hood of old, I stole my education, my intellectual experiences, and my degrees from the rich, and am using that education, those experiences, and the letters behind my name to fight for the poor. Come join me in a refusal to let money stop us from action. We can form a merry band and save the world while we’re at it.

 

Debtor Nation: 35 Percent of Americans Owe Bills to Collection Agencies

AlterNet             /               By Lynn Stuart Parramore          

       12 COMMENTS       

From medical bills to gym membership fees, increasing numbers of us can't meet our debts.

Photo Credit: Shutterstock.com/Nata-Lia

              

July 31, 2014  |  

It's official: America is being crushed under a mountain of debt.

A  new study by the Urban Institute says that over 35 percent of Americans have debts and unpaid bills that have been reported to collection agencies. This means the bill is so overdue (generally at least 180 days) that the account has been closed and placed in collections.

That comes to 77 million souls who face the sleepless nights and anxiety that comes from an inability to meet debt obligations. These citizens owe an average of $5,178 each (median $1,349).

It's happening to us in all walks of life.

For some, it's an unpaid credit card bill. For others, it's a medical bill they couldn't pay on time. Students are behind on their debt payments. Homeowners can't pay their mortgages. From past-due gym membership fees to delinquent utility bills to unpaid parking tickets, Americans owe more than they can pay, and face damaged credit scores and job prospects once collection agencies get their hooks into them. This creates a vicious cycle in which people become less able to pay debts, which then continues to mount.

Urban Institute senior fellow Caroline Ratcliffe put it this way: "Roughly, every third person you pass on the street is going to have debt in collections. It can tip employers' hiring decisions, or whether or not you get that apartment."

Certain parts of the country are debt hotspots: Nearly half of the people living in Las Vegas, where the housing crisis hit hard, have debt in collections. Big chunks of the South are battlling debt, notably the cities of Orlando, Jacksonville, Memphis, Columbia, South Carolina, and Jackson, Mississippi. On the other hand, Salt Lake City, San Jose, and Seattle have the least amount of debt.

Many people dealing with debt collectors report bullying and harassment. But financial distress is a worry not just for the individual, but for famlies and communities, too. With increasing numbers of Americans living paycheck to paycheck, any emergency, big or small, can push them into financial hell. Psychologists and sociologists are beginning to explore the debt-stress connection and how it destroys social bonds.

In Shakespeare's  The Merchant of Venice, the heroine pleads for debt relief by appealing to Christian mercy. In contemporary America, no such mercy exists. Debtor's prisons  appear to be on on their way back.

Lynn Parramore is an AlterNet senior editor. She is cofounder of Recessionwire, founding editor of New Deal 2.0, and author of "Reading the Sphinx: Ancient Egypt in Nineteenth-Century Literary Culture." She received her Ph.D. in English and cultural theory from NYU. She is the director of AlterNet's New Economic Dialogue Project. Follow her on Twitter @LynnParramore.

Does the Federal Reserve Print Money?

by John Lawrence from the San Diego Free Press

The Federal Reserve is America's Central Bank

The Fed doesn't actually "print" money in the sense of ink on paper hundred dollar bills. But what it can do is create money with a few keystrokes on a computer. Money so created is called "fiat money" since it's not backed by gold or anything else. The Fed currently prints the money to purchase $40 billion in mortgage backed securities and $45 billion in government bonds each month. The rationale for doing this is that it keeps interest rates low which is thought to be necessary to keep the economy humming. Before the financial crisis of 2008-09, the Fed managed to keep interest rates low by adjusting the interest rate at which banks borrow overnight. But after the financial crisis, the Fed needed a more robust policy which is called Quantitative Easing or QE. This policy is mainly a giveaway to the big Wall Street banks to augment their reserves. The lack of sufficient reserves is thought to have been the problem that caused the financial crisis.

The Fed’s massive QE program was ostensibly designed to lower mortgage interest rates, stimulating the economy. And rates have indeed been lowered – for banks. But the form of QE the Fed has engaged in – creating money on a computer screen and trading it for assets on bank balance sheets – has not delivered money where it needs to go: into the pockets of consumers, who create the demand that drives the real economy. Low interest rates will certainly stimulate the economy in the sense that they will encourage the sale of cars and houses, both of which are usually done by borrowing money at interest. So the Fed's policies are all about generating economic activity by creating more debt for average Americans and this results in bigger profits for Wall Street.

The Fed's QE policy means that the Fed buys government bonds and mortgage backed securities from private investors - mainly the big Wall Street banks - and then credits the accounts of those banks with the cash. In return the Fed takes possession of the bond or security it has just bought which is just added to the Fed's balance sheet. Now if the Fed sells that bond back into the market or redeems it from the government, it would get the cash that it had created back and could just extinguish it by a few more keystrokes on the computer. At that point the money that had previously been created will have been destroyed and would be subtracted from the Fed's balance sheet. So in that long run scenario the Fed would not have "printed" or created any money at all except on a temporaray basis. The rub is that the Fed may never remove that money from its balance sheet. It certainly hasn't done so thus far. The Fed has been buying bonds since early 2009. During that time its balance sheet has increased from $900 billion to over $4 trillion today.

A secondary effect of keeping interest rates low is that it lowers the Federal government's interest payments on its gargantuan Federal debt. That tends to neutralize the issue of government spending and deficits as a political issue. The Fed has also been buying the bonds being sold by the US government to finance its deficit. This is considered a Ponzi scheme by some writers as the Fed buys up government deficits and in effect disappears them making sure that bond redeemers always get paid. Bernie Madoff went to jail for doing the same thing except Bernie could not create money with a few keystrokes on a computer like the Fed can.

The negative side of low interest rates is that it hurts savers. Saving accounts produce hardly any interest so there is not much incentive to save. There is, therefore, an incentive to invest in the stock market which has risen dramatically and basically has become a bubble similar to the rapid increase in home values prior to the Great Recession of 2008. When that bubble burst, home values fell precipitously. The same thing could happen to the stock market if the Fed eases off its policy of QE and interest rates rise. Then the stock market could deflate like a punctured balloon.

So what is the other negative aspect of the Fed's QE policy? All that money the Fed is creating or printing, if you will, is pooling in the financial system mainly among rich investors. It is not going into the real economy or into the average person's pocket. If that money were injected into the real economy, it could be used for rebuilding, repairing and building new infrastructure, for example, which would create jobs. Instead the Fed's idea of creating jobs is to keep interest rates low so that more cars and houses will be built and sold. The jobs created will be mainly for car salesmen and real estate salespersons as well as construction crews and assembly line workers.

Money pooling in the financial system and not entering the real economy has only an indirect effect on economic growth, and has the primary purpose of making rich people, especially bankers, richer. This is thought to be a good thing in that it shores up bank reserves which were drastically depleted due to the casino operations leading up to the Great Recession when the banks collapsed not essentially because they had little in the way of reserves but primarily because they had run up their gambling debts to excessive levels with nothing to back them up.

So what will the Fed do now? It may never be able to reduce its balance sheet by either redeeming government bonds or selling them into the market because that would raise interest rates and drive up the amount the Federal government would have to pay in interest on its debt. At that point paying interest on the debt might take up the entire or almost the entire Federal budget. In addition raising interest rates would put a damper on economic activity in the form of discouraging people from purchasing cars, houses and other consumer items. Since consumption is 70% of GDP, this could lead to a recession. This would again place the big banks in jeopardy because, as economic activity diminishes, interest payments to the banks - a big part of their income - will go down, and this will add to the downward spiral which could produce Great Recession, Part 2.

Therefore, the government bonds and mortgage backed securities that the Fed is taking on its balance sheet via their money printing operations may never be redeemed or sold and may have effectively disappeared into a black hole as the Fed's balance sheet continues to increase. The Fed may be stuck printing money ad infinitum and subsidizing the banks at the expense of the average American in perpetuity. The Wall Street banks, it should be pointed out, make money every time the Fed purchases a government bond or mortgage backed security from them. Since the Fed is prohibited by law from buying government bonds from the government directly, Wall Street banks effectively act as middle men and they do so for a price, a price the Fed gladly pays, and for no risk on the part of the banks.

As the Fed continues to subsidize the big banks with money pooling at the upper end of the income spectrum, inequality increases in American society. The Fed policy of QE is a policy designed to increase inequality as the price to be paid to keep the economy rolling. The price of increased economic activity and rising GDP is the further indebtedness of the American people as they buy cars, houses and other consumer items with borrowed money. The Fed, which is not publicly owned, functions to improve the financial prospects of the Wall Street banks which are its real owners. (They actually own most of the stock in the Federal Reserve.) Is it any wonder then that the Fed's policies primarily serve the interests of its owners - the big Wall Street banks? A truly public central bank, one owned by the people of the US, could have the same function of increasing the money supply as needed, but it might do so by using the fiat money so created to more directly benefit the American people.

Germany tried “abnormal” money printing in the early 1920’s after WW 1 and the result was hyperinflation, collapse of the German economy, and the rise of Hitler. The same might happen in the US if hyperinflation were to start taking place while the Fed is stuck in handing out money to the big banks in order to keep them afloat. To fight hyperinflation the Fed would have to raise interest rates and this might bring the US economy to a grinding halt. The policy of reducing the amount of QE on a monthly basis is called "tapering." This doesn't mean that the Fed is selling off the government bonds or mortgage backed securities on its balance sheet, just buying less of them than they had previously. The Fed will still be adding billions to its balance sheet every month. Inflation is the only thing that will force the Fed to reduce its balance sheet. Otherwise, it could disappear government deficits and bank owned mortgage backed securities into its black hole indefinitely.

If the Fed starts to taper, the big boys at the Big Banks might take this as a signal to short the stock market, and this might cause the stock market bubble to burst as stock values are driven down. The average non sophisticated 401k investor would probably panic and sell on the dip losing the value of his or her retirement savings as the Wall Street guys make a killing. When the market reaches its lowest ebb, the Big Guys will start buying again driving the market back up. After the market rallies sufficiently, the average guy will work up the courage to get back in with his 401k, having lost a ton of money selling on the dip and buying on the rally, just the opposite of what sophisticated investors do. Concomitantly, the Fed will probably reintroduce its policy of QE in order to stabilize the economy, and it might have to admit that this policy will continue indefinitely or even ad infinitum. The denouement is that the rich will have gotten richer while the middle class will have been reduced to penury, just the same tendency as happened after the recession of 2008.

This debt based, Wall Street centric, unstable economy know as US capitalism could be changed by replacing the privately owned Federal Reserve with a publicly owned central bank that created and extinguished fiat money as necessary in order to more directly benefit the American people and in such a way that it serves the needs of the real economy rather than being an effort to stabilize and profit Wall Street banks. Rather than providing jobs indirectly only if more debt for the American people is created, a public central bank could inject money as needed directly into the real economy creating jobs in the process and building wealth for the average American while reducing inequality.

Our Economy Wants You to Be In Debt—5 Things You Can Do to Take Charge

Published on Thursday, May 22, 2014 by YES! Magazine

We poured through a debt-resistance manual created by former Occupiers to bring you these practical tips.

  by  Liz Pleasant

(Photo by Justin Hogue / Flickr.)

Last month PM Press published the Debt Resisters' Operations Manual —also known as “the DROM.” But don’t let that menacing-sounding acronym fool you: this is a book written in plain English and filled with tips and tactics for dealing with debt.

The book has been available online since September 2012, but this publishing marks the first time the manual has been printed, bound, and sold. Don't worry, you can still find a free copy online. But, hopefully, getting this book into stores will help its message reach more people—however ironic it might seem to buy one with a credit card.

Stay away from paycheck loans, pawnshops, prepaid cards, nonbank check cashing, and rent-to-own agreements.

"Everyone is a debtor so there’s no limit to the audience" said Andrew Ross, a member of the Occupy Wall Street offshoot called Strike Debt, in aninterview with Guernica Magazine. Although Ross has gone public, most of the authors of the Debt Resister's Operations Manual have chosen to remain anonymous.

The book explains how creditors, big banks, and other lenders operate and how debtors can navigate both in and outside of the system.

"From a young age, we are conditioned to feel that being in debt is shameful and worthy of punishment," the manual's anonymous authors explain.

Debtors shouldn’t feel that way, the DROMargues, because the situation is largely unfair and out of their control. "The reason you have tens of thousands of dollars in medical bills is that we don't provide medical care to everyone," the authors write. "The reason you have tens of thousands of dollars of student loans is because the government, banks, and university administrators [are] … driving college costs through the roof."

All that debt adds up. About 75 percent of Americans are in debt right now and owe a total of more than $11.5 trillion, according to Forbes magazine. That's about three times the amount of spending the Obama Administration requested in its 2015 federal budget.

And it’s not necessarily spent on expensive handbags, sports cars, and vacations. A 2012 study published by the left-leaning thinktank Demos found that 40 percent of American households in debt use their credit cards to pay for living costs like rent, food, and utility bills. Additionally, about half of household debt comes from medical bills.

While the authors clearly worked hard to make the manual’s language accessible, that doesn't mean it's a quick read. If you lack time or patience to sit down and wrap your head around how FICO credit scores are generated, here are five tips from the DROM that you can start using today.

1. Avoid payday loan services and other "fringe" finance.

Stay away from paycheck loans, pawnshops, prepaid cards, nonbank check cashing, and rent-to-own agreements. These alternative financial services—known in the industry as AFSs—may appeal to those who don't want or can't have a checking account, but these institutions often prey on their customers through hidden fees and high interest rates.

Even the IRS has a program that can cut down your tax debt, based on your income.

The scale of the problem is huge: According to a survey conducted by the U.S. Census Bureau in 2009, about 9 million American adults have no bank account, and 66 percent of these unbanked Americans say they use alternative financial services.

And just how bad are those services? According to Gary Rivlin, author of Broke USA: From Pawnshops to Poverty, Inc., the average family with an annual income of $30,000 or less pays $2,500 in fees and interests to the AFS industry every year.

If you need money in a pinch, consider more community-based short-term loans. Ask a friend or a family member, or check to see if your employer can extend an advance. Credit unions often offer short-term loans at better rates than companies in the AFS sector. Another option is selling your unwanted stuff (either online or at thrift stores) to make some quick cash.

2. Make them an offer.

If you're part of the 75 percent of working Americans who say they live “paycheck-to-paycheck” (defined as not having enough in savings to cover six months of expenses), then it’s not an option to pay past-due credit card, medical, or student debt with savings. But there may be an appealing alternative to the racking up endless interest and fees: Tell whomever you owe that you can't afford to pay in full—and then make them an offer.

"Remember," the DROM says, "even if we offer them ten cents on the dollar, that's more than they would be getting if they sold [the debt] to a collection agency."

This process of renegotiating debt is called debt settlement, and can begin with something as simple as a frank phone call with your credit card company. Be aware that there are many scams out there in this sector, according to the DROM, so it’s a good idea to avoid companies or lawyers who claim to be able to achieve a debt settlement for you. Instead, consider applying for a debt settlement yourself.

The same process can be transferred to medical debt, and even the IRS has a program that can cut down your tax debt based on your income. It’ll cost you $150 to apply, but if you owe a lot the risk might be worth it. Additional information on how to pursue your own debt settlement can be found here.

3. Know your rights and be prepared to defend them.

The Fair Debt Collections Practices Act , passed in 1977, includes a long list of rules that collection agents must follow. Examples of illegal behaviors include using a fake company name, lying when trying to collect debt, or saying that you will be arrested if you don't pay your debt. The act also lets you put an end to insistent phone calls from “unknown numbers” by making a formal request that collectors contact you only during certain hours. Calling outside of the requested time is a violation of the FDCPA.

If your credit score is a problem, offer to bring in a personal portfolio instead.

Review all the rules listed in the act so you'll be able to recognize any mishandling of your account. Keep copies of all correspondence between you and any credit collection agencies. If collectors break these rules and you decide to report it, you must take action within one year of the violation. You can report violations to multiple places, including: your state’s Attorney General's office, the Federal Trade Commission, and the Consumer Financial Protection Bureau. The collection agency can be fined if it’s found to have violated regulations, but it won’t change how much you owe.

If you want to try to get your debt reduced or erased, you'll have to sue the collection agency. But Rozie Hughes, a financial advisor who helped develop the Financial Integrity Instructors Guide, said that complaints to the FDCPA are unlikely to reduce debts. "The road to such an end would actually be … lengthy and laborious through the civil court system."

If you feel you have a strong case against a collector, and the time and resources for a lawsuit, reducing your debt in a courtroom is a possibility. On the other hand, simply reporting violations is an action every debtor can take to put an end to intimidation and hold collectors accountable for misconduct.

4. Consider alternatives to a credit check.

Credit checks are one way that debt can affect more than just your bank account. Landlords regularly use poor credit score ratings to deny rental applications, and employers are increasingly using credit checks to screen potential employees as well.

If your credit score is a problem, offer to bring in a personal portfolio instead. Include references from current landlords and employers, as well as bank statements and paycheck stubs. Putting in the effort to create a portfolio can show you are a responsible and trustworthy person and may prove to be more important than a number on a credit report.

5. Shift your values.

Some of the things the DROM suggests you do to survive with little to no money are pretty radical. These include wearing only free clothes, getting food from shelters, and squatting in abandoned buildings.

But if those options are too hard-core for you, don't worry. There are some other options too. The DROM suggests you look into bartering networks and gift economies in your area. These alternatives are great because they allow you to trade your extra items, time, or skills for things you need without the exchange of cash. Large-scale examples of this include websites like Swap Right, Trash Bank, and the “free” section of your local Craigslist.

And when you need services rather than objects, consider joining your local time bank—a service that allows you to trade your own time for a carpenter’s, plumber’s, or whoever’s time you need.

It's important to acknowledge the cultural change that’s involved in moving away from the cash economy and toward swapping, bartering, and other alternatives.

"Finding ways to live outside of [our current debt cycle] is an absolute necessity for many, but can also be rewarding and give you a glimpse of what life might be like in a world without debt," the authors of the DROM explain. "It will require cultivating personal values and taking actions that often stand in stark contrast to the ones our consumers culture promotes so aggressively."

---

This article was written for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions.

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License.

      

Liz Pleasant is a graduate of the University of Washington's program in Anthropology, and an online editorial intern at YES! Follow her on Twitter @lizpleasant

Republican Crazy Talk About the Debt Ceiling

by Robert Reich

Tuesday, October 8, 2013                

"I would dispel the rumor that is going around that you hear on every newscast, that if we don’t raise the debt ceiling, we will default on our debt," says Sen.Tom Coburn, R-Okla. “We won’t. We’ll continue to pay our interest.”

This is crazy talk. While the Treasury Department could prioritize interest payments after October 17 – the day the Treasury Department says it no longer has legal authority to pay the nation’s debts – and not pay Social Security and Medicare, this would buy a few days at most.

Meanwhile, interest rates will soar, stock prices will plummet, the global economy will begin spiraling downward, and millions of Americans wouldn’t receive their Social Security and Medicare.

So why are Republicans talking like this? Because they want to sound as if they’re willing to blow up the economy if they don’t get their way. A crazy person with a bomb is much scarier than someone holding a bomb who looks and acts reasonable. Sounding crazy is part of the Republican bargaining strategy.

But the President and the Democrats must not give in.

If we get to October 17th and the Republicans are still holding the nation hostage, the President has only one option: He must ignore the debt ceiling and order the Treasury to continue to pay all the nation’s bills.

He should rely on Section 4 of the Fourteenth Amendment to the Constitution, which says the “validity of the public debt of the United States, authorized by law … shall not be questioned.” The debt itself is clearly “authorized by law” because it’s the direct result of laws authorizing the U.S. to spend and to tax. The showdown over the debt ceiling is over payment of the debt, not the legality of the debt itself. Arguably, what the Constitution requires trumps any law governing the debt-ceiling. 

If Republicans disagree, let them try to impeach the President. Their polls are already dropping. The latest Washington Post-ABC poll shows 70 percent of the public disapproving of their tactics (65 percent disapproved before the shutdown), while the President’s disapproval remains at 51 percent. An attempted impeachment would reveal to the public just how crazy Republicans have become.

The Leveraged Buyout of America

Web of Debt blog        By Ellen Brown          August 26, 2013        

7 COMMENTS          

Our Banks Own Airports, Control Power Plants and Much More -- How Can We Stop Them from  Controlling the Lifelines of the Economy?

         

Aren’t there rules against that? And where are the banks getting the money?

Giant bank holding companies now own airports, toll roads, and ports; control power plants; and store and hoard vast quantities of commodities of all sorts. They are systematically buying up or gaining control of the essential lifelines of the economy. How have they pulled this off, and where have they gotten the money?

In a  letter to Federal Reserve Chairman Ben Bernanke dated June 27, 2013, US Representative Alan Grayson and three co-signers expressed concern about the expansion of large banks into what have traditionally been non-financial commercial spheres. Specifically:

[W]e are concerned about how large banks have recently expanded their businesses into such fields as electric power production, oil refining and distribution, owning and operating of public assets such as ports and airports, and even uranium mining.

After listing some disturbing examples, they observed:

According to legal scholar Saule Omarova, over the past five years, there has been a “quiet transformation of U.S. financial holding companies.” These financial services companies have become global merchants that seek to extract rent from any commercial or financial business activity within their reach.  They have used legal authority in Graham-Leach-Bliley to subvert the “foundational principle of separation of banking from commerce”. . . .

It seems like there is a significant macro-economic risk in having a massive entity like, say JP Morgan, both issuing credit cards and mortgages, managing municipal bond offerings, selling gasoline and electric power, running large oil tankers, trading derivatives, and owning and operating airports, in multiple countries.

A “macro” risk indeed – not just to our economy but to our democracy and our individual and national sovereignty. Giant banks are buying up our country’s infrastructure – the power and supply chains that are vital to the economy. Aren’t there rules against that? And where are the banks getting the money?

How Banks Launder Money Through the Repo Market

In an illuminating series of articles on Seeking Alpha titled “ Repoed!”, Colin Lokey argues that the investment arms of large Wall Street banks are using their “excess” deposits – the excess of deposits over loans – as collateral for borrowing in the repo market. Repos, or “repurchase agreements,” are used to raise short-term capital. Securities are sold to investors overnight and repurchased the next day, usually day after day.

The deposit-to-loan gap for all US banks is now about $2 trillion, and nearly half of this gap is in Bank of America, JP Morgan Chase, and Wells Fargo alone. It seems that the largest banks are using the majority of their deposits (along with the Federal Reserve’s quantitative easing dollars) not to back loans to individuals and businesses but to borrow for their own trading. Buying assets with borrowed money is called a “leveraged buyout.” The banks are leveraging our money to buy up ports, airports, toll roads, power, and massive stores of commodities.

Using these excess deposits directly for their own speculative trading would be blatantly illegal, but the banks have been able to avoid the appearance of impropriety by borrowing from the repo market. (See my earlier article  here.) The banks’ excess deposits are first used to purchase Treasury bonds, agency securities, and other highly liquid, “safe” securities. These liquid assets are then pledged as collateral in repo transactions, allowing the banks to get “clean” cash to invest as they please. They can channel this laundered money into risky assets such as derivatives, corporate bonds, and equities (stock).

That means they can buy up companies. Lokey writes, “It is common knowledge that prop [proprietary] trading desks at banks can and do invest in a variety of assets, including stocks.” Prop trading desks invest for the banks’ own accounts. This was something that depository banks were forbidden to do by the New Deal-era Glass-Steagall Act but that was allowed in 1999 by the Gramm-Leach-Bliley Act, which repealed those portions of Glass-Steagall.

The result has been a massively risky $700-plus trillion speculative derivatives bubble. Lokey quotes from an article by Bill Frezza in the January 2013 Huffington Post titled “Too-Big-To-Fail Banks Gamble With Bernanke Bucks”:

If you think [the cash cushion from excess deposits] makes the banks less vulnerable to shock, think again. Much of this balance sheet cash has been hypothecated in the repo market, laundered through the off-the-books shadow banking system. This allows the proprietary trading desks at these “banks” to use that cash as collateral to take out loans to gamble with. In a process called hyper-hypothecation this pledged collateral gets pyramided, creating a ticking time bomb ready to go kablooey when the next panic comes around.

That Explains the Mountain of Excess Reserves

Historically, banks have attempted to maintain a loan-to-deposit ratio of close to 100%, meaning they were “fully loaned up” and making money on their deposits. Today, however, that ratio is only 72% on average; and for the big derivative banks, it is much lower. For  JPMorgan, it is only 31%. The unlent portion represents the “excess deposits” available to be tapped as collateral for the repo market.

The Fed’s quantitative easing contributes to this collateral pool by converting less-liquid mortgage-backed securities into cash in the banks’ reserve accounts. This cash is not something the banks can spend for their own proprietary trading, but they can invest it in “safe” securities – Treasuries and similar securities that are also the sort of collateral acceptable in the repo market. Using this repo collateral, the banks can then acquire the laundered cash with which they can invest or speculate for their own accounts.

Lokey notes that US Treasuries are now being bought by banks in record quantities. These bonds stay on the banks’ books for Fed supervision purposes, even as they are being pledged to other parties to get cash via repo. The fact that such pledging is going on can be determined from the banks’ balance sheets, but it takes some detective work. Explaining the intricacies of this process, the evidence that it is being done, and how it is hidden in plain sight takes Lokey three articles, to which the reader is referred. Suffice it to say here that he makes a compelling case.

Can They Do That?

Countering the argument that “banks can’t really do anything with their excess reserves” and that “there is no evidence that they are being rehypothecated,” Lokey points to data coming to light in conjunction with JPMorgan’s $6 billion “London Whale” fiasco. He calls it “clear-cut proof that banks trade stocks (and virtually everything else) with excess deposits.” JPM’s London-based Chief Investment Office [CIO]  reported:

JPMorgan’s businesses take in more in deposits that they make in loans and, as a result, the Firm has excess cash that must be invested to meet future liquidity needs and provide a reasonable return. The primary reponsibility of CIO, working with JPMorgan’s Treasury, is to manage this excess cash. CIO invests the bulk of JPMorgan’s excess cash in high credit quality, fixed income securities, such as municipal bonds, whole loans, and asset-backed securities, mortgage backed securities, corporate securities, sovereign securities, and collateralized loan obligations.

Lokey comments:

That passage is unequivocal—it is as unambiguous as it could possibly be. JPMorgan invests excess deposits in a variety of assets for its own account and as the above clearly indicates, there isn’t much they won’t invest those deposits in. Sure, the first things mentioned are “high quality fixed income securities,” but by the end of the list, deposits are being invested in corporate securities [stock] and CLOs [collateralized loan obligations]. . . . [T]he idea that deposits are invested only in Treasury bonds, agencies, or derivatives related to such “risk free” securities is patently false.

He adds:

[I]t is no coincidence that stocks have rallied as the Fed has pumped money into the coffers of the primary dealers while ICI data shows retail investors have pulled nearly a half trillion from U.S. equity funds over the same period. It is the banks that are propping stocks.

Another Argument for Public Banking

All this helps explain why the largest Wall Street banks have radically scaled back their lending to the local economy. It appears that JPMorgan’s loan-to-deposit ratio is only 31% not because the bank could find no creditworthy borrowers for the other 69% but because it can profit more from buying airports and commodities through its prop trading desk than from making loans to small local businesses.

Small and medium-sized businesses are responsible for creating most of the jobs in the economy, and they are struggling today to get the credit they need to operate. That is one of many reasons that banking needs to be a public utility. Publicly-owned banks can direct credit where it is needed in the local economy; can protect public funds from  confiscation through “bail-ins”resulting from bad gambling in by big derivative banks; and can augment public coffers with banking revenues, allowing local governments to cut taxes, add services, and salvage public assets from fire-sale privatization. Publicly-owned banks have a  long and successful history, and recent studies have found them to be the safest in the world.

As Representative Grayson and co-signers observed in their letter to Chairman Bernanke, the banking system is now dominated by “global merchants that seek to extract rent from any commercial or financial business activity within their reach.” They represent a return to a feudal landlord economy of unearned profits from rent-seeking. We need a banking system that focuses not on casino profiteering or feudal rent-seeking but on promoting economic and social well-being; and that is the mandate of the public banking sector globally.

Ellen Brown is an attorney, author, and president of the Public Banking Institute. She is the author of Web of Debt, and a sequel, The Public Bank Solution.   

 

The Anti-Debt Agenda

By Bob Hertz

Director, The Health Care Crusade

Bob.Hertz@Frontiernet,net

 

Here is our problem:

 

Americans are forced to use credit for basic social needs.      

Instead of receiving a college education, hospital care, and affordable housing as entitlements, millions of Americans must take on debt to pay for these things individually. 

Instead of receiving adequate social benefits, millions of Americans rely on credit to sustain them during illness, unemployment, divorce and old age.

 

Here are three solutions:

 

Student loans must be forgiven over time, and eventually replaced by grants and free public vocational schools.

Hospital debt must be reduced by law, and drug prices must be controlled.

Revolving credit cards must be subject to usury laws, with much lower limits and higher minimum payments.    

 

How bad have things gotten?

 

Now, 17 million people have student loan balances in excess of $20,000, with almost 6 million loans in default;              

(Over 2 million persons over age 60 still have debt, mainly  on loans taken out for their children.)

Now, 4  million people have medical debts greater than $8,000, not counting the medical debts embedded in credit cards.  

Now, 9  million people have credit card debts in excess of $10,000, with interest rates that can exceed 28%.  

Collecting all these debts is impossible; in fact it would be destructive. We tried mass collections once before.  In the 1920’s,  America was rigid about enforcing mortgages and collecting reparations from Europe. What we got for our righteousness was the Great Depression. The secret war cry of fascism was “Kill the creditors.”

By contrast, debt forgiveness for Germany and Japan in 1945, plus the Marshall Plan, has led to six decades of general global prosperity.  

Americans in the 1950’s  became  accustomed to rising wages, rising home prices, cheap oil, trade surpluses, and job security. It was not a bad idea to pledge a portion of one’s future earning power.  

Student loans then were virtually unnecessary; single-store credit cards had low limits and low interest rates; and hospital bills might be $75 a day. Cars and appliances were available on the installment plan. If you had to sell your home, the amount you received at least paid off the old mortgage. 

 

But times have changed, to put it mildly.

More and more American employers began trolling the world for cheap labor. Corporations took on their own massive debts in mergers and acquisitions, and then attacked unions, attacked high wages, and laid off workers to cut costs. Colleges discovered they could raise tuition and get away with it. Credit card companies sent free cards to children, dogs, and dead people, raised interest rates at will, and made even more money from late fees and defaults. Banks actively looked for card holders who would never pay their balances in full.

Financial predators now trade on pure hope – i.e. that wages will rise again, that home prices will rise, that stock market gains will rescue pension plans.

We have a nationwide economics of deception.

 

We need debt relief for our own citizens.

 

Here is what must be done:

All student loans -- old and new, federal and private – must be converted to income-based repayment.

Large medical debts must either be forgiven or paid off by Medicare. Collection agencies must be removed from medicine altogether.

Credit card interest rates must be capped at 5% over prime.

Short sales of real estate must be allowed for anyone, with any remaining debt forgiven.

No debt forgiveness must ever be considered taxable income.

Debt Ceiling and Guns: Using Presidential Authority to the Fullest

by Robert Reich

Thursday, January 10, 2013

 

Anyone who thinks congressional Republicans will roll over on the debt ceiling or gun control or other pending hot-button issues hasn’t been paying attention.

But the President can use certain tools that come with his office – responsibilities enshrined in the Constitution and in his capacity as the nation’s chief law-enforcer — to achieve some of his objectives.

On the debt ceiling, for example, he might pay the nation’s creditors regardless of any vote on the debt ceiling – based on the the Fourteenth Amendment’s explicit directive (in Section 4) that “the validity of the public debt of the United States … shall not be questioned.”

Or, rather than issue more debt, the President might use a loophole in a law (31 USC, Section 5112) allowing the Treasury to issue commemorative coins – minting a $1 trillion coin and then depositing it with the Fed.

Both gambits would almost certainly end up in the Supreme Court, but not before they’ve been used to pay the nation’s bills. (It’s doubtful any federal court, including the Supremes, would enjoin a President from protecting the full faith and credit of the United States).

Or consider guns. As Vice President Joe Biden said Wednesday, “there are executive orders, executive action that can be taken” that don’t require congressional approval.

The President probably needs new legislation to reinstate a ban on the sale of military-style assault weapons, stop the sale of high-capacity ammunition clips, and require background checks on all gun buyers.

But he has wide authority to use gun laws already on the books as the basis for regulations or executive orders strengthening gun enforcement. 

There’s ample precedent. After a mass school shooting in Stockton, California, in 1989, George H.W. Bush issued an executive order, pursuant to the 1968 Gun Control Act, that banned imports of certain assault weapons unless used for sporting purposes. Years later, Bill Clinton by executive order banned imports of almost five dozen different assault weapons that had been modified to get through that “sporting purposes” exemption. President Obama could go even further.

To take another example, the National Firearms Act of 1934 gives a president broad powers to oversee gun dealers. By executive order, the President could tighten that oversight.

Under his law-enforcement authority the President could also issue executive orders improving information sharing among state and local law enforcement authorities about illegal gun purchases, tracking gun buyers’ history of mental illness, and maintaining data on gun sales for longer periods.

The Administration has already issued a regulation designed to prevent sales of semi-automatic rifles to Mexican drug cartels. It requires stores in states bordering Mexico to notify federal law enforcement officials when someone buys two or more of a particular type of high-caliber, semi-automatic rifle with a detachable magazine. That regulation, too, could be expanded upon.

No doubt such executive orders and regulations would be challenged in the federal courts (the regulation on semi-automatic rifles is now in a federal appeals court that’s expected to rule on its legality within the next few months).

But it’s a fair argument that when the nation is jeopardized – whether in danger of defaulting on its debts or succumbing to mass violence – a president is justified in using his authority to the fullest.

The mere threat of taking such actions – using the President’s executive authority to pay the nation’s bills or broadly interpret gun laws already on the books – could be useful in pending negotiations with congressional Republicans.

They have not shied away from using whatever means available to them to get their way. The President should not be reluctant to play hardball, either

 

Why Obama’s Gamble on the Debt Ceiling Depends on the GOP Being More Sane Than It Is

by Robert Reich

Monday, January 14, 2013

A week before his inaugural, President Obama says he won’t negotiate with Republicans over raising the debt limit. 

At an unexpected news conference on Monday he said he won’t trade cuts in government spending in exchange for raising the borrowing limit. 

“If the goal is to make sure that we are being responsible about our debt and our deficit - if that’s the conversation we’re having, I’m happy to have that conversation,” Obama said. “What I will not do is to have that negotiation with a gun at the head of the American people.”

Well and good. But what, exactly, is the President’s strategy when the debt ceiling has to be raised, if the GOP hasn’t relented?

He’s ruled out an end-run around the GOP. 

The White House said over the weekend that the President won’t rely on the Fourteenth Amendment, which arguably gives him authority to raise the debt ceiling on his own. 

And his Treasury Department has nixed the idea of issuing a $1 trillion platinum coin that could be deposited with the Fed, instantly creating more money to pay the nation’s bills.

In a pinch, the Treasury could issue IOUs to the nation’s creditors — guarantees they’ll be paid eventually. But there’s no indication that’s Obama’s game plan, either. 

So it must be that he’s counting on public pressure — especially from the GOP’s patrons on Wall Street and big business — to force Republicans into submission. 

That’s probably the reason for the unexpected news conference, coming at least a month before the nation is likely to have difficulty paying its bills.

The timing may be right. President is riding a wave of post-election popularity. Gallup shows him with a 56 percent approval rating, the highest in three years. 

By contrast, Republicans are in the pits. John Boehner has a 21% approval and 60% disapproval. And Mitch McConnell’s approval is at 24%. Not even GOP voters seem to like Republican lawmakers in Washington, with 25% approving and 61% disapproving. 

And Americans remember the summer of 2011 when the GOP held hostage the debt ceiling, bringing the nation close to a default and resulting in a credit-rating downgrade and financial turmoil that slowed the recovery. The haggling hurt the GOP more than it did Democrats or the President. 

But Obama’s strategy depends on there being enough sane voices left in the GOP to influence others. That’s far from clear. 

Just moments after the President’s Tuesday news conference, McConnell called on the President to get “serious about spending,” adding that “the debt limit is the perfect time for it.”  And Boehner said “the American people do not support raising the debt ceiling without reducing government spending at the same time.”

The 2012 election has shaken the GOP, as have the post-fiscal cliff polls. Yet, as I’ve noted before, the Republican Party may not care what a majority of Americans thinks. The survival of most Republican members of Congress depends on primary victories, not general elections — and their likely primary competitors are more to the right than they are.

Debt Ceiling and Guns: Using Presidential Authority to the Fullest

by Robert Reich

Thursday, January 10, 2013

 

Anyone who thinks congressional Republicans will roll over on the debt ceiling or gun control or other pending hot-button issues hasn’t been paying attention.

But the President can use certain tools that come with his office – responsibilities enshrined in the Constitution and in his capacity as the nation’s chief law-enforcer — to achieve some of his objectives.

On the debt ceiling, for example, he might pay the nation’s creditors regardless of any vote on the debt ceiling – based on the the Fourteenth Amendment’s explicit directive (in Section 4) that “the validity of the public debt of the United States … shall not be questioned.”

Or, rather than issue more debt, the President might use a loophole in a law (31 USC, Section 5112) allowing the Treasury to issue commemorative coins – minting a $1 trillion coin and then depositing it with the Fed.

Both gambits would almost certainly end up in the Supreme Court, but not before they’ve been used to pay the nation’s bills. (It’s doubtful any federal court, including the Supremes, would enjoin a President from protecting the full faith and credit of the United States).

Or consider guns. As Vice President Joe Biden said Wednesday, “there are executive orders, executive action that can be taken” that don’t require congressional approval.

The President probably needs new legislation to reinstate a ban on the sale of military-style assault weapons, stop the sale of high-capacity ammunition clips, and require background checks on all gun buyers.

But he has wide authority to use gun laws already on the books as the basis for regulations or executive orders strengthening gun enforcement. 

There’s ample precedent. After a mass school shooting in Stockton, California, in 1989, George H.W. Bush issued an executive order, pursuant to the 1968 Gun Control Act, that banned imports of certain assault weapons unless used for sporting purposes. Years later, Bill Clinton by executive order banned imports of almost five dozen different assault weapons that had been modified to get through that “sporting purposes” exemption. President Obama could go even further.

To take another example, the National Firearms Act of 1934 gives a president broad powers to oversee gun dealers. By executive order, the President could tighten that oversight.

Under his law-enforcement authority the President could also issue executive orders improving information sharing among state and local law enforcement authorities about illegal gun purchases, tracking gun buyers’ history of mental illness, and maintaining data on gun sales for longer periods.

The Administration has already issued a regulation designed to prevent sales of semi-automatic rifles to Mexican drug cartels. It requires stores in states bordering Mexico to notify federal law enforcement officials when someone buys two or more of a particular type of high-caliber, semi-automatic rifle with a detachable magazine. That regulation, too, could be expanded upon.

No doubt such executive orders and regulations would be challenged in the federal courts (the regulation on semi-automatic rifles is now in a federal appeals court that’s expected to rule on its legality within the next few months).

But it’s a fair argument that when the nation is jeopardized – whether in danger of defaulting on its debts or succumbing to mass violence – a president is justified in using his authority to the fullest.

The mere threat of taking such actions – using the President’s executive authority to pay the nation’s bills or broadly interpret gun laws already on the books – could be useful in pending negotiations with congressional Republicans.

They have not shied away from using whatever means available to them to get their way. The President should not be reluctant to play hardball, either

 

The Ongoing War: After the Battle Over the Cliff, the Battle Over the Debt Ceiling

by Robert Reich

Tuesday, January 1, 2013

“It’s not all I would have liked,” says Republican Senator Lindsey Graham of South Carolina, speaking of the deal on the fiscal cliff, “so on to the debt ceiling.”

The battle over the fiscal cliff was only a prelude to the coming battle over raising the debt ceiling – a battle that will likely continue through early March, when the Treasury runs out of tricks to avoid a default on the nation’s debt.

The White House’s and Democrats’ single biggest failure in the cliff negotiations was not getting Republicans’ agreement to raise the debt ceiling.

The last time the debt ceiling had to be raised, in 2011, Republicans demanded major cuts in programs for the poor as well as Medicare and Social Security.

They got some concessions from the White House but didn’t get what they wanted – which led us to the fiscal cliff.

So we’ve come full circle.

On it goes, battle after battle in what seems an unending war that began with the election of Tea-Party Republicans in November, 2010.

Don’t be fooled. This war was never over the federal budget deficit.

In fact, federal deficits are dropping as a percent of the total economy.

For the fiscal year ending in September 2009, the deficit was 10.1 percent of the gross domestic product, the value of all goods and services produced in America. In 2010, it was 9 percent. In 2011, 8.7 percent. In the 2012 fiscal year, it was down to 7 percent.

The deficit ballooned in 2009 because of the Great Recession. It knocked so many people out of work that tax revenues dropped to the lowest share of the economy in over sixty years. (The Bush tax cuts on the rich also reduced revenues.) The recession also boosted government spending on a stimulus program and on safety nets like unemployment insurance and food stamps.

But as the nation slowly emerges from recession, more people are employed — generating more tax revenues, and requiring less spending on safety nets and stimulus. That’s why the deficit is shrinking.

Yes, deficits are projected to rise again in coming years as a percent of GDP. But that’s mainly due to the rising costs of health care, along with aging baby boomers who are expected to need more medical treatment.

Health care already consumes 18 percent of the total economy and almost a quarter of the federal budget (mostly in Medicare and Medicaid).

So if the ongoing war between Republicans and Democrats was really over those future budget deficits, you might expect Republicans and Democrats to be focusing on ways to hold down future healthcare costs.

They might be debating how to make the cost controls in the Affordable Care Act more effective, for example, or the merits of moving to a more efficient single-payer system, as every other advanced country has done.

But they’re not debating this, because the federal deficit is not what this war is about.

It’s about the size of government. Tea-Party Republicans (and other congressional Republicans worried about a Tea-Party challenge in their next primary) want the government to be much smaller.

“My goal,” says conservative guru Grover Norquist, “is to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub.”

What’s behind this zeal to shrink government? It’s not that the U.S. government has suddenly become larger. In fact, non-military government spending relative to the size of the U.S. economy remains the smallest of any other rich nation.

Apart from the military, Medicare and Social Security account for almost everything else the federal government does – and these programs continue to be hugely popular, as Republicans learn every time they threaten them.

The animus toward government has more to do with the growing frustrations of many Americans that they’re not getting ahead no matter how hard they work.

Government is an easy scapegoat, utilized by much of corporate America to convince average Americans to cut taxes, spending, and regulations — and divert attention from record-high corporate profits and concentration of income and wealth at the top. 

The median wage continues to drop, adjusted for inflation, even though the economy is growing. And the share of the economy going to wages rather than to profits is the smallest on record.

Increasingly it’s looked like the game is rigged, especially when people see government bailing out Wall Street (the Tea Party movement grew out of the bailout, as did the Occupiers), and handing out corporate welfare to big agriculture, big pharma, oil companies, and the insurance industry, to name but a few of the recipients. 

The outrage grows when average working people are told – falsely — that a growing portion of Americans don’t pay taxes and live off government handouts.

The battle over the fiscal cliff is over, but the trench warfare will continue.

The Financial Elite's War Against the US Economy

Published on Monday, December 31, 2012 by Naked Capitalism

by Michael Hudson

Today’s economic warfare is not the kind waged a century ago between labor and its industrial employers. Finance has moved to capture the economy at large, industry and mining, public infrastructure (via privatization) and now even the educational system. (At over $1 trillion, U.S. student loan debt came to exceed credit-card debt in 2012.) The weapon in this financial warfare is no larger military force. The tactic is to load economies (governments, companies and families) with debt, siphon off their income as debt service and then foreclose when debtors lack the means to pay. Indebting government gives creditors a lever to pry away land, public infrastructure and other property in the public domain. Indebting companies enables creditors to seize employee pension savings. And indebting labor means that it no longer is necessary to hire strikebreakers to attack union organizers and strikers.

Workers have become so deeply indebted on their home mortgages, credit cards and other bank debt that they fear to strike or even to complain about working conditions. Losing work means missing payments on their monthly bills, enabling banks to jack up interest rates to levels that used to be deemed usurious. So debt peonage and unemployment loom on top of the wage slavery that was the main focus of class warfare a century ago. And to cap matters, credit-card bank lobbyists have rewritten the bankruptcy laws to curtail debtor rights, and the referees appointed to adjudicate disputes brought by debtors and consumers are subject to veto from the banks and businesses that are mainly responsible for inflicting injury.

The aim of financial warfare is not merely to acquire land, natural resources and key infrastructure rents as in military warfare; it is to centralize creditor control over society. In contrast to the promise of democratic reform nurturing a middle class a century ago, we are witnessing a regression to a world of special privilege in which one must inherit wealth in order to avoid debt and job dependency.

The emerging financial oligarchy seeks to shift taxes off banks and their major customers (real estate, natural resources and monopolies) onto labor. Given the need to win voter acquiescence, this aim is best achieved by rolling back everyone’s taxes. The easiest way to do this is to shrink government spending, headed by Social Security, Medicare and Medicaid. Yet these are the programs that enjoy the strongest voter support. This fact has inspired what may be called the Big Lie of our epoch: the pretense that governments can only create money to pay the financial sector, and that the beneficiaries of social programs should be entirely responsible for paying for Social Security, Medicare and Medicaid, not the wealthy. This Big Lie is used to reverse the concept of progressive taxation, turning the tax system into a ploy of the financial sector to levy tribute on the economy at large.

Financial lobbyists quickly discovered that the easiest ploy to shift the cost of social programs onto labor is to conceal new taxes as user fees, using the proceeds to cut taxes for the elite 1%. This fiscal sleight-of-hand was the aim of the 1983 Greenspan Commission. It confused people into thinking that government budgets are like family budgets, concealing the fact that governments can finance their spending by creating their own money. They do not have to borrow, or even to tax (at least, not tax mainly the 99%).

The Greenspan tax shift played on the fact that most people see the need to save for their own retirement. The carefully crafted and well-subsidized deception at work is that Social Security requires a similar pre-funding – by raising wage withholding. The trick is to convince wage earners it is fair to tax them more to pay for government social spending, yet not also to ask the banking sector to pay similar a user fee to pre-save for the next time it itself will need bailouts to cover its losses. Also asymmetrical is the fact that nobody suggests that the government set up a fund to pay for future wars, so that future adventures such as Iraq or Afghanistan will not “run a deficit” to burden the budget. So the first deception is to treat only Social Security and medical care as user fees. The second is to aggravate matters by insisting that such fees be paid long in advance, by pre-saving.

There is no inherent need to single out any particular area of public spending as causing a budget deficit if it is not pre-funded. It is a travesty of progressive tax policy to only oblige workers whose wages are less than (at present) $105,000 to pay this FICA wage withholding, exempting higher earnings, capital gains, rental income and profits. The raison d’être for taxing the 99% for Social Security and Medicare is simply to avoid taxing wealth, by falling on low wage income at a much higher rate than that of the wealthy. This is not how the original U.S. income tax was created at its inception in 1913. During its early years only the wealthiest 1% of the population had to file a return. There were few loopholes, and capital gains were taxed at the same rate as earned income.

By not raising taxes on the wealthy or using the central bank to monetize spending on anything except bailing out the banks and subsidizing the financial sector, the government follows a pro-creditor policy. Tax favoritism for the wealthy deepens the budget deficit, forcing governments to borrow more. Paying interest on this debt diverts revenue from being spent on goods and services. This fiscal austerity shrinks markets, reducing tax revenue to the brink of default.

The government’s seashore insurance program, for instance, recently incurred a $1 trillion liability to rebuild the private beaches and homes that Hurricane Sandy washed out. Why should this insurance subsidy at below-commercial rates for the wealthy minority who live in this scenic high-risk property be treated as normal spending, but not Social Security? Why save in advance by a special wage tax to pay for these programs that benefit the general population, but not levy a similar “user fee” tax to pay for flood insurance for beachfront homes or war? And while we are at it, why not save another $13 trillion in advance to pay for the next bailout of Wall Street when debt deflation causes another crisis to drain the budget?

But on whom should we levy these taxes? To impose user fees for the beachfront reconstruction would require a tax falling mainly on the wealthy owners of such properties. Their dominant role in funding the election campaigns of the Congressmen and Senators who draw up the tax code suggests why they are able to avoid prepaying for the cost of rebuilding their seashore property. Such taxation is only for wage earners on their retirement income, not the 1% on their own vacation and retirement homes.

By not raising taxes on the wealthy or using the central bank to monetize spending on anything except bailing out the banks and subsidizing the financial sector, the government follows a pro-creditor policy. Tax favoritism for the wealthy deepens the budget deficit, forcing governments to borrow more. Paying interest on this debt diverts revenue from being spent on goods and services. This fiscal austerity shrinks markets, reducing tax revenue to the brink of default. This enables bondholders to treat the government in the same way that banks treat a bankrupt family, forcing the debtor to sell off assets – in this case the public domain as if it were the family silver, as Britain’s Prime Minister Harold MacMillan characterized Margaret Thatcher’s privatization sell-offs.

In an Orwellian doublethink twist this privatization is done in the name of free markets, despite being imposed by global financial institutions whose administrators are not democratically elected. The International Monetary Fund (IMF), European Central Bank (ECB) and EU bureaucracy treat governments like banks treat homeowners unable to pay their mortgage: by foreclosing. Greece, for example, has been told to start selling off prime tourist sites, ports, islands, offshore gas rights, water and sewer systems, roads and other property.

Sovereign governments are, in principle, free of such pressure. That is what makes them sovereign. They are not obliged to settle public debts and budget deficits by asset selloffs. They do not need to borrow more domestic currency; they can create it. This self-financing keeps the national patrimony in public hands rather than turning assets over to private buyers, or having to borrow from banks and bondholders.

© 2012 Naked Capitalism

Michael Hudson is a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is “The Bubble and Beyond.”

The Dangers of Credit Card Borrowing - Have You Considered a HELOC?

by Melissa Hathaway

 

When you need cash and don’t have the funds available in your checking or savings account, you may do what so many others do – use your credit card. Some people are using their credit card to fund a lifestyle that is actually beyond their reach. They may be charging designer clothes and expensive meals at trendy restaurants on a regular basis. Others, however, have scaled back their spending as much as possible and still don’t have enough money to make ends meet. They are making purchases for gas, groceries and other necessities to close the gap in their personal budget. Credit cards may offer you a convenient way to make purchases, and in some cases, they may seemingly be the only alternative for making ends meet. However, the fact is that credit card debt is costly in more ways than one. With a closer look at the true cost of “charging it,” you may realize that you should look for a different resolution to your cash flow challenges. 

The True Cost of Credit Card Debt

Many consumers today make charges to their credit cards thinking about how affordable their monthly payment will be after the new charges are made rather than about how their charges will affect their total outstanding balance and their monthly interest charges. There are multiple costs associated with credit card debt, and while charging a purchase can result in exorbitant fees, making a straight cash withdrawal from the account can be even more costly. Consider these points.

- Interest Charges: It is common for the interest charges on a credit card to range from 15 to 20 percent or higher, but cash advances typically have a higher interest rate applied to them. While interest charges can be high, the real problem with them is that interest charges will continue to be assessed on your outstanding balance until it is paid in full. If you have a high outstanding balance, the cost of your interest charges alone may easily be $200, $300 or more per month!

- Account Fees: In addition to interest charges, most accounts also have numerous fees associated with them. There may be an annual fee, balance transfer fees, late payment fees and even cash advance fees. These fees can add up to hundreds of dollars or more per year. What’s worse, though, is that you will be assessed interest on these fees if you have a rollover balance from month to month.

A HELOC As An Alternative

While using a credit card to pay for essentials, luxury items and unexpected expenses is one option, it may not be the only option available to you. Many homeowners have a considerable amount of equity built into their home, and a home equity line of credit can allow you to tap into this equity. A home equity line of credit, otherwise known as a HELOC, allows you to draw equity from your home as needed, and it offers many benefits that a credit card does not offer. 

- Lower Interest Rate: A HELOC is a secured loan that is collateralized by your home, and because of this, banks generally will extend a HELOC to you with a low interest rate. In fact, depending on your credit scores and the terms of your HELOC, you may qualify for a HELOC with an interest rate under four percent today.

- Reduced Fees: You may pay cash advance fees and annual fees on a credit card, but you will not typically pay these fees with a HELOC. There are usually some loan application and processing fees that you will be responsible for, but you will not be subject to usage fees with a HELOC.

- Tax Deduction: Just as the interest on your first lien mortgage is tax deductible, the interest on a HELOC may also be tax deductible. This tax deduction can decrease your tax liability for an additional financial benefit to you. 

Furthermore, the cash that you obtain from a HELOC can be used for any purpose. You can consolidate your credit cards, make improvements to your home, use the money as needed to make ends meet and use it for other purposes. 

There are clear advantages associated with using a HELOC rather than a credit card when you need to borrow money. If you own a home, you should consider talking to a mortgage company or bank to determine if you qualify for this more affordable and beneficial financing option.

Cut Deficit, But Not on Backs of Needy

Published on Tuesday, October 2, 2012 by Politico.com

by Bernie Sanders

Yes. We must address the very serious problem of a $16 trillion national debt and a $1 trillion federal deficit.

But at this pivotal moment in American history, it’s essential that we understand how we got into this deficit crisis in the first place and who was responsible for it. More important, we must address the deficit in a way that is fair and does not balance the budget on the backs of the elderly, the children, the sick and the poor — people who are already hurting.

Let us never forget that when Bill Clinton left office in January 2001, this country enjoyed a healthy $236 billion surplus, and the projections were that this surplus would grow by a total of $5 trillion over a 10-year period.

What happened? How did we go from a significant federal budget surplus to a massive deficit? Frankly, it is not that complicated.

President George W. Bush and the so-called deficit hawks chose to go to war in Afghanistan and Iraq and put the funding for those wars on our nation’s credit card. By the time the last wounded veteran is cared for, those wars will end up adding more than $3 trillion to our national debt.

During this same period, Bush and the “deficit hawks” provided huge tax breaks to the wealthiest 2 percent of Americans who were already doing phenomenally well. These tax breaks for the very rich will increase our national debt by about $1 trillion over a 10-year period.

In addition, Bush and the “deficit hawks” established a Medicare prescription drug program written by the pharmaceutical and insurance industries. This program, which is far more expensive than it should be because it prohibits the federal government from using its purchasing power to negotiate cheaper drug prices, was not paid for. As a result, about $400 billion will be added to our national debt over a 10-year period.

Further, as a result of the deregulation of Wall Street, and the greed, recklessness and illegal behavior of the major financial institutions, this country was driven into the worst recession since the 1930s, which resulted in a massive reduction in revenue coming into the federal government.

And now, as we approach the election and a lame-duck session of Congress, these very same Republican “deficit hawks,” the folks who, to a significant degree, created the deficit crisis, are presenting some horrendous ideas about how we should get out of the mess that they caused. Sadly, they have been joined by some Democrats.

First, in order to cover the cost of the unpaid-for wars in Iraq and Afghanistan, they want to make significant cuts to Social Security that will affect not only seniors but disabled veterans as well. They want to do this despite the fact that Social Security is funded by the payroll tax, has not caused the deficit and has a $2.7 trillion surplus. Their favorite approach to cutting Social Security is through a reformulation of the way cost-of-living adjustments are calculated through the creation of a so-called chained consumer price index. Enacting this policy would result in a $560-a-year cut in Social Security benefits for 65-year-olds once they turn 75 and about a $1,000-a-year cut when they reach 85. The chained CPI will also make substantial cuts to the benefits of more than 3 million veterans, with the largest cuts affecting young, permanently disabled veterans who were seriously wounded in combat.

Second, in order to cover the cost of tax breaks given to millionaires and billionaires, they want to increase the Medicare eligibility age from 65 to 67 and throw millions of families with children off of Medicaid.

Third, in order to cover the cost of the Medicare prescription drug program, they want to cut Pell Grants, student loans, nutrition and other programs vitally important to working families.

Fourth, at a time when the United States has the most unequal distribution of wealth and income of any major country and the gap between the very rich and everyone else is growing wider, their deficit-reduction plan calls for lowering the top tax rates for the rich to about 28 percent or even lower.

Fifth, while the United States military budget has virtually tripled since 1997 and we now spend nearly as much as the rest of the world combined on defense, they want to increase defense spending.

There are fair and sensible ways to reduce deficits, but balancing the budget on the backs of the weak and vulnerable while lowering tax rates for the rich and increasing military spending are not among them.

© 2012 Politico.com

Bernie Sanders (I-Vt.) was elected to the U.S. Senate in 2006 after serving 16 years in the House of Representatives. He is the longest serving independent member of Congress in American history. Elected Mayor of Burlington, Vt., by 10 votes in 1981, he served four terms. Before his 1990 election as Vermont's at-large member in Congress, Sanders lectured at the John F. Kennedy School of Government at Harvard and at Hamilton College in upstate New York. Read more at his website.

It’s The Old Adage: "Facts Don't Lie, People Do" … We Get What We Deserve

by Frank Thomas

Our political system is so immersed in a sea of lies and distortions, not helped by a professionally uncritical, fact misinformed media that too often plays the snappy, surface, hype-searching analysis and interview game, ‘What do you think? And now what do you say to that?’

There are so many areas of factual and biased distortion of the issues, it’s hard to know where to begin. First, as Clinton rightly stated, the central issue facing us today is, “What is The Role of Government?” Republicans as supply-siders favor an inactive government, tax cuts  (lavishly for high income groups) overly decreased government spending, no unions, privatization of social nets like Medicare, minimum regulations of financial sectors under a small government … all to spur dynamic economic growth. The Democrats favor an active government, basic social nets to protect vulnerable people in bad times and volatile markets, government spurring of infrastructure development, quality public health care and  education, R&D, progressive taxes and closing tax loopholes … all to support middle class progress, a fair playing field, and to contain, if not reverse, our burgeoning, destabilizing income inequality gap.

Let’s review some facts/myths in three federal government areas under different presidencies: federal revenues and spending, federal debt, and job creation. Tables 1-3 confirm numerous recent studies showing persistent US poverty, falling middle class wages, rising inequality, and NO correlation between the top tax rates and economic growth (see “Taxes and the Economy: An Economic Analysis of the Top 10 Tax Rates Since 1945” by the Congressional Research Service (CRS) and the recently released Economic Policy Institute “Review of US Economic Policy”).

I.   Federal Revenues and Spending

 We are programmed that Democrats are high government spenders, big tax and budget deficit ‘producers’ and Republicans are low government spenders, low tax and budget deficit ‘producers.’ TABLE 1 examines these “Myths” (Source: Office of Management & Budget):

________________________________________________________________________
 

TABLE 1:  FEDERAL REVENUES, SPENDING, DEFICITS AS A % OF GDP  (Average Year of Presidential Terms Starting With President Carter)

                                        Revenues          Spending        Deficit(-) 

Prior 30 Year Average      18.1%                19.6%               -1.5%

(1950-1980)

Carter:    1977-80               18.4%                 20.8%                -2.4%

Reagan:  1981-88                18.2%                 22.4%                -4.2%

Bush  I:   1989-92                17.9%                 21.9%                -4.0%

Clinton:  1993-2000             19.0%                 19.8%                -0.8%

Bush  II:  2001-08                17.6%                 19.8%                -2.2%

Obama: 2009-12 (a)         15.4%                24.4%              -9.0%

(a)    Obama inherited Bush II’s mini-depression with the following carryover Deficits: 

           2009                        -10.1%
           2010                          -9.1%
           2011                          -8.7%
           2012                          -8.5%

_____________________________________________________________________________ 

Conclusions: One can hardly call Reagan and Bush I low spending and deficit producers during their presidential terms. Neither reduced the size of government as government spending was well above the 40-year average largely from an ‘explosion’ in defense spending (as generally happens under all Republican administrations). Despite aggressive tax cutting under a false “trickle down” theory, Reagan couldn’t stop the accelerating budget deficits hitting a high of 6.3% in 1983, 5% the next 3 years, falling to 3.1%  by 1988 … largely due to several tax increases by Reagan to counter lost revenues from slashing the top rate from 78% to 28%. While Reagan reduced middle class income taxes, he sharply increased regressive payroll taxes. On the positive side, he also made it tougher to evade taxes and reduced many tax breaks and shelters. He realized his initial sharp tax decreases with exceptionally high defense spending were producing serious budget deficits and debt levels despite expanded job opportunities.

Clinton’s term showed that sound tax policy and moderate spending can go hand-in-hand to produce budget surpluses. Bush II learned nothing from Reagan’s mistakes and gyrated the top rate down while loosening financial regulations even further causing one of the most dangerous recessions since the Great Depression. Little wonder tax revenues dropped during his term of office, and declined further into Obama’s presidency as consumption plummeted well below 70% of GDP.

Then comes Obama’s massive drop in revenues and increase in spending. Now we are drowning in the political chicanery so corrupting our political system … where Republicans accuse Obama of huge deficits and debt levels arising in 2009, 2010, etc., which are mainly a carryover of the Bush Administration’s mini-depression. The same applies to the substantial national debt increase Obama inherited from Bush II’s mini-depression. 

                                       II.    Federal Debt

The political right puts all the blame on Obama for our continuing high deficits and debt levels. My view is they could have been far worse without the $800 billion Obama stimulus and far less if the stimulus had been in the order of $1.2 - 1.5 trillion. Obama can be rightly blamed for not fighting all-out for more stimulus funds, for stoppage of foreclosures, and for not increasing the top income rate back to 39.5% - a very weak compromise he allowed himself to be blackmailed into to keep unemployment benefits going for the innocent victims of Bush II’s mini-depression. As all studies have proven, the tax revenue carryover loss of the Bush tax cuts and drug industry subsidies is in the order of magnitude of $2 trillion during Obama’s term.

Let’s put the historical debt trends into perspective as we have done very briefly for federal revenues, spending, and deficits under different presidents.

________________________________________________________________________

TABLE 2:  GROSS PUBLIC DEBT ON A FISCAL BASIS IN $BILLIONS  (At End of Budget Term In September)

                                  End of Budget       Term Increase
                                   Term - Sept            Amount            %

Carter:  9/30/81               $998                       --                -- 

Reagan: 9/30/89              $2,857                 $1,859           186%

Bush I:  9/30/93               $4,411                  $1,554            54%

Clinton: 9/30/2001           $5,804                  $1,396            32%

Bush II: 9/30/09               $11,910                $6,106           105%

Obama: 9/30/12              $16,000                $4,090            34%

Obama: 9/30/13 est.     $17,000               $5,090             43%         

Source: Treasury Direct, Office of Management & Budget

________________________________________________________________________

NOTE:  Monthly statistics are quoted from January, as US presidents take office at the end of January and from September, as this is the last month of the federal fiscal year. In other words, the election in November will cause a president to take office at the end of January and begin the process of passing a federal budget which takes effect in the October following the election year. Calculating financial data and job growth in this way for each president is in fact more accurate.

Conclusions:  When one properly allocates the carryover deficits and debt caused by Bush II’s policies over 8 years, then one comes to a more accurate picture of Obama’s so-called “bad management” of our nation’s finances. Don’t get me wrong. The numbers are AWFUL! But they are, relatively speaking, from a president faced with the worst structural financial crisis in 70 years, much LESS AWFUL than the debt/deficit results under Bush II’s administration. The spiraling of deficits and debt beginning in 2003 and splurging in big measure over into Obama’s term were a result of Bush tax cuts, drug firm subsidies, wars in Iraq/Afghanistan and the Great Recession.

Again, this is not to say that Obama has sufficiently and forcefully stood up to mitigate the mess he inherited from Bush II. He has given in far too easily to Republican blackmail that started the very first month of his presidency – when both Boehner and McConnell announced they would vote against all of his Administration’s key policy measures (including job stimulus) to ensure his defeat in 2012.       

But, as Table 2 shows, the percentage debt increase over Obama’s one-term was even less than Bush I’s term where there was but one small, short war with Iraq’s Saddam Hussein. But, if elected to a 2^nd term , Obama and the Democrats must come up with many more aggressive actions to keep the national debt from exploding further to the $20 trillion range by the end of his second term. This will definitely mean raising taxes on incomes – perhaps rate-stair-stepped progressively, for example,  on income  above $350,000, above $750,000, above $1,500,000, etc. Despite all of Romney’s blarney that a Defense budget of 5.5% is hardly adequate although it’s almost bankrupting us, Obama needs to get defense expenditures down to less than 4.0% of GDP (as Clinton did) over a 5 year span. This is still DOUBLE the approximate 2% of GDP expenditure rate of all other advanced countries.

Let’s now review the historical job creation trends also on a fiscal basis under various presidents as shown in Table 3.

_______________________________________________________________________

TABLE 3:  JOB CREATION ON A FISCAL BASIS – END OF BUDGET TERM  SEPTEMBER

                                               Jobs Created 1977 - 2012

Democratic Presidents              31,459,000  =  63% over  16 Years

Republican Presidents               18,097,000  =  37% over  20 years

 

Carter:               09/30/81                7,939,000

 

Reagan:    1^st Term  09/30/85           6,552,000

                2^nd Term 09/30/89          10,303,000

Sub-total                                       16,855,000

 

Bush I:                09/30/93               3,032,000

 

Clinton:    1^st Term  09/30/97           12,060,000

               2^nd Term  09/30/2001        8,106,000

Sub-total                                        20,166,000

 

Bush II:      1^st Term  09/30/05           2,716,000

                 2^nd Term 09/30/09          -4,506,000   

Sub-total                                         -1,790,000

 

Obama:          09/30/12                     3,354,000

 

Source:  BLS Data, Wikipedia          

Conclusions:  It’s seems that politicians, media, and some esteemed economists have missed the true dimensions of Obama’s turnaround of the enormous job destruction carried out under Bush II and inherited by Obama as more accurately shown on a fiscal basis in Table 3. Viewed this way: job creation went from a Positive 8.1 million under Clinton’s  2^nd term to a NEGATIVE 4.5 million under Bush II’s 2^nd term back to a Positive 3.3 million in Obama’s 1^st term of 3 years to date on a fiscal basis. Going from a positive 20 million job gain in 8 years under Clinton to negative -1.8 million job loss in 8 years under Bush II – a net disastrous negative job loss reversal of over 22 million to a positive 3.3  million jobs creation in 3 years under Obama is a significant turnaround to say the least. NOT ENOUGH BY FAR, BUT HEADED IN THE RIGHT DIRECTION!            

Let’s not forget that those officially unemployed peaked at an astronomical 15 million PLUS another 8 million underemployed as a result of the Great Recession under Bush II. During the long mini-depression created under Bush II’s watch, corporations have been taking advantage of the crisis to reduce permanently a large number of people through automation – adding more pain upon pain to the middle class while the Republican Congress has been thwarting Obama’s efforts at greater stimulus, leaving quantitative easing by the Federal Reserve as a last resort.

Given these huge comeback structural obstacles, Obama has got to step on the gas pedal for ever stronger job creation in the 200,000 a month range.  Companies are not going to do it. Only government can provide the scale of job and demand push needed through infrastructure investments. Considering the enormity of the financial chaos and job loss situation Obama inherited – the worst in 70 years - Obama has not done badly but must continue to do better.

Facts don’t lie, people do. A fact many politicians and media pundits have amorally become comfortable with in a winner-take-all political system where “hype is life” and brain dead “one-liners” sway the faithful and undecided.

POSTSCRIPT

There’s another indoctrinated MYTH out there we struggle to deal with objectively in our broken social-economic system … namely:

• High taxes discourage growth and productivity: As noted, the non-partisan Congressional Research Service research has found little relationship between the top tax rate and economic growth. In fact, 65 years of tax cuts for the wealthy have produced US “record inequality, not prosperity,” with one of the world’s highest Gini coefficients, says the CRS report.

In a recent Foreign Affairs publication, “America the Undertaxed” by Andrea Campbell, similar research also found little correlation across OECD countries between taxes as a percentage of the economy and the size of the economy itself, as measured by per capita GDP. Nor, according to this research, is there a high correlation between taxes as a percentage of GDP and the annual rate of economic growth. As Andrea Campbell says in her Foreign Affairs article:

 “With the earnings of the top one percent mostly back to their pre-recession levels ( vs. persistent stagnation for the middle class), past experience suggests that a tax hike today would NOT severely damage the economy, and productivity might even rise with the security and investments that government spending can provide.

“In proposing a mix of options to regenerate the economy, from reducing spending to raising revenue, policymakers are confronting the reality of US fiscal policy: compared with its counterparts among the advanced nations, the US tax system collects little revenue, poorly redistributes that money across the population, and is mind-bogglingly complex.”                       

This is something the Romney types unabashedly and greedily exploit to the HILT! Reagan is no doubt shouting from his grave at the elite tax avoiders and tax loophole chasers costing our nation at least $200 billion in lost tax revenues yearly!

POSTSCRIPT …Continued

May I add a few other important facts relating to how the our nation manages corporate tax revenues?

It’s important to point out that US corporate tax revenues as a source of total federal taxes has plunged from 30% in the 1950s to 10% today as described by Andrea Campbell in Foreign Affairs and my writing some time ago,  “Our Fiscal-Economic Quagmire: Some Solutions.”

Despite a seven percentage point higher gap between US top statutory corporate tax rate and the OECD average rate, the US EFFECTIVE corporate tax rate has trended around 13% vs. an  OECD rate of 16%. Thus, US business effective tax rates are LOWER, NOT HIGHER than OECD average rates, contrary to what right wing conservatives often claim.

Why is this so?

Over the years, our US superbly complex tax code has evolved through persistent insider lobbying efforts with the result that statutory rates are applied to a much narrower base of taxpayers or taxpayer adjusted income base – both for individual and corporation incomes. This has been achieved by an intricate, multi-layered barrage of business tax credits, subsidies, and breaks – all of which are practically non-existent in the tax codes of the mature OECD countries.

So, the self-serving right wing political cry the Romneys and Ryans join in that US businesses are disadvantaged with much higher effective tax rates vs. their European business competitors is simply NOT TRUE. What is TRUE, however, is that total European taxes – federal, state, and local – are higher than those of the US as a % of GDP. For example, in 2006 before the financial-crisis startup and long recession, US total tax revenues were 28% of GDP vs. 35% for the OECD. This difference was and continues to be mainly due to Europe’s very stable flowing VAT consumption tax … a tax America doesn’t have. But, over the decades for the majority of the better performing and mature European countries, this total tax difference as a % of GDP has Not resulted in notably lower GDP growth rates vs. the US. Quite the opposite, higher total taxes and clever redistribution of same have resulted in a broad-based sharing in societal progress with relatively low income/wealth gaps between the top 10% and everyone else. 

The mature OECD countries visibly and concretely see a larger share of their tax bill fairly redistributed across all regions and income classes in the form of:

• up-to-date, well-maintained infrastructures; family allowances for children and vacations; quality low-cost, standard basic health care for All with a range of standard-defined upgrades; excellent affordable coverage for serious disabilities; humanly decent unemployment compensation.

POSTSCRIPT  #3

This post Obama-Romney 1^st debate Postscript addresses the  falsehoods and non-sequiturs of the Romney/Ryan cut taxes and spending plan that they say will be Deficit Neutral – a Supply Side Economics cure-all to speed up GDP growth … a policy which caused federal debt under Reagan to increase 186% over 8 years.

Romney and Ryan’s 20% across the board tax cuts without increasing deficits raises an obvious question no one in the media or informed commentator world has raised or put in proper historical perspective.  

Romney assumes that simplifying the tax code (good idea) and then implementing broad-based aggressive tax rate cuts involving trillions in annual federal tax losses will be offset by reducing tax deductions and loopholes he doesn’t identify. BUT, this is mathematically impossible  without dramatic reductions in spending (except Defense) including social nets. This approach, says Romney and Ryan, insures a DEFICIT-NEUTRAL  effect … in other words, the same amount of taxes will be paid on a FISCAL year basis. 

The trillion dollar question is: HOW WILL THIS DEFICIT-NEUTRAL PLAN IMPROVE CONSUMER SPENDING, PRIVATE INVESTMENT and JOBS IF ABSOLUTE EFFECTIVE TAXES PAID REMAIN THE SAME ??

Romney is selling the same economic miracle Reagan/Bush II sold the public: across the board tax and spending cuts to increase jobs without gyrating deficits and debt, nor income/wealth gaps. Romney says under his plan the top 5% will still pay 60% of all income taxes as they do now … but he forgot to say 60% on a much higher total income under 20% lower marginal rates and ever lower rates on capital gains. Remember, the top 5% earn most of their income from capital gains and exploiting offshore tax havens and loopholes. 

We are hearing the same Reagan supply-sider economic assumptions that large reductions across the board in marginal income tax and capital gains tax rates will stimulate more jobs by investments while lowering deficits and debt. Table 4 captures the TRUE Big Picture of what actually happened to tax revenues, spending, deficits, debt, job creation during Reagan’s presidency.

 TABLE 4: 1981-89 FISCAL YEAR RESULTS DURING REAGAN’S TERM 

                            DATA EXPRESSED AS A % OF GDP

                                           1981-1989 Ave.     40 Year Ave.

Federal Revenues                   18.2%                            18.1%

Federal Spending                    22.4%                            20.6%

Deficit                                     -4.2%                             -2.6% 

Federal Debt (a)                    53.1%                           32.5% (Carter’s Term)

Federal Debt Increase (a)      186% = +$1.9 Trillion                             

(a) As of 9/30/1989                                                                                        

-----------------------------------------------------------------

Average Annual Jobs Increases On A Fiscal Year Basis

Carter                                2.0  Mil.

Reagan                               2.1  Mil.                                            

Bush I                                 0.4  Mil.                                                             

Clinton                                2.5  Mil.                                                                

Bush II                               -0.2  Mil.                                                      

Obama                               1.1  Mil. (10/30/2009—09/30/2012)

Sources: Office of Management & Budget, BLS

Reagan’s Supply Side Economic plan increased average annual job growth 2.5% or 2.1 million per year vs. 4% or 2.0 million per year  under Carter. Reagan´s job growth was no better than Carter´s. GDP growth did improve to an average of 1.8% vs. 0.8% under Carter with high inflation.  BUT, Reagan´s supply-side Trickle/Down  tax-spending-cut panacea caused annual deficit and debt levels to MUSHROOM … despite his commendable efforts eliminating tax loopholes and tax avoidance and changing his mind to increase taxes 11 times to offset resulting big deficits! In fact, average yearly growth in federal tax revenues hardly grew as a % of GDP from levels that would have been realized WITHOUT the substantial net tax rate decreases.

Furthermore, unlike Reagan promised, spending INCREASED as a %  of  GDP, not helped by an explosion in Defense spending. Not surprisingly, INCOME and WEALTH GAPS began widening considerably between the top 10% and all other Americans.                      

So, just the OPPOSITE revenues, spending, deficits, debt results and  income-wealth gaps happened from what Reagan  promised – and what Romney and Ryan are now similarly promising with their extreme supply side economics of across the board tax rate cuts under the premise of being Deficit Neutral … an equitable income improvement for the middle class. These were exactly Reagan words when he said a just economic model is one where, “A rising tide lifts all boats.”

WHY DID ABOVE NOT HAPPEN?

Reagan’s income tax rate cuts grossly favored the rich who did not trickle down their expanded income/wealth to the middle class. His lowering of income tax rates for the bottom 50% was largely offset by higher regressive payroll taxes for lower income people. Tax revenue growth remained stagnant and the rate of spending did NOT decline.                                                                                      

His administration forgot, as Romney and Ryan are now conveniently forgetting, that the so-called Laffer Curve  – or  better said, Laugher Curve which is the foundation of conservative Supply Side Economics theory – even warns that tax rates too high or too small will NOT MAXIMIZE tax revenues and hence GDP growth.  Reagan´s extreme tax-cut  policies fell into this trap despite curtailment of tax avoidance schemes and later raising taxes 11 times. Spending grew at a much faster rate and revenues at a very slow rate … with resultant deficit/debt acceleration.                  

What happened under Reagan´s policies was rightly called VOODOO ECONOMICS by President Bush I.  In fact, Reagan´s goal of lowering taxes to increase revenues was seen by many experts as really a “smokescreen” for starving the government of revenues, thus making it smaller.”  Does this right wing goal sound familiar today? Government under Reagan  as well as Bush I, Clinton, Bush II did NOT get smaller.                              

Reagan´s  `Trickle Down´ idea that we can produce our way out of economic slowdowns by seriously cutting taxes and spending without exploding deficits and debt proved FALSE.  California is on the constant edge of bankruptcy from extreme Supply Side Economic policies inherited from Reagan. Such a  policy idea is only TRUE  or possibly has merit  in a HIGH TAX environment which the US does not have and in a WEAK TAX REDISTRIBUTION environment which the US does have. Lowering US taxes under these two  conditions to the right level could indeed raise net tax revenues and cause improved  economic growth. BUT today, the US already has very LOW EFFECTIVE corporate and individual marginal tax rates compared to most developed countries.                                                                               

Compounding the false basis of the Romney/Ryan plan is a gross underestimation of the depth of the Bush mini-Depression hangover where companies are still engaged in balance sheet deleveraging, canceling/delaying investments, laying off/outsourcing workers all to increase cash; and  consumers are still struggling to pay off debts and increase savings; banks building up profit reserves, management bonuses, and restraining lending.                                                                   

This all means the Romney/Ryan (Reagan-like) plan of significantly reducing tax rates for personal income, capital gains, and corporate income will have a negligible effect on job growth, deficit and debt reduction even more so when incorporating idea of OFFSETTING resulting tax revenues losses in the trillions with comparable reductions tax deductions and loopholes.                                          

What Romney/Ryan are in effect saying is that total absolute federal taxes will remain the SAME.                                                              

How does this benefit anyone? Will still unknown Giant cuts in discretionary spending and social nets do the job – e.g., privatize Medicare, repeal Affordable Health Care Act while getting rid of Dodd-Frank financial regulation legislation? How to do this without worsening a slow but steadily improving economic situation and without exacerbating deficits and debt as Reagan and particularly Bush II did on a perilously grand scale? How to do this without investing in infrastructure and education? Without forcing states to increase taxes and fees to compensate for vastly reduced federal support?                      

Romney and Ryan remain vague and obtuse about these questions while comforting those understandably skeptical with the words,  “Trust us, we intend to work together with our Democratic colleagues across the table to arrive at a suitable compromise.”

This brings me back to my original trillion dollar QUESTION:

HOW WILL THIS `DEFICIT-NEUTRAL´ PLAN IMPROVE CONSUMER SPENDING, PRIVATE INVESTMENT and JOBS … IF ABSOLUTE EFFECTIVE TAXES PAID REMAIN THE SAME??

Tales of High Finance

Published on Saturday, August 18, 2012 by Common Dreams

by Christopher Brauchli

[I]dealism in our time has been shoved aside, and we are paying the penalty for it.
— Alfred North Whitehead, Dialogues of Alfred North Whitehead, Prologue

It’s time for an update on activities occurring in the world of high finance. Several newsworthy events have occurred.

In June 2012 ING, a unit of ING Groep, one of the largest banks in the Netherlands, agreed to pay penalties of $619 million dollars for using the U.S. banking system to transfer billions of dollars for the benefit of Cuban and Iranian customers in violation of U.S. imposed sanctions. Eager not to be outdone by its competitor, Standard Chartered Bank agreed in early August to pay $340 million to the state of New York to settle allegations that for seven years ending in 2007 it helped Iran launder $250 billion. Although the amount laundered is substantial, the fine is not, when compared with the fine imposed on ING.

In February five major banks agreed to a $26 billion settlement of claims filed by 49 attorneys general and the District of Columbia as penance for the abuses perpetrated by them during the foreclosure crisis, one of the hallmarks of which was the notorious practice of robo-signing documents filed with the courts to obtain court orders approving foreclosures. The $26 billion comprised a $5 billion fine and the rest involved such things as reducing principal mortgage balances on one million underwater homes, simplifying foreclosure relief, cash payments to some people who lost their homes and assorted other provisions.

Inspired by the big banks, credit card companies have gone down the path pioneered by them. A story in the New York Times reports that in their zeal to collect what they would like to think they are owed in a perfect world, the credit card companies are relying on “erroneous documents, incomplete records and generic testimony from witnesses,” a term that suggests the witness’s testimony had more to do with establishing a debt than establishing the truth. A judge in Brooklyn who handles up to 100 credit card collections a day estimates that 90% of the credit card collection cases he hears are flawed but since the debtor makes no court appearance the judge has no choice but to rule in favor of the creditor. Since the investigation in this practice is ongoing, it is too early to say what, if any, fines and penalties may be imposed on the miscreants.

For creativity, none of the activities described above can hold a candle to a debt collection company with the singularly appropriate name of Accretive Health that has just agreed to pay $2.5 million for its amazingly creative debt collection activities. (The definition of “accretive” is “growth or increase in size by gradual addition.” In the case of Accretive the corporate emphasis is on “addition” rather than “gradual” and has nothing to do with health.)

Accretive specializes in collecting medical debt and is among the largest companies with that specialty. Among its clients are two hospitals in Minnesota along with some of the largest hospital systems in the country. In April 2012 the attorney general for Minnesota released documents that described Accretive’s collection practices. According to a report in the New York Times, Accretive’s employees can be found anywhere from the emergency room to the obstetrics department. Representatives of the collection company have told incoming patients that they cannot receive treatment without settling outstanding accounts or, in some cases, paying in advance for services they hope to receive. Patients who were contacted said they were surprised to learn that people in the emergency room they assumed were hospital employees were in fact collection agents.

In July the attorney general announced a settlement that, among other things barred Accretive from doing business in that Minnesota for two years. In announcing the settlement she described some of the tactics that were used by Accretive in order to convince patients that they should pay their medical debts. A mother was told she could not see her daughter who was being treated for a drug overdose until she had given the representative her credit card. A new mother was told she could not take her newborn baby home unless she produced a credit card and paid $800, a sum it turned out she did not owe. Having ransomed the child, it took her months to get her money back from Accretive. In announcing the settlement with Accretive that includes a fine of $2.5 million the Minnesota Attorney General said: “A hospital emergency room is a place of medical trauma and emotional suffering for patients and their families. It should be a solemn place, not a place for a financial shakedown.” Accretive may well be surprised by that harsh rhetoric. It has probably liked the symmetry of a collection agency being made whole at the same time a person in need of emergency care seeks to be made whole. It may well think a system that doesn’t appreciate such symmetry is flawed. Others may think Accretive is flawed. Readers may decide for themselves who’s right.

Christopher Brauchli is a columnist and lawyer known nationally for his work. He is a graduate of Harvard University and the University of Colorado School of Law where he served on the Board of Editors of the Rocky Mountain Law Review. He can be emailed at brauchli.56@post.harvard.edu. For political commentary see his web page at http://humanraceandothersports.com

Emerson Meets Wall Street: Systems Think, the Citizen Dividend, and Economic Democracy

by D.R. Thompson

from The Potomac, Winter 2009

RECENT ECONOMIC TURMOIL BEGS the question of whether or not we've created, with globalization, a monster without limits – as Joe Biden would say 'Wall Street Gone Wild'. It seems a lot of intelligence combined with a great deal of greed has created an interesting financial box for the world to work itself out of. At work is an economic syndrome that cannot be looked at in black and white terms and is thus outside of the realm of most politician's tendency toward a mythic, good-guy/bad-guy outlook. Over the past 25 years, certainly since Reagan's term in office, we have been intent on dumbing down our politicians and our population just during the historic period when we most need them to be able to think. Yet, there is still hope, because enlightened thinking is no longer a luxury, but a requirement of survival as the world of high finance is being stripped bare of any vestige of credibility.  

What I'll explore here are three areas that could lead us toward a more humane and enlightened economics. These include the power of systems thinking, the benefits of a citizen's dividend and/or basic income guarantee for all people, and the general concept of Economic Democracy. A quick google on any of these terms can provide a good basic education, as well of a sense of the individuals promoting these ideas, should after reading this essay you find the concepts intriguing.   

At the root of the current conundrum we face is our economic crisis. However, it is my feeling, and I believe many Obama supporters would agree with me, that the issues outside of our economy are of equal importance. These would include, listing the most pressing: energy, the environment, poverty, debt addiction, and the failings of health care, and education to name a few. And that is just within the United States. My sense is that to address the fundamental economic issues outside of the others would be a mistake, and that we indeed have a unique opportunity with this election to start on a path of sustainable economic growth that in fact enhances the environment, empowers individuals, creates 'green' prosperity, enlarges the educational opportunities for our young people, and enables us to address the problems of health care. But 'how' do you ask can we do all of this at once?   

A rigorous approach to systems thinking would eliminate what seem intuitively to be bad choices from our policy making process.

First, we need to think systemically. There has in fact developed an incredible discipline in recent years surrounding systems thinking and, for lack of a better term, systems architecture, which can be applied to just about any set of human problems. One area where systems thinking and architecture has been aggressively applied to a very complex issue relates to aviation. The result of that architectural effort has been the Federal government-led NextGen initiative that is 25 years in scope and deals with very complex modeling of relationships between private-public sector relationships, technology, the physical air space, and a myriad of other factors. This complex, interrelated and interdependent modeling effort has then resulted in a series of concrete changes and proposals for how aviation, air traffic control and the relationship between regulation and free markets can work most effectively. Run through the Joint Planning and Development Office (JPDO), this cross-agency effort can and should be replicated for the economy. What we need, in other words, is a Joint Economic Policy Office that coordinates economic policy between agencies, including Health and Human Services, Education, Environment, Housing, Labor and so on.   

Such a cross-agency systems approach can and should be accomplished with our economic sphere in such a way to confront the myriad of problems we have confronting us. So, for example, we should not "knee jerk", respond in a linear fashion to our energy problems by freeing up all of the drilling off shore. To do so is not thinking systemically, as it is painfully obvious that fossil fuels are not the primary energy of the future, i.e., are not a viable sustainable energy solution. So why pursue that path if it is so obviously not a long-term option? A rigorous approach to systems thinking would eliminate what seem intuitively to be bad choices from our policy making process.   

But doesn't this smack of central planning? It won't be as long as the primary goal is to develop policy, and policy by its nature is not intended to dictate, but to influence change.   

Ultimately I believe systems thinking as related to the economy can lead us to an enlightened economics that frees us from our current plight of perpetual war, perpetual debt and perpetual prescriptions by seeing that solutions to war, economy, debt and ultimately even human and environmental health are inter-related.   

Debt-addiction, over the long term, is unsustainable as it ultimately leads to a society of debt-slaves, even if this was not the intended result. In the end we wind up with a society which is literally unable to function outside of debt ...

As a first step, I believe that systems analysis must be applied to our current method of debt-financing the gap between what we can produce and what we can consume. I for one am convinced that what could result from such an analysis is some kind of minimum guaranteed income program that rewards the overall productivity of our society and world rather than 'punishes' us through interest. This idea should be put through the rigors of systems analysis, along with many others such as social investment programs and public-private banking, all part and parcel of what the next wave of progressive policy that many call 'Economic Democracy', some of which is already showing up in legislation backed by the Bush administration and Henry Paulson, as he pushes to solve the finance mess through social investment in private sector banking. Bush himself even coined the term 'democratic capitalism' when referring to the agenda of the upcoming Bretton Woods-like economic summit (Bretton Woods being the financial confab in 1944 that defined the post WWII financial environment) – a series of meetings that will bring together world leaders in late 2008 (including President-Elect Obama) in an attempt to further shore up a new approach to the economic crises.   

The idea of a citizen dividend and/or basic income guarantee (aka, BIG) within the context of economic democracy assumes that all people have equal worth and that all individuals, simply by being born into the planet, should be able to live without, for lack of a better term, having to pay for the right to do so. Thus all eligible individuals should receive a BIG and/or dividend that would, over time, empower what is currently a perpetually indebted underclass. Debt-addiction, over the long term, is unsustainable as it ultimately leads to a society of debt-slaves, even if this was not the intended result. In the end we wind up with a society which is literally unable to function outside of debt and where everyone is caught in its web, even, strangely, many of the wealthy themselves. What needs to be questioned, therefore, is the validity of our current form of finance capitalism, and whether or not this is the only viable model at our disposal. If we decide on a different path, it is completely within our power to re-organize the debt relationships, our banking systems, our methods of valuing labor, our ideas related to 'productive' and 'non-productive' endeavors in order to shift from debt-addiction to citizen ownership and economic empowerment. All of this could be done equitably, with currently wealthy individuals being compensated for any losses and in many ways benefiting enormously by increased consumer spending.    

To be sure, inflation can show up in economic bubbles (i.e., stock or real estate), as we have just experienced – but a systems approach could model what those potential bubbles are and address potential problems with sound policy.

How do we afford this? First, revenues currently tagged for Social Security and unemployment would be moved to an overall BIG fund. Second, income tax for most individuals and families could be removed and replaced by other revenue sources, including an intelligent licensing and fee system for corporations (many use fees essentially allow corporations to pay nominal fees for access to publicly-owned resources), coupled with a consumption tax and/or corporate assets tax that would allow the government to intelligently influence consumerism and/or invest in industries that provide a green-friendly and sustainable future. Moreover, above a certain level, individuals and families could still pay a progressive income tax (for example, families making over $250K a year). The fact of the matter is that a large swath of low-income persons already pays no income tax at all.   

In addition to the revenue sources already mentioned, a citizen dividend could also be funded through government ownership of large percentages of the financial system (currently part of the Bush/ Paulson financial plan!), essentially channeling those profits across a broader level of society -- profits that had heretofore been limited to a minute percentage of the population.   

Finally, we can work on an international level to create a regime of debt forgiveness for all nations, including industrialized nations such as the United States, in order to free future generations from the shackles of unsustainable levels of debt.   

Wouldn't this all be inflationary? Well, if George Bush's policies have done anything they have proven the resiliency to the modern, productive economy to inflation; Bush has, in fact, increased federal spending more than all previous president's combined, with relatively minor impact on inflation. To be sure, inflation can show up in economic bubbles (i.e., stock or real estate), as we have just experienced – but a systems approach could model what those potential bubbles are and address potential problems with sound policy. The same level of analysis could be brought to bear on the international impact of such policies. But if we taxed intelligently, and channeled our resources from a war economy to a green and virtual one (i.e., the next level of the Internet), we could very well find ourselves with increased wealth, reduced deficits, massively reduced poverty and homelessness, and a much happier population that should able to avoid to a great extent the downside of inflationary bubbles.   

To date, all efforts toward guaranteed income, including Social Security and minimum wage, have been beneficial for the overall health of the economy, and Social Security has helped millions of retirees be more self reliant.

Would such a scheme actually cause more wealth? The recent economic stimulus package (2008) showed us an example: while GDP shot up by at least a couple of percentage points due to the stimulus totaling perhaps 'a mere' US $100 billion in Q2 2008, massive injections of liquidity by the Fed into the banks totaling hundreds of billions (through loans) during the same period did not serve to un-freeze the credit crisis because the banks did not loan the money but instead hoarded cash, and we were in recession by Q3. In short, people spend money out of necessity while institutions, if lacking direction, will tend to hoard cash out of fear. This behavior is a microcosm of what a larger move toward economic democracy could portend if we unleashed the power of a citizen dividend.   

But do we 'deserve' a basic income and/or dividend? According to Robert Reich in his recent book Supercapitalism:   

"… American is far more productive than it was 20 or 30 years ago, but most people haven't shared much in the bounty. Had median household income continued to grow at the same rate productivity grew over the last thirty years, the typical household would have earned $20,000 more in 2006 than it actually did."   

Given these statistics, a $10,000 or even $20,000 a year citizen dividend begins to make sense.   

At first, one might cringe that the idea of a citizen dividend and/or BIG is too socialistic and makes the people much too dependent on what is essentially a universal government handout. But in a technological age, when the romanticized, agrarian-based self-reliance of some of our country's founding philosophers such as Thomas Jefferson and Henry David Thoreau is an ideal that can never be realized, a universal, no strings, guaranteed income could in fact create a kind of stable post modern economic infrastructure that would actually enable self reliance to flourish. To date, all efforts toward guaranteed income, including Social Security and minimum wage, have been beneficial for the overall health of the economy, and Social Security has helped millions of retirees be more self reliant. Why shouldn't a citizen dividend/BIG have the same kind of effect? By the way, early in the last century conservatives fought long and hard against both Social Security and minimum wage, and certainly have been proven wrong on both fronts.   

Economic Democracy is simply an extension of the legacy of Emerson, Thoreau, Gandhi, Martin Luther King Jr. and others into the realm of economics ...

One of America's most influential (and underrated ) philosophers, Ralph Waldo Emerson (the founder of the American Transcendentalism), would in fact be quite happy with a movement toward a citizen dividend, basic income guarantees and Economic Democracy, even though at first this might not seem intuitively evident. I mention Emerson because he is so important and fundamental driver of many modern progressives, including (in the United States) Martin Luther King Jr. and thus Barack Obama. Emerson, along with David Thoreau, literally forged the unique idea of American individualism and self reliance, the use of non-violence as a tool for change, and the need for education to be student-centered. And this student-centered approach to education is one of the primary reasons why American society is so much looked to for creativity and innovation. It is largely because Emerson and his colleagues stressed the right and need for individual awakening and the nurturing of the individual creative spirit that the American society is so innovative and flexible. And it is because of the creativity and flexibility that we have fostered Universities that are, to this day, the best in the world and, one could argue, the direct result of the educational influences of the Boston intellectuals such as Dickenson, Alcott (both Bronson and his daughter Louisa May), and Channing that were the contemporaries of Emerson's.   

Economic Democracy is simply an extension of the legacy of Emerson, Thoreau, Gandhi, Martin Luther King Jr. and others into the realm of economics (Gandhi, King and Thomas Paine in fact supported a guaranteed minimum income!), allowing us to create a bedrock of economic freedom and stability, enabling people to pursue a variety of individual goals outside of those that are 'productive' in the eyes of those that control capital. By creating an guaranteed national citizen dividend, quite contrary to creating a citizenry content to 'live off the dole' people would instead turn to a myriad of business, creative and personal pursuits that will in turn generate massive economic growth in areas that are fostered by the desires of individuals for personal fulfillment, a movement toward green economics and virtual economics, and away from the shallow, consumerist, controlling and profiteering agendas of a the capitalist elite. While a majority of people would use the dividend as a supplement to a larger income (thus the idea of 'living off the dole' is a myth), many would also pool their resources and begin, for example, communities dedicated to local and individual improvement, philosophy and the arts, alternative universities and media (all via a new level of the Internet, AKA Internet II), and a plethora of other enterprises as yet unknown that could be steered, with enlightened leadership, toward a sustainable future. Even if a section of the population chose simply to live off of their guaranteed income, those people would by design need to choose a simple, more environmentally friendly lifestyle – maybe not such a bad thing in our current age. Moreover, less people in the labor pool could force more innovation through more production software (empowered by Internet II) and other advances in technology such as robotics.   

In short, many biases against so called 'socialist' ideas are cultural, and are the result of an implicit, long-term propaganda effort that allows the purveyors of the economic status quo to control the range of and access to ideas via the media.

Again, this is not socialism in the Soviet style. Why? First, and foremost, while any dividend or BIG would be guaranteed, the government would not directly influence how it was spent. This makes it, in this sense, a market stimulus that would drive market demand. It is only because the American population has been force fed by the current, corporate-owned media to fear of anything hinting at the socialized, and that most truly progressive economic ideas are completely locked out of the debate within the mass media, and as a result that people are clueless as to range of options in front of them. With the Internet, and its democratization of ideas, many people have been supplementing their corporate media experience with Internet searches that broaden their perspective and allow them to see that there are indeed alternatives to the current system of finance capitalism that is patently unsustainable even in the eyes of a ten year old. Even some of the pundits of the corporate mass media are getting that point, whether that is Lou Dobbs or Glen Beck of CNN or those within Fox News and MSNBC. And while Glen Beck and Fox News would not necessarily support the ideas of Economic Democracy, they should certainly respect the choice of the people to head in that direction.   

In short, many biases against so called 'socialist' ideas are cultural, and are the result of an implicit, long-term propaganda effort that allows the purveyors of the economic status quo to control the range of and access to ideas via the media. Rather than trap people in the false promises of credit-laced prosperity which creates an incredible reliance on the financial services sector, becomes demeaning to people over time, and creates an ever-growing reality of income inequality, why not provide basically a no-strings applied grant or dividend that, coupled with an intelligent morphing of bankruptcy laws into debt forgiveness programs – including debt forgiveness on the national level – becomes a de facto investment in people that will mitigate income disparities and, ironically, as described, create a better opportunity for overall prosperity than we currently have. We can look to the third world to micro-lending and grants as examples as to what people can do if given even a modicum of support and incentive. Moreover, it is precisely this investment in people and their potential that Emerson and Thoreau would support, because it is the power of the individual that they sought to unleash. Certainly Emerson would cringe if he were to learn that we launch our best, young, university-trained minds into the workforce and their post-educational life not with a sense of hope and opportunity, but often saddled with huge educational debt, sometimes mounting to hundreds of thousands of dollars!   

We should move forward with these ideas now, and create an economic future for ourselves and our children that is worth living. I for one am sick of watching the DOW move up and down 500 points on a regular basis like some annoying child trying to constantly get my attention. It's time to wake up and smell the credit card offer for what it was and, as adults, introduce some much-needed maturity into the playground.

The ideas of Economic Democracy will not eliminate individualism, self reliance and capitalism. Rather, they will enhance individual potential and democratize capitalism much as the Internet is and will continue to democratize media and is itself an experiment in the power of individualism. And the result will be for the benefit of the many over the long term.   

It is time we "reset" the world economy and shape a new model of market-based, hybrid public-private social capitalism, and do it quickly for the sake of our long term survival.   

Martin Luther King Jr. spoke of this kind of hybrid or balanced economy:   

"Communism forgets that life is individual. Capitalism forgets that life is social, and the Kingdom of Brotherhood is found neither in the thesis of Communism nor the antithesis of Capitalism but in a higher synthesis. It is found in a higher synthesis that combines the truths of both".   

And it is a stable synthesis of the social and the individual economic requirements that we should focus on moving forward, for our emphasis on the short term, while seeming to be quite the joy ride to some, has left the rest of us holding the proverbial bag. We might look back to Martin Luther King Jr., and forward to Barack Obama and Congressional progressives, for those ideas.   

In 2006, the basic income guarantee was in fact proposed on the national level by State Representative Bob Filner (D-CA) as H.R. 5257, supported by author Matthew Rothschild. Moreover, economists such as John Kenneth Galbraith and even Milton Friedman have supported the idea of BIG.   

We should move forward with these ideas now, and create an economic future for ourselves and our children that is worth living. I for one am sick of watching the DOW move up and down 500 points on a regular basis like some annoying child trying to constantly get my attention. It's time to wake up and smell the credit card offer for what it was and, as adults, introduce some much-needed maturity into the playground.  

  For further reading you can Google: Economic Democracy, Citizen Dividend, Basic Income Guarantee (BIG), Systems Thinking

A Generation Hobbled by the Soaring Cost of College

By ANDREW MARTIN and ANDREW W. LEHREN

Published: May 12, 2012 by the New York Times

ADA, Ohio — Kelsey Griffith graduates on Sunday from Ohio Northern University. To start paying off her $120,000 in student debt, she is already working two restaurant jobs and will soon give up her apartment here to live with her parents. Her mother, who co-signed on the loans, is taking out a life insurance policy on her daughter.

“If anything ever happened, God forbid, that is my debt also,” said Ms. Griffith’s mother, Marlene Griffith.

Ms. Griffith, 23, wouldn’t seem a perfect financial fit for a college that costs nearly $50,000 a year. Her father, a paramedic, and mother, a preschool teacher, have modest incomes, and she has four sisters. But when she visited Ohio Northern, she was won over by faculty and admissions staff members who urge students to pursue their dreams rather than obsess on the sticker price.

“As an 18-year-old, it sounded like a good fit to me, and the school really sold it,” said Ms. Griffith, a marketing major. “I knew a private school would cost a lot of money. But when I graduate, I’m going to owe like $900 a month. No one told me that.”

With more than $1 trillion in student loans outstanding in this country, crippling debt is no longer confined to dropouts from for-profit colleges or graduate students who owe on many years of education, some of the overextended debtors in years past. Now nearly everyone pursuing a bachelor’s degree is borrowing. As prices soar, a college degree statistically remains a good lifetime investment, but it often comes with an unprecedented financial burden.

Ninety-four percent of students who earn a bachelor’s degree borrow to pay for higher education — up from 45 percent in 1993, according to an analysis by The New York Times of the latest data from the Department of Education. This includes loans from the federal government, private lenders and relatives.

For all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000, the Federal Reserve Bank of New York reports. Average debt for bachelor degree graduates who took out loans ranges from under $10,000 at elite schools like Princeton and Williams College, which have plenty of wealthy students and enormous endowments, to nearly $50,000 at some private colleges with less affluent students and less financial aid.

Here at Ohio Northern, recent graduates with bachelor’s degrees are among the most indebted of any college in the country, and statewide, graduates of Ohio’s more than 200 colleges and universities carry some of the highest average debt in the country, according to data reported by the colleges and compiled by an educational advocacy group. The current balance of federal student loans nationwide is $902 billion, with an additional $140 billion or so in private student loans.

“If one is not thinking about where this is headed over the next two or three years, you are just completely missing the warning signs,” said Rajeev V. Date, deputy director of the Consumer Financial Protection Bureau, the federal watchdog created after the financial crisis.

Mr. Date likened excessive student borrowing to risky mortgages. And as with the housing bubble before the economic collapse, the extraordinary growth in student loans has caught many by surprise. But its roots are in fact deep, and the cast of contributing characters — including college marketing officers, state lawmakers wielding a budget ax and wide-eyed students and families — has been enabled by a basic economic dynamic: an insatiable demand for a college education, at almost any price, and plenty of easy-to-secure loans, primarily from the federal government.

The roots of the borrowing binge date to the 1980s, when tuition for four-year colleges began to rise faster than family incomes. In the 1990s, for-profit colleges boomed by spending heavily on marketing and recruiting. Despite some ethical lapses and fraud, enrollment more than doubled in the last decade and Wall Street swooned over the stocks. Roughly 11 percent of college students now attend for-profit colleges, and they receive about a quarter of federal student loans and grants.

In the last decade, even as enrollment at state colleges and universities has grown, some states have cut spending for higher education and many others have not allocated enough money to keep pace with the growing student body. That trend has accelerated as state budgets have shrunk because of the recent financial crisis and the unpopularity of tax increases.

Indentured Servitude for Seniors: Social Security Garnished for Student Debts

by Ellen Brown, May 13, 2012 from Nation of Change

Security program…represents our commitment as a society to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.  

-- President Jimmy Carter, December 20, 1977.

[This law] assures the elderly that America will always keep the promises made in troubled times a half century ago…[The Social Security Amendments of 1983 are] a monument to the spirit of compassion and commitment that unites us as a people.

-- President Ronald Reagan, April 20, 1983.

So said Presidents Carter and Regan, but that was before 1996, when Congress voted to allow federal agencies to offset portions of Social Security payments to collect debts owed to those agencies. (31 U.S.C. §3716).  Now we read of horror stories like this:

I’m a 68 year old grandma of 2 young grandchildren. I went to college to upgrade my employment status in 1998 or 1999. I finished in 2000 and at that time had a student loan balance of about 3500.00.

Could not find a job and had to request forbearance to carry me. Over the years I forgot about the loan, dealt with poor health, had brain surgery in 2006 and the collection agents decided to collect for the loan in 2008. 

At no time during the 6-7 year gap did anyone remind me or let me know that I could make a minimum payment on the loan. Now that I am on Social Security (have been since I was 62), they have decided to garnishee my SS check to the tune of 15%.

I have not been employed since 2004 and have the two dependents . . . .  I don’t dispute that I owed them the $3500.00 but am wondering why they let it build up to somewhere around $17,000/20,000 before they attempted to collect. 

Her debt went from $3500 to over $17,000 in 10 years?!  How could that be?

It seems that Congress has removed nearly every consumer protection from student loans, including not only standard bankruptcy protections, statutes of limitations, and truth in lending requirements, but protection from usury (excessive interest).  Lenders can vary the interest rates, and some borrowers are reporting rates as high as 18-20%.  At 20%, debt doubles in just 3-1/2 years; and in 7 years, it quadruples.  Congress has also given lenders draconian collection powers to extort not just the original principal and interest on student loans but huge sums in penalties, fees, and collection costs.

The majority of these debts are being imposed on young people, who have a potential 40 years of gainful employment ahead of them to pay the debt off.  But a sizeable chunk of U.S. student loan debt is held by senior citizens, many of whom are not only unemployed but unemployable.  According to the New York Federal Reserve, two million U.S. seniors age 60 and over have student loan debt, on which they owe a collective $36.5 billion; and 11.2 percent of this debt is in default.  Almost a third of all student loan debt is held by people aged 40 and over, and 4.2% is held by people over the age of 60.  The total student debt is now over $1 trillion, more even than credit card debt.  The sum is unsustainable and threatens to be the next debt tsunami.

Some of this debt is for loans taken out years earlier on their own schooling, and some is from co-signing student loans for children or grandchildren.  But much of it has been incurred by middle-aged people going back to school in the hope of finding employment in a bad job market.  What they have wound up with is something much worse: no job, an exponentially mounting debt that cannot be discharged in bankruptcy, and the prospect of old age without a social security check adequate to survive on.

Gone is the promise of earlier presidents of a “commitment to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.”  The plight of the indebted elderly is reminiscent of the Irish immigrants who came to America after a potato famine in the 19th century, who were looked upon in some places as actually lower than slaves. Plantation owners kept their slaves fed, clothed and cared for, because they were valuable property.  The Irish were expendable, and they were on their own.2

It is obviously not a good time to raise interest rates on student debt, but they are set to double on July 1, 2012, to 6.8%.  Many lawmakers in both parties agree that the current 3.4% rates should be extended for another year, but they can’t agree on how to find the $6 billion that this would cost.  Republicans want to take the money from a health care fund that promotes preventive care; Democrats want to eliminate some tax benefits for small business owners.

Congress cannot agree on $6 billion to save the students, yet they managed to agree in a matter of days in September 2008 to come up with $700 billion to save the banks; and the Federal Reserve found many trillions more.  Estimates are that tuition could be provided free to students for a mere $30 billion annually.  The government has the power to find $30 billion -- or $300 billion or $3 trillion -- in the same place the Federal Reserve found it: it can simply issue the money.

Congress is empowered by the Constitution to “coin money” and “regulate the value thereof,” and no limit is set on the face amount of the coins it creates. It could issue a few one-billion dollar coins, deposit them in an account, and start writing checks. 

But wouldn’t that be inflationary?  No.  The Fed’s own figures show that the money supply (M3) has shrunk by $3 trillion since 2008. That sum could be added back into the economy without inflating prices.  Gas and food are going up today, but the whole range of prices must be considered in order to determine whether price inflation is occurring.  Housing and wages are significantly larger components of the price structure than commodities, and they remain severely depressed.

There is another way the government could find needed funds without raising taxes, slashing services, or going further into debt: Congress could re-finance the federal debt through the Federal Reserve, interest-free.  Canada did this from 1939 to 1974, keeping its national debt low and sustainable while funding massive programs including seaways, roadways, pensions, and national health care.  The national debt shot up only when the government switched from borrowing from its own central bank to borrowing from private lenders at interest.  The rationale was that borrowing bank-created money from the government’s own central bank inflated the money supply, while borrowing existing funds from private banks did not.  But even the Federal Reserve acknowledges that private banks create the money they lend on their books, just as central banks do.

U.S. taxpayers now pay nearly half a trillion dollars annually to finance our federal debt.  The cumulative figure comes to $8.2 trillion paid in interest just in the last 24 years.  By financing the debt itself rather than paying interest to private parties, the government could divert what it would have paid in interest into tuition, jobs, infrastructure and social services, allowing us to keep the social contract while at the same time stimulating the economy. 

For students, at the very least the bankruptcy option needs to be reinstated, usury laws restored, predatory practices eliminated, and the cost of education brought back down to earth.  One possibility for relieving the burden on students would be to give them interest-free loans.  The government of New  Zealand now offers 0% loans to New Zealand students, with repayment to be made from their income after they graduate.  For the past twenty years, the Australian government has also successfully funded students by giving out what are in effect interest-free loans.  The loans in the Australian Higher Education Loan Program (or HELP) do not bear interest, but the government gets back more than it lends, because the principal is indexed to the Consumer Price Index (CPI), which goes up every year. 

Predatory lenders are keeping us in debt peonage through misguided economics and bank-captured legislators.  We have people who desperately want to work, to the point of going back to school to try to improve their chances; and we have mountains of work that needs to be done.  The only thing keeping them apart is that artificial constraint called “money”, which we have allowed to be created by banks and let out at interest when it could have been created by public institutions for public purposes, either by direct issuance or through publicly owned banks.  We just need to recognize our oppressors and throw off their yoke, and the good times can roll again.