California Free Press

'Bombshell': Internal Docs Highlight Flaws in Student Debt Case Now Before Supreme Court

 

Activists rally outside the U.S. Supreme Court on February 28, 2023 as the justices began hearing oral arguments in a pair of cases on student debt relief.

(Photo: Kent Nishimura/Los Angeles Times via Getty Images)

"These emails confirm what every honest observer has long understood: Missouri's lawsuit is just a partisan hack job aimed at getting the right-wing attorney general's name in the paper," said one expert.

by Brett Wilkins

from Common Dreams, June 16, 2023

As the U.S. Supreme Court nears a decision on President Joe Biden's student debt relief proposal, an advocacy group on Friday published internal records revealing the "anxiety and confusion" of staffers at a loan company critics say is being spuriously used by Republican attorneys general in their attack on the president's plan.

Internal documents from the Missouri Higher Education Loan Authority (MOHELA)—a private state-chartered lender—obtained by the Student Borrower Protection Center (SBPC) under Missouri's Sunshine Law show that agency employees were confused by then-state Attorney General Eric Schmitt's lawsuit and argument that Biden's relief plan could harm the company.

"MOHELA's own staff agree—the case currently before the Supreme Court that is holding up debt relief for tens of millions of borrowers lacks standing, and it should be tossed aside."

That dubious claim—an independent report showed that not only would MOHELA not be harmed by Biden's proposal, it would make more money—forms the purported basis for MOHELA's standing in the suit, Biden v. Nebraska. Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina are suing the administration, alleging that its debt forgiveness plan violates the U.S. Constitution's separation of powers and Administrative Procedure Act.

MOHELA is not even a plaintiff in the case, a fact that critics including progressive U.S. Rep. Cori Bush (D-Mo.) have cited in calling for the dismissal of the suit—one of two student debt relief cases the high court is expected to rule on sometime this month.

"These emails confirm what every honest observer has long understood: Missouri's lawsuit is just a partisan hack job aimed at getting the right-wing attorney general's name in the paper," Ella Azoulay, SBPC's research and policy analyst, said in a statement.

"MOHELA's own staff agree—the case currently before the Supreme Court that is holding up debt relief for tens of millions of borrowers lacks standing, and it should be tossed aside," Azoulay added.

"Just out of curiosity, is MOHELA apart [sic] of the lawsuit going on to prevent the loan forgiveness?" wrote one employee in an email. "Are we the bad guys?”

Another staffer wrote that Schmitt's lawsuit"has nothing to do with us,except that they're using the [Missouri] consumers harm as standing."

Indeed, in an October 2022 letter to Bush—who had inquired about the lender's relationship with the attorney general's office—MOHELA said its "executives were not involved in the decision" by Schmitt to sue the Biden administration.

"I think MOHELA was opposed to this move, but couldn't do anything about it," wrote yet another staffer. "The Mo. state AG needed to claim that our borrowers were harmed for standing, so they're making us look bad by filing this not only with Mo. on it, but especially bad because they filed it in Mo."

During oral arguments in February, the Supreme Court's right-wing supermajority signaled it is poised to side with Republicans challenging the debt cancellation program and strike it down.

Last week, a trio of progressive U.S. lawmakers—Reps. Ro Khanna (D-Calif.), Alexandria Ocasio-Cortez (D-N.Y.), and Ayanna Pressley (D-Mass.)—implored the Biden administration to have a backup plan to aid student borrowers if the Supreme Court kills its debt cancellation proposal.

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Brett Wilkins

Brett Wilkins is a staff writer for Common Dreams.

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Off the Top of My Head

The Solution to the Debt Crisis: Tax the Rich

by John Lawrence

Republicans want Biden to cut back spending. Democrats should want to increase taxation on the rich. The debt can be ameliorated either by reducing spending or increasing taxation. The debt is a result both of overspending and undertaxing. For all those who care about the size of the debt, they should be as concerned about undertaxing to the same extent they are concerned about overspending. Since the three wealthiest people in the United States — Bill Gates, Jeff Bezos, and Warren Buffett —now own more wealth than the entire bottom half of the American population combined, a total of 160 million people or 63 million households, the obvious culprit here is not overspending, it's under taxation of the rich. In addition to taxing the incomes of the rich, there needs to be instituted a wealth tax. Whoa, you say, this would discourage entrepreneurs who are responsible for inventing the next big thing which is what contributes the most to the American economy. We don't need another gadget; we need all hands on deck to fight global warming. This is being done by Joe Biden's infrastructure bill which is a government, not a private, solution. Private entrepreneurship is less important in a period of global warming than large scale government solutions. Therefore, discouraging entrepreneurship, except that which supports a solution to global warming, is actually a positive development.

America’s top 25 billionaires — a group the size of a major league baseball team’s active roster —together hold $1 trillion in wealth. These 25 have as much wealth as 56 percent of the population, a total 178 million people or 70 million households. The solution to government debt is to go where the money is and tap that. When asked why he robbed banks, Willie Sutton simply replied, “Because that's where the money is.” By the same token, the solution to the national debt is for the government to go where the money is: billionaires and Forbes 400 corporations. Americans don't need any new gadgets to spend their money on. In the World War II era consumption was both voluntarily and manditorily reduced in order to put more resources into the war effort. The war on global warming is even more important than World War II because, if we lose this war, the survival of the whole human species is at risk. Put simply we need to reduce consumption of the gadgets and entertainment provided by the private sector and increase expenditures on large scale projects which can ameliorate global warming. Of necessity those projects and that spending has to be initiated by government in cooperation with the private sector, but government has to lead the way and provide the money.

Income inequality is a major problem of American society. This problem can be resolved and the resources to prevent global warming provided for by taxing the rich. The problem is to reduce American consumption which is 70% of the US economy and increase government spending as long as that increased spending is spent on the solutions to global warming. At the same time the national debt can be reduced. The national debt in and of itself is not a problem, but interest on the national debt is. There are other solutions to decreasing the interest such as having the Fed create the money by quantitative easing. Instead of the Fed's depositing this money in the accounts of the big banks, it would deposit the money in the Treasury's account. "The whole idea of Modern Monetary Theory is that since a sovereign entity can borrow in its own currency, it can print more money when it needs to pay off all its debt. The central bank just needs to keep interest rates low," says Robert R. Johnson, professor of finance at the Heider College of Business at Creighton University. But there's the rub. As the Fed raises interest rates to control inflation, interest on the national debt also increases. That's why a mechanism needs to be found by which the Fed creates the money to run the government instead of the Treasury borrowing the money.

So in the meantime taxing the rich seems to be the best policy in order to bring the national debt down, to reduce economic inequality and to provide the money for government programs to combat global warming.

Off the Top of My Head

The Sword of Damocles Which is the Debt Ceiling

by John Lawrence

The Federal Reserve can just create the money like they did with quantitative easing. They created the money and gave it to the banks. Now their balance sheet is $8.5 trillion. This is not a debt, but it is similar to the national debt which is $31 trillion. You could say that this $31 trillion is on the US' balance sheet or, similarly, the Federal Reserve has an $8.5 trillion debt. See if the Fed creates money, it's not a debt, but if the US Treasury needs money, it has to borrow it. What if no one wants to buy Treasury bonds? Well then, the Fed would buy them itself and just create the money to buy them and add it to its balance sheet. The debt ceiling is such a useless and bogus aspect of American democracy and has the potential of causing the US to default on its debts with disastrous consequences. The Fed never has to pay down its balance sheet nor does the US ever have to have its taxpayers pay off the national debt. The national debt is just an accounting mechanism as is the number on the Fed's balance sheet. As a sovereign fiat currency, the US can just create money. That's not to say that it should do this hap hazardly or willy nilly. But there was a lot of willy nillyness in the years after the Great Recession in 2008 when the Fed kept on quantitatively easing and creating money and giving it to the banks. However, the Fed is prohibited by law from creating money and giving it to poor people. Of course.

So why is the national debt so high? The simple answer is tax cuts for the rich. Americanprogress.org reported:

Tax cuts initially enacted during Republican trifectas in the past 25 years slashed taxes disproportionately for the wealthy and profitable corporations, severely reducing federal revenues. In fact, relative to earlier projections, spending is down, not up. But revenues are down significantly more. If not for the Bush tax cuts and their extensions—as well as the Trump tax cuts—revenues would be on track to keep pace with spending indefinitely, and the debt ratio (debt as a percentage of the economy) would be declining. Instead, these tax cuts have added $10 trillion to the debt since their enactment and are responsible for 57 percent of the increase in the debt ratio since 2001, and more than 90 percent of the increase in the debt ratio if the one-time costs of bills responding to COVID-19 and the Great Recession are excluded. Eventually, the tax cuts are projected to grow to more than 100 percent of the increase.

So why not tax the hell out of the rich, flood the coffers of the Treasury with cash and pay down the national debt? Or at least tax the rich as Biden has proposed doing? Biden famously changed the narrative from "tax and spend" to "no one making less than $400,000 will get a tax increase." So Republicans always want to reduce taxes on the rich and reduce or eliminate social programs which benefit mostly the poor and middle class. The alternative, which Democrats should loudly state, is to raise taxes on the rich and enact programs which benefit the poor and middle class. Voila, the budget is balanced. Raise taxes a little more on the rich and the national debt is paid down. Actually it doesn't matter what the figure of the national debt is. Foreign holders of US Treasury debt could be paid off tomorrow by virtue of the fact that the Fed could just with a few keystrokes on a computer create the money and take it on their balance sheet. This money would then be added, again with a few keystrokes on a computer, to China's or Japan's account at the Fed thus zeroing out the debt. Instead the US government goes on paying interest on its debt which could turn into a problem as it crowds out other budgetary items. Clearly, this is no way for the US government to conduct its business.

Off the Top of My Head

Nice Economy You Have Here. It Would Be a Shame If Something Happened To It

by John Lawrence

The debt ceiling is not mentioned in the Constitution. It's an act of Congress, the Public Debt Acts of 1939 and 1941. Congress authorizes the amount of spending that can be undertaken by the US government, and also that, if there is not enough money in the Treasury for this spending, the Treasury is authorized to borrow the money by issuing Treasury bonds. However, the amount of borrowing cannot exceed the debt ceiling. If the amount of money the government has already been authorized to spend exceeds the debt ceiling, there is no other alternative except to raise the debt ceiling. Otherwise, the US government will default on its debt. The question arises why is there a debt ceiling at all? If Congress didn't authorize the spending of the money in the first place, then there would be no need to borrow at all or if Congress wanted to limit borrowing, it shouldn't authorize a budget which exceeds that amount. This is just another double bind in the law which makes the US "rule of law" dysfunctional. The 14th amendment of the Constitution says, "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." So there you have it: the government by law must pay its bills and the government by law cannot exceed the debt ceiling. It's what you call a contradiction. You would think that the provisions in the Constitution would take precedence over an act of Congress.

So that gets us to the minting of the trillion dollar coin. Although it's up to Congress to raise the debt ceiling, the Treasury Secretary could order the mint to produce the trillion dollar coin which could then be deposited in the Federal Reserve and voila, the US government could pay its bills. The Federal Reserve transfers all money deposited with it for taxes and the sale of Treasury bonds to the account of the Treasury of the US. The legal basis for the concept of a trillion-dollar coin arises from the fact that the United States Mint is authorized to produce platinum coinage without any restrictions as to the number of coins produced or their face value. Alternatively, President Biden could declare that the 14th amendment authorizes him to pay the bills. This is a major dysfunction of the US government and the US version of democracy. Republicans are eager to use their power to disrupt the fact that money was authorized by the previous Democratic controlled House and now it's up to them to raise the debt limit. So you might ask why hasn't Congress gotten rid of the debt ceiling provision that it enacted in the Public Debt Acts?The reason is that even when both Houses of Congress were controlled by Democrats, as they were in the first two years of the Biden administration, Republicans in the Senate filibustered any attempt by Democrats to do that or much of anything else. The filibuster represents more dysfunction. US democracy is hamstrung because one party refuses to govern in a sensible and cooperative manner. Their interest is only in defeating Democrats not in doing what's best for the American people.

Paul Krugman wrote in the New York Times:

The issue at hand is whether to raise the federal debt ceiling. This ceiling is a peculiar — and destructive — quirk of the U.S. budget process. Here’s how it works: First, Congress passes legislation that determines federal spending and tax collection. This legislation may lead to a budget deficit. Whether that’s a good idea is beside the point: Congress made its choices, and the Treasury Department must do whatever is necessary to honor duly enacted legislation, which may require borrowing to cover the deficit.

But under current law Congress must also vote a second time to authorize federal borrowing by raising the limit on the allowed amount of debt. And we’re only a few months from the point where America won’t be able to keep paying its bills — that is, spend the money Congress has already told it to spend — unless Congress votes to raise that limit.

Yet now House Republicans aren’t willing to raise the limit unless they are given policy concessions they would never be able to enact via the normal legislative process. Basically, they’re saying, “Nice economy you have here. It would be a shame if something happened to it.”

The US Constitution needs a complete overhaul in which stupid conflicts like these over the debt ceiling are ironed out. Besides the Federal Reserve can just create money like it did with Quantitative Easing. The US dollar is a sovereign, fiat currency. It's only dysfunctional laws that prevents it from doing so. During quantitative easing the Federal Reserve bought Treasuries and other securties and gave the cash that was generated to the big banks to keep them afloat. So it could buy Treasuries and give the money to the US Treasury. It would be using the same quantitattive easing it used to keep the banks float in order to keep the government afloat. Problem solved and it wouldn't mean taking on more debt.

Off the Top of My Head

Joe Biden's Trillion Dollar Budget Plan

by John Lawrence

Don't worry about how to pay for it. Any nation with a sovereign currency (let alone the world's reserve currency) and a floating exchange rate can never go bankrupt. The Federal Reserve can issue the money. In fact in the real world this is exactly how it works for any budgetary legislation passed by Congress and signed by the President. Let's say, for example, Biden's $2 trillion infrastructure plan is signed by him into law. The US Treasury has an account at the Federal Reserve bank. Let's say there is only a trillion dollars in that account. What happens next is that the Fed just augments the Treasury's account by a trillion dollars by means of a few keystrokes on a computer. Bingo the government now has all the money it needs to spend on infrastructure. It didn't have to receive tax money in advance of the money it needed to spend. At the same time the Treasury Department creates a trillion dollars worth of Treasury bonds and sells them to the primary dealers who are required by law to buy them. These are mainly big Wall Street banks. These banks sell the bonds in the secondary market. If they can't find enough buyers, the Fed "adds liquidity to the market" by taking the Treasuries onto its balance sheet in return for marking up the Wall Street banks accounts at the Fed with the appropriate amounts of cash. Now everybody is happy. The US government has the money it needs in its Treasury's account at the Fed. The Wall Street banks have plenty of liquidity in their reserve accounts at the Fed, and the amazing thing is that it didn't require any money from additional taxes.

Another amazing thing is that most politicians are totally ignorant about how government financing actually works. The Republican Governor of Ohio, Mike DeWine gets on TV and opines about the fact that the US is going into too much debt and how will our grandchildren ever pay it off. "Here in Ohio," I'm paraphrasing," we have to pay our bills and pay down our debts. Every household has to be fiscally responsible and pay their debts." Well households and states are in a different category from the Federal government. They actually do have to pay their debts. So what he is claiming is a half truth. States and households cannot issue a sovereign currency whereas the Federal government can. States and households use the Federal government's currency. The big lie, however, is that the US government has to pay off its debts. It never does, and no entity can force it to do so. The other constraint that Larry Summers and others worry about is inflation or currency devaluation. Inflation could be a problem, and that problem, should it arise, can be dealt with by sucking money out of the economy by means of taxes. Biden's plan to tax the rich will suck some of their superfluous wealth out of the economy thus forestalling inflation while tending to reduce the runaway economic inequality that is now threatening democracy in the US.

The Federal government is not like a household or a state. Households and states actually do have to pay back the money they borrow plus interest. That's why it's so important that the various COVID rescue plans provide the states and municipalities with money. Otherwise, they could become financially insolvent and go bankrupt like Orange County in California did a few years ago. Birmingham, AL also got itself in hot water and went bankrupt. Countries in the Euro zone have the same problem as states in the US. They gave up their sovereign currencies when they joined the EU. So now countries like Greece and Italy have to beg the European Central Bank for relief, relief they could have provided for themselves if they had retained their sovereign currencies like Britain did. Britain will not have any problem with financial shortages because, like the US, its government can issue whatever currency is deemed necessary to weather any storm.

So in addition to the Big Lie that Trump won the election, politicians of both parties are perpetrating another Big Lie that the US actually has to borrow the money to pay for Biden's trillion dollar infrastructure and safety net programs. Some politicians, like Bernie Sanders and AOC, actually know the truth, and, evidently, they have convinced Joe Biden thereof as well although they won't actually come out and say it to the media: the US government can just issue money into the private economy. It doesn't need to borrow it or even tax for it in advance in order to spend. So the real policy of the Biden administration is not tax and spend. It's spend and maybe tax later, but target those taxes on the wealthiest among us. As opposed to the Republican philosophy of giving tax breaks to the wealthy and taking the social safety net away from the poor.

Off the Top of My Head

How to Throw Republicans for a Loop: Biden Should Propose Tax Breaks for the Middle Class and Tax Increases for the Rich

by John Lawrence, February 25, 2021

The proper use of taxation is to reduce income and wealth inequality. Instead Republicans use tax breaks to primarily benefit the rich. Democrats should modify this playbook. The increasing income and wealth inequality among American citizens cries out for redress. Robin Hood needs to come out and play. There's no law that says tax breaks have to go primarily to the wealthy or be based on some proportionate percentage over all incomes. Democrats should get into the tax break game too. We know that taxes aren't necessary to fund the government. Sure they're part of it, but the government can spend whatever Congress authorizes regardless of whether or not there is money from taxes to pay for it. The shortfall is made up with Treasury bonds most of which end up on the balance sheet of the Federal Reserve just like the Fed used Quantitative Easing (QE), a fancy name that signified that the Fed issued trillions of dollars to bail out the Wall Street banks in 2008. In that case the Fed took MBSs (Mortgage Backed Securities), most of which were worthless onto its balance sheet as "collateral." The Fed can lend money to any entity it likes as long as it takes collateral onto its balance sheet. Much of this collateral is worthless such as defunct MBSs and even old bicycles!

In the article, "Modern Monetary Theory and the Changing Role of Tax in Society," by Andrew Baker and Richard Murphy, published online by Cambridge University Press we find the following:

"Tax is traditionally viewed as the main funding mechanism for government spending. Consequently, social policy is often seen as something determined and constrained by tax revenue. Modern Monetary Theory (‘MMT’) presents a reversal of the tax-spend cycle, by identifying a spend-tax cycle. Using the UK as an example, we highlight that one of MMT’s most important, but under-explored, contributions is its potential to re-frame the role of tax from both a macroeconomic and social policy perspective. We use insights on the money removal, or cancellation function of taxes, derived from MMT, to demonstrate how this also creates possibilities for using tax to achieve social objectives such as mitigating income and wealth inequality, increasing access to housing, or funding a Green New Deal. For social policy researchers the challenge arising is to use these insights to re-engineer tax systems and redesign social tax expenditures (STEs) for creative social policy purposes."

MMT is a game changer. Conventional thinking is that government can only spend money collected from taxes. But that is not how the system really works. As a sovereign currency, the Fed can just create US dollars with a few keystrokes on a computer. The budget deficit and national debt just become accounting entries on the Fed's balance sheet. We are not mortgaging our children's and grandchildren's future. This is money that never needs to be paid back, that our children never need to pay back. China is not holding this debt over our heads; China could be paid back tomorrow if need be. The US government operates on a different set of principles than the US states, European countries in the Euro zone, and households. All these entities do need to pay back loans. The US government does not because it can just create or issue the money which is how the Fed operates on a daily basis. Even local banks create money when a loan is taken out without the need for deposits. They just have to have collateral - usually 10% of deposits - in their reserve account at the Fed. So money can just be created by the Federal Reserve, but, obviously, it does not do so willy nilly. Like alcohol, this facility must be used responsibly. So that is what the debate should be about, not the size of the deficit or the national debt.

The national debt was a problem when the US dollar was on a gold standard. The US promised to redeem dollars - paper currency - for gold up until 1971. Obviously, there was not enough gold if, all of a sudden, China, let's say, wanted to take all its US dollars and demand gold at $35 an ounce. But in 1971 President Nixon took the US off the gold standard. He said the US would forevermore not redeem US currency for gold. At that point the US dollar became a "fiat" currency. That means that a dollar was worth a dollar just because the US government said it was. The US dollar did not become immediately worthless. People continued to use it, and it continued to retain its value vis a vis other currencies. In fact it's the world's reserve currency as Nixon made a deal with the Saudis only to accept payment for oil in US dollars. That alone meant that the other countries of the world needed US dollars if for no other reason than to buy oil. As a matter of fact today most business dealings of foreign countries are settled in US dollars. So the US dollar has a bright future at least for now.

The conclusion is that US households, businesses, US states and European nations that use the Euro need to pay back loans when they borrow money. A nation with a sovereign currency such as the US, the UK, Japan, China and others creates its money when its central bank issues it by means of keystrokes. No one can demand repayment or exchange of dollars for gold or anything else. If China wants to be paid back for the Treasury bonds it holds, the money in its Treasuries (savings) account at the Fed will be debited and credited to its checking account at the Fed. It's as simple as that. That money can be exchanged for Chinese currency on the open market at the prevailing exchange rate. But probably the Chinese would want to keep much of their financial assets in dollars rather than renminbi since their currency is pegged to the dollar and many of their business dealings are settled in dollars.

Off the Top of My Head

The Two Strands of Modern Economic Theory

by John Lawrence, February 12, 2021

Ellen Brown with her book Web of Debt pointed out that public banks could save states and municipalities millions in interest compared to Wall Street banks. She also pointed out that money is created by banks when they make loans with fractional reserve banking. They just create the money with keystrokes; it doesn't come out of deposits. Ergo, all money comes from debt, but that's only half the story. The other strand explains how the Federal Reserve just creates money by keystrokes. In The Deficit Myth, Stephanie Kelton explains how countries with sovereign currencies can create money that really is not debt, despite the fact that conventional thinking says it is. When households or states or countries in the Euro zone take on debt, they do have to pay it back. When countries with sovereign currencies create money, they don't have to pay it back. It's as simple as that.

When European countries gave up their sovereign currencies and adopted the Euro, they gave up the right to create the money they needed to pay bills so they need to borrow on capital markets which can charge them whatever interest they want. This is how Greece and Italy and other European countries got into problems. On the other hand the U.K. which never gave up its sovereign currency can just create the money it needs without going to the debt markets. In the same way Orange County and other US municipalities got into trouble with spiraling debt which had to be paid back. This can get out of hand because the more indebted a debtor gets, the higher interest rate they get charged so that in the worst case they are just borrowing money to pay interest. The US can never get in this debt trap because it never has to borrow money on the open market and the Fed can set interest rates however it wants. Once authorized by Congress and required by law Treasury bonds are issued and can always be paid because the Fed can just create the money to pay them.

Modern Monetary Theory (MMT) has established that deficit spending, whether that comes from tax breaks or government programs or currently for coronavirus relief, is just an accounting entry on the Fed's balance sheet. The national debt never needs to be paid off. Also any country that owns Treasuries - for instance, China - could have them paid off tomorrow if they chose to cash them all in by the Fed just debiting money from the savings account of the People's Bank of China at the Fed and crediting their cash account also at the Fed. Countries with sovereign currencies, ^i.e. the US dollar, the British pound, the Japanese yen etc, can all create money in this way by having their central banks do it with keystrokes on a computer. Greece, Italy, California and New York can't do this because they don't have sovereign currencies.

So there is a difference between debt acquired by households, firms and countries which don't issue their own sovereign currency and countries which have central banks that do. The US Federal Reserve can buy up Treasury bonds as necessary to provide as much money as is authorized by Congress to the US Treasury. By law they can't buy them directly from the Treasury but must buy them on the open market. However, US primary dealers - mainly Wall Street banks - are required to buy them and the Fed can buy them from the primary dealers by providing "liquidity" - dollars which the Fed creates with keystrokes - to the Wall Street banks. The Fed also controls interest rates which at this time are 0.25% or almost zero. So the $1.9 trillion relief package proposed by Biden is no problem either for the US Treasury or the Fed. That money could just end up on the Fed's balance sheet the way the trillions of dollars it created to bail out the Big Banks in the Great Financial Crisis of 2008 did. The fact is that, when the US government deficit spends, that adds money to the private economy, and right now the private economy is hurting because so many are out of work and not able to pay rent or mortgages or car payments. Money added to the economy by deficit spending (deficit being really a misnomer) can be readily absorbed by unemployed workers to pay their bills. The point is that taxes are not necessary for government spending.

So Web of Debt applies to the private economy and The Deficit Myth applies to the national economy. The first book advocates public banking which can save states and municipalities money on interest because they do have to pay their debts. The second book describes how governments with sovereign currencies can just create money which need never be paid off. However, this money creation facility should, like alcohol, be used responsibly; otherwise, inflation can occur. But when huge numbers of people are unemployed and states are having a hard time paying their bills, it is incumbent on the central government to help them. The same applies to European countries in the Euro zone. US lawmakers need to get up to date on how the real economy actually works. In truth Republicans have lost all legitimacy when it comes to their harping on deficit spending.

Off the Top of My Head

Fiscal Conservatism or Saving Prerogatives of the Rich?

by John Lawrence

Republicans in Congress don't want to grant Americans $2000 in COVID relief on the grounds of fiscal conservatism. But their idea of fiscal conservatism has been entirely debunked by Modern Monetary Theory (MMT). There are no negative implications for large deficits as Stephanie Kelton has shown in The Deficit Myth. Since the US dollar is a sovereign currency, it - not the market - sets the interest rate on US Treasury bonds. The money is just "printed" (with a few keystrokes on a computer) by the Federal Reserve and voila! there is money available for any good purpose with one caveat. The physical and human resources must be available to be utilized for constructive purposes in order to not increase inflation. Right now there are plenty of human resources available due to unemployment and there are physical resources which could be used for a green infrastructure program. There is no lack of resources, only a lack of the political will to use them. Since the US GDP is based on 70% consumption, if consumers don't have the mean to consume (money), the US economy will tank while China's economy is surging ahead due to the fact that they got COVID under control early on. Republican concerns about fiscal conservatism are ill founded and obsolete. They want the status quo because it works for the rich ceteris parabus. Here's why according to The Deficit Myth:

"After we examine the faulty thinking underlying these six [deficit] myths and counter them with solid evidence, we will consider the deficits that do matter.The real crises that we're facing have nothing to do with the federal deficit or entitlements. The fact that 21 percent of all children in the United States live in poverty — that's a crisis. The fact that our infrastructure is graded at a D+ is a crisis. The fact that inequality today stands at levels last seen during America's Gilded Age is a crisis. The fact that the typical American worker has seen virtually no wage growth since the 1970s [while China has pulled 850 million out of poverty] is a crisis. The fact that forty-four million Americans are saddled with $1.7 trillion in student loan debt is a crisis. And the fact that we ultimately won't be able to "afford" anything at all if we end up exacerbating climate change and destroying the life on this planet is perhaps the biggest crisis of them all."

Meanwhile, the tax bill signed by Trump in 2017 widened inequality and provided help to those who needed it the least. It also added to the deficit, but that is the least worst thing that it did. Republicans are totally oriented that they must fight against anything benefiting the poor and middle class on the grounds that it adds to the deficit while green lighting anything that benefits the rich and the military-industrial complex. It's really about who holds crucial political power — those representing the rich or those representing the poor and middle class. It's not at all about finding the money or adding to the deficit. The Federal Reserve can print money and give it to banks without any legal or political restrictions. They don't have to ask Congress for permission to do so, and it doesn't add to the deficit. They gave the Too Big To Fail banks $4.5 trillion after the Great Recession which started in 2008. This program was known as quantitative easing (QE). Sure they took onto their balance sheet "collateral" from the banks, most of which was worthless junk and asset backed securities which the banks wanted to get rid of in the first place.

So if the legal restrictions were changed, the Federal Reserve would be able to do Quantitative Easing for the People and not just free lunch for the banks.In the meantime we are stuck with this Kabuki Theater where Congress has to agree to providing the funds which just end up mainly on the Fed's balance sheet anyway and never need to be paid back despite the moaning and crying of Republican deficit hawks. Stephanie Kelton is a deficit owl. She believes in using deficits wisely. If they don't cause inflation (did the $4.5 trillion given to the banks cause any inflation?), deficits can be used constructively to achieve positive goals for the American people in terms of a widened safety net and 21st century green infrastructure.

Off the Top of My Head

The US Central Bank Can Print Money; The State of California Can't

by John Lawrence, December 27, 2020

One of the central tenets of Modern Monetary Currency (MMT) as explained in Stephanie Kelton's book, The Deficit Myth, is that a nation with a sovereign currency can always pay its debts by a few keystrokes on a computer at its central bank - the Federal Reserve in the US' case. A nation or a state without a sovereign currency must pay its debts by taxes or out of income. She dispels the myth that the US government pays its debts out of taxes or by Treasury bonds. However, the state of California must pay its debts the old fashioned way out of taxes and income. This reality hit hard in recent years in the case of Greece which gave up its sovereign currency, the drachma, when its joined the European Union. Unlike the UK which maintained its sovereign currency, the pound, Greece has to borrow money from private investors and pay its debts from the collection of taxes. Eventually, after much hardship the IMF and the European Central Bank helped Greece get back on its feet.

It's a myth that the US national debt must be paid off by our children or grandchildren or that we must suffer because of all the money owed via US Treasury bonds to China or Japan. Unlike Greece which saw its situation go from bad to worse as private investors demanded higher and higher rates of interest, the US Federal Reserve sets the interest rate (currently around zero) on the bonds it offers for sale. Other countries buy them because most of the world's business is conducted in dollars, and those countries need dollars which they get from Treasury bonds to conduct business. The US government is not competing with private corporations for loans because, when it needs money, it just prints it. Right now the way the rules are written the Fed can print money and give it to the banks, the way it did during the Great Recession when it just gave the banking system $4.5 trillion, but it cannot print money and give it to the US government without Congressional approval. It can provide direct relief to the banks, but it cannot provide direct relief to the American people. That's why the COVID relief package is being held up because, even though Congress did give it its stamp of approval, the law also requires that the President sign the bill which he has not.

In "The Deficit Myth" Kelton writes:

You've probably already seen MMT's central insights in action. ... Whenever the topic of Social Security comes up, or when someone in Congress wants to put more money into education or health care, there's a lot of talk about how everything must be "paid for" to avoid adding to the federal deficit. But have you noticed this never seems to be a problem when it comes to the defense budget, bailing out banks, or giving huge tax breaks to the wealthiest Americans, even when these measures significantly raise the deficit.? As long as the votes are there, the federal government can always fund its priorities. That's how it works. Deficits didn't stop FDR from implementing the New Deal in the 1930s. They didn't dissuade John F. Kennedy from landing a man on the moon. And they never once stopped Congress from going to war.

In fact deficits don't matter as Kelton proclaims over and over again in her book. There are limits however. That limit has yet to be met as the huge bailouts of the 21st century for the Great Recession and COVID relief have yet to cause the least bit of inflation. Other big projects like a Green New Deal are pooh poohed by Congress because Congress is controlled by wealthy interests so tax breaks for the rich is no problem nor is going to war which benefits defense contractors, but anything that represents the interests of the average American is not favored by Congress. If and when Congress is controlled by the middle class, we will see large projects which promote the health and welfare of the American people in general and not just wealthy business interests.

The Chinese are building huge infrastructure projects all over China and even the rest of the world with its Belt and Road Initiative. They can do this because the Chinese renminbi is a sovereign currency and the money is available to keep the Chinese people fully employed doing constructive things. They have bought into MMT and know that Deficits Don't Matter. Besides they don't have to subject themselves to the whims of Congress. If the government wants to do it, it's full steam ahead. It seems to have worked for them as they have brought 850 million Chinese people out of poverty in the last 40 years. But as Pew Research reported, "But despite the strong labor market, wage growth has lagged economists’ expectations. In fact, despite some ups and downs over the past several decades, today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers." So to put a fine point on it, 850 million Chinese brought out of poverty in last 40 years; average Americans no wage growth in last 40 years.

It has become clear that the old way of thinking that national deficits have to be repaid out of taxes and Treasury bonds is incorrect. Any country with a sovereign currency can just print money by a few keystrokes on its central bank's computer. The US Fed does just that. The conversion to Green Infrastructure could easily be funded in this way if Congress approved. At the same time many good paying jobs could be created. Instead of competing with China by military threats or sanctions, we could instead compete by building Green infrastructure in the US and the rest of the world. Or maybe we could cooperate in saving the world from the ravages of global warming and also providing the same benefits to the average American which the average Chinese is increasingly able to enjoy.

Off the Top of My Head

Biden Could Eliminate Student Loan Debt on Day 1 by Executive Order

by John Lawrence, December 2, 2020

Total U.S. student loan debt is $1.67 trillion, and 2018 college grads with loans owe $29,200 on average. $1.54 trillion of this is held by the Federal government. The rest is held by private companies. During his campaign, Biden said he would forgive $10,000 of federal student loans as part of his Emergency Action Plan for the economic recovery. He could do even more. He could forgive all government held student loan debt outright. He probably won't do that, but what he might do is lower monthly payments in accordance with monthly incomes. He could also lower interest rates. He also has said that he would forgive more for people who had done or are doing community or national service. Elizabeth Warren in her Presidential campaign said that she would forgive all federal student loan debt on Day 1. Sen. Chuck Schumer, D-N.Y., and Warren in September called on the next president to forgive $50,000 in student loans for every borrower as soon as he entered the White House. In an interview earlier this month with The.Ink, Schumer said Biden could cancel the debt “with the pen as opposed to legislation.” More than 230 organizations and non-profits, including Americans for Financial Reform, the NAACP and the National Consumer Law Center, signed a letter on Nov. 18, calling on Biden to cancel student loans on his first day as president.

It would be appropriate if Joe Biden forgave all student loan debt on Day 1 since he voted in 2005 for the Bankruptcy Abuse Prevention and Consumer Protection Act, a law that made it vastly more difficult for struggling former students to rebuild their lives by discharging the debts and starting over. This was a gift to the credit card companies many of which had given Joe Biden campaign contributions. Many of them are registered or headquartered in Delaware. Biden was even known as the Senator from MBNA. So it's ironic that Biden will be the one to give relief in one form or other to student loan debtors.

What is so pernicious about student loans is that they can be given to anyone without any consideration given to the person's ability to repay, and since they can't be discharged in bankruptcy, the for profit schools piled on encouraging students in subjects which had no financial future to take on as much debt as they wanted. It seemed like a free lunch which is always what debt seems like until it comes time to repay Many students got deferments or forbearance putting off the day when they would have to start paying even further into the future. That made the deal that much sweeter, but to paraphrase James Baldwin, a debt deferred one day becomes a nightmare. When you make a deal with the devil what always happens is that eventually it comes time to pay.

The Guardian reported:

Despite his protestations, it is indisputable that Biden was an avid supporter of the 2005 bill as a whole and of its overall thrust of tightening up the bankruptcy code largely to the benefit of lenders at the expense of distressed families who would find it harder to file for bankruptcy.

“Biden was one of the most powerful people who could have said no, who could have changed this. Instead he used his leadership role to limit the ability of other Democrats who had concerns and who wanted the bill softened,” said Melissa Jacoby, a law professor at the University of North Carolina at Chapel Hill specializing in bankruptcy.

Other leading Democrats and consumer advocates did say no. In the Senate debate on the 2005 bill, Ted Kennedy was scathing about its implications.

“This legislation breaks the bond that unites America, it sacrifices Americans to the rampant greed of the credit card industry,” he said. Kennedy warned that even before the new provision kicked in young people were dropping out of college “because of the costs of student loans – they can’t pay them”.

So now Joe Biden gets a chance to redeem himself. He doesn't need campaign contributions from the credit card companies any more because he will never be in another campaign. He should rise to the occasion and forgive the student loan debt held by the government on Day 1, but he also needs to restore bankruptcy protection for privately held debt. This might require the cooperation of Congress, and, if Republicans maintain control of Congress, they will put roadblocks in the way of everything Joe Biden tries to do. Let's hope that the Democratic candidates in the runoffs in Georgia both win. Only then will Democrats control both Houses of Congress. If that comes to pass, the Senate will have to vote to eliminate the filibuster rule as well. Unless they do that, as long as there is one Republican in the Senate, that Republican will filibuster anything and everything Biden and the Democrats want to do. This is despite Joe's supposed ability to "work across the aisle."

Off the Top of My Head

Increase Taxes on the Rich. Reduce Taxes on the Middle Class

by John Lawrence, October22, 2020

Finally, the Democrats are getting smart. Republicans have won on one issue: reducing your taxes. Unfortunately, they reduce them a lot more on the rich than they do on the middle class. So now Joe Biden has introduced some nuance. Can the American people comprehend it? Reducing taxes on everyone making less than $400,00 per year and raising them on everyone making more than $400,000. What a great idea! What took them so long? It's absolutely necessary if we want to decrease economic inequality which is out of control. So Joe Biden would increase taxes only on the upper 1%. To be among the upper 1%, a family needs an income of $421,926. In terms of wealth the upper 1% owns 38.5% of the nation's wealth. The upper 1% owns more wealth than the bottom 90%. The bottom 80% of Americans are net debtors. Debt is negative wealth; that should be obvious, but many Americans are financially illiterate. Financial literacy should be a course in high school. Wealth and income are two separate but related issues. Middles class Americans who own homes pay a wealth tax: property taxes. Rich people don't pay wealth taxes on most of their assets which are in stocks and bonds.

Wealthier Americans don't spend all their income on consumption. A portion of it just goes to add to their wealth. Middle class and poor Americans spend all their income on consumption, even going into debt to consume. So the wealthy extract rent and interest from the middle class and the poor who devote a huge share of their incomes to rent and interest. Now more than ever, Americans are drowning in debt. Prior to the Great Recession of 2008, many Americans were struggling to keep their heads above water. When the bubble burst, those with the most debt were left drowning in a sea of financial insolvency. While the country has since recovered financially, the COVID-19 pandemic is threatening to derail the economy once more. In order to diminish not only income inequality but wealth inequality, policies should be undertaken to tax both the wealth and income of the wealthy while encouraging the middle class and poor to build wealth and get out of debt. A small financial transactions tax would tax the wealth of the rich which is mostly comprised of stocks and bonds and real estate. If every stock trade were taxed, this would create a huge pool of money which could be spent in more constructive ways than simply adding to the wealth of the rich.

While the rich can go bankrupt and bail themselves out with golden parachutes, most struggling student loan debtors have no such option. The laws preclude them from going bankrupt. They cannot discharge their debts in bankruptcy. In addition to student loan debt, most middle class people who own a home have a lot of mortgage debt. So they don't really own the home; the bank does. They have the privilege of making payments on a home which include a lot of interest. If they are successful in paying off their mortgage, they will have an asset which represents wealth. This is the main way the middle class creates wealth for itself. Unfortunately, this wealth takes a life time to create so is unavailable to most middle class people until it's too late to enjoy it. The good thing though is that their children can inherit it. This represents an intergenerational transfer of wealth so that their children or grandchildren start out not from zero, where most children of the poor start out, but from a positive accumulation of wealth no matter how small.

Since most Americans overconsume and under save in many cases by necessity but in some just by predilection, they have nothing to fall back on when there is a disruption in the economic system like a pandemic. Since American GDP is predicated on 70% consumption, the American economy cannot stay out of recession if people stop consuming. That's why the Republican controlled government, understanding this, came up with the CARES Act. It was not so much out of a concern for the middle class and the poor as it was a consideration to keep up consumption which is essential to maintaining GDP and hence a necessary economic statistic. A Joe Biden administration will get the economy back on the right track which will increase the income and wealth of the poor and middle class while diminishing that of the wealthy. Financial literacy should make clear the importance of not going into debt but of creating wealth no matter what your income statistics are at the beginning of this process.

Off the Top of My Head

Quantitative Easing = Printing Money

by John Lawrence

In her book, "Deficits Don't Matter," author Stephanie Kelton makes the case that we don't have to worry about deficit spending. That's when the US government spends more than it takes in in taxes. So in a sense taxes don't matter either at least as far as balanced budgets go. The US dollar is a sovereign currency. This means we don't have to ask anyone's permission to print money. The US dollar was taken off the gold standard in 1971 under President Nixon. It is a fiat currency meaning that it is not backed by anything other than the word of the US government. The US has experienced the phenomenon of printing money to bail out the banks in the Great Recession of 2008. As of September of this year, the Fed's balance sheet was $7.1 trillion. As of January 2008, the Fed's balance sheet was less than $1 trillion. That means that the Fed has printed money to the tune of over $6 trillion since 2008. Yet there has been no inflation in the US economy which is the danger a lot of economists had predicted from printing so much money.

The Federal Reserve bank can print US dollars just by a few keystrokes on a computer. Approximately $3.5 trillion was printed to bail out the banks during the Great Recession. Another $2.5 trillion has been printed so far to deal with the COVID pandemic. The question arises that, if the Fed can print money any time it wants, why can't there be Quantitative Easing (QE) for the people? In other words, if the Fed can bail out the banks, why can't it bail out the homeless, why can't it bail out the $4 trillion deficit in infrastructure spending, why can't it bail out the hungry and the poor? The answer is that it can do all those things, but this tool, QE, for that is what it is - a tool - should be used judiciously. It should be used to accomplish useful and necessary goals. It should not be used frivolously. It should be used in conjunction with other tools like tax policy. It should be used to promote a full employment economy and achieve socially useful goals.

Tax policy should be used to raise most of the money needed for government spending, and it should be used to redress the balance of the high amount of inequality in the American economy. Taxing the wealthy both in terms of income and wealth while giving tax breaks to the middle class and poor while implementing policies to help them build wealth is one of the major things US Federal tax policy should do. Additional money can be obtained by reducing the bloated military and military-industrial complex budget. If, however, there are additional goals that should be met like hastening the switch to renewable energy or a fuller safety net for the American people, then QE for the people should be implemented. The goal is to have a balanced and useful economy, one that promotes net zero carbon emissions, one that promotes sustainable development on other parts of the world, one that hastens the day when no child goes hungry or uneducated, one that reduces financial inequality.

It has already been demonstrated that deficits don't matter because the Great Recession of 2008 was quelled by the Fed's policy of printing money with no adverse effects on the economy. We have seen again the salubrious effects pf printing money or QE, if you want to call it that, during the COVID pandemic during which another $2.5 trillion has been printed so far. There is no reason why any country that has a sovereign currency like the US does cannot print money. Since the US dollar is the world's reserve currency, other countries and individuals are willing to buy up most if not all of US debt. But if they didn't buy up any of it, the Fed could still take it - or as much as necessary - on its balance sheet. In other words the fact that other countries are buying US debt means that the Fed doesn't have to print as much money. Any country with a sovereign currency can do the same even if their currency is not much in demand on world markets. Since the US dollar is used a lot in world trade, other countries need a supply of US dollars and are willing to buy US debt to get them.

There is no reason why any American should go hungry or be homeless or lack health care. Speaking of health care, Medicare for All would not eliminate private health care as some have suggested. Even with Medicare some doctors refuse to see patients because they don't like the reimbursement Medicare provides. There would be a private market for the wealthy who would just pay out of pocket to doctors who refused to accept Medicare patients. The wealthy don't even need health insurance. It could not be made illegal for such a market to exist. So even though everyone would have health care under a Medicare for All plan, the wealthy would still hire private and presumably better doctors at their own expense.

The policy of the Fed's buying US debt, which is equivalent to printing money, should be used wisely and the money not wasted.  QE for the people combined with the fact that deficits don't matter should lead to a more productive society providing that those additional tools and resources are used in a constructive way and not used to further militarize the society and the world. Any tool can be used for good or for ill. QE for the people could be used for a more healthy, beneficial and well balanced society for all people, could eliminate poverty in the US and the world, bring US infrastructure into the modern era and combat global warming and future pandemics.

Off the Top of My Head

How Ya Gonna Pay For It?

by John Lawrence, July 27, 2020

This is the question they often asked Bernie Sanders when he talked about the various programs that he would seek to implement as President. Programs like a Green New Deal, Medicare for All, forgiveness of all student loan debt, free college, free pre-school etc. Bernie never really had a good answer except for taxing the rich. Well, that was a pretty good answer, but it is not even necessary to raise taxes on the rich to implement all of Bernie's programs. Modern Monetary Theory maintains that the US, as a currency issuer, can just issue the money into the economy. The US dollar, actually a Federal Reserve Note, is issued by the Federal Reserve bank. The Fed has created or "printed" trillions of dollars bailing out the banks in 2008, with its quantitative easing programs since then and now to fund the response to the coronavirus pandemic. It's obvious that the Fed can just print money and add it to the economy. It can buy up the national deficit and debt. There is no need to worry that the US, which has a sovereign currency can ever run out of money. While you and I, states and countries which do not have a sovereign currency or which have loans in other currencies do have to pay them off, any nation like the UK, Japan, the European Union and China do not have to worry about running deficits.

Republicans have traditionally run on the mantra that Democrats will raise your taxes. Remember George H W Bush's pledge: "Read my lips. No New Taxes." Then he did go ahead and raise taxes after he got elected. Well now it is becoming obvious that Americans don't have to worry about new taxes. Social programs as well as the military can be funded by the Fed just printing the money. Of course it would not be a good idea simply to flood the economy with money for which there is no good purpose. That would lead to inflation and to a loss of trust in the dollar. Under current conditions, however, the dollar is the world's reserve currency and that is not going to change any time soon. So prudent and responsible spending is still necessary. It's just that the US does not have to worry about deficit spending. Other central banks like Japan's are doing the same. In fact Japan has a greater deficit to GDP ratio than the US does.

Which brings us to social security. The conventional wisdom is that the Social Security Trust Fund is in deficit and will be exhausted by 2035. Modern Monetary Theory says that this is rubbish. The US as a sovereign currency issuer can never run out of money. Al Gore used to talk about putting social security in a lockbox. Not necessary. It is not even necessary to debit everyone's paycheck to provide revenues for social security. This is not a program that people who have worked all their lives have "earned." It is a social welfare safety net program pure and simple. To apply basic accounting to social security as if people's payroll tax contributions were necessary to fund it is not necessary or desirable. To argue over whether or not the payroll tax needs to be increased or whether the cap (the payroll tax is just taken on the first $137,700 of a person's earnings) needs to be lifted is pointless. There was an old saw about you can't have both "guns and butter." Well, you can have both and tax relief too! We just have to determine the prudent balance between guns and butter based on other criteria. It is not true that there is only a finite amount of money based on tax revenues that determines total expenditures.

Look at reality. The US has been running deficits for years. Now we're running trillion dollar deficits. Is any creditor coming after us? I don't think so. And there is no inflation. So we don't have to limit our thinking to the Federal government's just spending what it takes in in taxes. In fact we haven't done this in years since Clinton balanced the budget when he was President.

Joe Biden has some good benefits proposed for older retirees. From his website:

"The Biden Plan will provide the oldest beneficiaries – those who have been receiving retirement benefits for at least 20 years – with a higher monthly check to help protect retirees from the pain of dwindling retirement savings."

and

"Under the Biden Plan, workers who spent 30 years working will get a benefit of at least 125% of the poverty level"

The poverty level for a single individual is $12, 760. 125% of that is $15,950. So a minimum monthly payment would be $1329. This is over twice what I am now receiving so I would be very happy if Joe is able to implement this plank of his platform. There is no way a person can live on $641 a month. Fortunately, I don't have to. Currently, the minimum monthly payout for a single individual is $510 a month. That amount is approximately $2,000 less than the annual poverty threshold for an aged individual. Bringing monthly payments for the elderly up to snuff is something Republicans have resisted for years. Then, they have tried to defund all social and welfare programs. However, funding for the military-industrial complex has been relentlessly increased come hell or high water. For that expenditure, deficits don't matter. They shouldn't for infrastructure development and social safety net programs either.

Off the Top of My Head

Instead of Helping American Workers, the Fed Prints Money and Swallows US Debt

by John Lawrence, June 25, 2020

The Federal Reserve is printing trillions of dollars and buying US government debt. The market for US Treasury bonds is a hard sell these days because they pay so little interest: 1.37% for a 30 year bond, less than the inflation rate. China is dumping its Treasuries. It will probably accelerate the rate of dumping if tensions between the 2 countries continue. China was the US' largest creditor till recently when Japan took over that role. While the Federal Reserve has set interest rates effectively at zero, credit card companies are still charging as much as 30% interest which creates a huge number of Americans debtors especially when you throw in student loan debt which stands at $1.5 trillion. In fact, revolving consumer credit card debt reached nearly $1.1 trillion at the end of February 2020, according to the Federal Reserve G19 Report. Americans were paying as much as $121 billion in interest and fees combined by the end of 2019. That's no surprise since the Federal Reserve reported in February 2020 that the average interest rate on credit cards reached an astronomical 16.61%. While billionaires can borrow money at zero percent interest, average Americans pay 16% and up.

The effect of zero interest rates on savings accounts and Treasury bonds is to force everyone into the stock market which, although we're in a recession bordering on depression, continues to go up. It is totally divorced from reality; it wouldn't go down even in a depression like it did during the Great Depression. The Fed is keeping it artificially pumped up because so much American wealth is at stake there.

The Fed is buying Treasuries and mortgage backed securities (MBSs) to the tune of trillions of dollars. Wolf Street reported:

In March (2020) and April combined, the Fed monetized 100% of the additional Federal debt. Over the two-month period of March and April, the US government increased its debt by $1.56 trillion (most of it in April); and over the same two-month period, the Fed bought $1.56 trillion in Treasury securities (most of it in March) and thereby monetized 100% of the additional pile of debt during the two-month period.

The Fed is just swallowing all kinds of debt which is enriching the richest Americans and foreign banks even more. Problem is this forced feeding of cash by the Fed is not trickling down to the American people. It is not creating jobs. Now the Fed is creating even more ways to monetize debt by creating Special Purpose Vehicles (SPVs). These SPVs can buy assets the Fed is not allowed to buy, and they can lend to entities and rich individuals to buy certain assets. Under the arcane Federal Reserve Act, these SPVs require taxpayer backing from the Treasury Department to protect the Fed from losses. The SPVs can buy asset backed securities (ABSs) on a non-recourse basis which means that, if there are any problems, taxpayers take the losses. Indirectly via its Special Purpose Vehicles and its Primary Dealers, the Fed can buy even old bicycles, as long as taxpayers take the losses.

Wolf Street reported:

These ABS can be backed by credit card loans, auto loans, student loans, equipment loans, floor plan loans, insurance premium finance loans, some loans guaranteed by the Small Business Administration (SBA), and eligible loans on receivables. The loan amounts will be “equal to the market value of the ABS less a haircut and will be secured at all times by the ABS,” the Fed says.

A little history on Term Asset-Backed Securities Loan Facility (TALF) : At the end of 2010, under orders from Congress, the Fed released data on over 21,000 transactions it performed during the Financial Crisis, which revealed among many other outrageous acts, that the Fed lent to well-connected individuals and all kinds of hedge funds and others under its TALF program so that they would buy certain assets, such as these consumer loan ABS, drive up their prices, sell them to pension funds and others later for a huge profit, and pay back the loans to the Fed.

These well-connected individuals included John A. Paulson, Michael Dell, Christy K. Mack (wife of former Morgan Stanley CEO John Mack), Kendrick R. Wilson III (former Goldman executive and top aide to Hank Paulson Jr.), H. Wayne Huizenga (founder of AutoNation and Waste Management), Jonathan S. Sobel (head of Goldman’s mortgage department), etc. Some very wealthy people made a lot of money off the Fed’s bailout programs even as workers and the economy was in deep trouble.

So the Fed is paying John Paulson money by means of an SPV. Paulson is the guy who bet against the subprime mortgage market in 2007 and made one billion dollars in one day. Goldman Sachs had to pay him off, but eventually due to all the legerdemain in the financial markets, it was French and German taxpayers that paid him for his astute bet. That's casino capitalism at its best. Now he has direct access to the Federal Reserve's money printing press. Why? When there are so many poor and unemployed people in the US, why is the Fed intent on only bailing out financial markets, meaning rich people? Suffice it to say that the Fed is able to buy most anything from rich people and monetize their debt. Because of this and the fact that the rich can borrow at zero percent interest, they engage in risky bets. If they win, they pocket the money. If they lose, the Fed bails them out at zero percent interest.

Compare this with how the situation was dealt with during the Great Depression. Instead of force feeding wealthy people with interest free cash and adding trillions to the US National debt, FDR created the Reconstruction Finance Corporation (RFC). The original legislation establishing the RFC did not limit it to lending to financial institutions; it was also authorized to provide loans for railroad construction and crop lands. In other words it created jobs for average Americans. An amendment passed in July 1932 allowed the RFC to provide loans to state and municipal governments. The purpose of these loans was to finance projects like dams and bridges, and the money would be repaid by charging fees to use these structures. To help with unemployment, a relief program was created that would be repaid by tax receipts. Under the New Deal, the powers of the RFC were greatly expanded. The agency now purchased bank stock and extended loans for agriculture, housing, exports, businesses, governments, and disaster relief. The RFC actually made money on these loans.

So the RFC could actually create jobs for average working people (and not just for hedge fund managers) doing constructive things like building houses and infrastructure. Part of the New Deal was the Works Progress Administration (WPA) relief program which made the federal government by far the largest employer in the nation. A Green New Deal would create money much as the Fed does with a few keystrokes on a computer, but, instead of just providing liquidity to banks, hedge funds and rich people, it would provide money for productive jobs paid for by the government. The government needs to be employer of last resort in order to recreate a full employment economy.

A Green New Deal would convert the American economy from a fossil fuel dependent economy to one fueled by renewable energy. In so doing it would provide good paying jobs for those in American society who have been left out or left behind. The Fed should monetize the $3 trillion backlog in American infrastructure repair and rebuilding. Making the Fed a public bank instead of a bank whose main purpose is to swallow US government debt and give money to rich people in order to provide "liquidity" would go a long way to reducing inequality and bringing the American poor including minorities into the middle class. IMHO the COBID pandemic will insure that the old economy based on 70% consumerism is not coming back. The new normal will be based on government spending to create a Green New Deal or will sputter along at about half its former level.

Off the Top of My Head

The Power Structure Wants the Discussion Circumscribed to Systemic Racism, Not Systemic Inequality

by John Lawrence, June 17, 2020

Let's just talk about systemic racism and not about an economic system in which a few people control all the wealth and the rest get crumbs from the table. The power structure does not want the discussion extended into that area. Let's just integrate black people into the system so that they are not disproportionately poor, only poor proportionally to their percentage of the population. Blacks compose 12% of the American population. 27% of black people are in poverty so the good old American way is to reduce the percentage in poverty to 12%. Then blacks would be proportionately and not disproportionately poor. That's the American way. Don't question systemic poverty and inequality; Confine the discussion to systemic racism.

The American way is to have a few rich people among every ethnic group and then to use this as an example that anyone can get rich in America. So what if the majority are poor. It's more important that you have examples of huge wealth among black people, and that is certainly the case today. American black billionaires on the 2019 Forbes list included American investor Robert Smith with $5 billion, businessman David Steward with $3 billion, media mogul Oprah Winfrey with a net worth of $2.5 billion and American sports executive Michael Jordan with $2.1. There are 615 billionaires in the US; only 6 are black so to be proportionate we'd need about 74 more black billionaires.

Blacks comprised 13.6 percent of the U.S. population according to the 2010 Census, but account for only 1.4 percent of the top 1 percent of households by income. Whites are the overwhelming majority of the top 1 percent of households by income, comprising 96.2 percent. There are 18.6 million total millionaires in the US, but only an estimated 35,000 are black. That may sound like a lot, but the U.S. population of millionaires is 76 percent White. Blacks, Hispanics and Asians make up about 8 percent each. So problem solved if we add another 4% to the black millionaires list. Then they would be proportionately rich at least at the million dollar level.

Many black athletes and entertainers are millionaires or multi-millionaires. Take the NBA, for example, in which 80% of the players are black. The total annual revenue of the NBA is $8.7 billion of which about 50% goes to the players. Since there are 30 franchises with 15 players per franchise, there are 450 active players. That means that the share of NBA revenues going to black NBA athletes is ($8.7 billion)x(1/2)x(.8) = $3.48 billion or an average of $7.7 million per black player. Bingo! The NBA has created way more black millionaires than it has created white ones. That's for sure.

This is the thinking of the power structure, mainly the Republican power structure which is not threatened by having a few more black millionaires and billionaires. However, they are threatened when you talk about everyone, black or white, having a living wage, everyone, black or white having decent housing, medical care and free public education from pre-school through college. They are threatened by talk of taxing the wealthy, taking from the rich and giving to the poor, as it were. That would be socialism much like the People's Republic of France or the People's Republic of Germany or even the People's Republic of Sweden. The power structure can't tolerate that kind of debate. Let's just make black people equal in the number of millionaires, but not change anything else. Then all the poor blacks and whites, for that matter, can aspire to pull themselves up by their own bootstraps as many of their counterparts have done.

Whatever happens we can't change the system to make it inherently more equal, inherently more naturally producing of equal outcomes. Instead, it must produce inherently unequal outcomes so that those who make it in the system will feel like they have really accomplished something and can serve as role models for others to strive harder. Republicans recoiled at all the hippies in the 60s who were having too much fun and not working hard enough. They were even getting free tuition in the California University system and elsewhere. On August 23, 1971, prior to accepting Nixon's nomination to the Supreme Court, Lewis Powell wrote a memo to the US Chamber of Commerce entitled "Attack on the American Free Enterprise System," an anti-Communist and anti-New Deal blueprint for conservative business interests to retake America from the hippies and left wingers. It was based in part on Powell's reaction to the work of activist Ralph Nader, whose 1965 exposé on General Motors, Unsafe at Any Speed, put a focus on the auto industry putting profit ahead of safety, which triggered the American consumer movement. Powell saw it as an undermining of the power of private business and an ostensible step towards socialism.

So they changed the system to criminalize all sorts of behaviors mainly involving drugs so they could incarcerate mainly black people and so they could saddle mainly white people with a ton of student loan debt. Then they would have to work hard paying off their debt instead of partying, surfing, having free love and doing drugs. Well, it certainly has worked. In 2014, African Americans constituted 2.3 million, or 34%, of the total 6.8 million correctional population. About 1 in 3 black boys will have served some time in the penal system during their lifetimes. Profits are up for the private penitentiary corporations and American millenials are buckling at the knees from the weight of $1.5 trillion in student loan debt. So if the percentage of black people in prison gets down to 12%, then this should make the American system non-racist? Wouldn't it be better to eliminate the root causes of incarceration which have to do with poverty and get the incarceration rate down to zero for everyone?

Off the Top of My Head

A Jobs Program for Inessential Workers
by John Lawrence, April 30, 2020

Turn inessential workers into essential workers by putting them to work building green infrastructure. This is essential work that is not getting done. Much of the previous inessential work they did is better left undone even in a recovery. It is still inessential. It'll always be inessential compared to what needs to be done in creating and building green infrastructure. Building out solar and wind renewable energy could employ thousands if not millions of people. Repairing roads, bridges, waterways, clean water systems, airports, railroads and all other infrastructure could employ millions. This is essential work that has remained undone despite the fact that the American Society of Civil Engineers has given the US a D rating for infrastructure. High speed rail needs to be built. The widespread adoption of electric cars has to be mandated, and construction of a national electric vehicle charging network to power them has to be built.

Unemployed people still need jobs. Mark Cuban said on CNN this morning that there should be a jobs program similar to that of the New Deal. He is exactly right although he didn't make the necessary connection about the essential work that's still being left undone and the inessential work that doesn't need to be done even in a recovery. Forget Cuban's sports and entertainment enterprises. I hate to tell you that they are basically inessential. What is essential is greatly expanding the public health undertakings of the Federal  government which has been totally behind the curve in this pandemic.

We must ask ourselves what is essential and not go back to a new normal in which all the inessential businesses of the past are brought back just in order to provide employment to the millions who have lost their jobs. The pre-pandemic economy was 70% consumerism. The economy post epidemic should be much less a consumerist economy and much more an investment economy. The four components of gross domestic product are personal consumption, business investment, government spending, and net exports. Of these government spending must be ramped up to provide the essential jobs in infrastructure building as well as in the areas that the pandemic has made clear are indeed essential: health care, education, transportation, agriculture.

Government spending must go up; personal consumption must go down. It's as simple as that. As for business investment, it's a lost cause as business will only do what's profitable for itself as has been made abundantly clear. Investment in fossil fuels and plastics which the big oil companies are making is only destructive to a green economy, not constructive. As far as exports are concerned, the dollar has already been weakened as much as it could possibly be by zero interest rates, so increased exports, although desirable, are not likely to happen any time soon.

Private enterprise knows only one thing in terms of the economy "reopening": get back to consumer spending. It ain't going to happen. People are still afraid of the virus. The pandemic is not over. They will use their money to pay off debts instead of going in debt to the hilt like they are used to. People will save their money instead of entertaining themselves to death. Why? Maybe they have learned their lesson that a high employment economy predicated on the fact that people will always have a job and always have a prepensity to consume is just a chimera. Rather than living paycheck to paycheck, I hope people will understand that there may come a rainy day, and they need to save for that. That lesson has really been brought home by the coronavirus pandemic.

The true heroes are essential workers not the military. The military itself was brought to its knees by COBID-19. There is a lesson there. It's more important to spend our collective money on preparing for the coming pandemic of global warming than on a bloated military. It is more important to house the homeless and guarantee the economic rights of shelter and health care to all Americans as in the 1948 UN Declaration of Human Rights. It is more important to help people all over the world escape from extreme poverty because poverty breeds health crises which then can spread all over the world. It's more important to make peace with our rivals rather than try to control them with military threats and sanctions.

May the next President (and I hope to heaven that it's not Donald Trump) see the light of a more rational, compassionate and humane world, one more concerned about the health and welfare of all the world's peoples. I hope Governor Cuomo's values of being tough, smart, disciplined and most importantly loving spread to every corner of US and world society, and we get on with essential business instead of the inessential business of amusing, entertaining and consuming ourselves to death.

A Universal Basic Income Is Essential and Will Work

Posted on April 19, 2020 by Ellen Brown

 

Web of Debt blog

A central bank-financed UBI can fill the debt gap, providing a vital safety net while preventing cyclical recessions.

According to an April 6 article on CNBC.com, Spain is slated to become the first country in Europe to introduce a universal basic income (UBI) on a long-term basis. Spain’s Minister for Economic Affairs has announced plans to roll out a UBI “as soon as possible,” with the goal of providing a nationwide basic wage that supports citizens “forever.” Guy Standing, a research professor at the University of London, told CNBC that there was no prospect of a global economic revival without a universal basic income. “It’s almost a no-brainer,” he said. “We are going to have some sort of basic income system sooner or later ….”

“Where will the government find the money?” is no longer a valid objection to providing an economic safety net for the people. The government can find the money in the same place it just found more than $5 trillion for Wall Street and Corporate America: the central bank can print it. In an April 9 post commenting on the $1.77 trillion handed to Wall Street under the CARES Act, Wolf Richter observed, “If the Fed had sent that $1.77 Trillion to the 130 million households in the US, each household would have received $13,600. But no, this was helicopter money exclusively for Wall Street and for asset holders.”

“Helicopter money” – money simply issued by the central bank and injected into the economy – could be used in many ways, including building infrastructure, capitalizing a national infrastructure and development bank, providing free state university tuition, or funding Medicare, social security, or a universal basic income. In the current crisis, in which a government-mandated shutdown has left households more vulnerable than at any time since the Great Depression, a UBI seems the most direct and efficient way to get money to everyone who needs it. But critics argue that it will just trigger inflation and collapse the dollar. As gold proponent Mike Maloney complained on an April 16 podcast:

Typing extra digits into computers does not make us wealthy. If this insane theory of printing money for almost everyone on a permanent basis takes hold, the value of the dollars in your purse or pocketbook will … just continue to erode …. I just want someone to explain to me how this is going to work.

Having done quite a bit of study on that, I thought I would take on the challenge. Here is how and why a central bank-financed UBI can work without eroding the dollar.

In a Debt-Based System, the Consumer Economy Is Chronically Short of Money

First, some basics of modern money. We do not have a fixed and stable money system. We have a credit system, in which money is created and destroyed by banks every day. Money is created as a deposit when the bank makes a loan and is extinguished when the loan is repaid, as explained in detail by the Bank of England here. When fewer loans are being created than are being repaid, the money supply shrinks, a phenomenon called “debt deflation.” Deflation then triggers recession and depression. The term “helicopter money” was coined to describe the cure for that much-feared syndrome. Economist Milton Friedman said it was easy to cure a deflation: just print money and rain it down from helicopters on the people.

Our money supply is in a chronic state of deflation, due to the way money comes into existence. Banks create the principal but not the interest needed to repay their loans, so more money is always owed back than was created in the original loans. Thus debt always grows faster than the money supply, as can be seen in this chart from WorkableEconomics.com:

When the debt burden grow so large that borrowers cannot take on more, they pay down old loans without taking out new ones and the money supply shrinks or deflates.

Critics of this “debt virus” theory say the gap between debt and the money available to repay can be filled through the “velocity of money.” Debts are repaid over time, and if the payments received collectively by the lenders are spent back into the economy, they are collectively available to the debtors to pay their next monthly balances. (See a fuller explanation here.) The flaw in this argument is that money created as a loan is extinguished on repayment and is not available to be spent back into the economy. Repayment zeros out the debit by which it was created, and the money just disappears.

Another problem with the “velocity of money” argument is that lenders don’t typically spend their profits back into the consumer economy. In fact, we have two economies – the consumer/producer economy where goods and services are produced and traded, and the financialized economy where money chases “yields” without producing new goods and services. The financialized economy is essentially a parasite on the real economy, and it now contains most of the money in the system. In an unwritten policy called the “Fed put”, the central bank routinely manipulates the money supply to prop up financial markets. That means corporate owners and investors can make more and faster money in the financialized economy than by investing in workers and equipment. Bankers, investors and other “savers” put their money in stocks and bonds, hide it in offshore tax havens, send it abroad, or just keep it in cash. At the end of 2018, US corporations were sitting on $1.7 trillion in cash, and 70% of $100 bills were held overseas.

Meanwhile the producer/consumer economy is left with insufficient investment and insufficient demand. According to a July 2017 paper from the Roosevelt Institute called “What Recovery? The Case for Continued Expansionary Policy at the Fed”:

GDP remains well below both the long-run trend and the level predicted by forecasters a decade ago. In 2016, real per capita GDP was 10% below the Congressional Budget Office’s (CBO) 2006 forecast, and shows no signs of returning to the predicted level.

The report showed that the most likely explanation for this lackluster growth was inadequate demand. Wages were stagnant; and before producers would produce, they needed customers knocking on their doors.

In ancient Mesopotamia, the gap between debt and the money available to repay it was corrected with periodic debt “jubilees” – forgiveness of loans that wiped the slate clean. But today the lenders are not kings and temples. They are private bankers who don’t engage in debt forgiveness because their mandate is to maximize shareholder profits, and because by doing so they would risk insolvency themselves. But there is another way to avoid the debt gap, and that is by filling it with regular injections of new debt-free money.

Socialism at Its Finest after Fed’s Bazooka Fails

Posted on March 21, 2020 by Ellen Brown

Web of Debt blog

In what is being called the worst financial crisis since 1929, the US stock market has lost a third of its value in the space of a month, wiping out all of its gains of the last three years. When the Federal Reserve tried to ride to the rescue, it only succeeded in making matters worse. The government then pulled out all the stops. To our staunchly capitalist leaders, socialism is suddenly looking good.  

The financial crisis began in late February, when the World Health Organization announced that it was time to prepare for a global pandemic. The Russia-Saudi oil price war added fuel to the flames, causing all three Wall Street indices to fall more than 7 percent on March 9. It was called Black Monday, the worst drop since the Great Recession in 2008; but it would get worse. 

On March 12, the Fed announced new capital injections totaling an unprecedented $1.5 trillion in the repo market, where banks now borrow to stay afloat. The market responded by driving stocks 8% lower.

On Sunday, March 15, the Fed emptied its bazooka by lowering the fed funds rate nearly to zero and announcing that it would be purchasing $700 billion in assets, including federal securities of all maturities, restarting its quantitative easing program. It also eliminated bank reserve requirements and slashed Interest on Excess Reserves (the interest it pays to banks for parking their cash at the Fed) to 0.10%. The result was to cause the stock market to open on Monday nearly 10% lower. Rather than projecting confidence, the Fed’s measures were generating panic.

As financial analyst George Gammon observes, the Fed’s massive $1.5 trillion in expanded repo operations had few takers. Why? He says the shortage in the repo market was not in “liquidity” (money available to lend) but in “pristine collateral” (the securities that must be put up for the loans). Pristine collateral consists mainly of short-term Treasury bills. The Fed can inject as much liquidity as it likes, but it cannot create T-bills, something only the Treasury can do. That means the government (which is already $23 trillion in debt) must add yet more debt to its balance sheet in order to rescue the repo market that now funds the banks.

The Fed’s tools alone are obviously incapable of stemming the bloodletting from the forced shutdown of businesses across the country. Fed chair Jerome Powell admitted as much at his March 15 press conference, stating, “[W]e don’t have the tools to reach individuals and particularly small businesses and other businesses and people who may be out of work …. We do think fiscal response is critical.” “Fiscal policy” means the administration and Congress must step up to the plate.

What about using the Fed’s “nuclear option” – a “helicopter drop” of money to support people directly? A March 16 article in Axios quoted former Fed senior economist Claudia Sahm:

The political ramifications of the Fed essentially printing money and giving it to people – there are ways to do it, but the problem is if the Fed does this and Congress still has not passed anything … that would mean the Fed has stepped in and done something that Congress didn’t want to do. If they did helicopter money without congressional approval, Congress could, and rightly so, end the Fed.

The government must act first, before the Fed can use its money-printing machine to benefit the people and the economy directly.

The Fed, Congress and the Administration Need to Work as a Team 

On March 13, President Trump did act, declaring a national emergency that opened access to as much as $50 billion “for states and territories and localities in our shared fight against this disease.” The Dow Jones Industrial Average responded by ending the day up nearly 2,000 points, or 9.4 percent.

The same day, Democratic presidential candidate Rep. Tulsi Gabbard proposed a universal basic income of $1,000 per month for every American for the duration of the crisis. She said, “Too much attention has been focused here in Washington on bailing out Wall Street banks and corporate industries as people are making the same old tired argument of how trickle-down economics will eventually help the American people.” Meanwhile the American taxpayer “gets left holding the bag, struggling and getting no help during a time of crisis.” H.R. 897, her bill for an emergency UBI, she said was the most simple, direct form of assistance to help weather the storm.

Democratic presidential candidate Andrew Yang, who made a universal basic income the basis of his platform, would go further and continue the monthly payments after the coronavirus threat was over.

CNBC financial analyst Jim Cramer also had expansive ideas. He said on March 12:

How about a $500 billion Treasury issue … [at] almost no interest cost, to make sure that when people are sick they don’t have to go to work, and companies that are in trouble because of that can still make their payroll. How about a credit line backstopped by … the Federal Reserve. I know the Federal Reserve is going to say they can’t do that, Congress is going to say they can’t do that, everyone is going to say what they said in 2007, they can’t do that, they can’t do that — until they did it. … [W]e heard all that in 2007 and they ended up doing everything.

And that looks like what will happen this time around. On March 18, as the stock market continued to plummet, the administration released an outline for a $1 trillion stimulus bill, including $500 billion in direct payments to Americans, along with bailouts and loans for the airline industry, small businesses, and other “critical” sectors of the U.S. economy.

But the details needed to be hammered out, and even that whopping package buoyed the markets only briefly. In the bond market, yields shot up and values went down, on fears that the flood of government bonds needed to finance this giant stimulus would cause bond values to plummet and the government’s funding costs to shoot up.

Extraordinary Measures for Extraordinary Times

There is a way around that problem. To avoid driving the federal debt into the stratosphere, the Treasury could borrow directly from the central bank interest-free, with an agreement that the debt would remain on the Fed’s books indefinitely. That approach has been tested in Japan, where it has not generated price inflation as austerity hawks have insisted it would. The Bank of Japan has purchased nearly 50 percent of the government’s debt, yet consumer price inflation remains below the BOJ’s 2 percent target.

Virtually all money today is simply “monetized” debt – debt turned by banks into something that can be spent in the marketplace – and the ultimate backstop for this sleight of hand is the central bank and the government, which means the taxpayers. To equalize our very unequal system, the central bank and the government need to work together. The Fed needs to be “de-privatized” – turned into a public utility that serves the taxpayers and the economy. As Eric Striker observed in The Unz Review on March 13:

The US government’s lack of direct control over the nation’s central bank and the plutocratic nature of our weak state means that common sense solutions are off the table. Why doesn’t the state buy up majority shares in large corporations (or outright nationalize them, as happened with the short successful experiment with General Motors in 2009) and use the $1.5 trillion at low interest to develop American industrial independence?

Interestingly, that too could be on the table in these extraordinary times. Bloomberg reported on March 19 that Larry Kudlow, the White House’s top economic adviser, says the administration may ask for an equity stake (an ownership interest) in corporations that want coronavirus aid from taxpayers. Kudlow noted that when this was done with General Motors in 2008, it turned out to be a good deal for the federal government.

While traditionally considered “anti-capitalist,” the government taking an ownership interest in bailed out companies may be the only way the proposed bailouts will get approval. There is little sentiment today for the sort of no-strings-attached “socialism for the rich” that the taxpayers shouldered in 2008 without reaping the benefits. Bloomberg quotes Jeffrey Gundlach, chief executive officer at DoubleLine Capital:

I don’t think government bailouts of over-leveraged companies that got over-leveraged by share buybacks at all-time highs, enriching executives and hedge fund investors, will sit well with the American people.

The Bloomberg article concludes with a quote from another chief investment officer, Chris Zaccarelli of Independent Advisor Alliance:

I like how [the administration is] thinking a little bit outside of the box. Something big and bold like that could potentially be what turns the market around ….

Long-term Solutions

Rather than just a stake in the profits, the government could think a bit further outside the box and turn insolvent airlines, oil companies, and banks into public utilities. It could require them to serve the people and the economy rather than just maximizing the short-term profits of their shareholders.

Concerning the banks, the Fed could do as the People’s Bank of China is doing in this crisis. The state-run PBoC is giving regional banks $79 billion in stimulus money, but it is on condition that they lend it to small and medium enterprises and forgive late payments, so that economic damage is reversed and production can recover quickly.

Another model worth studying is that of Germany, which also has a strong public banking system. As part of a package for coronavirus aid that the German finance minister calls its “big bazooka,” the government is offering immediate access to loans up to €500,000 for small businesses through its public bank, the KfW (Kreditanstalt fuer Wiederaufbau), administered through the publicly-owned Sparkassen and other local banks. The loans are being made available at an interest rate as low as 1%, with interest only for the first two years.

Contrast that to the aid package President Trump announced last week, which will authorize the Small Business Administration to offer business loans. After a lengthy process of approval by state authorities, the loans can be obtained at an interest rate of 3.75% – nearly 4 times the KfW rate. German and Chinese public banks are able to offer rock-bottom interest rates because they have cut out private middlemen and are not driven by the insatiable demand for shareholder profits. They can lend countercyclically to avoid booms and busts while supporting the economy as a whole.

The U.S., too, could create a network of publicly-owned banks backed by the central bank, which could lend into their communities at below-market rates. And this is the time to do it. Times of crisis are when change happens. When the Covid-19 scare has passed, we will have a different government, a different economy and a different financial system. We need to make sure that what we get is an upgrade that works for everyone.

_______________________

Ellen Brown chairs the Public Banking Institute and has written thirteen books, including her latest, Banking on the People: Democratizing Money in the Digital Age.  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

China Out Capitalizes Capitalist Nations

by John Lawrence, March 23, 2020

Who would have thunk it? China has taken capitalist financial methods to the next level with the result that it is progressing more rapidly in material abundance and a consumer society than the proto-capitalist nations of the world: the US and Europe. Sure, politically, they are an authoritarian nation. But that expedites their development since all institutions are on the same wavelength. In particular their central bank, the People's Bank of China (PBC) funds infrastructure projects all over the world. This keeps China a full employment society. They put all the Chinese people to work building infrastructure which expands the money supply in a very widespread way. Essentially the PBC provides loans for all these projects which means it creates the money just as US banks do when they create loans or the Federal Reserve does when it provides "liquidity" to the markets through quantitative easing (QE).

The Federal Reserve has actually expanded the range of market interventions it can do. It used to be that the Fed could only set interest rates. That was it. Now it can buy corporate bonds, state and local bonds and give money directly to corporations to keep them afloat. In fact it can act more like the PBC which interacts directly in the Chinese economy. The Fed can take debts directly onto its balance sheet where they may remain forever. This is exactly what it did in the 2008 financial crash. It provided cash directly to banks in return for mortgage backed securities and Treasury bonds thus providing liquidity to the banks so that they would not go under. Now the banks are well capitalized, and, since they know that the Fed stands ready to bail them out again, they have no worries. In fact the term "bail them out" is actually a misnomer at this point. It can be replaced with "provide them with cash" as necessary.

There was an interesting interview on 60 Minutes with Neel Kashkari, Obama's Assistant Secretary of the Treasury, who was in charge of the Troubled Assets Relief Program (TARP) during the Great Recession. He noted that TARP, which was supposed to help out actual people with their mortgages did not go far enough. They were too stingy with it, and not very many people got helped. He says that this prolonged the recession. Instead of being stingy as they were, they should have been "overly generous." That is the lesson he learned. So now in the coronavirus recession, his advice is that the Fed should be overly generous in providing relief to actual everyday people and not just to banks. At this time the banks are doing very well, thank you.

It is well known that money is created by the banks themselves when they create a loan which they do with a couple of keystrokes on a computer. Why is this possible? Because money has no relationship to gold or any other precious metal any more. That's why it's called "fiat money." So what bankers and economists are realizing (which has been the secret of China's success all along resulting in their bringing 800 million people out of poverty in 40 years) is that the US central bank, the Federal Reserve can do the exact same thing. It can create fiat money just like the banks do, like Wall Street does. The only concern is that money so created would lead to inflation, but, as Kashkari noted, there was no inflation even after the Fed created trillions of dollars in 2008 most of which went directly to bankers, hedge funds and rich individuals and not to the average American. Now Kashkari, who is President of the Minneapolis branch of the Federal Reserve, is saying that the Fed could provide liquidity to the American people and not just to the banks. How this will probably happen is by Congress passing a bill on the "fiscal side" as they say. Then they will sell more Treasury bonds to cover the increased deficit. Wall Street banks will buy them since other countries are decreasing their purchase of US debt, and then the Fed will provide liquidity (cash) to Wall Street taking the Treasury bonds onto its balance sheet where they will reside forever probably. This is why the national deficits and debt are no problem because the Fed can print money to cover them ad infinitum. It's as if the Fed provided money directly to the US economy, but, by law, they have to do so indirectly.

Ellen Brown understood this possibility long before Neel Kaskari had his "awakening."

America’s chief competitor in the trade war is obviously China, which subsidizes not just worker costs but the costs of its businesses. The government owns 80% of the banks, which make loans on favorable terms to domestic businesses, especially state-owned businesses. Typically, if the businesses cannot repay the loans, neither the banks nor the businesses are put into bankruptcy, since that would mean losing jobs and factories. The non-performing loans are just carried on the books or written off. No private creditors are hurt, since the creditor is the government, and the loans were created on the banks’ books in the first place (following standard banking practice globally).

Precisely! So no need to worry about another Great Recession or Depression. The US could effectively provide a Universal Basic Income (UBI) to its citizens indefinitely as Andrew Yang proposed.

As observed by Jeff Spross in a May 2018 Reuters article titled “China’s Banks Are Big. Too Big?”:

[B]ecause the Chinese government owns most of the banks, and it prints the currency, it can technically keep those banks alive and lending forever.…

It may sound weird to say that China’s banks will never collapse, no matter how absurd their lending positions get. But banking systems are just about the flow of money.

Spross quoted former bank CEO Richard Vague, chair of The Governor’s Woods Foundation, who explained, “China has committed itself to a high level of growth. And growth, very simply, is contingent on financing. Beijing will come in and fix the profitability, fix the capital, fix the bad debt, of the state-owned banks … by any number of means that you and I would not see happen in the United States.”

There is no reason why the US could not emulate China. From an economic point of view QE or a UBI would not be inflationary as long as the dollars provided to the system were either invested in new plants and equipment, infrastructure or consumption. What is needed now is about $10 trillion worth of Green Infrastructure, a Green New Deal funded indirectly by the Fed. This money can be provided to the American people and not only rich billionaires as was done in 2008 and as China is providing directly to its workers who are kept busy building infrastructure in the Belt and Road initiative. It would also ease economic inequality and not induce inflation as long as the money is widely distributed.

Off the Top of My Head

The Fed Keeps On Bailing Out Failing Businesses

by John Lawrence, March 17, 2020

The Fed announced recently that it would cut interest rates to zero. It has also promised to insert $1.5 trillion of "liquidity" into the markets. It's clear that the US is a society that runs on debt, and the biggest non profit producing industry that has gorged itself on humungus amounts of debt is fracking. But investors are getting weary. S&P Global Ratings this month cut credit ratings of six shale gas producers citing the outlook for natural gas prices. "We are particularly concerned about some of the issuers' ability to access the capital markets given investor aversion to the space," S&P said. But no worries. A Fed bailout is on the way. Zero percent interest. Free money. Whoopee. Frack away.

Just a few days ago, CNBC host Jim Cramer exclaimed, "I'm done with fossil fuel," after disappointing earnings reports from Dow Jones energy giants Chevron and Exxon Mobil. "We're in the death knell phase," he warned. The fracking industry is deathly afraid that, if Bernie Sanders is elected, the gravy train will be over. Fracking has provided a lot of jobs for a lot of people, but it is not profitable if the world oil price is less than $40 a barrel. Right now, thanks to Russia and Saudi Arabia, the price of oil is $30 a barrel. A Green New Deal would have to provide jobs for all those workers in the fracking industry who have been making pretty good money even though the industry as a whole is unprofitable.

The Fed is doing its job to create another tower of debt in the US. Alexandria Ocasio-Cortez has pointed out that the $1.5 trillion the Fed has injected into the system for "liquidity" could wipe out all the student loan debt in the US which now stands at $1.5 trillion. But the Fed insists that any stimulus to the economy which would actually help working people as opposed to investors has to come from the fiscal side meaning that Congress would have to appropriate the money. The Fed's job is to make sure that no major business player in the US economy goes bankrupt including the US government itself which is wallowing in debt to the tune of $1 trillion a year thanks to Trump's tax cuts for the rich similar to Ronald Reagan's tax cuts for the rich which quintupled the national debt. It took a Democrat, poor old Clinton, to reduce the deficit to zero.

The question naturally arises of why can't the Fed bail out American workers to the tune of $1000 a month as Andrew Yang has suggested especially now that the coronavirus has put a huge damper on consumption which is 70% of the economy. The Fed says, "Not my job. That's Congress' job." The Fed as it turns out is a wholly owned subsidiary of Wall Street. It is not a publicly owned entity. Congress will do nothing to bail out the American people because of the Republican controlled Senate led by Mitch McConnell. Even if Democrats were to attain a majority in the Senate, the filibuster would prevent them from doing anything. So Joe Biden, even if elected, will get nothing substantial done including building on Obamacare. The only reason Obamacare was even passed in the first place was that Democrats had a majority in both Houses and a filibusterproof majority in the Senate (60 votes) for a very short period of time (4 months) during which Obamacare was passed. Good luck Joe.

If the Fed, instead of being privately controlled by Wall Street, were to become a truly public institution controlled by Congress, then maybe it could bail out the general American public instead of failing businesses. According to the rules of capitalism, failing businesses at some point should go bankrupt. The Fed is essentially preventing that from happening thus fueling the stock market. However, the stock market senses that at this point the Fed has used up all its tools and can do nothing further. There is probably too much liquidity in the markets already. Providing more wouldn't do any good. Interest rates are already at zero. The Fed could go to negative interest rates, but that would screw the economy up even more. Perhaps we'll all have to settle for a good old recession after all. But one thing is for certain. About six months from now, Trump will pull out all the stops to get the economy moving again just before the election since he is basing his reelection on a robust economy. However, it all depends on whether or not the coronavirus is under control at that point. If it is, Trump will take credit.

Off the Top of My Head

Russia and Saudi Arabia Selling Oil at $40 a Barrel. US Fracking Industry in Deep Debt. Can't Survive at That Price.

by John Lawrence, April 11, 2020

As if the coronavirus was not a big enough threat to the US economy, Russia and Saudi Arabia are in a price war over oil driving the price down to $40 a barrel. The world now needs less oil because of the coronavirus, but Russia is still producing at the same rate. Not to be outdone Saudi Arabia is also maintaining its same level of production producing a glut on the world market. To be profitable at all the US shale oil industry needs prices to be at least $60 a barrel. So effectively, Russia is forcing the US fracking industry, which is totally overleveraged in the first place, into bankruptcy. To boot Russia can produce oil for less money than Saudi Arabia. The US has sanctioned Russia's oil industry in terms of the NORD II pipeline to Europe and its Turkstream pipeline to Turkey, but there is no way that Trump can sanction the price of a barrel of oil if Russia floods the market.

Market Watch reported:

The rapid growth of the U.S. shale industry is at the heart of a Russia-versus-Saudi Arabia crude-oil price war that threatens to upend a global economy already under threat from the spread of the coronavirus, experts said Monday.

“Russia has made no secret of the fact that it is concerned about the growth of the U.S. shale industry and of its view that repeated output cuts by OPEC were effectively handing market share to U.S. producers,” said Caroline Bain, chief commodities economist at Capital Economics, in a Monday note.

Russia’s rejection last week of a Saudi push for additional production cuts prompted Saudi Arabia over the weekend to slash prices on crude exports in a move analysts said was aimed at taking market share from Russia. But it was Russia’s longstanding frustration with rapidly growing U.S. shale industry that prompted Moscow to resist the push for additional production curbs.

Saudi Arabia over the weekend slashed prices on oil exports, a move that traders took as a sign that the Riyadh was ready to take on Russia in a global price war that would flood the world with crude at the same time demand is curtailed by the COVID-19 outbreak.

The fracking industry has survived basically on zero percent interest loans from Wall Street. The whole American economy is based on no interest loans with the Federal Reserve providing quantitative easing whenever banks or major industries needed money. The average American pays through the nose for a loan. The whole economy is on life support, and it would collapse unless it is continually salvaged by government deficit spending and the Fed flooding the markets with liquidity. The fracking industry and the banks that carry its loans are in trouble now because Russia is essentially controlling the price of oil and pricing it below what the fracking industry needs just to pay on its debts. Now that the world needs to consume far less oil because of restrictions on travel, less greenhouse gasses are going into the atmosphere. This is the silver lining which is not being talked about.

So now the world is at war, not one nation towards another nation, but the whole world vs the coronavirus. Finally the world is coming together against a common enemy. So far the world has not come together in the same way in the common fight against global warming. If it can come together in the fight against the coronavirus, why can't it come together in the fight against global warming which is far more serious. The coronavirus is so far only killing the elderly with underlying conditions. So nursing homes have to be very concerned about their patients, but so far in the US young people that have acquired the virus generally get over it just as they would with the flu virus. The coronavirus may kill millions, but global warming has the potential of killing billions.

Off the Top of My Head

Les Nouveaux Pauvres

by John Lawrence, January 9, 2020

The new poor are basically millennials who have gone to college and acquired a huge amount of student loan debt. They were promised that graduating college would catapult them into the middle class. Instead, whatever job they were fortunate enough to get (and many of them landed at Starbucks or equivalent) does not pay enough to make debt payments and also provide the normal amenities of life. Most of their budget consists of paying interest on their debts. Student loan debt has soared from $260 billion in 2004 to $1.4 trillion in 2017; average debt jumped from $18,650 to $38,000 over that same period; and the number of people over 60 with student loan debt has quadrupled in the last decade from 700,000 to 2.8 million.

It used to be that the majority of the working class were either farmers or unionized manufacturing workers who were protected by unions. Then the propaganda machine got busy and told all those farm children that they would be much better off, instead of going to work on their father's farm, going to college instead. Many proudly became "the first in their family to graduate college." What did it matter that, in order to do so, they had to take out massive student loans. Workers, who had lost their unionized jobs, were told the same thing. Go to college and become part of the new (nonunionized) economy because everyone knows that college graduates don't need unions. While farmland may stretch far and wide, farmers and ranchers themselves make up just 1.3% of the employed US population, totaling around 2.6 million people. Today, there are about 2 million farms in operation in the US, a steep decline from 1935, when the number of farms peaked at nearly 7 million. Why milk cows and shovel manure when you can have a professional desk job!

Manufacturing historically created good paying jobs for workers without a college education, particularly for men. The jobs paid well enough so that women did not have to work when they had young children. Unions were strong and owners did not want to risk strikes in their factories due to large capital investments and significant on the job training. Such jobs are much less available in the post-2001 era in the U.S. though they remain available in Germany, Switzerland and Japan. So the solution we are told is for those workers and especially their childrenn since there is no future in being a worker in the manufacturing sphere, to go to college. It's the American way. Each generation has to move a step up the ladder, and the step up for children of manufacturing workers without college educations is to be "the first in their families" to get one. Of course this necessitates their taking on a huge amount of student loan debt, but no worries, this step up will make them better off even if their spouse has to work to afford a house and pay off student loan debt.

However, much student loan debt goes into default because the debt burden is just too big a load to carry. More than 1 million student loan borrowers each year go into default. For many, the payments are proving unmanageable. By 2023, nearly 40 percent of borrowers are expected to default on their student loans. That’s when a person has not made a payment toward their education debt in roughly a year, triggering it being sent to a third-party collection agency. They are les nouveaux pauvres, the New Poor. That's in contrast to les nouveaux riches, the likes of Jeff Bezos and Mark Zuckerberg who have made billions off the high tech industry. But for many whose parents were farmers or manufacturing workers, they were sold a bill of goods that getting a college degree would not only resolve the stigma of being "uneducated," it would also land them a good paying job. Today most plumbers and electricians are doing better precisely because they don't have student loan debt.

Instead, many young people, and millennials especially, have not only a gargantuan load of student loan debt but credit card debt, and car loan debt as well. It's no surprise that the New Poor are mainly young people who can't afford either to buy a house or pay skyrocketing rents. Their parents and grandparents, however, are sitting pretty with assets consisting of a house which is skyrocketing in value and either a defined benefit pension (nonexistent today) or a 401k consisting of stocks which have also skyrocketed in value.They will naturally vote for Trump because of a booming economy (for them).

Meanwhile, the Democratic party, whose base used to consist of farmers and unionized workers, has lost them due to a change in demographics. Their new base naturally should be the New Poor, young people, millennials, student loan debtors and those who are concerned about the planet they're inheriting after climate change ravages it. They are turning to the progressive Democrats like Bernie Sanders and Elizabeth Warren. They are smart enough to figure out that every other advanced industrialized country has a government sponsored public health care plane. They know that the rich are not paying their fair share of taxes which would alleviate them from some of the horrendous economic burdens they are now experiencing, that is if those increased taxes on the rich were used by government to pay for college and health care for all. They want government expanded to provide more benefits not contracted to the point where you could drown it in the bathtub which arch conservative Grover Norquist so famously said.

Les nouveaux pauvres want a Green New Deal, relief from student loan debt, a New Economy. They aren't committed to the capitalism which has made three billionaires more wealthy than 150 million lower income Americans. They want the elimination of the fossil fuel economy replacing it with renewable energy. They want the end of a military-industrial complex which has spent a trillion dollars on disastrous wars in the Middle East. There is a better way these New Poor millennials are finally figuring out, a way out of the mess created by short term profits and rugged individualism, a way that might just win back America's high moral position and leadership in the world.

Off the Top of My Head

The Two Gilded Ages

by John Lawrence, December 8, 2019

The first Gilded Age was in the 1890s. The second Gilded Age is today. By the midpoint of the first Gilded Age about 4000 families owned as much wealth as the remaining 11.6 million. Today in the second Gilded Age the 3 richest Americans own as much wealth as 50% of the rest of the population or 160 million people. In the first Gilded Age 87% of private wealth belonged to 20% of the population and the bottom 40% had no wealth at all. Today in the second Gilded Age the top 0.1% of the population own as much wealth as the bottom 90% while the bottom half of Americans own negative net wealth meaning they're actually in debt.

In the first Gilded Age student loan debt was zero. Today there is $1.6 trillion in student loan debt. Authorities don't want you to know this but as late as 1980 the total amount of student loan debt was zero. During the 1980-1981 school year, an average student paid just over $2,000 each year for tuition, room and board at a public, four-year school. People could work their way through college or their parents could afford to help them on a middle class income. I was on a work-study program in the 1960s where I went to school a quarter and worked a quarter. I graduated in 5 years instead of 4. There was no grade requirement to participate in this program as I was barely in the upper third of my class and just barely gained entrance to Georgia Tech. I did do well on the SAT test or whatever the college admission tests were called at that time.

Today there are much better options to gain an education than going to a 4 year college and taking on an enormous amount of debt that you will never be able to pay off. That means you will never be able to get a mortgage and own a house. You will be in debt peonage for the rest of your life. The college industry has falsely advertised that you will make more money over a lifetime than a non college graduate. That is simply not true, but no matter how much money you make, what difference does it make if all you do with that money is to pay on your student loan plus paying rent. You will still be in debt when you retire and the government will take your student loan debt payments out of your social security.

That is why Elizabeth Warren's plan to tax wealth is a good one. It's the only thing that will reduce the inequality gap which is growing exponentially. Most Americans have been led to believe that the American Dream is to have a good paying job requiring a college education. Wrong! Financially speaking, the American Dream should be to acquire wealth at least not to end up at the end of your life a debtor no matter how much money you've made. I'm not talking wealth like Jeff Bezos or Bill Gates has. I'm talking wealth as in a fully paid for house and maybe some rental property. It could include a stock portfolio as well, but stocks have a way of plummeting about the time you want to convert them into cash. This is not as likely to happen with real estate. Since pensions are a thing of the past, it's a good idea to own enough wealth to support a decent lifestyle for the rest of your life. That means rental property which is the gift that keeps on giving. It doesn't run out if properly managed whereas a fixed amount in savings will run out probably sooner than expected.

There are a lot of good paying jobs that one can qualify for which don't require a college education or that provide free training. One can also migrate to Europe and attend great universities there for little or no money. In 2014, Germany's 16 states abolished tuition fees for undergraduate students at all public German universities. This means that currently both domestic and international undergraduates at public universities in Germany can study for free, with just a small fee to cover administration and other costs per semester. Education is free in Italy and free education is available to children of all nationalities who are residents in Italy. People of Italian descent can also claim full dual citizenship in Italy and gain many other advantages like access to visa free travel throughout the European Union and access to universities in other countries. As an EU citizen, you are entitled to study at any EU university under the same conditions as nationals.

In short any American who goes to a 4 year college and accumulates student loan debt usually at the rate of $25,000 a year is a sucker. Also a 4 year degree doesn't buy you much in the labor market. You need at least a Masters Degree. And don't forget bankruptcy protection is not available to student loan debtors. More than sufficient reason to vote for Bernie Sanders or Elizabeth Warren. They will not only make public universities free, but will restore bankruptcy protection for those currently in student loan debt.

One Inexpensive and Easy Fix for the Student Loan Problem

by Alan Collinge

November 29, 2019 06:35 PM

A key Republican Education Department official and Trump Appointee, A. Wayne Johnson, recently resigned his position and made a radical call for student loan cancellation. Johnson noted that the lending system was “fundamentally broken” and called for loan cancellation for all loan holders up to $50,000. He also called for a tax credit of the same amount for those who have already repaid their loans. Interestingly, Johnson’s plan sounds very similar--and in some ways even more generous--than what presidential candidate Elizabeth Warren is proposing.

This is strong stuff coming from a Republican, particularly one who ran the federal lending program. Johnson’s comments could indicate that this problem is far worse than the Department of Education has said publicly. He noted that he came to this conclusion after having a “firsthand look” at defaults, which we already know are running at about 40% for 2004 borrowers. And those borrowers were only borrowing one-third of what students are borrowing currently. One can only wonder how bad the internal projections must be for more recent students.

Johnson is to be applauded for calling out this big-government lending monstrosity, and even for his call to get the government out of the lending business. In the absence of both bankruptcy protections and statutes of limitations, the Department of Education has become one of the largest lenders on earth, and a viciously predatory one at that. Johnson is also correct in pointing out that the various forgiveness programs run by the Department are failing badly. Additionally, at least a portion of the $50+ billion that the department makes in profits every year are being used to fund unrelated social programs (like Obamacare), despite President Lyndon B. Johnson's declaration in 1965 that these loans would be "free of interest."

However, there were problems with Warren’s plan, and these have not gone away under the current proposal.

For example, despite the rising default rate, many borrowers are doing fine. They enjoyed the benefits of their loans and now they are successful enough to make the payments. There is no particularly good reason to cancel their debt. Conversely, there are many borrowers who owe far more than $50,000, who have seen their debt explode with penalties, fees, and interest, such that writing them down by $50,000 really wouldn’t make much of a dent. In short, Warren's “one-size-fits-all” approach makes little sense. And at a price of $925 billion, it’s expensive.

Also, any cancellation program would be administered by the Department of Education, which has a well-documented history of bungling such programs. For example, of the roughly 40,000 people who thought they were getting cancellation this year through the Public Service Loan Forgiveness Program, fewer than 100 (less than 1%) actually will. Similarly, a whopping 57% of people in the Income Based Repayment Program (IBR) were disqualified for administrative reasons. This means that many borrowers have been cruelly left owing far more than they would if they had never entered it.

To be blunt: the Department of Education cannot be trusted to administer yet another loan cancellation program. As they have done before, they will surely find ways to disqualify the vast majority of borrowers so that the agency captures the wealth rather than those who it was intended for.

A far more efficient solution to this problem is simply returning standard bankruptcy protections to these loans. The founders called for uniform bankruptcy in the Constitution before even giving Congress the power to raise an army or declare war, and the student lending system is proving their wisdom. Borrowers must have bankruptcy protections on their side in order for the lending system to be fair. It is only with this threat that lenders will act with a modicum of good faith. It will help restrain lending and force college prices down to rational levels.

Bankruptcy is also a far less expensive solution than Warren's. At first, there would be an unavoidable spike in filings, but bankruptcy scholar Robert Lawless has estimated that in the “steady-state”, annual discharges would come to less than $3 Billion per year. Even if it turned out to be double or triple this rate, that is still far less than Warren's proposal -- not to mention that this would require no tax hikes. This could be achieved by simply repealing the one line in the federal code that exempts student loans from standard bankruptcy protections.

There is legislation in Congress that would achieve this: HR. 2648, a bipartisan bill, and its Senate companion, S. 1414. Alternatively, President Trump could simply direct the Department of Education to stop opposing student loan borrowers in bankruptcy court. Either way, we would get a much more efficient and well suited outcome.

Not to mention: The Founders would agree.

Alan Collinge is Founder of StudentLoanJustice.Org, and author of The Student Loan Scam (Beacon Press).

The Disaster of Negative of Interest Rates

by Ellen Brown, Web of Debt blog

Posted on September 29, 2019 by Ellen Brown

President Trump wants negative interest rates, but they would be disastrous for the U.S. economy, and his objectives can be better achieved by other means.

The dollar strengthened against the euro in August, merely in anticipation of the European Central Bank slashing its key interest rate further into negative territory. Investors were fleeing into the dollar, prompting President Trump to tweet on Aug. 30:

The Euro is dropping against the Dollar “like crazy,” giving them a big export and manufacturing advantage… And the Fed does NOTHING!

When the ECB cut its key rate as anticipated, from a negative 0.4% to a negative 0.5%, the president tweeted on Sept. 11:

The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term.

And on Sept. 12 he tweeted:

European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports…. And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!

However, negative interest rates have not been shown to stimulate the economies that have tried them, and they would wreak havoc on the U.S. economy, for reasons unique to the U.S. dollar. The ECB has not gone to negative interest rates to gain an export advantage. It is to keep the European Union from falling apart, something that could happen if the United Kingdom does indeed pull out and Italy follows suit, as it has threatened to do. If what Trump wants is cheap borrowing rates for the U.S. federal government, there is a safer and easier way to get them.

The Real Reason the ECB Has Gone to Negative Interest Rates

Why the ECB has gone negative was nailed by Wolf Richter in a Sept. 18 article on WolfStreet.com. After noting that negative interest rates have not proved to be beneficial for any economy in which they are currently in operation and have had seriously destructive side effects for the people and the banks, he said:

However, negative interest rates as follow-up and addition to massive QE were effective in keeping the Eurozone glued together because they allowed countries to stay afloat that cannot, but would need to, print their own money to stay afloat. They did so by making funding plentiful and nearly free, or free, or more than free.

This includes Italian government debt, which has a negative yield through three-year maturities. … The ECB’s latest rate cut, minuscule and controversial as it was, was designed to help out Italy further so it wouldn’t have to abandon the euro and break out of the Eurozone.

The U.S. doesn’t need negative interest rates to stay glued together. It can print its own money.

EU member governments have lost the sovereign power to issue their own money or borrow money issued by their own central banks. The failed EU experiment was a monetarist attempt to maintain a fixed money supply, as if the euro were a commodity in limited supply like gold. The central banks of member countries do not have the power to bail out their governments or their failing local banks as the Fed did for U.S. banks with massive quantitative easing after the 2008 financial crisis. Before the Eurozone debt crisis of 2011-12, even the European Central Bank was forbidden to buy sovereign debt.

The rules changed after Greece and other southern European countries got into serious trouble, sending bond yields (nominal interest rates) through the roof.  But default or debt restructuring was not considered an option; and in 2016, new EU rules required a “bail in” before a government could bail out its failing banks. When a bank ran into trouble, existing stakeholders–including shareholders, junior creditors and sometimes even senior creditors and depositors with deposits in excess of the guaranteed amount of €100,000–were required to take a loss before public funds could be used. The Italian government got a taste of the potential backlash when it forced losses onto the bondholders of four small banks. One victim made headlines when he hung himself and left a note blaming his bank, which had taken his entire €100,000 savings.

Meanwhile, the bail-in scheme that was supposed to shift bank losses from governments to bank creditors and depositors served instead to scare off depositors and investors, making shaky banks even shakier. Worse, heightened capital requirements made it practically impossible for Italian banks to raise capital. Rather than flirt with another bail-in disaster, Italy was ready either to flaunt EU rules or leave the Union.

The ECB finally got on the quantitative easing bandwagon and started buying government debt along with other financial assets. By buying debt at negative interest, it is not only relieving EU governments of their interest burden, it is slowly extinguishing the debt itself.

That explains the ECB, but why are investors buying these bonds? According to John Ainger in Bloomberg:

Investors are willing to pay a premium–and ultimately take a loss–because they need the reliability and liquidity that the government and high-quality corporate bonds provide. Large investors such as pension funds, insurers, and financial institutions may have few other safe places to store their wealth.

In short, they are captive buyers. Banks are required to hold government securities or other “high-quality liquid assets” under capital rules imposed by the Financial Stability Board in Switzerland. Since EU banks now must pay the ECB to hold their bank reserves, they may as well hold negative-yielding sovereign debt, which they may be able to sell at a profit if rates drop even further.

Wolf Richter comments:

Investors who buy these bonds hope that central banks will take them off their hands at even lower yields (and higher prices). No one is buying a negative yielding long-term bond to hold it to maturity.

Well, I say that, but these are professional money managers who buy such instruments, or who have to buy them due to their asset allocation and fiduciary requirements, and they don’t really care. It’s other people’s money, and they’re going to change jobs or get promoted or start a restaurant or something, and they’re out of there in a couple of years. Après moi le déluge.

Why the U.S. Can’t Go Negative, and What It Can Do Instead

The U.S. doesn’t need negative interest rates, because it doesn’t have the EU’s problems but it does have other problems unique to the U.S. dollar that could spell disaster if negative rates were enforced.

First is the massive market for money market funds, which are more important to daily market functioning in the U.S. than in Europe and Japan. If interest rates go negative, the funds could see large-scale outflows, which could disrupt short-term funding for businesses, banks and perhaps even the Treasury. Consumers could also face new charges to make up for bank losses.

Second, the U.S. dollar is inextricably tied up with the market for interest rate derivatives, which is currently valued at over $500 trillion. As proprietary analyst Rob Kirby explains, the economy would crash if interest rates went negative, because the banks holding the fixed-rate side of the swaps would have to pay the floating-rate side as well. The derivatives market would go down like a stack of dominoes and take the U.S. economy with it.

Perhaps in tacit acknowledgment of those problems, Fed Chairman Jay Powell responded to a question about negative interest rates on Sept. 18:

Negative interest rates [are] something that we looked at during the financial crisis and chose not to do. After we got to the effective lower bound [near-zero effective federal funds rate], we chose to do a lot of aggressive forward guidance and also large-scale asset purchases. …

And if we were to find ourselves at some future date again at the effective lower bound–not something we are expecting–then I think we would look at using large-scale asset purchases and forward guidance.

I do not think we’d be looking at using negative rates.

Assuming the large-scale asset purchases made at some future date were of federal securities, the federal government would be financing its debt virtually interest-free, since the Fed returns its profits to the Treasury after deducting its costs. And if the bonds were rolled over when due and held by the Fed indefinitely, the money could be had not only interest-free but debt-free. That is not radical theory but is what is actually happening with the Fed’s bond purchases in its earlier QE. When it tried to unwind those purchases last fall, the result was a stock market crisis. The Fed is learning that QE is a one-way street.

The problem under existing law is that neither the president nor Congress has control over whether the “independent” Fed buys federal securities. But if Trump can’t get Powell to agree over lunch to these arrangements, Congress could amend the Federal Reserve Act to require the Fed to work with Congress to coordinate fiscal and monetary policy. This is what Japan’s banking law requires, and it has been very successful under Prime Minister Shinzō Abe and “Abenomics.” It is also what a team of former central bankers led by Philipp Hildebrand proposed in conjunction with last month’s Jackson Hole meeting of central bankers, after acknowledging the central bankers’ usual tools weren’t working. Under their proposal, central bank technocrats would be in charge of allocating the funds, but better would be the Japanese model, which leaves the federal government in control of allocating fiscal policy funds.

The Bank of Japan now holds nearly half of Japan’s federal debt, a radical move that has not triggered hyperinflation as monetarist economists direly predicted. In fact, the Bank of Japan can’t get the country’s inflation rate even to its modest 2 percent target. As of August, the rate was an extremely low 0.3%. If the Fed were to follow suit and buy 50% of the U.S. government’s debt, the Treasury could swell its coffers by $11 trillion in interest-free money. And if the Fed kept rolling over the debt, Congress and the president could get this $11 trillion not only interest-free but debt-free. President Trump can’t get a better deal than that.

______________________________

This article was first posted on Truthdig.com. Ellen Brown is an attorney, chair of the Public Banking Institute, and author of thirteen books including Web of Debt, The Public Bank Solution, and Banking on the People: Democratizing Money in the Digital Age.  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

Why is the Fed Giving Billions to the Big Banks Again?

by John Lawrence, November 14, 2019

After the Great Recession of 2008, the Federal Reserve gave $16.8 trillion to the big Wall Street banks. Now again there is not enough money in the repo market so the Fed has to step in and provide more money to keep the system going even though it said quantitative easing (QE) was over. Under normal circumstance banks would borrow from each other in the repo market to balance their books overnight. That's the purpose of the repo market - short term lending so that everything checks out on a daily basis. So why are banks so short of cash that the Fed has to provide liquidity now? The reason that the Treasury has to issue so much in bonds every month is to cover the Federal budget deficit. The Treasury Department plans to borrow $1.23 billion in 2019. The big banks act as the middle man or conduit to offload this debt onto investors. If they can't offload it, they are stuck with it and become cash short. That's when the Fed has to step in and supply liquidity by taking the Federal debt off the Big Banks' hands. In addition to the short term loans in the repo market, where the Fed purchases Treasury debt, the central bank recently said it would provide emergency liquidity by buying some $60 billion of Treasury bills a month, expanding its balance sheet. So essentially the Treasury debt caused by the Federal budget deficit caused mainly by Trump's tax breaks for the wealthy is being purchased to a high degree by the Fed which disappears it on its balance sheet after it passes through the hands of the middle men. The Fed by law can't buy Federal debt directly.

China is the largest holder of US Treasury debt at about $1.12 trillion. However, China has cut its purchase of US debt recently and its holdings are down about $20 billion. What does this portend? The US has weaponized the dollar applying sanctions liberally. It has put sanctions on Chinese tech giant Huawei and also ZTE. It is engaged in some kind of trade war with China, but as the largest holder of US debt, China has all the cards. It can weaponize right back by not continuing to purchase US deb among other thingst. This will have the effect of creating a glut of Treasuries in the hands of the middlemen, namely the big US banks and hence the liquidity crisis. If no one wants to purchase US Treasuries, the Fed has to do it and put them on its balance sheet essentially disappearing and eating US debt.

So it raises the question, if the Fed can disappear US budget deficits which are caused by tax cuts for the wealthy as well as a bloated trillion dollar defense budget, why couldn't the Fed eat the deficits caused by a Green New Deal and Medicare for All. It seems like more people want to expand the ACA (Obamacare) with a public option than want Medicare for All. This boils down to broad support for a Medicare for All Who Want It plan which is supported by the Democratic moderates like Joe Biden. At any rate Republicans will try to demand from the Democrats a balanced budget as a way to put the damper on bold Democratic initiatives while they effectively spend like drunken sailors and let the Federal Reserve buy the excess debt that China and other nations are increasingly reluctant to buy in light of the weaponized dollar.

Meanwhile, on November 1, 2019, The World Trade Organization ruled that China can impose sanctions on up to $3.6 billion worth of U.S. goods over the U.S. government’s failure to abide by anti-dumping rules with regard to Chinese products. Oh, so two can play that game. I'll sanction you, and you'll sanction me, not that the US ever cared a fig about the World Trade Organization or what it said.

The Democrats can and will play the same game as far as deficits are concerned. Let the Federal Reserve eat the Federal debt that other nations will increasingly not be buying. Both a Green New Deal and a national health care plan are crucially important. In the long run a lot more people will die if we don't get global warming under control than will die with our current patchwork medical system. Most of them will die in other parts of the world, but the US will be heavily impacted as well which is already starting to happen in the present day.

Trump's liberal use of sanctions has created a backlash from the rest of the world especially China which is US' largest creditor. It's as if you go to your rich uncle hat in hand asking for more money while at the same time telling your rich uncle how to live his life. Other nations are building alternative banking institutions in order to bypass the use of the US dollar and that portends bad news for the dollar as the world's reserve currency. When China and other nations start selling instead of buying US debt, teh Fed will have to step in as it's already doing and swallow that debt. In other words perpetual QE even though the Fed doesn't want to call it that.

The American Dream Is Alive and Well—in China

by Ellen Brown

Posted on June 14, 2019 from Web of Debt blog

Home ownership has been called “the quintessential American dream.” Yet today less than 65% of American homes are owner occupied, and more than 50% of the equity in those homes is owned by the banks. Compare China, where, despite facing one of the most expensive real estate markets in the world, a whopping 90% of families can afford to own their homes.

Over the last decade, American wages have stagnated and U.S. productivity has consistently been outpaced by China’s. The U.S. government has responded by engaging in a trade war and imposing stiff tariffs in order to penalize China for what the White House deems unfair trade practices. China’s industries are said to be propped up by the state and to have significantly lower labor costs, allowing them to dump cheap products on the U.S. market, causing prices to fall and forcing U.S. companies out of business. The message to middle America is that Chinese labor costs are low because their workers are being exploited in slave-like conditions at poverty-level wages.

But if that’s true, how is it that the great majority of Chinese families own homes? According to a March 2016 article in Forbes:

… 90% of families in the country own their home, giving China one of the highest home ownership rates in the world. What’s more is that 80% of these homes are owned outright, without mortgages or any other liens. On top of this, north of 20% of urban households own more than one home.

Due to their communist legacy, what Chinese buyers get for their money is not actually ownership in perpetuity but a long-term leasehold, and the quality of the construction may be poor. But the question posed here is, how can Chinese families afford the price tag for these homes, in a country where the average income is only one-seventh that in the United States?

The Misleading Disparity Between U.S. and Chinese Incomes

Some commentators explain the phenomenon by pointing to cultural differences. The Chinese are inveterate savers, with household savings rates that are more than double those in the U.S.; and they devote as much as 74% of their money to housing. Under China’s earlier one-child policy, many families had only one heir, who tended to be male; and home ownership was a requirement to score a wife. Families would therefore pool their resources to make sure their sole heir was equipped for the competition. Homes would be purchased either with large down payments or without financing at all. Financing through banks at compound interest rates doubles the cost of a typical mortgage, so sidestepping the banks cuts the cost of housing in half.

Those factors alone, however, cannot explain the difference in home ownership rates between the two countries. The average middle-class U.S. family could not afford to buy a home outright for their oldest heir even if they did pool their money. Americans would be savers if they could, but they have other bills to pay. And therein lies a major difference between Chinese and American family wealth: In China, the cost of living is significantly lower. The Chinese government subsidizes not only its industries but its families—with educational, medical and transportation subsidies.

According to a 2017 HSBC fact sheet, 70% of Chinese millennials (ages 19 to 36) already own their own homes. American young people cannot afford to buy homes because they are saddled with student debt, a millstone that now averages $37,000 per student and will be carried an average of 20 years before it is paid off. A recent survey found that 80% of American workers are living paycheck to paycheck. Another found that 60% of U.S. millennials could not come up with $500 to cover their tax bills.

In China, by contrast, student debt is virtually nonexistent. Heavy government subsidies have made higher education cheap enough that students can work their way through college with a part-time job. Health care is also subsidized by the government, with a state-run health insurance program similar to Canada’s. The program doesn’t cover everything, but medical costs are still substantially lower than in the U.S. Public transportation, too, is quite affordable in China, and it is fast, efficient and ubiquitous.

The disparity in incomes between American and Chinese workers is misleading for other reasons. The “average” income includes the very rich along with the poor; in the U.S., the gap between those two classes is greater than in China. The oversize incomes at the top pull the average up.

Even worse, however, is the disparity in debt levels, which pulls disposable income down. A survey after the 2008-09 credit crisis found that household debt in the U.S. was 136% of household income, compared with only 17% for the Chinese.

Another notable difference is that 70% of Chinese family wealth comes not from salaries but from home ownership itself. Under communism, all real property was owned by the state. When Deng Xiaoping opened the market to private ownership, families had an opportunity to get a home on reasonable terms; and as new homes were built they traded up, building the family asset base.

Deng’s market liberalization also gave families an income boost by allowing them to become entrepreneurs. New family-owned businesses sprang up, aided by affordable loans. Cheap credit from state-owned banks subsidized state-affiliated industries as well.

“Quantitative Easing With Chinese Characteristics”

All this was done with the help of China’s federal government, which in recent decades has pumped massive amounts of economic stimulus into the economy. Unlike the U.S. Federal Reserve’s quantitative easing, which went straight into big bank reserve accounts, the Chinese stimulus has generated new money for productive purposes, including local business development and infrastructure. Sometimes called “qualitative easing,” this “quantitative easing with Chinese characteristics” has meant more jobs, more GDP and more money available to spend, which in turn improves quality of life.

The Chinese government has done this without amassing a crippling federal debt or triggering runaway inflation. In the last 20 years, its M2 money supply has grown from just over 10 trillion yuan to 180 trillion yuan ($11.6T), a nearly 1800% increase. Yet the inflation rate of its Consumer Price Index (CPI) has remained low. In February of this year, it was just 1.5%. In May it rose to 2.7% due to an outbreak of swine fever, which drove pork prices up; but this was a response to shortages, not to an increase in the money supply. Radically increasing the money supply has not driven consumer prices up because GDP has increased at an even faster rate. Supply and demand have risen together, keeping consumer prices low.

Real estate prices, on the other hand, have skyrocketed 325% in the last two decades, fueled by a Chinese shadow banking system that is largely beyond regulatory control. Pundits warn that China’s housing is in an unsustainable bubble that will pop, but the Chinese housing market is still more stable than the U.S. subprime market before 2008, with its “no-doc no-down” loans. Chinese buyers typically put 40 to 50% down on their homes, and the demand for houses remains high. The central bank is also taking steps to cool the market, by targeting credit so that it is steered away from real estate and other existing assets and toward newly-produced goods and services.

That central bank intervention illustrates another difference between Chinese-style qualitative easing and Western-style QE. The People’s Bank of China is not trying to improve banking sector liquidity so that banks can make more loans. Chinese economists say they don’t need that form of QE. China’s banks are already lending, and the central bank has plenty of room to manipulate interest rates and control the money supply. China’s central bank is directing credit into the local economy because it doesn’t trust the private financial market to allocate credit where local markets need it. True to its name, the People’s Bank of China seems actually to be a people’s bank, geared to serving the economy and the public rather than just the banks themselves.

Time for More QE?

 In early April, President Trump said in one of his many criticisms of the U.S.  central bank that he thought the Fed should be doing more quantitative easing (expanding the money supply) rather than quantitative tightening (shrinking the money supply). Commentators were left scratching their heads, because the official U.S. unemployment rate is considered to be low. But more QE could be a good idea if it were done as Chinese-style qualitative easing. A form of monetary expansion that would allow Congress to relieve medical and educational costs, grant cheap credit to states to upgrade their roads and mass transit, and support local businesses could go a long way toward making American workers competitive with Chinese workers.

Unlike the U.S. government, the Chinese government supports its workers and its industries. Rather than penalizing China for that “unfair” trade practice, perhaps the U.S. government should try doing the same. China’s legacy is socialist, and after opening to international trade it has continued to serve the collective good, particularly of its workers. Meanwhile, the U.S. model has been regressing into feudalism, with workers driven into slave-like conditions through debt. In the 21st century, it is time to upgrade our economic model from one of feudal exploitation to a cooperative democracy that recognizes the needs, contributions and inalienable rights of all participants.

___________________________

This article was first published on Truthdig.org. Ellen Brown is an attorney, founder of the Public Banking Institute, and author of thirteen books including Web of Debt and The Public Bank Solution. Her latest book is Banking on the People: Democratizing Money in the Digital Age, published by the Democracy Collaborative. 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 Deficit Approaching $1 Trillion Per Year

by John Lawrence, September 1, 2019

The number crunchers at the Congressional Budget Office project that the deficit for the current fiscal year will come to $960 billion. In the next fiscal year, which begins Oct 1, it will exceed $1 trillion. So every year for the foreseeable future the US will go another trillion dollars, if not more, in debt. “The recent budget deal was a budget buster, and now we have further proof. Both parties took an already unsustainable situation and made it much worse,” said Maya MacGuineas, president of the private Committee for a Responsible Federal Budget. Meanwhile some of the US' most profitable corporations, namely Amazon, pay no taxes at all. Just paying interest on the debt is taking up more and more of the budget. In fiscal year 2023, the federal government will spend more on interest than defense.

However, there is still a large market for US Treasury bonds since most of the rest of the world's bonds have a negative interest rate. Currently, $17 trillion worth of global bonds have negative yields. A US 30 year Treasury still pays 2.75% interest which although low is a lot better than a negative yield. For every $1000 of face value the holder gets paid $13.75 semiannually. After 30 years you get the face value of the bond back or you can sell it in the market before then.

So the US has no problem taking on more debt since investors around the world would rather make something on their money than pay a bank just to store it. But someday the chickens will come home to roost, investors will sell off US debt and invest in something else. That day, however, won't be any time soon. As long as US Treasuries continue to pay more in interest than bonds from other countries, investors will flock to US bonds thus enabling the big spenders in Washington to spend even more. If there is a recession, the already high deficit will prevent the Fed to spend even more to get out of it. “We all know we are already on a troubling fiscal path, but today’s CBO report shows us that our leaders are making things considerably worse,” said Michael A. Peterson, chief executive of the Peter G. Peterson Foundation, which advocates for lower deficits.

President Trump is adamant about jawboning the Fed to cut interest rates in order to boost the economy. But there is already so much money sloshing around in the system that this kind of stimulation will likely have little effect. Corporations just want to park their money, not put it to some useful use. The economy is already overstimulated. If there is a recession coming up, the Fed's already low interest rates will not give it much ammunition to deal with it. “Both sides are out of bullets,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “I’ve never seen a situation where there’s a recession cloud on the horizon but Washington is totally unprepared to deal with a downturn in the economy.” But all Trump is interested in is stimulating the economy now so it doesn't fall into recession just as the 2020 campaign season gets underway.

Trump's trade war is turning off American farmers who voted for him in the last election. There are indications that they are now getting genuinely angry over Trump’s efforts to gaslight them so shamelessly over the impact of his trade war with China. The term "gaslighting" is used to describe abusive behavior, specifically when an abuser manipulates information in such a way as to make a victim question his or her sanity. Gaslighting intentionally makes someone doubt their memories or perception of reality. Trump is the arch gaslighter of all time. He constantly tries to piss down farmers' backs and call it rain, and they're getting tired of it. China’s retaliatory tariffs are closing off the biggest export market in the world — leading to a massive drop in exports of soybeans, pork, wheat and other agricultural products.

Elizabeth Warren to Restore Bankruptcy Protection for Student Loan Debtors

From Alan Collinge

Great News!

Elizabeth Warren announced her student loan cancellation plan in April.  We were interviewed by Vice News about this, and we were quite critical.  We lamented the fact that Warren taught bankruptcy for years, yet didn't mention bankruptcy at all in her press release.
Well...I received a note yesterday from one of her staffers to inform me (and I have confirmed) that Senator Warren has modified her plan to include the full return of bankruptcy rights- precisely as it does for S. 1414 and HR. 2648, and the bill that they recently introduced in the Senate which reflects this!
So...THEY ARE LISTENING TO US!
I hope you are all pleased.  This puts us in a position to push both Warren and ALL the candidates to go the FINAL STEP, and pledge to issue an executive order (if necessary) that calls for the Department of Education to cease challenging student loan filers in bankruptcy court.  This would give us the certainty we need to give them a full-throated endorsement.  I think we can do this. See the video above.
Folks, we REALLY need donations right now.  Will you please help?

http://www.studentloanjustice.org/Support

Our recent move into our new digs has depleted our reserves, as expected.  We REALLY have to shore up our funds as soon as possible.  It is getting quite critical.

I hope you are happy with all that we are getting done, and all that we are poised, now, to get done.  We really are kicking butt over here and moving the needle.  To not have to worry about fundraising, and be able to focus on the mission at hand would be hugely helpful for us.  I hope that you agree, and will help. 

Ok folks.  Pretty excited.  It really is "GO TIME"!!!

Best Regards,

Alan

ps.  THANKS TO EVERYONE WHO HAS BEEN STEPPING UP LATELY.  YOU KNOW WHO YOU ARE!!!

Off the Top of My Head

Negative Yielding Debt and the The Inverted Yield Curve

by John Lawrence, August 21, 2019

The world is awash in money so investors try to determine where to park it to get the maximum return. Right now $15 trillion is being parked at banks who are charging for the privilege. About a third of the tradeable bonds in the world have negative yields. J.P. Morgan strategists point out that four countries — Denmark, Germany, Netherlands and Finland — now have negative yields across their full spectrum of rates. The era of Quantitative Easing that was ushered in to prevent a collapse of the global banking system in 2008 has led to a world in which interest rates are very low and in some parts of the world they are negative. “We’re the only country that has an integer in front of our bond yields. We have 90% of the world’s investment-grade debt. We actually have rule of law and we have a decent economy. All the money is going to come here,” Bass, founder and chief investment officer of Hayman Capital Management, told CNBC’s David Faber on Tuesday. True.

Although the US bond market still has positive yields, investors are worried about the dreaded "inverted yield curve." This happens when the short term interest rate is higher than the long term rate. Normally, you would expect a higher rate of return the longer you tied up your money. So why would you buy a 10 year Treasury bond for a lower rate of return than you would get for a 2 year Treasury bond? It would only be true if you expected interest rates to go even lower, and then you could sell that bond in the bond market at a profit. And why would investors expect interest rates to go even lower? Because that's how you head off a recession - you make money easy to borrow. Supposedly that's how you get business people to make productive investments and hire more people. Voila! No recession. No wonder Trump wants the Fed to lower interest rates. Free money. Yea!

Although borrowing money is almost cost free for banks and large investors, the opposite is the case for you and me, Mr. ans Mrs. John Q Public. We are getting screwed with exorbitant interest rates on our credit cards and student loans. Credit card rates are the highest they've ever been. According to the Federal Reserve's data for the first quarter of 2019, the average APR across all credit card accounts was 15.09% — the highest rate recorded since 1994. So the average American pays through the nose for his or her debt while getting essentially zero interest on their savings account. What's wrong with this picture? Free money is available for banks and large investors,while Joe Six Pack pays through the nose. Well, Joe Six Pack is doing his civic duty  because he is keeping inflation low.

But then consider Trump's tariff war with China. All of a sudden American consumers are going to pay more for a whole range of products manufactured in China. What this means is - INFLATION. And what that means is RECESSION because the American consumer will start buying less. Since consumption is 70% of GDP, all of a sudden GDP starts going down and - voila - we're in recession. People will start wondering why everything is so expensive while banks are getting free money, and they are paying through the nose on credit cards while receiving no interest on savings accounts.

Central banks around the world are printing money and giving it to rich people. That's why the national debt is nothing to worry about. It will just be swallowed and digested by the Federal Reserve, the US' central bank, which has swallowed and digested $4.5 trillion in the past. It could swallow the whole US national debt if necessary just by printing money the way other central banks, notably, China do.

The take away of all this is that the world is awash in free money that rich people can easily access while the average person gets screwed. Interest rates are going to zero because rich people will pay banks to park their money while highly profitable banks charge an arm and a leg for credit card and student loan debt.

Off the Top of My Head

Pirate Equity Firms Destroy Good Paying Jobs While Making Wall Street Investors Rich

by John Lawrence, August 8, 2019

How it works: Fund managers with Wall Street connections can borrow unlimited sums of money to buy out all the shares of some company, usually a retail company like Toys R Us. They then strip the company of its assets and load it up with debt. They then take the company into bankruptcy firing all the employees. Result: millions of good paying middle class jobs are eliminated. Fund managers and their investors become rich.

From United for Respect:

Debbie Mizen lives in Youngstown, Ohio, and began working at Toys “R” Us in 1987. She was a single mother when she started working and was able to care for her three children on her modest salary. Debbie was an assistant manager for the last 12 years of her career, although she knew she was earning less than male supervisors in the same position. In June 2018, she lost a job she loved when Toys “R” Us liquidated and closed over 800 stores across the country. Debbie found out that her store was closing on same day as her mother’s funeral and was devastated. Since her store closed, she has faced unemployment. When her unemployment checks ran out, she had to take a job in a grocery store collecting grocery deliveries for customers while earning half of what she did at Toys “R” Us. She is turning 67 this year.

Pirate Equity is ruining millions of lives, making fund managers rich and driving (among other factors) the economic divide between the 1% and the 99%. In the last decade pirate equity has led to 1.3 million job losses - mainly in retail jobs. 10 out of the 14 largest retail chain bankruptcies since 2012 were at private equity-acquired chains. Then the Wall Street executives use the carried interest loophole and offshore bank accounts to escape from paying taxes. A wave of high-profile retail bankruptcies in the last few years — including household names like RadioShack, Toys “R” Us, Sports Authority, Payless ShoeSource, Sears, and Kmart — have impacted retailers owned by Wall Street.

Hostess Twinkies is another example of a company that was taken over by pirate equity which then fired thousands of workers. I delved into this in a 2012 article in the San Diego Free Press (Twinkies’ Twisted Tale: Junk Food Devoured By Junk Bonds):

All the late night talk shows laughed it up over the supposed demise of Twinkies, Ho Hos, Ding Dongs, Wonder Bread etc as the news came out that Hostess Brands was going bankrupt. But delve beneath the surface and you will find something more akin to a Shakespearean tragedy than talk show banter.

It’s a tale involving two unions, one private equity fund, two hedge funds and a whole cast of former CEOs. There is sacrifice, greed and betrayal. 18,000 workers will be losing their jobs while some vulture capitalists will be walking away with millions. Another vulture capitalist will itself have been devoured in the process.

The simple fact is that the financialization of the US has led to a total disrespect for workers and workers' rights. Workers have been turned into serfs, their jobs turned into playthings for the rich with unlimited capital at their disposal. And we're all supposed to accept this because this is the inevitable outcome of capitalism. Well, not so fast there. Other countries practice a variant of capitalism (jee whiz, you mean there's more than one?) that does not exploit workers, but instead creates meaningful jobs for workers. Well, let's see what could those countries be? Well certainly, some of the European countries look out for their workers, Germany, for example. Unions are strong and workers sit on corporate boards, have a say in the running of the company.

No, it is the American variant of capitalism, not capitalism itself, that has run amok. American capitalism is destroying jobs; it has already destroyed most of the unions which were the countervailing force to the narcissistic and solipsistic demands of the capital markets.

The New York Times wrote:

Deals like Hostess have helped make the men running the six largest publicly traded private equity firms collectively the highest-earning executives of any major American industry, according to a joint study that The Times conducted with Equilar, a board and executive data provider. The study covered thousands of publicly traded companies; privately held corporations do not report such data.

On average, the heads of private equity firms earn about 10 times as much as the heads of banks. Take Stephen Schwarzman of the Blackstone Group for example. Last year he earned $799,838,742. Then in second place was Leon Black of Apollo Global Management. He earned $799,838,742. Part of his earnings, no doubt, came from his sale of Hostess Twinkies.

And then there is Mitt Romney, a Presidential candidate no less, who exploited workers with his company Bain Capital. Rolling Stone reported (Greed and Debt: The True Story of Mitt Romney and Bain Capital): "How the GOP presidential candidate and his private equity firm staged an epic wealth grab, destroyed jobs – and stuck others with the bill"

And this is where we get to the hypocrisy at the heart of Mitt Romney. Everyone knows that he is fantastically rich, having scored great success, the legend goes, as a “turnaround specialist,” a shrewd financial operator who revived moribund companies as a high-priced consultant for a storied Wall Street private equity firm. But what most voters don’t know is the way Mitt Romney actually made his fortune: by borrowing vast sums of money that other people were forced to pay back. This is the plain, stark reality that has somehow eluded America’s top political journalists for two consecutive presidential campaigns: Mitt Romney is one of the greatest and most irresponsible debt creators of all time. In the past few decades, in fact, Romney has piled more debt onto more unsuspecting companies, written more gigantic checks that other people have to cover, than perhaps all but a handful of people on planet Earth.

By making debt the centerpiece of his campaign, Romney was making a calculated bluff of historic dimensions – placing a massive all-in bet on the rank incompetence of the American press corps. The result has been a brilliant comedy: A man makes a $250 million fortune loading up companies with debt and then extracting million-dollar fees from those same companies, in exchange for the generous service of telling them who needs to be fired in order to finance the debt payments he saddled them with in the first place. That same man then runs for president riding an image of children roasting on flames of debt, choosing as his running mate perhaps the only politician in America more pompous and self-righteous on the subject of the evils of borrowed money than the candidate himself. If Romney pulls off this whopper, you’ll have to tip your hat to him: No one in history has ever successfully run for president riding this big of a lie. It’s almost enough to make you think he really is qualified for the White House.

But the sheer incompetence of the press corps is nothing compared with the total ignorance of the American people when it comes to electing a President. Example #1: Donald Trump, a bloviating, pompous, bait-and-switch, snake oil salesman that the American people elected instead of a competent, experienced, somewhat boring diplomat. So maybe the American people deserve what they get. The Republicans certainly think so. If they can lie their way into positions of power and delude the American people as to their true motives, well, in their mind, that proves that they really do deserve all the riches they can accumulate by any means necessary. Elizabeth Warren to the rescue?

Canceling All College Debt Will Make Us Smarter and Richer

Published on

Friday, June 28, 2019

by

CNN

An erasure of all student loans currently on the books, would be a significant boon to GDP, boosting the economy by approximately $100 billion a year for at least 10 years, yielding lower unemployment rates, increased spending, and more

by

 Astra Taylor

 

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 6 Comments

Every class winds up deeper in debt than the last, with racial minorities and women hardest hit. (Photo: Getty)

On Monday morning, I gathered with other members of the Debt Collective in Washington DC to endorse the College for All Act of 2019. Sponsored by Reps. Ilhan Omar, Pramila Jayapal, and Sen. Bernie Sanders, the act would cancel all student debt and make all two- and four-year public colleges and universities tuition free, subsidized by a tax on Wall Street.

The Debt Collective is a membership organization fighting for economic justice that has been advocating student debt cancellation and free college for years. Our demands were initially met with skepticism and incredulity. Now, we're standing at the Capitol, winning the battle of ideas.

 

A growing number of people agree that eliminating student debt will improve millions of lives, advance racial and gender justice, and be a boon for our democracy and our economy. But even though loan cancellation is now at the center of public debate, it's far from a done deal. We need to continue to fight so that visionary proposals can become actual policy.

 

"Our privatized debt-for-education system has got to go," my Debt Collective co-founder Thomas Gokey said at the press conference where Sanders, Omar and Jayapal introduced the bill. Gokey warned that the proposed legislation is unlikely to become law unless the public turns up the heat. "No big change like this ever happens without mass mobilization; without ordinary people getting organized to take direct action and engage in civil disobedience," he said.

 

It may sound extreme, but civil disobedience -- or what we call economic disobedience -- is what got us this far, and it's what will get us across the finish line.

 

In 2015 the Debt Collective launched the first student debt strike in history. Fifteen students who had been defrauded by the predatory, for-profit Corinthian Collegeschain publicly announced they would no longer pay their loans. Soon their numbers grew, and tens of thousands of people disputed their loans through an app the Debt Collective created with the help of legal experts. As a result of grassroots organizing, coupled with careful strategy, we eventually won changes to federal law and, through various channels, more than a billion dollars of debt relief -- more than $500 million in relief for borrower defense applicants so far and more than$500 million won through a Harvard Law School case against ITT Tech we assisted on.

 

But the Corinthian debt strike was never just about the problem of predatory for-profit colleges. Instead, the Corinthian case epitomizes the problems with treating education as a commodity, an individualized product we purchase, instead of a public good that should be freely available to all.

 

A functioning democracy demands an educated citizenry, but the trend has been toward privatization and cutting state subsidies. A couple generations ago, college was affordable or even free. By 2017 the average four-year college borrower graduated owing more than $28,000. Every class winds up deeper in debt than the last, with racial minorities and women hardest hit.

 

People's dreams of education have morphed into nightmares of compounding interest (don't forget, there are no statutes of limitations on student loans, which also can't be discharged in bankruptcy). Today, Americans owe approximately $1.5 trillion in debt. Fortunately, there's a potential silver lining to this enormous sum. That $1.5 trillion is also leverage. If borrowers get organized, our debts can be a source of strength. Thus the Debt Collective's slogan: "You Are Not A Loan."

 

The Corinthian debt strike demonstrated the effectiveness of this strategy. Recently, MarketWatch reported that the Debt Collective's strike campaign "helped open up the conversation around broader debt forgiveness" that Warren is now running on (her plan proposes a maximum of $50,000 of relief contingent on income). "This process of trying to leverage existing provisions started to both show the flaws of the existing system, and make people more comfortable with the argument that sometimes debt has to be just wiped away," a former adviser to Warren told the outlet.

 

At the press conference for the College for All Act, Debt Collective members made clear that debt isn't always bad. Rather, we need to ask which debts are moral and which are not. "When people get sick, we owe them healthcare; if they're homeless, they deserve shelter; if somebody wants to learn, they should be able to go to school without being weighed down by unpayable loans at usurious rates," Gokey, my colleague, said.

These are the moral debts we are currently defaulting on and that we should pay by expanding public services.

 

Indeed, we will be richer if we do so, at least where canceling student debt is concerned. Research from the Levy Institute shows that a full jubilee, an erasure of all student loans currently on the books, would be a significant boon to GDP, boosting the economy by approximately $100 billion a year for at least 10 years, yielding lower unemployment rates, increased spending, and more.

 

In the final accounting, we are talking about something that transcends money. Free education is essential to a truly free society, which means it's something we can't put a price tag on. As things stand, the cost of education is too steep for nearly everyone. If we want to change that, we have to organize, and say we won't pay.

© 2019 CNN

Financed by Tax on Wall Street Speculators, Sanders Plan Would Wipe Out All $1.6 Trillion in US Student Loan Debt

Published on Monday, June 24, 2019

by Common Dreams

"We bailed out Wall Street in 2008. It's time to tax Wall Street's greed to help the American people."

by Jake Johnson, staff writer

 

16 Comments

Democratic presidential candidate Sen. Bernie Sanders (I-Vt.) speaks to the crowd during the 2019 South Carolina Democratic Party State Convention on June 22, 2019 in Columbia, South Carolina. (Photo: Sean Rayford/Getty Images)

As part of a bold legislative package that would make public colleges and universities tuition-free, Sen. Bernie Sanders on Monday will unveil a plan to wipe out the $1.6 trillion in student loan debt that is saddling an estimated 45 million Americans.

"In a generation hard hit by the Wall Street crash of 2008, it forgives all student debt and ends the absurdity of sentencing an entire generation to a lifetime of debt for the 'crime' of getting a college education."
—Sen. Bernie Sanders

 

"This is truly a revolutionary proposal," Sanders told the Washington Post, which reported the details of the Vermont senator's bill late Sunday. "In a generation hard hit by the Wall Street crash of 2008, it forgives all student debt and ends the absurdity of sentencing an entire generation to a lifetime of debt for the 'crime' of getting a college education."

Sanders, a 2020 Democratic presidential candidate, will introduce his proposal alongside Reps. Ilhan Omar (D-Minn.) and Pramila Jayapal (D-Wash.), who plan to unveil the Student Debt Cancellation Act and the College for All Act in the House.

"I am one of the 45 million people with student debt—45 million people who are held back from pursuing their dreams because of the student debt crisis," Omar tweeted Sunday. "It's why I'm proud to stand with Sen. Sanders and Rep. Jayapal to pass college for all and cancel student debt."

The three lawmakers introduced their proposals in a press conference Monday morning outside the U.S. Capitol building. Watch:

Vox's Tara Golshan called Sanders's legislative package the "most ambitious higher education plan in the Democratic 2020 presidential primary so far."

Unlike means-tested plans introduced by other 2020 contenders, Golshan observed, Sanders's legislation would cancel student debt for everyone "regardless of their income or assets."

"While this is a universal program—students from any financial background would benefit from the elimination of tuition—the proposal specifically targets lower-income students by increasing the federal Pell Grant program, tripling funding for the work-study program, and creating a dollar-for-dollar federal match to states to eliminate additional costs related to going to college," Golshan wrote.

According to the Post, Sanders would pay for his plan with "a tax on Wall Street his campaign says will raise more than $2 trillion over 10 years."

"Sanders is proposing to pay for the legislation with a new tax on financial transactions, including a 0.5 percent tax on stock transactions and a 0.1 percent tax on bonds," the Post reported. "Such a levy would curb Wall Street speculation while reducing income inequality, according to a report by the Century Foundation, a left-leaning think tank."

Warren Gunnels, Sanders's staff director, tweeted, "If we could give a multi-trillion bailout to Wall Street, yes we can make college for all a reality."

We'll pay for #CollegeforAll & our #CancelStudentDebt plan through a tax on Wall Street speculators that's estimated to raise $2.4 trillion over 10-years. The middle class bailed out Wall Street in 2008. Now, it's Wall Street's turn to return the favor. https://t.co/58YPvXQ9JK

— Warren Gunnels (@GunnelsWarren) June 24, 2019

Sanders echoed Gunnels in a tweet Sunday night, writing, "We bailed out Wall Street in 2008. It's time to tax Wall Street's greed to help the American people."

According to the Post, the Vermont senator's new plan will go beyond the tuition-free public college proposal that was a key plank of his 2016 presidential campaign platform.

"Sanders's bill includes $1.3 billion a year for low-income students at historically black colleges and universities," the Post reported, "and $48 billion per year for eliminating tuition and fees at public schools and universities."

The Vermont senator's debt cancellation proposal comes just weeks after he unveiled a sweeping K-12 education platform that includes a national ban on for-profit charter schools, free universal school meals, and a significant raise for teachers.

"More than one million people default on their student loans each year," Sanders tweeted Sunday. "We have got to make public colleges and universities tuition-free."

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Off the Top of My Head

Working Class: What Working Class?

by John Lawrence, June 7, 2019

Marx's analysis was based on historical determinism - that the working class would rise up against the capitalist class. "Workers of the world arise. You have nothing to lose but your chains." But today there is no working class to speak of. The union movement, which represented the working class, is dead. Everyone is a college graduate, and, therefore, a member of the "professional class." Even assembly line workers have to know hot to run computers, as the video doctor used to say. Republicans created a master stroke when they got everyone - not just capitalists - invested in the stock market through their 401(k)s. Even teachers who have by far and away the largest union are not "workers." They're college graduates and hence "professionals."

There used to be a distinction between "workers" and "professionals." When I worked at General Dynamics, I was sent on a mission that required traveling on Sunday to the east coast. Next to me on the plane was a technician. Since I was a salaried "professional," I was paid nothing extra for traveling on a Sunday. Paul, on the other hand, was a non-college educated "worker" who belonged to the union and was paid by the hour. On this particular occasion Paul was paid double time for "working" on a Sunday while I was paid nothing but my usual "professional" salary. There were other class distinctions also. One of the technicians had a fondness for wearing a coat and tie to work. This was a no-no. Only "professionals" were supposed to wear a coat and tie. Technicians or workers were supposed to come to work in their shirt sleeves. So Carl was looked down on and ridiculed for his impertinence in ignoring class distinctions. Today Apple and Google have changed all that. The CEO comes to work in a hoodie.

After World War II, which we can't get enough of celebrating about, a family could get by very nicely on a one income worker family. There was no student loan debt, a family could have a nice house in Levittown, a car, two weeks vacation a year, send their kids to college, adequate health care, and did I say NO DEBT. The wife could stay home with the kids and bake pies and cakes plus get her hair out of curlers before the man of the house came home from work. Today the average family consists of two earners, massive student loan debt, mortgage debt, car loan debt and credit card debt. Sure they have a 401(k) so technically they are of the capitalist class. They have college degrees so they are "professionals" and not "workers". However, Joe the plumber down the street has most of what they have but no student loan debt because he never went to college. I hired a handyman to hang a door the other day and his charge was $160 for the first hour and $114 for every hour thereafter. Pretty good wages for a nonprofessional. There are several millionaire plumbers in San Diego who advertise on TV. Never went to college. They are probably also landlords whom the "professionals" are paying rent to. Never had a 401(k) though.

Marx's analysis, sadly for dyed in the wool socialists, doesn't apply any more. It's totally out of date. European countries have proved that there is a magic line between socialism and capitalism that, when attained, can bring out the best in both worlds. America's hypercapitalism has only produced massive debt both individually and nationally - the national debt is some $20 trillion and rising daily. Student loan debt is $1.5 trillion. When free money is available, there is a huge appetite for the stuff you can buy with it. When the chickens come home to roost, you're left with a massive debt to repay and the stuff has long been forgotten.

America has led the world to a capitalist utopia where everything except the military is privatized, infrastructure is crumbling (except for the rich who have been able to provide their own infrastructure), massive amounts of debt have been acquired by "professionals" and the nonindebted capitalist class extracts rents and interest from the indebted capitalist class. Everyone is a capitalist, but some capitalists are better off than others. Some are asset rich and some own negative assets. My Grandfather used to say, "Pay what you owe; then you will know what you own." Today nobody pays what they owe in full and, therefore,nobody ever ends up owning anything except debt. Student loan debt can't be discharged in bankruptcy so it follows you around your entire life. It can be discharged by death, however. For those who can't keep up with their payments, the street looms. In this classless society of capitalists, there is still one class - the homeless class. But I don't think even Marx would expect them to rise up and cast off their chains. They are hardly a threat to us capitalists.

Off the Top of My Head

Billionaire Wipes Out Student Loan Debt at Morehouse College

by John Lawrence, May 24, 2019

Robert Smith, a black billionaire, paid off all the student loan debt for the graduating class at historically black Morehouse College - some $40 million of it. One guy alone had $200,000 in student loan debt. Now it's up to some of the white billionaires to pay off student loan debt at their alma maters. Ha. Ha. Won't happen. Alternatively, if you are of Italian or Irish descent you can get a free college education anywhere in the EU and get dual citizenship to boot. Or you can go to Germany and get a free college education regardless of your heritage. Germany needs skilled workers, and this reality creates a win-win situation for American students. All students enrolled in any of the country’s public universities can attend for free. What’s more, German universities offer a wide range of programs entirely in English, and an American student can earn a university degree in Germany without speaking a word of German.

Why aren't American students taking advantage of these options? It's a no brainer. The opportunities today are at the global level. Someone who doesn't learn a foreign language and just graduates from some podunk American college with $50 or $100 thousand in student loan debt is choosing a life of debt peonage. People who qualify for Italian citizenship can also get free health care in that country. You can pass the citizenship on to your children. You can remain an American citizen so you have all the advantages of American citizenship as well as all the advantages of European citizenship. If you get citizenship in one EU country, you can travel or go to school in any EU country so it's like being a citizen of Europe not just Austria or Italy.

Europe remains a well-known, highly sought-after destination for students seeking refuge from high-priced U.S. colleges and universities, but public universities in countries such as Mexico and Brazil also have virtually free tuition; students pay registration fees, which amount to very little when considering the exchange rates. Some universities offer top-quality programs of study in English. Earning a degree south of the border also makes it possible for students to learn highly sought-after languages of commerce, such as Spanish and Portuguese.

It's a no brainer especially for the 17 million Americans of Italian descent. Citizenship in Italy means that you are a citizen of the EU and can live, work and travel visa free anywhere in the EU. Free medical care is nothing to take for granted. There is no free long term health care for seniors in the US even if you have Medicare. Medicare does not cover nursing homes which are very expensive. Jus sanguinis, or the right to citizenship because your ancestor was born in a particular country, applies to a number of other countries besides Italy: Ireland, Austria and the Czech Republic, for example. Some countries only recognize jus sanguinis for one generation. In other words you would have to be born to a father or mother who is a citizen of that country. But Italy recognizes your right to acquire Italian citizenship if your ancestor going back many generations was born in Italy. Italy only became a country in 1861 so you can't go back farther than that.

This is a wonderful opportunity especially for those of Italian descent. Being an Italian citizen is the same as being a citizen of the EU. With that and dual American citizenship you are practically a citizen of the world and can choose to live wherever it is most advantageous or propitious.

'A Burning Indictment of Our Higher Ed System': Commencement Speaker Pays Off $40 Million in Student Debt

Published on Sunday, May 19, 2019

by Common Dreams

Billionaire's gift to nearly 400 graduating seniors of Morehouse College earned him praise—but also sparked criticism of the cost of education

by Jessica Corbett, staff writer

 

9 Comments

Morehouse College commencement speaker and billionaire Robert F. Smith announced Sunday he is wiping out an estimated $40 million in student debt for nearly 400 graduates. (Photo: Morehouse College/Twitter)

Commencement speaker Robert F. Smith garnered widespread praise Sunday when the billionaire investor announced he will wipe out an estimated $40 million in student debt for Morehouse College's nearly 400 graduating seniors—but the move also sparked intense criticism of the cost of higher education in the United States.

"People shouldn't be in a situation where they depend on a stranger's enormous act of charity for this kind of liberation to begin with."
—Rep. Alexandria Ocasio-Cortez<

/p>

"Two things are simultaneously true about this story: 1. This is a very cool thing to do," tweeted Current Affairs editor Sparky Abraham. "2. That this is so cool and necessary and has such a huge impact on the students' lives is a burning indictment of our higher ed system."

"The Morehouse graduating class has $40 million in student debt," he continued. "That is an enormous tragedy."

Smith's announcement Sunday at the all-male, historically black college in Atlanta, Georgia provoked impassioned calls for both making higher education free across the country and canceling student debt.

Abraham, in a piece for Current Affairs last month, argued: "Free college is the efficient, non-stigmatizing way to open up college access for everyone without the burdens of means-testing. It doesn't have to be regressive and, with any luck, it will follow the path of free high school: In short order it will be nearly universally accepted as a public good and a huge boon to everyone, especially those from poorer and working class backgrounds."

Responding to Smith's donation on Sunday, Waleed Shahid of Justice Democrats tweeted, "Taxing billionaires and Wall Street would allow every American to go to college for free while also canceling almost all student debt."

Rep. Alexandria Ocasio-Cortez (D-N.Y.) suggested in a series of tweets that this could serve as a "natural experiment" to demonstrate how lack of student debt impacts graduates' lives.

"It's important to note that people shouldn't be in a situation where they depend on a stranger's enormous act of charity for this kind of liberation to begin with (aka college should be affordable)," the congresswoman added.

Every Morehouse Class of 2019 student is getting their student debt load paid off by their commencement speaker.

This could be the start of what’s known in Econ as a ‘natural experiment.’ Follow these students & compare their life choices w their peers over the next 10-15 years. https://t.co/UM1qTJOxHf

— Alexandria Ocasio-Cortez (@AOC) May 19, 2019

"I've been teaching [at] Morehouse for 3 years now and I see firsthand the burden of costs for an education has on black folks," David Dennis Jr., a writer and adjunct professor of journalism at the college, said in a series of tweets. "Getting rid of their student loan debt is going to literally change the lives of every single graduate. Incredible."

Dennis also called attention to the banks and predatory lenders that will receive the estimated $40 million:

Also, think about the fact that just 400 students represented $40 million...with a large portion of that money going to banks and predatory lenders. Because that's $40 million without the added 10+% interest they were going to have to pay annually. From ONE small graduating class

— David Dennis Jr. (@DavidDTSS) May 19, 2019

One graduating Morehouse student interviewed by The Associated Press, 22-year-old finance major Aaron Mitchom, racked up $200,000 in loans, which eight of his family members co-signed so he could make it through four years of schooling.

Mitchom said that prior to Smith's announcement, he used a spreadsheet to figure how long it would take to pay off his debt—per his calculations, it worked out to 25 years at half his monthly salary.

Describing his reaction at the ceremony on Sunday, Mitchom told the AP: "I don't have to live off of peanut butter and jelly sandwiches. I was shocked. My heart dropped. We all cried. In the moment it was like a burden had been taken off."

Linking to the AP report that features Mitchom, New York Times writer Astead Herndon tweeted, "Yes, the Morehouse story is a beautiful moment provided by an unequal system."

Yes, the Morehouse story is a beautiful moment provided by an unequal system https://t.co/WfFOxFwHhV

— Steadman™ (@AsteadWesley) May 19, 2019

a-tweet-id="1130182212089987073" title="Twitter Tweet" frameborder="0">

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Off the Top of My Head

Lowest Unemployment Rate Since 1969, But Why Can't 40% of Americans Cover a $400 Emergency?

by John Lawrence, May 4, 2019

This is a complete disconnect. On the one hand the economy has never been better. On the other, people are struggling living paycheck to paycheck. And then there's the bottom rung of the population that can't even afford to pay rent. Sure the economy is creating jobs, mostly on the low end of the pay scale, however. Three-quarters of U.S. jobs created since the 2008-'09 financial crash pay less than a middle-class income, according to an Axios analysis of U.S. Labor Department data. And the cost of housing  and medical care is out of sight. That's why Bernie Sanders should press on with his campaign of Medicare For All and a Green New Deal.

The fact that 40% of Americans can't cover a $400. emergency tells me that 40% of Americans have no assets or wealth whatsoever. They are renters living one paycheck from the streets or home owners deeply in debt. The economic divide between the rich and the poor is growing although most of the poor are at least working. That's a good thing, I guess. The working poor probably are in a lot of debt. Student loan debt is $1.5 trillion and rising. Auto loan debt and mortgage debt contribute to the fact that a lot of the paychecks are going to pay off debt or at least to pay on debt that may never be paid off. So it's no wonder that 40% of Americans can't come up with $400. unless they borrow the money and go into even more debt. They would probably put that $400. on their credit card adding to credit card debt. According to the Federal Reserve, Americans owe a record $1.04 trillion in credit card debt – up from less than $854 billion five years ago.

Market Watch reports:

The Federal Reserve’s Economic Well-Being of U.S. Households report released [May 22, 2018] notes that while 74% of adults said they were doing “at least OK” financially in 2017, 40% of them still don’t have enough money to cover an unexpected $400 expense. And less than two-fifths believe that they are on track with their retirement savings.

“The finding that 4 in 10 adults couldn’t cover an unexpected $400 expense without selling something or borrowing money is troubling,” Bankrate.com’s chief financial analyst Greg McBride told Moneyish. “Nothing is more fundamental to achieving financial stability than having savings that can be drawn upon when the unexpected occurs.”

One question I have is why this data which is a year old is being covered now as "news?"The second question is what's the use of having a savings account when 1) banks are paying zero interest and 2) you can always put $400 if needed on a credit card. The whole report is worrisome in that it depicts the American population merely as workers and savers rather than as people who accumulate wealth or go into debt. The emphasis should be on how much wealth Americans have accumulated. If that number is zero, then of course they will have problems with a $400 emergency. It will go right on the credit card adding to their indebtedness. If an American's assets - namely, equity in a house or the stock market - exceeds the sum of the their debts by $400, then they have the $400. If not they will have to borrow the money.

The article continued:

But good luck growing your emergency fund on the West Coast. People living in the metropolitan areas around San Jose, Los Angeles, San Francisco and San Diego have the hardest time saving for emergencies, largely due to the high cost of housing, according to a recent Bankrate report.

The study analyzed the local average cost of living in the 50 largest metro areas in the country, as well as the median after-tax household income, before calculating how much of an emergency fund a family of four would need to cover six months of expenses. And the average San Jose family didn’t even come close to breaking even (income versus bills), let alone squirreling away the $67,342 they’d need to cover six months of bills in case of an emergency.

Again it's not simply a story of income versus bills. And it's not just about "retirement savings." It's about the accumulation of wealth versus the accumulation of debt. For most middle class people, even with two incomes, the combined drain on their finances due to housing costs, auto loans, student loan debt, credit card debt and medical and pharmaceutical expenses is just too much to allow them to accumulate any wealth unless they are entrepreneurial and have started a successful business. A two earner household where both earners have middle class type jobs will for the most part never accumulate wealth of any significance in this day and age. They will be perennial debtors and form the serfs of the new financialized economy.

Promising Signs That America Is Waking Up to the Student Debt Crisis

Published on

Wednesday, April 24, 2019

by

Common Dreams

New data reveals the issue of crushing student debt has the potential to help Democrats to make inroads with a broad array of voters

 

by 

Sean McElwee

 

 5 Comments

 Protestors gather in Parliament Square during a march against student university fees on November 19, 2014 in London, England. (Photo: Rob Stothard/Getty Images)

The revolution to end the burden of student debt continues, with a recent proposal from presidential contender Elizabeth Warren to cancel $50,000 in loans for households making less than $100,000 a year, with lower amounts for those making up to $250,000. Following the Democratic wave, which was driven in part by a surge of youth turnout, it’s more important than ever for Democrats to embrace an ambitious progressive agenda aimed at benefiting the rising American electorate. An ideal policy would be total student debt cancellation.

Earlier this year, Freedom to Prosper and Data for Progress fielded a nationally representative survey analyzing support for repealing Trump’s tax cuts and using the proceeds to cancel outstanding student debt. Across the full sample, 47 percent of respondents supported and 36 percent of respondents opposed the proposal. Contrary to Republicans’ hopes, not only are Trump’s corporate tax handouts unpopular generally, but they are especially so when voters are given the chance to cancel them in favor of a major national debt cancellation program.

According to our analysis of the Cooperative Congressional Election Study (CCES) 2018 survey, a gold standard political science resource, Democrats won 65 percent of the two-party vote (excluding third-party candidates) among student debt holders, compared with only 50 percent of the vote among non-student debt holders.

The policy is particularly popular among Democrats who support it by a 68-13 margin.

Going into the 2020 election, the key question for Democrats is how to maintain the youthquake that delivered them the House. A war on student debt could do so.

Overall, Millennials support the policy by a 53-24 margin. Generation X respondents back it by a 43-33 margin. Baby Boomers are narrowly split, supporting the policy by a 45-42 margin. Only Silent Generation respondents opposed the policy, by a 39-47 margin. Respondents who are closer in age to the college experience are more likely to support assistance with student debt, as one might expect.

Previously, Freedom to Prosper and Data for Progress had fielded a survey containing the same item. Support increased more than five points since then, from 41 percent in 2018 to 46 percent in 2019.

First, the change in overall opinion is likely driven by Millennials, who are growing as a share of the electorate and are the voters most directly affected by the burden of student loans. Their mean level of support for student debt relief rose by six points from July 2018 to January 2019.

In addition to age, self-reported household income predicted support for supporting student debt relief, when controlling for other factors. As the Democratic Party struggles to appeal to the voters who turned out in 2012 but stayed home in 2016, student debt relief stands out as an issue. Indeed, one in four Americans who voted in 2018 but did not vote in 2016 are student debt holders (the analysis only includes individuals old enough to vote in both elections). Sixty-four percent of these voters supported Democrats.

Student debt has the potential to help Democrats to make inroads with a broad array of voters. As previous Freedom to Prosper research showed, one in five people responsible for paying off a student loan is over the age of 50. Perhaps surprisingly, more than half of individuals over the age of 26 who were responsible for paying off a student loan do not have a college degree, according to the CCES 2016 survey.

We should expect growing support for this item for a few reasons: Younger voters of all political stripes are being exposed to the status quo student loan system. Younger voters are also less likely to accept the toxic brand of “conservatism.” Because party ID and ideology are good predictors of support for student loan relief, and because party ID and ideology are clearly favorable to Democrats among the next generation of voters, we should be prepared to push the issue of student loan forgiveness.

This article was produced by Economy for All, a project of the Independent Media Institute.

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Off the Top of My Head

Joe Biden Not the Man for the Job

by John Lawrence, April 6, 2019

And it doesn't have anything to do with his "touchy-feelyness." To think President Pussygrabber has the noive to accuse Joe Biden of invading someone's personal space! I guess now that's a mortal sin. Forgive me Father for I have sinned. I invaded somebody's personal space. Anyway that's not the reason Joe Biden shouldn't run. It has to do with the fact that Biden was instrumental in getting the law changed so that student loan debt is not dischargable in bankruptcy. His state of Delaware is loaded with financial corporations chartered there because conditions are so favorable for them. Joe is just too cozy with all these behemoths just as Hillary was too cozy with Wall Street. As a result of Biden's efforts for the financial industry, Americans now have about $1.56 trillion in student loan debt. Not to mention credit card debt.

Joe Biden needs to apologize. He's worthless as a Democratic candidate for President. His state, Delaware, is home to the credit card divisions of the major banks because of laws passed that favor them. In February 1981, he supported the Financial Center Development Act, legislation that dropped restrictions on interest rates and gave tax breaks and other accommodations to the burgeoning credit card sector. It’s that bill which is now credited with supporting ballooning credit card debt, and those are the roots of why most of the national banking companies with offices in Wilmington have their credit card divisions there.

So good old union supporting Joe has his hands dirty on both credit card debt and student loan debt. Elizabeth Warren is right. He should just step out of the national political scene. His time is past. Forget about his invading personal space. He has invaded most Americans financial space while supporting big banks and giving rich people advantages in the state of Delaware. Salon reported:

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was passed in April, 2005 by the U.S. Senate in a 74-25 vote, including the "yea" vote of Joe Biden, and was quickly signed by President Bush.

In light of what occurred in its wake, this law is easily one of the most disgraceful aspects of the Bush and Biden legacies. The harm it did to middle-class Americans, especially during the crushing events of the recession four years later, is immeasurable. The bill made it nearly impossible for average families to file Chapter 7 bankruptcy protection, also known as "clean slate" bankruptcies intended to discharge nearly all debts, a matter of a few years before they'd need it the most. The bill instituted an all new means test to determine whether debtors with insurmountable financial hardships earned enough income to pay back all or part of their unsecured debts, specifically credit debt. If they earned too much, a clean slate bankruptcy became impossible, and they'd be forced to file Chapter 13, which would force debtors to pay back their debt over a five-year timeline, thus legalizing neo-indentured-servitude to creditors.

Among other things, the bill also forced debtors to enroll in an "instructional course concerning personal financial management." The requirement still exists even though there's little evidence of its efficacy. Additionally, the bill made it more difficult to force creditors to stop harassing debtors for repayment after bankruptcy protection had been filed. As if all of this wasn't bad enough, the Biden-supported legislation prioritized credit card debt repayment over child support repayment, forcing women who are owed back support to negotiate with credit card companies over the debts owed by their exes. Furthermore, the term "debtor" was changed by the BAPCPA to "household" so that the new means test would take into account the total earnings of an entire household, rather than one debtor -- including, for example, a teen daughter's babysitting money.

Worse yet, the bill contained nothing to crack down on abusive practices by predatory lenders, including punitive interest rates and penalties.

Unforgivably, Joe Biden was one of the leading cheerleaders of the bill.

Joe Biden has his handprints all over the indebtedness of the middle class and the increasing split between the wealthy and everyone else. While the banks were bailed out and given free fiat money in the 2008 crisis, Americans were screwed and couldn't even file for bankruptcy thanks to Joe Biden with all his folksy charm. Don't be fooled by this guy. His time has gone. He is not the man for the job. Let him go back to hair sniffing and "pressing the flesh." Biden's son also had ties to the financial industry as reported by the NY Times:

Mr. Biden’s role in the bankruptcy debate and his ties to MNBA were immediately an issue for him after he was selected as Mr. Obama’s running mate in August 2008. A day after Mr. Biden was introduced as Mr. Obama’s choice, campaign aides acknowledged that Hunter Biden, his son, had a consulting arrangement with MBNA and that vetting the Bidens’ connections with the card issuer had been especially delicate in picking him for the ticket. Mr. Biden played down the relationship at the time, telling NBC’s Tom Brokaw that there was nothing inappropriate about his ties to MBNA.

One hand washes the other. Good 'ol Joe now can't pretend that he didn't play a leading role in the impoverization of millions of Americans and the creation of a neo-feudal society. Besides all the other advantages of doing business in Delaware, it is also a tax shelter.

There is no sales tax in Delaware. It doesn't matter if a company's physical location is in the state or not; as a Delaware corporation, no in-state purchases are subject to tax. Additionally, there is no state corporate income tax on goods and services provided by Delaware corporations operating outside of Delaware.The state does not have a corporate tax on interest or other investment income that a Delaware holding company earns. If a holding corporation owns fixed-income investments or equity investments, it isn't taxed on its gains on the state level.Delaware also does not have any personal property tax. There is sometimes a county-level real estate property tax, but that tax is very low compared to other states. Corporations can own their own office spaces and reduce the amount of property tax compared to other states.The state has no value-added taxes (VATs), it does not tax business transactions, and it does not have use, inventory or unitary tax. There is no inheritance tax in Delaware, and there are no capital shares or stock transfer taxes.

We need a true progressive like Elizabeth Warren or Bernie Sanders in the White House, not a pseudo, phony like the Clintons, Obamas and Joe Biden. Remember it was Bill Clinton who supported the overturning of Glass-Steagall which separated commercial from investment banking and precipitated the 2008 financial crisis.

 

A TALE OF TWO TICKETS

by Robert Reich

Tuesday, March 26, 2019

RR:  Hi, I’m Robert Reich.  

WKB: And I’m W. Kamau Bell.  

RR: We’re teaming up to highlight an issue that matters a lot to both of us. It starts with what you might call a “tale of two tickets.” Say you happen to be going for a drive in Oakland and your car has a broken tail light.  You see the flashing blue lights, and your heart drops. Oh no, you think, I’m going to get a ticket.

WKB: Oh c’mon, Robert. You aren’t going to get a ticket.  You’re a white, former secretary of labor. I’m 6’4’’ black guy! I’m going to get a ticket.  

RR: 6’4”?

WKB: Gentle Giant.

RR: You’re too tall.

WKB: That’s why this is “a tale of two tickets!”  You can have radically different experiences with getting pulled over depending on your skin color.

Number one: You’re more likely to get pulled over if you’re black. No surprise. In 2017 in Oakland, California, out of the almost 97,000 black people who live here, more than 19,000 got pulled over. But of the more than 116,000 white people who live here, more and more moving in every day, only a few over 2,800 were pulled over. That means you are 10 times more likely to be pulled over driving while black.  

Number two: When you get pulled over, if you are black, the officer is more likely to speak to you disrespectfully. You are much more likely to be searched, handcuffed, arrested, poked, prodded, and prosecuted. And almost all of what are called “use of force” incidents are against black people.  

RR: You know, it’s not just the likelihood of being pulled over. It’s also the consequences.

Start with the ticket itself. A broken taillight in California is usually a “fix it” ticket. If you can fix it, it costs about $35. But if you don’t or can’t pay, with penalties and assessments, it quickly goes up to $235. And in a year it can be as high as $835.

WKB: And for those who have a brush with the criminal justice system as a result of getting pulled over, who are almost all black, the costs can balloon quickly.

A so-called free public defender costs, on average, $500.

If you are convicted and put on probation, you will get a bill for $6,000 just to cover those costs.

RR: These fines and fees can easily put a family into debt – especially if you are black.  For example, the average black family as $5 in savings for every $100 of a typical white family.  

WKB: What the f***? (bleeped)

RR: Exactly.

With debt comes the risk of being hounded by predatory debt collectors.

Also, the arrest and conviction can result in the loss of a job and make it harder to get another one.

If you are on probation for a prior offense, failing to pay the debt can put you back in prison. In a tragic irony, it can also put pressure on an individual to commit a crime just to pay the debt.

This is what people politely call a cascade of consequences.  

WKB: And what I impolitely call a cascade of s*** (bleeped) on poor communities generally, and communities of color in particular.  

RR: It’s known academically as  “The Criminalization of Poverty.” And it has to be stopped.

WKB: Ok, you say, that sucks if you are poor and black. But I’m rich and white. Hey, I’ve got some news: it’s bad for you, too.

RR: In addition to being a massive drain on the economy, these fees don’t even help cash-strapped cities. Uncollected court debt for traffic and criminal offenses totaled $12.3 billion in 2016 in California alone. A lot of the fee revenue that does come in goes to collection services, that are private and for profit. Which means very little of the money that is collected winds up going to roads, bridges, schools, and other good things we all need.

WKB: That’s why we need to stop the criminalization of poverty. Have you heard of win-win? Well, this is lose-lose, non-win. It sucks. It’s bad for EVERYBODY.  

RR: Bad for poor people, bad for the social fabric, and doesn’t even help the bottom line for government.

WKB: Our home state of California is helping to lead the charge to stop the criminalization of poverty.  Go to CAdebtjustice.org for more information. Go. Don’t just watch the video. Go.

'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

 

0 Comments

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

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.