California Free Press

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 Pay for a Green New Deal

by John Lawrence

In 1940 British economist J. M. Keynes’s book, How to Pay for the War: A Radical Plan for the Chancellor of the Exchequer gave the economic guidance for financing the Second World War. Following Keynes, massive financial resources were devoted to the war resulting in full employment without inflation. There is a model here that can be used for the Green New Deal (GND) which is the Moral Equivalent Of War (MEOW). Bill Gates and J.D. Alt have put an upper bound of $5 trillion a year, but closer and more exacting estimates have put it at $1 trillion a year for 10 years. Yeva Nersisyan and L. Randall Wray write: "Instead of simply adding up estimates of the government spending that would be required, we assess resource availability that can be devoted to implementing GND projects. This includes mobilizing unutilized and underutilized resources, as well as shifting resources from current destructive and inefficient uses to GND projects. We argue that financial affordability cannot be an issue for the sovereign US government. Rather, the problem will be inflation if sufficient resources cannot be diverted to the GND. And if inflation is likely, we need to put in place anti-inflationary measures, such as well-targeted taxes, wage and price controls, rationing, and voluntary saving. Following Keynes, we recommend deferred consumption as our first choice should inflation pressures arise. We conclude that it is likely that the GND can be phased in without inflation, but if price pressures  do appear, deferring a small amount of consumption will be sufficient to attenuate them."

Their analysis is the most astute to date. We know that the money is available because the Federal Reserve can create it with a few keystrokes on a computer. This has been demonstrated time and time again from the bank bailouts of the Great Recession to the COVID relief bills. Modern Monetary Theory (MMT) has provided the theoretical framework that explains how the Fed creates money and the fact that the US can never run out of money. The US government which has a sovereign currency does not have to pay back loans whereas a private household or even a US state does have to pay back loans or else suffer the consequences. The only potential consequence when the Fed creates money for public purposes is inflation which can be controlled by a variety of measures. In How to Pay for the Green New Deal, the authors write: "Viewed from the MMT perspective, the government uses the monetary system to mobilize real resources and to move some of them to pursuit of the public purpose. Affordability is never an important question for a sovereign government—the relevant question concerns resource availability and suitability. There is thus a natural alliance between MMT and the GND. If we can identify technologically feasible projects that would achieve the GND’s goals, and if we can identify the resources to devote to these projects, then we can arrange for the financing of the programs." Bill Gates has identified a number of promising new technologies that he has invested in to address the GND issue.

As Keynes pointed out, it's a question of available resources to tackle any public problem. If the resources are available, the money is no problem although resources may need to be switched from the private to the public sector. Republicans who favor that all economic activity be confined to the private sector may have a problem with this. Nevertheless, this is exactly what happened during the Second World War. Resources, both human and material, were activated within the public sector to fight the war while at the same time were withdrawn from the private sector. Consumption was held to a minimum and deferred till the war's end. Then private resources, both human, financial and material, were unleashed so that the post war era was one of the most prosperous that the world has ever seen. The deflation brought about by wage and price controls and rationing during the war offset the inflation caused by the public money that was spent financing the war. The same tactic is necessary for a Green New Deal.

Yeva Nersisyan and L. Randall Wray write: "The approach is simple but also profound: total the resources available to prosecute the war while meeting the consumption needs of the population. If the available resources fall short of what is needed, the solution cannot be found in the finances. Government can always spend more to shift resources to the war effort; if consumption spending is not reduced, the result is inflation that generates a combination of “voluntary” saving and excess profits as real consumption falls. To prevent this undesirable outcome, government must reduce consumption demand by some combination of voluntary saving, taxes, deferred compensation, rationing, and wage and price controls. To be clear, the purpose of these actions is not to provide government with the financial means to “pay for” the war effort but rather to relieve pressure on scarce resources."

There will be much opposition from the America First crowd which is really a euphemism for Me First. The people who put their own freedom to do whatever they want whenever they want will probably not take too kindly to making any sacrifices so that future generations will have a habitable planet to live on. There will be demagogues ala Trump who will appeal to their baser instincts of solipsistic selfishness. They will be all about their First Amendment freedoms to resist any effort that is for the public good especially if it involves doing anything of a salutary nature for people in other parts of the world. I can visualize bars and restaurants complaining that they can't get enough hired help because everyone is employed by the Green New Deal. Let's hope that the better angels of mankind will prevail.

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

Contrary to Larry Summers Biden's Relief Bill Will Not Cause Increased Inflation

by John Lawrence, February 8, 2021

Joe Biden's almost $2 trillion pandemic relief deal will not be inflationary despite Larry Summers' opinion. Inflation occurs when there is too much money sloshing around in the economy chasing too few goods, services and human resources. That is not the case here. First of all it will reemploy the unemployed. This is a presently unused resource. Secondly, it will suck up unused or unsold goods and services funding things that are currently unfunded like child care, and thirdly, it will serve to pay off debt and replenish savings. Any money going into savings or paying off debt is not inflationary. It's deflationary in the sense that the banks will lose money due to interest they won't collect if loans are paid off. The middle class that did have savings or credit in many cases has had to use those to survive the pandemic. That's why giving money to higher earning, but not wealthy, families is a good thing. To hear some people talk only money should be given to those who are desperate and living from paycheck to paycheck. Yes, those are the families most in need who should be given money first, but higher earning families who have depleted their savings or gone into debt need to be resuscitated also.

So here is what Larry Summers says about inflation:

"First, while there are enormous uncertainties, there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability. This will be manageable if monetary and fiscal policy can be rapidly adjusted to address the problem. But given the commitments the Fed has made, administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply."

Summers fails to take into account the deflationary effects of the relief bill. Money going to states and municipalities will actually be deflationary because much of it will be used to pay down debts and loans. Many state budgets are in horrible shape and employees such as police, librarians and firemen have been laid off. People paying back rents and mortgages will have a deflationary effect on the economy. People on the lower end of the economic spectrum who are living paycheck to paycheck will be able to get a little ahead and also save. This will not add a lot to inflation. Also money can always be withdrawn from the economy by taxing the rich, those who actually added to their wealth and income during the pandemic. This is the only reason that taxes might need to be raised because the US government has the ability to spend without raising taxes. The only reason to tax would be to fight inflation and those taxes can be targeted towards wealthier families and individuals. The Federal Reserve has not been able to achieve its target rate of 2% inflation recently despite maintaining almost zero percent interest rates. It wants more money sloshing around in the economy.

There are other ways to suck money out of the economy to offset inflation. Modern Monetary Theory (MMT) recommends Medicare for All which would result in much less money spent on health care while providing better health outcomes. This would be deflationary which would counteract any inflationary propensities of government deficit spending. Conventional economic thinking is that there is a tradeoff between unemployment and inflation. The more people unemployed there are, the more inflation is diminished. Therefore, full employment as defined by economists is not really employment where everyone is employed. It is that level of unemployment which just keeps inflation in check. However, according to "The Trade-off between Inflation and Unemployment in an MMT World: An Open Economy Perspective" by Emilio Carnevali and Matteo Deleidi, MMT it is contended that inflation "occurs when the system reaches the point of full utilization of its productive capacity, both in terms of capital utilization and in terms of availability of workers. At this point, the government should curb inflation forces cooling down the effective demand. This is another fundamental task of taxes." As long as there is unused capacity in human or production terms, increased employment will not be inflationary. So Larry summers need not worry that putting all those unemployed people back to work will lead to inflation.

Biden's putting a $15.00 an hour minimum wage in the relief bill is also what MMT advocates in relation to a Federal job guarantee. Real full employment at a minimum wage of $15.00 an hour does not need to be inflationary especially if it is in areas that don't compete with already employed workers. Biden's relief bill will have the effect of putting almost everyone to work with at least an hourly pay of $15.00 an hour. People who are living paycheck to paycheck and employed at $15.00 an hour are not going to contribute to inflation since their demands on the economy are those that can be easily accommodated by existing production and easily increased production. Deficit spending is not a problem. Former Chair of the Federal Reserve Alan Greenspan said, "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." So the real limit on government spending is inflation which can be controlled by taxes on those sectors of the economy which are not easily upscaled to provide more supply.

There is much unused capacity in the current US economy both in human and material or physical terms. People should be put back to work with a minimum wage of $15.00 per hour. A follow-on bill that would address infrastructure rebuilding and a Green New Deal also needs to be done. Resources may have to be managed by government to control inflation, but the important thing is that work needs to be done in these areas and people need to be put back to work. Inflation can also be offset by the deflationary effect of withdrawing funds form a bloated defense sector.

Off the Top of My Head

Mitt Romney Doesn't Want to Go Into More Debt With China: Is This a Problem?

by John Lawrence

In short: No. The trade deficit with China means that US consumers' dollars ended up in the People's Bank of China's account at the Federal Reserve. The PBOC has two accounts at the Fed which amount to a checking account and a savings account. The savings account consists of Treasuries which pay a small interest. Since the Fed controls the interest rate which is approximately zero, interest charges are very low. The US is not like Greece which had to borrow money on the open market which is subject to interest rate fluctuations. Greece, unlike the US, does not issue its own currency. It is part of the Euro Zone so when it borrows money it cannot just issue the money like it could have when it has its own sovereign currency, the drachma. Therefore, it got itself in a debt trap in which the more it borrowed, the higher interest rates it had to pay. The US can never be in that position because the US is a sovereign currency issuer.

China needs to keep US dollars in its account because the Chinese currency is pegged to the dollar. Therefore, it is pledged to exchange Chinese yuan for dollars in much the same way that the US dollar formerly had pledged US dollars to gold at the rate of $35 dollars to an ounce of gold. The US dollar, on the other hand, is now a fiat currency with a floating exchange rate so a dollar is worth a dollar and that's it. No one can demand that the US government exchange a dollar for something else. So the Chinese government needs to keep a lot of dollars on hand. So when China buys US debt (Treasury bonds), what happens is that China's checking account at the Fed is debited and its savings account at the Fed is credited. The money never leaves the Federal Reserve! Stephanie Kelton writes in The Deficit Myth: "To pay back China, the Fed simply reverses the accounting entries, marking down the number in its securities [savings] account and marking up the number in its reserve [checking] account. It's all accomplished using nothing more than a keyboard at the New York Federal Reserve Bank."

So what would happen if China or Japan refused to buy any more US Treasuries? If Treasury bonds cannot be sold to investors, domestic or foreign, they end up on the accounts of the "primary dealers", mainly big Wall Street banks, which are obligated to buy them. If this takes too much liquidity out of the system, meaning those banks don't have enough cash on their balance sheets because they have so many Treasuries, the Fed merely steps in and adds liquidity to the system meaning that they take the Treasuries onto the Fed's balance sheet and exchanges the Treasuries for cash paid to the banks. So by a roundabout process the US debt ends up on the Fed's balance sheet where it can stay forever. And don't worry about the interest paid on those Treasures. Any interest the Fed makes is remitted to the government which means that it is paid to the US Treasury account at the Fed by means of a few keystrokes. So it amounts to interest free debt. Those Treasuries may be sold back into the market at some time or they could stay on the Fed's balance sheet forever. There is absolutely no urgency for the Fed to get rid of them.

So Mitt Romney's concerns that the US might add more debt to China is unfounded. He should probably, like a lot of politicians, study up on Modern Monetary Theory and try to understand how the Federal Reserve, which is the US' central bank, really works. It is the loaner of last resort to the banks and, by a roundabout process, to the Federal government. It has the ability to create money by a few keystrokes on a computer because the US currency is a sovereign fiat currency. It is the loaner of last resort to the banking system, and, since the primary dealers are obligated to buy Treasury bonds, effectively, it is the loaner of last resort to the Federal government. The import of cheap products from China, which adds to the trade deficit, keeps the consumer price index low in the US. If those same products were produced in the US with higher priced labor, prices for US consumers would go up considerably. On the other hand, Chinese investors have been the biggest purchasers of U.S. residential real estate for six consecutive years. This drives up the asset price of US real estate and makes housing more expensive. This is the downside of the Chinese accumulation of dollars, but the same is true for trade deficits with other countries.

Off the Top of My Head

Voltaire: Those who have the power to make you believe absurdities have the power to make you commit atrocities

by John Lawrence, January 19, 2020

Twitter took away Trump's source of power when it deplatformed him. He'll never have the same soapbox again. This was the most significant move in silencing Trump, more so than even an impeachment conviction. He must be deplatformed from all social media. I don't think someone who cried fire in a crowded theater is entitled to free speech just as someone who has murdered someone with a gun isn't entitled to own a gun despite the Second Amendment. So there you go. All this will happen in the background as Joe Biden rescues the US from COVID and a sucky economy. The economy is just fine for the rich. It's terrible for the poor and has been for years. For most U.S. workers, real wages have barely budged in decades. So Trump is well on his way to becoming a footnote to history, an incompetent grifter, who gained a following through entertaining lies appealing to lower middle class grievances. My prediction is that he won't pardon any of the people involved in the Capitol riot because, like him, they are losers. Winning would have been a complete takeover in a coup d'etat, not just a break-in and subsequent removal. When he told his followers "I will be there with you" what he probably meant was that he would come down there after Mike Pence had been hung and Nancy Pelosi had been executed. Then he would declare himself President for Life and install the My Pillow guy as vice President. Instead the name Trump is being eliminated from all the entities that Trump had branded like Trump Tower. The name has lost its cachet.

Joe Biden will put competent people into positions of power and responsibility not loyal political hacks like Trump did. A lot of this will go on behind the scenes while Joe implements the big initiatives: 100 million vaccinations in the first 100 days and a $1.9 trillion economic relief bill. Everything else is relatively minor. Money will be no object; incoming Treasury Secretary Janet Yellin, former Chairwoman of the Federal Reserve has said, "Go big." She knows what hitherto Fed Chairmen and Treasury Secretaries did not want you to know and that is that Deficits Don't Matter. (See The Deficit Myth by Stephanie Kelton.) They are by a roundabout process merely accounting entries on the Fed's balance sheet. As long as there is unused productive capacity in the economy, deficits can put people back to work doing productive things that the private sector will not do like building and repairing infrastructure. On Biden's first day he will rejoin the Paris climate accords. Money must be made available in a second massive economic bill after the $1.9 trillion relief bill so that the country can be transitioned from a fossil fuel economy to a renewable energy economy. So there will be a lot of deficit spending although a revision of the tax structure that makes the rich and corporations pay their fair share will offset some of this.

Trump faces a financial reckoning. In the book, Dark Towers, Deutsche Bank, Donald Trump and an Epic Tale of Destruction, we find that in 2016 "Trump by now owed the bank about $350 million, representing half of all of his outstanding debt. Deutsche was by far his biggest creditor, and Trump was the single biggest borrower from the private-banking division. To borrow that money, Trump had provided Deutsche with his personal financial guarantees. If he failed to pay the loans back, the bank could come after his personal assets, making his life—and his ability to project the public impression of massive wealth—exceedingly difficult." Those loans are coming due in about two years. Deutsche will probably take Trump to court to get their hands on that $300 million slush fund that Trump raised from his followers to supposedly "Save America."  Trump's golf courses and other properties are losing money because of the pandemic. A few miles south of the namesake tower where Donald Trump began his run for president, New York prosecutors are grinding away at an investigation into his business dealings that could shadow him long after he leaves office. The probe led by Manhattan District Attorney Cyrus Vance Jr. is one of several legal entanglements likely to intensify when Trump loses power — and immunity from prosecution — upon leaving the White House.

Off the Top of My Head

Republicans Will Not Vote for $2000 COVID Relief Because of the Deficit But Deficits Don't Matter

by John Lawrence, December 28, 2020

Let's say the US Treasury offers a $100,000 bond for sale because the US government needs the money to pay $100,000 worth of obligations authorized by Congress, and there aren't enough tax dollars available to cover those obligations. Let's say China buys that bond. What actually happens is that the Federal Reserve "clears" this transaction. It does this by debiting the central bank of China's account at the Federal Reserve by $100,000 and crediting the US Treasury's account at the Federal Reserve by $100,000. All US banks and most foreign central banks have accounts at the Federal Reserve and US dollars called reserves never leave there. The Fed by means of a few keystrokes on a computer moves money from one account to another. The same thing happens when you write a check. Money is moved from your bank's account at the Fed to the account of the bank of your payee at the Fed. This is how checks "clear." There are fail safe mechanisms in place so that your bank and the US Treasury can never run out of money. Money can just be "printed" by means of keystrokes on a computer. That's essentially what happened during the "liquidity" crisis of 2008 when the big banks were bailed out by the Fed. The Fed just moved sufficient funds into the big Wall Street banks' accounts to cover their commitments.

Because the Fed can never run out of money, there is no need to worry that China will demand payment for the money we owe it because, if it did, the Fed would just print the money and say to China, "here." The money would be a debit on the Fed's balance sheet but so what. The Fed took on at least $4.5 trillion in debits on its balance sheet to add liquidity to the big banks during the Great Recession of 2008. Since the Fed can just print money and no one can ever demand that the Fed reduce the amount of debt on its balance sheet, the US Treasury which funds the US government can never run out of money. That's why deficits don't matter. The Fed could just move enough money into the US Treasury's account at the Fed to cover the $2000. COVID relief checks. The only concern is that flooding the economy with money will cause inflation, but, since so many people are out of work with no or little income, this is not likely to happen. What is likely to happen is that this money will prop up the US economy which might go into recession without it since 70% of US GDP is money spent on consumption. Without consumers spending money the US economy collapses.

Money is created by the US banking system when you apply successfully for a loan. The bank just creates the money without regard to whether or not the bank has the money in deposits. It's called fractional reserve banking. So all money out there is basically created when people go into debt or the government spends money. The relevant book on the subject is Ellen Brown's Web of Debt. The bank is, however, required to have enough collateral on deposit at the Federal Reserve in its reserve account. Since not everyone is going to demand their money from the bank at the same time, fractional reserve banking actually works. In rare cases, however, the Fed stands ready to step in if there is a run on the bank. The important thing to remember is that every check you write is cleared at the Federal Reserve when money from your bank's reserve account is moved into the account of the bank of the payee to whom you wrote the check. Every bank in the world that deals in dollars has an account at the US Federal Reserve, and, since the US dollar is the world's reserve currency and most transactions are conducted in US dollars, they are all cleared at the US Federal Reserve.

This understanding about how the US Federal Reserve works and why deficits don't matter is better and more fully explained in the best book on the subject, The Deficit Myth by Stephanie Kelton. Republicans who are deficit hawks are just trying to pull the wool over your eyes when they maintain that deficits will have to be repaid by our children or grandchildren out of taxes. Of course they don't have a problem when deficits are created by tax breaks for the rich. Another book that explains how the Fed actually works is Paying Ourselves to Save the Planet by J.D. Alt. He writes that the cost of combating climate change on a time scale that will actually save the planet from destruction is about $40 trillion:

"To that number we must add the cost of subsidizing the change in consumer decisions that will be necessary to reduce the carbon emissions the sequestration efforts are striving to soak up - replacing fossil-fuel engines with electric in all private and public transport, super-insulating buildings and replacing inefficient HVAC systems, establishing regional photo-voltaic micro-grid electric networks, replacing gas cooking ranges with electric induction units, buying regenerative-produced farm products and "meatless meats," replacing all small-engine appliances and tools with battery electric power, etc. It has been estimated that this process of transitioning toward zero carbon emissions will cost $1 trillion/year in consumer subsidies in the U.S. alone. If the rest of the world is also to adopt these consumer choices - rather than the old carbon-based choices - we could reasonably double that. This brings the total cost of avoiding the worst that climate change has in store to $60 trillion between now and 2030."

So if we are to address climate change in the time frame required and with the necessary resources, it will require a huge effort reminiscent of World War II. We cannot just deal in the mind set of normal left/right politics in which these measures are considered too extreme and not amenable to the normal political framework. We must go full steam ahead and Modern Monetary Theory as expounded by Kelton, Brown, Alt and others must provide the economic substructure to make it all work.

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

The Relationship Between the Federal Reserve and the Treasury Department

by John Lawrence, December 20, 2020

The Federal Reserve has set up a lot of Special Purpose Vehicles (SPVs) in conjunction with the Treasury Department as ways to provide money to the economy during emergency situations such as the 2008 Great Recession and the current pandemic crisis. Although most of the Fed's money has gone to bail out banks and provide financial liquidity, the Fed under chairman Jerome Powell has signaled a willingness to provide more money to Main Street and not just to Wall Street. This is what the current holdup in the relief package is all about. Senator Toomey (R-PA) was concerned that the Fed might actually be willing to print money to be used for the welfare of the people under a Biden administration. He intended to put a stop to any such project. While the Fed provided Quantitative Easing for the Big Banks, it would not be allowed to provide Quantitative Easing for the People.

The relationship between Treasury and the Fed amounts to Kibuki Theater in which the plain fact that the Fed is capable of printing money and injecting it into the economy is concealed. Although the Fed is free to inject money into financial institutions, it is legally constrained from injecting it directly into the economy. The theory is that the money would "trickle down" from Wall Street to Main Street which never happened after the 2008 Great Recession. So now the Fed has expressed a willingness to deal directly with Main Street bypassing Congress in the sense that Congress wants to be the supreme controller of budgetary outlays for the American government. The crucial thing to bear in mind is that Congress maintains (incorrectly) that government spending must come from taxes or the sale of Treasury bonds which is equivalent to greater deficits and national debt. If the Fed just prints the money which it can because the US dollar is a sovereign currency, it wouldn't add to the national debt. This is crucial.

When a private bank makes a loan it just conjures up the money by means of a few keystrokes on a computer. The loan does not come from money already sitting in the bank's vaults. The bank uses fractional reserve banking to create the money for the loan only constrained by reserve and capital requirements set by the Federal Reserve. Similarly, the Federal Reserve itself can print money with a few keystrokes on a computer because the money isn't backed by gold or anything else. It is so-called fiat money. It's worth something by fiat just because the US government says it is. The US dollar is also a sovereign currency which means that the money supply isn't subject to any limitations other than those imposed by man made legal requirements. This is what the last ditch fight with Senator Toomey was about. Stephanie Kelton explains in The Deficit Myth:

"For one thing, members of Congress routinely face pressure from voters seeking more generous funding for health care, education, and so on. The budget rules give them political cover. Instead of explaining that they are philosophically opposed to boosting Pell Grant funding to help low-income students attend college, lawmakers can feign empathy with their constituents while claiming their hands are tied because of the deficit. If they couldn't hide behind the deficit myth, what excuse would they used to justify withholding support? It helps to have a bad cop."

The truth of the matter is that Republicans in Congress don't want Joe Biden to be able to do an end run around Congress and get money for a Green New Deal directly from the Federal Reserve. This money would not add to the deficit or the debt. It would be spent directly into the economy benefiting the workers involved in building new and rebuilding old infrastructure. This would be done similarly to the way FDR financed the New Deal by means of the Reconstruction Finance Corporation or the way Lincoln funded the Civil War with Greenbacks, dollars that didn't have to be appropriated by Congress. Since Fed Chair Jerome Powell and incoming Treasury Secretary Janet Yellen, formerly a Fed Chair, know the ropes, Republicans are wary that they might have too cozy a relationship which would enable Joe Biden to fund a Green New Deal and other social programs which would benefit average Americans. What it boils down to is this: Republicans represent wealthy Americans, the upper 1%, who have disproportionately benefited under current government programs and Republican tax cuts, and they will do everything in their power to see to it that the Biden administration will not be able to implement any programs which will benefit average Americans.

Off the Top of My Head

How Joe Biden and the Democrats Can Attract Trump's Base to Their Side

by John Lawrence, November28, 2020

Aside from the entertainment value of the Trump Presidency, his main appeal and the main appeal of Republicans in general is that they stand for reducing taxes. Democrats can co-opt this issue. Here's how: before the next election, they announce that, if elected, they will reduce taxes on everyone making less than $400,000. Joe said he wouldn't raise taxes on that group, but he didn't go far enough. He needs to reduce taxes on everyone making less than $400,000 while raising them on everyone making more than $400,000. Trump's base, I assume, are people making less than $400,000. They are attached party wise to the wealthy Republicans who make up the top 1% with whom they have nothing in common economically. How will Joe pay for this? Simple: the money raised by raising taxes on the rich, making corporations pay their fair share, closing loopholes like the "carried interest" loophole and a financial transactions tax (FTT). And it wouldn't have to balance out equally. In other words the money raised in increased taxes on the rich would not have to equal the money spent on tax breaks for everyone making less than $400,000. It would represent the destruction of the Republican meme: "Democrats will raise your taxes."

The Federal budget need not balance out exactly. It hasn't done that since President Clinton balanced the budget in 2001. He had budget surpluses for fiscal years 1998-2001, the only such years from 1970-2020. Clinton's final four budgets were balanced budgets with surpluses, beginning with the 1997 budget. Since then Republicans, supposedly the guarantors of fiscal conservatism, have deficit spent by means of tax cuts going mainly to the rich. Even before Clinton, Reagan deficit spent with tax cuts in the 1980s. This meme that Republicans represent tax cuts and fiscal conservatism needs to come to an end and be exposed by Democrats for what it is. Evidently, the middle class Republican voters are satisfied with a meager tax cut and don't mind that the rich are getting a more hefty one. That's why Democrats have to take over this meme by giving tax cuts to the middle class and tax raises to the rich. This is the only way finally to get economic inequality under control.

Modern Monetary Theory and the Federal Reserve's own history prove that Deficits Don't Matter. The US dollar is a sovereign currency. The Federal Reserve can just print money and spend it into the economic system without adding it to the national debt. This is exactly what Abraham Lincoln did during the Civil War when he printed greenbacks instead of borrowing the money at interest which would have created huge debts for the United States. So there are two ways that money can be created by the Fed. 1) They can buy US Treasury bonds which would require Congress to deficit spend. 2) They can just print the money and pour it into Federal coffers. This does not add to the national debt but goes on the Fed's balance sheet. The bottom line is what is the money to be used for? If it's for a good cause like building green infrastructure and creating jobs in the process if the economy is less than fully employed, it probably won't create inflation. If it's just a gift to people in an already fully employed economy, it will most definitely create inflation or even hyper inflation.

So in the long run deficits do matter in the sense that, if the money is spent frivolously, inflation and potentially a loss in the value of the dollar on international markets could occur. However, if the money is spent constructively on building and repairing of infrastructure and other useful purposes, deficits won't matter. It boils down to prudent and responsible spending by government. Is Congress up to this task? Is the Fed? At this point a deal between the Executive branch and the Fed would seem more appropriate than running the whole thing through Congress where political ambitions of one party or the other can get in the way. The problem is that there is no consensus in Congress unless one party holds control over both Houses and the Presidency. Barring that, each party will try to limit the other party's spending goals which are tax breaks for the rich (Republicans) or government spending on social programs (Democrats). One way to break this stalemate is for Democrats to be the party of tax breaks for the 99% and tax increases for the 1% while maintaining their commitments to the social safety net.

Off the Top of My Head

by John Lawrence, November 25, 2020

Why Janet Yellen is the Perfect Choice for Treasury Secretary?

Because as former Fed Chairman she knows where the bodies are buried, figuratively speaking of course. She was the first woman to head the Federal Reserve from 2014 to 2018, and now will be the first female Treasury Secretary. She knows that the Federal Reserve has the capacity to just print money and that money does not get added to the national debt or the deficit. The charade that goes on between Mnuchin and Nancy Pelosi represents an unnecessary exercise in futility The Fed has printed trillions of dollars to bail out the banks, and it has swallowed large amounts of Treasury bills if nobody wants to buy them at auction. The Fed's charter is 1) to insure full employment and 2) to check inflation. With all the money the Fed has printed so far with their policy of "quantitative easing", there has been no inflation. So money printing is a viable strategy to keep the economy functioning, but so far it has only functioned well for rich people. Now there can and should be a policy of "quantitative easing for the people." If Congress won't cooperate, Janet Yellen could do an end run around Congress and make a deal between her and the present Fed Chairman, Jerome Powell.

Joe Biden is going to need a lot of money to build green infrastructure, and Congress, if under Republican control, will deny him that money. Is that blunt enough? If MItch McConnell is leader of the Senate, he will make sure that what he did to Obama, he will do to Joe Biden, that is to deny him the wherewithal for any of his progressive programs even if they are less progressive than the left wing of the Democratic party wants. So let's expose this fiction that money is not available for a Green New Deal which amounts to doing what might not even be sufficient to forestall climate change. It would also create millions of good paying jobs by the way. What's wrong with that? Republicans will say that it will add trillions of dollars to the national debt. But did the trillions spent bailing out the big banks add trillions to the national debt? No, it didn't add a penny. That's because the Fed just printed the money, and it didn't increase inflation either. So the money is available for much needed social programs involving renewable energy and green infrastructure. A by product is eliminating unemployment and creating good paying jobs just like the Federal Reserve is tasked to do.

Fed Chairman Jerome Powell has spoken out to encourage more spending to help the economy. He knows that the Fed can and will pick up the slack by buying Treasury bills and deep sixing them on the Fed's balance sheet even as politicians keep up the fiction that Congressional leaders are concerned about the deficit:

Federal Reserve Chairman Jerome Powell on Tuesday urged Congress to spend more money to limit the economic damage of the COVID-19 pandemic, the latest in a chorus of current and past Fed officials to tell lawmakers that inaction could lengthen the recession.

“There’s a reasonable probability that more will be needed both from you, and from the Fed,” Powell told the Senate Banking Committee, echoing nudges he has made in nearly every public statement since the pandemic began.

Powell has noted that COVID-19’s economic devastation has fallen hardest on low-income workers — 40 percent of individuals making under $40,000 lost their jobs during the crisis.

Sen. Chris Van Hollen, D-Md., asked whether congressional spending would be a more effective response than the Fed’s monetary policy.

“In the short and medium term, yes: fiscal policy,” Powell said, adding that, in the long term, fiscal and monetary policies encouraging maximum employment were the way to go.

Powell’s urging has been voiced more explicitly by other Fed leaders past and present in recent days. Former Fed Chairman Ben Bernanke co-wrote a letter to congressional leadership Monday that was also signed by Janet Yellen, another former leader of the Fed, and 131 other economists.

“Insufficiently bold congressional policy responses to the Great Recession unnecessarily prolonged suffering and stunted economic growth,” Bernanke wrote, along with Washington Center for Equitable Growth CEO Heather Boushey and Cecilia Rouse, dean of the Woodrow Wilson School at Princeton. “Congress should not make this mistake again.”

In the past week, regional Fed presidents have also asked Congress to do more — not just to respond to the pandemic, but to encourage more inclusive growth as Black Lives Matter protests continue across the nation.

“Systemic racism is a yoke that drags on the American economy,” Raphael Bostic, president of the Atlanta Fed and the only African American to lead a regional Fed bank, wrote in a blog post on the regional bank’s website. “A commitment to an inclusive society also means a commitment to an inclusive economy.”

Those comments have been matched by the heads of the Fed’s San Francisco, Richmond and Dallas branches in recent days.

These comments reveal the barely disguised fiction that Congress has to act first in order to open up the flood gates of Federal Reserve money printing. However, even if that is the case, Congress needs to get off its butt. Because of arcane laws, the Fed can't act directly. Powell's barely disguised Fed speak is implying that money is available for bailing out the economy, and that the powers that be should just go ahead and use it. The argument that it would add to the national debt is null and void. The secret that some Congressional leaders want to maintain is that the Fed's trillion dollar bailout of the big banks in 2008 did not add to the national debt. Nevertheless, some Congressional leaders are aware of Modern Monetary Theory which maintains that Deficits Don't Matter. In 2014 the author of this book, Stephanie Kelton, was designated as Chief Economist for the Democratic Minority Staff of the Senate Budget Committee and later became an economic advisor to the Bernie Sanders campaign.

So money is available for a massive Green New Deal which will benefit both the economy and the salvation of the planet from global warming. Other aspects of Joe Biden's and Kamala Harris' agenda are also doable if the US can get off its butt and use the facilities that were available to bail out the big banks for the benefit of middle class and poor Americans and save the planet while doing it.

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.

How Big Money Corrupts Our Politics (And How to Fix It)

by Robert Reich

 

Tuesday, September 1, 2020

Corporate money is dominating our democracy.

It’s difficult to do anything – increase the minimum wage, reverse climate change, get Medicare for All, end police killings, fight systemic racism, shrink our bloated military – when big money controls our politics and dictates what policies are and aren’t enacted.

The pandemic has made that clearer than ever. The CARES Act, passed in late March as our pandemic response began, quietly provided huge benefits to wealthy Americans and big corporations. One provision doled out $135 billion in tax relief to people making at least half a million dollars, the richest 1% of American taxpayers. 

This $135 billion is three times more than the measly $42 billion allocated in the CARES Act for safety-net programs like food and housing aid. It’s just shy of the $150 billion going to struggling state governments, and vastly more than the $100 billion being spent on overwhelmed hospitals and other crucial public health services.

As Americans are still suffering massive unemployment and the ravages of the pandemic, lobbyists are crawling all over Capitol Hill and the White House is seeking continued subsidies for the rich and for corporations — while demanding an end to supplemental assistance for average working people, the poor, and the unemployed.

It’s corruption in action, friends. And it’s undermining our democracy at every turn.

Ask yourself how, during a global pandemic, the total net worth of U.S. billionaires has climbed from $2.9 trillion to $3.5 trillion, when more than 45.5 million Americans filed for unemployment benefits.

Is it their skill? Their luck? Their insight? No. It’s their monopolies, enabled by their stranglehold on American democracy… monopolies like Amazon, Google, and Facebook, which have grown even larger during the pandemic.

It’s also their access to insider information so they can do well in the stock market, like Senator Richard Burr, chairman of the Senate intelligence committee, and Senator Kelly Loeffler, whose husband happens to be chairman of the New York Stock Exchange. Both were fully briefed on the likely effects of the coronavirus last February and promptly unloaded their shares of stock in companies that would be hit hardest.

And it’s the tax cuts and subsidies they’ve squeezed out of government.

You are paying for all of this — not just as taxpayers but as consumers.

When you follow the money, you can see clearly how every aspect of American life has been corrupted.

Take prescription drugs. We spend tens of billions of dollars on prescriptions every year, far more per person than citizens in any other developed country. Now that millions of Americans are unemployed and without insurance, they need affordable prescription drugs more than ever.

Yet even the prices of drugs needed by coronavirus patients are skyrocketing.
Big Pharma giant Gilead is charging a whopping $3,120 for its COVID drug, Remdesivir, even though the drug was developed with a $70,000,000 grant from the federal government paid for by American taxpayers.

Once again, Big Pharma is set to profit on the people’s dime. And they get away with it because our lawmakers depend on their campaign donations to remain in power.

As you watch this, Mitch McConnell is actively blocking a bill drafted by Senate Republicans to reduce drug prices — after taking more than $280,000 from pharmaceutical companies so far this election season.

Big Pharma is just one example. This vicious cycle is found in virtually every sector, and it’s why we continue to be met with politicians who don’t have our best interests at heart.

So how do we get big money out of our democracy?

A good starting point can be found in the sweeping reform package known as H.R. 1 — the For the People Act. The bill closes loopholes that favor big corporations and the wealthy, makes it easier for all of us to vote, and strengthens the power of small donors through public financing of elections — a system which matches $6 of public funds for every $1 of small donations.

The For the People Act would also bar congresspeople from serving on corporate boards, require presidents to publicly disclose their tax returns, and make executive appointees recuse themselves in cases where there is a conflict of interest.

These are just a few examples of tangible solutions that already exist to rein in unprecedented corruption and stop America’s slide toward oligarchy — but there’s much more we can and should do. 

The important thing to remember is that the big money takeover of our democracy prevents us from advancing all of the policies we need to overhaul our racist, oppressive system and create a society that works for the many, not the few.

Off the Top of My Head

The Intergenerational Transfer of Wealth

by John Lawrence, July 26, 2020

Too often when we talk about "family economics" it's all about budgeting, saving for the future, making payments on debts etc. It's never about wealth accumulation. It's as if the average person is not supposed to be accumulating wealth - just paying their bills. There are staggering differences in intergenerational transfers of wealth between black and white families. According to the Brookings Institute, "At $171,000, the net worth of a typical white family is nearly ten times greater than that of a Black family ($17,150) in 2016. Gaps in wealth between Black and white households reveal the effects of accumulated inequality and discrimination, as well as differences in power and opportunity that can be traced back to this nation’s inception." Most middle class families accumulate wealth by means of home ownership. Poor people, both black and white are usually renters who don't accumulate any wealth to pass on to their children. So each generation starts from scratch, from zero.

Government programs by and large, while supporting the poor at some basic level have nothing to do with putting them in a position to accumulate wealth. It is assumed that, if they can just pay their bills, they will be able to rise above the poverty level. But then the intergenerational transfer of wealth is zero. A good program would be not just affordable housing, but affordable ownership of housing. The government could have expedited this in 2008 by supporting mortgages instead of letting them be foreclosed on. It bailed out banks instead. Government sponsored programs which subsidize home ownership for black people would be an effective form of reparations. Not to mention that it would also be an effective means to lift poor white families not only out of poverty in the sense of being able to pay bills to support a comfortable lifestyle, but also as a means to create wealth so that, intergenerationally, children would be starting off from a higher level - not zero.

There are many ways that black families have been denied the ability to participate in the American Dream. Efforts by Black Americans to build wealth can be traced back throughout American history. But these efforts have been impeded in a host of ways, beginning with 246 years of chattel slavery and followed by Congressional mismanagement of the Freedman’s Savings Bank (which left 61,144 depositors with losses of nearly $3 million in 1874), the violent massacre decimating Tulsa’s Greenwood District in 1921 (a population of 10,000 that thrived as the epicenter of African American business and culture, commonly referred to as “Black Wall Street”), and discriminatory policies throughout the 20th century including the Jim Crow Era’s “Black Codes” strictly limiting opportunity in many southern states, the GI bill, the New Deal’s Fair Labor Standards Act’s exemption of domestic agricultural and service occupations, and redlining.

Wealth was systematically taken from black families or impediments were placed in their way so that things that white people were able to do were not allowed to black families. Consequently, a legacy of poverty was passed down from generation to generation. A culture of poverty perpetuated itself with possibly some government help to obtain the bare essentials. Too often single parent families became the norm. Too often the discourse was kept at the level of paying for the necessities of life and not wealth creation. Being poor has even been thought of as something noble. It's even praised in the Christian tradition. The Bible says: “No one can serve two masters, for either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve God and money." And "It's easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of heaven."

I am not talking about "wealth" as the accumulation of things like expensive real estate, yachts and the playthings owned by the very rich. I am talking about wealth in the sense referred to earlier that a middle class family accumulates by virtue of home ownership and then passes on to their children when they die. So this might be a few hundred thousand dollars or more, but not enough to support a "lifestyle of the rich and famous." The point is that the cycle of intergenerational poverty can be broken by this transfer of wealth. Of course another way out of poverty is education but not when you have to go into hundreds of thousands of student loan debt in order to get it. That is a debt trap, and there are many others laid for poor people - payday loans, for example - in the same way that once the slaves were freed and became share croppers, they ended up indebted to their landlords who in most cases were their former owners.

Habitat for Humanity has a great program for building houses and then making a formerly poor famiiy the owner of the house. This makes it possible for wealth creation for that family in the traditional way that most white families have created wealth for themselves - home ownership. This is not merely the creation of affordable housing but the creation of the affordable ownership of housing. There's a big difference. This program should be greatly expanded and replicated by government if government wants to help black families in particular end the intergenerational cycle of poverty.

 

 

Off the Top of My Head

Republicans Careful Not To Be "Overly Generous"

by John Lawrence, March 25, 2020

The $2 trillion coronavirus relief package is being held up because Republicans don't want to approve a provision giving unemployed workers $600 per week over and above their state unemployment benefits. This might actually give some workers more money per week than they were actually making when they were employed. Also gig workers such as me would be eligible for these benefits which makes Republicans absolutely apoplectic. My California unemployment benefits would be about $230 so $600. more would make my weekly take home $830 considerably more than what I usually make working about 30 hours a week. Republicans think this would be a total travesty of the free market system. But they miss the point.

What is necessary for the economy to keep working is for people to go out and spend money since consumption is 70% of GDP. Neel Kashkari, who was in charge of the $700 billion TARP bailout during the 2008 financial crisis said that the country would have been better off if the government had been "much more generous" to all homeowners, no matter how deserving they were. Instead, the country was overly generous to Wall Street banks no matter how undeserving they were. And that's just the crux of the matter. To keep the economy functioning the government has to be overly generous to average people who will go out and spend their money which contributes to the 70% consumption economy. The TARP program was supposed to help homeowners with their mortgages as well as the banks. It helped the banks, but fell far short of helping the homeowners.

The Week reported:

That's the key thing to understand: Under Geithner's TARP approach, returning the banks' balance sheets to health necessitated bleeding American families dry.

"Tim [Geithner] thought he was smart enough to have it both ways; that he could protect the bank executives and stockholders and get the same result when they actually restructure the banks," Silvers told The Week. "And he was wrong." That choice also goes a long way towards explaining why, even though the crisis in the financial system itself passed rather quickly, the massive collapse in employment took 10 grinding years to repair. It's why 10 million American families lost their homes, and why, almost a decade later, the bank bailouts remain a source of simmering rage, nihilism, and distrust among voters.

"It was an extremely costly mistake," Silvers concluded. "In terms of homeownership, jobs, small businesses, and perhaps most of all the American people's trust in their government."

The Home Affordable Mortgage Program (HAMP), which was a major part of TARP, was designed to keep 4 million homeowners out of foreclosure. However, only about 1.6 million people were helped. The failure was not for lack of funding. Hundreds of billions of dollars was available and could have gone directly to help struggling homeowners who were being driven out of their homes, but  “Treasury just sat on that money and didn’t do it,” Inspector General for the Troubled Asset Relief Program Neil Barofsky said.

So with that experience and that knowledge in mind, Democrats in Congress don't want to repeat the same mistake. They want money in the hands of the American people who will go out and spend it. Poorer Americans are more likely to spend any relief package given to them, and, if they end up getting more per week in unemployment benefits than they were making at their job, so much the better. The banks are already fully capitalized. Losing no time the Federal Reserve has already given $1.5 trillion to the banks and lowered interest rates to zero.

The System: Who Rigged It, How We Fix It

by Robert Reich

Tuesday, March 24, 2020

The coronavirus has starkly revealed what most of us already knew: The concentration of wealth in America has created a a health care system in which the wealthy can buy care others can’t. 

It’s also created an education system in which the super-rich can buy admission to college for their children, a political system in which they can buy Congress and the presidency,  and a justice system in which they can buy their way out of jail. 

Almost everyone else has been hurled into a dystopia of bureaucratic arbitrariness, corporate indifference, and the legal and financial sinkholes that have become hallmarks of modern American life.

The system is rigged. But we can fix it.

Today, the great divide in American politics isn’t between right and left. The underlying contest is between a small minority who have gained power over the system, and the vast majority who have little or none. 

Forget politics as you’ve come to see it – as contests between Democrats and Republicans. The real divide is between democracy and oligarchy.

The market has been organized to serve the wealthy. Since 1980, the percentage of the nation’s wealth owned by the richest four hundred Americans has quadrupled (from less than 1 percent to 3.5 percent) while the share owned by the entire bottom half of America has dropped to 1.3 percent [Saez & Zucman]. 

The three wealthiest Americans own as much as the entire bottom half of the population. Big corporations, CEOs, and a handful of extremely rich people have vastly more influence on public policy than the average American. Wealth and power have become one and the same.

As the oligarchs tighten their hold over our system, they have lambasted efforts to rein in their greed as “socialism”, which, to them, means getting something for doing nothing.

But “getting something for doing nothing” seems to better describe the handouts being given to large corporations and their CEOs. General Motors, for example, has received $600 million in federal contracts and $500 million in tax breaks since Donald Trump took office. Much of this “corporate welfare” has gone to executives, including CEO Mary Barra, who raked in almost $22 million in compensation in 2018 alone. GM employees, on the other hand, have faced over 14,000 layoffs and the closing of three assembly plants and two component factories.

Our system, it turns out, does practice one form of socialism – socialism for the rich. Everyone else is subject to harsh capitalism.

Socialism for the rich means people at the top are not held accountable. Harsh capitalism for the many, means most Americans are at risk for events over which they have no control, and have no safety nets to catch them if they fall.

Among those who are particularly complicit in rigging the system are the CEOs of America’s corporate behemoths. 

Take Jamie Dimon, the CEO of JPMorgan Chase, whose net worth is $1.4 billion. He comes as close as anyone to embodying the American system as it functions today.

Dimon describes himself as “a patriot before I’m the CEO of JPMorgan.”

He brags about the corporate philanthropy of his bank, but it’s a drop in the bucket compared to his company’s net income, which in 2018 was $30.7 billion – roughly one hundred times the size of his company’s investment program for America’s poor cities. 

Much of JP Morgan’s income gain in 2018 came from savings from the giant Republican tax cut enacted at the end of 2017 – a tax cut that Dimon intensively lobbied Congress for.

Dimon doesn’t acknowledge the inconsistencies between his self-image as “patriot first” and his role as CEO of America’s largest bank.
He doesn’t understand how he has hijacked the system.

Perhaps he should read my new book.

To understand how the system has been hijacked, we must understand how it went from being accountable to all stakeholders – not just stockholders but also workers, consumers, and citizens in the communities where companies are headquartered and do business – to intensely shareholder-focused capitalism.

In the post-WWII era, American capitalism assumed that large corporations had responsibilities to all their stakeholders. CEOs of that era saw themselves as “corporate statesmen” responsible for the common good.

But by the 1980s, shareholder capitalism (which focuses on maximizing profits) replaced stakeholder capitalism. That was largely due to the corporate raiders – ultra-rich investors who hollowed-out once-thriving companies and left workers to fend for themselves.

Billionaire investor Carl Icahn, for example, targeted major companies like Texaco and Nabisco by acquiring enough shares of their stock to force major changes that increased their stock value – such as suppressing wages, fighting unions, laying off workers, abandoning communities for cheaper labor elsewhere, and taking on debt – and then selling his shares for a fat profit. In 1985, after winning control of Trans World Airlines, he loaded the airline with more than $500 million in debt, stripped it of its assets, and pocketed nearly $500 million in profits.

As a result of the hostile takeovers mounted by Icahn and other raiders, a wholly different understanding about the purpose of the corporation emerged.

Even the threat of hostile takeovers forced CEOs to fall in line by maximizing shareholder profits over all else. The corporate statesmen of previous decades became the corporate butchers of the 1980s and 1990s, whose nearly exclusive focus was to “cut out the fat” and make their companies “lean and mean.”

As power increased for the wealthy and large corporations at the top, it shifted in exactly the opposite direction for workers. In the mid-1950s, 35 percent of all private-sector workers in the United States were unionized. Today, 6.4 percent of them are.

The wave of hostile takeovers pushed employers to raise profits and share prices by cutting payroll costs and crushing unions, which led to a redistribution of income and wealth from workers to the richest 1 percent. Corporations have fired workers who try to organize and have mounted campaigns against union votes. All the while, corporations have been relocating to states with few labor protections and so-called “right-to-work” laws that weaken workers’ ability to join unions.

Power is a zero-sum game. People gain it only when others lose it. The connection between the economy and power is critical. As power has concentrated in the hands of a few, those few have grabbed nearly all the economic gains for themselves.

The oligarchy has triumphed because no one has paid attention to the system as a whole – to the shifts from stakeholder to shareholder capitalism, from strong unions to giant corporations with few labor protections, and from regulated to unchecked finance.

As power has shifted to large corporations, workers have been left to fend for themselves. Most Americans developed 3 key coping mechanisms to keep afloat.

The first mechanism was women entering the paid workforce. Starting in the late 1970s, women went into paid work in record numbers, in large part to prop up family incomes, as the wages of male workers stagnated or declined. Then, by the late 1990s, even two incomes wasn’t enough to keep many families above water, causing them to turn to the next coping mechanism: working longer hours. By the mid-2000s a growing number of people took on two or three jobs, often demanding 50 hours or more per week.

Once the second coping mechanism was exhausted, workers turned to their last option: drawing down savings and borrowing to the hilt. The only way Americans could keep consuming was to go deeper into debt. By 2007, household debt had exploded, with the typical American household oweing 138 percent of its after-tax income. Home mortgage debt soared as housing values continued to rise. Consumers refinanced their homes with even larger mortgages and used their homes as collateral for additional loans.

This last coping mechanism came to an abrupt end in 2008 when the debt bubbles burst, causing the financial crisis. Only then did Americans begin to realize what had happened to them, and to the system as a whole. That’s when our politics began to turn ugly.  

So what do we do about it?

The answer is found in politics and rooted in power.

The way to overcome oligarchy is for the rest of us to join together and form a multiracial, multiethnic coalition of working-class, poor and middle-class Americans fighting for democracy.

This agenda is neither “right” nor “left.” It is the bedrock for everything America must do.

The oligarchy understands that a “divide-and-conquer” strategy gives them more room to get what they want without opposition. Lucky for them, Trump is a pro at pitting native-born Americans against immigrants, the working class against the poor, white people against people of color. His goal is cynicism, disruption, and division. Trump and the oligarchy behind him have been able to rig the system and then whip around to complain loudly that the system is rigged.

But history shows that oligarchies cannot hold on to power forever. They are inherently unstable. When a vast majority of people come to view an oligarchy as illegitimate and an obstacle to their wellbeing, oligarchies become vulnerable.

As bad as it looks right now, the great strength of this country is our resilience. We bounce back. We have before. We will again.

In order for real change to occur – in order to reverse the vicious cycle in which we now find ourselves – the locus of power in the system will have to change.

The challenge we face is large and complex, but we are well suited for the fight ahead.

Together, we will dismantle the oligarchy.

Together, we will fix the system.

New Senate Stimulus Bill Would Ban Companies Owned by Trump or His Children From Receiving Any Bailout Money

Published on Wednesday, March 25, 2020

by Common Dreams

A provision in the massive bill prohibits "businesses controlled by the president, vice president, members of Congress, and heads of executive departments from receiving loans or investments from Treasury programs."

by Jake Johnson, staff writer

 

41 Comments

President Donald Trump and Vice President Mike Pence look over some notes as they participate in a Fox News Virtual Town Hall with Anchor Bill Hemmer in the Rose Garden of the White House on March 24, 2020 in Washington, D.C. (Photo: Doug Mills-Pool/Getty Images)

A massive coronavirus stimulus plan that the Senate and White House agreed to in the early hours of Wednesday morning would bar any companies owned or controlled by President Donald Trump, the president's children, Vice President Mike Pence, or members of Congress from receiving any taxpayer bailout money, according to a summary of the legislation circulated by Senate Minority Leader Chuck Schumer.

The sprawling $2 trillion bill, which has not yet been released in full, would "prohibit businesses controlled by the president, vice president, members of Congress, and heads of executive departments from receiving loans or investments from Treasury programs," Schumer's summary states.

 "The children, spouses, and in-laws of the aforementioned principals are also included in this prohibition," the document adds.

Trump in recent days has voiced his desire for the hotel industry to be among the corporate beneficiaries of any congressional stimulus legislation and—after being pressed repeatedly by reporters—has refused to vow that his own companies would not receive money from any taxpayer bailout programs.

The president also asserted that he will personally oversee the corporate bailout funds. "We're going to make good deals," Trump said during a press briefing on Monday.

"Several Trump-branded properties have been affected by the virus-induced demand crash, as well as state and local restrictions on going out in public," Bloomberg reported Wednesday morning.

After doing some whataboutism about Obama and H1N1, Trump claims "I think we're doing an incredible job. All you have to do is look at the approval numbers." pic.twitter.com/zfTaQHLiDS

— Aaron Rupar (@atrupar) March 22, 2020

Senate Democrats earlier this week stopped the GOP's efforts to advance an earlier version of the stimulus bill in an effort to extract concessions from the White House and Senate Republicans, who Democrats accused of attempting to force through a corporate "slush fund" with little regard for workers.

In negotiations with Senate Republicans and Trump administration officials, Democrats reportedly won inclusion of a significant boost in unemployment benefits (which would also be extended to gig workers), more money for hospitals, and independent oversight of a $500 billion corporate loan fund that the legislation would establish.

As the heated talks over the stimulus bill progressed Tuesday, progressive lawmakers expressed concerns about the enormous legislative package, which could hit the Senate floor for a vote as soon as Wednesday afternoon.

"The developments of this Senate relief bill are concerning," Rep. Alexandria Ocasio-Cortez (D-N.Y.) tweeted Tuesday afternoon, before the Senate agreement was finalized. "We are hearing lots of vague statements, but not a single member of Congress has seen actual bill text. It seems to give a *HALF TRILLION DOLLARS* away to big corporations, with few worker protections. Half a trillion."

With the House out of session and lawmakers wary of returning to Capitol Hill amid the coronavirus outbreak, House Speaker Nancy Pelosi (D-Calif.) is expected to attempt to pass the Senate bill by unanimous consent, which requires the agreement of every member.

"If unanimous consent is not possible," the Washington Post reported, "aides of both parties said the most likely scenario would be a day-long vote where members would be encouraged to spread out their trips to the floor and not congregate as the vote is taken."

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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.

Four Reasons Why Millennials Don’t Have Any Money

by Robert Reich

Tuesday, January 7, 2020

The same forces that are driving massive inequality between the top 1 percent and the rest of us are creating a vast generational wealth gap between baby boomers — my generation — and millennials.

Millennials aren’t teenagers anymore. They’re working hard, starting families and trying to build wealth. But as a generation, they’re way behind. 

They’re deeper in debt, only half as likely to own a home, and more likely to live in poverty than their parents.

If we want to address their problems, we need to understand those problems.

Number one: Stagnant wages. Median wages grew by an average of 0.3% per year between 2007 and 2017, including the Great Recession – just as millennials were beginning their careers. Before that, between the mid-1980s and mid-1990s, wages grew at three times that rate.

Second: As wages have stagnated, the costs of essentials like housing and education have been going through the roof. Millennials own fewer homes, the most common way Americans have built wealth in the past.  Education costs have soared. Adjusted for inflation, the average college education in 2018 cost nearly three times what it did in 1978.

Third: As a result of all of this, Debt.  That expensive college education means that the average graduate carries a whopping $28,000 in student loan debt. As a generation, millennials are more than one trillion dollars in the red.  In addition, the average young adult carries nearly $5,000 in credit card debt, and this number is growing.

Fourth: Millennials are finding it harder than previous generations to save for the future. Among Fortune 500 companies, only 81 sponsored a pension plan in 2017, that’s down from 288 twenty years ago. Employers are replacing pensions with essentially “do-it-yourself” savings plans.

All of this means that fewer millennials are entering the middle class than previous generations.  Most have less than $1,000 in savings. Many young people today won’t be able to retire until 75, if at all.

If we don’t start trying to reduce this generational wealth gap — through policies like debt relief, accessible health insurance, paid family leave, affordable housing, and a more equitable tax code for renters — millions of young Americans will struggle to find financial security for the rest of their lives.

Off the Top of My Head

Things I've Spent Little or No Money On

by John Lawrence

Call me a crank, a codger or an eccentric, but I've spent very little money on things that seem to be very popular with everyone else. Take tattoos for example. I've spent zero dollars on tattoos. The tattoo industry had a market size of $1.7 billion in the US in 2019. Couldn't that money have been better spent on something else? I'm channeling my inner Andy Rooney here. I know we should all be very grateful that that $1.7 billion added to the growth of the economy and represented a lot of jobs for tattoo artists. But I'm not ... grateful that is. How many mouths could that have fed, how many toilets could that have bought for people who don't have indoor plumbing in India? How many teachers' salaries could that have provided for or augmented even here in the US where teachers have to work two jobs to make ends meet? And would the people who spent that money on tattoos have been any worse off if their money had been spent on helping poor children in the developing world? I don't think so. They still presumably would be well fed and housed although I've seen some homeless people with tattoos. Maybe their money would have been better spent on paying rent.

I've never spent any money on cruises or golf. Golf has an economic impact of $84 billion in the US as of 2016. $126 billion in total economic impact and 1 million jobs paying $41 billion in wages and salaries were generated by the global cruise industry in 2016. I have no desire to go on a cruise. I don't want to be cooped up with a bunch of strangers for two or three weeks. But if all cruises were suddenly halted and the money redirected to some more worthwhile activity like rebuilding infrastructure or putting more electric cars on the road, it seems like the world might be a slightly better place. The same could be said for golf. It represents some exercise, yes, but by the time you ride around the course in a golf cart, you'd be better off swimming or working out in a gym. and that would be a lot cheaper.

I've never spent any money on gambling despite the fact that we're surrounded by Indian casinos in San Diego County. All you have to do is to look at the huge, elaborate casinos to know that all that money that went into them represents money people have lost gambling. My wife and I used to go to some of the casinos, but only to eat in some of their fine restaurants, not to gamble. I used to go to Las Vegas to the Consumer Electronic Show or once my wife and I went to the Celine Dion show at Caesar's Palace. However, we never lost any money gambling since we never gambled. A friend of mine gambled $5. that one of his co-workers had given him to gamble for her. By the time he got her on the cell phone to tell her he was at the roulette table gambling her money, he had lost the $5.

I've spent very little money on Halloween which is what I would consider a worthless holiday. What's the point? To celebrate ghouls and goblins? The time would be better spent on a National Day of Ethics and Morality training now that the religious institutions have abandoned that role or rather now that most people have abandoned religious institutions. According to the National Retail Federation's annual survey, U.S. consumers are expected to spend $2.6 billion on Halloween candy. And much more will be spent on costumes. All that candy rots childrens' teeth. The time would be better spent on a National Good Nutrition day since most kids and millennials eat nothing but fast food.

Finally, I've spent very little money on interest. I've only made car payments on one car, the car I'm driving now, but I'm making money as an Uber and Lyft driver with that car especially since it's a 2018 Camry hybrid which qualifies me to do the more lucrative Uber "comfort" rides. When my driving career is over, I will get rid of the car and never buy another one. I'll just use Uber and Lyft as a rider along with public transportation for which I can buy a monthly senior pass for $25.00. I've paid very little in mortgage interest having paid off my first house in about 8 years. Currently, I pay nothing in mortgage interest although I own 3 homes, 2 of which are rentals. With the average interest rate on a 30-year, fixed-rate loan sitting at 4.44% someone purchasing a median-priced home with a typical 20% down payment would owe $169,390 in interest over the 30-year life of their mortgage — or $5,646 a year in interest. The average new car owner pays $4,356 in interest over the course of a 68-month loan, or $769 a year.

Then there are all those credit cards and various other payment plans.With the average APR on all credit cards up to 16.3% as of March 2017, the average cardholder who carries a balance — and there are a lot of them: 43.3% of cardholders are considered “revolvers,” meaning they carry a balance from month to month, versus the 29.2% of “transactors” who pay off their balances each month — is paying $855 a year just in interest charges. Even though I pay off the balance each month so I never pay interest, I'm still being charged some fee by the bank just to keep track of my account.

So, let’s put it all together: If you’re an average American family with a mortgage on a median-priced home, at least one car payment, an average student loan burden, and just one credit card with an average balance, you could be paying $8,037 or more just in interest each year. That’s a whopping 14% of the median household’s income that might be going toward something else but is just the pricey privilege of purchasing on credit.

No wonder Americans are living paycheck to paycheck and half of them couldn't afford a $400. emergency unless they put it on their credit card. It just goes to show that, when there is free money out there, people will have a propensity to consume, come hell or high water. Student loan debt has demonstrated that in spades. But someday the loan comes due. The chickens do really come home to roost, and the most egregious borrowers, namely the banks, collapse as they did in 2008.

Finally, if you've read this far, dear reader, perhaps you're wondering what  I have spent money on. Books, records, cds, jazz concerts, restaurants, Starbucks. These are the things I enjoy as opposed to spending money on things I don't enjoy as listed above.

Off the Top of My Head

Is It All Up To the Fed?

by John Lawrence

Central bankers are supposed to have enormous power to shape the economy. If a recession looms, the Fed will lower interest rates to stimulate economic activity. If the economy is getting too hot as measured by the inflation rate, the Fed is supposed to raise interest rates to slow the economy down. The European Central Bank acts in the same way. In fact central bankers all over the world, who primarily take their cues from Chairman Jerome Powell at the Federal Reserve, will do the same thing. The problem is that interest rates are actually negative in Europe and approaching that in the US. What then? Central bankers have lost their leverage over the economy not just here at home, but in most of the world, at least in those parts of the world that take their cues from the US.

That indomitable French lady, Christine Lagarde, just took control at the European Central Bank. For starters in a CBS "60 Minutes" interview, she said Trump was hurting the stability of the global economy. Trump is at war with Jerome Powell because he won't lower interest rates even more because Trump thinks this will keep the economy burning hot, and he will be reelected. Powell, however, believes in the independent role of the Fed and is not about to take orders from Trump. But how can you lower interest rates when interest rates are already at or approaching zero?

During the Great Recession, the Fed initiated a policy of Quantitative Easing (QE) in which it essentially printed money and bought a lot of the toxic financial instruments on the Big Banks' books. The Fed said that it would start offloading that debt when the economy recovered. It did raise interest rates a bit, but now it's lowered them again, and, furthermore, it has started printing $60 billion a month which money goes to the banks, not to the public. So youth wants to know ... is this something that will happen in perpetuity, that is, the printing of money by the Fed and the giving of that money to the Big Banks in order to further enrich bankers while doing nothing for average American citizens. The Fed is doing this all hush hush - not giving it an official name like QE4.

Christine Lagarde said "Trump’s unpredictability has forced investors to stop taking risks and that the U.S.-China trade war is “going to give a big haircut to the global economy.” “If you shave off, you know, almost a percentage point of growth that means less investment, less jobs, more unemployment, reduced growth. So of course it has an impact,” she told CBS News’s John Dickerson. Lagarde urged policymakers to “please sit down like big men” and make a deal. But Lagarde believes in the connectedness of the world whereas Trump just cares (supposedly) about the American people not people anywhere else in the world. She said, “International trade, connections, movement of people and movement of capital has taken hundreds of millions out of poverty. Now, some people in the advanced economies might say, ‘Pooh. What do I care?’ Well, of course we care for the person next door. And because of the interconnections, next door is not down the pathway, next door is everywhere around the world. And if my neighbors from across a border are feeling desperate, are starving, are fighting, there will be consequences back at home.” 

Outside the United States, 43 percent of bonds are trading at a negative interest rate, up from 20 percent late last year, according to Deutsche Bank Securities. Savers are paying banks to park their money. Banks are paying customers to borrow money. What's wrong with this picture? The Washington Post reported:

For Americans accustomed to paying 4 or 5 percent mortgage rates, let alone the double-digit figures consumers endured in the early 1980s, the new loan from Denmark’s Jyske Bank might seem inconceivable.

The Danish lender last week started offering home buyers 10-year mortgages at an interest rate of -0.5 percent. That means borrowers over a decade will pay back a little less than the amount borrowed, not including one-time fees.

This highly unusual condition may be good for Danish home buyers, but economists say it’s an alarming sign for the global economy. Several major governments and more than 1,000 big companies in Europe are now able to effectively borrow from global financial markets at a negative interest rate. For Jyske Bank, that means it can turn around and lend money at a subzero interest rate, too.

Such a deal! Buy a home and pay less for it than the purchase price! Not only Trump, but countries all over the world are desperate to get you to go into debt lest the world economy falls into recession, at least the Western world. It's not so clear how this will affect China and Russia. “It’s an absurdly odd world and it signals two things,” said investment banker Daniel Alpert, managing partner at Westwood Capital. “There’s an obvious, persistent and continuous glut of underutilized capital and there’s no place in the advanced world for that capital to be invested without excess risk.”

Yes, there is a glut of capital while 500,000 are homeless in the US, millions more are one paycheck away from homelessness, and refugees in the Middle East who have lost everything due to American bombing have nothing and could use just a little bit of that capital that is creating a glut on the world markets. In other words rich people have a gluttonous amount of money while the poor starve. The rich are being force fed money like French geese to produce foie gras while the poor struggle for a decent meal.

How to Pay for It All: An Option the Candidates Missed

Posted on July 10, 2019 by Ellen Brown, Web of Debt blog

The Democratic Party has clearly swung to the progressive left, with candidates in the first round of presidential debates coming up with one program after another to help the poor, the disadvantaged and the struggling middle class. Proposals ranged from a Universal Basic Income to Medicare for All to a Green New Deal to student debt forgiveness and free college tuition. The problem, as Stuart Varney observed on FOX Business, was that no one had a viable way to pay for it all without raising taxes or taking from other programs, a hard sell to voters. If robbing Peter to pay Paul is the only alternative, the proposals will go the way of Trump’s trillion dollar infrastructure bill for lack of funding.

Fortunately there is another alternative, one that no one seems to be talking about – at least no one on the presidential candidates’ stage. In Japan, it is a hot topic; and in China, it is evidently taken for granted: the government can generate the money it needs simply by creating it on the books of its own banks. Leaders in China and Japan recognize that stimulating the economy is not a zero-sum game in which funds are just shuffled from one pot to another. To grow the economy and increase GDP, demand (money) must go up along with supply. New money needs to be added to the system; and that is what China and Japan have been doing, very successfully.

Before the 2008-09 global banking crisis, China’s GDP increased by an average of 10% per year for 30 years. The money supply increased right along with it, created on the books of its state-owned banks. Japan under Prime Minister Shinzo Abe has been following suit, with massive economic stimulus funded by correspondingly massive purchases of the government’s debt by its central bank, using money simply created with computer keystrokes.

All of this has occurred without driving up prices, the dire result predicted by US economists who subscribe to classical monetarist theory. In the 20 years from 1998 to 2018, China’s M2 money supply grew from just over 10 trillion yuan to 180 trillion yuan ($26T), an 18-fold increase. Yet it closed 2018 with a consumer inflation rate that was under 2%. Price stability has been maintained because China’s Gross Domestic Product has grown at nearly the same fast clip, by a factor of 13 over 20 years.

In Japan, the massive stimulus programs called “Abenomics” have been funded through its central bank. The Bank of Japan has now “monetized” nearly 50% of the government’s debt, turning it into new money by purchasing it with yen created on the bank’s books. If the US Fed did that, it would own $11 trillion in US government bonds, four times what it holds now. Yet Japan’s M2 money supply has not even doubled in 20 years, while the US money supply has grown by 300%; and Japan’s inflation rate remains stubbornly below the BOJ’s 2% target. Abe’s stimulus programs have not driven up prices. In fact deflation remains a greater concern than inflation in Japan, despite unprecedented debt monetization by its central bank.     

China’s Economy: A Giant Ponzi Scheme or a New Economic Model? 

Critics have long called China’s economy a Ponzi scheme, doomed to collapse in the end; and for 40 years China has continued to prove the critics wrong. According to a June 2019 report by the Congressional Research Service:

Since opening up to foreign trade and investment and implementing free-market reforms in 1979, China has been among the world’s fastest-growing economies, with real annual gross domestic product (GDP) growth averaging 9.5% through 2018, a pace described by the World Bank as “the fastest sustained expansion by a major economy in history.” Such growth has enabled China, on average, to double its GDP every eight years and helped raise an estimated 800 million people out of poverty. China has become the world’s largest economy (on a purchasing power parity basis), manufacturer, merchandise trader, and holder of foreign exchange reserves.

This massive growth has been funded with credit created on the books of China’s banks, most of which are state-owned. Even in the US, course, most money today is created on the books of banks. That is what our money supply is – bank credit. What is different about the Chinese model is that the Chinese government can and does intervene to direct where the credit goes. In a July 2018 article titled “China Invents a Different Way to Run an Economy,” Noah Smith suggests that China’s novel approach to macroeconomic stabilization by regulating bank credit represents a new economic model, one that may hold valuable lessons for developed economies. He writes:

Many economists would see this approach as hopelessly ad hoc, haphazard, and interventionist — not the kind of thing any developed country would want to rely on. And yet, it seems to have carried China successfully through several crises, while always averting the catastrophic financial crash that outside observers have been warning about for years.

Abenomics, Helicopter Money and Modern Monetary Theory

Noah Smith has also written about Japan’s unique model. After Prime Minister Abe crushed his opponents in October 2017, Smith wrote on Bloomberg News, “Japan’s long-ruling Liberal Democratic Party has figured out a novel and interesting way to stay in power—govern pragmatically, focus on the economy and give people what they want.” He said everyone who wanted a job had one; small and midsize businesses were doing well; and the BOJ’s unprecedented program of monetary easing had provided easy credit for corporate restructuring without generating inflation. Abe had also vowed to make both preschool and college free.

Like China’s economic model, Abenomics has been called a Ponzi scheme, funded by central bank-created “free” money. But whatever it is called, the strategy has been working for the economy. Even the once-dubious International Monetary Fund has declaredAbenomics a success.

The Bank of Japan’s massive bond-buying program has also been called “helicopter money” — a policy in which the central bank directly finances government spending by underwriting bonds – and it has been compared to Modern Monetary Theory, which similarly posits that the government can spend money into existence with central bank funding. As Nathan Lewis wrote in Forbes in February 2019:

In practice, something like “MMT” has reached a new level of sophistication these days, exemplified by Japan. . . . The Bank of Japan now holds government bonds amounting to more than 100% of GDP. In other words, the government has managed to finance itself “with the printing press” to the amount of about 100% of GDP, with no inflationary consequences. [Emphasis added.]

Japanese officials have resisted comparisons with both helicopter money and MMT, arguing that Japanese law does not allow the government to sell its bonds directly to the central bank. As in the US, the government’s bonds must be sold on the open market, a limitation that also prevents the US government from directly monetizing its debt. But as Bank of Japan Deputy Governor Kikuo Iwata observed in a 2013 Reuters article, where the bonds are sold does not matter. What is important is that the central bank has agreed to buy them, and it is here that US banking law diverges from the laws of both Japan and China.

Central Banking Asia-style

When the US Treasury sells bonds on the open market, it can only hope the Fed will buy them. Any attempt by the president or the legislature to influence Fed policy is considered a gross interference with the sacrosanct independence of the central bank.

In theory, the central banks of China and Japan are also independent. Both are members of the Bank for International Settlements, which stresses the importance of maintaining the stability of the currency and the independence of the central bank; and both countries revised their banking laws in the 1990s to better reflect those policies. But their banking laws still differ in significant ways from those of the US.

In Japan, the Bank of Japan is legally free to set interest rates, but it must cooperate closely with the Ministry of Finance in setting policy. Article 4 of the 1997 Bank of Japan Act says:

The Bank of Japan shall, taking into account the fact that currency and monetary control is a component of overall economic policy, always maintain close contact with the government and exchange views sufficiently, so that its currency and monetary control and the basic stance of the government’s economic policy shall be mutually compatible.

Unlike in the US, Prime Minister Abe can negotiate with the head of the central bank to buy the government’s bonds, ensuring that the debt is in fact turned into new money that will stimulate domestic economic growth; and he is completely within his legal rights in doing it.

The leverage of China’s central government over its central bank is even stronger than the Japanese prime minister’s. The 1995 Law of the People’s Republic of China on the People’s Bank of China states:

The People’s Bank of China shall, under the leadership of the State Council, formulate and implement monetary policies, guard against and eliminate financial risks, and maintain financial stability.

The State Council has final decision-making power on such things as the annual money supply, interest rates and exchange rates; and it has used this power to stabilize the economy by directing and regulating the issuance of bank credit, the new Chinese macroeconomic model that Noah Smith says holds important lessons for us.

The successful six-year run of Abenomics, along with China’s decades of unprecedented economic growth, have proven that governments can indeed monetize their debts, expanding the money supply and stimulating the economy, without driving up consumer prices. The monetarist theories of US policymakers are obsolete and need to be discarded.

“Kyouryoku,” the Japanese word for cooperation, is composed of characters that mean “together strength” – “stronger by working together.” This is a recognized principle in Asian culture and it is an approach we would do well to adopt. What US presidential candidates from both parties should talk about is how to modify the law so that Congress, the Administration and the central bank can work together in setting monetary policy, following the approaches successfully modeled in China and Japan.

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First posted under another title at TruthDig.com. Ellen Brown is an attorney, founder and chair of the Public Banking Institute, and author of thirteen books, including Banking on the People: Democratizing Money in the Digital Age (June 2019), Web of Debt, and The Public Bank Solution.  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

Bitcoinish: My Sort of Understanding of Bitcoin and How To Make It Better

by John Lawrence, May 27, 2019

Bitcoin has been touted as an all digital peer-to-peer banking system involving transactions among individuals without those transactions having to pass through some (American) bank. The bitcoin replaces the US dollar for these transactions. My understanding starts with a simple bartering system in which a group of individuals agree to exchange an hour of work for an hour of work. Say I do an hour of lawn mowing for you. That builds up my account by one hour. Then I ask someone else in the network to do an hour of car repair for me and pay him with the hour I received for lawn mowing. That's the basic idea. This could all be computerized with each person having an account containing the number of hours they've built up. The next step is to not value all hours of work equally. Let's say the guy who works on my car wants 2 hours for a job that will only take him one hour, but since his job is more skilled, he thinks it should be worth more. Then I put the job out for bid. I shop around to see who will do the car job for the least amount of hours.

This "monetizes" the simple concept of each hour of work being equal to each other hour of work. Now "hours" start to resemble money or a medium of exchange. Each person has so many hours in their digital "wallet." This is very similar to bitcoin. With bitcoin each person's wallet is completely encrypted so that no scuzzball hacker can steal your money. Money can be deposited in any wallet, but only you can authorize the withdrawal of money from your wallet. However, there is an added function in bitcoin called the block chain. Each transaction gets recorded in the blockchain which acts like a ledger keeping track of all transactions. This is deemed necessary to insure the transparency and legitimacy of the entire system. You can trace all your debits and credits and make sure everything adds up. So far, so good.

The next level of legitimacy, however, is inherent in the current banking system but impossible with bitcoin. When you buy something at a store or fill up your gas tank and use a credit or debit card, the system first checks to see if the money is in your account or credit is available before completing the transaction. It it's a go, you get the merchandise or the gas. If not, the transaction is canceled. Since the amount of money in your bitcoin wallet is a secret, no one can validate whether or not you have the money to pay for the merchandise you are proposing to buy. So it has to be based on trust - not a good idea - or you have to pay first and take the chance that you won't get the goods. About the only transactions based on trust these days are when you order a meal in a restaurant. You customarily pay after the meal is eaten. If you don't have the money, you would be asked to wash dishes or they would call the cops and put you in jail like they did with Freddy the Freeloader, Red Skelton's character who just wanted a good meal and then taken to a warm jail cell for the winter. He told fellow diners he was an eccentric millionaire so they wouldn't be suspicious of his shabby clothes!

So with bitcoin there is no way to know whether the transaction is doable. Ideally, there would be a method to check without disclosing how much money is in the account. So in my bitcoinish system, there would be a way of checking, and the system would authorize the transaction just like they do when you make a purchase at Target. The block chain would record each transaction so as to provide a digital ledger that could be checked as often as desired.

With my simple bartering system, you would have to do an hour's work before you could "spend" that hour. This makes sense since you can't spend your paycheck until you do the work and get paid. With bitcoin you can "mine" bitcoin using a very complicated computer algorithm that takes hours of computing time to generate one bitcoin. This is the flaw in the ointment in my opinion. Some people have set up very expensive computer farms to "mine" bitcoin. What's to prevent a government, say the Chinese government, which has access to huge sums of money from mining the hell out of bitcoin? This "mining" feature is touted as making bitcoin non-fiat money. Fiat money is money that is just printed and is good because some government says it's good. Since bitcoin is "mined", bitcoin promoters will tell you that it's not fiat money just as gold is not fiat money. A monetary system based on gold insures that each unit of money is worth so much gold, and, since at any given time there is only so much gold available, there is only so much money in circulation until more gold is mined. However, this is a very hokey aspect of the bitcoin system in my opinion.

The last piece of the bitcoin system which also applies to my "bit-hourly" system is setting up an exchange. If you have so many bitcoin or so many "bit-hours" in your wallet, you might want to convert some of them or all of them to dollars or some other currency. The exchange provides a mechanism for pricing bitcoin or bit-hours in dollars, for example. This makes it so that bitcoin or bit-hours are convertible just like euros can be converted to dollars and vice versa.

With my bitcoinish system, I might envision also a work or job exchange where work is offered in return for bit-hours. Products could also be offered and priced in terms of bit-hours. The bit-hour or bitcoinish system would represent all digital money that could be used both for purchases and reimbursements. The major problem would be that it would have to be super secure so it couldn't be hacked and money stolen. Today ransomeware is being used to extort money from municipalities and districts because their computer systems are not secure. They need to upgrade their systems or disconnect important data from the internet. It boggles the mind why important data like medical records has not been stored offline so that it couldn't be hacked.

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.

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.

Goodbye to the Dollar

by Chris Hedges, from truthdig, February 4, 2019

The inept and corrupt presidency of Donald Trump has unwittingly triggered the fatal blow to the American empire—the abandonment of the dollar as the world’s principal reserve currency. Nations around the globe, especially in Europe, have lost confidence in the United States to act rationally, much less lead, in issues of international finance, trade, diplomacy and war. These nations are quietly dismantling the seven-decade-old alliance with the United States and building alternative systems of bilateral trade. This reconfiguring of the world’s financial system will be fatal to the American empire, as the historian Alfred McCoy and the economist Michael Hudson have long pointed out. It will trigger an economic death spiral, including high inflation, which will necessitate a massive military contraction overseas and plunge the United States into a prolonged depression. Trump, rather than make America great again, has turned out, unwittingly, to be the empire’s most aggressive gravedigger.

The Trump administration has capriciously sabotaged the global institutions, including NATO, the European Union, the United Nations, the World Bank and the IMF, which provide cover and lend legitimacy to American imperialism and global economic hegemony. The American empire, as McCoy points out, was always a hybrid of past empires. It developed, he writes, “a distinctive form of global governance that incorporated aspects of antecedent empires, ancient and modern. This unique U.S. imperium was Athenian in its ability to forge coalitions among allies; Roman in its reliance on legions that occupied military bases across most of the known world; and British in its aspiration to merge culture, commerce, and alliances into a comprehensive system that covered the globe.”

When George W. Bush unilaterally invaded Iraq, defying with his doctrine of preemptive war international law and dismissing protests from traditional allies, he began the rupture. But Trump has deepened the fissures. The Trump administration’s withdrawal from the 2015 Iranian nuclear agreement, although Iran had abided by the agreement, and demand that European nations also withdraw or endure U.S. sanctions saw European nations defect and establish an alternative monetary exchange system that excludes the United States. Iran no longer accepts the dollar for oil on international markets and has replaced it with the euro, not a small factor in Washington’s deep animus to Teheran. Turkey is also abandoning the dollar. The U.S. demand that Germany and other European states halt the importation of Russian gas likewise saw the Europeans ignore Washington. China and Russia, traditionally antagonistic, are now working in tandem to free themselves from the dollar. Moscow has transferred $100 billion of its reserves into Chinese yuan, Japanese yen and euros. And, as ominously, foreign governments since 2014 are no longer storing their gold reserves in the United States or, as with Germany, removing them from the Federal Reserve. Germany has repatriated its 300 tons of gold ingots. The Netherlands repatriated its 100 tons.

The U.S. intervention in Venezuela, the potential trade war with China, the withdrawal from international climate accords, leaving the Intermediate-Range Nuclear Forces (INF) Treaty, the paralysis in Washington and disruptive government shutdown and increased hostilities with Iran bode ill for America. American foreign and financial policy is hostage to the bizarre whims of stunted ideologues such as Mike Pompeo, John Bolton and Elliott Abrams. This ensures more global chaos as well as increased efforts by nations around the globe to free themselves from the economic stranglehold the United States effectively set in place following World War II. It is only a question of when not if the dollar will be sidelined. That it was Trump, along with his fellow ideologues of the extreme right, who destroyed the international structures put in place by global capitalists, rather than socialists these capitalists invested tremendous resources to crush, is grimly ironic.

The historian Ronald Robinson argued that British imperial rule died “when colonial rulers had run out of indigenous collaborators.” The result, he noted, was that the “inversion of collaboration into noncooperation largely determined the timing of the decolonization.” This process of alienating traditional U.S. allies and collaborators will have the same effect. As McCoy points out, “all modern empires have relied on dependable surrogates to translate their global power into local control—and for most of them, the moment when those elites began to stir, talk back, and assert their own agendas was also the moment when you knew that imperial collapse was in the cards.”

The dollar, because of astronomical government debt now at $21 trillion, a debt that will be augmented by Trump’s tax cuts costing the U.S. Treasury $1.5 trillion over the next decade, is becoming less and less trustworthy. The debt-to-GDP ratio is now more than 100 percent, a flashing red light for economists. Our massive trade deficit depends on selling treasury bonds abroad. Once those bonds decline in value and are no longer considered a stable investment, the dollar will suffer a huge devaluation. There are signs this process is underway.  Central-bank reserves hold fewer dollars than they did in 2004. There are fewer SWIFT payments–the exchange for interbank fund transfers–in dollars than in 2015. Half of international trade is invoiced in dollars, although the U.S. share of international trade is only 10 percent.

“Ultimately, we will have reserve currencies other than the U.S. dollar,” the Bank of England Gov. Mark Carney announced last month.

Sixty-one percent of foreign currency reserves are in dollars. As these dollar currency reserves are replaced by other currencies, the retreat from the dollar will accelerate. The recklessness of America’s financial policies will only exacerbate the crisis. “If unlimited borrowing, financed by printing money, were a path to prosperity,” Irwin M. Stelzer of the Hudson Institute said recently, “then Venezuela and Zimbabwe would be top of the growth tables.”

McCoy explains what a world financial order untethered from the dollar would look like:

For the majority of Americans, the 2020s will likely be remembered as a demoralizing decade of rising prices, stagnant wages, and fading international competitiveness. After years of swelling deficits fed by incessant warfare in distant lands, in 2030 the U.S. dollar eventually loses its special status as the world’s dominant reserve currency.

Suddenly, there are punitive price increases for American imports ranging from clothing to computers. And the costs for all overseas activity surges as well, making travel for both tourists and troops prohibitive. Unable to pay for swelling deficits by selling now-devalued Treasury notes abroad, Washington is finally forced to slash its bloated military     budget. Under pressure at home and abroad, its forces begin to pull back from hundreds of overseas bases to a continental perimeter. Such a desperate move, however, comes too late.

Faced with a fading superpower incapable of paying its bills, China, India, Iran, Russia, and other powers provocatively challenge U.S. dominion over the oceans, space, and cyberspace.

The collapse of the dollar will mean, McCoy writes, “soaring prices, ever-rising unemployment, and a continuing decline in real wages throughout the 2020s, domestic divisions widen into violent clashes and divisive debates, often over symbolic, insubstantial issues.” The deep disillusionment and widespread rage will give an opening to Trump, or a Trump-like demagogue, to lash out, perhaps by inciting violence, against scapegoats at home and abroad.  But by then the U.S. empire will be so diminished its threats will be, at least to those outside its borders, largely meaningless.

It is impossible to predict when this flight from the dollar will take place. By the second half of the 19th century, the U.S. economy had overtaken Britain, but it was not until the middle of the 20th century that the dollar replaced the pound sterling to become the dominant currency in international trade. The pound sterling’s share of currency reserves among international central banks fell from around 60 percent in the early 1950s to less than 5 percent by the 1970s. Its value declined from more than 4 dollars per pound at the end of WWII to near-parity with the dollar.  The British economy went into a tailspin. And that economic jolt marked for the British, as it will for us, the end of an empire.

---

Chris Hedges is a Truthdig columnist, a Pulitzer Prize-winning journalist, a New York Times best-selling author, a professor in the college degree program offered to New Jersey state prisoners by Rutgers University, and an ordained Presbyterian minister.

Why We Must Get Big Money Out of Politics

Friday, January 4, 2019

The most important thing we must do to save our democracy is get big money out of politics. It’s a prerequisite to accomplishing everything else.

Today, big money continues to corrupt American politics – creating a vicious cycle that funnels more wealth and power to those at the top and eroding our democracy.

In the 2018 midterm elections, wealthy donors and Super-PACs poured millions into the campaigns of the same lawmakers who voted to pass the 2017 tax cuts, which gave them huge windfalls. 

Consider conservative donors Sheldon and Miriam Adelson, whose casino business received an estimated $700 million windfall, thanks to Trump and Republicans’ tax cuts. The couple then used some of this extra cash to plow more than $113 million dollars into the 2018 election, breaking the record for political contributions by a single household.

That’s not a bad return on investment – for them.

All told, almost 40 percent of total contributions in the 2018 midterms came from people who donated $10,000 or more. Yet these mega-donors comprise a tiny 0.01 percent of the U.S. population.  

It’s a worsening vicious cycle: Lawmakers cut taxes and slash regulations for their wealthy campaign donors. Mega-donors and corporations funnel some of that money back into our political system to keep their lackeys in power. Politicians then propose another round of tax cuts, subsidies or bailouts to secure even more donations.

If this isn’t corruption, I don’t know what is. It also breeds cynicism in our democracy. The game seems rigged because it is.  A 2015 poll found that the majority of Americans say lawmakers are corrupt, out of touch with their constituents, and beholden to special interests.

In the 2018 midterms, Americans demanded an end to the corruption. And there are signs lawmakers are finally getting message. House Democrats’ first piece of legislation aims to end the big-money takeover. 

We must end this vicious cycle in order to reclaim our democracy. We must get big money out of politics. Now.

Off the Top of My Head

Will the US Attack China for Bringing Peace to the World

by John Lawrence, August 8, 2018

China will be perceived by the US eventually as a threat because they are doing infrastructure development all over the world while all the US has to offer is its military and weapons development, drones, bombs etc. China is winning friends by striking deals to build railroads, ports, bridges, high speed rail. It is using fiat money to spread its influence throughout the Eurasian land mass and beyond including Latin America. The US has only sanctions and threats of war both hot and cold to spread its influence. It has military bases in most countries of the world. This is how the US uses fiat money to control the world. China is using fiat money to build the world. Fiat money is just money printed by the government's central bank - in the US case it's the Federal Reserve, in China's case it's the People's Bank of China.

US fiat money makes banks and bankers richer. It's inserted at the top of the financial system and is used mainly for financial speculation and to line the pockets of the rich. China's fiat money is inserted at the bottom and creates jobs and prosperity. China builds. The US destroys and exacerbates inequality. China also in many subtle ways has the upper hand relative to the US since it is the largest foreign holder of US debt in the form of Treasury bonds. Therefore, it controls how strong or weak the yuan is compared with the dollar which in turn controls the US trade deficit with China and how expensive Chinese products are when imported into the US. Currency manipulation does not enter the picture because the yuan floats freely against the dollar. It is not pegged to the dollar by a fixed exchange rate. Therefore, there can be no currency manipulation by definition. They have a right to buy and sell US Treasuries whenever they so desire. That's one of the pillars of capitalism. They are beating us in our own game.

China is playing the long game to exert its influence all over the world. It is the second leading economy. China is building infrastructure all over the world. The US cannot even build or repair infrastructure in its own country.  It is creating a new Silk Road that will expedite commerce with China and make Chinese products prevalent in world markets. The amazing thing is that China is spreading its influence by peaceful means, not by military threats like the US is doing. The yuan is well on its way to becoming a world reserve currency diminishing the role of the dollar and diminishing the US' use of sanctions to get what it wants. In addition other countries are turning to China for leadership as the US turns inward under Trump and undercuts its own role of leadership in the world.

Off the Top of My Head

Is the Dollar the World's Bully Currency?

by John Lawrence

I'm beginning to wonder whether the dollar is the "world's reserve currency" or whether that's just an epithet. It seems that the US can sanction other countries because it controls the world's banks so that the world's reserve currency is in reality the world's bully currency. The US bullies other countries and threatens them with sanctions. One wonders why those countries just don't deal in other currencies. That's because President Richard Nixon in 1971 made a deal with the devil when he got Saudi Arabia to agree to sell oil only in dollars. That meant that other countries had to accumulate dollars if they wanted to buy oil unless they had their own supply.They had to park these dollars in US controlled banks. Therefore, the US controlled their deposits and could freeze them at will producing the so-called sanctions. In reality, sanctions represent US control over other people's money.

By 1975, all of the OPEC nations had agreed to price their own oil supplies exclusively in U.S. dollars in exchange for weapons and military protection.The US has attempted to maintain world hegemony through the so-called petrodollar system. As a result the US is allied with one of the most repressive and brutal regimes in the world, one that spawned 15 of the 19 hijackers in the 9/11 attacks on the World Trade Center through its inculcation of Wahhabism which is very much intolerant of the west. Today the US is supporting the Saudi genocide in Yemen because the Houthis are allied with Iran, Saudi's and, therefore, the US's enemy.

The Saudis parked most of the profits they made in the US mainly by buying US government bonds. This made it possible for the US to run up colossal debts (currently at $21 trillion) because there was always a willing buyer of its bonds (debt). But as always the devil is in the details. And for all the advantages the US dollar has offered to the world's peoples, there are the disadvantages that come along with it. The US can refuse to let its banks do business with countries or individuals it doesn't like. It can freeze their dollar denominated accounts. Voila: sanctions!

In order to circumvent US sanctions some countries have constructed an alternative system for buying and selling oil and other products. These countries like Venezuela, Iran, Russia and China are of course on the US enemies list. The US doesn't want to be friends with them because they are moving away from the US dollar. This means that the US dollar will not be in such high demand and will eventually lose value. The conversion from fossil fuels to renewable energy will also mean that there will be less of a need for oil as time goes by, and the US "dollars for oil" system will collapse. This will leave the US owing a lot of money to foreign countries when they choose to "depark" their money in dollars. The US will be left owing a lot of money to other countries' sovereign wealth funds.

When that happens, the US will not be in a position to bully other countries by imposing sanctions, and US foreign policy will no longer have to be dictated by the US dollar. That could be a good thing. There will no longer be a need to support Saudi Arabia and to make enemies out of their enemies.

Off the Top of My Head

Uber and Lyft Work For Me

by John Lawrence, June 25, 2018

As a recent retiree, I found that I wasn't quite meeting monthly expenses without taking money out of my reserves. This was not a good situation as eventually my reserves would be totally depleted. So the wolf was getting closer and closer to the door. When the reserves get down to zero, the wolf is at the door, and, finally, he gets inside, and the next thing you know, you're on the street. Not a good situation.

Luckily, I got the idea of replenishing my reserves by driving for Lyft and Uber. I'm glad I checked them out. Before long I was significantly adding to my reserves on a weekly basis, and the work was fitting completely into my lifestyle as a retiree. I still got my swim and my nap in. Anything else that came up that I wanted to do, I did that too. As someone said once, "You're never late for work." That's because you have complete and total control over your time. You do it when you want to do it, and, when you don't, you don't. There are not too many jobs that require essentially no training (I got 15 minutes with Lyft), no credentialing, no course taking, nothing but a good driving record and a decent car. It sort of puts the kibosh on 5 years of college and a ton of student loan debt.

I've heard a lot of blather about how Uber and Lyft drivers get no "employee benefits" because they are self-employed. It's BS. I was self-employed for 40 years of my life as a window cleaner. Not only do you get no employee benefits as a self-employed person, but you have the privilege of paying both the employer's and the employee's social security contribution which amounts to approximately 15% of your income. Still it's worth it to be your own boss in my opinion, and have the freedom to decide when and where you want to work.

Employee benefits don't amount to too much in my opinion. They used to have "defined benefit" pensions. That meant that you paid a little money to your employer out of your paycheck, and your employer invested that money so that, when you retired, you got a monthly check. However, all that money you paid in belonged to your employer, not you, so that when you died, your employer kept the rest of the money. It did not go to your heirs. Sweet for your employer, a screw job for you and your family.

Now they have the "defined contribution" retirement plan or 401(k). You can contribute part of your paycheck to the stock market. There is no guarantee that you'll ever realize enough from it to pay your monthly expenses when you retire. If the stock market crashes, you may lose all your money. It's basically a plan that enriches Wall Street. You still do not have control over your investments so, for instance, you can't invest in real estate.

As a self-employed person, you have to think about investing on your own terms so that the wealth you create can be passed down to your heirs and not go to enrich some corporation or Wall Street. For me, that meant real estate. So the idea is that you have to be in the business of creating wealth not just living on a monthly stipend as wages when you're working and a pension when you retire. Creating wealth means that you will be able to cash that in when you can no longer work. Hopefully, you will have enough at some point so that you don't have to work. You will have a nestegg or reserves.

That's where Uber and Lyft came in. I found that my nestegg wasn't big enough to sustain me even when my rental and social security income was taken into account. My social security income was about equivalent to what I can make in one week with Lyft and Uber, and that's even after the privilege of paying both the employee's and employer's share into it. I pity the other seniors who have to live off of that. Fortunately, I did invest in California real estate early on so I have some rental income. It's just not quite enough, that's all. I should have take this wealth creation bit more seriously, but that's not how I (or most people my age) were raised. I was raised to be an employee and have my employer take care of me. (Actually they were mostly taking care of themselves.)

So driving for Lyft and Uber, getting my swim and my nap in each day, and getting the wolf farther and farther from my door is a happy situation for me. I have a 5 year plan. When my new Toyota Camry Hybrid is 5 years old, it will probably be shot with the miles I'm putting on, and I will probably be shot too. At that time, I will probably be able to live off my reserves as a supplement to my other monthly income, and I will have the knowledge that I can pass it all on to my heir when the time comes for me to depart the planet.

Off the Top of My Head

Bitcoin and the Blockchain

by John Lawrence, April 2, 2018

One of my favorite shows on RT is the Kaiser report, mainly because Kaiser is such a nut and Stacy Herbert is so cute. They are big proponents of Bitcoin. It took me a long time to figure out what Bitcoin is all about. Supposedly, it is an alternate form of currency that has some specific properties. I must say right off the bat that I'm not a big fan, and I'll tell you why in this report.

The blockchain is a computer program that traces every bitcoin throughout its whole life. Every transaction is recorded and it's possible to go back through the blockchain and see every transaction that every bitcoin has ever been involved in. So what? Is that really necessary in order to have a viable alternative currency? Every bitcoin user has a wallet that's encrypted so nobody but you can get at your money. If you lose your key, however, you've lost your money because only you possess this private key. Anyone can deposit money in your wallet, but only you can take it out. That's where the term "cryptocurrency" comes from.

Kaiser makes a big deal about how the dollar is a fiat currency, but bitcoin is not. Since the dollar is not backed up by gold or another precious metal that is "mined," the dollar is just as good as the American government says it is and people believe it to be. That's the meaning of fiat. Now bitcoin is supposedly not a fiat currency because bitcoins are "mined" through some computer algorithm that makes it difficult to get at them. Really? Not fiat because they are "mined"? That seems to me like a lot of hogwash. Then I've read that they are also given as rewards to computer programmers who "verify" the transactions. These guys are volunteers. Really? A financial system run by volunteers?

Bitcoin transactions are favored by criminals laundering money and more white collar types trying to escape paying taxes because supposedly the government has no way of finding out what's going on with buying and selling. But the government would have as much access to the blockchain as anyone else so those that think that the government has no way of monitoring these transactions have another think coming. Just because bitcoin transactions are not routed through a bank does not mean that they can't be monitored, taxed and traced by government.

So how does bitcoin differ from Paypal or M-Pesa, the Kenyan mobile phone based money transfer and microfinancing service? Or how does it differ from a simple debit card? The answer you mostly get is that bitcoin is a store of value just like the dollar and it's not a fiat currency. It's a store of value only because a number of people have invested in it and driven up the price of a bitcoin just like a stock. Its value can rise and fall just like a stock. You need an exchange to convert bitcoins to dollars just like with a stock. Paypal and M-Pesa are financial services based on the local currency. But although the transactions are digital as are most banking transactions these days, they are easily convertible to the local currency.

One of the advantages in bypassing banks when doing financial transactions is getting away from the finance charges that banks impose on every financial transaction. This could be accomplished, however, by means of a public bank that imposed more moderate charges or no charges at all for certain transactions. Certainly it would be more convenient if financial transactions could be accomplished using a mobile phone. There are some proprietary platforms for this today such as Apple Pay. Apple Pay is similar to M-Pesa. Of course Apple takes a cut of every financial transaction, and the technology is similar to a credit card.

I would like to see a public bank like the Bank of North Dakota develop a digital technology that could be used for financial transactions bypassing the traditional banks and their credit cards which still charge exorbitant interest rates while the banks themselves pay no interest on savings accounts and get their money for free by means of quantitative easing from the Fed.

10 Financial Resolutions for 2018

From Wallethub:

Roughly 45% of Americans make New Year’s Resolutions each January, and since money is our top stressor, it’s clear that many of them will be financial in nature. In recognition of that, WalletHub today announced its 10 Financial Resolutions for 2018 to help as many people as possible reach top financial fitness in the new year. This report comes on the heels of WalletHub’s 8 Financial Predictions for 2018, helping to provide a roadmap for financial improvement after the ball drops.

Below you can find a quick rundown of our resolutions, which are based in part on conversations with a panel of leading finance and consumer psychology experts.

1. Sign Up for Credit Monitoring
2. Pay Bills Right After Receiving Your Paycheck
3. Repay 20% of Your Credit Card Debt
4. Use Different Credit Cards for Everyday Purchases & Debt
5. Add One Month’s Pay to Your Emergency Fund
6. Improve Your Credit Score by 20 Points
7. Get an A in WalletLiteracy
8. Focus on Your Physical Health
9. Make a Realistic Budget & Stick to It
10. Look for a Better Job

For additional context and advice related to each resolution, plus a complete Q&A with our panel of experts, please visit:  https://wallethub.com/blog/financial-new-years-resolutions/9202/

Off the Top of My Head

Now That Republicans Have "Reformed" Taxes, They're Getting Ready to "Reform" Entitlements

by John Lawrence

Republicans are ecstatic about the fact that they have reformed the tax code giving huge tax breaks to the rich and very modest tax breaks to the middle class while running up the deficit by $1.6 trillion. But deficits don't matter do they as Dick Cheney once said. Yes they don't matter when it comes to war and reducing taxes on the rich. They do matter, however, when it comes to doing anything for the middle class and the poor. They do matter when the Democrats are in power and want to do anything constructive.

Deficits didn't matter either when it came to bailing out Wall Street after they totally made a mess of the economy in 2008. They were helped out by the Fed which took trillions of dollars of Wall Street's debts on its own balance sheet and then lowered the interest rates that Wall Street paid to zero while not doing a thing to lower the interest rates the general public paid on their mortgages or car payments. Wouldn't it be great if the Fed lowered rates to zero on mortgages, car payments or student loan debt? All of a sudden homeowners would see their payments cut in half. Most of mortgage payments are interest anyway.

But Wall Street makes its money off of consumer debt. If people paid cash for everything, it would put Wall Street out of business. The US economy runs on consumer debt and the war machine, of course. What if the Fed took consumer debt onto its balance sheet the way it took Wall Street's debt onto its balance sheet? You'd think that, since Wall Street can borrow money at zero interest, American consumers should be able to do that also. Or at least banks could afford to pay some interest on savings accounts. No, it doesn't work that way. When the interest rate goes up, then Wall Street will pay some interest on savings accounts because they need the money. When they can borrow at zero interest from the Fed, they don't need people's savings accounts so they pay no interest. Even though they pay no interest they sure do charge interest though. The spread is extremely profitable.

The Fed is flooding the economy with money with its quantitative easing policy. You'd think there would be a little to go around for infrastructure or for entitlement programs. But no, most of that money goes to already rich people who just use it to buy assets like stocks and real estate. This creates asset bubbles in those two markets so that housing prices are going out of sight for the average consumer. In the long run the Fed will have just forced the cost of housing to astronomical heights by giving free money to rich people. But that's how the American economy is set up. They print money for the rich, but they won't print money for the poor or take the debts of the poor onto the Fed's balance sheet.

Off the Top of My Head

The Most Overworked Word: Hardworking

by John Lawrence

I'm tired of hearing politicians pander to the citizenry by calling them "hardworking Americans." "Hardworking Americans should keep more of their money." And "They worked hard for their money." No they didn't. The richer they are, the less they worked hard for their money. They sat in an office somewhere and raked in billions. Did billionaires work hard for their money? If so, maybe they should have worked less hard and enjoyed life more. No one needs a billion dollars.

Most rich people simply sit back and collect rent or watch the stock market go up. Is that working hard? They call it passive or unearned income. That distinguishes it from income actually earned in the labor force from an actual job. That's how rich people don't work hard in a capitalist economy. They make money off of money. That's the whole purpose of capitalism: get rich by not working hard. So do these rich people deserve a tax break because they worked so hard? I don't think so.

Many people are one paycheck away from homelessness. They shouldn't be paying any taxes. The rich can afford to pay taxes on all that money they made from not working hard. Yet Republicans want to give these people (those who make their money off of capital gains and corporate profits) a tax break. They are only doing it because their rich donors, who are so greedy no amount of money suffices, demand it. If the rich don't get their tax break, they will stop donating to the Republican party.

After several tax breaks for the rich did not trickle down to the rest of us, they shouldn't have been able to sell this nonsense to the American people again. But they're still at it. They just don't care, really. Tax breaks for hardworking Americans is just propaganda, but a lot of people believe it even though it's never worked in the past.

So the Republicans are going to take money away from hardworking Americans so they can give it to the not hardworking Americans. Furthermore, they're going to cut the money going into health care for the poor. But that's not all, folks. They're going to run the country into another trillion and a half dollars of debt. Is this any way to run a country? I don't think so.

When Big Money Buys Off Criticism of Big Money

by Robert Reich

Thursday, August 31, 2017

Since its founding in 1999, the New America Foundation – an important voice in policy debates on the American left – has received more than $21 million from Google, from its parent company’s executive chairman, Eric Schmidt, and from his family’s foundation.

According to the New York Times, one of New America’s initiatives called Open Markets has been critical of the market power of tech giants like Google. Recently, the researcher who heads that initiative posted a statement on the New America Foundation website praising the European Union’s penalty against Google. 

Schmidt communicated his displeasure to the foundation’s president, who accused the researcher of “imperiling the institution as a whole” and shut down the Open Markets initiative.

The New America Foundation isn’t alone. Over the last 3 years:

– A non-profit group devoted to voting rights decided it wouldn’t launch a campaign against big money in politics for fear of alienating the wealthy donors it courts;

– A liberal-leaning Washington think-tank released a study on inequality that failed to mention the role big corporations and Wall Street have played in weakening the nation’s labor and antitrust laws, presumably because the think tank didn’t want to antagonize its corporate and Wall Street donors.

– A major university has shaped research and courses around economic topics of interest to its biggest donors, notably avoiding any mention of the increasing power of large corporations and Wall Street on the economy.

– Comcast has been financing the International Center for Law and Economics, which supported Comcast’s proposed merger with Time Warner.

– The Charles Koch Foundation pledged $1.5 million to Florida State University’s economics department, stipulating that a Koch-appointed advisory committee select professors and undertake annual evaluations. The Koch brothers now fund 350 programs at over 250 colleges and universities across America. You can bet that funding doesn’t underwrite research on inequality and environmental justice.

– David Koch’s $23 million of donations to public television guaranteed that a documentary critical of the Kochs didn’t air.

The list goes on. 

This is not just a problem created by right-wingers like Koch. Wealthy progressives are exerting as much quiet influence over the agendas of think tanks and universities as wealthy conservatives.

Big money should not be influencing what should be investigated, revealed, and discussed – especially about big money, and the tightening nexus between concentrated wealth and political power.

Schmidt was wrong to interfere in the New America Foundation, and the Foundation was wrong to have stopped its research on the increasing market power of Google and high tech.

How the Rich Get Richer

The Triple Bottom Line

by the Man in the Bowler Hat

 

As a kid I remember hearing lots of quotes from the Bible and have to confess, most of it went in one ear and promptly went out the other.  But that is normal, and why kids (as well as adults) have to be repeatedly exposed to a subject in the hopes something sticks.  There is also the fact that we all learn to master a subject different ways, so that is why I thought it might be interesting to blog about money and banking using stuff I was exposed to as a kid.  Lets face it the bible is a pretty big text with lots of general concepts.  So given various verses like:

 

A wise man thinks ahead; a fool doesn’t, and even brags about it!

Proverbs 13:16

 

Six days you are to do your work, but on the seventh day you shall cease from labor so that your ox and your donkey may rest...

Exodus 23:12

 

No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money.

Matthew 6:24

 

which are about ideas like planning ahead, the need for rest and money, how do you think these quotes play a role in your life?  Back in the day since I went to parochial school, I actually had to take tests on this stuff.

 

Looking back I’d say its just not normal for a kid to put things into context because at that stage, life experiences were limited.  Its only when one grows older and deals with the real world, is it possible to even start pondering what is the answer to life, the universe and everything and figure out if there is a pragmatic way to balance these concepts in normal every day life.

 

So what’s the optimal “lifestyle” solution if one wants to follow the general teachings in the good book that would work for believers as well as non-believers and incorporates the idea of the capitalist mentality of looking at the bottom line?

 

If I was to bet money on the topic, I would say the short answer is “The triple bottom line” philosophy!  For those religiously inclined, perhaps parallels between the idea of the triple bottom line and the idea of the holy trinity might be a way of trying to relate the topics.  I could just imagine my old parochial school teacher saying; “The holy trinity” bottom line is, its in the business of saving souls!  Ah, memory lane…

 

Looking at the issue from a business stand point, to be sustainable three different factors should be taken into account:profit, people and planet.   

 

Suppose the business was a local farm.  Looking at the triple bottom line, for a permaculture farm to be sustainable, basically ordinary “people” (i.e. consumers) need to demand a product (like organic vegetables) so there will be “profits” to motivate the farmer to continue planting more crops.  In this example if the farmer isn’t a good custodian of their small part of the “planet” (and does dumb stuff like poisoning the soil, so organic vegetables can no longer grow), then the farm goes out of business.

 

Think the triple bottom line only works in certain business sectors like farming?  Well DHL is taking the shipping business back-to-the-basics, enacting a revolutionary delivery program to illustrate that shipping can be more efficient. How? They now use couriers on bicycles in many European countries, including Germany and the Netherlands.  DHL estimates that this change alone will reduce their carbon dioxide emissions by 152 metric tons per year.

 

Back to thinking “local.”  One does not need to be a rocket scientist to understand that a local business like a community farm, needs local community consumers to buy the produce in order to keep the business as an on going concern, (which in turn encourages trade and development).

 

Now lets do a thought experiment, and think about a brick-and-mortar bank.  Basically the function of a bank in an economy is to bind together all the players in the economic system, by managing the supply of money.  Consider what happens if the bank isn’t a local community institution; in this case the product is “money” and profits get sucked out of the local community.  Bottom line, the local economy suffers when an outside player takes a cut.  As POTUS would tweet, #’SAD!’

 

Suppose, if there were a local community bank which was enthusiastically supported by local consumers and honest local politicians, the question that begs to be asked is,… will the local economy with a public bank be better off?  All signs point to “yes!”

 

Next time, what is a public bank?

What is Money?

by the Man in the Bowler Hat

 

Last time when blogging about “money” and “banks” I quoted a few religious passages because, when we exchange “money,” everyone must agree to a belief and have faith that a bank note is actually worth something.  Simply stated if there isn’t faith, then its game over!  So what is money and why is it important?

 

To begin “money” is anything that has three basic characteristics.

 

The first characteristic of money is “its a medium of exchange.”   This simply means money is an object or idea that everyone believes to be true.  For example before there was a printing press or a digital computer, ancient societies used items found in nature like gold nuggets or sea shells as money.

 

The second characteristic of money is “its a store of value.”   This simply means its an object or idea that everyone believes isn’t all that common but worthy of gathering, then putting away (where it could be kept safe from other people).  Ponder for a moment if a gold nugget or gold dust was as common as beach sand which is found pretty much all along the sea shore.  In this counter example “sand” isn’t worthy of being considered as money because its pretty common and does not require much work to gather.

 

The third characteristic of money is “its a unit of account” which simply means its an object or idea that everyone believes can be traded for any other kind of object or idea.  Lets say for example that 1 gram of gold is something everyone agrees is a desirable item that every other person wants because it not all that common and requires some kind of work to obtain.  If this is the case, then 1 gram of gold could be traded for a cow to provide milk, or an animal fur which could be used to cover up in winter, or it could be traded for a plot of land on which it would be possible to grow crops, etc.

 

As to why money is important, well the bottom line is, basically when any object or idea, where everyone believes in “money”, this in turn makes trade much easier, which then stimulates development.

 

Just imagine if there wasn’t “money” then ask yourself how would it be possible to have a modern consumer society, with useful products like an iPhone, iPad or Macintosh.

 

Now lets consider a simpler time before an iPhone or iPad were ubiquitous, a time before the first Macintosh computer.  So lets do a thought experiment and go back 200 years to the year 1817.  Back then the United States was a newly formed nation, New York City was at the top of the heap with a population of just over a hundred thousand people and the State of California with cities like Los Angeles, San Diego and San Fransisco, did not exist.  At the time there was no mass production of food, most people had to grow their own food on farms simple because of need.  Actually, the only mass production in agriculture (back then) involved slavery because there wasn’t technology.  Just imagine how difficult life would be if you had to grow all your own food, without modern plumbing to supply water.

 

Another example of modern day living too many people take for granted is the car.  Stop for a moment and name different stuff that it takes to make a car.  In materials alone there are various metals that have to be dug out of the earth and processed, rubber that is used for tires and gaskets also has to be somehow produced.  Next consider the fuel that is needed to power all the forms of transportation (not just cars but also planes, trains and ships), etc., etc., etc.

 

Hopefully you are starting to get the idea that money makes the world go round because without “money,” trade is all but impossible.  So whats not to love?  To answer this question we look to physics where we literally see that for every action, there is an equal and opposite reaction.  When dealing with money, economists use the term “externality” to describe the consequence of an economic activity experienced by unrelated third parties.

 

To illustrate consequence of an economic activity, consider the case of a person buying gas for their car.  Here one might think the price for a gallon of gas is the only cost.  But looking at the big picture, we see various costs include air pollution (which causes harm to humans), along with other environmental consequences.  So basically whats not to love is all kinds of unforeseen complex interactions which happen as a result of new technology being developed for the marketplace.

 

As a kid I remember being told that, it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God.  Looking back on this passage I’ve come to realize that having lots of money in a bank isn’t unto itself a bad thing BUT having lots of money does make living the “bling bling” lifestyle pretty easy and tempting.  Viewed another way, its possible to put lots of money in the “bank,” the EASY WAY is to sell your soul and ignore the “externalities of bling!”   The HARD WAY to have and keep a big bank account requires discipline, thought and constant vigilance.

Dishonest Money Dwindles Away

by the Man in the Bowler Hat   

Dishonest money dwindles away, but whoever gathers money little by little makes it grow.

Proverbs 13:11

 

So you want to be rich?  Seems its a preoccupation by many.  DISCLOSURE: having a bit more money in the “bank” than the average person in the overall population is a comfort, that allows for a few more options.  For example, ever hear of the pejorative expression “fuck you money?”  This simply means that there is a personal level of saving in the bank, that makes it possible to concentrate on non-monetary incentives or interests (like blogging) a lot more than on monetary ones.  Sadly IMHO human nature being what it is, too many individuals do not seem to be able to differentiate a “want” from a “need” and therefore do not find an inner peace or realize that money can’t buy happiness.  So this manifests itself in various self destructive behaviors like always trying to get more money any way possible (i.e. “greed” which is one of the so called deadly sins).

 

Back to the topic at hand, answering the question what is a bank and why is it important.

 

Basically the way I look at things, a “bank” is a place where an individual stores things of value to be used later on in times of need.  Bet you were surprised I did not include anything specifically about money or mention the economy, which is the conventional way of looking at things.  This is because as a kid I was taught that education is something of value and that once you have it, its something (like a moral compass) which can’t be stolen or taken away once its obtained.  Basically, building upon the foundation of knowledge it's possible put away something that has the potential to grow into “fuck you money” in a brick-and-mortar bank.

 

As for actual mechanics of a traditional bank, basically its function is to be an institution to maintain deposits, make loans, and directly control the checkable deposits portion of the economy’s money supply.  In other words banks act as the middle man or glue that binds together all the players in the economic system. In theory banks or other financial institutions like credit unions are suppose to serve the financial needs of the community. Mainly by  providing loans, banks and other financial institutions maintain and build up the economy.

 

With respect to loans, the SOP of a bank should be to use the “Five C’s” (capacity, character, capital, collateral and conditions) check list to verify creditworthiness, by an in depth study of:

 

“Capacity” - the debt-to-income ratio, in other words how much does a person or business owe compared to how much they earn (the lower the ratio, the more confident a bank will be in the capacity to repay the money)

 

“Character” - here a banker will look at the track record of a person or business and ask questions like is there a good record of paying your bills on time and in full (which is an indication of fiscal responsibility and trustworthiness)

 

“Capital” - the bottom line “value” of your assets minus your liabilities

 

“Collateral” - an asset (for example, a home) that a lender has a right to take ownership of and use to pay off the debt, if the loan payments cannot be made as agreed

 

“Conditions” - the overall environment (economic and other wise), in other words do conditions look favorable or unfavorable

 

Sadly the fly in the ointment of the theory in the “traditional banking” system is the human factor which can cause corruption and mismanagement.  Basically this is because a bank is an institution which processes “money” and is run by people with different skill sets and a collective moral compass that perhaps is broken or non existent.  Bottom line, an institution is only as strong as the people setting the tone of management and the front line persons following the lead.

 

Last thought for now,… The conventional view of a traditional bank is, it starts off with investors who exchange their money for shares in the institution. The theory is the money raised by selling shares in a startup brick-and-mortar bank, is akin to the idea that a small seed mustard that is planted, grows to dominate the land scape. The hard reality is a pure profit motive takes over and smaller banks merge with other smaller banks or are out right bought by bigger banks in a process called, M&A which is short hand for mergers and acquisitions.  The capitalist bottom line thinking goes if a little is good, then lots is very, very, very GOOD! Or looked at another way, depending upon the dose, its poison.

 

Next time, what is the triple bottom line?

God and Money

by the Man in the Bowler Hat

In the beginning God created the heavens and the earth. Now the earth was formless and empty, darkness was over the surface of the deep, and the Spirit of God was hovering over the waters.

 And God said, “Let there be light,” and there was light. God saw that the light was good, and he separated the light from the darkness…

 

This quote from “The Old Testament” is as good a place as any to start a discussion about banking because just like religion, “money” is one of the top things people worship and trusting a bank with your money requires a leap of faith.

Consider that a recent gallup poll indicates that about nine in 10 Americans say they believe in God, and one in 10 say they do not AND another gallup poll indicates that money and happiness go hand-in-hand. Taken together these polls raise the interesting question, do believers and non-believers actually share a common trait, namely the worshiping of “Money?”

Back in the 18th Century, churches reflected the customs and traditions as well as the wealth and social status of the denominations that built them here in the United States. Fast forward to the post World War II era, when it seems instead of keeping holy the Sabbath day by going to church (which is the third commandment) on any given Sunday it seems an even greater number of people go shopping.

Since the third commandment is to “observe the sabbath day,” ponder for a moment the first commandment, “Thou shalt have no other gods before me.”   Now look around the town or city where you live and note what you see.  I’ll guess what isn’t being built are churches.  Instead I’d bet what you will see more of is things like stores or shopping malls where people are encouraged to participate in various forms of consumerism!

You might not have thought about it but different religions, share the trait of calling upon believers to look inward.  For example, before the dismal science (of economics) existed, religious leaders in different cultures were the de facto counter balance to absolute rulers.  The “kings” who might have had little respect for their subjects, were sort of kept in check by being reminded there might be a supernatural power that one had to answer to (for one's misdeeds).  

Switching to the present time, it might be argued an evil opposite of the holy trinity, keeps individuals addicted to consumerism.  They (bankers, politicians and corporations) do this by spreading a false narrative, in other words using slick “advertising” (which encourages instant gratification and belittles the impacts of consumption on the environment and society as a whole).  Sadly its not an easy task to reveal the dark big picture because an economic framework that ties in history, etc., is needed to connect the dots.

 "…There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. One of the functions of old fashion religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in evey year, in evey short period of time…"

 Paul Samuelson (MIT Prof. of economics)

Continuing on and looking at the too big to fail banks, we see various self interested parties have created a system which has evolved to be overly complicated and disproportionately enriches only a few at the top.  For example, in a system where banks control money, various bankers are enriched first.  Next bankers give campaign contributions to lawmakers who are then encouraged to create a business environment that benefits corporations and shareholders.  This in itself isn’t a bad thing; however, since we live in a closed system and given basic human nature (with the trait that demand will always be greater than supply), eventually something has to give.  Some say trickle-down economics (which is the idea that tax cuts and other financial incentives for companies and individuals in the upper tiers of society fuel growth that indirectly benefits everyone) is the answer, but it seems this theory is unappreciated by many on the lower end of the food chain who only get the crumbs after fat cats eat the cake.

Bottom line, too often the idea of supply and demand is lost and ignored by the 1% (essentially all the bankers, politicians and leaders of corporations) as well as many in the 99% who seem to envy the lifestyles of the 1%.  Said another way, too many people use credit to live an unsustainable lifestyle which is why there are problems in the economy and society.  Basically the questions few dare to ask are: what is the price we pay for trying to have it all and how much land (or money) do we really need.

Next time, what is the triple bottom line?

Fighting the Supreme Court's "Citizens United" Decision

by Paul Keleher and John Lawrence

Wolf-Pac: A PAC Dedicated to Getting Money Out of Politics

The United States Supreme Court held (5–4) on 21 January 2010 that freedom of speech prohibited the government from restricting independent political expenditures by a nonprofit corporation. The principles articulated by the Supreme Court in the case have also been extended to for-profit corporations, labor unions and other associations.

Justice Kennedy writing for the majority said, "If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech." However, corporations (and any legally organized group of citizens) are legal entities chartered for a dedicated purpose and created by government, and as such should be regulated by government. They are not granted the constitutional protections the Constitution grants to human beings.

It is significant that Citizens United vs FEC (Federal Election Commission) involved Hillary Clinton as she was facing the 2008 election. A conservative non-profit called Citizens United wanted to do a smear job on Hillary by airing a movie right before the Democratic primary. They planned to advertise the movie on TV, but this would have violated a Federal statute about electioneering close to an election.

Today the SCOTUS decision in Citizens United vs. FEC is seen as giving the green light to political ads by wealthy groups who can, since that decision, spend an unlimited sum to get their (usually conservative) points across. Citizens United nullified the Bipartisan Campaign Reform Act also known as the McCain-Feingold Act which had been in effect since 2002. Thus in one fell swoop the doors were opened wide for corporations to have an undue influence over the American political system. The poor had no similar access.

Americans Agree There is Too Much Money in Politics

A  survey conducted by the New York Times in June of 2015 said in part the following: “In a rare show of unity Americans, regardless of their political affiliation, agree that money has too much influence on elections, the wealthy have more influence on elections, and candidates who win office promote policies that help their donors. With near unanimity, the public thinks the country’s campaign finance system needs significant changes. There is strong support across party lines for limiting the amount of money individuals can contribute to political campaigns, limiting the amount of money groups not affiliated with candidates can spend, and requiring unaffiliated groups to publicly disclose their donors if they spend money during a political campaign. On the whole, Americans do not think donating money to political candidates is a form of free speech. Yet, opinions diverge along party lines with Republicans divided and slightly more inclined than Democrats or independents to agree.”

Article V of the U.S. Constitution, says in part, “The Congress, whenever two thirds of both Houses shall deem it necessary, shall propose Amendments to this Constitution, or, on the Application of the Legislatures of two thirds of the several States, shall call a Convention for proposing Amendments ...” .

Cenk Uygur, formerly a television host for MS-NBC, founded Wolf-Pac in 2011 at a meeting of Occupy Wall Street in New York City. According to its charter, the sole purpose of Wolf-Pac is to call a convention of the states to propose one or more amendments to the U.S. Constitution to get big money out of politics. Mr. Uygur is also the host of TYT (The Young Turks), an American political commentary web series. Wikipedia defines Wolf-Pac as “an American non-partisan political action committee formed in 2011 with the goal of ending corporate personhood and publicly financing all elections in our country”. The organization gets it name from the fact that it is a “PAC” (a political action committee) whose members act together in numbers, like wolves, to fearlessly attack their prey.

Since Wolf-Pac believes that the US Congress either does not intend to or is incapable of seriously addressing the issue of campaign finance reform, it's strategy is to amend the constitution by going around Congress and the President as described in Article V: persuade 2/3 of the State Legislatures (that number is currently 34) to each pass a resolution calling for a convention to propose an amendment to the Constitution whose intent would be to minimize the corrosive influence of money in politics. Hence Wolf-Pac is organized by state, with help provided by members volunteering to phone-bank the constituents of targeted state legislators, asking not for money, but to simply call their state senator or rep and ask them to support a resolution for an Article V convention in order to overturn the Citizens United decision and get money out of politics.

Wolf-Pac Says: Amend the Constitution to Limit Money in Politics

From the Wolf-Pac website: “Calling for a convention on a specific issue is the strongest message we can send to Congress, and the most effective way to restore our democracy in the United States.” As of September 2016, five states (Vermont, California, Illinois, New Jersey and Rhodes Island ) have each passed resolutions calling for such a convention. Not all states have proposed and passed identical resolutions, as each state composes its own. However, each resolution demands a convention for the purpose of proposing a constitutional amendment on campaign finance reform and expresses the desire that the agenda of any Wolf-Pac supported amendment convention be limited only to this topic.

An Article V convention has not been held since 1787, when the Bill of Rights was proposed. In the early part of the 20th century the proponents of the 17th amendment took 13 years to get 30 states (out of 32 needed) to pass resolutions calling for a convention to propose amendments. When it became clear to Congress that the 17th Amendment was going to happen with or without them, Congress decided to propose a constitutional amendment calling for the direct election of senators just before the required 2/3 majority was reached, thus preempting a convention. Congress may do this again.

There are presently 27 amendments to the Constitution. Not a single one addresses the issue of campaign finance reform. It's time the Constitution addressed this issue. A vast majority of Americans agree that money is corrupting American politics to the point that a then sitting American Congressman, Steve Israel (D-NY) publicly complained on “60 Minutes” that he was required to spend about half his time every week sitting in a booth at party headquarters in Washington calling a list of major donors to his political campaign. On January 8, 2015, Rep Israel wrote in the NY Times as he was leaving office, “As I announced on Tuesday (January 6), I’ll be leaving Congress at the end of this term — sentimental about many things, but liberated from a fund-raising regime that’s never been more dangerous to our democracy.”

Since any Amendment to the Constitution must address the relationship between a people and their government, an amendment relating to the use of money by organizations of people (any legal entity created by government) as opposed to people themselves is appropriate: thus, corporations (or any legally organized group) are not people. This expression means that an organization of people is not the same thing as the human beings who comprise that group.

Likewise, it follows that money is not speech. Money certainly can be used to buy speech, but it is not speech. It is a form of currency, while speech is language, a form of human expression, a means by which human beings express their ideas and thoughts. The importance of this distinction is that a healthy democracy depends on the ability of humans to directly express their ideas and thoughts through speech, not by paying someone else to speak for them through advertising.

Unlimited Money Tips the Balance in Favor of the Rich

The balance is tipped towards the interests of the rich when vast amounts of money are required in the exercise of free speech. There is obviously a difference between someone spouting off on a street corner and some entity organizing and paying for advertising on TV which is the form most political speech takes. Unless any legitimate group is given a certain amount of free TV ad time and every group is limited to the same amount, the balance of political speech is tipped in favor of those with the most money whether it is individuals or corporations. Wolf-Pac is dedicated to the public financing of elections.

Justice Stevens, in arguing for the minority on the Supreme Court, said that the Court's ruling "threatens to undermine the integrity of elected institutions across the Nation. The path it has taken to reach its outcome will, I fear, do damage to this institution. A democracy cannot function effectively when its constituent members believe laws are being bought and sold." He argued that in a democracy money should not determine the outcome of an election.

Furthermore, equating organizations of people to the people who comprise those organizations, and free speech to money is something that needs to be changed or elections and representation will continue to favor those with the ability to pay. This is not democracy; it is plutocracy. Wolf-Pac is dedicated to democracy and elections to any public office that are fair and affordable for all citizens.

Getting Money Out of Politics

by John Lawrence

Are you angry that Developers, Big Money Contributors and Lobbyists get what they want from City Hall while Our Neighborhoods are often ignored or sacrificed?

Wouldn't it be nice if money didn't influence who gets elected and what they do after they get elected? The Clean Elections Initiative aims to get money out of politics so that one vote will truly equal one vote like it's supposed to in a democracy. Right now money controls elections and lobbyists have too much influence over elected officials which are in turn dependent on rich donors for their campaign funds.

The San Diego Clean Elections Initiative is being sponsored by Neighborhoods for Clean Elections, a grass roots coalition that is aiming to place the Clean Elections Initiative on the 2016 ballot. The initiative, which is also supported by Common Cause, will provide public funding for candidates for mayor and City Council who agree to a Clean Elections Pledge: The pledge requires that they refrain from soliciting any campaign contributions from private sources and that they further agree to refrain from spending any of their own money for their campaign.

Voters in Maine, Arizona, Connecticut and Albuquerque, NM already have Clean Elections. Why not here in San Diego? We know that neighborhoods are getting shorted while Big Money interests like developers and hoteliers get what they want from City Hall. They even get what they want despite City Hall. When the City Council came up with a plan to clean up Barrio Logan in the interests of the people who live there, Big Money used the referendum process to overturn their democratically arrived at decision. They did the same when the City Council wanted to raise the minimum wage. They proved that they can buy off the electorate and get any result at the polls they want by simply putting enough money into TV ads. They can also buy off politicians because without big money to pay for TV campaign ads, politicians don't have a snowball's chance in Hell of getting elected.

If a candidate agrees not to accept private contributions or use his or her own money, they would receive a limited amount (75 cents per resident) of public funding to be used exclusively to campaign. Clean Elections will cost every San Diegan $6 per year, a small price to pay for Clean Government.

"Clean Elections is designed to break the conflict of interest between campaign contributors and candidates," explained Michael McQuary, chair of Neighborhoods for Clean Elections. "San Diego city government is broken. Developers, lobbyists and special interests get almost everything they want because they grease the palms of the politicians with campaign cash. As a result neighborhoods and ordinary citizens are often left out of the political process. Clean Elections will help clean up San Diego City Hall."

The San Diego Clean Elections Initiative is modeled after Clean Elections laws already on the books in several cities and states. Maine and Arizona have Clean Elections for state candidates and the City of Albuquerque has implemented Clean Elections for local candidates. Under the Clean Elections model, candidates who pledge to "run Clean" need to qualify for funding. The idea is to eliminate "crank" or marginal candidates in favor of those who can demonstrate community support. In San Diego a "Clean" candidate would be required to collect $5 from 500 voters in his or her district to qualify for funding, and those proceeds would go into the city's Clean Elections fund.

The San Diego Chapter of the League of Women Voters Endorses Clean Elections

The San Diego Chapter of the League of Women Voters has announced its endorsement of the San Diego Clean Elections Initiative, chapter co-President Ann Hoiberg said. "Clean Elections would make a fundamental difference in San Diego politics. We need to get money out of San Diego politics and return political power to people and our neighborhoods," she said.

Candidates would be funded based upon a formula linked to population. These amounts would be on average, less than half of what sucessful council candidates have spent in recent elections. Clean Elections is a voluntary system — candidates who do not wish to opt in may still choose to run under existing rules, collecting funds from private contributors and spending their own funds. "With Clean Elections, candidates can spend their time knocking on doors and meeting the voters they wish to serve," Hoiberg said. "They won't spend all of their time catering to the donor class. We will get candidates who owe their election to their constituency, the voters, instead of their contributors.

It would be nice if we could have publicly funded elections at the national level, but that would be a lot more complicated to bring about. However, it is a real possibility to get money out of politics at the local level and that is what the Clean Elections Initiative is all about. Getting this initiative on the 2016 ballot would be the first step towards a true democracy that would serve the people instead of what we have now - government which is sold to the highest bidder.

For more information or to help get his important initiative on the ballot, please contact John Hartley at 619-299-8870 or hartley2k@aol.com. Their website is www.sdcleanelections.org.

Fined by China, Qualcomm Losing Chip Business as CEO Departs

by John Lawrence from the San Diego Free Press

Qualcomm Sucks Up To China

Qualcomm has been fined almost a billion dollars by China for violating its antimonopoly law. China has the world's most internet users and the largest smartphone market so Qualcomm has to tread gingerly with the authorities there since it doesn't want to be booted out of the world's most lucrative market. The fine will knock 58 cents a share off Qualcomm’s earnings for the year. Qualcomm CEO Steven M. Mollenkopf thinks paying the fine will make Qualcomm better positioned to cash in in the future.

This could be another front in the brewing economic conflicts between China and the US. To sweeten the pot Qualcomm has offered China deep discounts on licensing its patents for certain systems and agreed to partner with Chinese companies. But all this could be construed as a bribe in order to get access to the Chinese market.

Since half of Qualcomm’s revenue comes from China, there is a need to be China's "friend" as Chinese internet czar, Lu Wei, pointed out. And that doesn't just mean on Facebook. China has considerable leverage over Qualcomm and a host of other American corporations who are all eager to make money in China. China knows this and is flexing its muscles in an apparent show of economic nationalism.

Although regulation is a bad word in the US, not so in China. China's regulator is the National Development and Reform Commission aka the N.D.R.C. It is getting more aggressive in giving out fines. This could correspond to China's push to develop its own chip market so it won't have to import them from companies like Qualcomm. Since Qualcomm makes most of its money from licensing its patents, the future looks ominous for the San Diego chipmaker. China hasn't always shown the greatest respect for foreign patent holders, and will probably have many patent workarounds up its sleeve.

The Qualcomm Drama: Rich People Fighting Other Rich People Over Who Gets a Bigger Slice of the Money Pie

By now it's conventional wisdom that the ratio between CEO pay and the pay of the average worker has reached astronomical proportions. Huffington Post reports:

The ratio of CEO-to-worker pay has increased 1,000 percent since 1950, according to data from Bloomberg. Today Fortune 500 CEOs make 204 times regular workers on average, Bloomberg found. The ratio is up from 120-to-1 in 2000, 42-to-1 in 1980 and 20-to-1 in 1950.

“When CEOs switched from asking the question of ‘how much is enough’ to ‘how much can I get,’ investor capital and executive talent started scrapping like hyenas for every morsel,” Roger Martin, dean of the University of Toronto’s Rotman School of Management, told Bloomberg.

Scrapping like hyenas for every morsel aptly describes the plight of Qualcomm management and Qualcomm shareholders. In an earlier article I wrote about how retiring CEO Paul Jacobs gave his employees a homework assignment last March: go home and tell your wife and family to tell Congress to give Qualcomm a tax break. It seems that Qualcomm has a lot of money parked offshore which should be obvious since they do most of their business in China. Before they can "repatriate" that money, they have to pay taxes to the US government on it so they lobby Congress for a tax break in order to bring it home tax free or almost tax free.

The so-called tax holiday has been tried once before with CEOs promising to use the money to build new plants and create new jobs in the good ole US of A. It never happened. Instead CEOs used the money to buy back their own stock thereby raising its price. The idea is that this benefits shareholders who can then sell their stock at a higher price and cash in.

However, a new wrinkle has emerged in the stock buyback business. Instead of it raising the price so shareholders can cash in, Qualcomm has figured out a way to raise the price so CEOs can cash in and leave shareholders grasping for thin air. The U-T reported "Instead of duly enriching the shareholders who own Qualcomm, its executives have leveraged dominance of the world’s smartphone technology to enrich themselves."

As the price of Qualcomm's stock went up, the hyenas - meaning outgoing CEO Paul Jacobs and incoming CEO Steven Mollenkopf - figured out a way to channel the increased largesse not into shareholder profit but into executive pay for themselves. Investors holding large blocks of Qualcomm stock like Jana Partners were not amused.

The U-T reported:

As overall executive compensation jumped 180 percent last year, Qualcomm gave special stock grants worth $95 million to just two executives. Paul Jacobs, the co-founder’s son who gave up the CEO job way back in March 2014, got $45 million that vests over five years.

The new CEO, Steve Mollenkopf, received a staggering $50 million over five years. President Derek Aberle received grants worth $26.6 million.

Jana Partners, a hedge fund, was founded in 2001 by Barry Rosenstein. Jana, which manages more than $11 billion, is known for buying stakes in companies and then seeking to work with management as it pushes for change. In other words they are a thorn in Qualcomm's side. They've been pushing to break up Qualcomm into two companies - one being the chip making operation and the other being the patent licensing  part.

Qualcomm has a huge target on it from Jana Partners. They want to shake up the company in an effort to make shareholders more money and raise the stock price. Jana has invested about $2 billion in the company so it thinks it has the right to boss it around.

$45 Million for Three Months' Work - Not Bad, Eh?

So Paul Jacobs, failing in his quest for a tax holiday, nevertheless, creatively figured out a way to make $45 million for himself while stiffing Qualcomm shareholders. This was all done by means of stock grants. Qualcomm can grant its executives as many stock shares as it wants to. This means that there are more outstanding shares of stock which dilutes the price per share. So Qualcomm's trick was to buy back some of its stock thereby decreasing the number of outstanding shares and increasing the price per share, and then to turn around and grant stock to those three executives so that the final result was that the exact same number of shares, more or less, were outstanding as there were before this maneuver took place.

The U-T opined "Instead of using buybacks to give owners more of the company over time, Jacobs has effectively recycled shareholder profits into executive pay."

So three hyenas in the form of Jacobs, Mollenkopf and Aberle swiped the money off the table before another hyena in the form of Jana Partners could get to it. Had Jana Partners been successful and gotten to the money first, its rich shareholders could have reaped the profits instead of Qualcomm executives and CEO pay would have decreased. Getting back to the obscene ratio between CEO pay and worker pay, in neither case would workers have benefited even if in this instance CEO pay had diminished. The benefits would have gone to another set of rich hyenas, Jana Partners.

Ironically, workers have no leverage in this scenario whatsoever. Even if executive pay decreases, the only likely beneficiaries are other rich people - shareholders - not workers.

Last week Qualcomm  cut its earnings forecast for the second time this year after reporting that its past quarter’s earnings dropped 45 percent from the prior year. Samsung is not going to use its Snapdragon chip this year, but Qualcomm is optimistic. Samsung has invited them to produce their next chip in Samsung's own factory. Like a moth to a flame, Qualcomm will let Samsung oversee its chip making operation. I wonder what could go wrong with that? As other companies rev up their own chip making operations, Qualcomm will not only lose the chip business, but its patents, from which it gets most of its income, will be rendered worthless as Samsung and others devise workarounds to Snapdragon. 

China is also revving up its chip making operations which will result in less of a need for Qualcomm's Snapdragons. They are afraid Qualcomm has built in a "back door" which would allow the US to spy on Chinese officials. Maybe Paul Jacobs got out just in time.

Apple Corporation Sitting on a Pile of Cash It Has No Use For

by John Lawrence

Apple Corporation is sitting on $178 billion in cash, and it literally doesn't know what to do with it. But it knows one thing: it doesn't want to give any of it to Uncle Sam or any other taxing jurisdictions around the world. That much is clear. If it divided that money up, Apple could give $550 to every man, woman and child in the US. It's enough money to buy Ford, General Motors and Tesla combined and still have $41 billion left over. They could even buy a couple of small countries, but it doesn't want to do that. Why bother? It's literally an embarrassment of riches.

Apple sold an amazing 74.5 million iPhones in the last quarter of 2014, (the first fiscal quarter of 2015). This was an average of 34,000 iPhones an hour for every hour of the quarter! It brought in over $74 billion in revenue for the quarter. This was higher in quarterly revenue than Microsoft and Google combined, the largest quarterly revenue ever to be recorded by a publicly traded company. Profits for the quarter were over a quarter billion dollars a day.

Investors, the supposed "owners" of the company, want that money given back to them, but it's not happening. They could give all their employees a raise, but that's not happening either. They could buy back their stock thus raising the price of it, and they have done some of that. The problem is most of that $178 billion is sitting outside the country, so rather than "repatriate" the money which would cost them a hefty amount of taxes, they borrow money instead to do their meager stock buy backs in order to get investors off their backs, AND they lobby Congress for a "tax holiday" which would let them bring the money home without paying tax on it.

They could reduce the prices on their iPhones, or build a factory and set up a production line in the US. This would create American production jobs instead of all those kind of jobs being created in China. Of course, it would cut into their profit margins slightly so it is out of the question. Besides you can't wake up American workers at one o'clock in the morning and put them on the production line for 12 hours like their production company in China, Foxconn, does on Apple's behalf.

Apple is in business to make money even if they have no other use for it than to sit atop a shitpile of it. This kind of massive anal-retentiveness which hoards money rather than utilizing it for life sustaining and enriching purposes amounts to the worship of "filthy lucre." Norman O Brown, author of the book, Life Against Death, has said, "... money is seen to be nothing other than deodorized, dehydrated shit that has been made to shine." Meanwhile, millions of homeless people around the world go hungry.

With so much money at their disposal that they don't know what to do with, the question is begged, "Why not pay the taxes on it and help out their fellow Americans and their country?" But that's not the way corporations work. They assiduously seek out every possible tax break their lawyers can dream up. When asked why this is necessary, given that they don't even need the money, CEO Tim Cook replies words to the effect that paying taxes on this money would give his competitors an unfair advantage.

Well, it might do that if it meant that Apple would not be able to invest in new plants or equipment, but that is surely not the case. Apple is lacking for absolutely nothing so it is hogwash that not spending or giving back money it doesn't need is putting them at a disadvantage with respect to their competitors. In fact it is building a new headquarters in Cupertino, CA that will cost $5 billion and feature 40-foot panes of curved glass from Germany that will form the exterior. They plan to move in in 2016. It is nothing less than an over the top display of ostentatious wealth and conspicuous consumption.

In the fourth quarter of 2014 Apple made $18 billion in profits, the most money an American corporation has ever made in one quarter. By comparison Exxon corporation made slightly more than half of that - $9.45 billion; Chevron made $7.25 billion. Campbell Soup Corporation, which has been a fixture in American households for over 100 years, made a paltry in comparison $8.3 billion in total revenues in 2014 and out of that only $800 million in profits for the whole year. That figures out to be a profit margin of 9.6%. Apple's quarterly profits were 22.5 times bigger than Campbell Soup's yearly profits. For Apple’s full fiscal year of 2014, profit was $39.5 billion on revenue of $182.8 billion.

Most of this came from the tremendous sales of the iPhone 6. In a conference call with financial analysts, CEO Tim Cook, said that demand for iPhones was "staggering". For every iPhone Apple sells, it makes a phenomenal 40% in profit. That's an impressive profit margin. But lowering prices or creating American jobs which would entail accepting a more modest profit margin is not in Apple's DNA or for that matter in any other red blooded American corporation's DNA.

Apple goes to elaborate lengths to avoid not only Federal taxes but California state taxes as well. Most of its intellectual work is done in California, but for accounting purposes it has moved much of its financial operations to a subsidiary in Nevada called Braeburn Capital where there is a zero tax rate. With a small number of employees in Reno, Apple has avoided millions of dollars in taxes in California and 20 other states. California's tax rate is 8.84% while Nevada's is zero. By having an office 200 miles east of its Cupertino, California headquarters to collect and invest its profits, Apple avoids millions of dollars in California taxes.

Apple also saves billions by setting up offices in low tax jurisdictions throughout the world such as Ireland and the Netherlands. Apple implemented an accounting technique known as the "Double Irish With a Dutch Sandwich," which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Apple's creativity and innovativeness in avoiding taxes has been replicated by other corporations which have gone to great lengths to avoid taxes too. They look up to Apple as their teacher in tax avoidance.

If it weren't for such tactics, Uncle Sam would have collected about $2.5 billion more from Apple last year. This means that average Joes, who do not have the benefits of overseas low tax jurisdictions and an army of accountants and lawyers to help them figure their taxes, have to make up the difference. Last year Apple paid a tax rate of less than 10% considering taxes paid around the world. By comparison, Wal-Mart last year paid worldwide cash taxes of $5.9 billion on profits of $24.4 billion, a tax rate of 24 percent, which is about average for non-tech companies.

De Anza College is located a mile and a half from Apple's Cupertino headquarters. It is struggling to keep its head above water:

[De Anza is] a community college that Steve Wozniak, one of Apple’s founders, attended from 1969 to 1974. Because of California’s state budget crisis, De Anza has cut more than a thousand courses and 8 percent of its faculty since 2008.       

Now, De Anza faces a budget gap so large that it is confronting a “death spiral,” the school’s president, Brian Murphy, wrote to the faculty in January. Apple, of course, is not responsible for the state’s financial shortfall, which has numerous causes. But the company’s tax policies are seen by officials like Mr. Murphy as symptomatic of why the crisis exists.       

“I just don’t understand it,” he said in an interview. “I’ll bet every person at Apple has a connection to De Anza. Their kids swim in our pool. Their cousins take classes here. They drive past it every day, for Pete’s sake.

“But then they do everything they can to pay as few taxes as possible.”

You'd think that Apple would take De Anza under its wing and keep it alive with some of that pile of cash it's sitting on. But there is an additional complication: most of that $178 billion shitpile is sitting in overseas banks. Having paid little in taxes on it so far, Apple is reluctant to bring it back to the good ole US because by so doing it would have to pay the US corporate rate of 30% minus whatever taxes it has already paid. With so much money at its disposal, going ahead and paying US taxes on it is merely the right thing to do. Then it could turn around and help out De Anza College.

But these guys could care less. It's a point of pride to pay as little in taxes as possible no matter what hoops it has to jump through in order to do it including even the Double Irish and Dutch Sandwich. It could help out De Anza with a portion of the money it has made by locating Braeburn Capital in Nevada. If Braeburn were located in Cupertino, where Apple’s top executives work, a portion of the $2.5 billion in interest and dividend income that has been processed by Braeburn would be taxed at California’s 8.84 percent corporate income tax rate instead of Nevada's zero percent rate.

Braeburn is only one method that Apple uses to avoid taxes. Every time someone downloads a song from iTunes, Apple avoids paying taxes on the profit from that download. Since it costs no more to download the same tune one time or a million times, those profits are pretty high. So the clever people at Apple, who can locate the server from which iTunes songs are downloaded, anywhere in the world, have decided to locate it in Luxembourg where they pay no taxes on the profits.

“We set up in Luxembourg because of the favorable taxes,” said Robert Hatta, who helped oversee Apple’s iTunes retail marketing and sales for European markets. “Downloads are different from tractors or steel because there’s nothing you can touch, so it doesn’t matter if your computer is in France or England. If you’re buying from Luxembourg, it’s a relationship with Luxembourg.” Consequently, tax payments are denied to Britain, France and other countries as long as everything is routed through Luxembourg.

About 70% of Apple's profits are earned abroad while only 30% are earned in the US, and that's by design in order to escape paying US corporate taxes. But all of the design and the intellectual heavy lifting is done in the US. Former Treasury Department economist, Martin A. Sullivan said that “given that all of the marketing and products are designed here, and the patents were created in California, that [percentage of profits earned in the US]  should probably be at least 50 percent.”

“Apple, like many other multinationals, is using perfectly legal methods to keep a significant portion of their profits out of the hands of the I.R.S.,” Mr. Sullivan said. “And when America’s most profitable companies pay less, the general public has to pay more.”

Other tax experts, like Edward D. Kleinbard, former chief of staff of the Congressional Joint Committee on Taxation, have reached similar conclusions. “This tax avoidance strategy used by Apple and other multinationals doesn’t just minimize the companies’ U.S. taxes,” said Mr. Kleinbard, now a professor of tax law at the University of Southern California. “It’s German tax and French tax and tax in the U.K. and elsewhere.”

Suffice it to say that Apple has not yet found a viable strategy for investing its $178 billion shitpile of cash whether in terms of building new plants, paying more taxes or in doing good deeds in the US or elsewhere in the world. Whether or not its gargantuan profits are considered obscene, I leave to the eyes of the beholder. One thing is for sure though: Apple's 1984 Superbowl commercial, in which IBM was dramatized as taking over the world, is now more aptly interpreted with Apple in the role of IBM. In the same quarter in which Apple posted $18 billion in profits, IBM's total revenue fell nearly 12 percent to $24.11 billion. Revenue from hardware fell 39 percent to $2.41 billion. IBM's revenues may have declined for 11 consecutive quarters and its stock price has fallen, but its CEO, Virginia Rometty, is taking home a performance bonus of $3.5 million. Oh how the mighty have fallen!

7 Mindblowing Economic Trends You Need to Know About

AlterNet   /      By Lynn Stuart Parramore    May 13, 2014

The good, the bad, and the downright crazy in economic trends....

1. America lags behind much of the world on minimum wage. On May 18, the Swiss will vote on a proposed minimum wage of — are you listening American CEOs? — nearly $25 per hour. That would be, oh, about three times the current U.S. minimum of $7.25 per hour. The proposal was put forward by SGB, the country’s biggest union, and backed by the Socialist and Green parties. Though many in Switzerland, including the business community, oppose the hike, the Swiss system of direct democracy, which allows its citizens to vote on a variety of economic issues, can produce unpredictable results.

The U.S., meanwhile, can’t seem to get even a paltry raise through Congress, and falls behind Australia, France, New Zealand, the U.K., Canada, and Japan on minimum wage rates. If you include the robust social services available to many of the low-income workers in those countries, the American rate is even more appalling.

According to the AFL-CIO, in no state in America could a minimum wage worker working a 40-hour week afford a two-bedroom apartment. Even a raise to $10.10 per hour would not be enough to get many people out of poverty.

2. American millionaires: tax us! You read that right. A recent CNBC Millionaire Survey shows that most American millionaires consider inequality to be a “major problem” for the U.S. and that two-thirds support higher taxes on the wealthy. Our rich folks still flatter themselves that they have been rewarded with all their money because of hard work and they remain unabashed about the size of their fortunes. But they seem to have absorbed enough of the public’s increasing alarm about inequality to admit that there seems to be some soft of unfairness going on. Many of them think the problem must be education.

Democratic millionaires, as you might have guessed, are much more open to the idea of taxing the rich. Among those who think inequality is a concern, 78 percent of Democrats would be in favor of higher taxes on the wealthy, compared to only 31 percent of Republicans. Yet in the wake of Thomas Piketty’s bombshell book, Capital in the 21st Century, support for taxing the rich is even creeping into publications you don’t exactly associate with Marxist redistribution, like Forbes, where contributor Joseph Thorndike recently allowed that taxing the rich a bit more — nothing extravagant, mind you — might not be such a bad idea.

3. Retirement nightmare. Americans are freaking out about retirement, according to a new poll. Fifty-nine percent of citizens are afraid they will not have enough money for their senior years, says Gallup's annual Economy and Personal Finance poll, conducted in April among 1,026 adults. The next biggest fear is medical costs.

Experts used to say that a comfortable retirement — not a cushy one, you understand— required $1 million in savings. But now even that ginormous number appears too low, what with rising medical costs, disappearing pensions, insufficient 401(k)s, and low interest rates.

The Huffington Post recommends that you consider Pittsburgh as a cheap place to retire in the U.S. Or maybe we’ll just go with Costa Rica.

4. Economic fears kill baby-fever. The financial crisis sent birth rates plummeting around the world as couples either lacked money or worried too much about future shortfalls to feel comfortable having children. Today, global birth rates still haven’t bounced back.

This doesn’t bode well for the economy. As Thomas Piketty has pointed out, economic growth is associated with robust population growth  — as are lower rates of inequality. When more people join the workforce each year than leave it, you get more people spending and producing. And when there are more babies born, the influence of concentrated wealth is curbed because inheritances mean less. 

The birth rate is going down in China, Japan, the U.S., Germany, Italy and almost all other European countries. Researchers have found that births drop when unemployment rises, a trend that was observed during the Great Depression of the 1930s.

5. Capitalism gets fewer likes. In July 2013, the Brookings Institute released a survey showing that 42 percent of Americans did not believe capitalism is not working for them. The disillusionment was particularly prevalent among young people.

Now that the Pope has weighed in on the evils of capitalism, and Thomas Piketty’s book has compiled 300 years of data showing that worsening inequality is the inevitable result of unregulated capitalism, that number will likely rise.

You may also have noticed an increasing number of articles announcing that capitalism just isn’t fitting the bill for most people in modern society. “Capitalism isn’t working” even has its own Facebook page.

6. Economic cost of obesity is skyrocketing. Obesity is a global epidemic, and people who become obese require expensive medical intervention. In Tennessee, where 30 percent of the population is obese, the cost is nearly $2,000 per person each year, for a total of $3,656,000,000 spent statewide. (Find the costs in your state here.)

Studies by the Centers for Disease Control estimate that 34.9 percent of Americans are obese today: one third of adults, 21 percent of adolescents, and 18 percent of children under 11. The numbers for all age groups have been on the rise over the last three decades and they are expected to continue going up.

Diabetes alone cost the global economy nearly $500 billion in 2010, and researchers believe that number could rise to at least $745 billion by 2030.

7.Do you have a money disorder? Seventy-six percent of Americans point to money as a significant source of stress. Whether it's pathological gambling, hoarding, compulsive buying, or denial of financial reality, it looks like we’re becoming more vulnerable to disorders linked to financial strain, or in the language of professionals, “maladaptive patterns of financial beliefs and behaviors that lead to clinically significant distress.” Hoarding, for example, affects 1.4 million people in the U.S. and appears to be on the rise. The disorder, which has even spawned a popular cable show, “Hoarders,” is linked to financial uncertainty and can lead to homelessness, ostracism and cruelty to animals who are compulsively collected by hoarders.

Some experts, like clinical psychologist Joe Lowrance, warn that the cluster of ailments known as “money disorders” have not received enough attention in the mental health field. He calls for an end to the “money taboo” among practitioners. There is a growing list of “financial psychologists” who cater to the worries of the rich (who to leave the Palm Beach house to?) or celebrities like Wynona Judd who have admitted to uncontrollable money compulsions.

What about everybody else? The American Psychological Association has a website providing guidance and suggestions for help, from credit counseling services to therapists. The truth, though, is that many of the money stresses faced by Americans, like unemployment and student debt, will require policy changes and collective action.

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

Flooding the World with Government Issued Fiat Money - Implications for the Dollar as the World's Reserve Currency

by John Lawrence

The American solution to the 2008 financial crisis was flooding the economy with money. There was the TARP, the Troubled Asset Relief Program, a $700 billion bailout of the US' largest banks. But that was only the beginning. Dr. Ben Bernanke at the Federal Reserve bank added another $9 trillion to the money supply with his policy of "quantitative  easing" which is just a euphemism for "printing money." The Fed has printed money again and again. There was a follow-up policy, QE2, because the Fed figured it hadn't printed enough money with QE1. In addition to the US Fed, the European Central Bank (ECB) has been printing money to bail out Greece and other vulnerable European economies. The Central Bank of Japan has also been printing money fast and furiously. Both the US Fed and the ECB are legally prohibited from buying up their country's debts directly, but they can loan money to their big banks and these banks can in turn loan money to the respective countries in an indirect "wink-wink" transaction thus getting around the inconvenient limitations imposed by law. As a consequence another layer of interest accrues to the big banks increasing their power and dominance over the world economy to the point that supposedly sovereign countries have become mere dependencies on them.

What does all this money creation do? First, it supposedly offers a stimulus to economies that are verging on recession. But that is not really happening due to the fact that most of this money is simply being siphoned off by the world's big banks, and, instead of stimulating the economy, is simply going into the financial sector fueling even more speculation and contributing to a possible further meltdown and bailout down the road. In Europe the money is simply going to pay down debts incurred by the various countries. Nothing is being done to spur Greece's economy, for example. Instead the Greeks are being subjected to a regime of austerity - firing workers, reducing pensions and generally creating economic malaise for the average Greek citizen. This will force the Greek economy into a deeper recession with the result that Greek indebtedness will only increase requiring another round of bailouts by the ECB.

Another effect of printing money, sometimes called government "fiat money", since it's not backed by gold or anything else, is the debasement of the currency and inflation. In general the larger the money supply, the more inflation there is. This is not a big concern when an economy is in recession, but becomes a greater concern when the economy starts to "heat up." As far as the debasement of the currency is concerned, the dollar is starting to lose value with respect to other currencies. The more fiat money the government creates, the less the dollar will be worth and this has implications for the dollar as the world's "reserve currency."

Ellen Brown has written extensively about the good aspects of fiat money, namely, Abraham Lincoln's use of it to win the Civil War and build the transcontinental railroad. But all fiat money is not created equal. In Lincoln's day his fiat money went directly into the "real" economy. That is it went to average working people to fight a war and create infrastructure. It avoided having to borrow the money and saved the US government $4 billion in interest. There is a difference in the fiat money that the Fed and the ECB are creating today. Their fiat money is going directly into the financial sector instead of into projects that distribute the money to average citizens and workers. In other words in a perverted downward spiral, today's fiat money is going to pay off the world's big banks like JC Morgan Chase and Goldman Sachs and to pay interest on huge debts owed to private bankers. The Lloyd Blankfeins and the Jamie Diamonds of the world are profiting while the average working person and citizen is only going deeper into debt. The money is not "trickling down", making Republican assertions that all we need to do to get the economy booming again is to give more money to the rich, a ridiculous assertion. The only way to get the economy working again is to give the money directly to the average working person, but this possibility is not even on the radar of the world's western economies like it was during the Great Depression. That is, instead of inserting fiat money into the financial sector resulting in huge profits for bankers and miniscule results for the middle class, the money needs to be inserted into the economy directly at the middle class level which is to say in the form of infrastructure development and support programs like food stamps and tax breaks for the middle class.

The dollar is the world's reserve currency only because the US cut a deal with the middle east oil sheiks that oil on the world market would only be traded in dollars. But here too the dollar is being undercut since some countries, notably China, are cutting direct country to country deals which bypass the world oil market and bypass having to purchase oil in dollars. There are also moves afoot to replace the dollar by a basket of other currencies which would compete with the dollar. All of this is not promising for the continuance of the predominace of the dollar. Increasingly, US Treasuries are becoming less desirable as investment vehicles which means that the money printed by the Federal Reserve is increasingly being used just to buy up the US deficit which is the shortfall between Federal government expenditures and Federal tax revenues. So money is being printed just to bridge the gap. Obviously, this can only be a short term solution to US deficit and fiscal problems. For the long term the US economy itself has to produce tax revenues sufficient to balance government expenditures or, more likely, to pay increasingly higher interest rates to attract private investors just as Greece and Spain are having to do.

So as the US money supply is further diluted by quantitative easing, the value of US money is diminishing, dollar-denominated debt is less desirable as an investment and the role of the US dollar as the world's reserve currency is being eroded. European countries are in a similar predicament having become essentially subsidiaries of US and European banks. One of the statistics that substantiates these assertions is that 93% of the income gains since the Great Recession have gone to the upper 1%. In other words most of the money created has gone to the hedge funds, large banks and other elements of the financial sector. This money has not "trickled down" to the real economy. This is the ultimate denouement of the fact that the western world has relied too much on debt basing their economies. Rather than spending from strength which is spending from savings and accumulated wealth which countries with sovereign wealth funds are able to do, western countries and individuals have overspent by going into debt and the accrued interest is only driving them further into debt. The result is that huge amounts of interest are owed to the big banks, and this amount of money is swamping western economies and debasing the values of the dollar, euro and yen.

In a Trillion Euros Didn't Buy Much Time, Rick Ackerman discusses the fact that the US and Europe have both been reduced to the same level. Their central banks are being forced into the position of bailing out the US and the European countries by buying up their debt since private investors are becoming more and more reluctant to buy it. The US Fed is printing money to make up the difference between US government expenditures and what US taxes and private investors are willing to fund and in the European case, the ECB is buying up Greek and Spanish debt that private investors are turning up their noses at. This buying of debt means that central banks are effectively printing money to pay off the big banks which are owed money that US and European citizens as taxpayers don't have the money to pay and which increasingly cannot be borrowed from private investors.

All this supports my contention that the real action in the world economy these days is not with the average worker/consumer. The average person is becoming increasingly irrelevant. Instead the big banks, hedge funds and central banks are where the action is. In the US the big banks were bailed out while practically nothing was done to bail out the average person. Just think of the foreclosure crisis where HAMP, the Home Affordable Mortgage Program, turned out to be a worthless, toothless approach which did more damage to the average home owner by raising hopes which were later dashed than if it had never been enacted. It did almost nothing to protect home owners from being foreclosed on even though most of the foreclosures were fraudulent. In some cases home owners were led on being promised modified mortgages if they would only keep up current payments only to be foreclosed on at a later date instead of being given the revised mortgages they had been promised. The government's attitude was "we have to let the banks do anything they want, even engage in fraudulent activities, because to do otherwise would risk collapse of the entire system." Ellen Brown's plea for the elimination of the debt based, interest oriented economy in favor of public banking favoring fiat money injected into the real economy instead of into the financialized economy seems further and further from any possibility of being realized.

 

Debt-Free Money Creation and Dividend To Every Citizen Can Ignite and Revive Hope In the Philippines

Ed. Note: The creation of money by fiat as opposed to debt, which is how the Federal Reserve expands the money supply, is what this article is about. This is how Lincoln funded the Civil War and the transcontinental railroad with Greenbacks. Fiat created money as opposed to debt created money expands the money supply in such a way that it does not have to be paid back with interest. See Ellen Brown's excellent book, "Web of Debt," and my blog article here for more on this topic.

By Eric Encina (about the author) March 12, 2012 from OpEdNews.com

We're supposed to be born free, but now become virtual slaves of debt and usury!  We have the universal rights to be free again.

The Philippine Government (also applicable to any government in the world) should take up its responsibility to create the money debt-free by legislation, and therefore, as a democratic country in the South-East Asia, the only claimed to be Christian nation in the region, should lead by example to implement ECONOMIC DEMOCRACY -- the financial-economic policies to provide a guaranteed economic security to every Filipino citizen as a matter of economic rights without condition and discrimination in the form of  NATIONAL DIVIDEND or extra basic income to be financed interchangeably by taxation, if possible, not from taxes, and not from any domestic or foreign borrowings, but from the NEW CREATION OF MONEY  DEBT FREE.

The Government-Created-Money by legislation, by popular Filipino people's demands through the facilities of STATE-OWNED CENTRAL BANK - the necessity to reverse the central  banking policies and amend the Philippine Constitution and/or public banking schemes - can ignite and revive HOPE  to Philippines to eliminate unnecessary domestic and foreign debts, interest payments, taxes, poverty, hunger, crimes and environmental destruction at already at calamitous proportions.

With debt-free money, the Government can kick-start the blossoming of provincial and regional economies without tensions, pressures and violence.

 

The rightful and unconditional provision of a dividend to every Filipino citizen, father, mother and child, annually, let say, a proposal, at the rate of $1,000 in the Philippine Peso value of P43,000, more or less, can certainly reap considerable benefits and help the household's buying power with dignity and prosperity.

 

If the Philippine Government and the people remain in the trap and chains of debt and the dungeon of usury, and of continuing devaluation of currency versus other world currencies, burgeoning and bloating budget deficits, we will, for certain, continue to be in a vicious cycle, sliding back and forth with long-term effects down to the next generation, into dehumanizing levels of poverty, of hunger, starvation, of chaos, violence, corruption, devastation, and man-made apocalyptic events even in the age of global plenty in the 21^st century.

The control of money is the easiest way to terminate the lives of the impoverished and oppressed inhabitants. Millions and billions of impoverished poor across the planet are suffocated and shackled every second under debt finance.

 

Under debt finance disaster capitalism and compounded usury, the majority of Filipinos have long been ruined, shattered, forced to hand to mouth existence and enduring deprivations, hunger and starvation, and millions robbed of their human dignity. We are virtual slaves in our own country and overseas. The plight of the poor has become nightmarish through successive administrations under the tutelage and supervision of the international high finance capitalism, exacerbated by nasty-muddy-corrupt politics and all other attendant evils, ad infinitum.

 

The financial economic welfare of the Filipino citizens is the major responsibility of the Government  where  leaders are elected for public service and trust. The Government exists for the citizens, and not citizens for the Government.

Our wealth is for all, without exceptions and discrimination. Money creation that converts to monetary wealth must be based on facts and the reflection of PEOPLE'S WEALTH and money.  Our economic system should be based on economic bill of rights, of authentic human rights approach, a philosophy  to back up reality, of justice, solidarity, of brotherhood, of equality with theology of charity, mercy and compassion to appreciate the human dignity of everyone  and the love and adoration and our appreciation to OUR CREATOR Who created everything for us as PRO BONO, the Author of Life and its diversities and the Owner of All Universal Wealth seen and unseen.

We're all definitely imbued with a certain responsibility, by remorse of conscience, to help effect for change from the oppressive system to  system where everyone will be secured, justly guaranteed and prospered without compunction of heart  and scruple of conscience, and moral regrets, without fear and above all free from any of God's wrath.

 

There is enough wealth for everyone in the world with all material indisputable evidences if only there is justice and charity in the minds and hearts of men.  There is no any valid reason for the lack of money.

I welcome comments, suggestions and correction.

Eric V. Encina

Philippines

Money Throws Democracy Overboard

Published on Tuesday, February 14, 2012 by Common Dreams

by Bill Moyers and Michael Winship

Watching what’s happening to our democracy is like watching the cruise ship Costa Concordia founder and sink slowly into the sea off the coast of Italy, as the passengers, shorn of life vests, scramble for safety as best they can, while the captain trips and falls conveniently into a waiting life boat.

We are drowning here, with gaping holes torn into the hull of the ship of state from charges detonated by the owners and manipulators of capital. Their wealth has become a demonic force in politics. Nothing can stop them. Not the law, which has been written to accommodate them. Not scrutiny -- they have no shame. Not a decent respect for the welfare of others -- the people without means, their safety net shredded, left helpless before events beyond their control.

The obstacles facing the millennial generation didn’t just happen. Take an economy skewed to the top, low wages and missing jobs, predatory interest rates on college loans: these are politically engineered consequences of government of, by, and for the one percent. So, too, is our tax code the product of money and politics, influence and favoritism, lobbyists and the laws they draft for rented politicians to enact.

Here’s what we’re up against. Read it and weep: “America’s Plutocrats Play the Political Ponies.” That’s a headline in “Too Much,” an Internet publication from the Institute for Policy Studies that describes itself as “an online weekly on excess and inequality.”

Yes, the results are in and our elections have replaced horse racing as the sport of kings. Only these kings aren’t your everyday poobahs and potentates. These kings are multi-billionaire, corporate moguls who by the divine right, not of God, but the United States Supreme Court and its Citizens United decision, are now buying politicians like so much pricey horseflesh. All that money pouring into super PACs, much of it from secret sources: merely an investment, should their horse pay off in November, in the best government money can buy.

They’re shelling out fortunes' worth of contributions. Look at just a few of them: Mitt Romney’s hedge fund pals Robert Mercer, John Paulson, Julian Robertson and Paul Singer – each of whom has ponied up a million or more for the super PAC called “Restore Our Future” -- as in, "Give us back the go-go days, when predators ruled Wall Street like it was Jurassic Park.”

Then there's casino boss Sheldon Adelson and his wife Miriam, fiercely pro-Israel and anti-President Obama's Mideast policy. Initially, they placed their bets on Newt Gingrich, who says on his first day in office he’d move the American Embassy in Israel to Jerusalem, a decision that would thrill the Adelsons but infuriate Palestinians and the rest of the Muslim world. Together, the Adelsons have contributed ten million to Newt's “Winning Our Future” super PAC.

Cowboy billionaire Foster Friess, a born-again Christian who made his fortune herding mutual funds instead of cattle, has been bankrolling the “Red White and Blue Fund” super PAC of Rick Santorum, with whom he shares a social right-wing agenda. Dark horse Ron Paul has relied on the kindness of PayPal founder Peter Thiel, a like-minded libertarian in favor of the smallest government possible, who gave $900,000 to Paul’s “Endorse Liberty” super PAC. Hollywood’s Jeffrey Katzenberg has so far emptied his wallet to the tune of a cool two million for the pro-Obama super PAC, “Priorities USA Action.”

President Obama -- who kept his distance from Priorities USA Action and used to call the money unleashed by Citizens United a “threat to democracy” -- has declared if you can't beat 'em, join 'em. He urges his wealthy supporters to please go ahead and back the super PAC. "Our campaign has to face the reality of the law as it stands," his campaign manager Jim Messina said. To do otherwise, he added, would be to "unilaterally disarm" in the face of all those Republican super PAC millions. So much for Obama’s stand on campaign finance reform – everybody else is doing it, he seems to say, so why don’t you show me the money, too?

When all is said and done, this race for the White House may cost more than two billion dollars. What’s getting trampled into dust are the voices of people who aren't rich, not to mention what's left of our democracy. As Democratic pollster Peter Hart told The New Yorker magazine’s Jane Mayer, “It’s become a situation where the contest is how much you can destroy the system, rather than how much you can make it work. It makes no difference if you have a ‘D’ or an ‘R’ after your name. There’s no sense that this is about democracy, and after the election you have to work together, and knit the country together.”

These gargantuan super PAC contributions are not an end in themselves. They are the means to gain control of government – and the nation state -- for a reason. The French writer and economist Frederic Bastiat said it plainly: "When plunder becomes a way of life for a group of men living in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it." That’s what the super PACs are bidding on. For the rest of us, the ship may already have sailed.

Journalist Bill Moyers is the host of the new show Moyers & Company, a weekly series of smart talk and new ideas aimed at helping viewers make sense of our tumultuous times through the insight of America’s strongest thinkers.. His previous shows on PBS included NOW with Bill Moyers and Bill Moyers Journal. Over the past three decades he has become an icon of American journalism and is the author of many books, including Bill Moyers Journal: The Conversation Continues, Moyers on Democracy, and Bill Moyers: On Faith & Reason. He was one of the organizers of the Peace Corps, a special assistant for Lyndon B. Johnson, a publisher of Newsday, senior correspondent for CBS News and a producer of many groundbreaking series on public television. He is the winner of more than 30 Emmys, nine Peabodys, three George Polk awards and is the author of three best-selling books.

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Michael Winship, senior writing fellow at Demos and president of the Writers Guild of America, East, is senior writer of the new public television series Moyers & Company, premiering in January 2012. Go to www.billmoyers.

Money and Morals

By PAUL KRUGMAN

Published: February 9, 2012 in the New York Times

Lately inequality has re-entered the national conversation. Occupy Wall Street gave the issue visibility, while the Congressional Budget Office supplied hard data on the widening income gap. And the myth of a classless society has been exposed: Among rich countries, America stands out as the place where economic and social status is most likely to be inherited.

So you knew what was going to happen next. Suddenly, conservatives are telling us that it’s not really about money; it’s about morals. Never mind wage stagnation and all that, the real problem is the collapse of working-class family values, which is somehow the fault of liberals.

But is it really all about morals? No, it’s mainly about money.

To be fair, the new book at the heart of the conservative pushback, Charles Murray’s “Coming Apart: The State of White America, 1960-2010,” does highlight some striking trends. Among white Americans with a high school education or less, marriage rates and male labor force participation are down, while births out of wedlock are up. Clearly, white working-class society has changed in ways that don’t sound good.

But the first question one should ask is: Are things really that bad on the values front?

Mr. Murray and other conservatives often seem to assume that the decline of the traditional family has terrible implications for society as a whole. This is, of course, a longstanding position. Reading Mr. Murray, I found myself thinking about an earlier diatribe, Gertrude Himmelfarb’s 1996 book, “The De-Moralization of Society: From Victorian Virtues to Modern Values,” which covered much of the same ground, claimed that our society was unraveling and predicted further unraveling as the Victorian virtues continued to erode.

Yet the truth is that some indicators of social dysfunction have improved dramatically even as traditional families continue to lose ground. As far as I can tell, Mr. Murray never mentions either the plunge in teenage pregnancies among all racial groups since 1990 or the 60 percent decline in violent crime since the mid-90s. Could it be that traditional families aren’t as crucial to social cohesion as advertised?

Still, something is clearly happening to the traditional working-class family. The question is what. And it is, frankly, amazing how quickly and blithely conservatives dismiss the seemingly obvious answer: A drastic reduction in the work opportunities available to less-educated men.

Most of the numbers you see about income trends in America focus on households rather than individuals, which makes sense for some purposes. But when you see a modest rise in incomes for the lower tiers of the income distribution, you have to realize that all — yes, all — of this rise comes from the women, both because more women are in the paid labor force and because women’s wages aren’t as much below male wages as they used to be.

For lower-education working men, however, it has been all negative. Adjusted for inflation, entry-level wages of male high school graduates have fallen 23 percent since 1973. Meanwhile, employment benefits have collapsed. In 1980, 65 percent of recent high-school graduates working in the private sector had health benefits, but, by 2009, that was down to 29 percent.

So we have become a society in which less-educated men have great difficulty finding jobs with decent wages and good benefits. Yet somehow we’re supposed to be surprised that such men have become less likely to participate in the work force or get married, and conclude that there must have been some mysterious moral collapse caused by snooty liberals. And Mr. Murray also tells us that working-class marriages, when they do happen, have become less happy; strange to say, money problems will do that.

One more thought: The real winner in this controversy is the distinguished sociologist William Julius Wilson.

Back in 1996, the same year Ms. Himmelfarb was lamenting our moral collapse, Mr. Wilson published “When Work Disappears: The New World of the Urban Poor,” in which he argued that much of the social disruption among African-Americans popularly attributed to collapsing values was actually caused by a lack of blue-collar jobs in urban areas. If he was right, you would expect something similar to happen if another social group — say, working-class whites — experienced a comparable loss of economic opportunity. And so it has.

So we should reject the attempt to divert the national conversation away from soaring inequality toward the alleged moral failings of those Americans being left behind. Traditional values aren’t as crucial as social conservatives would have you believe — and, in any case, the social changes taking place in America’s working class are overwhelmingly the consequence of sharply rising inequality, not its cause.