California Free Press

How to Escape the Federal Debt Trap

Posted on December 10, 2024 by Ellen Brown

The U.S. national debt just passed $36 trillion, only four months after it passed $35 trillion and up $2 trillion for the year. Third quarter data is not yet available, but interest payments as a percent of tax receipts rose to 37.8% in the third quarter of 2024, the highest since 1996. That means interest is eating up over one-third of our tax revenues.

Total interest for the fiscal year hit $1.16 trillion, topping one trillion for the first time ever. That breaks down to $3 billion per day. For comparative purposes, an estimated $11 billion, or less than four days’ federal interest, would pay the median rent for all the homeless people in America for a year. The damage from Hurricane Helene in North Carolina alone is estimated at $53.6 billion, for which the state is expected to receive only $13.6 billion in federal support. The $40 billion funding gap is a sum we pay in less than two weeks in interest on the federal debt.

The current debt trajectory is clearly unsustainable, but what can be done about it? Raising taxes and trimming the budget can slow future growth of the debt, but they are unable to fix the underlying problem — a debt grown so massive that just the interest on it is crowding out expenditures on the public goods that are the primary purpose of government.

Borrowing Is Actually More Inflationary Than Printing

Several financial commentators have suggested that we would be better off if the Treasury issued the money for the budget outright, debt-free. Martin Armstrong, an economic forecaster with a background in computer science and commodities trading, contends that if we had just done that in the first place, the national debt would be only 40% of what it is today. In fact, he argues, debt today is the same as money, except that it comes with interest. Federal securities can be posted in the repo market as collateral for an equivalent in loans, and the collateral can be “rehypothecated” (re-used) several times over, creating new money that augments the money supply just as would happen if it were issued directly.

Chris Martenson, another economic researcher and trend forecaster, asked in a Nov. 21 podcast, “What great harm would happen if the Treasury just issued its own money directly and didn’t borrow it? … You’re still overspending, you still probably have inflation, but now you’re not paying interest on it.”

The argument for borrowing rather than printing is that the government is borrowing existing money, so it will not expand the money supply. That was true when money consisted of gold and silver coins, but it is not true today. In fact borrowing the money is now more inflationary, increasing the money supply more, than if it were just issued directly, due to the way the government borrows. It issues securities (bills, bonds and notes) that are bid on at auction by selected “primary dealers” (mostly very large banks). Quoting from Investopedia:

Because most modern economies rely on fractional reserve banking, when primary dealers purchase government debt in the form of Treasury securities, they are able to increase their reserves and expand the money supply by lending it out. This is known as the money multiplier effect.  

Thus, “the government increases cash reserves in the banking system,” and “the increase in reserves raises the money supply in the economy.” Principal and interest on the securities are paid when due, but they are paid with borrowed money. In effect, the debt is never repaid but just gets rolled over from year to year along with the interest due on it. The interest compounds, an increasing amount of debt-at-interest is generated, and the money supply and inflation go up.

U.S. Currency Should Be Issued by the U.S. Government

Well over 90% of the U.S. money supply today is issued not by the government but by private banks when they make loans.  As Thomas Edison argued in 1921, “It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people.”

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Off the Top of My Head

Kamala Harris is a Pragmatist, the Only True American Philosophy

by John Lawrence

Kamala wants to strengthen the border. That's supposedly a right wing issue. She wants to give the middle class a tax break. That's a right wing issue too. She wants to strengthen the safety net. That's supposedly a left wing issue. The division of the political spectrum into left wing and right wing issues doesn't make sense any more. No one seems to be interested in foreign policy as an issue in this election so left and right are moot in terms of foreign policy. I am so glad that Democrats have co-opted the tax issue. President Biden first caught on to this when he said he wouldn't raise taxes on anyone making less than $400,000. This makes so much sense. Tax the rich, but give the middle class a tax break. Why haven't Democrats thought of making this the issue till recently? The only people opposing Kamala's suggested increased safety net provisions such as giving first time home buyers $25,000 for a down payment or increasing Medicare to incorporate home care for elders are right wing Republicans who don't believe the government should help anyone especially if it raises their taxes by one cent. Increasing the safety net does not necessarily mean anyone's taxes need to be increased. During the 2008 Great Recession, the government spent billions to bail out the banks without raising anyone's taxes. The US dollar is a fiat currency which can just be printed to pay for anything. Thanks to Modern Monetary Theory for explaining that. However, the danger in printing too much money is inflation which the MMT theorists have pointed out. Inflation has come back down to normal so that that shouldn't be an issue going forward. Whether the problem was the dollar giveaways during the pandemic or other issues has not been conclusively determined. The point is that there is not necessarily a cause and effect situation between taxation or lack thereof and government spending.

So the difference between Republican proposed tax breaks and Democratic proposed tax breaks should be made clear. Republicans, Trump in particular, will give huge tax breaks to the rich and modest tax breaks to the middle class with the resulting deficit being added to the national debt. Kamala's tax breaks would only affect the middle class while increased taxes on the rich would pay for them. Thus would not add to the national debt. In fact taxes should be raised on the rich not only to use the money to benefit the middle class but just on principle, the principle being that economic inequality is at levels not seen since the era of kings, monarchs, emperors and czars, in other words not since feudalism. Extreme economic inequality bodes ill against a democracy which must have a strong middle class in order to stay a democracy. Otherwise, you have extremely rich guys like Elon Musk out there buying votes with his million dollar a day giveaways.

I predict this election will see women outvoting men so that Kamala will win. It won't be men electing the first woman President; it will be women doing it. Men will do their best to elect Trump. They all seem to be making excuses for him saying "he doesn't really mean that" to all his outrageous statements. There's no reason not to think that Trump is a dangerous guy who will transform the nature of America and estrange our allies by implementing a radical change in foreign policy. There needs to be a change from Biden's foreign policy in order to end the two wars, but it should be done in association with our allies, not by abruptly separating from our allies. The people out there who are apologists for Trump need to think twice before voting for him.The American economy is the envy of the world, not in the toilet as some of them would have you believe. We need continuity with the Biden government, not a radical change. Inflation is under control. The main economic issue is the high cost of real estate and rent. Kamala has proposed specific plans to deal with this; Trump has not. Trump's proposed tariffs would add to the financial burdens of the middle class. Any one who has a brain in their head will vote for Kamala. Unfortunately, there are many Americans that do not.

Off the Top of My Head

Why Is Trump Spewing Lies and Misinformation? Because It Works!

by John Lawrence

What does this say about the electorate? A portion of them are dumb as Hell. They don't want the truth. They want entertainment, and Trump gives it to them. Whether it's Haitians eating dogs and cats or whatever. The stupider and less true, the better. Why don't other Republicans speak up and point out the stupidity of Trump's assertions? Because, in their minds, it's a winning strategy. They don't care if they win by telling lies or telling the truth. They just want to win. They just want power. Truth be damned. Democracy cannot last if a large proportion of the voters are a bunch of stupid ninnies who will vote for the person who entertains them the most. Democracy is predicated on having an intelligent and educated electorate. It's no wonder that most Trump voters are not college educated and most Kamala voters are. That's the difference between those who have a brain in their head who mostly vote Democratic and those who don't who mostly vote Republican. Trump is the perfect candidate actually because he appeals to the large segment of the electorate who just want to be entertained and will go along with any bullshit he says without critically examining it to determine whether it's true or factual.

Critical thinking is something that supposedly is learned in college. Hence the split between non college educated voters who mostly vote for Trump and college educated voters who will mostly vote for Kamala. An uneducated electorate are like sheep being led to slaughter. They think the economy under Trump when he was President was better than it was under Biden. Really? Trump gave $7 trillion worth of tax cuts mostly to the rich and added that much to the national debt. Biden, in addition to bailing out people and businesses during the pandemic was responsible for the Inflation Reduction Act which was a huge investment in the American people in terms of jobs. Then there was the Chips and Science Act which not only created jobs, but kept critical infrastructure in the US rather than depending on foreign suppliers. I could go on ... $35 a month insulin for Medicare recipients and blah blah blah ... To boot inflation has returned to normal, and I believe Biden is still President, isn't he?

Then there is the border where illegal crossings are at the lowest level since Biden took office as President.. NPR reported: "President Biden issued executive actions severely restricting asylum claims at the border, and migrants who cross are more likely to be removed from the country expeditiously. ... Due to this rule and Mexico’s beefed-up enforcement, unauthorized crossings in June [2024] hit the lowest level since President Biden took office in 2021." Why isn't Kamala touting this? Inflation is down and illegal border crossings are down, and yet Trump is considered by many to be better for the economy and immigration. Really? It's not Trump but those members of the electorate who have their heads up their collective asses. Trump is just doing what he thinks is a smart, winning strategy. It doesn't have to do with the truth or anything else as long as he thinks he can trick the voters into voting for him. These Trump voters don't care about facts. They just want to be entertained, and Trump is doing a good job at that. Smart guy, that Trump. Let's give him his due. However, democracy is predicated on an educated electorate which is capable of actually knowing what is good for them and their fellow citizens and what's not. Trump voters, who may be responsible for choosing the next President, are neither educated, critical thinkers or capable of telling truth from fiction.

Off the Top of My Head

Why Are Democrats Not Hammering on the Trump Tax Cuts Which Need to be Increased for Middle Class and Eliminated for the Rich

by John Lawrence

American voters love tax cuts. That's the main appeal of a Republican administration. Biden has said he won't raise taxes for anyone making less than $400,000. This is not a strong enough statement. He, or whoever eventually is the Democratic nominee, should say that they will lower taxes for anyone making less than $400,000. Most of the Trump tax cuts go to those making over $400,000. CNN reported: "The highest-income households would receive more than 45% of the benefits if the expiring provisions of the 2017 Tax Cuts and Jobs Act are extended, according to an analysis released Monday by the Urban-Brookings Tax Policy Center." Why can't the Democrats see this? The Republicans' only appeal to the middle class are the tax cuts which give them a paltry $1000 or 1.3% of their income off their taxes while the rich households making at least around $450,000 – roughly the top 5% - would see their after-tax income increase by 3.2%. Democrats need to take this issue away from Republicans. Right now their rhetoric around this issue is too weak.

For those in the top 1%, who make at least $1 million, they get a tax cut of about $70,000, on average, in 2027. The top 0.1%, who make at least $5 million, would pocket a tax cut of nearly $280,000, on average, or about 3% of their after-tax income. Also extending the Trump tax cuts would have a big impact on the national debt, raising it by more than $4 trillion over the next 10 years – before interest costs are factored in, according to the Congressional Budget Office. Of course this will give power to Republican claims that the government can't support social security and Medicare any more. There will not be any more money available after supporting a one trillion dollar military budget and paying interest on the national debt.

What is wrong with the Democrats? There is already too much disparity between the very rich and the middle class. We are going back to a medieval society where the rich aristocracy run the political establishment and the middle class are nothing but modern day peasants. The peasants will not be able to build wealth because they won't be able to buy a house which is the main wealth builder for the middle class. They all will be renters for life living paycheck to paycheck. This is the reality for life in America today. People who have even one asset, a house, will get ahead by building wealth. People who are life long renters will only create wealth for their landlords. This is the way it was 500 years ago. Well, at least today, everyone has a cell phone.

Off the Top of My Head

Biden Should Run on Tax Cuts for Middle Class

by John Lawrence

There are only two issues Republicans have: the border and tax cuts. The American people are expecting a tax cut if a Republican is elected to the Oval Office. That's the reason they are complaining about the economy. The American people have gotten a lot of good economic stuff out of the Biden administration. Now they want their tax cuts. Every Republican administration in recent history has promised tax cuts. Biden should steal that thunder and run on tax cuts for the middle class and tax increases for the very wealthy. He started sounding this note during the last election cycle. He needs to reemphasize this medley. Biden needs to take these issues away from Republicans. I wrote previously about the fact that Biden should go full Trump on the border issue. It's ridiculous that the US has 750 military bases around the world, and seeks to control every other country's borders but can't control its own. A majority of these bases are equipped with modern military equipment and airfields. According to a report, the U.S. had about 750 military bases across 80 countries in the world and had deployed 173,000 troops in 159 different countries as of July 2021.

Let's review the Biden record on the economy which is truly epic. Biden has added 14 million jobs in less than three years, bringing the Black unemployment rate to a record low and reducing student loan debt by billions. That's for starters. The astoundingly strong labor market is arguably the White House’s biggest victory. In some ways, the bump was inevitable — Biden took office at a time when millions were still out of work because of the pandemic. Even so, the rapid job gains in recent years have blown past economists’ expectations and have fueled the economy’s blockbuster growth. To date, the White House has canceled some $132 billion in student loan debt for more than 3.6 million Americans. It has also increased federal Pell Grants to low- and middle-income students, allowing them to take on less debt. As a result, outstanding student loan balances have been falling for six months. 

The American Rescue Plan passed in March 2021, injected a $1.9 trillion stimulus into the U.S. economy. It included financial safety nets like payments of $1,400 to households earning up to $75,000, extended unemployment benefits, and an expansion to the child tax credit. Collectively that cut overall poverty by 44%, according to the Brookings Institution, and lifted Americans’ financial health to new heights. Biden’s $1 trillion Infrastructure and Jobs Act was the next major spending package to win congressional approval in November 2021. It fulfilled the president’s campaign-trail promise to refurbish the country’s roads and bridges, while expanding access to clean water and broadband internet. It will support an additional 600,000 new jobs by the end of next year and 800,000 jobs in 2025, according to Moody’s Analytics.

 

The passage of the so-called “Chips and Science” plan allowed Biden to cement an industrial-policy legacy and fulfill a bipartisan desire to rely less on China’s semiconductor industry. More than 460 companies have shown interest in its $53 billion of research and production subsidies, the Commerce Department said last month. And the relationship between public and private investment is something to brag about. Micron Technology’s (MU.O), opens new tab $100 billion outlay for a New York chip factory is expected to create nearly 50,000 jobs in the state. Intel’s (INTC.O), opens new tab $20 billion expansion in Arizona is expected to support 3,000 new jobs. The Inflation Reduction Act gave Biden a chance to revive progressive proposals before the 2022 midterm elections. Though the final plan was whittled down from $1.8 trillion to $430 billion of new spending, it still included Biden’s plans for clean energy tax credits and Medicare drug price negotiation. Bank of America estimates it has already spurred $132 billion of investment across more than 270 new clean energy projects.

 

So what is the American people's response to these clear economic gains that Biden has been responsible for? Now we want our tax cuts so we will elect Trump since that is what he provided after his election in 2016. This is an ominous predilection for the reelection of Joe Biden. He can neutralize this threat by out promising Trump on the issue of tax cuts for the American people. At the same time he can balance this by his previous promise of not increasing taxes on anyone making less than $400 million a year. This would make Biden's policy on tax cuts more fiscally responsible than Trump's. Trump's tax cuts added $7 trillion to the national debt, something Republicans weren't too concerned about. Biden should take the wind out of Trump's sails on tax cuts while also providing a more responsible policy regarding the national debt.

Off the Top of My Head

Should the President Be Popularly Elected by Direct Vote of the People?

by John Lawrence

In the US the President is popularly elected by the people after having been filtered through the archaic electoral college. In a parliamentary democracy the head of government equivalent to the US President is indirectly elected by the parliament not by a direct vote of the people. In China the president is also elected by a majority vote of the National People's Congress, the highest legislative body very similarly to how the heads of government are elected in parliamentary democracies. In Russia the President is nominally elected by a popular vote of the people similarly to the US although the system has been manipulated in such a way as to keep Putin in power. So what are the drawbacks of a popularly elected President by a vote of the people? The main drawback IMHO is that in the US an incompetent but popular boob like Donald Trump can be elected to the most powerful office in the land and arguably in the whole world. The election for President of the US is a popularity contest, and there is no requirement of experience or competency. In parliamentary democracies as well as China, supposedly the indirect election of President or its equivalent, "head of state," is an election by a meritocratic body of lawmakers. Therefore, it is more likely that a competent President or head of government will be elected.

In recent history in the US, the least competent but most popular person has been elected President based more on their personality and charisma than on their competency or knowledge of the job. It is more likely that a guy who "you would like to have a beer with" is elected President than someone who is more experienced and/or intelligent. Adlai Stevenson was branded as an "egghead" which effectively ended his political career. The leading Democratic figure of the 1950s, Stevenson was known for his wit, intellectual speeches, and liberal political convictions. For many Americans in the mid-twentieth century, he symbolized conscience in politics. Stevenson lost the Presidential election twice to Dwight Eisenhower, the World War II war hero. In 2000 Al Gore lost the election to George W Bush who promptly lied the US into war with Iraq. Gore, who was a staunch advocate for climate change mitigation, presumably would have employed government resources in that direction rather than fighting a fruitless war. Gore actually won the popular vote but was defeated by a combination of the Electoral College and the Supreme Court.

Jimmy Carter put solar panels on the White House that were then taken down by Ronald Reagan. So much for science taking precedence over popular ignorance and prejudice. Reagan also ran up the national debt substantially as did George W Bush and Donald Trump. Then when Democrats are elected President, Republicans cry bloody murder over the national debt while doing their best to prevent Democrats from spending any government money to actually help people. Fortunately, Joe Biden has been very successful in getting legislation passed to mitigate climate change among other accomplishments. But, his popularity as a candidate in 2024 in on the line as a majority of the American people don't want him to run again. Trump, despite 91 criminal indictments, is running neck and neck with Biden, one of the most accomplished Presidents in American history. One wonders whether the sclerotic American electoral system can withstand the challenges brought by popular but unscrupulous candidates for the Presidency by those you'd "like to have a beer with." Finally, the electoral College has all the disadvantages of indirect elections and none of the advantages.

The Federal Debt Trap: Issues and Possible Solutions

Posted on July 14, 2023 by Ellen Brown

 

from Web of Debt blog

First posted on ScheerPost.

“Rather than collecting taxes from the wealthy,” wrote the New York Times Editorial Board in a July 7 opinion piece, “the government is paying the wealthy to borrow their money.” 

Titled “America Is Living on Borrowed Money,” the editorial observes that over the next decade, according to the Congressional Budget Office (CBO), annual federal budget deficits will average around $2 trillion per year. By 2029, just the interest on the debt is projected to exceed the national defense budget, which currently eats up over half of the federal discretionary budget. In 2029, net interest on the debt is projected to total $1.07 trillion, while defense spending is projected at $1.04 trillion. By 2033, says the CBO, interest payments will reach a sum equal to 3.6 percent of the nation’s economic output. 

The debt ceiling compromise did little to alleviate that situation. Before the deal, the CBO projected the federal debt would reach roughly $46.7 trillion in 2033. After the deal, it projected the total at $45.2 trillion, only slightly less – and still equal to 115% of the nation’s annual economic output, the highest level on record.

Acknowledging that the legislation achieved little, House Speaker Kevin McCarthy said after the vote that he intended to form a bipartisan commission “so we can find the waste and we can make the real decisions to really take care of this debt.” The NYT Editorial Board concluded:

Any substantive deal will eventually require a combination of increased revenue and reduced spending …. Both parties will have to compromise: Republicans must accept the necessity of collecting what the government is owed and of imposing taxes on the wealthy. Democrats must recognize that changes to Social Security and Medicare, the major drivers of expected federal spending growth, should be on the table. Anything less will prove fiscally unsustainable. 

The Elephant in the Room

Omitted was any mention of trimming the defense budget, which currently accounts for more than half of the federal government’s discretionary spending and nearly two-thirds of its contract spending. Rep. Ro Khanna (D-CA), who cast the sole dissenting vote on the recent $886 billion defense budget in the House Armed Services Committee, has detailed some of the Pentagon’s excesses. For decades, he writes, legacy military contractors have charged the federal government exorbitant sums for everything from fighter jets to basic hardware. Lockheed Martin, for example, has used its monopoly on F-35 fighter jets to profit from maintenance that only they can provide, with the work needed to support and upgrade existing jets projected to cost taxpayers over $1.3 trillion. TransDigm, another contractor responsible for supplying spare parts for the military, was found to be charging the Pentagon more than four times the market price for their products. 

Rep. Khanna concludes, “Keeping America strong starts at home. It means ensuring access to quality, affordable healthcare and education, strengthening our economy with good-paying jobs, and giving Americans the tools they need to pursue the American Dream.… Bloated military spending is not the answer.… We can’t continue to sign a blank check to price-gouging defense contractors while Americans struggle here at home.”

In an address to the UN Security Council on Ukraine aid on June 29, 2023, Max Blumenthal added fuel to those allegations. He said:

Just June 28th, as emergency crews work to clean up yet another toxic train derailment in the United States, this time on the Montana River, further exposing our nation’s chronically underfunded infrastructure and its threats to our health, the Pentagon announced plans to send an additional $500 million worth of military aid to Ukraine…. 

This policy, … which sees Washington prioritize unrestrained funding for a proxy war with a nuclear power in a foreign land … while our domestic infrastructure falls apart before our eyes, exposes a disturbing dynamic at the heart of the Ukraine conflict – an international Ponzi scheme that enables Western elites to seize hard-earned wealth from the hands of average U.S citizens and funnel it into the coffers of a foreign government that even Transparency International ranks as consistently one of the most corrupt in Europe. 

The U.S. government has yet to conduct an official audit of its funding for Ukraine. The American public has no idea where their tax dollars are going. And that’s why this week we at the Grayzone published an independent audit of U.S. tax dollar allocations to Ukraine throughout the fiscal years 2022 and ’23.

Among other dubious payments they found were $4.5 million from the U.S. Social Security Administration to the Kiev government, and $4.5 billion from USAID to pay off Ukraine’s sovereign debt, “much of which is owned by the global investment firm BlackRock. That amounts to $30 taken from every U.S citizen at a time when 4 in 10 Americans cannot afford a $400 emergency.”

The Black Hole of the Pentagon Budget

The Pentagon failed its fifth budget audit in 2022 and was unable to account for more than half of its assets, or more than $3 trillion. According to a CBS News report, defense contractors overcharged the Defense Department by nearly 40-50%; and according to the Office of the Inspector General for the Defense Department, overcharging sometimes reached more than 4,000%. The $886 billion budget request for FY2024 is the highest ever sought.

Following repeated concerns about fraud, waste and abuse in the Pentagon, in June 2023 a bipartisan group of senators introduced legislation to ensure the Defense Department passes a clean audit next year. The Audit the Pentagon Act of 2023 would require the Defense Department to pass a full, independent audit in fiscal 2024. Any agency within the Pentagon failing to pass a clean audit would be forced to return 1% of its budget for deficit reduction. 

Sen. Bernie Sanders (I-Vt.) observed that the Pentagon “and the military industrial complex have been plagued by a massive amount of waste, fraud, and financial mismanagement for decades.… [W]e have got to end the absurdity of the Pentagon being the only agency in the federal government that has never passed an independent audit.”

Sen. Chuck Grassley (R-Iowa) said the Pentagon “should have to meet the same annual auditing standards as every other agency…. From buying $14,000 toilet seats to losing track of warehouses full of spare parts, the Department of Defense has been plagued by wasteful spending for decades. … Every dollar the Pentagon squanders is a dollar not used to support service members, bolster national security or strengthen military readiness.”

But defense audits have been promised before and have not been completed. In 2017, Michigan State University Prof. Mark Skidmore, working with graduate students and with Catherine Austin Fitts, former assistant secretary of Housing and Urban Development, found $21 trillion in unauthorized spending in the departments of Defense and Housing and Urban Development for the years 1998-2015. As reported in MSUToday, Skidmore got involved when he heard Fitts refer to a report indicating the Army had $6.5 trillion in unsupported adjustments (or spending) in fiscal 2015. Since the Army’s budget was then only $122 billion, that meant unsupported adjustments were 54 times the spending authorized by Congress. Thinking Fitts must have made a mistake, Skidmore investigated and found that unsupported adjustments were indeed $6.5 trillion. 

Four days after Skidmore discussed his team’s findings on a USAWatchdog podcast, the Department of Defense announced it would conduct its first-ever department-wide independent financial audit. But it evidently failed in that endeavor. As Bernie Sanders observes, the Pentagon has never passed an independent audit. It failed its fifth audit in 2022. Whether it will pass this sixth one, or whether the audit will lead to budget cuts, remains to be seen. The Pentagon budget seems to be untouchable.

Off the Top of My Head

Biden: The Least Appreciated Great President in American History

by John Lawrence

President Biden has gotten more real work done for the American people than any President with the exception of Franklin D. Roosevelt. So why is his job approval rating so low - just 39%? Chalk it up to the fickleness of the American people. They don't know a great President when they see one. Biden has been able to do so much with much narrower margins in Congress than FDR had in all his terms as President. In fact Roosevelt had Democratic majorities in both the House of Representatives and the Senate from 1933 until his death in 1945, and in those days the filibuster was a speaking filibuster that delayed but didn't terminate legislation and so was of little consequence compared to the fact that today 60 Senators are required to pass any bill.

So what are some of Biden's accomplishments? The Inflation Reduction Act is a historic legislative achievement that lowers costs for families, combats the climate crisis, reduces the deficit, and finally makes the largest corporations pay their fair share. For the first time, Medicare is able to negotiate the price of certain high-cost drugs, a month’s supply of insulin for seniors is capped at $35, Medicare beneficiaries pay $0 out of pocket for recommended adult vaccines, and seniors’ out of pocket expenses at the pharmacy will be capped at $2,000 a year. Historically low unemployment at 3.5%. A manufacturing boom is occurring. Companies have announced nearly $300 billion in manufacturing investments in the United States. These investments are ensuring the technologies of the future are made in America, and bringing back supply chains from overseas. And they are creating good-paying jobs, including union jobs and jobs that don’t require a four-year degree. As part of the bipartisan CHIPS and Science Act, the Department of Commerce is overseeing $50 billion to revitalize the U.S. semiconductor industry, including $39 billion in semiconductor incentives. The first funding opportunity seeks applications for projects to construct, expand, or modernize commercial facilities for the production of leading-edge, current-generation, and mature-node semiconductors. This includes both front-end wafer fabrication and back-end packaging. The Department will also be releasing a funding opportunity for semiconductor materials and equipment facilities in the late spring, and one for research and development facilities in the fall.

President Biden signed the American Rescue Plan to change the course of the pandemic and jump start our economic recovery. The American Rescue Plan funded our successful vaccination campaign, safely re-opened schools for in-person learning, helped 200,000 child care providers keep their doors open, and delivered relief to American families. Biden forged a consensus and got the Bipartisan Infrastructure Law passed – a once-in-a-generation investment in our nation’s infrastructure. We are rebuilding our roads, bridges, ports, and airports, upgrading public transit and rail systems, replacing lead pipes to provide clean water, cleaning up pollution, providing affordable high-speed internet to every family in America, delivering cheaper and cleaner energy to households and businesses, and creating good-paying jobs – including union jobs, and jobs that don’t require a four-year degree.

President Biden signed into law the PACT Act – the most significant expansion of benefits and services for toxic exposed veterans in more than 30 years. This law also enables the Department of Veterans Affairs to move more quickly in the future to determine if illnesses are related to military service, and it offers critical support to survivors who were harmed by exposures. And, the law authorized 31 new clinical sites and provides VA several tools and resources to ensure effective implementation of the law. The Biden Administration announced debt relief of up to $20,000 for Americans earning less than $125,000 per year who had Pell Grants in college, and up to $10,000 for all other borrowers below that income threshold. More than 40 million borrowers stand to benefit from this action, and about 20 million would see their debt entirely wiped out - and nearly 90% of this relief will go to borrowers earning less than $75,000 per year. In early 2023, the Biden-Harris Administration announced a plan to provide millions of borrowers with more affordable monthly student loan payments through changes to income-driven repayment plans.

The U.S. is positioned to achieve our ambitious climate goals of cutting our emissions in half by 2030 and net-zero emissions by 2050. The President has taken executive action and signed legislation to develop clean energy at home, accelerate the adoption of electric vehicles, and reduce pollution that endangers overburdened communities. And, the President is lowering energy costs for families, creating good paying jobs, and ensuring America leads the global clean energy economy. The President also protected more lands and waters in his first year than any President since John F. Kennedy. President Biden took action to lower the cost of health care for millions of Americans. Right now, four out of five people who sign up for health insurance through the Affordable Care Act can find health care coverage for $10 a month or less and millions of Americans on Obamacare are saving an average of $800 a year. Since he took office, there has been a combined 50 percent increase in enrollment in states that use HealthCare.gov and the nation’s uninsured rate is historically low at 8 percent. Over 16 million Americans signed up for quality, affordable health coverage, the highest number ever produced in an open enrollment period.

So what are Biden's most significant achievements? In my opinion infrastructure and climate action lead the way. These areas have been neglected too long, and the Biden initiatives will just barely make amends. In and of themselves, they are probably insufficient, but they are a good start, a start that has been delayed too long. Changing the narrative on taxation, I think, is a major accomplishment. Making it clear that a tax bill does not have to apply to everyone. By not raising taxes on anyone making less than $400,000, an oft repeated phrase, the narrative has been changed from "tax and spend" to "tax the rich and spend on helping the poor and middle class". Deficit reduction doesn't mean necessarily to stop spending on social programs as it means getting more money into government coffers by taxing the rich. Inequality is out of control; taxing the rich ameliorates this situation. What Biden did to get us through the COVID crisis is remarkable. It could have been an economic disaster for everyone; it wasn't. Student debt relief was a great achievement although it is still not clear how that will play out in the courts.

The American people by and large don't appreciate all that Biden has done compared to what any Republican administration would have done. Clearly, Democrats are on the side of rationality and helping the American people. Republicans are on the side of winning at all costs and helping the rich. They don't give a damn about helping the American people especially the middle class and the poor. The Republican mantra of reducing the deficit and the debt would have you believe that it can only be done in one way, that is by reducing spending. No, it can also be done by taxing the rich which would also reduce inequality. But this is all the Republicans have, that and the discredited policy of tax breaks for the rich that have done little to "trickle down" and have greatly contributed to the national debt. Enhancement of Obama's landmark health care legislation is another major achievement although Obama deserves much of the credit. It's a testimony of what the Democratic party is able to achieve for the country. The fact that Biden accomplished so much in a bipartisan way is something few other politicians could have hoped to accomplish especially in the political environment that exists today.

My criticism of Biden has to do with the Ukraine war. On the one hand he has prevented it from becoming a world war as of yet. However, in the negotiations preceding the war, I believe more could have been done to prevent the war in the first place. By not acknowledging or being sensitive to Russia's concerns about the encroachment of NATO on its borders which started during the Clinton administration and was hastened by Secretary of State Madeleine Albright, Biden and other diplomats missed an opportunity to defuse the crisis. Their policy was a de facto attempt to bully Russia into accepting the fact that Ukraine would also become part of NATO. Now the US is entrenched in a policy of Ukraine "winning" and Russia "losing" instead of a policy of a negotiated settlement to end the war, a negotiated settlement which could have been had before the war even started IMHO, for instance, by delaying Ukraine's admission to NATO for a period of time during which Russia's security concerns might have been addressed. In effect Ukraine has become a vassal state of the US instead of its historic situation of being a vassal state of Russia.

Off the Top of My Head

Why the Republican Congress Will Drive the US into Default

by John Lawrence

Simply put it's in their interests to do so. They themselves will profit politically and financially. They will blame Biden for the default, and they will sell short their stock portfolios so that, when the stock market crashes, they will make money. Default doesn't mean that the US will not pay its debts. It means that going forward seniors on social security will not get their monthly checks. Neither will Federal workers or active duty military. However, since the US Treasury still has some money and money coming in from taxes, it will prioritize paying interest on Treasury bonds. So rich people that hold financial obligations of the US government will be paid while everyday average slobs will be left to suffer. This is exactly the type of solution Republicans have always sought. It fits in nicely with their modus operandi: cater to the rich and starve the poor and working class. Millionaires and billionaores will not suffer. Smart people who sell stocks short will not suffer. They will prosper. Financial wizards and private equity corporations will snap up distressed properties like a shark snapping up a school of fish.

The financial obligations of the US, money that has supposedly already been spent, is a misnomer. They represent money that has already been allocated by the previous Democratic controlled Congress. If Republicans had controlled the previous Congress instead, the money would never have been allocated. So it's not money that's already been spent, it's money that's already been allocated. The spending is in the future. The allocation was in the past. If Democrats controlled the present Congress, there would be no problem. Since it's up to the Congress both to allocate spending and to raise the debt limit, there is a whiplash if one party allocates the money and the other party is supposed to preside over the spending of the money. In a sense the Republican Congress is rebelling over the fact that, although they didn't allocate the money, they are supposed to preside over the spending of it.

Now Joe Biden could preempt the Congressional decision not to raise the debt limit by using unconventional but completely legal means, something that has never been done before. The Federal Reserve Act gives the power to print money to the Fed, However, the Coinage Act grants the Secretary of the Treasury rather broad coin seigniorage authority. The debt ceiling could be side stepped by ordering the West Point Mint to coin a 1 oz. $ 1 trillion coin. Treasury can then present the jumbo coin at the NY Fed to buy back $1 trillion in Fed-held debt (the Fed has to accept it, a creditor can’t refuse legal tender paid in to settle a debt). Or I see no reason why the Treasury couldn't simply deposit it in its account at the Fed thereby giving the US government the wherewithal to pay its bills. Esteemed economist Paul Krugman is all for the minting of the trillion dollar coin: "So go ahead, Democrats, and do whatever it takes to get through this. Gimmickry in the defense of sanity — and, in an important sense, democracy — is no vice."

Republicans would have you believe that spending is out of control. No, undertaxation is out of control especially undertaxing the rich. Economic inequality has soared reaching unprecedented new heights not seen even in the Gilded Age. As Joe Biden has proposed, the budget could easily be balanced and the debt paid down by taxing the rich. Republicans would have you believe that raising taxes is a policy that would have to be enforced on everyone including the poor and the middle class, but that, unfortunately for them, is not the case. It is not written in stone that raising taxes would have to apply to everyone. As Bernie Sanders, Elizabeth Warren, AOC and others have pointed out, raising taxes on the rich could not only balance the budget, but could solve the problem of social security shortfalls. Republicans are in the unenviable position of wanting to screw the working class while catering to the rich while holding on to their MAGA supporters, a large portion of whom are the working class.

So given the fact that Republicans don't care about social security or Medicare recipients, there is a good chance that they will not vote to raise the archaic debt ceiling and force the US into default not on its debt but on its ongoing payments to Federal workers, who they hate anyway, social security recipients, who they will cheerfully throw under the bus and active duty military who as MAGA supporters will cheer them on at their own expense. Meanwhile, Congressional Republicans, private equity corporations and billionaires will short the market and salivate over the cheap assets they will be able to snap up. In other words they will profit from a default.

Off the Top of My Head

The Sword of Damocles Which is the Debt Ceiling

by John Lawrence

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

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

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

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

Off the Top of My Head

The US Debt Ceiling is Totally Artificial and Unnecessary

by John Lawrence

Fact: the US has a sovereign fiat currency and can create and spend as many dollars as it wants. Fiat means that the US dollar has value only because the government says it does. It is not redeemable for gold or any other precious metal. Sovereign means that is not pegged to any other currency. It can't be exchanged at a fixed rate for any other currency or anything else. The exchange rate for other currencies is floating. Fact: the US creates its own money and can spend it as it pleases. Fact: "deficit" spending adds money to the real economy which creates and enhances economic activity and adds to GDP. Fact: most recessions occur when the US tries to balance its budget. Long story short: the debt ceiling allows the US to hoist itself on its own pitard!

The Federal Reserve prints the money. That's why the dollars your are carrying around in your pocket say "Federal Reserve Note" on them. It can print as many dollars as are authorized by the US Congress. The US government budget is not dependent on having tax dollars to spend. When the US "deficit spends" it creates Treasury bonds which it sells to the public. However, the Federal Reserve and other central banks are buying back a lot of these Treasury bonds so, effectively, US debt just becomes a number on the Fed's balance sheet which is of no consequence. The Federal Reserve can create with a few keystrokes on a computer as much money as it wants and deposit it in the US Treasury's account. The moral of the story is that the national debt can not and should not ever be paid off. To do so would ruin the economy since it would extract money from the real economy which would lower GDP. The correct assessment of the national debt is that it is just a number on the Fed's balance sheet!

The conversation.com reports:

"There is no limit to the quantity of money that can be created by a central bank such as the Bank of England. It was different in the days of the gold standard, when central banks were restrained by a promise to redeem their money for gold on demand. But countries moved away from this system in the early part of the 20th century, and central banks nowadays can issue as much money as they like.

"This observation is the root of modern monetary theory (MMT), which has attracted new attention during the pandemic, as governments around the world increase spending and public debts become all the more burdensome.

"MMT proponents argue that governments can spend as necessary on all desirable causes – reducing unemployment, green energy, better healthcare and education – without worrying about paying for it with higher taxes or increased borrowing. Instead, they can pay using new money from their central bank. The only limit, according to this view, is if inflation starts to rise, in which case the solution is to increase taxes."

The addition of too much money by government to the real economy can cause inflation. Taxes extract money from the real economy. Joe Biden's Build Back Better human infrastructure bill is totally paid for so it will not cause inflation. It does this by extracting as much money from the real economy as the government is spending into the real economy, and it does this by taxing the rich which has the added salubrious effect of reducing economic inequality. This is one of the goals of the Biden administration: to reduce economic inequality which is what the human infrastructure reconciliation bill actually does. This is why a higher amount spent on this bill is better. The more spent on human infrastructure, the more money is transferred from the rich to the poor and middle class. Progressives know this. Republicans do their best to obfuscate this. Recognition of this fact will help to move the US and other countries with sovereign currencies into a post-capitalist world, and allow for more resources to be dedicated to fighting climate change.

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

The Stock Market is Too Big to Fail

by John Lawrence, April 2, 2021

Just as the big Wall Street banks are too big to fail, so now is the stock market. The stock market will never take another radical dive downward because the Federal Reserve won't let it. The way the economy is shaping up Treasury bonds, which hardly pay any interest, are just a safe place to store your money and also for foreign nations which need the world's reserve currency (the US dollar) to have a savings account because they need dollars to conduct business. There is no worry that the US will have to pay off the trillion dollars in Treasuries that China owns because they need those dollars to do business with the US and other nations. If they did want to dump all their Treasuries for some reason the Fed could just create the money to pay them and effectively take the Treasuries on its own balance sheet.

So the stock market is the only game in town for those who want to actually "invest" their money. There is so much 401(k) money in the stock market that that is reason enough to never let it fail. Instead it will continue on its merry way upward while the Fed keeps interest rates at approximately zero so that not much in the way of interest will have to be paid on US debt. There is no reason to fear that Joe Biden's $2 trillion infrastructure plan will bankrupt the US. Since the US dollar is a sovereign currency, the Fed can print as much money as it wants. If international investors don't want to buy this debt, it ends up on the Fed's balance sheet which is an effective black hole from which it never has to emerge.

Then why is there all this kibuki theater about "how to pay for it," the $2 trillion infrastructure plan I mean. It's just that most Americans including most Congressmen are under the illusion that a country with a sovereign currency like the US faces any constraints in paying for anything. Well, there is one constraint - inflation. This is probably of little concern as long as the money is targeted at the lower middle class an the poor which haven't seen wages rise in 40 years. The real inflation in the economy is the asset inflation that the rich are mostly responsible for. That includes the stock market and real estate. Inflation in the stock market will be carefully controlled by the Fed. We've seen that the stock market moved up even during the pandemic. The real problem is inflation in the real estate market which has made housing unaffordable for many. It continues to get worse as the extra dollars the wealthy have to invest are driving up prices. That's why it makes sense to tax the rich ostensibly to pay for the infrastructure bill. The real reason, however, is that inequality is getting out of hand in the American and the world economy. Taxing the rich is the only effective means to reduce inequality to a reasonable level. It will also help to bring inflation in the real estate market under control.

The real problem that Biden's infrastructure bill will have to deal with is changing the nature of the US economy. When the economy was in full employment under Trump, there were still 4% unemployed. 5% unemployment is considered "full employment," but that still leaves about 15 million people out of work. Biden's infrastructure plan will put those 5% back to work. It had been considered by conservative neoliberal economists that 5% unemployment was necessary to ward off inflation, but that theory has been debunked by Modern Monetary Theory. While inflation will still be a concern with all of Biden's stimulus spending, the main concern is restructuring the US economy from an entertainment economy to a constructive labor economy. Trump's economy was arguably a full employment economy (except for the 4% unemployed), but it was an economy the jobs of which were mainly in the entertainment and military industries. In other words, in my opinion, it was an economy based on false unbeneficial values. An economy based on labor participation rebuilding American infrastructure will be an economy based on necessary and fundamentally beneficial values. This might mean that some of those presently employed in frivolous industries might be incentivized to change jobs. Reducing the entertainment and military sectors while increasing those employed rebuilding infrastructure would be, in my opinion, be a good thing.

 

Off the Top of My Head

Biden's Infrastructure Initiative: Don't Worry About How To Pay For It

by John Lawrence, March 30, 2021

Even Republicans agree that there is a need to upgrade the infrastructure of the US. But they don't want to raise taxes to pay for it. Good news! You don't need to pay for it with tax money. The US dollar is a sovereign currency. That means that the central bank, in this case the Fed, can just create the money. In fact this is how it's always been done. The deficit is just an accounting regime. Money created by the Fed need never be paid back. It just goes on the Fed's balance sheet. This is a fact known and agreed to by most economists but many politicians and the American public are totally ignorant of this basic fact about how the economy works. Modern Monetary Theory has attempted to explain it in books like "The Deficit Myth" by Stephanie Kelton. So why does Biden also propose tax increases on the rich to pay for it? These are really two separate issues. Taxes need to be raised on the rich to try to bring into balance the skyrocketing financial inequality that has been occurring, not to pay for the infrastructure bill. Why do politicians including President Biden continue to perpetuate the myth that appropriations bills need to be "paid for." Why don't they just come out and say the truth - that a nation with a sovereign currency can never run out of money?

When just a few people own most of the wealth, we're back in a neo-feudal society where the rich control the political process, and the rest of the people are merely peons who don't really have a stake in the society at all. The Republican attempts to change the voting laws to suppress the minority vote is a way to cement that fact in American society. That's why it's so important to liberalize the voting laws so that every American citizen is encouraged to vote, not discouraged from it. So the infrastructure initiative is really two or even three pronged: rebuild infrastructure such as roads, bridges, ports, rail lines, airports and broadband thus putting millions back to work in good paying jobs. Secondly, to build back better in the sense that, insofar as possible, address the problem of global warming, and, thirdly, to make a first step in addressing economic inequality. All these things are important.

The only thing to watch out for while spending all this money is inflation, and some economists like Larry Summers are already sounding alarm bells over that. By taxing the rich and corporations money will be sucked out of the economy thus tending to reduce inflation. If sucking money out of the economy reduces inflation, then the sucking must be addressed to those areas where excess money really exists: namely, the rich and corporations who have been getting away with murder for years under both Republic and Democratic administrations. Forbes reported that "The 3 Richest Americans Hold More Wealth Than Bottom 50% Of The Country." Forbes ought to know. Perhaps with Biden's plan to tax the rich, it'll take 10 of the richest to equal the bottom 50%'s share. As for inflation, so much money in so few hands has already produced asset inflation in the form of rising housing and rent prices making it problematic for the young and the poor to support themselves especially at a minimum wage that hasn't increased in 50 years. What Summers doesn't understand is that the inflation that has occurred has been in the money that has been made by the rich which is actually wealth inflation, not in the form of wage inflation of the poor and middle class. Therefore, in turning this process around Biden's infrastructure bill is actually pointing the American economy in the correct direction.

Off the Top of My Head

Inflation Probably Not a Problem If Biden Programs Are Carefully Targeted

by John Lawrence, March 14, 2021

Critics have said, "Oh, My your children and grandchildren are going to have to pay back all these trillions of dollars that have been spent by both the Trump and Biden administrations on COVID relief and to get the economy going again." Not True! Modern Monetary Theory has shown that the Federal Reserve can just create the money and the Treasury Department can just spend it without ever worrying about paying it back. Finance is not the problem. The problem is potentially inflation which economist Larry Summers has sounded the alarm about. Most of Biden's relief bill is targeted at the poor which means that that money will be sucked up to pay past due rent and mortgage bills as well as providing a decent lifestyle which should not be inflationary except if you believe the nonsense of the neoliberal Phillips curve which supposedly proves that a certain segment of the population has to live in poverty and penury in order to fight inflation. That has also been debunked by Modern Monetary Theory although most politicians are still on the wavelength of neoliberal economics which has been shown to be fallacious in this and many other regards.

State and local governments likewise will just suck up the money in the relief bill to bail themselves out of debt and provide an adequate level of social services. This also is not inflationary because the money will not be just sloshing around in the economy with nowhere to go. What is inflationary is tax breaks for the rich, but this money can be sucked out of the economy by taxing the rich. What Larry Summers fails to take into account is that the US and much of the rest of the world has a two tier economy. The rich and upper middle class are doing very well, thank you, while the lower middle class and the poor are suffering. The COVID pandemic illustrated this in even starker terms with the so-called K-shaped recovery. The upper classes made money; the lower classes are on the verge of losing whatever financial gains they had made during the Trump economy. Inflation is caused by too much money sloshing around in the economic system. Most of that inflationary money is held by the rich in assets like stocks and real estate. Money injected into the economic system targeted at the poor is immediately sucked out of the system to pay debts and to provide basic necessities. There is enough physical and material capacity in the system to provide basic necessities so this money is not inflationary.

Inflation is caused when there is too much money chasing too few goods. As long as there is the material and human capacity, money directed at those sectors of the economy will not cause inflation. The real problem in future Biden administration bills involving infrastructure and the Green New Deal is that the materials to build out infrastructure, namely, steel, cement and plastics, require fossil fuels to manufacture and the manufacturing processes themselves are inherently carbon dioxide emitting. This comes about from basic chemistry which involves the carbon and oxygen atoms every step of the way. Most basic materials are composed of carbon, oxygen, hydrogen and nitrogen, and the chemistry involved in manufacturing releases large amounts of carbon dioxide. The manufacture of solar panels requires mining high quality quartz and combining it with coal. It's hard to get away from fossil fuels as the Michael Moore movie, Planet of the Humans, pointed out. For this reason spending large amounts of money on infrastructure involving cement, steel, plastics and other materials could actually produce more global warming rather than preventing it. The finances are available; the proper materials are not. The manufacture of wind turbines and solar panels require the release of large amounts of greenhouse gasses.

Because of these fundamental limitations regarding materials, it doesn't make sense to throw trillions of dollars at either infrastructure or global warming mitigation. That would be either inflationary or misguided in the sense that large projects in these areas could produce even more global warming. As Bill Gates has pointed out, money should be invested in promising startups and research that can solve these basic problems and into digital nuclear which is the only renewable energy source that won't result in a lot of greenhouse gasses being created in the first place. Advanced nuclear is the most promising source of clean energy. Gates has invested in a company TerraPower which does research on advanced nuclear reactors. Their mission statement reads:

"TerraPower was founded by Bill Gates and a group of like-minded visionaries that decided the private sector needed to take action in developing advanced nuclear energy to meet growing electricity needs, mitigate climate change and lift billions out of poverty. Advanced reactors and other isotopic applications are now possible with technology and enhanced computing capabilities that were unimaginable a few decades ago. At TerraPower, we are innovating in nuclear to improve the lives of people everywhere and to build the clean energy of tomorrow – today."

So when the Biden administration gets around to their initiatives on infrastructure and global warming, they need to heed Bill Gates' warning about traditional manufacturing methods involving cement, steel and plastic. Energy from solar and wind are inadequate to solve the problem for many reasons. Large scale demonstration and build out of nuclear energy reactors should be the order of the day, They are the only clean energy source that has the potential for diminishing the world's reliance on fossil fuels.

Off the Top of My Head

If Two Democratic Senators Were Not Elected in Georgia Run-offs, There Would Be No COVID Relief Package Under Biden

by John Lawrence, March13, 2021

It was crucial that the two Georgia Democratic Senators were elected. Not one Republican voted for Biden's $1.9 trillion bill. If there were one less Democrat in the Senate, nothing like it would ever have been passed. Republicans are the Party of No. Not one Republican Senator will ever vote Yes on any legislation put forward by a Democrat so that Georgia election was crucial. That's why Republican legislatures not only in Georgia but around the country are scrambling to put restrictive Jim Crow voting regulations in place on the belief that Republican operative Paul Weyrich was right. He said, "So many of our Christians have what I call the goo-goo syndrome: good government. They want everybody to vote. I don't want everybody to vote. Elections are not won by a majority of people, they never have been from the beginning of our country and they are not now. As a matter of fact, our leverage in the elections quite candidly goes up as the voting populace goes down."

So now economist Larry Summers is worried about inflation due to the fact that trillions have been added to the deficit. So far, lawmakers have enacted six major bills, costing about $5.3 trillion, to help manage the pandemic and mitigate the economic burden on families and businesses. Even those economists know that the Federal government doesn't need taxes  in order to spend money. The Federal Reserve can create it with a few keystrokes on a computer just the way they did to bail out Wall Street banks during the Great Financial Recession (GFR) of 2008. Of course the public wasn't suppose to know about this "secret" bailout by the Fed. Authorities wanted you to believe that the $700 billion bill passed by Congress provided the bailout. In reality it was much more. Rolling Stone reported: "Washington Post “Fact-checker” columnist Glenn Kessler disputes the numerous studies showing the real bailout outlay was through the Fed, which the Sanders campaign had said was anywhere from $7.7 trillion (the number Bloomberg used in its coverage of secret Fed lending) to $29 trillion (the number the Levy Institute at Bard College calculated, including guarantees and other forms of aid).

So how is it that  Larry Summers was not so worried about inflation due to the Fed's trillions of dollars created and given to Wall Street? The answer is that that money was given to rich people which has caused no inflation because rich people are not going to spend money in ways that drive up the Consumer Price Index (CPI). They are mainly going to invest their money in ways that aren't included in the CPI. They are going to purchase assets like stocks and real estate. Consequence: no inflation at least as measured by the CPI. Instead the Wall Street bailout during the GFR as well as the $2 trillion tax breaks of the Trump administration produced asset inflation. It's the reason that home prices and rents are becoming increasingly unaffordable. But Summers is worried about inflation as measured by the CPI which is what happens when poor and middle class people get a trillion dollar bailout. They will spend that money at least partly on consumer goods that are included in the CPI and potentially drive up prices. However, much of the bailout money will go to pay off debts like past due rent and mortgage payments. This is not inflationary. So the real moral of the story is that, according to economists like Summers, bailing out rich people is good, bailing out poor people is bad.

So two lessons are to be learned here. 1) The Fed doesn't need taxes to create money and spend it into the economy whether that money is to bail out banks or to bail out the poor and middles class. 2) Democrats need to enact at the Federal level voting laws which encourage as many people to vote as possible and roll back Republican enacted restrictions on voting at the state level. In order to do the latter, Democrats will have to eliminate the filibuster at least for particular types of legislation. The only reason Biden's $1.9 trillion relief bill passed is that it was done by a process known as "budget reconciliation" which only requires a majority vote in the Senate. A national voting rights bill cannot be passed by that process and is subject to the filibuster which requires 60 votes. The Party of No wouldn't hesitate to use the filibuster to doom any voting rights legislation at the Federal level which means essentially that Jim Crow voting rights would again be put in place to discourage black people from voting. And don't worry about your children and grandchildren having to pay off the national debt. The Federal Reserve doesn't need their money.

Off the Top of My Head

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

by John Lawrence, February 25, 2021

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

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

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

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

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

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

Off the Top of My Head

The Two Strands of Modern Economic Theory

by John Lawrence, February 12, 2021

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

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

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

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

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

Off the Top of My Head

The Left/Right Political Spectrum Is Irrelevant at This Point

by John Lawrence

The Extreme Right position on the pandemic is just to let it rip. This would mean ongoing disaster for the whole world into the indefinite future. The Extreme Left would advocate government spending as much money as necessary to defeat the pandemic and get the economy back to normal. The middle of the road would advocate doing half as much as necessary to sort of but not really get the pandemic under control. Result: the coronavirus would be mutating and popping back up for years just as SARS COVID-9 is a mutation of the original SARS virus and is related to the MERS virus. Whether the mutations occur in animals or in humans, it doesn't matter. Viruses mutate and doing a half ass job in getting rid of this pandemic which is the political "middle" insures that there will be more pandemics in the future. Not allocating increased funding for the study and research of viruses insures that there will be more threats to human lives and economies.

The Extreme Right position on global warming is to do nothing about it. That includes encouraging consumption of fossil fuels and not caring how many greenhouse gasses are emitted into the atmosphere. This virtually guarantees that the earth will become uninhabitable in 50 years or less. The Extreme Left position would be to do as much government spending as necessary to reduce greenhouse gas emissions to zero in about 10 years. This would prevent global temperatures from rising more than the amount that would destroy the habitability of the earth. The middle position would be to spend a piddling amount to combat global warming. The result would be that the earth would become uninhabitable in a slightly longer time frame.

Republicans want to limit Federal government expenditures to solve problems while maximizing the private sector in the economy. Problem is that dealing with the pandemic and climate change are problems private enterprise is not capable of solving or even leading the way. Is there a role for private enterprise? Certainly, but government must play the leading role or these major problems as well as a number of others will not be solved. Private enterprise won't engage in any activity for which there are no profits to be made. Some problems like the pandemic and global warming are not likely to yield much in the way of profits. Ergo, private enterprise will not be interested in dealing with them.

The COVID relief package that Biden has put forward is totally dependent on Democrats controlling both Houses of Congress. That in turn was totally dependent on the Georgia runoff elections for two Senators which produced two Democrats. Otherwise, there would be no COVID relief package or follow on projects to deal with global warming because not enough Republicans will be voting for any of Biden's projected spending to solve these problems. So the Extreme Left position of these issues which are totally necessary if they are to be dealt with successfully would not have been possible. Even successfully dealing with these two existential problems was hanging by a thread because the election of two Democratic Senators from the state of Georgia was heretofore unheard of. But now there is a chance.

What really needs to happen with regard to government spending is that the public, and that includes Senators and Representatives, need to be educated on how the economy really works. Deficit spending is not really a problem. Read The Deficit Myth by Stephanie Kelton. Republicans rely on the ignorance of the public while suggesting that adequately dealing with global warming or the pandemic will raise their taxes. It does not have to increase taxes which is the conventional understanding about it. The Federal government does not need to pay back Federal deficits because the US dollar is a sovereign currency. The Federal Reserve can just "print" the money - although it doesn't actually print it - it creates it by a few keystrokes on a computer. A household or private firm must pay back its loans. Even US states must pay back loans usually by raising taxes. Th Federal government does not have to raise taxes nor does it have to pay back loans. Treasury bonds can just end up on the Fed's balance sheet where in fact most of them do end up. So a government, any government, which has a sovereign currency can create as much money as necessary to solve any problem. The only caveat is that money creation under certain conditions can induce inflation.

Too much money sloshing around in any sector can produce inflation in that sector. What the US economy has created recently is asset inflation but not inflation in the real economy. Tax breaks for the rich has resulted in the bidding up of assets. Take the stock market, for example. Major corporations have used their tax breaks not to build production facilities but to buy back their own stock. This raises the stock price: ergo, asset inflation. The same holds for the real estate market. People, with more money than they are willing to put to productive use, use it to bid up the value of real estate. Ergo, inflation. This makes housing less affordable. The real economy has under utilized capacity in terms of all the unemployed and underemployed labor. Government spending which soaks up this capacity and puts it to productive use in converting to a reusable energy economy and upgrading to green infrastructure should not produce inflation. Neither will more government money spent on research on viruses produce inflation. What else produces asset inflation is money spent on the military-industrial complex. Think $600 toilet seats.

The US public needs to be enlightened on how the economy really works at the macro level. That being understood would take all the wind out of the sails of Republican objections to government spending. It does not have to raise your taxes because the US government can never run out of money. An understanding of Modern Monetary Theory leads to that understanding.

Off the Top of My Head

Mitch McConnell: "Loony Lies and Conspiracy Theories are Cancer for Republican Party"

by John Lawrence, February 3, 2021

Now even the leader of the Senate Republicans is admitting the Republican party is a joke. They've got nothing besides idol worship and rabbit holes. What do they stand for? White supremacy, bellicose machoism, xenophobia and solipsism masquerading as the American Dream. They stand for nothing except greasing their own palms and staying in power. McConnell at least and a few other principled Republicans like Liz Cheney, Mitt Romney and John Kasich actually are trying to reconstruct the Republican party based on conservative principles. Their problem is that their base is a bunch of wahoos that can't get enough of being entertained by Donald Trump or Marjorie Taylor Greene. Fantasy trumps reality for them.

The point is that in realistic terms the Republican party has nothing to offer. In a world that cries out for cooperation among great powers, they stand for bellicose machoism and bullying. In world where private enterprise is incapable of solving major outstanding problems like climate change and the pandemic, their emphasis on small government falls flat. In a world where it is becoming clear that taxes alone are not necessary for government spending, their pejorative negative hurled at Democrats - "tax and spend" - is meaningless. Their attempts at pulling the wool over Americans' eyes are becoming dispelled. Their fiscal policies have only served to increase economic inequality - to make the rich richer and the poor poorer. So what have they got? A base composed of looney tunes and no nothings and a head composed of the rich and powerful. It doesn't compute.

Republicans want to hearken back to a nostalgic past where black lives didn't matter, white people occupied all positions of prominence, Native Americans were extras in western movies and the concept of global warming had not even been formulated and was not on anybody's radar. They want things like they used to be. Well a lot has changed since then, whatever your definition of "then" is.  Forever wars are draining government finances that could be used in more productive ways. Global warming needs a MEOW solution - the Moral Equivalent of War. This calls for a large amount of government spending. It is becoming more evident, thanks to the exposition of Modern Monetary Theory, that the US government can never run out of money because the US dollar is a sovereign currency which can be created by a few keystrokes at the Fed. Even regular banks create money when they loan money for mortgages, auto loans etc. They don't need to have deposits before they make loans. It's called fractional reserve banking, and it's backed up by the US central bank, the Federal Reserve, which clears checks and is the loaner of last resort.

Government spending should not, however, represent fiscal profligacy or imprudence. The government should spend money responsibly which it has not been doing with spending on forever wars and tax breaks for the rich. IMHO Republican supported government spending has not been responsible spending. Fiscal conservatism should mean that money should solve actual problems and make the lives of most Americans better. So if Republicans want to be the party of fiscal conservatism in the future, they should be concerned that deficit spending does not lead to inflation or deflation, rather than just minimizing government spending other than on defense and tax breaks. Let's see if Republicans want to reformulate themselves on responsible terms or do they just want to continue to be the party of the rich.

Off the Top of My Head

Is Full Employment Possible or Even Desirable?

by John Lawrence, January 14, 2021

The important and crucial consideration is what kinds of jobs does the full employment society consist of? The type and quality of the jobs is something to be concerned with. After all Hitler had a full employment society. Everyone had a job in his full employment society. Ditto for Mussolini. Once the US got involved in the Second World War, the US had a full employment society. That ended the Great Depression. Trump bragged about presiding over a full employment society pre-COVID. The question is fully employed at what? Our infrastructure is crumbling, approaching Third World status. Republican economists don't give a hoot about the composition of jobs in the US as long as they're all in the private sector and not in the public sector. Meanwhile, China has built 24,000 miles of high speed rail in its own country and a $4-billion, 470-mile-long rail line, the first electrified cross-border rail system in Africa, Ethiopia-Djibouti Railway.

Modern Monetary Theory (MMT) favors a Federal Job Guarantee. The answer to the grievance that many Americans have about the disappearance of good paying jobs is to guarantee them a job. In The Deficit Myth, Stephanie Kelton writes:

"The MMT solution to involuntary unemployment is to introduce a federal job guarantee that establishes a legal right to a good job at good wages with good benefits. This would address one of the most pernicious effects stemming from trade - the unemployment that is too often visited upon whole communities as jobs are lost to foreign competition. It's not enough just to provide training and other temporary forms of assistance to workers whose jobs are lost to foreign competition. ...something more is needed.

"That something is a federal job guarantee. By no means is it a panacea, but at a minimum, it begins to tackle the problem of unemployment directly (as opposed to subsidizing the effects of unemployment). Through the thick and thin of the business cycle, we leave tens of millions of Americans idle in the belief that this makes political, economic and social sense. ...

"The benefits of a federal job guarantee not only include the production of goods, services and income. The guarantee also features on-the-job training and skill development; poverty alleviation; community building and social networking; social, political and economic stability; ... With a program like this in place, the government would have mitigated the localized devastation of communities that directly experienced the loss of well-paying US industrial jobs.

"It may be hard to imagine an economy that doesn't allow millions to fall by the wayside. But that's because America has almost never achieved anything like true full employment. It's something we've rarely experienced outside of wartime. One of the most important features of a job guarantee program is that it maintains a form of full employment by immediately hiring the unemployed into public service work, providing them with income and the retraining required when they are displaced by trade shocks. In this way, the job guarantee can can serve as the core of a response to both "free trade" and the "trade war." With a job guarantee, free trade is no longer a threat to full employment, and trade wars are no longer necessary to prevent unemployment."

Many of the grievances of right wing workers and Trump supporters can be tied to the fact that their communities have been destroyed as good decent paying union jobs have been moved overseas where labor costs are cheaper. MMT argues that those disenfranchised workers should be automatically reemployed especially when their labor is greatly needed to build green infrastructure in order to combat climate change. That's the real war we face right now - not against an imagined enemy - but against the fossil fuel economy which, if left unchecked, will surely destroy the habitability of the planet. It should be obvious that more workers are needed to fight the pandemic and other public health crises likely to happen in the future. It's also obvious that instead of spending a trillion dollars a year on a military-industrial complex which has to instigate another cold war to justify its existence, we should be spending money subsidizing jobs that are really necessary to make the lives of Americans and others around the world better as we move forward.

Right now the US dollar is the world's reserve currency, interest rates on Federal debt are around zero, and there is no reason why the Federal Reserve cannot issue the money necessary to implement a federal jobs guarantee if there is not enough tax money available to cover it, the way it created the money with a few keystrokes on a computer to bail out the Big Banks during and after the Great Recession. The Federal Reserve is the loaner of last resort to the banks, and, since the US dollar is a sovereign currency, as much money as necessary can always be created to support a federal jobs guarantee. Taxes should function as a means to reduce economic inequality but they are not necessary to fund the government as MMT has shown. As long as productive resources in human or material terms are idle, putting them to work will not cause inflation.

The trillions created and spent by the Federal Reserve to bail out the banks have not caused inflation nor have they caused a depreciation of the dollar which is still in great demand by other nations around the world. The old thinking is that the government has to fund itself out of taxes or go into debt which it has to pay back. That certainly applies to households and states, but, with the ability to print its own sovereign currency, the US is in the position that the national debt is just an accounting entry on the Fed's balance sheet. The provision of a good paying job as a guarantee will help to ameliorate the grievances of Trump supporters and move them to the other side of the political spectrum.

Off the Top of My Head

Fiscal Conservatism or Saving Prerogatives of the Rich?

by John Lawrence

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

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

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

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

Off the Top of My Head

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.

Biden Needs to Spend Big—And Fast. Here Are 4 Immediate Priorities.

Published on Sunday, December 20, 2020

by In These Times

Forget about the debt. Boosting the economy and sending people money isn’t just good policy, it’s smart politics.

by Max B. Saw­icky

 

9 Comments

"There is a lot of new spend­ing we need, and ele­vat­ing the most urgent pri­or­i­ties is an impor­tant polit­i­cal task," Saw­icky writes. (Photo: Roberto Schmidt/AFP via Getty Images)

Expec­ta­tions are high for the incom­ing Joe Biden admin­is­tra­tion, not because the polit­i­cal cir­cum­stances are advan­ta­geous, nor because of Biden him­self, but because our trou­bles are so great. 

Tens of mil­lions of Amer­i­cans are unem­ployed. The death toll from Covid-19 in the Unit­ed States now tops 300,000. An avalanche of evic­tions and fore­clo­sures is on its way. And this is on top of our ongo­ing polit­i­cal cri­sis: A stub­born minor­i­ty of vot­ers refuse to rec­og­nize the results of the elec­tion, while many of Pres­i­dent Trump’s sup­port­ers remain unwill­ing to observe ele­men­tary safe­ty mea­sures to reduce the fur­ther spread of the virus. In Wash­ing­ton, D.C. last week, a ram­pag­ing mob of fas­cist goons assault­ed ran­dom passers-by and van­dal­ized black church­es — osten­si­bly as a way to show feal­ty to Trump. To put it mild­ly, Amer­i­ca is in bad shape.

"No cred­i­bil­i­ty should go to any Demo­c­ra­t­ic stuffed shirt who bleats about restor­ing norms. Work­ing peo­ple are des­per­ate. This is class war, folks."

Much of the Biden administration’s abil­i­ty to respond to the health and eco­nom­ic crises we face depends on the out­come of the Jan­u­ary 5 run-off elec­tions in Geor­gia that will deter­mine which par­ty con­trols the Sen­ate. But even with vic­to­ries in both of those races, cen­trist Democ­rats in Con­gress will con­tin­ue to oppose major pro­gres­sive poli­cies. And Democ­rats’ nar­row major­i­ty in the House (and, if we’re lucky, the Sen­ate) will make it dif­fi­cult for Pres­i­dent Biden to spend as much mon­ey as necessary. 

Nev­er­the­less, there is a lot of new spend­ing we need, and ele­vat­ing the most urgent pri­or­i­ties is an impor­tant polit­i­cal task: It applies pres­sure on cur­rent Demo­c­ra­t­ic offi­cials, includ­ing the pres­i­dent him­self, and edu­cates and moti­vates peo­ple who can vote for a new, more pro­gres­sive Con­gress in 2022. 

Here are four of the top priorities:

1. Send mon­ey now! When it comes to stim­u­lus, there are always dual objec­tives: boost­ing the econ­o­my, and pro­vid­ing relief for those in the great­est need. Send­ing checks to every­body, extend­ing unem­ploy­ment ben­e­fits, and bail­ing out belea­guered small busi­ness have already been shown to be effec­tive. The reces­sion and pan­dem­ic are far from over, so these poli­cies should con­tin­ue. The skin­ny com­pro­mise that might be struck in Con­gress pro­vides no more than a small respite. To speed up a return to eco­nom­ic health, the first step is to avoid sink­ing deep­er into the cur­rent rut. 

Just as impor­tant is pro­vid­ing relief to state and local gov­ern­ments, which pro­vide ser­vices of vital impor­tance to work­ing peo­ple. These gov­ern­ments nev­er quite recov­ered from the Great Reces­sion of 2007 – 2008. They are oblig­ed to bal­ance their bud­gets, so unlike the fed­er­al gov­ern­ment, their bor­row­ing capac­i­ty is restrict­ed. The triple hit to state and local finance — reduced tax rev­enue, added reces­sion-relat­ed spend­ing, and addi­tion­al virus-relat­ed expens­es — has deplet­ed their reserves.

2. Pub­lic invest­ment and the Green New Deal: do every­thing. A reces­sion is always an oppor­tune time to ramp up pub­lic invest­ment on a per­ma­nent basis. Many pos­si­bil­i­ties will com­pete for fund­ing. Two impor­tant angles should be kept in mind.

The tra­di­tion­al sort of invest­ment in ​“infra­struc­ture” — roads, bridges, school build­ings, air­ports and rail sys­tems — has been neglect­ed for decades. A revival, how­ev­er, needs to be done through the lens of cli­mate change aware­ness. Among oth­er things, this means a pref­er­ence for pub­lic, mass tran­sit rather than roads; the upgrade of pub­lic facil­i­ties (includ­ing rail sys­tems) with a view towards reduc­ing car­bon emis­sions; and the mod­ern­iza­tion of the nation’s pow­er grid. 

The oth­er con­sid­er­a­tion is to take seri­ous­ly what might be called an infra­struc­ture of care: work­ers and facil­i­ties devot­ed to hous­ing and car­ing for those unable to do so for them­selves, includ­ing the per­sis­tent­ly unem­ployed, the indi­gent elder­ly, the dif­fer­ent­ly abled, those in fail­ing men­tal health, those with­out hous­ing, the incar­cer­at­ed, and belea­guered immigrants.

3. The Peace Div­i­dend. Cur­rent­ly, the fed­er­al bud­get devotes $697 bil­lion to nation­al defense. When it comes to the fed­er­al gov­ern­ment actu­al­ly doing things oth­er than mail­ing checks to indi­vid­u­als and med­ical care providers — what is clas­si­fied as ​“dis­cre­tionary spend­ing” — defense takes near­ly half. Much of this mon­ey is devot­ed to sup­port­ing the capac­i­ty to wage war, and we have to ask, against whom? The inter­ven­tions in Iraq, Syr­ia, Libya and Yemen have not gone well, to say the least. 

It is pos­si­ble to over­state how quick­ly a peace div­i­dend could be pried out of the defense bud­get. Work­ers and uni­formed mil­i­tary can­not be sum­mar­i­ly dis­missed — they will need tran­si­tion assis­tance. Big-tick­et hard­ware con­tracts that are set for a peri­od of years can­not be instant­ly can­celed. Even so, there is an oppor­tu­ni­ty to redi­rect a large quan­ti­ty of fund­ing to non-defense purposes.

4. For­get about the nation­al debt. In a down­turn, the econ­o­my los­es more than it gains by fail­ing to ramp up fed­er­al deficit spend­ing. Of course, Repub­li­cans have shown them­selves to be com­i­cal hyp­ocrites when it comes to wor­ries about deficits. Unfor­tu­nate­ly, some influ­en­tial Democ­rats may actu­al­ly believe such non­sense. They would be well-advised to read a recent paper by Jason Fur­man, Obama’s chief econ­o­mist, and Lar­ry Sum­mers, omnipresent Demo­c­ra­t­ic Par­ty econ­o­mist, where­in they basi­cal­ly admit every­thing they used to say about bud­get deficits was hog­wash and is par­tic­u­lar­ly inap­pro­pri­ate under cur­rent cir­cum­stances. As far as elite eco­nom­ic think­ing is con­cerned, there should be no obsta­cle to mas­sive increas­es in non-defense deficit spending.

Biden will also have impor­tant tools that do not depend on Con­gress. A recent col­umn by Dave Roberts pro­vides a nice overview, both tech­ni­cal and polit­i­cal. Biden can issue exec­u­tive orders, make recess appoint­ments of nom­i­nees the Sen­ate refus­es to approve, fumi­gate Trump’s ter­mites from the wood­work of the fed­er­al civ­il ser­vice, re-reg­u­late what has been dereg­u­lat­ed, and un-fire good peo­ple who were dis­missed by Trump. 

Trump flout­ed every con­ceiv­able legal and infor­mal con­straint on his rule, to the utter silence of the Repub­li­can Par­ty. He has giv­en Biden a license to do like­wise. No cred­i­bil­i­ty should go to any Demo­c­ra­t­ic stuffed shirt who bleats about restor­ing norms. Work­ing peo­ple are des­per­ate. This is class war, folks.

Max B. Saw­icky is a Senior Research Fel­low at the Cen­ter for Eco­nom­ic and Pol­i­cy Research (CEPR​.net).

© 2020 In These Times

Off the Top of My Head

How Ya Gonna Pay For It?

by John Lawrence, July 27, 2020

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

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

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

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

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

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

and

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

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

Off the Top of My Head

Deficits Don't Matter?

by John Lawrence, July 23, 2020

Part 1

So says Dr. Stephanie Kelton in her new book, "The Deficit Myth." We know that The US Federal Reserve can just print money as they are doing in response to the pandemic. Fed Chairman Jerome Powell says they will print $3.5 trillion by the end of the year. In response to the Great Recession and its aftermath the Fed printed $3.9 trillion. Other central banks around the world have also launched massive money printing programs. CNN reports, "The world's four most powerful central banks have pumped more than $9 trillion into the global economy since the financial crisis in a bid to boost growth, inflation and employment." In response to the pandemic the European Central Bank announced a huge new money printing program aimed at keeping the region's financial system functioning and helping the economy cope. With all this money printing, doesn't this put taxpayers on the hook to pay all this money back. The simple answer is "No."

Kelton is an advocate of Modern Monetary Theory (MMT). She writes:

You've probably already seen MMT's central insights in action. I saw them up close when I worked in the US Senate. 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 expanding 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 Franklin Delano Roosevelt from implementing the New Deal in the 1930s. [By the way the Reconstruction Finance Corporation which funded the New Deal actually made a profit.] They didn't dissuade John F Kennedy from landing a man on the moon. And they never once stopped Congress from going to war.

Although there are legal structures that need to be worked around, the main fact is that, however much the Federal Government spends, it can just be disappeared onto the Federal Reserve's balance sheet never to be seen again and never having to be paid back. The Fed just gave $1.5 billion to the banks to bail them out in 2008 by means of a few keystrokes on a computer keyboard. Congress was not even involved in this transaction. Under President Obama Congress authorized a $787 billion rescue package called the TARP program. This wasn't nearly enough to avert crises for millions of Americans who lost their homes in the Great Recession which was precipitated by a mortgage crisis. The Home Affordable Modification Program (HAMP) was supposed to help homeowners with their mortgages. Although the banks were bailed out, HAMP was a colossal failure at bailing out home mortgage holders. Even the money appropriated was not all spent. The Brookings Institution reported: "HAMP provided important relief, but it was restricted by the fact that it was a voluntary program. The program lived under the constant threat that, if it was too much trouble for the banks, then they could walk away. As a result, while providing important assistance to many homeowners, HAMP fell substantially short of its goals."

So how comes the Fed can just print money which is not added to the national debt while Congress has to appropriate money which is added to the national debt? The answer has to do with the fact that the US dollar is a "fiat" currency. A fiat currency is a currency that isn't backed by gold or any other precious metal. In 1971 President Nixon took the US off the gold standard. Prior to that anyone with dollars could exchange them for a certain amount of gold. Gold was worth $35 an ounce at that time so anyone with dollars could demand gold for them and the US was obligated to fulfill that transaction. As it turned out some foreign governments were demanding payment in gold which exceeded or soon would exceed America's gold reserves. Therefore, Nixon proclaimed that the US would no longer exchange dollars for gold. The value of the dollar would "float" and be worth a dollar just because the US government said it was. At the same time Nixon made a deal with the Saudis that they would sell oil only for dollars. This made every oil importing country have a need for dollars and establshed the dollar as the world's reserve currency.

Because the dollar could no longer be exchanged for gold, this freed up the Federal Reserve to just print dollars whenever it wanted. That's how come it can print trillions of dollars first to bail out the banks in 2008 and now to bail out the whole economy in the current pandemic. That's how come the US can run trillion dollar annual deficits ad infinitum. So if the Fed can just print dollars, why hasn't it printed a huge amount of them and given them to the poor or built infrastructure or used them for any other constructive purpose? The answer is that flooding the economy with dollars could lead to inflation. The threat of inflation is a concern that limits the Fed's printing presses from working full time. What the Fed spends its money on though is basically determined by political considerations. If the party in power wants the Fed to bail out the banks to give tax breaks to the rich and not give money to the poor, that's what the Fed will do. There are also some arcane laws and regulations about what the Fed can and cannot do which can always be changed by Congress.

Part 2

In the past the Fed has been restricted as to the kinds of bailouts it could provide. Now with recent Special Purpose Vehicles (SPVs) authorized by Congress, it can even bail out bicycle shops. The good news is that any money the Federal Reserve prints is not added to the national debt. The better news is that, even money authorized by Congress, that theoretically adds to the national debt, can be swallowed by the Federal Reserve because the Federal Reserve will buy any Treasuries left over from auctions. So if China or any other nation or individual investor doesn't want to buy any more US debt, the Fed will buy it and deep six it never to be seen again. Are you getting the feeling that the US can never go broke? You're right! Even better the US never has to pay off its debts because the Fed can just print more money to pay Treasuries which come due.

Kelton writes:

The real crises that we're facing have nothing to do with the federal deficit or entitlements. The fact that 21 percent of all children in the United States live in poverty - that's a crisis. The fact that our infrastructure is graded at a D+ is a crisis. The fact that inequality today stands at levels last seen during America's Gilded Age is a crisis. The fact that the typical American worker has seen virtually no real wage growth since the 1970s is a crisis. The fact that forty-four million Americans are saddled with $1.7 trillion in student loan debt is a crisis. And the fact that we ultimately won't be able to "afford" anything at all if we end up exacerbating climate change and destroying the life on this planet is perhaps the biggest crisis of all.

These are real crises. The national deficit is not a crisis.

So what is the solution? It's not a question any more of capitalism versus socialism. Even China is a capitalist country in terms of its economy. It's a question of what version of capitalism can be the most successful - successful in terms of filling the needs of most of its people, successful in diminishing inequality, successful in terms of generating the goods and services needed and wanted by people in the 21st century, successful in taking care of the environment and the earth, successful in terms of creating a healthy and well educated citizenry. Arguably, China has a better formula for capitalism that does the US. It has taken 800,000 people out of poverty in 40 years. It is building infrastructure not only in China whose infrastructure is light years ahead of the outdated US infrastructure but all over the world with its Belt and Road Initiative (BRI).

How is China able to do this? Their secret is the fact that the renminbi is a fiat currency just like the American dollar, just like the euro. As such the Chinese are able to print whatever yuan are necessary to employ its labor force at full capacity and employ them doing constructive activities within and without China. The US by comparison does not "direct" its private sector. If the US private sector wants to make money creating garbage which sells, garbage which is profitable, it will do that. If the private sector wants to install robots and/or do its manufacturing in countries where labor is cheaper leaving millions unemployed, it will do that. If there is no political will to modernize infrastructure, infrastructure in the US will be left to rust and wear out. The genius of the BRI is that it keeps China's labor force at full employment by exporting some of them to build infrastructure in other countries. This not only improves the economic situation in those countries, it adds to Chinese GDP because those workers return to buy Chinese products. This policy of building infrastructure inside and outside China evidently does not produce inflation in the Chinese currency. That's an important thing to note. Similarly, the Fed discovered that printing $1.5 trillion in 2008 to bail out the banks did not increase inflation either.

Meanwhile, the US spends $1 trillion a year on its military when it could have spent much less to meet its actual defense needs. The US does not need to spend $1.5 trillion on its F-35 fighter jet program in order to fight a few terrorists that have nothing more than primitive weapons like Improvised Explosive Devices (IEDs).The US economy leaves 500,000 people languishing in homelessness, many more - especially people of color - with a negative net worth, in other words in perpetual debt, with an economy that prints money to give tax breaks to the rich while cutting health and education programs and more. The undirected form of US capitalism allows the Fed to print money for frivolous and destructive purposes. In contrast China's directed form of capitalism has in a few short years demonstrated that it is more effective not only in increasing the wealth and consumption of the average Chinese citizen, but in winning friends and satisfying needs outside China including even US allies which are turning away from the US and towards China as a role model. Not to mention their more effective response to the coronavirus. Reactionary forces in the US, meanwhile, are trying to gin up a cold war against China and sanctioning even our allies who want to do business with China. While we warmonger, China is producing goods and services that the rest of the world wants.

Off the Top of My Head

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

by John Lawrence, June 25, 2020

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

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

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

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

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

Wolf Street reported:

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

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

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

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

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

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

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

Off the Top of My Head

It's Not About Supporting Our Troops. It's About Not Supporting a Bloated Military Budget

by John Lawrence

Somehow they always say it's about supporting our troops. I support our troops. I just don't support the military budget which is larger than the next 10 closest nations combined (China, India, Russia, Saudi Arabia, France, Germany, the United Kingdom, Japan, South Korea, and Brazil). And it's really about supporting Lockheed Martin, Boeing and Raytheon, defense contractors which have managed to locate plants in all 435 Congressional districts so as to be sure that Congress will support their demands for more money. Recently, Trump bypassed Congress on a deal to sell Saudi Arabia $8.1 billion worth of weapons.

“There is no emergency to the United States or to UAE or to Saudi Arabia regarding the war in Yemen,” Rep. Ted Lieu, D-Calif., who introduced the measure to stop the deal, said on the House floor before the 246-180 vote. “It is a horrific humanitarian problem. The Saudi-led coalition has killed countless civilians. But it is not an emergency that would justify weapons sales to Saudi Arabia and UAE that bypasses congressional procedure.” But Trump thinks it will maintain and support jobs, contribute to the economy regardless of the ethics or morality. Business is business even when it means more death and destruction.

CNN reported:

Secretary of State Mike Pompeo refused to sit for an interview with the State Department inspector general's office as part of its probe into the administration's move to bypass Congress and expedite last year's $8 billion arms sale to Saudi Arabia by declaring an emergency, a congressional aide told CNN Monday. ...

The allegation Pompeo declined to cooperate with the investigation came after House Foreign Affairs Committee Chairman, Eliot Engel, claimed the State Department inspector general fired by President Donald Trump on Friday, Steve Linick, had nearly completed an investigation into Pompeo's controversial decision to fast-track the same arms sale.

"I have learned that there may be another reason for Mr. Linick's firing. His office was investigating — at my request — Trump's phony declaration of an emergency so he could send weapons to Saudi Arabia. We don't have the full picture yet, but it's troubling that Secretary Pompeo wanted Mr. Linick pushed out before this work could be completed," Engel, a Democrat from New York, said in a statement to CNN Monday.

In the spring of 2019, the Trump administration pushed through a plan for more than $8 billion in weapons sales, almost entirely to Saudi Arabia and the United Arab Emirates. It employed an emergency declaration that under the law supposedly allowed it to proceed without the statutorily required 30-day period during which Congress must be formally notified and has the option of voting to block the sale.

On May 20, 2017, U.S. President Trump and Saudi Arabia's Salman bin Abdulaziz Al Saud signed a series of letters of intent for the Kingdom of Saudi Arabia to purchase arms from the United States totaling US$110 billion immediately, and $350 billion over 10 years. So we not only have a bloated defense budget, but we support arms sales to countries around the world - whoever will buy them. This adds to our GDP and creates Trump's "great" economy. It doesn't matter whether the economy is based on solving problems or creating them as long as exports contribute to American GDP. The French export wine and cheese; America exports death and destruction.

These arms sales supported the American military-industrial complex, companies like Lockheed Martin, Boeing, Raytheon, General Dynamics and Northrop Grumman among others. So the US not only is foolishly mucking around in wars in the Middle East itself contributing to 800,000 deaths there since George W Bush lied us into the war in Iraq, but is fueling even more war by arming Saudi Arabia to the teeth. The US has also made major contributions to the 70 million person refugee problem. Most of the refugees come from Syria and Afghanistan, countries in which the US has had major military activities. Although the Trump administration is doing nothing to help the refugee problem it helped to create, it is doing everything it can to help defense contractors like Lockheed Martin, Boeing and Raytheon.

 

Off the Top of My Head

Explainer: Quantitative Easing for the People

by John Lawrence, April 19, 2020

Let's say a Wall Street bank has a mortgage that's been defaulted on. That qualifies as a "toxic asset" meaning the guy isn't paying his mortgage. The bank then pleads with the Federal Reserve to take it off its hands because the bank is running low on money that it thought would be coming in if the guy had made his monthly payments. So the Fed adds "liquidity" by saying to the bank, "Give me that mortgage. I will take it off your hands and pay you the full value of the amount borrowed, and then I will be the mortgage holder for the "toxic asset." So the bank is made whole, and the Fed is now the holder of the toxic mortgage. The Fed has "taken it on its balance sheet" and taken it off the balance sheet of the Wall Street bank. This is what happened during the Great Recession of 2008. It's what Quantitative Easing is all about. Theoretically, some day the Fed will sell this mortgage in the marketplace, but who wants to buy a mortgage that no one is paying either interest or principal on especially if the mortgagee is long gone. Instead the toxic asset disappears in what amounts to the Fed's black hole.

Although the Fed will do this for a bank especially for those banks that are too big too fail, they will not do this for Joe Blow. Joe blow, for instance, may have a toxic asset of $30,000 in credit card debt or $100,000 in student loan debt. Why couldn't Joe Blow approach the Federal Reserve and say please will you take this toxic asset off my hands? That would mean adding "liquidity" to Joe Blow's bank account by taking the credit card debt or student loan debt onto the Fed's balance sheet and paying off Joe's creditors. This would make the Fed Joe's creditor. Perhaps some day, when Joe is better off, the Fed might be able to move Joe's debt off its balance sheet and put it back on Joe's account. At least theoretically that could happen.

What is happening today with the coronavirus relief package and the stimulus checks is a variation on QE which amounts to QE for the people. Where is all the money coming from you say? Will it just be added to the deficit and the national debt, God forbid? Right now interest on the national debt is $479 billion. The more money the nation borrows, the more interest on the debt crowds out other items in the Federal budget like social security, Medicare and the military. But there is a neat little trick that is played between the Treasury department which issues the bonds that comprise national debt and the Federal reserve which has the aforementioned capacity to make debts disappear down a black hole.

Those toxic assets that the Fed took off of banks' balance sheets? Some of them were Treasury bonds. Now more than ever the Fed will be taking Treasury bonds off the big banks balance sheet for two reasons: 1) they can't be all sold in the open market because there are no buyers and 2) the US taxpayers will not have to pay interest on these bonds because although the government pays interest to the Fed on these bonds all profits the Fed makes are returned to the Treasury after deducting minimal expenses at the end of the year. So one hand really does wash the other or, if you prefer, the Federal government is playing a shill game with the Federal Reserve. The Federal Reserve monetizes the debt which is the same as saying that it disappears down a black hole on the Fed's balance sheet. The middleman in this whole operation is Wall Street since the Fed by law cannot buy Treasury bonds directly from the Treasury Department. So by monetizing the debt, the Fed is doing two things: 1) it is taking the pressure off of interest paid in the Federal budget and 2) it is guaranteeing that the Federal government will have whatever amount of money it needs to pay its bills without having to increase taxes.

Now this is good news for pandemic relief. Deficit hawks are muted because they know how this shill game is played, and it's no skin off their backs. The Fed essentially prints money (although it's doe with a couple of keystrokes on a computer) and bails out the whole economy. There is no inflation since unions which drove up the price of labor were essentially muted during the Reagan administration which saw most manufacturing jobs transferred to China. So then Fed can print away giving everyone a taste of a Universal Basic Income (UBI). (See Ellen Brown's accompanying article.) Since the cat is out of the bag there is no reason why this same game couldn't be played to relieve American consumers of student loan debt and credit card debt although you can get rid of credit card debt in bankruptcy. Not so for student loan debt.

Also money for infrastructure could be obtained this same way by having the Fed monetize the debt. This would create good union jobs according to Bernie Sanders. But this is exactly what the bond market and the Fed doesn't want - good union jobs - because that would create wage inflation. When wages go up prices go up, and the bond market would not be pleased because inflation eats up the yields on their bonds. What the Fed and the monied interest want is an economy in which workers are deeply indebted because that means a ton of interest going to the banks which are totally in cahoots with the privately owned Fed. If your a worker, the Fed is not really your friend. They are the banker's friend. The Fed was set up in the first place to bail out banks not American consumers. Now it is giving American consumers a taste of a bail out because the coronavirus presents a unique situation with everybody being out of work. When things get back to normal, the Fed will go back to just bailing out banks, and relieving pressure on the national debt.

Off the Top of My Head

China Out Capitalizes Capitalist Nations

by John Lawrence, March 23, 2020

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

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

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

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

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

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

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

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

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

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

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

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

Off the Top of My Head

The Fed Keeps On Bailing Out Failing Businesses

by John Lawrence, March 17, 2020

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

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

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

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

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

The Real State of the Union

by Robert Reich

Wednesday, February 5, 2020

I wasn’t going to comment on Trump’s lie-filled State of the Union message but the whoppers were so big – especially on the economy – that I feel compelled. Here, for the record, is the real state of the union:

1. JOBS: Average monthly job creation dropped from 223,000 in 2018 to 176,000 in 2019. The employment rate for working-age adults has increased less than during the Obama recovery, and is still significantly below that of other developed countries. The pace of job creation is also markedly slower than it was under Obama.

2. WAGES: Wage growth has slowed, except in states with minimum-wage increases. The typical American household remains poorer today than it was before the financial crisis began in 2007. The median wage of a full-time male worker (and those with full-time jobs are the lucky ones) is still more than 3% below what it was 40 years ago.

3. TAXES: The Trump-Republican tax cut has been a huge failure. We were promised an increase in business investment, but business investment has contracted for the third straight quarter—the first time this has happened since the Great Recession in 2009. Instead, the tax cut triggered an all-time record binge of share buybacks – some $800 billion in 2018.

If fully implemented, the 2017 tax cut will result in tax increases for most households in the bottom 80 percent. 

And it has resulted in record peacetime deficits (almost $1 trillion in fiscal 2019) in a country supposedly near full employment. Even with weak investment, the US had to borrow massively abroad: the most recent data show foreign borrowing at nearly $500 billion a year, with an increase of more than 10% in America’s net indebtedness position in one year alone.

Nothing has trickled down to average workers. To the contrary, If fully implemented the 2017 tax cut will result in tax increases for most households in the bottom 80 percent.

4. TRADE: The 2018 goods deficit was the largest on record. Even the deficit in trade with China was up almost a quarter from 2016.

5 GROWTH: Last quarter’s growth was just 2.1%, far less than the 4%, 5%, or even 6% Trump promised to deliver, and even less than the 2.4% average of Obama’s second term. That is a remarkably poor performance considering the stimulus provided by the $1 trillion deficit and ultra-low interest rates.

6. WORKERS’ RIGHTS: Trump administration has systematically weakened workers’ rights. More than eight million workers will be left behind by the Trump overtime rule. Workers would receive $1.4 billion less than under the 2016 rule. New Trump administration joint-employer rule has $1 billion price tag for workers.

7. HEALTH: Millions of Americans have lost their health coverage, and the uninsured rate has risen, in just two years, from 10.9% to 13.7%. US life expectancy, already relatively low, fell in each of the first two years of Trump’s presidency, and in 2017, midlife mortality reached its highest rate since World War II.

8. CLIMATE: losses related to climate change have already reached new highs in the US, which has suffered more property damage than any other country – reaching some 1.5% of GDP in 2017.

Off the Top of My Head

The Bully in the White House

by John Lawrence, January 8, 2020

One man has infinitely more power than any other individual in the whole world, and that man is Donald Trump, a narcissistic egomaniac whom the American people have entrusted with the fate of their country. His idea of America First is to bully other countries, friends and foes alike, into doing what he wants them to do which usually has more to do with his pet peeves than any notion of what would make the world a better place, much less in what might keep America safe. He is losing America;'s place as a trusted moral leader with the result that America is becoming a pariah if not a laughing stock among the world's leaders. Here's a guy with no governmental, much less diplomatic, experience whose idea of America first is America uber alles. America will tell the rest of the world how they can best serve America, and, if they don't like it, Trump will apply sanctions.

The predictable result is, whereas in the past the dollar was the most trusted currency in the world where everybody wanted to stash their savings, the dollar is rapidly being downgraded to a currency that has been weaponized, a currency used to sanction and intimidate individuals, businesses and nations alike. Other nations are beating a hasty retreat from the use of the dollar in doing business. Trump has used dollar sanctions to force regime change although it hasn't worked so far. He has used it to prevent a pipeline from being built between Russia and Germany although that won't stop the pipeline from being completed.

Trump has systematically ramped up pressure on Iran. Starting by withdrawing from the nuclear agreement followed by increasing sanctions followed by assassinating a beloved public figure, Trump has brought the US to the brink of another war in the Middle East. Iran, evidently, won't be cowed into submission by Trump's bullying tactics, but then those tactics have been used by other Republican Presidents and their neocon advisors for years with the result that the world has become a more dangerous and less safe place not only for Americans but for American allies, who are about at their wits' ends with him, as well.

While millions languish in refugee camps as a result of America's Middle East wars which have accomplished nothing except to give the military a workout, we are seeing more billions of dollars flushed down the drain to support those in the military-industrial complex who profit from war. Without a permanent war time economy, unemployment would soar as it did in the 1990s after the end of the Cold War when many employees of the aerospace corporations were laid off especially in southern California. But the US is flirting with economic disaster by taking on more debt each year at a time when the rest of the world is losing their appetite for US Treasuries. The Federal Reserve has come to the rescue by taking a large proportion of this debt onto its balance sheet signaling that they will be the buyer of last resort.

This is a remarkable solution since the Federal Reserve is keeping the economy afloat by printing money, and they've found out that, as long as they give this money to Wall Street and not to ordinary working people, this doesn't produce inflation. It just increases asset prices, namely, real estate and the stock market. This increases the wealth not only of the billionaire class but also of anyone owning a home or anyone who has a 401k from their job. It's the perfect solution because it can go on forever supposedly. It affects adversely poor people who find rents skyrocketing and who are not invested in a 401k, but the majority of the population, at least the voting majority, is probably pretty pleased with the performance of the economy as their wealth increases despite the increasing inequality gap between the very rich and the very poor. So money can continue to pour into the military-industrial complex producing a full employment economy with increasing GDP.

Former Fed Chairman Paul Volcker said famously that it was the job of the Fed to take away the punch bowl just as the party started to heat up because this caused inflation. But there is no inflation in the US now so it's the best of both worlds: the Fed just keeps adding punch to the punch bowl and many Americans - except the poor - are partying heartily.

Off the Top of My Head

It's Christmas Every Day in America

by John Lawrence, December 22, 2019

America invented the mass consumer culture. There are goodies for everyone every day of the year. No wonder no one wants to change the formula. However, it's an empire sitting on massive debt - $21 trillion and counting - and a massive military-industrial complex effectively sworn to protect America's preeminence and predominance around the world. Under Trump the US has sought to sanction not only its allies but also its creditors including the largest of which - China. What's wrong with this picture?

The US Federal Reserve Bank is printing $60 billion a month and putting it into the banking system. With various versions of quantitative easing (QE) this influx of money, which has been going on since 2008 due to the collapse of Wall Street in that year, has kept the system going, but has led to a huge inflation in asset prices including housing and the stock market. This not only keeps the bankers happy, but it also keeps baby boomers happy since their houses bought in the 60s and 70s have increased substantially in value as well as have their 401ks. This wealth has trickled down to children and grandchildren of the boomers, but not to people starting out with nothing  such as the millenials with immense sums of student loan debt.

The theory of American society is that, as long as the Christmas tree of mass consumer culture can be perpetuated, all will be well. There will be no rebellion. The inequality gap does not really affect large portions of the middle class because who cares how wealthy Jeff Bezos or Bill Gates gets as long as their assets are increasing in value too. Sure, income has remained relatively constant for the middle class while the income and wealth of the upper.1% has sky rocketed. But property values and 401ks have made up for it for those lucky enough to have bought property 30 or more years ago and invested in a 401k as soon as it became available in 1980. The only people that have been really hurt by this increasing wealth gap of course are the poor. The rise in property values has priced poor renters out of the housing market because of skyrocketing rents and forced a large increase in the homeless population who cannot even afford the cheapest rents.

The American empire protected by a vast military-industrial complex costing $1 trillion a year (the amount the US goes further into debt by each year) will continue as long as it possibly can. The fly in the ointment is that the American empire rests on an empire of oil sealed in a deal with the devil - Saudi Arabia. This oil based empire cannot continue to exist if the earth is to remain a viable place for the habitation of human beings and other large mammals. Some species will inevitably remain even after sea level rises, floods and wildfires take their toll, but insurance rates are already starting to rise. Home insurance rates already increased more than 50 percent from 2005 to 2015, the year with the latest available data. The National Association of Insurance Commissioners attributes the increase to natural disasters, inflation, rising real estate values and construction costs.

Nevertheless, this year has seen record sales during the Christmas season both online and in brick and mortar stores. Record numbers of people are traveling during the holidays both by air and in cars.The mass consumer economy is in no danger of vanishing any time soon. It is onward and upward for the economy still dependent on fossil fuels and not about to give up an iota of record profits even if it means that the planet will suffer disastrous effects from climate change. Nothing can prevent this upward surge of capitalism except another collapse of the Big Banks, but, with the Federal Reserve standing by to inject more money into wealthy peoples' pockets if need be, this is unlikely to happen any time soon.

Off the Top of My Head

Why Can't the 90% Vote to Raise Taxes on the 10% and Lower Taxes on Themselves?

by John Lawrence, June 25, 2019

The Repubs are Johnny One Notes when it comes to elections. "We will lower your taxes." Of course they lower taxes on the rich (the 10%) much more than they lower them on the 90%. People always fall for this. They always say "The Democrats will raise your taxes." Well now, Bernie and others are saying "We'll raise taxes on the rich, but not on the 90%." That's good because in this country the majority rules, and the 90% can outvote the 10% at least in Presidential and Congressional elections. The Dems, however, should go further. They should say, "Not only will we raise taxes on the rich, we'll lower them on everybody else." That would go over great if the general public could appreciate that much nuance.

Trump's tax cuts blew a whole in the national budget and raised the Federal debt to $22 trillion. Now over a trillion dollars a year just goes to paying interest on the debt. The debt can never be paid off. The American people are being sold a bill of goods and will wind up being perpetual debtors not only nationally but individually. That's just where the power elite wants them. Debtors are more easily controlled than those who have some agency. The only agency the American people have is the fact that majority rules, and they can vote the powerful out of office and vote in people like Bernie Sanders and Elizabeth Warren who stand on the side of the middle class.

Ellen Brown in her latest book, "Banking on the People: Democratizing Money in the Digital Age," has shown the way to a debt free America with low taxes. She has been telling us for years that the Federal government need not borrow money and then pay interest on it. It has the power to generate money and then distribute it into society. The American Congress is given the right in the Constitution to coin money, but it has delegated that right to privately owned banks. Then the Treasury issues bonds which are bought by private investors who expect to be paid interest on those bonds. The big Wall Street banks take a cut on every bond sold.

Recently the Federal Reserve bank has gotten into the act with Quantitative Easing (QE). It buys the bonds from the Wall Street banks and by law returns the interest to the Treasury. These bonds need never be paid off. Net result: the American Treasury gets free money. But instead of this shell game the American government could issue its money directly, and spend it into American society on infrastructure development and in many other ways. This is exactly what other societies, who have control over their own money supply, have done. This is how China manages to spend money on its Belt and Road initiative building infrastructure all over the world without going into debt. Meanwhile the US goes further and further into debt, and in the final analysis it's all because it has delegated the creation of money to privately owned banks including the Federal Reserve.

But there is a better way according to Ms. Brown. Congress could create its own money and spend it directly instead of borrowing it and paying interest on it. This is how Lincoln built the transcontinental railroad and won the Civil War. He issued greenbacks which were money created instead of borrowed by the Federal government. This is how Franklin Roosevelt did it with the Reconstruction Finance Corporation during the Great Depression. The whole thing here is that Congress on behalf of the American people could create its own money tax free and use it any way it pleases like the Green New Deal, for example. It could be used to cancel student loan debt as Bernie wants to do.

These are radical ideas to be sure, but in the age of global warming and the neo-feudalization of the American people, radical ideas are called for. Our Grandkids will thank us for not letting planet earth go up in smoke. Presently, the whole American midsection is being flooded out because it drains most of the water from the ever increasing torrential downfalls. It is in the process of becoming just one big flood plain. Let's get radical to save planet Earth. The first step is to let the American Congress, not privately owned banks, create the money supply and use it to build infrastructure for which there is never enough money under the present system.

The Bankers’ “Power Revolution”: How the Government Got Shackled by Debt

Posted on May 31, 2019 by Ellen Brown

This article is excerpted from my new book Banking on the People: Democratizing Money in the Digital Age, available in paperback June 1.

The U.S. federal debt has more than doubled since the 2008 financial crisis, shooting up from $9.4 trillion in mid-2008 to over $22 trillion in April 2019. The debt is never paid off. The government just keeps paying the interest on it, and interest rates are rising.

In 2018, the Fed announced plans to raise rates by 2020 to “normal” levels — a fed funds target of 3.375 percent — and to sell about $1.5 trillion in federal securities at the rate of $50 billion monthly, further growing the mountain of federal debt on the market. When the Fed holds government securities, it returns the interest to the government after deducting its costs; but the private buyers of these securities will be pocketing the interest, adding to the taxpayers’ bill.

In fact it is the interest, not the debt itself, that is the problem with a burgeoning federal debt. The principal just gets rolled over from year to year. But the interest must be paid to private bondholders annually by the taxpayers and constitutes one of the biggest items in the federal budget. Currently the Fed’s plans for “quantitative tightening” are on hold; but assuming it follows through with them, projections are that by 2027 U.S. taxpayers will owe $1 trillion annually just in interest on the federal debt. That is enough to fund President Donald Trump’s trillion-dollar infrastructure plan every year, and it is a direct transfer of wealth from the middle class to the wealthy investors holding most of the bonds.

Where will this money come from? Crippling taxes, wholesale privatization of public assets, and elimination of social services will not be sufficient to cover the bill.

Bondholder Debt Is Unnecessary

The irony is that the United States does not need to carry a debt to bondholders at all. It has been financially sovereign ever since President Franklin D. Roosevelt took the dollar off the gold standard domestically in 1933. This was recognized by Beardsley Ruml, Chairman of the Federal Reserve Bank of New York, in a 1945 presentation before the American Bar Association titled “Taxes for Revenue Are Obsolete.”

“The necessity for government to tax in order to maintain both its independence and its solvency is true for state and local governments,” he said, “but it is not true for a national government.” The government was now at liberty to spend as needed to meet its budget, drawing on credit issued by its own central bank. It could do this until price inflation indicated a weakened purchasing power of the currency.

Then, and only then, would the government need to levy taxes — not to fund the budget but to counteract inflation by contracting the money supply. The principal purpose of taxes, said Ruml, was “the maintenance of a dollar which has stable purchasing power over the years. Sometimes this purpose is stated as ‘the avoidance of inflation.’”

The government could be funded without taxes by drawing on credit from its own central bank; and since there was no longer a need for gold to cover the loan, the central bank would not have to borrow. It could just create the money on its books. This insight is a basic tenet of Modern Monetary Theory: the government does not need to borrow or tax, at least until prices are driven up. It can just create the money it needs. The government could create money by issuing it directly; or by borrowing it directly from the central bank, which would create the money on its books; or by taking a perpetual overdraft on the Treasury’s account at the central bank, which would have the same effect.

The “Power Revolution” — Transferring the “Money Power” to the Banks

The Treasury could do that in theory, but some laws would need to be changed. Currently the federal government is not allowed to borrow directly from the Fed and is required to have the money in its account before spending it. After the dollar went off the gold standard in 1933, Congress could have had the Fed just print money and lend it to the government, cutting the banks out. But Wall Street lobbied for an amendment to the Federal Reserve Act, forbidding the Fed to buy bonds directly from the Treasury as it had done in the past.

The Treasury can borrow from itself by transferring money from “intragovernmental accounts” — Social Security and other trust funds that are under the auspices of the Treasury and have a surplus – but these funds do not include the Federal Reserve, which can lend to the government only by buying federal securities from bond dealers. The Fed is considered independent of the government. Its website states, “The Federal Reserve’s holdings of Treasury securities are categorized as ‘held by the public,’ because they are not in government accounts.”

According to Marriner Eccles, chairman of the Federal Reserve from 1934 to 1948, the prohibition against allowing the government to borrow directly from its own central bank was written into the Banking Act of 1935 at the behest of those bond dealers that have an exclusive right to purchase directly from the Fed. A historical review on the website of the New York Federal Reserve quotes Eccles as stating, “I think the real reasons for writing the prohibition into the [Banking Act] … can be traced to certain Government bond dealers who quite naturally had their eyes on business that might be lost to them if direct purchasing were permitted.”

The government was required to sell bonds through Wall Street middlemen, which the Fed could buy only through “open market operations” – purchases on the private bond market. Open market operations are conducted by the Federal Open Market Committee (FOMC), which meets behind closed doors and is dominated by private banker interests. The FOMC has no obligation to buy the government’s debt and generally does so only when it serves the purposes of the Fed and the banks.

Rep. Wright Patman, Chairman of the House Committee on Banking and Currency from 1963 to 1975, called the official sanctioning of the Federal Open Market Committee in the banking laws of 1933 and 1935 “the power revolution” — the transfer of the “money power” to the banks. Patman said, “The ‘open market’ is in reality a tightly closed market.” Only a selected few bond dealers were entitled to bid on the bonds the Treasury made available for auction each week. The practical effect, he said, was to take money from the taxpayer and give it to these dealers.

Feeding Off the Real Economy

That massive Wall Street subsidy was the subject of testimony by Eccles to the House Committee on Banking and Currency on March 3-5, 1947. Patman asked Eccles, “Now, since 1935, in order for the Federal Reserve banks to buy Government bonds, they had to go through a middleman, is that correct?” Eccles replied in the affirmative. Patman then launched into a prophetic warning, stating, “I am opposed to the United States Government, which possesses the sovereign and exclusive privilege of creating money, paying private bankers for the use of its own money. … I insist it is absolutely wrong for this committee to permit this condition to continue and saddle the taxpayers of this Nation with a burden of debt that they will not be able to liquidate in a hundred years or two hundred years.”

The truth of that statement is painfully evident today, when we have a $22 trillion debt that cannot possibly be repaid. The government just keeps rolling it over and paying the interest to banks and bondholders, feeding the “financialized” economy in which money makes money without producing new goods and services. The financialized economy has become a parasite feeding off the real economy, driving producers and workers further and further into debt.

In the 1960s, Patman attempted to have the Fed nationalized. The effort failed, but his committee did succeed in forcing the central bank to return its profits to the Treasury after deducting its costs. The prohibition against direct lending by the central bank to the government, however, remains in force. The money power is still with the FOMC and the banks.

A Model We Can No Longer Afford

Today, the debt-growth model has reached its limits, as even the Bank for International Settlements, the “central bankers’ bank” in Switzerland, acknowledges. In its June 2016 annual report, the BIS said that debt levels were too high, productivity growth was too low, and the room for policy maneuver was too narrow. “The global economy cannot afford to rely any longer on the debt-fueled growth model that has brought it to the current juncture,” the BIS warned.

But the solutions it proposed would continue the austerity policies long imposed on countries that cannot pay their debts. It prescribed “prudential, fiscal and, above all, structural policies” — “structural readjustment.” That means privatizing public assets, slashing services, and raising taxes, choking off the very productivity needed to pay the nations’ debts. That approach has repeatedly been tried and has failed, as witnessed for example in the devastated economy of Greece.

Meanwhile, according to Minneapolis Fed president Neel Kashkari, financial regulation since 2008 has reduced the chances of another government bailout only modestly, from 84 percent to 67 percent. That means there is still a 67 percent chance of another major systemwide crisis, and this one could be worse than the last. The biggest banks are bigger, local banks are fewer, and global debt levels are higher. The economy has farther to fall. The regulators’ models are obsolete, aimed at a form of “old-fashioned banking” that has long since been abandoned.

We need a new model, one designed to serve the needs of the public and the economy rather than to maximize shareholder profits at public expense.

_____________________

An earlier version of this article was published in Truthout.org. Ellen Brown is an attorney, founder of the Public Banking Institute, and author of thirteen books including Web of Debtand The Public Bank Solution. Her latest book is Banking on the People: Democratizing Money in the Digital Age, published by the Democracy Collaborative. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.

Off the Top of My Head

The Ingenious Way the Ruling Class Has Found to Keep the Economy Humming

by John Lawrence

In short: GIVE MONEY TO RICH PEOPLE.

Yes, remember the 2008 banking crisis when Hank Paulson with his hair on fire demanded that Congress give the banks a bailout of $700 billion? Then after that the Federal Reserve gave $29 trillion to the big banks (rich people), and they continued to this day with quantitative easing (ultra low interest rates and no interest for savings accounts). The $700 billion was a taxpayer commitment, but the $29 trillion was just money the Fed printed, in other words fiat money. The euphemistic term is they "took it on their balance sheet".

But wait that's not all. One more thing. Trump's tax cuts gave even more money to rich people and a smidgeon to the hoi polloi. And the economy is going great. Full employment. Asset prices like the stock market and real estate are up fantastically. All those with 401(k)s couldn't be happier. So what's not to like about this solution to an economy which never has a downturn ... in perpetuity?

Some have suggested that all this money flooding the economy (going mainly to rich people) is a sugar high. Inevitably there will be a crash. The stock market will crater. There will be a ton of foreclosures. Student loans will all go into default Unemployment will reach all time highs. The national debt will have to be paid off instead of added to on an annual basis. But in the meantime the economy has enjoyed the largest bull market for the longest period of time in history. Why couldn't this continue forever? As long as the Fed can print money, it can go on forever.

The game is that, even though the Federal government runs a deficit every year which is added to the national debt ($21 trillion at latest count), the US Treasury continues to sell bonds to investors. If you reach the point where there are no investors willing to buy any more Treasury bonds, the Fed just prints the money, gives it to the big banks and THEY buy the Treasury bonds. Ipso facto, the US government can go on running up huge debts forever and give more tax breaks to rich people.

However, there are some downsides. Hundreds of thousands of homeless people who can't afford outrageously high rents. People who are dying because they can't afford the cost of health care and prescription drugs. Gun violence that causes multiple mass shootings on a daily basis. Just today 12 people killed in a California bar. An infrastructure that is falling apart. But these are minor problems. As far as the homeless, the victims of mass shootings and other gun violence and the people dying for lack of health care and prescription drugs, they are all minorities, and minorities don't count in a majoritarian society. They don't have enough votes to matter so they can be treated with benign neglect. Thoughts and prayers should suffice.

Off the Top of My Head

US Pays Half Trillion Annually Just for Interest on National Debt

by John Lawrence, October 26, 2018

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

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

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

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

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

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

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

Off the Top of My Head

If the US Retaliates Against Saudi Arabia, Will They Stop Pricing Oil Just in Dollars?

by John Lawrence, October 16, 2018

When President Nixon took the US off the gold standard in 1971, he made a deal with Saudi Arabia (some say with the devil) to only accept US dollars as payment for oil in return for military protection. This is what made the dollar the world's reserve currency and the Saudis allies of the US. Now with the evident killing of Jamal Khashoggi in the Saudi Embassy, some US Congressmen are calling for reprisals against Saudi Arabia, and Saudi dictator Salman has threatened harsh actions towards the US in return.

The Guardian reported:

Riyadh vowed to hit back against any action. “The kingdom affirms its total rejection of any threats and attempts to undermine it, whether through economic sanctions, political pressure or repeating false accusations,” it said.

“The kingdom also affirms that if it is [targeted by] any action, it will respond with greater action.” The statement also pointed out that the oil-rich kingdom “plays an effective and vital role in the world economy”.

The country’s foreign ministry issued a series of tweets rejecting the accusations as “attempts to undermine” Saudi Arabia, writing in one post “demise is the outcome of these weak endeavors”.

The deal between the US and Saudi Arabia has allowed the US to run huge budget deficits because there is a ready market for US Treasury bonds mainly because of the need for other countries to purchase oil with dollars. If that's no longer the case, the US will have a harder time selling off all its debt the amount of which recently increased as Treasury Secretary Mnuchin frantically tries to sell more and more US debt. The government is trying to handle a budget deficit expected to eclipse $1 trillion in the next two years. The national debt is at $21.3 trillion, having risen about $800 billion in 2018. That means more and more US debt needs to be sold at a time when other countries are scaling back their purchases.

Russia recently dumped 84% of its American debt, and China, the US' largest debt holder sold off $3 billion in US Treasury bonds. Is it any wonder? Russia has been targeted with US sanctions, and China and the US are in a trade war started by Trump. If the US does not go along with the Saudis' murdering of a journalist, thereby becoming complicit in Khashoggi's murder, the Saudis might retaliate by pricing oil in other currencies. Then where does that leave the US with its frantic need to sell off more and more of its debt which has ballooned thanks to Trump's recent tax cuts for the wealthy.

Trump has said that he doesn't want to cancel the arms deal with the Saudis because it would mean US jobs for Lockheed Martin, Boeing and Raytheon. In other words the US military-industrial complex would suffer if we do not sell the Saudis the weapons they are using to slaughter innocent Yemenis. This is so much bullshit. If he sanctioned the Saudis, no other country supposedly would be able to sell them weapons either and this might be the best outcome if that meant the Saudis could not keep on slaughtering Yemenis.

The larger picture, however, has to do with the fact that Trump's alienating other countries including the US' largest debt holder, China, will mean a sell off of US debt and rising interest rates for US Treasury bonds to attract investors. This does not bode well for the continuation of the situation that currently holds sway in which the US lives off its penchant for funding its military and social programs with other people's money.

Off the Top of My Head

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

by John Lawrence, September 13, 2018

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

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

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

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

Off the Top of My Head

Weaponized Currency

by John Lawrence August 7, 2018

To say that the dollar is the world's "reserve" currency is to put it politely. The dollar is also the world's currency that is used by the US to bludgeon other nations and individuals into submission. The US dominates other nations not only by means of its outsized military-industrial complex and bases in practically every country of the world. It also uses the dollar through sanctions to make other nations do its bidding. This is especially true as the sanctions towards Iran go back into effect based on the fact that Trump pulled out of the Iran deal which all other parties to the deal, namely our European allies, still support. So again the dollar will be weaponized in the form of sanctions against Iran until Iran cries uncle.

Other nations are taking note of how sanctions are being used especially those nations who the US has conveniently defined as the "enemy." Those nations are starting to form an alternative economic system not based on the US dollar. At present most goods that are traded in the world, especially oil, are priced and traded in US dollars. China is working to make the yuan also a world reserve currency. That means that goods and services can also be traded in Chinese yuan. They are making progress in that regard. The BRICS nations have banded together (Brazil, Russia, India, China, South Africa) to form their own financial institutions not dominated by the US.

Wikipedia put it this way:

The BRICS Forum, an independent international organisation encouraging commercial, political and cultural cooperation between the BRICS nations, was formed in 2011. In June 2012, the BRICS nations pledged $75 billion to boost the lending power of the International Monetary Fund (IMF). However, this loan was conditional on IMF voting reforms. In late March 2013, during the fifth BRICS summit in Durban, South Africa, the member countries agreed to create a global financial institution which they intended to rival the western-dominated IMF and World Bank. After the summit, the BRICS stated that they planned to finalise the arrangements for this New Development Bank by 2014. However, disputes relating to burden sharing and location slowed down the agreements.

Of course Russia and China are the US' designated enemies. Their purpose, as far as the US is concerned, is to justify the US' trillion dollar defense-intelligence-homeland security budget. The US does not want to be friends with these nations because it would take the profit out of war, hot or cold. However, US corporations have made use of cheap Chinese labor and cheap Chinese imports for years. So we've become friends of a sort based on exploiting Chinese labor.

As China becomes more of a financial powerhouse, they want more of a say in terms of how goods are priced and sold. They are already the world's second leading economy and the world's largest holder of US debt in the form of Treasury bonds. They run the show in terms of trade by keeping the yuan's value with respect to the dollar low. If it rises too much they sell off US Treasuries. This means that the Chinese run a trade deficit with the US which is something Trump dislikes, but will likely not be able to do anything about. The alternative would be for the Chinese to sell off huge amounts of US Treasuries causing panic in the bond markets.

China is forming friendships and economic arrangements with other countries, particularly on the Eurasian land mass, with its Belt and Road initiative. As it does so, it keeps its labor force busy, builds infrastructure in these countries and expedites trade among these countries and China. The US keeps going into more debt with China by running up not only a trade deficit but the national deficit, in other words living beyond its means. Most of this money goes to fund its military-industrial-intelligence complex, but also social security and medicare, two programs Republicans have vowed to get rid of since they mainly benefit middle class and poor people. The defense sector, on the other hand, lines the pockets of rich people and the politicians themselves.

 

Our Missing $10 Trillion

Published on Thursday, July 19, 2018 by OtherWords

Tax cuts from the Bush, Obama, and Trump years have left a massive gap in the public coffers. This hurts everyone

by Josh Hoxie

 

2 Comments

A trillion dollars, a figure with twelve zeros after a one, is by any measure a ton of money. It’s near impossible to comprehend how much a trillion is.

So, it’s admittedly hard to comprehend a new report that tallies the combined tax cuts of the Bush, Obama, and Trump administrations from the year 2000 to the time they’re fully implemented in 2025 at over $10 trillion. Of that $10 trillion, the Institute on Taxation and Economic Policy found, a whopping $2 trillion will have gone exclusively to the top 1 percent.

Sounds like big numbers, huh?

The Endowment for Human Development offers some tidy tips for visualizing a trillion. They point out that if you took a trillion one-dollar bills and laid them end-to-end, it would measure longer than the distance from the earth to the sun.

Of that $10 trillion, the Institute on Taxation and Economic Policy, found, a whopping $2 trillion will have gone exclusively to the top 1 percent.

Spending a trillion dollars, at a rapid-fire clip of $20 per second, would take more than 1,500 years before you ran out of money.

So yes, when we’re talking about trillions, we’re talking about a lot, a lot, a lot of money. And what this new report really shows is a metric-crap-ton of cash going to the already exceptionally wealthy. That’s a problem.

The past four decades have seen a dramatic increase in income and wealth inequality as the rich have continued to get richer while the rest of the economy has stagnated. The lopsided tilt of the tax code plays no small part.

As this new report points out, it’s not just the Trump tax cuts. Bush cut taxes too, especially for the rich, and Obama extended many of the Bush tax cuts.

And at last the results have arrived. Put very simply, the top 1 percent of households will pay $111 billion less this year alone in federal taxes combined than they would have if the laws had remained unchanged since 2000.

The wealthiest households and most profitable corporations have gotten big tax breaks while everyone else remains relatively stagnant.

The Trump tax cuts have rightfully generated a tremendous amount of press coverage. A lot of that press coverage has accurately pointed out that the tax cuts overwhelmingly benefit the rich. Trump’s claims that his tax package would usher in wage and job growth have been proven utterly false. Instead, the wealthiest households and most profitable corporations have gotten big tax breaks while everyone else remains relatively stagnant.

Why should you care about the tax status of the ultra-wealthy?

Consider what gets lost when funds are diverted from the public good to private fortunes.

Since the Trump cuts were passed last December, Congress has debated a budget that includes major cuts to Medicaid, Medicare, and Social Security. They’ve considered cuts to programs families depend on to live — like Supplemental Nutrition Assistance Program (SNAP) and the Women, Infants, and Children (WIC) program, which provides nutrition assistance to half the babies born in the United States.

It’s not an exaggeration to say that choosing to cut taxes on the rich while cutting vital programs is taking food out of babies’ mouths.

It’s not an exaggeration to say that choosing to cut taxes on the rich while cutting vital programs is taking food out of babies’ mouths.

Meanwhile, our nation’s transportation infrastructure is in shambles. The American Society of Civil Engineers gives the country’s infrastructure a D+ and calls for $2 trillion in increased investment over ten years to get back up to a passing grade. That number sounds familiar doesn’t it?

So, ask yourself, would you rather have the wealthiest 1 percent be $2 trillion wealthier, or would you rather have safe and sound roads and bridges?

Hindsight is helpful, but only if we put its lessons into practice. Will we repeat our mistakes of the past 20 years and head further towards extreme inequality? Or will we invest in our public good and ask those at the top pay their fair share?

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

America Spends $1 Trillion on its Military Every Year - and Has No Way to Pay for It

"Indeed, so long as Imperial Washington is stretched about the planet in its sundry self-appointed missions of stabilization, "peacekeeping", punishment, attack and occupation, there is zero chance that America’s collapsing fiscal accounts can be salvaged."

by David Stockman Thu, May 17, 2018 | from Russia Insider

Like the case of Rome before it, the Empire is bankrupting America. The true fiscal cost is upwards of $1.0 trillion per year (counting $200 billion for veterans and debt service for wars), but there is no way to pay for it.

 

David Stockman was President Ronald Reagan's Director of the Office of Management and Budget, Republican Congressman from Michigan and author of the following books:

 

The Reagan Economic Plan, 1981
The Triumph of Politics: Why the Reagan Revolution Failed, Harper & Row, 1986
The Great Deformation: The Corruption of Capitalism in America, PublicAffairs, 2013
Trumped!: A Nation on the Brink of Ruin, and How to Bring it Back, 2016

 

The original headline of this article was:  'Why the Empire Never Sleeps: The Indispensable Nation Folly, Part 1'.  Stay tuned for Part 2.

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David Stockman, America's financial conscience and scold

 

That’s because the 78-million strong Baby Boom is in the driver’s seat of American politics. It plainly will not permit the $3 trillion per year retirement and health care entitlements-driven Welfare State to be curtailed.

The Trumpite/GOP has already sealed that deal by refusing to reform Social Security and Medicare and by proving to be utterly incapable of laying a glove politically on Obamacare/Medicaid. At the same time, boomers keep voting for the GOP’s anti-tax allergy, thereby refusing to tax themselves to close Washington’s yawning deficits.

More importantly, the generation which marched on the Pentagon in 1968 against the insanity and barbarism of LBJ’s Vietnam War has long since abandoned the cause of peace. So doing, boomers have acquiesced in the final ascendancy of the Warfare State, which grew like topsy once the US became the world’s sole superpower after the Soviet Union slithered off the pages of history in 1991.

Yet there is a reason why the end of the 77-year world war which incepted with the "guns of August" in 1914 did not enable the world to resume the status quo ante of relative peace and prosperous global capitalism.

To wit, the hoary ideology of American exceptionalism and the Indispensable Nation was also, ironically, liberated from the shackles of cold war realism when the iron curtain came tumbling down.

Consequently, it burst into a quest for unadulterated global hegemony. In short order (under Bush the Elder and the Clintons) Washington morphed into the Imperial City, and became a beehive not only of militarism, but of an endless complex of think-tanks, NGOs, advisories and consultancies, "law firms", lobbies and racketeers.

The unspeakable prosperity of Washington flows from that Imperial beehive. And it is the Indispensable Nation meme that provides the political adhesive that binds the Imperial City to the work of Empire and to provisioning the massive fiscal appetites of the Warfare State.

Needless to say, Empire is a terrible thing because it is the health of the state and the profound enemy of capitalist prosperity and constitutional liberty.

It thrives and metastasizes by abandoning the republican verities of nonintervention abroad and peaceful commerce with all the nations of the world in favor of the self-appointed role of global policeman. Rather than homeland defense, the policy of Empire is that of international busybody, military hegemon and brutal enforcer of Washington’s writs, sanctions, red lines and outlawed regimes.

There is nothing more emblematic of that betrayal of republican non-interventionism than the sundry hot spots which dog the Empire today. These include the Ukraine/Crimea confrontation with Russia, the regime change fiasco in Syria, the US sponsored genocide in Yemen, the failed, bloody 17-year occupation of Afghanistan, the meddling of the US Seventh Fleet in the South China Sea, and, most especially, the swiftly intensifying contretemps in Iran.

 

Off the Top of My Head

While China Invests in Other Countries, the US Sets Up Military Bases

by John Lawrence

China is spending billions investing in infrastructure projects in other countries. They call it the Belt and Road initiative. This will bring the Euro-Asian land mass under Chinese influence and control. Meanwhile, US foreign policy consists of selling weapons systems to allies, setting up and maintaining over 1000 military bases around the world and ringing Russia with missile systems. It is to be questioned whether US intimidation is a better way to win friends than the Chinese method of economic development. However, the US has a vast military-industrial complex to support. This means that it sees every world situation in military terms. China seems to be seeing the world situation in terms of infrastructure development while the US lags behind, not even being able to keep up with infrastructure development in its own country.

While the US Federal Reserve keeps interest rates near zero (for the banks and hedge funds, not for hoi polloi debtors who pay exorbitant rates to credit card and student loan companies), speculative money flows into assets like real estate and the stock market. This causes those asset prices to rise, making rents prohibitively expensive and adding to the ranks of the homeless. Cities are at a loss to keep up with the demand for cheap rents. They are also reluctant to compete with the free market. The free market is buying up all desirable land parcels and building high rise condos for the wealthy no matter what their country of origin.

The Fed needs to keep interest rates low not only to prop up the Big Banks and the stock market but also to prop up US government debt to which gargantuan amounts are being added on a daily basis. The national debt exceeded $21 trillion for the first time in March 2018, a little more than six months after it first hit $20 trillion. That means that on average $6 billion are added to US government debt on a daily basis, day in and day out. As the market for US debt decreases, thanks to the development of other funds and currencies (mainly the BRICS development fund), the Fed will find itself in the position of using QE to buy up US government debt, not just US corporate debt.

The stock market bubble will eventually burst bringing down pension funds and 401(k)s with it. What will happen then is anyone's guess. The US public will demand change in political leaders at the very least. Constructive change may or may not happen due to the firmly entrenched right wing, Fox TV, Rush Limbaugh crowd fueled by billions from the Koch brothers and other right wing wealthy ideologues. In any event US influence in the world will wane, and creditors will start demanding their money. This will lead to the Fed printing more of it and massive US inflation, not in the stock market, but in every day consumer products. As the US deteriorates, the wealthy will flee the country - as their financial assets already have - for greener pastures in creditor countries which haven't neglected their infrastructure.

The Trump America First slogan will only isolate the US even more as China expands into the regions that the US has chosen to make enemies out of, namely Iran, North Korea and Russia. By extension China will become the predominant player in the Shia controlled middle east after US blunders there. China's motto, evidently, is just the opposite of "China First."