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●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which ultimately leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive, and the motive is the gap.
Here is why the Fed continues with Quantitative Easing (QE) — and it’s not what Chairman Bernanke tells you.
Background: What is the single biggest problem facing the American economy? No, it’s not the federal deficit or the debt, not inflation, deflation, recession or depression, not reduced employment or unemployment, not health care or Social Security.
No, the single biggest problem facing the American economy is the growing gap between the few very rich and the rest of us.
THE GINI RATIO — A MEASURE OF INCOME INEQUALITY — CONTINUES TO WORSEN
(“0” means everyone receives the same; 1.00 means one person gets it all. The rising line means rising inequality.)
When a large percentage of a nation’s citizens suffer from poor housing, inadequate access to medical care, less affordable and less nutritious food and less affordable, quality education, poor prospects and opportunities for success — and when that large percentage is growing — the nation and its leaders have failed.
President Kennedy was wrong when he said, “Ask not what your country can do for you – ask what you can do for your country.” For what, after all, is the fundamental purpose of a nation, if not to care for its citizens?
The Situation: The Fed, under Chairman Bernanke, claims QE (Quantitative Easing) stimulates the economy. His theory goes like this:
Under QE, the Fed buys $85 billion dollars worth (currently) of T-bonds from the private sector every month. Bernanke would have you believe that each month this pumps $85 billion into the American economy.
When the private sector purchases T-bonds, dollars are transferred from private sector checking accounts at various banks, to T-bond accounts at the Federal Reserve Bank. (Think of transferring dollars from your bank checking account to your bank savings account.)
Then, when the Fed buys those T-bonds from the private sector, dollars are transferred back from T-bond accounts to private checking accounts. No new dollars are added to the economy.
What does happen however, is that the Fed’s bond purchases increase the demand for T-bonds, which increases the price of T-bonds, which in turn, decreases the interest rate paid by T-bonds. In short, QE simply is a gigantic long-term-interest-rate-reduction device. Nothing more.
Because the Fed controls short-term interest rates (via the Fed Funds rate), QE closes the circle, by lowering longer-term interest rates. So the question becomes, “Why does the Fed want low interest rates?”
The usual claim is that low rates make borrowing more attractive, which supposedly is economically stimulative. But, while low rates make borrowing more attractive, those same low rates make lending less attractive.
As a result, there is no historical relationship between low rates and GDP growth. See: “Low interest rates do not help the economy.”
If QE merely keeps interest rates low, and low rates don’t stimulate the economy, why QE?
The Fed is a creature of the rich, and the rich want low interest rates. Low rates reduce federal bond interest payments, so when rates are low, the government pumps less money into the economy. And, low rates make borrowing less costly for businesses, thereby adding to business profits.
Thus, QE causes two complementary effects: Less money coming into the economy plus higher profits for business: The perfect combination for taking money from the poor and giving it to the rich.
Here is how that works:
By SPIEGEL staff
As the European Central Bank pushes interest rates to a new low, Germans are growing increasingly concerned about their savings. The money in their accounts is losing value and life insurance policies are yielding lower returns.
Only a few years ago, Germans were convinced that they could offset the cuts lawmakers had made to government-mandated pensions by saving more money on their own. Because Germans tend to be risk-averse, they invest most of their money in savings deposits, life insurance and fixed-income products.
But savings can only grow in real terms if the interest rate is higher than the rate of inflation.
“In Germany today, people can no longer provide for their retirement by saving,” says Walter Krämer, a statistics professor in the western city of Dortmund.
The percentage of young people in the population is shrinking, and yet they must generate greater economic output to reduce the debts they are inheriting from the current generation.
Because this is unsustainable, a redistribution from creditors to borrowers, or from savers to the state, is now occurring. The government makes money when interest rates on government bonds are lower than inflation. Its debt burden is decreased, while savers are left to foot the bill, with their assets losing value in real terms.
The consequence is a massive redistribution. McKinsey, the consulting firm, has calculated that the governments of the United States, Great Britain and the euro zone already saved $1.6 trillion between 2007 and 2012 as a result of low interest rates. This is offset by a loss to private households of $630 billion. Older citizens are losing more than younger people, because the latter tend to have more debt and fewer savings.
As much as savers are being fleeced, there are also those who profit from low interest rates. People who own real estate have benefited from increases in value in recent years, while stock owners have seen Germany’s DAX share index climb from one record high to the next. But this primarily benefits those who are not worried about having enough retirement income.
In this way, the low-interest-rate policy doesn’t just lead to a transfer of assets from citizens to the state, but also from the poor to the rich</strong>. Affluent households are in a better position to shift their focus to stocks, real estate and other investments than those with average incomes.
Bottom line: The Bernanke purpose of QE is to reduce interest rates while convincing the public this is beneficial. It is beneficial, but only to those who invest in stocks and real estate. Low rates are detrimental to the vast majority of Americans who try to save via bank accounts, insurance accounts and other “safe,” interest-paying investments — i.e. the middle class and the poor.
QE, deficit reduction, debt reduction and interest rate reduction all have been sold to the American public as economically stimulative and beneficial to the poor and middle classes. But, in fact, they widen the gap between the rich and the rest.
That is why Bernanke and the rich bankers love QE. It is the gap that makes the rich rich. If there were no gap, no one would be rich, and the wider the gap, the richer the rich are.
Bernanke, the politicians, the media and the mainstream economists have been paid by the rich to widen the gap. That is the purpose of QE.
So far, it’s working.
Rodger Malcolm Mitchell
Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
9. Federal ownership of all banks (Click here)
10. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
Two key equations in economics:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports
THE RECESSION CLOCK
Vertical gray bars mark recessions.
As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.