Tag: monetarily non-sovereign

–The end of private banking. Part II

Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.
●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.
●Austerity = poverty and leads to civil disorder.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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In March of this year, I posted: The end of private banking: Why the federal government should own all banks.

Recently, Warren Mosler wrote:

the question of public vs private is about pricing of risk. when the public sector prices risk it tends to get politicized, like Solyndra, and all the other scandals surrounding loans by the public sector. When the private sector prices risk you get the problems we’ve seen recently. both have serious issues. i tend to favor the private sector pricing risk with some skin in the game/private capital, but operating narrowly as per my proposals. http://www.facebook.com/l/rAQGPndBhAQHD25OMjMaQw2w8asEGyW_cHLLiZWdi49-qyw/www.moslereconomics.com/?p=8968

and

And bank regulation and supervision is plenty tight to consider today’s banks public sector entities. The FDIC can fire bank management and limit compensation as well as dividends at will. What we’ve seen in the last 5 years is a total failure of regulation and supervision, partly because congress’s banking regulations allow them to do more than regulators can possibly keep up with.

My response was: “Warren: There never will be a time when bank regulators are able to keep up with regulations or with bankers. If regulators ever were able to maintain the tight reins you describe, they would in effect, run the banks. At that time, bank employees would be unnecessary puppets.

“Not only are the regulators unable to keep up, but the regulations themselves are unable to keep up. Why? The profit motive taints the entire banking industry. Remove the profit motive and you eliminate virtually all the illegality.

“You worry about Solyndra ?? I worry about JPMorgan Chase, BoA, Citigroup, Wells Fargo and all the other crooked, “too big to fail” banks, that bribe lawmakers and regulators to look the other way.

“So long as there are private banks with ‘skin in the game’ (aka ‘profit motive’) there will be bankster criminals bribing regulators and lawmakers, and the public will pay the price. This has been true, throughout history.

“(By the way, Solyndra was a private company with a profit motive. Just sayin’)”

The importance of this debate cannot be underestimated. Banks create the vast majority of dollars in existence. And banksters are ruled by the profit motive. They do not care what’s best for the public or for the nation.

Monetary Sovereignty
(The green line is total dollars; the blue line is bank-created dollars; the red line is federally-created dollars)

Now, the blog Naked Capitalism has published a post titled Is Public Ownership A Solution? Excerpts from that post:

Gar Alperovitz, professor of political economy at the University of Maryland, pointed out how the growth expectations for public companies are at odds with resource conservation and how their rampant short-termism stunts investment. Some economists have recently taken a systematic look at the latter problem. From a 2011 post:

Most recently, in 2011 PriceWaterhouseCoopers conducted a survey of FTSE-100 and 250 executives, the majority of which chose a low return option sooner (£250,000 tomorrow) rather than a high return later (£450,000 in 3 years). This suggested annual discount rates of over 20%.

Recently, Matthew Rose, CEO of Burlington Northern Santa Fe (America’s second biggest rail company), expressed frustration at the focus on quarterly earnings when locomotives lasted for 20 years and tracks for 30 to 40 years. Echoes, here, of “quarterly capitalism”.

That same post published a comment by someone named “psychohistorian,” who wrote:

The propaganda argument that private industry can be more responsive and do everything cheaper is bunk.

Yes, there are things private industry can do better, and there are things the government can do better. But we Americans have become so vaccinated with “free enterprise always is better than government,” we tend to be hostile to any government action, which we incorrectly label, “socialism.”

When private individuals control vast amounts of money, and when they are compensated according to their control of this money, even the saints among us would be tempted. Bottom line, private banking is, and always has been, crooked, the bigger the bank, the greater the temptation, the more crooked.

In banking, the profit motive corrupts. And combining the profit motive with short-termism corrupts absolutely. Always has; always will.

All banks should be federally owned.

Rodger Malcolm Mitchell
Monetary Sovereignty


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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:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports

#MONETARY SOVEREIGNTY

–Dig hole; fill same hole. Step forward; step back. Congress at work.

Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.
●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.
●Austerity = poverty and leads to civil disorder.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
==========================================================================================================================================

[Chicago Mayor Rahm Emanuel: “Why would he (missing Congressman Jesse Jackson, Jr.) go back to work at a Congress that does not work? Why rush it? I mean, they’re all talking about him going back to work. Last time I checked, Congress had their second repeal of their healthcare bill – another symbolic victory. Why rush?”

Lest you believe Congress, Chairman Bernanke and the old-line economists are not schizophrenic, Read this:

How the Potential Across-the-Board Cuts in the Debt Limit Deal Would Occur
By Richard Kogan, Updated November 22, 2011

The debt limit deal enacted on August 2, 2011 calls for about $900 billion in cuts in discretionary programs over the next decade and would impose further automatic, across-the-board spending cuts in many programs if Congress fails to enact an additional $1.2 trillion in deficit-reduction measures by January 15, 2012.

Those across-the-board cuts would represent approximately a 9 percent annual cut in affected non-defense programs, along with roughly a 9 percent cut in defense programs in 2013.

Translation: “We all knew Congress would not enact those $1.2 trillion in deficit cuts. How could they? The cuts not only would require massive reductions in the military, but reductions in Medicare and Social Security benefits, too, imediately throwing the nation into a depression.

“So why did Congress pass the law in the first place, if it knew implementation would be impossible?

“Anyone?”

(That was then. This is now.)

7/12/12: Bernanke to the the Joint Economic Committee:

“Even as fiscal policymakers address the urgent issue of fiscal sustainability, a second objective should be to avoid unnecessarily impeding the current economic recovery.

“Indeed, a severe tightening of fiscal policy at the beginning of next year that is built into current law–the so-called fiscal cliff would, if allowed to occur, pose a significant threat to the recovery.”

Translation: “I know the ‘urgent issue of fiscal sustainability’ is a myth. How do I know. Because as Fed Chairman, I’m well aware a Monetarily Sovereign nation can “sustain” any amount of debt.

“How? So-called ‘debt’ is nothing more than the total of the T-security accounts at the Federal Reserve Bank. When people buy T-securities, we transfer their dollars from their checking accounts to their T-securities accounts.

“To pay off the ‘debt,’ we’ll merely transfer their dollars back from their T-securities account to their checking accounts. It’s the same as your bank transferring your money from your savings account to your checking account. No problem.

“I also am aware of this formula: Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net Exports.

To grow GDP, something on the right side of the equation has to grow. “But deficit reduction reduces everything on the right side of the formula. So deficit reduction reduces GDP growth, i.e. the ‘fiscal cliff‘.

“However, if I tell Congress the facts, they might fire me, so I’ll just take both sides of the issue, and let them work out the details.”

“Fortunately, avoiding the fiscal cliff and achieving long-term fiscal sustainability are fully compatible and mutually reinforcing objectives.

Translation: “We need to cut the debt, while not cutting the debt, that is, we must destroy the economy while stimulating the economy. Those are the ‘fully compatible and mutually reinforcing objectives.’

“Got it? Anyone?”

“I’d tell you to try to avoid a situation in which you have a massive cut in spending and increase in taxes all hitting at one moment, as opposed to trying to spread them out over time in some way that will … create less short-term drag on the U.S. economy,” Bernanke said.

Translation: “If we cut deficits fast, there will be a fast drag on the economy. If we cut the deficits slowly, there will be a slow drag on the economy.

“Which do you prefer?”

U.S. ‘Fiscal Cliff’ Looms: Will Lawmakers Heed Bernanke’s Warnings?
By Morgan Korn | Daily Ticker – Tue, May 15, 2012 8:37 AM EDT

Economists agree that tax hikes and spending cuts will drag down economic growth in 2013 yet the estimates vary.

Moody’s Analytics chief economist Mark Zandi predicts the fiscal drag next year could be to closer to 1.5 of a percentage point of GDP.

The Congressional Budget Office calculated GDP could drop by nearly 3.6 percentage points in the 2013 fiscal year.

Morgan Stanley economist David Greenlaw says fiscal tightening could translate into a 5 percent drag on GDP during the 2013 calendar year.

Er, ah, excuse me, but remind me again. Why do we wish to raise federal taxes and cut federal spending?

Anyone?

Rodger Malcolm Mitchell
Monetary Sovereignty


==========================================================================================================================================
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:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports

#MONETARY SOVEREIGNTY

–Congress leads us lemmings over the fiscal cliff and we happily jump. Hey, who needs Jesse Jackson, Jr.?

Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.
●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.
●Austerity = poverty and leads to civil disorder.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
==========================================================================================================================================

Early this month, Federal Reserve Chairman Ben S. Bernanke, warned Congress the U.S. was in danger of falling over a “fiscal cliff” — a recession caused by the expiration of tax cuts and the imposition of spending cuts.

Using “Fed-speak,” Bernanke correctly told Congress that deficit reduction will cause another recession.

Now, more and more people are asking Congress, “What the hell have you done?”

TPM
Massive Coalition Fights Congress Over Looming Domestic Cuts
By Brian Beutler, July 13, 2012

When debate in Washington turns to the year-end “fiscal cliff,” it invariably centers on looming cuts to defense programs, and the Bush tax cuts.

But billions of dollars in annual funding to domestic programs is also on the line. Nearly 3,000 organizations that benefit from non-defense discretionary spending, including heavy hitters like AARP, have aligned to push Congress to sort out not just the tax and defense issues, but across the board cuts that threaten medical research, border security and everything in between.

Translation: “Sort out” means, “Find a way to cut the deficit, and force the nation over a fiscal cliff, but don’t cut my budget.”

“There is bipartisan agreement that sequestration would be devastating to the nation,” the alliance writes in a letter to members of Congress. “The nearly 3,000 undersigned national, state, and local organizations — representing the hundreds of millions of Americans who support and benefit from nondefense discretionary (NDD) programs — couldn’t agree more.

Congress and the President must work together to ensure sequestration does not take effect. We strongly urge a balanced approach to deficit reduction that does not include further cuts to NDD programs, which have already done their part to reduce the deficit.”

Translation: Congress and the President worked weeks to create the sequestration plan that everyone know would be a disaster. Now that what everyone knew would happen, soon will happen, we ask that Congress work just as hard to undo the plan they created.

[Aside: Rep. Jesse Jackson, Jr. has disappeared. Some people are outraged, and want him to return, now. But Chicago Mayor Rahm Emanuel said, “Why would he get back to work to a Congress that does no work?” That says it all.]

Last year’s debt limit deal created the sequester as a mechanism to force Congress to cut $1.2 trillion from the deficit. But that came on top of nearly $1 trillion in locked-in cuts to domestic programs over the coming decade. The groups say its time for other parts of the budget to take a hit.

Translation: We know cutting deficits will force the economy over a “fiscal cliff,” but no one can prevent Congress from destroying America. So just don’t cut my budget.

Here are excerpts from the alliance’s letter to Congress:

July 12, 2012
Dear Member of Congress:

We strongly urge a balanced approach to deficit reduction that does not include further cuts to NDD programs, which have already done their part to reduce the deficit.

NDD programs are core functions government provides for the benefit of all, including medical and scientific research; education and job training; infrastructure; public safety and law enforcement; public health; weather monitoring and environmental protection; natural and cultural resources; housing and social services; and international relations.

Every day these programs support economic growth and strengthen the safety and security of every American in every state and community across the nation. Yet NDD programs have borne the brunt of deficit reduction efforts.

For example, there will be fewer scientific and technological innovations, fewer teachers in classrooms, fewer job opportunities, fewer National Park visitor hours, fewer air traffic controllers, fewer food and drug inspectors, and fewer first responders. America’s day-to-day security requires more than military might.

NDD programs support our economy, drive our global competitiveness, and provide an environment where all Americans may lead healthy, productive lives. Only a balanced approach to deficit reduction can restore fiscal stability, and NDD has done its part.

Sadly, these people do not object to deficit reduction. In fact, they favor it. They just don’t want their own budgets cut. But, Bernanke’s “fiscal cliff” comment did not refer to specific budgets. It referred to deficit reduction – any deficit reduction.

These people still do not recognize that deficit reduction by any name (“balanced budget,” “living within our means,” “fiscal responsibility”) hurts the entire nation. A growing economy requires a growing money supply; deficits are the method by which the government adds dollars to the economy.

There is not one valid reason why deficits should be reduced; rather, they should be increased. The facts are there for all to see.

Lord, what will it take?

Rodger Malcolm Mitchell
Monetary Sovereignty

P.S. I award 2 dunce caps to the NDD for not recognizing their fundamental problem is deficit reduction, and instead proposing a “beggar thy neighbor” solution (Don’t cut us, but do cut someone else).


==========================================================================================================================================
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:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports

#MONETARY SOVEREIGNTY

–Curing the student loan problem, and helping to reduce unemployment, all at one stroke

Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.
●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.
●Austerity = poverty and leads to civil disorder.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
==========================================================================================================================================

My senator, Dick Durbin, has proposed new legislation. Here is what he says on his web site:

Many students turn to private student loans to help finance their education. Traditionally, private student loans issued by for-profit lenders have been—appropriately—treated like credit card debt and other similar types of unsecured consumer debt in bankruptcy.

If student debt became so overwhelming that a graduate had to declare bankruptcy, private loans could be discharged like any other debt. But in 2005, a provision was added to bankruptcy legislation that protects the private lenders that extend private credit—not federally guaranteed student loans—to students.

Where students could once find relief from suffocating debt, there is now no escape from high-interest, predatory student loans. And the student lending industry has not been the same since the law was changed–it quickly exploded from $11.8 billion the year before 2005 to a peak of more than $23 billion just four years later.

Today, a significant portion of students are burdened with tens—or even hundreds—of thousands of dollars in student loan debt, and, in our current economic climate, too many are struggling to make timely payments on these loans.

Senator Durbin’s proposed solution: Change the law to allow students to go bankrupt. According to Bloomberg:

The largest private student lender is SLM Corp., (SLM) known as Sallie Mae, which made $2.7 billion in private education loans last year, up 19 percent from a year earlier, the company said in a statement in January. It expects to originate about $3.2 billion this year.

Sallie Mae’s portfolio of private student loans was about $36 billion, and loans to students at for-profit colleges account for about 10 percent, according to the Newark, Delaware- based company.

“Sallie Mae supports reform that would allow federal and private student loans to be dischargeable in bankruptcy for those who have made a good-faith effort to repay their student loans over a five-to-seven year period and still experience financial difficulty,” Patricia Nash Christel, a spokeswoman for the company, said in an e-mail.

While being able to go bankrupt is better than not being able to go bankrupt, encouraging thousands of college students to put a bankruptcy on their credit history is not desirable. Further, maintaining barriers to school attendance, makes no sense for our nation. The future survival and growth of America requires us to make school an affordable and attractive option for as many people as possible.

Here are some facts that bear on this subject:

A. Most elementary school and high school education is provided free, courtesy of the states.

B. But, states are monetarily non-sovereign, and cannot create dollars at will. Most have serious financial problems. Supporting lower education is a large burden for the states. By contrast, the federal government is Monetarily Sovereign, having the ability to create dollars at will.

C. Even with free education available, many students opt out of elementary and, especially, high school. One reason: Families cannot afford to support the students. They need the students to go out and earn money.

D. College education is important to U.S. economic growth in this increasingly technical world, where machines do more of the “grunt” work, and brains increasingly are more important than brawn.

Given these facts, I’ve proposed this solution to the student loan problem:

1. The federal government should take over the funding of elementary and high school education. Because the states are strapped for funds, lower education funding may take a back seat. Every day, America loses the value of one of our most important resources: Our young people.

2. For the same reasons, the federal government should take over the funding of college education, including advanced degree education.

3. The federal government also should pay each student a salary for attending school. [See link for more details]

Finally (note to Warren Mosler and Randy Wray), though I have criticized Modern Monetary Theory’s (MMT) Jobs Guarantee (JG), I could visualize paying a salary for attending school, as a partial solution to the unemployment problem.

The negative would be the probable requirement that the “employee” attend full time and pass the course, which would preclude finding a full-time job, elsewhere. The positive would be that attending school would be more beneficial than typical minimum wage jobs — more beneficial to the worker and more beneficial to America.

Rodger Malcolm Mitchell
Monetary Sovereignty


==========================================================================================================================================
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:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports

#MONETARY SOVEREIGNTY