Just Say Why

Reinventing America’s Economy
by
David Schlecht

We’ve been hearing a lot lately of the need to reinvent our economy. Our financial system is so broken that we can’t prevent it from melting down multiple times in each century. This essay investigates some areas where we can greatly improve our world by reinventing America’s financial structure.

We start with a short investigation of exactly what is causing this recurring nightmare that plunges so many of us into poverty every few decades. Without a firm understanding of the causes of the disaster, there’s no way to fix it. There is no way for me to say this without sounding like I’m politically biased but this is a fact obvious to anyone paying attention. The Conservatives around the world are directly responsible for this disaster just like they were for the last Republican Great Depression.

During the depression of the 1930s, we, the people put numerous safeguards in place to protect us from another disaster. We put many rules in place to control greed in our financial markets. We passed laws to prevent businesses from getting too big to fail. If these safeguards were still followed, today, we would not have this disaster. It’s as plain and simple as that. The people forcing through the failed policies around the world are all chanting “Free Market, Free Market”. Well, the greedy Free Market is what we’re looking at having to bail out. The banks are too big to let fail, so here we are, again, bailing them out.

And, here we are, again, bailing out the autmobile industry. We stopped enforcing the Sherman Antitrust Act which saves us from having businesses too big to fail. The last monopoly to get cleaned up was Ma Bell. Since that time, the Free Market Advocates have been getting their way and stripping us all of the safeguards our grandparents put in place to save us.

We’ve already addressed two of the major causes of this disaster, 1) Too Big to Fail Businesses, and 2) Lack of or refusal to enforce safeguards to control the greedy. The third leg of this stool is The Federal Reserve.

Unknown to most people, the Federal Reserve is niether federal nor does it have any reserves. Like “The Clean Air Act” or “The Healthy Forest Act”, the name is only there to confuse the unsuspecting and the gullible. This is a privately owned bank that we have put in charge of managing our country’s money supply. As I said, there are no reserves, so the Federal Reserve controls the money by providing credit.

America didn’t always have a Federal Reserve. It wasa created as a national bank to help control the flow of credit. However, it has been privatized and is now a for-profit bank with stockholders. Their responsibility is now to the stockholders, not to America, and many of the stockholders aren’t even American. Not only is the Federal Reserve a for-profit bank, but all the banks and gambling houses (aka investment houses) are now for-profit. This means that they make decision, not based on what’s best for America, but what’s best in the short term for their shareholders and their CEOs.

Now we know what three of the major causes of this disaster are, so let’s look at how to clean them up for good. Obviously we can’t rely on just safeguards, because our grandchildren will abandon our safeguards just like we abandoned the safeguards our grandparent put in place. We have to fundamentally change the structure of our economy.

#1. Too Big to Fail: Since we can’t rely on our politicians to enforce the safeguards against Too Big Businesses, we need to create an agency to monitor monopolies. We also need to put laws in place that let competetors initiate monopoly investigations against monopolistic competetors in the hopes of splitting them up.

#2. Free Market Greed and Foolishness: Fannie Mae and Freddy Mac were both initially government lending institutions. They have since been privatized. As it alwasy happens when government functions are sold to the greedy, they get out of hand and end up, well, like Fannie Mae and Freddy Mac. Greed should be frowned upon, not rewarded. If greedy politicians want to privatize our government services, they should be unable to vote on any legislation in which they have received any money or gifts, either directly or via Political Action Comittees. Furthremore, any privatization must require a 2/3 vote in both the House and Senate.

Big business currently owns our government. There’s no simpler way to put it. It costs $20,000 per day for a politician to run for office because of the billions of dollars that are spent by greedy big businesses to buy our representatives. We need to take the money out of politics. We need immediate finance reform that prevents anyone from spending personal money on elections. This means all elections must be federally funded.It’s the only way to get the greedy businesses out of our government. Furthermore, we need to revise many of our corporate laws and remove the rights of personhood from our corporations. Corporations do not need and should not have the right of free speech. Corporations should not be allowed to own or invest in other businesses and corporations, all corporations should have “serving the public interest” as their fundamental purpose, and corporations should have a maximum life span after which they are shut down and sold off.

#3. Corrupt Banking Industry: First, federalize the Federal Reserve. Our nation’s credit should not be managed by greed and profit. For that matter, buy back Freddie Mac and Fannie Mae and run them as the services they were intended to be. Secondly, every state should have a state-owned and state-run bank that provides credit for the people and businesses of the state.

There are, of course, many more things that need immediate attention, but these three are, in my opinion, three of the biggest issues facing us today.

What Part Taxes Play in the Recovery
by
David Schlecht

Let me preface this with a challenge. I’ve voted for my share of Republican candidates so don’t mistake this challenge as a partisan rant. A friend of mine recently asked me to tell him a single piece of legislation that the Republican Party has introduced and passed in Congress, that help the average voter. I was woefully unable to come up with even a single one. I must defer to our trusty readers for your expertise. Can you name a single piece of legislation benefiting the average American submitted and passed by the Republicans?

Now to our topic. What role will taxes play in the recovery process and what role should they play? Now that the foolhearty Conservative Economic joke has exploded in our faces, it’s time for us all to realize what went wrong so we can fix it and ensure it never happens again, at least not until the next Republican Great Depression.

Before JFK, the financial elitists were charged a 90% tax on anything over 3 million dollars. Over time, slimeballs in Congress passed bill after bill that allowed their rich buddies to get around the taxes. After enough time, the 90% was more like 70% actually getting paid. When JFK closed the loopholes (well, it wasn’t really JFK as he was assassinated before he could sign the law) he explained to the American people that this was actually a tax increase on the swine (my words, not his) bribing our representatives and the tax cut from 90% to 74% actually increased tax revenues.

Then comes along the next Republican president to attack the American economy, Reagan. He dropped the top marginal tax rate on those sickeningly rich scumbags trying to corrupt our government from 74% to 35%, while the Republicans in Congress were poking more and more loopholes in the laws JFK closed up. This had the short-term effect of making the economy look good but within a year we had Reagan’s first recession. And just a few years later, we had the second Reagan recession, the Savings and Loans disaster.

You may be wondering why taxes have anything to do with the economy and recessions. If you are, read the earlier posts describing how these interact. In short, taking spending money away from the government takes income away from government workers and the needy and thereby takes it out of the economy. Giving more money to the uber-rich puts more money in risky speculation. What follows are bubbles and crashes. On top of that, the Republicans were busy destroying the rules put in place to get us out of the past Republican Great Depression. The S&Ls were free to speculate and with billions in slush money from the Republican sponsors, the industry self-destructed.

Along comes Bush, Clinton, and Bush. I cringe at grouping Clinton in with the Party of the Uber-Rich, but he followed the same stupid ideals, reducing the size of government further, reducing the services to the needy, and removing safeguards on the risky investments. All this made us ripe for the next Republican Great Depression. By now, Bush Junior had reduced the average tax on the wealthy corporations to less than 7%, while the middle class workers (the actual financial engine) were paying as much as 35% and paying Alternative Minimum Tax on top of that.

The families of the 50s and 60s had almost 50% of their budgets available for discretionary spending, with a single bread winner. Today, the middle class family spends less than 25% on discretionary spending. The middle class pays more for taxes, more for health care, more for housing, and now needs two cars because both parents must work.

It’s simple. With less spendable money in the hands of the middle class, less money goes into the economy. The next step is to start relying on credit. The middle class went into hawk, up to their eyeballs. Rake up the credit cards, rake up the mortgage, charge your groceries when you can’t make ends meet.

Eventually, the middle class can no longer live off credit and spending grinds to a halt. That’s were we are today. All because of taxes and relaxed regulations.

Armed with this knowledge, how do we devise a solution to this mess? Obviously going back to the 90% tax rate for anything over 3 million dollars is a good start. Those who benefit the most from our country should pay the most back into it. Those who own Wall Marts and make billions of dollars while their workers go hungry must repay those stolen dollars back to society. It’s easy and it’s fair.

But, leveling the playing field by taxing the rich isn’t enough in iteself. Higher taxes on the rich will automatically translate to more money for the workers, barring the Republican generated loopholes. But this is still the trickle-down approach and the Conservatives have proven to us that this approach doesn’t work. The higher taxes on the sickeningly rich must be ballanced with a higher average wage for the workers, yes the engine of the economy. Our minimum wage must be increased to above the poverty level. A good start is $30,000 per year. A rising tide lifts all boats and this will translate to better compensation for all workers and will mean a stronger economic engine.

Sure, the billionaires will still make more money than a normal person can spend, but they will just have to deal with it.

I can almost hear the Conservatives groaning in disbelief. “What? You mean tax the rich? It’ll kill any incentive to make money!”

What are they thinking? Let me ask you. Would you be happy to invent something to make $3,000,000.00? This would actually increase innovation because there would be more people able to be innovators rather then working two and three jobs at below poverty wages.

So, how do we get there from here? We can’t just change the tax laws overnight. And, we can’t continue to borrow the money to pay for this recovery. We need to pay as we go. We need to implement a change as quickly as possible. This means a two-pronged approach. The first approach is the re-implement the Paris Hilton tax. There’s no reason for any estate to carry billions of dollars from one generation to the next to the next while others starve. The income from insurance policies and from inheritance should be taxed at the same rates as any other income. Anything over three million dollars get taxed at 90%.  Just by turning back on the estate taxes, we will have enough tax money to pay this recovery package as we go. During the coming 5 years we can gradually re-implement the 90% tax on anything over three million dollars.

One more big shot in the arm is to open up Medicare to all Americans. If we can buy better insurance through Medicare than we can get by paying billions of dollars to the CEO’s of the big insurance companies, the businesses will have more money to pay for wages and other benefits, or they can pay for the 90% tax if they prefer.

Derivatives and the Coming Bust
by
David Schlecht

There is a serious and gravely overlooked disaster staring us in the face, one that is part of the current financial crisis but has the potential to completely destroy America’s and the world’s economy, for good. This disaster is the Derivatives Market.

The Republican Congress of the 90s (with the help of Clinton) destroyed the safeguards that prevent our banks from becoming casinos and betting on anything and everything. Today, many of our financial institutions own lots and lots of derivatives that they will soon find to be worthless.

What are derivatives? In simple terms, they’re bets, multi-billion-dollar-bets. Remember how the banks bundled up the risky mortgages, into securities, thereby masking the true risk of the investment. Derivatives as when investors bet that a particular stock or security or commodity would go up or go down. These derivatives were “derived” from the value of the original investment. Then, the next “master of the universe” would bundle these derivatives again, adding more bets. As you can see, $100 worth of investment can be resold endless times by bundling and by creating derivatives.

If this sounds like a Ponzi scheme to you, you’re right on the money. It’s a scam, but it’s bundled so the investors don’t really know what they’re getting.

You may be wondering how pervasive the derivatives market really is. If you guess it must be pretty darned big in order to be bigger than our existing crisis. then you’d be right. The total investment in all the derivatives is more than 100 times greater than all the Gross Domestic Product on the entire planet. When they go down in flames, there won’t be enough money in the world to bail them out.

Until we see how other countries deal with this, it’s impossible to say just how bad things will get. Common sense, however, indicates that this could be the event that causes the entire world to re-invent our financial systems. It could be that the only way we can survive this coming crash is to let all the investors that bought the bad derivatives jump out of their windows and start up the investment systems from scratch.

This could be a good change in the long run but it is not a good time to be getting this news and it will be many years of bad times, fighting with the Always-Been-Wrong Republican Party’s obstruction getting this fixed.

Deregulation and our Current Crisis
by
David Schlecht

Before we begin, let me suggest that you take a quick trip to Devilstower’s page and get a black and white list of America’s accomplishments over the past 8 years and beyond. It’s impressive, to say the least.

Continuing from our discussion of credit’s effect on the economy, let’s look at the disastrous effect deregulation had on the current mess.

A quick trip down memory lane, or down the pages of Google, will remind us of the rigid and difficult changes that were necessarily implemented to lift us out of the last Great Depression. Of the many regulations implemented, most were geared towards reducing risk in the banking industry.These regulations helped usher in decades of safe and reasonable prosperity for America.

Before the last Great Depression, the banks were freed up to speculate to their hearts’ content. That was Free Markets at it’s height. Many banks had invested heavily in the real estate boom of the 20s. When home prices fell, like they did here the past 8 years, many of these institutions began to falter. At that time, many of the banks were closed for a banking-holiday and restructured to stop the run on the banks and to allow the banks to understand and make changes for the new regulations.

Also, at that time, the government stepped in and guaranteed the bank accounts, helping to restore some trust in the banking industry. Many of the banks were simply bought by our government and restructured and then sold when they were, again, profitable. It worked.

Nobody ever accused George Bush or the Republican party of being intelligent, but they could have at least consulted with someone who knew how to read history books. Instead, what they did was flood the faltering banks with billions of our tax dollars and never asked the banks to make a single change in their greedy and risky ways. Herbet Hoover all over again. Bush never even asked them what they were going to do with our money or even asked the banks to report on their progress. Sounds like a scam to me.

So, what are they doing? They’re buying up other banks (speculating) and giving themselves and their investors the money, billions of dollars. Does that sound like a scam to you?

When our banks start to falter and crumble like the 30s, Americans won’t panic quite as bad since our government is insuring our savings accounts. But they will still panic and we may be looking at another “Bank Holiday” to help prevent another run on the banks.

There is one more crutial aspect of this that needs to be addressed. The people who caused this mess, besides the Republicans who deregulated the banks, are a small group of greedy financiers, who prefer to be called “master of the universe,” who have made billion and billions of dollars off of this disaster. The money didn’t just disappear. These “masters” need to be investigated, their proceeds returned to the public, and criminal punishment rendered.

You must be wondering, by now, exactly what happened to all those regulations put into place after the last Great Depression. Remember all the cries for Let The MARKET Decide? Remember, all the huffing and puffing about “The FREE Market will fix it”? There have been numerous safeguards loosened up and many more just plain ignored by the Bush Administration, but the worst thing was actually done by a Republican Congress and a Democratic president, Bill Clinton. He allowed the repeal of the Glass Steagall Act which allowed the banks to get back into doing the same greedy things they did in the 20s and they have gotten stinking rich while our economy crumbled.

Voodoo Economics 101
by
David Schlecht

Voodoo economics, also referred to as Supply Side Economics is one of the primary causes of our current financial disaster and many of the state governors are intent on using this same Voodoo to get us out. Nonsense!

In short, Supply Side Economics is built on the premise that “If you build it, they will come.” In other words, directing money at the wealthiest fraction of people and corporations will provide more jobs. Let’s see how this plays out.

Imagine that you’re a multi-billionaire and the US taxpayers give you an additional million dollars. You already have just the right number of employees in your corporation. What would you do with your extra million? Hire more employees? Of course not, you already have the right amount. Would you pay your employees more? Don’t make me laugh. Would you provide more benefits or a better work environment for your workers? Of course not. If they’re content to work under the existing conditions, you wouldn’t waste a million dollars changing it.

So, what would you do?

The same thing our ultra-rich have been doing with their increased revenue, speculating. Over speculation in technology sectors was the primary cause of the dot-com bubble and burst. Speculation is the cause of last year’s oil price spikes.

In conclusion, Voodoo Economics causes no benefit to the economy by way of citizens buying more things and stimulating the economy, but cause devastating bubbles and bursts.

Is this starting to sound familiar, yet? It should.

We all know that economies are driven by supply and demand. The supply must balance the demand. When there is more supply than demand, prices drop and businesses go broke, laying off workers. When there is more demand (from increased middle-class wages, unemployment benefits, higher minimum wage…) than there is supply, prices go up and new businesses open up to provide more product, thereby causing the supply-demand dichotomy to balance and prices to fall back to normal.

So, if you were a governor in a state where the economy was failing, what would you do? Reduce the spendable income of the average person or increase it? What are the governors doing in the US? Many are cutting wages and laying off people. What is this going to do to the states’ economies?

Simple.

Next post, let’s talk about demand-side economics and see if this will really save us from the next Republican Great Depression or is it too late? What’s in store with our economy?

Governor Gibbons Failing at Record Rates
by
Dave Speck

It is almost a complete consensus that the only way we can dig ourselves out of the disaster of the past 25 years of Conservative rule is to put money in the hands of the spenders. It’s painfully obvious that the past 25 years of “Free Market” nonsense and “Free Trade” foolishness is coming home to roost. Thank you, Conservatives.

Paul Krugman has a good piece in the NY Times regarding the important role state Governors will play in the recovery process:

But even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers — state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.

These state-level cutbacks range from small acts of cruelty to giant acts of panic — from cuts in South Carolina’s juvenile justice program, which will force young offenders out of group homes and into prison, to the decision by a committee that manages California state spending to halt all construction outlays for six months.

Now, state governors aren’t stupid (not all of them, anyway). They’re cutting back because they have to — because they’re caught in a fiscal trap. But let’s step back for a moment and contemplate just how crazy it is, from a national point of view, to be cutting public services and public investment right now.

So now is the time to invest in the public – and what is Nevada’s Governor Gibbons doing? He’s trying to cut the pay of state employees, he’s cutting services that are intended to keep the most vulnerable in our society from suffering and dying, and he’s continuing the nausiating mantra, “no new taxes”. Sorry, Jim Gibbons, but everyone – but you – knows that your actions are the worst way you could handle this emergency. You’re a true Republican, through and through. Nevada! It should be painfully obvious to you by now that this man is in over his head. Time to remove him before he can do any more harm.

Bush’s Requirement – Lower the Average Middle Class Wage
by
Dave Speck

What happens when you have a mental midget running the country? You end up with what we have today. No wonder Bush’s closest friends call him 85. I’m sure it’s not because of his IQ. I couldn’t imagine him reaching above 75.

Anyone who has read any history knows what caused the first Republican Great Depression and it’s only painfully obvious that that’s the same that is causing this Republican Great Recession (hopefully not another Depression).  The cause? An imbalance between productivity and wages, or in simpler terms, supply and demand. Of course, there were other contributing factors like the run on the banks and no minimum wage. The run on the banks is more a symptom than a cause and the missing minimum wage is just more of the same supply and demand balance issue. Like the run on the banks a century ago, we are again failing to properly monitor and regulate the banks and investment institutions.

Let’s talk about the balance between productivity and demand in simple terms. Productivity is the amount of products that Americans make in a given time. In other words, supply. Demand is driven by low and middle income wage earners. When supply goes up and demand (aka wages) doesn’t, prices have to fall. Simple, yes?

A president like eighty-five will want to reduce the wages thinking that the consumer fairy will take care of buying up the excess supply. He probably also thinks he was chosen by God. Eighty-five.

So, what has Bush done? He is demanding that the United Auto Workers reduce their wages, bringing DOWN the average spendable wage in America. When the UAW workers wages fall, all the other non-union automaker wages will fall as well. So will the income at all the businesses relying on the auto workers and so on.

Just as an aside, remember the HUNDREDS of BILLIONS of dollars mysteriously given to the banks to free up credit? Wonder why it’s not working? The bank execs have skimmed off 1.7 BILLION for their personal income. I don’t remember giving them money to fatten up their coffers, do you? If anything, they should be penalized for being greedy and for helping cause this mess.

Back to the economy… When you give a billionaire $100 dollars, he pockets it; when you give $100 to a low or middle income family, they spend it immediately. Which one will stimulate the economy? Simple, yes? Even ol’ eighty-five could figure it out if he had half a desire to.

So, lowering the average wage of the American low and middle class worker will reduce demand even further and more prices will fall. If we continue to mismanage this disaster like Hoover, we’ll be in the next Republican Great Depression. The ONLY solution to this is to raise the average wage for American workers.

We can’t wait for January 20th to get Bush out of power. We need to tie him up in investigations 24 hours a day until the day he leaves office. Otherwise, he’ll only continue to cause America more harm.

Eighty-five.