What's Not So

Obama, Please Note: Here's How to Pay for the Stimulus

As the fiscal crisis deepens day by day, the question of how to pay for the stimulus needed to get us moving again is beginning to get some attention.  Many of us think the right formula is simple enough for a bumper sticker:

"Federalize the Fed - Grow with Greenbacks"

In other words, pull the power to create money back into the Federal government where it belongs.  Make the Federal Reserve a part of the government.  Raise banking reserve requirements to 100%.  Issue interest-free Greenbacks to pay for past, present and future deficits.

Doing this would leave us with no national debt, no interest payment on that debt, and a sustainable banking system.  All without inflation. 

If it seems too good to be true, it is - but only because Congress just won't do it.  After all, the Republicans are getting their economic advice these days from Joe the Plumber, and he is against having the government do much of anything at all, except fight some very expensive wars. And the bankers, who, sad to say, pretty much own both branches of the Republicrat party running the country, are mightily opposed to any such move because it would deny them the power to continue creating virtually all of our money out of thin air, as they now do.

Some of the folks who know that "Federalizing the Fed" is the right thing to do also realize it can't happen, so they have come up with a brilliant alternative that requires no Congressional action and so is much more feasible.  Rather than selling US debt on the soon-to-disappear open market for public debt, the government should borrow what it needs from the (non-Federal) Fed, just as banks and industrial borrowers have been doing.

For a very clear and coherent description on why we need to do this and how it would work, see "Monetize This!" by Ellen Brown.

It can't get this bad here, can it? CAN IT?

The collapsarians have long been with us, exemplified by the cartoon character bearing the sign saying "The end is near!"

A while back, grim survivalists were urging us to tuck in a year's supply of canned goods. We smiled at them then, but maybe it's time to take them more seriously.

Here is a link to a recent talk given by Dmitri Orlov, a Russian-American who thinks that a collapse something like that experienced in Russia in the early 90's  could well happen here, with some significant differences - like the fact that we are much less well prepared to scrape by on our kitchen gardens.

Enjoy!

(A comment from me was posted at 5:48 pm on 2/17.)

Lincoln, Obama and Patents

Lincoln is the only US president ever issued a patent.  Inspired by his days as a river boatman, his patent covered a system for pushing floats down into the water to decrease the draft of a boat to get it off a sandbar or to traverse a shallow stretch.  

But that wasn't the only patent Lincoln applied for. Years ago a Manhattan taxi driver informed me that he himself was an inventor, and had submitted several patent applications. One was for a comb that would dispense hair dressing from a built-in reservoir as you combed your hair.  His patent attorney reported that the patent office rejected his application because a flock of inventors had earlier submitted patent applications for that identical invention.  Among those earlier inventors of the comb with hair-dressing dispenser: Abraham Lincoln. 

(At the time, the taxi driver had his patent attorney working on an application for his latest invention: a road repair truck that would patch potholes on the fly as it moved along, so their repair would not block traffic. A row of sensors across the front of the truck would measure the roadbed, to instruct a set of nozzles amidships how much blacktop to dispense and for how long; at the back was a roller to flatten down the pavement as the truck moved along with the traffic.)

Lincoln believed in innovation, and he admired the way patents encouraged invention.  As he said in his Second Lecture on Discoveries and Inventions on February 11, 1859:

"The patent system... added the fuel of interest to the fire of genius, in the discovery and production of new and useful things."

About eight and a half minutes into his great Lincoln Bicentennial Day speech in Springfield, Illinois, Barack Obama included the latter part of this quote to show Lincoln's commitment to innovation, without making it clear that Lincoln was talking about the patent system.

Dissension about the patent system is yet another of the many storms confronting Obama as he takes office. Many frivolous Web-related patents were granted willy-nilly in recent years, inspiring some to fight for banning all software patents. There is danger that the baby may be thrown out with the bathwater.  

Obama, who quoted Lincoln so eloquently, should defend the patent system that Lincon admired and used, by opposing the proposition that we do away with it almost entirely in relation to the two most important innovations of recent times: the digital computer and the World Wide Web.

Obama's Best Speech Yet

Barack Obama has made some excellent speeches.  The Lincoln Bicentennial speech he gave on February 12 in Springfield, Illinois is by far his best yet, in my opinion. 

Every American should see it, especially those who believe viscerally that the government can do no good, that it is never the solution, always the problem.  Not that those who think this way don't have a point, but before they hew to it too closely, they should see this powerful statement of the case for the contrary.

http://www.cspan.org/Watch/watch.aspx?MediaId=HP-A-15599

A Big Meteor Has Hit the Earth. Don't We Care?

The underlying source of the economic meltdown is the mountain of debt that has buried us, and to resolve the crisis we must "Federalize the Fed, Grow with Greenbacks."

It gets your paranoia going to see our money system and the unpayable debt it has induced getting no notice in the press, no comment from the talking heads bloviating on television.  All their talk is beside the point, all about "left wing/right wing" political splits and attitudes, progressives reacting to Obama’s "centrism" and his attempts at "bipartisanship".

How much sense would such commentary make if it were in reaction to an earth-destroying meteor hurtling toward us from outer space? Would the news be all about Libertarians and Republicans arguing against "big government intervention", and urging tax cuts? Would it be cast as a "left/right" issue?

Fact is, the earth HAS been hit by a big rock--the mountain of unpayable debt that is crushing the world economy.  And we have a money and banking system that REQUIRES debt to keep increasing forever, an impossibility obvious to any high school student.

To get the economy moving again, we MUST issue Greenbacks and move to full reserve banking, and will probably have to do widespread debt forgiveness as well. 

Where is the discussion about this?  Where IS “The New Thinking on the Economy?” Why don't we see articles written by Stephen Zarlenga or Ellen Brown?

Even Dean Baker, who is right about so many things, thinks it is OK for the Fed and the banks to issue all our money under a system requiring debt to increase forever, as long as its done "transparently" and with "proper regulations".

Can a Stimulus "Jumpstart" the Economy?

Though they differ over details, Democrats and Republicans agree that a fiscal stimulus is necessary.

Could it be necessary, but not sufficient?

It will be insufficient if the underlying cause of the present crisis is debt so swollen that it is stifling the economy, as seems likely. Then a stimulus and bank bailouts alone won’t fix what is truly broken: excess debt choking our money and banking system. That system requires ever increasing levels of debt, which cannot grow forever. Lenders must eventually run out of creditable borrowers. When banks could find no new creditable borrowers, they began lending to people who obviously could not pay back their loans. Hence the housing crash that precipitated meltdown of the entire banking system.

The current credit crunch may well be the inevitable end result of a debt buildup that has been going on for hundreds of years. This crisis may seem unprecedented for the simple reason that it is, at least in recent times.

Moses brought down from Mt. Sinai, in addition to the Ten Commandments, other new rules for the Israelites, including a rule calling for widespread debt forgiveness during the Jubilee celebration every 50 years. (See Leviticus in the O.T.)

Why did Moses impose debt forgiveness? Because he noticed that under the prevailing norm (“them that has, gets”), money flows inexorably from the many to the few.  Eventually, wealth becomes concentrated in the hands of a very few, and many people are saddled with unpayable debts. Then,  economic activity freezes up. 

Sound familiar?

As in Biblical times, widespread debt reduction may be needed to get the economy moving again. Nowadays debt can be reduced by one or more of these mechanisms:

• Inflation. (Much higher than we have recently experienced but well below hyperinflation, which of course wipes out all debts.)

• Steeply progressive taxation and redistribution of wealth. (Joe the Plumber opposes this, and Republicans now go to him for advice on matters economic. They used to get identical advice from Phil Gramm, so they find his ideas agreeable.)
• Widespread debt forgiveness. (Be on the lookout in coming months for the word "Jubilee".)
• Revolution. (As in France and Russia.)

Inflation, taxation, debt forgiveness, or revolution. Take your pick.

The Healthco Lobby Rolls On

A conference on healthcare will be held in Boston on February 26:

"The Transforming Healthcare Summit 2009: Impact & Opportunity in the Obama Plan"

This is clearly part of a well-oiled effort by the healthco lobby to steamroller acceptance of the “Obama Plan”, which will increase subsidies, taxes, mandates, intrusion into our personal lives, industry regulation, and the total national cost of healthcare.

The Obama Plan will still leave many without insurance, and many who think they are insured will still be forced into bankruptcy by unpayable medical bills.

And it will discourage employers from providing healthcare coverage, because each employee can have a different “portable” insurance policy, with different benefits and carriers---an administrative nightmare.

But it will increase revenues and profits for the healthcos, so, obviously, it's what we must have.

After all, the healthcos have succeeded in making Medicare For All “politically impossible”, even though it is favored by clear majorities of both citizens and physicians.

The healthcos have done so by diverting a small part of the $3 billion per day their customers pay them into a potent stream of money they use to buy or frighten off most politicians (legally, one assumes). So, where does the healthco lobby get the money it uses to persuade or threaten politicians to act against the expressed desires and interests of healthcare policy holders? Why, from those very same policy holders. Is that nefarious, or what?

Joe Biden was at least honest about his position. When asked why he did not favor Medicare For All, he said: "Look, I'm not crazy---I don't want to be eaten alive by Harry and Louise." Thus, he publicly admitted that he lets the healthcare lobby dictate his stand, because he fears its clout. A true Profile in Cowardice. 

In the hoo-ha about Daschle’s withdrawal, NPR mentioned today, as kind of an “oh, by the way,” that Daschle has been receiving “speaking fees” from health insurers. 

Perhaps Obama will select a replacement for Daschle from the list of speakers the healthcos hire for their conferences.

Just don't expect the new Secretary of HHS, or Biden, to reflect the desires of the electorate. Or Obama to do so either, unless a great mass of us shouts out to make very clear that we want single payer healthcare and must have it. Although even President Obama must bow to healthco clout, he will do what he knows in his heart is right---but only if we make him do it.

The best alternative to “The Obama Plan” is HR 676; see “A Second Opinion”, by Dr. Arnold Relman, former editor of the New England Journal of Medicine. Neither he nor anyone else will be on the Healthcare Summit platform on February 26 to state the case for Medicare For All. The healthcos wouldn’t like that.

Sure, "The Obama Plan" for healthcare is a travesty, but money talks, and the healthcos have the money, don't they? Enough to have four healthco lobbyists for every person in Congress, running around Washington with satchels full of cash they dispense to compliant politicians.  Those they can't buy, they scare.

But more than 90 members of the House are standing up to them, signing on as co-sponsors of HR 676, Medicare For All.  Meaning there is still hope for healthcare change we can believe in.

"Complex Models" did not Cause the Crisis

Arianna Huffington, at Davos, explaining why she passed on attending a series of sessions devoted to dealing with complexity:

"I get that complex models that no one entirely understood got us into the mess we are in...", 

No, those complex models did not get us into this mess. They just obfuscate something very simple that did. As can be explained by any high school student, compound interest leads inevitably to increasing inequality of wealth, because "them that has, gets."

Once a critical mass of people are reduced to debt serfdom by unpayable debts while the rich keep getting richer on unearned income, the economy grinds to a halt, because total debt cannot keep increasing forever. Nothing can.

Even the ancients understood this very simple "economic model", hence the many religious proscriptions against usury, i.e., lending money for any interest at all, not just high rates. One cure for economic strangulation by excessive debt was widespread forgiveness of debts during the Jubilee celebration every 50 years (see Leviticus). (The alternative they sought to avoid was economic collapse and debt repudiation via revolution. Tsarist bonds, anyone?) 

If you think better regulations could have prevented the current meltdown, you do not understand the problem. We are buried under a mountain of debt, and no combination of bailouts, stimulus packages and regulation reform will fix that. Economic recovery will require significant debt reduction via wealth redistribution.

What will have to take place is some combination of widespread debt forgiveness, substantial inflation of the currency, very steeply progressive taxation of both income and wealth plus wealth redistribution, or repudiation of debts via revolution

Take your pick.

12 Questions on the Economy for Journalists

Arianna Huffington reported from Davos the dark mood she encountered among a group of journalists about the failure of their reporting on the economy:  “There was the sense that many had missed the boat, failing to ask the tough questions…”

 

And they STILL are failing to ask the right questions. How about these:

 

1. Don't both lending at interest and fractional reserve banking cause money to flow inexorably from the many to the few ("Them that has, gets"), inducing ever increasing inequality of wealth?

 

2. And don't both REQUIRE that total debt keep growing exponentially?

 

3. Can total debt increase forever?  (Kenneth Boulding once said that anyone who thinks that exponential growth can continue forever in a finite world is either a fool or an economist.)

 

4. Could the bank failures and credit crunch we are seeing now be caused by an inability to find any more creditable borrowers? (In November, Hank Paulson called for making it easier for banks to issue credit cards, because increased credit card debt would "help".  Help what?)

 

5. Once a critical mass of people enter  "debt serfdom" with unpayable debts, isn't the only solution a massive reduction of debt?

 

6. And hasn't such massive debt reduction happened historically either by widespread debt forgiveness (see the O.T., Leviticus, and "Jubilee"), or by revolution?

 

7. Nowadays we can also reduce debt by inflation and by steeply progressive taxation and redistribution of wealth. Which one or more of the four possibilities do you think will happen this time: inflation, taxation and redistribution, massive debt foregiveness, or revolution?

 

8. Is fractional reserve banking finished? (It can easily be shown to be unsustainable, inexorably leading to the kind of meltdown we are seing now; why not replace it with something sustainable---like full reserve banking?)

 

9. At present, we fund federal deficits with money borrowed at interest. Why do we pay interest on money we let the banks create out of thin air? Why not print interest-free Greenbacks, as Lincoln did, to finance future deficits and even to retire the outstanding national debt?

 

10. Every major religion in the past (and still, for Islam) has forbidden Usury--the lending of money at interest.  Why?

 

11. Should we consider  moving to "Islamic Banking"? (i.e., lending with fees but no interest?

How else can we prevent compound interest leading to a few owning everything?)

 

12. A primary responsibility of the Fed is to prevent inflation.  So why does a three cent stamp cost 42 cents? (This is a trick question, because the standard (and wrong) answer is that those pesky politicians keep incurring deficits, requiring the floating of new debt, which induces inflation bravely fought by the Fed. If so, why has the Fed, in the past, asked the government to float new debt, even though it was not needed for the budget?)

 

Each of these questions deserves comment. See future posts. 

Can Solving the Financial Crisis Be This Simple?

Since my earlier blog post on the current crisis, I have been digging into the analysis and solution proposed by a group whom I call the “Fiat Money/Full Reservists”, or FM/FR people. These are critics of the present money and banking system who are NOT gold bugs insisting on “solid money, backed by gold”.  (The gold bugs are the most numerous and vociferous critics of our present money and banking system; their position has been well countered by many mainstream economists.)

Instead, the FM/FR folks propose a disarmingly simple solution to our financial crisis: buy back our national debt with Treasury-issued "fiat" money AND simultaneously increase required banking reserves from 10% to 100%.

 

In 1 or 2 years, we would:

1. Have no National Debt. It would be extinguished, without inflation (the inflationary effects of issuing fiat money would be offset by the money CONTRACTION caused by raising reserve limits for banks;

2. Accrue no more interest on that debt, thereby eliminating the annual deficit (now about equal to interest on the Debt).

3. Have installed a SUSTAINABLE full reserve banking system– as championed by Ben Franklin and which prospered for many years, until Hamilton and the fractional reservists won out and sent us in the wrong direction.  Fiat money (Greenbacks) issued by the government, not banks, is how Lincoln successfully financed much of the Civil War.

4. Escape the current economic mess, which may well be the final collapse of the ultimately unsustainable 300-year old private fractional reserve banking system.  Fractional banking can prevail only with ever increasing levels of debt. It is doomed to collapse when creditable borrowers can no longer be found, as now.  (I thought unqualified subprime borrowers were the final dregs, but Paulsen on November 14th called for increased consumer credit card debt.)

Here's the best of what I have found on all this so far on the Web:

 

An eye-opening video exposition of our money and banking system. Watch this first.

 

Ellen Brown’s Web site around her fascinating book, “The Web of Debt”. Read the Introduction and Chapter One on her site.  “The Wizard of Oz” was all about money and banking?  Who knew?  In her book, available on line, Ellen advocates the FM/FR solution, and even argues for socializing much of banking.  Were that to be done, she argues, the government, rather than banks, could collect interest for lending activities, and that income would enable elimination of the income tax.  In all: no national debt, and no income tax.

 

A very informative mini-series video is available free, and is also purchasable as a DVD. This video and the money masters Web site http://themoneymasters.com reveal US history through the lens of money and banking conflicts once at the forefront of US politics and now almost unknown.  They then prescribe the "cure" for our ills: fiat money and full reserve banking---FM/FR. 

 

Stephen Zarlenga's American Monetary Institute is the foremost institutional advocate of Fiat Money/Full Reserve. Note Kucinich's Nov. 4 victory speech excerpt on this site. (Dennis first met his wife Elizabeth when she accompanied Zarlenga to his Congressional office in support of FM/FR).

 

Also see the Wikipedia articles on Full Reserve Banking, Fractional Reserve Banking (less good), and Monetary Reform.

 

I am troubled that the Fiat Money/Full Reserve advocates are almost all "amateurs", not front line academic economists (except Milton Friedman(!)), and some veer off into conspiracy theories. But I have not been able to find a cogent refutation of their analysis or of their proposed solution, which sounds too good to be true. 

 

Is it? I need help understanding why it WON'T work.

 

Please let me have your thoughts and findings about all this.