Even the Chinese Know It

Featured Products and Services by The Garfield Firm

LivingLies Membership – Get Discounts and Free Access to Experts

For Customer Service call 1-520-405-1688

Editor’s Comment:

AUSTERITY MEANS “PROTECT THE BANKS AND SCREW THE PEOPLE”

The Financial Times ran an article 2 days ago about the Chinese being encouraged to spend more aand save less. I’m no fan of China’s political system, or even its economic policies (which come to think of it are the same thing, as Von Mises points out). As we look around the world and see Iceland prospering, China’s growth slowing to a mere 8% while our REAL GDP is still negative or by the reckoning of most economists, headed into downward territory. These propering countries who have concentrated on stmulating the rate of commerce (i.e. the economy) are the countries that are reducing debt (Iceland is now at the point where more than 25% of household debt has been eliminated not with spending fiscal stimullus money but with pressure on the idiots that got us into this messs- the banks.

Then look at the countries who are effectively governed by the banks, directly or indirectly— like US and Europe. They stand in stark contrast to Iceland and China. We are headed into what is called a “double dip” recession as though we would have hands up with ice cream cones in them, but the truth is that these recessions is literally taking food, medicine, and clothes off the table while they send their children into schools that are no longer able to teach and are located in neighborhoods that are less safe from criminal activity and the occoasional warehouse fire all because of “austerity.” Such neighborhoods are also less familiar and less appealing than the ones they got thrown out of after being tricked into using a home in which generations of their family grew up as the source of cheap capial encouraging, cajoling and pushing them with literally midnight visits to get them to sign on the dotted line to purchase a defective, fraudulent loan products whose purpose was to fail.

As we look at those countries who have adpted the politics and economics of austerity (“less spending” or “spending cuts” as it is known in the U.S.) the consequences could not be more clear — austerity, spending cuts, less spending, get the government out of the way are all slogans  that are leading us into disaster. And they are all spoken by people who are owned and controlled by the banks. And at the risk of offending my readers with political statements, Obama was exactly right when he said that the purpose of government was not to turn a business profit like Romney said he did (my sources tell me that Mitt was a figurehead running for president and they were making him look good, not that he was actually of any value). Obama correctly points out that government’s purpose is to maintain a society in which everyone gets a fair shake and a fair shot at the brass ring. Thus government is not for the rich who already got wealthy but for those who have not yet  achieved wealth. And this is because history teaches that no society has ever endured without a strong middle class.

This country needs to revive its economy by having more people spend more money. The obstacles to that are that too many people have no money, no  credit and no jobs. This is the time to divert the corporate welfare of farm subsididies and oil subsidies and the like to those programs that will give all our citizens a fair shake and a fair shot at success.

Like Iceland, the way to increasing the value of our currency, the way to prosperity is to reduce household debt. And the biggest item here that not only decreases household debt but increases household wealth is to return the homes that were wrongfully foreclosed and not to give a pittance of money to the victims with a slap on the wrist to those who stole the home with a credit bid when they were not only not the creditor, but they had never invested a dime in purchasing the loan. That used to be illegal. Wait a minute, it still is illegal. So why are we allowing the banks to continue this charade and why does the government, including Obama’s administration, drag its feet in taking apart these monsters that destroyed our economy? Why is the administration assume that the 7,000 OTHER banks and credit union wolld not prosper and enter into tacit agreements to keep the government afloat while we wait for the stimulus to take effect?

There is no expert or pundit that says we are wrong. All the banks have been able to do is to roll out doomsday sayers who say that if we follow the law we will be headed for disaster. Well take a look.  Disaster is here. And the Dow Jones Industrial Average is not a proper indicator or substitutute for people who can’t put food on a table that is now located in a dwelling that the rest of us would not even consider — their car.

We choose instead to protect the banks at all costs and we call that austerity because where else is the money going to come from except the banks who siphoned it out illegally? That is our policy, our politics and our economics. And while our soldiers risk life and limb because their country called them to duty, their families were being foreclosed, some at the precise moment they were taking a shot in the leg or heart for us. Is this the society we sent them to fight for?


Common Sense Revisited: Securitization and student Loans and Other Matters

Common Sense Revisited: The current crises in reform of student loans, health-care, financial services, prisons, pharmaceuticals, and dozens of other things stalled on the table by an artificial definition of “majority” as 60% instead of 51% lies at the heart of our problem. It isn’t that one policy is right or another is wrong. The problem is that there is no real debate, vote or action.

Here is a simple proposition: A government policy intending to deliver a direct benefit to taxpayer/citizens MUST be delivered by a government agency. All other activities performed by the private sector must be subject to oversight and some regulation so there is a referee on the playing field.

Common sense proves the point with relentless precision. Suppose we violated this simple premise again by “privatizing” fire or police services. Privatizing a social service is exactly the same as delivering a choice to an intermediary as to whether to deliver the service or put the money in their own pocket. The outcome is obvious.

Whether it is student loans (see below),health-care, financial services, prisons, pharmaceuticals or anything else the effect of delegating government or social function to private interests can ONLY lead to one result — reduction of services, increased costs, and increased profits to intermediaries who add nothing to the process.

Here is an example: SECURITIZATION of STUDENT LOANS DEFEATS THE WHOLE PURPOSE OF THE PROGRAM BUT SECURITIZATION OF STUDENT LOANS IS THE INEVITABLE BY-PRODUCT OF DELEGATING A GOVERNMENT OR SOCIAL POLICY TO PRIVATE BANKS.

IF YOU LOOK CAREFULLY YOU’LL SEE THE SAME NONSENSE AS SECURITIZATION OF HOME MORTGAGES:

COMMON SENSE REVISITED

  1. For those who are academics a quick review of the economists Von Mises and Rothbard you will see that for decades there has been a whole school of economists who have equated economics with politics and politics in turn being the tool of economists.  With respect to the student loan program, the proposal back when this program started was based on the following suppositions:
  1. The use of private infrastructure would result in a more efficient system.
  2. The use of private sector banks would result in proper underwriting of loans since the banks presumably know how to make and underwrite a loan.
  3. The use of taxpayer money to guaranty against default diminished the risk to “quote nearly zero” thus encouraging banks to become involved in the student loan program.
  4. The use of taxpayer money in fees and grants to the private intermediary banks who were inserted into the process would further “encourage” student lending.
  5. The legislative imperative in the bankruptcy law preventing students from discharging their obligations under private student loans would further diminish the risk to private banking lenders and encourage them to participate in the student loan program.
  6. The conclusion was that everyone makes money, we get more college graduates, a booming economy results from a highly informed labor force, job growth would inevitably result, along with higher wages, more consumers with more money to spend, greater innovation from well rounded college students, more students getting advanced degrees and the ultimate result of the United States continuing as the No. 1 country in everything everywhere.

The assumption that using private infrastructure is more efficient is simply an ideological myth.  A quick look at the privatization of prisons clearly shows that privatizing infrastructure results in higher costs, more laws, more government, and the creation of a private sector accruing profits that would otherwise be translated into lower taxes for the citizens.

The use of private sector banks inserted into the process of student lending on the premise that they know how to make a loan is similarly a myth when you add the other features of the student loan program.  Through securitization like in the securitization of private home loans, the banks were inserted into a process where the initial premise was that they might have a risk.  In fact thorough securitization and the other features of the student loan program, the originating lender had no risk at all.  Thus the other features of the program should not have applied and, I would argue, do not apply if challenged properly in bankruptcy court or in state or civil court proceedings.

In fact these banks were not making the loans, they were simply passing on money from sources outside the transaction who were not identified or disclosed to the student at the time of the loan.  Like the home mortgages, students were lured into what appeared to be low payments only to find that their payments later skyrocketed along with interest rates that sometimes reached 16 percent or 18 percent per year.

Thus in a securitized student loan, just as in a securitized home loan, there never was a risk assumed by the mortgage originator nor any of the other intermediaries (including the investment banker who originated the securitization chain) and the guaranty from the federal government and protections against discharge in bankruptcy were waived at the time of the organization of the transaction because the risk presumed to exist on the part of the lender never existed.

The use of taxpayer money to “encourage” student lending merely amounts to another government program creating a giant at the taxpayer troth where they made a fortune in fees without risk.  The numbers just don’t add up.

The ultimate conclusion that the results would benefit society and the students has been disproven.  While there were many people in the private sector who made a great deal of money from the unwitting students who entered into these private student loans and from the government who paid the private sector banks to enter into these transactions, the rest of the benefits for the most part never materialized.  In fact, the numbers don’t add up today.  Getting a college degree on private student loans leaves the students in a state of virtual permanent economic slavery under a debt which will never be repaid.

February 5, 2010

Industry Lobbying Imperils Overhaul of Student Loans

WASHINGTON — Four months ago, it appeared all but certain that the White House and Democrats in Congress would succeed in overhauling the student loan business and ending government subsidies to private lenders.

President Obama called the idea a “no-brainer” last fall, predicting it would take billions of dollars from the profits of private lenders and give it directly to students, and many colleges were already moving to get loans directly from the federal government in anticipation of the next move by Congress.

But an aggressive lobbying campaign by the nation’s biggest student lenders has now put one of the White House’s signature plans in peril, with lenders using sit-downs with lawmakers, town-hall-style meetings and petition drives to plead their case and stay in business.

House and Senate aides say that the administration’s plan faces a far tougher fight than it did last fall, when the House passed its version. The fierce attacks from the lending industry, the Massachusetts election that cost the Democrats their filibuster-proof majority in the Senate and the fight over a health care bill have all damaged the chances for the student loan measure, said the aides, who spoke on the condition of anonymity because they were not authorized to discuss the matter publicly.

But they said the administration had recognized the threat and was beginning to push back in an effort to get the plan approved.

Sallie Mae, a publicly traded company that is the nation’s biggest student lender with $22 billion in loans originated last year, led the field in spending $8 million on lobbying in 2009, more than double the year before, and other lenders spent millions of dollars more, according to an analysis prepared for The New York Times by the Center for Responsive Politics.

Political action committees for the lenders and company employees made $2.1 million in political contributions last year, with the money split evenly among Democrat and Republican candidates, the data showed. Sallie Mae’s PAC alone made $194,000 in donations.

Some 10 million students got loans last year to help pay for their educations, and there is disagreement about whether having the federal government take over virtually the entire lending program would help or hurt them. Private lenders warn that students may default on their loans more often because they will get less counseling; the Obama administration says students will benefit from more grants and expanded educational programs.

A defeat for the White House at the hands of the industry could become further evidence of the administration’s sagging political fortunes. The unexpected loss of the Massachusetts Senate seat has given opponents of the lending plan an opportunity that seemed unlikely last September, when the House approved legislation to move to a federally-sponsored loan program.

The student loan industry, which would be forced out of the loan origination business if the proposal became law, is seeking to cast the administration’s plan as an ill-conceived government takeover that could put thousands of people out of work at private lending centers around the country at a time when unemployment is hovering around 10 percent.

“We anticipated this,” Arne Duncan, the education secretary, said of the lending industry’s lobbying efforts. “They’ve had a sweet deal. They’ve had this phenomenal deal that taxpayers have subsidized, and that’s a hard thing to give up.”

Private lenders get a cut of the federally backed loans that they originate and service, with little risk of their own. At Sallie Mae, lobbyists for the firm are focusing on senators regarded as fiscal conservatives, as well as those in states that are home to lending centers with jobs at stake, including Florida, Illinois, Nebraska, New York and Pennsylvania, said John F. Remondi, chief financial officer for the company.

Student loan lenders employ about 35,000 people around the country, although estimates differ as to how many jobs would be eliminated if the federal government took over all direct lending on student loans.

“We haven’t left any stone unturned — we’ll meet with anyone who will meet us,” Mr. Remondi said in an interview. “We’re trying to identify at least 12 senators who would be helpful in this process.”

At the same time, Sallie Mae and other lenders have staged a series of town-hall-style meetings at their job centers around the country to help mobilize opposition to the White House plan and collect thousands of signatures for a petition drive in support of their own plan.

“I would think that the White House would prefer not to make senators vote for something that is going to be very unpopular in their states — and for good reason,” said Jamie Gorelick, a former Clinton administration official who is now lobbying for the lending industry.

Mr. Obama defended his plan last week in his State of the Union address.

“To make college more affordable, this bill will finally end the unwarranted taxpayer subsidies that go to banks for student loans” and use the savings to finance other educational programs, he said to cheers from Democrats. “In the United States of America,” Mr. Obama said, “no one should go broke because they chose to go to college.”

The money that would be saved by cutting out the private-industry middlemen — about $80 billion over the next decade, according to a Congressional Budget Office analysis — could instead go toward expanding direct Pell Grants to students, establishing $10,000 tax credits for families with loans, and forgiving debts eventually for students who go into public service, administration officials say.

The bill would also shift tens of billions of dollars in expected savings to early learning programs, community colleges and the modernization of public school facilities.

Representative George Miller, the California Democrat who has led the fight for the lending overhaul as chairman of the House Education Committee, predicted in an interview that the plan would ultimately pass.

“If people want to lose $80 billion on the taxpayer’s dime for the very narrow interests of Sallie Mae, I guess they can decide that, but it makes no economic sense to me,” he said. “They had a great ride for years.”

If Congress backs Mr. Obama’s proposal, opponents say that students will forfeit the individualized service that private lenders are better able to offer: a one-on-one meeting in a high school gym, a range of loan options to pick from, or an 11th-hour meeting to avoid a default. The lenders have offered an alternative proposal to retain a more active role in originating loans, which they say would generate significant federal savings — $67 billion in the next decade, according to the Congressional Budget Office.

Some financial-aid administrators at colleges around the country say they are worried that the political uncertainty over the loan proposal and the one-size-fits-all approach of the White House’s approach could hurt colleges and students.

“We’re caught in a political struggle,” Caesar Storlazzi, the chief financial aid officer at Yale, said in an interview. Like a wave of other colleges in recent months, Yale decided in November to switch from private-sector loans to the federal government’s direct-lending program.

But with passage of the White House plan now appearing “less inevitable,” Mr. Storlazzi wonders whether keeping the private lenders in business is better for students.

“It really felt like the administration was just shoving this down our throats,” he said. “It feels a bit like a federal takeover.” With competition among lenders, he said, “We get better prices and services.”

Statistics, Index, and the Power of Information

CONVERSION FROM INDEX TO REALITY

Obama’s call for “TRUTH” is a simplified statement that calls into question the manner in which information is collected, the way it is presented and the manner in which it is disseminated to the public. 

Underlying this simple call for integrity is his assessment that information flow is fundamentally flawed and that a much needed correction will result in smarter policies that people will give credence to and lend their active support; and that the self-fulfilling negative prophecy we are all living can be turned into a positive climb in quality of life. If you already believe this and understand it, there is no need for you to read this article. If you think his statement is mere lofty rhetoric, you might want to consider my presentation here. For those who want further information, look for books by Von MIses and Rothbard.

The tools of power are all based in information. If the information seems reliable, then the policies foisted on us seem reasonable and even “right.” The basic tool in use today is the statistical index. There is something about an index that when published gains the credulity of the public and even those who know better. It is like a self-fulfilling prophecy.

American political and economic history can be viewed from many perspectives and themes. One of them is the ebb and flow of our collective perception of people, regarded sometimes as labor, sometimes as capital and sometimes not at all. 

The current business, economic and political environment has failed to advance or evolve very much for most of the people of the United States, even though women received the right to vote some 80 years ago, and blacks received the right to vote some 40 years ago. 

The tendency of certain people to accumulate great wealth and power in any society of any nature inevitably produces an inequality not only of results, but of opportunity. American voters, deprived of the education and information they need to know to make informed decisions, are easily manipulated into voting against their own interests.  An educated voter is a nightmare to any power broker, economic cartel, or political cartel.

When adults cannot find states, cities or even continents on a map displaying all the information with proper labeling, it is not hard to see how such people can be easily deceived. And those with power and wealth are eager to deceive them, gaming the electoral process into a utility to maintain and expand their wealth and their power.

The tools of power are all based in information. If the information seems reliable, then the policies foisted on us seem reasonable and even “right.” The basic tool in use today is the statistical index. There is something about an index that when published gains the credulity of the public and even those who know better. It is like a self-fulfilling prophecy. 

Whether it is Libor, the inter-bank lending rate index, the CPI, which supposedly measures inflation for consumers, or the indexes used to measure market dominance, we have drawn artificial lines in the sand which allow those in power to continue on their merry way while the rest of us wonder what hit us. 

 

  • The reality is that Libor, bond ratings, measurements of consumer prices, measurements of those employed, measurements of those unemployed, measurements of those underemployed, productivity, and unfair trade practices are all at substantial variance with reality. Thus the mortgage meltdown, the recession, and another opening of Walmart that kills thousands of jobs, hundreds of companies, thousands of opportunities for innovation, and diminishes our choices to dangerous or inferior products with virtually no service inside the store and no assurances of fair treatment once a sale has been completed. 
  • Walmart is able to achieve this feat and become one of the largest companies in the world by converting labor back into capital despite the 13th Amendment. As with all companies of great wealth they were able to purchase the rights to make their activities legal. In reality, those of us who live in the world created by this cash carry government policy making, we see that there is complete 100% market dominance by Walmart in each town it hits. 
  • But statisticians for Walmart just like the statisticians for the drug companies, look for a sampling that gives them the arguable position that what we see right in front of us, just isn’t there. We are deceived, or so they say. We are not looking at the “big picture.” True, nor should we look at THEIR big picture if we want OUR lives improved. There should be a healthy competition between accumulation of wealth and quality of life. In truth, we are at the bottom of the barrel on the level of that all-important competitive “index.”
  • By expanding and contracting the area “affected” by a Walmart store one can present a plausible argument that there is no significant effect on competition. We know different but there it is right there in black and white, by the numbers. 
  • By contracting the sampling on a drug study to a specific period of time where nothing adverse happened to patients taking the experimental drug, the drug is pronounced safe and then tens of thousands of people die because it wasn’t safe, as the REST of the data clearly showed. Management of disinformation is the way we are manipulated into voting against ourselves. Political slogans emanate from false statements from apparently reliable sources. And we are all deceived.

 

  • By hiring all graduates of regulatory agencies when they retire, a retailer or drug or oil company guarantees that the regulators will not look too deeply into the manner in which such an index is presented. Plausible deniability is the name of the game. The result is you and I get screwed. That is the story of antitrust, the FDA, and dozens of other agencies serving the business sector  to the nearly complete exclusion of the safety and welfare of the taxpayers in whose name they operate. It is the equivalent of a hostile takeover of government where the cash and carry system of legislation perpetuates not merely inequality but threats to the safety and welfare of our citizens.

“Inequality” (regardless of how you define the word “equal”) does and will exist in the most despotic regimes following ideology from Marx to Plato’s progeny producing the likes of John Locke and the scholars of the American Revolution. No regime can provide or assure a specific outcome for the life of one or any of its citizens. This article takes no issue with the inevitability of inequality.

Yet we have an innate sense of right and wrong even when we do wrong. We know that “all men are created equal” has a meaning even if we can’t all agree precisely what that means. We know that the U.S. Constitution was written to provide a framework for liberty and freedom but not for women, native Americans and slaves. Women and native Americans counted as zero and black slaves pulled slightly ahead of women at 3/5 of a person, as stated in our constitution. 

When the American Slaves were freed about 160 years ago it was, in an economic sense, a conversion of capital into labor. 

Slaves had been purchased and traded like bales of cotton or rice or tobacco; they were property, they were allowed no education, no free will, and of course no bargaining power. How would anyone go about “educating” a bale of cotton? It makes no sense. While mystics ascribe a soul to everything, whether we think it is alive or not not, most of us are quite tolerant at denying rights to a bale of cotton, even if it is burned, torn apart are thrown under a bus. In a word, if the cotton “feels” anything, we don’t care and it isn’t likely that we will care anytime soon or that we should. Something in most of us “knows” that the cotton is not worthy of our sympathy, nor do we sense any obligation to it.

The system made perfect economic sense: the cost of production was reduced to the absolute minimum, repairs of equipment and “other capital” (like slaves) were repaired until they were of no further use at which point they were discarded. And unlike other forms of capital, slaves reproduced, thus continually expanding the potential for production without further capital expenditures. 

Society organized around this system in such a way that no actual person worked, without being regarded as disgraced. Plantations were worked by slaves, managed by slaves and the wealth generated went exclusively to the Plantation owner. The threat of removing this system, depriving the owners of their possession of slave capital was a threat to the entire way of life that had evolved over 200 years. 

It makes sense only if you look at some data and not look at other information. The slave capital system was missing a key ingredient — a prospering rising middle class. The non-slave states had it and they did far better in the long run than any of the slave states many of which are still, 160 years alter, at the bottom of the barrel economically and in quality of life. Their resistance to allowing education to a significant population of former slaves was the equivalent of shooting themselves in the head.  It was an all or nothing mentality. Either the slaves would provide free production or we won’t help them do anything. 

The “information” Southerners were working with was that blacks were less than human. They thus deprived themselves of the single greatest resource they had to compete in a national economy and eventually internationally. Politicians looking for power found it easy pickings to tease voters into anger and resentment about the Civil War, about slavery, and about Jim Crow segregation. The politicians objectives were simple: maintain power. The rest of the people be damned. (which at the risk of political incorrectness, makes the Reverend Wright’s comment plausible, even if ill-constructed. He wasn’t wrong in what he said. Yet he missed an important point: 40-160 years ago he would have been tortured and hung for making a statement that passed only as a news story now).

The importing of tens of millions of Mexican laborers who had “illegal” status is an inevitable result of big business’ realization that the lock on the poor white and poor black populations was loosening. The grip of fear of discovery gave the leverage needed to convert these workers from labor to something as close to slave capital as would be tolerated in our society.

The mortgaging of America’s future, with all the inevitable taxes that implies, the culture of debt rather than savings, and the withholding and diminishment of education through all walks of life in America is the policy behind the tools of our re-enslavement. The risk now is higher and more widespread than in the 1790’s when women, slaves and native Americans were already discounted capital. Now the government and the business sector have us all targeted as potential “capital” instead of unhappy black men caught like animals and transported like capital with acceptable losses at 1/3 of the cargo. 

And the only thing that can stop them is a reversal of the institutionalization of ignorance. We have accepted too long the notion that we don’t know anything but that’s OK nobody else does either. We should all know more than we do, We should all treat life as an opportunity to educate, train and better ourselves. If we do, then everyone wins, including the business sector which needs the rising prosperous middle class to do business, whether it is here or abroad. Why don’t they know that? Because like you, they are just people trying to get the most they can right now. That’s human nature. That is the American way.

Treat every index with suspicion. Test all information against your own anecdotal experience. And don’t let anyone tell you they know more about your life than you do.

Mortgage Meltdown + Inflation + Dollar Devaluation

Trouble for American Consumer is building and the perfect storm threatens our tenuous economy. 

DEEP RECESSION LOOMS WITHOUT FUNDAMENTAL CHANGE IN OUR POLITICS AND ECONOMIC POLICIES

 

The inevitable outcome was always the same: eventually we would hit the the top, like in any Ponzi scheme. 

Consumers, who maxed out their credit cards, and maxed out their borrowing on their homes, and maxed out on their purchasing power which has declined significantly over the same 25 year period, and who are vastly unemployed or underemployed (further decreasing their wages and purchasing power), and maxed out their borrowing from consumer finance, and even maxed out their short-term borrowing through pay day lending and overdraft privileges and eliminated their savings plans, have reached the point where (1) they can’t buy anymore “stuff” and (2) they don’t want to. 

 

The end result is that we have spent ourselves and our country into a hole, diminished our standing in the world, and we continue to insult the world by asserting a dominance that was once real, but isn’t anymore. And the world is telling us as politely as possible to shove it. 

The strength of the Euro, the movement amongst the oil producing countries to create a unitary currency for the Gulf countries and other trends around the globe all spell the same thing: everyone is looking for an alternative to the U.S. dollar and an alternative to the U.S. altogether. We have brought ourselves and the world to neither peace nor prosperity, and neither security nor safety. 

 

Asian inflation which is gearing up to be as bad as we have seen in any emerging economy is starting to hit wholesale prices. Rising costs due to rampant and growing inflation in countries that had before been “cheap” producers is hitting hard on products purchased here in the U.S. 

 

Add to that the more or less daily devaluation of the dollar and the effect is multiplied. Add to that mixture the further devaluation of the dollar caused by the mortgage meltdown where central bankers are converting their dollar reserves to Euros and the effect is further increased.

 

The headlines in most papers is the end of the free ride we had for a long time where the dollar was king and we could purchase imports more cheaply because dollars were in great demand. 

Our headline here is that we are headed for the deepest recession since the greatest depression

 

The reasons are many but all fairly simple. The United States converted from being a nation of production to a nation of consumption. The final nail in the coffin of this unfortunate conversion was the advent of credit cards — not at their inception — and the high interest rates that were institutionalized during the double digit prime rate days 25 years ago. The theory was that the credit card companies were under hardship because it cost them more to get capital to lend than they could get under usury laws, once you factored in defaults and the extremely high interest rates that the issuers had to pay. But when rates went back down to modest figures of around 7% prime rate from highs of 22% credit card companies were allowed to keep their rates at 21-22% and eventually raised those rates to as high as 35%. Adding insult, the issuers now have fee schedules that add to the absurd payments. 

 

This “free money” craze coupled with stupendous profits earned by credit card issuers caused a huge but temporary surge in consumer sending encouraged by government, business and lenders. Everyone liked it because for consumers they were getting more “stuff”, for government they could claim better economic performance, and for credit card companies, they had a stranglehold on an economy that was now addicted to credit card and home equity loan consumer spending. As with the mortgage meltdown, nobody thought it through. 

 

Our economy became addicted to, dependent on and under the control of consumer spending, which up till now has accounted for around 70% of our entire economy.

 

The inevitable outcome was always the same: eventually we would hit the the top, like in any Ponzi scheme. Consumers, who maxed out their credit cards, and maxed out their borrowing on their homes, and maxed out on their purchasing power which has declined significantly over the same 25 year period, and who are vastly unemployed or underemployed further decreasing their wages and purchasing power, and maxed out their borrowing from consumer finance, and even maxed out their short-term borrowing through pay day lending and overdraft privileges and eliminated their savings plans, have reached the point where (1) they can’t buy anymore “stuff” and (2) they don’t want to.

 

Alan Greenspan is now defending his record of relying on the marketplace to work things out. Free market ideologies, like the one Greenspan relied on, are like all other theories in economics. They seem to work for a while and then they don’t. Ideology does not govern how people act. People act as they choose to and the way they choose is based upon mostly subjective factors at the time of their decision. That is a lot messier than the neat and clean theories and policies, indexes and measurements that have been used in determining economic policy, foreign policy, and domestic agendas for decades. 

The underlying flaw in all currently used economic theory is that people are not theoretical. They are real and they are complex. 

This is not a new observation. Plenty of brilliant analysts and thinkers have known this for thousands of years. Just look at some of the most recent contributions from Rothbard and von Mises and you’ll see that the idea that human motivation and human thought process as the real issue has been around for a very long time, well understood, and pointing toward policy mechanisms that were based in reality rather than the mythical world where everyone behaves according to the “plan.” 

 

The problem is that economics and politics are inseparable — like time and space. You cannot define one without reference to the other. And in politics, the goal is to get elected and stay in power. You are playing to an audience with precious little time to get the finer points of economics, personal finance and monetary policy. 

 

People are too busy trying to make ends meet, getting the kids off to school and after-school activities, and working a two-income family schedule with increasingly longer working hours. Up until now, buying “stuff” has been a recreational outlet and they had the “free money” to do it. Now they can’t even pay the “minimum payment” without borrowing more and they can’t borrow more.

 

You don’t get elected giving people bad news — especially the news that things will get worse before they get better. So politicians create agencies to give them reports, indexes, median incomes, and unemployment data that provides them a reference point from which to pontificate about things these “leaders” actually know nothing about. They create slogans and “programs” that will never happen to give the potential voter a reason for putting them or keeping them in office. 

 

The end result is that we have spent ourselves and our country into a hole, diminished our standing in the world, and we continue to insult the world by asserting a dominance that was once real, but isn’t anymore. And the world is telling us as politely as possible to shove it. The strength of the Euro, the movement amongst the oil producing countries to create a unitary currency for the Gulf countries and other trends around the globe all spell the same thing: everyone is looking for an alternative to the U.S. dollar and an alternative to the U.S. altogether. We have brought ourselves and the world to neither peace nor prosperity, and neither security nor safety. 

WHAT DO WE DO? BITE THE BULLET, GIVE UP IDEOLOGY AND GET REAL

If you want to stop the mortgage and credit crisis, go with Barney Frank’s plan which takes blame out of the equation and simply stops the worst from happening. It gives everyone an opportunity to recover and it is the only way to do it — taking everyone’s interest into account rather than one group over another. 

 

If you want to stop foreclosures and evictions, change the rules of civil procedure in each state and in federal bankruptcy court that enables cram-down procedures and mediated results that allow for the same outcome as Barney Frank’s plan. Home values were inflated far beyond fair market value. Everyone should share in the loss and everyone should share in the potential recovery. 

 

If you want to stop the health care crisis and the economic nightmare created for our citizens, take insurance out of the equation, wind down the current system and move relentlessly toward a single payer system that pays medical service providers well, does not subject them to liability for bad results, and gives them incentives to get their patients healthier. That is what other countries do and what we should do here. 

 

Eliminate the restrictions on so-called “alternative care.” Those protocols have been around a lot longer than allopathic medicine. End the hegemony of allopathic medicine, provide incentives for preventative lifestyles and care, and the costs of health care will drop like a stone while the prospects for a longer, productive, happier life will rise. Reinstate the basic pledge “First do no harm.”

 

If you want to create a country with solid economic foundation, we need savings. To create savings, people must have the financial resources to cover their expenses and set aside money for the future. Take credit card debt and other forms of predatory lending off the table. Change the “no end in sight” vision to a light at the end of the tunnel. Stop telling people to spend money when you know they don’t have it. All you are doing is making things worse when you could be leading them out of the darkness.

 

If you want an economy that has solid prospects and good earnings potential for its citizens and the country as a whole, change the direction of innovation from getting our own people to part with their money to buy “Stuff” and make innovation work to produce things the rest of the world values. In other words shift back from the consumer driven economy to production. The products might be the same, similar or entirely different as before. 

 

BRING BACK UNIONS: Stop trying to minimize costs and start working to maximize revenues. Anyone can eliminate their costs by simply going out of business. A business is worthless without growth and strength in the marketplace. By eliminating our production capacity, we have effectively relinquished our sovereignty. Have government intervene wherever necessary to prevent dominance that results in imbalance — encourage the start-up of new small businesses and create a level playing field for them to compete. 

 

If you want to reassert America’s place in the world give the world a reason to respect and honor us besides our military power. Raw power is a transient commodity. Eventually it ends. If you want to retain sovereignty over our economic affairs and avoid becoming a satellite of China or a junior member of the European Union then demonstrate the power of the American worker and the attractiveness of living and working here. 

 

If you want communities to prosper allow community banks and credit unions the same access to providing financial services as the megabanks, where centralization has shifted local deposits into faraway investments of dubious value to anyone. State and Federal programs should be deposited into local banks rather than national or international combines. The infrastructure already exists without any changes required to enable this to happen. What is necessary is for State regulatory authority to become more active and more focussed on their own State’s economy.

 

As the song goes, these are a few of my favorite things. What are yours?

From Ashes to Angels: Economics of Morality

There was an interesting study published in the Economist (March 15, 2008 pp 83-85), a conservative news magazine read around the world, that disclosed an incredibly close correlation between the “rule of law” and the health of the economy. It turns out that laws, rules and enforcement create a culture of integrity, civility and good faith. The epiphany is that those societies that follow morality, as we commonly know it around the world, have the strongest economies and greatest purchasing power. 

It’s true. Go read it yourself and research it all you want. Von Mises and Rothbard,  largely ignored but highly respected economists, came up with the same conclusion decades ago from a slightly different approach. (They are ignored because they sought truth rather than power. They believe the premise of modern economists is essentially skewed. History, particularly economic history proceeds from the motivation of people in public office or personal lives to change their current situation to something better. Reporting history relies on people who seek to be seen in the best light and thus their reports, whether of facts or indexes like the GDP, CPI etc., are skewed to mislead the reader. The theories used to explain economic history are therefore always based upon measurements of inaccurate reports. The policies based on those theories work only by happenstance — i.e., if consensus or conventional wisdom is created around the theory and policy, not the other way around).

The corollary is more disturbing and quite obvious in the context of today’s news stories of a collapsing economy.  Stray from morality as a matter of policy and practice and you undermine your economy, your society, your ability to achieve, and you gut the basis of your own happiness and contentment, as well as the prospects of future generations. 

All politics and all economics is about income distribution in some way or another. When we are out of touch with our own Godliness, we become out of balance in our society and our economy. By having no rule of law, secular or otherwise, govern the actions of those with power to do what they wanted, we have undermined our foundation, cut our societal fabric and diminished our moral high ground at the same time as losing our purchasing power in world commerce.

While Americans have pursued the dollar with religious zeal, other countries have been pursuing happiness, morality, civility, and integrity – albeit with the usual human imperfections.  The resulting changes in the purchasing power of the U.S. dollar and the relative strength of the U.S. in the marketplace of ideas and commerce can thus be explained. 

The fundamentalist in any major religion has a point: that societies, especially U.S. dominated societies, have lost their way. There is a growing sense of senselessness and lack of meaning in such societies. 

American men are dropping out of the work force and discarding goals and plans for their future, American children are not being educated nor are they taught to think critically, make moral judgments, build character, know their personal and world history and geography, please themselves and the world with their talent in the arts, or acknowledge the obligation and rewards of doing good deeds. 

Of course fundamentalists of all sects violate their own standards when they create inequality between women and men, when they impose a rule of a leader in lieu of a rule of laws, and so forth. But even from the most obvious perversity of fact and good sense, we can gleam some truth about ourselves, our society and where we are heading.

Today’s Torah reading talks about removing the ashes from the alter, an almost janitorial task. Yet the ancient Rabbi’s rushed to perform this task, competing for who would be first. Yes for fun but also to Honor the higher sense, the higher power we have the capacity to follow, if we are willing. My lesson in this world has been worship the riches and become poor regardless of how much money you have. Worship goodness and you become rich regardless of how much money you have.

Competition is fine if we follow our best instincts, our higher calling which all of us know we have inside. When we step onto the track and enter the secular race, make your goal the altar of your own Godliness. 

“There is much in life that people value, yet is utterly meaningless. There is equally much in life that people do not value – that is very meaningful and good. Do not judge by wealth. Do not judge by what others think. Judge by what you honestly believe to be good. And do it, no matter how belittling and ‘dishonorable’ it might seem to others. In the end, that’s what is truly worthy of praise.”

Whether we look to leadership to inspire us, or we simply change our minds and take the high road in our lives regardless of what others do, we rebuild our American experiment, we strengthen our society and reassert ourselves in the marketplace of ideas, morality and commerce. 

If we want to finish the American experiment, rejoin England and the European Union and give up our role as leaders, we are certainly on the right track. 

It won’t be long before the currency of choice becomes the Euro, a currency of consensus from countries actively seeking to do good things for their citizens. 

The U.S. dollar, including those bills in your pocket and those numbers in your bank and securities accounts, are being undermined by you and what you allow in your little corner of the marketplace. 

Only you (all of us in our own worlds) can turn it around. But it takes real faith rather than faking it or just giving lip service to it.

%d bloggers like this: