Category Archives: U.S. Monetary Policy

Housing Pricing up 11% !?!?!?

Does anyone question why housing prices increased nationally 11% year over year as reported last week? How could this be amidst such high unemployment? How could this be when American wages increased a mere 1.6% this year?

Where is the demand coming from? Where are the dollars coming from as more than a third of our housing is being paid for with 100% cash? Could it be that some of the trillions of dollars that have been pumped into the world to sustain the bubble are now coming home to roost?

Is it possible that even as Americans’ wages stagnate, being kept low by high unemployment, our cost of living will now begin to escalate wildly? Has our policy of quantitative easing finally begun to see the first noticeable leak in the dam?

In Darryl Schoon’s article:

He points out an extremely insightful context that Japan’s substitution of borrowing-based government spending to make up for the loss of private demand, while not repairing their economy, did hold a deflationary spiral at bay, but only because its economic implosion occurred during an historic, credit-derived spending bubble of EurAmerica that supported Japan’s export strategy.

He also points to the obvious conclusion that the worldwide bubble has run its course and has exhausted its ability to maintain world pricing. Therefore, Japan’s strategy will no longer work and the world that has embraced Japan’s solution is now in for an abrupt awakening. Darryl now suggests that we could experience an extreme depression while experiencing extreme inflationary pricing simultaneously, a stagflationary depression.

Housing prices up 11%…..

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Paul Krugman was a False Prophet

Some claim that President Obama sacrificed restoring the economy to get Obamacare through Congress. Others claim that he didn’t sacrifice anything, that he really did not know what to do, and that Obamacare was simply a diversion. Neither have defined this time as it will eventually appear in the history books.

It wasn’t that he didn’t know what to do. It was the he believed so much the theory perpetrated by liberal economists like Paul Krugman that it was the Republicans who got it wrong in the Great Depression. They held back FDR from going BIG and from the ensuing undisputed greatness he would have achieved. The President believed these heathen prophets when they told him to spend trillions and then to hold tight and watch the miracle happen.

A diversion, perhaps….this magical incantation needed time to stew. Give the people bread in the Coliseum. They will be happy with the spectacle, You will be revered in History as the first President to have provided universal coverage, and in the mean time, these sorcerers of classical Keynesian economics will have the time to do what their earlier brethren were kept from accomplishing in history, prove Keynes RIGHT! A pithy seduction indeed….

It just so happens that their concoction was wrong. No stimulus, not even one several trillions large that would indebt America’s grandchildren and their grandchildren, could spend America’s way out of our credit collapse. It was a counterfeit messiah.

The President fervently thought his advisors had it right and that all that was needed was time. We see it all the time on American Idol and X Factor, these singers that come on stage believing to their depths that they can sing. And when the judges simply say no, these would be idols’ faces sink into the shock of disbelief.

QE1 was the initial song. QE2 was the singer begging to have a second shot at glory because he just knows he can do better. Now we have QE3. Its purpose is not to continue the classical effort. No that false dream is long over. Its sole goal now is to hold course until America fights its own way out of our depression in spite of our now $16 trillion-dollar debt. Its purpose is to take over the bread-feeding role and to appease the American public that all is ok through this election cycle. Its job is to somehow hold the West together until another crisis hopefully shocks us out of our stagnation.

So, not surprisingly, the President was caught off guard during the first debate by the weight of this reality. No matter….by round two, both actors were in fighting form and the hopes of America were restored. On to the election…

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Filed under American Governance, American Politics, Economic Crisis, U.S. Monetary Policy

America’s Financial Porn

I remember the seedy thrill the day my buddy took me into his garage to pull out his dad’s stash of Playboy magazines. It was the 60s and we were but eleven year old boys. Yet I knew that day that I had become a voyeur into something that was at once both titillating and dreadfully wrong.

Though the thrill factor dulled as I aged, I do recall other events that triggered the same eerie mix of raw emotions within me. It wasn’t until after the smell of burnt timbers left the interior of our car minutes after passing a tenant building engulfed in flames that my excitement turned to shame. My mother let out a gasp of horror as she slowly passed over the rail road track and our family all witnessed this old building lit ablaze. From the back seat, now thirteen, I was still awed by the sight of it. Moments later I realized that what had titillated me was the same monster that had destroyed those poor renters who shockingly watched their life’s possessions turn to ashes.

Quite removed from the magical aura of first emotions, as a young man I still once again felt a confusing haze when witnessing the collapse of the Soviet Union. It was unsettling watching Mikhail Gorbachev being consumed like a noble grasshopper enshrined in swarming ants as the Putin mob emerged from the fall. The collapse of this nemesis empire emoted feelings of both grotesque forewarnings and of patriotic sentimentalities. And my voyeuristic curiosities were once again amazed as I witnessed how the wealthy of even an extremely socialistic society would circle the wagons to protect their own.

And now I can’t help but watch in awe as America follows the Soviets down the Afghani trail and our financial thugs manage to pull the strings of the “Federal Reserve” (as if calling it Federal whitewashes its role as the elite mob’s hit man). Once again, I find myself in my buddy’s garage, at once both titillated by what crudeness is possible of mankind while at the same time drenched in the filth of America’s financial porn.

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Filed under Economic Crisis, Federal Reservre, U.S. Monetary Policy, Uncategorized

America Faces a Worldwide Economic Revolution

In the midst of America’s great economic crisis, factions from every point in the political spectrum have raised issues as causes for America’s demise. Yet most of America’s problems, when examined in the light of day, are simply symptoms of our greater issues or even just political noise, offering no real hope in deducing the core of our dilemma. America will ultimately begin a path toward our thriving future. Yet, to do so, we must first clarify the true essence of our core problems before we can agree on viable solutions.

To that end, let’s peel back the political onion to examine what some say are our core issues, and then continue to peel until we briefly reach and peer into the collective complexity of our true core. Fret not however. An onion can make one cry because of its many stinky layers, but America’s solution knives, even those identified within these bindings, can cut through all of them.

Over the past three decades, we Americans spent our way to a debt mountain and a housing bubble that will take years to correct. Factions such as the Tea Party have risen up to chastise our government and to slow its ballooning debt even as record Federal deficits are predicted to continue for at least the next decade. Theirs is a worthy cause for what seems a politically irresolvable dilemma. But even if America comes together to solve our debt issues, reducing our debt will only remove a symptom of our nation’s core problem.

If we are to reduce America’s debt without defaulting on our worldwide financial obligations, we must once again employ all able Americans in productive, well paying jobs. Yet in the midst of our bursting housing bubble, we discovered that for three decades America had also created a false employment bubble, which burst as our economy faltered. As a result of our jobs deficit, America is now in danger of lingering in a severely dampened economy for many years to come, certainly another critical symptom.

America has fallen into a monetary contraction resulting from a combination of our housing debt overhang, our poor credit and a lack of jobs. A viable turnaround solution to this monetary implosion should be immediately implemented to begin America’s journey toward our thriving path, and Congress and the President must support it. Yet, while our slowly eroding jobs base, diminished credit and housing debt overhang must be simultaneously corrected if we are to have any hope of more than a token recovery, our monetary implosion, however frightening, is still at the edge of America’s core problem.

Faced with such dismal prospects for debt reduction and job creation, America is now forced to choose between two competing constituencies. Our very concept of freedom almost demands that we support free enterprise, for it has helped America’s multinational corporations compete in the world’s rapidly transforming marketplace. Yet, the immense worldwide scale of free enterprise is now tearing apart our middle class, assaulting the American worker, and we seem powerless to even slow its destructive path. This choice between competing alternatives of either 1) supporting American businesses in their quest to rise above world competition or of 2) supporting the American worker, who is being diminished by those same corporations’ conquests, begins to converge toward the core of America’s problems. Over the past thirty years, emerging nations have conducted mercantilist attacks on America’s gross national product. Yet, our government has resisted creating the economic weapons required to defend our nation against modern hybrids of global competition.

America is already thirty years behind the curve of economic revolution. We are seemingly only observers to a world in which free enterprise is a both a bulwark of defense used by nations against those that would employ mercantilist offenses against them, and also an offensive siege weapon used by emerging corporate-states to destroy the classical defenses of nations that would attempt to resist their growing invasive economic powers.

During these thirty “standstill” years of observing the world’s economic revolution, America’s baby boomer generation rose to positions of power in business and government. In the comfort of our former world prestige, our baby boomers enjoyed the luxury of basking in decades of societal actualization. We focused our attention on America’s internal problems at the expense of creating a competitive manufacturing base. Our political struggles over competing societal goals of social justice and military superiority blinded us to our emerging jobs crisis. Yet, the hungry world fiercely competed for and took from us our very own consumers and employers.

America’s consumers naively embraced the world’s competition for our dollar. We enjoyed the low priced fruits of a desperate world’s labor, not understanding the impact that our purchases would have in the destruction of American jobs, the explosion of our debt, and the diminishment of future opportunities for America’s growth. For awhile, the savings we enjoyed from globalization offset our slowly diminishing purchasing power. Yet, over three decades, our purchases raised the world’s productivity, brought an onslaught of global competition to our shores, and ultimately replaced the American worker with an army of overseas laborers.

Eastern nations adopted hybrid economies of neo-mercantilism to rise above the fray of neo-colonialism and to position Asia for a century of prosperity. Unchecked by any natural defenses against them, neo-mercantilist nations joined forces with international banks and emerging corporate giants to concentrate the world’s economic power for China’s 21st century rise toward hegemony. In the process of this world economic shift, America’s future competitors, the corporate-states, were born.

Fierce, global competition required American businesses to employ all manners of competitive measures including intercontinental scale efficiencies. As the world would soon come to realize, the international skills multinational corporations learned to survive included those necessary to pit nations against each other and to overcome the regulatory frameworks nations imposed in vain attempts to restrict corporations’ intrusions into domestic markets.

In the process, these commercial behemoths of corporatism trampled on America’s two hundred year foundation of classical free enterprise. Within the context of our government’s regulatory framework for fair competition, America’s version of free enterprise envisioned all nations playing by our rules of engagement. In the past thirty years of economic revolution, America instead became Redcoats in the global economic war. Our structured business legal system was a bright red target easily slaughtered by guerrilla warfare of nations and corporate-states intent on pillaging America’s capital and intellectual property.

As defined by our anti-trust laws, America’s isolationist views of perfect competition required that our industries limit any one competitor’s size to well under what could be called a monopoly within our borders. Our legislated size limits were smaller than the mega-factory direct foreign investments required to compete globally. As a result, even if not the root cause of business flight, America nonetheless needlessly influenced American businesses offshore in their bid for massive customer markets such as India’s and China’s.

Some of American corporations’ resulting worldwide operations have grown into virtual states. In their unquenched quest for profit, they have created international offensive siege weapons to easily circumvent the purposes of such antiquated American concepts contained within the Sherman Antitrust Act. Many of our historically American-centric enterprises have since blurred their connections with America. Consequently, the Sherman Act has become increasingly challenged by free market advocates as an albatross of regulation. Alternately, it has been condemned by those charged with protecting the rights of consumers and domestic small businesses in America as a weak, antiquated tool of defense.

Globalization has brought competing American interests to the brink yet we dare not allow political dysfunction to keep America on the sideline of global competition any longer. We somehow must now collaborate to support America’s multinational industries’ quests while simultaneously protecting our own competitive domestic market. We must provide a pro-business environment that places America’s businesses on par with those of other countries while stopping international corporations from employing siege weapons of free enterprise against our citizens. We must provide competitive yields for capital in America to ensure America’s posterity by reversing the tide of capital outflows from our country. And we must ensure that our loose federation of American businesses can compete globally against neo-mercantilist countries. America must define the post neo-mercantilist era.

We will soon be living in a land full of global corporate giants that employ modern offensive economic weapons to consume nations. Yet unlike the neo-mercantilist countries that have attempted to create hybrid, state run industries immersed in private capitalism to compete with these futuristic monstrosities, America has not yet even begun to create its weaponry against neo-mercantilists such as China, and certainly has no viable plans against emerging corporate-states.

As America faces the prospects of diminished power in this 21st century economic revolution, we must adapt to the corporate power realities that all nations will face. Our future thriving path strategies will inevitably merge the goals of our giant, American born, corporate-states with those of our nation and its citizens. Yet our government must go beyond such surface strategies to create America’s post neo-mercantilist framework to harness the power of corporate-states for the betterment of our citizens and for all nations.

If we are to create a thriving outcome from the 21st century economic revolution for all on our finite planet, America must seek out the core of our problems and create a model for other nations to follow. Our thriving path forward begins here.

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Filed under American Governance, China, Economic Crisis, European Crisis, Free Trade, Full Employment, Multinational Corporations, National Security, social trajectory, U.S. Monetary Policy, World Sustainability

The Solution is Relatively Simple if The Will is Relatively Strong

Without extraneous noise from various American factions over the past thirty years, the logic for how America fell into this economic mess is relatively straight forward. The reasons why previously tried and currently proposed solutions will not work are equally as coherent. A solution for digging America quickly out of the circular predicament we are in is relatively straightforward. What is not straight forward is the gerrymandered path through Congress to do what is needed on behalf of the American People. What follows are general truths (although each has exceptions to the rule). See if you agree.

What do we know?

• The Western World’s banks lent to both businesses and consumers beyond historically safe levels for three decades. As a result:

oThe West is now bloated with excess private debt
o The economy is struggling to pay debt loads and default rates are high
o Debt repayment has absorbed discretionary revenues that would otherwise be invested into a growing economy

• America used excessive bank credit to spend beyond its means for the past three decades. As a result:

o Money was available to fund speculative bubbles. Higher bubble values in turn made more money available to spend on consumer needs during the bubble rises
o Investment and housing bubbles propped up 15 million jobs beyond what the underlying economy would have otherwise if America simply spent within our means
o As real economy jobs transferred to the East, America’s underlying weakening economy was hidden by our continued excess spending

• America’s Federal Government borrowed to pay for welfare and warfare for four decades. As a result:

o America’s public debt grew to 100% of GDP, a level that could absorb all public discretionary spending if interest rates rise, spending that would otherwise assist a growing economy
o Further increases in Federal debt could result in America’s credit rating being lowered which in turn could force higher interest rates

• The rubber band of excess spending could only stretch to finite limits. As a result:

o When the limit was finally reached, Banks knew first and moved quickly to protect themselves from what they knew would be a free fall by closing credit lines, charging exorbitant rates on outstanding credit debt, and stopping lending even to credit worthy consumers
o Without access to consumer credit to cover the shortfall between incomes and housing debt, consumer demand stalled
o Without access to credit, the housing bubble popped and housing prices freefell
o To make ends meet, consumers cannibalized financial investments and investment prices fell
o Within a very few years, much of America’s housing and commercial real estate debt far exceeded the value of underlying properties

• With the collapse of housing values and credit, the plug was pulled on the artificial engine of growth. As a result:

o Consumer demand contracted
o Demand for labor then contracted and jobs were lost
o Federal tax revenues contracted as unemployment rose
o Lower housing values reduced state and local tax revenues

• State governments that required balanced budgets and local governments, dependent on housing tax revenues were rescued initially by Federal stimulus dollars. As a result:

o State and local governments failed to react quickly and responsibly to a permanently lowered tax base.
o Many states and municipal governments came perilously close to default

• American multinational businesses were buoyed by Asian GDP growth but our domestic businesses were hammered by a weakened domestic economy. As a result:

o Multinational businesses secured substantial cash balances but withheld investing over concerns of the world’s teetering economy
o Domestic businesses shrank with the contracting economy, lost access to credit, and laid off employees to survive.

How does America wish to respond to the crisis?

Republicans want to:

• Protect military spending
• Recover through less government spending, lower taxes, and less regulations


o Even without cutting taxes, balancing the federal budget will require cutting 43 cents of every dollar the federal government now spends
o Military spending and its hidden ancillary spending cost a third of the federal budget. Without drastic cuts to military expenditures as well as all other federal expenditures, the federal budget cannot be balanced.
o If we do not curb deficit spending to quickly achieve a balanced budget, America’s interest rates will rise and cut off federal discretionary priorities
o Lowering taxes without cuts in government spending that offset not only the tax cuts but the extreme deficits now in place would exacerbate an already dangerous interest rate precipice

Compromise issues:
o Government spending is steadily increasing. Government spending increases and not just rate reductions in increases must be reversed.
o While lower taxes are one way to provide the private sector additional revenue for growth, it is not the only way. The private sector can acquire investment capital by other means if credit can be accessed.

Democrats want to:

• Increase social programs, secure social agencies, and protect entitlements
• Recover through stimulus spending and supporting state and local budgets
• Increase taxes on the wealthy to pay for social programs


o Even without reducing government spending, federal taxes would have to increase 75 percent across the board to balance the budget
o The United States could not spend enough to stimulate the entire world’s demand in order to recover from a worldwide monetary implosion. Thus far, $2 trillion in stimulus spending and $15 trillion in loans has budged the world’s economy little and has had no multiplicative effect.
o It is evident that the economy will not recover enough to offset stimulus spending with increased tax revenues. Therefore, stimulus will further exacerbate the federal debt and invites a faster debt rating reduction and higher interest rates

Compromise issues:
o To balance the budget, social welfare spending must be reduced, along with all other budget line items, to much less than America spends today
o To at least maintain America’s middle class standard of living, GDP growth must keep up with population growth. GDP growth must be supported by investment capital. Congress must either redistribute Federal spending to support higher private sector productivity, lower taxes to free up private sector investment capital, or entice business to invest domestically by creating a better business environment

America’s unemployed and underemployed want to:

• Find productive employment
• Gain access to credit
• Reduce their debt payments
• Eliminate their housing bubble debt overhang
• Regain savings for retirement


o Jobs will not become available until businesses begin to rehire
o Businesses will not begin to rehire until the economy improves
o The economy will not improve until consumers increase purchases
o Consumers will not increase purchases unless they can pay existing debts and have enough left to increase discretionary purchases
o Consumers will not have additional funds without increasing incomes, repairing credit ratings, and gaining access to more credit
o Consumers cannot increase incomes unless the 25 million un-or-under employed gain employment, cannot repair credit ratings without increasing income, and cannot gain access to more credit without repairing credit ratings
o Consumers cannot gain employment until businesses begin to rehire
o And thus the circular argument of an imploded monetary economy………….

Compromise issues:

o In an imploded economy, consumer demand and business supply cannot be corrected in isolation, but must be repaired simultaneously.
o Democrats tried to fix both consumer demand and business supply through artificial government stimulus, but it was not large enough or economically diverse enough to reignite the economy, and it did not attempt to simultaneously correct the underlying debt and credit issues that also must be repaired in tandem for an imploded economy correction to adhere and affect a turnaround.
o To create enough turnaround friction, stimulus must bubble up from the economy wide full employment, improved credit ratings, and access to both consumer and business credit. Government cannot possibly spread stimulus broad enough or create a large enough stimulus through spending programs alone
o Republicans have offered to correct the economy by creating a better business environment through lower taxes, fewer regulations, and multinational businesses incentives. However, the Republican plan for reigniting the economy only addresses methods for attracting capital back to the United States, hoping to make the U.S. a better alternative for multinational corporations to spend capital than elsewhere. Yet multinational businesses are not spending their capital anywhere and will not until the global consumer demand improves. And at this time, Republicans are not offering any solutions to improve the global business environment.

A viable turnaround solution requires that:

• All able Americans immediately return to work
• U.S. consumers are freed from the weight of housing debt overhang and credit ratings that were damaged by the worldwide monetary implosion
• The dollar is uncoupled from attempting to stimulate the entire Western world.
• Multinational Corporations be enticed to bring investment capital into an economy that has already begun its turnaround
• Federal, state, and local governments not be allowed to skim needed growth capital out of a delicately growing economy

One viable solution includes:

• Job voucher plan to employ all able Americans immediately

• Equity for debt swap to remove excess housing debt

• Credit amnesty program to quickly repair business and consumer credit

• Modified Republican multinational incentives that entice domestic investment without giving carte blanche tax holiday and that does not entice further foreign domestic investment

• Republicans and Democrats do the heavy lifting of deciding together which programs will be cut, how to best run the military with a much reduced budget, how to extend the life of entitlements with a much reduced budget, and how to reduce Congress’s incentive to hold to a balanced budget.

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Filed under American Governance, American Politics, Federal Budget, Jobs, Multinational Corporations, National Security, U.S. Monetary Policy, U.S. Tax Policy

Ashes, Ashes, We All Fall Down

If we choose to continue a stagnation of political will, American’s children of the 21st century and beyond may not have to worry about riches that could crush their human spirit. Instead their children and children’s children may spin around in the summer’s fields and recall their ancestor’s macabre poems.

Ring around the bank moats,
Pockets full of bank notes;
Cash’s crashes,
We all fall down.

Or perhaps America could get on with cleaning up the rats’ droppings before they bring the plague of financial destruction upon us. Unlike the poor inhabitants of feudal villages that took for granted their lives had to be shared with pestilent rodents, we do not have to share ours with diseased vermin of Wall Street. We know the right course is to restructure the banks. In 1932, FDR restructured the industry in 100 days after his election. Today, we watch dumbstruck and carry our financial, job and mortgage dead to the front door steps for our law officers to cart off, while the ongoing financial shenanigans of these disease bearing rats continues to plague us after 3 years of stagnation that seems to have no end in sight.

Certainly, one can argue that the right thing for Hank Paulson to have done was to save the banks from utter destruction by massive injections of capital in 2008 when public officials had no clue the depth or breadth of the calamity before them. Yet now after three years, can we honestly say that we do not know the extent of the devastation, and if so, why? Does it make sense to sit helplessly by watching the banks trying to put out this monetary wildfire that has swept through their industry without trying to carve out a safe zone of financial capitalism that can survive when the whole thing comes crashing down? Rather than keep too big to fail banks in place while they continue to falter and continue to fail in their needed support of an economic recovery, perhaps America should once again act paternally to break up the banks and cull out the ones that have healthy balance sheets to help them to grow under the tighter restrictions of reinstituted banking regulations.

For those banks that continue to bleed with poor capitalization after such revitalization, they can continue to wallow in a sidelined non-lending stagnant existence or die as America gets on with its historical culture of survival of the fittest. There is no need for America to wait for the next financial virus to scourge all of Western Culture when we can instead systematically yet expeditiously put our financial house in order.

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Political Catch Phrases Only Deter Real Economic Recovery

When starting my quest last November to determine a way to fix our country’s job problem, I hoped that I could draw on the strengths of the American public to collectively create the beginnings of a viable turnaround plan. I determined early on not to be dissuaded by all the catch phrases that both the Republican and Democratic parties used as spin to stop many of our frustrated electorate in their own quest to find the truth only to become dejected and more frustrated.

These spin phrases have worked in part because they have some “Truthiness” in them that wears down many from attempting to dig through the morass. One of the well worn phrases touts the principle that “It’s not the government’s place to create jobs for the masses. The government should limit itself to creating a confident and stable business environment and should otherwise stay clear of free enterprise.” On its surface, the thought has merit and has thus become a flagship of fiscal conservatives.

During periods of “normal” economic times, the government should in fact minimize its foot print and limit its use of the private sector’s capital to essential services. To do otherwise stymies future economic growth and can lead to job losses. Yet, during the peaks and troughs of normal economic cycles, government can help smooth out the highs and lows of the cycle by accelerating or slowing long term purchases of houses and cars and the like through interest rate manipulation and other monetary policy of the Fed. Government sometimes exacerbates the business cycle but nonetheless it can be a useful tool.

During larger recessions, government has sometimes attempted to “fix” the cycle through fiscal policy of Keynesian, government stimulus, big projects like road construction that by their nature add some jobs in certain industries as a “bonus”. In most of these government attempts through our history, the length of time required to enact and to implement such policies has invariably missed the trough of the business cycle and has actually harmed the economy through exacerbation of the already improving business cycle and through increasing our federal debt.

The 1930s of course were an exception in that the Great Depression was not the result of a normal business cycle but was the result of a monetary implosion much like we are experiencing today. While the works programs of the thirties did help feed a hungry nation, they did not heal the economy for several reasons. First, they created government jobs working on public infrastructure like parks that have been a blessing to future generations but that did not aid the economy, or they created government jobs that actually helped the future economy but did not help their current economy significantly. These jobs created business improving infrastructure like electric dams that created inexpensive power and flood control dams that aided future crop stability. Second, because these government jobs did not actually increase GDP, the Great Depression’s extended contraction was exacerbated by an increasing debt load. Third, even though some people now had government jobs, not enough jobs could be created by government and unemployment still remained exceedingly high throughout the Depression. Forth, even though some people now had jobs, these same people could not afford to stimulate the economy because their new pay barely covered debt loads that were incurred as they fell into the Great Depression. As a result, no pay was left over to create additional consumer demand for private sector companies to create more jobs. Fifth, even though some people had new government jobs, their credit ratings had been destroyed as the nation fell into the depression. Even though some new workers could now afford new loans that could increase consumer demand, it would take years for their credit to be restored in order for banks to make new loans to them. Finally sixth, even though some people had new jobs, the banks would not lend into a shaky economy where overall demand was low and unemployment was high.

The monetary implosion that began in 2008 is somewhat different than in the 1930s because many American businesses are multinational corporations that have been buoyed by the double digit growth of the East. As a result, America’s technical definition of a “depression” has not occurred. However, the 2008 monetary implosion has had a very similar impact on America’s middle class as did the 1930s. It has created excessive housing and consumer debt, destroyed credit and collapsed the demand for jobs. America’s free enterprise will not pull American families from this monetary implosion for another 15 years without fundamental restoration of our capitalist system. That necessarily requires government intervention to repair our international banking excesses.

The recent government programs that applied Keynesian stimulus and Fed monetary policies failed to right our economy because they attempted to fix the wrong problem. America is not in a recession. It is suffering from a monetary implosion and debt explosion. The government programs of the 1930s failed to quickly restore America because Government did not attempt to repair all of the failings of capitalism. My plan recognizes that we are not in a normal or even exaggerated business cycle that could be fixed by stimulus or monetary manipulation. It also recognizes that government make work will not fix the economy either. Instead it provides a holistic healing of our capitalistic economy.

My turnaround plan requires the banks to accept shared equity in housing in return for removing excess housing debt from homeowner’s notes. It requires the credit rating agencies to speed restoration of credit ratings for those caught by the 2008 depression so that additional credit is available to restore consumer and business demand. And it provides for simultaneous hiring of 10 million people into the private sector that otherwise would be collecting long term unemployment compensation. The compensation that they would have received for sitting out our economy instead passes through the hands of small domestic businesses, reducing their risk of hiring, lowering their costs of supply, improving their international competitiveness, and making their goods and services more affordable to the American public.

Rather than government make work or stimulus jobs targeted to a very few select industries, this turnaround plan allows people to be hired throughout the domestic, private, small business economy. All citizens have the opportunity to return to the workforce immediately. All have the opportunity to restore their credit. All have the opportunity to stay in their houses and to make affordable payments on their own property. All have the wherewithal to incrementally add to the nation’s consumer demand and to create worldwide demand for America’s products. All will help America return to prosperity.
All will become part of a holistic plan, endorsed and enforced by government, that will turnaround our country.

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Filed under American Politics, Job Voucher Plan, Jobs, U.S. Monetary Policy

Why Can’t America Sue the Federal Reserve and Banks for Violating Their Fiduciary Responsibilities?

The United States of America is claimed to be the wealthiest nation on Earth. Certainly, our GDP is the highest by some measures, our accumulation of long lived assets and infrastructure is historic, and our country is abundant in natural assets and commodities. Yet do the lives of our citizens in terms of material well being and quality of life reflect this great wealth? If a nation’s health is proportional to its material wealth, are our financial liabilities that are four times the size of our GDP degrading our nation’s health? Many are concerned that no matter how America’s wealth is measured, that we have reached our pinnacle and are now in decline. Some suggest that globalization is the cause.

When Adam Smith first penned “The Wealth of Nations” in 1776, the concept of wealth existing within the organism of a nation was not questioned. Nations had grown from their feudal beginnings into mercantilist empires and had begun to develop industrial capitalism within their mostly agrarian societies. However, the concept of businesses being melded to the future prosperity of their growing nations was the accepted paradigm.

Now that globalization is upon us, this marriage of business and nations is no longer a given. The traditional measurement of a nation’s wealth as that of the output of its businesses no longer fits now that cross border transfer of financial, physical, people, and intellectual assets are fluidly afforded multinational corporations. If we can no longer measure a nation’s wealth as that of its corporations, what is the paradigm shift that replaces this measurement?

If we divorce a nation’s wealth from that of its businesses, then a new picture of its material wealth emerges. The sum of a nation’s true material wealth is its natural resources and commodities, its capacity to maximize the value of these resources, and its ability to protect them from plunder. A nation’s wealth depends on its distribution infrastructure, its fixed assets that are capable of production, and the strengths of its people; their legal infrastructure, learning institutions, accumulation of national core strengths enhanced by interconnectiveness of innovation and production, and their accumulated learnedness and capabilities.

In addition, a nation’s material wealth depends on financial liquidity to transfer these assets to their highest and best use. Currency is the oil that lubricates a nation’s wealth producing assets. It provides for the efficient and fluid transfer of commodities, people and productive assets to create a maximum efficient output that will both meet the demands of consumers and that will simultaneously produce profits to feed current consumption and future growth capacity.

A nation’s ability to grow wealth depends not only on maintaining its output at maximum efficient levels but on investing a portion of its output into extending its future capacity. Once again, currency provides liquidity as the medium of capacity extension. Currency is created through debt contracts. A nation’s businesses and individuals enter into contracts to accept debt and, through this process, its banks create currency to supply transactions. Therefore, a nation’s ability to grow depends upon its ability to add debt and to create adequate currency.

A nation’s ability to add debt depends both on its current debt level and on its maximum debt capacity. It can add debt up to its ability to repay it while maintaining current consumption and while providing for future growth at a level that will allow future consumption to be maintained. Adding debt beyond this level will result in excess currency and consumption that lessens its future growth and future consumption, and that heightens its probability of repayment default.

The difference between a nation’s current debt and its maximum debt capacity is its available credit. If a nation adds more debt than its available credit, it adds more currency than its productive output and therefore dilutes its currency, increasing its probability of inflation. Therefore, it is critical for a nation to manage its debt below its maximum effective credit level while growing its available credit through reinvestment in infrastructure and education and through development of concentrated hubs of innovation and productive core strengths.

A nation’s credit capacity is the cumulative capacity of its citizens. Each individual, by his or her own development of education, skills, aptitude, and desire develops an individual maximum credit capacity that grows as these attributes build. An individual’s income reflects his maximum credit and his ability to obtain currency in advance of earning it through loans that add debt. Cumulatively then, a nation’s liquidity is the additive ability of each of its citizens to accept more debt.

Liquidity is provided to a nation through currency distributed by its banking system. Once again, the “Wealth of Nations” paradigm of a commercial bank’s primary mission is to match a nation’s currency to its wealth creating activities in adequate measure. In this paradigm, banks are tasked with the responsibility to evaluate a nation’s entities’ and individuals’ capacity to accept debt, and to enter into contracts that ensure that a nation’s and its citizens’ maximum debt capacity is not exceeded.

The “Wealth of Nations” central bank then ensures that the sum total of a nation’s currency supports maximum efficient output at full employment. Through the central bank’s manipulation of interest rates, it controls a nation’s credit capacity. When interest rates are lowered below historical averages, credit capacity is increased and consumers are enticed to add debt to their ongoing purchases by bringing would be future purchases into the present. In this manner, the central bank attempts to offset peaks and troughs of the business cycle.

However, throughout America’s history, and exponentially more so with the advent of globalization, America’s banks have not accepted nor fulfilled the “Wealth of Nations” mission expected of them by the majority of our citizens. America’s banks and the Federal Reserve in fact manipulated debt instruments to support globalization at America’s grave detriment. Doing so precipitated America’s greatest Ponzi ever, our housing bubble, violating their fiduciary responsibility to our nation. They obliterated their “Wealth of Nations” responsibility, enticing America to accumulate debt well in excess of its credit capacity, feeding a bubble frenzy that manipulated Americans into perceiving debt accumulation as investment.

The housing bubble enticed borrowers to think of their increasing debt not as early consumption but as a down payment on rising equity. Individuals were enticed through low introductory rates to take on long term debt well above their asset debt capacity. This became a logical choice because housing prices rose at 20 percent per year, making the housing bubble a logical “short term investment”. Lower introductory interest rates suckered borrowers to reach for higher debt levels than they could endure long term because of the potential to flip their “investment” for profit during the introductory rate period in what amounted to a dangerous Ponzi scheme.

For the two to three year period of watching their “investment” grow, individuals dipped into their savings and covered their short fall with short term consumer credit that was also made plentiful by the banks. To feed the Ponzi, banks enticed consumers to use short term credit in amounts well in excess of their ability to repay by offering introductory consumer credit interest rates as well. This unsecured consumer credit, well in excess of individuals’ total credit capacity, could be used to finance short term short falls in consumption capacity while their housing investment grew. With available savings and additional unsecured credit through credit cards, the “logical” investment choice was to let it ride on the housing bubble.

When the music stopped, many people who were in the game for quick profit lost their savings, destroyed their credit ratings, and maxed out their debt capacity using all of their available credit. Of course most home and commercial property owners that were not playing the game also lost massive value in their long term real estate investments. In addition, as the bubble popped, many credit card issuers increased their interest rates from low introductory rates to as much as 32 percent per annum, further pegging debt at or above sustainable levels.

This housing Ponzi was a manufactured raising of credit capacity well in excess of America’s ability to repay and an enticement to use that capacity to feed the housing bubble frenzy knowing that the bubble would reach an unsustainable height and that greater fools would be stuck in the end with excessive debt that would stagnate not only individuals’ future growth, but that cumulatively would stagnate America’s growth as well.

If China had not enticed American bankers and businessmen to use America’s credit capacity, if they in turn had not manipulated Congress to eliminate regulations that had earlier been put in place to mitigate excessive credit speculation, if social engineering for the poor had not provided initial cover for the banks to create manipulative debt instruments, if the Fed had not manipulated interest rates to historic lows, if banks had not thrown out historical debt-to-income loan criteria in favor of feeding the speculation with reckless housing loan products and hysterical credit card offers, and if Americans had not allowed excessive greed to cloud their thinking into believing that a new economy had arisen, the debt bubble would never have occurred. Yet it did, and America’s debt, and that of its citizens, has far exceeded its maximum debt capacity. As a result, we now are faced with lower future consumption, lower future growth, and a very high probability of default.

Given that the “Wealth of Nations” paradigm America has been operating under has in fact been inextricably altered and that our nation’s material wealth can no longer depend on multinational corporations or international banks to align with America’s interests, is it now time to develop a plan going forward that puts America’s interests ahead of our multinational corporations and banks? A plan to turn around America must include restructuring our debt load, immediately bringing it down to a level below our maximum debt capacity. It must include quickly forcing the repair of America’s business and consumer credit ratings. And it must include the simultaneous and immediate addition of 15 million jobs, not the paltry 1 to 2 million offered by our meek politicians. This turn around, as further outlined in the links below, should be and can be the initial step in shifting America’s paradigm to a “21st century Wealth of Nations.”

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Filed under Economic Crisis, Multinational Corporations, U.S. Monetary Policy

The Time to End Washington/Wall Street Bank Cronyism is Now!

My career transferred me to over twenty locations across the U.S. and gave me an accidental insight into regional boom/bust economies. Three times during the 1980s, I lived through regional housing booms that went bust. Houston experienced a boom/bust cycle tied to oil exploration. Hawaii’s housing prices doubled and then crashed in parallel to Japan’s economy. And New England’s regional market spiked and crashed tied to the baby boomer stock market bubble. During this curious New England cycle, I learned an invaluable phenomenon that would later allow me to time the Great Housing Ponzi and to cash out at the height of the market.

At the peak of the New England housing boom, apartment building owners found that they could turn any old dilapidated apartment building into condos and monetize them for high returns that far exceeded the profits they would otherwise receive if they continued to operate their buildings as rental units. Right after this point in the cycle, housing prices increased beyond what two income families could afford. The market turned and speculative investors were caught holding high priced investments. Over the next few years, housing prices dropped precipitously.

Having travelled extensively for my companies, I chose in 1999 to instead move my family to Florida to pursue my entrepreneurial dreams and to raise my growing family. I bought a home in 2,000 in the early phase of the real estate bubble, and by 2005, my home was now “worth” double what I had paid just as apartment buildings began to convert to condos. Having seen this pattern before, I cashed out at the peak. Over the next several years, the housing market softened and slowly turned south.

Just as I intuitively knew a slow housing crash was beginning in 2005, America’s banks knew well before the debt crisis “erupted” in 2008 (In which they claimed they had to be rescued immediately or that America would implode) that the results of their decades of greed was now barreling in slow motion toward the American people. The banks had also devised strategies for how to best extract themselves from the effects of the coming crisis well in advance. Yet they continued their loose mortgages and credit default swaps unabated for another three years after 2005 even after the housing peak turned. Bankers knew that America’s impending crisis was building to a historic crescendo, yet they continued to line their pockets with frenzied last minute greediness.

Why was it that bankers continued such damaging policies for another three years as they rushed to consolidate into “too big to fail” entities in preparation for the government showdown? Because they knew that short term bonuses had never been higher, that the gravy train would soon end, that most all of the other banks were complicit in providing global cover for their schemes to cash in on last minute deals, that too many banks were in the same predicament for the U.S. government to let them all fail at the peak of the crisis, and that the revolving doors between the banks and the financial regulators in Washington would ensure the bailout that would eventually occur, just as it had for the previous savings and loan bubble. Banking’s hearty participation in America’s financial democracy through years of election funding had purchased a socialized bailout that would protect the downside of their engorging loan profiteering.

Could the Federal government have chosen another path, more palatable to the American people, and just as viable as the one that Paulson forced on the American public, throwing $700 billion TARP dollars immediately into the coffers of big banks with no strings attached? Of course they could have. Certainly, restrictive actions could have been taken well before the crisis erupted. However, even in the midst of the manufactured crisis, a more dispassionate Washington could have chosen a better alternative.

In the heat of war, as waves of enemies are swarming over the embattled lines of defense, most every soldier is tempted to jump out of the trenches and run away from the immediate danger. To do so, however, would be to jeopardize every other soldier on the line. It is the commanding officer’s duty to instill the courage needed to overcome this dreadful fear and to hold the line. And if the line cannot be held, an orderly retreat is a tactical move that saves many more lives than a chaotic break of terror.

What the banks did in the midst of the growing crisis was the equivalent of staging a chaotic retreat. What Paulson could have done was to infuse capital into Lehman Brothers in such a way as to signal to the other banks that they would not want to take the painful medicine that Lehman Brothers would endure and that they should instead go back to the line of battle to defend the banking system while a more reasoned, thoughtful strategy was developed. But the banks knew a potentially radical change of politics was coming and that the risk of a depression era bank restructuring as punishment for their greed was too great a risk to take. And thus they broke the lines and ran.

Rather than force the banks to hold ranks to protect the flanks of every day Americans in the trenches, Washington chose instead the path of crony bank asset protection. In so doing, Washington set in motion the long march of the inevitable contraction of the American economy. Subsequent choices for bailouts, stimulus and quantitative easing that Bloomberg News quantified as an additional $12.8 trillion in spending, lending and guarantees, stabilized Washington’s banking benefactors yet added to the eventual severity of America’s slow collapse.

America can reverse this crony Washington/Wall Street strategy and I expect that Occupy Wall Street may be a catalyst to force a reversal. Yet, the damage that has already been done for having allowed Washington’s Cronyism for the past three years cannot be undone. Jobs have been lost. Businesses have collapsed. Credit has been ruined. Homes have been taken. Instead, America’s path of reversal will be steeper than had a fairer path been chosen. However, each day that we delay a course correction just deepens our eventual starting point for recovery. The time for action is now.

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Filed under American Politics, Economic Crisis, U.S. Monetary Policy

America’s Economy Can be Re-ignited Like a Boy Scout Fire

They say militaries inevitably prepare to fight their previous epic battles, sometimes lacking an understanding of how geopolitics and progressing cultures change the dynamics of the next war. If sophisticated, strategically centralized military planners continue to find themselves flat footed entering new wars, it should come as no surprise to find that Washington, as designed by our Constitution to be at battle with itself and the states, is utterly unprepared to execute war on our unprecedented flailing economy. By continuing to battle this historic monetary implosion as if it were a really big version of previous recessions, Washington has not only failed to aid the job recovery of our economy, it has actually dug an even deeper economic hole and has obtusely bludgeoned the American people for failing to crawl out from it.

This economy is neither a periodic mismatch between demand and supply as in previous recessions or a simple absence of demand that can be fixed by additional stimulus, low interest rates, or even lower taxes and regulations. Therefore, both the antiquated prescriptions being followed by this administration and the prescriptions of a bygone era being proposed by the Republican Party to win the confidence of the American people in 2012 will not fix our economy but will instead mire us in additional debt and will continue to sputter the economy to false starts and dismal failures.

If only those that would lead our country had been Boy Scouts! Boy Scouts practice their motto of “Be Prepared”, learning important skills of survival such as how to start a fire. As a lad, I was sent by my troop to endure a three day ordeal of survival before induction into the Order of the Arrow. The first night, I was given a match, a raw egg, a canteen of water, and a sleeping bag and sent into the wilderness. Because the night had turned frigid, my first order of business was to build a lean-to and to create the life saving warmth of a fire.

Now with only one match, it is critical to be prepared. Scouts first learn the basics that fire requires more than one match to burn. It needs additional heat, fuel and oxygen. After being taught the simple basics, Scouts delve into the intricacies of one match flame ignition. First, the Scout must find a sturdy, dry and protected environment that will be the base of the fire. The heat from the match must be ready to then ignite delicate kindling such as the under bark of a dead, dry tree. This delicate kindling must be given additional small twigs that snap at the touch. The gently resulting flames must have ample air yet be protected from erratic winds.

The Scout must be prepared to feed the fire with larger twigs at a rate that expands the reach of the flames without burning out rapidly and without smothering passageways of air that will support the nascent combustion. Afterword comes the traditional stacking of small limbs that keep the heat of the flame close yet that forces the aspiration of fuel and air into the mixture. Finally, the logs that will sustain the flame are placed strategically so that a majority of the logs will sense the flames flickering around them and will support air rushing in underneath to stoke the fire’s growth.

If the Scout is to be successful with just one match, he must be prepared to simultaneously manage all aspects of the fire’s preparation, lighting and combustion, and he must be ready to feed the fire once it bellows its life giving heat. The lighting of our nation’s economy is something akin to a Boy Scout’s preparation, lighting, and combustion of a Scout fire. If the manager’s of our economy’s restructuring do not ensure that all required aspects of an economic re-start are present and well dispersed to intricately interact with all its elements, the economy’s new flame will surely sputter like that of an unprepared campfire starter.

Just like the fire must have the proper balance of all three elements of combustion, heat, fuel and air to burn brightly, the re-lighting of the economy must have all three of its critical elements; sustainable debt, sufficient credit, and decentralized demand in simultaneous and sufficient quantities. When the match of economic stimulus is applied to the economy to light new jobs, if new workers are drowning in debt, their new incomes will simply support existing debts and will not spur economic growth.

Even if new workers’ incomes are sufficient to both pay their debt load and to increase additional demand, the impact of stimulus will be muted if their existing credit ratings will not allow them to take on additional debt, thereby increasing America’s money supply and expanding the economy. For any economic plan to be successful at re-flaming the economy, not only must stimulus be applied but our nation’s overhanging housing debt must be immediately reduced and our business and consumer credit must be immediately repaired.

However essential these basic elements of economic recovery are to restarting the economy, just like the Boy Scout fire, their application must be intricately and simultaneously intertwined to affect a delicate combustion from just one match of stimulus. America’s stimulus must flow through the dry, ignitable kindling of the domestic economy and be carefully protected from the erratic winds of globalization. The nation’s housing debt load must be swapped with bank equity to stack small limbs of economic growth near the economy’s fire base. Damaged credit ratings must be given amnesty to expose the limbs to economic oxygen. And our nation’s unemployed must be dispersed throughout the domestic small business economy through job vouchers to intricately mix the decentralized combustible fuel of demand with the oxygen of new credit and the heat of new debt capacity.

Just like the fire must be ready to accept additional limbs to grow its flames, the economy must be ready to respond to the initial turnaround with a growth oriented, business friendly, economic environment. Re-investment of offshore and captive capital into the domestic economy must be incentivized. A fair and consistent internationally competitive footing must be created so that businesses that combust in the early stages of economic recovery will be fed the competitive fuel to thrive in America through measures such as tax and regulatory reform, resizing of government debt load, investment in business infrastructure and modernized education.

Finally, a Boy Scout learns that a fire must be continuously attended, stoked, fueled and protected from the elements if it is to continue to provide life sustaining heat. Our nation has left its economic fire unattended for too long and must resolve to carry on the tradition of Scouting if we are to thrive once again. America should adopt the Boy Scouts’ motto and “Be prepared”.

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Filed under American Governance, American Politics, Bureaucracy, Economic Crisis, Federal Budget, Job Voucher Plan, Multinational Corporations, U.S. Monetary Policy