NEP’s William Black appears on Daily Ticker with Henry Blodget. With two days to go before “sequestration” chops an indiscriminate $85 billion out of Federal government spending, the blame game has reached a fever pitch. Bill explains it is dumb economics and some of the short term impacts of the sequester.
You can view the episode at this link. (Sorry no embedding Yahoo videos)
[Yahoo was having technical difficulty – if video is not Henry and Bill, click image of House of Representatives to immediate right of Richard Branson beneath video.]
This is a great opportunity to enact HR 2990, which removes US money creation from the private banking industry and restores this function to the US Treasury.
http://www.govtrack.us/congress/bills/112/hr2990/text
To create a full employment economy as a matter of national economic defense; to provide for public investment in capital infrastructure; to provide for reducing the cost of public investment; to retire public debt; to stabilize the Social Security retirement system; to restore the authority of Congress to create and regulate money, modernize and provide stability for the monetary system of the United States; and for other public purposes.
Frank the fed does not have the power to create even a single penny increase of net financial assets in the private sector. All they can do are asset swaps. Banks create money through loans and congress through deficit spending. With or without the fed, nothing changes.
The Federal Reserve is busy creating $80 billion per month for cash for trash purchases to bail out the losers in the financial community.
The real problem is that the financial engineers are sucking money out of the real economy and using it to speculate in the stock, bond and commodity markets. If the consumer economy is to thrive, then we need consumers. Unfortunately in a system where all money is created as debt and the super wealthy sequester most of the money, the consumer economy slows causing mass unemployment and debt servitude.
The Fed does not work like that. That 80 billion is an asset swap. One liability for another. If you have 200 billion in cash and 200 billion in treasuries your NFA is 400 billion.
If the fed buys 80 billion of your treasuries you then have 280 billion in cash and 120 billion in treasuries so your net financial assets are still 400 billion. The FED can not alter the NFA of the private sector.
When the Federal Reserve buys US Treasury Bills, I would agree that it is a a fair assets swap – Treasuries for cash.
But when the Federal Reserve buys corporate bonds that may not be the case, because the bonds or derivatives might just be worthless. Why does the Federal Reserve need to buy corporate bonds ? To shore up the stock market ?
The bonds could be worthless. That is why the fed can not directly infuse corporations with cash like that. The private sector banks would have to have already put up the cash for them and then the fed COULD take them as collateral without changing private sector NFA, but that would . Everything the Fed does is related to interest rates through reserve drains and adds. It is always about interest rates because they have no ability to change the NFA of the private sector. It is illegal for them to get directly involved in corporate securities because they would then control the interest rates of those securities.
The private sector banks would have to have already put up the cash for them and then the fed COULD take them as collateral without changing private sector NFA. Everything the Fed does….
Where did the Fed get the $23 trillion in cash, loans and guarantees to bailout the banks? Isn’t that what Section 13(3) of the Fed Res Act is all about? The bailout wasn’t a massive asset swap. If it was we’ve really been punked.
The Federal reserve is a private bank and as such can create money at will out of thin air as it deems necessary. Usually, it has to buy up paper assets in order to this this:
but it could be garbage in- money out.
The strange thing about our monetary system is that 97% of it is in the form of book entries on computers. Think of it – just numbers in computers.
It is really ludicrous that numbers in computers now rule our lives.
Numbers in computers; numbers on pieces of paper – makes no difference.
You’re right, is was not an asset swap. That is why the fed could not do it. Only congress can inject net assets into the private sector. Thus, congress had to instruct the fed to do it….after the fed begged them to and told them they had no choice if they wanted to save the world… right or wrong.
Dan,
On that we can agree.
However, the entries in the computers confer great power and influence to those with the positive numbers and debt slavery to those with the negative numbers.
If economies are to improve for the benefit of the majority of the population, the distribution of the numbers has to change. Cutting benefits for the less well off is definitely a regression to a less equitable age.
Albert Einstein made some interesting comments about Socialism in 1949
http://monthlyreview.org/2009/05/01/why-socialism
where he made the comment that we as a society, have not yet advanced beyond the predatory stage of development.
Yes, the numbers are just money. The issue is who possesses it and how it is distributed.
Yes, it may well be illegal for the Federal Reserve to buy corporate bonds directly from a corporation, but I presume the Fed could buy corporate bonds from banks who already own them in just the same way that the Fed buys US Treasury bills from banks.
Cash for Trash may well be occurring in order to save the banks (again). At least the US Treasury is not paying for it this time.
It occurs to me that a huge scam is going on at the banks by the CEOs to cash out while the going is good. The giant sucking sound will be heard as they depart for greener pastures.
you may be right… and now no one can dismiss you’re argument just because you got the operations wrong 🙂
Frank, this is the same Congress that is cutting in line in front of each other to be the first to hack spending and save the economy from the big spenders. Is it even remotely realistic to expect this Congress to pass HR2990 and this President to sign it?
Sunflower,
No, but someone has to step up to the plate and say it 😉
I’m keeping my eye on these One Penny Bets … is this Obama going for the jugular by giving the GOP enough rope to (politically) hang itself? I don’t know if the real misery caused by this is a worthy sacrifice in any case, but to allow the sequester to come to pass is madness.
Interesting tactic today: letting detained undocumented immigrants out of detention centers. The sequester basically gives Obama the opportunity to run a sort of shutdown of his own. He can focus on the most inconvenient impacts, and try to blame the Republicans for them. Then he’ll try to replace the sequester cuts with his preferred grand bargain, so we get Obama-austerity instead of Republican austerity. Either way, it’s going to hold back the economy.
Of course, Obama signed the Budget Control Act of 2011, and is only a sudden recent convert to anti-sequesterism.
Scary Brown People. Never fails.
Ha! Yes I saw that. I wonder what the angry mob that shouted John McCain down the other day thought about that. I think the ‘blame game’ is definitely on.
An Alternative to Capitalism (since we cannot legislate morality)
Several decades ago, Margaret Thatcher claimed: “There is no alternative”. She was referring to capitalism. Today, this negative attitude still persists.
I would like to offer an alternative to capitalism for the American people to consider. Please click on the following link. It will take you to my essay titled: “Home of the Brave?” which was published by the Athenaeum Library of Philosophy:
http://evans-experientialism.freewebspace.com/steinsvold.htm
John Steinsvold
“Insanity is doing the same thing over and over and expecting a different result.”
~ Albert Einstein
This is getting a bit old.
As a Walmart investor (not a proud one but I do boycott shopping there and imagine I’ve marginally more clout arguing for labor reforms as a stockholder than I would as an outsider) I’ve watched the company admit Jan sales were down but claim Feb sales were rosy again (or so they say). As if to say (and I think they did) the reduced purchasing power from the expiration of the employee tax holiday has “made our company even more competitive and thus even stronger!” It may require historians 20 or 30 years from now to sort this all out whether Walmart squeezed even more from exploitative suppliers, or whether there’s been a “trickle down” burst in sales from middle and upper middle income wage earners who have as well experienced reduced purchasing power, or whether the company’s engaged in some spiffy-new “innovative” razzle-dazzle with their financials, but I’m thinking Walmart’s NOT a good example to cite here.
But then what is? That’s the problem! It’s hard enough to predict future economic events–but when the recent past and current empirical data is so noisy only the sales marketers and socio-political ideologues can see use in it, it’s no wonder this “whatever” flipping off we’re seeing towards sequestration.
I suspect that you did not “invest” in Walmart, but that you bought shares from someone else, who was cashing out. The money did not flow to Walmart and was therefore not invested in the corporation. You merely placed a bet that either the share price would increase and/or that Walmart would continue to pay dividends. Not that there is anything wrong with that, but essentially it is speculation rather than investment.
@ demythify………your opening sentence indicates you are part of the problem no matter how you rationalize your complicity in fostering this wholly corrupt, sociopathic system.
Oh, no doubt – I also voted for Obama, I contribute to Big Oil (and Global Climate Change) every time I start my car, I put my money in a “too big to fail” bank that helped send the economy in the tank when it “fraudulently and recklessly” funded loans to unqualified home buyers, and then I rewarded myself by purchasing when home prices tanked. But that’s what it means to be an American-we’re all part of the system.
One hundred million of us are said to shop in Walmart every week, 1.5 of us work there, and every taxpayer has facilitated their dismal pay and benefits packages with food stamps and medicaid subsidies. Should Walmart stockholders start dumping stocks, Walmart management would respond with another round of cost cutting. Should Walmart customers slow in their shopping, Walmart management would respond with another round of cost cutting. Neither would be, in and of themselves, terribly effective strategies for reforming the beast.
This reminds me of another situation I once argued online regarding the story of the Catholic Hospital in AZ who “defrocked” a nun for performing an abortion to save the life of the mother after she was told not to by the Administrators who had orders from the Bishops.
My argument was that any Catholic Hospital in the US has no right to interfere with the civil rights of women, no matter what their doctrine says as they are on US soil and need to abide by US law.
The online opposing argument came from a Catholic Hospital administrator advocate, who claimed that if the government were to not allow the Catholic Hospitals to abide by their own religious rules/doctrine, The Church would just shut them down, leaving communities, many with only this hospital in it, to go without any emergency care.
To which I replied that this would be EASILY and SO QUICKLY remediated by the many, many private equity/corporate/doctor consortium investors picking up bargain basement prices for hospitals from the Catholic Church, in which hospitals are one of THE MOST PROFITABLE INDUSTRIES in this country, in order to expand their operations into these “captured by religious orders” markets! In other words, go ahead, make our day!
Similarly with WalMart, let it hang itself! Many, many OTHER private/corporate/consortium groups will pick up the slack in those markets that WalMart is disintegrating in, and flourish with more product diversity and choices without them. In other words, go ahead, dump the stock, stop shopping there, cut, cut, cut, and make our day!
I would agree with you, when “if the government were not to allow” retailers to behave like this, as in the case of the Catholic hospitals. Unfortunately Walmart isn’t alone-and even higher end retailers like William Sonoma are now squeezing their employees. A friend who’s worked there for years says there are now just a handful of full-time employees left where she works; the company feels it has to lower operating costs to compete with Target et al. A large family owned supermarket chain in my community has been unionized for years but recently tried to lower its benefits package threatening they’ve no alternative but to close stores and put many out of work completely. It’s a mad chase to the bottom, and it’s tougher government that we need to stop the madness.
Some changes would seem to be no-brainers to me. For example, it would help a great deal If government were to tweak work and pay regulations in such a way as to eliminate incentives for retailers and other companies to rely on part-time rather than full-time staff. As it is now many employers prefer using 3 or 4 part-time workers to do the work of one full-timer. And state and local governments need to stop letting behemoths like Walmart bully them to compete against each other as well. They’re frequently granted all kinds of unjustifiable concessions, as with sales tax relief, relaxed building and architectural code enforcement etc.
Well, I do my bit, I take my aluminum beer cans back for recycling 😉
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