CRASH 2008-09 -- first wave

The Second Great Depression--why-jk
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U.S. Monetary Supply--the root of the Crash
Great Depression, causes and parallels--jk
The Second Great Depression--why-jk
Great Depression and the New Deal
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Asian Crash 97--model for U.S. Crash
NEOLIBERALISM, the globalizers
Robber Barons
Fed Stats--the deception
More Debt no FIx--jk
Financialization and the Bubble/CRASH
Class nature of the CRASH--jk
Obama and the Second Great Depression--jk
Nobel Lauret on the Crash--Stiglitz
Second deed solution--jk
Economists-petition-Congress
Three Crashes--Models
Financial Crisis, a socialist perspective
Fairness Doctrine overturned yields corporate media
Funny Money Solution--more fed debt
Why We Need Regulation of the Market Place
10 to 1, the Credit Expansion
Fed debt--the debt game
WaMu Give Away by Feds
Offshoring and the Auto Industry
Economic summit November 15th
Figures on the CRASH
Pod Cast of CRASH plus much more

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By expanding the credit, there is more money to loan and collect interest on.

 

1.          U.S debt--all types--over $55 trillion, 5/09

2.          Shadow bank debt--over $60 trillion, 5/09

3.      Flooding of labor market with elderly, illegals, and documented workers

4.       Falling wages measured by purchasing power

5.       Outsourcing causing contraction of manufacturing and service sectors

6.          Trade deficit $60 billion per month

7.      Our country is being bought based on trade deficit and globalization laws

8.          Interest payments on the debt load goes to parasitic banking sector

9.          All the developed nations have similar debt load ratios and banking

10.         17% of GDP consumed by over-priced medical system, even more by banking

11.   Flow of funds out of this country trade deficit, and foreign investments

12.      Vanishing value of assets as markets implode

13.      Major drop in new construction, reduced inventories, no plant expansion

14.    Tightening of credit requirements

15.    Rising unemployment and reduced consumer spending

16.    Bankruptcies in retail, manufacturing, finance, and consumer sectors

17.  Snowball effect:  each element exacerbates the others

 

The Core is Rotten--jk 10/3/8, 11/30/8, 4/23/9

Pumping money into the banking system will not avert a second great depression, for the principle cause is the Federal Reserve Banking System and their policy 10% fractional reserve requirement of member banks.  This policy has permitted the supply of money to multiply. The more credit ran through the Federal Reserve and member banks the more profits they make through loans.   A dozen other factors pushed forward the clock:  especially falling buying power of workers and debt overload (federal, consumer, housing, and commercial).  Other major causes include the loss of manufacturing, trade deficits, the outsourcing of jobs, housing bubble, drop in value of stocks and pension plans, rising unemployment, supporting a gigantic financial sector, a military budget greater than all the other nations of this world’s combined, and the worlds most costly medical system.  Propping up housing prices and the financial sector is only delays the collapse.  Ideologs dismantled the strong dollar policy of Clinton and the Democrats.  In 01, with the fed debt at $5 trillion, and the Republicans drastically cut taxes on businesses and the top 1%, while waging a war.  At $11 trillion dollars in 08, the fed debt is unsustainable; so too are unsustainable commercial and manufacturing at over $20 trillion, and consumers’ at over $13 trillion.  The trade deficit in 07 was over $60 billion per month.  Total debt in the U.S. totals $53 trillion (Sept. 08).  And there is on top of this the shadow banking sector, which has in 08 was over $60 trillion.  Our government has responded by further expanding the currency through new debt owed to the banks, which they then return to the banks like a form of welfare.  Debt is the problem more debt is not the long-term fix. 

The proven path is not being taken (nor mentioned in our corporate media) is that of building up the purchasing power of the masses.  Roosevelt, who took office in March of 1933, used debt to create jobs (for a thorough balanced review of the New Deal, and id27.html).  He empowered the unions so as to raise wages, kept in place existing high tariffs, cut drastically immigration, established federal works programs, unemployment insurance, social security, etc.   The New Deal Democrats were increasing the in purchasing power of the masses, while at the same time promoting domestic tranquility.  Although the leading bankers and industrialists didn’t like this Keynesian cure, many of them though it necessary for to save their system.  They feared what happened abroad might happen at home:  Germany and Italy elected nationalist-socialist parties which instituted very successfully state ran economies[1]; while England and France elected moderate socialist governments, and Russia had 12 years before had a radical socialist revolution.  Given our domestic unrest, the New Deal programs appeared as a prudent course to big business and banking.

3) These programs worked and by 1937 the GDP was above the pre-depression level.  Out of depression, the Democrats and FDR ended the federal work programs and the increased taxes upon the masses in 1937.  The economy crashed again.  With the reinstitution of the work programs, the economy bounced back (see the graph at http://skeptically.org/crash/index.html) and by 1939—two years before the war—GDP was again above the 1929 level[2].  

4) But today few support radical changes, so our government continues to work closely with banking interests, whom hereafter I will call the globalizers..  In Hoover’s day corporations were national not international, and so protective tariffs had wide appeal.  Manufacturing played a far greater role in the economy and thereby had a greater affect upon government policies.  In a world with protective tariffs, building up purchasing power of workers made sense.  This shift to financialization and our loss of manufacturing entails that our government (now wearing the liberal Obama face) will do far more for banking and less for manufacturing and workers.  This dole for the banks has far less impact upon the economy than the New Deal type fixes; made even less because of our outsourcing of services and importation of manufactured goods.

 5)  Since Hoover’s day we have gone from monopoly capitalism to global capitalism.  The players are better organized with their WTO, IMF, and the World Bank and their trade treaties with nearly all nations.  What hasn’t changed is that those who fund the political parties (and they also control our economy through manipulation of the money supply through interest rates); they are the power behind the political scene.  They want more debt for to collect interest thereon, and they want to be bailed out.  They were the dominate force in the 20th century, and they still are.  Our government is responding to the wishes of the globalizers, and this will continue until the masses are ready to revolt.   

6) The amount of currency was once limited by the requirement that paper money be back by gold, which ended in 1971.  This change permitted the Federal Reserve Banks to require of member banks a10% fractional reserve for loans.  As the loans were being repaid they could again borrow again at the ratio of 10 for 1.  This greatly expands amount of loans, and thus money in circulation—see graph above.  Banks are a loan making business; give them lots of money and they make lots of loans, and lots of profits on those loans. This flood of money permitted the financial profits to grow as a percentage of all profits from 14% in 1969 to 38% in 2006.   

7) This currency expansion, and deregulation of financing are parts of the neoliberal economics (http://en.wikipedia.org/wiki/Neoliberal_economics).  With the 10% reserve requirement (see graph below) shows the credit expanding gradually as payments are made on debts.  Debt obligation in the form of T-bills meets this reserve requirement, and our government makes interest payment to the holders of the T-bills.  The Federal Reserve Bank then extend lines of credit to member banks.  The competative review system of performance requires the CEO’s to maximize profits, and for banking this consists mainly of making loans.  Shaky loans were repackage and sold to the Shadow-banking sector secured by under 3% assets.  The financial sector of our economy is the largerand more profitable than manufacturing. 

8) The interest payments along with the overpriced medical establishment, energy prices, Iraq War costs, 500 billion defense budget, real unemployemnt over 20%, falling wages, and the trade deficit, all these have so burdern our economy as to cause the depression.  The problems were hidden by expanding the debts.  Our economic expansion since 1973 was not based on manufacturing and a favorable trade balance, but rather on the printing of money which is loaned to the banks and then reloaned.  Our real GDP has not expanded as fast as population because our manufacturing has shrunk.  Printing more money only hides this fact.   

 9) The stock market crash 08 (down 40% from the high in 07) is a reaction to the economic conditions; so too that in the housing market—down over 50% from its high in 06.  Now the consumer credit-card debt bubble is slowly bursting, and so too is the business community defaulting on their loans as their income collapses.  This will result in massive bank failures; failures which the FDIC will not be able to cover.  To forestall this our government is printing money which it gives to the financial sector, and uses what’s left for programs to increase consumer demand.  The more money there is the cheaper it become.  Run-away inflation will likely result.  Debts can then be paid off with cheap dollars—or simply defaulted on.  This is what happened in Argentina in the 90s.

10) Every downward element feeds the others.  Rising unemployment and falling wages has caused the major fall off of business activity, which entails further declines in employment.  The unemployed don’t spend much.  Evaporating stock market and falling housing prices entails further reduction in spending.  Falling asset values reduces credit worthiness.  Stratospheric debt level is being corrected by defaults.  Moreover the U.S. is not alone, every industrialized nation has applied adopted the same policy of monetary expansion (in 1913 our Federal Reserve System was model on the European systems).  The expansion of credit brought the good times of the 20s which hid the falling wages that brought on the depression of the 30s.  The decline started with a fall in the GDP at a 20% annual rate the 2 months prior to the run on the stock market in 1929.  The run on the banks occurred in January of 1933.  History is repeating itself.   

          11) The European Union is all part of an overall neoliberal plan for to establish a flat world for the globalizing financial, commercial, and manufacturing interests.  They want to dominate the economies of every nation. The heads of all the industrialized nations go along with the WTO-IMF’s economic plans.  The governments of all the industrialized nations and nearly all the under developed nations have signed trade agreements (which go far beyond tariffs) with acronyms such as NAFTA, GAFTA, and MEFTA.  These treaties were sold on the theory of creation of skilled jobs for the developed nations, and manufacturing jobs for the underdeveloped nations.  This ruse became law with treaties that allow the globalizers to greatly expand in both developed and under developed nations.  And with the flood of funds they are able to purchase their smaller competitors.  With the lack of regulations we are reliving the era of the robber barons on a global scale. 

12) Will Obama become another Roosevelt?  Will the Democrats victory be seen as a mandate for basic changes?  Will they undo the links between their party and the commercial interests through campaign reform, and will they close down the conservative media propaganda machine?  The Secretary of the Treasury is the former head of the New York Federal Reserve Bank.  Several Bush appointees are still there and many of Clinton’s top people have been appointed.  Judging from Obama’s financial advisers, the relationship of the Democrats to the neoliberals has not changed.  The economic collapse brought on by the globalizers has not undone their relationship with governments here, in Europe, and in the underdeveloped world.  With global corporations in bed with politicians and all drinking from the neoliberal bottle of ideas, their treatments will be more welfare for banking. 

13) Yes, welfare because there is not interest payments required by those who have been bailed out.  Nor does as some nations have done, and ours will, the acquiring a position in the financial institution change it from welfare.  To own its stocks or take over its operation is not a basic change.  It would be like your wife buying your once separate property home and then living with you in it.   Now there is just another signature on the title paper, but things go on essentially the same.    

14) Basic changes will not occur until the people take to the streets.  That is what got us out of Vietnam and what motivated Roosevelt and the Democrats to formulate the New Deal.  Moreover, there is no significant labor-populist voice in the media for to raise popular support for a New Deal Keynesian fix. We need a populist movement pressuring our government to protect wages through pro-union laws, protective tariffs, and to minimize immigration.  We need a government to stand up to the parasitic financial community:  what do they bring us that we ourselves haven’t already made or could make?  History is not repeating itself because labor is much weaker and the populace confused.  The harm done by today’s robber baron (globalizing neoliberals) to the public weal is mind boggling. 


[1] Only after getting out of the depression, could the governments of Italy and Germany turn to preparations for war. 

[2]   There has been a rewriting of history, both in events and causes by the corporate media.  It is subtle.  They state that the war preparations got Germany and Italy out of depression.  But rather the socialist programs of a demand economy created the prosperity upon which made possible the subsequent military buildup.  Similarly rather than admit to the success of the New Deal changes, they say that war preparations ended the U.S. Great Depression—the graph of the GDP shows otherwise.  In a thousand ways this history is being rewritten.  One needs to go back to period works for to get a flavor of those times. 

 

Teddy Roosevelt advised:  “We must drive the special interests out of politics.  The citizens of the United States must effectively control the mighty commercial forces which they have themselves called into being.  There can be no effective control of corporations while their political activity remains.”

 

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click on graph

KEY THOUGHTS:  1) There is no free lunch.  Efficiency and promotion of the public weal ought to be the measure of performance.  2) Like public hospitals, whose goal is to promote the public’s well being, we need a similar banking system:  one whose goal is to in a fair way promote the distribution of good and economic development.  3) The only way to get out from the boulder of debt with it interest payments is to eliminate them.  Have loans made with a service charge, and tie the rate of repayment to the Consumer Price Index.  4) Corporations can function without the issuance of stock.  They can raise money from banks, based on the soundness of their business plan and the public need for what will be produced.  5) There is an economic bottleneck:  we have the ability to build all we need and distribute but our system of finance blocks this.  During WW II we demonstrated this, but unfortunate we used debt, a burden on the future.  We need a radical solution one which eliminates this bottleneck.  5) The long-term prosperity and domestic tranquility of a nation depends upon what it produces and the purchasing power of the average worker.  6) The GDP should measure manufacturing, mining, and farming.

Inflation took off under Nixon--ends gold standard
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Overturning the apple cart--jk

The best way to understand the easy fix for the problems related to the crash is based upon the problem.  The problem is financialization:  the full spectrum of activities related to  money exchange including banking, loan making, stocks, bonds, t-bills, the $2.6 trillion dollars in dialing (global) foreign exchange transactions.  There is a mountain of money out there in loans (over $53 trillion in debt, 3.6 times our GDP) and there is interest payment and other fess thereon.  Fess is what supports Walls Street, the bankers, the mortgage companies, and the insurance companies. These fees support our wealthiest 1% and every body that works in this sector.  Consider the fees:  mortgage payments which of which interest totals several fold the value of the property, then add to this the interest paid by the factory owner to the bank, the dividends paid on stocks, the banking fees, the interest mines pay on equipment and property, the railroads that ship the steel, the workers that build the car have a large portion of their income go in interest payments.  The financial sector is parasitic.  Do we need them for to own a home, a store, a factory, a car, a television, and to pay for our meals?  The buildings and durable goods are there, and they are there too with their fees.  They are a parasite that has spread though out our economic body.  Our labor and goods support these middle men.  Over 70% of our economy goes to the service sector, and they make up over half of that 70%.  They have created through Federal Reserve banking policy this debt inflation and thereby the interest payments thereon. They are a cancer feeding upon our economy, and like a cancer the best (and permanent) cure is to cut it out. 

We have been feds three major myths:  one that the financial sector plays an essential role.  The second myth is that corporations must be owned by stock holders to function efficiently.  Third is the belief that the management bureaucracy under the for-profit system is the best way to run a factory, utility, or pharmaceutical company. 

A commonly reproduced photo illustrating the Great Depression is that of a long line of men standing, 3 thick running around the block on a rain-slick sidewalk in front of an employment office in a major city.  Now visualize 25% of the workforce sitting about idly.  They have been displaced because once factories operating at an average above 85% of capacity are now operating at under 50%, and many more have shut their doors, our construction trade is been paralyzed, and our retail trade has taken a hit because incomes have dropped .  The simple fix would be for manufacturing to up their production. This could be done like during a war, when the government simply places order for the goods and prints money to pay for it. Put everyone to work.  Money is as good as what it can buy, have enough jobs and thus money in circulation so that every one can have a decent dwelling, food, health care, food, and needed durable goods.  Our system is one where needs go unfulfilled because of our imperfect method of distributing funds.  It would be changed to one where need and funds are paired.  Income ought[1] to be based upon labor, and labor attached to the public weal. 

Corporations could simply compete on the bases of value of goods (cost, durability and functionality).  Those that do poorly would have a change in management, and a bonus system would provide incentives for workers including management. 

With factories running at near capacity, there would be more demand for the service sector.  Consider the empty shoe factory, empty because people don’t have the funds to buy the objects that were made there.  Empty also because the company that owned the equipment moved to China.  The solution would be to build new machines, protect income with tariffs, and take the idle people and put them to work in the factory making shoes and in the tanneries. Salaries paid the workers would stimulate the economy.  Do this everywhere and we would be out of the depression. 

This is what Germany did in their first 4-year plan under the Nazi party from 1933 to 1937 (unfortunately the next 4-year plan concentrated upon the production of war implements).[2]   Employment could be distributed by shortening the work week, thus guaranteeing jobs for all.  Those who are able but who don’t contribute ought to live in sever conditions. 

We need a demand economy, one where transparency and the public weal are its measures.  The operation of the state is based upon its politicians and their supporting structure. The Soviet Union failed because politicians ran the economy.  Ours has failed because we never had done as Theodore Roosevelt had advised: get the business and banking interest out of politics.  Their influences have brought a second depression.    

Government can perform the function of organizing an economy.  In spite of the ineptitude of politicians (don’t forget that corporate management can be even more inept)[3]  the Soviet Union raised from an economic state similar to that in Turkey after WW I to that of a world power.  The medical systems of England and Canada overall out perform our system—average person is better cared for, and at half the cost.  Government can function efficiently; for example, the administrative cost of Medicare is under 5% while that for the HMO system is over 30%.  A new system of incentives and reviews are needed for our elected official.  JK has set out a number of ways to improve the political-economic system


[1] Ought is a moral term.  It is immoral for an able body person to exist parasitically upon the labor of others.  Social justice requires all to contribute according to capabilities.  

[2] Recall the films of the masses cheering Hitler.  It was because in 4 year he restored their economy.  (Then he led them to total destruction of war). 

[3] I am thinking of the structure than ran Enron, World Com, Tyco and others.  I am think the structure of Merck Pharmaceuticals which suppressed the evidence concerning Vioxx causing atherosclerosis  After 6 years on the market there were over 125,000 heart attacks and strokes which resulted in at least 55,000 deaths.  

Teddy Roosevelt's advice that, "We must drive the special interests out of politics. The citizens of the United States must effectively control the mighty commercial forces which they have themselves called into being. There can be no effective control of corporations while their political activity remains."

Don’t miss the collection of Pod Cast links

 

Nothing I have seen is better at explaining in a balanced way the development of the national-banking system (Federal Reserve, Bank of England and others).  Its quality research and pictures used to support its concise explanation set a standard for documentaries--at http://www.freedocumentaries.org/film.php?id=214.  The 2nd greatest item in the U.S. budget is payment on the debt.