U.S Debt,Unfortunate Policy Decisions Made By Ruling 10% Income Earners

If the U.S. continued on the track the Clinton Administration had us on, the country would have had a surplus of $2.3 trillion today.It would have been a windmill for money coming into our accounts to support all the wonderful technology that has been developed around the world.Unfortunately, we elected George Bush in 2000,9/11 occurred and our economy went into a great recession due to many factors(mostly due to our antiquated,lassie fair,top 10% income earning elitist capitalist system).

Out of the box,Bush(and majority Republicans) repayed his financial backers with a three trillion dollar tax cut that began our stroll down the avenue of debt.Most of the money went to citizens who didn't need it and had been increasing their wealth for the past thirty years by underpaying their employees and taking away their benefits.This increased the income inequality even more and transported us back to the roaring twenties when this disparity was the greatest.No mention of the 13% who live in poverty and the 20% who live a few bucks above it.Next, the Bush Administration increased the debt by three hundred billion with an unfunded drug benefits program for seniors.This was done for the support of the pharmaceutical industry,not the general population,who wanted to monopolize the drug purchases and stop the seniors from acquiring their needed drugs from Canada and other countries who would provide the service at a cheaper rate.Nationalization of heath care would bring lower costs to citizens and the government and project and protect democracy(top 10% don't want equality here,best facilities and doctors only for them).

The same administration provided two hundred billion(TARP) to help the financial community for speculating(their formulas failed)on debt securities(built on commercial,residential housing) that collapsed and started to lower stocks and disrupt the banking system.Again,most Americans didn't have direct interest in the financial community(vast majority of securities held by top 10% income earners) but are paying for the college boys/girls mistakes in their free market,holy(always right) capitalistic system.

9/11 brought our country $1.4 trillion in debit for the Afghanistan and Iraq Wars.This spending was unnecessary and could have been avoided if we were patient  and denounced retribution(an eye for an eye leaves the world blind).Our domestic spending on homeland security was enough to counteract the small  fundamentalist groups and our recent history proves this point. Our violent,militaristic culture provided the push for President Bush's Administration, with traditional hawks and conservative pseudo-academics, to seek a revenge that dismantled two countries and have lost over two hundred thousand lives in the role of nation building.

The Great Recession lost considerable revenue and $1.7 trillion was borrowed for domestic and general defense spending during the last years of the Bush Administration(we actually spend 52% of our annual budget on defense,more than all nations combined,including interest on previous spending and veterans benefits that grow every year due to the horrible injuries).Additional mandatory policies($400 billion) was spent and borrowed under Bush due to a lack of revenue.The total for Bush's policies amounted to $7 trillion from 2001-2008.

President Obama's Administration presented a $800 billion Recovery Act(1/3 tax decreases) to stimulate the economy that was primarily caused by a loss in aggregate demand due to unemployment and fear of future layoffs by the majority of the population.The new classical economists,sanctified by the Republicans,saw no need for government interference and wanted monetary policy to bring us back to equilibrium and job creation.Many new Keynesians wanted the stimulus to be bigger with the possibility of an increase in aggregate demand.The people with the money to start investments sat on their money afraid to risk it because the majority on Americans were inhibited to purchase on credit anymore(used credit because salaries were so low). After running up $7 trillion in debt,the Republicans stopped President Obama from spending more to help the economy and the 90% of Americans that lived in fear of future cuts in employment(stock market prices increased when unemployment rose in their companies).Obama also added $250 billion on the 2010 middle class tax cut to again stimulate demand.Finally,Obama had a one-time emergency costs and investments(small business Bill,HIRE Act,education investments and Census) at $400 billion.The Obama Administration's total debt increase was $1.4 trillion.The Bush Administration spent and accumulated debt at five times the amount of the Obama Administration.Obama's policies have also tried to undue the economic problems the financial community and Bush Administration created.$4.3 trillion in debit has accumulated since 2008 with all of it coming from government financing($700 billion) and lost revenue from lower taxes and a depressed economy($3.6 trillion) which is really a continuation of the Bush policies.All this has happened as the Republicans,and the Americans that elected them, clammer for no new revenues.The Great Recession, which was caused primarily by the 10% who have the majority of the money,has left the 90% of citizens fearful and hopeless in a culture that ignores the founding principles of democracy(Common good for all).Economic inequality is a silent dagger that is twisting more today than at any time in our recent history.It's time to take to the streets and disrupt the lives of those who shelter and gate themselves from the majority who want only democracy and security in the workplace.

The Present State Of Economics(Skidelsky)

The present state of economics is one of rational expectations.The New Classical economists developed the rational expectations hypothesis to demonstrate the uselessness and even harm of governmental interference with market process.Old classical economists believed that ,if wages and prices were completely flexible, there could be no persistent unemployment.They accepted the ignorance about future events and could justify government intervention to provide employment. The new classical economist(beloved by conservatives) abolishes this assumption because they state that wages and prices will adjust instantaneously to new conditions because the conditions will have been anticipated and incorporated in the prices which people charge and expect to pay for services.According to the new classical economists,Greenspan's "underpricing of risk worldwide" is impossible. Moreover,because people are always at their preferred position,government efforts to improve their position will be ineffective.Unwanted unemployment is banished and is a voluntary choice of leisure(tell that to the unofficial 20% that are unemployed today).Government should get out of the business of second-guessing private preferences.

The rational expectations hypothesis was built on a sophisticated intellectual structure whose starting point is the existence and precise knowledge of future events.This is derived from all the information available about both past and present circumstances and that it implies economic actors will not make the systematic mistakes in predicting the future.This rules out the possibility of large crises(Great Recession) except as a result of surprises(bad formulas that didn't take into account of harmful debt to asset ratios or inflated assets).

The REH economists follows a model of economy that behaves in a predictable way.The model assures that the universe exhibits stability over time and that the future can be inferred from the past and the present.The important policy implication of this belief is not just that stimulus policies will fail to stimulate,but they would lead to inferior outcomes.New Keynesian's accept REH but also admit the existence of "frictions"(lack of new investment) which impede almost instantaneous adjustments to new conditions. This allows allows them to advocate government interventions to improve outcomes.The crucial assumption of REH is not perfect competition,but perfect information. Had the Soviets been able to concentrate information as markets do now,there would have been no technical reason why its choices should not have been perfectly rational in a way postulated by REH. A single Platonic guardian would make no mistakes.

New Keynesian economists believe that the outcome at any future date is a statistical shadow of past and present market prices.Some believe a financial system which transforms investment into speculation will eventually be followed by a collapse.At times when the markets are faced with significant changes(Black Swans),economic models cease to work.Typically,these are times when herd behavior is most obvious.New Keynesian's understand the snares of statistics(bell curve)and human behavior as factors to monitor.

The policy regime which followed the Reagan-Thatcher revolution reflected to a large extent the ideas of the New Classical economists.Consumer price stability became the main,and often only,goal of macroeconomics policy and monetary policy was considered sufficient by itself to ensure stability.Concern with credit, banking,asset price,and financial stability was downgraded.Efficient market theory also lay behind the extensive deregulation of the last twenty years:repeal of the Glass-Steagall Act,the acceptance of bank self-assessment of risks,the failure to regulate the market for derivatives(all positions the Republicans and many Democrats still support).

More from "Keynes-Return of the Master" by Robert Skidelsky coming in the future.

2008 Great Recession:What Went Wrong (Skidelsky)

The most popular explanation,according to Skidelsky in "Keynes", was the failure of banks to manage the new risks posed by financial innovation.Greenspan stated that the cause of the crises was underpricing of risk worldwide and the technical failure of risk management models. Particular attention was paid to the role of American subprime mortgage market as the originator of the so-called toxic assets which came to dominate bank balance sheets.A global inverted pyramid of securities also fell in value. Household and bank debt was built on a narrow range of underlying assets-American house prices.When they started to fall,the debt balloon started to deflate.Many of the loans had been made to sub-prime mortgage borrowers with poor prospects of repayment.Securities based on sub-prime debt entered the balance sheets all around the world.When house prices started to fall,securities also fell in value.Fearing insolvency,with their investments impaired by an unknown amount,the banks stopped lending to each other and to their customers.This caused the credit crunch.With collapsing confidence,stock markets plunged,banks began to fail and the economy started to slide.This brought about generalized conditions of slump throughout the world,which deepened throughout 2009.

Skidelsky states that American house prices rose 124% between 1997 and 2006,while the Standard & Poor's 500 index fell by 8%.Half of the US growth in 2005 was house-related.Home ownership increased from 64% to 69% between 1994 and 2005.The average price of an American home was three times the average wage for a long time in its history.By 2006, the ratio was 4.6% and rising.Two reasons were behind the boom.First,the Clinton administration encouraged government backed institutions like Fannie Mae to expand their lending activities.Second,private mortgage lenders,having exhausted the middle-class demand for mortgages,started to lend to people with no income,no job or no assets.Borrowers were enticed by teaser rates:very low,almost zero,introductory interest rates on adjustable-rate mortgage which went up sharply after a year or two.By 2006,more than a fifth of all new mortgages($600 million worth) were sub-prime.Mortgage equity withdrawals to buy consumer durables and second homes shot up from $20 billion in the early nineties to $700 billion by the mid-2000s.Monetary authorities had turned their populations into highly leveraged speculators in a fixed asset.In 2005-6,two blows hit he housing market:a rise in the cost of borrowing and a downturn in house prices.Between 2004 and 2006, the Fed,seeking to dampen inflation and return short -term interest rates to a more normal level,raised the federal fund rate from 1% to 5.25% and kept it their until 2007.US house prices fell 33% before flattening out.16% of sub-prime mortgages with adjustable rates had defaulted.These losses demolished the investment firms risk models based on mathematical formulas.The US credit-rating agency,Moody's,had also incorrectly awarded triple-A ratings to billions of dollars' worth of financial instruments because of a coding error in their model.

Many different entities were blamed for the Great Recession.Bankers,Credit-Rating Agencies,Hedge Funds,Central Bankers,Regulators and Governments were all blamed for the disaster.Skidelsky,interesting enough,blames the economics profession.The practices of bankers,regulators and governments can be traced back to the ideas of economists and philosophers.The crises is a not failures of character or competence,but a failure of ideas.Keynes stated that "the ideas of economists and political philosophers,both when they are right and when they are wrong,are more powerful than is commonly supposed.Indeed the world is ruled by little else".Skidelsky explores the present state of economics and I will bring you his thoughts in the next post.

Keynes:The Return Of The Master (Skidelsky)

The introduction of this book discusses the explanation of the Great Recession of 2008 as a macro- level problem instead of a micro-level one.There are two main macro-economic theories of what went wrong,pointing to very different conclusions for policy and the book tries to help us decide between them.The first is derived from the quantity theory of money,the second from Keynesian theory of aggregate spending.

The first,or monetarist,theory attributes the collapse to instability in the supply of money.The central banks of the world,led by the Fed, made money and credit too easy in the years leading to the crash resulting in an asset-price inflation built on debt that also spilled over into a consumer boom (Maybe our jobs didn't pay us enough to support the American middle class lifestyle..as a teacher,I lost 15% of my purchasing income due to small raises and higher inflation in the previous ten years).A collapse was bound to happen when credit tightened.The collapse of the real estate boom(residential and commercial) hit the banks which over-lent to this market and spread to the banks via securitization(banks knew the government would come to the rescue for their gambling).The pile of bank losses led to a credit freeze(collapse in the money supply) which spread the recession to the whole economy.

The Keynesian theory attributes the crises to the instability of investment.The macroeconomy falters when saving runs ahead of investment(what the companies are doing now by hoarding cash and not investing).The crises can be traced to the fall in demand for new investment following the collapse of the dot.com bubble in 2001.(continues today and is the main reason unemployment is so high).Greenspan's cheap money policy and the Bush deficits(lower taxes,two wars,costly health bills for Medicare) were insufficient to revive private sector investment demand.What they did is create a highly-leveraged asset(banks had very high asset to debt ratios and the lower/middle class used credit cards,money from home refinancing to keep their heads above water due to low pay and increased inflation)) and consumption boom.Too few new assets were being created(was it all in high paying securities?) and the private sector became progressively over-indebted.The collapse of the real estate boom disclosed the extent of the over-indebtedness(so goes the unemployed who had no decision making in the process).The de-leveraging of household,banks,and companies brought about the collapse in aggregate demand which caused the great recession(see my post on Robert Reich's proposals to create,stimulate aggregate demand).

These two theories have different causes that brought the great recession to our doors.According to the first,the crises was caused in a mistake in policy(Fed's inability to cut off asset inflation).The second can be attributed to the failure of the Treasury to offset the failure of private investment by sufficiently expanding public investment(That's an irrational thought with Republicans in power 2000-2008)The monetarists(Classical theory) believe recovery will come when the central bank expands the money supply(doing that now).The Keynesian's believe government action is needed to increase aggregate demand and that the increase in the quantity of money is a consequence,not a cause, of the recovery of business activity(companies are still sitting on their money(savings) and delaying investment because they understand the demand isn't strong enough to expand supply..thus high unemployment).

The two theories imply different approaches to the problem of global imbalances(China and East Asia(surpluses) and the USA and much of the developed world(deficits)).The global imbalances,according to the monetarists,play no part in the genesis of the crises.The Fed had complete control over its own monetary policy.The monetarists sees the US deficit as a consequence of US overspending.Keynesian's believe Chinese over-saving had a deflationary impact on the US and developed world.One key difference dominates the gulf between the two theories.The monetarists view the market economy as relatively stable(all the math formulas didn't save the securitization of debt collapse) in the absence of monetary shocks while the Keynesian's view it as unstable in the absence of government policies to steady aggregate spending.This is because one key component of aggregate spending-investment-is governed by uncertain expectations(as we have today).The monetarist view is in the ascendant today but the recent crises confirms the validity of Keynesian spending thesis according to Skidelsky.

More to come from this book soon.

Comhaltas: ComhaltasLive #310 (Full Programme)

Comhaltas: ComhaltasLive #310 (Full Programme)

John Fullerton - Financial Speculation Tax News Conference

The Carried Interest Loophole Explainer

More From "Bomb Power" Garry Wills

Congress under the Constitution has the sole right to establish federal court systems.It sets up district and appeals courts,and also courts martial.It establishes the number of justices on the Supreme Court.Yet President Bush,on his sole authority,set up a third entity that recognized none of the legitimate court systems and defied the Geneva Conventions on the treatment of war prisoners.The Bush system had no justification in constitutional or international law.The Bush people were as concerned with creating an unchecked and omnicompetent executive as with hunting for terrorists.The tight little circle around Cheney and Addington wanted to keep the Office of Legal Counsel memos from any who might oppose them including National Security Advisor Condoleezza Rice and Secretary of State Colin Powell.

Jack Goldsmith inherited the leadership role in the Office of Legal Counsel when Jay Bybee and John Yoo left the Justice Department.He was a conservative young lawyer,supporter of President Bush and a member of the Federalist Society.He was a friend of John Yoo who wrote numerous OLC memorandums used by the Bush administration to defy the constitution and international law for their own purposes.Unfortunately for the administration,Goldsmith was a good legal thinker and thought the memos by Yoo were legally flawed and had no foundation in prior OLC opinion or in any other source of law.The memos implied that many other federal laws that limit interrogation--anti-assault laws,the 1996 War Crimes Act,and the Uniform Code of Military Justice are also unconstitutional.What struck Goldsmith was the unnecessary exclusion of all parties but the executive--Congress,the courts,the American populace,allied governments--at a time when they were all anxious to cooperate with the efforts against al Qaeda.Cheney said the Constitution was irrelevant to executive power.Goldsmith concluded he had to reverse the legal opinion of his own office by canceling Yoo's torture memo.Goldsmith's decision to stand up to the White House had come at a price.There was no chance that he would ever be made a federal appeals court judge,something Jay Bybee got for toeing the line.Goldsmith,Alberto Mora,James Comey and Patrick Philbin all had their careers subverted for not cooperating with the Bush team.It was a reign where dissent was not merely discouraged,but punished.

The Bush circle also fought the McCain anti-torture bill during this time.Cheney tried to have Bill Frist block the legislation by withdrawing the budget bill.McCain responded by lining up two dozen retired generals(including Powell) to say that observing the Geneva Convention was necessary to ensure proper treatment of our own military personnel.The bill passed the Senate by 90 votes to 9,including 46 of 55 Republicans.Cheney had still not given up.He urged that the bill exempt CIA agents to allow them to torture.Eventually,the House passed the bill and it became the law.But then,as so often happened with Bush,the law was undone with a signing statement.Appended to McCain's law came a statement that the executive branch(Commander in Chief)will assist in achieving the shared objective of the Congress and the President of protecting the American people from further terrorist attacks.This signing really cancelled the law and the administration continued it's monarchy and the torture policies of the Yoo memo for the remaining days of the Bush Presidency.

American Monarch:More From Wills In "Bomb Power"

The framers of the Constitution were determined not to have a monarch like the king they rebelled against.The President's private monopoly over nuclear weaponry is evidence enough that the framers would be appalled by the transition since WWII.The attempt by Congress to push back with the War Powers Resolution,CIA oversight,and the FISA court did nothing to check Presidents defying the WPR in Lebanon,Grenada,Panama,Libya,Haiti,Kosovo,Bosnia and elsewhere.

Vice President Cheney and right hand man David Addington were devout advocates of presidential power for years before the 2000 election.As a member of  Congress,he labored to squash opposition to President Reagan's attack on Libya in 1986.He and Addington wrote a minority report opposing any condemnation of the Iran-Contra operation of Oliver North.Cheney advised James Baker to end the War Powers Resolution.Addington said he would strangle the FISC(US Foreign Intelligence Surveillance Court).The two men backed neoconservatives recommendations for the overthrow of Saddam Hussein during the Clinton administration.They brought Douglas Feith,Paul Wolfowitz into the Bush administration who were backed by William Kristol,Richard Perle,Norman Podhoretz,Midge Decter and Gertrude Himmelfarb.On the campaign trail Bush II sounded some old themes of Republican semi-isolationism.September 2001 changed that perspective and Addington and Cheney influenced him greatly to ignore Congress and the rest of the world.

Creating new intelligence procedures after 9/11,Cheney's office and Rumsfield's Dept. of Defense circumvented information past the CIA and NSA apparatus from Ahmed Chalabi and Richard Perle.This provided the false information about mobile bioweaponry labs and centrifuge tubes that let the administration call a halt to Hans Blix's UN inspection of Iraq for nuclear weapons.

Just as important for the panicky reaction to terror as this false information were the faulty justifications for military tribunals,suspended habeas corpus,extraordinary rendition,secret prisons around the world,warrantless surveillance of citizens at home,abrogation of Geneva Conventions,unilateral dispensation from treaties,and enhanched interrogation methods of waterboarding.The Justice Department on"orders" from the White House claimed the legal right to all these and other actions.The point of origin for these claims came from the little known but powerful Office of Legal Counsel in the Justice Dept. John Yoo would become the producer of numerous documents that protected the Bush administration and endorsed the monarchy it created.Yoo would make the President more powerful than the monarch we renounced in 1776.

More from Wills soon.