As you know, we attended the annual ESOP Association Conference last week. It was not too long after President Obama addressed the students at Ohio State University, urging them to become more active politically.
THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.
Showing posts with label Washington Post. Show all posts
Showing posts with label Washington Post. Show all posts
Tuesday, May 14, 2013
Monday, January 7, 2013
Ronald Reagan and Homesteading
Thursday, March 8, 2012
The Crimes of Mitt Romney
A couple of weeks ago we did a posting on the Crimes of Rick Santorum. Dana Milbank, a Washington Post columnist, claimed to know what Santorum was really thinking when Santorum didn't call President Obama a Nazi. In typical schoolyard fashion, of course, Milbank's whole point was that the real Nazis are people who call others Nazis, even when they don't.
In today's Washington Post, E. J. Dionne — a much better and far more clever writer than Milbank — does a number on Mitt Romney. In "The Tolerable GOP Candidate" (Washington Post, 03/08/12, A17), Dionne doesn't claim to know what Romney is thinking or what he really means. Instead, Dionne reports facts and puts a reasonable interpretation on those facts. This masks the innuendo that, if the American people are stupid enough to elect Romney, they are going to end up with another Richard Nixon . . . and everybody knows what that would be like.
Dionne does this so skillfully that most readers might not consciously realize just how carefully they are led to equate Romney with Nixon. Dionne concludes his opening paragraph by describing Romney's campaign as "part John McCain, part Michael Dukakis and part Richard Nixon. [Emphasis added.]
Watergate — the only thing most people remember about Nixon's campaign — is thereby seeded in the reader's mind. Dionne then goes on to describe Romney's "achievements" in terms that make them sound like the best of "Tricky Dick's" tricks: "flexible views," "a rather satisfied man who has to announce that he's angry," "millions of dollars in advertising to discredit his opponents," "adjust[ed] or reverse[d] many of his positions," "He needs to win now. He'll count the costs later" (the Machiavellian "ends justify the means"), and so on — and on, and on.
Dionne finishes off his masterful character assassination by declaring "it is Nixon, rival to Romney's father in 1968, who provides the words that may best explain how Mitt Romney is managing his way toward a tepid triumph." Again, not a word about Watergate or Nixon's spectacular fall. It isn't necessary. Even the subtle hint that Romney is betraying his own father by emulating Nixon the Malevolent, while useful to show just how "flexible" Romney can be, doesn't add much.
By raising the specter of Nixon and drawing a parallel between Romney and the Evil One, Dionne succeeds where Milbank failed, leading readers to view Romney as another Nixon, with the ability to sway the Army of Darkness (a.k.a., "the Tea Partyers and the Christian conservatives and the Southerners") to vote for him. And thus, as Dionne concludes, "as it was for Nixon, this may be enough."
He might as well have lamented, as a 17th century "Planter" in Ireland did in his diary on July 23, 1633 on learning that the king's "evil counselor" and notoriously flexible politician Thomas Wentworth was appointed Lord Deputy of Ireland, "The Lord Viscount Wentworth came to Ireland to governe the kingdom. Manie men feare."
Not a word, of course, about Romney's real failing: economic recovery proposals that take no account of "the economics of reality" and the need for a program of expanded capital ownership, such as Ronald Reagan supported, financed with pure credit, that we call Capital Homesteading.
#30#
In today's Washington Post, E. J. Dionne — a much better and far more clever writer than Milbank — does a number on Mitt Romney. In "The Tolerable GOP Candidate" (Washington Post, 03/08/12, A17), Dionne doesn't claim to know what Romney is thinking or what he really means. Instead, Dionne reports facts and puts a reasonable interpretation on those facts. This masks the innuendo that, if the American people are stupid enough to elect Romney, they are going to end up with another Richard Nixon . . . and everybody knows what that would be like.
Dionne does this so skillfully that most readers might not consciously realize just how carefully they are led to equate Romney with Nixon. Dionne concludes his opening paragraph by describing Romney's campaign as "part John McCain, part Michael Dukakis and part Richard Nixon. [Emphasis added.]
Watergate — the only thing most people remember about Nixon's campaign — is thereby seeded in the reader's mind. Dionne then goes on to describe Romney's "achievements" in terms that make them sound like the best of "Tricky Dick's" tricks: "flexible views," "a rather satisfied man who has to announce that he's angry," "millions of dollars in advertising to discredit his opponents," "adjust[ed] or reverse[d] many of his positions," "He needs to win now. He'll count the costs later" (the Machiavellian "ends justify the means"), and so on — and on, and on.
Dionne finishes off his masterful character assassination by declaring "it is Nixon, rival to Romney's father in 1968, who provides the words that may best explain how Mitt Romney is managing his way toward a tepid triumph." Again, not a word about Watergate or Nixon's spectacular fall. It isn't necessary. Even the subtle hint that Romney is betraying his own father by emulating Nixon the Malevolent, while useful to show just how "flexible" Romney can be, doesn't add much.
By raising the specter of Nixon and drawing a parallel between Romney and the Evil One, Dionne succeeds where Milbank failed, leading readers to view Romney as another Nixon, with the ability to sway the Army of Darkness (a.k.a., "the Tea Partyers and the Christian conservatives and the Southerners") to vote for him. And thus, as Dionne concludes, "as it was for Nixon, this may be enough."
He might as well have lamented, as a 17th century "Planter" in Ireland did in his diary on July 23, 1633 on learning that the king's "evil counselor" and notoriously flexible politician Thomas Wentworth was appointed Lord Deputy of Ireland, "The Lord Viscount Wentworth came to Ireland to governe the kingdom. Manie men feare."
Not a word, of course, about Romney's real failing: economic recovery proposals that take no account of "the economics of reality" and the need for a program of expanded capital ownership, such as Ronald Reagan supported, financed with pure credit, that we call Capital Homesteading.
#30#
Wednesday, August 17, 2011
The Job of the Fed
One of the hardest tasks we face, evidently, is a kind of economic and financial aphasia with which students of binary economics seem to be afflicted. In English, nobody seems to know what we’re talking about when we use words that we think have plain meanings. We even define our words, and still the meaning seems to zip right over the heads of whoever it is we’re speaking to.
Take, for instance, when we discourse on banking. We’ve droned on at great length about the difference between deposit banking and issue banking, the role of the central bank, the difference between pure credit and past savings-based credit, so on, so forth, etc., as it were, blah, blah.
So what are we to think when we pick up the newspaper and read something so at odds not only with everything we say, but reality itself? It’s as if the media, academia, the politicians, and even ordinary citizens are engaged in what Winston Smith in 1984 called “improvising history.”
We think it’s time to fire off yet another letter that the editors aren’t equipped to understand, and will sweep under the rug. It does, however, have the advantage in that it writes our blog for the day . . . .
Letters
The Washington Post
Dear Sir(s):
In today's Post Neil Irwin asserts, "It is the job of the Fed, or any central bank, to print money." Unqualified, that statement hands the government a blank check. The original Federal Reserve Act of 1913 states the job of the Fed is "to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish more effective supervision of banking in the United States, and for other purposes." In this way the Fed would provide liquidity for private sector development when existing savings were insufficient.
Under "other purposes" the Fed was empowered to deal in outstanding government securities backing the National Bank Notes and Treasury Notes of 1890. The intent was to replace the government debt-backed currency with private sector asset-backed Federal Reserve Notes. Nevertheless, the primary purpose of open market operations was to supplement the Fed's rediscounting power by dealing in paper issued by private sector businesses and non-member banks, not monetize government debt.
The proper use of the banking system is described in Dr. Harold Moulton's, The Formation of Capital (1935), written to present an alternative to the Keynesian New Deal.
Yours,
Hastur the Unspeakable
(Not really. We just wanted to see if anybody is reading this.)
#30#
Take, for instance, when we discourse on banking. We’ve droned on at great length about the difference between deposit banking and issue banking, the role of the central bank, the difference between pure credit and past savings-based credit, so on, so forth, etc., as it were, blah, blah.
So what are we to think when we pick up the newspaper and read something so at odds not only with everything we say, but reality itself? It’s as if the media, academia, the politicians, and even ordinary citizens are engaged in what Winston Smith in 1984 called “improvising history.”
We think it’s time to fire off yet another letter that the editors aren’t equipped to understand, and will sweep under the rug. It does, however, have the advantage in that it writes our blog for the day . . . .
Letters
The Washington Post
Dear Sir(s):
In today's Post Neil Irwin asserts, "It is the job of the Fed, or any central bank, to print money." Unqualified, that statement hands the government a blank check. The original Federal Reserve Act of 1913 states the job of the Fed is "to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish more effective supervision of banking in the United States, and for other purposes." In this way the Fed would provide liquidity for private sector development when existing savings were insufficient.
Under "other purposes" the Fed was empowered to deal in outstanding government securities backing the National Bank Notes and Treasury Notes of 1890. The intent was to replace the government debt-backed currency with private sector asset-backed Federal Reserve Notes. Nevertheless, the primary purpose of open market operations was to supplement the Fed's rediscounting power by dealing in paper issued by private sector businesses and non-member banks, not monetize government debt.
The proper use of the banking system is described in Dr. Harold Moulton's, The Formation of Capital (1935), written to present an alternative to the Keynesian New Deal.
Yours,
Hastur the Unspeakable
(Not really. We just wanted to see if anybody is reading this.)
#30#
Tuesday, March 2, 2010
"A Rare Chance to Remake the Fed"
Today's earlier posting in the "Restoration of Property" series (below) outlined specific reforms that need to be implemented if the Federal Reserve System (the central bank of the United States) is to get away from serving as a source of political pork and return to the purpose for which it was designed, intended, and is now desperately needed: provide liquidity for private sector growth by discounting qualified industrial, commercial, and agricultural paper to finance projects that will produce marketable goods and services, and do so in a way that opens up the opportunity for all citizens to participate in production as owners of both labor and capital. Thus, it seemed a bit of serendipity and was momentarily encouraging to read the headline on the lead article in today's Washington Post: "A Rare Chance to Remake the Fed" (Neil Irwin, A1, A11).
The encouragement was short lived. The lead-in continued in smaller type, "Vice Chairman is Retiring; Most of Bank's Board Will Be Obama Nominees." Reading the article, it became clear that the idea is not actually to "remake the Fed," but to consolidate the final steps in a takeover process that started almost before the ink was dry on President Wilson's signature on the Federal Reserve Act of 1913. As the article states, "During the past two years, the Fed has taken extraordinary actions to contain a financial crisis and prop up the economy. Now the institution must decide how and when to wind down some of those emergency measures."
Contrary to the rosy implication contained in this passage, the crisis is anything but over. As the article hints, the only thing that has kept the economy going (at least for selected groups, such as companies "too big to fail" and holders of toxic assets finding a ready market for their badly depreciated assets at inflated prices) are those "extraordinary actions." While economists and other experts daily trumpet that the Great Recession is over, the stock market and the economy at large continue to reel at the slightest hint that the world's governments might stop printing money and spending it in such massive quantities.
The idea that somebody might someday actually have to pay back the colossal — and still growing — mountain of debt is ignored, while the necessity of working to rebuild the economy by producing marketable goods and services so that there is something to redistribute and tax is nowhere mentioned. Instead, "economic growth" seems to be defined strictly in terms of consumer spending, government spending, and, above all (bow), how the stock market is doing — in other words, how much money the rag-pickers and secondhand dealers in debt and equity can exchange among themselves without producing a single marketable good or service. Current monetary and fiscal policy is oriented exclusively to dividing up an ever-shrinking pie without bothering to figure out where to get another pie or even rebuild the bakery.
Perhaps most astounding is the extraordinarily damaging admission by unnamed "sources" that, "the president is seeking one or two strong macroeconomists — people well qualified to judge how the economy is evolving and how and when to make monetary policy less supportive of growth — and one person with a strong financial markets background." (A11) Thus, not only is anyone not bothering to try and figure out how to 1) produce marketable goods and services 2) in a way in which more (preferably all) people can participate as owners of both labor and capital, they are stating outright that the Fed's (meaning the government's) policy is to stifle economic growth, and do so in such a way as to benefit that sector of the economy, the "financial markets" (and there's a reason Wall Street and the other exchanges throughout the world are called secondary markets) that produces nothing in the way of marketable goods and services.
For all intents and purposes, then, "remaking the Fed" in the current lexicon means confirming the central bank and the central government in their ruinous course of spending without producing, borrowing without repaying, and creating money — money necessarily being a direct derivative of production and an aspect of private property — completely separated from the production of marketable goods and services.
Rather than working to make the Federal Reserve "less supportive of growth" (!), President Obama should seize his "rare chance" to "remake the Fed" and implement some genuine reforms. Instead of talking a good game about "change" without actually getting out on the extremely uneven playing field, Obama has the opportunity not only to duplicate the achievements of another president from Illinois, but to do Abraham Lincoln one better by emancipating all Americans from involuntary economic servitude, and extending the homestead concept from land alone to all forms of productive assets by signing the Capital Homestead Act of 2012 on the 150th anniversary of Lincoln's revolutionary initiative.
Obama has only to act — and the time is now. It may only need your participation at the peaceful rally outside the Federal Reserve on April 15, 2010 to convince him.
#30#
The encouragement was short lived. The lead-in continued in smaller type, "Vice Chairman is Retiring; Most of Bank's Board Will Be Obama Nominees." Reading the article, it became clear that the idea is not actually to "remake the Fed," but to consolidate the final steps in a takeover process that started almost before the ink was dry on President Wilson's signature on the Federal Reserve Act of 1913. As the article states, "During the past two years, the Fed has taken extraordinary actions to contain a financial crisis and prop up the economy. Now the institution must decide how and when to wind down some of those emergency measures."
Contrary to the rosy implication contained in this passage, the crisis is anything but over. As the article hints, the only thing that has kept the economy going (at least for selected groups, such as companies "too big to fail" and holders of toxic assets finding a ready market for their badly depreciated assets at inflated prices) are those "extraordinary actions." While economists and other experts daily trumpet that the Great Recession is over, the stock market and the economy at large continue to reel at the slightest hint that the world's governments might stop printing money and spending it in such massive quantities.
The idea that somebody might someday actually have to pay back the colossal — and still growing — mountain of debt is ignored, while the necessity of working to rebuild the economy by producing marketable goods and services so that there is something to redistribute and tax is nowhere mentioned. Instead, "economic growth" seems to be defined strictly in terms of consumer spending, government spending, and, above all (bow), how the stock market is doing — in other words, how much money the rag-pickers and secondhand dealers in debt and equity can exchange among themselves without producing a single marketable good or service. Current monetary and fiscal policy is oriented exclusively to dividing up an ever-shrinking pie without bothering to figure out where to get another pie or even rebuild the bakery.
Perhaps most astounding is the extraordinarily damaging admission by unnamed "sources" that, "the president is seeking one or two strong macroeconomists — people well qualified to judge how the economy is evolving and how and when to make monetary policy less supportive of growth — and one person with a strong financial markets background." (A11) Thus, not only is anyone not bothering to try and figure out how to 1) produce marketable goods and services 2) in a way in which more (preferably all) people can participate as owners of both labor and capital, they are stating outright that the Fed's (meaning the government's) policy is to stifle economic growth, and do so in such a way as to benefit that sector of the economy, the "financial markets" (and there's a reason Wall Street and the other exchanges throughout the world are called secondary markets) that produces nothing in the way of marketable goods and services.
For all intents and purposes, then, "remaking the Fed" in the current lexicon means confirming the central bank and the central government in their ruinous course of spending without producing, borrowing without repaying, and creating money — money necessarily being a direct derivative of production and an aspect of private property — completely separated from the production of marketable goods and services.
Rather than working to make the Federal Reserve "less supportive of growth" (!), President Obama should seize his "rare chance" to "remake the Fed" and implement some genuine reforms. Instead of talking a good game about "change" without actually getting out on the extremely uneven playing field, Obama has the opportunity not only to duplicate the achievements of another president from Illinois, but to do Abraham Lincoln one better by emancipating all Americans from involuntary economic servitude, and extending the homestead concept from land alone to all forms of productive assets by signing the Capital Homestead Act of 2012 on the 150th anniversary of Lincoln's revolutionary initiative.
Obama has only to act — and the time is now. It may only need your participation at the peaceful rally outside the Federal Reserve on April 15, 2010 to convince him.
#30#
Monday, December 7, 2009
Guest Blogger: Reply to David Ignatius
Just for fun — and to save me work — today's posting is a letter to the editor of the Washington Post in response to a recent column by David Ignatius. Because we can't keep our hands off of anything, some of the punctuation has been changed (the author might not agree that it's been "improved"), the term "Fed" expanded to "Federal Reserve," and an editorial comment inserted.
#30#
The primary authors of this blog reserve the right to publish any and all materials sent to CESJ when they are in material agreement with us.Here's My Dream
Daniel Kurland, Guest Blogger
Jobs are available for those willing and able to work far longer hours for far less pay, and no benefits. Forget about the 8-hour day, minimum wage, and the chance for earning overtime at time and a half. Smart businesses have mastered the art of subcontracting employment to minimize corporate risk, reduce payroll taxes, avoid paying social security, eliminate overtime, eliminate vacation pay, eliminate holiday pay, etc. With lower costs structures, smart businesses can offer lower prices. Here's the best part — many who enjoy the privilege of holding downward mobility jobs are thankful to have any job. Smart businesses know that desperate job-holders keep their mouths shut, because it's not smart to bite the hand that feeds you. This is no dream; it's how the winds are blowing. It's no dream, it's a foul wind blowing.
The American middle class is already an endangered species and can expect to be left out in the cold by politicians who offer no real solutions. When the financial bubble you fear eventually bursts, everyone will be forced to wake up to the reality that the Democrats and Republicans are like Coke and Pepsi — they're both sweet [editorial comment: "Sweet? Since when?"] and fizzy, but offer no nutritional value.
Ironically, smart businesses will eventually notice that their base of paying customers has shrunk, has no money, and lacks the cash flow to buy their products and services. What then?
Here's my dream. What if enough desperate middle class Americans discovered the platform of the American Revolutionary Party and began considering an economically and socially just solution that is a complete system based on the values of American's Founding Fathers and the American Dream? What if some ambitious politician discovered a turnkey platform that is ecological, just, and feasible? What if an ambitious politician running on the platform of the American Revolutionary Party grabbed enough votes to grab the attention of the Republicans and the Democrats alike? A few highly intelligent high school students from Orange County, California, recently held a formal debate and the American Revolutionary Party was a formidable competitor.
Few people understand how the Federal Reserve operates and can be improved better than Norman Kurland, who is largely responsible for the platform of the American Revolutionary Party. I believe that if enough people evaluate the logic of what Norm Kurland proposes, the Federal Reserve can become the engine for growth that it was originally intended to be, rather than the financier of corporate welfare it has become.
As JFK said, "a rising tide lifts all ships." Norm Kurland argues that the Federal Reserve should be used as an engine for growth, provided the Fed differentiates between productive and non-productive credit, and follows rules of participative, distributive, and restorative justice. Economic and Social Justice, what a concept! Maybe we should try it.
#30#
Tuesday, September 8, 2009
Health Care in Japan
Yesterday's Washington Post had an interesting article about how the United States could make affordable health care available to everyone simply by following the Japanese model. Unfortunately, the article seemed somewhat dismissive of the free market. We sent a letter to the editor briefly stating what appeared to be wrong with the Japanese approach, which, much to our surprise, received no response.
Dear Sir(s):
Dear Sir(s):
Blaine Harden's article on the Japanese health care system ("Health Care in Japan: Low-Cost, for Now," Washington Post, 09/07/09, A1, A4), while provocative, does not give adequate coverage to the possibility that the free market, albeit regulated when necessary by the State to ensure strict compliance with standards and fair competition, has the potential to deal more effectively with the situation than what is now currently in place in the Empire of Japan. Harden cites three aspects of the Japanese system that seem to be responsible for controlling cost: 1) banning insurance company profits, 2) limiting doctor fees, and 3) accepting limitations on health care.
All three could be handled better by the free market and avoid the dangers cited: 1) Reorganizing insurance companies on a mutual basis with the policyholders as shareholders with the full rights of private property would return profits to the insured. 2) Doctor fees would be lowered in response to free competition and patient access to information. 3) The profit motive has been proved to motivate the search for lower-cost and more effective alternatives, whether for manufacturing widgets or providing health care.
#30#
Monday, May 11, 2009
How to Use a Central Bank
Here are copies of two letters we sent last week to the Wall Street Journal and the Washington Post regarding potential sources of new capital for commercial banks that the "stress tests" appear to mandate. As required by letters to editors that hope to have a chance of getting published, we restricted ourselves to the single issue of using the Federal Reserve properly as a source of liquidity for financial feasible industrial, commercial, and agricultural private sector projects. We did not cover the equally important issue of the necessity for widespread direct ownership of the means of production — including financial resources that can be created "out of nothing" and thus have no existing owner(s) — to secure a sound economy.
Widespread direct ownership of the means of production, however, only becomes politically and financially feasible when the central bank is used to create money to finance the acquisition of capital by people who currently own little or nothing in the way of income-generating assets. Pointing out how the Federal Reserve is designed and originally intended to operate is thus only half the battle. The other is to bring programs like Capital Homesteading to the attention of "prime movers" and others who can implement it and deliver its benefits to the people of the United States and the world.
Letters, The Wall Street Journal
wsj.ltrs@wsj.com
Dear Sir(s):
No doubt the authorities making the decisions in response to the so-called "stress tests" regarding the amount of capitalization required by commercial banks believe they are acting in the best interests of the economy and the financial markets. If they truly understood money, credit, banking, and finance, however, they would realize that additional capitalization by foreign or domestic investors, or the taxpayers, is completely unnecessary. The solution already exists and can be implemented without the use of tax monies or government loans.
The Federal Reserve System was established in part to provide the country with a "flexible currency" that would expand when the economy required more money in circulation, and contract in response to the dangers of inflation. Under § 13 of the Federal Reserve Act of 1913, a commercial bank that wishes to make loans that are not covered by its current reserves can discount (sell) qualified industrial, commercial, and agricultural loans to the local Federal Reserve Bank.
The central bank of the United States has the power to create money to purchase these loans, either in the form of Federal Reserve Notes (promissory notes) or demand deposits. The Federal Reserve thereby provides the commercial bank with 100% reserves backing the money created through the discounting process, or (if you will) "instant capitalization." No taxpayer money, foreign investors, or federal bailouts are needed. It is only necessary to stop using the Federal Reserve to monetize government deficits, and start using the central bank for the purpose for which it was intended.
Letters, The Washington Post
letters@washpost.com
Dear Sir(s):
With respect to the additional capitalization requirements for commercial banks proposed as a result of the bank "stress tests," how long will it take the public to understand that increased government involvement in the private sector is not part of the solution, but part of the problem? Ironically, a solution already exists in plain sight.
The Federal Reserve System was established to provide liquidity for the private sector through the commercial banking system without the need for pre-existing reserves (capitalization). Using the Federal Reserve to finance government spending came later, when politicians decided it was easier to fund the United States' entry into World War I by borrowing money from the central bank instead of through taxation.
Under § 13 of the Federal Reserve Act of 1913, a commercial bank can sell (discount) qualified industrial, commercial, and agricultural loans to its local Federal Reserve Bank. The Federal Reserve has the power to create money to purchase these loans, thereby providing the country with an asset-backed currency supported by 100% cash reserves. There is no need for consumers to cut spending in order to save, for foreign investors, or for bank bailouts.
Widespread direct ownership of the means of production, however, only becomes politically and financially feasible when the central bank is used to create money to finance the acquisition of capital by people who currently own little or nothing in the way of income-generating assets. Pointing out how the Federal Reserve is designed and originally intended to operate is thus only half the battle. The other is to bring programs like Capital Homesteading to the attention of "prime movers" and others who can implement it and deliver its benefits to the people of the United States and the world.
Letters, The Wall Street Journal
wsj.ltrs@wsj.com
Dear Sir(s):
No doubt the authorities making the decisions in response to the so-called "stress tests" regarding the amount of capitalization required by commercial banks believe they are acting in the best interests of the economy and the financial markets. If they truly understood money, credit, banking, and finance, however, they would realize that additional capitalization by foreign or domestic investors, or the taxpayers, is completely unnecessary. The solution already exists and can be implemented without the use of tax monies or government loans.
The Federal Reserve System was established in part to provide the country with a "flexible currency" that would expand when the economy required more money in circulation, and contract in response to the dangers of inflation. Under § 13 of the Federal Reserve Act of 1913, a commercial bank that wishes to make loans that are not covered by its current reserves can discount (sell) qualified industrial, commercial, and agricultural loans to the local Federal Reserve Bank.
The central bank of the United States has the power to create money to purchase these loans, either in the form of Federal Reserve Notes (promissory notes) or demand deposits. The Federal Reserve thereby provides the commercial bank with 100% reserves backing the money created through the discounting process, or (if you will) "instant capitalization." No taxpayer money, foreign investors, or federal bailouts are needed. It is only necessary to stop using the Federal Reserve to monetize government deficits, and start using the central bank for the purpose for which it was intended.
Letters, The Washington Post
letters@washpost.com
Dear Sir(s):
With respect to the additional capitalization requirements for commercial banks proposed as a result of the bank "stress tests," how long will it take the public to understand that increased government involvement in the private sector is not part of the solution, but part of the problem? Ironically, a solution already exists in plain sight.
The Federal Reserve System was established to provide liquidity for the private sector through the commercial banking system without the need for pre-existing reserves (capitalization). Using the Federal Reserve to finance government spending came later, when politicians decided it was easier to fund the United States' entry into World War I by borrowing money from the central bank instead of through taxation.
Under § 13 of the Federal Reserve Act of 1913, a commercial bank can sell (discount) qualified industrial, commercial, and agricultural loans to its local Federal Reserve Bank. The Federal Reserve has the power to create money to purchase these loans, thereby providing the country with an asset-backed currency supported by 100% cash reserves. There is no need for consumers to cut spending in order to save, for foreign investors, or for bank bailouts.
Wednesday, March 11, 2009
Stereotyping in the Washington Post
Two days ago the Washington Post published a letter from Italy's ambassador to the United States. The Post had previously published an article filled with ethnic stereotypes and playing to American prejudices, intimating that Italy was overrun by Mafia thugs terrorizing the population and that the country was in a state of chaos almost approaching that prevalent in the United States. Knowing full well that any letter to the Post would be ignored, we sent one instead to the Ambassador.
March 9, 2009
The Hon. Giovanni Castellaneta
Ambassador of Italy
Embassy of Italy
3000 Whitehaven Street, N.W.
Washington, DC 20008
Dear Dr. Castellaneta:
Congratulations on your letter to the Washington Post of March 9, 2009. It is heartening to see that at least one country is working hard not to let financial and economic hysteria seize control of the situation, and that those who spread damaging (and erroneous) ethnic stereotypes that flood the American media are called to account.
However, I must be frank and say that I doubt that your pointed letter will have the effect that it should have. Stereotypes are embedded more deeply into the American psyche than even the seriously flawed Keynesian economic theories about banking that have caused the current economic situation. This is ironic because much of modern banking theory was worked out in Italy, which presumably knows how to run banks.
That being the case, I think it would be to your advantage to have a talk with Dr. Norman G. Kurland, president of the non-profit Center for Economic and Social Justice ("CESJ"), a think tank headquartered in Arlington, Virginia. Dr. Kurland may be able to help you develop a strategy to capitalize on Italy's banking strength and provide an exemplar to the rest of the world, instead of a thinly-veiled excuse to indulge in envy.
A program we've developed called "Capital Homesteading for Every Citizen" should be of particular interest to you. Properly implemented, Capital Homesteading has the potential not only to provide the means whereby every citizen in a country could gain an adequate and secure income, but also undermine the justification of and support for terrorism and organized crime.
I invite you to visit our web site, www.cesj.org, and review the materials on Capital Homesteading. After you've visited the web site, you might want to give Dr. Kurland a telephone call to discuss ways in which CESJ's programs and proposals could be of assistance to Italy. I have enclosed some information on Dr. Kurland, CESJ, and Capital Homesteading.
March 9, 2009
The Hon. Giovanni Castellaneta
Ambassador of Italy
Embassy of Italy
3000 Whitehaven Street, N.W.
Washington, DC 20008
Dear Dr. Castellaneta:
Congratulations on your letter to the Washington Post of March 9, 2009. It is heartening to see that at least one country is working hard not to let financial and economic hysteria seize control of the situation, and that those who spread damaging (and erroneous) ethnic stereotypes that flood the American media are called to account.
However, I must be frank and say that I doubt that your pointed letter will have the effect that it should have. Stereotypes are embedded more deeply into the American psyche than even the seriously flawed Keynesian economic theories about banking that have caused the current economic situation. This is ironic because much of modern banking theory was worked out in Italy, which presumably knows how to run banks.
That being the case, I think it would be to your advantage to have a talk with Dr. Norman G. Kurland, president of the non-profit Center for Economic and Social Justice ("CESJ"), a think tank headquartered in Arlington, Virginia. Dr. Kurland may be able to help you develop a strategy to capitalize on Italy's banking strength and provide an exemplar to the rest of the world, instead of a thinly-veiled excuse to indulge in envy.
A program we've developed called "Capital Homesteading for Every Citizen" should be of particular interest to you. Properly implemented, Capital Homesteading has the potential not only to provide the means whereby every citizen in a country could gain an adequate and secure income, but also undermine the justification of and support for terrorism and organized crime.
I invite you to visit our web site, www.cesj.org, and review the materials on Capital Homesteading. After you've visited the web site, you might want to give Dr. Kurland a telephone call to discuss ways in which CESJ's programs and proposals could be of assistance to Italy. I have enclosed some information on Dr. Kurland, CESJ, and Capital Homesteading.
Wednesday, February 11, 2009
Doubling Down in Washington
We wish that our 200th posting could be a little happier.
In the ultra high stakes political games played in Washington, DC, $1 million is the lowest chip. The amount on the table at risk is usually measured in billions. According to the headline in today's Washington Post, however, Mr. Obama has raised the stakes in his game of Big Buddy Bailout to more than $1.5 trillion, just as we predicted in this blog last week. This is more than double the original wager of $750 billion.
Mr. Obama appears to be "doubling down." Doubling down is a technique in Blackjack in which you double your bet after receiving your first two cards. The difference, however, between straightforward gambling and what Mr. Obama is doing is that the president hasn't been dealt any cards. All he has is a blind faith that failed and disproved Keynesian economics will, despite decades of evidence to the contrary, finally pay off and allow the American economy to break even.
The problem, as we've been pointing out for several weeks, is that you can't create money in any amount without expecting inflation, unless you are careful always to link creation of new money to new production (not unsold past production), or to the financing of a project that will generate new production. Creating additional purchasing power for existing inventories simply makes each unit of currency worth less than before, redistributing existing wealth from current holders of financial assets to those receiving government payments.
This form of money creation can lead directly to hyperinflation, the surreal condition in which the price level rises faster than money can be created. Ordinarily, of course, the price level rises in response to the creation of additional purchasing power for existing inventories. When carried out on the massive scale that Mr. Obama is now demanding, however, the amount is genuinely beyond the power of the ordinary human mind to grasp.
The response of any producer or retailer to such a gargantuan influx of essentially worthless money will be to raise prices as fast as possible to make up for an anticipated inflationary loss that cannot, in human terms, be quantified — how do you visualize $1.5 trillion? The State then gets into the position that the Reichsbank faced in the early 1920s at the height of the hyperinflation.
The German central bank simply could not create money fast enough to meet daily transactions demand for currency, much less keep up with the inferno of the rising price level. Producers stopped producing, for there was no assurance that they could trade what they produced for anything of value. Farmers refused to sell their produce in exchange for crates of worthless currency, and there was virtually no industrial production generating anything that could be used for barter. The validity of Say's Law — that we can only purchase to the extent that we produce — was proved in the most vivid and devastating manner possible.
The German and Austro-Hungarian economies faced the paradox that unfettered money creation caused prices to rise so fast that there wasn't enough money in circulation to purchase what little was for sale. This was at a time when one U.S. dollar was "worth" 4.2 trillion Reichsmarks at the official exchange rate, and nearly 16 trillion on the black market. There were mountains of paper money in circulation, but it was worth more as waste paper and fuel than as currency. A famous photograph shows two little girls holding an American dollar, and in the background a colossal pile of German currency that, on that day, equaled that dollar.
Hyperinflation is a logical and expected outcome of Mr. Obama's proposal. Germany was ultimately saved because they gave a monetary and fiscal genius, Dr. Hjalmar Schacht — the "Old Wizard," a man with the unusual middle name of "Horace Greeley" — full power to do anything necessary to stop the hyperinflation. This he did by demonetizing all the old currency, creating an asset-backed non-legal tender but fully convertible parallel currency (the Rentenmark), and absolutely forbidding any new issuances in excess of the value of the asset backing.
The situation was stabilized, but the fear inspired by the hyperinflation was so great that the German, Austrian, and Hungarian peoples demanded absolute guarantees of future stability, as well as victims to blame for the virtual apocalypse of the war and the subsequent financial meltdown.
Adolph Hitler provided both.
In the ultra high stakes political games played in Washington, DC, $1 million is the lowest chip. The amount on the table at risk is usually measured in billions. According to the headline in today's Washington Post, however, Mr. Obama has raised the stakes in his game of Big Buddy Bailout to more than $1.5 trillion, just as we predicted in this blog last week. This is more than double the original wager of $750 billion.
Mr. Obama appears to be "doubling down." Doubling down is a technique in Blackjack in which you double your bet after receiving your first two cards. The difference, however, between straightforward gambling and what Mr. Obama is doing is that the president hasn't been dealt any cards. All he has is a blind faith that failed and disproved Keynesian economics will, despite decades of evidence to the contrary, finally pay off and allow the American economy to break even.
The problem, as we've been pointing out for several weeks, is that you can't create money in any amount without expecting inflation, unless you are careful always to link creation of new money to new production (not unsold past production), or to the financing of a project that will generate new production. Creating additional purchasing power for existing inventories simply makes each unit of currency worth less than before, redistributing existing wealth from current holders of financial assets to those receiving government payments.
This form of money creation can lead directly to hyperinflation, the surreal condition in which the price level rises faster than money can be created. Ordinarily, of course, the price level rises in response to the creation of additional purchasing power for existing inventories. When carried out on the massive scale that Mr. Obama is now demanding, however, the amount is genuinely beyond the power of the ordinary human mind to grasp.
The response of any producer or retailer to such a gargantuan influx of essentially worthless money will be to raise prices as fast as possible to make up for an anticipated inflationary loss that cannot, in human terms, be quantified — how do you visualize $1.5 trillion? The State then gets into the position that the Reichsbank faced in the early 1920s at the height of the hyperinflation.
The German central bank simply could not create money fast enough to meet daily transactions demand for currency, much less keep up with the inferno of the rising price level. Producers stopped producing, for there was no assurance that they could trade what they produced for anything of value. Farmers refused to sell their produce in exchange for crates of worthless currency, and there was virtually no industrial production generating anything that could be used for barter. The validity of Say's Law — that we can only purchase to the extent that we produce — was proved in the most vivid and devastating manner possible.
The German and Austro-Hungarian economies faced the paradox that unfettered money creation caused prices to rise so fast that there wasn't enough money in circulation to purchase what little was for sale. This was at a time when one U.S. dollar was "worth" 4.2 trillion Reichsmarks at the official exchange rate, and nearly 16 trillion on the black market. There were mountains of paper money in circulation, but it was worth more as waste paper and fuel than as currency. A famous photograph shows two little girls holding an American dollar, and in the background a colossal pile of German currency that, on that day, equaled that dollar.
Hyperinflation is a logical and expected outcome of Mr. Obama's proposal. Germany was ultimately saved because they gave a monetary and fiscal genius, Dr. Hjalmar Schacht — the "Old Wizard," a man with the unusual middle name of "Horace Greeley" — full power to do anything necessary to stop the hyperinflation. This he did by demonetizing all the old currency, creating an asset-backed non-legal tender but fully convertible parallel currency (the Rentenmark), and absolutely forbidding any new issuances in excess of the value of the asset backing.
The situation was stabilized, but the fear inspired by the hyperinflation was so great that the German, Austrian, and Hungarian peoples demanded absolute guarantees of future stability, as well as victims to blame for the virtual apocalypse of the war and the subsequent financial meltdown.
Adolph Hitler provided both.
Friday, January 30, 2009
Washington Post: "Economic Signs Turn From Grim To Worse"
In the musical 1776, the John Adams character spends the first few minutes of the show loudly singing about how Congress should begin discussing his proposal on independence for the American colonies. The other characters sing back (even more loudly), telling John Adams to sit down and be quiet so that they can get back to swatting flies and moaning and groaning about how bad things are — the important issues in Philadelphia in late June of 1776.
As readers of this blog and participants in the binary economics discussion group are aware, the Global Justice Movement in general and CESJ in particular have been working very hard to try and bring Capital Homesteading to the attention of the powers-that-be. We've had some success, but by and large have not yet gained the ear of anyone in a position to do anything. Instead, we are treated to headlines like those in today's Washington Post that inform us on page one of "Another Wave of Evidence Of a Deepening Recession."
The time may be ripe to get politicians to listen to proposals on Capital Homesteading . . . if they can be persuaded that, far from being hopeless, the current crisis is the best opportunity in a long time to implement something for which the time is always ripe: the Just Third Way. Write to your legislator, president, prime minister, prince, or pooh-bah, and let him or her know that there is an alternative available to what even the Post is now describing as a grim situation. Otherwise, we may soon become accustomed in our daily newspapers to reading such heartening opening sentences as, "On the eve of what is expected to be the clearest evidence yet of the nation's deepening recession, bad news rolled in from across the economy and the world."
As Father William Ferree pointed out in his short pamphlet, Introduction to Social Justice, there is no excuse for this sort of thing — nor are we helpless. After reminding us that we each have a personal responsibility to work together to change things, he concluded,
As readers of this blog and participants in the binary economics discussion group are aware, the Global Justice Movement in general and CESJ in particular have been working very hard to try and bring Capital Homesteading to the attention of the powers-that-be. We've had some success, but by and large have not yet gained the ear of anyone in a position to do anything. Instead, we are treated to headlines like those in today's Washington Post that inform us on page one of "Another Wave of Evidence Of a Deepening Recession."
The time may be ripe to get politicians to listen to proposals on Capital Homesteading . . . if they can be persuaded that, far from being hopeless, the current crisis is the best opportunity in a long time to implement something for which the time is always ripe: the Just Third Way. Write to your legislator, president, prime minister, prince, or pooh-bah, and let him or her know that there is an alternative available to what even the Post is now describing as a grim situation. Otherwise, we may soon become accustomed in our daily newspapers to reading such heartening opening sentences as, "On the eve of what is expected to be the clearest evidence yet of the nation's deepening recession, bad news rolled in from across the economy and the world."
As Father William Ferree pointed out in his short pamphlet, Introduction to Social Justice, there is no excuse for this sort of thing — nor are we helpless. After reminding us that we each have a personal responsibility to work together to change things, he concluded,
No problem can ever be too big, too complex, too widespread, too vast for Social Justice to tackle. There is in the field of Social Justice no such thing as an impossible situation. . . . The completed doctrine of Social Justice places in our hands instruments of such power as to be inconceivable to former generations. . . . The power that we have now to change any institution of life, the grip that we have on the social order as a whole, was always there but we did not know it and we did not know how to use it.
Now we know.
That is the difference.
Monday, December 22, 2008
Cracks Appearing in Keynesian Economics
Definite cracks are beginning to appear in the hitherto seemingly unshakable Keynesian foundation of modern monetary and fiscal policy. In the "Weekend Journal" section of the Wall Street Journal of December 20-21, 2008 (W1), James Grant's essay on "Is the Medicine Worse Than the Illness?" suggested that the traditional Keynesian "print and spend" solution might not be what the situation calls for. This was followed on Monday in the Washington Post with Robert Samuelson's column, "Bankers in the Crucible" (12/22/08, A21), which at first seemed to speak glowingly of the "aggressive" response of the world's central banks to the current crisis, but then closed with the daunting comment, "These responses seem plausible but prompt [the] troubling question: What if this downturn is following a different script and defeats central banks' aggressiveness?"
Unfortunately, while these signs of discomfort are "comforting" in that they suggest that thoughtful people might be open to new ideas, Grant does little more than claim that interest rates should be kept high to prevent unwise investment. Samuelson for his part doesn't really do anything more than hint that he is a little uneasy about applying remedies that, while they may have worked in the past (we disagree on that), may not be quite right for the present crisis.
Proponents of binary economics and the Just Third Way have been saying the same thing for decades. You can't pretend to have a free market when the cost of financial capital is centrally controlled, nor can you continue to mortgage the future to pay for the present — or (ultimately) at all, for that matter. Parallels between Madoff's Ponzi scheme and Keynesian economics occurred to us last week, but it is an apt comparison, and bears repeating.
Instead of trying to fix Keynesian economics, policymakers and politicians should be taking a look at truly innovative and revolutionary approaches to restructuring an economy along more just and common sense lines. Programs such as Capital Homesteading should be receiving far more attention than they are at present.
Unfortunately, while these signs of discomfort are "comforting" in that they suggest that thoughtful people might be open to new ideas, Grant does little more than claim that interest rates should be kept high to prevent unwise investment. Samuelson for his part doesn't really do anything more than hint that he is a little uneasy about applying remedies that, while they may have worked in the past (we disagree on that), may not be quite right for the present crisis.
Proponents of binary economics and the Just Third Way have been saying the same thing for decades. You can't pretend to have a free market when the cost of financial capital is centrally controlled, nor can you continue to mortgage the future to pay for the present — or (ultimately) at all, for that matter. Parallels between Madoff's Ponzi scheme and Keynesian economics occurred to us last week, but it is an apt comparison, and bears repeating.
Instead of trying to fix Keynesian economics, policymakers and politicians should be taking a look at truly innovative and revolutionary approaches to restructuring an economy along more just and common sense lines. Programs such as Capital Homesteading should be receiving far more attention than they are at present.
Monday, November 24, 2008
Problama for Obama
We've been a little busy, so the Washington Post and the Wall Street Journal have been getting off easy. The gloves are off, now — allowing for slight changes, we just sent the following letter to both of them:
President-elect Barack Obama is, in a sense, correct in that the United States — and the rest of the world — needs "economic stimulus." ("Obama Eyes $500 Billion in Stimulus; Paulson Weighs Ramping Up Aid Again," WSJ, 11/24/08, A1, A15; "Democrats' Stimulus Plan May Reach $700 Billion," Washington Post, 11/24/08, A1, A14.). Unfortunately, the Keynesian tactic of creating money to spend on non-productive consumption and government spending is exactly the wrong thing to do. It tries to solve the underlying problems by making them worse. If he is genuinely seeking a viable solution, Mr. Obama is thinking much too small.
Mr. Obama should not be asking for a mere $500 or $700 billion, but for $2 to $3 trillion. Instead of creating money to spend on consumption, rescuing gamblers, and increasing State ownership of private industry and infrastructure, however, as much money as is necessary can be created in a non-inflationary manner if it 1) results in investment in new equipment, technology, rentable space, or anything else that is "self-liquidating," that is, pays for itself out of future income, and 2) ownership of the investments is put in the hands of people who will use the income a) to repay the original acquisition loan, and b) afterwards spend the income on consumption.
Each year the U.S. economy adds between $2 to $3 trillion in new plant and equipment, rentable space, and infrastructure. Currently it does so in ways that concentrate ownership. If money for new investment were to be created by the commercial banking system and the central bank instead of relying on past savings, all new investment could be financed out of "future" or "forced" savings. Spending for investment that is broadly owned by people who will use the income first to repay their acquisition debt and thereafter for consumption instead of reinvestment would provide a lasting stimulus instead of a one-time infusion of questionable benefit. Investment that creates new owners increases ongoing demand for capital goods as well as consumer goods, and adds to aggregate savings (savings = investment) instead of increasing an already gargantuan public debt.
A program called "Capital Homesteading for Every Citizen," from the book of the same title, details how Mr. Obama can turn this country and the rest of the world around. The "Full Ownership and Employment Act of 2009" would be a good place to start. If Mr. Obama wants to spend money, he should do it wisely, not in ways that make the situation worse.
Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).
President-elect Barack Obama is, in a sense, correct in that the United States — and the rest of the world — needs "economic stimulus." ("Obama Eyes $500 Billion in Stimulus; Paulson Weighs Ramping Up Aid Again," WSJ, 11/24/08, A1, A15; "Democrats' Stimulus Plan May Reach $700 Billion," Washington Post, 11/24/08, A1, A14.). Unfortunately, the Keynesian tactic of creating money to spend on non-productive consumption and government spending is exactly the wrong thing to do. It tries to solve the underlying problems by making them worse. If he is genuinely seeking a viable solution, Mr. Obama is thinking much too small.
Mr. Obama should not be asking for a mere $500 or $700 billion, but for $2 to $3 trillion. Instead of creating money to spend on consumption, rescuing gamblers, and increasing State ownership of private industry and infrastructure, however, as much money as is necessary can be created in a non-inflationary manner if it 1) results in investment in new equipment, technology, rentable space, or anything else that is "self-liquidating," that is, pays for itself out of future income, and 2) ownership of the investments is put in the hands of people who will use the income a) to repay the original acquisition loan, and b) afterwards spend the income on consumption.
Each year the U.S. economy adds between $2 to $3 trillion in new plant and equipment, rentable space, and infrastructure. Currently it does so in ways that concentrate ownership. If money for new investment were to be created by the commercial banking system and the central bank instead of relying on past savings, all new investment could be financed out of "future" or "forced" savings. Spending for investment that is broadly owned by people who will use the income first to repay their acquisition debt and thereafter for consumption instead of reinvestment would provide a lasting stimulus instead of a one-time infusion of questionable benefit. Investment that creates new owners increases ongoing demand for capital goods as well as consumer goods, and adds to aggregate savings (savings = investment) instead of increasing an already gargantuan public debt.
A program called "Capital Homesteading for Every Citizen," from the book of the same title, details how Mr. Obama can turn this country and the rest of the world around. The "Full Ownership and Employment Act of 2009" would be a good place to start. If Mr. Obama wants to spend money, he should do it wisely, not in ways that make the situation worse.
Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).
Wednesday, November 12, 2008
"Where Obama Can Be Bold"
In keeping with our policy of offering unsolicited advice to world leaders, here is a copy of our latest letter to the Washington Post which, in common with virtually other media outlet throughout the globe, is giving truckloads of advice to President-elect Obama. The only difference is that our advice is good.
Dear Sir(s):
While phrasing it in terms of a "what if," Michael Gerson got it right in his column in today's Washington Post ("Where Obama Can Be Bold," A19). The best and wisest form of reparation is to open up equal opportunity to acquire and possess income-generating assets. This would be fully justified not as reparations for slavery, per se, but as fair compensation for the barriers imposed by our social structures on descendants of slaves.
The issue then becomes, should the taxpayer be required to pay? No. That would be as unjust as the barriers a government-funded reparations program would presumably be designed to lift. No one alive today was a slave owner, and most Americans are not descendants of someone who owned slaves in the Antebellum South. Further, the immense demands placed on the taxpayer in the current financial crisis leave no room for something as potentially divisive and costly as cash reparations.
There is, however, a solution — one that would benefit all Americans, and help put the country itself back on a sound financial footing. Consistent with the principles of Keynesian economics, Mr. Gerson assumes that the seed money for a tax-free savings account can only come from existing accumulations of wealth, i.e., the tax base, or savings borrowed by the government.
The fact is, however, that 1) investment can take place without first cutting consumption and saving, and 2) without the necessity of a class of very rich people who can afford to save enough to finance the capital needs of an economy. In his 1935 monograph The Formation of Capital, Dr. Harold Moulton, then president of the Brookings Institution demonstrated that between 1830 and 1930 the bulk of the financing for capital investment did not come from savings, but from the extension of bank credit. The loans were repaid out of "future" or "forced" savings after investment, instead of financed by cutting consumption before investment. In 1958 Louis O. Kelso invented the Employee Stock Ownership Plan ("ESOP") as a means whereby ordinary people could become owners of capital without first having to cut consumption and save, ideally financing the acquisition by proper use of the commercial banking system and a central bank.
Kelso's program, which the Center for Economic and Social Justice later developed into a proposal called "Capital Homesteading for Every Citizen," from the book with the same title, would provide financing for tax-deferred (not free) investment accounts — savings, as every economist knows, equals investment. By financing all of America's capital needs in this way, at present rates of growth, a child born today who received an annual equal right to borrow newly-created money for capital investment could accumulate in the neighborhood of $500,000 of income-generating capital assets by age 65, and increase gross taxable dividend income over the same period by nearly $2 million. Under the tax reforms recommended under Capital Homesteading, a "typical" family of four would pay no income or payroll taxes until aggregate family income exceeded $100,000.
In the initial stages of a Capital Homesteading program it would be perfectly feasible to double, even triple the amount that individuals whose median net worth fell below a certain threshold could borrow for vetted, financially feasible investments. This would build in an automatic reparations feature without forcing anyone through the humiliating and possibly impossible process of proving that they or their ancestors were sufficiently oppressed to meet bureaucrats' preconceived notions.
Finally, of course, this could all be done without a cent of taxpayer money. It even has the potential to get the government out of the bailout business, thus taking the immense load off the back of current and future taxpayers.
Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).
Dear Sir(s):
While phrasing it in terms of a "what if," Michael Gerson got it right in his column in today's Washington Post ("Where Obama Can Be Bold," A19). The best and wisest form of reparation is to open up equal opportunity to acquire and possess income-generating assets. This would be fully justified not as reparations for slavery, per se, but as fair compensation for the barriers imposed by our social structures on descendants of slaves.
The issue then becomes, should the taxpayer be required to pay? No. That would be as unjust as the barriers a government-funded reparations program would presumably be designed to lift. No one alive today was a slave owner, and most Americans are not descendants of someone who owned slaves in the Antebellum South. Further, the immense demands placed on the taxpayer in the current financial crisis leave no room for something as potentially divisive and costly as cash reparations.
There is, however, a solution — one that would benefit all Americans, and help put the country itself back on a sound financial footing. Consistent with the principles of Keynesian economics, Mr. Gerson assumes that the seed money for a tax-free savings account can only come from existing accumulations of wealth, i.e., the tax base, or savings borrowed by the government.
The fact is, however, that 1) investment can take place without first cutting consumption and saving, and 2) without the necessity of a class of very rich people who can afford to save enough to finance the capital needs of an economy. In his 1935 monograph The Formation of Capital, Dr. Harold Moulton, then president of the Brookings Institution demonstrated that between 1830 and 1930 the bulk of the financing for capital investment did not come from savings, but from the extension of bank credit. The loans were repaid out of "future" or "forced" savings after investment, instead of financed by cutting consumption before investment. In 1958 Louis O. Kelso invented the Employee Stock Ownership Plan ("ESOP") as a means whereby ordinary people could become owners of capital without first having to cut consumption and save, ideally financing the acquisition by proper use of the commercial banking system and a central bank.
Kelso's program, which the Center for Economic and Social Justice later developed into a proposal called "Capital Homesteading for Every Citizen," from the book with the same title, would provide financing for tax-deferred (not free) investment accounts — savings, as every economist knows, equals investment. By financing all of America's capital needs in this way, at present rates of growth, a child born today who received an annual equal right to borrow newly-created money for capital investment could accumulate in the neighborhood of $500,000 of income-generating capital assets by age 65, and increase gross taxable dividend income over the same period by nearly $2 million. Under the tax reforms recommended under Capital Homesteading, a "typical" family of four would pay no income or payroll taxes until aggregate family income exceeded $100,000.
In the initial stages of a Capital Homesteading program it would be perfectly feasible to double, even triple the amount that individuals whose median net worth fell below a certain threshold could borrow for vetted, financially feasible investments. This would build in an automatic reparations feature without forcing anyone through the humiliating and possibly impossible process of proving that they or their ancestors were sufficiently oppressed to meet bureaucrats' preconceived notions.
Finally, of course, this could all be done without a cent of taxpayer money. It even has the potential to get the government out of the bailout business, thus taking the immense load off the back of current and future taxpayers.
Donations to CESJ support our Capital Homesteading projects and Just Third Way initiatives, and are tax deductible in the United States under IRC § 501(c)(3).
Tuesday, October 21, 2008
Why Keynes is Wrong for America — or Anywhere Else
This squeak from the wheel went to the Washington Post earlier today in response to the announcement that Chairman Bernanke had given his imprimatur to a second stimulus package. People will wonder how, if the first one didn't work, a second will be of benefit (except to buy votes for whoever can spout the line closest to Keynesian Political Correctness). The answer is simple: when something doesn't work the first time, throw money at it until it works (which it can't) or you're broke. This is similar to the dictum I learned working on an assembly line: You can fix anything with a hammer; if it breaks, it needed replacing anyway. (Naturally, the hammer we used to whack things until they worked, a solid chunk of steel bar stock, itself finally broke.) For what it's worth, then:
Dear Sir(s):
The headline in today's Washington Post ("Economic Stimulus Gains Traction," Washington Post, 10/21/08, A1), while no doubt giving a measure of hope to some people, indicates that Keynesian economics is as bankrupt of ideas as the world will soon be financially. The only puzzle is why, since the first stimulus package failed to work (and was, in fact, followed by the financial meltdown), is another proposed?
Keynesian economics, the entrenched economic philosophy of both parties, is based on the demonstrably false assumption that the State can continue to create money backed by nothing but government debt, and somehow avoid paying the bill when it comes due. One of the most damaging myths to come out of the 20th century is the fixed belief that Keynes' programs brought the United States out of the Great Depression. On the contrary: the New Deal began faltering badly in the "mini-depression" of 1936-37 when the Keynesian stimulus package began having its predictable counterproductive effect. What brought the U.S. out of the Depression was not the inflation-induced false prosperity of Keynes, but the increasing real demand created by the war in Europe.
The irony is that neither the New Deal nor the war was necessary to bring the country out of the Depression. Had the reforms recommended by Dr. Harold Moulton in his book, The Formation of Capital (1935) been implemented, the financial integrity of the country would have been restored, real production would have taken place, and jobs created naturally in response to the increase in real demand.
As president of the Brookings Institution and a leading authority on money, credit, and banking, Dr. Moulton was fully aware of the fallacy of Keynes' basic assumption: that the State could create money at will to finance deficits, but that the private sector could not do the same thing to finance capital formation. The former results in an inflationary, debt-backed currency, while the latter creates an asset-backed, appreciating currency.
Further, the capacity may not exist in the American economy to sustain Keynesian programs. According to the Federal Reserve's "Flow of Funds Report" for the first quarter of 2008, total debt in the United States (business, consumer, and government) is $50 trillion. This is 350% of GDP. In 1929, total US debt was approximately 140% of GDP — and the country's productive capacity was completely intact; jobs and industries had not moved overseas.
In contrast to the Keynesian New Deal or some variant thereof is a proposal called Capital Homesteading for Every Citizen. By focusing on providing credit for ordinary people to become owners of the means of production, thereby creating and maintaining their own jobs, Capital Homesteading eliminates reliance on unproductive government spending, bailouts, and endless stimulus packages, and replaces them with productive money creation that builds ownership into ordinary people, putting wasted resources, excess capacity, and idle people back to work.
Donations to CESJ are tax deductible in the United States under IRC § 501(c)(3):
Dear Sir(s):
The headline in today's Washington Post ("Economic Stimulus Gains Traction," Washington Post, 10/21/08, A1), while no doubt giving a measure of hope to some people, indicates that Keynesian economics is as bankrupt of ideas as the world will soon be financially. The only puzzle is why, since the first stimulus package failed to work (and was, in fact, followed by the financial meltdown), is another proposed?
Keynesian economics, the entrenched economic philosophy of both parties, is based on the demonstrably false assumption that the State can continue to create money backed by nothing but government debt, and somehow avoid paying the bill when it comes due. One of the most damaging myths to come out of the 20th century is the fixed belief that Keynes' programs brought the United States out of the Great Depression. On the contrary: the New Deal began faltering badly in the "mini-depression" of 1936-37 when the Keynesian stimulus package began having its predictable counterproductive effect. What brought the U.S. out of the Depression was not the inflation-induced false prosperity of Keynes, but the increasing real demand created by the war in Europe.
The irony is that neither the New Deal nor the war was necessary to bring the country out of the Depression. Had the reforms recommended by Dr. Harold Moulton in his book, The Formation of Capital (1935) been implemented, the financial integrity of the country would have been restored, real production would have taken place, and jobs created naturally in response to the increase in real demand.
As president of the Brookings Institution and a leading authority on money, credit, and banking, Dr. Moulton was fully aware of the fallacy of Keynes' basic assumption: that the State could create money at will to finance deficits, but that the private sector could not do the same thing to finance capital formation. The former results in an inflationary, debt-backed currency, while the latter creates an asset-backed, appreciating currency.
Further, the capacity may not exist in the American economy to sustain Keynesian programs. According to the Federal Reserve's "Flow of Funds Report" for the first quarter of 2008, total debt in the United States (business, consumer, and government) is $50 trillion. This is 350% of GDP. In 1929, total US debt was approximately 140% of GDP — and the country's productive capacity was completely intact; jobs and industries had not moved overseas.
In contrast to the Keynesian New Deal or some variant thereof is a proposal called Capital Homesteading for Every Citizen. By focusing on providing credit for ordinary people to become owners of the means of production, thereby creating and maintaining their own jobs, Capital Homesteading eliminates reliance on unproductive government spending, bailouts, and endless stimulus packages, and replaces them with productive money creation that builds ownership into ordinary people, putting wasted resources, excess capacity, and idle people back to work.
Donations to CESJ are tax deductible in the United States under IRC § 501(c)(3):
Wednesday, October 15, 2008
Reaching Bottom with the Washington Post
Do squeaky wheels ever get greased? Stay tuned, and we'll find out. We've been letting the Washington Post off the hook for a while, but today's edition had a well-written and insightful column by Steven Pearlstein that was, unfortunately, based on a disproved Keynesian dogma: that capital can only be formed out of existing accumulations of savings. Fortunately, we're working on getting out a new edition of Dr. Moulton's book, which should prove invaluable to people like Mr. Pearlstein, and help the powers-that-be start using money, credit, and banking as designed and intended.
Dear Sir(s):
While I agree with Steven Pearlstein that we have yet to "reach bottom" in the financial crisis ("Buckle Up — We Haven't Reached Bottom Yet," Washington Post, 10/15/08, D1), his analysis of what is needed for recovery is based on an incomplete understanding of money, credit, and banking, as well as the process of capital formation. Contrary to Mr. Pearlstein's implicit assumption, we do not need to cut consumption and save before investing. This is a Keynesian dogma disproved by Dr. Harold Moulton of the Brookings Institution in his 1935 monograph, The Formation of Capital.
Mr. Pearlstein is absolutely correct that, should matters proceed along Keynesian lines, the already-weakened financial system will only get weaker. The solution, however, is not to bite the bullet and cut consumption. Rather, we need to reorganize the financial system along more rational lines to enable more people to realize Keynes' "effective demand" without the need for the government to create more debt-backed currency with its consequent inflation.
Commercial and central banking (as opposed to "deposit banking") were invented to allow people to obtain credit and finance capital formation without first saving. Keynes, however, dismissed the idea that money could be created through the banking system to finance industrial, commercial, and agricultural projects that would pay for themselves out of future earnings. This is a process called "forced" or "future" savings. Keynes believed that only the State could create money in this way, backed by debt instead of assets, to redistribute wealth and thereby generate effective demand.
Dr. Moulton demonstrated that demand for capital ("investment") follows consumer demand; that from 1830 to 1930, periods of increased investment were preceded in every case not by saving — cuts in consumption — but by increases in consumption! The money to finance new capital formation in response to the increased consumer demand did not come from existing savings, but from the extension of bank credit for investment in sound capital projects.
Further, Dr. Moulton proved that by cutting consumption in order to finance economic recovery, recovery is actually slowed, if not halted altogether, as in the "mini-depression" of 1936-37 when the false stimulus of inflation and currency devaluation started to wear off. The real increase in effective demand caused by the war in Europe, not the artificial demand created by the Keynesian programs, brought America out of the Great Depression.
Do we need a war to bring us out of the current crisis? No. We need simply create money for capital formation in ways that make new owners of that capital out of people who previously owned little or nothing in the way of income-generating assets. These new owners will use the income from their capital first to force savings to repay the acquisition cost (a process called "self-liquidation"), and then use the income for consumption, not reinvestment. This will generate real effective demand instead of the "phony" effective demand of inflation.
A program to achieve this much more rational goal is called "Capital Homesteading for Every Citizen," from the book with the same title. It is well worth considering when the alternative is more of the same, only worse.
Donations to CESJ are tax deductible in the United States under IRC § 501(c)(3):
Dear Sir(s):
While I agree with Steven Pearlstein that we have yet to "reach bottom" in the financial crisis ("Buckle Up — We Haven't Reached Bottom Yet," Washington Post, 10/15/08, D1), his analysis of what is needed for recovery is based on an incomplete understanding of money, credit, and banking, as well as the process of capital formation. Contrary to Mr. Pearlstein's implicit assumption, we do not need to cut consumption and save before investing. This is a Keynesian dogma disproved by Dr. Harold Moulton of the Brookings Institution in his 1935 monograph, The Formation of Capital.
Mr. Pearlstein is absolutely correct that, should matters proceed along Keynesian lines, the already-weakened financial system will only get weaker. The solution, however, is not to bite the bullet and cut consumption. Rather, we need to reorganize the financial system along more rational lines to enable more people to realize Keynes' "effective demand" without the need for the government to create more debt-backed currency with its consequent inflation.
Commercial and central banking (as opposed to "deposit banking") were invented to allow people to obtain credit and finance capital formation without first saving. Keynes, however, dismissed the idea that money could be created through the banking system to finance industrial, commercial, and agricultural projects that would pay for themselves out of future earnings. This is a process called "forced" or "future" savings. Keynes believed that only the State could create money in this way, backed by debt instead of assets, to redistribute wealth and thereby generate effective demand.
Dr. Moulton demonstrated that demand for capital ("investment") follows consumer demand; that from 1830 to 1930, periods of increased investment were preceded in every case not by saving — cuts in consumption — but by increases in consumption! The money to finance new capital formation in response to the increased consumer demand did not come from existing savings, but from the extension of bank credit for investment in sound capital projects.
Further, Dr. Moulton proved that by cutting consumption in order to finance economic recovery, recovery is actually slowed, if not halted altogether, as in the "mini-depression" of 1936-37 when the false stimulus of inflation and currency devaluation started to wear off. The real increase in effective demand caused by the war in Europe, not the artificial demand created by the Keynesian programs, brought America out of the Great Depression.
Do we need a war to bring us out of the current crisis? No. We need simply create money for capital formation in ways that make new owners of that capital out of people who previously owned little or nothing in the way of income-generating assets. These new owners will use the income from their capital first to force savings to repay the acquisition cost (a process called "self-liquidation"), and then use the income for consumption, not reinvestment. This will generate real effective demand instead of the "phony" effective demand of inflation.
A program to achieve this much more rational goal is called "Capital Homesteading for Every Citizen," from the book with the same title. It is well worth considering when the alternative is more of the same, only worse.
Donations to CESJ are tax deductible in the United States under IRC § 501(c)(3):
Friday, September 5, 2008
Put the Pedal to the Metal for Innovation in Energy
Here's today's blast at the Washington Post, which I invite you to borrow from and write your own missive to the the only newspaper (so far as I know) ever to have a Sousa march written in its honor.
Dear Sir(s):
The editorial "Stepping Off the Gas" (Washington Post, 09/04/08, A14) accurately analyzes the possible effect of the laws of supply and demand as the price of oil rises and falls. It makes a fatal error, however, in assuming that alternative fuels can only be financially feasible if State-subsidized — which is to say, not financially feasible at all.
On the contrary. There are technologies currently in development that have the potential to provide the United States, even the world with alternative energy sources at a substantially lower cost than fossil fuels. Waste-to-energy conversion, solar power, even hydrogen (the most common element in the universe) are all technically viable at this time. The "trick" right now is not how to do it — they know how — but to bring the cost down by improving the efficiency of the technology.
By engaging in alternative energy development on the scale of the Manhattan Project (but for peaceful purposes), the United States could quickly develop financially feasible energy sources that do not rely on fossil fuels or feed grains. Further, development should not stop at just one viable fuel, but a number, so that neither individuals nor countries are ever dependent on a single source of fuel.
To make certain that every citizen benefits, yes, let the State fund research and development through tax credits and grants repayable if the line of research pays off. Then make the royalty-free patents available only to companies that have significant worker and consumer ownership with the vote, and which pay meaningful dividends and offer rebates in the event of "windfall" profits.
Once a particular technology proves feasible, the necessary upgrading can be financed by discounting loans at the Federal Reserve, but only if the financing so obtained results in increasing the base of worker and consumer ownership, not in increasing the ownership stake of the already-wealthy — or in bailing out failed gamblers such as Bear Sterns. Using the Federal Reserve to finance genuinely productive projects such as energy development is an application of principles developed in a proposal called Capital Homesteading for Every Citizen, from the book with the same title.
Donations to CESJ are tax deductible in the United States under IRC § 501(c)(3):
Dear Sir(s):
The editorial "Stepping Off the Gas" (Washington Post, 09/04/08, A14) accurately analyzes the possible effect of the laws of supply and demand as the price of oil rises and falls. It makes a fatal error, however, in assuming that alternative fuels can only be financially feasible if State-subsidized — which is to say, not financially feasible at all.
On the contrary. There are technologies currently in development that have the potential to provide the United States, even the world with alternative energy sources at a substantially lower cost than fossil fuels. Waste-to-energy conversion, solar power, even hydrogen (the most common element in the universe) are all technically viable at this time. The "trick" right now is not how to do it — they know how — but to bring the cost down by improving the efficiency of the technology.
By engaging in alternative energy development on the scale of the Manhattan Project (but for peaceful purposes), the United States could quickly develop financially feasible energy sources that do not rely on fossil fuels or feed grains. Further, development should not stop at just one viable fuel, but a number, so that neither individuals nor countries are ever dependent on a single source of fuel.
To make certain that every citizen benefits, yes, let the State fund research and development through tax credits and grants repayable if the line of research pays off. Then make the royalty-free patents available only to companies that have significant worker and consumer ownership with the vote, and which pay meaningful dividends and offer rebates in the event of "windfall" profits.
Once a particular technology proves feasible, the necessary upgrading can be financed by discounting loans at the Federal Reserve, but only if the financing so obtained results in increasing the base of worker and consumer ownership, not in increasing the ownership stake of the already-wealthy — or in bailing out failed gamblers such as Bear Sterns. Using the Federal Reserve to finance genuinely productive projects such as energy development is an application of principles developed in a proposal called Capital Homesteading for Every Citizen, from the book with the same title.
Donations to CESJ are tax deductible in the United States under IRC § 501(c)(3):
Thursday, September 4, 2008
Why You are not Rich
While Harold Meyerson properly castigates the Republicans for their lack of a feasible economic program ("Economy? What Economy?" Washington Post, 09/03/08, A15), he fails to take into account the fact that the Democrats are, within the ubiquitous Keynesian framework, even worse.
The Republicans, consistent with Keynesian theory, are pushing tax breaks for the rich. Economic orthodoxy dictates that the rich provide the financing for capital formation that supplies the non-owning majority with jobs to generate effective demand.
The Democrats are pushing tax breaks for the middle class that is in danger of losing jobs as the rich lose the incentive to reinvest by having their tax breaks taken away. This means greater reliance on foreign investment, accelerating globalization on unfavorable terms, and a consequent dependency of a debt-ridden United States on other, more financially sound economies.
Both parties are dead wrong, but the Republicans are at least consistent with the bizarre demands imposed by slavish adherence to Keynesian theory. The fact is that if a program such as Capital Homesteading were to be implemented, capital formation would be financed by monetizing the productive capacity of the United States through proper use of the Federal Reserve System, as originally intended by the Federal Reserve Act of 1913. By opening up democratic access to capital credit so that every citizen has the right to borrow money to purchase qualified equity shares or other self-liquidating assets, the rich would be free to spend their income, or use it to provide reinsurance reserves for capital credit insurance — and be taxed at the same rate as everyone else, above a generous personal exemption sufficient to cover common domestic needs adequately.
We estimate that, under the current federal budget (including entitlements), a typical family of four would pay no income tax of any kind — including payroll taxes — until aggregate income exceeded $120,000. Under Capital Homesteading and an annual capital credit allotment conservatively estimated at $7,000, an individual would by age 65 have accumulated $500,000 worth of capital generating $50,000 per year, and have enjoyed total dividend income of $1.6 million.
Further, by merging Social Security and Medicare into the general tax rate and basing the social safety net solely on need after keeping all existing promises made under Social Security and Medicare, entitlements would be greatly reduced from the current two-thirds of the $3 trillion federal budget at the same time benefits to individuals could be increased. The funds formerly used for entitlements could be applied to reducing the nearly $10 trillion in current outstanding federal debt, to say nothing of eliminating the looming $74 trillion projected deficit in Social Security and Medicare.
Senator Obama has, to our certain knowledge, been provided with an outline of these proposals more than once. He responded by ridiculing the idea of an ownership culture in his acceptance speech at the Democratic Convention. In that, at least, he is one up on Senator McCain, who has surrounded himself with people who seem intent on raising barriers against his hearing anything innovative.
Donations to CESJ are tax deductible in the United States under IRC § 501(c)(3):
The Republicans, consistent with Keynesian theory, are pushing tax breaks for the rich. Economic orthodoxy dictates that the rich provide the financing for capital formation that supplies the non-owning majority with jobs to generate effective demand.
The Democrats are pushing tax breaks for the middle class that is in danger of losing jobs as the rich lose the incentive to reinvest by having their tax breaks taken away. This means greater reliance on foreign investment, accelerating globalization on unfavorable terms, and a consequent dependency of a debt-ridden United States on other, more financially sound economies.
Both parties are dead wrong, but the Republicans are at least consistent with the bizarre demands imposed by slavish adherence to Keynesian theory. The fact is that if a program such as Capital Homesteading were to be implemented, capital formation would be financed by monetizing the productive capacity of the United States through proper use of the Federal Reserve System, as originally intended by the Federal Reserve Act of 1913. By opening up democratic access to capital credit so that every citizen has the right to borrow money to purchase qualified equity shares or other self-liquidating assets, the rich would be free to spend their income, or use it to provide reinsurance reserves for capital credit insurance — and be taxed at the same rate as everyone else, above a generous personal exemption sufficient to cover common domestic needs adequately.
We estimate that, under the current federal budget (including entitlements), a typical family of four would pay no income tax of any kind — including payroll taxes — until aggregate income exceeded $120,000. Under Capital Homesteading and an annual capital credit allotment conservatively estimated at $7,000, an individual would by age 65 have accumulated $500,000 worth of capital generating $50,000 per year, and have enjoyed total dividend income of $1.6 million.
Further, by merging Social Security and Medicare into the general tax rate and basing the social safety net solely on need after keeping all existing promises made under Social Security and Medicare, entitlements would be greatly reduced from the current two-thirds of the $3 trillion federal budget at the same time benefits to individuals could be increased. The funds formerly used for entitlements could be applied to reducing the nearly $10 trillion in current outstanding federal debt, to say nothing of eliminating the looming $74 trillion projected deficit in Social Security and Medicare.
Senator Obama has, to our certain knowledge, been provided with an outline of these proposals more than once. He responded by ridiculing the idea of an ownership culture in his acceptance speech at the Democratic Convention. In that, at least, he is one up on Senator McCain, who has surrounded himself with people who seem intent on raising barriers against his hearing anything innovative.
Donations to CESJ are tax deductible in the United States under IRC § 501(c)(3):
Friday, August 29, 2008
Obama's Tough Decision
The previous squeak went to the Wall Street Journal. This one went to the Washington Post. Again, I encourage plagiarism, rip offs, copying, . . . whatever, as long as the message starts to get out somewhere.
Dear Sir(s):
The editorial on the clay-footed lending giants ("Tough Decision Coming: Barack Obama is inching away from his party's orthodoxy on Fannie Mae and Freddie Mac," Washington Post, 08/28/08, A18) indicates that Senator Obama is at least thinking about a step in the right direction. As last night's speech demonstrates, however, he is still fixated with the idea that ordinary people are incapable of doing anything without the help of Big Government, Big Business, or some Big Combination of the two.
If Obama is serious about "moving in the direction of economic reality," he should look into "Capital Homesteading for Every Citizen," from the book with that title. One application of Capital Homesteading is called the "Homeowners' Equity Corporation" ("HEC"), which would solve the whole Fannie Mae and Freddie Mac disaster.
A HEC is a proposed for-profit stock corporation whose shareholders would be homeowners in danger of foreclosure. HECs — and there should be many, to provide redundancy, lower risk, and ensure competition in a community — would purchase distressed properties at the current market value. HECs would obtain acquisition loans from commercial banks, which in turn would discount the loans at the local Federal Reserve at a rate reflecting transaction costs and a revised risk premium. The homes could then be leased at a realistic market rate to their former owners or new tenants.
The tenant would earn shares in the HEC as lease payments were made sufficient to cover debt service, maintenance, and taxes. When the acquisition loan for a particular property was fully paid, the tenant could exchange his or her HEC shares for title, or continue as a tenant/shareholder at a reduced lease payment, sufficient to cover maintenance and property taxes.
Financing the purchase of properties through the Federal Reserve System and its member banks would cost the taxpayer nothing and be the first step in restoring a currency backed by hard assets instead of government debt. Let the free market decide what happens to Fannie Mae and Freddie Mac. The HEC may require some enabling legislation from Congress to give it powers similar to those currently enjoyed by leveraged ESOPs, but, after that, the State can step aside, and, except for its regulatory role, let people solve their own problems without imposing any more burdens on the taxpayer or running up the deficit now approaching $10 trillion.
Donations to CESJ are tax deductible in the United States under IRC § 501(c)(3):
Dear Sir(s):
The editorial on the clay-footed lending giants ("Tough Decision Coming: Barack Obama is inching away from his party's orthodoxy on Fannie Mae and Freddie Mac," Washington Post, 08/28/08, A18) indicates that Senator Obama is at least thinking about a step in the right direction. As last night's speech demonstrates, however, he is still fixated with the idea that ordinary people are incapable of doing anything without the help of Big Government, Big Business, or some Big Combination of the two.
If Obama is serious about "moving in the direction of economic reality," he should look into "Capital Homesteading for Every Citizen," from the book with that title. One application of Capital Homesteading is called the "Homeowners' Equity Corporation" ("HEC"), which would solve the whole Fannie Mae and Freddie Mac disaster.
A HEC is a proposed for-profit stock corporation whose shareholders would be homeowners in danger of foreclosure. HECs — and there should be many, to provide redundancy, lower risk, and ensure competition in a community — would purchase distressed properties at the current market value. HECs would obtain acquisition loans from commercial banks, which in turn would discount the loans at the local Federal Reserve at a rate reflecting transaction costs and a revised risk premium. The homes could then be leased at a realistic market rate to their former owners or new tenants.
The tenant would earn shares in the HEC as lease payments were made sufficient to cover debt service, maintenance, and taxes. When the acquisition loan for a particular property was fully paid, the tenant could exchange his or her HEC shares for title, or continue as a tenant/shareholder at a reduced lease payment, sufficient to cover maintenance and property taxes.
Financing the purchase of properties through the Federal Reserve System and its member banks would cost the taxpayer nothing and be the first step in restoring a currency backed by hard assets instead of government debt. Let the free market decide what happens to Fannie Mae and Freddie Mac. The HEC may require some enabling legislation from Congress to give it powers similar to those currently enjoyed by leveraged ESOPs, but, after that, the State can step aside, and, except for its regulatory role, let people solve their own problems without imposing any more burdens on the taxpayer or running up the deficit now approaching $10 trillion.
Donations to CESJ are tax deductible in the United States under IRC § 501(c)(3):
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