High School Seniors…gotta read this January 16, 2009
Posted by tetrahedron in Uncategorized.Tags: blackout, bridges, bush, crisis, economic growth, education system, laissez-faire, life, mid life, new york, roosevelt
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The United States is entering a phase of its
existence that is not too dissimilar to a
man’s mid-life crisis. Over its time to date,
the nation has become very accomplished.
And yet, it is searching ardently — and
with a hint of despair — for a vision that
will continue to engage its ambitious spirit.
America is also confronted with a growing
sense of vulnerability — and a certain dose
of self-doubt.
ome of these feelings were triggered by the events
of September 11, 2001 — and reinforced by the
great Blackout, which crippled parts of the nation’s East
Coast and Midwest in August 2003.
Beware the 40s
These internal and external threats to the nation’s
self-confidence are akin to a
man’s recognition of his own
mortality, once he reaches his
forties.
For the United States as a whole,
these experiences also translate
into unprecedented existentialist
fear on a personal as well as on a
national level.
Yet, unlike people, nations have
the capacity to reverse the
effects of the “aging” process.
America can reinvent itself,
change course — and prepare the
way for greater stability,
economic growth and prosperity.
This nation’s resourcefulness and creativity have been
the main drivers of what made the 20th century
“America’s century.”
Patchy record
President Bush was right when he described the
blackout fiasco as a wake-up call. Of course, the
President has been consistently wrong. His record to
date is distinguished by the pursuit of the most
laissez-faire economic policies since the disgraced period
of Manchester capitalism during the 19th century.
This unfortunate track record will — in the long term —
only further aggravate matters. President Bush’s
solutions are aimed to serve special interests, simplistic
in nature — and generally unrelated to the real problem
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Gallup
Read more about
public opinion
research.
U.S. Treasury
Department
Learn more about the
shape of the U.S.
economy.
State of the Nation
Read U.S. President
George W. Bush’s
latest State of the
Nation address.
Liberty and the
pursuit of
happiness will
flourish in a
society that
protects
individual
freedom — while
it accepts
community
response and
responsibility.
Bill
Richardson’s
remark
post-blackout
that the United
States is a
superpower with
a Third World
grid applies to
much of the
at hand.
Only small government is good government
The challenge for Americans today is much deeper and
broader. Ever since the Reagan Administration, the
American people have been inundated with disparaging
comments about government, especially by those who
govern them.
Public service, once an honorable
ambition, has been converted into
a leper ward in the public’s mind.
To many conservatives, there is
no such thing as good “public
service.”
Only small government is good
government. With near religious
fervor, most Americans are
convinced today of the absolute
power and total efficiency of
markets. The proverbial “invisible
hand” has achieved God-like
stature.
Seeking alternatives
Already I can hear the moaning of proponents of this
philosophy. In short, they are prepared to pull the old
stunts of negative labeling — such as “liberal”, “tax and
spend” and “death tax.” Even many Democrats will dive
in for fear of “inelectability.”
And yet, this is not an essay in defense of
cradle-to-grave European welfare states, which have left
these countries with non-dynamic societies and
entrepreneurial deficiencies.
My argument is, however, to suggest that there is an
alternative to the Bush Administration’s ardent pursuit
of happiness for the rich by cutting taxes, mortgaging
the fiscal future of America’s children — and failing to
provide for basic services.
An alarming list
Let us remember then that well over 42 million
Americans are without health insurance, that privatized
and deregulated energy markets have caused brownouts
and blackouts on the West and the East Coast.
Let us also recall that U.S. roads have more potholes
than there are craters on the moon — because local and
state governments lack the funds to repair them.
Running water, cracking bridges
Let us not forget that New York City’s water mains are
over 100 years old and poorly
maintained and that the city’s
bridges have structural defects
due to lack of maintenance.
The U.S. primary and secondary
education system is patchy at
best, cementing ever-growing
income differentials between the
haves and the have-nots. The list
goes on and it sounds alarmist —
because it is.
country’s
physical and
human
infrastructure.
Nobody
questions the
need to pay their
grocery bill.
Why then is it so
hard to
comprehend
that providing
health care too
has a price?
Paying the price
In total, this must be viewed as a
stunning outcome after a full
decade now viewed as another
gilded age. But it is the inevitable outcome of the
nation’s obsession with low taxes — and an almost
visceral reaction to government.
But such self-centered glory — reminiscent of the
shallow self-centeredness of a Sturm-and-Drang youth
as was characteristic of the United States of the 1990s
— does not come without a price. Over the next 20
years, America will experience a series of collapses in its
physical infrastructure and in its social order, unless
fundamental changes are made.
Roosevelt’s challenge
The reasons for this neglect are both cultural as well as
political. The nation is solidly rooted in a belief system
that cherishes individual freedom — and that is highly
suspicious of government intervention.
However, this belief system was seriously challenged
during the Great Depression when President Roosevelt
recognized the need for community response and
responsibility in designing the New Deal.
Setting it right again?
Over the last quarter of a century, conservatives have
successfully chipped away at the
body of the New Deal. They have
been able to convince many
Americans to adopt that the
concept of ”the survival of the
fittest” is at the core of America’s
raison d’être.
In doing so, they have also
created broad-based consensus
within society to deny the sheer
existence — or need — of public
goods. They were helped in their
efforts by the dismal failure of
Western Europe’s over-the-top welfare states.
Shock therapy
It remains to be seen whether the Great Blackout of ’03
shock will mark the beginning of an effort to rethink
America. But it certainly provides an excellent
opportunity to promote the idea of public goods. Health
care is a public good, electricity and water are public
goods, adequately maintained infrastructure is a public
good — and education is a public good.
To define these services as public goods does not mean
automatically that they must be provided by the public
sector, i.e. government. This is an important distinction
from the Western European model.
What is best for society?
It does mean, however, that we must design
mechanisms to assure the fair, equitable, affordable and
reliable delivery of those services. This may be done by
the private sector — with or without regulation or by
joint private/public sector efforts.
Internal and
external threats
to the nation’s
self-confidence
are akin to a
man’s
recognition of
his own
mortality, once
he reaches his
forties.
Unlike people,
nations have the
capacity to
reverse the
effects of the
“aging”
process.
America can
reinvent itself.
In those cases, where the fair, equitable, affordable and
reliable delivery of these services cannot or will not be
delivered by the private sector, however, government
must intervene.
Americans must undertake a long-term cost/benefit
analysis. How will society be served best? What is the
price to pay in terms of taxes — compared to eventual
infrastructural and social chaos? The case has to be
made that taxes are nothing else but payment for
services rendered.
Tax demons
Nobody questions the need to pay their grocery bill.
Why then is it so hard to
comprehend that providing health
care too has a price?
It is interesting and disturbing at
the same time that many
Americans feel entitled to receive
public goods (hence they still
have an subconscious
understanding of their existence),
but that they are unwilling to pay
for them. It will be a tremendous
challenge, therefore, to
de-demonize taxation.
Acting on instinct
In the end, Americans do not need new commissions to
tell them what they already know, at least instinctively.
Bill Richardson’s remark post-blackout that the United
States is a superpower with a Third World grid applies
to much of the country’s physical and human
infrastructure.
The American people have an important choice to make.
On the one hand, they rightfully want to safeguard their
past accomplishments — and secure a role in the world.
On the other hand by weight of tradition, they favor a
balanced approach to economic growth.
Teachers needed
This can only be accomplished when Americans are once
again proud to serve the public — but not only through
the nation’s armed forces.
Teachers, health care providers and guarantors of the
nation’s water and electricity
supply are equally vital. Liberty
and the pursuit of happiness will
flourish in a society that protects
individual freedom, while it
accepts community response and
responsibility.
If the United States once again
embraces these core values, then
it will emerge rejuvenated from
its current midlife crisis slump.
But if it continues on the present
path, the United States will sink ever deeper into a cycle
of self-doubt and unfulfilled promises to itself.
It is up to Americans to decide the future direction their
country will take.
$$$Banks can give you as …$$$ you need ! January 15, 2009
Posted by tetrahedron in Uncategorized.Tags: banks, borrowers, create money, currency, deficitsreserve bank, derivatives, loans, money, reserves, securities
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Bankers will tell you that they do not create money. At a 10% reserve requirement, they simply lend out 90% of their deposits. The catch is that their “deposits” include the money they have written into their customers’ accounts as loans. That is how loans are made: numbers are simply written into the accounts of borrowers, as many reputable authorities have attested. Here are two of them, dating back to when officials were either more aware of what was going on or more open about it:
“[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.”
– Robert B. Anderson, Treasury Secretary under Eisenhower, in an interview
reported in the August 31, 1959 issue of U.S. News and World Report
“Do private banks issue money today? Yes. Although banks no longer have the right to issue bank notes, they can create money in the form of bank deposits when they lend money to businesses, or buy securities. . . . The important thing to remember is that when banks lend money they don’t necessarily take it from anyone else to lend. Thus they ‘create’ it.”
– Congressman Wright Patman, Money Facts (House Committee on Banking and Currency, 1964)
The process by which banks create money was detailed in a revealing booklet put out by the Chicago Federal Reserve titled Modern Money Mechanics.2 The booklet was periodically revised until 1992, when it had reached 50 pages long. It is written in somewhat difficult prose, but here are a few relevant passages:
“The actual process of money creation takes place primarily in banks.” [p3]
Translation: banks create money.
“In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency.” [p3]
Translation: banks can create as much money as they want by writing loans into their borrowers’ accounts, limited only by (a) legal reserve requirements (money that must be held in reserve – traditionally about 10% of outstanding deposits and loans) or (b) the amount of money they will need to keep on hand to pay any depositors who might come for their money (also traditionally about 10%).
“Banks may increase the balances in their reserve accounts by depositing checks and proceeds from electronic funds transfers as well as currency.” [p4]
Translation: the “reserves” that count toward the reserve requirement include currency, deposited checks, and electronic funds transfers. (Note that the “deposits” created as loans are excluded from this list of allowable reserves: the bank cannot just keep bootstrapping loans on top of loans but must have money from external sources backing up its liabilities equal to about 10% of its loans and deposits.)
“The money-creation process takes place principally through transaction accounts [accounts that can be drawn on without restriction].” [p2]
“ With a uniform 10 percent reserve requirement, a $1 increase in reserves would support $10 of additional transaction accounts.” [p49]
Translation: $1 deposited by a customer can be fanned into $10 in loans.
“In the real world, a bank’s lending is not normally constrained by the amount of excess reserves it has at any given moment. Rather, loans are made, or not made, depending on the bank’s credit policies and its expectations about its ability to obtain the funds necessary to pay its customers’ checks and maintain required reserves in a timely fashion.”
Translation: In practice, banks issue loans without worrying too much about whether they have the reserves to cover them. If they come up short, they can just borrow them:
“[Since] the individual bank does not know today precisely what its reserve position will be at the time the proceeds of today’s loans are paid out. . . . many banks turn to the money market – borrowing funds to cover deficits or lending temporary surpluses.” [p50]
“[A] bank may [also] borrow reserves temporarily from its Reserve Bank. . . .
[However], banks are discouraged from borrowing [Reserve Bank] adjustment credit too frequently or for extended time periods.” [p29]
Translation: If the bank finds at the end of the accounting period that its reserves do not come to the required 10% of its outstanding loans and deposits, it can simply borrow the reserves it needs from the money market or its Federal Reserve Bank.
A 2002 article posted on the website of the Federal Reserve Bank of New York noted that today, few banks are constrained by reserve requirements at all:
“Since the beginning of the last decade, required reserve balances have fallen dramatically. The decline stems in part from regulatory action: the Federal Reserve eliminated reserve requirements on large time deposits in 1990 and lowered the requirements on transaction accounts in 1992. But a far more important source of the decline in required reserves has been the growth of sweep accounts. In the most common form of sweeping, funds in bank customers’ retail checking accounts are shifted overnight into savings accounts exempt from reserve requirements and then returned to customers’ checking accounts the next business day. Largely as a result of this practice, today only 30 percent of banks are bound by a reserve balance requirement.”3
Even without official reserve requirements, however, banks must keep enough money on hand to meet withdrawals or checks written against the accounts of their depositors; and that generally means about 10% of outstanding deposits and loans, as moneylenders discovered centuries ago. But if the banks come up short, they can borrow this money from the money market or the Federal Reserve; and if the Fed comes up short, it can create new reserves.4 So why the current credit crunch? What is limiting bank lending?
One answer is that borrowers are simply “tapped out” and not in a position to take out as many loans as they used to. When housing and the stock market crashed, consumers no longer had home or stock equity to borrow against.5 But to the extent that the blockage is with the banks themselves, it is not caused by the reserve requirement. Something else is putting the squeeze on credit . . . . Stay tuned, because I’m gonna tell ya what the real problem is, and how to stop the bleeding. these things they’re talking about on local news and msnbc, cnn, well; you the ones, they’re not telling you the real truth, however, I will.
