Archive for the ‘Fundamental Economics’ Category

The Opportunity of a Millennium

By Nick Polimeni

News world-wide forecast from as optimistic as severe downturn, to as panic driven Great World Depression. Commentators, editorials, and economists provide intelligent analyses of why their predictions are reasonable expectations. But these sources can have not produce ideas outside conventional economic thought, or generally accepted accounting concepts, rooted in 14^th Century Merchant of Venice mentality, and MBA bottom-line re-oriented schooling, all of which leave an incomplete picture.

The reason is the socially generated distortions or disregard of fundamentals.

No wealth can exist without human labor; even natural resources must be acted upon by human labor to become useful wealth. When you work to produce something, you are creating wealth, and the wealth so created IS the money to buy wealth created by others. Abundance of physical wealth allows the use of excess labor to perform services to support productive, and other social needs.

The fact that we have authorized governments (tongue in cheek) to monetize wealth (i.e.: create the physical money or to have it noted in some account to represent that wealth), does not change the fact that labor has created it. Governments have transferred most of these rights to private entities, financial community, who now generate and distribute the money or liquidity.

The only reason we need money at all is to trade the wealth that’s in the marketplace; therefore, we don’t need to monetize all wealth in a country, because not all wealth is being traded at a single moment. When all the trading is done, the money, is used for the creation of more wealth in the real economy, or it is used to trade rights future transfer of wealth in the financial markets, where promises for future wealth delivery is traded. The financial markets and the financial community utterly depend on the existence of real wealth, no matter what the name of the instrument, whether stocks, bonds, securities, and so forth. When the wealth does not exist, there’s nothing to trade.

To maintain economic stability the government and central banks need to expand and contract the money supply in relationship to tradable object. They accomplish this by what is known as macro-economics, which is popularly recognized as changing interest rates, and buying and selling securities.

Macro-economics can be compared to using a Rube Goldberg machine to scramble and fry an egg, and the end result is significantly delayed, plus the egg will be full of egg shells. Furthermore, despite all the very rational calculations about what can happen there is one variable in this equation, so unpredictable that cannot be factor into any of the formulas of economic projections with any degree of accuracy: Human emotions and reactions: greed, fear, belief, trust, perception, panic.

Distribution of liquidity is accomplish through the flow of money from the government and central banks to the financial community, and the financial markets, and these have the further responsibility to distribute the money to the real economy. Because the financial community is privately owned, they are first ruled by their own profitability, and this often conflicts with the social and economic needs of the community the purport to serve. Therefore, no amount of macro-economic management wisdom is ever going to manage human emotions, greed and fear, or vested interests; therefore, the possibilities of the Paulson bailout working are from slim to marginal.

Paulson’s change of direction in favor of purchasing equity in financial institutions which need assistance is a more intelligent direction than purchasing troubled assets. This is a step socialist economy, where “the people” own the resource, but the government controls it at its will and discretion. The problems of distribution remain the same. So long as attempts continue to save the financial community and financial markets, in the guise of kick-starting the whole economy, the relentless march into a depression will continue unabated, compounded with the hyper-inflation that takes place when huge amounts of money are released into the economy, without an equivalent rise in production.

There are two economies: the real economy, and the financial markets economy. The roles have been reversed, where the real economy depends on the financial one. But fundamentally, the financial markets depend for their life and health on the real economy, and to restore it, the real economy must be provided with the liquidity necessary to re-start companies that had to close for lack of funds, and to rehire employees who were fired, and another yet extremely important steps, to re-industrialize our economy to a rational use and processing of our natural resources, to supply our own needs.

The opportunity to democratize the economy is now at hand; from a capitalist economy, where the pools of capital are controlled by the few private entities, to the dispersal of capital where everyone involved in the creation of wealth has a stake and a say; and skipping economic socialism.

• Every citizen who has retirement account or nest-eggs of any kind anywhere have experienced a significant losses as a result of having no control over how their retirements were to be invested, or due to ill advise of from the financial community, will be issued a CD for the amount of the loss, and it shall be deposited in that individual’s local bank. The maximum amount should be capped at around $300,000, for individuals, and adequately more for companies that were forced to close their doors as a result of the financial crisis, to cover the re-start and re-employment. Those who have never had enough wealth to save or invest, should minimally be reimbursed through shorter term CD’s for their loss of buying power due to inflation over the last ten or so years, and at the pre-Clinton calculation methods for inflation.

All these CD’s will provide the necessary liquidity to community banks to finance the local real economy. Loans on the CD’s and their redemption should be subject to local management to meet local needs, through some degree of democratic participation by the affected community.

This single step gives a myriad of avenues to heal and keep a healthy economy without the decade-cycle of booms and busts, the legacy of the financial community.

Financial markets will normalize as the real economic recovers, and evaluation of underlying assets is achieved. This evaluation can be assisted with a unit of measurement to be adopted, regardless of their trading price. The recommended unit is an hour of work of an able bodied unskilled worker. This will give a general idea of replacement value of existing wealth, and this simple gauge will provide a great deal of stability. (The Hour Money was conceived by Professor Bob Blain, Emeritus Professor of Sociology, Southern Illinois University Edwardsville, although he never provided a scale of skills.)

Also, trading just for trading sake is just a game for speculators, and with a unit of value the prices will not swing too far in either direction, except when the underlying asset is found to be false or is in some way damaged or destroyed. There is a mad rush to be trading at all times, for some maniacal reason, and the thrust for yields, yields, yields in the 10’s 20’s and 30%, when the real economy is can generate a growth of a few percentage points, where can the excess in the yields expected by financial communities come from? In gambling, there are winners and losers. When this is a significant part of what the financial markets do, the only result is transfer of wealth and it’s usually from the rank and file worker up the economic ladder. Those yields were able to be supported by continual inflation in the financial markets as a result of their abuse in generating liquidity.

There isn’t a single crisis. There are many areas experiencing their own specific crisis, such as the real estate market, and the “shadow economy” as part the financial community, which deserve specific attention. What is recommended in this essay is a different approach of rescue from the bottom up, rather than the top down for more trickle and longer repair time.

Nick Polimeni has a strong conventional background in economics in business practice, accounting, banking, and graduate work as a generalist; he sees self-education beyond the conventional as a period of greater understanding and development past conventional systems. He blogs here regularly, and his work is just now becoming public. Comments posted here will be answered by him, or responded to in specific articles on related issues.

By J.W. Smith

Steve Kroft in Sixty Minutes did a great job describing what credit default swaps were and how they were bringing down the biggest banking houses in the nation.

As explained in the above video, credit default swaps are nothing but insurance policies given a different name so as to avoid retaining the reserves required by regulations of the insurance industry.

Instead of retaining reserves, these gamblers expected cash flows from premiums to cover losses and paid out their massive earnings in the form of multi-million dollar salaries, bonuses, stock options, and profits.

With the insurer, now called a credit default swap derivatives holder, having nothing set aside to cover major defaults when the housing bubble collapsed, they simply did not have the money to pay those losses.

These derivative companies were held “off the books” so the parent companies (Bear Stearns, Merrill Lynch, Lehman Brothers, Washington Mutual, AIG, etc.) could avoid the accounting rules of marking those credit default swaps to market.

All went well and massive profits were made as the bubble economy inflated. But when the bubble collapsed the losses were so massive that, though at first they tried, the parent companies could not rescue their off-the-books creations.

Though, as explained by Steve Kroft in the above video, they are what triggered the current, 2008-09, financial crash, credit default swaps are only about six percent of all derivatives. There are still over $600 trillion more derivatives out there and it is agreed by all that they are nothing more than bets on which way a company or some aspect of the economy will go.

When this financial collapse first started a year ago (October 2007), there were $530 trillion worth of derivatives, almost 10 times the GDP of the world economy. As the world economy lost possibly $30 trillion in value during this financial crash, total derivatives rose to $700 trillion.

The Federal Reserve/Treasury is now speaking of trading an investment stake in financial institutions in for the money it takes to recapitalize these financial institutions to solvency.

If those who have to pay off those bets have no more money behind them then the credit default swaps people and the Fed/Treasury bailout effort fails to crank this house of cards back up, the people will, assuming those equity positions are taken, end up owning the entire banking system.

That analysis is based on the Fed/Treasury taking a creditor ownership stake in these companies which supersedes stockholder rights. But with the foxes guarding the henhouse this could be a cover story to satisfy the masses as the foxes move as much of the taxpayer bailout money to overseas safe havens as they can.

But once ownership of a large percent of the world’s wealth is traceable to those supposed safe havens (currently $23 trillion worth), they are no longer safe. There is no way those $23 trillion, and rising fast, could be earned money and their property rights would simply be extinguished by law.

I am sure these thieves, currently called investors and unaware they are trading under property rights laws which are a system of theft, will prefer that to the normal angry citizenry response, the guillotine or the hangman’s noose.

To understand our failure to realize our property rights laws are a system of theft, we need only analyze how those rights evolved.

We are taught that Western culture evolved out of aristocracy but that is not true. Current Western property rights law, as applied to nature’s resources and technologies, denying others their rightful share of what nature offers to all for free, is only slightly adjusted aristocratic property rights law.

Aristocracy held exclusive title and all others had to pay them for the use of the land which nature had offered to all for free. Thus the extinguishing of the rights of all others was done through the principles of exclusive title as opposed to conditional title.

You are Quintuply Repaid for Paying Land (Resource) Rents to Society. Those funds pay for operatiing governments (local, regional, and national), builds infrastructure (water and sewer systems, roads, railroads, electric systems, and all other natural monopolies), and, when adding in the current unearned profits of banking which too should properly go to all, there are enough funds to cover health care and retirement.

Recapitalizing banks with public funds will, by those same property rights laws which created this crisis, transfer those bank titles to society.

That is not the disaster we are being told. That is an opportunity to have the costs of government, social infrastructure, health care, and retirements paid by the rental value of the fruits of nature and the profits of banks.

For an understanding of the fraud of current property rights law and how those inequalities are responsible for both poverty and war, we need only analyze each monopolized sector of the economy and the massive efficiency gains from the elimination of those monopolies.

Just above we have already addressed exclusive title to land (resources) with society being quintuply repaid by by restructuring to conditional title (society collecting those unearned rental values).

Land’s tangible values were created by society itself simply by forming, they were not produced by human laobr, society should collect those rental values, and return those funds right back to the citizenry by providing essential social services.

As opposed to land, Banking has no tangible values beyond a little brick and mortar, furniture, and computers. Fair return on tangible bank values plus the cost of labor has been proven to be covered by 1%  interest on loans a century ago with expensive hand labor. The costs of computerized banking is not over 1/2 of 1% interest on loans.

Thus most the profits of banks are misnamed because they are unearned. Those massive unearned sums of money are properly termed “thefts of social weath.” We have already pointed out that, just like the rental value of land (resources), those uneaned funds should be collected by a socially owned banking system and used to provide essential social services (health care and retirement).

Britain providing better health care to all their citizens at 40% the cost per person as in America which  has over 60 million essentially uninsured citizens and inadequate insurance on others exposes 60% of America’s health care as wasted. In that one sentence the monpoly of the our health care system stands exposed and the waste quantified.

The Monopoly within the insurance industry is exposed with equal simplicity. Social Security is only retirement insurance and its operating costs are 1/2 of 1% per year. Except for life insurance, all other insurances (automobile, home, health, business, etc.) are a necessity and thus a social right.

Simply replace marketing rights for essential insurance to a social right, establish the framework where that insurance is available simply by signing up, and costs drop roughly 50%. Those insurance offices every few blocks apart are replaced by one central office such as Social Security utilizes today.

Virtually every technology (industrial, chemical, or electrical) is an aspect of nature waitiing to be discovered. Those technologies are monopolized through exclusive patent rights.

The unearned profits of monopolized technology are collected through the stock market. Curretly inventors recieve very little for their inventions. Most the profits go to monopolists.

Simply pay inventors well, place those technologies in the pubic domain, and 85% of the stock markets as well as the wasted labor and capital those savings represent disappear. Those savings permit the price of consumer products to drop fully 50% and we really think it would be 75%.

Those massive cost savings represent the equally massive savings of labor, capital, and resources as the monopoly superstructures operating those monopolies disappear as well as the massive unearned profits no longer collected.

In the case of land (resources) and banking, those unearned rental values and bank profits collected are returned right back to the citizenry. In the case of all other monopolies, the funds to operate the superstructues of those monoplies (labor, capital, and unearned profits) simply are not appropriated from the citizenry in the first place.

Unearned profits are the least of the waste incurred. By far the greater waste of our monopoly system is the unnecessary labor, capital, and resources necessary to operate the superstructure of those monopolies.

We calculate the total waste to be fully 50% of the current cost of operating the economy and this does not consider the cost of the military which is no longer needed. These past 60 years military might has only been protecting this monopoly system and the wars of the previous 800 years have primarily been over who will control those resources and the wealth producing process which is exactly what those earlier battles were about.

We needed to establish the above foundation before we could explain the real cause of the current worldwide financial crash. The above has already explained how to avoid them.

The rents privately collected on all the land and resources in America, including that never paid out due to their property being paid for, is a trully massive sum. Fifty percent of the current costs of the health care and insurance industries currently wasted is a lot of money.

As the ethereal world of high finance is currently many times larger than the finance capital necessary to run an efficient economy and operating that superstructure costs huge sums of money, the funds that should never have been appropritated from the citizenry in the first place, and the honest profits available for distribution to them, is a vey huge sum.

The disappearance of the superstructure operating technologies, 85% of the stock markets, saves massive sums. The cost of operating a socially-owned bank, for example, is only 1/3 that of a monopolized banking system. This is what frees up those profits for caring for essential social needs.

Most of those savings are in the form of labor and resources no longer wasted. This permits a reduction in employed labor time of roughly 60%. labor time spent caring for the home and children will see a moderate increase. Self employed labor time will see a large increase and that productive employment will further decrease those in the labor force employed by others.

On top of those labor and resource savings are the finace capital savings. As just stated, this ethereal world of high finance is many times larger than that necessary to run the real economy. That is the real story that the finance industry does not want you to ever know.

Massive unearned wealth was spent lavishly in conspicuous consumption (mansions, wedding costing millions, private airplanes for pleasure, underwater submarines to cruise the oceans, etc,) investments, and still they could not spend all their unearned wealth.

More money than places to invest led to export of capital. This is the foundation for the massive export of capital and enforced privatizations (by the IMF, World Bank, and other infrastructures of world control) all over the world and also within the imperial centers. There simply was not enough safe place to invest these massive sums so safe places to invest were created.

But they still had too money left over that they could neither consume nor invest. And that massive amount of appropriated wealth with not enough places to invest is where the ethereal world of high finance came from.

As capitalist societies came out of their periodic crashes or wars, at first places could be found to invest all their money. But once those safe places to invest were all filled, money with no place to safely invest would start building.

The stock markets can always absorb money and their values would rise in step with the absorption of that surplus finance capital. All stock values above monopoly values is gambling and both those unnecessary values are a tax on society.

But any more money into the stock market would lead to its eventual collapse. So litle by little other gambling games were inserted into capitalism’s financial structure.

This is where the $700 trillion derivatives market came from. Some point out that possibly 8% to 10% of the derivatives market has a legitimate purpose, primarily insurance. I could accept that except that credit default swaps were the fake insurances that are bankrupting our financial structure as this massive gambling casino collapses.

The entire $700 trillion derivatives structure, fully 85% of the stock market (as addressed above), a good share of merchant bank business, and the monopoly aspect of all banking is nothing less than the ethereal world of high finance, only a part of it tied to the real economy, essentially producing nothing, but sucking massive sums of money that belongs to us all in roughly equal shares.

This is what is missing in all financial and economic analysis, these massive sums of finance capital should never have been appropriated in the first place. As laid out above, eliminate these monopoly structures and economic efficiency more than doubles.

If the serfs had one those early struggles and established a sharing society as laid out early in this posting, production would have doubled. That would have produced industrial capital for more people both within that society and other societies.

That sharing culture would have shared as it crossed the oceans instead of enslaving. Each people they met they would have said, “We will teach you how to read, write, smelt ore, build ships, etc.” Soon the production of those newly literate people would have doubled. In a few years doubled again, and then again.

In short, if Western culture had established a cooperative capitalist society instead a monopolized economy, there would have been little poverty, few wars, and we would have had a peaceful prosperous fully developed world decades ago.

The simplicity of eliminating poverty and war will stun you. That page is the conclusion of this author’s two primary books (Economic Democracy: A Grand Strategy for World Peace and Prosperity and Money: A Mirror Image of the Economy).

That conclusion alerts us that a financial collapse such as we are currently experience can be stopped in its tracks, all citizens can be quickly provided the income for food, fiber, and shelter, and the world economy quickly rebuilt with no poverty and no wars by simply following the rules of full and equal rights for all through a resturcturing of property rights law and eliminating Plunder by Trade (which we have not addressed here).

We should alert Henry Paulson and Ben Bernannke that their task is really simple if they, and all others, were willing to give up their massive unearned wealth as we restructured to an honest economy. Thank you. J.W. Smith

By Nick Polimeni

The NY Times article Lesson From a Crisis: When Trust Vanishes, Worry, by David LEONHARDT, Sept 30, 2008 brings us some rationale in support of the financial markets and financial community, in the persona of Frederic Mishkin, (Meyer’s grandson) a recent member of the Federal Reserve Board.

Dave presents us with an object lesson on why we need to save Wall Street and the financial community, and gives the Great Depression as the example when government didn’t do anything, and things got worse, and Mr. Meyer Mishkin lost is business, and never held a steady job after that. Although he concedes we would never have a repeat of the Great Depression, we are assured by economic leaders and journalists who admire and believe them, that it won’t be long before Main Street falls victim to the an eventual depression. At the same time, we’re gratified to hear that we will not see shanty towns, because with our country’s wealth, a much smaller portion of the population is living in the edge if despair. However, we must know that at the heart of the problem is the credit crisis.

The heart of the financial crisis is the credit crisis. A credit crisis is a condition where there’s not enough liquidity/money to lend. That’s what the experts say. That’s what they want us to understand and believe. This has come to be understood as the absence of liquidity that is available to lend, but it can also include as the ‘unwillingness to lend” because of no faith in the borrower, and yet another nuance, potential borrower-banks, who may need the liquidity from other banks that have it, don’t want to borrow as the risk of being acquire for very low price is imminent.

It is difficult to establish the extent of the losses in the financial markets by the financial community. But even if we had real numbers, who knows what 50 Trillion dollars is like?

But there is one thing we can easily understand, and that is, when you consider the wealth distribution in the US (which is not too different in most of the world), the lion’s share of losses has been suffered by the super wealthy. One can find various statistics, by searching, “wealth distribution” on any search engine. We are told that about 80% of the wealth is owned by about 5%, i.e., the super-rich.

The Treasury estimates some 1.7 trillion in foreclosures, and Mortgage securities swap 40 times as much. The mortgages, of course, will be re-written or the homes resold, so the financial backers of those mortgages will probably recover 1986 prices. I chose 1986 because that when the financial markets began to grow significantly out of proportion with the real economy (the consumer and production economy), and as The Economist puts it in their “Wall Street Crisis Briefing of March 22, 2008, What Went Wrong,” the financial community services “raced ahead of the real economy, even as the ground beneath it fell away.” The financial community, in it’s new and creative ways of creating liquidity, enhanced by the “generally accepted accounting principles” (GAAP) which compound the problem especially after a bubble bursts, was simple experiencing heavy inflation, which was viewed by most investors, as real profits and gains.

This easily shows that the recovery of the financial community and financial markets is unpredictable, and could be many years to recover, depending on how intelligently the Economic Stabilization Act is applied.

Therefore, there is nothing that can predictably save Main Street real economy if it has to wait until the financial markets are back to normal. We are told that the real economy can’t function without the financial community and financial markets. This is so only because that’s how the structure is set up. But it need not be so.

There are several underlying principles that once understood the idea of severing the dependence of the real economy from the financial markets and the financial community will makes perfect sense.

The underlying values in the financial markets are completely and totally dependent on the existence of real values in the real economy. The financial markets may show extraordinarily high prices, but when the securities are redeemed, the resulting cash can ONLY get what is in the real economy.

The value of the currency is founded on the productive capacity of the society. No more wealth than that can be generated during each production cycle.

The financial community generates liquidity by creating layers upon layers of recomposed assets, backed by various type of things that are considered assets (and this is subject to the intricate and obscure way the GAAP, and not always follow real economy rationale), all of which are dependent on assets in the real economy.

In that same manner can the “productive capacity of the people of the nation” be a more rational assets based on which liquidity can be generated by government through its exercise of the constitutional mandate to manage the currency; without the need to “borrow” from the financial community, and continue to build up a government debt which mathematically will never be able to be repaid, except through series of accelerated inflationary cycles, or if the government goes into various business activities which will provide it enough income.

Ultimately we can’t wait until the Economic Stabilization Act trickles down to the real economy. We must directly assist the real economy through direct loans, and a community banking system that is not dependent on the financial community, is owned by the people in the community, and regulated and funded by the Treasury of the nation. This will bring confidence to the real economy because the results are real, and people can eat, and don’t have to sleep under the stars against their will.

Nothing will stabilize the financial markets faster than a stable real economy where there’s nearly full employment and people are engaged in productive activity regardless of the fiasco in the financial communities. Sure, Wall Street will continue to suffer but ONLY until the prices traded are closer to the real economy underlying values, at which point, confidence will begin to return to Wall Street and the financial community.

Saving Wall Street is not really Meyer Mishkin’s lesson; because it took some 30 years, for example, for home values to get to the level they were right before the Great Depression; the lesson is saving the real economy.

By Nick Polimeni

One of the reasons the Paulson bailout was touted necessary, was that Main Street economy (consumer-production, employment) couldn’t work without it. Nevertheless, a wide base of economists have maintained the bailout was not necessary; that even with the bailout there would be problems, as James K. Galbraith puts in his Washington Post article, “A Bailout We Don’t Need: “First, the underlying housing crisis: There are too many houses out there, too many vacant or unsold, too many homeowners underwater. Credit will not start to flow, as some suggest, simply because the crisis is contained. There have to be borrowers, and there has to be collateral. There won’t be enough.” Others worry about the huge increase of the national debt, and yet others fear deficit spending and candidates whether they’ll be able to keep their promises.

As you can see, the lowest common denominator is: There isn’t enough money. What’s wrong with this idea?

What’s wrong with it is the underlying fallacy, wherein we take for granted that

a) The only way to create liquidity is to capitalize things through collateralization of assets in our nation’s real economy, and

b) Only the financial community can generate this liquidity.

Further, it appears that no conventional economist ever bother to go beyond the current system to examine the underlying relationship between the financial community and the consumer-production (real) economy. It’s a marriage made in hell, ready for divorce. When one pours over the thousands and thousands of public postings on the subject they are all based on the same underlying assumption: liquidity can ONLY be generated by the financial community. Even the government has to borrow from them, building an unsustainable national and international debt.

When currency was backed only by gold and silver, or other commodities, the quantity of currency was significantly restricted or subject to the ebbs and flows of the availability of that commodity. Today, however, there is no commodity upon which the value of the currency depends. The currency is backed by the productive capability of the population, and the process of monetizing (creating liquidity based on that productive ability) is not the exclusive right of the financial community, nor if we want to engage their participation, do we need to do it by surrendering all power to determine the use of that liquidity.

While there is no explicit details on how to create liquidity, the US constitution, Article I, Section 8, provides the basis for authority over the economy, with the right to: “To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;” and “to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” Under that authority, the government can and should, for each economic period (a year, six months, or as reasonable):

1. Assess the available human resources (people who need and want employment).

2. Determine the productive capacity of the nation.

3. Determine if the natural resources or raw material is adequate to support that capacity.

4. Determine the consumption needs of the population.

5. Monetize whatever new amounts are required to fuel this new additional production above the previous year.

These steps can be done to any degree of detail necessary or desirable to ensure adequate monetization. The congress will pass as part of its budget a provision for new liquidity, by ordering the Treasury secretary to enter in its accounting records, under the asset heading of “New Liquidity,” and the equivalent cash increase to the Treasury.

Of course, this is sacrilege by traditional economic theory, and these schools, and their wealthy sponsors will publish hundreds of thousands of pages calling it fiscal irresponsibility, and voodoo accounting, and decree money, and they will produce historical precedents to show this is the beginning of mad hyperinflation.

In the end, this is just a method of monetizing which bypasses borrowing from the super-wealthy, and borrowing from next year’s productive capability of the population. The promissory note or security is given to the population instead. Why? It is obvious that since the currency is backed by the productive capacity of the population, then, the population has to be the primary beneficiary of that production.

The Treasury then will distribute the funds through community banks, which have explicit instruction on the distribution of the new liquidity, based on the five point assessment above. Community banks stocks are owned by its depositors (not unlike ‘credit unions”), and there is a cash ceiling to the amount of stock an individual could own, to eliminate concentrated ownership in the hands of a small group.

This process would totally alter the concept of loans, credit, and taxes. Taxes would be used to equalize wealth, or miscalculations or misestimating on the original assessment; they would withdraw directly for the bank’s liquidity any excess that could become inflationary.

In the article, “An Alternate Economic Paradigm there is a more detail description of managing the system as if it was a “complex navigational system, with locks, gates, and reservoirs,” and the management provide and monitor liquidity to float all boats. With this process, we can rebuild our industrial base, employ everyone who wants to be employed, and have the necessary liquidity to maintain a rational growth rate, with a stable currency.

It is absurd that that the only way to add liquidity to the economic system can only be done through borrowing from the financial community, or failing that, through government borrowing, and astronomically increasing its debt to the super-rich. We run our lives and our country’s economy based on available credit (ability of desire of the financial community to lend); and not on what we need and on supporting our human resources with the necessary liquidity to employ everyone who wants to be employed. We buy oil and coal because it’s “cheaper” than solar and other alternative energies, instead of supporting the alternative sources with sufficient liquidity to make it viable. Where’s the money? Is the financial community the God appointed source of it?

The real reason this method of monetization and liquidity generation is not even brought up or the status quo challenged with this, as an alternative is because it would radically alter the balance of power between the population and the super-wealthy, and this is something they powerful have not allowed for hundreds (maybe thousands) of years, and they will vigorously oppose it today. Two possible reasons conventional economists don’t bring it up is either because they’ve not thought outside the economic box they are trained into in college and MBA programs, or they have a vested interest in the status quo

By Nick Polimeni

James K. Galbraith’s in his “A Bailout we Don’t need” in the NY Times, makes suggestions that are rational, and would be viable to eliminate the need for the bail out bill. He admits, however, that his solutions are not going to help the economy recover quickly:

“Two vast economic problems will confront the next president immediately. First, the underlying housing crisis: There are too many houses out there, too many vacant or unsold, too many homeowners underwater. Credit will not start to flow, as some suggest, simply because the crisis is contained. There have to be borrowers, and there has to be collateral. There won’t be enough.”

The fact is that we take for granted that the only way to create liquidity is to capitalize things through collateralization of assets in our nation’s real economy, and only the financial community can generate this liquidity. Further, no conventional economist ever got past the current system basic, to examine the underlying relationship between the financial community and the consumer-production (real) economy. It’s a marriage made in hell, and there has to be a divorce. And when you pour over the thousands and thousands of public postings on the subject, you can see the same underlying assumption: liquidity can ONLY be generated by the financial community. Even the government has to borrow from them, building an unsustainable national and international debt.

Considering that the currency is backed by the productive capability of the population, there are many type of organization which would be superior to our financial community to take charge of monetization, including expanding the credit unions (depositors’ owned banking), or cooperatives of people in communities.

It is absurd that that the only way to add liquidity to the economic system can only be done through borrowing from the financial community, and when all the existing assets are already monetized, and “there is no more new money,” further monetization (additional liquidity) can only be done through government borrowing. In fact, the most logical method would be to monetize (create liquidity) that is necessary to supportable the productive capacity increase from year to year.

We run our lives and our economy based on available credit (ability of desire of the financial community to lend); and not on what we need and on supporting our human resources with the necessary liquidity to employ everyone who wants to be employed. We buy oil and coal because it’s “cheaper” than solar and other alternative energies, instead of supporting the alternative sources with sufficient liquidity to make it viable. Where’s the money? Is the financial community the God appointed source of it?

The real reason this is not even brought up or challenged as an alternative is because it would radically alter the balance of power between the population and the super-wealthy, and this is something they powerful have not allowed for hundreds (maybe thousands) of years, and they will vigorously oppose it today.

Two possible reasons conventional economists don’t bring it up is either because they’ve not thought outside the economic box they are trained into in college and MBA programs, or they have a vested interest in the status quo.

This idea has been discussed before, but taken off the table on specious basis, while the underlying reason is the protection of the power wielded by the financial community, servants of the super-wealthy.

by J.W. Smith

We would like to hear from those who can expand upon these perceptions.

Early corporations burned all the spice trees they could not control so as to maintain the high price of spices.

Modern corporations controlled America’s foreign policy, Destroying the farming industry of poor countries through selling highly-subsidized, thus low-priced, grains to both developed and undeveloped nations.

Under their self-designed monopolization of the world’s food supply, those corporations doubled, tripled, and even quadrupled their grain prices as food supplies grew scarcer.

Under this monopoly structure, specifically designed to suck the wealth out of nations, hundreds of millions now face starvation.

As these people–helpless within the corporate controlled world structure–die, the capitalized value of the appropriated wealth (profits) of the designers and operators of this death trap multiply, in the stock markets, by 10 to 30 times or more.

Their hundreds of millions of appropriated wealth becomes hundreds of billions, those entitled to a secure food supply die, and both catastrophes are due to the Plunder by Trade System and the property rights structure put in place the past 700 plus years, both denying others their proper share.

This was all done under the cover word “privatization” which the power brokers’ perception managers have taught us is is a good thing.

They get away with these outright frauds because advancing technology is so efficient those same powerbrokers and perception managers are able to distribute half the potential gains of technology, bank obscene profits, and the remaining potential gains are not even thought of because the half or so of the potential gains realized is itself very large.

Immense as those unearned profits are, they are only a fraction of the gains in living standards denied the world through the 50% of full potential never realized because technology is monopolized.

How can a nation or region attain security so as to avoid starvation and poverty as faced by 100s of millions today due to intentional destruction of the viability of local farmers and corporate control of world food supplies?

First they must establish local permaculture and avoid corporate control of food supplies. If a nation or a region were serious and organized (for smaller nations this means alliances or federation), they could be self sufficient in food within 20 years even as their soil fertility steadily increases.

Plants providing thread for cloth, such as flax or six foot high hemp, are among the most prolific in the world. So permaculture can be expanded to produce fiber for clothes and exotic threads made from oil or coal will not threaten the environment.

Houses built from rammed earth, brick, or rock with ceramic interiors that will last for centuries is also primarily a local industry.

Within those two local industries, permaculture and housing, are the essentials of a secure society, food, fiber, and shelter. When regional soils are used with attention to protection of nature’s wealth, these necessities of life are not intense consumers of resources.

With no one claiming or receiving unearned wealth, money within this secure social structure represents use values (real values) which are labor values plus rental values of nature’s resources and technologies distributed to all through those rental values funding essential social needs. Taxes disappear and health care, retirement, governments, and more are all funded from those natural flows of money.

We document thoroughly that over half our wealth is ground up within the superstructures of our monopoly system. We then document that an equal amount is wasted in plunders by trade and war. We are now demonstrating that another large share is wasted through the massive sums of unearned wealth being spent on resource intensive endeavors which primarily only structure our time and supports our egos.

All this is built on, and made possible, by our vaunted freedom to travel. As shown above, caring for basic needs is quite easily managed in social restructures that avoids the theft of others’ wealth, the resultant disappearance of the ethereal world of high finance, and the further result of elimination of war

The further waste within the wealthy world which is consuming another large share of the world’s wealth is running uptown for hamburgers, shopping till they drop, having houses full of clothes and shoes that are seldom–or never–worn, kids with closets stuffed with toys they never play with, there are trips overseas, cruises, annual vacations, and on and on. The list of what a modern society is titillated with as they exercise their freedom to travel is endless and very resource and energy intensive.

At Aptera Electric Typ-1 e - Video Test Drive, you can watch a video of a 300 mile per gallon, three wheeled, two seat, 90mph, Aptera gas-electric hybrid run-a-round, that requires less than 10% the labor and resources to build as today’s average car. Beyond the computer, which is not a necessity, everything in that car was on the shelf, available for purchase, 40 years ago.

On short drives this little run-a-round runs on electricity alone up to 120 miles, is charged each night, and uses no gas. Battery capacity has already been proven (120 miles on one charge), somewhere up to 20 such batteries is surely adequate (golf carts use only six), and the market has priced that electric storage capacity at $2000. So batteries being too expensive is fiction. Simply crank up to mass production specifically designed for cars and the price is reasonable.

With a lifespan, double that of today’s cars (There is no drive train, the small engine runs only on long trips, and fiberglass bodies are easily repaired) means people throughout the world could have been driving this very cheap, almost pollution free, car the past 40 years.

The efficiencies of a market economy within today’s property rights law, as applied to nature’s resources and technologies, denying others their proper share, are fiction.

The world was sold BMWs, expensive SUVs, pickups and other big cars because companies earned $8,000 apiece on them, only $1,000 on small cars (these statistics on the evening news demonstrating and discussing the Aptera car), and could not have earned over $500 on this little gas electric run-a-round.

Ditto for much of what is sold within the so-called developed world. You can pay $700 for a pair of shoes that cost $3 to produce and ship. Even the cheapest priced shoes, which to me looked much better than that $700 pair, will cost $40 while an efficient economy could distribute it for $15.

Those high prices are due to the monopolization process compounded by promotional, persuasive, titillating advertising and further compounded be a society trained to conspicuous consumption. Not only did our property rights laws as applied to nature’s resources and technologies, denying others their rightful share, evolve out of aristocratic law, so did our system of individual identity.

This exposes the true costs of modern societies, freedom to go anywhere and do anything one wants. Most industries beyond food, fiber, and shelter are built to sustain those freedoms even though the most important needs for a fulfilling life, food, fiber, shelter, family and friends, are near that home.

If all are to share in freedom as understood within the wealthy world, pleasure travels must be rationally spaced. Through equal pay for equally productive labor, a sharing of truly productive jobs (two days per week once the current waste and inefficiencies within the economy are eliminated), and a culture of family, friends, and cheap transportation accomplishes that spacing.

A thirty mile local commute would plug in at night and charge for 30 cents. With about 10% the resources and labor to build and a lifespan of twice today’s cars, both local and regional travel could have been affordable, relatively non polluting, and in place the past 40 years.

Equal pay for equally productive labor and a sharing of productive jobs will have eliminated conspicuous consumption, retained rational consumption, and each person or family would automatically restrict their expenditures to rational travel and pleasures.

Study current freedoms closely. Titillating and extravagant life styles are a major cause of pollution, resource depletion, poverty, and, in a final analysis, to protect that life style, even wars.

This is being carried forward as we speak. Companies consisting of nothing but advertising (they have no factories) are all over the place. Their only purpose is to sell you something at a very high price that has nothing to do with your basic living needs or rational pleasures.

If you had never heard of them, you would never have felt a need for what they had to sell. Those products have common features, you do not need them, they titillate your interest, they feed the ego of you and your peers, and they are enormously expensive.

A friend’s friend bought in-style, wore-out, ragged western jeans for $100. When telling this friend about paying $5 for a nice suit at the goodwill store, the raggedly dressed friend said, “And what do you think of yourself.”

In short, life styles of the middle classes within the wealthy world today is only conspicuous consumption as practiced by aristocracy and the wealthy for centuries. Our conditioning to be aristocrats will be trumped by reality once all are paid equally for equally-productive labor and employed labor time is reduced to the two days per week necessary to provide a quality life.

A Practical Approach for Developing Poor Nations & Regions

Trying to provide an answer to capitalism, socialism, and communism the past 50 years, the Progressive Utilization Theory, Prout, www.prout.org, “integrating economic democracy and spiritual values,” is speaking to full and equal rights for each and every person, very similar to our approach.

Those reading both philosophies may want to add a spiritual approach to this strictly economic approach and perhaps add a full understanding of Henry George philosophy appled across the full economic spectrum and a socially owned and operated banking system to Prout’s cooperative philosophy.

While waiting for the world to throw off the current beliefs which maintain their poverty, let’s design an emerging-nation development plan utilizing cheap, broadly-available resources that can be accomplished within the current monopoly structure.

Almost all countries have traditional, fireproof, earthen homes hundreds of years old. Most developing nations have large numbers of unemployed labor quite capable of building in the traditional ways and who can build high-quality earthen homes cheaply.

Firing the inside of earth homes creating ceramic walls and floors opens an unlimited potential of beautiful, clean, easily maintained, yet cheap, housing. Some regions traditionally use other building materials such as stone, straw-bale, timber, bamboo, etc.

Local master-craftsmen can train the apprentice home builders, and these newly-trained practitioners can teach others on the job. The teachers would be paid but the workers’ pay would be their training as master home builders.

For example, assuming five workers to a crew on an adobe or rammed earth home, every three or four houses built will result in five more master builders who can return to their home regions, sign up ap-prentice home builders, and rapidly expand the home building project.

Other building materials will require differing periods of training to produce master craftsmen, but the principle is the same. (See Hassan Fathy’s book, “Architecture for the Poor,” for an inspiring account of the method that was used to create a total-process system of adobe construction in Egypt.

Having designed and built sustainable housing and major architectural projects in many countries, Phil Hawes philhawes@amaonline.com is an internationally known expert as is Richard Register, ecocitybuilders.org.

Additional industries are necessary to produce doors, windows, plumbing and electrical systems, flooring, roofs, and furniture. These industries will expand in step with the expansion of home building.

Though these homes will be built cheaply, they have full, actually superior, use value. As some projects mature, the labor will be paid, while in others the master-builder will train volunteer workers to build more homes for themselves, family, and friends, and are thus paid indirectly, but paid well.

Since real value is being produced utilizing local and regional resources, base money can be created by any nation, or region, up to the value of those homes, businesses and inventory.

That created money and the circulation of that base money is the proper financial source to utilize a nation’s own resources to build infrastructure, industries, businesses, and inventory necessary to service a developing community.

The circulation of that base money will build and operate distri-bution systems and repair systems and provide wages which becomes the buying power to purchase the production of those industries.

Simultaneous with building homes, a country or region must develop a prosperous agriculture. Permaculture fruits, nuts, berries, tubers, and vegetables work will with eco-village housing.

Master permaculturists can be trained and returned to their regions to train more just as described above with master builders. Commercial farms, equipment, and the food produced have value and, as it is locally produced, money can be socially created for that development as well.

All resources should be processed locally into high value-added products both for regional consumption and export. As economic activity and production increases, buying power increases to purchase the new production, and community values rise.

So long as countries or regions are utilizing local resources, money can be created to build industries and infrastructure. Correctly guided, this can even include high tech indus-tries for manufacturing such energy producing equipment as wind generators, small hydro generation units, and photovoltaic cells.

These can convert the naturally occurring, non-fossil fuel forces of wind, waterpower, and sunlight into electrical energy. It is possible to train ambitious local inhabitants to assemble electronic equipment, such as TVs and computers, which can provide a free education via satellite and solar powered WiFi.

However, a developing country or region will soon need technology and industries that, unless the revolution we addressed throughout this book has taken place, are firmly under the control of the imperial centers. It is at this point that regions must federate (ally together) to negotiate with the imperial centers to trade access to resources for access to technology.

To not ally together would result in the locally created wealth being trans-ferred to those imperial centers via unequal pay for equally-productive labor. Local resources will be purchased far below their full value, resulting in the familiar inevitable debt traps for the developing regions sucking up any money that has been created and even taking title to constructed wealth.

The key is cheap, quality, local production of social infrastructure. But the money created must be protected against claims by international creditors.

Collecting the rental values of nature’s wealth as per Henry George’s property rights (chapters one through five) prevents capitalized monopoly values, provides development funds, and protects the en-tire nation from having those values attached to repay debts.

Henry George’s principles of society collecting socially created rental values are essential both for economic efficiency and protection against creditor nations laying claim to a weak nation’s wealth.

The use value is still there but society collecting resource rents and interest on loans prevents those nature-produced values from being capitalized, keeps them out of the hands of creditors, and thus nature’s wealth and socially-produced values are forever kept in trust for a nation’s citizens.

By all classes being available via satellite or WiFi and studied on home TV, it is possible for the developing world to educate their citizens for 5-15% the cost of conventional brick and mortar schools.

Not only would the youth become well educated, so would many older citizens. WiFi wiring those emerging nations would give the talented access to jobs and markets in the highly developed world. Apprentice labor working side by side with skilled labor will soon build a skilled labor force.

Currency values can only remain stable if a country’s productive capacity is efficient and stable. So a country needs to develop infrastructure cheaply and efficiently and the above building of quality homes and support industries cheaply is an example but only a start.

With technology and markets historically monopolized (this may be changing fast, study our pages), high technology industrializing is more problematic. The key is maximum production of high-value-added products rather than selling raw resources.

Example: an oil producing nation has the option of refining its oil, producing plastics, etc. The monopolies of wealthy nations are so powerful that such in-dustries will require trading alliances or full federations between weak nations, a step to-ward the full federation of all nations.

Stevia is 30 times sweeter than sugar, is cheap to produce, cheap to process, and it does not have the health damaging effects of sugar.

William Hayward (haywardwj@execs.com) has containers filled with Stevia plants, processing equipment, and instructions ready to ship anywhere in the world. Africa also has a couple indigenous sweet plants that may replace sugar. The gains to a society both financially and in health care substituting any one of these sweeteners for sugar is huge.

Most important is sharing with other developing nations the various ways to protect their wealth from being claimed by speculators of wealthy nations.

Hopefully these nations can ally together (federate) to build their infrastructures and protect themselves from monopoly capital. As this simple development plan is put to-gether, other areas of utilization of local labor and resources will become visible.

We are a cooperative publishing house dedicated to the elimination of poverty and war that pays ourselves double the normal royalty and will pay higher yet as soon as we can.

We need more cutting edge researchers. If you can broaden our understanding and that of our readers, have a high-quality book within you that you wish to use in class, or just wish to reach the world, please Contact Us. Thank you

J.W. Smith

By J.W. Smith

When established in the 1930s, Fannie Mae was a government sponsored, non-profit financial institution, designed to provide low-cost home loans to a nation traumatized by the Great Depression.

In 1970, FMae was privatized so as to remove it from the federal budget and Freddie Mac was established the same year. As government sponsored organizations (GSEs), neither paid local or state taxes, they were exempt from Securities and Exchange registration and fees, they were permitted to operate with lower reserves than banks, and they could each borrow up to $2.5 billion directly from the U.S. Treasury at low interest. The faith that they were backed by the government gave them access to massive sums of low-interest money looking for security.

With those advantages mortgages bought directly from lenders provided a large and steady profit stream which was reflected in high and secure stock prices. Even larger immediate profits were made when those loans were packaged into bonds (Mortgage Backed Securities) and sold to investors at a high capitalized value justified by the expected profits on these packaged mortgages and the normal low interest on bonds.

This proved so profitable that banks and other lenders packaged their loans into bonds, sold them on the market for that quick profit (especially the agent rake offs), loaned out those replenished funds, and did this over and over again with riskier and riskier loans as housing prices climbed higher and higher and security requirements were lowered to essentially nonexistence.

When bankruptcies jumped above normal, the value of those Collateralized Debt Obligations (CDOs) collapsed. The market now knew home prices were going to drop, the losses were going to be very large, and those CDOs, SIVs, (Structured Investment Vehicle) or any other name they went by were unsaleable.

Starting with the Bear Stearns collapse in March 2008, The Federal Reserve has so far has poured $1.2 trillion into banks and other financial institutions (including other central banks) to stem their collapse and the financial markets are still not fully liquid.

Each knows the various ways of being leveraged beyond the rules of prudent banking so they will not loan to each other. Realizing the new rules will force them to reduce their leverage (meaning reduce their debt to equity ratiios), that $1.2 trillion is being kept in reserve to pay down their debts and keep them within the parameters of prudent banking as demanded by those new rules.

As homes and other equities continue to lose value (11 million homeowners with negative equity and prices expected to fall at least another 30%), the financial institution books look worse faster than money can be poured at them. At this point, the two FMs were in crisis (over $540 billion in subprime and Alt A loans or guarantees and prime loan walkaways have not started yet) and an emergency appropriation by Congress expanded the money creation authority of the Federal Reserve another $800 billion, primarily to protect those two home mortgage lenders for whom they now accepted full responsibilty.

The soothing words of $25 billion being available to shore up the two FMs and even that may not be needed fooled few people. Much, if not most, of that $800 billion is available to fully fund or nationalize those two institutions which fund or guarantee half the nation’s mortgages.

There are those who think the Fed is whistling in the dark. Lets do the math. The housing rescue bill just passed, July 30, 2008, is intended to protect the $5.2 trillion in mortgages of the two FMs and which are now guaranteed by the government. The value collapse of the remaining $7 trillion in mortgages is supposedly protected by the $1.2 trillion poured at the banking system we addressed first.

Since most that $2 trillion authorized by Congress is to replenish the coffers of financial institutions and only 400,000 of an expected 3 to 4 million facing foreclosure expected to have their loans lowered to reflect current values, it would appear 3.5 million will still lose their homes. And this is before the much larger 2nd wave of foreclosures and bank crises–the keep up with the Jone’s Alt A loans, prime mortgage holders whose income has collapsed, home mortgages up to 50% under water walk-a-ways, and credit card defaults–hits.

This financial crisis was never necessary. On GRIT TV, 7/18/08, Headrick Hertzberg pointed out that Fannie Mae did not have that high overhead when originally established. He said, “What is the purpose of all that overhead, those high profits, the huge salaries, and the annual payoffs to presidents and others?” It is obvious that providing low cost home loans was the proper function of the two FMs and neither should have ever been privatized.

One of the key aspects of our research is that so much unearned wealth is appropriated through Plunder by Raids and property rights law as applied to nature’s resources and technologies that denies others their fair share. Those huge blocs of unearned finance capital within the ethereal world of high finance get larger and larger, they cannot find enough places to safely invest it, and this is why they insist on privatizing, privatizing, privatizing.

Not even massive conspicuous consumption and investment in new privatizations can consume all the massive funds being appropriated from its proper owners. So investors turn to hedge funds and derivatives which produce absolutely nothing. They are only bets which decide who will end up with most of the stolen wealth and they grind up (waste) ever more wealth in the process.

Instead of pouring money at the ethereal world of high finance, it should have been pointed towards those 2 million threatened with loss of their homes, in short, towards the real economy. In The simplicity of eliminating poverty and war will stun you we demonstrate a society can stop a financial collapse in its tracks if they point newly created support money at the real economy (those troubled home owners, the unemployed, and the underemployed). In the process it is possible to restructure the economy to double its current efficiency, the ethereal world of high finance disappears, a quality life for each citizen of this world is provided at less than half the current resource consumption, and future financial collapses are eliminated.

Instead of running such a society with full and equal rights for all, the corrupt financiers now controlling the money creation process are pointed most this money at themselves, the ethereal world of high finance which we prove are negative producers reducing economic efficiency by fully 50%.. Thank you

J.W. Smith

We are a cooperative publishing house dedicated to the elimination of poverty and war that pays ourselves double the normal royalty and will pay higher yet as soon as we can.

We need more cutting edge researchers. If you can broaden our understanding and that of our readers, have a high-quality book within you that you wish to use in class, or just wish to reach the world, please Contact Us.