One person's Opinion about what breaks economies...from WSJ

Below is an article interesting enough to share with others too This being an "opinion" piece in Wall Street Journal means it not officially the newspaper's reporters' views, but if the history is accurate [yeah, but who is going to look it up ?] and the slant not too severely bent, it bears reading and pondering..

The man is saying we should not raise taxes, even by other means, like calling it "fees, or taking away other benefits while taxing the same way for those benefits, or adding to our budget and then we are having to pay for it when we did not 'know' the cost 'beforehand' - which is what is happening all over the governments' places still and right now...

The deficit....ugh....has blown up bigger both in the last Bush administration with wars and other spendings, and is also now still growing even more [under the table mostly] and comes with the usual, with promises of reform [ that costs us too but that is barely acknowledged].

This is not an opinion on health care... but on what & how "we" are being spent and how much less we are "worth", just as our saved dollars [in whatever place we have stored them] are diminished forever...

and how we are being maybe manipulated by bailouts "giving back" to banks, by helping financial firms who are still gambling on our taxes as guarantees for their stability, and losing our control and choices - as our IRA's, bonds and stocks, and jobs are shaved and erased by the principal being dropped with loss of value of whatever numbers appeared to be there - even thought we put our earned money into those assumed to be 'safe' harbors.

oh well....another view from this sinking ship...globally now called 'our earth'.

and if you think this is a depressing and therefore an unwanted message, you are RIGHT, here, as you cannot be right in trying to move your funds around and take back [presumed] control over your MONEY, as money itself has already dropped in value.

And as your government has not helped you [even if you think you've got-some- now] keep what you have earned and saved so far. Better admit what is happening than 'hope' for what does not appear on any horizon, not to people we know at these regular levels.

Oh well...there is still the sun shining sometimes, and clean water where it can be found, and all the everywhere advertising and PR [public relations is the image-making, propaganda-selling, forming and framing of news and opinions, and media used mostly for the purposes of the PR maker...a seller of a view you are bombarded to believe without question,... hopefully] so prevalent constantly on every single sound / sight available.

Note the proliferation of billboards, the buses totally wrapped & covered with advertising, the TV/ internet/ radio and all sound sources are all sales advertising / commercials that fill every nook, spot, cranny, hole, space available anywhere ...continuously.... without any space to stop-to-think-for-yourself.

Getting overwhelmed with all that barrage into your
brain ?

Read and reflect. Sleep and dream of another world that is possible, still... maybe later.

Question every bit of 'news' and wait for another version to appear to whet your violent and purchasing urges, to replace the ones already aroused.

And dont believe anyone fully, not even me or this writer below.

Check all that you can to find a wider variety of other versions.

Find someone who does not agree with you already.

Talk and dis-cuss without personal relationships being damaged for differences.

And Let Go of the illusion that you have any or much control over external circumstances, especially that Federal-Reserve-manipulated cash and Your Government's "good intentions" to be working for you, little guy / gal.

But all that money is to repesent what you thought was wealth. It never was.

Your health. Your mental clarity. Your clear relationships with a very few other people.

Your trust in your life and nature and your beliefs of how it works [any way you define it]. Your clarity and awareness of the IMPERMANENT PROCESS YOU ARE...not an object thing, but an every changeable flow of life with all that we contain - together.

Now, these are Yours, to regulate, not control. These are within your control- range, partly.

And death and exiting this scene is also easy and not a bad thing, but also not just in your control either.

Be willing for whatever happens to be unwanted, but not destructive or obliterating to YOU or others either.

Be assured that you are much much more and other than you have been defined as being while here now.

And ENJOY this movie of which you are a star and active part, not just a pawn. It is all intended to be played, as in any drama, with your best moves and flexibility and with the easy motto:

"I do not do anything harmful to any one or animal or any natural thing.

I give only what I want to be given.

I act with all the honest awareness of my good intentions put into genuine actions.

I am not 'used' by this temporal yet current zeitgeist [ the moods & ways of this time / place fashion / culture] for any purpose other than that which I agree with full alertness,

I chose to realize the forces that push / pull on me and not just follow like a stupid fool.

I am smarter than most think I am and prove it with each choice I make.

I respect all life forms and act in accord for our mutual livelihood.

I am spiritual and more than this fancy body [which operates extraordinarily without my concious attention most of the time anyhow].

I am glad to be here as this is now, any how it may be, anyhow.

Yep ! Grateful to be alive even now.

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"No one outside ourselves can rule us inwardly. When we know this we become free. FEAR is always an anticipation of what has NOT yet come. "

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this article is reposted from Wall Street Journal - opinion page, September 2009

author is ARTHUR B. LAFFER

The 1930s has become the sole object lesson for today's monetary policy. Over the past 12 months, the Federal Reserve has increased the monetary base (bank reserves plus currency in circulation) by well over 100%. While currency in circulation has grown slightly, there's been an impressive 17-fold increase in bank reserves. The federal-funds target rate now stands at an all-time low range of zero to 25 basis points, with the 91-day Treasury bill yield equally low. All this has been done to avoid a liquidity crisis and a repeat of the mistakes that led to the Great Depression.

Even with this huge increase in the monetary base, Fed Chairman Ben Bernanke has reiterated his goal not to repeat the mistakes made back in the 1930s by tightening credit too soon, which he says would send the economy back into recession. The strong correlation between soaring unemployment and falling consumer prices in the early 1930s leads Mr. Bernanke to conclude that tight money caused both. To prevent a double dip, super easy monetary policy is the economy.

While Fed policy was undoubtedly important, it was not the primary cause

of the Great Depression or the economy's relapse in 1937. The Smoot-Hawley tariff of June 1930 was the catalyst that got the whole process going. It was the largest single increase in taxes on trade during peacetime and precipitated massive retaliation by foreign governments on U.S. products. Huge federal and state tax increases in 1932 followed the initial decline in the economy thus doubling down on the impact of Smoot-Hawley. There were additional large tax increases in 1936 and 1937 that were the proximate cause of the economy's relapse in 1937.

In 1930-31, during the Hoover administration and in the midst of an economic collapse, there was a very slight increase in tax rates on personal income at both the lowest and highest brackets. The corporate tax rate was also slightly increased to 12% from 11%. But beginning in 1932 the lowest personal income tax rate was raised to 4% from less than one-half of 1% while the highest rate was raised to 63% from 25%. (That's not a misprint!) The corporate rate was raised to 13.75% from 12%. All sorts of Federal excise taxes too numerous to list were raised as well. The highest inheritance tax rate was also raised in 1932 to 45% from 20% and the gift tax was reinstituted with the highest rate set at 33.5%.

But the tax hikes didn't stop there. In 1934, during the Roosevelt administration, the highest estate tax rate was raised to 60% from 45% and raised again to 70% in 1935. The highest gift tax rate was raised to 45% in 1934 from 33.5% in 1933 and raised again to 52.5% in 1935. The highest corporate tax rate was raised to 15% in 1936 with a surtax on undistributed profits up to 27%. In 1936 the highest personal income tax rate was raised yet again to 79% from 63%—a stifling 216% increase in four years. Finally, in 1937 a 1% employer and a 1% employee tax was placed on all wages up to $3,000.

Because of the number of states and their diversity I'm going to aggregate all state and local taxes and express them as a percentage of GDP. This measure of state tax policy truly understates the state and local tax contribution to the tragedy we call the Great Depression, but I'm sure the reader will get the picture. In 1929, state and local taxes were 7.2% of GDP and then rose to 8.5%, 9.7% and 12.3% for the years 1930, '31 and '32 respectively.

The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity. If there were one warning I'd give to all who will listen, it is that U.S. federal and state tax policies are on an economic crash trajectory today just as they were in the 1930s. Net legislated state- tax increases as a percentage of previous year tax receipts are at 3.1%, their highest level since 1991; the Bush tax cuts are set to expire in 2011; and additional taxes to pay for health-care and the proposed cap-and-trade scheme are on the horizon.

In addition to all of these tax issues, the U.S. in the early 1930s was on a gold standard where paper currency was legally convertible into gold. Both circulated in the economy as money. At the outset of the Great Depression people distrusted banks but trusted paper currency and gold. They withdrew deposits from banks, which because of a fractional reserve system caused a drop in the money supply in spite of a rising monetary base. The Fed really had little power to control either bank reserves or interest rates.

The increase in the demand for paper currency and gold not only had a quantity effect on the money supply but it also put upward pressure on the price of gold, which meant that dollar prices of all goods and services had to fall for the relative price of gold to rise. The deflation of the early 1930s was not caused by tight money. It was the result of panic purchases of fixed-dollar priced gold. From the end of 1929 until early 1933 the Consumer Price Index fell by 27%.

By mid-1932 there were public fears of a change in the gold-dollar relationship. In their classic text, "A Monetary History of the United States," economists Milton Friedman and Anna Schwartz wrote, "Fears of devaluation were widespread and the public's preference for gold was unmistakable." Panic ensued and there was a rush to buy gold.

In early 1933, the federal government (not the Federal Reserve) declared a bank holiday prohibiting banks from paying out gold or dealing in foreign exchange. An executive order made it illegal for anyone to "hoard" gold and forced everyone to turn in their gold and gold certificates to the govern- ment at an exchange value of $20.67 per ounce of gold in return for paper currency and bank deposits. All gold clauses in contracts private and public were declared null and void and by the end of January 1934 the price of gold, most of which had been confiscated by the government, was raised to $35 per ounce. In other words, in less than one year the government confiscated as much gold as it could at $20.67 an ounce and then devalued the dollar in terms of gold by almost 60%. That's one helluva tax.

The 1933-34 devaluation of the dollar caused the money supply to grow by over 60% from April 1933 to March 1937, and over that same period the monetary base grew by over 35% and adjusted reserves grew by about 100%. Monetary policy was about as easy as it could get. The consumer price index from early 1933 through mid-1937 rose by about 15% in spite of double-digit unemployment. And that's the story.

The lessons here are pretty straightforward. Inflation can and did occur during a depression, and that inflation was strictly a monetary phenomenon.

My hope is that the people who are running our economy do look to the Great Depression as an object lesson. My fear is that they will misinterpret the evidence and attribute high unemployment and the initial decline in prices to tight money, while increasing taxes to combat budget deficits.

Mr. Laffer is the chairman of Laffer Associates and co-author of "The End of Prosperity: How Higher Taxes Will Doom the Economy—If We Let It Happen" (Threshold, 2008).

Article was pinted in The Wall Street Journal, page A25
Sept 22, 2009
online.wsj.com/article/SB10001424052970203440104574402822202944230.html

BBC explains part of what confuses us all, money down the drains

this is a partial reposting from
http://news.bbc.co.uk/2/hi/business/7874667.stm

"Walden Bello is a university professor, senior analyst at Focus on the Global South, and president of the Freedom from Debt Coalition.

Week after week, we see the global economy contracting at a pace worse than that predicted by the gloomiest analysts.

We are now, it is clear, in no ordinary recession but are headed for a global depression that could last for many years.

The origins of the present crisis lie in the strategies adopted by economic and political elites to resolve the crises of stagflation - the coexistence of low growth with high inflation - which followed rapid growth in the post-World War II era, both in the G8 economies and in the underdeveloped economies.

Stagflation, however, was but a symptom of a deeper problem: the reconstruction of Germany and Japan and the rapid growth of industrialising economies like Brazil, Taiwan, and South Korea added tremendous new productive capacity and increased global competition, while income inequality within countries and between countries limited the growth of purchasing power and demand, thus eroding profitability.

Dilemma
This produced the dilemma of overproduction.
One "escape route" from the conundrum of overproduction, and for maintaining and raising profitability, was "financialisation".

Unsold Japanese cars in a UK showroom
Overproduction: many cars made, but no-one to sell them to
With investment in industry and agriculture yielding low profits as a result of over-capacity, large amounts of surplus funds have been circulating in or invested and reinvested in the financial sector - that is, the financial sector began turning on itself.

The result has been a divergence between a hyperactive financial economy and a stagnant real economy.

This was not accidental - the financial economy exploded precisely to make up for the stagnation owing to overproduction of the real economy.
Profits, not value

One indicator of the super-profitability of the financial sector is the fact that 40% of the total profits of US financial and nonfinancial corporations is accounted for by the financial sector although it is responsible for only 5% of US gross domestic product (and even that is likely to be an overestimate).

The problem with investing in financial sector operations is that it is tantamount to squeezing value out of already created value. It may create profit, yes, but it does not create new value - only industry, agriculture, trade, and services create new value.

Because profit is not based on value that is created, investment operations become very volatile and prices of stocks, bonds, and other forms of investment can depart very radically from their real value.

Profits then depend on taking advantage of upward price departures from the value of commodities, then selling before reality enforces a "correction", that is, a crash back to real values. The radical rise of prices of an asset far beyond real values is what is called the formation of a bubble.

Virus
We are far from over the worst of this crisis.

In the US real-estate sector, millions more mortgages are likely to go into default over the next few years.

Securities with a value of as much as $2 trillion dollars (£1.4 trillion) have already been injected, like a virus, into the global financial system.
Massive injections of taxpayers' cash have failed to kickstart lending again. Not surprisingly, with global capitalism's circulatory system seizing up, it was only a matter of time before the real economy would contract, as it has with frightening speed in the last few weeks.

Globalisation has ensured that economies that went up together in the boom would also go down together, with unparalleled speed, in the bust, the end of which is nowhere to be discerned. [snip]

Discussions at the World Social Forum in Belem focused on many aspects of the financial crisis that are not being publicly discussed at official or business level.
For instance, while strong calls for re-regulation are made, none of these proposals address the fact that the General Agreement on Trade in Services (Gats) - a treaty created under the auspices of the World Trade Organization (WTO) - actually seeks to deregulate trade in services, including financial services.

These liberalising international treaty rules deprive governments of the right to intervene.

The calls for re-regulation would require a dismantling of the whole architecture of treaties agreed over the past 10 years, mainly through the WTO

Governments' hands tied
Under Gats in the EU, governments cannot limit the size or the value of the financial services operations.

This prevents governments from intervening to ensure that a financial service company does not become "too big to fail" or have a destabilising effect on the country that hosts it.

Industrialised countries have gone further by committing themselves to more liberalisation and deregulation under a Gats annex that precludes regulation and opens the way for any new financial service, however speculative
agreements which have been working towards opening up the financial sector, and which were backed by the US and the EU.

Pigeons against backdrop of City of London
The City of London's success was based on deregulation

These were subject to concerted and secretive lobbying of negotiators by financial corporations, resulting in negotiators collaborating closely with the financial industry.

The liberalisation of financial services was included in trade treaties without any guarantee of whether the right regulation and supervision was in place.

In fact, the EU requested many countries to eliminate particular prudential rules, some of which had been put in place after the Asian crisis." [snip]

(C) maryjanie 2009