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Waiting on a Hurricane in the Summer of 2015

greek-credit

by Richard John Stapleton

I posted December 12, 2013 “All Hands on Deck: The World Has Not Gone to Hell in a Handbasket—Yet.”

That was the last post I made in the Ship’s Log, a blog-like page, on the website of Effective Learning Company, at www.effectivelearning.net.

I did not post anything in the Ship’s Log after December 12, 2013 up to now because I did not detect any new threats on the horizon I considered serious enough to write about, and I more or less got tired of blogging, having reached the ripe old age of 74. Also I began to think my Internet writing was not doing any good, that few people read it, and there were other writers out there saying about the same things better than I can.

But yesterday I felt like making another post in the Ship’s Log and I produced this piece of writing. Don Quixote rides again.

I think this new presidential election campaign is a serious new threat. It a tiresome banal process, replete with a new crop of bought and paid for lightweight Republican ideologues thrown in our faces in mainstream media, saying little or nothing of significance about real problems, smiling and strutting around the country shaking hands with poorly-informed credulous voters, like robot mannikins, spewing their canned propaganda and slogans in speeches—and the scariest part is one of them might actually get elected president of the US in 2016.

As situations in Greece and other emerging markets show, the global economy is now in desperate straits. The US stock market after gradually sinking this year for the first time in several years could start collapsing at any time, as in Greece and China. There are still not enough good jobs in the US; poverty is endemic; there are race riots in the streets; racist terrorists in the US are shooting defenseless people at point blank range in cold blood; and the US Federal Reserve board probably does not have a clue about what to do now, after they have injected about three and a half trillion new digital dollars into the US economic casino, while still holding interest rates at almost zero, to little avail for lower and middle classes, mainly making the rich richer.

The first article I posted in the Ship’s Log March 11, 2011 was titled “Can Another Great Depression Happen?” The answer, I now fear, is yes, and we may be in the middle of it.

The Ship’s Log now contains 32 articles and 2 books scrollable on one page, documenting my take on the US and global economic and political system, either posted in full or linked to non-mainstream media, such as Amazon.com, MWC News (Media with Conscience), Consortium News, and the Intrepid Report. 

The Ship’s Log contains one mainstream media article I got published in the Macon Telegraph July 21, 2011, the only mainstream media print publication I have found intrepid enough to publish any of my writing. I tried many of them, sending out hundreds of email submissions to daily newspapers all over the United States, including the New York Times, the Washington Post and the Los Angeles Times. The Macon Telegraph was the only taker, Macon being a city of 89,891 in Central Georgia. 

My Macon Telegraph print article, titled “The US Budget Deficit and Federal Debt, What to Do?,” was also posted in an Internet edition of the Macon Telegraph from whence it was forwarded and reposted on the Internet at various sites in and outside the US. It was discussed and cussed, and vilified by some. One local yokel around Macon wrote in an Internet comment I reminded him of the guy his daddy told him about. He said his daddy told him if you could buy that guy for what he is worth and sell him for what he thinks he is worth you could get rich. On the other hand, one reader in the Macon area, a farmer, whom I had never met, telephoned and thanked me for writing the article, telling me he was glad we had at least one person in Georgia who could write something serious and critical about Republicans and get it published in the Macon Telegraph.

Following are two excerpts from the article posted in the Ship’s Log.

“I watched and listened in amazement (almost in shock) with millions of others July 22 (2011) as the president of the United States explained how his debt and deficit negotiations with the speaker of the House of Representatives came to a halt with nothing accomplished.”

“This article set the stage for the spectacle we witnessed this year in the fall of 2013 in the latest budget standoff between the president of the US and the US speaker of the House, with petulant juvenile tea partiers in the House causing a government shutdown costing billions of dollars.” 

Many of my colleagues publishing or posting articles in Internet journals refer to mainstream media as the presstitute media, bought and paid for by the US fascist corptocracy now running the US. Some say real democracy in the US is now dead. The editor of the Macon Telegraph knew most of his readers would take umbrage to my article. He took some risk publishing the article, and I appreciate that.

Read this article in full on the Ship’s Log at www.effectivelearning.net, several posts down from the top of the page, posted under the title, “The US Budget Deficit and Federal Debt, What to Do?”

Following my December 12, 2013 Ship’s Log post about the world having not gone to hell in a handbasket yet, reposted immediately below summarizing how we got here, I will give my view of the economic situation today and what I think lies ahead. 

It seems to me we may be in the lull of the eye of an economic and political hurricane that struck in 2007, with the worst yet to come. It could be what is often referred to as the Great Recession of 2007 was a large hurricane that made landfall and passed through, and what is now forming is another independent large hurricane; but it seems to me we could be in the lull of the eye of one monster system. 

December 12, 2013

ALL HANDS ON DECK

THE WORLD HAS NOT GONE TO HELL IN A HANDBASKET—YET

This is the first All Hands On Deck meeting we have had on this Ship’s Log page since March 13, 2013 at www.effectivelearning.net. A good bit of water has gone under the bridge and we have made some headway. Obama got elected again in November 2012 and we have now sailed almost five years with his administration. He got us out of Iraq as promised, and, as I understand it we are pulling troops out of Afghanistan as promised, although not as many as promised, if our military and the Obama administration get what they now want, to leave US troops on the ground in Afghanistan until, would you believe, 2024, 11 more years. This is beginning to sound more like permanent occupation rather than war fighting and nation building to me. As I understand it the US now has military troops on the ground in about 100 countries, doing one thing or another. What would Earth do without the US military? Republican ideologues want to cut Social Security, Medicare and Medicaid expenses, but they do not want to cut military expenditures, because their sugar daddies in the military-industrial complex paying their political expenses do not want their political incomes and the sales of military hardware cut.

US troops were supposed to completely withdraw from Afghanistan after 2014, but after 14 years of fighting the Pentagon is now crawfishing on the deal. Apparently they are worried the Taliban will again take over as soon as they pull out. So now they have had John Kerry, US Secretary of State, craft some sort of Bilateral Agreement that would allow from six to twenty thousand US troops to stay in Afghanistan indefinitely after 2014, or at least until 2024, but Afghan President Hamid Karzai refused to sign it, saying he wanted all US troops out as agreed after 2014. Chuck Hagel, US Secretary of Defense, says he is confident he can get Karzai to sign the Bilateral Agreement with the US and NATO, which would at least allow NATO to keep troops in Afghanistan after 2014, including no doubt US troops, as advisors. Meanwhile Karzai is getting friendly with Iran, worried about foreign presence in the region, and apparently has signed some sort of bilateral security agreement with Iran. This is not a pretty picture any way you look at it. Bush II got us in Afghanistan looking for Osama bin Laden, who was supposed to be hiding there. When we did not find him we should have got the hell out then. No country in history has ever been able conquer or cow down Afghanistan. How long will it take the Pentagon to figure it out they can't either? Or is it they just plan to stay there forever trying?

The Obama administration got us through the Great Recession and the Banking Collapse of 2008 after the Federal Reserve pumped trillions of dollars of new funny money into the banking system, thus saving the hides of miscreant bankers and enriching them even more, thus keeping the economy afloat, but not creating many new jobs, especially good jobs paying a living wage for American workers. More and more Americans are now living on food stamps and working two or more part-time jobs to keep body and soul alive. About 20 percent of all US citizens now live in poverty. The official unemployment rate of the US, the percent of working age workers, starting at age 16, actively looking for a job, is now 7 percent. The actual unemployment rate, the percent of working age workers who would like to have a job, is probably about 25 percent. The percent of working age workers not working, counting housewives and househusbands, successful people who retired early, lucky children being reared in affluent homes who spend their after school hours doing homework and other things, and disabled people, is about 40 percent.

The OA (Obama Administration) oversaw the creation of a new banking reform law, the Dodd-Frank law, that did very little to reform the basic problems of the banking system. They should have restored the Glass-Steagall Act of the 1930s that forbade banks from using other people’s money to gamble in financial markets buying and selling stocks, bonds and other securities, such as collateralized debt obligations, and, especially, buying and selling weapons of mass financial destruction known as derivatives, the worst form of gambling yet devised by human beings. The world is now saddled with about $600 trillion of nominal derivatives contracts that could explode at any time. These people are betting with one another that debtors may not make their loan payments, principal and/or interest, at any time, having no assurance all their gambling partners will have the ability to pay off their bets if they lose, knowing full well the whole house of cards will implode if a large number of losers can’t fork over cash to cover their bets. They place their bets in the first place to make it seem they have less risk of getting back money they have loaned out, so they can then borrow more money to loan out, and buy or sell more stocks, bonds, collateralized loans, and derivatives contracts, and on and on it goes, day after day, thereby stretching the actual collateral, i.e. skin in the game, in the system thinner and thinner, which is necessary in order for banksters to earn bigger and bigger bonuses every year, and get richer and richer, based on their short run, ephemeral digital profit.

Just today (November 10, 2013) I read US banking regulators intend to impose a new Volcker Rule on banks that will cut down on their gambling and force them to act more like real bankers. How long it will take to get this rule operative remains to be seen. Quite naturally the banksters are opposed to it and are fighting back.

US stock markets have reached new highs during the OA, and a good many people have made some money in the stock market, primarily the elite rich who did not need the money, thanks to the Federal Reserve pumping trillions into the system and keeping interest rates low, thereby enabling the OA to reduce the federal deficit. Interest rates have been the lowest in living memory enabling the federal government to sell its short-term bonds for almost nothing and its long-term bonds for less than 3 percent. The outstanding federal debt is now about $17.2 trillion. If the average interest rate the US treasury has to pay on this debt goes up to 5 percent, the federal interest expense will be about $850 billion per year, up from about $400 billion per year now, which will cause the budget deficit to explode again.

Needless to say, things are by no means financially sound now. How long will it be before we have the next financial crisis? Nobody knows.

In order to make serious improvements in the domestic economy something should have been done to create good jobs since 2007. This requires raising the after loophole effective tax rates of large corporations and the elite rich back to 1980 levels where our wisest and fairest ancestors set them, and borrowing and printing money to directly fund infrastructure jobs in transportation, green energy, education and the like, which thanks to a multiplier effect would create millions of jobs in the small business sector. Unfortunately all the stimulus money to date has been used to directly fund banks and large corporations run by rich banksters and CEOs. Republicans have self-righteously and steadfastly refused to allow these tax increases to happen to keep getting funding from their corporate and elite rich patrons.

The OA was able to get a health care reform act passed that will help some low income people and make some improvements to our overall healthcare system, however inadequate it is. Republicans have fought this tooth and nail to no avail. What we should have had was a single payer system, such as Medicare for all; maybe we will get it sooner or later. See my article “The Affordable Care Act—No Gain Without Pain” posted below on this Ship’s Log page.

How good of a job has Obama done? Not as good as he said he would, but not nearly as bad as Republicans say he has. He has done a hell of lot better than Reagan and Bush II did, and I am convinced he has done infinitely better than McCain or Romney would have. He has not done anything totally stupid like invading and conquering a sovereign nation not posing a military threat to the US, or getting caught fooling around with a Monica Lewinsky. Despite Clinton getting caught with his fly open, he and Al Gore cut federal expenses and eliminated the federal budget deficit, producing a $200 billion per year surplus by the time they left office. Bush II, in my opinion the worst president in US history, turned the Clinton-Gore budget surplus

into a $1 trillion budget deficit in short order. I vividly remember talking with a fellow business professor in my GA SO Univ office, who was a retired Army lt. colonel, who had taught at West Point, who thought bombing Iraq was fine if that was what “they” decided to do, right before Bush II started bombing Iraq, and me telling him if they did it the budget surplus would be totally wiped out.

Unfortunately, I hit the nail right on the head. The budget surplus was wiped out in short order. The bombing and invasion created a $1 trillion budget deficit in about one year, setting in motion one of the worst economic episodes in US history. I still can’t believe the US federal government was dumb enough to do that, or that our political system would make it possible for someone as unethical, irresponsible and stupid as Bush II to decide to invade, conquer and destroy a sovereign nation posing no military threat to the US. Bush II, to use his own word (the word he used praising Brownie in New Orleans after Katrina hit) did a heckuva job snatching economic failure from the jaws of economic success. And it’s been downhill ever since.

Obama’s biggest downfalls in my opinion have also been caused by military problems—not closing down Guantanamo, detaining terrorist suspects indefinitely, and spying on everyone with electronic surveillance. Drones, as terrible as they are, it seems to me might be justifiable dealing with some hardcore terrorists. I think Obama ought to get us out of Afghanistan in 2014 as he said he would. I think we have had enough unnecessary militarization.

Obama’s approval rating has fallen to about 40 percent from his high of about 75 percent; but he has some way to go before he sinks as low as Bush II, 25 percent, who sunk from a high of about 90 percent.

Since retiring at GA SO Univ in 2005 I have published two books and several articles, and I decided to post them on this Ship’s Log page in annotated form with links to the actual articles in the media in which they were published. To read any of the books or articles all you have to do is click on the link. Most professors do something to stay productive after they retire from teaching. Some get involved with civic clubs, churches and the like, some volunteer with community groups such as Habitat for Humanity doing things like helping build free houses for poor people or sell used goods in Habitat stores to help poor people; some join breakfast clubs or lunch groups that regularly meet; some do pro bono consulting; some continue to do research and writing. Most do something to “give back”. In my case I have tried to give back by doing something to help make the world a little better place through research, writing and publishing, however quixotic and grandiose this notion might be. Following on this Ship’s Log page are some jousts at windmills since 2005.

August 11, 2015

ALL HANDS ON DECK

ORDINARY LIFE, POLITICS AND ECONOMICS

A large majority of my Facebook friends and fellow Internet writers have decided while Democrats are less harmful than Republicans in Washington, both parties are corrupted by corporate and elite rich campaign financing and both parties must please the rich at the expense of we the people. Some of us think the best remedy would be to vote all sitting politicians out of office ASAP. In my opinion if you were to randomly select educated intelligent US citizens off the streets, who had no desire to be a politician, and send them to Washington to replace all sitting senators and representatives the US government would improve overnight, since these citizens could use their common sense to vote for the right thing for we the people. Most government problems are not that complicated. The problem is obvious solutions cannot be implemented because of vested interests. Therefore you have to put in office people with no vested interests to bring about significant change. See various posts substantiating this conclusion on my Facebook page at https://www.facebook.com/richard.stapleton.397 and on my Ship’s Log page at www.effectivelearning.net. See also my Facebook page for Effective Learning Company at https://www.facebook.com/www.effectivelearning.net?pnref=story.

Randomly selecting people to serve in public office is not a novel idea. The process is called sortition and the ancient Greeks did it as early as the 6th Century BC.

I was recently appointed to the board of USVRA.US, a section 501(c)(3) Nonprofit Public Benefit Corporation, founded by my long-time friend William John Cox, a political activist, author, retired prosecutor, and public interest lawyer, of Long Beach, California. Wm and I were friends in the first grade at Wolfforth, Texas on the South Plains in 1945. He is convinced the US Constitution should be amended to provide funding for voting discussions and paid voting holidays for all citizens for federal elections to generate true democratic involvement in the process, giving all citizens the right to write-in candidates at elections on secure paper ballots, among many other things. I strongly support this movement. See the USVRA (United States Voters’ Rights Amendment) at http://usvra.us/the-voters-rights-amendment/.

In the meantime, seeing as how we are stuck with the current system, at least in the short run, I am convinced Bernie Sanders is by far the best candidate for president of the United States in 2016. If only he can get the Democratic nomination, or run as an Independent, so we can actually vote for him for president. I think the risk of him splitting the Democratic vote as an Independent thereby enabling a bought and paid for disingenuous lightweight Republican ideologue to become president is a risk worth taking if necessary. Hillary Clinton in my opinion is as bought and paid for by the plutocracy as Republicans.

Last Saturday night my wife and I saw and heard the Charlie Daniels Band, possibly the best Country & Western band in the world, perform in the Western Carolina Performing Arts Center at Franklin, North Carolina. Charlie Daniels is now 79 years old and says he has no intentions of retiring, that he enjoys every concert, has no anxiety or stage fright, knows exactly what he is doing, that he enjoys being in charge on stage, and he walks on stage every time confident they will do it right again.

Charlie was born in the eastern lowlands of North Carolina but he said Western North Carolina in the mountains was always one of his favorite parts of the country. He plays the fiddle, guitar, banjo and mandolin. He had two assistants at the back of the stage the whole time doing nothing but tuning his instruments who would frequently hand him a new one to be used with different songs. All he had to do was strap on the appropriate instrument depending on the song and take off again with no dead time. I never saw anything like it. He said he had been making a living in the competitive country music business since 1957. He said his current band members, a keyboarder, a drummer, and three guitarists, are the best musicians he has ever worked with. I agree with his high opinion of them. 

The band played about an hour and a half nonstop, about perfectly without a single glitch or hitch as near as I could tell. How they could remember the words to that many songs and the notes for that much music is phenomenal, especially Charlie, at his age. One band member was maybe in his sixties but the rest were relatively young men. Charlie did all the talking and almost all the singing. He connected well with his audience emotionally and intellectually. They play all genres of country and western music, including the music of Bob Dylan.

The Western Carolina Performing Arts Center, constructed and owned by the owner of Drake Software in Franklin, who made millions of dollars from a piece of accounting software he invented and programmed to help accountants do tax work, seats 1500 people. It was almost sold out Saturday night.

Charlie said he believed in his god and Jesus and the American flag, and he liked cornbread and his chicken fried. He said he liked pickups and tractors and nobody better try to take away his guns. He is a big supporter of military veterans and exhorts his audiences to respect men and women in uniform. Although he said his son, a college graduate, had convinced him to get a computer and a webpage and a Twitter account, he said he had little use for intellectuals. He said it is amazing what you can communicate in less than 45 characters. He said if someone told him he was a redneck and a southerner he had only two words to say to them: “Thank you!”

He could have used the word liberal rather than intellectual but he didn’t, possibly because he had no desire to add fuel to the fire now raging in the US class war. Most of the audience appeared to be working class people. It was obvious a sizeable portion of the audience had military experience and/or appreciation for the military, as evidenced by their boisterous applause when military service and veterans were mentioned and the Army and Marines stickers affixed to their vehicles in the parking lot. I did not notice anyone of African descent in the audience, but I detected no racial remarks or innuendoes.

The band did their thing flawlessly, and the audience was pleased, satisfied, and affirmed. My wife and I thoroughly enjoyed the show and we were glad we went.

Tickets for the concert weren’t cheap, $40 and up. The gross for the night was probably about $60,000. I have no idea how it was split up, but most likely it was a good night for the band monetarily. I would guess if they did that well once a week the band members would earn over $100,000 per year with Charlie earning more. But for sure they are not doing it just for the money. They are mainly doing it for the fun of it and the satisfaction and the pride. There is nothing better than doing something you like to do better than anyone else can do it and getting recognized for it. They seemed to enjoy doing the show as much as the audience enjoyed watching it. Charlie gives some of his money back to support military veterans.

My wife and I attended the concert because we happened to be staying for a week in our vacation home four miles from Franklin and I happened to see an article promoting it in the Macon County News. We spend most of our time in our home in the flatlands of Southeast Georgia near Statesboro. I listen to country music on our car satellite radio to stay awake during the five-hour trip. Franklin is always about ten degrees cooler than Statesboro. It’s interesting I can’t remember hearing the Charlie Daniels Band on country and western satellite radio channels.

We have been making the trip from Statesboro to Franklin and back via Stillmore, Swainsboro, Louisville, Stapleton, Thomson, Washington, Elberton, Lavonia, Toccoa, and Clayton several times per year for some 16 years. It’s a pretty good drive with decent roads and not much traffic with good views of pine forests and productive farms. The towns however are in decline, especially since 2007. They contain lots of vacant business buildings just sitting there rotting away. Most noticeable are what were once building supply stores, grocery stores, automobile dealerships and restaurants. Unemployment in the towns is relatively high and incomes are relatively low. There are three McDonald’s pit stops en route.

If only everyone could be as accomplished and successful making a living as Charlie Daniels and his band.

UBIQUITOUS ECONOMIC FAILURE

I became convinced after the crash of 2007-08 this eventuality was not business as usual, at least during my lifetime. Yes, we had sailed through a savings and loan housing crisis in the 1980s and 1990s requiring shutting down or otherwise resolving over 1000 savings and loan associations and sending a few of the criminals running them to prison; but never before had major banks such as JP Morgan Chase and insurance companies such as AIG threatened to take down the entire money and banking system because of their incompetent, greedy and unethical gambling practices. Yes, Chrysler had to be bailed out in 1979, but never before had General Motors required federal bailing out to stay afloat. Yes, we had had high unemployment before, but never before had we had unemployment that won’t go away. Never before had we had employment like we now have, a situation in which millions of people even if they have a job, or several part-time jobs, cannot make a decent living. The government now tells us unemployment is at its normal overall level, about five percent; but this does not count the millions of people who have given up looking for a job, and the employment number includes millions of workers having jobs not providing a decent standard of living.

There are now US cities going bankrupt because corporations sent the good jobs of their citizens to low wage countries, a major cause of unemployment and underemployment and the depressed job market in the US. Sure, part of this unemployment was caused by corporations using computers and robots instead of humans to do jobs in the US, but there is no doubt much of the problem was caused by outsourcing. 

Since the crash of 2007 the US Federal Reserve System has resorted to “quantitative easing”, a euphemism for printing money, itself a euphemism, since no money is actually printed, attempting to jolt the US economy back into recovery. In reality nowadays all banksters have to do to create digital money out of thin air is make a few strokes on computer keyboards to affix digits to computerized bank accounts. Personnel at the Federal Reserve have keystroked in digits representing over $3 trillion in bank deposits of the government, enabling them to buy things and make loans to spur economic activity, which helped get the economy back on track to some extent, especially for the elite rich. Yes, Matilda, things probably would have been even worse for everyone had they not done this.

Keystroking this digital money into the banking system enabled banks, corporations, hedge funds, rich investors, and the like to borrow so-called money at low interest, almost zero interest rates set by the Federal Reserve for overnight loans among banks, and loan it out or gamble with it in “markets” for a higher return. Corporations have borrowed money at low rates and have used it to buy back their own stock in the stock market, so their top fat cats can cash in their stock options to enrich themselves, thereby also enriching their stockholders in general. Thus we now have an inflated stock market that could start crashing at any time. And the banks, insurance companies, and other speculators have continued to leverage their capital with derivatives trades supposedly hedging their bets, thereby creating counterparty risk. There are now hundreds of trillions of dollars of nominal derivatives trades globally, which could explode in a figurative mushroom cloud. Some say the global derivatives market now comprises over a quadrillion dollars in nominal trades, becoming the first monetary evaluation of anything I ever heard about to be expressed as a quadrillion.

By no means has the Dodd-Frank financial reform bill of 2010 corrected all the policies and practices of the banking industry causing the 07-08 crash, and the bill added a major new worry to the list of problems. The Dodd-Frank bill makes it legal for the government to rescue banks using a new procedure. Instead of only bailing out banks after the next crash, the Dodd-Frank bill makes it possible to also save them with bail-ins. Yes, to get their hands on cash to continue operating in the next crash banks can simply confiscate depositor money if the government so decrees. You can wake up one day and find out the government decided to keep banks open that day by decreeing they could simply subtract some numbers from your bank balance and use it for operating cash. This has already happened on the Island of Cyprus. 

It would be nice if the US were the only country managing its money and finances in such a shabby risky fashion. But, no, all countries are about as bad as the US, some worse, China, Japan, Germany, Ireland, especially Greece. All countries in recent decades have done about what the US has done. They have used digital free money to make loans and now a sizeable percentage of the loans cannot be paid back. Greece has dominated mainstream and non-mainstream media news recently as it has tried to borrow more money from the EU to stave off a financial collapse. 

It is harder for Greeks to deal with their debt problem than most sovereign nations because Greece is a member of the European Union, which caused Greeks not to have their own currency, meaning they cannot create new digital spending money out of thin air, or depreciate their currency. They have to use the Euro, the same currency Germany and other EU members use, and to keep operating they have to have new loans from the European Central Bank or the International Monetary fund or the World Bank, or elsewhere, and they have to obey rules set by their lenders regulating how they spend the money they borrow.

Greece is technically bankrupt. The Greek government cannot repay its loans and the only way they can keep operating is to borrow more money from outside Greece to make payments on loans they already have. Almost certainly Greece can never repay the loans it has now no matter how impoverished the Greek people become, no matter how much their pensions are cut, no matter how much their wages are cut, no matter how much their taxes are raised. Unemployment, poverty, and misery have significantly increased in Greece in recent years because of already being forced to make such cuts by their creditors. 

The only logical and humane solution is for Greece’s loans to be written down, meaning some percentage of them must be forgotten or forgiven, meaning people and institutions who loaned them the money will have to take what is commonly called a “haircut.” As with any bank or lender loaning money to what is obviously a bad credit risk in a real market if the debtor cannot repay then it’s tough luck, and the loans have to be written off or reduced. But the lenders of Greek debt don’t want to do this. They want to make the Greek people pay, no matter how much they have to suffer. England before the American Revolution threw people in debtor’s prisons for not repaying their loans, thereby insuring the debtor would never be able to repay his or her debits. Many were finally shipped off to America to get rid of them.

Greece is now in a debtor’s prison of sorts, but there is no way you could ship 11 million Greeks off to America.

Most countries around Earth are now in a pickle to some extent analogous to Greece, as are certain citizens of all countries, thanks to the creating of digital money used to make loans to everyone, regardless of credit ratings, regardless of low probabilities the money could be paid back based on earning power and market conditions. Anyone who cannot repay loans and who must borrow more money to pay off old loans is in a debtor’s prison of sorts, living under constant stress and duress, possibly at the poverty level, or at a subsistence level, with little hope of getting out, much less ahead. 

The US now has about two trillion dollars of such money loaned to students and car buyers much of which cannot be paid back, in credit bubbles somewhat analogous to the housing bubble of 2007. 

The crash of 07-08 in the US and in Great Britain, Ireland, Spain and elsewhere was primarily caused when debtors could not make payments on house loans made with such money. Bankers loaned money to people they knew had little means of repaying the loans on time. Regardless, this increased their profit and executive bonuses for that year, and future losses were ignored. And they often sold their toxic loans to bigger fish in bigger banks who combined them with other loans and sold them to even bigger banks, trying to get rid of their sins, all the while calling it profit and using the profit to borrow even more money to gamble with in the global economic casino. When debtors at the bottom of the chain of debt began to default on their house payments the reduced cash flow caused cash flows to reduce up the chain to such an extent that ultimately the fat cats atop JP Morgan Chase, and Bank America, and Goldman Sachs could not make timely payments on their loans; but, whereas, the poor house buyers at the bottom defaulting on their loans were foreclosed on, thereby losing their equity, the fat cats atop the big banks went to Washington and told the US federal government to give them a trillion or so digital dollars to stay in business, which the government did. 

The problem is the rich and powerful have moral hazard on their side, whereas the weak and poor do not. The consequences of not rescuing the big banks entailed dysfunction and chaos in the entire economy, whereas not rescuing the weak and poor was relatively inconsequential for the entire economy. So the poor were ignored.

And that is pretty much the story worldwide. Strong and rich creditors have been bailed out with new loans and weak and poor debtor Greeks and others are left to suffer. Almost all the new EU money being loaned to Greece is being used to bail out banks and the government; almost none of it is being used to alleviate the suffering of the weak and poor.

Sovereign nations having their own currencies and central banks, unlike hapless Greece, can do what the US has done. They can just keystroke more digits into computers and call it money and spend it and loan it out. Bank balances pile up, people use the numbers in the bank balances to buy things like corporate stock, bonds, real estate, gold and silver, houses, vacations, groceries, college educations, retirement plans such as 401ks, or pay taxes, or whatever.

Right now, no matter how rich or poor you are, no matter where on Earth you live, there is a good chance you are going to be less rich before too long if you measure your wealth in monetary units. Most likely somewhere around Earth at some time, perhaps soon, something is going to cause a significant number of debtors to default on their loans, causing bigger fish up the chain of debt to also default on their loans and derivatives obligations, causing a serious lack of cash flow worldwide, known as a liquidity trap, causing the monetary valuation of everything to decrease, creating a serious deflation.

Greedy and needy borrowers and speculators will sell stock, bonds, real estate, gold, silver, or any asset class, attempting to make loan payments and margin calls, causing the monetary valuation of most if not all asset classes to go down, causing unemployment to go up, causing aggregate demand to plummet everywhere, causing a downward economic spiral into a possible abyss. 

My wife and I are among the lucky ones; we have no debt, except for monthly credit card debt, which we pay off every month, incurring no interest charges. On the other hand, the monetary valuations of all our asset classes have already gone down, including the value of both our houses, both of which are fully paid for. How low they will sink remains to be seen. Three houses in our neighborhood have been on the market for several years with no takers. We have five acres of beautiful high land in the Tessenntee Valley with long-range panoramic views 14 miles from Franklin we have had on the market about five years, without a single offer. Macon County this year lowered the assessed value for our house and land for property taxes about 20 percent while increasing the millage rate. Hopefully we shall one day be able to sell our mountain property for something. The mountains around Franklin are beautiful. It’s a shame fewer and fewer people can afford to buy property there and enjoy them.

Sovereign governments with currencies can punch more digits into computers and call it money and use it to pay their employees and military personnel and give it to too big to fail banks and corporations to keep them operating, in the short run; but most likely they won’t do it for people, businesses and corporations without moral hazard, which includes most people. If they did it for everyone numbers denoting the valuation of assets and goods of all sorts would become meaningless as they exploded upward, creating a nightmare phenomenon known as hyperinflation.

John Maynard Keynes though deceased is probably still the smartest economist in the room when it comes to staving off and curing economic depressions, because of the published work he left behind, especially his General Theory of Employment, Interest and Money (1936). As he pointed out in 1936 the least bad alternatives when capitalism stops working include increasing government spending on infrastructure projects, cutting taxes, lowering interest rates and printing money, to increase aggregate demand, which should increase retail sales, construction and manufacturing, increase investment and reduce unemployment. But if capitalism starts working again politicians and economic policy makers should eliminate budget deficits and reduce debt as soon as possible, to insure against bankruptcy and debt defaults and repudiations down the line.

In the meantime they have to sail a treacherous course between two monsters poised to attack on both sides of a narrow strait: the Scylla of runaway inflation and the Charybdis of runaway deflation.

Most of these alternatives have already been tried in the US since 2007. What has not been tried is using digital money to directly fund infrastructure projects to create employment in the domestic economy. Another thing that has not been tried is raising the tax rates of large corporations and the elite rich back to where they were before 1980, as President Roosevelt did during the Great Depression of the 1930s, and using the proceeds to fund infrastructure projects to directly create jobs for the unemployed in the domestic economy. These things were not tried in the US after 2007 because our illustrious Republican House of Representatives would not allow them to be tried. Almost all Republican politicians in Washington during this period had signed a spurious pledge concocted by a lobbyist never to raise federal taxes for any reason, an egregious abrogation of responsibility.

Keynes recommended using both monetary and fiscal policy to deal with the Great Depression of the 1930s. By and large the US government has used only monetary policy administered through the Federal Reserve to deal with whatever it was that hit in 2007, thanks to the Stone Age economic doctrines of mindless Republican politicians. Republicans have allowed one form of fiscal policy that should have been simulative, namely military spending; but even the tremendous military spending that began under Reagan has not done lower and middle class workers in the domestic economy much good. The US has created plenty of good military jobs since 1980 but nowhere near enough good jobs for non-college educated civilians.

Given where we are now, it seems to me a fair and rational thing for all governments to do would be to decree haircuts for creditors who loaned digital money to governments, corporations, other organizations and people who have no chance of making loan payments without enduring inhumane suffering, thereby reducing debts down to rational levels serviceable by debtors. This is desperately needed right now in places like Greece and Puerto Rico, and it may be desperately needed in many countries before too long, perhaps, even, in the US. If everything else has to be deflated why not loans?

Governments in capitalistic countries are loathe to do this, since politicians in capitalistic countries must serve the interests of the rich at the expense of the poor to get campaign money to get elected in the first place.

Whatever we are in now, a lull between two large recessions or a lull in the eye of a hurricane-like monster depression, when the winds hit again the potential economic destruction is greater than anything we have seen before, possibly threatening the existence of capitalism itself, as we have known it. 

On the other hand, one can build the case capitalism, as we knew it, has already been destroyed by banksters, corrupt politicians, digital money and militarization.

On the bright side, if there is one, as painful as this would be, the coming economic destruction might make it possible for Earthians to start co-constructing an economic system that really works for all Earthians, finally eliminating chaotic and painful boom and bust economic cycles; homicidal, suicidal and genocidal wars; and economic injustices and ripoffs of all sorts. 

See my article “Toward the Creation of Spaceship Earth Incorporated,” published in MWC News, Monday, 09 September 2013 at http://mwcnews.net/focus/analysis/31023-spaceship-earth-incorporated.html showing how this might come to pass.

Richard John Stapleton, PhD, is an emeritus professor of business policy, ethics and entrepreneurship at Georgia Southern University. He is the author of Business Voyages: Mental Maps, Scripts, Schemata and Tools for Discovering and Co-Constructing Your Own Business Worlds (2008, 2010, 2011), 746 pages, at http://www.amazon.com/Richard-John-Stapleton/e/B001KHS3P6.


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