From 1950 to 1980 America was the manufacturing superpower with the strongest and largest middleclass in world history. We were the number one exporter of finished goods and importer of raw material to make those goods. We had a twenty five percent unionized private work force, roughly fifty percent of Americans had pensions, and we balanced budgets. Today we have a less than seven percent unionized private work force and around six percent of Americans have a pension.

Since 1980 to 2010 our manufacturing industry has left the country in the auspices of free trade agreements. We were supposed to export our goods to China and India not export our jobs to these countries. The American worker has seen their pay remain stagnant for decades and even drop by $2,000 since 2001 because of these policies. Millions of good paying blue collar jobs have left our country and were replaced with low paying retail (would like to super size your order) jobs causing Americans to work more hours and bring home less money. We are in a race to the bottom as Ross Perot predicted in 1992, Giant Sucking Sound. We need to exit the WTO and renegotiate our trade policies so all nations benefit not just trans-national corporations, international banks, and global trade organizations.

In the 1980 we flipped our economic policies upside down and we have suffered ever since. George HW Bush and opponents of Supply Economics referred to the theory as voodoo economics. They accurately predicted the results from such policies but we don’t hear about the failures of Supply Side/ Trickle Down economics in today’s news due for one simple fact of; The people or organizations that benefit from our economic system have bought our government through campaign contributions and lobbying efforts. It is the same few that own ninety percent of the US media and seventy- five percent or more of every major industry in the United States. These entities are corporate monopolies, international banking institutions, and global trade organizations.

The result is we no longer make goods in America. The inequality gap has exploded to the most unequal society in the top 40 industrialized nations on the planet, where the top one percent earn fifty percent of income and own nearly ninety percent of the wealth ( property, homes, luxury items,

The answer is simple, but making the shift back to demand side economics and rational trade policies will be difficult.  We need to start electing representatives that support public financing of elections, refuse large corporate donations, and want to reduce the influence of lobbyists on our government.  Once enough representatives are in office that support these ideas we can then start implementing;

1. Enforcement of Sherman Anti-Trust laws and break up monopolies in every industry
2. Exit the WTO and GATT agreements
3. Selective import tariffs on manufacturing we want to promote in US
4. Restructure our tax policies back to Eisenhower through Carter ranges, to give incentive to reinvest capital back into American productive economy
5. Create a Green Industrial Revolution with existing and advancing technology to spark an economic recovery that includes well paying jobs that will put money in workers pockets, which will create demand for other goods
6. Create a movement to buy American made goods once again, support local economies keeping our money on Main St instead of Wall St.
7. Put incentives in place where it is more cost effective to do business practices in a safe sustainable way.

 

The major tenants of the Supply Side/Trickle Down Economics:

1. Drop top marginal tax rate on millionaires and billionaires
2. Increase money supply by dropping interests rates making credit easily accessible (a.k.a. debt)
3. Deregulate business allowing them to increase productivity by avoiding the cost of government regulations

1. Tax Cuts for the Wealthy
Theory  By allowing the investor class (top 0.5%) to have more money they will invest in more American business creating more jobs. This was the first blow to American wages.

Results  It removed the incentive of reinvestment of capital back into the business that created the wealth. This reinvestment came in the form of higher pay, benefits, pensions, and research & development. Instead of investing in American productive economy the investor class kept much of the money and invested in:

1. Wall St.
2. Lobbyists
3. Factories in other countries

Reality  The only thing that creates jobs is demand in a sustainable economy. Demand, in traditional economics, is equivalent to wages or workers pay. People having money to spend on goods and services create demand, which in turn creates the need to higher more workers.


2. Drop Interest Rates
Theory  This allows business to expand easier and develop new technologies that will increase productivity.

Results  As wages didn’t increase with cost of living, credit was the only way to maintain lifestyle we have grown accustom to from 1950 -1980. As credit becomes more available boom and bust economic cycles are the result. Savings and Loans Crisis late 1980’s, dot com boom of the 1990’s, and housing boom and collapse of 2000’s.

Reality  This has caused more and more Americans get further and further in debt. In 1980 the average homeowner had 2/3 equity in their homes, in 2009 that number was less than 1/3 equity in their homes. Also in 2009, 1/3 of American homeowners were underwater with their mortgages, which means owning more than the house is worth.


3. Deregulate Business's or Let the Market Regulate ItselfTheory  This allows business to aggressively move towards the most productive practices and increasing profits.

Results  BP oil leak in the Gulf of Mexico, Wall St. reckless behavior that caused the 2007/ 2008 meltdown and the collapse of the American economy, and Massey Coal disaster killing 29 miners to give a few examples.

Reality  This gives the wrong incentive to business to cut safety corners and exploit worker rights. For the market to regulate itself people must suffer or die. I don’ want myself or my parents, family, or friends to be the one’s who suffer or die for the market to correct itself, do you?

Originally posted by Ellen Brown at www.webofdebt.com/articles on May 21, 2010

For over a decade, accountant Walter Burien has been trying to rouse the public over what he contends is a massive conspiracy and coverup, involving trillions of dollars squirreled away in funds maintained at every level of  government.  His numbers may be disputed, but these funds definitely exist, as evidenced by the Comprehensive Annual Reports (CAFRs) required of every government agency.  If they don’t represent a concerted government conspiracy, what are they for?  And how can they be harnessed more efficiently to help allay the financial crises of state and local governments?    

The Elusive CAFR Money
Burien is a former commodity trading adviser who has spent many years peering into government books.  He notes that the government is composed of 54,000 different state, county, and local government entities, including school districts, public authorities, and the like; and that these entities all keep their financial assets in liquid investment funds, bond financing accounts and corporate stock portfolios. The only income that must be reported in government budgets is that from taxes, fines and fees; but the investments of government entities can be found in official annual reports (CAFRs), which must be filed with the federal government by local, county and state governments.  These annual reports show that virtually every U.S. city, county, and state has vast amounts of money stashed away in surplus funds.  Burien maintains that these slush funds have been kept concealed from taxpayers, even as taxes are being raised and citizens are being told to expect fewer government services.  

Burien was originally alerted to this information by Lt. Col. Gerald Klatt, who evidently died in 2004 under mysterious circumstances, adding fuel to claims of conspiracy and coverup.  Klatt was a an Air Force auditor and federal accountant, and it’s not impossible that he may have gotten too close to some military stash being used for nefarious ends.  But it is hard to envision how all the municipal governments hording their excess money in separate funds could be complicit in a massive government conspiracy.  If that is not what is going on, however, why such an inefficient use of public monies? 

A Simpler Explanation
When I was invited to speak at a conference of Government Finance Officers in April, I got a chance to ask that question.  The friendly public servants at the conference explained that maintaining large “rainy day” funds is simply how local governments must operate.  Unlike private businesses, which have bank credit lines they can draw on if they miscalculate their expenses, local governments are required by law to balance their budgets; and if they come up short, public services and government payrolls may be frozen until the voters get around to approving a new bond issue.  This has actually happened, bringing local government to a standstill.  In emergencies, government officials can try to borrow short-term through “certificates of participation” or tax participation loans, but the interest rates are prohibitively high; and in today’s tight credit market, finding willing lenders is difficult.  

To avoid those dire straits, municipal governments will keep a cushion of from 20%  to 75% more than their budgets actually require.  This money is invested, but not necessarily lucratively.  For example, one finance officer said that her city had just bid out $2 million as a 30-day certificate of deposit (CD) to two large banks at a meager annual interest of 0.11%.  It was a nice spread for the banks, which could leverage the money into loans at 6% or so; but it was a pretty sparse deal for the city.   

Meanwhile, Back in California
That was in Missouri, but the figures I was particularly interested were for my own state of California, which was struggling with a budget deficit of $26.3 billion as of April 2010. Yet the State Treasurer’s website says that he manages a Pooled Money Investment Account (PMIA) tallying in at nearly $71 billion as of the same date, including a Local Agency Investment Fund (LAIF) of $24 billion. Why isn’t this money being used toward the state’s deficit? The Treasurer’s answer to this question, which he evidently gets frequently, is that legislation forbids it. His website states:

“Can the State borrow LAIF dollars to resolve the budget deficit?

No. California Government Code 16429.3 states that monies placed with the Treasurer for deposit in the LAIF by cities, counties, special districts, nonprofit corporations, or qualified quasi-governmental agencies shall not be subject to either of the following:

(a) Transfer or loan pursuant to Sections 16310, 16312, or 16313.
(b) Impoundment or seizure by any state official or state agency.”

The non-LAIF money in the pool can’t be spent either. It can be borrowed, but it has to be paid back. When Governor Schwarzenegger tried to raid the Public Transportation Account for the state budget, the California Transit Association took him to court and won. The Third District Court of Appeals ruled in June 2009 that diversions from the Public Transportation Account to fill non-transit holes in the General Fund violated a series of statutory and constitutional amendments enacted by voters via four statewide initiatives dating back to 1990.

In short, the use of these funds for the state budget has been blocked by the voters themselves. Bond issues are approved for particular purposes. When excess funds are collected, they are not handed over to the State toward next year’s budget. They just sit idly in an earmarked fund, drawing a modest interest.  

What’s Wrong with This Picture?
California’s budget problems have caused its credit rating to be downgraded to just above that of Greece, driving the state’s interest tab skyward. In November 2009, the state sold 30-year taxable securities carrying an interest rate of 7.26%. Yet California has never defaulted on its bonds. Meanwhile, the too-big-to-fail banks, which would have defaulted on hundreds of billions of dollars of debt if they had not been bailed out by the states and their citizens, are able to borrow from each other at the extremely low federal funds rate, currently set at 0 to .25% (one quarter of one percent). The banks are also paying the states quite minimal rates for the use of their public monies, and turning around and relending this money, leveraged many times over, to the states and their citizens at much higher rates. That is assuming they lend at all, something they are increasingly reluctant to do, since speculating with the money is more lucrative, and investing it in federal securities is more secure.

Private banks clearly have the upper hand in this game. Local governments have been forced to horde funds in very efficient ways, building excessive reserves while slashing services, because they do not have the extensive credit lines available to the private banking system. States cannot easily incur new debt without voter approval, a process that is cumbersome, time-consuming and uncertain. Banks, on the other hand, need to keep only the slimmest of reserves, because they are backstopped by a central bank with the power to create all the reserves necessary for its member banks, as well as by Congress and the taxpayers themselves, who have been arm-twisted into repeated bailouts of the Wall Street behemoths.

How the CAFR Money Could Be Used Without Spending It
California, then, is in the anomalous position of being $26 billion in the red and plunging toward bankruptcy, while it has over $70 billion stashed away in an investment pool that it cannot touch. Those are just the funds managed by the Treasurer. According to California’s latest CAFR, the California Public Employees’ Retirement Fund (CalPERS) has total investments of $360 billion, including nearly $144 billion in “equity securities” and $37 billion in “private equity.” See the State of California Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2009, pages 83-84.

This money cannot be spent, but it can be invested -- and it can be invested, not just in conservative federal securities, but in equity, or stocks. Rather than turning this hidden gold mine over to Wall Street banks to earn a very meager interest, California could leverage its excess funds itself, turning the money into much-needed low-interest credit for its own use. How? It could do this by owning its own bank.

One state already does this -- North Dakota. North Dakota is also the only state projected to have a budget surplus by 2011. It has not fallen into the Wall Street debt trap afflicting other states, because it has been able to generate its own credit.

An investment in the State Bank of California would not be at risk unless the bank became insolvent, a highly unlikely result since the state has the power to tax. In North Dakota, the BND is a dba of the state itself: it is set up as “the State of North Dakota doing business as the Bank of North Dakota.” That means the bank cannot go bankrupt unless the state goes bankrupt.

The capital requirement for bank loans is a complicated matter, but it generally works out to be about 7%. According to Standard & Poor’s, the worldwide average risk-adjusted capital ratio stood at 6.7 per cent as of June 30, 2009. However, some major U.S. banks were much lower: Citigroup's was 2.1 per cent; Bank of America’s was 5.8 per cent. At 7%, $7 of capital can back $100 in loans. Thus if $7 billion in CAFR funds were invested as capital in a California state development bank, the bank could generate $100 billion in loans.

This $100 billion credit line would allow California to finance its $26 billion deficit at very minimal interest rates, with $74 billion left over for infrastructure and other sorely needed projects. Studies have shown that eliminating the interest burden can cut the cost of public projects in half. The loans could be repaid from the profits generated by the projects themselves. Public transportation, low-cost housing, alternative energy sources and the like all generate fees. Meanwhile, the jobs created by these projects would produce additional taxes and stimulate the economy. Commercial loans could also be made, generating interest income that would return to state coffers.

Building a Deposit Base
To start a bank requires not just capital but deposits. Banks can create all the loans they can find creditworthy borrowers for, up to the limit of their capital base; but when the loans leave the bank as checks, the bank needs to replace the deposits taken from its reserve pool in order for the checks to clear. Where would a state-owned bank get the deposits necessary for this purpose?  

In North Dakota, all the state’s revenues are deposited in the BND by law. California has expected revenues for 2010-11 of $89 billion, and the Treasurer’s website reports that as of June 30, 2009, over $18 billion was held on deposit as demand accounts and demand NOW accounts (basically demand accounts carrying a very small interest). These deposits were held in seven commercial banks, most of them Wall Street banks: Bank of America, Union Bank, Bank of the West, U.S. Bank, Wells Fargo Bank, Westamerica Bank, and Citibank. The $64 billion or so left in the Treasurer’s investment pool could also be invested in State Bank of California CDs. Most of the bank CDs in which it is invested in now are  Wall Street or foreign banks. Many private depositors would no doubt choose to bank at the State Bank of California as well, keeping California’s money in California. There is already a movement afoot to transfer funds out of Wall Street banks into local banks.

While the new state-owned bank is waiting to accumulate sufficient deposits to clear its outgoing checks, it can do what other startup banks do – borrow deposits from the interbank lending market at the very modest federal funds rate (0 to .25%).

To avoid hurting California’s local banks, any state monies held on deposit with local banks could remain there, since the State Bank of California should have plenty of potential deposits without this money. In North Dakota, local banks are not only not threatened by the BND but are actually served by it. The BND partners with them, engaging in “participation loans” that help local banks with their capital requirements.
 
Bringing It All Back Home
We have too long delegated the power to create our money and our credit to private profiteers, who have plundered and exploited the privilege in ways that are increasingly being exposed in the media. Wall Street may own Congress, but it does not yet own the states. We can take the money power back at the state level, by setting up our own publicly-owned banks. We can “spend” our money while conserving it, by leveraging it into the credit urgently needed to get the wheels of local production turning once again.

I wrote this Op Ed after attending townhall meetings in Grass Valley. At this point in time the Tea Party movement was still referred to as Tea Baggers. It was originally published on December 1, 2009.

Tea Baggers have it correct but wrong
December 1, 2009
by Ben Emery

The recent Tea Party movement is a populous one that has great justification. I went to both Town Hall meetings in Grass Valley and passed out flyers and spoke to many Tea Baggers. We agreed on just about all the problems with the country but disagreed on just about all the solutions because of one underlying problem — the confusion of cause and effect.

The downfall of our country didn't happen in the last year or two, but in the last 30 years. What we are experiencing today is the product of the biggest threat to democracy in America — the accumulation of wealth, power and corporate personhood.

The founders of our country fought against such a country where a small few controlled so much of the country's wealth and the government's policies. The Tea Party movement is correct in blaming our government for the downfall we are experiencing. But our government was set up for “We The People” to be the government and “We” have elected and supported the neutering of our powers to control our own policies, which threatens democracy and breeds fascism.

The Boston Tea Party was in fact a rebellion against a corporate tax cut. Grass Valley Tea Baggers (GVTB) insisted it was about “no taxation without representation,” but that was the reaction to the Stamp Act of 1765 and carried through the revolution. The Boston Tea Party was, in essence, American colonists saying “Hell No” to Wal-Mart, Exxon, Goldman Sachs and other major corporations of the period. East India Trading Company was one of the first of these types in modern history. The Tea Act allowed EITC to undercut the local tea shops in the American colonies, putting them out of business. It works much like a big corporation today that receives huge tax breaks and land subsidies, giving them an unfair advantage over mom and pop shops who can't compete and eventually go out of business.

Since the Ronald Reagan's administration, we have been told that the private sector knows best and “We The People” are the enemy — the nine scariest words in the English language are “I'm from the government and I'm here to help.” So we elect those who campaign against government and they, in turn, show us how bad government can be run.

In 1980, America was No. 1 in the world in exports of finished goods, importer of raw materials and the biggest lender in dollars to foreign nations.

Today, America is No. 1 in importer of finished goods/ exporting raw materials and the biggest debtor nation in world history.

Before the modern conservative movement or supply-side economics, our national debt was manageable. In 1980, America had a national debt of $909 billion, mainly leftover debt from the Vietnam War. The Carter administration had reduced our national debt by 3.2 percent over four years while increasing the U.S. GDP by 9.4 percent.

From Jimmy Carter's first fiscal year records to George W. Bush's first term fiscal records, we have seen the Democratic administrations increase federal spending by 10 percent, national debt by 4.2 percent, and GDP by 12.6 percent.

Compared to Republican administrations, we experienced increases in federal spending of 12.1 percent, national debt of 36.4 percent, and GDP by 10.7 percent. We are in debt almost $12 trillion today. The Reagan/ Bush administrations are responsible for 92 percent of it — just over $11 trillion.

As of 2009 “We The People” have almost no control over our government and need to balance a budget and pay our way out of this crippling deficit.