Category Archives: Federal Reserve

A Reset that Serves the People (Part 2)

Instead of buying into the World Economic Forum’s dystopian “Great Reset,” we can build an alternative system with a mandate to serve the people.

This is part two to a May 4, 2022 article called “A Monetary Reset Where the Rich Don’t Own Everything,” the gist of which was that national and global debt levels are unsustainably high. We need a “reset,” but of what sort? The “Great Reset” of the World Economic Forum (WEF) would leave the people as non-owner tenants in a feudalistic technocracy. The reset of the Eurasian Economic Union would allow participating nations to opt out of the Western capitalist system altogether, but what of the Western countries that are left? That is the question addressed here.

Our Forefathers Had Some Innovative Solutions

Fortunately for the United States, our national debt is in U.S. dollars. As former Federal Reserve Chairman Alan Greenspan once observed, “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.”

Paying government debt by just printing the money was the innovative solution of the cash-strapped American colonial governments. The problem was that it tended to be inflationary. The paper scrip they issued was considered an advance against future taxes, but it was easier to issue the money than to tax it back, and over-issuing devalued the currency. The colony of Pennsylvania fixed that problem by forming a government-owned “land bank.” Money was issued as farm credit that was repaid. The new money went out from the local government and came back to it, stimulating the economy and trade without devaluing the currency.

But in the mid-eighteenth century, at the behest of the Bank of England, the colonies were forbidden by King George to issue their own currencies, triggering a recession and the American Revolution. The colonists won the war, but by the end of it the currency was so devalued (chiefly from British counterfeiting) that the Founding Fathers were afraid to include the power to issue paper money in the Constitution.

Hamilton’s Solution: Debt-for-equity Swaps

That left Treasury Secretary Alexander Hamilton in a bind. After the war, the colonies-turned-states were heavily in debt, with no way to repay it. Hamilton solved the problem by turning the states’ debts into equity in the First United States Bank. The creditors became shareholders in the bank, earning a 6% dividend on their holdings.

Might that work today? H.R. 3339, a bill currently before Congress, would form a National Infrastructure Bank (NIB) modeled on Hamilton’s U.S. Bank, capitalized with federal securities acquired in debt-for-equity swaps. Shareholders would receive a guaranteed 2% dividend on non-voting preferred stock in the bank, with the option of recovering the principal after 20 years.

If the whole $30 trillion U.S. federal debt were turned into bank capital, leveraged into loans at 10 to 1 as banks are allowed to do, the bank could do $300 trillion in infrastructure loans. To start, the Federal Reserve could buy NIB stock with the $5.76 trillion in U.S. Treasury securities currently on its balance sheet, capitalizing potential loans of $57 trillion. The possibilities are breathtaking; and because the money would enter the money supply in the form of low-interest loans to local governments that would be paid back over time, the result need not be inflationary. Loans for infrastructure and other productive ventures would raise supply to meet demand, keeping prices stable.

Lincoln’s Solution: Just Issue the Money

Hamilton’s solution to an unsustainable federal debt was terminated when President Andrew Jackson closed down the Second U.S. Bank. That left Abraham Lincoln in a bind. Faced with a massive debt at usurious interest rates to fund the Civil War, he solved the problem by reverting to the solution of the American colonists: just issue the currency as paper money.

In the 1860s, these U.S. Notes or Greenbacks constituted 40% of the national currency. Today, 40% of the circulating money supply would be $7.6 trillion. Yet massive Greenback issuance during the Civil War did not lead to hyperinflation. U.S. Notes suffered a drop in value as against gold, but according to Milton Friedman and Anna Schwarz in A Monetary History of the United States, 1867-1960, this was due not to “printing money” but to trade imbalances with foreign trading partners on the gold standard. The Greenbacks aided the Union not only in winning the war but in funding a period of unprecedented economic expansion, making the country the greatest industrial giant the world had yet seen. The steel industry was launched, a continental railroad system was created, a new era of farm machinery and cheap tools was promoted, free higher education was established, government support was provided to all branches of science, the Bureau of Mines was organized, and labor productivity was increased by 50 to 75 percent.

The Japanese “Free Lunch”

Another option is for the U.S. government to “monetize” its debt by having the central bank purchase and hold it or write it off. The Federal Reserve returns interest and profits to the Treasury after deducting its costs.

This alternative, too, need not be inflationary, as has apparently been demonstrated by the Japanese. The Bank of Japan (BOJ) started buying government bonds in 1999, after reducing interest rates to zero, then dropping them into negative territory in 2015. Today Japan’s government debt is a whopping 260% of its Gross Domestic Product, and the Bank of Japan owns half of it. (Even the outsized U.S. debt to GDP ratio is only 126%.) Yet annual inflation is now only 1.2% in Japan, not even up to the BOJ’s longstanding 2% target. To the extent that prices are rising, it is not from money-printing but from lockdowns and supply chain disruptions and shortages, the same disruptions triggering price inflation globally.

Hedge fund manager Eric Peters discussed the Japanese experiment in a recent article titled “Can a Modern Nation Pull Off a Debt Jubilee Without Full Monetary Collapse?” Noting that “core prices in Japan’s economy remain almost identical today as they were when its zero-interest-rate experiment began,” he asked:

Could the central bank create money, buy all the outstanding bonds, and simply burn them? Execute a modern version of an Old Testament debt Jubilee? …. [M]ight it be possible for a country to pull off such a feat without full monetary collapse? We don’t know, yet.

A Treasury Issue of Special Coins or E-cash

For future budget expenses, rather than borrowing, the government could follow President Lincoln and just issue the money it needs. As Thomas Edison observed in the 1920s:

If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%.

When the Constitution was ratified, coins were the only officially recognized legal tender. By 1850, coins made up only about half the currency. The total face value of all U.S. coins ever produced as of January 2022 is $170 billion dollars, or less than 0.9% of a $19 trillion circulating money supply (M2). These coins, along with about $25 million in U.S. Notes or Greenbacks, are all that is left of the Treasury’s money-creating power. As the Bank of England has acknowledged, the vast majority of the money supply is now created privately by banks  as deposits when they make loans.

In the early 1980s, a chairman of the Coinage Subcommittee of the House of Representatives observed that the Constitution gives Congress the power to coin money and regulate its value, and that no limit is put on the value of the coins it creates. He said the government could pay off its entire debt with some billion dollar coins. In a 2007 book called Web of Debt I wrote about this and said in today’s America it would have to be trillion dollar coins.

In 1982, Congress chose to choke off this remaining vestige of its money-creating power by imposing limits on the amounts and denominations of most coins. The one exception was the platinum coin, which a special provision allows to be minted in any amount for commemorative purposes (31 U.S. Code § 5112). In 2013, Georgia attorney Carlos Mucha proposed issuing a platinum coin to capitalize on this loophole, in order to solve the gridlock then in Congress over the debt ceiling. Philip Diehl, former head of the U.S. Mint and co-author of the platinum coin law. He said:

In minting the $1 trillion platinum coin, the Treasury Secretary would be exercising authority which Congress has granted routinely for more than 220 years . . . under power expressly granted to Congress in the Constitution (Article 1, Section 8).

Prof. Randall Wray explained that the coin would not circulate but would be deposited in the government’s account at the Fed, so it would not inflate the circulating money supply. The budget would still need Congressional approval. To keep a lid on spending, Congress would just need to abide by some basic rules of economics. It could spend on goods and services up to full employment without creating price inflation (since supply and demand would rise together). After that, it would need to tax — not to fund the budget, but to shrink the circulating money supply and avoid driving up prices with excess demand.

A more modern option is for the Treasury to issue “e-cash,” an electronic form of cash transferred on secure hardware not requiring an internet connection. The ECASH Act,  H.R. 7231, introduced on March 28, 2022 by Rep. Stephen Lynch, “directs the Secretary of the Treasury to develop and introduce a form of retail digital dollar called ‘e-cash,’ which replicates the off-line-capable, peer-to-peer, privacy-respecting, zero transaction-fee, and payable-to-bear features of physical cash….”

Unlike the central bank digital currencies now being developed by central banks globally, e-cash would be anonymous and not traceable, having all the privacy attributes of physical cash. Various models are in development, including one already introduced in China in 2021, an offline-capable smart payments card that was part of the government’s digital yuan rollout.

A People’s Reset

Those are alternatives for relieving the government’s debt burden, but what about the massive sums in student debt, medical debt, and rent and mortgage payments now in arrears? Biden promised in his presidential campaign to forgive student debt or some portion of it. But whether this can legally be done by presidential order, without congressional approval, is controversial. Arguments have been made both ways.

For most student debt, however, the creditor is actually the Department of Education, a cabinet-level department established by Congress with some limited power to cancel debt. In August 2021, for example, the Department canceled the student debt of the disabledCongress itself could also write off the debt. The challenge is getting agreement on which debts to cancel and by how much.

What of the student debt, mortgage debt, and credit card debt held by private banks? Private banks have a contractual right to repayment. They also have an obligation to balance their books, meaning they could go bankrupt if unable to collect. But as British economist Michael Rowbotham observed, these debts too could be written off if the accounting standards were changed. Banks don’t actually lend their own money or their depositors’ money. The money they lend is created simply by writing the borrowed sums into the deposit accounts of their customers, so voiding out the debts would be cost-free. The accounting standards would just need to be changed so that the books would not need to balance. The debts could be carried as nonperforming loans or moved off the books in special purpose vehicles, as the Chinese have been known to do with their nonperforming loans. As for which debts to write off and by how much, that is a policy question for legislators.

Would that sort of debt jubilee be inflationary? Yes, to the extent that students and other debtors would have money to spend from their incomes that they did not have before, money that would be competing for a limited supply of goods and services. Again, however, inflation could be avoided by powering up the production of goods and services sufficiently to meet demand.

That means powering up small and medium-sized businesses, which generate most local productivity and employment; and that means providing them with affordable credit. As UK Prof. Richard Werner observes, big banks don’t lend to small businesses. Small banks do, and their numbers are rapidly shrinking. A national infrastructure bank could do it but would have trouble making prudent loans for businesses and farms across the country. The Soviet Union tried that and failed. Prof. Werner proposes instead to form a network of local public, cooperative and community banks.

Arguably, local publicly-owned banks could also be capitalized with debt-for-equity swaps, using the ballooning state bond debts. We have plenty of debt to go around! A network of state-owned public banks on the model of the Bank of North Dakota would be good.

Other Options

To the extent that taxes are needed to balance the money supply, a land value tax (LVT) would go far toward replacing income taxes, without taxing labor or productivity. See “Pennsylvania’s Success with Local Property Tax Reform” in the book Earth Belongs to Everyone by Alanna Hartzok. An LVT excludes physical structures (e.g. houses) and taxes only the value of the land itself, including the natural resources on and under it. It thus returns to the public a portion of any appreciation in value due to public works (new schools, subway stops, etc.), without taxing improvements made by the property owners themselves. It helps curb land hoarding and speculation, and ensures that land sites are put to good use.

Independent community currency and cryptocurrency systems are other possibilities for circumventing debts in the national currency, but those topics are beyond the scope of this article.

In any case, if the global economy comes crashing down as many pundits are predicting, it is good to know there are viable alternatives to the technocratic feudalism of the WEF’s Great Reset. In his 2020 book The Great Reset, WEF leader Klaus Schwab declared that the COVID-19 pandemic “represents a rare but narrow window of opportunity to reflect, reimagine and reset our world,” making way for a polycentric technocracy. It is also a rare opportunity for us to implement an alternative system with a mandate to serve the people. We might call it the People’s Great Reset.

• Read Part 1 here

This article was first posted on ScheerPost.

The post A Reset that Serves the People (Part 2) first appeared on Dissident Voice.

A Monetary Reset Where the Rich Don’t Own Everything (Part 1)

We have a serious debt problem, but solutions such as the World Economic Forum’s “Great Reset” are not the future we want. It’s time to think outside the box for some new solutions.

In ancient Mesopotamia, it was called a Jubilee. When debts at interest grew too high to be repaid, the slate was wiped clean. Debts were forgiven, the debtors’ prisons were opened, and the serfs returned to work their plots of land. This could be done because the king was the representative of the gods who were said to own the land, and thus was the creditor to whom the debts were owed. The same policy was advocated in the Book of Leviticus, though it is unclear to what extent this biblical Jubilee was implemented.

That sort of across-the-board debt forgiveness can’t be done today because most of the creditors are private lenders. Banks, landlords and pension fund investors would go bankrupt if their contractual rights to repayment were simply wiped out. But we do have a serious debt problem, and it is largely structural. Governments have delegated the power to create money to private banks, which create most of the circulating money supply as debt at interest. They create the principal but not the interest, so more money must be repaid than was created in the original loan. Debt thus grows faster than the money supply, as seen in the chart from below. Debt grows until it cannot be repaid, when the board is cleared by some form of market crash such as the 2008 financial crisis, typically widening the wealth gap on the way down.

Today the remedy for an unsustainable debt buildup is called a “reset.” Far short of a Jubilee, such resets are necessary every few decades. Acceptance of a currency is based on trust, and a “currency reset” changes the backing of the currency to restore that trust when it has failed. In the 20th century, major currency resets occurred in 1913, when the Federal Reserve was instituted following a major banking crisis; in 1933 following another catastrophic banking crisis, when the dollar was taken off the gold standard domestically and deposits were federally insured; in 1944, at the Bretton Woods Conference concluding World War II, when the US dollar backed by gold was made the reserve currency for global trade; and in 1974, when the US finalized a deal with the OPEC countries to sell their oil only in US dollars, effectively “backing” the dollar with oil after Richard Nixon took the dollar off the gold standard internationally in 1971. Central bank manipulations are also a form of reset, intended to restore faith in the currency or the banks; e.g., when Federal Reserve Chairman Paul Volcker raised the interest rate on fed funds to 20% in 1980, and when the Fed bailed out Wall Street banks following the Great Financial Crisis of 2008-09 with quantitative easing.

But quantitative easing did not fix the debt buildup, which today has again reached unsustainable levels. According to Truth in Accounting, as of March 2022 the US federal government has a cumulative debt burden of $133.38 trillion, including unfunded Social Security and Medicare promises; and some countries are in even worse shape. Former investment banker Leslie Manookian stated in grand jury testimony that European countries have 44 trillion euros in unfunded pensions, and there is no source of funds to meet these obligations. There is virtually no European bond market, due to negative interest rates. The only alternative is to default. The concern is that when people realize that the social security and pension systems they have paid into for their entire working lives are bankrupt, they will take to the streets and chaos will reign.

Hence the need for another reset. Private creditors, however, want a reset that leaves them in control. Today a new sort of reset is setting off alarm bells, one that goes far beyond restoring the stability of the currency. The “Great Reset” being driven forward by the World Economic Forum would lock the world into a form of technocratic feudalism.

The WEF is that elite group of businessmen, politicians and academics that meets in Davos, Switzerland, every January. The Great Reset was the theme of its (virtual) 2021 Summit, based on a July 2020 book titled Covid-19: The Great Reset co-authored by WEF founder Klaus Schwab. Some of the WEF’s proposals are summarized in a video on its website titled “8 Predictions for the World in 2030.” The first prediction is, “You’ll own nothing. And you’ll be happy. Whatever you want you’ll rent. And it will be delivered by drone.”

Schwab’s proposal would reset more than the currency. At a virtual meeting in June 2020, he said, “We need a ‘Great Reset’ of capitalism.” But as talk show host Kim Iversen observes, the proposed solution is more capitalism by a new name: “stakeholder capitalism,” where ownership will be with corporate stakeholders. You will have an account with the central bank and a mandatory federal digital ID. You will receive a welfare payment in the form of a marginally adequate basic income – so long as you maintain a proper social credit score. Your central bank digital currency will be “programmable” – rationed, controlled, and canceled if you get out of line or disagree with the official narrative. You will be kept happy with computer games and drugs.

According to WEF speaker and author Prof. Yuval Harari, “Covid is critical, because this is what convinces people to accept, to legitimize total biometric surveillance…. We need not just to monitor people, we need to monitor what’s happening under the skin.”

Harari is aware of the dangers of digital dictatorships. He said at a pre-Covid Davos presentation in January 2020:

In Davos we hear so much about the enormous promises of technology – and these promises are certainly real. But technology might also disrupt human society and the very meaning of human life in numerous ways, ranging from the creation of a global useless class to the rise of data colonialism and of digital dictatorships.…

We humans should get used to the idea that we are no longer mysterious souls – we are now hackable animals. … [I]f this power falls into the hands of a twenty-first century Stalin, the result will be the worst totalitarian regime in human history…

In the not-so-distant future, … algorithms might tell us where to work and who to marry, and also decide whether to hire us for a job, whether to give us a loan, and whether the central bank should raise the interest rate….

What will be the meaning of human life, when most decisions are taken by algorithms?

Clearing the Chessboard by Controlled Economic Demolition?

Before the game can be reset, the board must be cleared. What would make the population accept giving up their private property, surviving on a marginal basic income, and submitting to constant surveillance, internal and external?

The global pandemic and the lockdowns that followed have gone far toward achieving that result. Lockdowns not only eliminated smaller business competitors but drove up the debts of small countries, forcing them to increase their loans from the International Monetary Fund. The IMF is notorious for onerous loan terms, including imposing strict austerity measures, relinquishing control of natural resources, and marching in “lockstep” with pandemic restrictions.

In a June 2020 article on the blog of the IMF titled “From Great Lockdown To Great Transformation,” IMF Managing Director Kristalina Georgieva called the global policy response to the 2020 crisis the “Great Lockdown.” She is quoted as saying to the US Chamber of Commerce:

We call the current period ‘the Great Lockdown’ because we are fighting a health emergency by bringing production and consumption to a standstill….

In March, around one hundred billion dollars left emerging markets and developing countries—three times more than during the global financial crisis.

But in April and May—thanks to this massive injection of liquidity in advanced economies—some emerging markets were able to go back to the markets and issue bonds with competitive yields, with total issuance of around seventy-seven billion dollars. This is almost three and a half times as much as in the same two months last year. [Italics added.]

In other words, by bringing production and consumption to a standstill, the Great Lockdown had already, by June 2020, managed to strip emerging markets of $100 billion in additional assets and to lock them into $77 billion in new debt.

That helps explain why so many countries acquiesced to the Great Lockdown so quickly, even when some had only a handful of Covid-19 deaths. Lockdown was apparently a “conditionality” required for getting an IMF loan. At least that was true for Belarus, which rejected the offer. Said Belarus’ President:

We hear the demands … to model our coronavirus response on that of Italy. I do not want to see the Italian situation to be repeated in Belarus. We have our own country and our own situation. … [T]he IMF continues to demand from us quarantine measures, isolation, a curfew. This is nonsense. We will not dance to anyone’s tune.

Unlike Belarus, most countries acquiesced, and so did households and businesses locked into the debt trap by an economy in which production and consumption were brought to a standstill. Like most emerging economies, they acquiesced to whatever terms were imposed for returning to “normal.”

The lockdowns have now been lifted in most places, but the debt trap is about to snap shut. A moratorium on U.S. rents and student debt is due to come to an end, and cumulative arrears may need to be paid. Debtors unable to meet that burden could be out in the street, joining the “useless class” described by Prof. Harari. They may be forced into accepting the technocratic feudalism of the WEF Great Reset, but is not the sort of future most people want. However, what are the alternatives?

A Eurasian Jubilee?

For sovereign debt (the debt of national governments), a form of jubilee is envisioned by Sergei Glazyev in conjunction with the alternative monetary system currently being designed by the Eurasian Economic Union (EAEU), detailed in my last article here. Glazyev is the Minister for Integration and Macroeconomics of the Eurasia Economic Commission, the regulatory body of the EAEU. An article in The Cradle titled “Russia’s Sergey Glazyev Introduces the New Global Financial System” is headlined:

The world’s new monetary system, underpinned by a digital currency, will be backed by a basket of new foreign currencies and natural resources. And it will liberate the Global South from both western debt and IMF-induced austerity.

The article quotes Glazyev as stating:

Transition to the new world economic order will likely be accompanied by systematic refusal to honor obligations in dollars, euro, pound, and yen. In this respect, it will be no different from the example set by the countries issuing these currencies who thought it appropriate to steal foreign exchange reserves of Iraq, Iran, Venezuela, Afghanistan, and Russia to the tune of trillions of dollars. Since the US, Britain, EU, and Japan refused to honor their obligations and confiscated wealth of other nations which was held in their currencies, why should other countries be obliged to pay them back and to service their loans?

In any case, participation in the new economic system will not be constrained by the obligations in the old one. Countries of the Global South can be full participants of the new system regardless of their accumulated debts in dollars, euro, pound, and yen. Even if they were to default on their obligations in those currencies, this would have no bearing on their credit rating in the new financial system. Nationalization of extraction industry, likewise, would not cause a disruption. Further, should these countries reserve a portion of their natural resources for the backing of the new economic system, their respective weight in the currency basket of the new monetary unit would increase accordingly, providing that nation with larger currency reserves and credit capacity. In addition, bilateral swap lines with trading partner countries would provide them with adequate financing for co-investments and trade financing.

That may largely eliminate the sovereign debt overhang in the EAEU member countries, but what of the United States and other Western countries that are unlikely to join? Some innovative possibilities will be covered in Part 2 of this piece. Stay tuned.

• This article was first posted on ScheerPost.

The post A Monetary Reset Where the Rich Don’t Own Everything (Part 1) first appeared on Dissident Voice.

“Long COVID”: Economic Devastation and Quarter of a Billion Pushed Into Extreme Poverty  

There is a terrifying prospect that in excess of a quarter of a billion more people will fall into extreme levels of poverty in 2022 alone. Without immediate radical action, we could be witnessing the most profound collapse of humanity into extreme poverty and suffering in memory.

That is according to Oxfam International Executive Director Gabriela Bucher.

She adds this scenario is made more sickening given that trillions of dollars have been captured by a tiny group of powerful men who have no interest in interrupting this trajectory.

In its January 2021 report ‘The Inequality Virus’, Oxfam stated that the wealth of the world’s billionaires increased by $3.9tn between 18 March and 31 December 2020. Their total wealth then stood at $11.95tn, a 50 per cent increase in just 9.5 months.

In 2021, an Oxfam review of IMF COVID-19 loans showed that 33 African countries were encouraged to pursue austerity policies. This despite the IMF’s own research showing austerity worsens poverty and inequality.

Barely days into the shutdown of the global economy in April 2020, the Wall Street Journal ran the headline ‘IMF, World Bank Face Deluge of Aid Requests From Developing World‘. Scores of countries were asking for bailouts and loans from financial institutions with $1.2 trillion to lend.

Prior to that, in late March, World Bank Group President David Malpass said that poorer countries would be ‘helped’ to get back on their feet after the various COVID-related lockdowns. However, any assistance would be on condition that further neoliberal reforms became embedded.

Malpass said:

For those countries that have excessive regulations, subsidies, licensing regimes, trade protection or litigiousness as obstacles, we will work with them to foster markets, choice and faster growth prospects during the recovery.

Two years on and it is clear what ‘reforms’ really mean. In a press release issued on 19 April 2022, Oxfam International insists the IMF must abandon demands for austerity as a cost-of-living crisis continues to drive up hunger and poverty worldwide.

According to Oxfam’s analysis, 13 out of the 15 IMF loan programmes negotiated during the second year of COVID require new austerity measures such as taxes on food and fuel or spending cuts that could put vital public services at risk. The IMF is also encouraging six additional countries to adopt similar measures.

Kenya and the IMF agreed a $2.3 billion loan programme in 2021, which includes a three-year public sector pay freeze and increased taxes on cooking gas and food. More than three million Kenyans are facing acute hunger as the driest conditions in decades spread a devastating drought across the country. Oxfam says nearly half of all households in Kenya are having to borrow food or buy it on credit.

At the same time nine countries, including Cameroon, Senegal and Surinam are required to introduce or increase the collection of VAT, a tax that disproportionately impacts people living in poverty.

In Sudan, nearly half of the population live in poverty. However, it has been told to scrap fuel subsidies which will hit the poorest hardest. A country already reeling from international aid cuts, economic turmoil and rising prices for everyday basics such as food and medicine. More than 14 million people need humanitarian assistance (almost one in every three people) and 9.8 million are food insecure in Sudan.

In addition, 10 countries are likely to freeze or cut public sector wages and jobs, which could mean lower quality of education and fewer nurses and doctors in countries already short of healthcare staff. Consider that Namibia had fewer than six doctors per 10,000 people in early 2020.

Prior to Covid, the situation was bad enough. The IMF had consistently pushed a policy agenda based on cuts to public services, increases in taxes paid by the poorest and moves to undermine labour rights and protections. As a result, 52 per cent of Africans lack access to healthcare and 83 per cent have no safety nets to fall back on if they lose their job or become sick.

Nabil Abdo, Oxfam International’s senior policy advisor, says:

The IMF must suspend austerity conditions on existing loans and increase access to emergency financing. It should encourage countries to increase taxes on the wealthiest and corporations to replenish depleted coffers and shrink widening inequality.”

It is interesting to note what could be achieved. For instance, Argentina has collected about $2.4 billion from its one-off pandemic wealth tax. Oxfam estimates that a ‘Pandemic Profits Tax’ on 32 super-profitable global companies could have generated $104 billion in revenue in 2020 alone.

Many governments are nearing debt default and being forced to slash public spending to pay creditors and import food and fuel. The world’s poorest countries are due to pay $43 billion in debt repayments in 2022, which could otherwise cover the costs of their food imports. Oil and gas giants are reporting record-breaking profits, with similar trends expected to play out in the food and beverage sector.

Oxfam and Development Finance International (DFI) have also revealed that 43 out of 55 African Union member states face public expenditure cuts totalling $183 billion over the next five years.

Oxfam says that, despite COVID costs piling up and billionaire wealth rising more since COVID than in the previous 14 years combined, governments — with few exceptions — have failed to increase taxes on the richest.

Gabriela Bucher rejects any notion that governments do not have the money or means to lift all people out of poverty and hunger and ensure their health and welfare. She says the G20, World Bank and IMF must immediately cancel debts and increase aid to poorer countries and act to protect ordinary people from an avoidable catastrophe.

Nabil Abdo says:

The pandemic is not over for most of the world. Rising energy bills and food prices are hurting poor countries most. They need help boosting access to basic services and social protection, not harsh conditions that kick people when they are down.

The ‘pandemic’ is not over for most of the world – for sure. People too often conflate the effects of COVID-related policies with the impact of COVID itself. It is these policies that have caused the ongoing devastation to lives and livelihoods.

What it has amounted to is a multi-trillion-dollar bailout for a capitalist economy that was in meltdown prior to COVID. This came in the form of trillions of dollars pumped into financial markets by the US Fed (in the months prior to March 2020) and ‘COVID relief’.

As the world’s richest people lined their pockets even more in the past two years, COVID IMF loans are now piling more misery on some of the world’s poorest people. For them, ‘long COVID’ is biting austerity – their ‘new normal’.

All this resulting from policies supposedly brought in to protect public health – a claim that rings hollower by the day.

The post “Long COVID”: Economic Devastation and Quarter of a Billion Pushed Into Extreme Poverty   first appeared on Dissident Voice.

Rather Than Sink Main Street by Raising Interest Rates, the Fed Could Save It: Here’s How

Inflation is plaguing consumer markets, putting pressure on the Federal Reserve to raise interest rates to tighten the money supply. But as Rex Nutting writes in a MarketWatch column titled “Why Interest Rates Aren’t Really the Right Tool to Control Inflation”:

It may be heresy to those who think the Fed is all-powerful, but the honest answer is that raising interest rates wouldn’t put out the fire. Short of throwing millions of people out of work in a recession, higher rates wouldn’t bring supply and demand back into balance, a necessary condition for price stability.

The Fed (and those who are clamoring for the Fed to raise rates immediately) have misdiagnosed the problem with the economy and are demanding the wrong kind of medicine. …

Prices are going up because crucial inputs—labor, electronics, energy, housing, transportation—are in short supply. Normally, the way to solve this imbalance would be to give workers and businesses incentives to increase their supply. …

The Fed has been assigned the job of fixing this. Unfortunately, the Fed doesn’t have the tools to do it. Monetary policy works (in theory) by tweaking demand, but it has no direct impact on supply.

The Dire Effects of the “Wrong Kind of Medicine”

Not only will raising interest rates not fix the supply crisis, but according to Alasdair Macleod, head of research at GoldMoney in London, U.K., that wrong medicine is likely to trigger the next financial crisis. He thinks it is imminent and will start in Europe, where negative interest rates brought the cost of doing repo trades to zero. As a result, the European repo market is now over €10 trillion ($11.4 trillion), far more than the capital available to unwind it (to reverse or close the trades). Rising interest rates will trigger that unwinding, says MacLeod, and the ECB lacks the tools to avoid the resulting crisis. Meanwhile, oil prices have risen over 50% and natural gas over 60% in Europe in the past year, “due to a supply crisis of its governments’ own making,” writes Macleod. Member governments are heavily in debt, yet European Central Bank president Christine Lagarde wants to borrow more to finance the transition to carbon neutral. Macleod writes darkly:

As for the euro’s future, it seems unlikely that the ECB has the capability of dealing with the crisis that will unfold.… The deconstruction of this shabby arrangement should prove the end of the euro and possibly of the European Union itself.

German journalist Ernst Wolff paints an even darker scenario. He contends that the globalist European leaders heading the World Economic Forum (WEF) are crashing the global economy intentionally, in order to clear the chessboard for the WEF’s “Great Reset.” They’re doing this, he says, because they have to. The global bankers’ boom-and-bust financial system is now so top-heavy and debt-laden that it cannot be sustained. Problem/reaction/solution: desperate people will welcome the WEF’s Great Reset, in which they will own nothing but will be offered a marginally adequate Universal Basic Income with onerous strings attached. This subsistence income will be doled out through a central bank digital currency (CBDC) controlled nationally by the country’s central bank and globally by the IMF as issuer of the reserve currency and, ultimately, of a single global currency.

There are indications, however, that the U.S. Fed is not going along with this Eurocentric globalist push. Financial blogger Tom Luongo points to Jerome Powell’s clash with Christine Lagarde in May last year over her insistence that central banks require private banks to monitor the business of their clients, and to the Fed’s raising its repo rate to 0.25% in June, attracting investors earning zero interest in the European repo market into the U.S. dollar and away from the euro. Luongo suggests that the Fed’s resistance to the globalist plan comes from the Wall Street banks that own the New York Fed, which are not willing to give up the U.S. dollar’s status as global reserve currency and could be driven out of business by a CBDC distributed directly through individual central bank accounts.

Preserving the current Wall Street-dominated system, however, hardly helps Main Street. The pandemic added $5 trillion to the fortunes of the billionaire class; but government-instituted lockdowns permanently shuttered more than 100,000 U.S. businesses and left vast portions of the population living on the edge. According to a recent study from Johns Hopkins University, the detrimental impact of global lockdowns substantially outweighed their public health benefits.

Is It Time to Amend the Federal Reserve Act?

The U.S. dollar is backed by the full faith and credit of the United States: it retains its value because the American public is willing to take it in exchange for their goods and services. But the public has not been allowed access to the bottomless pool of central bank liquidity that backstops this public credit.

According to Cornell Law School Prof. Robert Hockett, however, the framers of the Federal Reserve Act intended for Main Street businesses to be able to tap this liquidity pool. He argues that the Fed already has the monetary tools it needs to rescue the real, productive economy. They just haven’t been used – for over a century. The Fed can stay in its own lane and stimulate local production using monetary policy baked into the Federal Reserve Act itself.

Cornell Law School’s Prof. Robert Hockett wrote in Forbes in March last year that the Federal Reserve System was originally designed to be “something akin to a network of regional development finance institutions. … Each of the twelve regional Federal Reserve Banks was to provide short-term funding directly or indirectly (through local banks) to developing businesses that needed it. This they did by ‘discounting’ – in effect, purchasing – commercial paper from those businesses.” Investopedia explains:

Commercial paper is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities…. Commercial paper is usually issued at a discount from face value and reflects prevailing market interest rates.

In determining what kinds of commercial paper to discount, wrote Hockett, “the Federal Reserve Act both was – and ironically remains – quite explicit about this: Fed discount lending is solely for ‘productive,’ not ‘speculative’ purposes.”

In a follow-up article, Hockett explained that the drafters of the Federal Reserve Act, notably Carter Glass and Paul Warburg, were essentially following the Real Bills Doctrine (RBD). Previously known as the “commercial loan theory of banking,” it held that banks could create credit-money deposits on their balance sheets without triggering inflation if the money were issued against loans backed by commercial paper. When the borrowing companies repaid their loans from their sales receipts, the newly created money would just void out the debt and be extinguished. Their intent was that banks could sell their commercial loans at a discount at the Fed’s Discount Window, freeing up their balance sheets for more loans. Hockett wrote:

The RBD in its crude formulation held that so long as the lending of endogenous [bank-created] credit-money was kept productive, not speculative, inflation and deflation would be not only less likely, but effectively impossible. And the experience of German banks during Germany’s late 19th century Hamiltonian ‘growth miracle,’ with which the German immigrant Warburg, himself a banker, was intimately familiar, appeared to verify this. So did Glass’s experience with agricultural lending in the American South.

According to Prof. Carl Walsh, writing in The Federal Reserve Bank of San Francisco Newsletter in 1991:

The preamble sets out very clearly that one purpose of the Federal Reserve Act was to afford the means of discounting commercial loans. In its report on the proposed bill, the House Banking and Currency Committee viewed a fundamental objective of the bill to be the “creation of a joint mechanism for the extension of credit to banks which possess sound assets and which desire to liquidate them for the purpose of meeting legitimate commercial, agricultural, and industrial demands on the part of their clientele.”

“Liquidating” loans backed by “real bills” basically meant turning a company’s receivables into bank-issued credit that could be spent on the workers and materials needed to produce its goods and services, bringing supply in balance with demand. That “monetization” of debt might not drive up prices, but external factors obviously could. Today those factors include supply chain problems, worker shortages, and resource shortages. In the 1920s, the trigger was speculation in the stock market.

The real bills policy was discredited after the stock market crash of 1929, due to overly-strict application by the Fed. As the tale is told in Wikipedia:

Fed Board member Adolph C. Miller in 1929 launched his Direct Pressure initiative. It required all member banks seeking Federal Reserve discount window assistance to affirm that they had never made speculative loans, especially of the stock-market variety. No self-respecting banker seeking to borrow emergency reserves from the Fed was willing to undergo such interrogation, especially given that a “hard-boiled” Fed was unlikely to grant such aid. Instead, the banks chose to fail (and the Fed let them), which they did in large numbers, almost 9000 of them.

But the policy’s original objective remains sound: “creation of a joint mechanism for the extension of credit to banks which possess sound assets and which desire to liquidate them for the purpose of meeting legitimate commercial, agricultural, and industrial demands on the part of their clientele.”

Walsh noted that discount window borrowing is currently available only for easing very short-term reserve shortages. When the Fed wants to expand bank lending, it purchases government securities from the banking sector, allowing bank reserves to expand. But he observed that this maneuver does not necessarily increase bank lending, and that some commentators argued that the Fed should be allowed to purchase existing loans from banks that could then use the funds to back new loans on the “real bills” theory.

Compare North Dakota’s “Mini-Fed”

How might that work today? For some idea, we can look to the highly successful state-owned Bank of North Dakota, which has been described as a “mini-Fed” for the local banks of that state. Again quoting Wikipedia:

The BND serves as a wholesale bank for the state’s community banks and credit unions. It participates in loans created by the local banks by expanding their size, providing loan guarantees, and “buying down” interest rates. Additionally, it buys loans from bank portfolios as well as community bank stocks. The bank provides other banking services to local banks, such as clearing checks, acting as depository for their reserves, and providing federal funds.

According to a May 2020 article in The Washington Post titled “North Dakota Businesses Dominated the PPP”:

Small businesses there secured more PPP [Paycheck Protection Plan] funds, relative to the state’s workforce, than their competitors in any other state ….

What’s their secret? Much credit goes to the century-old Bank of North Dakota …. According to Eric Hardmeyer, BND’s president and chief executive, BND connected the state’s small bankers with politicians and U.S. Small Business Administration officials and even bought some of their PPP loans to help spread out the cost and risk.

… BND offers few retail services or direct loans, with the notable exception of student loans. Instead it partners with local banks, multiplying their lending power and guiding them through the ever-evolving global financial system….

BND has already rolled out two local successor programs to the PPP, intended to help businesses restart and rebuild. It has also offered deferments on its $1.1 billion portfolio of student loans.

Updating the Federal Reserve Act

The Paycheck Protection Plan was one of many relief programs established in March 2020 that were funded with Fed credit and capitalized with money from the Treasury. But Treasury backing would not actually be necessary to restore the Fed’s Discount Window to its original function. The Federal Reserve Act would just need a bit of tweaking to bring it into the 21st century.

To start, Hockett says we need many more Federal Reserve branches than the original twelve, which are not distributed proportionately to today’s populations. The three-month limit on commercial loans and six-month limit on municipal government loans in Federal Reserve Act §10b also need to be extended; and we need a national funding agency for infrastructure, similar to the Reconstruction Finance Corporation that restored the depression-ridden U.S. economy in the 1930s. Hockett has drafted a bill for implementing his proposals, found here.

That could work for long-term production, but families faced with rising food and energy bills need help right now. Until production catches up with demand, the innovative Cornell professor suggests that the Fed can counteract the speculation that is driving up those prices with “Open Market Operations,” using its new Chicago Fed trading desk to short them in the market. Direct market intervention is highly controversial and could obviously be misused; but the tool exists, and, if properly directed, it could help satisfy the Fed’s mandate to maintain consumer price stability. For more on that rather complicated subject, see here and here.

To sum up: today’s price inflation was triggered not so much by “too much money” as by “too little supply,” due to lockdowns and mandates. The Fed can help restock consumer supplies using tools already in its toolbox. They include Open Market Operations to counteract speculation, and the Discount Window to purchase loans from local banks that would be willing to fund Main Street businesses if they had some help from the national Lender of Last Resort. We need the sort of Discount Window envisioned by the drafters of the Federal Reserve Act, one providing the liquidity to backstop bank advances against the future productivity of local businesses.

•  This article was first posted on ScheerPost.

The post Rather Than Sink Main Street by Raising Interest Rates, the Fed Could Save It: Here’s How first appeared on Dissident Voice.

The Real Antidote to Inflation: Stoking the Fire Without Burning Down the Barn

The Fed has options for countering the record inflation the U.S. is facing that are more productive and less risky than raising interest rates.

The Federal Reserve is caught between a rock and a hard place. Inflation grew by 6.8% in November, the fastest in 40 years, a trend the Fed has now acknowledged is not “transitory.” The conventional theory is that inflation is due to too much money chasing too few goods, so the Fed is under heavy pressure to “tighten” or shrink the money supply. Its conventional tools for this purpose are to reduce asset purchases and raise interest rates. But corporate debt has risen by $1.3 trillion just since early 2020; so if the Fed raises rates, a massive wave of defaults is likely to result. According to financial advisor Graham Summers in an article titled “The Fed Is About to Start Playing with Matches Next to a $30 Trillion Debt Bomb,” the stock market could collapse by as much as 50%.

Even more at risk are the small and medium-sized enterprises (SMEs) that are the backbone of the productive economy, companies that need bank credit to survive. In 2020, 200,000 more U.S. businesses closed than in normal pre-pandemic years. SMEs targeted as “nonessential” were restricted in their ability to conduct business, while the large international corporations remained open. Raising interest rates on the surviving SMEs could be the final blow.

Cut Demand or Increase Supply?

The argument for raising interest rates is that it will reduce the demand for bank credit, which is now acknowledged to be the source of most of the new money in the money supply. In 2014, the Bank of England wrote in its first-quarter report that 97% of the UK money supply was created by banks when they made loans. In the U.S. the figure is not quite so high, but well over 90% of the U.S. money supply is also created by bank lending.

Left unanswered is whether raising interest rates will lower prices in an economy beset with supply problems. Oil and natural gas shortages, food shortages, and supply chain disruptions are major contributors to today’s high prices. Raising interest rates will hurt, not help, the producers and distributors of those products, by raising their borrowing costs. As observed by Canadian senator and economist Diane Bellemare:

Raising interest rates may cool off demand, but today’s high prices are tightly tied to supply issues – goods not coming through to manufacturers or retailers in a predictable way, and global markets not able to react quickly enough to changing tastes of consumers.

… A singular focus on inflation could lead to a ratcheting up of interest rates at a time when Canada [and the U.S.] should be increasing its ability to produce more goods, and supplying retailers and consumers alike with what they need.

Rather than a reduction in demand, we need more supply available locally; and to fund its production, credit-money needs to increase. When supply and demand increase together, prices remain stable, while GDP and incomes go up.

So argues UK Prof. Richard Werner, a German-born economist who invented the term “quantitative easing” (QE) when he was working in Japan in the 1990s. Japanese banks had pumped up demand for housing, driving up prices to unsustainable levels, until the market inevitably crashed and took the economy down with it. The QE that Werner prescribed was not the asset-inflating money creation we see today. Rather, he recommended increasing GDP by driving money into the real, productive economy; and that is what he recommends for today’s economic crisis.

How to Fund Local Production

SMES make up around 97-99% of the private sector of almost every economy globally. Despite massive losses from the pandemic lockdowns, in the U.S. there were still 30.7 million small businesses reported in December 2020. Small companies account for 64 percent of new U.S. jobs; yet in most U.S. manufacturing sectors, productivity growth is substantially below the standards set by Germany, and many U.S. SMEs are not productive enough to compete with the cost advantages of Chinese and other low-wage competitors. Why?

Werner observes that Germany exports nearly as much as China does, although the German population is a mere 6% of China’s. The Chinese also have low-wage advantages. How can German small firms compete when U.S. firms cannot? Werner credits Germany’s 1,500 not-for-profit/community banks, the largest number in the world. Seventy percent of German deposits are with these local banks – 26.6% with cooperative banks and 42.9% with publicly-owned savings banks called Sparkassen, which are legally limited to lending in their own communities. Together these local banks do over 90% of SME lending. Germany has more than ten times as many banks engaged in SME lending as the UK, and German SMEs are world market leaders in many industries.

Small banks lend to small companies, while large banks lend to large companies – and to large-scale financial speculators. German community banks were not affected by the 2008 crisis, says Werner, so they were able to increase SME lending after 2008; and as a result, there was no German recession and no increase in unemployment.

China’s success, too, Werner attributes to its large network of community banks. Under Mao, China had a single centralized national banking system. In 1982, guided by Deng Xiaoping, China reformed its money system and introduced thousands of commercial banks, including hundreds of cooperative banks. Decades of double-digit growth followed. “Window guidance” was also used: harmful bank credit creation for asset transactions and consumption were suppressed, while productive credit was encouraged.

Werner’s recommendations for today’s economic conditions are to reform the money system by: banning bank credit for transactions that don’t contribute to GDP; creating a network of many small community banks lending for productive purposes, returning all gains to the community; and making bank behavior transparent, accountable and sustainable. He is chairman of the board of Hampshire Community Bank, launched just this year, which lays out the model. It includes no bonus payments to staff, only ordinary modest salaries; credit advanced mainly to SMEs and for housing construction (buy-to-build mortgages); and ownership by a local charity for the benefit of the people in the county, with half the votes in the hands of the local authorities and universities that are its investors.

Public Banking in the United States: North Dakota’s Success

That model – cut out the middlemen and operationalize community banks to create credit for local production – also underlies the success of the century-old Bank of North Dakota (BND), the only state-owned U.S. bank in existence. North Dakota is also the only state to have escaped the 2008-09 recession, having a state budget that never dropped into the red. The state has nearly six times as many local banks per capita as the country overall. The BND does not compete with these community banks but partners with them, a very productive arrangement for all parties.

In 2014, the Wall Street Journal published an article stating that the BND was more profitable even than JPMorgan Chase and Goldman Sachs. The author credited North Dakota’s oil boom, but the boom turned into a bust that very year, yet the BND continued to report record profits. It has averaged a 20% return on equity over the last 19 years, far exceeding the ROI of JPMorgan Chase and Wells Fargo, where state governments typically place their deposits.  According to its 2020 annual report, in 2019 the BND had completed 16 years of record-breaking profits.

Its 2020 ROI of 15%, while not quite as good, was still stellar considering the economic crisis hitting the nation that year. The BND had the largest percentage of Payroll Protection Plan recipients per capita of any state; it tripled its loans for the commercial and agricultural sectors in 2020; and it lowered its fixed interest rate on student loans by 1%, saving borrowers an average of $6,400 over the life of the loan. The BND closed 2020 with $7.7 billion in assets.

Why is the BND so profitable, then, if not due to oil? Its business model allows it to have much lower costs than other banks. It has no private investors skimming off short-term profits, no high paid executives, no need to advertise, and, until recently, it had only one branch, now expanded to two. By law, all of the state’s revenues are deposited in the BND. It partners with local banks on loans, helping with capitalization, liquidity and regulations. The BND’s savings are returned to the state or passed on to local borrowers in the form of lower interest rates.

What the Fed Could Do Now

The BND and Sparkassen banks are great public banking models, but implementing them takes time, and the Fed is under pressure to deal with an inflation crisis right now. Prof. Werner worries about centralization and thinks we don’t need central banks at all; but as long as we have them, we might as well put them to use serving the Main Street economy.

In September 2020, Saqib Bhatti and Brittany Alston of the Action Center on Race and the Economy proposed a plan for stimulating local production that could be implemented by the Fed immediately. It could make interest-free loans directly to state and local governments for productive purposes. To better fit with prevailing Fed policies, perhaps it could make 0.25% loans, as it now makes to private banks through its discount window and to repo market investors through its standing repo facility.

They noted that interest payments on municipal debt transfer more than $160 billion every year from taxpayers to wealthy investors and banks on Wall Street. These funds could be put to more productive public use if the Federal Reserve were to make long-term zero-cost loans available to all U.S. state and local governments and government agencies. With that money, they could refinance old debts and take out loans for new long-term capital infrastructure projects, while canceling nearly all of their existing interest payments. Interest and fees typically make up 50% of the cost of infrastructure. Dropping the interest rate nearly to zero could stimulate a boom in those desperately needed projects. The American Society of Civil Engineers (ASCE) estimates in its 2021 report that $6.1 trillion is needed just to repair our nation’s infrastructure.

As for the risk that state and local governments might not pay back their debts, Bhatti and Alston contend that it is virtually nonexistent. States are not legally allowed to default, and about half the states do not permit their cities to file for bankruptcy. The authors write:

According to Moody’s Investors Service, the cumulative ten-year default rate for municipal bonds between 1970 and 2019 was just 0.16%, compared with 10.17% for corporate bonds, meaning corporate bonds were a whopping 63 times more likely to default. …[M]unicipal bonds as a whole were safer investment than the safest 3% of corporate bonds. … US municipal bonds are extremely safe investments, and the interest rates that most state and local government borrowers are forced to pay are unjustifiably high.

… The major rating agencies have a long history of using credit ratings to push an austerity agenda and demand cuts to public services …. Moreover, they discriminate against municipal borrowers by giving them lower credit ratings than corporations that are significantly more likely to default.

… [T]he same banks that are major bond underwriters also have a record of collusion and bid-rigging in the municipal bond market. … Several banks, including JPMorgan Chase and Citigroup, have pleaded guilty to criminal charges and paid billions in fines to financial regulators.

… There is no reason for banks and bondholders to be able to profit from this basic piece of infrastructure if the Federal Reserve could do it for free. [Citations omitted.]

To ensure repayment and discourage over-borrowing, say Bhatti and Alston, the Fed could adopt regulations such as requiring any borrower that misses a payment to levy an automatic tax on residents above a certain income threshold. Borrowing limits could also be put in place. Politicization of loans could be avoided by making loans available indiscriminately to all public borrowers within their borrowing limits. Another possibility might be to mediate the loans through a National Infrastructure Bank, as proposed in HR 3339.

All of this could be done without new legislation. The Federal Reserve has statutory authority under the Federal Reserve Act to lend to municipal borrowers for a period of up to six months. It could just agree to roll over these loans for a fixed period of years. Bhatti and Alston observe that under the 2020 CARES Act, the Fed was given permission to make up to $500 billion in indefinite, long-term loans to municipal borrowers, but it failed to act on that authority to the extent allowed. Loans were limited to no more than three years, and the interest rate charged was so high that most municipal borrowers could get lower rates on the open municipal bond market.

Private corporations, which the authors show are 63 times more likely to default, were offered much more generous terms on corporate debt; and 330 corporations took the offer, versus only two municipal takers through the Municipal Liquidity Facility. The federal government also made $10.4 trillion in bailouts and backstops available to the financial sector after the 2008 financial crisis, a sum that is 2.5 times the size of the entire U.S. municipal bond market.

Stoking the Fire with Credit for Local Production

Playing with matches that could trigger a $30 trillion debt bomb is obviously something the Fed should try to avoid. Prof. Werner would probably argue that its policy mistake, like Japan’s in the 1980s, has been to inject credit so that it has gone into speculative assets, inflating asset prices. The Fed’s liquidity fire hose needs to be directed at local production. This can be done through local community or public banks, or by making near-zero interest loans to state and local governments, perhaps mediated through a National Infrastructure Bank.

• This article was first posted on ScheerPos

The post The Real Antidote to Inflation: Stoking the Fire Without Burning Down the Barn first appeared on Dissident Voice.

Mainstream Economists Reject Economic Science

The “invisible hand” gives rise to a situation where it becomes natural and normal to conclude that no one knows how things work or what to expect. It renders the future unpredictable and unmanageable. Uncertainty and unpredictability become the norm because the economy as a whole is not under conscious human control. Different sectors and components of the economy do not work in harmony, free of crisis, because they are divided amongst competing owners of capital obsessed with their own narrow private interests. This inter-capitalist rivalry does not lend itself to the healthy balanced extended reproduction of society. It mainly damages the natural and social environment more. Everyone living in such a set-up is subject to constant chaos, anarchy, and violence in the economy and society. Stability, security, and peace are transient under such conditions. Thus, even in the 21st century with all the accumulated knowledge and experience of humanity, so-called “advanced” societies can turn upside down in no time at all; economic and social crises can hit at any time and leave society, the economy, and the people as a whole highly destabilized and damaged for months, years, even decades. On top of all this we are repeatedly told that there is no alternative to this outdated system. Apparently, this is the best humanity can do and no one should strive to replace existing arrangements with something better.

Last week, Jerome Powell, head of the U.S. Federal Reserve, which is not really part of the U.S. government, delivered his latest views and predictions on the economy and outlined what actions the Federal Reserve will be taking in the coming weeks and months. “Tapering” of fiat currency printing is expected to begin this month and continue for six more months, while interest rates will remain untouched for the foreseeable future. In reality, the Federal Reserve ran out of ammunition long ago and is trapped in the world of bad policy versus bad policy; there are no good options and no good endings here. Is it even possible to “taper” a Ponzi scheme? To be sure, the Federal Reserve has dug a deep hole. The system’s internal contradictions are too severe to “rescue” anything at this point.

One statement in particular by Powell speaks volumes about the state of economic science and human cognition in the final and highest stage of capitalism:

It’s difficult enough to just forecast the economy in normal times. When you’re talking about global supply chains in turmoil, it’s a whole different thing. And you’re talking about a pandemic that’s holding people out of the labor force for reasons that we can sample, but we don’t have a lot of experience with this, so it’s very difficult to forecast and not easy to set policy. (emphasis added,)

Powell casually and publicly admits that he and those who share his old world outlook reject economic science even “in normal times;” they do not believe in planning, control, science, human cognition, and predictability. “Forecasting” economic conditions and activities  even “in normal times” is far from precise and useful from the perspective of capitalist ideologues. The economy apparently cannot be controlled, known, or directed to serve the people and society. Powell openly creates the impression that fixing the economy is some sort of crapshoot, a mystery. Maybe things will work out, maybe not. Apparently, no one really knows how things are going to unfold or what impact neoliberal fiscal and monetary policies will have on the economy. Confusion and ignorance about the economy are so normal that the subtitle of a November 4, 2021 ABC News article reads: “If you find the current economy a bit confusing, don’t worry: So does the nation’s top economic official, Federal Reserve Chair Jerome Powell”. This is hardly a good way to inspire confidence in the people. It is a scandalous thing to admit. People need leaders who know what they are doing and can reliably deliver meaningful pro-social results and solutions. Why is meeting people’s basic needs such a mystery?

Most Americans already know that the economy is in bad shape. On November 7, 2021, the New York Times reported that, “In a Gallup poll in October, 68 percent of respondents said they thought economic conditions were getting worse”. The overwhelming majority are simply not hopeful about the future of the economy and it does not help that President Joe Biden’s poor approval rating keeps steadily falling. People from all walks of life feel overwhelmed and exhausted with the way the rich and their cartel political parties (Democrats and Republicans) are wrecking the entire fabric of society.

There is a growing need for a real alternative to existing arrangements. The current situation is untenable at all levels. More and more people are rejecting the rich and their cartel political parties and demanding real solutions to the problems confronting the economy and society. Acting in the old way simply won’t work and doesn’t work anymore. People are disgusted with irresponsible and unaccountable leaders who can’t solve any problems. People are also tired of being reduced to vote banks for the parties of the rich. Constantly begging politicians to do the most basic simple things is humiliating, exhausting, and a massive drain on social energy that could be harnessed to expedite human-centered arrangements.

As the massive divide between the rich and everyone else keeps growing, contradictions and problems in society will get sharper and more severe, giving rise to new dynamics and new realities to confront. In this situation working people must mobilize themselves and others to leverage openings to advance arrangements that favor the people. There is a need for fresh independent thinking and a new outlook of the world and the future. There is an alternative to the ruling class wrecking all known arrangements in its quest to maximize profits at all costs.

The post Mainstream Economists Reject Economic Science first appeared on Dissident Voice.

The Fear Pandemic and the Crisis of Capitalism

In October 2019, in a speech at an International Monetary Fund conference, former Bank of England governor Mervyn King warned that the world was sleepwalking towards a fresh economic and financial crisis that would have devastating consequences for what he called the “democratic market system”.

According to King, the global economy was stuck in a low growth trap and recovery from the crisis of 2008 was weaker than that after the Great Depression. He concluded that it was time for the Federal Reserve and other central banks to begin talks behind closed doors with politicians.

In the repurchase agreement (repo) market, interest rates soared on 16 September. The Federal Reserve stepped in by intervening to the tune of $75 billion per day over four days, a sum not seen since the 2008 crisis.

At that time, according to Fabio Vighi, professor of critical theory at Cardiff University, the Fed began an emergency monetary programme that saw hundreds of billions of dollars per week pumped into Wall Street.

Over the last 18 months or so, under the guise of a ‘pandemic’, we have seen economies closed down, small businesses being crushed, workers being made unemployed and people’s rights being destroyed. Lockdowns and restrictions have facilitated this process. The purpose of these so-called ‘public health measures’ has little to do with public health and much to do with managing a crisis of capitalism and ultimately the restructuring of the economy.

Neoliberalism has squeezed workers income and benefits, offshored key sectors of economies and has used every tool at its disposal to maintain demand and create financial Ponzi schemes in which the rich can still invest in and profit from. The bailouts to the banking sector following the 2008 crash provided only temporary respite. The crash returned with a much bigger bang pre-Covid along with multi-billion-dollar bailouts.

The dystopian ‘great reset’ that we are currently witnessing is a response to this crisis. This reset envisages a transformation of capitalism.

Fabio Vighi sheds light on the role of the ‘pandemic’ in all of this:

… some may have started wondering why the usually unscrupulous ruling elites decided to freeze the global profit-making machine in the face of a pathogen that targets almost exclusively the unproductive (over 80s).

Vighi describes how, in pre-Covid times, the world economy was on the verge of another colossal meltdown and chronicles how the Swiss Bank of International Settlements, BlackRock (the world’s most powerful investment fund), G7 central bankers and others worked to avert a massive impending financial meltdown.

The world economy was suffocating under an unsustainable mountain of debt. Many companies could not generate enough profit to cover interest payments on their own debts and were staying afloat only by taking on new loans. Falling turnover, squeezed margins, limited cash flows and highly leveraged balance sheets were rising everywhere.

Lockdowns and the global suspension of economic transactions were intended to allow the Fed to flood the ailing financial markets (under the guise of COVID) with freshly printed money while shutting down the real economy to avoid hyperinflation.

Vighi says:

… the stock market did not collapse (in March 2020) because lockdowns had to be imposed; rather, lockdowns had to be imposed because financial markets were collapsing. With lockdowns came the suspension of business transactions, which drained the demand for credit and stopped the contagion. In other words, restructuring the financial architecture through extraordinary monetary policy was contingent on the economy’s engine being turned off.

It all amounted to a multi-trillion bailout for Wall Street under the guise of COVID ‘relief’ followed by an ongoing plan to fundamentally restructure capitalism that involves smaller enterprises being driven to bankruptcy or bought up by monopolies and global chains, thereby ensuring continued viable profits for these predatory corporations, and the eradication of millions of jobs resulting from lockdowns and accelerated automation.

Author and journalist Matt Taibbi noted in 2020:

It retains all the cruelties of the free market for those who live and work in the real world, but turns the paper economy into a state protectorate, surrounded by a kind of Trumpian Money Wall that is designed to keep the investor class safe from fear of loss. This financial economy is a fantasy casino, where the winnings are real but free chips cover the losses. For a rarefied segment of society, failure is being written out of the capitalist bargain.

The World Economic Forum says that by 2030 the public will ‘rent’ everything they require. This means undermining the right of ownership (or possibly seizing personal assets) and restricting consumer choice underpinned by the rhetoric of reducing public debt or ‘sustainable consumption’, which will be used to legitimise impending austerity as a result of the economic meltdown. Ordinary people will foot the bill for the ‘COVID relief’ packages.

If the financial bailouts do not go according to plan, we could see further lockdowns imposed, perhaps justified under the pretext of  ‘the virus’ but also ‘climate emergency’.

It is not only Big Finance that has been saved. A previously ailing pharmaceuticals industry has also received a massive bailout (public funds to develop and purchase the vaccines) and lifeline thanks to the money-making COVID jabs.

The lockdowns and restrictions we have seen since March 2020 have helped boost the bottom line of global chains and the e-commerce giants as well and have cemented their dominance. At the same time, fundamental rights have been eradicated under COVID government measures.

Capitalism and labour

Essential to this ‘new normal’ is the compulsion to remove individual liberties and personal freedoms. A significant part of the working class has long been deemed ‘surplus to requirements’ – such people were sacrificed on the altar of neo-liberalism. They lost their jobs due to automation and offshoring. Since then, this section of the population has had to rely on meagre state welfare and run-down public services or, if ‘lucky’, insecure low-paid service sector jobs.

What we saw following the 2008 crash was ordinary people being pushed further to the edge. After a decade of ‘austerity’ in the UK – a neoliberal assault on the living conditions of ordinary people carried out under the guise of reining in public debt following the bank bail outs – a leading UN poverty expert compared Conservative welfare policies to the creation of 19th-century workhouses and warned that, unless austerity is ended, the UK’s poorest people face lives that are “solitary, poor, nasty, brutish, and short”.

Philip Alston, the UN rapporteur on extreme poverty, accused ministers of being in a state of denial about the impact of policies. He accused them of the “systematic immiseration of a significant part of the British population”.

In another 2019 report, the Institute for Public Policy Research think tank laid the blame for more than 130,000 deaths in the UK since 2012 at the door of government policies. It claimed that these deaths could have been prevented if improvements in public health policy had not stalled as a direct result of austerity cuts.

Over the past 10 years in the UK, according to the Trussell Group, there has been rising food poverty and increasing reliance on food banks.

And in a damning report on poverty in the UK by Professor David Gordon of the University of Bristol, it was found that almost 18 million cannot afford adequate housing conditions, 12 million are too poor to engage in common social activities, one in three cannot afford to heat their homes adequately in winter and four million children and adults are not properly fed (Britain’s population is estimated at around 66 million).

Moreover, a 2015 report by the New Policy Institute noted that the total number of people in poverty in the UK had increased by 800,000, from 13.2 to 14.0 million in just two to three years.

Meanwhile, The Equality Trust in 2018 reported that the ‘austerity’ years were anything but austere for the richest 1,000 people in the UK. They had increased their wealth by £66 billion in one year alone (2017-2018), by £274 billion in five years (2013-2018) and had increased their total wealth to £724 billion – significantly more than the poorest 40% of households combined (£567 billion).

Just some of the cruelties of the ‘free market’ for those who live and work in the real world. And all of this hardship prior to lockdowns that have subsequently devastated lives, livelihoods and health, with cancer diagnoses and treatments and other conditions having been neglected due to the shutdown of health services.

During the current economic crisis, what we are seeing is many millions around the world being robbed of their livelihoods. With AI and advanced automation of production, distribution and service provision on the immediate horizon, a mass labour force will no longer be required.

It raises fundamental questions about the need for and the future of mass education, welfare and healthcare provision and systems that have traditionally served to reproduce and maintain labour that capitalist economic activity has required.

As the economy is restructured, labour’s relationship to capital is being transformed. If work is a condition of the existence of the labouring classes, then, in the eyes of capitalists, why maintain a pool of (surplus) labour that is no longer needed?

A concentration of wealth power and ownership is taking place as a result of COVID-related policies: according to research by Oxfam, the world’s billionaires gained $3.9 trillion while working people lost $3.7 trillion in 2020. At the same time, as large sections of the population head into a state of permanent unemployment, the rulers are weary of mass dissent and resistance. We are witnessing an emerging biosecurity surveillance state designed to curtail liberties ranging from freedom of movement and assembly to political protest and free speech.

The global implications are immense too. Barely a month into the COVID agenda, the IMF and World Bank were already facing a deluge of aid requests from developing countries that were asking for bailouts and loans. Ideal cover for rebooting the global economy via a massive debt crisis and the subsequent privatisation of national assets.

In 2020, World Bank Group President David Malpass stated that poorer countries will be ‘helped’ to get back on their feet after the various lockdowns but such ‘help’ would be on condition that neoliberal reforms become further embedded. In other words, the de facto privatisation of states (affecting all nations, rich and poor alike), the (complete) erosion of national sovereignty and dollar-denominated debt leading to a further strengthening of US leverage and power.

In a system of top-down surveillance capitalism with an increasing section of the population deemed ‘unproductive’ and ‘useless eaters’, notions of individualism, liberal democracy and the ideology of free choice and consumerism are regarded by the elite as ‘unnecessary luxuries’ along with political and civil rights and freedoms.

We need only look at the ongoing tyranny in Australia to see where other countries could be heading. How quickly Australia was transformed from a ‘liberal democracy’ to a brutal totalitarian police state of endless lockdowns where gathering and protests are not to be tolerated.

Being beaten and thrown to the ground and fired at with rubber bullets in the name of protecting health makes as much sense as devastating entire societies through socially and economically destructive lockdowns to ‘save lives’.

It makes as much sense as mask-wearing and social-distancing mandates unsupported by science, misused and flawed PCR tests, perfectly healthy people being labelled as ‘cases’, deliberately inflated COVID death figures, pushing dangerous experimental vaccines in the name of health, ramping up fear, relying on Neil Ferguson’s bogus modelling, censoring debate about any of this and the WHO declaring a worldwide ‘pandemic’ based on a very low number of global ‘cases’ back in early 2020 (44,279 ‘cases’ and 1,440 supposed COVID deaths outside China out of a population of 6.4 billion).

There is little if any logic to this. But of course, If we view what is happening in terms of a crisis of capitalism, it might begin to make a lot more sense.

The austerity measures that followed the 2008 crash were bad enough for ordinary people who were still reeling from the impacts when the first lockdown was imposed.

The authorities are aware that deeper, harsher impacts as well as much more wide-ranging changes will be experienced this time around and seem adamant that the masses must become more tightly controlled and conditioned to their coming servitude.

The post The Fear Pandemic and the Crisis of Capitalism first appeared on Dissident Voice.

Economic Collapse Continues Uninterrupted

To conceal the economic and social decline that continues to unfold at home and abroad, major newspapers are working overtime to promote happy economic news. Many headlines are irrational and out of touch. They make no sense. Desperation to convince everyone that all is well or all will soon be great is very high. The assault on economic science and coherence is intense. Working in concert, and contrary to the lived experience of millions of people, many newspapers are declaring miraculous “economic growth rates” for country after country. According to the rich and their media, numerous countries are experiencing or are on the cusp of experiencing very strong “come-backs” or “complete recoveries.” Very high rates of annual economic growth, generally not found in any prior period, are being floated regularly. The numbers defy common sense.

In reality, economic and social problems are getting worse nationally and internationally.

“Getting back to the pre-Covid standard will take time,” said Carmen Reinhart, the World Bank’s chief economist. “The aftermath of Covid isn’t going to reverse for a lot of countries. Far from it.” Even this recent statement is misleading because it implies that pre-Covid economic conditions were somehow good or acceptable when things have actually been going downhill for decades. Most economies never really “recovered” from the economic collapse of 2008. Most countries are still running on gas fumes while poverty, unemployment, under-employment, inequality, debt, food insecurity, generalized anxiety, and other problems keep worsening. And today, with millions of people fully vaccinated and trillions of phantom dollars, euros, and yen printed by the world’s central banks, there is still no real and sustained stability, prosperity, security, or harmony. People everywhere are still anxious about the future. Pious statements from world leaders about “fixing” capitalism have done nothing to reverse the global economic decline that started years ago and was intensified by the “COVID Pandemic.”

In the U.S. alone, in real numbers, about 3-4 million people a month have been laid off for 13 consecutive months. At no other time in U.S. history has such a calamity on this scale happened. This has “improved” slightly recently but the number of people being laid off every month remains extremely high and troubling. In New York State, for example:

the statewide [official] unemployment rate remains the second highest in the country at just under 9%. One year after the start of the pandemic and the recession it caused, most of the jobs New York lost still have not come back. (emphasis added, April 2021).

In addition, nationally the number of long-term unemployed remains high and the labor force participation rate remains low. And most new jobs that are “created” are not high-paying jobs with good benefits and security. The so-called “Gig Economy” has beleaguered millions.

Some groups have been more adversely affected than others. In April 2021, U.S. News & World Report conveyed that:

In February 2020, right before the coronavirus was declared a pandemic by the World Health Organization, Black women had an employment to population ratio of 60.8%; that now stands at 54.8%, a drop of 6 percentage points.

The obsolete U.S. economic system has discarded more than half a million black women from the labor force in the past year.

In December 2019, around the time the “COVID Pandemic” began to emerge, Brookings reported that:

An estimated 53 million people—44 percent of all U.S. workers ages 18–64—are low-wage workers. That’s more than twice the number of people in the 10 most populous U.S. cities combined. Their median hourly wage is $10.22, and their median annual earnings are $17,950.

The Federal Reserve reports that 37 percent of Americans in 2019 did not have $400 to cover an unanticipated emergency. In Louisiana alone, 1 out of 5 families today are living at the poverty level.  Sadly, “60% of Americans will live below the official poverty line for at least one year of their lives.” While American billionaires became $1.3 trillion richer, about 8 million Americans joined the ranks of the poor during the “COVID Pandemic.”

And more inflation will make things worse for more people. A March 2021 headline from NBC News reads: “The price of food and gas is creeping higher — and will stay that way for a while.”  ABC News goes further in April 2021 and says that “the post-pandemic economy will include higher prices, worse service, longer delays.”

Homelessness in the U.S. is also increasing:

COVID-driven loss of jobs and employment income will cause the number of homeless workers to increase each year through 2023. Without large-scale, government employment programs the Pandemic Recession is projected to cause twice as much homelessness as the 2008 Great Recession. Over the next four years the current Pandemic Recession is projected to cause chronic homelessness to increase 49 percent in the United States, 68 percent in California and 86 percent in Los Angeles County. [The homeless include the] homeless on the streets, shelter residents and couch surfers. (emphasis added, January 11, 2021)

Perhaps ironically, just “Two blocks from the Federal Reserve, a growing encampment of the homeless grips the economy’s most powerful person [Federal Reserve Chairman Jerome Powell].”

Officially, about four million businesses, including more than 110,000 restaurants, have permanently closed in the U.S. over the past 14 months.  In April 2021 Business Insider stated that, “roughly 80,000 stores are doomed to close in the next 5 years as the retail apocalypse continues to rip through America.”  The real figure is likely higher.

Bankruptcies have also risen in some sectors. For example, bankruptcies by North American oil producers “rose to the highest first-quarter level since 2016.”

In March 2021 the Economic Policy Institute reported that “more than 25 million workers are directly harmed by the COVID labor market.” Anecdotal evidence suggests that there are more than 100 applicants for each job opening in some sectors.

Given the depth and breadth of the economic collapse in the U.S., it is no surprise that “1 in 6 Americans went into therapy for the first time in 2020.” The number of people affected by depression, anxiety, addiction, and suicide worldwide as a direct result of the long depression is very high. These harsh facts and realities are also linked to more violence, killings, protests, demonstrations, social unrest, and riots worldwide.

In terms of physical health, “Sixty-one percent of U.S. adults report undesired weight changes since the COVID-19 pandemic began.” This will only exacerbate the diabetes pandemic that has been ravaging more countries every year.

On another front, the Pew Research Center informs us that, as a result of the economic collapse that has unfolded over the past year, “A majority of young adults in the U.S. live with their parents for the first time since the Great Depression.”   And it does not help that student debt now exceeds $1.7 trillion and is still climbing rapidly.

Millions of college faculty have also suffered greatly over the past year. A recent survey by the American Association of University Professors (AAUP) found that:

real wages for full-time faculty decreased for the first time since the Great Recession[in 2008], and average wage growth for all ranks of full-time faculty was the lowest since the AAUP began tracking annual wage growth in 1972. After adjusting for inflation, real wages decreased at over two-thirds of colleges and universities. The number of full-time faculty decreased at over half of institutions.

This does not account for the thousands of higher education adjuncts (part-time faculty) and staff that lost their jobs permanently.

In April 2021, the Center on Budget & Policy Priorities stated that, “millions of people are still without their pre-pandemic income sources and are borrowing to get by.” Specifically:

  • 54 million adults said they didn’t use regular income sources like those received before the pandemic to meet their spending needs in the last seven days.
  • 50 million used credit cards or loans to meet spending needs.
  • 20 million borrowed from friends or family. (These three groups overlap.)

Also in April 2021, the Washington Post wrote:

The pandemic’s disruption has created inescapable financial strain for many Americans. Nearly 2 of 5 of adults have postponed major financial decisions, from buying cars or houses to getting married or having children, due to the coronavirus crisis, according to a survey last week from Among younger adults, ages 18 to 34, some 59 percent said they had delayed a financial milestone. (emphasis added)

According to Monthly Review:

The U.S. economy has seen a long-term decline in capacity utilization in manufacturing, which has averaged 78 percent from 1972 to 2019—well below levels that stimulate net investment. (emphasis added, January 1, 2021).

Capitalist firms will not invest in new ventures or projects when there is little or no profit to be made, which is why major owners of capital are engaged in even more stock market manipulation than ever before. “Casino capitalism” is intensifying. This, in turn, is giving rise to even larger stock market bubbles that will eventually burst and wreak even more havoc than previous stock market crashes. The inability to make profit through normal investment channels is also why major owners of capital are imposing more public-private “partnerships” (PPPs) on people and society through neoliberal state restructuring. Such pay-the-rich schemes further marginalize workers and exacerbate inequality, debt, and poverty. PPPs solve no problems and must be replaced by human-centered economic arrangements.

The International Labor Organization estimates that the equivalent of 255 million full-time jobs have been lost globally as a result of government actions over the past 13-14 months.

In March of this year, the Food and Agricultural Organization (FAO) of the United Nations reported that, “Acute hunger is set to soar in over 20 countries in the coming months without urgent and scaled-up assistance.” The FAO says, “”The magnitude of suffering is alarming.”

And according to Reuters, “Overall, global FDI [Foreign Direct Investment] had collapsed in 2020, falling by 42% to an estimated $859 billion, from $1.5 trillion in 2019, according to the UNCTAD report.” UNCTAD stands for United Nations Conference on Trade and Development.

The international organization Oxfam tells us that:

The coronavirus pandemic has the potential to lead to an increase in inequality in almost every country at once, the first time this has happened since records began…. Billionaire fortunes returned to their pre-pandemic highs in just nine months, while recovery for the world’s poorest people could take over a decade. (emphasis added, January 25, 2021)

According to the World Bank, “The COVID-19 pandemic has pushed about 120 million people into extreme poverty over the last year in mostly low- and middle-income countries.”  And despite the roll-out of vaccines in various countries:

the economic implications of the pandemic are deep and far-reaching. It is ushering in a “new poor” profile that is more urban, better educated, and reliant on informal sector work such as construction, relative to the existing global poor (those living on less than $1.90/day) who are more rural and heavily reliant on agriculture. (emphasis added)

Another source notes that:

Pew Research Center, using World Bank data, has estimated that the number of poor in India (with income of $2 per day or less in purchasing power parity) has more than doubled from 60 million to 134 million in just a year due to the pandemic-induced recession. This means, India is back in a situation to be called a “country of mass poverty” after 45 years. (emphasis added)

In Europe, there is no end in sight to the economic decline that keeps unfolding. The United Kingdom, for example, experienced its worst economy in literally 300 years:

The economy in the U.K. contracted 9.9 percent in 2020, the worst year on record since 1709, the Office for National Statistics (ONS) said in a report on Friday (Feb. 12). The overall economic drop in 2020 was more than double in 2009, when U.K. GDP declined 4.1 percent due to the worldwide financial crisis. Britain experienced the biggest annual decline among the G7 economies — France saw its economy decline 8.3 percent, Italy dropped 8.8 percent, Germany declined 5 percent and the U.S. contracted 3.5 percent. (emphasis added)

Another source also notes that, “The Eurozone is being haunted by ‘ghost bankruptcies,’ with more than 200,000 firms across the European Union’s four biggest nations under threat when Covid financial lifelines stop.” In another sign of economic decline, this time in Asia, Argus Media reported in April 2021 that Japan’s 2020-21 crude steel output fell to a 52-year low.

Taken alone, on a country-by-country basis, these are not minor economic downturns, but when viewed as a collective cumulative global phenomenon, the consequences are more serious. It is a big problem when numerous economies decline simultaneously. The world is more interdependent and interconnected than ever. What happens in one region necessarily affects other regions.

One could easily go country by country and region by region and document many tragic economic developments that are still unfolding and worsening. Argentina, Lebanon, Colombia, Turkey, Brazil, Mexico, Jordan, South Africa, Nigeria, and dozens of other countries are all experiencing major economic setbacks and hardships that will take years to overcome and will negatively affect the economies of other countries in an increasingly interdependent world. And privatization schemes around the world are just making conditions worse for the majority of people. Far from solving any problems, neoliberalism has made everything worse for working people and society.

It is too soon for capitalist ideologues to be euphoric about “miraculous economic growth and success.” There is no meaningful evidence to show that there is deep, significant, sustained economic growth on a broad scale. There is tremendous economic carnage and pain out there, and the scarring and consequences are going to linger for some time. No one believes that a big surge of well-paying jobs is right around the corner. Nor does anyone believe that more schemes to pay the rich under the banner of high ideals will improve things either.

Relentless disinformation about the economy won’t solve any problems or convince people that they are not experiencing what they are experiencing. Growing poverty, hunger, homelessness, unemployment, under-employment, debt, inequality, anxiety, and insecurity are real and painful. They require real solutions put forward by working people, not major owners of capital concerned only with maximizing private profit as fast as possible.

The economy cannot improve and serve a pro-social aim and direction so long as those who produce society’s wealth, workers, are disempowered and denied any control of the economy they run. Allowing major decisions to be made by a historically superfluous financial oligarchy is not the way forward. The rich and their representatives are unfit to rule and have no real solutions for the recurring crises caused by their outmoded system. They are focused mainly on depriving people of an outlook that opens the path of progress to society.

There is no way for the massive wealth of society to be used to serve the general interests of society so long as the contradiction between the socialized nature of the economy and its continued domination by competing private interests remain unresolved. All we are left with are recurring economic crises that take a bigger and bigger toll on humanity. To add insult to injury, we are told that there is no alternative to this outdated system, and that the goal is to strive for “inclusive capitalism,” “ethical capitalism,” “responsible capitalism,” or some other oxymoron.

But there is an alternative. Existing conditions do not have to be eternal or tolerated. History shows that conditions that favor the people can be established. The rich must be deprived of their ability to deprive the people of their rights, including the right to govern their own affairs and control the economy. The economy, government, nation-building, and society must be controlled and directed by the people themselves, free of the influence of narrow private interests determined to enrich themselves at the expense of everyone and everything else.

The rich and their political and media representatives are under great pressure to distort social consciousness, undermine the human factor, and block progress. The necessity for change is for humanity to rise up and usher in a modern society that ensures prosperity, stability, and peace for all. It can be done and must be done.

The post Economic Collapse Continues Uninterrupted first appeared on Dissident Voice.

Will 2021 Be Public Banking’s Watershed Moment?

Just over two months into the new year, 2021 has already seen a flurry of public banking activity. Sixteen new bills to form publicly-owned banks or facilitate their formation were introduced in eight U.S. states in January and February. Two bills for a state-owned bank were introduced in New Mexico, two in Massachusetts, two in New York, one each in Oregon and Hawaii, and Washington State’s Public Bank Bill was re-introduced as a “Substitution.” Bills for city-owned banks were introduced in Philadelphia and San Francisco, and bills facilitating the formation of public banks or for a feasibility study were introduced in New York, Oregon (three bills), and Hawaii.

In addition, California is expected to introduce a bill for a state-owned bank later this year, and New Jersey is moving forward with a strong commitment from its governor to implement one. At the federal level, three bills for public banking were also introduced last year: the National Infrastructure Bank Bill (HR 6422), a new Postal Banking Act (S 4614), and the Public Banking Act (HR 8721). (For details on all these bills, see the Public Banking Institute website here.)

As Oscar Abello wrote on in February, “2021 could be public banking’s watershed moment.… Legislators are starting to see public banks as a powerful potential tool to ensure a recovery that is more equitable than the last time.”

Why the Surge in Interest?

The devastation caused by nationwide Covid-19 lockdowns in 2020 has highlighted the inadequacies of the current financial system in serving the public, local businesses, and local governments. Nearly 10 million jobs were lost to the lockdowns, over 100,000 businesses closed permanently, and a quarter of the population remains unbanked or underbanked. Over 18 million people are receiving unemployment benefits, and moratoria on rent and home foreclosures are due to expire this spring.

Where was the Federal Reserve in all this? It poured out trillions of dollars in relief, but the funds did not trickle down to the real economy. They flooded up, dramatically increasing the wealth gap. By October 2020, the top 1% of the U.S. population held 30.4% of all household wealth, 15 times that of the bottom 50%, which held just 1.9% of all wealth.

State and local governments are also in dire straits due to the crisis. Their costs have shot up and their tax bases have shrunk. But the Fed’s “special purpose vehicles” were no help. The Municipal Liquidity Facility, ostensibly intended to relieve municipal debt burdens, lent at market interest rates plus a penalty, making borrowing at the facility so expensive that it went nearly unused; and it was discontinued in December.

The Fed’s emergency lending facilities were also of little help to local businesses. In a January 2021 Wall Street Journal article titled “Corporate Debt ‘Relief’ Is an Economic Dud,” Sheila Bair, former chair of the Federal Deposit Insurance Corporation, and Lawrence Goodman, president of the Center for Financial Stability, observed:

The creation of the corporate facilities last March marked the first time in history that the Fed would buy corporate debt… The purpose of the corporate facilities was to help companies access debt markets during the pandemic, making it possible to sustain operations and keep employees on payroll. Instead, the facilities resulted in a huge and unnecessary bailout of corporate debt issuers, underwriters and bondholders….This created a further unfair opportunity for large corporations to get even bigger by purchasing competitors with government-subsidized credit.

…. This presents a double whammy for the young companies that have been hit hardest by the pandemic. They are the primary source of job creation and innovation, and squeezing them deprives our economy of the dynamism and creativity it needs to thrive.

In a September 2020 study for ACRE called “Cancel Wall Street,” Saqib Bhatti and Brittany Alston showed that U.S. state and local governments collectively pay $160 billion annually just in interest in the bond market, which is controlled by big private banks. For comparative purposes, $160 billion would be enough to help 13 million families avoid eviction by covering their annual rent; and $134 billion could make up the revenue shortfall suffered by every city and town in the U.S. due to the pandemic.

Half the cost of infrastructure generally consists of financing, doubling its cost to municipal governments. Local governments are extremely good credit risks; yet private, bank-affiliated rating agencies give them a lower credit score (raising their rates) than private corporations, which are 63 times more likely to default. States are not allowed to go bankrupt, and that is also true for cities in about half the states. State and local governments have a tax base to pay their debts and are not going anywhere, unlike bankrupt corporations, which simply disappear and leave their creditors holding the bag.

How Publicly-owned Banks Can Help 

Banks do not have the funding problems of local governments. In March 2020, the Federal Reserve reduced the interest rate at its discount window, encouraging all banks in good standing to borrow there at 0.25%. No stigma or strings were attached to this virtually free liquidity – no need to retain employees or to cut dividends, bonuses, or the interest rates charged to borrowers. Wall Street banks can borrow at a mere one-quarter of one percent while continuing to charge customers 15% or more on their credit cards.

Local governments extend credit to their communities through loan funds, but these “revolving funds” can lend only the capital they have. Depository banks, on the other hand, can leverage their capital, generating up to ten times their capital base in loans. For a local government with its own depository bank, that would mean up to ten times the credit to inject into the local economy, and ten times the profit to be funneled back into community needs. A public depository bank could also borrow at 0.25% from the Fed’s discount window.

North Dakota Leads the Way

What a state can achieve by forming its own bank has been demonstrated in North Dakota. There  the nation’s only state-owned bank was formed in 1919 when North Dakota farmers were losing their farms to big out-of-state banks. Unlike the Wall Street megabanks mandated to make as much money as possible for their shareholders, the Bank of North Dakota (BND) is mandated to serve the public interest. Yet it has had a stellar return on investment, outperforming even J.P. Morgan Chase and Goldman Sachs. In its 2019 Annual Report, the BND reported its sixteenth consecutive year of record profits, with $169 million in income, just over $7 billion in assets, and a hefty return on investment of 18.6%.

The BND maximizes its profits and its ability to serve the community by eliminating profiteering middlemen. It has no private shareholders bent on short-term profits, no high-paid executives, no need to advertise for depositors or borrowers, and no need for multiple branches. It has a massive built-in deposit base, since the state’s revenues must be deposited in the BND by law. It does not compete with North Dakota’s local banks in the retail market but instead partners with them. The local bank services and retains the customer, while the BND helps as needed with capital and liquidity. Largely due to this amicable relationship, North Dakota has nearly six times as many local financial institutions per person as the country overall.

The BND has performed particularly well in economic crises. It helped pay the state’s teachers during the Great Depression, and sold foreclosed farmland back to farmers in the 1940s. It has also helped the state recover from a litany of natural disasters.

Its emergency capabilities were demonstrated in 1997, when record flooding and fires devastated Grand Forks, North Dakota. The town and its sister city, East Grand Forks on the Minnesota side of the Red River, lay in ruins. The response of the BND was immediate and comprehensive, demonstrating a financial flexibility and public generosity that no privately-owned bank could match. The BND quickly established nearly $70 million in credit lines and launched a disaster relief loan program; worked closely with federal agencies to gain forbearance on federally-backed home loans and student loans; and reduced interest rates on existing family farm and farm operating programs. The BND obtained funds at reduced rates from the Federal Home Loan Bank and passed the savings on to flood-affected borrowers. Grand Forks was quickly rebuilt and restored, losing only 3% of its population by 2000, compared to 17% in East Grand Forks on the other side of the river.

In the 2020 crisis, North Dakota shone again, leading the nation in getting funds into the hands of workers and small businesses. Unemployment benefits were distributed in North Dakota faster than in any other state, and small businesses secured more Payroll Protection Program funds per worker than in any other state. Jeff Stein, writing in May 2020 in The Washington Post, asked:

What’s their secret? Much credit goes to the century-old Bank of North Dakota, which — even before the PPP officially rolled out — coordinated and educated local bankers in weekly conference calls and flurries of calls and emails.

According Eric Hardmeyer, BND’s president and chief executive, BND connected the state’s small bankers with politicians and U.S. Small Business Administration officials and even bought some of their PPP loans to help spread out the cost and risk….

BND has already rolled out two local successor programs to the PPP, intended to help businesses restart and rebuild. It has also offered deferments on its $1.1 billion portfolio of student loans.

Public Banks Excel Globally in Crises

Publicly-owned banks around the world have responded quickly and efficiently to crises. As of mid-2020, public banks worldwide held nearly $49 trillion in combined assets; and including other public financial institutions, the figure reached nearly $82 trillion. In a 2020 compendium of cases studies titled Public Banks and Covid 19: Combatting the Pandemic with Public Finance, the editors write:

Five overarching and promising lessons stand out: public banks have the potential to respond rapidly; to fulfill their public purpose mandates; to act boldly; to mobilize their existing institutional capacity; and to build on ‘public-public’ solidarity. In short, public banks are helping us navigate the tidal wave of Covid-19 at the same time as private lenders are turning away….

Public banks have crafted unprecedented responses to allow micro-, small- and medium-sized enterprises (MSMEs), large businesses, public entities, governing authorities and households time to breathe, time to adjust and time to overcome the worst of the crisis. Typically, this meant offering liquidity with generously reduced rates of interest, preferential repayment terms and eased conditions of repayment. For the most vulnerable in society, public banks offered non-repayable grants.

The editors conclude that public banks offer a path toward democratization (giving society a meaningful say in how financial resources are used) and definancialization (moving away from speculative predatory investment practices toward financing that grows the real economy). For local governments, public banks offer a path to escape monopoly control by giant private financial institutions over public policies.

This article was first posted on ScheerPost.

The post Will 2021 Be Public Banking’s Watershed Moment? first appeared on Dissident Voice.

Vaccinations and Stimulus Packages Won’t Mend the Economy

The social and economic destruction engulfing the U.S. and dozens of other countries remains out of everyone’s control and more chaos, instability, and insecurity now mark the global landscape.

The ruling elite have repeatedly shown their inability to tackle any serious problems effectively. They are at a loss for how to deal with current problems and refuse to consider any alternative to their obsolete economic system. The best they can do is recycle old ideas to maintain their class power and privilege. Their efforts to block the New focus mainly on promoting disinformation about “new and better forms of capitalism,” including oxymorons like “inclusive capitalism,” “responsible capitalism,” and “ethical capitalism.”

Since the outbreak of the “COVID Pandemic” in March 2020 every week has been a roller coaster for humanity. The economy and society keep lurching from one crisis to another while incoherence and stress keep amplifying. It is said that 1 in 6 Americans went into therapy for the first time in 2020.

Unemployment, under-employment, inequality, mental depression, anxiety, suicide, environmental decay, inflation, debt, health care costs, education, and poverty are worsening everywhere. Thousands of businesses that have been around for years keep disappearing left and right.

Top-down actions in response to the “COVID Pandemic” have made so many things worse for so many people. Many are wondering which is worse: the covid-19 virus or the top-down response to the pandemic. Governments everywhere have steadfastly refused to mobilize the people to solve the many problems that are worsening. The moral climate is low and more people are worried about the future.

An atmosphere has been created whereby people are supposed to feel like the exhausting “COVID Pandemic” will last forever and we can all forget about getting back to any normal healthy non-digital relations, activities, and interactions. No society in history has worn face masks for an entire year. We are told over and over again that there is no returning to anything called “normal.” Moving everything online and repeatedly asserting that this is great, “cool,” and wonderful is proving to be unsatisfactory and unfulfilling. People want and need real, direct, non-digital connections and interactions with other human beings. Life behind a screen is not life.

Even with all the restrictions and shutdowns the virus, according to the mainstream media, continues to wreak havoc at home and abroad. It is almost like none of the severe restrictions on people’s freedoms made any difference. People have had to endure this humiliation while also not being permitted any role in deciding the aim, operation, and direction of the economy or any of the affairs of society; they are left out of the equation every step of the way and not even asked for superficial “input” that always goes unheeded anyway. Existing governance arrangements are simply not working to empower people or affirm their rights. The people’s interests and will are blocked at every turn by an outdated political setup that advances only the narrow interests of the rich.

Despite intense pressure to blindly rely on the rich and their political representatives to “figure things out,” this is not working. Nor does it help that the mainstream media approaches multiple crises and issues with endless double-talk, disconnected facts, catchy sound-bites, dramatic exaggerations, angry voices, political axe-grinding, and lots of confusion. Coherence and a human-centered outlook are avoided at all costs. People are constantly left disoriented. Jumping arbitrarily and rapidly from one thing to another in the most unconscious way is presented as useful analysis and information. This is why sorting out basic information has become a full-time job for everyone. People are understandably worn-out and overwhelmed. Disinformation overload degrades mental, emotional, and physical health.

The world has become an uglier and gloomier place—all in the name of “improving health.” It is no surprise that a recent Gallup Poll shows that the majority of Americans are extremely dissatisfied with government, the economy, the culture, and the moral climate.

In this hazardous unstable context, there are two ever-present key pieces of disinformation operating side by side. Both are designed to deprive working people of any say, initiative, outlook, or power.

First there is the “once everyone is vaccinated things will be much better” disinformation. This ignores the fact that capitalist crises have endogenous causes not exogenous causes and that the economic crisis started well before the “COVID Pandemic.” More than 150 years of recessions, depressions, booms, busts, instability, chaos, and anarchy have not been caused by external phenomena like bacteria, germs, and viruses but by the internal logic and operation of capital itself. A so-called “free market” economy by its very nature and logic ensures “winners” and “losers,” “booms” and “busts.” It is called a “dog-eat-dog” fend-for-yourself competitive world for a reason. The modern idea that humans are born to society and have rights by virtue of their being is alien to “free market” ideology.

Despite the fact that millions have been vaccinated at home and abroad, poverty, inequality, unemployment, debt, and other problems continue to worsen. Businesses continue to suffer and disappear. Hospitality, leisure, recreation, and other sectors have been decimated in many countries. Air travel is dramatically lower. So are car sales. It is not enough to say, “Yes, the next few months will be rough and lousy economically speaking but we will get there with more vaccinations. Just be patient, it will all eventually work out.” This is not what is actually unfolding. The all-sided crisis we find ourselves in started before the “COVID Pandemic” and continues unabated. Such a view also makes a mockery of economic science and the people’s desire to decide the affairs of society and establish much better arrangements that exclude narrow private interests and do not rely on police powers.

In the coming months millions more will be vaccinated but economic decline and decay will continue. Both the rate and amount of profit have been falling for years. And owners of capital are not going to invest in anything when there is no profit to be had and when it is easier instead to balloon fictitious capital and pretend everything is a stock market video game. The lack of vaccinations did not cause the economic collapse the word is currently suffering through, nor will more vaccinations reverse economic decline and decay. The “COVID Pandemic” has largely made some people vastly richer and millions more much poorer. The “COVID Pandemic” has significantly increased inequality. Unfortunately, the so-called “Great Reset” agenda of the World Economic Forum and Pope Francis’s recent call for a “Copernican Revolution” in the economy will make things worse for millions more because they will perpetuate the existing moribund economic system. Such agendas are designed to fool the gullible, block working class consciousness and action, and keep the initiative in the hands of the global oligarchy.

The same applies to so-called “stimulus packages.” Various versions of these top-down monetary and fiscal programs have been launched in different countries, and while they have assuaged some problems for people, they have not been adequate or fixed any underlying problems. They have not prevented poverty or mass unemployment. Economies remain mired in crisis. In most cases “stimulus packages” have made things worse by increasing the amount of debt that many generations will have to repay. This is in addition to the many other forms of debt Americans suffer from and rent payments that will one day have to be paid.

Many are also wondering why trillions of dollars can be printed and instantly turned over to the banks and corporations with no discussion but the same cannot be done for social programs, public enterprises, and the people. Why, for example, can all not get free healthcare or have taxes eliminated? Why can’t various forms of personal debt be wiped out instantly? If the government can print money for “them” why can’t they print money for “us”? Who is government supposed to serve? Billionaires?

Nether the CARES Act of 2020 nor the stimulus package passed in December 2020 nor the one President Biden is pushing for in March 2021 will be adequate or solve any major problems. Many felt that the $600 stimulus checks that went out in December 2020 were pathetic and insulting.

The problem lies with a socialized productive economy run by everyone but owned and controlled by a tiny handful of competing private interests determined to maximize profit as fast as possible regardless of the damage to the social and natural environment. There is no way for the economy to benefit all individuals and serve the general interests of society so long as it is dominated by a handful of billionaires. The social wealth produced by workers cannot benefit workers and the society if workers themselves do not control the wealth they produce and have first claim to.

The outlook, agenda, and reference points of the rich must be rejected and replaced by a human-centered aim, agenda, direction, and outlook. The current trajectory is untenable and unsustainable. The situation is dangerous in many ways, but perhaps one good thing to come out of the accelerated pace of chaos, anarchy, and instability are the contradictions that are presenting new opportunities for action with analysis that favors working people.

The post Vaccinations and Stimulus Packages Won’t Mend the Economy first appeared on Dissident Voice.