American and 3rd World Economics (Published 2011)
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...deficits don't matter -Dick Cheney
Meanwhile states across the country pass voter ID laws (which equate to a poll tax). This is done as a way to reduce voter participation.
But let’s rewind for a moment and figure out how all this happened to begin with…
During the 2010 election cycle all we heard about was jobs, jobs, jobs. With good reason, considering that since the economic collapse of 2008 the unemployment rate has risen dramatically. According to Google the unemployment rate was at 4.4 percent in May 2007 and by May 2011 it was 9.1 percent. So the newly elected Republicans and speak Boehner said it is time to get to work on jobs. Mitch McConnell was then quoted as saying “The single most important thing we want to achieve is for President Obama to be a one-term president." The republican goal is not to increase GDP or create jobs. The GOP is not going to fix problems but rather obstruct and exacerbate existing troubles we face in the United States.
Meanwhile states across the country pass voter ID laws (which equate to a poll tax). This is done as a way to reduce voter participation.
But why would the republicans want to restrict voting rights? The Tea Party was a populist movement right? Watch this clip of Paul Weyrich (founder of the Heritage Foundation) from 1980.
But let’s rewind for a moment and figure out how all this happened to begin with…
The number one problem in the United States is the expansion of income inequality. The average American worker has not seen an increase in wages over the last 30 years. According to Michael Snyder in 1950 the ratio of earnings between average executive and worker was about 30:1. In the last 10 years that ratio has varied between 300:1 - 500:1. While the rich have gotten richer and corporate profits have increased (although not at the rate in the increase in CEO pay, which makes one wonder how they can justify the increase in payment) taxes are at historic lows. In 2008 taxes on corporate income as a percentage of GDP was 1.8 percent. Iceland was 1.9 percent and they had a worse disaster economically than the United States. By comparison 19 countries had a rate that was 3 percent or greater and the average was 3.5 percent globally. Bruce Bartlett notes that
…federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget.
The postwar annual average is about 18.5 percent of G.D.P. Revenues averaged 18.2 percent of G.D.P. during Ronald Reagan’s administration; the lowest percentage during that administration was 17.3 percent of G.D.P. in 1984.
The “Bush Tax Cuts” have cost our national treasury $2.5B. These numbers demonstrate the laissez faire style or supply side economics of Milton Friedman. The thinking is that when large corporations have greater capital they can expand production leading to an increase in jobs and therefore economic growth. These profits do not “trickle down” to the working classes. More jobs were created while Bill Clinton was President than during the Reagan, Bush 41 and Bush 43 Presidencies combined. Exxon Mobile last year was the most profitable company EVER. The reason: simply, Supply Side Economics (Reaganomics/trickle down) does not work.
There is only so much money one person/family can spend. An average family earning $50-$100k per year will likely spend most (nearly all) of that between housing, food, vacation, entertainment, cars, education, clothing medical expenses, etc. But as Robert Reich (Former Secretary of Labor) noted in his book Aftershock in 2007 Bank of America CEO Kenneth Lewis made almost $100M. To spend that much money he would have to spend $380 per minute. This is a feet that is nearly impossible. The dollars that working families earn go directly back into the economy. The $100 million that Kenneth Lewis earned sits there and does not stimulate the economy.
Things like unemployment benefits dollar for dollar have a greater impact on the economy than a tax decrease for the wealthy. The reason is known as a multiplier effect. The money that someone receives via unemployment immediately goes back into the economy through the purchase of vital goods and services such as food and housing or auto repairs and medical services.
Housing
The housing boom and bust drained consumers of their spending potential. As housing prices increased home “owners” drew out their equity to buy cars and boats. Consumers were sold mortgages without being told the necessary disclosures. CountryWide Financial was one of the largest home loan lenders in America and their sales people were instructed to get people to agree to a home loan within five minutes of speaking to someone over the phone. Angelo Mozilo CEO of CountryWide Financial recently settled for $73M with the SEC to avoid a trial and fraud charges. This was touted as a victory even though he made $260M between 2005-2007.
Why is fraud important when dealing with Sub-Prime mortgages? Other than ripping off consumers and selling them into loans they could not possibly pay… Sub-Prime mortgages were packaged together and sold as a commodity known as a Credit Default Swap/CDO. CDO’s work like this...
Mortgages are packaged together as a security that is sold to investors. This does one thing in particular that was dangerous for the economy. Loans did not need to be backed by anything. Often loan applications would be done as an “income stated” loan. This means the person seeking the loan would only need to provide a verbal statement regarding how much they earned each year. One can guess (correctly) that these applications would have false data.
The loan would be sold by the originator (therefore, losing all the risk because they already made their commission on the loan) to a larger investment firm (Lehman Bros, JP Morgan, etc). Once the sub-prime loans were sold to the brokerage house they were traded as part of a system that includes “tranches”.
Tranches are tiers of an investment. The tiers have varied risks and payout procedures. Think about a building with multiple floors. The first floor is a riskier investment but it pays out quicker while the top floors are “safe” investments that pay out progressively later.
The subprime mortgages would be packaged together with a few traditional mortgages to increase their rating as an investment even though they would be “piles of crap” (which I think is a technical term). After a while however, the sub-prime mortgageswere packaged alone and the ratings agencies (S&P and Moody’s) “assumed” that about 80 percent of securities would receive the AAA rating. Economists estimated that the securities would only have been comprised of 10-15 percent sub-prime mortgages but that figure was actually closer to 85-95 percent. Most of the sub-prime loans had a 2 year teaser interest rate (allowing borrower to pay interest only, or an adjustable rate loan) so they were ticking time bombs waiting for their ARM to expire. Then investors would buy the Credit Default Swaps taking out insurance (AIG for one) against the Securities sold as AAA.
The insurance was a bet against the existing securities that were known to be "piles of crap".
After all this no one went to jail except possibly one junior executive and Bernie Madoff. His crime was stealing from Rich People I would have to assume.
Voting
All of this helps the richest 1 percent of people in America. The goals of the Republican party is not to broad the base of people but rather limit those with power. The voter ID Laws are said to fight corruption and voter fraud. But voter fraud is almost nonexistent in the United States (about 20 cases and 3 convictions per year). In Texas a citizen can get around the voter ID law if they have a conceal and carry permit... now who are those people most likely to vote for?
The Debt Ceiling
The debt ceiling has been raised 60 times in the last 50 years without much of a peep. The downgrading of the American credit is the result of a Manufactured crises. The democrats caved to the demands of the Republicans who have sold their allegiance to Grover Norquist who makes the GOP Candidates sign a pledge saying they will not raise taxes under any circumstance. I really question the constitutionality of signing such a pledge. How can anyone be an honest actor with this kind of albatross around their neck. The GOP will not raise taxes under any circumstance and the Demorats will certainly cave in as about half are corporate Democrats any how.
Solutions
We need to end the wars in Iraq and Afghanistan. The question from an economic perspective what would we do with all those soldiers? 1. if the only reason you are fighting a war is that it is employment for thousands that is a grotesque principle. 2. We should get them and many other Americans to work rebuilding American infrastructure. This includes the roads and bridges that we utilize a daily basis but also here is a radical idea. How about we begin on creating a national high speed rail system that can connect cities or how about a national wi-fi system that would help business by increasing the connectivity and therefore productivity through the use of wireless devices. We need to invest in our future today. This is a time to increase funding for schools and police & fire departments. We need to fight the urges of globalization and end free trade agreements Not increase them. Presidential candidates should be ashamed if they find their official t-shirts were made Latin America. We need to have tariffs that can make local companies competitive. This would keep jobs in America.
Voting
All of this helps the richest 1 percent of people in America. The goals of the Republican party is not to broad the base of people but rather limit those with power. The voter ID Laws are said to fight corruption and voter fraud. But voter fraud is almost nonexistent in the United States (about 20 cases and 3 convictions per year). In Texas a citizen can get around the voter ID law if they have a conceal and carry permit... now who are those people most likely to vote for?
The Debt Ceiling
The debt ceiling has been raised 60 times in the last 50 years without much of a peep. The downgrading of the American credit is the result of a Manufactured crises. The democrats caved to the demands of the Republicans who have sold their allegiance to Grover Norquist who makes the GOP Candidates sign a pledge saying they will not raise taxes under any circumstance. I really question the constitutionality of signing such a pledge. How can anyone be an honest actor with this kind of albatross around their neck. The GOP will not raise taxes under any circumstance and the Demorats will certainly cave in as about half are corporate Democrats any how.
Solutions
We need to end the wars in Iraq and Afghanistan. The question from an economic perspective what would we do with all those soldiers? 1. if the only reason you are fighting a war is that it is employment for thousands that is a grotesque principle. 2. We should get them and many other Americans to work rebuilding American infrastructure. This includes the roads and bridges that we utilize a daily basis but also here is a radical idea. How about we begin on creating a national high speed rail system that can connect cities or how about a national wi-fi system that would help business by increasing the connectivity and therefore productivity through the use of wireless devices. We need to invest in our future today. This is a time to increase funding for schools and police & fire departments. We need to fight the urges of globalization and end free trade agreements Not increase them. Presidential candidates should be ashamed if they find their official t-shirts were made Latin America. We need to have tariffs that can make local companies competitive. This would keep jobs in America.
