Politics, the Stock Market and Debt

Since January 1, 2016, the news from Wall Street has been discouraging.  The Dow Jones Industrial Average is down by something around 7% and the other indices have not performed well either.  Nor have other markets internationally been doing well .  Additionally, Wall Street did not perform well during the last two months of 2015 either.

During the earlier few years, as the stock indices kept pushing relentlessly higher and higher, there weren't too many who were questioning what caused such an unprecedented phenomenon.  However, now, as billions and billions get burned into ashes day after day, many are asking why.

There is one factor, however, which, to some observers at least, has not escaped consideration.  For years following the financial collapse of 2008, the Fed, the Federal Reserve Bank, had been pumping something on the level of $ 70 billion into the financial markets and the stock market, each and every month.  That, under a theory which Mr. Bernanke, the former Chairman of the Fed, called „Quantitative Easing,” whatever that means and something which President George H. W. Bush, the elder President Bush, may have called Vodoo Economics.  Some say the monthly amount by the Fed into the Financial Markets for years and years on end might have been less, some, maybe even more, but all agree that the amount of money pumped into the markets was enormous, beyond anything which one could possibly comprehend.

As we observed here a good while ago, to put this into perspective, $ 70 billion pumped into the financial markets every month would be the equivalent of giving, in cash, more than $ 17,000 each month to every man, woman and child in the United States.  That, most of us agree, is a staggering sum of money for years and years on end and, indeed, $ 17,000 in the hands of every living person in the United States, month after month after month, could have probably done as much, if actually not even much, much more (and more quickly) in pulling the United States out of the financial crisis which has been generously described as the Great Recession, which, we are not sure, is better or worse than a Small Depression.

The total sum of money which the Fed pumped into the markets is technically not part of the Federal Budget and did not have to be approved by Congress.  Technically, it is backed by securities of various sorts which have been purchased by the Fed but, which, if they decrease in value or fail, would create an additional debt incurred by the Federal Government.

It is relatively easy to see that, during this period,  except for the most inept, everyone made money on the Stock Market and other Financial Markets.  Perhaps it is not that much more difficult to see that once this money source dried up, the demand to buy securities, dropped correspondingly.

We all suspect, although no one knows for sure, that this extraordinary „Financial Tool” as former Secretary of the Treasury Paulsen, ex Goldman Sachs described it, ended sometime around November 2015; around that time and shortly before, the blame for the instability in Financial Markets was thrown on the Chinese; surely the Chinese bear some of the blame for what is going on but not all of the blame.

There is, however, a footnote to this which is particularly worrysome.  Currently the United States Treasury carries a national debt of something on the order of $ 19 trillion.  That, of course, is a staggering amount of debt; representing something like 20 years of Wall Street „Quantitative Easing.”   The Fed has been extremely careful in swapping these federal debt obligations for longer and longer terms, for up to 20 years, „locking in” near zero interest rates.  However, as the Fed has been forced to start inching up the interest rates, the new debt coming in from federal deficits (along with any other debt renewals has started inching upwards; this, in effect, accelerates the rate at which the national debt would increase, since none of the debt is being retired; actually, new debt has been piling up which, accordingly, would also have to be financed at the current and coming higher rates.

Mrs. Yellen, the current Fed Chairman has been trying to navigate through these treacherous and, one can even say, with much vigor and wisdom, although, regrettably, she has few allies; the current Federal Budget, not yet even agreed upon is in danger throwing the federal deficits into an even worse quagmire.
 

The Runaway Money Printing Policy of the Fed(eral Reserve Bank)

Fresh on the Heels of the Government Shutdown and the painful Necessity to raise the Debt Ceiling a surprising but not unexpected Announcement from the Fed, in the waning Days of the Chairmanship of Mr. Bernanke:

http://www.nbcnews.com/business/fed-says-it-will-keep-stimulating-economy-leaves-rates-unchanged-8C11498307

Basically, the Fed, under Mr. Bernanke's Policy of so called „Quantitative Easing” just announced that will be pouring another $ 85 Billion into the Stock Market, buying Bonds, each Month, for the foreseeable Future, until at least March ofr 2014.  This is Money which is not reflected in the Federal Deficit and Money which the Government neither has, nor has authorized through Congress.  The Report further states and we are quoting here,

Wall Street had expected the Fed to refrain from tapering its so-called Money Printing Operation. (Emphasis added).

According, to The New York Times,on the other Hand,

The statement contained no surprises, and the stock market barely budged. The Fed was widely expected to continue adding $85 billion a month to its portfolio of Treasury securities and mortgage-backed securities, particularly in the aftermath of the disruptive partial shutdown of the federal government in the first half of October.

The Fed maintained a relatively optimistic economic outlook in the statement, released after a scheduled two-day meeting of its policy-making committee. It said the economy continued to expand “at a moderate pace” and that the availability of jobs continued to improve.

Now, as Mr. Bernanke prepares to clean up his Desk and leave his Office at the Federal Reserve, the several Trillion Dollars that he has spent, under this ill advised Policy will, of course, remain on the Books backed by Bonds.  What Kind of Bonds?  Goodness only knows.  It will be Mrs. Yellen's Job, presumably, to find out.

This stubborn Policy, pursued by Mr. Bernanke, to „Lift the Economy by the Bootstraps” under some strange Trickle Down Theory strongly reminsicent of „Reaganomics” has been conducted by Mr. Bernanke, if not singlehandedly, because he has had the Concurrence (although not unanimous) of the Federal Reserve Board Members, certainly without the Approval, Appropriation or even Advice of Congress nor that of the President of the United States.

It is true, that the Federal Reserve Board is supposed to function independently.  One wonders aloud, however, if under „independently” the Framers of the Law setting up the Federal Reserve Bank had in mind it spending $ 85 Billion per Month without any Accountability whatsoever.  No such Thing has ever been done by anyone else, anywhere, ever, with the one notable Exception of Vice President Cheney, who spent Billions on the War in Iraq, also without Congressional Approval.

It must be said, in Defense of Mr. Cheney, that the Sums of Money he spent pale in Comparison to the Amounts being spent by Mr. Bernanke.

This is also coming at a Time where incalculable Effort has been spent on showing that there has not been and there is going to be Little if any Inflation in the Consumer Price Index.

It would take too long to fully examine what that Statement is supposed to mean.  However, in Shorthand, it can safely be said that „No Inflation” means „No Inflation” except that certain Things are not to be included in the Equation, to mention a Few, Energy (Fuel and Utilities), Housing, Commodities (Food) plus a Couple of other Things here and there...

Even that Theory, as flawed as it is, has come under Scrutiny by the Mainstream, although many Economists have questioned ist Wisdom for a long Time.

See...

http://www.nytimes.com/2013/10/27/business/economy/in-fed-and-out-many-now-think-inflation-helps.html?nl=todaysheadlines&emc=edit_th_20131027&_r=0


Janet Yellen, the presumptive incoming Chair(wo)man of the Federal Reserves disagrees with Mr. Bernanke and believes that a draconian Control on Inflation (while notably excluding the Categories noted above and more) is not necessarily a beneficial Policy.

But the Consequences will be for her to sort out, once Mr. Bernanke leaves.

We are not sure where Mr. Bernanke is headed; Rumours have persisted and it appears that it is his wish to return to teaching at Princeton University; we simply don't know.  Earlier, we mentioned, we believe more than once, that President Woodrow Wilson (who was also President of his beloved Princeton University), may have rolled in his Grave (more than once) at the Thought of some of the Things that Mr. Bernanke did; to this, we need to add that he surely would have also scratched his head, if he would have been able to.

The Need for a Positive Approach to the Medical System in the United States

The First Thing that needs to be said here is that the Medical System in the United States does need to be drastically reformed.  It is the most expensive Medical System in the World and No. 2 does not even come close.  To make Things worse, someone who lives in the United States has about the same Life Expectancy as one does in Cuba, Way behind Places like Japan, Italy, France, Switzerland, Germany or, say, even behind Singapore or Cyprus.

 

Chart showing the astronomical Rise of Health Care Costs in the United States

The Health Care Reform Act (so called „Obamacare”) is an Attempt at doing precisely that.  However, what started as a well intentioned and even noble Effort was deteriorated by Compromise after Compromise and became filled with Loopholes which, not unexpectedly, Health Insurance Providers are eagerly trying to exploit.

Just to set something in Perspective:  the United States has the highest paid Doctors in the World.  Many Doctors who graduate from Medical School in Foreign Countries, where the Cost of getting this Education is Zero or near Zero, trek over as soon as they can to the United States where they can earn 100 Times or 1.000 Times more than they can in the Country where they went to School, leaving their Governments angry at having invested in their Education but not being able to retain Doctors in their own Country, where they are so desperately needed.

Doctors are just one additional Problem.  Hospitals have in place Elaborate Systems to extract the Maximum possible Revenue not only from Insurers but from the Government as well, when providing Medicare or Medicaid covered Services.  Both the Government and Insurance Companies fight back.  Some think, Hospitals know how to outsmart not only the Insurance Companies but, more importantly, the Government.

If you are an Individual who would pay out of your own Pocket for Medical Care without having any Insurance, forget it.  The so called „List Prices” for Facilities and Services could be (and generally are) several Times higher than what the contracted Prices which the Insurance Companies or the Government pays are.

One Example that has been used alegorically over and over is the Cost of an MRI, which is the modern Version of a simple X-Ray.  Sometimes, just an X-Ray might suffice but, not surprisingly, Hospitals almost exclusively do MRI's which can be/are far more profitable.  Just how profitable?  The List Price for an MRI can vary, are you ready for this, anywhere from $ 800,00 up to $ 17.000,00 at some Hospitals.  And that, according to a recent investigative Report, for the same exact Procedure.

Ever wondered what an MRI costs in Germany?  We can end your Suspense:  $ 160,00.  France:  $ 160,00.  Italy?  $ 140,00.  Japan, which has one of the highest Cost of Living Indexes in the World?  $ 60,00.  All, using the same Equipment.  Now, an MRI is no indication of how long you are going to live but it can be more than a Coincidence that People in Japan live the longest followed by those in Italy.

There have been well publicized Problems with the Federal Government's Health Insurance Marketplace Website; These were not to be unexpected and certainly will be resolved, probably sooner rather than later.  The Problem, however, lies deeper than that.

Most People are clearly dissatisfied with the Situation as it currently stands and is developing.

http://firstread.nbcnews.com/_news/2013/10/30/21252291-poll-majority-think-health-law-needs-overhaul-or-elimination?lite

The Question, we believe, is just what Kind of a Path is necessary to go forward, whether Congress, the Health Insurance Industry, Hospitals, Doctors and Health Workers want to hear it or not.  Health Care in the United States consumes, if one includes the Cost of Litigation (such as Malpractice) associated with Health Care to more than 18% of the GNP, a staggering Amount.  Even without the Cost of Litigation, it is in Excess of 16%.  Some sort of National or quasi National Reform which would include Coverage ensuring reasonably unform Health Care for all Americans is not only necessary, but also overdue, way, way, way overdue.  Bismark figured this out way back in the 1890's.  Every other industrialized Nation and many others in the lower Tier have some System to deal with Health Care for its Population in some Form or another.  There are Similarities as well as Differences between the Systems that various Countries use.  That is not only understandable but to be expected.

And, as President Obama stated (and conceded, although others did not), one must start from building by drawing on the System that is already in Place.

Looking at the American Precedents already in Place, why not keep everybody's Insurance where it is (which is what was originally envisioned), take all the uninsured under the Threat of a Penalty (as the Legislation does now) and throw them into a Medicare/Medicaid/quasi Medicare/Medicaid Program and then, based upon Verification of Employment or Self Employment, charged them a Premium based on Income/Ability for Coverage.  Then take the Insurance Premium which would be actuarially appropriate for that Individual and throw it on an Insurance Company based on a statistical Pool.  Insurance Companies which throw Individuals out of their Plans hoping to cash in on the Bonanza, would be discouraged in doing that because all that would happen to those Cases is, the Government would turn around and throw the Policies back at them through this Assigned Risk Pool and charge the Premiums which should prevail; they would be the same or lower as what the Individuals would have had under their previous Plan, since the Insurance Companies would try to change the Insurance Plan only for those who they thought they could get more Money from.

Bottom Line, except for General Rate Revisions (which is not what one should be talking about right now), all Insurance Health Insurance Policies which are already in Place, should not be changed based on „Technicalities” (Change in Provisions, number of Insured Covered and so on).  This, however is not what is happening right now and, some say, 14-18 Million Americans could be either left without Health Coverage or be forced to pay significantly higher or exorbitant Rates or, worse, be thrown out of the Insurance Pool altogether.  This is the very opposite of what the Law is trying to accomplish.

http://investigations.nbcnews.com/_news/2013/10/29/21222195-obama-administration-knew-millions-could-not-keep-their-health-insurance?lite

Another Thing that would resolve the Mess (this, based on Systems used in other Countries); if you are unemployed (with insufficient Assets), then the Government picks up the Insurance Premium until you are re-employed; if you are married, then the whole Family is covered under the Premium, even if Wife (oops! Or Husband)/Children are unemployed/not working and if your Wife/Child/ren seek/obtain Employment, they do have to pay their Premium and so do you.  Translation:  everybody working pays a Premium and everybody not working has Insurance based on working Family Member(s) or the Government.  Retirees would continue to get Medicare as they currently do.  Medicare Part B is already based on Ability to pay, since the Cost incurred by the Government per Beneficiary is $ 400,00 or so.  Most pay $ 100,00 or so but, even if on Medicare and having Part B, if someone has or is making abover certain Thresholds, they have to pay more, up to the entire $ 400,00 or so.  Finally, for Retirees, the Concept that Medicare Part A is paid 100% by the Government for all, then Medicare Part B is paid partially by the Government for most and that, regardless, on Top of that, one needs still additional Insurance in Order to reach a Deductible Level which they can afford...well...that sounds, no it doesn't sound, it is a Can of Worms in which Doctors, Hospitals, Clinics and Insurance Companies only see Billions and Billions of Dollar Signs.

 

Finally, someone woke up and removed the Cap on the Medicare Tax.  That is a good Thing.  Currently, however the Medicare Tax Rate is 0,9%.  Why the Medicare Tax Rate (which is supposed to cover  Medicare Costs on a current Basis...those working today pay for the Health Care of Retirees) does not even come Close to covering what it costs the Government to provide Medical Care to Retirees defies Credulity.  Keep in Mind, this is just to draw a Parallel on Priorities, The Fed(eral Reserve Bank), (Mr. Bernanke), is spending $ 82 Billion a Month (a Figure not included in the Federal Deficit), simply for his Quantitative Easement Theory (he would call it a Policy), the only tangible Result of which has been to propel the Stock Market (Dow Jones) to over 15.000 Points.

 

 

Cyprus and the Stock Market

This Column has long been critical of the Policies of The Federal Reserve and others, but particularly those of Mr. Bernanke, by pointing out the Low Interest, Easy Money Policies which The Fed has pursued, not only under Mr. Bernanke but also before (under Mr. Greenspan, for Example), but Policies which have been exacerbated during the Tenure of Mr. Bernanke.

Particularly, in the View of this Column but not only this Column, in the Opinion of others, including many respected Economists both in the United States and elsewhere, the Policies of the Fed have made it possible for the Stock Market to propel to Record Highs, in the Face of a languishing Economy, High Consumer Debt, the Mortgage Crisis, staggering Federal Deficits and so on.

Interesting, however, have been some of the Explanations which have come forward in order to explain the relentless upward Gyrations of the Stock Market from various Apologists and Allies of these Policies, including but not limited to, that Financial Powerhouse known as Goldman Sachs which, some consider to be an Arbiter of the Financial Movements on the Stock Market.

One of the Arguments most strongly pursued by these Apologists has been the „Global Nature” of the Stock Market, meaning that the World Economies are so tightly intertwined that the Stock Market represents not only a Barometer of the U. S. Economy but of the Global Economy and Financial Movements as well.

So, along this Week comes an „Inconvenient Truth,” that of a little Insular Country in the Eastern Mediterranean called Cyprus, a place many People have not even heard of.

Cyprus

Cyprus is a relatively tiny Island with enthic Problems of its own but which joined the Euro and, because of its unique Location, it attracted immense Offsore (well, Cyprus itself is Offshore!!!) Deposits from Russia and elsewhere.  Because Cyprus has close Relations with Greece, much of these Deposits were invested in Greece and other Places where they should not have been invested and the Result has been a Financial Disaster which may cause two or more of the Cyprus Large Banks to collapse and drag the whole of Cyprus into Collapse with them. 

Unspoiled Cyprus Shoreline

The European Central Bank has orchestrated a „Bailout” of Cyprus but, mindful of the Disaster in Greece and looming potential Disasters in Spain, Portugal, Italy or even France, it has „linked” the Bailout to a 10% Expropriation to be levied on all Savings Accounts, in order to help pay for the Bailout.  Although this was later modified to apply only to Savings Accounts above a certain Limit, the Resistance to such a Plan was monumental.  After considerable Turmoil on the Streets, accompanied by a „Bank Holiday” which caused a horrifying Liquidity Crunch in a Matter of Days, the Cypriot Parliament turned down the „Help” thus forcing the Situation forward into uncharted Waters.  Whereas, earlier, Huge Banks such as Deutsche Bank and, possibly, some American Banks and other Foreign Banks were not allowed to fail because of the Greek Financial Crisis (The „Too Big to Fail” Theory), large Cypriot Banks, tiny in comparison to Multinational International Banks may be allowed to fail.  We simply don't know.

However, all this presents a Dilemma for the Apologists and Supporters of the Stock Markets in New York, where the Dow Jones Industrial Average just recently catapulted, at galloping Speed, over the 14,000 Mark, citing, „Strength in the Economy.”

So, the following Explanation came forward:  it said, the  Cyprus Financial Crisis will actually help U. S. Markets because Investors will have no Choice but to seek Refuge in the U. S. Markets.  Throw out the Window „Globalisation,” High Unemployment, Horrendous Deficits, Disastrous Balance of Payments and, lest we forget, „Derivatives” championed by many, not least of whom, Goldman Sachs, which brought the United States Economy and Banking System to the Brink, requiring huge, partly unfunded Bailouts not only of Banks, but of huge other Institutions and Corporations.

It goes without saying that Mr. Bernanke, who has announced his Departure when his current Term expires, has remained silent on this Matter.  The Fed continues, during this continuing Series of Crises, to keep open „The Discount Window” where large, „Too Big to Fail Banks,” (and Financial Institutions, such as Goldman Sachs) can borrow Money at near Zero Interest Rates, while ordinary Citizens must struggle with Mortgage Foreclosures, Credit Card Debt and Student Loans.

„Irrelevant,” one can hear them say.  The Dow Jones has pushed through 14,000 and the Economy is on the Mend.  Global Economy or no Global Economy, Cyprus is 6.000 Miles away from New York.  We simply wonder, how are they measuring the Distance?  Globally, as on a Globe, or Flat Distance, as they did at one Time when everybody thought the Earth was flat and all you had to do in order not to fall off is not go too close to the Edge.
 

No Inflation...so they say

According to the Department of Labor, U. S. Consumer Prices increased 0,7% in February.  More troublesome yet, the Department reports that Gasoline Prices shot up 9,1% during the same Period.

http://www.nbcnews.com/business/economywatch/consumer-prices-soar-inflation-check-1C8886085


However, the Federal Reserve, under the Ægis of its Chairman, Mr. Bernanke, states that there is nothing to worry about.

Go figure...

But this is nothing new.  For some Reason, for Years now, the Federal Reserve gets to decide which Price Increases are inflationary and which are not...everyione else just gets to pay more...

1 January 2013 The ,,Fiscal Cliff’’

Folks,

As you let the Bubbly flow for the New Year 2013, as you listen to President Obama saying ,,A Deal is within Reach,’’ as you try to make sense of all this,

Forget about Reaganomics,
Forget about Clintonomics,
Forget about Bush whatever ,,Nomics’’ (Bush, George W., not Bush, Herbert G. W.)
Forget about Obamanamics,

what these Guys are doing is just not fair.

You cannot have, one cannot have, this Country cannot afford what George Herbert W. Bush called what all this actually is, what he called it, by its real Name:

,,Voodoo Economics.’’

Simply put, you cannot lower Taxes, go to War in two Countries, engage in Bailouts of astronomic Proportions, attempt to get out of the most severe Recession since the Great Depression (which no one dares call a Depression) plus do all of the ,,Regular Government Business’’ and allow the Stock Market to go up to 13.000 Points due to, among other Factors, Tax Cuts, Wholesale Tax Loopholes and the Largesse of the Federal Reserve Bank, a Policy which Mr. Bernanke calls ,,Quantitative Easing.’’

Write or call your Senator.  Write or call your Congressman.  Inform The White House of what you think, regardless of whether you agree with the Opinions or the Policies advocated here.

No Matter how much the Members of Congress and the President are getting paid and they are getting paid more than most Americans, their Inability, Unwillingness or Failure to deal with this Issue in a fundamental Manner, other than the Quilt Patchwork Approach which has become ,,Modus Operandi’’ they are, measured by any Corporate or other Performance Standards, getting paid too much.

Remember, any Announcement of a Deal being reached is premature and not really indicative of what is happening.  Assuming the Deal to let the Bush (George W.) Tax Cuts expire for those earning more than $ 400.000,00 and $ 450.000,00 respecdtively, along with the indispensable Social Security (Payroll) and Inheritance Tax Increases, there are still enormous Issues ahead:  ,,Sequestration’’ and increasing the Debt Ceiling Limit.

Write.  Write today.  Write tonight.  It could be the most important New Years' Message or Resolution you have made.

31 December 2012 - The Fiscal Cliff and Negative Energy

The Reality of the impending ,, Fiscal Cliff ’’ has reached Washington, today, New Year's Eve.  After Weeks of Predictions by various Pundits both inside and outside of the Government that a ,, Last Minute Deal ’’ would be reached, now, it appears that, at best, some Sort of ,, Last Minute Patchwork ’’ is the best one can hope for.

Former Senator Alan Simpson was ridiculed by both Democrats and Republicans for uploading a Video on YouTube in which he ,, danced ’’ well, sort of, along a Can of Soda (or, maybe was it a Beer Can?), symbolically pointing out to what is likely to happen, which is, kicking the Can forward.

There are numerous Factors which have contributed to reaching this sad Situation and this Column would like to attempt to refresh our Recollections as to how we may have gotten to where we are and why it seems that both Congress and The President appear so powerless in finding a Solution, a real Solution, not a Patchwork.

To this, we also wish to add the Following Observation.  One of the Attributes which is necessary for the Political Leadership and, yes, the Political Infantrymen as well, to find Solutions to or in difficult Situations is Enthusiasm, Élan and just a pure Desire to get Things (or at least something) accomplished.  This Attribute, this Force is lacking, lacking so glaringly that one cannot but feel the
,, Negative Energy ’’ which surrounds those who must struggle and find a Solution.

But what are the Factors which got the Federal Government into this horrid Situation and who was responsible for getting us there?  The List is long.  Below, we can only attempt to enumerate some of the Factors, likely important ones but certainly not all of the important ones along with Reasons why addressing these Problems is ultimately necessary in order to address the ,, Fiscal Cliff ’’ as well as the surrounding Decisions which need to be made (increasing the Federal Debt Ceiling).

§  Afghanistan - Defense Expenditures.  It is generally accepted by a good Number of People now that the War in Afghanistan has been a Financial Disaster.  Expenditures in Afghanistan as well as Iraq and Pakistan need to be addressed as President Reagan would have put it, with a
,, Red Pencil.’’ 

§  Income Tax Rates.  It is Time not only for the Republicans but for everyone else to recognize that the Principle of
,, Reaganomics ’’  which theorized that the Government can eventually raise more Revenue by lowering Taxes (and stimulating the Economy) is, basically, what President G. Herbert Walker Bush called ,,Voodoo Economics.’’  Moreover, specifically as to Corporate Income Tax Rates, while it is true that some Industrialized Countries have lower Corporate Income Tax Rates than the United States, none has the Array of Tax Deductions and Loopholes, some, custom written by Congress which are available to many large Corporations in the United States.  Returning to the pre-Bush (G. W. Bush) Era Tax Cuts for People earning in Excess of $ 250.000,00 is really not only a modest but also a sensible Solution and no credible Argument has been put forward that such a Move would result in the Loss of Jobs or Job Creation.

§  Restore Social Security, Medicare and related Social Costs to the pre Clinton Status Quo of ,,Trust Funds.’’  This will prevent future Presidents from claiming that they have ,,balanced the Budget’’ by shifting Funds around and raiding Funds which show large Surpluses (or even small Surpluses).

§  Remove the Social Security Tax Cap which currently stands at $110.000,00.  Think about this for a Minute.  More important than the Rate paid by Employees (currently lower than the Rate paid by the Employers, somebody forgot the ,,creating Jobs’’ Argument on that one by not reducing the Employers’ Contribution Rate) is that all the huge Earnings by Corporate Executives and Wall Street Bonus Recepients are exempt from Social Security Taxes; once they've paid the $ 110,000.00, the are home free.

§  Put Pressure on the Federal Reserve in general and Mr. Bernanke in particular to abandon ill advised Theories of ,,Quantitatve Easing’’ and what not by pouring Billions of Dollars into the Stock Market.  This is simply irresponsible.  The Stock Market is jittery at the Prospect of the Fiscal Cliff simply because it loves ,, Easy Money.’’  Even though the Stock Market has propelled to new Heights since the Start of the Fiscal Crisis (generously not referred to as a Depression but as a Deep Recession), this has had very little Impact, if any, on the Economy.

§  Abstain from huge Expenditures into Support Ventures
(,, Bailouts ’’) of large and even not so large Corporations such as AIG, General Motors, Solindra and others.    Although AIG has technically repaid all of the Government Loans this does not  account for Billions of Tax Breaks which AIG has received from the Government.  Besides, much of AIG has now been sold to China.  The General Motors Bailout is costing the Government Billions in Net Losses.  Somebody said, ,,Give me $ 60 Billion and I can show you how I can make a Profit.’’  It would be good to consider, at least, the Opinion of some Experts who contend that it will not be possible for General Motors to succeed as a viable Entity.

There are other Issues and Areas to be addressed but we wanted to list just a few.

Additionally, however, another Warning regarding a great Disservice which the Federal Reserve and Mr. Bernanke are doing to the Budget.  The Fed is keeping Interest Rates low, almost at Zero, to be exact.  This helps Banks and Financial Institutions which are entitled to borrow directly from the Fed and then reap huge Profits in large, complex and sometimes questionable Financial Transactions.  This does not help the Consumer, or even most Business Owners, who must pay a Bank or a Financial Institution nearly Ten Times, or more, in Interest, than what the Financial Institution needs to pay to acquire the Funds.

But there is a hidden Danger.  The Fed cannot keep Interest Rates at such low Rates at Infinitum.  Some Day, after Mr. Bernanke leaves (and he wants to leave soon), Interest Rates will have to, at best, inch or creep upwards and when that happens, the Cost of borrowing Money for the Federal Government will rocket astronomically.  The Rate on Federal Borrowing may one Day be dictated by Markets and The Fed may not be in a Position to dictate what it will be.  This has happened elsewhere, as we all know, only too well.  In such an Event, the Impact of Debt Service, not to mention the Cost of new Borrowing on the Federal Government will be not a pleasant Thing, as it is today for Mr. Bernanke to play around with announcing what the Interest Rates will be and throwing Money around into the Financial Markets while he invents new Names, such as ,, Quantitative Easing’’ for Things which aren't really that new at all.

Equivalent of $ 1.250,00 per Man, Woman and Child in the United States being handed out MONTLY to Banks and Financial Institutions - this, in Addition to the Money spent for ,,Operation Twist'' and ,,Quantitative Easing''

Dallas Federal Reserve Bank Chairman Richard Fisher expressed Criticism of the Federal Reserve Bank's and Mr. Bernanke's Decision to start a new Round of Bond Buying, without End in Sight, a Move which is the Equivalent of giving out $ 1.250,00 to each Man, Woman and Child in the United States, but with giving this massive Amount of Money only to Financial Institutions which, according to many, have been the Cause of the Economic Woes in the First Place.

http://economywatch.nbcnews.com/_news/2012/09/19/13969468-fed-dissident-says-latest-easing-wont-help-economy?lite

(Reuters)

There has been Criticism from elsewhere, as well.  Some have suggested that Mr. Bernanke does not really have a ,,Strategy'' to deal with the Situation.  One has to keep in Mind, this latest Move comes in Addition to the ,,Quantitative Easing'' and ,,Operation Twist'' being implemented by the former Princeton University Economics Professor.

http://m.welt.de/article.do?id=newsticker/news1/article109346604/US-Notenbanker-Fed-ist-ratlos-im-Kampf-gegen-Krise

(Die Welt)

Interestingly, there has been little Questioning coming from the President and his Opponent, Mr. Romney.

At a Time when the Economic Crisis, call it what you will, we think the Word ,,Crisis'' is still safe (unlike other ugly Words, such as ,,Recession'' or, worse yet, ,,Depression''), with a growing Class of Have Nots and a growing Class of Super Rich and the Middle Class shrinking at an alarming Rate, such Questions should be put on the Agenda for Examination.

 

What is Mr. Bernanke's Rationale for putting at the Disposal of Banks and Financial Institutions the Equivalent of $ 1.250,00 per Month for each Man, Woman and Child living in the United States, for the Foreseeable Future?

Edward Krudy, Reuters, writes:

NEW YORK -- Comparing the Federal Reserve to a rehab clinic offering addicted investors a synthetic high has been a favorite of Wall Street wags ever since the first round of Fed stimulus nearly four years ago. The punch line is that you always need more and more to get the same high and each bout of euphoria is followed by a crashing comedown.

Full Text here:

http://marketday.nbcnews.com/_news/2012/09/16/13868573-stocks-may-calm-as-buzz-from-fed-fades-this-week?lite

 

Spending $ 1.250,00 per Month for every Man, Woman and Child living in the United States

The Federal Reserve Bank has just announced that it will be spending upwards of $ 40 Billion per Month on a Going Forward Basis, for an Indefinite Future, purchasing ,,Mortgages'' from ,,Banks and Financial Institutions.''  This, in the Opinion of the Federal Reserve Bank, is going to stimulate the Economic Recovery in the United States because the Economy has been ,,growing'' according to the Chairman of the Federal Reserve, Mr. Ben Bernanke, at an ,,Unsatisfactory Rate.''

http://www.nytimes.com/2012/09/14/business/economy/fed-announces-new-round-of-bond-buying-to-spur-growth.html?_r=1&nl=todaysheadlines&emc=edit_th_20120914

First of all, it should be noted that a reasonable Assumption would be, the Decision, as ratified by the Federal Reserve Bank is the Brainchild of Mr. Bernanke, who was a Professor of Economics at Princeton University specializing in the 1929-1933 Great Depression.  Mr. Bernanke, we have noted elsewhere in this Column, has just returned from a Conference in Jackson Hole, Wyoming, a Place renowned for its Beauty and known to most Americans from Photographs and Motion Pictures.

http://economywatch.nbcnews.com/_news/2012/09/13/13846702-bernanke-aims-at-job-market-in-latest-bid-to-revive-faltering-recovery?lite

The Stock Market reacted jubilantly to the  Fed's Decision by immediately jumping more than 200 Points to an All Time High.  Some Financial Analysts characterized the Decision as a ,,Sugar Pill for the Stock Market.''  Others, characterized the Short Sightedness of Mr. Bernanke's Decision and the Disconnect which appears to exist between his Area of Academic Specialization and the Decisions which he appears to be making.  It should be noted, this Action comes in the Heels of the Fed's Program of ,,Quantitative Easing'' a Term coined by Mr. Bernanke as well.  The Results of the Quantitative Easing Plan have been described by many as highly questionable in Value.

These Actions could remind one of some of the Words used by former Secretary of the Treasury Henry Paulsen, of Goldman Sachs Fame, who alluded, no, not alluded, emphasized that the Fed had at its Disposal ,,Tools'' (words reminscent of some Kind of an Auto Mechanic or Woodworker's Toolbox) in order to handle Financial Situations.

Those of us who are far less well versed than Mr. Bernanke on Economic Policy Matters can likely make a following simple Arithmetic Calculation:  the Money that the Fed would be giving Banks, in exchange for purchasing Mortgages of Questionable Value (most likely, at full Face Value or possibly even at a Premium - Hey!  It's not easy to spend $ 40 Billion per Month when you've got only one Month to do it!), that Money actually amounts to roughly $ 1.250,00 for every Man, Woman and Child living in the United States, rich or poor, young or old, in one Word, everyone.  Unlike Banks, many of these People would spend their Money, creating Jobs, rather than use them for questionable Financial Investments, Executive Compensation or ,,Conferences'' in Exotic Locales, such as Jackson Hole, Wyoming.

Of course, everyone would have to sign a Promissory Note (at near Zero Interest Rates, as the Banks would be doing) to pay the Money Back and those who can, will, just as the Banks would; those who cannot, will not, just as the Banks would not.

http://www.welt.de/finanzen/article109233809/Boersianer-surfen-auf-Monster-Geldwelle.html

Interestingly, both Presidential Candidates did not express any Concerns or Opposition to Mr. Bernanke's Decision; true, Mr. Bernanke can act independently, without Accountability to the President; however, in the Absence of the Expression of an Opinion by the President or his Opponent, Mr. Bernanke may well take such Silence as a taciturn implicit ,,Carte Blanche'' that his Decision is an appropriate one.  We are wondering if Mr. Bernanke made the Calculation, or Analysis, whether seeking an alternative Method of spending $ 40 Billion Monthly (assuming that such Money should be spent), would not do more to ,,Stimulate the Economy and create Jobs'' rather than a Plan to purchase Mortgages, including potentially worthless Mortgages, from Banks. 

Jackson Hole, Wyoming

Ah, Jackson Hole, Wyoming.  It is a beautiful Place.  A beautiful Valley, flanked by the Grand Teton Mountains, clean, pristine Air, sparkling Blue Water Lakes,Wildlife, Nature, just anything that one's Heart might desire, if you love Mountains.

Indeed, it is a Privilege to be able to see Jackson Hole, Wyoming once in a Lifetime.  Most, will never see this Place, except, perhaps, on a Poster or on a Photograph or on the Internet, somewhere.



But there are some of us who are more privileged than others and they must not necessarily come from the Private Sector.  Take Mr. Ben Bernancke, for Example. He now makes an Annual Pilgrimage to a Jackson Hole, Wyoming ,,Symposium'' and gives a Speech about the Economy.

He was there just last Week.

http://www.nytimes.com/2012/09/01/business/economy/fed-chairman-pushes-hard-for-new-steps-to-spur-growth.html?_r=1&nl=todaysheadlines&emc=edit_th_20120901

http://economywatch.nbcnews.com/_news/2012/08/31/13593025-ben-bernanke-says-high-unemployment-means-that-the-fed-can-do-more?lite

He was also there last Year and at about the same Time of the Year.  Imagine, holding an Annual ,,Symposium'' in Jackson Hole, Wyoming, every Year at the Peak of the Vacation Season.



But then, the News came out that Mr. Bernancke was not going to be saying very much in Jackson Hole, Wyoming and, indeed, he did not.

http://economywatch.nbcnews.com/_news/2012/08/30/13552209-bernanke-unlikely-to-tip-fed-hand-in-jackson-hole-speech?lite

We might ask, then, what was the Point of this ,,Symposium.''  The Policies which Mr. Bernancke has already implemented and wants to continue, we might add, have not been that much different under the Administration of President Obama than during the Administration of President Bush, if they have been different at all.  The Country is still lingering under a Recession which is not called a Depression and which Mr. Bernancke (and others) insists on calling a Recovery.

Surely, the ,,Few Dollars'' which are being spent on this ,,Symposium'' pale in Comparison with the Billions which Mr. Bernancke has doled out to Financial Institutions as Part of his ,,Quantitative Easing'' Theory which has, so far as one can tell, propelled the Financial Markets to historic Highs but done little towards Banks ,,easing'' their Lending to either Individuals or Businesses.

Still, a Dollar is a Dollar and, coming from the Chairman of the Federal Reserve Bank, it is a Signal both to the ,,Symposium'' Invitees as well as those on the Outside who, most likely, will never get a Chance to see Jackson Hole in their Lifetime.

The Federal Reserve likely to deliver another Round of Monetary Stimulus

Reuters reported today, 23 August 2012:

Fed ready to help economy 'fairly soon,' minutes show

By Reuters

 

The Federal Reserve is likely to deliver another round of monetary stimulus "fairly soon" unless the economy improves considerably, minutes from the central bank's August meeting show.
While the meeting was held before a recent improvement in the economic data, including a stronger-than-expected July reading for U.S. employment, policymakers were pretty categorical about their dissatisfaction with the current outlook.
"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery," the Fed said in minutes to its July 31-Aug. 1 meeting.

 

Fed officials saw significant risks to an already weak economy, which grew at a sluggish 1.5 percent annual rate in the second quarter. The risks include a worsening of Europe's financial strains and the looming U.S. budget cuts and tax hikes, which have become commonly known as a fiscal cliff.

"We have seen some improvement in the data recently but whether it is enough to qualify as a significant upturn is unclear, but certainly these minutes are dovish and will revive hopes for increased Fed easing," said economist David Sloan at 4Cast Ltd.
Many Fed officials supported extending the central bank's guidance for the likely timing of an eventual interest rate hike, currently set at late 2014, further into the future. But they decided to defer the decision to the Fed's Sept. 12-13 meeting, when the central bank will release a new round of economic forecasts.
Officials also actively debated and tested the possibility of developing a consensus Fed forecast.
A couple of policymakers favored lowering the rate the Fed pays banks to park their excess reserves at the central bank, currently at 0.25 percent. But several participants worried that money market funds could run into trouble if their returns are crimped further.

The Queston which arises out of this planned Action is just how the Financial Institutions are using this Stimulus Money.  Is this Money being used to make Loans, create Jobs and build Houses or flowing into enabling Financial Institutions to engage in Financial Transactions which are of little or no Benefit to the General Populace?  Previous Rounds of Monetary Stimuli do not reveal a clear Answer to this Question, if they reveal an Answer at all.

An Examination of the Flow Distribution of such Funds might be useful in establishing a Monetary Policy which can genuinely deliver the Economic Stimulus which would have a more favorable and measurable Result than the enormous Amounts of Stimuli already delivered, which have flown into Financial Institutions over the last Five Years and which, many of us, do not know what they were used for or how they benefitted the Economy, outside of propelling the Stock Market into New Highs.

Some have even made the Argument that if the same Amount of Money were to have been evenly distributed to every Man, Woman and Child in the General Populace, either directly, or in the Form of some Benefit(s) or a Combination of these, the Spending of such Money, while, most likely, would not always have been wise but would have nonetheless resulted in such a Level of Spending that it would have undoubtedly achieved at least a temporary beneficial Result; something which has not been achieved by pumping all this enormous Amount of Mega Dollars into Banks and Financial Institutions.

The Fundamentals of Voodoo Economics

The Financial Crisis continues to play out in Wisconsin and other Mid-Western States. The Standoff between Wisconsin Governor Scott Walker and the Teacher's Union continues with no End in Sight. In Ohio, Governor John Kasich is also preparing for Battle with the Public Sector Unions. Iowa and other States appear to be ready to follow suit in not too long a Time. In New Jersey, Governor Chris Christie has already implemented major Financial Changes and Reforms and now has his Hands full denying that he would consider a Presidential Bid. Governor Christie has not yet invoked the Statement made by General William Tecumseh Sherman well over a Century Ago, 'I will not accept if nominated and will not serve if elected,' but we shall see.

It must also be said that with non Higher Education Student Performance Levels in a Dismal State throughout the Nation (see, 'Universities' elsewhere in this Forum) Teacher Salaries and Benefits should come under Scrutiny. Many Surveys indicate that Public Sector Workers are not only paid better but also have infinitely better Job Security when compared to Private Sector Workers. This Fact corrupts the Standing of Public Sector Workers as 'Civil Servants,' i. e., performing out of Dedication rather than Financial Benefits and Gain.

However, the Argument that balancing State Budgets can be done simply by this, without imposing an additional Tax Burden on Higher Income Brackets or, indeed, as done by Governor Walker, cutting Higher Income Taxes, qualifies for what Two Decades earlier President George Herbert W. Bush described as 'Vodoo Economics.'

At the Federal Level, we see a Course not all that different. 'Tea Party-ers' and many Republicans in the House are clamoring for various Cuts, much of it directed at Federal 'Entitlement' Programs and, some, attempting to reduce waste. However, all this cutting, if combined with continued uncontrolled Expenditures in Afghanistan and Iraq is totally useless. The Federal Budget consists of 3 Major Line Items: Social Programs, Military Expenditures and Interest on the Federal Debt, which add up to about 90% of what the Federal Government spends. So, even if everything else were to be eliminated completely, which, realistically it cannot, that would only add up to 10%.

In this Context, the Republican Argument that the Federal Budget can be brought under control, with these enormous Burdens, while reducing Higher Income Personal Tax Levels is, again, nothing less than what President Bush described as 'Voodoo Economics.'

Where the Republican Counter Argument that cutting Higher Income Tax Brackets 'creates Jobs' has germinated from is, to this Writer, a Mystery. There is no Evidence to show that the Billions doled out to Banks and Financial Institutions, or the 'Quantitative Easing' Cash have created any significant Number of Jobs, actually, rather, the Contrary Argument seems to be more persuasive, that they have not. To use a Cliché, the Obscene Bonuses on Wall Street have not created any Jobs.

The Challenges to balancing the Federal Budget (and, by Implication, States need to follow a similar Course in their Affairs) are:

If the War in Afghanistan (or in Iraq, or anywhere else) is necessary, fund first, fight later. Do not do what President George W. Bush did, fight first and let somebody else worry about the Funding by kicking the Can forward.

If the Social Programs have merit, fund and do not divert Funds to other Expenditures, as it was done previously with Social Security.

To cover the Federal Debt Interest Payments, one of the largest Items in the Federal Budget, obtain Funding, not by increasing the Debt Ceiling and cutting Taxes which are Voodoo Economics at its most sublime, but by assuring a Progressive Level of Taxation which covers them and, at the same Time, pray and pray hard, that somehow Mr. Bernancke will be succesful in keeping the Interest Rates low because, if he fails doing that, the Interest Payment Portion of the Federal Budget would explode.

And the Fundamentals of Voodoo Economics would not apply, should that happen.

From 'Quantitative Easing' to Wisconsin

As the Teachers' Protests continue in Wisconsin, the Tea Partiers march into Madison. So far, Governor Scott Walker has dug in his Heels and Democratic Legislators in Wisconsin have taken 'Refuge' out of State; thus, by depriving the State Legislature of a Quorum, they have, in Effect, dug in their Heels too, Toe to Toe with the Governor. Some Observers have gone so far as to proclaim Madison the Epicentre of the Financial Crises sweeping, some say, as many as 45 out of 50 States.

The Issues, however, may be too systemic to merit a simple Explanation. On the Side of the Governor, is not only the Argument that the Wisconsin State Budget needs to be balanced but that generous Teacher (and other Public Sector) Salaries and Benefits, not only in Wisconsin but elsewhere as well, have corrupted the Meaning of the Phrase 'Public Servants' so much more so when taking into Account inadequate Public Education Test Scores (see Justice Souter's Comments elsewhere in this Forum). This, at a Time when those who earn their Living in the Private Sector are having to make do on comparatively less, or much less or nothing at all.

In this Case, however, it may be helpful to take a Look at New York City, the Financial Epicentre of the United States and the World, where the Problem may be into somewhat clearer Focus.

5000 Teachers in New York City are not only in Danger of losing their generous Salaries and Benefits but their Jobs altogether. New York City is just flat out of Money and its Revenue Outlook is bleak. The Inequity comes more sharply into Focus there, when paragonating the Situation against the obscene Bonus Earnings continuing to be paid to various Echelons on Wall Street. Some may still remember the huge Bonuses that were paid on Wall Street at a Time when several Institutions on Wall Street which paid those very same Bonuses were 'Bailed Out' by the Federal Government. All but forgotten has been the Proposal to institute a 90% Federal Income Tax on those Bonuses paid by Institutions which had received (whether paid back or not) Federal Bailout Money.

Such horrific budgetary Straits at the State and City Level in New York, Wisconsin and elsewhere, not to mention the Federal Deficit Dilemma which has yet to be dealt with, continue against a Backdrop of a Policy of 'Quantitative Easing' being pursued by the Federal Reserve Bank through its most ardent Proponent, Mr. Bernancke.

Just where precisely all this Money is flowing remains a Mystery. However, with Teachers demonstrating in the Capitol Building in Madison, the Tea Partiers marching on them, 5,000 Teachers in New York about to march to the Unemployment Office while Stock Market Averages are catapulting to New Highs, that Question seems to merit being looked into and soon.