Hero dogs of Ground Zero Daily Mail (hat tip Lambert Strether)
Feathers Trapped in Amber Reveal a More Colorful Dinosaur Age New York Times (hat tip reader John M)
Financial paralysis is gripping US and EU leaders, Kenneth Clarke claims Guardian (hat tip reader May S)
What Next for Greece and for Europe? Peter Boone and Simon Johnson, New York Times
Lagarde sees global crisis of confidence Financial Times
German economist: ‘There is no alternative but Greece’s euro zone expulsion’ Ed Harrison
China Consolidates Grip on Rare Earths New York Times
America’s Poorest States 24/7 Wall Street (hat tip reader Carol B)
Free to Die Paul Krugman, New York Times
Grais fights to keep $8.5 billion BofA case in fed. court Alison Frankel
The Government Giveth and It Taketh Away: The Significance of the Game Changing FHFA Lawsuits Subprime Shakeout (hat tip April Charney)
BofA, JPMorgan Fail to Make Fannie Mae Grade for Loan Servicing Bloomberg (hat tip Lisa Epstein)
Economists Who Are Always ‘Surprised’ Should Re-Think Their Models and Assumptions FireDogLake (hat tip Carol B)
Rogue traders and stated-income borrowers Steve Waldman
Barro, Galbraith Debate U.S. Economic Policy Bloomberg
September 17th: Is America Ripe for a Tahrir Moment? Adbusters
Antidote du jour:
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From Reuters:
http://www.reuters.com/article/2011/09/15/us-usa-tax-swiss-israel-idUSTRE78E7PU20110915
From Politco:
http://dyn.politico.com/printstory.cfm?uuid=5AC8BD0B-A0BA-4120-BA39-06A276CF2125
http://www.politico.com/news/stories/0911/63508.html
That Krugman piece is fine as far as it goes, but the good Doctor is unfortunately blinded once again by partisanship. While you may not find audience members at a Dem debate yelling let him die, that’s is essentially the policy of the Democratic leadership as can be seen in its passage of Obama/Romney-care and the cheering from many Ds for same and in Obama’s desire to raise the Medicare age to 67 (which you can bet some Ds will cheer for even though it’s horrible policy). The Ds have also been pursuing policies that essentially kill Americans to make rich people money, they just aren’t so uncouth as to admit that’s what they’re doing.
So it’s not just the GOP base. In fact, I’m not sure it’s the GOP base (or at least most R voters) at all. Even the Tea Party, for example, loves Medicare. The people who hate it is the leadership of both parties and their owners. For that matter, who was even in the GOP debate audience? I doubt it was regular citizens. None of us are allowed within a mile of these political folks these days.
Hey wait. There’s a lot of difference between the parties.
For example, Republicans will cheer while you die in the street like a dog, whereas Democrats will secretly sell you to the Chinese for 5 cents to be worked to death as a coolie.
Best of all you have the absolute freedom and self-determination to decide which you prefer.
Poorest states — in Arkansas we used to have a saying, ‘Thank God for Mississippi.’ As the perennial no. 50, MS afforded Ark. the dignity of a next-to-last-place finish.
Nothing has changed, I see. You can draw a diagonal line across Arkansas from the southwest to the northeast (Texarkana to Jonesboro). North and west of that line is mountains: hillbilly country. South and east of it is Mississippi delta: ex-plantation country. Neither has ever been rich.
How do you change that? ‘Development economists’ have been scribbling about it for decades. But no one seems to have hit upon an answer. Anyway, thank God for Mississippi!
Mississippi is always at the bottom. How do we change it?
Well, how about a program based on “No Child Left Behind?” Call it, “No State Left Behind.”
Every year, based on a previously agreed-upon set of metrics, we declare the the loser a “Failed State.” We fire the management – governor, legislature, major department heads – and send in a professional governing team to run the state until the metrics rise to an acceptable level.
A problem, of course, that most of these “failed states” are in the south and we would run the risk of a new war of northern aggression.
‘No State Left Behind’ — LOL!
A primitive version of it was attempted in the 19th century — Reconstruction. It was kind of like an IMF program, with big property tax increases (even as the price of cotton crashed in the Panic of 1873).
How did that work out? ‘Reconstruction is unanimously considered a failure,’ sez Wikipedia.
So I read about the 10 poorest states, but then I flipped to the accompanying article on the 10 richest states that was much more interesting.
For instance, it turns out that 10 of the richest 25 counties in the U.S. are located in Maryland and Virginia (both in the top 10 richest states). VA has 6 of the richest 15 counties in the U.S.. No coincidence that they’re located near D.C.
Also, NYC’s bedroom community states of CT and NJ also found their way into the top 10. Of course, these lists don’t adjust for cost of living, but the DC/NYC power strip really shows itself here.
Re: Adbusters link
Are you going to be there tomorrow, Yves?
Hey knock yourselves out. I’m all in favor of shutting down Wall Street on a Saturday. I’ll be spear fishing in the Bahamas.
We definitely encourage liberal types to let off a little steam every now and then in ineffective and harmless ways.
Saturday may not be such a bad strategy. It gives them time to set up before Monday morning or fold early if support is thin.
Mike Ashton pays careful attention to CPI releases … and discerns an alarming trend:
http://mikeashton.wordpress.com/2011/09/15/a-many-ouch-day/#comment-1277
Once again, in familiar Greenspandian fashion, the Fed is ginning up an enormous festering wad of liquidity, which has few legitimate uses in a moribund economy. Thus, it will be (is being!) put to work in speculative vehicles — stocks, selected commodities, collectibles, you name it.
Is this any way to run a $15 trillion economy, like some Nigerian Ponzi scheme? ‘Hello, I am Doctor Barack Hussein Bernanke, and I need your help to transfer $1.5 trillion in blocked bank reserves! Please advise me your bank account details, and I will share a 25% commission with your goodself.’
God Bless, BHB (PhD)
“Legitimate”?
There’s something “illegitimate” about your use of that qualifier, imho.
In general, that would depend on specifically whose “liquidity” we are discussing: for some have much much greater need and use for it than do others.
Give the “stimulus” directly into the hands of the poorest – we’ll see if THEY can find a “legitimate” use for it!
With my personal bailout, first thing I’d do is fix my teeth. Then I’d replace the furnace. Then I’d replace the roof. Work for a dentist, a fitter, a roofing team. Manufacturing orders for the boiler, and shingles.
Or, ya know, I could park it in some “vehicle” somewhere, or head over to Sotheby’s.
Okay, ‘productive’ would have been a better term — meaning productive uses of capital.
Aid to the poorest is the province of the legislature, not the central bank.
Aid to the poorest is the province of the legislature, not the central bank. Jim Haygood
Correct. It is the province of the central banker to enable the rich to steal from the non-rich. It is the province of the legislature to steal some back with a big cut for government middlemen.
Regarding “China Consolidates Grip on Rare Earths New York Times”
Not surprising and not unexpected. Just more fallout over the decision by the captains of finance and industry to give our stuff away. And it goes on and on: This morning NPR reported that the steel cables for the new Bay Bridge in San Francisco are being made in China. The bridge builders said this country no longer has the capacity to make the cables. I find that hard to believe. They also offshore monument building now too, as the new MLK memorial in Washington illustrates.
When the transfer of technology, industry and jobs is completed in a few years, will anything be made in this country?
Who cares? Chinese autocrats, American kleptocrats, what’s the difference? What’s important is that the oligarchs win and you lose!
OT: a close friend and colleague worries about our government-funded institute shutting down due to Republican-inspired budget cuts. (Yeah, I’m not an O-bot, so I understand Obama isn’t blameless.) He threw out the idea of working for a hedge fund?
So, question (which I was wondering about previously anyway): to what extent are hedge funds evil? I told him most are probably at least somewhat evil, but the really evil ones are those which form part of the shadow banking system. It’s not clear to me that all hedge funds are part of it, though.
While I support freedom to die in principle, it conflicts with a more important freedom: freedom to become my slave.
These comments are about as intelligent as they are witty.
Could you please shut up?
Ever appreciated.
Dear Beare;
Mr Billions is an example of Snarkasm. Or, if you prefer, Astroturffeism, a very distant relation to an unnameable Middle Eastern ecstacistic movement. If you must, just call it the Eternal Return on Interest.
“September 17th: Is America Ripe for a Tahrir Moment? Adbusters”
note to all you budding anarchists—most of “Wall Street” moved to Midtown, Connecticut, Battery Park City or the electronic ether.
Protesting in front of Federal Hall is a bit pointless and very, very cramp. Trying occupying Times Sq (Morgan Stanley/Skadden/Conde Nast) instead.
Actually Wall Street moved to my server/data center near the Artic Circle.
Wait, did you think that people execute microsecond trades on a trading floor?
Dear Mr Billions;
Are you suggesting that we should just face up to it and set off that Neutron Warhesd high above the Nebraska plains?
Hi Yves,
I would like to make a suggestion: could you put the links section under its own url, something like ‘http://www.nakedcapitalism.com/links’? That way, I could bookmark it and get to it more easily. Your links section is where I go to get my financial and economic news of the day. I think you should emphasize this news aggregation function of your website more. I think you could be the Drudge Report of financial news.
Dale
The Government Giveth and It Taketh Away: The Significance of the Game Changing FHFA Lawsuits Subprime Shakeout (hat tip April Charney)
“”FHFA has refrained from sugar coating the banks’ alleged conduct as mere inadvertence, negligence, or recklessness, as many plaintiffs have done thus far. Instead, it has come right out and accused certain banks of out-and-out fraud.
In short, FHFA has thrown the book at many of the nation’s largest banks.
The agency’s press release also responds to suggestions that these suits will destabilize banks and disrupt economic recovery. To this, FHFA responds, “the long-term stability and resilience of the nation’s financial system depends on investors being able to trust that the securities sold in this country adhere to applicable laws. We cannot overlook compliance with such requirements during periods of economic difficulty as they form the foundation for our nation’s financial system.” Amen.
Thus, the most likely reason for this shift in strategy is the advantage offered by the federal securities laws in terms of the available remedies. With the put-back remedy, monetary damages are not available. Instead, most Pooling and Servicing Agreements (PSAs) stipulate that the sole remedy for an incurable breach of reps and warranties is the repurchase or substitution of that defective loan. Thus, any money shelled out by offending banks would flow into the Trust waterfall, to be divided amongst the bondholders based on seniority, rather than directly into the coffers of FHFA (and taxpayers).
First, as I’ve predicted in the past, the involvement of the U.S. Government in mortgage litigation will certainly embolden other private litigants to file suit, both by providing political cover and by providing plaintiffs with a roadmap to recovery. It also may spark shareholder suits based on the drop in stock prices suffered by many of these banks after statements in the media downplaying their mortgage exposure.””
“China consolidates control of Rare Earths”
The NYT title is exactly wrong, though the body of the article is right. By improving pollution controls, China is actually weakening, not consolidating, its control of rare earths.
How can that be? Because rare earths are not rare. The phrase “rare earths” is a classification in the periodic table of elements, with no implication of rarity in the economic or lay sense. Rare earths are not rare.
However, mining rare earths is dirty and labor-intensive. That’s why it is all done in China, where labor is cheapest and pollution controls most lax.
If China’s costs go up, rare earths will simply be mined elsewhere, at higher cost. For example, southern California has one of the world’s larger neodymium mines, currently closed because it cannot compete with China while meeting US environmental rules.
For more, see this from the Atlantic.
http://www.theatlantic.com/magazine/archive/2009/05/clean-energy-apos-s-dirty-little-secret/7377/
From that article: “Rare earths are actually fairly common.”
This is correct. Thank you for stating it.
Friedrich Von Hayek sold the world a lemon with his Neo-Liberalism. How on earth can the market be declared a virtually 100% self-organizing substitute for democratic intervention when a child is left to die because the parent’s can’t afford the health insurance? How many American’s thoughtlessly buy into this lemon? A great many! Which goes to show the poor quality of its education system for a very large number of people.
It’s from this poor quality education system we get our next generation of teachers.
Will that make their education system of even poorer quality? It’s scary to think where this might lead to.
The Americans who know better don’t get on cable news.
It’s a convenient cover story for the entire spectrum of elitist thieves skimming, boosting, pilfering, nicking, trimming, embezzeling, and otherwise converting the world’s wealth to their own.
In earlier times, the cover story has been Christianity, Manifest Destiny, ethnic chauvinism, historical necessity, astrological charts, and charitable paternalsim. In our scientific age, it’s a so-called scientific theory. Or what passes for one in the so-called science of economics.
In response to
http://www.washingtonsblog.com/2011/09/california-may-launch-public-bank-which-could-help-take-the-power-to-manipulate-the-system-away-from-the-insolvent-giant-banks.html#comment-5837
California May Launch Public Bank, Which Could Help Take the Power To Manipulate the System Away From the Insolvent Giant Banks
Posted on September 16, 2011 by WashingtonsBlog
…..
Governor Brown should also consider the following, which can be viewed as the better alternate solution at a national level in order to help all states and so all the people as a whole:
http://www.monetary.org/american-money-scene-5-august-16-2009/2009/08
As American Monetary Institute Chapter Leader, Dick Distelhorst, says:
“We don’t want to put the government into the banking business – we want to get the banks out of the money creation business!” – Dick Distelhorst
The correct solution to the crisis was presented in Stephen Zarlenga’s speech at the U.S. Treasury in December, 2003, titled “Solution to the States’ fiscal crisis” (read it at http://www.monetary.org). That solution has become the proposed American Monetary Act. In California, Governor Schwarzenegger has had a copy of The Lost Science of Money (the historical research which led to the solution) on his bookshelves since the spring of 2004.
Historical experience has taught us what we need to do:
1. Put the Federal Reserve System into the U.S. Treasury.
2. Stop the banking system creating any part of the money supply.
3. Create new money as needed by spending it on public infrastructure, including human infrastructure, e.g. education and health care.
These 3 elements must all be done together, and are all in draft legislative form as the proposed American Monetary Act (read it here: http://www.monetary.org/amacolorpamphlet.pdf).
The correct action is for Congress to fulfil its constitutional responsibilities to furnish the nation with its money by making the American Monetary Act law.
The correct action for the States is to insist on this Federal action!
Genuine monetary reform is the solution to the nation’s fiscal problems, and that can only be achieved at the national level.
snip
Jamie R. Walton
……..
http://www.monetary.org/
“Over time, whoever controls the money system,
controls the nation.”
– Stephen Zarlenga, Director
The American Monetary Institute is a publicly supported charity founded in 1996. The real outcomes in society – whether there will be general economic justice or corrupt financial privileges for the few – are usually determined by the structure of a society’s monetary system.
Congressman Kucinich’s Historic Monetary Reform Bill
December, 2010: Congressman Dennis Kucinich introduced an employment bill Reforming Our Money System: The NEED Act proposes a historic money reform, containing all the monetary provisions of the American Monetary Act including ending ”fractional reserve” banking.
2011 Monetary Reform Conference Speakers/Schedule
The 7th Annual AMI Conference will be held at University Center, in Chicago, Sept. 29 – Oct. 2, 2011. The deadline for early registration is soon! We continue to confirm additional speakers for this year’s conference.
………
http://www.monetary.org/
Additional Key Articles:
— The Need for Monetary Reform is a brief summary of monetary reform.
— Why States Going into the Banking Business is a Distraction, not a Solution to their Fiscal Problem and Reforms Nothing, American Money Scene Bulletin 5. This article is a comprehensive critique of the notion that instead of fixing the problem, governments should go into the banking business!
— Professor Yamaguchi (Berkeley, Doshisha universities) shows the American Monetary Act and Kucinich’s HR 6550 NEED Act will:
(1) Provides the funding for infrastructure repair, which solves the unemployment crisis;
(2) Pays off the national debt as it comes due;
(3) Does this without inflation!
……….
http://www.monetary.org/intro-to-monetary-reform
We, at the American Monetary Institute, have put together this list of resources that we hope can be a great starting point for any new student of monetary reform. Also, if you sign up to our email list using the box to the right, you will receive several of these articles over a span that will allow you to digest the material.
1. The Need for Monetary Reform
This article is an overview of our current monetary system and what needs to be done to fix it. It is a great, concise piece that can serve as an comprehensible introduction for anyone interested in learning about monetary history, theory or reform.
2. Monetary Reform Frequently Asked Questions
Answers to frequently asked questions on monetary reform issues such as, “Won’t the government creating new money for infrastructure and other expenses cause inflation?” and “How can we trust government with the power to create money? – Won’t they go wild (and again cause inflation)? Don’t you know that government can’t do anything right?”
3. 1930′s Chicago Plan
This plan was developed by the best economic minds in the country during the Great Depression. AMI’s proposed monetary reform legislation is closely modeled after this plan.
4. The Usury Problem Remains
This article outlines the inherent, structural flaws of a system which allows (and promotes) usury.
5. US Treasury Speech
This speech describes how the financial crisis came about, how it was the only possible outcome given our current monetary system, and what steps must be taken in order to put time on the side of justice in our monetary system.
6. Comprehensive Explanation of Monetary Reform (PDF)
A brief, 32 page, explanation of monetary reform. Great for those beginning their interest in monetary reform.
………
http://www.monetary.org/american-money-scene-5-august-16-2009/2009/08
A Brief History of Money in the USA Dennis Kucinich launches the American Monetary & Financial Security Act in Congress!
American Money Scene 5-August 16, 2009
On August 23, 2009, in American Money Scene, by AMI
Dear Friends,
As you know the states are in terrible financial condition, cutting back on necessary programs, laying off people and raising taxes. This has been the case for several years, and thanks to the banking crisis has reached horrific levels in some states. This is the time – an opportunity to push for real reform, such as the American Monetary Act. But instead, ill advised suggestions have recently been circulated on the internet that the states go into the banking business to solve or lessen this problem. The American Monetary Institute concludes that these suggestions, though they may be for well meaning purposes, are bad ideas for a lot of reasons as described below. People involved in real monetary reform understand that the private creation of money through what amounts to a fractional reserve accounting system is at the heart of the monetary problem which has plagued humanity and has now brought down the world economy. That vicious system by which money is created in our society must be reformed, not imitated. But there is no reform whatever in the proposal for states to enter the banking business.
It would also distract lawmakers from facing the facts about the national reforms that are needed to solve this crisis and institute a money system grounded in justice, which will operate to promote the general welfare. It would even sanction and endorse the present fractional reserve banking system, the source of the problem. That system requires condemnation and structural reform, not endorsements! We now have a blog at the end of this article below, so that you may record and post your reactions to Mr. Walton’s research.
Sincerely,
Stephen Zarlenga
Director, AMI
Why States Going into the Banking Business Would be a Distraction, not a Solution to their Fiscal Problem
by Jamie Walton, AMI researcher
“We may not be able to stop them, but we can join them. We the people need to play the bankers’ game ourselves.”1 – that was written by one of the promoters of the notion that the state governments should go into the fractional reserve banking business to beat Wall Street at its own game and solve their fiscal problems.
What an insult to humanity! How about a dose of morality and common sense. Isn’t that like saying: “We’re victims of organized financial crime, so lets join the criminals!”
Trying to beat Wall Street at its own game is obviously not the answer. As Albert Einstein once said, “We can’t solve problems by using the same kind of thinking we used when we created them.”
Forty-eight States currently have budget deficits and many are sharply cutting services to try to close ‘fiscal’ gaps opening up to an average 24% by 2010.
Some attention has recently been given to the idea that State governments can get out of their fiscal problems by setting up their own banks. This is mainly a distraction away from genuine reform of the system, as encapsulated in the proposed draft American Monetary Act (more about that below).
The argument being put forward is that State governments can increase their revenues without increasing taxes by collecting profits from State-run banks. The proposal suggests that State governments go into the banking business and “fan” their deposits into 10 or 12 times as much in loans, using ‘fractional reserve’ or ‘capital adequacy’ rules, to cover fiscal gaps with bank profits.
This is a foolish suggestion, for several reasons.
1. You don’t solve a problem with more of the problem.
This scheme for states to go into the banking business would only ‘serve to protect’ the status quo. The ‘proposal’ completely fails to confront the main problem identified by all serious monetary reforms: ‘fractional reserve’ banking. Instead, it actually endorses and sanctions this vicious and destructive process, by suggesting that State governments engage in it – it’s immoral!
2. What the promoters describe is not how banking operates.
No single bank can multiply its deposits by 10 or 12 times in loans, they can only make loans (or purchases of securities, e.g. bonds) up against 90-95% of their deposits; these loans create new deposits, which, when spent, are most likely transferred to other banks; then receiving banks can again make new loans up to 90-95% of their deposits, and so on. This ‘process’ is repeated indefinitely, in ever-decreasing increments, and the effect over time is that the banking system as a whole multiplies those initial deposits by 10 or 12 times. The only reason some progressives might be considering this proposal is they don’t understand how fractional reserves work.
This process is carried on at great cost to the community as a whole, because every new loan (or new security purchase) is additional interest-bearing debt.
As presently operated, banks can be viewed as debt factories; they primarily create debt and only create the bulk of our money supply as a debt byproduct. Banks make profits and stay in business by putting the community as a whole into more debt than it can repay in any given time. This results in a net claim against the community going into the future. While some profits are paid to shareholders as dividends, this is only a small percentage of the debt created. If a bank was State-owned, the ‘shareholders’ would nominally be the people of the community, but any profits would still be based on the indebtedness of the community. That’s the inevitable outcome, no matter who owns a bank, because the same rules apply to all banks in the banking system.
But; the question is not who should be the beneficiaries of perpetual claims against the community, the question is should anyone be the beneficiaries of perpetual claims against the community – why place ourselves forever on a treadmill just to have what we’ve already got? It makes no sense.
3. The problem is being misidentified as interest, when the problem is debt.
Proponents of the scheme are alleging that interest collected by “private” banks is kept out of circulation and is therefore not available to repay loans the bank have made. But this is not true. Most, if not all, interest re-enters the system in some way at some time (e.g. as expenses, dividends, investments, etc.). This is not the problem. The problem is almost all of our money is created with a debt attached; it is ‘borrowed into existence’ from banks, who create it when we have to borrow it.
As our economy grows, we need new money, but almost all of the new money is presently created with interest-bearing debt, so almost every new dollar has more than a dollar owing on it – so it has to ‘earn’ more than a dollar and pay it all back to banks (who never had it in the first place). Who owns and runs any particular bank makes little or no difference because the debt-based money-creating banking system will still own and run us, on a treadmill.
Money doesn’t have to be created like this; coins aren’t, they’re just created as money, with no debt attached; when they’re issued, it’s revenue for the U.S. government, saving taxpayers $$$. All money can be created this way. And; if we don’t start with any debt, then we don’t start with any interest either.
With that in mind, let’s look again at the States’ fiscal crisis.
State governments receive money from the community for the provision of public services and the support of volunteer services. These are generally things that are needed in the community which aren’t commercial in nature, they’re not the types of things that it’s either possible or desirable to make a profit on (e.g. rape crisis centers, battered women’s refuges, assisted housing for people with physical/mental impairments, respite care for caregivers, etc.).
Non-commercial services needed in the community couldn’t exist without being paid for straight out, because providers can’t borrow and then generate income to repay loans, that’s not how they work (if they could do that, they’d be doing it already) – they need money that doesn’t have to be paid back.
Diverting public resources away from desperately needed services toward a commercial venture would only make things worse. The effect on the ground could lead to the commercialization of services intended for the relief of poverty, disability, pain, suffering and misery; by forcing service providers to also be profit makers (e.g. commercialized prisons); or reverting to relying on the whims of charity. If neither of these ‘choices’ worked-out (which history shows, they generally don’t), the community services essential for any viably functioning civil society might disappear altogether, and then “there goes the neighborhood” – social disintegration is a slippery slope, for everyone.
This is a very serious situation – it’s no time to be playing games.
In addition to these defining moral questions, there are also some more technical reasons why they won’t automatically work as suggested.
1. No bank’s an island – they’re all in it together.
A bank can only lend out what it can expect to receive back, not only from its borrowers in the long term, but also from all other banks through the clearing process in the very short term, i.e. usually overnight. Even if a State-run bank could attract other banks to have accounts with it and/or require its employees and suppliers to have accounts with it, the other banks would have to call in their loans by 10 or 12 times the amounts transferred (so there’d be no net gain in loans available). Of course, at some stage, all of its depositors would need to spend their money with people having accounts at other banks, so sooner or later its reserves would drain back to other banks and it would then have to call in its loans by 10 or 12 times as much. In any case, no bank can lend more than the prevailing level of lending of all other banks; every bank has to move in step with every other bank, otherwise it would soon sustain an adverse net balance through the clearing process and drain all its reserves to the other banks. It’s a complete error that any bank can just go ahead and multiply it’s ‘reserves’ or ‘capital’ by 10 or 12 times in loans. If the other banks aren’t lending, a State-run bank wouldn’t be able to lend either.
2. Don’t be fooled by what’s happening in a low-population State.
North Dakota has about 700,000 people, a strong community spirit based on farming in difficult conditions, and significant oil revenues. The model being presented is the Bank of North Dakota, which provides support services to some other banks in its area.2 But this arrangement won’t automatically translate to other States, as the banks in other States may not wish to engage in it, and requiring them to could be very unpopular. This could lead to significant risks to taxpayers. In 1931, the Government Savings Bank of New South Wales (a federated State of Australia), at that time the 2nd largest savings bank in the British Empire, was closed down by a run caused by a series of ‘scare’ stories put out in the media as part of a ‘political’ attack.3 If a similar action were possible against a State-run bank today, taxpayers might be called upon to pay for the aftermath (e.g. the Bank of North Dakota is not FDIC-insured(!), and is instead guaranteed by the State Government itself).
3. The promised golden goose may prove to be a noose.
What may look like a boost for taxpayers could end up being a ball-and-chain. For instance; where are States already in deficit going to get the money to set up a bank? As the President of the Bank of North Dakota, Eric Hardmeyer, explains (in the article cited above), to avoid a drain on existing deposits from other banks, and the consequent contraction in loans, a State government would probably have to issue bonds to raise the capital needed to set up a State-run bank.4 Yet more debt bondage at a time like this may be more than the State’s taxpayers can bear. In any case, a new bank would be as much of a burden on the community as any other bank. We would have the ridiculous situation of the people, as taxpayers, being put further into debt to build a debt factory to put the people, as the community, even further into debt.
4. States shouldn’t gamble taxpayer’s money on risky business.
The actual balances of State government bank accounts aren’t huge, and they don’t grow, because they’re always being spent – that’s what they’re for. The actual profit margins banks make on their funds under management are generally modest, so any returns from a relatively small loan portfolio, after deducting operating expenses and re-investment in the business, wouldn’t be anywhere near the amount required to fix the current fiscal shortfalls of the State governments. For example, in recent years the Bank of North Dakota has transferred between about a third to a half of its net income to the State coffers; ~$25 million in 2007, ~$20 million in 2008.5 The total budget for the State Government for the 2007-2009 fiscal period is $6.5 billion.6 A State law requires the bank to pay $60 million to the general fund over the same period – a contribution of less than 1% to the State budget. Meanwhile, State governments face average budget shortfalls of 24% for 2010 – so the numbers just don’t stack up.7 Weighing the pros and cons; relatively low potential returns compared to potential high risks (e.g. the concerted aggressive actions of other banks); it’s not a very good bet.
5. States would be better-off using their clout with the banks.
A more prudent course of action would be for State governments to negotiate more favorable contracts for their banking business with one or more banks. This would involve much less cost and trouble (e.g. recruiting competent staff and administering a new enterprise) than trying to set up a bank, especially when public services are being cut. The banks need those deposits – they’ll do anything to keep them (even if they don’t like to admit it).
6. We don’t need any more diversions.
We citizens have only so much energy and time to devote to changing our world for the better. Diverting good people into nonsense condemns us to continue suffering unnecessarily. This time of crisis must be used for real reform, not diversions.
So what is the solution?
It’s the monetary system which must be changed to end the fiscal crisis, and State governments cannot do this – it’s a matter for the Federal Government.
Under present constitutional and legal conventions, the only institutions that can create money without debt are national treasuries and/or central banks. State governments within a federal nation cannot do this – the problem can only be solved at the national level.
Proposals promoting anything else would require a constitutional amendment, which is not necessary.
There are some additional specious arguments being made within these promotions claiming that the U.S. Constitution (Article I, Section 8, Clause 5) does not authorize the U.S. Congress to issue non-coin money, so implying that it authorizes the States (or the people) to issue non-coin money.8 It most certainly does not. As Robert G. Natelson, in the Harvard Journal of Law and Public Policy, exhaustively and authoritatively determined, the term “coin” (with a lower-case “c”) means to create money in any form, whereas the term “Coin” (with an upper-case “C”) means coins.9
There’s also a lot of misinterpretations in these same arguments regarding the term “Bills of Credit” in the U.S. Constitution (Article I, Section 10, Clause 1) and “bills of credit” in other contexts, and the terms “Tender” and “Coin” (again). These misinterpretations lead to some ridiculous assertions like stating that: “The States violate the [U.S.] Constitution every day … to pay their debts … since gold and silver coins are no longer in general circulation.”10
All of these spurious ‘ideas’ only serve as distractions during a time of crisis.
We have a big problem in our economy and society today: too much debt. Banking cannot solve this problem because banking produces debt, which is the problem. It’s incredible that even now the delusion of borrowing ourselves out of debt is still seen as a solution, by anyone, let alone so-called reformers. We’re in a deep hole because we listened to cheerleaders yelling “keep on digging” without thinking. We cannot afford to keep doing this any more.
Proposing to get governments involved in banking is the complete opposite of a solution, because it keeps the problem in place.
As American Monetary Institute Chapter Leader, Dick Distelhorst, says:
“We don’t want to put the government into the banking business – we want to get the banks out of the money creation business!” – Dick Distelhorst
The correct solution to the crisis was presented in Stephen Zarlenga’s speech at the U.S. Treasury in December, 2003, titled “Solution to the States’ fiscal crisis” (read it at http://www.monetary.org). That solution has become the proposed American Monetary Act. In California, Governor Schwarzenegger has had a copy of The Lost Science of Money (the historical research which led to the solution) on his bookshelves since the spring of 2004.
Historical experience has taught us what we need to do:
1. Put the Federal Reserve System into the U.S. Treasury.
2. Stop the banking system creating any part of the money supply.
3. Create new money as needed by spending it on public infrastructure, including human infrastructure, e.g. education and health care.
These 3 elements must all be done together, and are all in draft legislative form as the proposed American Monetary Act (read it here: http://www.monetary.org/amacolorpamphlet.pdf).
The correct action is for Congress to fulfil its constitutional responsibilities to furnish the nation with its money by making the American Monetary Act law.
The correct action for the States is to insist on this Federal action!
Genuine monetary reform is the solution to the nation’s fiscal problems, and that can only be achieved at the national level.
The American Monetary Institute is sponsoring the 5th annual Monetary Reform Conference at Roosevelt University in Chicago, September 24-27, 2009, to bring together the best minds to get done what has to be done.
Jamie R. Walton
Con is short for confidence game. It’s useful to remember this connection when economists like Lagarde invoke confidence. This is not to say that the meaning hasn’t changed somewhat. Generally nowadays, a crisis in confidence means not even the crooks can trust each other. However, you will occasionally see it mean “The natives are getting restless and might revolt.”
The Krugman piece is typical in more ways than one. He caught a lot of heat for his column on how the PTB have exploited 9/11. Krugman’s lapses into clarity never last. So it is no surprise that he has lapsed back into another exercise at pointing a finger at those crazy Republicans on healthcare overlooking in doing so the dreadful sham that the Democratic Obamacare is.
Why should economists (or really any of our Establishment elites) rethink their assumptions just because their predictions are invariably wrong? Many of us here have been right about all kinds of things on the economy. I have seen no rush to reward and recognize us. Those who get rewarded are precisely those who get it wrong.
There is nothing surprising about this. They are not paid to be right. They are paid to give cover to looting. Zoellick and Lagarde are no angels in this. They may be criticizing policy in developed countries but their own prescriptions are just as nutty, and in failing to address the vast wealth inequality that exists within developed economies they are every bit tools of the looters as those they criticize.
Ideally, the wealth inequality among economies is addressed as well…maybe even before the wealth inequality within economies.
another link between the birds and the dinos.
http://www.sciencedaily.com/releases/2011/09/110915131559.htm
Huge bankruptcy averted? Alabama county to settle debt http://www.msnbc.msn.com/id/44552659/ns/us_news-life/
The main effect of the deal for county residents would be higher monthly bills for sewer service. The settlement proposal includes Wall Street agreeing to forgive about $1 billion in debt, the county refinancing about $2 billion, and a series of annual sewer rate increases.
The sewer rates are already insanely high. My mother watered her lawn one month to keep it from dying. Sewer bill: $248. She does not have a huge lawn and it is now a pretty dead lawn.
Time to re-think the concept of lawns, regardless.
However, your mom’s lawn may very well come back. We have very hot dry summers (Italy) and hardly anyone waters what lawn they do have. We’re just used to it being brown and dormant in the summer, and then becoming green again once the rain and fog of fall kick in.
If economics were actually a science, it would be subject to Huxley’s “Great Tragedy”. Since it is, in fact, largely a religion, it obviously isn’t.
I just wanted to say that the photographer who took the pics of the Hero Dogs did a wonderful job capturing the innate dignity of dogs. Of course the entire piece is a huge tearjerker from first to last, but the photos of the dogs weren’t maudlin in the least.
Perhaps the New York Times should hire someone who has taken a high-school chemistry class. “Europium oxide” is not an “element”.