Monday, October 10, 2011

Economics and the Meaning of Life.

Getting at the bottom of existence has been a question for thinkers for 2000 years! When the collapse of the financial system occurred in 2008 'existence' is sharply defined as a relationship between material things and survival. When the economy is stable and functioning, 'existence' is driven by popular notions of life mystified.

The United States had a brand of capitalism that Europe did not have. It was unique. America attracted people from all over the world because employers were paying higher wages. American employers had to grapple with the problem of constantly raising wages to keep workers on the payroll less they move to buy property and become new found rich people elsewhere. Immigration created a labor abundance. There was no shortage of labor for a period covering 1900 to 1978. Economic stability and life in America function very well while real wages rose that there is no evidence to suggest real wage increases could not restore prosperity. From this perspective it is easy to understand why Republicans have a punitive answer to immigration less it would cause a rise in real wages restoring the problem of worker retention and a return to worker prosperity in America should political power be captured by the Left and the working class.

Reversal of all the policies currently in place that favor the business community would mean grave consequences for the business community, is a life and death matter for the Right wing.

However, the essential question remains one of philosophical debate and that is what is the purpose and meaning of life on which to base a new economic paradigm?

The two things that changed the labor abundance was the advent of the computer and American corporations soon discovered it was profitable to move production out of the US on a scale as never before with the advent of the computer. Wall Street and Main Street stopped raising wages and salaries. An increase in the average real rate of wages was never a fact before, became a fact of life hitherto from 1978.

More work hours became the next best way to increase wage income for American workers. Labor hours worked on a per capita basis increased from 1978 to the present. Americans worked more hours of labor, 20% more or a week than any other labor force in all of the wealthy capitalist country in the world.

A binging spree substituted the flat wage rate, borrowing and overwork stressed Americans out and the debt became an object of speculative investments for the financial sector. The end of the line would be when the working class could no longer pay its debts.


Is it entrepreneurial genius that justifies the zoom of salaries and bonuses for CEO's from a prior 40 to 1 ratio to a whopping 400 to 1 ratio?

Robert Putnam, wrote "Bowling Alone" a book about American workers en mass withdrew from any social and political participation in life in society. They took their eye of the ball. Tired, worn out. While the Left and the working class withdrew from politics the Right and the business community got involved in politics. This social reaction happened at the same time as the advent of hedge funds were invented by the business community sitting on mountains of cash. They invented a kind of stock that paid a share on all the debts. The working class arose 30 years in reaction to the flat wage rate too late and the financial sector invented the debt hedge fund 30 years too late. Paying a percentage to the shareholder against mortgage debts was risky at the end of its cycle of activity and repayment ratio. Who would buy them with the risk of default so close to the edge? A solution came from Warren Buffet, who owns Moody's rating agency. Moody's assessed these new financial instrument with a triple A rating making them more attractive to buyers.

Problem solved but how can these shares be marketed? Speculative boom was a proven method, showing these bonds made money and to make it more attractive an insurance policy on these instruments removed the risk. World governments bought these instruments investing millions of pensions and personal savings made investment houses richer and CEO's responsible for their creation and wizardry that went into the money scheme justifies their higher compensation.

AIG did not want to call these instruments insurance policies as a business classification. AIG started as an insurance company and became an investment house. AIG called them; Credit Default Swaps. After the government threw an unspeakable amounts of money into financial markets and when banks stopped transacting with one another due to lack of trust. The Democrats and Republicans used the Federal Reserve to print money. The government bought and borrowed the worthless securities at their former price and with the new money printed it urged bankers to lend the money out to people. Bankers looked at the politicians and called them crazy! They had a point! The working class is busted and corporations don't have any customers anymore. It would be irresponsible to lend the bail out money out to anyone!

How the Democrats and the Republicans arrived at this measure to bail out the banks came from the insane notion that "Banks are too big to fail ', and had to be rescued because they were too big to fail! So the two parties agreed via Congressional approval to merge the banks making them bigger than before. Thinking it would fortify reserves in banks is indeed, an irrational policy.  But for the EU banks it is not an irrational policy for less cash rich governments in Europe and the IMF. To order banks increase their assets makes sense for Europe not for the US. The US government can afford to bail out banks whereas Europe's governments cannot afford it.

The US government became the insurer of bad securities and formed monopolies of banks permitted to survive when it should have printed more money after nationalizing the banks still standing from the crash of 2008 when millions could not pay their credit cards, mortgages, debts and the federal deficit ballooned. Nationalization of the financial sector would have left the politicians with the only choice to have paid down the deficit through a massive infusion and restructuring of the housing market and labor market.

Democrats pay the price for a down spiraling economy and the business community behind the Republicans ceaselessly work to control the political process as the only way in which to make permament a flat wage labor market. Their virulent political agenda with countless attacks on the working class is reflected in the political campaigning for president and right wing state's rights agendas that now confronts the working class itself as a verified 'class struggle'.


The movement of Occupy Wall Street, that is quintessentially multi-vocal represents the first time the Left and the working class carries the banner of popularism since the 1930's. For the period of rising wages from 1900 to the crash of 1929 the Democrats took the mantle of popularism and from FDR to now the Republicans took the mantle with the rise of the evangelical right wing.

The movement to occupy Wall Street provides a critique of the political system as a whole the other parties cannot do. The movement is multi-cultural and gives voice to many who form the working class, it can provide a new vision for a society that goes past electing the latest hot new politicians or accumulating money for the sake of accumulating money, a new economy as long as Democrats and Republicans do not get their hands on the movement it will remain unco-opted! As a movement it must provide answers to the age-old question of the meaning and purpose of life.

Tuesday, October 4, 2011

BEHIND THE VIEL OF WALL STREET!


After reading an article on Yahoo on ‘stocks tumbling’’: http://news.yahoo.com/stocks-another-dive-greek-default-fears-105904731.html, and reading the comments posted by American readers, I decided to  make a connection between that which is separating workers in America from workers in the EU system with a short history to help affirm the position for Wall Street protestors and their action.  The word ‘fear’ is pivotal in the media propaganda war against the people’s revolt against what is perceived as a ‘crude compromise’, or a ‘raw deal’  offered by the right wing in America. 

In real events on the ground in Europe, workers and students have taken an action against austerity with massive protests in several of the 71 EU member states, effectively willing to let the EU system collapse than to accept a bail out. From the point of view of the system, capitalists, bankers, the right wing and the fall in stocks in EU markets and on Wall Street, fear is synonymous with revolution.

The word’ revolution’ is never used in mainstream media. By definition this movement is not yet a revolution in the mode of production.

 This past week the struggle against austerity in the EU has taken a turn. The message sent to the Central Bank and their government ministers is a flat out rejection of a bail out. Naturally, the character of the struggle against austerity changes from country to country as workers and students battle their respective governments, they take on different issues that range from abuses in government, tax evasion, excesses and lavish lifestyles to oppressive legislation against labor market reforms, one-sided trade policies and the wars sided with the US in Afghanistan and Iraq.  Each country is different in the way and manner the workers and students are opposing austerity with different motives and reasons but the main fact remains that everywhere it is a true people’s movement.

 The fear generated among bondholders each day the Dow drops is an indicator of the growing pressure on the Central Bank and the EU to withdraw its demands on cutting the safety net and services relevant to the survival of the poor, unemployed, students and workers. They are refusing the Central Bank's offer of a bail out in exchange for austerity and are increasingly impatient with the right wing holding the economy hostage to force acceptance of this crude compromise.

Yahoo and other mainstream US media select to show American readers the widespread protests not as a movement for change but as ‘rabble’ or ‘rebels without a cause’  using  sensationalism to sway public opinion. In the propaganda war the goal is to cut off communication and unity between workers here in the US from imitating the actions of workers in Europe. They interview protesters on rare occasions when a celebrity appears such as Michael Moore and Josef Stiglitz. The talking head pundits discuss the action in a sanitized manner avoiding opinion. A few are radicalized, Dylan Ratigan, the Ed Show, Al Sharpton’s News Hour and explore the controversy in greater depth and empathy. For the most part the propaganda war of the far right is to presents the protesters as a bunch of slothful 'Welfare State' babies.

The end-result is this media campaign is to spread empathy for bankers and mass confusion among its readers in order to prevent the right wing from losing all credibility at the rate their counterparts are losing credibility in Europe.

The American right wing uses the euphemism; "Nanny State" to stereotype its poor, middle and working classes as little spoiled children while it plans to impose deep cuts in its government once in power. If the right seizes power the government they ideologically despise, that restricts and regulates any control over the free reign of Capital to be swept away, that all these obfuscations conceal their real motive to abolish government.

It is my opinion that the Right could succeed in swaying public opinion if this Wall Street action did not happen. Now I am confident with the spread of the action to other cities combined with other developments the Right will lose this titanic struggle. The question for this burgeoning movement is what happens next? What direction should it take to veer the country toward a viable economic alternative?

When the Right wing went after America's sacred cow and trampled on the elderly and poor women and children. This brought doubts into the minds of future workers and  retirees. If they can go after grandma they can do it to me prompted many to doubt their agenda.

Top Republicans refused to do business with Obama on health care. They perceived the Health Care Bill as an act of control over private enterprise of the medical establishment and it is a form of regulation and control. It ought to be! Health and education ought to be supported through a form of national taxation.

Republicans then refused to do business with Obama on the deficit not because they are stupid! To the contrary, negotiating with Obama would lose the deficit as a tool to sway public opinion against Obama. By threatening a worse situation of joblessness  Republicans could claim they were acting in the interests of the people.

Fortunately, for the Left in Washington apprehension and doubt among constituents forced Democrats to resist Republicans. Wall Street scored record profits while Main Street experienced foreclosures. Irene was a reminder of the Republican apathy of Katrina’s poor and black community victims of the disaster. To capitulate to their side and then at the ready swiftly enact bold measures through Congress that abolish the federal government's spending programs of the poor and elderly and the attacks on workers' rights through legislation against collective bargaining and unionization the Democrats would be guilty of abandonment of its working class base.

Then things backfired for the Republicans. They scurried to conceal true racists and sexists elements in their party never would have surfaced if it were not for an election year and presidential debates that required solid background vetting. Their next operation of attack on the middle class, the poor and working classes is to scramble out voting districts and create chaos and confusion and use the Supreme Court to settle the presidential election as tested in GW' Bush’s  coup de’tat against Gore the real victor of the election. America's right wing are effectually anarchists of the far right, believers that the nation-state must be abolished, in order for Capital/corporations/banks to have free reign over the society the federal government and its democratic institutions must go! Their agenda is clear and the workers in Europe are clear and the workers in America should be clear to reject a bail out of Wall Street and to resist Republican efforts for a restoration of the economic order as we know it.  The argument against a restoration is thirty years of failed policies and stagnant economic growth.

Unlike many EU member states America can afford to bail out the banks. In a situation like in Ireland debt and interests rates play a major role in its probable collapse. In America , the debt and de-industrialization, social inequities and social injustice, disparity of wealth on one side and poverty on another side, unfair trade policies, excesses and tax fraud and abuse. These present the challenges to be changed from below constitutes a major breakthrough on the question of emancipation as a ‘self-emancipation’ of the working class acting for itself.

Many on the message board talk about what would happen when a default happens and money is worthless. All kinds of illusory ideas are posted is no surprise and quite consistent with the mystery surrounding money and finances. In truth, money has little to do with the struggle to impose austerity. Bank re-structuring has little to do with currency and circulation. Gold and Silver as Money or as a Universal Equivalent in the exchange of commodities is a type of capitalism of an earlier stage of development; a consequence of a retreat to gold as a universal equivalent would open the way for the largest bearer of gold reserves to rule over all markets and nations. Gold as a commodity is not Money. As a commodity is a finite substance but again has nothing to do with a bail out in exchange for deep cuts toward the elimination of social democratic states in Europe.

An impending crash of Wall Street provides the conditions for a transformation of society. The question remains which road does America go; toward a socialism or a social democracy in reconstructing its industrial base? Banks are at their weakest position in a crash that this second time around government ought to nationalize the banks to be broken up into smaller institutions and heavily regulated by law to facilitate economic growth and employment a second bail out, based on experience, will not produce!


Saturday, September 24, 2011

WHILE YOU WERE ASLEEP!

One hour ago, at 10 pm EST US September 24, 2011: All the government finance ministers, the European Central Bank and the IMF met over Greek default and worker demands that have pressured government finance ministers into finding other ways to turn one euro into five euros in the next trillion euro dollar bonanza bail out.

They will collect 21% of a rescue fund of 2 trillion from bond holders spread over time through government monthly payments starting in November. The (banks)were willing to accept the losses in lieu of the losses being paid through cutting pensions, wages, hours, salaries, and services. The big group of three financial institutions included Treasury Chief Geithner, basically they gathered to hash out another way to cover the loan in part because the debt default threatens the capitalist system through 'contagion' and in part because the workers forced them to come up with another plan. Greece is a testing ground for how much European workers are willing to sacrifice for the crude compromise offered.

Finance ministers will not drop their push for cuts in government spending. Their jobs under pressure from banks to find ways to cut spending in the workers' incomes is as on going as their terms in office remain in effect. This fight is not over. Not by any stretch of the imagination.

In a revealing sentence Greek Finance Minister Evangelos Venizelos said, "In return, it has pledged deep austerity measures but negotiators are frustrated at what they say is Greece's slow reform pace." In other words, the workers are putting up a real good fight! The banks and finance ministers having second thoughts about where the money is coming from! They can not get workers to submit to the deal the banks want.

The 'slow reform pace' refers to the riots and strikes Greece's workers have staged in recent months. The unifying rally cry is no sacrifice from the banks as the chief cause of the default crisis of the 2007-8 themselves is false blame. The banks who stand to lose the entire loan from a default have been trying their best to get government ministers to get workers to pay for the losses and loans up front is a lesson the American worker has to learn, and quick. If workers take it sitting down cuts in their hard earned savings in pensions, cuts in wages and salaries, hours and new austere conditions at work, medicare and even cutting social security if Perry gets into office will be a painful unjustified reality.

Unless workers take action and the type of action needed is massive opposition to cuts is the only pressure a diametrically opposed Congress would respond to. Americans need to get Congress to charge the banks, the rich and wealthy corporations for the cost of a Jobs Bill. The same ethical reasons for this are present as they are in the 'Euro zone' that the financial institutions originated this crisis has damaged and altered the economy from shocks to the system cannot recover. Shocks which threatens to become a full scale depression but more importantly reveal the contradictory extremes in the whole society . It is not hard to see anyone of our candidates taking a sharp turn to the right under republican pressure to shift the cost of the Obama Jobs Bill on workers incomes if passed while he remains in office. I can see Obama taking a sharp turn to the right if it means saving the 'Free World' from the contagion of default collapse is how in the center he stands on all issues economic.

The US is in the same situation and the same crude compromise is voiced through Ryan's plan for social security and getting their hands on those funds is a popular theme on the Republican side of the aisle. Cutting people off from the funds in social security, services cuts, medicare cuts, wage, salaries and pension losses. If this isn't class war then I do not know what class war is! American workers have not pressured Congress to enforce strong independent so called 'pro-consumer regulations' on Chase, Wells Fargo, Mellon et al. None of the financial stock houses and their CEO's under which credit default swaps, traded from Wall Street from 1993 forward led to the collapse of the housing market and still presents a mortgage foreclosure crisis dragging the economy downward and many more millions into poverty and homelessness.

Organize!

Source: http://news.yahoo.com/europe-aims-beef-crisis-fund-world-urges-action-002738861.html

Wednesday, September 21, 2011

ANALYSIS OF AMERICA'S NEW CLASS WAR

 
Impossible! That the Fed step aside to let the economy recover on its own. If employers were hiring then the Fed can step aside. Investors and employers are buying Treasuries instead of investing in companies and companies are not hiring to encourage investors to buy and sell their stocks. The cycle of decline reaches the end of the line. This action is a move on the part of the Fed to encourage banks to lend money to employers to hire and expand businesses and consumers to refinance mortgages at lower rates. It does not address individual banks and their current opposition to lending and refinancing restrictions. But it does hit them where it hurts, no more money kept in Treasuries with higher yields where capital can be parked.

Another myth propagated by the right wing to dispel Americans is the printing or more paper currency in circulation. Charging the Fed with hastening the worthlessness of the dollar in relation to trade balances. This does not depreciate the value of the dollar. The quantity of money in circulation in relation to quantity of commodities produced divided by their average price only affects the speed with which goods and service fall out of circulation and their price (inflation). Personally I don't see how Congress can send a letter to the Fed warning inflation. They obviously don't have a handle on the micro economics. Unless they know something the Fed does not know such as employers do not intend to expand production no matter what! This would be consistent with big business backing people like Perry to make sure Obama is not re-elected as the political priority and not jobs. The past 35 years business and politics have forged alliances that this semblance of a conspiracy is entirely plausible. The letter is an ominous warning and excellent insight of class struggle strategies on the part of Republicans. That employers will raise commodity prices in lieu of high rates in T-Bills to realize their profits. They warn Bernanke that inflation will devastate the American people. In other words, inflation is either the nail driving their re-election hopes into the coffin as workers will fall deeper into poverty or will result in victory in the demise of the American government.

On Monday, September 19, 2011 the four highest-ranking Republicans in Congress sent Bernanke this letter cautioning the Fed against taking further steps to lower interest rates. Their letter suggested that lower rates could escalate the risk of high inflation. See: http://finance.yahoo.com/news/Fed-is-expected-to-take-new-apf-96033563.html?x=0

Other laws govern the value of the dollar namely, economic laws in production. No jobs, no sales in august = 0% reflects the micro chasm between employers and workers. This chasm determines Trade Balances between Nations. Supply and demand only works when the system is working. But the system is not working! No one is working except the few who have jobs and are overworking. This chasm or what Marx called the class struggle in production and what Republicans term as 'Class Warfare' explains the motives of high ranking Republicans in their letter to the Fed. It explains why the IMF recommend governments not cut services too fast and not tax to quick. Proceed with caution! Consumers will not buy and employers will not hire and production will remain stagnant. Employers and workers were at a negative standstill in August producing 0 jobs and 0 hires. A negative equilibrium the Fed is trying to overcome with this recent move to pressure banks. That the Fed applies pressure on employers through a squeeze on banks offering T-Notes at a low yield is intended to encourage investment and discourage hoarding. It is a move to pressure banks to lend and refinance to get employers to expand and consumers to refinance their mortgages while interests rates are low. This strategy shows Bernanke unlike most of his predecessors, is a rationalist siding with workers in this class war realizing that employers are resisting to hire. American workers have a friend in the federal reserve and nothing but enemies in Congress.

The Debt to GDP ratio is a macro problem that without doubt needs to change. This relates to how governments do business in general. They borrow from central banks and spend to run government. Borrowing and spending is a system based on the cooperation et al, a 'social contract' between employers and workers. Banks will lend to government with the promise that both employers and workers agree on the terms for production, a New Deal was this social contract and banks knew government would be good for their money. For many decades the US paid its bills that is until spending shot through the roof mainly under Republicans. Hindsight shows that high deficit spending was a tactic in the class war and demolition of the New Deal and government generally to bring workers in line with employer demands. The social contract included government will tax both employers and workers and spend within its limits and be timely with their payments to their lender. Under the present class war the System of 'borrow to spend' is no longer viable. Employers are not willing to be taxed and workers are overtaxed in the United States and governments generally exceeded budgets through high war expenditures. All three parties breech the social contract, the workers being the innocent victims in the breech of the New Deal, their continual re-election of the same conservative brand of politics left them defenseless against the great breech of contract.

The chasm or class war between employers and workers, depending on the outcome of the next government shutdown and cliff hanger, rages forward. In the meantime, there are things this President will do through conscience to lessen the birth pangs on a macro level such cuts in war expenditures and moderate tax increases of employers. A the end of the day, the American people as Paul Sweezy predicted in 1974 will have to take on the battles their forebears died for in the class war of 1929 and bring the system down to reconstruct a new economy, leaving no stone unturned.

Monday, September 19, 2011

WHY A THIRD PARTY IS NECESSARY.


THE BROAD VIEW WHY A THIRD PARTY IS NECESSARY:

The reaction of business to the last federal stimulus and the next stimulus has been and will continue to be thank you for the incentive but no thanks!  When this happened in the 1930's, FDR told the private sector, if it won't hire the unemployed the government will! Americans can expect the same reaction from business in 2011 to this new round of stimulus for jobs, thanks but no thanks! Congress in the 1930's was more aggressive toward the private sector because they had an alternative in Keynesian economics, they could spend their way out of the depression. The economic system reached the lowest record level of unemployment in the 1950’s. The height of prosperity and any rational tax revenue plan to include all the social classes took a back seat from that point forward. The middle class supported the government’s spending through the ensuing several decades. The second world war provided a great incentive to re-tool factories and deficits never exceeded what the country could produce. But, the limit of borrowing has reached its end. The country's capacity to produce is equal to its 13 trillion dollar debt to the banks. The Congress of 2011 cannot afford to be as aggressive with the private sector as it was in the 1930’s. In fact, Congress in 2011 is moot on the crisis befalling the middle class and economic growth.  The end of prosperity that is punctuated by increasing impoverishment of the middle class, proves the two parties do not see beyond the Keynesian model. It is of no consequence that this Congress is pro-business. Legislative reforms enacted in the Supreme Court and Congress over the last 35 years by the right and the left, successfully positioned Big Business for the coming austerity measures they saw as the only way to continue lending to the federal government. But, this time the government would have to cut from its budget the more expensive programs as a guarantee of repayment or pay the interest on the current debt. These programs would include cuts in the services the declining middle class and the poor depend on for survival as poverty deepens in the United States. Therefore, an alternative party is an essential question!

THERE IS NO MYSTERY TO THIS CRISIS:

This financial crisis is the same as the EU crisis. What is coming to a head in the EU is coming to a head in the US. The EU borrowed and minimally taxed the corporations and the rich for decades as did the US. Republicans and Democrats accepted the Keynesian practice of borrowing and spending as a permanent fix and prosperity voided the political incentive to reform the tax code that would serve to balance the budget through a real and practical taxation plan with pragmatic changes to the size of government and its role in the private sector. In a word, they avoided the problem. We observe from the unfolding of deficit woes that taxing the rich and corporations and the people refuse taxes. This stalemate is causing massive erosion of societies in Europe further hastening the process of decline. The EU governments react with more bail out, more borrowing and higher reserve capital in banks to shelter future mortgage shortfalls. Rather than to address the system as a whole the governments focus on the single cause that brought down the financial system in 2008, and attempt to shore up the housing market with the expectation of recovery. Governments go into hock to the banks and payment of the deficit over the long term excludes corporations and the rich with the crude compromise offered by parliamentarians to repay the total deficit through cuts in services. This same deal offered by our Congress, presents to the middle class with newcomers to Congress from the business sector, to replace career politicians. Career politicians who are reluctant to cut programs intended to shelter individuals and families from further destitution. And, as another round of foreclosure actions take place the programs become ever more indispensable.

THE CRUDE COMPROMISE:

While there is no Left opposition outside of government to force the Congress to tax the rich the fear of criticizing the whole system immobilizes the left inside Congress and the Right sweeps away with all the votes.

Taking no chances the private sector and the right opposition in Congress vis-a-vis the Tea Party; push the limits of this crude compromise of continued borrowing, cuts in spending and no taxes to the rich are incapable of criticizing the entire model of spending and borrowing. This is due to their financial ties to the private sector and the increasing role of powerful special interests in Congress. Through campaign reforms made in the past, new Democratic rivals are set up in Congress to force a bitter pill down the throats of the public in the guise of business sector experience and job creation. They propose cuts and no revenue streams from the private sector in addition to no changes in the system as a whole. That a plan for rational taxation and scaling down the size of government coupled with a plan to re-industrialize the economy, proves the two parties, focus like their EU counterparts, on a single pronged solution to fundamental economic problems of the middle class and the growing poor. Instead of changing institutionalized inequity they propose to leave intact the institutions encouraging the behavior.

The objective of the middle class, in response to their plight, ought to be a broad movement against short-sighted and special interest policies coming from both parties. A movement that surpasses single issued causes and proposes through an independent party a rational plan for taxation and spending of government that is wholly independent of moneyed interests. The two mainstream parties are indebted to the private sector and this cripples their ability to act in the best interest of the nation. Needed is a neutral Third Party that is not afraid of criticizing the system as a whole the way the mainstream Republican and Democratic parties fear rebuke from powerful lobby groups and cannot criticize economic practices and policies. A Third Party that can move the country forward into an ecological change on how our economy interacts with the environment that neither the mainstream parties take interest in. A Third Party that makes new demands on society and has a vision to replace a system that has come to the end of the line. A system of taxation and spending that has worked for a few but not all, and is now a chief cause of engulfing a majority into poverty. A Third Party that addresses the huge student loan endemic waiting to explode exceeds total credit card debt is unprecedented. A Third Party that focuses on long term stable economic growth and deficit elimination dividing the surplus into meeting needs in defense, reserve funds for natural disasters, research and development, health and education as the role of government in society and supported by all social classes in a fair and rational manner as the purpose of taxation. A Third Party serious about ending the Wars.

Friday, August 12, 2011

A Thesis on Production and Consumption Under the Soverign Debt Crisis


The two major crises behind the two major stock market plunges are: the sovereign debt crisis in Europe and the United States. How has this changed the two important economic categories of production and consumption, which, in turn, changing the relationship between nations as a whole?

The key word is change and the unknown factor inherent in change creates fear and uncertainty. One thing to help to counteract fear is for governments to reform policies inconsistent with the changes in production and consumption. This is a tough but true road to take a road with contentious pursuits. It entails focusing on production and consumption and forming policies to facilitate inevitable changes in these areas of the economy.

The debt ceiling cliffhanger in the United States and the downgrading by Standard and Poor causing more turbulence in the economy are over-reactions rather than rational acts of prevention and planning.

It is important to prevent one sided measures in regulations with a vision toward social cohesion and stability. It is interesting to note that a private institution would act to obstruct one of its own institutions not to mention the most powerful country in the world. The catalyst for this action, and this is pure speculative insight, might be in the polarizing political nature of race relations in the United States. Never the less, the change on the horizon is color blind and international in nature.

While it is probable that the governments concerned will resolve their crises in the short term, the major shift will come from the changes in production and consumption in the long term. Who produces and what they produce, how much and when, is expected to dictate serious tensions between controlling interests and emerging new rivalries between nations and at the center of the changes is the United States' role as the dominant force in the world. We can choose to have a peaceful transition or a calamitous one filled with disaster after disaster, will depend on the Will of leaders and the Will of the masses.

A way out of the slump is far from being resolved for all concerned. First, it is the wrong approach to present the people with the bill at the behest of the wealthy. The right approach is to re-define growth based on the recent historically unprecedented limited latitude between the two spheres of production and consumption of each nation. In the last decade, the gap between production and consumption narrowed; in the past, earnings were high enough to shelter the population from recessions and unemployment levels intolerable for social cohesion. Job seekers were out of work for an average of 6 to 10 months. Today the average is 3 years between jobs. Additionally, the demand for labor fell in relation to the quantity of production. Consumption patterns shadow a corresponding rise in profits that is concentrated into fewer and fewer hands brings into question the ability of capitalism to sustain growth and prosperity or is it an engine for poverty and ruin.

In the last eight years production and consumption transformed. Production moved into other countries through shortsighted policies leading to unintended consequences; some countries are better at manufacturing goods and services than others, cheaper, more efficiently with falling consumption patterns in the home country. This constitutes a structural change that offers opportunity for nations to customize production and consumption filling the network of needs individual nations have and don't have in terms of their natural and economic resources is a theory of mass customization of production and mass individuation.

Unemployment levels was never embedded in the same profile as growth, contrary to past economic wisdom; which stated, everyone is better off when profits are high, production and consumption for the last eight years reflects a corresponding gap between real wealth and employment, that the slightest recession can cause much damage to the society and population weakening growth and therefore, rendering mass production a useless activity for mankind under a paradigm of rich and poor nations and persons.

Because employment and growth levels fused in the eight year period translating into less jobs and less income, lower consumption rates and slow growth reflects a structural transformation of the nature of production. At the same as production costs cheapened through globalization, a new average demand for labor corporations and employers have adjusted themselves to, translates into less jobs and therefore, consumption is too weak to expand production into an ever growing pattern of prosperity. It is a formula headed straight toward a collision without immediate policy changes at the bottom of most societies with highly mechanized production in comparison to nations still utilizing non-mechanized productive techniques.

Under this circumstance, economic policy in banking, industry and society as tehy relate to both spheres are key factors for true progress. For instance, in the recent Supreme Court ruling against Obamacare, national health needs return into the decision making power of private insurance companies, whose single interests are incompatible with the demand for health care in the general population given the rate of mortality and its chief causes. Realistically, the each individual’s needs are different and thus health insurances ought to customize health plans for the individual based on individual need, thus costs per policy will vary but the total, multiplied and divided, can be spread over a broad income tax to cover its costs. Education and health care are the same and can follow this same principal of taxation. Social regulation for health and education funded through an income tax instead of each municipality carrying the burden through property taxes is a sensible approach keeps these services fully well funded to develop greater prospects of success and wellness. The simplest plan works the best and inclusively it is perfectly logical to exempts youths from taxes until gainfully employed.

Reforming work and production to conform to productive capacity hinges on full employment, earnings are less per individual customizing production based on real values in relation to cost of production but so too would be goods and services. Deflating price under these current circumstances does not reduce profits since production is global and employment and development can proceed in regions of the world most desperately in need of jobs and human development that many nations can develop a strong middle class and thus maintain strong markets for the absorption of excess capital. Changing the tax structure, closing loop-holes for corporations makes complete sense and yet does not expropriate controlling interests but limits the speed and threshold with which wealth is produced and accumulated before detrimental effects are perceptible in the socieies. The duality between production and consumption require a dual policy approach where reforms in one compliment reforms in the other. In other words everyone might have a part time work schedule, but no one is out of a job, prices would conform to production costs yet a slower rate of profit and growth is no less negatively felt under a general income tax rate spread across the whole population and many nations providing robust markets.

The concentrations of wealth limit growth, too much creates a highly specialized market unable to absorb the productive capacity of global production. Herein is the problem risking the survival of the economic system as a whole that world production raises its productive capacity way over the ability of a certain few nations given the slow down of income are able to consume. The balance of goods and services subsequently remain unsold, increases poverty in the midst of material abundance.

Treating production and consumption as one sphere of human activity also commits production and consumption to conform to the careful management of resources and natural elements that are finite to human needs, namely, enhancing the quality of life on Earth for the many.

Is a Gold Standard a Solution?

A gold standard makes sense to many people, especially in times of radical fluctuations of the stock market, when price and value are miles apart. The actual worth of a thing is better understood when there is something finite backing goods and services, stocks and shares and in spite of the fluctuations investors would feel secure. But this presupposes a change in the relationships between nations that hinges on who owns the greatest percentage of gold.

All the goods and services produced by human labor relate to each other as commodities and through one universal equivalent. This is why people buy up gold in times of a financial crisis and is considered the safest investment for their money. The rush to buy gold reflects a crisis of confidence in the primary economy to produce above costs. When a country is not in full production and its goods and services are backed by its currency then it is the quality of the currency as an article of good faith and responsibility that its productive capacity can pay its investors a decent return.

In the past the U.S. dollar was backed by Gold and Silver. Its productive capacity exceeded any in the world and its national growth rate did not require expansion into other nations for new markets. The gold standard was sufficient for itself. But all this has changed. The real world is not one of isolationism for any given nation. When the dollar is backed by debt, its good faith is based on making sure its investments are safest in the world through its military might. Policies of securing expansion of production in cheaper markets while carrying out nation building depends on a relatively calm atmosphere and cooperation from other governments, for the sale of its good and services in more expensive markets. This means that its policies are focused entirely on using its military to open a countries productive resources to buyers at a cheap price. When this happens the goods and services shift from one country to another. Production is weak in the former and strong in the latter and conversely, consumption if strong in the former and weak in the latter.

Other problems emerge from a gold standard, the possessor the greatest share of the world's gold has the power to set the price of gold through supply and demand. In a de-regulated free market system this could be a disaster. If a nation is out of debt or its balance of trade are equal to its productive capacity or paid in full a move toward a gold standard is still not a good idea for nations. Some authority will be required to establish the price of gold. This is the problem with the EU system that a few of its member nations' finance ministers feel resentment being told by an EU central bank to make their bonds more profitable through austerity measures before they get any more cheap financing.

You can expect from this U.S. administration not to abandon its policies of authority to a central authority outside of its own authority to dictate terms for markets. The shift from the dollar to another currency's stability or several other currencies is a more realistic solution to the dollar dominance and the lack of confidence of U.S.'s ability to produce and nation build. With all the changes in world governments, and movements of change, damages done to nations' capacity to produce cheap goods and services are very limited in this changing atmosphere creates this crisis of confidence.

The gold standard is not a good idea after all. A more practical measure is regulation. Placing more restrictions on those forces which drive prices into sharp swings such as speculation, short selling. These forces drive price in contradictory directions in too short a time period is creating an unstable environment for the long term investors comfortable with the policies of their respective governments.

The typical long term investment fund that is considered safe are divided into separate and distinct market opportunities, some more risky than other, but the anatomy of the least risky funds puts a smaller percentage of money into high risk and the greater percentage of money of account into less risky opportunities should help to quell the nerves of most investors.