How To Escape A Stagflationary Quagmire

What happens when the FERAL Reserve uses raising interest rates in an attempt to quash inflation?  You guessed it:  STAGFLATION. That is, a combination of economic stagnation (or even recession, if they keep raising it "until something breaks") and persistently high inflation.  But if the only tool that have is a hammer, everything looks like a nail to them.  And a quagmire thus results when tight monetary policy is kept in place well beyond its (very short) shelf life.

Contrary to Milton Friedman, the godfather of neoliberalism (who literally coined the term "neoliberalism" himself, along with the term "stagflation"), who claimed that "inflation is always and everywhere a monetary phenomenon", it is more accurately described as being (almost) always and everywhere a supply-side problem of goods and services, as Rodger Malcolm Mitchell notes.  And the only way to cure it is to cure the shortages, which counterintuitively often requires increasing (and better targeting) federal spending to incentivize production of scarce goods and services, especially energy.  There is clearly an extremely strong correlation (almost perfect, in fact) between energy prices (especially oil) and the general price level (CPI) of goods and services overall.  While there is, contrary to popular opinion, very little to no correlation between inflation and federal deficit spending, or even the general money supply itself.  (The general money supply consists of deficit spending of new money into existence plus banks lending new money into existence, though the latter is of course inflationary albeit only due to interest.)

(And let's not forget greedflation as well!)

At best, as a "break glass in case of emergency" measure, raising interest rates, especially to above the inflation rate, has a weak, very short-term benefit on fighting inflation, followed by a longer-term exacerbation and prolonging of inflation that seems to be unrelated but is in fact caused by it.  After all, hiking interest rates is effectively a blunt and regressive tax that increases costs across the board, which are then passed onto the consumer in the form of...higher prices.  And so on.  That is, MORE INFLATION, in a vicious cycle like a yo-yo.  The "cure" is in fact far worse than the disease, like applying leeches to cure anemia, as Mitchell would put it.

The plandemic-induced supply-chain issues have been resolved, and even the global geopolitical issues would should by now have less effect in the domestic oil and gas powerhouse that is the USA.  Oil and gas prices are now down significantly stateside.  The money supply and federal spending have shrank since then as well.  And yet inflation, though much lower than its 9% peak in 2022, remains stubbornly above than 3% today.  Could it be that keeping interest rates well above the current inflation rate is actually not only part of the problem, but now THE problem?

BINGO.  So the FERAL Reserve would be wise to end Quantitative Tightening and cut interest rates yesterday from the current 5.25% to 3%, then to below 3% very shortly thereafter (within days or weeks).  Then when inflation falls, cut it again to below the new inflation rate, and so on. All the way to zero if necessary.  Failing that, the only thing that would end this quagmire is a severe enough recession to kill demand across the board, which will clearly do more harm than good.  History certainly bears that out.

(It explains not only today's quagmire, but also the 1970s and 1980s in the USA and a fortiori in Canada.  And it even at least partially explains the phenomenon of "chronic inflation" in various Latin American countries in the 1990s and beyond.)

Then, Congress must increase, not decrease, federal spending to cure the stagnation part, which is the other half of the stagflation.  Yesterday. 

And while we are at it, we should also phase out the scam known as "fractional reserve banking" (or more accurately, "fractional capital lending") by increasing the reserve requirement for private banks from the current 0% to 10% immediately, as it was before March 15, 2020, then very gradually raising it all the way to 100% over a number of years.  (The only reason to do it gradually is to prevent markets from suddenly seizing up and causing a financial crisis.)  And also either break up, nationalize, or tax heavily any banks that are "too big to fail" as well.

So what are we waiting for?

P.S.  This argument does NOT apply to "creeping inflation" (i.e. consistently below 3%), as that level of inflation is easily controlled and adjusted for, promotes economic growth, and is actually beneficial on balance.  Such low to moderate inflation is far better tolerated than risking even a small amount of deflation (negative inflation), which, at best, is VERY difficult to control and can all too easily become a vicious cycle and downward spiral into a full-blown depression or long-term "stagpression".  In contrast, inflation only becomes net harmful on balance when it greatly exceeds 3%.  Again, history bears this out.

How To Defuse The QUADRILLION Dollar Derivatives Bubble (Part Deux)

Last year we discussed the QUADRILLION dollar derivatives bubble and the risks that come with it.  Well, guess what?  That bubble is still there, just WAITING to pop, and thus drag down the rest of the economy with it as well due to is massive size and interconnectedness.  And it has only grown dramatically since the last major financial crisis and Great Recession in 2007-2009.  

Ellen Brown recently wrote another excellent article about what to do about it.  She notes how this dangerous derivatives bubble was no accident, but came into being via deliberate deregulation that specially privileged derivatives.  Repealing the Glass-Steagall Act in 1999 was only the start.  In 2000, the Commodity Futures Modernization Act (CFMA) not only removed derivatives from any sort of federal oversight, but it also declared them be legally enforceable, a privilege that NO other bets have ever historically enjoyed.  (Let's face it, derivatives are literally nothing more than glorified bets.)  Then in 2005, the Bankruptcy Act gave derivatives extra special "safe harbor" protections as well.  And after the Great Financial Crisis, a crisis in large part caused by wanton derivatives speculation, what law was passed to pretend to tame this out of control casino? You guessed it:  the Dodd-Frank Act of 2010, a band-aid which only further entrenched the fundamental derivatives problem that was left to fester. 

That is, fully legalized and unregulated gambling with other people's money on a truly gargantuan scale by the ultra-rich, using very questionable and opaque financial instruments, all backed by special privilege and protection of the law, is still very much a thing, alas.  And like any casino, the house (the oligarchy) always wins.  Privatize the profits, socialize the losses.  Heads, they win, tails, We the People lose.

Talk about moral hazard! 

Clearly, repealing Gramm-Leach-Bliley (the 1999 law that repealed Glass-Steagall, thus reinstating the latter), repealing the CFMA especially, repealing the "safe harbor" protections in the Bankruptcy Act, and repealing Dodd-Frank should be the absolute highest priorities to defuse this massive ticking time bomb.  No doubt about that.  That is, we must regulate derivatives at LEAST as stringently as they were in the 20th century, if not more so.  Additionally, a modest financial transactions tax (say, 0.1% on all transactions) would also be a good idea as well.  The latter can alternatively be achieved by raising and expanding the current SEC Fee to include ALL financial instruments equally, including derivatives.

We should also jettison the largely inaccurate term "hedge fund" from our collective vocabulary as well.  They should really be called "speculation funds", since that is what they really are in practice.

Oh, and to the FERAL Reserve:  CUT INTEREST RATES YESTERDAY!  And stop Quantitative Tightening yesterday as well.  It is really playing with fire in the worst way right now.  KNOCK IT OFF.

The aforementioned items would be enough to defuse it in the near term, while the following items would be to clean up the damage and/or prevent it from happening again in the future:

• Ban the practice of "quote stuffing" and other practices of deliberate market manipulation.
• Ban stock buybacks by corporations.
• Going forward, ban any and all types of new and exotic derivatives that are not completely transparent.  Opaque derivatives based on sketchy underlying fundamentals should be considered fraud, plain and simple. 
• Absolutely NO more bailouts OR "bail-ins" of the banks ever again, period (but of course depositors should still be made whole per the FDIC, with no apologies to any ultra-purist libertarians or paleoconservatives).
• Implement "Quantitative Easing For (We The) People" (that is, with direct payments to individuals, not banks) as needed.
• Phase out the practice of "fractional reserve banking" by very gradually raising the reserve ratio requirement until it reaches 100%.
• Fully nationalize the largely privately-owned FERAL Reserve to make it truly FEDERAL for once.  And established state and local public banks as well, like North Dakota currently has.
• And last but not least, all banks that are "too big to fail" are really too big to exist, and should thus be either forcibly broken up, taxed heavily, or nationalized as public utilities.  YESTERDAY!

In the meantime, we all need to brace ourselves for a possible financial crisis and recession in the future.  It is highly unlikely that Congress will act in time, as they are largely bought and paid for by Wall Street and the big banks (who also largely own the FERAL Reserve as well).  But don't fall for the idea that we should withdraw all of our money now, as that would literally be a self-fulfilling prophecy (causing a bank run).  The FDIC guarantees the first $250,000 per depositor per bank, so unless you have more than that (and didn't put it in multiple banks like you should have), it does not make sense to do so.

So what are we waiting for?

"Too Big To Fail" = Too Big To EXIST

Once again, the issue of "too big to fail" is in the foreground, as we have obviously learned NOTHING from the last financial crisis.  If there is ANY lesson that we must NEVER forget, it is this: "too big to fail (or jail)" is really too big to EXIST, period.  And here is what we absolutely MUST do going forward:  give all banks and corporations large enough to have "systemic risk" (that is, where them failing would literally bring the whole economy down) a choice between the following menu of options:

1. Pay a prohibitive 90% marginal tax rate on all profits beyond the first billion, or,
2. Break up into smaller, unaffiliated banks or companies, similar to what anti-trust laws require for monopolies, or,
3. Full nationalization by the federal government, and (if already failed or failing) replacing the entire board of directors.

That's it.  That's the ONLY real solution. 

Of course, we also need to bring back the Glass-Steagall Act and pass a financial transactions tax and repeal the safe harbor provision of bankruptcy law and regulate derivatives better and stuff like that.

So what are we waiting for?

Pay No Attention To The Little Man Behind The Curtain

A new book by Matthew Desmond, Poverty By America, is the latest book about the topic of why poverty persists in the richest country on Earth.  In it, he discusses what he feels is the root cause of poverty's persistence, namely all of the ways that the non-poor benefit at the expense of the poor by keeping them poor.  It is true that it is not always enough to comfort the afflicted, sometimes you need to "afflict the comfortable" as well, to paraphrase the famous author and filmmaker Michael Moore.  

While there is a great deal of truth to what he says, and he makes some great points, the TSAP feels that the author is unfortunately 1) engaging too much in zero-sum game thinking, where in for one person to win, someone else has to lose, 2) largely ignoring the "little man behind the curtain", that is, the oligarchs of the big banks and Wall Street who fundamentally rig the game, and the FERAL Reserve that they own and control.  By focusing on all of the ways that the middle class and somewhat rich benefit at the expense of the poor, it also has the effect of ignoring what the billionaire class has done and is continuing to do to the broader working class, which includes the poor, the near poor, and the ever-shrinking middle class as well.  In contrast, David DeGraw back in 2014 wrote Peak Inequality, that really sheds light on the "little man behind the curtain":  the top 0.01%.  And it applies a fortiori to 2023, as inequality has only gotten worse.  If reading that doesn't make you feel RIPPED OFF, check your pulse 'cause you might be dead!

While there a number of things that need to be done to solve these massive intertwined and synergistic problems of poverty and inequality, keep in mind that we can mathematically end poverty overnight with a Universal Basic Income (UBI).  And also another that our tax code is actually regressive at the very top, where thanks to numerous loopholes, the top 0.01% often pay only a fraction of what those below them pay, if anything at all.  Aside from closing loopholes and greatly hiking the top marginal tax rates for those making over $10 million per year, another idea that has yet to be tried is a financial transactions tax on stocks, bonds, derivatives, and stuff like that. Alternatively, essentially all taxes could be replaced by a tiny 0.1% or less Universal Exchange Tax (UET) on all electronic transactions, period.  With a tax base of most likely $5 quadrillion or more, a 0.1% rate would raise $5 trillion per year, enough for the entire federal budget and then some.  It would actually be quite progressive in practice, since the rich make far more transactions than the non-rich.  And such a tax would still be quite painless for literally everyone except perhaps speculators and money launderers.

And of course, we need to nationalize the private FERAL Reserve, and restore the power of money creation back to its rightful creators, Congress, who would then authorize the Treasury to do so.  Such power is far too important to leave to the big banks and they sycophantic lackeys and technocrats. 

So what are we waiting for?

How To Defuse The QUADRILLION Dollar Derivatives Bubble

"Beware the Ides of March!"

With all the talk about (so far) isolated bank failures and the potential for a real, wider financial crisis in the near future, no one wants to talk about the real elephant in the room:  the looming QUADRILLION dollar derivatives bubble just waiting to burst.  And if the FERAL Reserve keeps on hiking interest rates in a misguided attempt to fight inflation that is already cooling, it will burst catastrophically, making 2008 and possibly even 1929 look like a walk in the park.

This massive derivatives bubble was decades in the making, resulting from the ever-increasing "financialization" of the economy.  Wall Street has basically been gambling with other people's money, in the world's largest casino, all while getting bailouts.  Privatize the profits, and socialize the losses, basically.

There is still time to defuse this ticking time bomb though:

1. Cut interest rates, YESTERDAY!  Or at least stop raising them!
2. End Quantitative Tightening, YESTERDAY!
3. Pass a financial transaction tax (aka "Wall Street Gaming Tax") of 0.1% on all financial transactions, including stocks, bonds, and especially derivatives.
4. Repeal the "safe harbor" provision of bankruptcy law, particularly as it applies to derivatives. 
5. Reinstate the Glass-Steagall Act in full.
6. Ban the practice of "quote stuffing".
7. Ban stock buybacks by corporations.
8. Going forward, ban any and all types of new and exotic derivatives that are not completely transparent. 
9. No more bailouts OR "bail-ins" of the banks (but of course depositors should still be made whole per the FDIC, with  no apologies to ultra-purist libertarians or paleoconservatives).
10. Implement "Quantitative Easing For People" (that is, with direct payments to individuals, not banks) as needed.
11. And last but not least, all banks that are "too big to fail" are really too big to exist, and should thus be either forcibly broken up, or nationalized as public utilities.  YESTERDAY!

The first five items alone, or even the first four, would be enough to defuse it in the near term, while the remaining items would be to clean up the damage and/or prevent it form happening again in the future. 

In the meantime, we all need to brace ourselves for a possible financial crisis and recession in the future.  But don't fall for the idea that we should withdraw all of our money now, as that would literally be a self-fulfilling prophecy.  The FDIC guarantees the first $250,000 per depositor per bank, so unless you have more than that (and didn't put it in multiple banks like you should have), it does not make sense to do so.

And let's not forget the role that the lockdowns played in all of this.  To paper over their predictable consequences, they printed trillions of dollars to do so (which increased demand for goods and services), at the same time that the lockdowns and their fallout constrained supply and snarled supply chains.  The resulting inflation was then belatedly papered over by raising interest rates and Quantitative Tightening, and the resulting whiplash has brought us where we are now with the banks, and making the bubble even more likely to burst.

Of course, things weren't exactly rosy for the financial system before the pandemic either.  Behind the scenes, a financial crisis was already subtly brewing, with the turmoil "repo market" in September 2019 being the first canary in the coal mine.  The FERAL Reserve kept printing more and more money to try to paper it over, but the problem wouldn't go away, even many months later.  They needed to do something BIG, and FAST.  It's almost like the pandemic was actually a PLANDEMIC, a big heist of the century to temporarily shore up the big banks in 2020 and make the rich richer, the poor poorer, and hollow out whatever is left of the middle class.  But hey, that's just a "conspiracy theory", right?

UPDATE:  The FERAL Reserve has raised the Fed Funds Rate by 0.25 percentage points.  Looks like they really, really wanna pop the "Everything Bubble".

The Root Cause Of All Economic Woes Of The Past Half-Century: "Financialization" Of The Economy

The year was 1971, just over half a century ago.  The utterly costly (in both lives and money) and protracted Vietnam War was gradually winding down but still raging, inflation was getting out of control, and the Bretton-Woods system of an international (fool's) gold standard and fixed currency exchange rates was rapidly collapsing on itself due to rampant cheating and attrition.  On August 15, 1971, President Richard M. Nixon decided to effectively suspend the gold standard, first temporarily, though it would soon become permanent by 1973.  And by 1975, any nominal and vestigial links between gold and the dollar had been severed completely.   

Since this "Nixon Shock" of 1971, the money creation capability of the federal government and the Federal Reserve were no longer constrained by gold or anything else (except the remaining arcane and archaic rules of Congress left over from the defunct gold standard, and thus no longer make any sense).  Thus, Congress could really create as much money as they wanted from then on, and the Fed could create as much as Congress would allow them to.   The money supply had clearly exploded exponentially since then, and a fortiori after 2008 and 2020.  

So where did nearly all of those newly-created dollars go?

Wall Street, of course.  The result?  A perpetually yawning chasm between the financial sector (which grew exponentially along with the money supply) relative to the real, physical economy (which has basically stagnated and hollowed-out ever since).  That absolute and relative advantage was then weaponized against the bottom 99% of Americans, as the financial sector is dominated by the top 1% and especially the top 0.01%.  Extreme inequality and very much harm followed.  Decades of utterly remarkable progress against poverty stalled and even reversed somewhat.  And that, ladies and gentlemen, is the real root of all economic woes of the past half-century.

Prior to 1971, the financial sector moved largely in lockstep with the rest of the economy.  And not coincidentally, prior to 1973, wages grew largely in lockstep with labor productivity as well.  But ever since then, both have seen an ever-widening divergence, to the detriment of the greater working class.  While the oligarchs literally laughed all the way to the bank.  And that was clearly no accident, but rather by design.

Imagine if even a fraction of all that newly created-out-of-thin-air money since 1971 was rained down upon We the People directly instead of Wall Street and the big banks.  How different would America, and indeed the world, be today?  If that doesn't make you feel RIPPED OFF, check your pulse 'cause you might be dead!

The cure for this disease is indeed very, very simple.  All it takes is a simple Act of Congress to 1) scrap the remaining arcane and archaic rules that prevent Overt Congressional Financing, 2) implement Overt Congressional Financing, and then 3) use it to benefit We the People instead of the oligarchy.  UBI, Medicare For All, expanded Social Security, free college, debt cancellation, Green New Deal, oh my! Basically, the entire progressive economic agenda and more can be paid by the federal government for without any borrowing or taxes unless Congress wants to.  

That is the real logical conclusion of Monetary Sovereignty:  when a government issues it's own currency, by definition it has infinite money, which is constrained only by the laws that the government passes.  Time to end the Big Lie and act like it for once.

(And no, going back on the gold standard now would be a dumb idea, as that would only lead to artificial scarcity of money.)

As for inflation, that can be cured by 1) raising interest rates (in the short term), and 2) counterintuitive as it sounds, increased federal spending to cure shortages by incentivizing increased production of goods and services that are experiencing shortages (food, energy, labor, computer chips, etc.) in the longer-term.  Problem solved.  Next.

(And of course, stop creating shortages via supply chain problems due to lockdowns!)

So what are we waiting for?

UPDATE:  We would be remiss if we did not also enumerate the more proximal causes in addition the more distal root cause of financialization.  Those include:  

• Legalization of usury (lifting of federal 12% usury cap on interest rates) (1978)
• Union-busting re-legitimized by Reagan against the PATCO strike, which made an example of them for the private sector going forward (1981)
• Legalization of stock buybacks (1982)
• General deregulation and tax cuts for the ultra-rich and corporations (1980s)
• General deregulation of big banks and Wall Street (1980s)
• Shrinking the social safety net by stealth, letting it lag behind inflation (1970s through 1990s))
• NAFTA (1994)
• Shrinking the social safety net again via welfare deform (1996)
• Repeal of Glass-Steagall Act, the firewall between commercial banks and investment banks (1999)
• China joining the WTO as a "most favored nation" (2001)
• More tax cuts for the rich (2001-2003)
• NOT learning the lessons of 2008, particularly the moral hazard created by the Wall Street bailouts (2008-2009)
• Offshoring/outsourcing of manufacturing jobs (ongoing)
• Pandemic relief money disproportionately going to, and benefitting, Wall Street much more than Main Street (2020-2021)
• And of course, the lockdowns which, when combined with the above, constituted the largest wealth transfer in history, from the poor and middle class to the ultra-rich and Wall Street, both nationally and globally (2020-2021)

Is America Headed For Civil War Or Collapse?

Perhaps we are, according to a mathematical model by Professor Jack Goldstone.  Based on trends in inequality, selfish elites, and political polarization that began since the 1980s, the conditions for civil violence are the worst they have been since the 19th century.  In fact, this same model accurately predicts the (first) American Civil War, and if it is correct this time around, we are dangerously close to the precipice of another one very soon.  If so, it will make the pandemic look like a walk in the park by comparison, and the past three months look quaint.

The powder keg has been building for decades now, and recent events have been both a consequence (our national failure to mount anything close to an effective response to COVID-19 before it was too late) and a spark (recent civil unrest from pent-up rage over both persistent racial injustice and increasing police-state authoritarianism, along with the toxic effects of the lockdowns).  Throw in record levels of unemployment and economic anxiety followed by the cliff that results from the impending and abrupt ending of the extra $600 per week in unemployment benefits come July 31 (unless extended further).

But the biggest flashpoint of all is yet to come in a few months from now:  the 2020 presidential election.  Whichever side wins, the other side loses, and plenty of people on the losing side will be very, very angry.

It is probably not too late to stop a full-blown civil war and/or collapse before the Rubicon is crossed, but that window is closing very, very fast indeed.

So what do we need to do to save the Republic (again) before it is too late?  I mean, we really don't want to give the reich-wing accelerationists like the Boogaloo movement the satisfaction, right?  For starters:

• Immediately implement Universal Basic Income (UBI) for all, no strings attached, via federal or central bank money creation.  Start it at $2000 per month for everyone over 18 and $1000 for everyone under 18, for three months, then drop it to half that amount ($1000 and $500, respectively) indefinitely. 
• Immediately implement single-payer Medicare For All.  Yesterday.  And along with that, increase much-needed funding for hospitals and healthcare providers across the board.
• For both above items, include anyone with a SSN or ITIN, regardless of citizenship or immigration status.  No means test, no discrimination, no perverse incentives.  And no bank account required--use debit cards whenever needed.
• Free college (and trade school) for all, thus improving stagnant economic mobility.
• Implement the rest of Rodger Malcolm Mitchell's Ten Steps to Prosperity as well.  That includes, among other things, progressively taxing the very rich 0.1% very heavily to reduce inequality.
• Implement the Green New Deal, including a federal job creation program. 
• Implement much-needed and long-overdue reforms to police nationwide, rooting out structural racism and abuses of power.  Yesterday.  What are we waiting for? 
• Extend any moratoriums on evictions and foreclosures for an additional 30 days or until the aforementioned UBI payments reach everyone, whichever is longer.
• It should go without saying, but DO NOT LOCK DOWN EVER AGAIN!  Even in the worst COVID-19 hotspots, mandatory mask requirements and bans on very large gatherings are sufficient to prevent a worst case scenario at this point.
• And of course, we must go back to actually being a Constitutional Republic rather than an unconstitutional empire.  No more over-bloated military and unnecessary wars of choice to make the rich richer.

As the saying goes, "all models are wrong, but some are useful".  The TSAP sure hopes that this model is very wrong, but there is no denying that this one is highly useful.  The evidence is all around us.

The Real Cause of "Secular Stagnation": Extreme Inequality

Much has been made of the concept of "secular stagnation", namely, that the current and future long-term potential for economic growth has slowed dramatically compared with the not-too-distant past.  Larry Summers defines it as "a prolonged period in which satisfactory growth can only be acheived by unsustainable financial conditions".  And at least since the Great Recession, the data do indeed seem to bear this out.  Most notably, for decades now the American economy has been requiring lower and lower interest rates to get the same effect in terms of boosting aggregate demand, the sine qua non of economic growth.  One can even argue that, relatively speaking, the United States will have had a whopping "lost two decades" of growth from 2000-2020.  We are "turning Japanese", and not in a good way either.

But why is this happening, exactly?  Some blame demographic changes, particularly population aging, as one of the causes.  But while this theory is interesting, it only seems to explain, at most, a tiny portion of the overall trend of secular stagnation.  In fact, a recent study by the American  Economic Association found that there is essentially no robust correlation between population aging and economic growth (or lack thereof).  Why?  Advances in automation and robotics seem to offset the putative adverse effects of an aging workforce to the point where the effect of aging is practically negligible.

In fact, another recent study finds the ideal total fertility rate (TFR) in terms of standards of living overall is in fact in the 1.5-2.0 range, basically the same as what the TSAP has long advocated since our founding nearly a decade ago in 2009.  Yes, really.  Take that, birth dearthers!

Others blame the decline in EROEI (Energy Returned on Energy Invested) as cheap and easy fossil fuels are increasingly less readily available than in the past, as well as the planetary limits to growth.  That is indeed true in the very long run at least, and all the more reason to end our inane and insane addiction to growth for the sake of growth, the ideology of the cancer cell which eventually kills its host, by the way.  Though meanwhile, renewable energy technologies are making massives strides, which again looks like it will offset such trends at least partially.

But in the relatively near term at least, the biggest elephant in the room by far in terms of the causes of secular stagnation would be the extreme level of economic inequality in this country that is now back at Gilded Age levels.  Or should we say, at banana republic levels these days.  The top 1% controls roughly 40% of the nation's wealth, the top 20% controls roughly 90%, and the bottom 80% is left to fight over crumbs.  Wages have lagged behind the cost of living for decades despite exponential increases in technological progress and resulting increases in labor productivity.   The oligarchs at the top took nearly all of the gains.  And the rest of us simply cannot afford to keep spending enough to keep the economy going without digging ourselves deeper and deeper in debt.  Eventually, something has to give, since there is not enough aggregate demand, and increasing debt clearly cannot be sustained forever.

Thus, a more accurate definition of "secular stagnation", would be, in the words of the Economic Policy Institute, "a chronic shortage of aggregate demand constraining economic growth".  They really hit the nail right on the head here.  After all, one person's spending is another person's income, by definition, and any business without enough customers will clearly not stay in business for long.

Which, by the way, was also one of the causes of the Great Depression and the long period of secular stagnation that followed until WWII.  The Roaring Twenties also had similarly extreme inequality as well, along with a wildly unregulated financial system.  And we also had a trade war from 1930-1934, which further deepened the Depression.  The only real difference now (aside from the levels of debt today) is the Feral Reserve's monetary policy, but even that will run out of ammo very fast (as interest rates are already low) unless their methods are truly overhauled to accomodate today's realities.

But what about in the long run?  Well, the Keynesian punch line to that is, "in the long run, we are all dead".  Seriously, though, an inequality-induced chronic shortage of aggregate demand not only reduces actual economic growth in the short run, but also reduces potential growth well in the future as well.  That is because less demand today leads to less business investment tomorrow, degrading the economy's productive capacity over time and thus leading to significantly less growth in the long run as well as the short run, creating a vicious cycle and downward spiral.  Hoarding such ludicrous amounts of wealth at the top of the pyramid clearly has serious consequences for the economy and society, and with much larger effect sizes than originally thought.

Thus, policies designed to tackle economic inequality would be beneficial in this regard.  In addition to more progressive taxation of both individuals and corporations (like it was before Reagan) and/or the Universal Exchange Tax and/or Georgist taxation on natural resources, that would also include things like Universal Basic Income (UBI) as well.  And nationalizing the Feral Reserve to make it a truly public national bank that creates money interest-free would be even better still, since usury (interest) and debt-based currency are essentially the biggest weapons of the oligarchy.  Problem solved.

In fact, in our Monetarily Sovereign federal government, Congress can simply spend new money into existence without the strings of interest attached, and without any corresponding increase in tax revenue either.  Rodger Malcolm Mitchell notes this in his Ten Steps to Prosperity, which includes, among other things, Medicare For All, free college for all, and a form of UBI as well.  Interest rates can still be used by the central bank as an inflation-fighting tool, but the creation of money will be decoupled from it.

(Note to Japan:  You should do the same thing as well, especially the helicopter money (QE for the People) and UBI.  Then you will finally get out of your 30 year funk, and possibly even raise your birthrates a bit.)

At the very least, in the meantime, we need to raise the minimum wage to $15/hour to give the lowest-paid workers a boost, which will also have a positive spillover higher up the wage scale.  Also, macroeconomic policy (both fiscal and monetary) should seriously prioritize very low unemployment over very low inflation, since tight labor markets have long been known to give workers much more bargaining power relative to employers. And labor unions also need to be revitalized as well.  Yesterday.

So what are we waiting for?

Raise The Floor, And Also Trim The Top

It is well known that excessive inequality is very harmful to both the economy and society at large.  Even before we learned the truth about Monetary Sovereignty (MS) and Modern Monetary Theory (MMT) in 2018, the TSAP has long supported both a Universal Basic Income for all, and has also supported hiking taxes on the rich as well.  And even after learning about MS and MMT, we still support hiking taxes on the ultra-rich, and for good reason.

Some may be scratching their heads.  Why do we even need federal taxes at all, if our Monetarily Sovereign federal government has infinite money?  They clearly don't need taxes to pay their bills.  But taxes also have other useful functions as well:

• Taxes compel the use of the official currency, thereby giving it value in the first place.  
• Taxes automatically "claw back" excess liquidity in the money supply due to the "velocity of money", thus to an extent crudely preventing demand-pull inflation before it happens.
• Taxes can be used for social engineering (think vice taxes and Pigouvian taxes) in ways that are otherwise difficult, impossible, illiberal, illegal, and/or unethical to do by other means.
• And finally, progressive taxes can be used to "trim the top" when levied on the top 0.1%, thus reducing inequality without leading to runaway inflation.  Rodger Malcolm Mitchell compares this to a "trophic cascade", such as when wolves (i.e. the federal government) keep elk populations (i.e. the oligarchs) from getting out of control and devouring everything in sight.

So what sort of federal taxes would be suitable for this purpose, knowing what we know now?

• A rich-only, steeply progressive income tax like the kind that prevailed before WWII.  At least the first $100,000 to $500,000 would be exempt, and the new brackets would include marginal rates of 50% above the first $1 million, 70% above the first $10 million, and perhaps 90% above the first $100 million.  With NO LOOPHOLES this time. 
• Tax dividends and capital gains the exact same as ordinary income, but index the basis to inflation for capital gains.
• For the largest corporations, especially those who are "too big to fail", a top tax rate of at least 50%, with NO LOOPHOLES this time.  Tax only retained earnings.  Smaller corporations should not be taxed at all.
• The Universal Exchange Tax, i.e. a tiny tax of 0.1% or less on all electronic transactions.  It would actually be highly progressive in practice since the rich make a disproportionately high amount and number of transactions compared to the non-rich.  "The more you play, the more you pay."
• Various vice taxes (alcohol, tobacco, cannabis, etc.) and Pigouvian taxes (pollution and resource depletion).
• Land value taxes and severance taxes on natural resources such as oil and gas.
• And, of course, the estate tax needs to be made more progressive as well.

State and local governments, of course, are not Monetarily Sovereign, and thus need to raise revenue to pay their bills.  And they can piggyback on the aforementioned federal taxes and levy their own, especially the Universal Exchange Tax and the land value tax and severance taxes, and thus reduce or eliminate their currently regressive sales and property taxes.  Additionally, federal aid to the states should be increased for precisesly the same reason.

A UBI would indeed abolish absolute poverty, no doubt about that.  And that alone would have numerous individual and social benefits.  But without progressive taxation of the top 1% and 0.1%, it would do nothing to reduce relative poverty, and may paradoxically increase inequality.  And inequality in itself is harmful, over and above the effects of poverty.  Thus, it is not enough to either raise the floor or trim the top, we need to do both.  Yesterday.

Thus, Rep. Alexandria Ocasio-Cortez essentially has the right idea as far as taxes go.  And of course, the oligarchs and their sycophantic lackeys are coming down hard on her, but that just goes to show how effective her ideas are in terms of reducing the Gap between the haves and have-nots, which the oligarchs utterly depend on.  All the more reason to do it.

UPDATE:  Elizabeth Warren recently proposed a wealth tax of 2% on the assets of those with a net worth of $50 million and up (that is, on the top 0.1%), and up to 3% above the first billion.  Only the amount over the first $50 million would be taxed.  Controversial as it is, it actually makes a lot of sense, and the TSAP would certainly not oppose it. 

And So We Learn What the Republican Alternative to Obamacare Really Is

In case you missed it, the Republican replacement for Obamacare is basically Obamacare-Lite, which is a giveaway to the rich and the insurance industry, who will see gratuitous tax cuts, but not so much for We the People, who will see less healthcare coverage overall.  Officially called the American Health Care Act, this bill does the following, among other things:

• Replaces the unpopular individual mandate with a "continuous-coverage" provision that allows insurers to impose a 30% surcharge on customers with more than a 63 day gap in coverage
• Replaces the income-based and price-based tax credits with (weaker) flat tax credits that vary only with age of the customers
• Phases out the Medicaid expansion after 2020, pissing off both Democrats and Republicans in the process
• Jettisons the employer mandate (a relatively minor component of Obamacare)
• Removes the Obamacare taxes (that fell primarily on the wealthy)
• Scraps the tax deduction cap on executive pay for health insurance companies
• And of course, defunds Planned Parenthood, despite the fact that the funds really go to birth control, STD tests, and cancer screenings.

Outside of Trump loyalists, generally the only people who really support the bill are the greedy insurance industry.  The American Medical Association and many others have come out against it, given that it will most likely reduce coverage and increase costs across the board.  Ironically, some of those most hurt will be Trump's white working-class supporters, especially in the red states.  In other words, it is at best a solution in search of a problem, if not a new problem in itself.  At worst, it's classic Trumpian chaos manufacture.

There is some nuance that we should note, however.  The very fact that the insurance industry is not worried about an impending "death spiral" should the bill pass is a good indication that we shouldn't worry about that either.  If there is in fact one, it would likely be a result of weakening the subsidies and other aspects of Obamacare, not a result of replacing the individual mandate with the surcharge for not maintaining continuous coverage.  The effectiveness of that provision, for all its flaws, is likely equivalent to that of the mandate it replaces, thus largely preserving that particular "leg" of the "three-legged stool".  The TSAP does support that particular change to the law, even though we oppose the rest of the Republican bill for the most part.

The TSAP, as you know, supports single-payer healthcare for all as the only real alternative.  We also support a public option as a steppingstone to this ultimate goal.  But as long as those are not on the table, we do not believe that we should rip out the heart and soul of Obamacare as the Republicans are trying to do, as that will result in disaster and chaos, doing far more harm than good.  We do support making any incremental improvements in the meantime, however, so long as they do not lead to a significant number of Americans losing health coverage, especially for the most vulnerable members of society.  Every Republican alternative to date, including this one, has failed to meet this standard, and thus we will oppose it.  Because people literally die as a result of losing their healthcare.

One thing is for sure.  This replacement should indeed be called Trumpcare, or perhaps Ryancare.  That way, they get to OWN it.  BIGLY.  Believe me. 

Bernie's Tax Plan Is Good, But The TSAP Can Do Much Better

Bernie Sanders' tax proposals have recently been published and analyzed by the Tax Policy Center.  You can read about it here.  It happens to be a rather biased analysis that has some glaring omissions downplaying the value of public investment, and a more accurate one can be found here.  While the TSAP continues to wholeheartedly endorse Bernie, we feel we can come up with a tax plan that is even better still.   So here is the latest version of our own:

Universal Exchange Tax (UET)

Implement a tiny Universal Exchange Tax of between 0.05% (50 cents per $1000) and 0.1% (1 dollar per $1000) on all automated financial transactions of any kind.  With a tax base estimated to be in excess of $4 quadrillion, this tax should raise between $2 trillion (half the federal budget) and $4 trillion (the entire federal budget).

Not only would it eliminate the deficit, it would create a surplus large enough to eliminate or dramatically cut all other forms of taxation at both the federal and state levels.

NOTE: We do NOT take credit for coming up with this idea; it was found posted on an anonymous website.  Also, economist Dr. Edgar Feige apparently thought of a similar idea back in 2005.

Individual Income Tax

Overhaul and simplify the federal tax code by repealing the regular income tax while retaining and tweaking the AMT to reflect the following:

Absolutely no income tax on those making less than $20,000 per year, period.

Ideally, no income tax on those making less than $50,000 per year.

With preferably the following marginal income tax brackets for individuals:

Below $20,000 -- no income tax
$20,000 to $50,000 -- 5%
$50,000 to $90,000 -- 10%
$90,000 to $150,000 -- 20%
$150,000 to $250,000 -- 30%
$250,000 to $1,000,000 -- 40%
$1,000,000 to $10,000,000 -- 50%
Over $10,000,000 -- 70%

With no loopholes and no deductions other than state/local taxes and a limited amount of charitable donations.

All forms of income would be taxed equally at the normal rates, including dividends and capital gains.  For capital gains, the basis will be indexed to inflation (which is currently not the case).  The exclusion for capital gains below $250,000 from home sales will remain as is.

NOTE:  If the Universal Exchange Tax (UET) is implemented and set at a high enough rate, we could theoretically reduce the income tax to only 10% on each dollar above $100,000 and 50% on each dollar above $1 million.  We propose a UET rate between 0.05% (50 cents per $1000) and 0.1% (1 dollar per $1000) on all transactions, which would most likely be high enough to do so. 

Corporate Income Tax


Overhaul the tax code to eliminate all loopholes and favoritism of any kind.  Then implement the following tax brackets for corporations:

Below $100,000 -- no income tax
$100,000 to $1,000,000 -- 10%
$1,000,000 to $10,000,000 -- 20%
$10,000,000 to $100,000,000 -- 35%
Over $100,000,000 -- 50%

Unlike the current law, only undistributed profits would be taxed.  Amounts distributed as dividends would not be taxed at the corporate level, but would be taxed at the normal rate for the individual shareholders.

Tax US corporate foreign income as it is earned, rather than when the income is repatriated.

Payroll/FICA Taxes

Remove entirely the wage cap for Social Security portion of FICA tax, or raise it to a very high value (i.e. $10 million) for as long as we still have a FICA tax.

Reduce FICA tax rates to the lowest possible level needed for long-term solvency, or better yet eliminate FICA entirely (if an alternative funding source such as the UET is implemented).  If no alternative source is present, then raise the FICA tax by an additional 0.2%.

Create a tiny, fixed "Occupational Privilege Tax (OPT)" of about $50 per year at the federal level, similar to what many states and localities do.  Use it for general revenue.

Luxury Tax

Similar to a sales tax, 2% on all new items priced at $1000 or more, and only on the amount over $1000.  For vehicles of any kind, the exemption amount would be $30,000.  For new homes, the exemption amount would be $1 million.  Items purchased overseas would be considered "new" and taxable upon entering the country if purchased within the past year or two.

Estate Tax

Resurrect the estate tax ("death tax"), this time as a progressive one.  The exemption amount would be $3.5 million, then 45% up to $50 million, 55% up to $500 million, 65% up to $1 billion, and 75% for $1 billion and above.

Excise, Vice, and Other Taxes


Bring back the Superfund taxes that expired in 1995, and expand it to cover ALL harmful and toxic chemicals.

Increase and equalize the federal alcohol excise taxes to $22 per proof-gallon for all alcoholic beverages, equal to the liquor tax in 1991 adjusted for inflation.  Microbrewers (those who produce less than 6 million barrels) would continue to pay the current rate of $0.58 per gallon ($18 per barrel) on the first 2 million barrels.

Equalize the federal tax for all tobacco products by weight to $1.55 per ounce, and tax the tobacco itself at the producer level.  Set a national price floor for cigarettes of at least $5.00/pack to encourage low-tax states like Virginia to hike their own tobacco taxes. 

If and when cannabis and/or any other currently illegal drugs are legalized, tax them as well.  For example, cannabis could be taxed at a flat rate of $10-$50 per ounce, or perhaps set proportionally to potency (e.g. $5 per ounce, multiplied by percentage of THC).

Raise the gas tax by 1 cent/gal each week until it is $0.50/gal higher than it is today.  "A Penny for Progress."

Enact the following "menu" of new taxes:

• coffee beans or grounds ($0.10/lb) 
• pure caffeine ($1.00/lb)
• refined sugars ($0.10/lb)
• salt ($0.10/lb)
• hydrogenated fats ($1.00/lb)

Enact a tax on bullets and other ammunition at a rate of at least $0.10 per round for long guns and at least $0.25 per handgun round.

Enact a financial crisis responsibility fee (leverage tax) of 0.15% of covered liabilities of so-called "too big to fail" banks with more than $50 billion in assets.

Enact a Wall Street Gaming Tax of 0.5% specifically on derivatives and any other exotic financial products designed primarily for the purpose of speculation or gambling.


Carbon Tax and Dividend

Additionally, implement a "carbon tax and dividend" on all fossil fuels similar to what Steve Stoft proposes in Carbonomics. Start it at $10/ton in the first year, and double it every year until it reaches $160/ton, then increase it further by 5% each year or the rate of inflation, whichever is greater.  Refund 100% of the proceeds directly to We the People.


Do these things and we can easily pay for all of what Bernie proposes and then some.  Especially if we also nationalize the Feral Reserve and make our currency interest-free and inflation-free, as well as zero-out the national debt via money creation as discussed in a previous post.  And our proposal would be even simpler and more progressive than his proposals currently are.

And yes, progressive taxation is indeed the fairest method and best for the economy as a whole. History has shown that "trickle-down" voodoo economics does NOT work, period.   Cutting taxes at the top tends to create short-term "sugar highs" in the economy, followed by painful crashes. All while worsening inequality, and too much inequality ultimately kills growth in the long run.  As Robert Reich famously said, the economy exists to make our lives better. We don't exist to make the economy better.

The Ultimate Stimulus Package

Wanna know a secret, everyone?  An open secret, yet probably the best-kept one of all?  The total amount of global debt, all $233 trillion (!) of it, is 100% man-made. That's right--the very concept of debt is man-made, because money itself is man-made.  That includes both private debt as well as the public debt that the austerity hawks won't stop fretting about.  Every single penny of it.  Money is really nothing more than a simple accounting entry in a computer these days anyway.  So make the entry and be done with it already.

Wait, hold on--did he just say what I think he said?  You got that damn right, and I didn't stutter either.  The single best stimulus package that could possibly be done given the current state of the global economy is--you guessed it--a DEBT JUBILEE of sorts.  You know, kinda like the ancient Israelites did every 50 years, where all debts were cancelled and forgiven across the board, period.  The only difference today is the scale and the technology involved, and the fact that we use pure fiat currency instead of specie makes it even easier still.  So why aren't we doing it?  I mean if the world owes $233 trillion, who on Earth do we owe it all to?  You guessed it--the BANKSTERS.  And the biggest contributor to the gargantuan size of the debt (and the number one cause of inflation as well) is compound interest, also known as USURY.  So there are plenty of powerful vested interests who would oppose such a thing, and it's time to take the power back.

We could start by paying off the national debt in one fell swoop via money creation, as is recommended by Richard E. Noble.  The Noble Solution, if you will.  And contrary to popular opinion, doing so would NOT cause hyperinflation if done properly because while creating money is inflationary, paying off large debts (i.e. "debt-deflation") is inherently anti-inflationary, so the two effects would cancel each other out.  And the newly created money would be done interest-free as well.  And also give everyone $1000 or $2000 as well.  Remember, back in 2011 Bernie Sanders audited the Feral Reserve and found that they gave a whopping $16 trillion secret bailout to the banks in 2009-2010 (and later rose to $29 trillion in total).   And with that money, they could have paid off the entire national debt (below $12 trillion then) and still had trillions left over to give to We the People by depositing money in our bank accounts.  And the government would have been able to do a much bolder fiscal stimulus package since there would be no worries about the debt.  Yes, really.  And the "recession" (i.e. depression) would have ended a LOT sooner as a result.

As for private debt, an Act of Congress could conceivably be passed that nullifies all such debt as well, including (but not limited to) student loan debt, mortgage debt, credit card debt, and medical debt. Creditors wouldn't like it, of course, but debtors greatly outnumber creditors, so the net effect would be beneficial overall for society.  And repeat every 50 years or so.

Additionally, while we are at it, we should also nationalize the privately-owned FERAL Reserve and make it a truly public FEDERAL Reserve that creates its own money interest-free, as Ellen Brown recommends.  We should also put a 10% cap on ALL interest rates period, including private loans and credit cards, and eventually phase-out the very concept of interest altogether.

Also, the TSAP would recommend a Universal Basic Income Guarantee for all, an idea whose time has come and that is in fact LONG overdue.  That would solve so many problems indeed.

Now THAT would be a real stimulus package!  Not only would it act like a giant B-12 shot for the economy by causing increased economic growth in the short to medium term, but in the long run it would also help us end our addiction to growth for the sake of growth, the ideology of the cancer cell which eventually kills its host.

Remember, as Buckminster Fuller famously noted in the 1970s, there are enough resources on Earth for everyone in the world to live like a millionaire, but such resources are currently being hoarded and wasted by the oligarchs to prop up their massive Ponzi scheme.  It's time to end the current obsolete paradigm of scarcity (most of it artificial) in favor of a new paradigm of abundance for all, that we may all enjoy mutual benefit and protection.  Yesterday.

(In the meantime, though, there is always Rolling Jubilee.)