Hey FERAL Reserve, Cut Interest Rates NOW!

The FERAL Reserve still has yet to cut interest rates, and despite the Dow Jones recently hitting 40,000, the risk of recession is apparently growing by the day.  And after falling dramatically from its 2022 peak of 9% once the pandemic-induced (more like lockdown-induced) supply chain issues and shortages got resolved, inflation currently remains stubbornly stuck in the neighborhood of 3%.  Because Jerome Powell is too stubborn to cut rates, thus keeping us trapped in a quagmire.  Hello, stagflation!

A recession is probably already baked into the cake at this point, and thus is probably too late to avoid entirely.  Granted.  But the Fed can still at least delay the onset, reduce the length and severity, and promote a speedier recovery IF they would deign to cut rates yesterday.  And even just delaying the onset by a quarter or two would likely postpone it until after the November election, reducing the odds that the Donald would win again. 

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)

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?

How to Prepare for the Next Big Crash (Part Deux)

As we have noted before, things are really not looking good for the global economy this year.  Whether we actually experience another financial crisis on the order of 2008 or even 1929 (or worse) is a matter of debate, but the time to prepare for such a scenario is yesterday.  At the very least, another recession is inevitable at this point by 2019 at the very latest, since no economic expansion has lasted much more than eight years straight in this country (with the notable exception of 1991-2001 that lasted exactly ten years).  Granted, the expansion from July 2009 to the present mostly benefited the rich, and until around 2014 practically entirely benefited the rich, but it was still technically an expansion of the economy even if the growth was largely uneconomic in practice.  And expansions can only go on so long before a contraction (i.e. recession or depression) inevitably occurs--it's just a fundamental truth of the business cycle.

One thing is for sure--things are very different this time around at least in terms of monetary policy.  At least in 2008, interest rates were well above-zero, and could be cut to stimulate the economy (or, more accurately, stop or slow down the hemorrhaging).  When that proved to be futile, then the Feral Reserve and many of the world's other major central banks resorted to "quantitative easing" (i.e. creating money out of thin air and giving it to the banks directly).  In late 2014, the USA tapered off and ended its QE policy, and in December 2015 ended its zero interest-rate policy by raising the Fed Funds Rate to 0.25-0.50%.  Since then, the FERAL Reserve has raised rates five more times, most recently on March 21, 2018 to 1.50-1.75%, and many more hikes are on their way.  And combined with Trump's new trade war against China, that may have been enough to finally lance the massive bubble--make that the festering BOIL--that the stock market has been in for years now.  And since they now have a little bit of room to cut it--if they don't wait too long to do so--they probably seriously think that they can somehow engineer a soft landing if (and that's a VERY big "if") that is even possible at this point.  But not much room, really.

But many of the central banks of the world are still starting from zero or close to zero--and some banks including the European Central Bank and the Bank of Japan have even resorted to negative interest rates (!) by 2016.  That means they are effectively charging depositors for the "privilege" of depositing money, and effectively paying borrowers to borrow money, which basically turns the world of finance upside-down.  Such negative rate territory is uncharted waters, since until a few years ago no country has ever dared to do such a thing.  And there is currently no evidence to suggest that such a move will be beneficial in the long run, and may in fact turn out to do more harm than good overall.

So monetary policy basically needs a new set of tools and a new game plan to deal with the next crisis, whenever it occurs.  The Feral Reserve and the other central banks of the world are basically still using an outdated playbook.  In the near-term, two things need to change yesterday.  First of all, they need to abandon interest-rate targets altogether for the time being, and instead focus on targeting the growth of the overall economy.  Like Paul Volcker did in 1979-1982, but done in reverse since the "inflation dragon" is not the problem this time (unless the Trump tariffs really begin to bite). Secondly, implement Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money into everyone's bank accounts.  Granted, the latter measure would probably require an Act of Congress to allow it to occur legally, but as the Feral Reserve was just two years ago seriously debating the legality of negative interest rates, I'm sure they could find some sort of a loophole to allow it in an emergency such as a massive financial crisis.  And of course fiscal stimulus would likely be necessary as well, in additional to much needed reforms to regulate Wall Street and the big banks (a law that rhymes with "brass seagull" comes to mind, as well as a financial transactions tax and better regulation of the shadow banking system), but those two changes to monetary policy would go a long way towards preventing the next recession/crisis from turning into another 2008 or 1929 or even worse.  And the silly idea of negative interest rates really needs to be abandoned as well.

More fundamentally, of course, we need to nationalize the FERAL Reserve to make it a truly public national bank that creates money interest-free, and take the power back from the big banks.  Ellen Brown has written books about that very subject.  In the meantime, though, the aforementioned recommendations would still work in the near term.

But let's be brutally honest here.  What we are really witnessing these days is the slow and painful death of a woefully obsolete system, one that has been kept on life support for many years now.  And eventually we will have to pull the plug on it, sooner or later.  It's just a matter of time.

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.)

How to Prepare for the Next Big Crash (Part Deux)

As we have noted before, things are really not looking good for the global economy this year.  Whether we actually experience another financial crisis on the order of 2008 or even 1929 (or worse) is a matter of debate, but the time to prepare for such a scenario is yesterday.  At the very least, another recession is inevitable at this point by 2017 at the latest, since no economic expansion has lasted much more than eight years straight in this country (with the notable exception of 1991-2001 that lasted exactly ten years).  Granted, the expansion from July 2009 to the present mostly benefited the rich, and until around 2014 practically entirely benefited the rich, but it was still technically an expansion of the economy even if the growth was largely uneconomic in practice.  And expansions can only go on so long before a contraction (i.e. recession or depression) inevitably occurs--it's just a fundamental truth of the business cycle.

One thing is for sure--things are very different this time around at least in terms of monetary policy.  At least in 2008, interest rates were well above-zero, and could be cut to stimulate the economy (or, more accurately, stop or slow down the hemorrhaging).  When that proved to be futile, then the Feral Reserve and many of the world's other major central banks resorted to "quantitative easing" (i.e. creating money out of thin air and giving it to the banks directly).  In late 2014, the USA tapered off and ended its QE policy, and in December 2015 ended its zero interest-rate policy by raising the Fed Funds Rate to 0.25-0.50%.  But now, the central banks of the world are starting from zero or close to zero--and some banks including the European Central Bank and the Bank of Japan have even resorted to negative interest rates recently.  That means they are effectively charging depositors for the "privilege" of depositing money, and effectively paying borrowers to borrow money, which basically turns the world of finance upside-down.  Such negative rate territory is uncharted waters, since until a few years ago no country has ever dared to do such a thing.  And there is currently no evidence that such a move will be beneficial, and may in fact turn out to do more harm than good overall.

So monetary policy basically needs a new set of tools and a new game plan to deal with the next crisis, whenever it occurs.  The Feral Reserve and the other central banks of the world are basically still using an outdated playbook.  In the near-term, two things need to change yesterday.  First of all, they need to abandon interest-rate targets altogether for the time being, and instead focus on targeting the growth of the overall economy.  Like Paul Volcker did in 1979-1982, but done in reverse since the "inflation dragon" is not the problem this time.  Secondly, implement Quantitiative Easing for We the People in general (as opposed to the banks, which only benefits the ultra-rich) by injecting newly-created money into everyone's bank accounts.  Granted, the latter measure would probably require an Act of Congress to allow it to occur legally, but as the Feral Reserve is currently debating the legality of negative interest rates in the future, I'm sure they could find some sort of a loophole to allow it in an emergency such as a massive financial crisis.  And of course fiscal stimulus would likely be necessary as well, in additional to much needed reforms to regulate Wall Street and the big banks (a law that rhymes with "brass seagull" comes to mind, as well as a financial transactions tax and better regulation of the shadow banking system), but those two changes to monetary policy would go a long way towards preventing the next recession/crisis from turning into another 2008 or worse.  And of course the silly idea of negative interest rates needs to be abandoned as well.

But let's be brutally honest.  What we are really witnessing these days is the death of an obsolete system, one that has been kept on life support for many years now.  And eventually we will have to pull the plug on it, sooner or later.  It's just a matter of time.

An Idea Whose Time Has Come

There has been much in the news lately about raising the minimum wage.  For those who are unaware, the TSAP believes that the federal minimum wage should be raised to at least $10/hour, and then indexed to inflation (or average wages) from then on.  Less talked about, however, is the idea of a maximum wage, and we feel it is an idea whose time has come. 

We at the TSAP feel that it would be a good idea to do what this petition calls for:  to cap CEO pay at 50 times the salary of the average worker at his or her company.  Thus, if the average worker earns $50,000 per year, then the maximum the CEO can earn is $2.5 million per year.  Currently, the average Fortune 500 CEO makes about 380 times what their average employees make, and that is clearly outrageous.  And it was not always this way.  In 1980, when the top 1% owned "only" about 20% of the nation's wealth (instead of about 40% today), the average CEO made "only" 42 times as much as the average worker.  Back then, of course, America had much higher top marginal tax rates (which were generally north of 70% from 1933-1981) and more sensible regulation of business practices, so a maximum wage was unnecessary.  However, times have changed, and such a policy couldn't come at a better time.

The naysayers may claim that doing so decreases incentives to work harder and that CEOs somehow deserve their outrageously high compensation packages due to their supposedly higher intelligence and work ethic.  To that, we note that while many CEOs are indeed smarter and/or harder-working (not to mention luckier) than the average American, it is highly doubtful that a CEO is 380 times smarter or works 380 times as hard as the average worker.   Making 50 times what the average worker earns is still extremely generous to CEOs, especially compared with the pay ratio in more equal societies such as Japan.  And as for supposedly decreasing incentives to work harder, remember that, as Robert Reich notes, the economy exists to make our lives better, we do not exist to make the economy better.

So consider it part of our party platform from now on, in combination with our call to raise the minimum wage and also raise the marginal tax rate to at least 50% on incomes above $1 million.

The American Dream is Dead

It's time to face the brutal truth.  The so-called American Dream is dead.  Finished.  Defunct.  Kaput.  C'est fini.   Except for the top 1% of course.  And it has now turned into a nightmare for the rest of us.

Why do we say this?  Just look at the facts:

• Unemployment remains persistently high despite over three years of "recovery", nearly double what it was in 2007.
• Even as unemployment has begun to slowly ebb and people are returning to work, they are taking lower-wage and less secure jobs than before.
• As a result, poverty has increased in recent years, especially among the working poor.
• The middle class continues to shrink nearly every year. 
• Meanwhile, the rich continue to get richer.  Corporate profits and the Dow Jones are at or close to record highs.  And the top 1% now owns over 40% of the nation's financial wealth.
• In fact, a mere 400 individuals have more wealth than the bottom 50% of Americans combined.
• Statistically, an individual is more likely to go from riches to rags than rags to riches.  Social mobility has mostly one direction now--DOWN.  
• The problems of unemployment, poverty, inequality, and downward mobility are especially true for today's under-30 generation, as America continues to ruthlessly eat its young.

It does not have to be this way forever.  There are several things that will, over time, reverse these negative trends and restore at least some semblance of the American Dream.  Just take a look at our party platform for a list of such ideas.  But the entrenched special interests that control our government want these pernicious trends to continue, and they will not stop until there are only two classes:  master and serf.   That, at least for now, is the true state of our union.

New Study: Taxing the Rich Won't Tank Economy

We've been saying this before, and we'll say it again.  Contrary to what the top 1% and their lackeys like to claim, tax cuts on the rich do NOT create jobs or boost economic growth, and tax hikes on the rich do NOT destroy the economy.  And now a new study proves it yet again.  

In a nutshell, a 1%-of-GDP (i.e. $150 billion) tax cut on the bottom 90% of Americans boosts GDP by 2.7 percentage points over a two-year period, while a tax cut of the same size on the wealthiest 10% of Americans gives a statistically and practically insignificant boost of merely 0.13 percentage points (while significantly increasing economic inequality). So, if we really want to boost economic growth, we would cut (or perhaps even eliminate) the income tax on the bottom 90%, while raising rates on the top 10% and especially the top 1%.  That makes sense since 70% of our GDP is consumer spending, and the middle class are the ones who drive such spending.  The less money they have, the less they will spend.  And businesses will avoid hiring and making new investments and instead choose to sit on their excess cash (like they are doing now) when the consumer demand is simply not there.  It's not "class warfare," it's simple mathematics. 

But plutocratic Republicans never let mere facts get in the way of their greedy goals.

Billy Joel Was Right

Looks like Billy Joel was right all along.  Working too hard actually can give you a heart attack.

A recent study found that too much work-related stress, especially when workers have little to no control over their stress levels (like retail workers), can raise the risk of a heart attack by 23%.  This risk persisted even after other variables such as lifestyle were controlled for.  While it does not completely prove causation, this study is quite reliable since it combines the results of 13 prospective cohort studies and adjusts for several confounders.  Another recent study found that working more than eight hours a day may raise the risk of heart disease by as much as 40-80%.  Thus, it's really not all that surprising that New York City and its surrounding suburbs have some of the highest death rates from heart disease in the nation, and also that the USA tends to be worse than other developed nations in this regard.

Of course, it's mainly the bottom 99% of Americans that are likely to be affected, but that does not make the top 1% completely immune.  And next time someone claims that raising marginal tax rates or some other policy will cause at least some workers not to work as hard as they otherwise would, remind them of these studies.  The life you save may be your own.