I am cleaning out my New York City apartment in anticipation of a final move to West Shokan, NY. The biggest problem is all my books. I had to discard a number of old books, including many of no-longer-used labor relations books from my doctoral program. I came across a tiny soft cover volume published in 1993 by James Dale Davison, founder of the National Taxpayers' Union. I don't remember where I got it. Here are some excerpts:
"The Fed has been pursuing a loose money policy for three years, and the money supply is still falling like a rock. The Fed has moved heaven and earth to get the money supply up, and it's not working...the markets are confused because interest rates are going down, and that is always good for the stock market. At least that's what people think."
Davidson points out that monetary expansion does not work if banks are failing or contracting. He notes that in the Great Depression the Fed reduced interest rates but the money supply still contracted because of bank failures. The process did not occur in the early '90s as Davidson feared, but is what many fear is happening now.
Here are some of Davidson's predictions from 1993:
>I see Social Security benefits being cut to the bone. They'll probably only go to the most needy.
>I see at least 40 million unemployed to make-work public assistance jobs
>Sick elderly will be cared for at home. Almost no one will be able to afford nursing home care.
>I see millions of homeowners upside down--with the mortgage bigger than the market value of the home. A lot of them will hand the key to the lender and walk away. There will be a lot of empty houses with "For Sale" signs.
>Banking industry problems will return, much worse than anything we've seen. And much too big next time for the government to bail out. Either your savings will be wiped out or you'll be paid in worthless paper dollars.
>I expect to see 'extended families of 10 to 15 crammed into three-bedroom houses. Millions of retired folks will be forced to live with their children. Young people in their twenties and thirties--including young marrieds with their children--will move in with their parents. In many cases, not a person in the house will have a full time job.
>The suburbs will become slums
Davison argues that knowledge workers will become affluent.
>Small communities two hours away from major cities are the fastest-appreciating real estate in the country. These communities are already benefiting from the "Fifth Migration" in American history. The Third Migration was from the farms fo the cities, and the fourth (1950-70) was from the cities to suburbs. Now, people like us are bailing out and moving to small, clean, safe towns. Technology makes it possible for us to work anywhere...Even if you're not ready to move yet, a rental property in these areas is the best investment in the United States."
Quite a coincidence. Hello West Shokan.
Sunday, March 8, 2009
Saturday, March 7, 2009
E-mails from College Students
>Hello professor this is ... from ur sunday class, and I wanted to know if you except late papers?
>hi its .... i still cant get into blackboard they r telling me my old college has to cancell my accountinorder for me to have access to ... blackboard i am waiting for a res[ponce plz email me the cylabus and assignments thx sunday bus self awareness
>hi its .... i still cant get into blackboard they r telling me my old college has to cancell my accountinorder for me to have access to ... blackboard i am waiting for a res[ponce plz email me the cylabus and assignments thx sunday bus self awareness
Friday, March 6, 2009
America Enslaved to the Stock Market
A stock market has a purpose--to provide a means by which people who invest in firms can sell their investments. It is not supposed to be the main purpose of American life. However, judging by the endless horde of media pundits, academic experts, economists and of course Wall Street executives who have announced that in order to survive the US must pay trillions of dollars (is it 2.5 trillion now?) in order to compensate Wall Street and commercial banks for bad decisions, it would seem that the United States exists for Wall Street, not the other way around.
Our current president and Congress, who claim to be the representatives of the poor, seem eager to transfer trillions to the rich. After all, the "financial system" must be retained at all costs. Why that is so, no one bothers to explain.
The most productive decades of American history were when the Federal Reserve Bank had been abolished and the financial system did not exist in its current form. Since Wall Street apologist Franklin Roosevelt abolished the gold standard, Wall Street has felt increasingly bold as to its purpose to steal from and enslave the United States.
I have not been blogging lately because I am working on a research project with some students and a longer term book project. As well, the current parlous state of the United States gives me little to blog about because the nation is past redemption.
America has become a slave state and Americans slaves. They accept 50% and higher taxes just as would slaves who accept that they work for their masters.
There has been a melt down in the national spirit and it is going to get worse. The problem is not the failure of dingbat firms like Citigroup and Bear Stearns, but rather the "cure" that the morons in Congress have passed through while a drooling American public watches their wealth being stolen, stupidly acquiescing to the claims of "experts" who are expert thieves and little more.
I think the best model for today's world is Henry David Thoreau--plant some beans, build a cabin and let the American slave society go its own incompetent way--a once free country that has become the first nation to voluntarily enslave itself to a stock market.
I especially feel sorry for my students, who have watched their birthright stolen by the past four generations of Americans who believed the stupidity of Theodore Roosevelt, Herbert Croly and Franklin Roosevelt; who quietly watched the real hourly wage fall and believed the double talk on CNN. I feel sorry for them because they are not at fault, and will see themselves much poorer than they could have been, but nevertheless will be slaves.
Our current president and Congress, who claim to be the representatives of the poor, seem eager to transfer trillions to the rich. After all, the "financial system" must be retained at all costs. Why that is so, no one bothers to explain.
The most productive decades of American history were when the Federal Reserve Bank had been abolished and the financial system did not exist in its current form. Since Wall Street apologist Franklin Roosevelt abolished the gold standard, Wall Street has felt increasingly bold as to its purpose to steal from and enslave the United States.
I have not been blogging lately because I am working on a research project with some students and a longer term book project. As well, the current parlous state of the United States gives me little to blog about because the nation is past redemption.
America has become a slave state and Americans slaves. They accept 50% and higher taxes just as would slaves who accept that they work for their masters.
There has been a melt down in the national spirit and it is going to get worse. The problem is not the failure of dingbat firms like Citigroup and Bear Stearns, but rather the "cure" that the morons in Congress have passed through while a drooling American public watches their wealth being stolen, stupidly acquiescing to the claims of "experts" who are expert thieves and little more.
I think the best model for today's world is Henry David Thoreau--plant some beans, build a cabin and let the American slave society go its own incompetent way--a once free country that has become the first nation to voluntarily enslave itself to a stock market.
I especially feel sorry for my students, who have watched their birthright stolen by the past four generations of Americans who believed the stupidity of Theodore Roosevelt, Herbert Croly and Franklin Roosevelt; who quietly watched the real hourly wage fall and believed the double talk on CNN. I feel sorry for them because they are not at fault, and will see themselves much poorer than they could have been, but nevertheless will be slaves.
Thursday, February 26, 2009
Hamilton on Banks, Paper Money and the First Subprime Bailout
Alexander Hamilton began the tradition of big government conservatism. His followers have included Henry Clay, Abraham Lincoln, Theodore Roosevelt, Nelson Rockefeller and George W. Bush. In today's nomenclature, Hamilton was the first "Republican". In other words, the Republicans have been traditionally the party of inflation, and it was only intermittently, during the century from 1871 to 1971, that the Republicans could claim to support hard money. For the first 25 years of that century, the Democrats too were a hard money party. It was only by default that the Republicans became associated with monetary stability in 1896, and they have always been wobbly supporters. The Benjamin Strong Fed was inflationary, with the approval of the Harding and Coolidge administrations. The deflation of the Hoover administration was a product of Fed policy and had little to do with Hoover. Yet, the segment of Americans who are able to grasp this issue and are anti-inflation mostly remain within the Republican party. perhaps the greatest political betrayal of the late twentieth century was Ronald Reagan's decision to adopt Keynesian (supply side) deficit and expansionist policies despite his mandate from the Reagan Democrats. Both American political parties today descend from Hamiltonian centralizing, banking and rationalizing theories. Those who are skeptical of central economic planning, big government, Keynesian economics and the ability of academics to foresee progress have nowhere to turn. Both parties are marionettes of Wall Street.
Hamilton argued for federalism and centralization of government, a central bank and for banking in general. He was an elitist who believed in the ability of bankers and merchants to make use of artificially created money in the form of bank notes to expand the economy, and this theory provided the fulcrum on which his advocacy of the Bank of the United States pivoted. He argued that bankers can rationally assess risk. He makes the same aarguments that we hear on CNN and read in the New York Times today. The themes that Hamilton emphasized, paper money, central banking, rationality of business strategy, the importance of fractional reserve banking to stimulating the economy and the ability of the business elite to build the economy were paradigms for subsequent Whig, progressive, and New Deal ideologies, of which George W. Bush and Barack Obama are the latest manifestations.
There were two strange turns in the history of the elitist, centralizing ideology. At first, Jefferson and then Jackson reacted to the Federalist-Whig philosophy of Hamilton, Clay (and then Lincoln) by advocating decentralization and hard money. Thus, decentralization and hard money were benign views that represented the values of the workman. The loco focos and workingmen's parties of the 1820s and 1830s reflected the Jacksonian resentment of banks, business monopolies, internal improvements (the profits from which went into the pockets of elite Whig stockholders) and the central bank.
In the Gilded Age, the laissez-faire ideology became associated with the elite. This was a reversal. It occurred because laissez-faire became associated with social Darwinism in the ideas of Spencer and William Graham Sumner. Thus, the Mugwump Republicans carried forward the Republican centralizing and elitist views but adopted the laissez-faire and hard money philosophy of Jefferson and Jackson because it fit the ideas of social Darwinism. This deprived the hard money position of its benign, pro-worker foundation. So by adopting laissez-faire the Republicans weakened the force of its claims and destroyed it. They did this by claiming that only the fittest would benefit from hard money. This opened the door for the Democrats to claim that central banking, the chief elitist tool, was Democratic. Then, Progressivism removed the laissez-faire element from the Gilded Age's rationalizing philosophy, retaining the traditional Hamiltonian claims of rationality of business and banking elites, the importance of a centralized state, the virtue of elite experts, and centralized banking.
In 1790 Hamilton, as the first Secretary of the Treasury, wrote his Report on Public Credit and Second Report for Further Provision Necessary for Establishing Public Credit. He also wrote a report on the Constitutionality of the Bank and Report on Manufactures. The issues in the Report on Public Credit directly concerned the question of centralization and of establishing a central bank. The questions that faced the nation at that point concerned federal assumption of the states' revolutionary war debts and how such assumption would be arranged; and the question of whether the federal government should honor its debts at par, especially because speculators had purchased bonds at steep discounts; and the payment of interest on the outstanding debt. Hamilton argued for stabilizing the nation's credit record and honoring debts.
Hamilton argues for the importance of federal debt to the expansion of the US economy. He argues that a funded debt (which has been converted into bonds and for which there is funding) can expand economic activity because the debt can function as money and because debt will cause real estate prices to appreciate. The notion that inflation can help real estate investors finds legitimacy in Hamilton's report to the first Congress. He writes (p. 6):
"The effect, which the funding of the public debt, on right principles, would have upon landed property, is one of the circumstances attending such an arrangement, which has been least adverted to, though it deserves the most particular attention. The present depreciated state of that species of property is a serious calamity. the value of cultivated lands, in most of the states, has fallen since the revolution from 25 to 50 per cent. In those farthest south the decrease is still more considerable...This decrease in the value of lands, ought, in a great measure, to be attributed to the scarcity of money."
Thus, Hamilton was among the first Americans to recognize the possibility of monetary expansion to transfer wealth to the landed, the stock holder and the wealthy. This theme was to continue throughout American history except for the four post Civil War decades because of the ideology of social Darwinism. Notably, it was in the post Civil War period that the United States made the lion's share of its economic progress, beginning with the abolition of the bank in 1836 through the advent of Progressivism in 1905.
Hamilton's preference for centralization is explicit in Report on Public Credit. It is much better, he argues, for creditors to receive payments from one source than from the several states. If the central government takes responsibility "there can be no competition for resources" and "different states, from local considerations, would in some instances have recourse to different objects, in others to the same objects, in different degrees, for procuring the funds of which they stood in need. It is easy to conceive how this diversity would affect the aggregate revenue of the country....hence the public revenue would not derive the full benefit of those articles from state regulation." Moreover, "if all the public creditors receive their dues from one source, distributed with an equal hand, their interest will be the same. And having the same interests, they will unite in support of the fiscal arrangements of the government; As these, too, can be made with more convenience, where there is no competition: These circumstances combined will insure to the revenue law a more ready and more satisfactory execution."
It was important to Hamilton to establish the national credit and he was certainly concerned with the interests of creditors, whom he saw as furthering national goals. To this end, Hamilton emphasized the importance of repaying the national debt, including interest. In the end there was a slight reduction in interest (see Elkins and McKitrick, The Age of Federalism.) But the nation did not make good on the currency it used to pay for the Revolutionary War, the Continentals. The federal government allowed them to become worthless.
In Second Report on the Further Necessity for Establishing Public Credit, Hamilton argues for a central bank and extols fractional reserve banking. Little has been added since Hamilton.
One passage that caught my eye might be extended to the subprime crisis and every other boom and bust bubble that has occurred since, including the one that occurred in 1790 in New York with respect to speculation in the stock of the First Bank of the United States:
"It may be said that as Bank paper affords a substitute for specie, it serves to counteract that rigorous necessity for the metals...and...it would retard those oeconomical and parsimonious reforms in the manner of living, which the scarcity of money is calculated to produce...
"There is perhaps some truth...but...of a nature rather to form exceptions to the generality of the conclusion, than to overthrow it...a situation in which a too expensive manner of living of a community compared with its means, can stand in need of a corrective, from distress of necessity, is one which perhaps rarely results, but from extraordinary and adventitious causes, such for example, as a national revolution, which unsettles all the established habits of a people, and inflames the appetite for extravagance, but the illusions of an ideal wealth, engendered by the cause. There is good reason to believe that where the laws are wise and well executed, the oeconomy of a people will, in the general course of things, correspond with its means."
Throughout the two reports on credit, Hamilton emphasizes the rational capacity of bankers and merchants and their sound judgment (e.g., "Those who are most commonly creditors of a nation are, generally speaking, enlightened men...", p. 3, Report Relative to Public Credit).
Hamilton argues vigorously for the positive effects of monetary expansion and a central bank. He argues that "Gold and Silver, when hey are employed merely as the instruments of exchange and alienation, have been not improperly denominated dead Stock; but when deposited in Banks, to become the basis of a paper circulation...they then acquire life." By depositing money in a bank, merchants enable others to borrow and "It is a well established fact, that Banks in good credit can circulate a far greater sum than the actual quantum of their capital in Gold and Silver. The extent of the possible excess seems indeterminate; though it has been conjecturally stated at the proportions of two and three to one."
This rousing defense of fractional reserve banking presaged two centuries of booms and busts, the most recent being the multi-trillion dollar transfer of wealth to wealthy bankers from the general economy and an aggressive monetary expansion.
Hamilton's ideas were rejected in the early nineteenth century but subsequently adopted by both political parties in the twentieth. Most progress occurred in the 19th. The twentieth century was one of reaction and decline.
Hamilton argued for federalism and centralization of government, a central bank and for banking in general. He was an elitist who believed in the ability of bankers and merchants to make use of artificially created money in the form of bank notes to expand the economy, and this theory provided the fulcrum on which his advocacy of the Bank of the United States pivoted. He argued that bankers can rationally assess risk. He makes the same aarguments that we hear on CNN and read in the New York Times today. The themes that Hamilton emphasized, paper money, central banking, rationality of business strategy, the importance of fractional reserve banking to stimulating the economy and the ability of the business elite to build the economy were paradigms for subsequent Whig, progressive, and New Deal ideologies, of which George W. Bush and Barack Obama are the latest manifestations.
There were two strange turns in the history of the elitist, centralizing ideology. At first, Jefferson and then Jackson reacted to the Federalist-Whig philosophy of Hamilton, Clay (and then Lincoln) by advocating decentralization and hard money. Thus, decentralization and hard money were benign views that represented the values of the workman. The loco focos and workingmen's parties of the 1820s and 1830s reflected the Jacksonian resentment of banks, business monopolies, internal improvements (the profits from which went into the pockets of elite Whig stockholders) and the central bank.
In the Gilded Age, the laissez-faire ideology became associated with the elite. This was a reversal. It occurred because laissez-faire became associated with social Darwinism in the ideas of Spencer and William Graham Sumner. Thus, the Mugwump Republicans carried forward the Republican centralizing and elitist views but adopted the laissez-faire and hard money philosophy of Jefferson and Jackson because it fit the ideas of social Darwinism. This deprived the hard money position of its benign, pro-worker foundation. So by adopting laissez-faire the Republicans weakened the force of its claims and destroyed it. They did this by claiming that only the fittest would benefit from hard money. This opened the door for the Democrats to claim that central banking, the chief elitist tool, was Democratic. Then, Progressivism removed the laissez-faire element from the Gilded Age's rationalizing philosophy, retaining the traditional Hamiltonian claims of rationality of business and banking elites, the importance of a centralized state, the virtue of elite experts, and centralized banking.
In 1790 Hamilton, as the first Secretary of the Treasury, wrote his Report on Public Credit and Second Report for Further Provision Necessary for Establishing Public Credit. He also wrote a report on the Constitutionality of the Bank and Report on Manufactures. The issues in the Report on Public Credit directly concerned the question of centralization and of establishing a central bank. The questions that faced the nation at that point concerned federal assumption of the states' revolutionary war debts and how such assumption would be arranged; and the question of whether the federal government should honor its debts at par, especially because speculators had purchased bonds at steep discounts; and the payment of interest on the outstanding debt. Hamilton argued for stabilizing the nation's credit record and honoring debts.
Hamilton argues for the importance of federal debt to the expansion of the US economy. He argues that a funded debt (which has been converted into bonds and for which there is funding) can expand economic activity because the debt can function as money and because debt will cause real estate prices to appreciate. The notion that inflation can help real estate investors finds legitimacy in Hamilton's report to the first Congress. He writes (p. 6):
"The effect, which the funding of the public debt, on right principles, would have upon landed property, is one of the circumstances attending such an arrangement, which has been least adverted to, though it deserves the most particular attention. The present depreciated state of that species of property is a serious calamity. the value of cultivated lands, in most of the states, has fallen since the revolution from 25 to 50 per cent. In those farthest south the decrease is still more considerable...This decrease in the value of lands, ought, in a great measure, to be attributed to the scarcity of money."
Thus, Hamilton was among the first Americans to recognize the possibility of monetary expansion to transfer wealth to the landed, the stock holder and the wealthy. This theme was to continue throughout American history except for the four post Civil War decades because of the ideology of social Darwinism. Notably, it was in the post Civil War period that the United States made the lion's share of its economic progress, beginning with the abolition of the bank in 1836 through the advent of Progressivism in 1905.
Hamilton's preference for centralization is explicit in Report on Public Credit. It is much better, he argues, for creditors to receive payments from one source than from the several states. If the central government takes responsibility "there can be no competition for resources" and "different states, from local considerations, would in some instances have recourse to different objects, in others to the same objects, in different degrees, for procuring the funds of which they stood in need. It is easy to conceive how this diversity would affect the aggregate revenue of the country....hence the public revenue would not derive the full benefit of those articles from state regulation." Moreover, "if all the public creditors receive their dues from one source, distributed with an equal hand, their interest will be the same. And having the same interests, they will unite in support of the fiscal arrangements of the government; As these, too, can be made with more convenience, where there is no competition: These circumstances combined will insure to the revenue law a more ready and more satisfactory execution."
It was important to Hamilton to establish the national credit and he was certainly concerned with the interests of creditors, whom he saw as furthering national goals. To this end, Hamilton emphasized the importance of repaying the national debt, including interest. In the end there was a slight reduction in interest (see Elkins and McKitrick, The Age of Federalism.) But the nation did not make good on the currency it used to pay for the Revolutionary War, the Continentals. The federal government allowed them to become worthless.
In Second Report on the Further Necessity for Establishing Public Credit, Hamilton argues for a central bank and extols fractional reserve banking. Little has been added since Hamilton.
One passage that caught my eye might be extended to the subprime crisis and every other boom and bust bubble that has occurred since, including the one that occurred in 1790 in New York with respect to speculation in the stock of the First Bank of the United States:
"It may be said that as Bank paper affords a substitute for specie, it serves to counteract that rigorous necessity for the metals...and...it would retard those oeconomical and parsimonious reforms in the manner of living, which the scarcity of money is calculated to produce...
"There is perhaps some truth...but...of a nature rather to form exceptions to the generality of the conclusion, than to overthrow it...a situation in which a too expensive manner of living of a community compared with its means, can stand in need of a corrective, from distress of necessity, is one which perhaps rarely results, but from extraordinary and adventitious causes, such for example, as a national revolution, which unsettles all the established habits of a people, and inflames the appetite for extravagance, but the illusions of an ideal wealth, engendered by the cause. There is good reason to believe that where the laws are wise and well executed, the oeconomy of a people will, in the general course of things, correspond with its means."
Throughout the two reports on credit, Hamilton emphasizes the rational capacity of bankers and merchants and their sound judgment (e.g., "Those who are most commonly creditors of a nation are, generally speaking, enlightened men...", p. 3, Report Relative to Public Credit).
Hamilton argues vigorously for the positive effects of monetary expansion and a central bank. He argues that "Gold and Silver, when hey are employed merely as the instruments of exchange and alienation, have been not improperly denominated dead Stock; but when deposited in Banks, to become the basis of a paper circulation...they then acquire life." By depositing money in a bank, merchants enable others to borrow and "It is a well established fact, that Banks in good credit can circulate a far greater sum than the actual quantum of their capital in Gold and Silver. The extent of the possible excess seems indeterminate; though it has been conjecturally stated at the proportions of two and three to one."
This rousing defense of fractional reserve banking presaged two centuries of booms and busts, the most recent being the multi-trillion dollar transfer of wealth to wealthy bankers from the general economy and an aggressive monetary expansion.
Hamilton's ideas were rejected in the early nineteenth century but subsequently adopted by both political parties in the twentieth. Most progress occurred in the 19th. The twentieth century was one of reaction and decline.
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