[GJM] What Drives the American Economy, Private or Public Credit?

[W. Curtiss Priest]

As some may recall, we are at the 10th anniversary of
my letter in the Boston Globe:

The Boston Globe May 10, 1998, p. C6

WARNING: DEBT IS WHAT CAUSES DEPRESSIONS

There is certainly a madness in our midst. Ravi Batra's new book,
"Stock Market Crashes of 1998 and 1999" talks about how those hawking
mutual funds based on strong fundamentals neglect to say that the
fundanentals in 1929 were also very strong days before a depression
that spread worldwide.

As best economists can tell, what precipitates an economic catastrophe
is debt. We are probably not going to avoid a depression, the depths
of which will likely be greater than that of the '30s. Why? Because
our level of indebtedness in relation to total domestic revenues is
nearly twice the amount of debt we had when this contry was ravaged by
the last depression.

But perhaps we can do what the banking regulators of the '30s failed
to do. They failed to put in place a foolploof mechanism to prevent
future depressions. We need to take special note of what and why the
euphoria preceding a depression occurs. For only if we fully identify
its features and causes will the next generation be able to avoid yet
another catastrophe.

W. CURTISS PRIEST Melrose

The writer is director of the Center for Information, Technology &
Society, and a member of the American Economic Association

Prior text of Terry Wright, perceptive posting on Cyberspace Society,
of March 24th:

Subject: RE: What Drives the American Economy, Private or Public
Credit?
Date: Mon, 24 Mar 2008 22:06:18 -0400
From: Terry Wright
<tennbears at wildblue.net>
Reply-To: cyber-soc at topica.com
Organization: Tennbears Beef & Livestock Ranch
To: cyber-soc at topica.com
CC: "'Michael J. Dean'" <mikedean at carolina.rr.com> References: 1

John Gelles writes:

On Fox News Sunday, Chris Wallace presented the following questions to
Lawrence Summers, former Treasury secretary under President Clinton,
and Glenn Hubbard, former chairman of the Council of Economic
Advisors under President Bush.:

(TW> I do not trust the ethics, character, or integrity of any of the
people mentioned above. And after reading their conclusions and
recommendations you provide below, my distrust appears highly
justified.)

John writes (questions put to this panel):

1. How serious of a problem is the state of the nation's economy and
are we in a recession?

2. Is the government doing enough to keep the situation under control?

Wallace, Summers and Hubbard all understood the questions. Answers
were developed for audience. I was very much impressed with what we
were told:

a. The problem is serious. There is need of more private credit from
our private banks. Therefore government must lend financial capital
to the banks so they can lend more to business and ordinary retail
consumers.

(TW> The gist of what is being recommended by these people sounds to
me like the following:

"Listen up you bankers, now that your incredible GREED and propensity
to "game" the system through predatory and unscrupulous lending
practices, and "tinkering" with interest rates to promote the
expansion of one industry over another (e.g., housing) has brought us
all to the brink of economic collapse, we're going to lend you some
more of THE PEOPLE'S hard-earned money so you can profit from the
backs of the PEOPLE again, only this time, don't bring us to the brink
of disaster!!") 

John writes:

b. Businesses and ultimate private consumers, already in more debt
than their current prospects justify, must find the confidence to go
further in debt in order to keep retail and wholesale volumes high
enough to pay for jobs, wages and profits.

(TW> Following previous rationale, this answer seems to be saying to
people and businesses:

"Now we know you all have no reason to trust the government and money
changers of the world, especially since the Enron and WorldCom
debacles, and even more so, the recent greed-based subprime fiasco
that cost many of you people your home, savings, retirement, general
well-being, and peaceful state of mind, and many of you businesses
your markets, customer bases, access to reasonable financing, and so
on, but don't hold these things against us. Everyone needs to "TRUST"
that the people, their thinking, and their behaviors that brought us
all to the brink of total economic meltdown have learned their lesson,
and will be "much better" at what they're supposed to be doing in the
future. What we mean by "much better" in the future is that you won't
actually "feel" their hands on your wallet quite as like you have felt
it recently; instead we will slowly rob you and your progeny through
the invisible tax of inflation!)

John writes:

c. Government must follow up its low interest decrees and tax refund 
stimulus package with more of the same, at the risk of more inflation 
and a greater decline in dollar against harder money. Exports must 
continue to do well and even better, as they currently are, to help
pay for American jobs, wages and profits.

(TW:> And the above recommendation, seems to be saying:

"Listen folks, we're going to print a lot more money, oh heck, maybe
we'll just credit a lot of bank accounts with our big computer, and
yes...we know we'll be causing greater inflation, which will make your
money even more WORTHLESS than what our GREED and predatory practices
have recent made it, but this will play right into our grand strategy
of having America become the lowest cost labor on the planet, so all
those manufacturing, financial services, and helpdesk jobs that were
outsourced over the last few decades will finally come back to us for
the same reasons we outsourced them in the first place...cheap
labor!!! So just keep your heads down and keep working...we've got it
all under control.") 

John writes:

d. Possibly, over the next year, the loss in the value of residential 
housing values will stop and prices will steady and then begin to rise
again at a very low sustainable rate.

(TW> And item d above sounds a lot like them saying:

"There's a slight chance that, over the next year, your home...if you
still have one... will stop losing its value, level out in value, and
then slowly begin rising again but at such a slow rate that you'll all
be dead and buried before you ever get to enjoy any equity you might
have once had in it. You see folks, we've nearly satisfied our
insatiable greed through foreclosing on many of your dear homes,
getting most of them on the cheap, after you made a lot of mostly
interest payments to us over the years. We can now sell these all over
again, doubling, maybe tripling our money, if we can only convince you
all of the saliency of our recommendation "b" above.")

John writes:

e. All of the above meant the American economy would not collapse; but
it would not find a footing from which to grow at the high rates it 
would take to spread prosperity to the bottom of the American
population whose education, training and standards need to radically
improve if America is to lead the world in an economic revolution to
parallel revolutions in technology (in information, biology and
materials) which may reorder the greatness of the worlds continents
and nations.

(TW> And item e above sounds a lot like:

"Now folks, don't get mad. We know our economic policies, meddling in
education, and currency manipulations have combined to send a lot of
your jobs overseas. And doggone it, we've tried our best to brainwash
you (through our control of big media) into thinking that things
aren't so bad as we hammer mind-numbing auto ads and prescription drug
recommendations at you 24x7 on TV, and scare the crap out of you with
our news casts and looming threats. No one is perfect!! You folks on
the bottom, hey, what can we say...you're still screwed because you
couldn't afford the education and training you need to be of value in
the modern world. We're really sorry that the ECONOMY we're about to
rig will be such that you'll never climb out of the hole we put you
in.") . John writes:

What must dive the American economy, private or public credit, IF 
America is to lead the world in an economic revolution to parallel 
revolutions in technology (in information, biology and materials)?

Is it better that our present ideology reorders global power and 
leadership so that Eurasia leads humanity, as Europe once did and 
America still does (if barely)?

(TW> Our "present ideology", in my opinion, does NOT reflect the will
and spirit of the American people...it reflects the greed, cronyism,
corruption, power-mongering and politics of an extremely small number
of mostly idiots that "we the people" were "forced" to elect under the
combination of a controlled and biased media, failure to enact
meaningful campaign finance laws, government deception, financial
community greed, and a global socialist and fascist agenda of the
super-wealthy. Here are two examples that should readily demonstrate
whose interest is being looked after by the powers that be:

1. U.S. senators receive 100% of their working (if you can call
anything done in Washington true "work") salaries for life. Did you
get 100% of your working salary for your retirement?

2. Now the Federal Reserve...if you can believe this...has opened up
the discount lending window the "investment bankers"...(i.e., the Fed
has decided that what we "really" need is for the biggest and
greediest "system gaming" gamblers on the planet to be able to borrow
funny money as cheaply as legitimate banks...oh yeah...this will
really fix everything, eh?)

John writes:

Is capitalist fundamentalism superior to economics in the public 
interest--that would revive the tools and attitudes we once
owned--that allowed Keynesian money to drive America's satisfaction
of its political and military needs and its defense of human rights
in the 1940's?

(TW> There is nothing wrong with fundamental capitalism because no two
entities will trade anything of value for something else of value
unless both entities are better off for that trade. The problem that
makes capitalism unrecognizable is the fact that we have these
"tinkerers" on the sidelines trying to "control" the economy to suit
their own agendas.) 

John writes:

Wallace, Summers and Hubbard did NOT care to recognize our abdication
of leadership, represented by failure to finance and drive the
American economy with public credit in humanity's long term interest.

The private interests encouraged by laissez-faire were accepted as
good enough.

(TW> And what should we expect these people to say, that their bosses
are/were idiots? 

John writes:

The fact that we could immediately reach full employment of all our 
labor and capital, by becoming the arsenal of economic growth to
house, feed, train, and care for the world, and were electing NOT to
do it, did not cross their collective mind.

(TW> John, I truly believe a lot of things were different for us after
WWII than they are now. The dollar was still worth most of what it was
in 1911, peace had been won, and the economy needed to be stimulated
to come close to matching what it had been during the war. We'd have
all these brave soldiers coming home that would need jobs. We didn't
need to make planes, bombs, guns, and so on at the same rate as we did
during the war, so the government invented a lot of public-good
projects (e.g., TVA, Interstate highways, infrastructure) to take up
the economic slack that the end of the war was going to produce. 

By contrast, today the dollar is worth less than 4 cents (in 1911
dollars), and monetary policies have allowed the money-changer crowd
such liberties and lack of oversight that they have now gotten things
into such a state that there is no good way out. By their own
admission above, any kind of fix will involve the introduction of
guaranteed inflation, that invisible tax that hits those who can least
afford it the hardest, and government bailouts of the rich, which is
outright fascism. I heard today that J.P Morgan, and their "partner"
the FED (which is backing their takeover of Bear Sterns), have upped
the valuation of BS by 500% (instead of $2/share, now its $10/share).
I guess all the wives complained about the severe hit to their
lifestyles the $2 share price was going to cause. After all, we can't
have the big gamblers who caused this mess being forced to live in the
mess they created, like the rest of us have to. 

I also heard today that truckers are going broke, and are threatening
to strike. How much fun will life in the suburbs be once the grocery
stores run out of food about 3 days after the trucker's strike? Also
heard that now even qualified borrowers can't get loans, even though
the government and fed are infusing capital like crazy just for this
purpose? I guess the Carlyle Group is moving to Dubai, and Halliburton
is already there...beyond the reach of our legal systems. The list
goes on.

I guess I'm just tired of the talking heads on TV telling us what
we'll have to do to get back to some semblance of economic viability
that is far less robust than where we are (or were). We have to get
rid of the economic tinkerers, quit telling others how to live and
govern themselves, adopt a sensible energy policy and commit to making
it work (a great public-works project), and start treating the 99+% of
our population currently enslaved by the <1% of the elitists a whole
lot better. 

But I appreciate your optimism. --Terry




John Gelles wrote:
> 
> WHAT DRIVES THE AMERICAN ECONOMY--OR, MORE TO THE POINT, WHAT OUGHT TO
> DRIVE THE AMERICAN ECONOMY--PRIVATE CREDIT MONEY CREATED TO CHASE PROFIT
> IN THE FORM OF MONEY, OR PUBLIC MONEY (CREDIT BASED OR OUTPUT BASED,)
> CREATED TO MOTIVATE WORK THAT WILL PRODUCE THE NEEDS OF NATIONS AND
> THEIR PEOPLE FOR CONSUMPTION GOODS AND FACTORIES, ETC., -- TO SUSTAIN
> THE ECONOMIC GROWTH THAT IS NECESSARY IF WE WANT THE MINIMUM STANDARD OF
> LIVING (ON EARTH) TO BE RAISED TO THE HEIGHTS TECHNOLOGY AND DEMOCRACY
> HAVE MADE POSSIBLE AND DESIRABLE?
> 
> Terry Wright has read Gelles' opening arguments answering the above
> rhetorical question in favor of PUBLIC MONEY--to drive us all to work in
> the public interest and allow even more work in the interest of
> individuals in a free economy that is NOT free to fail!
> 
> Terry points out, fairly and thoroughly, the many shenanigans our
> present system tolerates that seem to want to do us in--and that may
> succeed--if we do not know how to create a fail-safe economic system
> with rules to prevent ruinous deflation, inflation, and absence of
> rational national purpose to protect ourselves from ourselves and from
> nature's curve-balls like scarcity, sibling rivalry, natural disasters,
> and human predators who must be restrained, re-trained, and made to do
> the right thing or, at least, stop ruining it for everyone else.
> 
> I can accept all that Terry contributes to our task.
> 
> Now I ask that we all admit that we are what we do: and if we do
> nothing, for whatever reason, we are nothing. Admit it. Admit that
> unemployment for anyone wanting work is intolerable. Full employment is
> our right and is what all mammals enjoy who never heard of money.
> 
> Admit, too, that monetary systems of production have proved to be very
> effective--especially in 20th century wars in democratic nations, whose
> unemployment rates effectively were zero.
> 
> If we make these admissions, we must notice that "markets" do not demand
> full employment or the end of poverty and want.
> 
> Which brings us to the heart of the matter: can governments offer money
> enough (for circulation and resting in savings accounts) to employ every
> willing person without destroying good study and work habits that
> translate into production of all a nation needs?
> 
> In World War II we proved the answer was YES.
> 
> After the war we wanted to prove the opposite: we wanted to prove that
> only competition to produce in markets as we knew them would allow
> people to arrive at the best habits and best results.
> 
> Socialism, which featured full employment, proved to be a failure.
> 
> A full employment, free-enterprise, fully capitalized capitalism was not
> invented. It did not materialize.
> 
> ----- Nothing compelled democratic nations to learn from wartime
> capitalism how to create peacetime full employment--with a steadily
> rising minimum standard of living and excellent protection of the
> earth's environment and the family values of healthy human beings.
> 
> Terry Wright sees inflation as the more likely result of a fully
> capitalized capitalism than the Utopian conditions I claim will result.
> 
> My fully capitalized free enterprise system, driven by government
> contracts for clean energy, water, housing, health and education
> systems, etc., seeks your support--in place of your support for a
> national economy driven by taxes on the consumption of beer, cigarettes,
> entertainment, gambling, fatty foods and the latest fads, etc., that
> looks for stable prices on this junk instead of looking for zero crime,
> zero war and zero poverty.
> 
> Argument cannot settle this matter. Only if some nation proves that we
> can create a Utopian capitalism in place of the socialist dream, will
> all of the above (which is the Keynes without debt system) ever be
> tempting enough for others to try it.
> 
> Of course, there is another way: the current war will lead us to this
> system in order to finance democratic success--or we will succumb to
> some well executed mass murder of whole cities (ours and theirs).
> 
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-- 

	   W. Curtiss Priest, Director, CITS
      Center for Information, Technology & Society
	 466 Pleasant St., Melrose, MA  02176
   781-662-4044  BMSLIB at MIT.EDU http://Cybertrails.org