CHART OF THE DAY: If Congress Does Nothing, The Deficit Will Disappear | TPMDC

CHART OF THE DAY: If Congress Does Nothing, The Deficit Will Disappear | TPMDC: "[T]he medium-term budget outlook is perfectly fine if Congress adheres to the law as it's currently written. That means no repealing the health care law, for one, but more significantly it means allowing the Bush tax cuts to expire, and (unfathomably) allowing Medicare reimbursement rates for doctors to fall to the levels prescribed by the formula Congress wrote almost 15 years ago. In other words, no more 'doc fixes.'

Helpfully, CBO juxtaposed these two alternative futures in a pair of graphs and, just as last time, it projects that deficits will disappear entirely by the end of President Obama's second term (if he gets a second term) if Congress were to just sit on its hands and do nothing.

Take a look."

How Capitalist is America? - Mark Roe - Project Syndicate

How Capitalist is America? - Mark Roe - Project Syndicate: "American law gives more authority to managers and corporate directors than to shareholders. If shareholders want to tell directors what to do – say, borrow more money and expand the business, or close off the money-losing factory – well, they just can’t. The law is clear: the corporation’s board of directors, not its shareholders, runs the business.

Someone naïve in the ways of US corporations might say that these rules are paper-thin, because shareholders can just elect new directors if the incumbents are recalcitrant. As long as they can elect the directors, one might think, shareholders rule the firm. That would be plausible if American corporate ownership were concentrated and powerful, with major shareholders owning, say, 25% of a company’s stock – a structure common in most other advanced countries, where families, foundations, or financial institutions more often have that kind of authority inside large firms.

But that is neither how US firms are owned, nor how US corporate elections work. Ownership in large American firms is diffuse, with block-holding shareholders scarce, even today. Hedge funds with big blocks of stock are news, not the norm."

It's a class system, with the corporate elite on top. In a generation or so, they'll start awarding themselves titles.

A Modern Monetary Theory fairy tale

Money is as money does.  Money is as money was.  Factories idle, millions unemployed, a mountain of bad debt on their backs, how to prime the pump?  Haven’t we been here before?  How to produce to capacity when the Fed chief is confused between keeping the banks open (letting money circulate) and bailing out his Wall Street handlers (keeping bad debts on the books and fatally constipating the monetary economy).

With apologies in advance to all MMT’ers who may be offended, here’s what I take away from the MMT story, which is usually preceded with claims that it is the most amazing discovery in the history of humankind:

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The Congress decides to set up their own printing presses (accounts at the Treasury backed by nothing, just like the rest of our money) and start spending money on the things that America needs:  supporting women and children in poverty; a massive infrastructure jobs program; basic research; early childhood and primary and secondary education; and so on.

The new money looks and feels just like the old money.  No currency even needs to be created; the old play money still works.  People get contracts to do work for the government and money shows up in their bank accounts.

Because the economy is in a deadly liquidity trap that the Fed chairman fails to understand will not be cured by zero interest rates, with a gigantic overhang of bad debt on the books of the banks that they are sending the American people into poverty to collect (after they’ve taken their homes), and because the labor market has been beaten down by Republican-inspired ideologues in Congress to the point where the labor share of national income is at its lowest level in a century, and because the Supreme Court has consistently ruled for corporations’ rights over worker rights, even giving the corporations carte blanche to buy politicians, and because Americans have let themselves become fat and stupid as their government has lulled them into a cowed stupor with terrifying pat-downs at airports, and Nazi-style police behavior (or whoever those people are), and with an unending televised onslaught of misinformation about taxes, the economy, terrorists threats, and all the other reasons they have to be afraid—for all these reasons working Americans have given up fighting and are cowering in their homes and apartments hoping they are not the next to be sent into hell, to live in their cars as long as they still own them, and then onto the streets, where they can see all around them in increasing numbers the end game of the American Dream (i.e., the capitalists—the corporate elites—won , and labor lost).

For all these reasons, inflation is not really a problem.  (And let’s be clear, Ron Paul, inflation is a general increase in the price level, not of the money supply alone).

So Congress continues to print money merrily, and ordinary Americans can feel the blood returning to their cheeks and money to their checking accounts as the miraculous circular flow of income and product expands, that which is necessary for an economy to be healthy, and which is terminally infarcted when most of the money ends up in the hands of a very few people. (The Fed objects that the money Congress is printing isn't backed by anything at the Fed, but Congress tells the Fed to shut up.)

When, years down the road and ten percentage points closer to potential output, a little bit of inflation does occur, the Congress orders the Fed to increase reserve requirements.  We don’t want so much of that credit money, Congress says, and Jamie Dimon whines that he can’t make a decent living anymore and moves to Russia.  Congress allows a mild inflation, however, which over the span of a number of years whittles away much of the real value of the debt.

The Congress also realigns the overall budget with sane national priorities (what a concept), reducing military adventures abroad and setting up a single-payer national health care plan, as American doctors, now mostly salaried but still doing well, have requested.  The health insurance companies whine that it is now too hard to make a decent living anymore and all open offices in developing countries.  And taxes are adjusted so that those who are taking the most out of the American economy are also expected to be those putting the most back in, proportionally speaking. 

A general awareness of the social welfare benefits of a more equal distribution of income and wealth inspires other policies that make everyone except the greediest persons feel much, much better about living in America.

It takes some practice but Congress learns that with reserve requirements approaching a hundred percent—with the big leverage gone from the banking system—that Wall Street- and bank-induced credit bubbles are much rarer and that control of the money supply is much easier.   Banks, of course, were prohibited from investment banking by the reinstitution of Glass-Steagall early in the reform period.  Capital ratios on investment banks were raised to twenty percent and any investment bank that goes bust in the new regime, goes bust.  No bailouts.  Banks are limited in size to two percent of GDP in assets.  Financial research proved long ago that big banks offered no economies of scale or scope.

After so many years, no one remembers that there had been a change in the money they are using.  It still looks and feels the same.  It is true that large numbers of one hundred dollar bills still go unaccounted-for, but that is considered a small price to pay compared to the massive wealth transfer from working Americans to the rich that occurred in 2008 and following years.  A Congressional office is established with a mandate to keep reserve requirements above ninety percent, and the Fed is disbanded.  The Church of Scientology makes an offer for their Washington, D.C., temple, but it is declined.  It becomes a museum dedicated to financial follies over the centuries. 

With the aggressive use of the power of Congress to take over the control of the money supply, the value of the American dollar decreased on the international markets faster than that of the currencies of nations that hold to the fictions of fractional reserve banking, credit money, bailouts, the IMF, the World Bank, and other foolishness.  The debasement of the currency, a failed goal of the prior Fed chair, is hailed by labor and industry alike as Chinese, Japanese and Indian companies rush to build factories and research centers in America.  Since the dollar has fallen, and oil is now being priced in a basket of currencies most of which are as weak as the dollar, oil prices rise—but they rise for everyone, as global growth and peak oil collide.  This factor as well makes it very advantageous for foreign companies to manufacture in America, which is still the second- or third-biggest market in the world.  The dollar even depreciates against the loonie and the peso, killing any chance of a North American monetary union (the example of the EU had pretty much killed enthusiasm for that idea anyway).

And America rises phoenix-like from the ashes of debt deflation, deleveraging, and depression.

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(All right, MMT’ers, you’ve got to comment on this….) [corrected 6/25]

Washington's Blog

Washington's Blog: "In July 2009, Congressman Henry Waxman stated:

In a 13 month period from May 2003 to June 2004, the Federal Reserve sent nearly $12 billion in cash, mainly in $100 bills from the United States to Iraq. To do that, the Federal Reserve Bank in New York had to pack 281 million individual bills ... onto wooden pallets to be shipped to Iraq. The cash weighed more than 363 tons and was loaded onto C-130 cargo planes to be flown into Baghdad...

The Los Angeles Times reported at the time:

Prior audits by Stuart W. Bowen Jr., the special inspector general for Iraq reconstruction, found that more than $8.8 billion in such funds could not be properly accounted for."

George is really ripping the Fed today. See second story below.

A high stink of corruption emanates from Washington and New York.

Washington's Blog

Washington's Blog: "In 'Bernanke Admits He’s Clueless On Economy’s Soft Patch', Forbes blogger Agustino Fontevecchia notes:

Brutally honest, Bernanke admitted that he had no clue what was actually causing the current fragility in the U.S. economic recovery. While the FOMC statement assigned blame outside of the U.S., pointing at Japan along with rising food and oil prices, Bernanke was put on the spot by a reporter who noted the inconsistency behind that explanation and a lowering of long term forecasts. Bernanke took the hit, admitting only some of the factors were temporary and that he didn’t know exactly what was causing the slowdown, but that it would persist. “Growth,” said Bernanke, “will return into 2012.”
Specifically, Bernanke said today:

We don't have a precise read on why this slower pace of growth is persisting.
Well, it is obvious to anyone who has been paying attention what's causing the slow down, and if Mr. Bernanke doesn't know, he should be fired."

George is ripping the Fed today. The post goes on to quote numerous warnings from the BIS and others to the Fed before the crisis that things were getting out of hand--warnings the Fed chose to ignore. Why? Because its Wall Street controllers were making gobs of money from the risky and often fraudulent practices it was condoning.

Why the Jobs Situation Is Worse Than It Looks - US News and World Report

Why the Jobs Situation Is Worse Than It Looks - US News and World Report: "The Great Recession has now earned the dubious right of being compared to the Great Depression. In the face of the most stimulative fiscal and monetary policies in our history, we have experienced the loss of over 7 million jobs, wiping out every job gained since the year 2000. From the moment the Obama administration came into office, there have been no net increases in full-time jobs, only in part-time jobs. This is contrary to all previous recessions. Employers are not recalling the workers they laid off from full-time employment.

The real job losses are greater than the estimate of 7.5 million. They are closer to 10.5 million, as 3 million people have stopped looking for work. Equally troublesome is the lower labor participation rate; some 5 million jobs have vanished from manufacturing, long America's greatest strength. Just think: Total payrolls today amount to 131 million, but this figure is lower than it was at the beginning of the year 2000, even though our population has grown by nearly 30 million.

The most recent statistics are unsettling and dismaying, despite the increase of 54,000 jobs in the May numbers. Nonagricultural full-time employment actually fell by 142,000, on top of the 291,000 decline the preceding month."

Bruce Bartlett: Are Taxes High or Low? A Further Look - NYTimes.com

Bruce Bartlett: Are Taxes High or Low? A Further Look - NYTimes.com: "A couple of weeks ago, I discussed the low level of federal taxes as a share of the gross domestic product in the United States, both historically and in comparison with other developed economies. I noted that total federal revenue — income, corporate and payroll taxes combined –– has been below 15 percent of gross domestic product for three years in a row, its lowest level since 1950 and well below the postwar average of about 18.5 percent of G.D.P.

Judging by their comments, a great many readers were incredulous. For years, Republicans have told them over and over again that taxes in the United States are exceptionally high and the primary obstacle to growth, and that a huge tax cut would do more to raise growth than any other policy."

Read. The author is a Republican, by the way.