There is a lot to read this week, but please try to read as much as you can so we can have a good discussion. Note that Alan's letter is at the bottom. He will discuss it first.
local banks vanishing
state owned bank Oklahoma
Automation is Killing Jobs
How the Federal Reserve works
The Fed Runs the economy
Repeal of Glass-Steagal
Why Interest Rates Must Rise
QUESTIONS PAGE
EFFECTS OF LOW INTEREST RATES, from
THE BAUMAN LETTER | September 28, 2016
Now, low interest rates have hurt a lot of people, as you observe. By cutting into your savings income, low interest rates probably do more harm than good to economic growth by undermining consumption spending. We have eight years of proof that low interest rates don’t lead to investment if there’s no consumption demand out there for investment to meet.
But low-interest-rate policies are designed to benefit banks and corporations, not us, in the following ways:
- By providing Wall Street with access to ultracheap money that it can then lend out to Main Street at a higher rate, in order to improve big banks’ balance sheets so they can (hopefully) withstand another financial crisis. Analysts estimate that Wall Street banks have made tens of billions of dollars in income just by virtue of low Fed rates.
- By making it super cheap for corporations to borrow money to buy back their own shares, thereby increasing the value per share. That in turn makes the economy “look” healthy because it props up the stock market.
- By trying (unsuccessfully) to weaken the U.S. dollar relative to other currencies to prevent an emerging-market credit crisis that would impact the U.S. economy negatively.
So you are correct that it’s like a slow-motion bail-in of the banks … but given that the banks control the Fed, what else should we expect?
EFFECTS OF BUYBACKS from Alan
Interesting and long, but many of the claims don't check.
Glenn Beck on the Federal Reserve
Shorter and more factual
cato.org.calabria discusses FED
Article refuting much of beck's claims:
By: Edward Flaherty, Ph.D. Department of Economics College of Charleston, S.C.
Facts: Yes, the Federal Reserve banks are privately owned, but they are controlled by the publicly-appointed Board of Governors. The Federal Reserve banks merely execute the monetary policy choices made by the Board. In addition, nearly all the interest the Federal Reserve collects on government bonds is rebated to the Treasury each year, so the government does not pay any net interest to the Fed.
Facts: No foreigners own any part of the Fed. Each Federal Reserve bank is owned exclusively by the participating commercial banks and S&Ls operating within the Federal Reserve bank's district. Individuals and non-bank firms, be they foreign or domestic, are not permitted by law to own any shares of a Federal Reserve bank. Moreover, monetary policy is controlled by the publicly-appointed Board of Governors, not by the Federal Reserve banks.
Fact: Independent accounting firms conduct full financial audits of the Federal Reserve banks and the Board of Governors every year. The Fed is also subject to certain types of audits from the Government Accounting Office.
Facts: The Federal Reserve rebates its net earnings to the Treasury every year. Consequently, the interest the Treasury pays to the Fed is returned, so the money borrowed from the Fed has no net interest obligation for the Treasury. The government could print its own currency independent of the Fed, but there would be no effective safeguards against abuse of this power for political gain.
Facts: The Federal Reserve banks have only a small share of the total national debt (about 7%). Therefore, only a small share of the interest on the debt goes to the Fed. Regardless, the Fed rebates that interest to the Treasury every year, so the debt held by the Fed carries no net interest obligation for the government. In addition, it is Congress, not the Federal Reserve, who is responsible for the federal budget and the national debt.
Facts: Kennedy wrote E.O. 11,110 to phase out silver certificate currency, not to issue more of it. Records show Kennedy and the Federal Reserve were almost always in agreement on policy matters. He even signed legislation to give the Fed more authority to issue currency.
Facts: McFadden was incorrect regarding the Fed costing the government money. However, later economic analysis agrees with him that Federal Reserve policy blunders had a substantial role in causing the Depression. However, his implication that this was done deliberately has no basis in fact. Moreover, for a dozen years prior to his rant, McFadden had been the chairman of the House subcommittee that oversaw the Federal Reserve. Why didn't he do anything to reform or abolish the Fed while he had the chance?
Facts: The banking system is indeed able to create money with a mere computer keystroke. However, a bank's ability to create money is tied directly to the amount of reserves customers have deposited there. A bank must pay a competitive interest rate on those deposits to keep them from leaving to other banks. This interest expense alone is a substantial portion of a bank's operating costs and is de facto proof a bank cannot costlessly create money.
Fact: The term 'lawful money' does not refer to gold or silver coin, but to types of money which the government would permit banks to use when tabulating their reserves. These types of money included, but were not limited to, gold and silver coin.
BY: Edward Flaherty, Ph.D. Department of Economics College of Charleston, S.C.
Myth #1: The Federal Reserve Act of 1913 was crafted by Wall Street bankers and a few senators in a secret meeting.
Myth #2: The Federal Reserve Act never actually passed Congress. The Senate voted on the bill without a quorum, so the Act is null and void.
Myth# 3: The Federal Reserve Act and paper money are unconstitutional.
Myth# 4: The Federal Reserve is a privately owned bank.
Myth #5: The Federal Reserve is owned and controlled by foreigners.
Myth #6: The Federal Reserve has never been audited.
Myth #7: The Federal Reserve charges interest on the currency we use.
Myth #8: If it were not for the Federal Reserve charging the government interest, the budget would be balanced and we would have no national debt.
Myth #9: President Kennedy was assassinated because he tried to usurp the Federal Reserve's power. Executive Order 11,110 proves it.
Myth #10. The Legendary Tirade of Louis T. McFadden
ALAN SHAVER'S LETTER
To: Members of Senior College Class “Saving Capitalism”
From:
Alan Shaver Date: September 28, 2016
Re: Article in Support of Question 2
Attached is an article that appeared on the editorial page of the Times Record on Tuesday, September
27. We’ve heard a lot in class about how “big corporations” are controlling our politics. I thought
you might be interested in how others, coming from a different perspective, are also trying to “control”
our politics by persuading us to vote for a proposal that, at first blush, sounds eminently fair and
reasonable.
However, on further consideration, serious objections can be made to claims made in the article, and,
more importantly, to the absolute failure to acknowledge what are likely to be major “unintended
consequences”.
The proposal would impose an additional tax of three percent (3%) on incomes “above $200,000”
annually and would be “dedicated to K-12 education”.
First, the unintended consequences:
• Fellow citizens with incomes in excess of $200,000 annually have the capability of “voting
with their feet”. They simply will leave Maine and, whenever possible, take their businesses
with them. As a result, the claimed “increase” in funding for education of $159 million will
rapidly diminish.
• As these citizens depart the state and the funding declines, the legislature, having become
accustomed to being able to appropriate this “additional revenue” will find it necessary to
“redefine” the term “wealthy” downward, so that more and more of our citizens will be paying
this additional 3% until, eventually, all Maine taxpayers will be enjoying a significant increase
in their taxes.
• This has happened before, both in Maine and other states.
Second, the “claims” made for the Proposal:
• The additional revenue will be “dedicated to K-12 education”. Has anyone checked recently
to see how much of the “additional revenue” supposed to come from the casinos is actually
being spent on education versus used in the “general fund”? I thought not. Once revenue
flows into the state’s coffers the legislature is free to do whatever it wants with it.
• “Question 2 would increase education funding by $159 million in its first year and increase
further in subsequent years”. I’m not very impressed with the author’s arithmetic. Three
percent (3%) on incomes “above $200,000” annually, assumes there are enough Maine
taxpayers who enjoy $5.3 BILLION in income over and above their base incomes of $200,000.
If you simply divide the total by $200,000 it supposes there are at least 26,500 taxpayers in
Maine who enjoy incomes above $200,000 annually. If you believe that, I’ve got a bridge for
you to consider purchasing.
• “A good education is the gateway to good jobs, more prosperous families and greater
opportunity for successful careers”. No one will argue with that; what it ignores are the
numbers of such jobs that will leave Maine as a result of this tax increase, not to mention those
that will never come because of the tax. Our best young people will have to leave Maine to
find the kind of job opportunities the author claims for Proposal 2. In fact, that has been
happening for years already.
Lots of different entities want to persuade us to vote their way, support the projects they think are
important, and to be “fair”, to make the “wealthy” pay more, and to reduce the burden on the
“poorest” among us. However, what is “fair”, who are “wealthy”, and the degree of “burden” on the
poorest are all value judgments about which reasonable people may differ. What we cannot escape
is the impact of our actions, both those “intended” and those “unintended”.
Having been a registered voter for more than 50 years, I’ve learned that certain phrases used by
politicians are “code words” for reaching into my pocket. Included in those are “investing”, “fairness”
“leveling the playing field”, “strengthening” the economy, and “tax cuts that largely benefit wealthy
households”. Usually it means using my money to benefit the politician’s favored activities, not
necessarily how I might choose to use it.
Here is the article:
Question 2
QUESTIONS WEEK FOUR
