[R-G] [BillTottenWeblog] Freeing Ourselves from Mammon
Bill Totten
shimogamo at ashisuto.co.jp
Thu Mar 19 18:44:31 MDT 2009
by Bill Totten
K K Ashisuto (March 19 2009)
Dear Friends:
I am speaking to a variety of audiences around Japan on how we can free
ourselves from the Casino Economy. Now a prominent publisher wants to
develop the speech into a full book. Here is the current text of the
speech that I showed the publisher and spurred its interest to produce a
book. I would greatly appreciate your taking the time to read it, point
out any mistakes, and give me any suggestions for improvement and/or
expansion. I apologize for the length. Bill Totten
Introduction
Proximate Cause
Deeper Cause
Foreign Exchange
Derivatives
Stock Market
Deregulation
Kashi Shiburi
Results
Aside: US Treasury Bonds
Simple Solutions
US Treasury Bonds
Derivatives
Foreign Exchange
Stock Market
Big Solutions
Our Nation's Currency
Employer of Last Resort
Summary
Conclusion
INTRODUCTION
------------
Speeches at the beginning of the year are supposed to be cheerful and
optimistic, but if we focus on the economy it is difficult to be either
cheerful or optimistic.
Every aspect of our economy has dropped and appears to continue
dropping. Companies are selling less, producing less, investing less,
cutting employment, and losing profits. With less employment, lower
incomes, and bleak prospects, consumers are buying less. {1}
According to the latest forecasts from the International Monetary Fund,
the world faces its worst recession since the Second World War {2}.
But I think business and economy are only two of the many means to the
truly important important things in life, which to me are health and
happiness. If we keep our perspective on what is really important, not
just business and economy, I think we have much to be thankful for and
we can look forward to another happy and healthy new year.
Moreover, I am optimistic because I believe that
1. We caused our own problems, they weren't thrust on us;
2. We can minimize the harm those problems cause us; and
3. We can minimize the chance of those problems occurring again.
Notes:
{1} http://news.yahoo.com/s/ap/20090130/ap_on_bi_ge/as_japan_economy_1
{2}
http://www.independent.co.uk/news/uk/politics/economic-outlook-just-gets-worse-and-worse-1519067.html
PROXIMATE CAUSE OF OUR ECONOMIC PROBLEMS
----------------------------------------
The proximate cause of the world's and our own economic maladies seems
to be the subprime fiasco in the United States.
But why should financial problems in the United States affect us?
I can think of only two possible reasons:
1. Are our financial institutions gambling in the US market - that is,
on subprime loans - or loaning money to others gambling on the US market?
2. Are many of our giant corporations addicted to exporting to the US
market?
Can you think of any other reason why our economy should be suffering
from the subprime loan problem in the United States?
And if those are the reasons for our economic maladies, aren't they OUR
problem?
Isn't OUR responsibility to control the behavior or OUR financial
institutions and OUR industrial corporations?
And don't WE have the power to prevent any recurrence of such problems?
DEEPER CAUSE OF OUR ECONOMIC PROBLEMS
-------------------------------------
Although we have two other giant problems, namely we're running out of
fossil fuels and we must stop burning them to prevent irreparable
environmental damage, the main cause of our current problem is that
we've created a CASINO ECONOMY.
Foreign Exchange
----------------
452 trillion yen ($4 trillion) of foreign currencies were bought or sold
EVERY DAY in 2007, the latest year for which such data were available
when I wrote this. The daily trading of foreign currencies has increased
more than sixfold over the past twenty years {3}.
To put this in perspective, the amount of money spent trading foreign
currencies is 86 times greater than the amount of money spent on all
foreign trade of goods and services {4, line 7}; and the amount of money
spent trading foreign currencies is 27 times greater than the money
value of all goods and services produced or consumed throughout the
world during an entire year {4, line 10}.
This is pure gambling. More precisely, only one percent of the trade in
foreign currencies supports foreign trade (including foreign travel);
99% is pure gambling - trading one currency for another on the belief
that the one will rise in price versus the other.
And it's a recent phenomenon: Until President Richard Nixon took the
United States off the Gold Standard in 1971, each major national
currency had a fixed price in gold and, therefore, a fixed price
relative to each other major national currency, so there was no
opportunity to gamble on movements in the relative prices of national
currencies {5, 6}.
By the way, yen is either bought or sold in eight percent daily foreign
exchange transactions {7}, so eight percent of 452 trillion yen ($4
trillion) or 36 trillion yen of yen are bought or sold daily. The
monetary volume of yen traded every four days is about the same as all
of Japan's exports and imports for an entire year {4, line 14}.
Put another way, the monetary volume of yen traded annually is about 84
times greater than all of Japan's exports and imports {4, line 15}.
Thus, only about one percent of purchases and sales of our yen support
our imports and exports of goods and services (including foreign
travel); the other 99% is pure gambling that the yen will rise or fall
against some other currency.
Here's another illustration of how badly our (Japan's) casino economy
dominates our real economy: the monetary volume of yen traded is 26
times greater than our GDP [4, line 18].
And foreign exchange is just one part of our casino economy.
Notes:
{3}
http://en.wikipedia.org/wiki/Foreign_exchange_market#Market_size_and_liquidity
{4} Foreign Exchange:
http://groups.google.co.jp/group/BillTottenWeblog/web/Foreign%20Exchange%202007.xls
{5} http://economics.about.com/cs/money/a/gold_standard.htm
{6} http://www.ex.ac.uk/~RDavies/arian/amser/chrono.html
{7} See table entitled "Most traded currencies" at
http://en.wikipedia.org/wiki/Foreign_exchange_market#Market_size_and_liquidity
and note this in text referring to the table: "Note that volume
percentages should add up to 200%: 100% for all the sellers and 100% for
all the buyers."
{8}
Financial Derivatives
---------------------
In 2001, the value of financial derivatives held by US commercial banks
was estimated to be around 4200 trillion yen ($42 trillion). By 2007,
just six years later, the value of derivatives held by American banks
had skyrocketed to almost 17,000 trillion yen ($170 trillion) - almost
three times the value of the entire world's economy {9}.
I had difficulty understanding financial derivatives until I found a
couple of explanations that avoid all of the technical babble that seems
intended to confuse rather than enlighten the people who don't gamble on
them.
Here is one explanation by Andrew Leonard, Senior Technology Writer for
Salon.com and a contributing editor to Newsweek {10}:
"Strictly speaking, a derivative is a financial doohickey whose value
derives from some underlying asset. A mortgage loan is an asset. A pool
of mortgage loans grouped together into a security that can be traded on
markets is a derivative.
"We often hear about the 'real economy', that place where real people
buy and sell real things, or go to work at real jobs where they make
real stuff or deliver real services. Derivatives belong to what should
be called - but never is - the unreal economy, a place where speculators
make bets about what will happen in the real economy. Derivatives are
vehicles for making such bets. If you think the borrowers whose loans
are pooled together are going to make their payments, then buying a
share in a group of such investments might be a good idea. That would be
your bet.
"A metaphor might be useful here. The real economy is like the Super
Bowl. Real men on a real field push each other around and play with a
real ball for a set period of time, and the team with the most points at
the end wins. But while all this is going on, millions of outsiders who
are not physically involved in the game bet on its outcome. Only they
don't bet just on the outcome. They also bet on the spread - how badly
one team might beat the other. Or they can get more creative and bet on
what the combined score of the teams might be, or which team's
quarterback will be the first to be injured. There's absolutely no limit
to the things that you can bet on, as long as you can find someone to
take your bet.
"The betting economy is the unreal economy. All those sports bets, no
matter how kooky, are financial exercises whose value and meaning are
derived from what happens on the field. Theoretically speaking, the
betting economy exists in a separate dimension from the actual game, but
we all know that's not true. There's so much money involved in gambling
that the temptation to fix the results becomes irresistible. Players and
referees, for instance, can be bribed.
"We can call a bribed NBA official an example of 'spillover' from the
betting economy into the sports economy. The very same thing happens in
the real and unreal economies. So much money is riding on all the
derivative bets connected to the housing sector that Wall Street
speculators essentially rigged the housing sector to make their bets pay
off."
And here is another explanation, by Gao Xiqing, president of the China
Investment Corporation, which manages "only" about 20 trillion yen ($200
billion) of the country's foreign assets but makes most of the
high-visibility investments, like buying stakes in Blackstone and Morgan
Stanley, as opposed to just holding Treasury notes {11}:
"First of all, you have this book to sell. [He picks up a leather-bound
book.] This is worth something, because of all the labor and so on you
put in it. But then someone says, 'I don't have to sell the book itself!
I have a mirror, and I can sell the mirror image of the book!' Okay.@
That's a stock certificate. And then someone else says, 'I have another
mirror - I can sell a mirror image of that mirror'. Derivatives. That's
fine too, for a while. Then you have 10,000 mirrors, and the image is
almost perfect. People start to believe that these mirrors are almost
the real thing. But at some point, the image is interrupted. And all the
rest will go.
"When I told the State Council about the mirrors, they all started
laughing. 'How can you sell a mirror image! Won't there be distortion?'
But this is what happened with the American economy, and it will be a
long and painful process to come down.
"I think we should do an overhaul and say, 'Let's get rid of ninety
percent of the derivatives'. Of course, that's going to be very
unpopular, because many people will lose jobs."
In short, financial derivatives are merely tools, often complicated
tools, for gambling on the real economy. But when so many times more
money is spent gambling on the real economy than spent in the real
economy itself, this gambling can easily cripple the real economy. That
is what is happening now, and on a scale not seen since the stock market
crash of 1929.
Notes:
{9} Source: http://www.alternet.org/story/112166/
{10}
http://www.salon.com/tech/feature/2007/08/17/wall_street_panic/index.html
{11} http://www.theatlantic.com/doc/200812/fallows-chinese-banker
Stock Market
------------
Ten years ago the amount of money spent trading on Japan's stock
exchanges was only about one fourth of all the money spent producing and
consuming goods and services in our country (that is, only about
one-forth of our GDP). {12}
During the past ten years, while GDP has hardly grown at all, the amount
of money spent trading on our stock exchanges has multiplied sixfold and
now is more than fifty percent greater than all money we spend planning,
producing, transporting, storing, selling, consuming, repairing, and
disposing goods and services. {12}
Moreover, more than 99% of the money spent trading on the our stock
exchanges is pure gambling; less than one percent raises new capital.
Here's why: The only way corporations can raise capital on the stock
exchange is by selling new shares. No matter how often or at what price
those shares are traded after they were first sold, no further capital
is raised for the corporation that sold them originally. Less than one
percent of the shares bought and sold on our stock exchanges are
newly-issued shares, the only shares that raise new capital for
corporations; more than 99% of the shares traded are previously-issued
shares, that raise no new capital for corporations. Those trades are
pure gambling. {12}
Put another way, 99% of the money gambled on our stock exchanges makes
money for those who win their bets and loses money for those who lose
their bets, but contributes nothing else to our economy or society. Only
one percent of the money traded on our stock exchanges raises new
capital for our economy.
Can you think of any method for raising new capital that is less
efficient or more wasteful?
Notes:
{12} Stock Market Analysis:
http://groups.google.co.jp/group/BillTottenWeblog/web/Stock%20Market%20Analysis%202009-01-08.xls
Deregulation
------------
Financial deregulation in the United States from around 1980 is what
allowed the casino economy to grow so rapidly that it soon outpaced,
then dominated, and now is destroying the real economy.
In the United States, the cancerous growth of the casino economy closely
parallels the decline in research, development, and production;
hollowing out of the industrial base; explosive growth of trade and
fiscal deficits; growth of unemployment; widening of the gap between
rich and poor; and decline of living standards for the majority of
citizens. For data illustrating what this cancer has done to the US
economy and society, please see {13}.
Not content to wreck its own economy and society by immiserating the
many to enrich the few, the US government began hounding other rich
nations to deregulate (and privatize) their economies in the same ways,
while using the International Monetary Fund to force poorer, weaker
nations to do the same. The nations stupid or weak enough to cave into
US demands have suffered dramatically. Britain and Japan are two of the
prime examples.
The deregulation and privatization of Japan began in 1983 with the
publication of a report by Sasaki Tadashi, 22nd Governor of the Bank of
Japan (1969-74). This was a five-year plan for transforming and
"liberalizing" the Japanese economy, entitled "Toward a Consciousness
and Behavior of a World Nation", but usually called the Sasaki Report
{14, pages 167-168}.
It was followed in 1986 by the first of three "Maekawa Reports",
authored primarily by Haruo Maekawa, the 24th Governor of the Bank of
Japan (1989-84): "The report read like a wish list by US trade
negotiators. It started with a call for administrative reform -
basically the abolition of bureaucratic powers by switching from
regulation and the license system toward policies based upon market
mechanisms and to 'freedom in principle, restrictions only as
exceptions'. It aimed at import expansion, greater access for
foreigners, and a 'thorough promotion of deregulation' {14, page 170}
... In short, the goal was a 'transformation' of the entire body
politic, the abolition of the war economy system, and the introduction
of a US-style free market economy {14, page 171}.
Later, of course, Koizumi Junichiro and Takenaka Heizo implemented much
of the blueprints dictated by the United States and translated into
Japanese by Sasaki and Maekawa.
Notes:
{13} http://prorev.com/2009/01/indicators-economy.html and
http://prorev.com/indicators.htm
{14} Richard A Werner, Princes of the Yen (M E Sharp, 2003). Although I
cited specific pages here, the entire book is excellent and the entire
Chapter 14 "The Goal of Monetary Policy" provides a good description of
how the Bank of Japan, particularly former governors Sasaki and Maekawa,
led Japan down the path of deregulation and privatization dictated by
the United States.
Kashi Shiburi (Reluctance to Loan)
----------------------------------
One primary feature of the "transformation" campaign launched by the
Sasaki and Maekawa Reports - or launched by the US government via Sasaki
and Maekawa - was the financial "Big Bang".
This "Big Bang" financial deregulation has been a major disaster for our
economy and our society.
Since the end of 1997, when the 'Big Bang' deregulation of the foreign
exchange market from April 01 1998 was announced, Japanese commerical
banks have increased their deposits by 84 trillion yen (19%) but have
cut their loans to Japanese businesses and consumers by 136 trillion yen
(26%). {See 15, cells c247, d247, k247, l247} This gigantic drain of
220 trillion yen (220 = 84 + 136) from our economy, in my mind, alone by
itself is sufficient to explain why our economy has stagnated with zero
growth since 1998.
We call this reluctance or refusal of Japanese commercial banks to loan
the deposits of Japanese businesses and consumers to other Japanese
businesses and consumers "kashi shiburi".
Banks claim that the problem is not their own reluctance (or refusal) to
loan to our businesses and consumers but, rather, the reluctance of our
businesses and consumers to borrow.
But I think this is a lame, devious excuse. Banks, like all other
businesses in unregulated (or under-regulated) economies are free to
seek as much profit as possible as fast as possible, regardless of the
effects on our economy or society. Not only free, but also compelled, to
seek as much profit as possible as fast as possible.
Why?
Because in our Casino Economy, every corporation whose shares are traded
publicly must compete for the favors of investors and speculators not
only with every other corporation in its own industry or country, but
also with all other corporations in all other industries and all other
countries and also with all other opportunities for investment or
speculation. Commercial banks, and all other corporations whose shares
are traded publicly, must make sure their dividends and share prices
compete favorably with all other banks in their own nation, with all
other banks worldwide, with all other corporations worldwide, and with
the profits investors and speculators can gain by trading in (gambling
on) commodities, foreign currencies, derivatives, horses, bicycles,
cards, or anything else. If a bank's dividends or share prices don't
compare favorably with what investors or speculators can gain investing
or gambling on anything else, the speculators will dump that bank's
shares, making it vulnerable to takeover or bankruptcy and endangering
its ability to protect and fulfill its responsibilities to its
customers, employees and suppliers.
Eighty percent of CEOs running major American corporations say they
would cut budgets for research and development, advertising and
maintenance and delay hiring and new projects to meet [financial]
analysts' quarterly profit estimates {16}. If we've forced our
corporations into the same circumstances as American corporations, how
can we expect ours to behave any different from theirs?
So, if our banks think they can make more profits faster, enabling them
to enhance their share prices and pay higher dividends, to please or
stave off investors or speculators, by buying our nation's bonds or
loaning, investing, or speculating overseas than by loaning to domestic
businesses and consumers, I think they are compelled to do so.
And that is just what I think our banks have done with the 220 trillion
yen they've sucked out of our domestic economy since the end of 1997,
just prior to deregulation of our nation's banking and finance. I think
they've chosen to use that 220 trillion yen to buy our nation's bonds
and to loan, invest, and speculate overseas instead of loaning that
money to domestic businesses and consumers.
Even worse, commercial banks now are going from kashi shiburi
(reluctance to make domestic loans) to kashi hagashi (calling in
existing domestic loans).
I don't blame banks for this. The unadvertised corollary to
de-regulation is de-protection. Whenever the ability of government to
regulate industries or businesses is weakened, its ability to protect
them is weakened accordingly. I don't think Japanese banks lobbied for
the Big Bang and I don't think most Japanese industries or corporations
lobbied for other kinds of deregulation.
And I don't blame investors or [all of] the speculators. While many
cases of greedy speculation have been reported, any person or
organization (such as a pension fund) charged with investing the savings
or wealth of others is compelled to get the highest sustainable returns
on those savings or that wealth. If Honda's pension fund doesn't earn as
much as Toyota's, Honda's employees lose relative to Toyota's employees.
So even the most honest investors and speculators are compelled, by the
Casino Economy, to place their funds wherever those funds can make the
greatest sustainable returns fastest.
Rather, I think that our stupid, cowardly, venal politicians and
bureaucrats dragged us into the Casino Economy by yielding to pressure
from the United States to deregulate and privatize our economy. They've
yielded to a system that forces our banks and all our other corporations
whose shares are traded publicly to maximize the short-term value of
those shares (in terms of both dividends and share prices) to please or
stave off the investors and speculators responsible for gaining the
greatest sustainable returns fastest for their own customers.
And now all of us are paying for (suffering from) the results of their
stupidity, cowardice, and venality.
Notes:
{15} Big Bang Drains Economy:
http://groups.google.co.jp/group/BillTottenWeblog/web/Big%20Bang%20Drains%20Economy.xls
{16} http://www.alternet.org/story/112166/?page=entire
Results
-------
And, indeed, this gang of Amerika-worshipers truly has transformed our
economy and society. But the proper word is "deformed", not
"transformed". Our economy annually grew at a pace of ten to fifteen
percent or more in the decades before the Sasaki Report, at only five
percent in the decade after the Sasaki Report, hasn't grown at all
since, and now is recessing {17}.
Here are a few indictors of the havoc and misery the Sasaki-Maekawa-
Koizumi-Takenaka deforms have wreaked on our economy and society:
Unemployment has increased by fifty to sixty percent {18}.
The number of households on welfare has increased by thirteen percent {19}.
The income gap, as measured by the Gini coefficient, has widened by more
than ten percent {20}.
Serious Crime has increased by 25% {21}
Suicides have increased by 35% {22}
Notes:
{17} Stock Market Analysis, column L, particularly cells L40,
L50, and L60.
http://groups.google.co.jp/group/BillTottenWeblog/web/Stock%20Market%20Analysis%202009-01-08.xls
{18} Japan Unemployment: 1983-2008
http://groups.google.co.jp/group/BillTottenWeblog/web/Japan%20Unemployment-%201983-2008.xls
{19} Japan Households on Welfare: 1985-2006
http://groups.google.co.jp/group/BillTottenWeblog/web/Japan%20Households%20on%20Welfare-%201985-2006.xls
{20} Japan Income Gap: 1984-2004
http://groups.google.co.jp/group/BillTottenWeblog/web/Japan%20Income%20Gap-%201984-2004.xls
{21} Japan Crime: 1985-2007
http://groups.google.co.jp/group/BillTottenWeblog/web/Japan%20Crime-%201985-2007.xls
{22} Japan Suicide: 1985-2007, particularly cell H33.
http://groups.google.co.jp/group/BillTottenWeblog/web/Japan%20Suicide-%201985-2007.xls
ASIDE: US TREASURY BONDS
------------------------
We loan huge amounts of money to the United States, but we loan them in
dollars instead of yen. This means we take all the risk of the dollar
falling relative to our yen. It also means the US can repay those loans
cheaply by devaluing the dollar.
The government we "democratically" elect refuses to tell us "demos" how
much of our money it loans to the United States. However, the US
government reports that Japanese held about $586 billion of US Treasury
Bonds last year, although it doesn't tell us how much of that $586
billion was held by our government and how much was held by Japanese
individuals and corporations. {23}
This data also shows that we lost eleven trillion yen on our holdings of
US Treasuries last year, as the dollar fell in value from 113 yen to 94
yen. {23} That's most of what we paid in Consumption Taxes last year.
Our "democratic" government has good reason to hide this folly from its
electorate!
And since last September, the US government has committed more than all
of that nation's money to bailing out banks from their follies:
-- In just the past few months, the Federal Reserve and the US Treasury
have committed $8.5 trillion (more than 800 trillion yen) to bailing out
US banks {24}. That's more than our nations' public debt, which we've
accumulated over the past forty years!
-- By comparison, M2, the largest measure of the money supply now
reported by the Federal Reserve, was just under $8 trillion in December
2008 {25}.
Natually, financial experts around the world expect the value of the
dollar to continue falling this year because of it's huge trade deficts,
its unheard-of huge government deficits for its wars and its Wall Street
bailouts, and its unbelievable public and private debt (now nearly four
times its annual GDP). "The United States and the United Kingdom stand
on the brink of the largest debt crisis in history ... the only real way
out is some combination of widespread corporate default, debt
write-downs and inflation to reduce the burden of debt to more
manageable levels" {26}
I've heard credible predictions that the value of the US dollar will
fall by up to sixty percent this year {27}.
So, in addition to the eleven trillion yen we lost by loaning our money
to the United States last year, let's look at how much more we stand to
lose this year:
If the dollar falls by another ten percent, we'll lose six trillion yen
just on our holdings of US Treasury Bonds; that is about half of what we
pay in Resident's Tax (Jyuumin Zei);
If the dollar falls by twenty percent, we'll lose eleven trillion yen
just on our holdings of US Treasury Bonds; that is more than four-fifths
of what we pay in Consumption Tax (Shohizei);
If the dollar falls by thirty percent, we'll lose seventeen trillion yen
just on our holdings of US Treasury Bonds; that is more than what we
pay in personal income taxes (shotokuzei);
If the dollar falls by forty percent, we'll lose 22 trillion yen just on
our holdings of US Treasury Bonds; that is most of what we pay in
Consumption and Resident's tax;
If the dollar falls by fifty percent, we'll lose 28 trillion yen just on
our holdings of US Treasury Bonds; that is about what we pay in Income
and Resident's tax; and
If the dollar falls by sixty percent, we'll lose 33 trillion yen just on
our holdings of US Treasury Bonds; that is about one-third of all taxes
we pay.
And this is ONLY the losses we'll suffer from our holdings of US
Treasury Bonds. Total public and private Japanese loans to the United
States are about $2 trillion, three to four times more than we loan via
US Treasury Bonds {29}. So, as the value of US dollar falls, we should
expect three to four times greater losses than those cited above.
Do our politicians, bureaucrats, and business tycoons comprehend the
tremendous losses their loans of dollars to the US government and their
"investments" in dollar-denominated financial "assets" pose for our
economy and society?
Notes:
{23} Japan Holdings of US Treasuries:
http://groups.google.co.jp/group/BillTottenWeblog/web/Japan%20Holdings%20of%20US%20Treasuries%202009-01-06.xls
{24} Kathleen Pender, "Government Bailout Hits $8.5 Trillion", San
Francisco Chronicle (November 26 2008)
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/26/MNVN14C8QR.DTL
{25} "Federal Reserve Statistical Release H.6, Money Stock Measures",
www.federalreserve.gov (December 18 2008).
http://www.federalreserve.gov/releases/h6/
{26} "US and UK on Brink of Debt Disaster" by John Kemp, Reuters
(January 20 2009)
http://www.globalpolicy.org/socecon/crisis/tradedeficit/2009/0120brink.htm
{27} "I'll only venture to guess that we could see the start of serious
inflation sometime in 2009. To some extent, all currencies are now
free-falling together, some at slightly faster rates than others, but
the situation of the US dollar is so grotesquely dire, and our
structural imbalances so monumental, that it is hard to imagine that our
currency will not win the international race to the bottom. Gold resumed
its movement upward against the dollar a week before Christmas, and that
may be an early sign. The government - and anyone badly in debt -
benefits much more from inflation than deflation, so every effort will
be made to avert the latter. The trouble lies in the government's dumb
incapacity to control dangerous things that it sets in motion, so that
an inflationary campaign to avoid compressive deflation can so easily
lead to a fiasco of super or hyper inflation - the kind that kills
governments and turns societies into murderous monsters. I'll forecast
the that the US dollar is worth forty percent of its current value by
next Christmas." -- Jim Kunstler "Forecast for 2009", Clusterfuck Nation
(December 28 2008)
http://jameshowardkunstler.typepad.com/clusterfuck_nation/2008/12/forecast-for-2009.html
{28} http://en.wikipedia.org/wiki/United_States_public_debt
{29} "Be Nice to the Countries That Lend You Money" by James Fallows,
The Atlantic (December 2008)
http://www.theatlantic.com/doc/200812/fallows-chinese-banker
SIMPLE SOLUTIONS
----------------
There are simple and straightforward for these problems. The only
questions are (1) whether our government has the will to implement them
and/or (2) whether we democratic citizens have the political will to
compel our government to implement them.
US Treasury Bonds
-----------------
If our government insists on loaning money to the US government, it
should loan yen instead of dollars, so that the US government, not our
government (we taxpayers), assumes the risk of exchange-rate losses.
This also would prevent the United States from cheating us by devaluing
the dollar so that it can repay us in cheaper dollars than we loaned it.
That, I believe, is how the United States loans to other nations and how
most banks around the world loan to foreign borrowers.
Japan should sell, immediately, today, all of the US Treasury bonds it
owns, before the value of the dollar falls further. Then, if the United
States government still wants to borrow from our government, our
government should offer to loan the US government a comparable amount of
yen.
That is, say our government owns $500 billion of the $586 billion of US
Treasury Bonds held by all Japanese (public and private). If it sold
them today, at 91 yen per dollar, it would receive 46 trillion yen. It
can then offer to loan that 46 trillion yen to the US government. That
would ensure that the US government must repay that 46 trillion yen plus
the going rate of interest no matter how badly the value of the dollar
drops.
As a precondition for this loan, our government should insist that the
US government repay the nearly ten trillion yen our government lost by
holding US Treasury Bonds last year when the dollar fell by twenty
percent from 113 yen per dollar to only 91 yen per dollar. At the very
least, it should require the US government to split that loss
fifty/fifty with us.
I am not concerned about the losses our private citizens or businesses
incur, or the gains they make, by holding US Treasury Bonds or other
dollar-denominated assets so long they don't beg for, and our government
doesn't give them, even a single yen to bail them out of their losses.
I can think of only two reasons why our government loans dollars to the
United States, one highly unfair and the other completely stupid:
1. To subsidize our exporters by keeping the value of the yen rising
vis-a-vis the dollar. If so, this seems highly unfair to me because (1)
such subsidy hurts our importers by nearly as much as it helps our
exporters, as our imports are almost as large as our exports {30}; (2)
such subsidy hurts all of us who consume imports; and (3) such subsidy
hurts all taxpayers because our taxes (or our childrens' and
grand-children's taxes) must pay for all of the losses our government
incurs by loaning dollars to the US government. Why should importers,
consumers and taxpayers be compelled to subsidize exporters?
2. To minimize the losses on the dollars the government has already
loaned to the US government. Such stupidity is what ruins gamblers who
keep waging new bets in the hope of recovering the losses from their
previous debts.
Notes:
{30} Japan Exports & Imports:
http://groups.google.co.jp/group/BillTottenWeblog/web/Japan%20Exports%20%26%20Imports%201997-2007.xls
Foreign Exchange
----------------
Thirty years ago, Nobel Prize winning economist James Tobin proposed a
penalty tax on foreign currency transactions {31, 32}.
His original proposal required international agreement, which is and
will be impossible to attain so long as the United States - the home of
financial piracy - vetoes it. But single nations can do it for their own
currencies without any need for international agreement {33, 34}.
As mentioned above, 36 trillion yen of yen was traded
(bought or sold) DAILY in 2007. Since Japan's ANNUAL trade (exports plus
imports) were only about 157 trillion yen, enough yen was traded about
every four days to support all of Japan's exports and imports of goods
and services for the entire year. Put another way, only about one
percent of trades in yen (purchases and sales of yen) supports Japan's
foreign trade (exports and imports) of goods and services. The other 99%
is pure gambling.
This is extremely dangerous because our government, whose total ANNUAL
budget is less that 100 trillion yen, has no way of preventing
speculators from crippling our economy by driving the yen as high or low
as they choose to drive it. If speculators choose to spend their 36
trillion yen PER DAY buying the yen and driving up its price vis-a-vis
other currencies, they could cripple our exports by drastically
increasing the prices other nations would have to pay for them. That
also would wipe out the debt the US government owes our government by
greatly reducing the yen value of the dollars our government has loaned
to the US government.
Or, if speculators choose to spend their 36 trillion yen per day selling
the yen and driving down its price vis-a-vis other currencies they could
cripple our ability to import food, energy and other things we need for
our health, if not for our very survival.
We cannot afford to leave our nation and ourselves susceptible to the
whims or greed of financial pirates.
I believe Japan should levy a one percent tax all purchases and sales of
yen, say levying a half percent tax on each purchase of yen and a half
percent tax on each sale of yen so that in each transaction, the buyer
and the seller each would pay half the tax. Since speculators bet on
very small, less than one percent changes, in the yen's value when they
bet its value will rise or fall, this tax should completely eliminate
speculation on the yen's value because it would take away most, if not
all, of the gains from such speculation. And if it did not eliminate or
substantially reduce such speculation, it would bring in thirty percent
more tax revenues (132 trillion yen) than our national and local
governments now collect annually (100 trillion yen) {4, line 19}.
Some may object that such a tax harms our exporters and importers.
However, as exports and imports account for only one percent of daily
trade in yen, I think the burden of making exports and imports one
percent more expensive is well worth the benefit of eliminating 99% of
the gambling on the yen. And nobody gains more than exporters and
importers by eliminating the wild fluctuations in exchange rates that
financial pirates can cause by gambling on the yen's value.
Why cannot a government that can levy a five percent tax on our
consumption, including the food and water we need to survive, levy a one
percent tax on speculative sales and purchases of our national currency?
{31} http://en.wikipedia.org/wiki/Tobin_tax
{32} http://www.ceedweb.org/iirp/
{33} http://www.ceedweb.org/iirp/factsheet.htm
{34} A Sterling Solution: Implementing a stamp duty on sterling to
finance international development, A report for Stamp Out Poverty by Dr
Stephen Spratt of Intelligence Capital Limited:
http://www.stampoutpoverty.org/download.php?id=343
Derivatives
-----------
A Tobin Tax or speculation tax is one way of curtailing gambling on
financial derivatives. Ralph Nader advocated such a tax in last year's
US presidential election, claiming it would either reduce such gambling
or else would raise $500 billion a year of tax revenue (about one-fifth
of current federal tax revenues) making the speculators "pay for their
own bailout" {35, 36)
Here again, since our government can levy a five percent tax on our
consumption, including the food and water we need to survive, I see no
reason why it cannot levy a one percent tax on speculative sales and
purchases of financial derivatives. Can you?
Warren Buffet's partner, Berkshire Hathaway's vice chairman Charlie
Munger, wants to restrict leverage to fifty percent on every securities
transaction, except for the Treasury trading desk where "you're dealing
with the safest securities around". That fifty percent margin level is
the maximum that ordinary investors in the United States can obtain from
their broker when they purchase common stock. Before their respective
demises, Bear Stearns and Lehman Brothers were leveraged to the tune of
$30 of debt for every $1 of capital {38, 39}.
Going further, to rid Wall Street of its Las Vegas tone, Munger suggests
leveling the options exchanges in Chicago and New York, and banning
completely all derivatives contracts {39}.
Notes:
{35} "Nader calls for tax on derivatives" by Betsy Z Russell,
spokesmanreview.com (October 21 2008)
http://www.spokesmanreview.com/breaking/story.asp?ID=17319
{36} "Speculation Tax", Issues that Matter for 2008, "Nader/Gonzalez
favor a securities speculation tax".
http://www.votenader.org/issues/speculation-tax/
{37} "The Feasibility of a Unilateral Speculation Tax in the United
States" by Dean Baker, Center for Economic and Policy Research (July 26
2000)
http://www.globalpolicy.org/socecon/glotax/currtax/baker1.htm
{38} "Charlie Munger: Ban All Derivatives" by Julie Crawshaw,
Newsmax.com (October 16 2008)
http://moneynews.newsmax.com/streettalk/munger_ban_derivatives/2008/10/16/141117.html
{39} "Dimon, Munger, Rohatyn: No More Vegas" by Robert Lenzner,
Forbes.com (October 13 2008)
http://www.forbes.com/2008/10/13/rohatyn-munger-dimon-pf-ii-in_rl_1013croesus_inl.html
Stock Market
------------
Again, only one percent of trades on our stock exchanges raise new
capital for corporations; the other 99% of trades on our stock exchanges
are pure gambling. Of the 752 trillion yen of trades in 2007, only
fifteen trillion yen (less than one percent) were new issues of shares
that raised new capital for the issuing corporations; the other 737
trillion yen (more than 99%) were trades of shares issued previously,
purely speculative trades that raised no new capital for corporations {40}.
This gambling on corporate shares, just like gambling on foreign
currencies and derivatives, adds no value to society. It only makes the
gamblers that win their bets richer and makes the gamblers who lose
their bets poorer. It harms society by giving more income to successful
gamblers, who produce no goods or services for society, giving them more
purchasing power relative to the people who produce the goods and
services we all need for our health and happiness. And it harms the
corporations that produce those goods and services by forcing them to
focus on short term profits in order to prevent financial gamblers from
selling off their shares, making them susceptible to getting taken over
by financial vultures and, thus, weakening their ability to serve and
protect their customers and employees.
Like many other nations, and like Japan until 1999, we should tax
purchase and sales of all shares EXCEPT new issues. A one-percent tax on
such purchases and sales, to the extent that it didn't reduce such
gambling, would bring in seven trillion yen of new tax revenues to our
government, more than half of the amount we paid in consumption tax last
year.
Notes:
{40} Stock Market Analysis:
http://groups.google.co.jp/group/BillTottenWeblog/web/Stock%20Market%20Analysis%202009-01-08.xls
{41} http://en.wikipedia.org/wiki/List_of_stock_exchanges#Japan
BIG SOLUTIONS
-------------
What I've introduced so far are simple, straightforward means of
reducing the havoc that the financial, predominately gambling economy is
wreaking on our real economy of producing and distributing the goods and
services we all need for our health and happiness. Now I want to
introduce bigger, more fundamental means of (1) regulating or
eliminating the source of funds that is feeding the casino economy and,
at the same time, pyramiding our national debt and (2) eliminating
unemployment, the scourge of all capitalist economies.
Our Nation's Currency
---------------------
In the classic text Manias, Panics and Crashes (1978), Charles
Kindleberger called financial crises a "hardy perennial" within the
context of unregulated financial systems. He documented that, from 1725
onward, financial crises have occurred throughout the Western capitalist
economies at an average rate of about one every eight and half years. {42}
Richard A Werner {43} and many other economists argue persuasively that
the primary cause of these financial crises is the creation of an excess
of money beyond that required in our REAL economy of producing and
distributing the goods and services we need for our health and
happiness. Such an excessive creation of money either (1) inflates
prices of the goods and services in our real economy, as too much money
chases too few goods and services, or (2) inflates the prices of the
so-called "assets" wagered in the casino economy.
The strict financial regulations imposed in the United States and most
other advanced economies after the financial crash of 1929 caused the
world depression of the 1930s prevented financial crises until those
regulations began being dismantled around 1980. And, as Professor Werner
documents in another book, Princes of the Yen, Japan, whose economy
prospered during the 1930s, had no serious financial crises from the
late 1920s to the mid 1980s when the Bank of Japan strictly regulated
the creation and allocation of money via its "window guidance" of
commercial banks {44}.
To eliminate or reduce the power of the casino economy to wreak havoc on
our real economy, we need to restore the financial regulations that
prevented financial crises since we created them in the early 1930s
until we relaxed or eliminated them from around 1980. For our country,
at a minimum that would mean (1) reversing our financial "big bang" of
1998 and (2) restoring the Bank of Japan's "window guidance" of
commercial banks. In short, government must regain its capability to
control the supply of our money.
But I think we need to go further than that.
First of all, we need to take control of the Bank of Japan. Although its
name implies it is an organ of our government, the government holds only
55% of its shares. Who owns the other 45% is a mystery that neither the
government nor the BOJ will reveal to Japanese citizens, the voters who
our Constitution says are sovereign in this nation. The BOJ's shares are
traded on the JASDAQ Securities Exchange, but neither the BOJ, the
government, nor the JASDAQ will tell us who owns what percentage of
those shares. Does J P Morgan, Citibank, or Nomura Securities own the
45% of the BOJ shares our government doesn't own? We, the sovereign
voters of this so-called "democracy" have no way of knowing!
The Bank of Japan is a very queer entity. Here is how it describes
itself {45}:
"The Bank of Japan is the central bank of Japan. It is a juridical
person established based on the Bank of Japan Act (hereafter the Act),
and is not a government agency or a private corporation.
...
"The Policy Board is established as the Bank's highest decision-making
body. The Board determines the guideline for currency and monetary
control, sets the basic principles for carrying out the Bank's
operations, and oversees the fulfillment of the duties of Bank
executives, excluding Auditors and Counsellors." {46}
Two of the current members of this Policy Board have spent most of their
careers with the BOJ; two are from universities; and four are from major
private financial corporations supposedly "regulated" by the Bank {47}.
None are from backgrounds that suggest they have any particular sympathy
for, or affinity with, the needs and aspirations of Japanese workers,
consumers, or voters.
I believe our government should buy or confiscate the 45% of BOJ's
shares it doesn't now own, eliminate the BOJ as a separate entity, and
convert it into a department of the Ministry of Finance, which is
totally responsible to the voters of this democratic nation (so long as
we voters exercise our democratic responsibilities). If this department
of the Ministry of Finance would revert to the "window guidance" that
was so successful at allocating money to the most important sectors of
our economy from the late 1920s to the mid 1980s, I think it would
eliminate or greatly reduce the havoc that the casino economy habitually
wreaks on our real economy.
But even that important step is not enough. We also need to change the
way in which our money is created. Currently, our government creates
only ten to twenty percent of our currency: that is, our one yen, five
yen, ten yen, fifty yen, 100 yen and 500 yen coins and our one thousand,
five thousand, and ten thousand yen paper-money notes.
Commerical banks create eighty to ninety percent of our money, as shown
in Japan Money Supply 2009-02-16.ods, particularly Column H.
<---------------------
Contrary to popular belief, commercial banks don't "loan" money, they
"create" it. If I "loan" you my house, or coat or pen, I cannot use them
myself until you return them. If I loan you a million yen, I cannot use
that million yen until you return it: I have transferred my purchasing
power to you until you repay the loan. But when a bank "loans" you a
million yen, it creates that million yen of purchasing power out of thin
air without reducing anyone else's purchasing power. Each Japanese bank
currently is allowed to create (aka "loan") domestically 25 times more
money (or other assets) than it has in its vaults, and create ("loan")
overseas 12.5 times more money (or other assets) than it has in its vaults.
When a bank accepts a customer's application for a loan of, say, a
million yen, it simply adds the number one million yen to that
customer's bank account ("demand deposit" in the US, "futsu yokin" in
Japan). By that simple act, the nation's money supply has increased by
one million yen.
And, since the customer must repay that loan of one million yen plus
interest, the bank has created for itself a million yen asset that
"earns" interest for the bank.
Have you ever wondered why modern economies are compelled to grow every
year? The answer is simple. Since eighty to ninety percent of our money
is created as "loans" that must be repaid with interest, the economy
must grow by the amount of that interest just to remain solvent (to
allow the interest to be paid on eighty to ninety percent of our money
supply). This is shown in columns F through N of Japan Money Supply
2009-02-16.ods
This growth is sterile in that it doesn't add any goods or services, any
research and development, or any capital facilities to enhance the
health and happiness of we citizens; it merely allows us to pay interest
to private banks on the eighty to ninety percent of our money supply
that our government allowed those banks to create instead of creating
that money itself. Our government doesn't charge us interest on the ten
to twenty percent of our money is supplies as one yen, five yen, ten
yen, fifty yen, 100 yen and 500 yen coins and one thousand, five
thousand, and ten thousand yen paper-money notes.
Moreover, if the newly created one million yen remains on deposit at
that bank, since it is an asset of the bank, the bank can now loan out
another 25 million yen. If the one million yen is deposited in some
other bank, say after being paid to someone else, it becomes a one
million yen asset of another bank from which that bank can create
another 25 million yen. By this process banks not only create money out
of thin air, the money they create becomes new assets allowing the
banking system to create even more money, ad infinitum {48}.
If all of us went to our banks tomorrow and asked them to give us coins
or banknotes for all of the "money" we have deposited, the banks could
supply only ten to twenty percent. This is the true meaning of bad debt
(furyou saiken).
I believe we cannot trust unregulated private banks to create only the
amount of money required by our real economy (jittai keizai) because
banks, like all other unregulated corporations whose shares are traded
publically, always must maximize short-term profits and share prices to
prevent speculators from dumping their shares and making them vulnerable
to raids by vulture capitalists that can compromise their ability to
protect their customers and employees and even threaten their very
survival.
Since banks make most of their profits from the interest they charge on
the money they create (aka "loan"), this motivates them to create as
much money as possible as fast as possible, even if that is far more
money than required by our real economy of producing and distributing
the goods and services we need for our health and happiness. Once
banking deregulation got underway around 1980, the only constraint on
unregulated (or minimally regulated) banks creating too much money was
the threat that they could harm or even bankrupt themselves by creating
more money than their borrowers could repay. But now that our government
and other governments have repeatedly bailed out giant banks deemed "too
big to fail", even that constraint has disappeared. Our governments have
taught our largest banks to recklessly create as much money as possible
as fast as possible to make as much money for themselves as possible as
fast as possible knowing that government will tax the wages of workers,
the heads of citizens, and the purchases of consumers to bail them out
from any and all losses caused by their recklessness.
To repeat what was said above, at the bare minimum we need to restore
the financial regulations that prevented financial crises since we
created them in the early 1930s until we relaxed or eliminated them from
around 1980. For our country, that minimally would mean (1) reversing
our financial "big bang" of 1998 and (2) restoring the Bank of Japan's
"window guidance" of commercial banks. In short, government must regain
its capability to control the supply of our money.
But even if restoring those regulations would end our financial bubbles
and banking crises that wreak havoc on our real economy, I believe we
should take away the power of private banks to create money and restore
that power to our government. I see two major advantages of this. First,
it would give us money free of interest, as our government doesn't
charge interest on the money it creates, and thus eliminate the need for
sterile growth merely to pay interest to banks on the eighty to ninety
percent of our money they're now allowed to create.
Second, and even more important, it would enable our government to repay
its huge debt without raising taxes. Our government has incurred 78% of
its current debt simply to service that debt; only 22% of our
government's debt has been spent on things to benefit our nation and
citizenry {49, line 52}.
Put another way, 29% of the taxes we've paid since 1968 have been spent
to service our government's debt {49, line 53}. In other words, only 71%
of the taxes we've paid since 1968 have been spent on things to benefit
our nation and citizenry, 29% has been spent merely to service the
government's debt.
Put still another way, our government has borrowed from private banks
about 89% {49, line 54} of money it has allowed them to create each
year, and has used 75% of that money merely to service its debt,
primarily to pay banks interest on the monies it has borrowed from those
banks instead of creating those monies itself.
In fact, our government has CAUSED our public debt by allowing private
banks to create most of our money instead of creating all of our money
itself.
If our government had created all of our currency since 1968 instead of
allowing private banks to create most of our currency and then borrowing
most of the currency those banks created, our government now would have
a 625 trillion yen of Public Surplus (that is, public wealth) instead
of 547 trillion yen of Public Debt. WE HAVE 547 TRILLION YEN OF PUBLIC
DEBT INSTEAD OF 625 TRILLION YEN OF PUBLIC WEALTH SIMPLY BECAUSE OUR
GOVERNMENT ALLOWS PRIVATE BANKS TO CREATE EIGHTY TO NINETY PERCENT OF
OUR MONEY INSTEAD OF CREATING ALL OF OUR MONEY ITSELF {49}.
Or, instead of accumulating such a huge and rapidly growing Public
Surplus, our government could have eliminated the Public Debt in 1968
and reduced taxes by 67% since 1969. If it had done so, we would now
have a Public Surplus or Public Wealth of 2.3 trillion yen instead of a
Public Debt of 547 trillion yen (as of 2007, the latest data available)
and we would have saved two-thirds of the taxes we paid since 1969 {49}.
Notes:
{42} http://bostonreview.net/BR34.1/pollin.php
{43} Richard A Werner, New Paradigm in Macroeconomics (Palgrave
Macmillan, 2005)
{44} Richard A Werner, Princes of the Yen: Japan's Central Bankers and
the Transformation of the Economy (M E Sharpe, 2003)
{45} http://www.boj.or.jp/en/about/index.htm
{46} http://www.boj.or.jp/en/type/exp/about/expboj.htm
{47} http://www.boj.or.jp/en/type/list/soshiki.htm
{48} This is explained lucidly by Richard Werner on pages 174-180 of his
New Paradigm in Macroeconomics (Palgrave Macmillan, 2005)
{49} Please see Japan Money Creation and National Debt.
http://groups.google.co.jp/group/BillTottenWeblog/web/Japan%20Money%20Creation%20and%20National%20Debt%202009-02-16.xls
* 78% of our government's debt has been incurred simply to service that
debt (line 52). In other words, only 22% of our government's debt has
been incurred to spent on things to benefit our nation and citizenry,
78% has been spent merely to service that debt.
* 29% of the taxes we've paid since 1968 have been spent to service our
government's debt (line 53). In other words, only 79% of the taxes we've
paid since 1968 have been spent on things to benefit our nation and
citizenry, 29% has been spent merely to service the government's debt.
Now suppose that instead of allowing private banks to create most of our
money since 1968, the government had created all of our money since
then. And assume it created the exact amounts of money that private
banks created:
Looking at 1968, if the government, instead of private banks, created
the four trillion yen that private banks created that year (cell i9) it
could have paid off its entire debt (cell g9) and wouldn't have needed
to borrow the 640 billion yen it actually borrowed that year (cell f9),
so it would have ended the year with a 1.8 trillion yen surplus (cell
j9) instead of a 2 trillion debt (cell g9):
Amount (Trillion Yen)
+ 4.1 Taxes collected (e9)
+ 0.5 Other government revenues (f9)
+ 4.3 Money created by government instead of by private banks (i9)
- 5.8 Government expenditures (b9)
- 2.1 Outstanding Public Debt (g9)
= 1.8 Outstanding Public Surplus (j9)
By eliminating the public debt in 1968, the government wouldn't have
had to borrow the 640 billion yen it actually borrowed that year (cell
g9), and it would have on need to borrow money in any year after 1969,
so column g becomes zero from 1968.
And since the government would have no public debt to service from 1969,
column Government Expenditures would become Total Expendutures (column
b) minus Public Debt Service. So from 1969, the Outstanding Public Debt
(column h) would have become the Outstanding Public Surplus or wealth
(column k) according to this logic:
+ Previous year's Outstanding Public Surplus (k)
+ Currrent year's Taxes Collected (e)
+ Current year's Other Government Revenues (f)
+ Current year's Money created by government instead of by private banks
(j)
- (Current year's Total Expenditures minus Public Debt Service) (b-c)
= Current year's Outstanding Public Surplus (k)
And since the government would have run surpluses every year after 1969,
it would not have to borrow any new money. So, as shown in column J,
instead of a public debt we would have had a public surplus every year
since 1968. By 2005, instead of a public debt of 538 trillion yen (g46)
we would have had a public surplus of 442 trillion yen (j46).
Or, instead of such a huge and rapidly growing public surplus, our
government could have kept the Outstanding Public Surplus (Public
Wealth) at 2.3 trillion yen after eliminating the Public Debt in 1968
and used the Public Surplus in each successive year to reduce taxes. If
our government had done so, it could have reduced taxes by 67% since
1969 and we would now have a Public Surplus or Public Wealth of 2.3
trillion yen instead of a Public Debt of 547 trillion yen (as of 2007,
the latest data available) {49, columns m and n, and cell n49}.
Government as the Employer of Last Resort
-----------------------------------------
One of the worst deformations (aka "reformations") our economy since the
mid-1980s is the fifty to sixty percent rise of unemployment {18}. 270
million of our workers now are unemployed {18}, and this has caused much
of the thirteen percent rise of families dependent on welfare {19}, the
25% rise of serious crime {21}, and the 35% rise of suicides {22}. We
easily and painlessly can end involuntary unemployment in our nation by
compelling our government to provide a job to anyone ready, willing, and
able to work.
And the cost would be small. Hiring all 2.7 million of our workers who
now are unemployed at our average nationwide minimum wage of 703 yen per
hour (or even at our highest minimum wage of 766 yen per hour in Tokyo),
eight hours per day, five days per week, fifty weeks per year (that is,
2000 hours per year) would cost only only four trillion yen per year.
That's less than one-third of the thirteen trillion yen we paid in
consumption taxes last year, which our politicians claim is supposed to
be used for the welfare of we citizens.
For those who are unfamiliar with the idea of government serving as our
nation's Employer of Last Resort (ELR), here are some comments from an
excellent article {50}:
"Capitalist economies are inherently unstable and structurally incapable
of creating full employment at decent wages and benefits. While tax
rebates and debt relief may provide some minor protection from the
coming economic storm, these measures are temporary - and inadequate -
responses to a perpetual problem. As an alternative to these ad hoc
policies or, worse yet, the free-market fundamentalism still widely
preached in Washington, some economists and policymakers, in the United
States and abroad, are touting a policy that seeks to end unemployment
via a government promise to provide a job to anyone ready, willing, and
able to work ....
"... The 'Employer of Last Resort' (ELR) proposal is based on a rather
simple idea. In a capitalist economy, with most people dependent on
private employment for their livelihoods, the government has a unique
responsibility to guarantee full employment. This responsibility has
been affirmed in the UN Universal Declaration of Human Rights, which
includes a right to employment. A commitment to full employment is also
official US government policy as codified in the Employment Act of 1946
and the Humphrey-Hawkins Act of 1976 ...
"... Although many versions of the ELR proposal have been put forward,
they all revolve around the idea that national governments could
guarantee full employment by providing a job to anyone ready, willing,
and able to work. The various proposals differ mainly on the wage and
benefit packages they would provide to participants. The most common
proposal calls for paying all participants a universal basic wage and
benefit package, regardless of skills, work experience, or prior
earnings. This wage and benefit package would then form the effective
minimum for both the public and private sectors of the economy. After
fixing a wage and benefit package, the government would allow the
quantity of workers in the program to float, rising and falling in
response to cyclical fluctuations in private-sector employment ...
"... ELR proposals typically call for participants to work in projects
to improve their local communities - everything from basic
infrastructure projects to a Green Jobs Corps. Most ELR proponents also
advocate a decentralized approach ..., with local public or nonprofit
institutions planning and administering the projects, though it is
essential that the program be funded at the national level ...
"... This raises an important question: How will governments pay for
such a large-scale program? Wouldn't an ELR program require
significantly raising taxes or else result in exploding budget deficits?
Can governments really afford to employ everyone who wants a job but
cannot find one in the private economy? Advocates of ELR address the
issue of affordability in different ways, but all agree that the
benefits to society vastly outweigh the expense. Many ELR advocates go
even further, arguing that any talk of "costs" to society misrepresents
the nature of the problem of unemployment. The existence of unemployed
workers represents a net cost to society, in terms of lost income and
production as well as the psychological and social stresses that result
from long spells of unemployment. Employing them represents a net
benefit, in terms of increased incomes and enhanced individual and
social wellbeing. The real burden of an ELR program, from the
perspective of society, is thus effectively zero ...
"... Most estimates of the direct cost of an ELR program are in the
range of less than one percent of GDP per year. For the United States,
this was less than $132 billion in 2006, or about five percent of the
federal budget. (By way of comparison, in 2006 the US government spent
over $120 billion on the wars in Iraq and Afghanistan - and that figure
does not include the cost of lives lost or ruined or the future costs
incurred, for example, for veterans' health care.) Furthermore, an ELR
program provides benefits to society in the form of worker retraining,
enhanced public infrastructure, and increased social output (for
example, cleaner parks and cities, free child care, public performances,
et cetera). By increasing the productivity of those participants who
attend education or training programs, an ELR program would also
decrease real costs throughout the economy. Estimates of program costs
take into account a reduction in other forms of social assistance such
as food stamps, cash assistance, and unemployment insurance, which would
instead be provided to ELR participants in the form of a wage and
benefit package. Of course, those who cannot work would still be
eligible for these and other forms of assistance ...
"... Involuntary unemployment is a fundamental and inherent feature of a
capitalist economy left to its own devices. In a society where most
people depend on employment in the private sector for their livelihood,
the inability of a capitalist economy to consistently create enough jobs
for all who seek work is deeply troubling, pointing to the need for
intervention from outside of the private sector. ELR advocates view
national governments - with their unique spending ability, and with
their role as, in principle, democratically accountable social
institutions - as the most logical institutions for collective action to
bring about full employment. In addition, government job creation is
viewed as the simplest and most direct means for overcoming the problem
of involuntary unemployment in a capitalist economy.
"... The standard mainstream response to the problem of unemployment is
to blame the victims of capitalism for lacking the necessary talents,
skills, and effort to get and keep a job. Hence, the mainstream
prescription is to promote policies aimed at enhancing the "human
capital" of workers in order to make them more "competitive" in a
rapidly globalizing economy. The response of ELR advocates is that such
policies, if they accomplish anything at all, simply redistribute
unemployment and poverty more equitably. For example, according to the
Bureau of Labor Statistics, the number of unemployed workers (including
so-called "discouraged" and "underemployed" workers) in August 2007 was
16.4 million, while the number of job vacancies was 4.1 million. No
amount of investment in human capital is going to change the fact that
there simply aren't enough jobs to go around ...
"... Advocates of ELR also consistently reject the Keynesian rubric,
with its focus on demand-management strategies - that is, policies aimed
at increasing aggregate demand for the output of the economy. This
approach has been pursued either directly, through government spending
on goods and services (including transfer payments to households), or
indirectly, largely through policies intended to increase private
investment. Such an approach exacerbates inequality by biasing policy in
favor of the already well-to-do, through tax cuts and investment credits
to wealthy individuals and powerful corporations. These policies also
tend to privilege the more highly skilled and better-paid workers found
in the industries that generally benefit from the government's largesse
(often arms manufacturers and other military-related companies). For
example, much of the increase in government spending during the Cold War
era went into the high-tech, capital-intensive, and oligopolized sectors
of the economy. Capital-intensive industries require relatively small
amounts of labor, and, thus, produce little employment growth per dollar
of government expenditure. Under this policy approach, the most that
lower-paid or unemployed workers could hope for would be to snatch a few
crumbs from the great corporate feast as the economy expanded over time ...
"... In contrast to both the human-capital and demand-management
approaches, ELR provides a means for rapidly achieving zero involuntary
unemployment. By definition, anyone who is unemployed and chooses not to
accept the ELR offer would be considered voluntarily unemployed. Many
individuals with sufficient savings and decent job prospects may forgo
the opportunity to participate in the ELR program, but ELR always
provides them with a backup option ...
"... In addition to the immediate effects of ELR on employment, the
program acts as an 'automatic stabilizer' in the face of cyclical
fluctuations in the private sector of the economy. During a recession,
the number of participants in the program can be expected to grow as
people are laid off and/or find it increasingly difficult to find
private-sector employment. The opposite happens during the recovery
phase of the business cycle, as people find it easer to find
private-sector employment at wages above the ELR minimum. As a result,
ELR advocates argue, the existence of such a program would dampen
fluctuations in private-sector activity by setting a floor to the
decline in incomes and employment ...
Sources: Joseph Halevi, "The Argentine Crisis", Monthly Review (April
2002); Pavlina Tcherneva, "Macroeconomic Stabilization Policy in
Argentina: A Case Study of the 2002 Currency Collapse and Crisis
Resolution through Job Creation" (Bard College Working Paper, 2007); L
Randall Wray, Understanding Modern Money: The Key to Full Employment and
Price Stability (Edward Elgar, 1998); Congressional Research Service,
The Cost of Iraq, Afghanistan and Other Global War on Terror Operations
Since 9/11, updated 7/07; National Jobs for All Coalition, September
2007 Unemployment Data; Nancy Rose, "Historicizing Government Work
Programs: A Spectrum from Workfare to Fair Work" (Center for Full
Employment and Price Stability, Seminar Paper No 2, March 2000); Judith
Russell, Economics, Bureaucracy and Race: How Keynesians Misguided the
War on Poverty (Columbia University Press, 2004); Fadhel Kaboub,
"Employment Guarantee Programs: A Survey of Theories and Policy
Experiences" (Levy Economics Institute, Working Paper No 498, May 2007).
Note:
{50} "An Introduction to the Employer of Last Resort Proposal - A New
WPA?" by Ryan A Dodd, Dollars & Sense magazine (March / April 2008)
http://www.dollarsandsense.org/archives/2008/0308dodd.html
SUMMARY
-------
The world's economy, including our own, obviously is recessing and may
be heading for a depression not seen since the 1930s. The proximate
cause of the world's and our own economic maladies seems to be the
subprime fiasco in the United States, but that should not affect us
unless (1) our financial institutions are gambling in the US market -
that is, on subprime loans - or loaning money to others gambling on the
US market or (2) our corporations are addicted to exporting to the US
market.
In either case, this is not a recession that has been thrust on us by
outside forces; it is a recession recession that we've brought upon
ourselves because it is our responsibility to regulate our financial and
industrial corporations to prevent them from harming the health and
happiness of our society and its citizens.
Although we have two other giant problems, namely we're running out of
fossil fuels and we must stop burning them to prevent irreparable
environmental damage, the main cause of our current problem is that
we've created a CASINO ECONOMY. The money spent gambling in the "casino
economy" now is hundreds of times greater that the money spent in the
"real economy" producing, shipping, storing, consuming, and disposing of
real goods and services that contribute to our health and happiness.
That is, the money spent gambling on financial tokens (aka "assets") is
tens of times greater than Gross World Production (GWP) and hundreds of
times greater than world trade in goods and services, including foreign
travel.
Gambling never pays for everyone in the long run because for each winner
of a bet there is a loser, and the losers' losses match the winners'
gains. The gambling economy crashes as soon as the losers can no longer
tolerate their losses. And when it does crash, it crashes into the real
economy causing a vicious cycle of shrinking consumption, production,
investment and employment.
Such crashes occurred about once over eight and a half years from the
beginning of the industrial capitalism in the eighteenth century until
the implementation of strict government regulations in the 1930s. Those
strict government regulations prevented serious bubbles and crashes for
nearly half a century until the likes of Ronald Reagan, Margaret
Thatcher, Bill Clinton, Tony Blair, Haruo Maekawa, Junichiro Koizumi,
and Heizo Takenaka dismantled them from the early 1980s. Since that
deregulation, the casino economy has come to dominate the real economy
on a scale never seen nor even envisioned in previous history.
Another, related problem for our nation is that our government and our
private corporations loan so much money to the United States in US
dollars rather than our own yen, and own such huge amounts of financial
"assets" denominated in dollars rather than yen. The United States has
such tremendous amounts of public and private debt, nearly four times US
GDP and growing by trillions of dollars per month, that the only way it
possibly can repay them is by devaluing the dollar. Such devalution cost
our government and corporations at least eleven trillion yen last year
on just their holdings of US Treasury Bonds and probably many times that
on their holdings of other dollar-denominated "assets". With analysts
forecasting continuing devaluation of the US dollar, perhaps as much as
sixty percent (to 38 yen per dollar) by the end of this year, those
losses are likely to multiply.
Fortunately their are simple and straighforward solutions to all of
these problems if our leaders have the wisdom, will, and strength to
implement them - or if we democratic citizens have the wisdom, will, and
strength to compel our government to implement them.
Our government immediately could and should sell all of its US Treasury
Bonds. If the US government still wants to borrow our money, we should
loan them yen instead of dollars so they, not we, assume the risks of a
devaluing dollar. That would also eliminate their incentive to repay us
with devalued dollars.
Our private citizens or businesses also should convert their
dollar-denominated loans and other "assets" into yen-denominated ones.
But, as private citizens and corporations, that is their business not
ours, so long as don't they beg for, and our government doesn't give
them, even a single yen to bail them out of their losses on
dollar-denominated loans and assets.
To eliminate or greatly curtail speculation on our yen currency, which
harms our exporters, importers and everyone traveling to or from our
nation, our government can and should levy a one-percent tax all
purchases and sales of yen. Since speculators bet on very small, less
than one percent changes, in the yen's value when they bet its value
will rise or fall, this tax should completely eliminate speculation on
the yen's value because it would take away most, if not all, of the
gains from such speculation. And if it did not eliminate or
substantially reduce such speculation, it would bring in huge amounts of
tax revenues
To eliminate or greatly curtail speculation on corporate shares, our
government can and should levy a one-percent tax on all trades of shares
except new issues; that is, levy the tax on the more than 99% of trades
that are pure gambling but not on the less than one percent of trades
that actually raise capital for corporations.
Our government probably should ban completely all trading on
"derivatives", the most dangerous form on finacial gambling causing the
most damage to our real economy. If not (1) it should restrict the
"margins" on those trades (that is, limit the amount the trader can
borrow to the amount s/he risks for her or his own money), and (2) it
should levy a one-percent tax on all trades of derivatives.
I cannot see why cannot a government that can levy a five percent tax on
our consumption, including the food and water we need to survive,
and now wants to double or even triple that consumption tax, cannot
levy a one percent tax on the amounts spent gambling on our national
currency, corporate shares, derivatives, and other financial "assets".
Even more important, our government can and should create all of our yen
currency instead on allowing private banks to create most of it via
"loans" as they are allowed to do now. This would yield several vital
benefits:
1. It would choke off the excessive creation of money which feeds the
Casino Economy. Unregulated and unprotected banks now create as much
money as they can as fast as they can to maximize profits to fend off
financial profits so they can remain independent and protect their
customers and employees. They end up creating far more money than needed
by our real economy of producing, shipping, storing, consuming, and
disposing real goods and services, and that excess money is what feeds
the gambling in the Casino Economy.
2. It would eliminate our present need for unsustainable growth to repay
the interest on the money created by private bank loans, as government
charges no interest on the money it creates.
3. It would eliminate our public debt without raising taxes, because
nearly all of our public debt results from our government borrowing (and
paying interest) on most of the money created by private banks instead
of creating that money itself. And once the public debt has been paid
off, our government could cut taxes substantially, perhaps by as much as
two-thirds.
Finally, our government can and should eliminate all involuntary
unemployment in our nation by becoming the Employer of Last Resort.
It can and should hire all 2.7 million of our workers who now are
unemployed at our minimum wage. It would cost only only four trillion
yen per year, which is less than one-third of the thirteen trillion yen
we paid in consumption taxes last year, which our politicians claim is
supposed to be used for the welfare of we citizens.
CONCLUSION
I believe we can eliminate or greatly reduce the destructive havoc the
Casino Economy wreaks on our Real Economy if our leaders have the
wisdom, will, and strength to implement the simple and straighforward
measures described above, or if we democratic citizens have the wisdom,
will, and strength to compel our government to implement them. However,
I am afraid neither our leaders nor we citizens have such wisdom, will,
and strength, so I am afraid our economy is likely to sink into a
depression such as the world has not seen since the 1930s. I am afraid
our economy may shrink to half its present size, and I have been haunted
by this fear for several years.
My job is to protect the health and happiness of K K Ashisuto's eight
hundred employees and their families and to ensure that our company
retains the viability to provide the service that our several thousand
clients expected when they bought our products.
If our economy shrinks significantly, as I fear, Ashisuto's revenues
also likely will shrink, shrinking our ability to pay and house our
employees. And, since we've clearly and concretely promised that we will
not "restructure" (aka fire employees to cut costs), if our economy does
shrink significantly, we will be forced to cut our employees' pay. We've
clearly and concretely promised to make such cuts, if and when
necesssary, progressive so that we'll cut the pay of our highest-paid
executives, managers and employees most severely and cut the pay of our
lowest-paid employees least. Still, that will reduce significantly the
incomes of most of our employees.
We've decided that, although we may not be able to protect the current
incomes of our employees, the company and its employees, working
together, can protect the health and happiness of our employees and
their families by:
1. Curing our addiction to excessive consumption. The advertising
industry has addicted us to consuming far more than what we need for our
health and happiness, often addicting us to such superfluous consumption
as foreign travel and pursuit of the lastest fashions, games and
entertainment, and sometimes addicting us to such deadly consumption as
cigarettes and debilitating food and drink. People and families who cure
this addiction to excessive consumption can be just as happy and healthy
as now on far less income than they are receiving now.
2. Learning, or re-learning, how to take care of our own needs for
clothing, food and housing by ourselves instead of paying others to take
care of those needs for us.
Ashisuto is encouraging our employees to cure their addiction to
excessive consumption and doing our best to help our employees to cure
their addictions.
A couple of years ago we formed a "Gardening Project" to encourage
employees and their families to learn to grow their own food. We pay
the costs, up to twenty thousand yen per employee per year, for the
land our employees need for their gardening. We don't pay for
fertilizers, insecticides, tools or seeds because we want to encourage
our employees toward organic gardening that needs neither artificial
(chemical) fertilizers nor insecticides, requires only simple tools, and
focuses on saving rather than buying seeds.
We're now planning a "Sewing Project" to teach employees and their
families how to mend and make their own clothes.
We plan a "Do It Yourself" Project to teach employees and their families
how to mend and make many of the things they need in and around their
homes.
We are experimenting with more more flexible working arrangements - such
as fewer working days of longer hours, home-offices, satellite-offices -
and other ideas to give employees more time to take care of our own
needs for clothing, food and housing by ourselves.
We think with these policies we can keep Ashisuto viable and help our
employees and their families preserve their health and happiness even if
our economy suffers a deep depression that reduces substantially
Ashisuto's revenues and the amount we can pay in salaries.
END FOR NOW
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