MOTHER JONES journalists David Corn and Kevin Drum offer a hard look at the obstacles to real reform of the financial industry.
click for video
Full transcript here
Eighty percent of success is showing up. —Woody Allen
Staying with the belief that the Fed can still do more, Bernanke said they are prepared for more accommodation if needed but he finally publicly acknowledges that "central bankers alone cannot solve the world's economic problems." He gives color on what left the Fed can do if circumstances warrant but acknowledges drawbacks to each perceived benefit. On the economy, "although private final demand, output, and employment have indeed been growing for more than a year, the pace of that growth recently appears somewhat less vigorous than we expected...Much of the unexpected slowing is attributable to the household sector, where consumer...
read more »
January 9th, 2010 at 6:36 pm
Obama has his head up Vampire Squid from Hell _____Why Geithner, Summers, Bernanke and all the Obama economic asslowns need to be removed even though this was started by Paulson under Bush.
January 9th, 2010 at 6:59 pm
Obama is done if he doesn’t tackle this directly in the next month or two. There is no way any political spin can get out of this mess.
January 9th, 2010 at 7:37 pm
Exactly, How F***ing stupid are We?
Are We supposed to be *Surprised by this?
Worse, Outraged?
That’s what would be Stupid..
peep should remember, the key vector, that landed Leona in Jail, was her crack, in front of the mic, “Only the ‘little people’ pay Taxes~”..
Hello, GS employs some of the Brightest Minds on the Globe, including Tax Attorneys, one would have to be *Surprised if they Were paying a High-Rate on their Bottom Line..
These ’stories’–like the Mother Jones one–are, merely, Prole Feed..
someone should break out the appropriate ‘Casablanca’-quotes..
January 9th, 2010 at 7:42 pm
I must say that there are so many angry folks out there. And, if I might add – so MANY bears.
The President didn’t create this mess. Let’s stand behind him and roll up our sleeves and help!
Nobody on this board ever mentions Dubya and Arthur Burns?
How come?
Krasne.
January 9th, 2010 at 7:59 pm
this: “DAVID CORN: Tremendous money and power and influence to wield to get their way. Versus the rest of us, who get nickeled and dimed and we have other things to worry about. You know? People are you know, have you know are worrying about their maybe what their kids going to school safely and getting good educations.
I mean, we have everything to worry about. The bankers and the investment bankers and the financiers, they can grease the way with millions of dollars that gets them billions of dollars in the in return. And it it’s not a fair fight.”
is a good ex.
“Cry me a F***ing River..”
maybe, people should worry about the ‘Education’ Sistema they send their Children to..
~~
LSS: this type of S***, is, merely, agitprop to engender a call for “Higher Taxes”–purportedly ‘on the Rich’..
It’s, too, Stoopid..People need to understand that only ones ‘paying Taxes’ are the end-Consumer, and the ill-taught/-advised..
It’s the Rule. In Black-and-White. In the Tax-Code, itself.
People need to understand that “it’s the Rules”, “not the Rates”, that matter..
Past that, if we, Really, start abusing Capital, in this Country–by even more onerous Regulations, and higher, Real, Tax Rates–be prepared to kiss-off any thoughts of ’structural rebound’, in the Economy..
January 9th, 2010 at 8:19 pm
I’d like to just mention Noam Chomsky, I probably spelled his name wrong, but you know everytime I listen to one of his talks it just fascinates me. I get tickled, I crack up, I just love it.
Mark says it’s not the rate it the rules. Good point but I’d like to see us go back to a decent top bracket rate.
Greed is not a virtue, it maximizes short term selfish interests, decrementing the economy as a whole.
As such, it has to be taxed and it should be taxed enough to offset the effect of the greed itself.
You think you deserve a 50 million bonus? Great then figure out what you gotta do so your bonus is 100 million and you can give half of it to the IRS.
Please don’t start talking about abusing capital. Noone can get a loan for buying capital these days.
The lip service to these economic ideals even in this time of complete breakdown is a testament to the brainwashing this society has undergone in the last few decades.
and don’t forget Noam Chomsky
January 9th, 2010 at 10:14 pm
It’s time for a They Live sequel. Actually, would a real life version be all that bad?
January 9th, 2010 at 10:32 pm
The outrage in this article is based on the false, though common, premise that taxpayers pay for federal spending. They do not. Tax rates and tax collections are not in any way related to what the government spends.
The government pays its obligations simply by crediting bank accounts and debiting its own balance sheets. It can do this endlessly, with or without taxes. You might argue about whether this causes inflation, though since going off the gold standard in 1971, there has been zero correlation between deficit spending and inflation.
Fact: Were taxes to be $0, and deficits were to triple, it would not affect the government’s ability to spend by even one penny. When you pay taxes, the government simply debits your bank account and credits its own balance sheets. It does not keep your money. In fact, it destroys it, when it debits your account.
So the next time someone tells you the government is spending your tax money, ask them where the government keeps the money it collects in taxes, and where is the money kept the government plans to spend. It doesn’t exist.
It really is a shame Bill Moyers doesn’t understand this.
Rodger Malcolm Mitchell
~~~
BR: That is Warren Mosler’s thesis, and while it has some appeal — at least to deficit spenders — its not quite the free lunch it sounds to be.
January 9th, 2010 at 10:52 pm
Roger, I didn’t see the outrage in the article. I saw people expressing frank opinions about a serious matter. What are you talking about?
January 9th, 2010 at 10:57 pm
Rodger Malcolm Mitchell comes cross as a very deluded GS apologist.
January 9th, 2010 at 11:57 pm
Thanks BR,
It’s definitely worth the watch and thanks for the relevent transcript. I will be sad to see Moyers leave in April because I can’t imagine who will replace him. Most “mainstream” who don’t know about the places for news on the web will be without a source that’s so needed in these times. I don’t understand why Obama hasn’t urged Congress to restore some funding to PBS. The funding has been cut back year after year since Reagan…and PBS is a shadow of what it used to be and the promise of a real Public Station that would be non-partisan and be news for the “people.” His voice leaving is such a huge loss.
January 10th, 2010 at 1:05 am
I think a 1% corporate tax rate is essential, for example for companies like Polaroid and their astute executives who did this “deal”
http://www.cnbc.com/id/34754063
ROFL. Here’s a short for you, Polaroid. Lady Gaga as creative director? How about slut director?
http://www.theonion.com/content/video/vh1_reality_show_bus_crashes_in
Nice job morons. You’re fired by August.
January 10th, 2010 at 1:06 am
… add this to BP 2010 predictions. Polaroid under performs.
ROFL. Lady Gaga? Hahaha.
January 10th, 2010 at 1:08 am
>> These ’stories’–like the Mother Jones one–are, merely, Prole Feed..
Why?
>> maybe, people should worry about the ‘Education’ Sistema they send their Children to..
Yeah, that, too. But, why is this “Prole Feed”?
>> People need to understand that “it’s the Rules”, “not the Rates”, that matter..
It’s both. Why would rates *not* matter? If so, then let’s raise them. But,
>> Past that, if we, Really, start abusing Capital, in this Country–by … higher, Real, Tax Rates–be prepared to kiss-off any thoughts of ’structural rebound’, in the Economy..
Oh, so rates *do* matter. And you want them to stay down. So, maybe saying “rates don’t matter” is “Prole Feed” to keep the little people from making the rich pay a fairer share of taxes?
January 10th, 2010 at 1:12 am
>> So the next time someone tells you the government is spending your tax money, ask them where the government keeps the money it collects in taxes, and where is the money kept the government plans to spend. It doesn’t exist.
The government IS spending my money. In real terms. By handing out money as gifts to failed companies, their counterparties, and their shareholders, it devalues the currency in my accounts.
>> It really is a shame Bill Moyers doesn’t understand this.
Uh huh.
January 10th, 2010 at 1:15 am
imho Bankers run USA, get used to it.
January 10th, 2010 at 1:16 am
Ad hominem comment deleted
January 10th, 2010 at 1:33 am
MEH, by the way, this statement:
>> be prepared to kiss-off any thoughts of ’structural rebound’, in the Economy..
is a “given”. I don’t think anything is going to make much of a difference to the average American. Globalization, outsourcing and H1-B programs will continue unabated. For most American workers, it’s a long, mean mean-reversion.
So, when your statement comes true, don’t point the finger at “taxes on the rich” as the evil. Many among the “rich” should’ve been wiped out. The government backstopped their assets. (*That* was evil to the people who didn’t cause this mess, who should’ve gained by being properly positioned. … People like Steve Barry and many others on this board. And “me”, to a lesser extent.) If the government comes along and takes a lot of it back, “big deal”.
January 10th, 2010 at 2:59 am
The predicament that Bill and his guests describe, and that most of us are having to endure, is very frustrating and demoralizing.
While Bush was still in office, I thought that the only way we would ever get rid of him and his Republican enablers would be for him to screw up big time. Really let the country go to pieces. Really let rich people and corporations run wild.
He, and they, did all that. Obama and the Democrats were handed the the opening they needed.
I voted for Obama, taking him at his word that he was going to bring change and hope. As President, he is the only individual who could bring this mess into focus for the voters and champion real reform. No other single individual can do it.
Unfortunately, it turns out that Obama is just another politician.
And the Democrats are no better than the Republicans. OK, they are preferable to Republicans, at the margins, but there is no fundamental difference. They are all politicians.
So, we are well and truly screwed.
Now, I’m back to thinking that only a much bigger screw up will make an opening for change. And next time, it won’t be any of the current crop of politicians that benefit. Next time could be very nasty as we will see a bigger financial crisis and much more economic hardship for the population.
The person that leads us out of that coming disaster will have grass roots backing. That person could be a savior or a tyrant.
Maybe I’m wrong and we will just become a pure banana republic. All the little people will live in cardboard boxes while the politicians, lobbyists, super rich and corporate officers live in gated communities with armed guards.
At least, with the help of Bill Moyers and people like him, we have been allowed to see how America really works. Its not what we were taught in school. Rather, its like Paul Simon sings in Kodachrome:
“When I think back
On all the crap I learned in high school
It’s a wonder
I can think at all
And though my lack of education
Hasn’t hurt me none
I can read the writing on the wall”
January 10th, 2010 at 4:02 am
I would love to see Mr. Ritholtz address ‘ RodgerMitchell Says’ (comment above at January 9th, 2010 at 10:32 pm)…
IMO, if what Roger says is true then there is absolutely no reason for anyone to pay taxes…we can keep everything we make and that would be good for Main Street and the country. Just let the government magically create an endless supply of money and the world will be a wonderful fairytale land of abundance. Hey, if our government can just create money like that why not pay us just because we are an American…lest say a couple million a year for each and everyone of us. Now that’s Change I can believe in…
I really liked this interview and the Mother Jones article. The debate is becoming more sharply focused and easier for people to understand. Americans can wake up. When…? But they can. You can only poke your finger in the eye of the tiger so many times. There is a movement just started called “MoveYourMoney”…the idea being to move your money out of the five big banks into well run highly rated local/regional banks…having your money now with GS would be like having a deposit at the Tony Soprano Investment Bank and Trust…you may like the returns but you may not like to know where those returns are coming from…
January 10th, 2010 at 9:10 am
wunsa-
you just answered your own Q:s, above, here: “Globalization, outsourcing and H1-B programs will continue unabated.”
It’s the Rules, not the Rates.
They start in the Tax-Code, itself.
and, this: “to keep the little people from making the rich pay a fairer share of taxes..” is, exactly, why these types of articles are Prole Feed..
Though, I will say, that if it takes articles like this, to authur.i’s point, for people to begin to take ideas like “MoveYourMoney”, more seriously, then…
maybe.. they’ll begin to wonder what, really, their MutFund is doing for(against) them, as well..
ans, begin to understand that ‘their Representatives’ (Fiduciary & Political) have been, by and large, co-opted, and, do not work in their(the Customer’s/Represented’s) best interests..they’re worthwhile..
and, wunsa-, most Americans are, through their ‘Investments’, and their ‘Ballots’, supporting this: “Globalization, outsourcing and H1-B programs will continue unabated.”..it’s why they will continue “unabated”..
January 10th, 2010 at 9:17 am
And here I am, one of the sheep, opening up the most recent statement for my son’s college tuition. I see that, yet again, this well-known private university has increased his fees so that now, 2 and one-half years into this thing, we are now paying about 30% more than when he started. And of course, in that same time frame his scholarship has gone up by 0%, I have had a single salary increase of less than 2% and my wife’s pay has had her public school teacher salary reduced.
So, yes, to answer David Corn, those of us not connected to Washington, are preoccupied with the struggle if day-to-day problems. And in the meantime, those we have elected continue to betray the public trust.
I will write my senators and congresswoman yet again and refer them specifically to the Moyer interview and the Mother Jones article. I will also tell them that I will not vote for them again unless they take direct action to correct the problem.
No doubt this sort of thing makes characters like Mark E. Hoffer chortle and snort. But who cares what the swine believe or what stake they have in this impossibly corrupt system that makes them so. As Corn says, people need to start acting in ever larger numbers to effect change.
January 10th, 2010 at 9:34 am
I understand that it’s counter to intuition and to all you have been taught, but a blog should be for education and not just for venting class war invective. These are the facts. If you have facts that speak otherwise, please present them:
1. The government neither needs nor uses tax money to pay its bills. It creates money ad hoc, simply by crediting the bank accounts of its creditors and debiting balance sheets, which it can do (and has been doing) endlessly. Taxes, which are a relic of the gold standard days, no longer are necessary for government financing, though they may have other purposes. The government could pay all its bills without collecting one cent in taxes.
2. Since 1971 (the end of the gold standard), there has been no relationship between federal deficits and inflation, which is more closely related to oil prices than to any other single variable.
3. It is impossible for the federal government to go bankrupt. No federal check ever has or ever will bounce, because the government has the unlimited power to create money. Further, since the government cannot go bankrupt, no agency of the government can go bankrupt. This includes Social Security and Medicare. Even were FICA to be ended (which it should be), these agencies cannot go bankrupt. See: http://rodgermmitchell.wordpress.com/2009/09/08/ten-reasons-to-eliminate-fica/
4. Federal borrowing, another relic of the gold standard, could be ended tomorrow. The government borrows by creating T-securities out of thin air, then trading them for money it created earlier, also out of thin air. The government could stop creating T-securities and create more money directly. This would end federal debt along with all the concerns about federal debt.
The federal government is different from you, me, businesses and state and local governments, all of which can go bankrupt. Most people do not really understand this. They use exactly the same logic and arguments to describe the federal government as they use to describe state governments. That is the reason for the confusion.
Rodger Malcolm Mitchell
January 10th, 2010 at 9:57 am
Roger,
I’ve read your site, and I’m still unsure. Can you explain what is going on in Greece then?
tia
January 10th, 2010 at 10:14 am
number2son,
you have this: “chortle and snort”, incredibly, wrong.
actually, I’m amazed that this: “most Americans are, through their ‘Investments’, and their ‘Ballots’, supporting this: “Globalization, outsourcing and H1-B programs will continue unabated.”..it’s why they will continue “unabated”..”, is the Fact of the Matter.
“people need to start acting in ever larger numbers to effect change.”, is close..
though, it begins w/ Thinking.
maybe, people should start here:
COMMON SENSE by Thomas Paine
January 10, 1776
http://libertyonline.hypermall.com/Paine/CS-Body.html
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Thomas+Paine+January+10%2C+1776+Common+Sense
January 10th, 2010 at 10:35 am
@Rodger -
Okay – I’ll bite. I looked at your blog as well as Mosler’s site, and it is an interesting theory if you assume that there is only one balance sheet that counts (the U.S. Treasury’s) with ALL U.S. assets essentially being property of the US Govt. There would have to be entries in your balance sheet to account for personal ownership of assets, as well as entries for foreign debits and credits.
So I don’t really own my house – I am just living here because my ultimate landlord, the US Treasury, has one of its assets registered, at its will, in my name. To the degree that I am not in the direct employ of the US Treasury, my various business activities are peripheral and somewhat irrelevant, but the flows ultimately pass through them because I am using US dollars for transactions.
Because the US Treasury is a benevolent landlord / overseer, it does not wield its enormous control over my life capriciously, though sometimes it doesn’t quite adjust the right knobs and 20 million of my fellow citizens end up without employment incomes, though it issues food stamps and extended unemployment benefits to keep me going.
It is an interesting theory. I don’t buy it – somehow I have to believe that I have more control over my own destiny than the tool of some knob twiddler, but it is food for thought.
January 10th, 2010 at 10:49 am
ps: and what you’re really saying is that business cycles are really just the result of poor central planning. I believe I have seen this theory published elsewhere (Marx’s Capital, 1867) ..
January 10th, 2010 at 10:50 am
Rodger Malcolm Mitchell and torrie-amos bantering … I can kinda see Roger’s (or Warren Mosler’s thesis) and I can see t-a’s side of the equasion … the difference is the real world actions of working .. to dig manufacture distribute and protect the stuff produced … and whether the digger gets a 1″ steak and the distributer gets a 1/2″ steak .. or visaversa
January 10th, 2010 at 11:05 am
I’ll do a PS too … brawn or brain / sport or art / labor or management / occasional wicked work or constant tedious work / gotta have it or yea I guess so
Who run Bartertown?
right now a Democrat POTUS Obama .. get over it R’s
hahahahah .. ya right .. Master Blaster runs Bartertown
0001110100001000000111000100010100100010 …. don’t bother its nothing but 40bytes
January 10th, 2010 at 11:49 am
>> and, this: “to keep the little people from making the rich pay a fairer share of taxes..” is, exactly, why these types of articles are Prole Feed..
>> and, wunsa-, most Americans are, through their ‘Investments’, and their ‘Ballots’, supporting this: “Globalization, outsourcing and H1-B programs will continue unabated.”..it’s why they will continue “unabated”..
At least “higher taxes on the rich” would distribute the *gains* from globalization, outsourcing, and H1B programs to some of the people *affected* by these programs. As it stands now, the vast majority of gains are a windfall to corporate executives.
Today’s corporate executive have done no more work nor been any more clever than my dad’s boss. But, the ratio of my boss’s income to my income is much greater than the ratio of my dad’s boss’s income to his income. It’s not today’s boss’ contribution that matters. It’s the position they hold that gives them greater leverage today than it did even a decade ago.
January 10th, 2010 at 12:02 pm
wunsa-
w/this: “At least “higher taxes on the rich” would distribute the *gains* from …”
what part of your History book has been excised/redacted?
We’ve heard that phony Rationalization for more years than you & I have been alive..
Get over it. Learn something New, you know, “For a Change”..and, “Yes, You Can!~”
you’re taliking about ‘distibution’, again, It’s the Rules. That are Primary.
The structure– of the, current, System–Is the Problem.
tinkering with Rates is not the Solution.
Continuing to invest in a System that, by design, eviscerates you is not the Solution.
Eviscerating Capital, in any System, is not the Solution.
from there, with my previous comments, you piece it together..
January 10th, 2010 at 12:24 pm
>> but a blog should be for education
Great. We’re in agreement. So, how does the government printing more money (regardless of whether it’s encumbered with debt or issued “free-and-clear” by Congress) and giving it to a select group of people on Wall Street not devalue the purchasing power of the money in everyone else’s pocket? How is that not a tax?
Money is a commodity. Regardless of how you increase it (via Congress, via the Treasury, or via the credit-money system controlled mostly by the banks), when you increase it you devalue the purchasing power of the existing supply. That is a real tax.
So, the technicals you speak of (regarding the creation of money) complicate the nominal conversation (which lead you to scoff at Moyers) but not the real conversation.
>> The government neither needs nor uses tax money to pay its bills. It creates money ad hoc, simply by crediting the bank accounts of its creditors and debiting balance sheets, which it can do (and has been doing) endlessly. Taxes, which are a relic of the gold standard days, no longer are necessary for government financing, though they may have other purposes. The government could pay all its bills without collecting one cent in taxes.
Except that you’d have to print more money to cover the lost tax revenue. And, to the extent you print more money, you devalue everyone’s money even more. So, your last statement is not true in real terms.
January 10th, 2010 at 12:25 pm
MEH,
>> you just answered your own Q:s, above, here: “Globalization, outsourcing and H1-B programs will continue unabated.”
>> It’s the Rules, not the Rates.
Ah, I misinterpreted. (By “rules”, I thought you meant “tax code”.) Thanks.
January 10th, 2010 at 12:25 pm
@ Rodger Mitchell I have a breeding pair of unicorns for sale, they should do well where you live.
January 10th, 2010 at 12:44 pm
wunsa-
sorry, I wasn’t exactly clear..those phenomena start in the Tax Code, and are promulgated, further, by other Rules–drafted by ‘our Representatives’..
basically, We’ve been, and are being, actively, Sold Out by ‘our Representatives’, at our own Cost.
differently, We are funding our own destruction.
or, again, differently, We are welding our own manacles, without, even, learning how to light a Torch..
but, “It’s the Rules, not the Rates.”
January 10th, 2010 at 2:24 pm
“@ Rodger Mitchell I have a breeding pair of unicorns for sale, they should do well where you live.”
markd
LOL, and the best retort to this tripe that I’ve seen. It’s patently absurd, but of course those who espouse it just scoff at the critics’ intellectual shortcomings. But of course they can continue to argue for this crap because it will never have to be tested in the real world, because, of course, it’s pure crap.
January 10th, 2010 at 3:16 pm
In my earlier post, I had said the government does not need to borrow, and it does not use tax money to pay its bills. I gave reasons for both statements.
Not one doubter actually presented facts to refute these statements. Mostly, childish sarcasm and snide remarks. One poster, “wunsacon” however did raise a legitimate issue, though I had addressed it previously. He (she?) said, “. . . to the extent you print more money, you devalue everyone’s money even more.”
In short, he rightly is concerned that printing money causes inflation. In 1979, total federal debt was about $800 billion. Today, it is about $12 trillion, an astounding 1400% increase in only 30 years. That is quite a lot of money printing, yet there has been only as much inflation as the Fed has wanted. In fact, since 1971 (the end of the gold standard) there has been zero relationship between federal deficits and inflation. If we repeat the last 30 years exactly, the debt will be $168 trillion by year 2039, and I suspect the inflation scenario would continue.
Why? Because inflation is determined by both the supply and the demand for money. Raise the supply, without raising the demand, and yes, inflation is possible. So the key to controlling inflation is demand. One part of demand is growth in population. More people = more demand. But the more controllable part is interest rates. The reward for owning money is interest. Increase rates and the reward increases, which increases the demand.
That is why when rates are high, people demand money (i.e. bonds, CDs, money markets) and when rates are low, people demand non-money (stocks, real estate).
If anyone wishes to debate, using facts rather than insults, I will be glad to accommodate. And I especially would be glad to debate Mr. Moyers, any time, any place.
Rodger Malcolm Mitchell
January 10th, 2010 at 3:31 pm
hgordon said, “it is an interesting theory if you assume that there is only one balance sheet that counts (the U.S. Treasury’s) with ALL U.S. assets essentially being property of the US Govt. There would have to be entries in your balance sheet to account for personal ownership of assets, as well as entries for foreign debits and credits.”
No, I was talking only about federal money. Not bank-created money. Not all other money created by all other borrowing. Not physical assets and stocks that have a value, but are not in themselves, money. Focus on federally created money. How much federally created money exists? Only about $12 trillion. This is quite small when compared with all the money and the cumulative values of all assets in America.
Rodger Malcolm Mitchell
January 10th, 2010 at 4:28 pm
@Rodger -
You lost me there. By definition, all U.S. money is federal money, which is “legal tender” (http://en.wikipedia.org/wiki/Legal_tender). Money comes into existence because banks create loans as a multiple of reserves, where the multiplier is defined by the Federal Reserve. I can create new money by starting a corporation, issuing stock, and selling it to others for dollars, but I’m still playing with federal money. At some point, the definitions become circular, but the basic point which I think you are making is that the Federal Government can do what they want with regard to manipulation of the currency because we have accepted their set of rules. Things would get interesting if we chose not to accept them.
January 10th, 2010 at 5:37 pm
correction – I create an asset, not new money, by starting a corporation and selling stock. The new money comes from the guy who sold his appreciated house to someone else who had to take out a new loan, and the proceeds from the sale were then used to purchase my stock. So new federal money was created by the bank in issuing the loan, but I’m not a bank, so I didn’t do the creating. Minor technical detail, but otherwise I think my logic is valid.
January 10th, 2010 at 9:43 pm
hgordon,
Every form of money is a form of debt. When you deposit money in your bank account, the bank owes you that money. You have created a debt; you have created money.
When the bank lends money it creates money. When the federal government deficit spends, it creates money by changing the figures in bank accounts. The federal debt is the measure of the money created by the federal government, when it deficit spends.
You expressed concern that the federal government owns your house. It doesn’t. The federal balance sheets merely are scorecards, not evidence of ownership. These scorecards keep track of the total amount of currency created by the federal government. They solely are for internal record keeping.
Most people do not understand (though I think you do), that financial debt and money are interchangeable terms. They mean the same thing. Sadly, the word “debt” has negative connotations. But without debt, there would be no money.
Debt hawks would like to eliminate federal debt, but without federal debt, there would be no federal money. Every money lender creates money, but without federal money, all other money lending would not be possible. It begins with federal debt.
What continues to surprise me is that people are resistant to the notion that taxes can and should be reduced. It’s as though this were too good to be true. But it’s good and it’s true. Imagine the benefit to the U.S. economy if FICA were eliminated. Working people would have more to spend; businesses would have more to spend. The recession would end tomorrow if FICA were eliminated.
All the government does with that FICA money is destroy it. FICA money does not pay for Social Security or Medicare.
Have you read Warren Mosler’s “7 Deadly Innocent Frauds” at http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/. Anyone who wishes to understand the government’s finances should read it. I agree with 90%. Warren and I part company when he talks about the need for some federal taxes to give value to money. We’ve argued about that for the past few years.
Coincidentally, Warren and I wrote similar descriptions. Mine is at: http://rodgermmitchell.wordpress.com/2009/12/17/how-the-federal-deficit-really-works/
Rodger Malcolm Mitchell
January 10th, 2010 at 9:49 pm
The fact that guys like Rodger have a voice and other commenters cannot even point out why he is wrong tells me exactly where the problem is: lack of education in logic and economics at the high school level.
January 10th, 2010 at 10:30 pm
Fortunately, hoot22 is able to provide specific data detailing why I am wrong.
Rodger Malcolm Mitchell
January 10th, 2010 at 11:24 pm
I’d still like a 50% tax on the top bracket at least, maybe 65% or more if we really want to set those greedy bastards straight.
Corporate tax needs some scrutiny 20 years ago.
That we’re still talking about the problem after all this time is emblematic.
January 11th, 2010 at 12:51 am
@Rodger -
I think we basically agree that money is actually a fairly abstract concept. Though my father was a PhD economist, I am but a humble builder of robots, and my wife who is an accountant gets frustrated occasionally with my less than intuitive grasp of double entry bookkeeping. That said, the mathematics of economies are interesting and I enjoy a good puzzle. When approaching a puzzle, I generally first try to find a way to bound the solution. So my statement about my house being an entry on the gov’t balance sheet was the exploration of a boundary condition.
I only took a cursory glance the articles that you and Warren Mosler wrote, so I am not 100% confident about my interpretation, but do look forward to exploring this further.
January 11th, 2010 at 8:47 am
bman said, “I’d still like a 50% tax on the top bracket at least, maybe 65% or more if we really want to set those greedy bastards straight.”
Populist politicians use this sort of class jealousy to get elected and to pass laws that hurt us all. Just as adding money to the economy stimulates it, taking money from the economy slows it. Tax business or tax the rich and you hurt the poor. They never understand what has happened to them, because they don’t understand the economically damaging effects of taxes.
Rodger Malcolm Mitchell
January 11th, 2010 at 9:16 am
Want to have an uncommon understanding of money?
Listen: http://www.diametrics.info/audio/Wheat_Receipts_1971.mp3
January 11th, 2010 at 9:21 am
Another Wheat Receipts Link:
http://www.markswatson.com/audio/wheat.mp3
Given in the early 70’s but amazingly inciteful.
January 11th, 2010 at 11:32 am
[...] a good one from Bill Moyers, Barry posted the video HERE: http://www.ritholtz.com/blog/2010/01/moyers-gs-corporate-tax-rate-1/. Video: [...]
January 11th, 2010 at 7:43 pm
Speaking of salaries, here is the key sentence from an article by Jackie Calmes, Published: January 11, 2010 in the The New York Times:
“With popular anger building as big banks show profits and pay sizable bonuses while unemployment remains high, the Obama administration has come under pressure at home and abroad to support a financial transactions tax on institutions and to heavily tax their executive compensation.”
What an amazing sentence.
First, consider the popular anger that “big banks show profits . . .” Would the citizenry prefer bank losses caused by bad bank management? What’s the approved size for profits?
Second, consider the “sizable bonuses.” Banks are businesses. What should they do with profits aside from pay employees and shareholders? Are other businesses held to that standard?
Third, consider “unemployment remains high.” What is the relationship here? Should banks hire millions of people, to get the employment rate down? Or, should banks engage in less than optimal business strategies, like lending to bad risks, to get the profits down?
Fourth, consider the “financial transactions tax on institutions.” Get real. Any tax on a business is passed along to its customers. Ultimately, you and I will pay that tax.
Fifth, consider “heavily tax their executive compensation.” A special tax created just for bank executives? What about a special tax just for Walmart executives? What about a special tax just for executives who live in New York, preferably Long Island?
Nothing could better demonstrate the financial ignorance of the Obama administration. Or if it’s not ignorance, then it’s worse: pure pandering to populist, class-warfare motives. Oh, it temporarily might make you feel good to “get those rich jerks,” until you realize (if ever) that you are the one getting the shaft.
Rodger Malcolm Mitchell
January 11th, 2010 at 9:04 pm
Rodger, I am not going to argue with you, because you are not completely wrong, however, see this blast from the past. (not that anybody is still reading this):http://www.ritholtz.com/blog/2009/04/top-10-things-the-letters-gm-stands-for/#comment-159166
Quoted from previous post: “My theory relies upon the assumption that the dollar will fall in value from the printing presses and increase in available money supply, so we have to rely on supply and demand to calculate what will continue to be stable or rise in price. In actuality, I think we will have a bifurcated economy in which things that have a somewhat constant demand or can control the supply, ie food, energy, oil, basic first produced resources (like metals, timber, etc), and perhaps medicine will result in staying up or rising with the devaluation of the dollar, and other things that do not have the constant demand, such as housing, discretionary consumer products, capital expenditures, etc. will fall. It would be good to look at the factors behind elasticity of demand in evaluating any asset you wish to hold currently, imho.
Because the US Dollar is a Fiat Currency, the government can do anything they want including the recent bailouts and “quantitative easing”. Basically, they are saying they don’t care about the current deficit they are racking up and skyrocketing national debt, because they are going to print more money to devalue the currency relative to the debt outstanding. This might work for a while until producing countries and resource rich countries have the ability to stop it and force the issue of an international reserve currency to replace the US Dollar as the world’s form of money. Therefore, what the government is trying to do is covertly tax the public and screw all creditors in the process, while keeping the whole game from crashing.
“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”
John Maynard Keynes (English economist, journalist, and financier, 1883-1946)
“Inflation is the one form of taxation that can be imposed without legislation.”
Milton Friedman quotes (American Economist, b.1912)”
Now onto the solid debate you were soliciting, that those who understand the reality have not yet proferred:
The main problem with your theory is this statement alone: “Backed by the full faith and credit of the United States Government.” Thus, the fiat currency and bonds which we and the rest of the world honor is backed by the taxes and ability to create of the United States in aggregate. The problem in your argument arises when the rest of the world rises up and stops believing in this credit. (see above). As stated, our only saving grace is the past performance of the United States as a producer, our abundant natural resources, including agricultural production, and the entrenched position of the U.S. Dollar as the world reserve currency, and the currency in which Oil is priced(as you have noted). TPTB are walking a tightrope right now to try to get through this ordeal while preserving the world’s faith in the debt instruments we pawn off to the rest of the world. If they just took your stance of devaluation and eliminating taxes to back these instruments, there would be no demand for our pieces of paper. IMHO, the JND of our QE and devaluation is being broached to the point where doubt in the faith of our “full faith and credit” in the worldwide economic marketplace is beginning to set in. See: http://www.bloomberg.com/apps/news?pid=20601087&sid=a5z7pjiZoYpg
January 11th, 2010 at 9:09 pm
To clarify, and reduce acronymical confusion, JND=just noticeable difference, and in retrospect, it probably has been breached as opposed to is being broached.