If you aren't willing to offend some people, then you will never make any change. And there are some people who will be offended just by your existence, Mr. President.

Get a clue. Do the job you were elected to do. Don't faint at the first threat that comes along. These guys are shooting blanks, politically.

And if it's physical threats that inhibit you, make them public.

That if you can't be the best, you settle for being the longest lasting obstacle.

What happens when Byrd dies in office?

The same shit that happened when Kennedy did. Chaos.


Byrd has, by clinging to power, eviscerated generations of young potential lawmakers in his home state and in the larger national stage, bored the voting population into narcolepsy, and frozen out change and responsive, responsible leadership.

Kennedy, by refusing to retire gracefully and permit rising talent to rise in an orderly process, crippled health care reform at its most critical time.

To permit democracy to work, there must be a farm system and some willingness to admit that at some point that staying is more harmful than retiring. Either individual humility or Party discipline must be in evidence. Otherwise, it's just a shell game of an elite power structure preserving and protecting itself.

There are too many missing rails and impassable blockages on the political ladder in too many states. I don't support term limits as a solution, because it takes time to learn the ropes and crises happen on their own schedule, but there must be something beyond a very unfairly rigged election process that works to preserve the status quo. We need a system that permits and encourages the timely passing of power from the spent to the more vigorous ferment bubbling up from the grassroots.

We really need to cultivate democracy from the ground up.

Far be it from me to point out that Africzan people have never had the option of choosing their governments, their borders, the allocation of their resources, or their affiliations (tribe, nation, etc) and allies. Let alone their priorities.

Oh, there have been some sham elections, and some accidents of birth. But the story has been conquest and exploitation from abroad, colonial, corporate, and most damnably, religious, since at least the time of the Romans, and especially the 19th and 20th centuries to the present.

So, who shall tell the Muslims, Catholics, Baptists and Episcopalians, the oil, gold and diamond companies, the agribusiness, the Chinese, Indian and Anglo-descendants to get out?

Well, perhaps the native-born could stay, if they renounce their ancestral ties...

And as for having this would-be corporate fascist sort it all out, I think that's the last thing Africa needs.

http://jessescrossroadscafe.blogspot.com/2...


Looking around the web, and considering some recent questions regarding gold and SDRs on the Fed's and Treasury's balance sheets and reserve statements, I came across quite a bit more confusion and misinformation than one might have expected to find on what should be a fairly straightfoward question, ranging from completely incorrect but precise numbers to 'shitloads' at Yahoo!Answers.

So, I spent some time reading the relevant source documents, and have decided to publish this little fact sheet here, so that one might at least be able to find some of the basic facts about the US gold holdings on the books of the Treasury and the Fed in one place, with references.

There is also a little detail about the SDRs. It should be noted that because SDRs may be added to the Treasury's books, as in the recent allocation from the IMF, it does not mean necessarily that they are monetized by the Fed and placed on their own balance sheet.

Not getting into issues of where the gold is, what claims there may be on it, and what fineness it may actually be, according to the US Treasury:

The US currently holds 261,499,000 fine troy ounces in its reserves. US International Reserve Position, US Treasury

The gold is valued on the books at $42.2222 per fine troy ounce.

This represents a total value of $11,041,063,078.

This value appears on the Treasury's International Reserve Position US Treasury on Line 4.

Since there are 32150.7466 troy ounces in a tonne, the US Treasury is holding 8,133.528072 tonnes of fine gold.

Federal Reserve Gold Certificates

The Federal Reserve holds $11,037,000,000 in gold certificates as assets on its Balance Sheet as shown in their weekly H.41 report. The Fed has no physical gold of its own. According to my reading of the relevant law, the Fed is not able to place claims upon or issue those gold certificates to any other entity other than the 12 federal reserve banks.

With regard to the Fed's Gold Certificates here is some history by way of explanation:

Acting under this authority , the secretary of the Treasury issued orders dated December 28, 1933, and January 15, 1934, the latter requiring all gold coin, gold bullion, and gold certificates to be delivered to the Treasurer of the United States on or before January 17, 1934.

A new type of gold certificate, series of 1934, in denominations of $100, $1,000, $10,000, and $100,000, was issued only to Federal Reserve banks against certain credits established with the Treasurer of the United States. These certificates are not paid out by Federal Reserve banks and do not appear in circulation. They bear on their face the wording: "This is to certify that there is on deposit in the Treasury of the United States of America dollars in gold, payable to bearer on demand as authorized by law."

Gold certificates, however, have not been printed since January, 1935. Under the Gold Reserve Act of January 30, 1934, all gold held by the Federal Reserve banks was transferred to the U.S. Treasury, in accordance with Presidential Proclamation of January 31, 1934, the former receiving the gold certificate credits on the books of the Treasury at the former statutory price for gold $20.67 per ounce.

Gold assets were valued at $35 per fine troy ounce, giving effect to the devaluation January 31, 1934, until May 8, 1972, when they were revalued at $38 pursuant to the Par Value Modification Act, P.L. 92-268, approved March 31, 1972. The increment amounted to $822 million.

Gold assets were subsequently revalued at $42.22 pursuant to the amendment of Section 2 of the Par Value Modification Act, P.L. 93-110, approved September 21, 1973. This increment amounted to $1,157 million. All of the U.S. Treasury's monetary gold stock valuation, including the preceding revaluation increments, has been monetized by the U.S. Treasury by the issuance to the Federal Reserve banks of $11,160,104,000 for their gold certificate account (total as of close of 1980). In addition, the U.S. Treasury monetized $2,518 million (as of close of 1980) of the U.S. special drawing rights by issuance to the Federal Reserve banks for their special drawing rights certificate account.

On the books of the Federal Reserve banks, neither the gold certificate account nor the special drawing rights certificate account plays any restrictive role in Federal Reserve banks' operations. With the U.S. losing monetary gold in recent years of balance-of-payments deficits, causing decline in gold certificates (credits), two restraints were eliminated: P.L. 89-3, March 3, 1965, eliminated the requirement contained in Section 16 of the Federal Reserve Act for the maintenance of reserves in gold certificates by Federal Reserve banks of not less than 25% against Federal Reserve bank deposit liabilities; and P.L. 90-269, March 18, 1968, eliminated the remaining provision in Section 16 of the Federal Reserve Act under which the Federal Reserve banks were required to maintain reserves in gold certificates of not less than 25% against Federal Reserve notes.

Gold certificates (credits) held by the individual 12 Federal Reserve banks, therefore, merely reflect the total of monetary gold held by the U.S. and also the individual Federal Reserve bank holdings of gold certificates (credits) to their credit on the books of the INTER-DISTRICT SETTLEMENT ACCOUNT. Nevertheless, both the gold certificate account and special drawing rights account at Federal Reserve banks were utilized as eligible assets to serve as part of the 100% collateral pledged with the Federal Reserve agent at each Federal Reserve bank for issues of Federal Reserve notes. (The Depository Institutions Deregulation And Monetary Control Act Of 1980 removed the collateral requirements for Federal Reserve notes held in the vaults of Federal Reserve banks.)

Encyclopedia of Banking & Finance (9th Edition) by Charles J Woelfel


Does any of this amount to a hill of beans? Perhaps, but probably not. At least the next time I need to look up some of these facts and history to explain or correct a question or misunderstanding, I will not have to look all around the web for it again, and wade through many links of incorrect misinformation and rubbish to find it.

This is in no way meant to imply that the Treasury actually possesses the gold it says it has, the fineness of the gold, and the nature of any claims that might be on that gold. This is not a trivial issue as the estimates of the fineness of the gold have shown that a meaningful portin of it may be 'coin melt' and not of deliverable quality unless it has been further refined. It is said that the Bank of England recently discovered that some of their own gold stocks were not suitable for a delivery to the London Bullion Market Association (LBMA) for example.

By the way, and just as a point of curiosity, I calculated that if the Fed wished to back its balance sheet with all the gold in the US Treasury, the amount today would be approximately $8,000 per troy ounce. Don't hold your breath. LOL

Some of this may become an issue IF the SDR does become the international reserve currency, and IF gold is added to the mix of its basket of currencies as some countries like China and Russia have requested.

And in a new Google search, How Much Gold Does the US Have In Its Reserves, this little blog pops right up on page one, so its 'mission accomplished.'

And in case you were wondering, here is a recent lineup of official gold reserves from the major countries around the world.

http://en.wikipedia.org/wiki/Official_gold...

Walt was the quintessential American entrepreneur, at a classical point in time. He started in a budding new field and worked assiduously. He survived Depression, War, business screw-overs and labor troubles. He didn't diversify randomly, but organically. He didn't seek to become a Shadow Bank, but to provide something of lasting value to the culture of the world. He was an artist, AND commercially successful. He didn't go to business school. He worked, hard.

Walt was an Outlier. I have bought the book, and read one chapter so far, and on the strength of that one chapter, I highly recommend not only Outlier, but the author Malcolm Gladwell's previous books, which it appears that everyone but me has read, including the Younger Kid. Sheesh! You'd think my own flesh and blood could have mentioned this amazing author to me!

If I had a dream, it was to live a life of success after success, like Walt Disney, if not on such a grand scale. Instead of a grand narrative that blankets an era, my own life story is rather like a Perils of Pauline patchwork quilt, without any hero. It would make unbelievable reading--if I were willing to relive all that to write it down, which I'm not.

The patchwork quilt is a far more common life-pattern these days than ever, for men and women, and I blame it on modern American business schools, which believe that change for the sake of change is worth big bucks and bonuses, no matter what is destroyed in the process. I'm not unique--we all have shared bits of our travails--and we've collected data on other lives. Before, change was God's Will: pestilence, weather, war, untimely death. Big Business had a hand in all that, but it wasn't so blatantly in your face. And more often than not, Big Business destroyed itself when it sought to destroy others, just as a thousand years earlier, Big Religion did itself in. Criminals weren't institutions.

That has since changed. With the nearly complete takeover of government, Big Business is immortal as well as immoral. Where Big Business will take us, we don't want to go. This is the defining battle of the new century, and we are just at the beginning. Because change happens so fast these days, we may actually get to see the end of it, in our lifetimes. I hope so, anyway.

But I will leave you one more Disney nugget:

1937–1941: The Golden Age of Animation

"Disney's Folly": Snow White and the Seven Dwarfs


After the creation of two cartoon series, Disney soon began plans for a full-length feature in 1934. In 1935, opinion polls showed that another cartoon series, Popeye the Sailor, produced by Max Fleischer, was more popular than Mickey Mouse.<55> Disney was, however, able to put Mickey back on top, and also increase Mickey's popularity further by colorizing him and partially redesigning him into what was considered to be his most appealing design up to this point in time.<36> When the film industry came to know about Disney's plans to produce an animated feature-length version of Snow White, they dubbed the project as "Disney's Folly" and were certain that the project would destroy the Disney studio. Both Lillian and Roy tried to talk Disney out of the project, but he continued plans for the feature. He employed Chouinard Art Institute professor Don Graham to start a training operation for the studio staff, and used the Silly Symphonies as a platform for experiments in realistic human animation, distinctive character animation, special effects, and the use of specialized processes and apparatus such as the multiplane camera; Disney would first use this new technique in the 1937 Silly Symphonies short The Old Mill.<56>

All of this development and training was used to elevate the quality of the studio so that it would be able to give the feature film the quality Disney desired. Snow White and the Seven Dwarfs, as the feature was named, was in full production from 1934 until mid-1937, when the studio ran out of money. To acquire the funding to complete Snow White, Disney had to show a rough cut of the motion picture to loan officers at the Bank of America, who gave the studio the money to finish the picture. The finished film premiered at the Carthay Circle Theater on December 21, 1937; at the conclusion of the film, the audience gave Snow White and the Seven Dwarfs a standing ovation. Snow White, the first animated feature in English and Technicolor, was released in February 1938 under a new distribution deal with RKO Radio Pictures; RKO had previously been the distributor for Disney cartoons in 1936, after it closed down the Van Beuren Studios in exchange for distribution.<57> The film became the most successful motion picture of 1938 and earned over $8 million in its original theatrical release.


Snow White - A Smile and a Song

http://www.youtube.com/watch?v=hQZ6zzLpoNQ...

Snow White finds the dwarfs house / The Silly Song

http://www.youtube.com/watch?v=nN1BegE3QR0

Heigh Ho

http://www.youtube.com/watch?v=aURThUaRjCc...

Snow White - Diamond Edition Blu-Ray Trailer (video)

http://www.youtube.com/watch?v=-a7TFRxeIAw...


I'm Wishing/One Song- Disney's Snow White sing along

http://www.youtube.com/watch?v=LOdXQGNImI8...

Someday My Prince Will Come

http://www.youtube.com/watch?v=zm9zFJsEDHk...

Yes, I'm late, I'm late, for a very important date....



Let's face it, it's November. We've 3 months of increasing darkness and cold. Obama is still clueless, economically, and he's beginning to play Commander in Chief, which may be a pleasant distraction for him, but doesn't do anything (think expletive here) for the homeland.

So where does a battered population turn? To the Movies!

And who is better at a sugar-coated fairytale than Walter Elias Disney?

When we last visited DisneyLand

http://www.democraticunderground.com/discu...

it was 1933 and Silly Symphonies like The Three Little Pigs were packing them into theaters. But there was a big mouse on the horizon--and his name was Mickey!

Now perhaps the cruelest thing one can say about a failure like the US Economy and Recovery efforts is to call it a Mickey Mouse operation.

mickey mouse
 

–noun (often initial capital letters) Informal.
1. trite and commercially slick in character; corny: mickey mouse music.
2. useless, insignificant, or worthless: mickey mouse activities just to fill up one's time.
3. trivial or petty: mickey mouse regulations.

Origin: 1930–35; after the animated cartoon character created by Walt Disney, orig. with reference to the banal dance-band music played as background to the cartoons...

http://dictionary.reference.com/browse/mic...

Mickey Mouse himself was anything but a failure. So let's take the weekend to compare the two. Post what you've got, and enjoy as we sail off to Never Land, Wonderland, and all points in between.

(edited for copyright purposes-proud patriot Moderator Democratic Underground )

http://www.nytimes.com/2009/11/09/opinion/...

Last Thursday there was a rally outside the U.S. Capitol to protest pending health care legislation, featuring the kinds of things we’ve grown accustomed to, including large signs showing piles of bodies at Dachau with the caption “National Socialist Healthcare.” It was grotesque — and it was also ominous. For what we may be seeing is America starting to be Californiafied.

The key thing to understand about that rally is that it wasn’t a fringe event. It was sponsored by the House Republican leadership — in fact, it was officially billed as a G.O.P. press conference. Senior lawmakers were in attendance, and apparently had no problem with the tone of the proceedings... What all this shows is that the G.O.P. has been taken over by the people it used to exploit.

The state of mind visible at recent right-wing demonstrations is nothing new. Back in 1964 the historian Richard Hofstadter published an essay titled, “The Paranoid Style in American Politics,” which reads as if it were based on today’s headlines: Americans on the far right, he wrote, feel that “America has been largely taken away from them and their kind, though they are determined to try to repossess it and to prevent the final destructive act of subversion.” Sound familiar?

But while the paranoid style isn’t new, its role within the G.O.P. is.

When Hofstadter wrote, the right wing felt dispossessed because it was rejected by both major parties. That changed with the rise of Ronald Reagan: Republican politicians began to win elections in part by catering to the passions of the angry right.Until recently, however, that catering mostly took the form of empty symbolism. Once elections were won, the issues that fired up the base almost always took a back seat to the economic concerns of the elite. Thus in 2004 George W. Bush ran on antiterrorism and “values,” only to announce, as soon as the election was behind him, that his first priority was changing Social Security.

Before it kills us. Signed,

Generations of American women, children, and men

As promised, it's V Time. V for Vendetta, that is.

"V for Vendetta is a ten-issue comic-book series written by Alan Moore and illustrated mostly by David Lloyd, set in a dystopian future United Kingdom imagined from the 1980s to about the 1990s. A mysterious anarchist who calls himself "V" works to destroy the totalitarian government, profoundly affecting the people he encounters.

The series depicts a near-future Britain after a limited nuclear war, which has left much of the world destroyed. In this future, a fascist party called "Norsefire" has arisen as the ruling power. "V", an anarchist revolutionary dressed in a Guy Fawkes mask, begins an elaborate, violent, and theatrical campaign to bring down the government. Warner Bros. released a film adaptation in 2005."

http://en.wikipedia.org/wiki/V_for_Vendett...

The plot of the graphic novel and subsequent film (which is a closely faithful rendering) is complex, meaty, and too good to spoil for those of you that have yet to enjoy it. The film is intense, but neither stupid nor gratuitous, and I recommend it. I have not seen the novel.

"V for Vendetta" ties into Guy Fawkes Day because the hero, or anti-hero, or main figure, conceals his identity with a Guy Fawkes mask (I am assuming, but not certain, that the Brits celebrate Halloween in costume as we Yanks do), and proceeds to carry out Fawkes' Gun Powder Plot, so a summary of Guy Fawkes, whose failure is celebrated every November 5th, is in order.


"Guy Fawkes (13 April 1570 – 31 January 1606), also known as Guido Fawkes, the name he adopted while fighting for the Spanish in the Low Countries,<1><2> belonged to a group of Roman Catholic restorationists from England who planned the Gunpowder Plot of 1605.<3> Their aim was to displace Protestant rule by blowing up the Houses of Parliament while King James I and the entire Protestant, and even most of the Catholic, aristocracy and nobility were inside. The conspirators saw this as a necessary reaction to the systematic discrimination against English Catholics.<4>

The Gunpowder Plot was led by Robert Catesby, but Fawkes was put in charge of its execution. He was arrested a few hours before the planned explosion, during a search of the cellars underneath Parliament in the early hours of 5 November prompted by the receipt of an anonymous warning letter.

Guy Fawkes Night (or "bonfire night"), held on 5 November in the United Kingdom and some parts of the Commonwealth, is a commemoration of the plot, during which an effigy of Fawkes is burned, often accompanied by a fireworks display. The word "guy", meaning "man" or "person", is derived from his name.<5>

Now remember, this is two years after the death of Good Queen Bess. Elizabeth had ruled with mercy and forbearance over both her Catholic and Protestant subjects, but executed James' mother Mary, Queen of Scots, for plotting against her reign. So England was still rent with religious strife, as well as enmeshed in the struggle with the Irish that Elizabeth started, and which continues to this day, although in greatly reduced form, when the Gunpowder Plot is set in motion.

So James, not so wise or forgiving as Elizabeth, took on both the Catholics and the Puritans and alienated both, which led to at least a century of religious strife at home and abroad.

Why the English feel compelled to have a monarch is another issue entirely. Habit, I suppose. Whereas we in the States, having long ago thrown off the notion of classes at least as established mores, are extremely violently opposed to new monarchs like Goldman Sachs, the English seem much less discomfited.

Which brings us back to our principle pursuit: the deciphering of power, privilege and money flows in our modern world economy, with the eventual aim of overthrowing the despots and restoring the US economy, Constitution and citizenry. Have at it, and post what you find, while WE

Remember, remember the fifth of November,
The gunpowder treason and plot,
I know of no reason
Why the gunpowder treason
Should ever be forgot.


http://en.wikipedia.org/wiki/Guy_Fawkes_Ni...

http://www.youtube.com/watch?v=vybVaAOurY0...

http://trueslant.com/matttaibbi/2009/07/28... /


...The reason a real health-care bill is not going to get passed is simple: because nobody in Washington really wants it. There is insufficient political will to get it done. It doesn’t matter that it’s an urgent national calamity, that it is plainly obvious to anyone with an IQ over 8 that our system could not possibly be worse and needs to be fixed very soon, and that, moreover, the only people opposing a real reform bill are a pitifully small number of executives in the insurance industry who stand to lose the chance for a fifth summer house if this thing passes.

It won’t get done, because that’s not the way our government works. Our government doesn’t exist to protect voters from interests, it exists to protect interests from voters. The situation we have here is an angry and desperate population that at long last has voted in a majority that it believes should be able to pass a health care bill. It expects something to be done. The task of the lawmakers on the Hill, at least as they see things, is to create the appearance of having done something. And that’s what they’re doing. Personally, I think they’re doing a lousy job even of that. I lauded Roddick for playing out the string with heart, and giving a good show. But these Democrats aren’t even pretending to give a shit, not really. I mean, they’re not even willing to give up their vacations.

This whole business, it was a litmus test for whether or not we even have a functioning government. Here we had a political majority in congress and a popular president armed with oodles of political capital and backed by the overwhelming sentiment of perhaps 150 million Americans, and this government could not bring itself to offend ten thousand insurance men in order to pass a bill that addresses an urgent emergency. What’s left? Third-party politics?


POSTED ON JULY 28TH AND NO LESS TRUE TODAY

http://www.nakedcapitalism.com/2009/10/deb...


Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge, editor of the Richebacher Letter, and a research associate with the Levy Economics Institute, responds to DoctoRx’s post, “Debate on Deficits.”

DoctoRx raises a wide swath of excellent questions regarding the correct approach to financial crises, the economic contractions they can induce, and the best way forward. I will focus on some of the key points he introduced with regard to the financial balance approach, since he cites some summary comments of mine on the basic orientation and conclusions of the model, while perhaps Marshall and Ed will chime in later during the week to address the questions he poses for some of their prior posts on the issue of policy orientation.

Early on, DoctoRx asks, is debt the core of the problem? Debt related issues certainly seem to be a recurring contributor to some of the sharpest economic dislocations we witness across time, across regions, and even across economic systems. A lifetime ago, a highly esteemed US economist and entrepreneur named Irving Fisher had to lose his fortune and his house in order to question the general equilibrium approach which still to this day guides mainstream economics. In act born no doubt out of humility and direct experience, he subsequently stepped beyond his general equilibrium conclusions and tried to make sense of the conditions that spawned the Great Depression.

Fisher’s conclusions included the insight that the degree of financial leverage in the private sector matters greatly to the ability of the economy to right itself after any disturbance. His insights are fortunately summarized in a 1933 article, published in the first issue of the journal Econometrica. If you take the time to read it – it is written in plain English, not technical jargon or abstract calculus – and if you consider the parallels with recent events that can be found in his cursory model of what he called a debt deflation dynamic, I suspect you will find yourself agreeing that debt is indeed the core of the problem. If Fisher’s contribution fails to be persuasive, then I would recommend taking a look at the chapter in Hy Minsky’s recently reissued book, John Maynard Keynes that is entitled “Financial Institutions, Financial Instability, and the Pace of Investment”. Either one should do the trick.

To grossly oversimplify, the problem with debt is it sets up fairly fixed future cash flow commitments, of which there is no automatic mechanism guaranteeing that future cash flow generation by the economy will be sufficient to meet. If private sector leverage gets large enough – and Minsky argues there are inherent dynamics that drive the economy in this direction – then the failure to meet contractual commitments can lead to forced asset sales, falling asset prices, and a restricted propensity to invest out of profit income flows and to spend out of wage and salary income flows, all of which can fuel a vicious, self-reinforcing cycle very much like we witnessed from September 2008 to March 2009 before massive policy intervention broke the maelstrom.

DoctoRx suggest that as long as the entire private sector is not bankrupt, and only some units in the economy are debt distressed, then bankruptcy or debt renegotiation for those units is the best response. This sounds eminently sensible, and it is also a central tenet of the Austrian School approach to financial instability. However, many of you may recall there were central bank officials, including the Chairman, as well as many Wall Street executives and analysts, who repeatedly asserted the subprime mortgage crisis was, to put it in their words, “contained”. This assessment was clearly incorrect. There apparently was enough leverage within the financial system itself, within the household sector, and within the nonfinancial business sector, that the “contained” subprime crisis spilled over into the deepest and longest economic contraction since the Great Depression. So perhaps there is some threshold level of indebtedness beneath which bankruptcy and debt renegotiation can be a successful approach, but clearly, we crossed that line, and given the number of episodes of financial instability I have witnessed over the past quarter century of my career, I would have to add we seem to have an uncanny ability to keep crossing that line.

DoctoRx next considers a contradiction in using policy responses to debt deflation dynamics that require higher government debt. He suggests we best think of the government balance sheet as consolidated with the domestic private sector balance sheet, since Treasury debt is an obligation that ultimately must be paid by taxpayers. This of course is a variant of the Ricardian equivalence argument, whereby fiscal stimulus is deemed to be ineffective at inducing economic growth since the households receiving higher income from deficit spending simply save the entire proceeds in expectation of future tax liabilities of equal magnitude. DoctoRx is probing along similar lines when he observes, “after all, the private sector has to debit its bank account to send the funds to the government in order to buy the debt. All that is really happening is that the private sector had cash, and now the government has the cash with some repayment terms.” Fiscal deficits are, in other words, just an asset swap.

This takes us directly into some of the most controversial and powerful observations of what can be called a functional finance view of government deficit spending. We can start from the realization that the household and nonbank business segments of the private sector cannot create cash – that is called counterfeiting. They have essentially 3 ways they can net accumulate cash: 1) by selling assets to or borrowing from banks (bank loans and bank security purchases create deposits); or 2) by the federal government spending more than it receives in tax revenues, such that the private sector receives more cash inflows from government spending than it pays in cash outflows in federal taxes; or 3) by the central bank (the Federal Reserve) expanding its balance sheet by purchasing assets from nonbank firms and households.

In general, the federal government can and does create the cash that the private sector receives when the federal government deficit spends or when the central bank purchases assets from the private sector. For example, when a household receives an unemployment benefit from the federal government and deposits it in its bank account, the Federal Reserve credits that bank account. Neither the Treasury nor the Fed needs to collect the cash from the private sector before hand. Indeed, the private sector can only net accumulate cash if it sells labor time, products, or existing assets to the federal government or the central bank first. What is missing from most depictions is a clear idea of how money is created and destroyed in the economy that we actually inhabit. Until it is understood how the nonbank business and household sector as a whole can get their hands on money, since they cannot create money without risking a jail term for counterfeiting, then much about fiscal policy, monetary policy, and private saving remains mystified or misunderstood.

Next, DoctoRx proposes several examples of how the private sector can accumulate equity, net worth, or real savings that “do not become anyone’s liability”. He cites as possible demonstrations the following: “consider obtaining enough milk to meet the needs of many children from a cow that eats free grass, building a cabin from logs cut from nearby trees, or building a bridge to create an important crossing point of a river”. Here, we are dealing with a primitive economy that appears to have limited private property rights and no money. Most would agree that does not resemble the economy we inhabit.
Typically, modern production requires large scale capital equipment, and the acquisition of that equipment must be financed. Even the proverbial two guys in the garage creating the next Apple have credit cards they are maxing out. Moving to the macro level, assuming for simplicity no foreign trade and no government sector, it is possible to demonstrate the conditions required for business capital investment to be internally financed, which is probably closer to the point he is trying to make. It is quite simple: the household saving rate must be zero, which means we all die of starvation upon retirement.

By way of illustration:

Total income = profits + wages = P + W

Total spending = investment + consumption = I + C

Total income = Total spending

P + W = I + C

P = I + (C – W)

Assuming no payments to households out of profit income, W – C = household saving

P = I only if W – C = 0

But even then, with investment equal to profit, there is a timing problem, since profits only show up after the sales of produced goods and services. In a monetary production economy – that is, one not characterized by barter exchange of products for products, where production takes place only in the expectation of or search for money profits – the business sector has to gets its hands on cash to set production in motion (since sales revenue follows the act of and the costs of production with a lag), and they usually do this by borrowing from a bank, which creates money and debt in the process (loans create deposits, deposits are acceptable means of settlement, or money). So credit and money are deeply intertwined with real production and the accumulation of tangible plant and equipment, at least in the economy we inhabit, rather than the hypothetical Hobbit shire DoctoRx offers up.

Finally, DoctoRx suggests “the private sector can be profitable while the public sector is simultaneously profitable. Or, both can be unprofitable…If in fact the economy is net unprofitable, then kicking the can over to our doppelganger, the Federal Government that the States created, will not change the underlying economics.”

The financial balance approach may shed some light on these three configurations. If in the aggregate, total income must equal total expenditures, and total investment must equal total saving, and we define the financial balance of any sector of the economy as sector income minus sector expenditures, or sector saving minus sector investment (they are algebraically equivalent), then the following must hold true:

Household FB + Business FB + Government FB + Foreign FB = 0

In other words, the sum of the sector financial balance must be zero. Note the foreign financial balance is the negative of the current account or trade balance. When foreigners net save, we are running a trade deficit, spending more on imports than we earn on exports. So yes, the business sector and the government sector can run a financial surplus (what DoctoRx calls being “profitable”) if the household sector is willing to deficit spend, and/or the trade balance is in surplus. Or both the business sector and the government sector can run a financial deficit, if the household sector is net saving and/or the trade balance is in deficit (and hence the foreign sector is net saving). Finally, the business sector will run a net saving position (or will be net profitable, in DoctoRx’s terms) when the government deficit spends as long as household net saving or the trade deficit do not increase as much as the government deficit.

There are obviously many permutations that we could investigate on end. The point is to think coherently and consistently about these sector flow imbalances, to try to understand what combinations are indeed compatible and possible, and then try to find ways to support sustainable growth trajectories. In the period following a financial crisis, it is not unusual for the private sector to seek a net saving position. For the private sector to achieve its desired financial surplus, the fiscal balance must fall and/or the trade balance increase in an offsetting fashion, or income will fall, and debt deflation dynamics will take hold. Without the financial balance framework, it is difficult to see such things very clearly, but even Paul Krugman is starting to get it.

So keep going DoctoRx – you are asking some very important questions. Finance matters – especially debt and leverage in general – to real economic outcomes. Money and finance are not neutral with respect to real economic outcomes, nor is money simply a veil for real exchange, as is taught in mainstream economics and as is held as holy truth by contemporary central bankers. Read a little Fisher or a little Minsky, and then reflect on recent events. Did we destroy some productive resources, lose some technical knowledge, or otherwise experience an exogenous productivity shock to drop into the deepest recession of the post WWII period, or was the drop in real economic activity in no small part a result of a highly leveraged private financial and nonfinancial sector encountering some very drastic financial conditions as fraudulent loans and fraudulent debt ratings were exposed? Does the government need the private sector’s money to “fund” its expenditures when a) the nonbank private sector cannot create money, and b) the government creates the money the private sector accumulates to pay taxes and buy bonds? Under what conditions can the business sector as a whole accumulate tangible capital without issuing financial liabilities, and are those conditions we observe in the real world around us?

Finally, how can we think coherently and consistently about sector financial balances, and what does an analysis of these sector flow imbalances reveal to us in regard to sustainable growth trajectories? These are all timely and relevant questions that we all could stand to explore more deeply and openly if we are going to find a sensible way out of the recent mess without yielding to the default solution of simply creating more asset bubbles, which unfortunately appears to be the preferred path at the moment.

Well, this is the weekend when the Zombie Banks get to strut their stuff and they don't even need costumes, because they are unnatural monsters to begin with.

I apologize in advance for the really bad mood I am in. I will try to restrain it and focus on the task at hand, but truly, if there were such a thing as a Calming Draught, I'd be first in line for treatment.

Living as I do with a daughter on the Autism Spectrum, I tend to see autistic tendencies all over (when it's not outright psychopathy). And while I tolerate the results as much as I can in the Kid, I get really pissed off when perfect strangers and people in positions of power act that way.

I think it's an epidemic--an epidemic of crime and lawlessness and unethical behavior, of Man's inhumanity to everything and everyone else, of monstrous artificial creations that came not from a laboratory (although I reserve judgment on the swine flu) but from the greedy grasping hands of profiteers who own no allegiance to anyone or anything.

These Sinners should not be surprised when at last the rest of the world smashes them. And it will come to pass. Nothing that cannot continue will endure.

But until then, there's the news to pore over, sift and analyze.


Trick or Treat!

when it serves their purposes.