Freeing Ourselves from Mammon
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 26times 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 commercial 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 bets.
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?
Notes:
{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 (2003), 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 liminate 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 2009-03-02.xls, particularly Column H, at http://billtottenweblog.googlegroups.com/web/Japan+Money+Supply+2009-03-02.xls.
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 2009-03-02.xls at http://billtottenweblog.googlegroups.com/web/Japan+Money+Supply+2009-03-02.xls.
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 publicly, 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 no 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}. 2.7 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 To kyo), 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 us 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 thecoming 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 straightforward 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 straightforward 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
Bill Totten http://www.ashisuto.co.jp/english/index.html
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 26times 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 commercial 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 bets.
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?
Notes:
{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 (2003), 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 liminate 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 2009-03-02.xls, particularly Column H, at http://billtottenweblog.googlegroups.com/web/Japan+Money+Supply+2009-03-02.xls.
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 2009-03-02.xls at http://billtottenweblog.googlegroups.com/web/Japan+Money+Supply+2009-03-02.xls.
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 publicly, 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 no 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}. 2.7 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 To kyo), 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 us 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 thecoming 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 straightforward 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 straightforward 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
Bill Totten http://www.ashisuto.co.jp/english/index.html
posted by Bill Totten at
8:31 PM
1 Comments:
I agree most of your opinions and proposals.
By condemning "casino economy" and proposing to revive "real economy" (mono-dzukuri), overproduction of less-necessary goods and services may be promoted and justified. What we call "real economy" is unreal one in terms of sustainability. I agree that instead of demand-management strategies, which promotes overproduction, governments should prioritize spending for unemployed people, the victim of recession. Labor force created by ELR program should be used for creating sustainable society such as velotaxi, organic farming, constructing LRT, bicycle road, wind turbine, etc.
By
Haruyuki Fujimaki, at 8:46 PM, April 26, 2009
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