Posted by Michael A. Kamperman on February 24, 2013
A myth can be defined as a false collective belief used to justify social policy. The idea that one day the markets will turn against the U.S. Treasury market and drive interest rates to an unsustainable level forcing drastic cuts on the U.S. budget is a false collective belief: a myth. Like all countries that are able to issue debt in their own currencies the U.S. federal government has an agency that is charged with controlling interest rates, the Federal Reserve. In Britain they have the Bank of England and in Japan they have the Bank of Japan and so on and so forth for all sovereign debt issuers. The markets do not control the direction of interest rates over any extended period of time. In the U.S. the Federal Reserve controls both short and long term interest rates. Short term interest rates have historically been kept on a very short leash. Long term interest rates are normally kept on a long leash and allowed to roam within an acceptable range. But the Federal Reserve can take control of long term interest rates when it desires to do so. Right now quantitative easing is designed to lower long term interest rates. If necessary, the Federal Reserve could purchase every Treasury Bond offered for sale to bend long term rates to its will. In the early 1980′s the Volcker led Fed took short term rates to 20% to force longer term rates higher in-order to slow down inflation. The simple point is the Federal Reserve is the ultimate arbiter of what rates will be and not the markets.
The myth that markets can take control of U.S. interest rates is the current justification for the U.S. to implement austerity policies. Despite recent evidence austerity is not working on either an economic level or a budget level calls remain to implement austerity based on this false collective belief. More and more people are coming to understand that the U.S. cannot default because it owes everyone dollars, which it can print. But almost no one is pointing out the obvious, it is the Federal Reserve that controls our interest rates and not the markets. The reason rates in Japan are even lower than rates in the U.S., despite a debt to GDP ratio approaching almost triple the U.S. debt to GDP ratio, is the Bank of Japan controls their rates and not markets.
Before the U.S. can create a political climate that will allow the federal government to enact stimulus policies to end massive understated unemployment, the false collective belief that the markets will one day punish the U.S. with sky high interest rates must be exposed for what it is: a myth. Unfortunately, the political conversation surrounding the spending cuts in the sequester are creating an environment whereby harmful cuts to the U.S. economy will not be averted. The President’s call for a “balanced approach” that includes new revenue is a good talking point to prevent additional cuts beyond the sequester. But they are terrible talking points in attempting to avoid the sequester. There is no political support amongst Republicans to raise more tax revenue and insisting tax increases be included in any deal to replace the sequester guarantees there will be no deal. The President should talk about how there is not an imminent threat to the U.S. fiscal position and that high unemployment is a much bigger threat to our nation. He should offer to drop calls for new revenue in exchange for a reduction in spending cuts. After all, the U.S. does not need additional tax revenues because the deficit and the debt are not problems. Unemployment on the other hand is a huge problem.
Posted by Michael A. Kamperman on November 26, 2012
In his New York Times column Fighting Fiscal Phantoms Paul Krugman has finally stated the obvious, that since the U.S. federal government owes almost everyone dollars which it can print, then it can never go bankrupt. He further states that printing money in and of itself will not lead to inflation in a depressed economy. Hopefully people in Washington are listening. While not implicitly stated, Professor Krugman has adopted the central tenet of Modern Monetary Theory.
My book How America Can Escape the New Great Depression is based on the position Krugman staked out today. From this position the book details a whole host of potential policy prescriptions to end the economic downturn and return millions of people to meaningful work. It has been very difficult to drive any policy discussion, no less response, in this direction. Despite the book, numerous blog posts, and contacting opinion leaders, the position Professor Krugman staked out today has been rare to appear as part of the national conversation. Hopefully today marks a turning point.
All of the calls to raise taxes, cut entitlements, and cut spending in general are all based on a view point the debt is too high and letting it get any higher places the nation at risk. Nothing could be further from the truth. Past cultures would practice human sacrifice to prevent a volcanic eruption or to make sure the Sun would rise the next day. We have been sacrificing our economy over fears we cannot pay what we can print. Freedom from this archaic thinking will open the door to new ideas of how to best deploy our resources to confront our challenges. Obviously there has been no good reason to have cut a single teacher from a single classroom due to money because our federal government has an unlimited amount of money to spend. We could aggressively increase our funding for cancer research and for alternative forms of energy. The only thing that has limited our solving our problems are closed minds. Today Paul Krugman opened some minds. Lets hope it gains momentum.
Posted by Michael A. Kamperman on September 20, 2012
The Romney-Ryan plan to give everyone under 55 a voucher to pay for helthcare insurance and everyone 55 and older every penny of Medicare they were promised is redistribution of wealth from the young to the old. As a 51 year old I have not been happy at all about this plan from the beginning. I have paid into Medicare for 35 years, because I started working when I was 16. Some of those years I paid the maximum contribution into Medicare. The difference between Medicare and Social Security is everyone gets the same Medicare regardless of their monetary contribution to the plan, whereas the more one pays into Social Security the larger the check they receive. But under the Ryan-Romney plan (truth is Ryan had the plan first and Romney co-opted it) I will receive a somewhat to substantially reduced benefit while people who started working later in life than me, or who dropped out of the workforcce for several years, or who contributed less money to Medicare than me will receive 100% of the Medicare benefit and I will receive a fraction. And, I will still have to pay Medicare taxes the rest of my work life to fund those 4 years older than me who receive the full benefit. This is patently unfair. But it is also classic wealth redistribution. Why are people 55 and older allowed to keep their Medicare?
The reason is to sell the deal politically. But the Romney-Ryan plan also includes large tax cuts for the wealthy, which can be justified under the premise that the long-term budget deficit problem has been solved by ending the uncertainty of future Medicare costs as well as lowering them. So basically, the rich will also benefit from a redistribution of my lifetime Medicare payments by getting tax cuts. This is not capitalism where one eats and reaps what they sow. This is the worst form of socialism in that not all of society will benefit equally from wealth redistribution. This is state sponsored socialism that chooses winners and losers with the older being the winners and the younger being the losers. A person in their twenties and thirties will spend almost all of their working lives making the Medicare tax payments to fund a benefit for others they will never receive.
As regular readers of this blog know I believe we should be cutting taxes for everyone to stimulate job creation. They also know I believe we should lower the age of Medicare eligibility to open up jobs for younger workers. The federal and deficit do not matter because we finance everything in dollars, which we can print. There is no reason to cut a program that is working because of affordability. But the Romney-Ryan plan is not just another poor policy choice by Washington to balance the budget thereby exacerbating the depression. People have been brain washed to believe the U.S. can go bankrupt and many believe this urban myth. But the Romney-Ryan plan is designed not to balance the budget, but to redistribute the Medicare payments of younger workers to the wealthy. It’s just that in order to sell it to the public they need to also redistribute to the elderly to buy off their votes.
Posted by Michael A. Kamperman on August 12, 2012
A truly surprising pick. It leaves Republican Keynesians like myself in a real quandry, and it is a real 180 degree turn for the party from the Bush years. While Bush cut taxes, he also increased federal spending in many areas besides just defense. If Bill Clinton put in the Medicare Prescription Drug Benefit, Democrats would be defending it tooth and nail rather than saying it led to unsustainable deficits. Dick Cheney told the deficit hawks that short-term deficits don’t matter. Plenty of Republicans voted for Bush’s policies.
It was not Bush’s macro economic policies that led to the economic collapse. It was a false belief that the financial industry could be self-policing because, outside of rare occasions, the people running corporations would act in the best long-term interests of those organizations. For example, it would make no sense for S&P, Moody’s, and Fitch to issue bogus credit ratings because of the hit to their reputation and business. But human nature being what it is and the “everyone is doing it” culture led to disaster. Those wanting to place all the blame on the Bush Administration need to ask, where are the Obama Administration’s criminal prosecutions? Why are S&P, Moody’s, and Fitch still allowed basic monopolies to rate bonds?
So Romney’s choice of Paul Ryan as his running mate leaves all Republican Keynesians in a quandry. It can be easy for some Democrats to say, just switch parties. But how welcoming is the Democratic Party to someone who is considered a pro-defense neo-con? How welcoming is the Deomcratic Party to someone who is strongly pro-gun? How welcoming is the Democratic Party to someone who is staunchly rro-life? How welcoming is the Democratic Party to someone who believes in a right-to-work state? Not all Republicans adhere to all of these positions, just as not all Democrats hold opposite views on all issues. But anyone who is a pro-choice, pro-union, anti-gun, pacifisct never should have been in the Republican Party in the first place.
I blame the rise of Paul Ryan and the Austrians on the Obama Administration. Not because they came forward with a stimulus plan, but because they never gave an intellectual defense of the stimulus and never came forward with more when it was obvious they undershot the mark by a wide margin. Instead, the President gave a shout-out to the Austrians by setting up a Deficit Commission. The way we should be cutting back on social safety net spending is with good new jobs. Since the federal government can never run out of money it can print, there is no financial reason to cut back on programs that are working well. And it is not compelling for a Keynesian Republican to switch to the Democratic Party that is only Keynesian-lite.
Now that Romney has framed the economic debate I will return to more active blogging. It felt pointless to blog for the first half of the year since nothing was going to happen until after the election.
Posted by Michael A. Kamperman on May 9, 2012
Paul Krugman has published a book titled End This Depression Now. His focus is not on what caused the depression or what we could do to try to prevent another one from occurring. Instead it is focused on what steps need to be taken now to revive the economy. He calls on the Federal Reserve to do much more. He wants the them to raise their inflation target above 2%. Bernanke has refused to embrace this step because he wants to maintain the Feds reputation for fighting inflation. He also is calling on Congress to increase spending to put all of the laid off teachers, policemen, and firemen back to work. What is truly important is not his specific ideas, but his call for Congress and the Federal Reserve to take much more aggressive steps to end the depression. There are so many voices calling for restraint and so few calling for action. Krugman’s book tour is helping highlight how much more needs to done.
My own book, How America Can Escape the New Great Depression, is full of aggressive ideas to put the country back to work. But neither my ideas or Krugman’s ideas have a prayer of happening until the secret Keynesians come out of the closet. President Richard Nixon famously said “we are all Keynesians now.” Yet the Tea Party has driven many Keynesians in the Republican and Democratic party into the closet. Is President Obama or any Democrat in a leadership position alling for another major stimulus plan? Most Republicans in Congress would not vote in favor of a budget that actually comes into balance over the next two to three years. They know the economy is too weak to handle the shock of withdrawing one trillion dollars worth of annual deficit spending. Most Republicans would not go along with making the large cuts in defense spending necessary to balance the budget. And they all know Democrats are not going to allow the extra 25 million people who have signed up for supplemental nutritional assistance over the last four years be thrown off of it. So the charade of unending large deficits without actually fixing anything goes on.
It would cost less money in the long run to fix the problems upfront than to continuously apply bandaids year after year. But neither the President nor the Congress will do anything to fix anything before the election in November. The reason I have taken a break from regular blogging is nothing is going to happen until after the election. Both President Obama and Mitt Romney are running as politicians nuancing positions and not as themselves. No one really knows what either of them will do if they win in November. We just have to hope they both are actually amongst the legions of Keynesians who are hiding in the closet.
Posted by Michael A. Kamperman on March 5, 2012
Paul Krugman has written an interesting column http://www.nytimes.com/2012/03/05/opinion/krugman-states-of-depression.html?_r=1&adxnnl=1&adxnnlx=1330946519-fhHzrROxHg/Lh0Q5ykrFxQ in this mornings NYT comparing the growth of all federal, state, and local government spending in this depression to the growth of all government spending at the same point of the Reagan recovery in the early-mid 1980′s. Krugman points out that all levels of government spending adjusted for inflation under President Reagan grew 10.2% in the first 10 quarters of his recovery. Under President Obama government spending grew just 2.6%, which includes the $787 billion stimulus plan. Here is Krugman’s key takeaway: ”in reality Reagan was much more Keynesian than Mr. Obama, faced with an obstructionist G.O.P., has ever managed to be.” Actually, Reagan was a Keynesian and Obama is not one. Reagan embraced supply side economics so that he could push through tax cuts to stimulate the economy rather than social welfare spending. But tax cuts that are not offset with spending reductions are a Keynesian form of economic stimulus. Lower tax rates at the federal level allowed states to raise taxes to maintain services. President Reagan may not have talked the Keynesian talk, but he walked the Keynesian walk. Additionally, under Reagan there was not a total and sustained collapse in housing values gutting property tax revenues to State Treasuries. President Obama, on the other hand, is still campaigning on raising taxes on the wealthy to pay for parts of the budget. President Obama laments the lack of shovel ready jobs to stimulate the economy. He seems to find himself vascillating back and forth between Keynesian and Austrian ideas on economic policy.
But we have shovel ready jobs; teachers, police, and firemen. The local Waco School District has just voted to close 9 schools to save money. This is because of the Perry for President spending cuts made by the State Legislature last spring. School closings and teacher layoffs have occured all over the country. Most of the school districts in our area are not laying off teachers, but have instead instituted hiring freezes. Young teachers that recently graduated are having great difficulty finding a job everywhere. The President proposed more money for education, but he quickly abandoned the fight. He never said we should abandon pay-as-you-go rules to puh through the education spending. The only truly Keynesian stimulus we have received since the original stimuls bill was the extension of the payroll tax cuts for 2012. But both sides simply wanted to end the fight and get out on the campaign trail.
At the beginning of the year I wrote that I wanted to take a chance on a candidate who might prove to be a closet Keynesian. After getting to hear more from Gingrich, Santorum, and Romney I remain convinced that only Gingrich has the possibility of putting in place true Keynesian style policies that could turn the economy around ala President Reagan. Gingrich constantly emphasizes using Reagan’s economic policies as a model to turn the economy around. He already knows that government spending grew much more rapidly under President Reagan than it has under President Oabama. He already knows the trade-offs that were necessary to raise fiscal spending and lower taxes. Afterall, he was there in the trenches. There is no evidence President Obama will become a full-throated Keynesian after the election. If he wins, then I hope my assessment is proven wrong because the teachers will still be shovel ready.
Posted by Michael A. Kamperman on December 31, 2011
What happens in the elections will have a big impact on where the economy goes. Unfortunately, President Obama has decided to go for the one year extension of unemployment benefits and the payroll tax cut and call it a year in 2012. With the deal cut for 2 months it is highly implausible we won’t see a full year extension. So Washington plans to take 2012 off on further aiding the economy and plans to focus on fighting it out in the elections. This means nothing meaningful is possible until 2013. That is not good news for 16-29 year olds facing unemployment rates in the neighborhood of 50%. The Federal Reserve will have to pick up the ball and run with it in the first half of 2012. Bernanke has led the Fed to extend the concept of extended low rates and to alter the portfolio to extend maturities to bring down long term interest rates. Additionally, he has worked with the ECB to extend credit lines to European banks creating a de facto back door bailout of European sovereign debt. With Europe embracing austerity and the U.S. embracing no new fiscal aid the economy looks to limp forward. The only bright spot is the central banks have taken a Lehman style collapse off the table. Look for QE3 to take place as soon as the unemployment rate goes back up over 9%. They can only throw millions out of the workforce for so long before that smoke and mirror trick quits working.
So what is the best electoral outcome for the economy in 2013? Certainly not strident Austrian followers like Perry, Paul, and Bachmann. But four more years of Washington warfare will also not solve our problems and President Obama has yet to show anything else. The facts are any dream of Keynesian style stimulus is off the table. So the best option is to choose an option that can move the ball forward, and I’m looking for 50 yard passes that I prefer economically in this depression and have been thrilled to see Baylor’s Heisman Trophy winner throw over and over again on the football field. That leaves a choice between Gingrich, Huntsman, Romney, and Santorum.
Huntsman has shown no real vision, is a free trade no matter what apologist, and is so low in the polls there is no real reason to given him serious consideration. Sanrtorum has caught a spark and is focused on restoring manufacturing. While this is a positive manufacturing is less than 10% of the economy and improving this sector will not be enough to turn around the economy. So basically it is a choice between Romney and Gingrich. I can sum up Romney’s plans with a quote from the WSJ “Yet the 160 pages and 59 proposals also strike us as surprisingly timid and tactical considering our economic predicament. They’re a technocrat’s guide more than a reform manifesto.” Romney seems like a great choice to keep the trains running on time. But the economic train has derailed. President Obama focused on progressive tinkering and Romney looks to want to try conservative tinkering. That leaves Gingrich. Gingrich has wrapped himself in supply side economics focusing on creating growth by cutting taxes ala Reagan. The secret to Reagan’s success was to talk about balancing budgets, but in effect to run large deficits to grow the economy. Effectively Reagan practiced Modern Monetary Economics. Stimulus can come from either fiscal spending or tax cuts not offset with spending cuts. Gingrich seems to understand you cannot get the train back on the tracks by tinkering. We need to take a chance on someone who will be willing to throw the long ball. The only candidate willing to throw a long ball to restore economic growth is Gingrich. His passes may miss the mark, but everyone else is proposing a fumble or a run up the middle.
Posted by Michael A. Kamperman on December 25, 2011
May we have a bigger impact making peoples lives better in 2012. I’m entering the 21st Century and you can now follow me on twitter @MikeKamperman
Posted by Michael A. Kamperman on October 30, 2011
The Occupy Wall Street movement has already had two huge successes. First and foremost it has altered the debate from deficit cutting at all costs back to lack of jobs are the number one issue America is facing, not deficits. Secondly, it has given our President a much needed wake-up call that it’s all about jobs, jobs, jobs. Finally, the President has made a couple of moves in the right direction. He has acknowledged many graduating students have student loan payments that are too high for their too low incomes. He has also moved forward to insist that Fannie Mae and Freddie Mac refinance mortgages that are current without an appraisal and without a new title insurance plan forcing the transfer of the existing plan to the refinanced mortgage. But why not offer the same terms to FHA and VA mortgages? Why not offer the same terms to all mortgages held by all federally backed financial institutions like banks and credit unions? And where have these low hanging fruit moves been hiding at the White House? These moves should have been made months before the last election, not months before this one. The reason these moves are being made now is the President is feeling political pressure from the Occupy Wall Street movement. The lost and forgotten have risen up and the President has sat up and taken notice.
Now the President finds himself boxed in by the deficit cutting super-committee he approvingly signed off on just a couple of months ago. In fact, if a deal is not reached on how to lower the deficit, then across the board cuts will automatically go in on all discretionary spending, including defense. If the President is serious about helping the young people motivated to have their voices heard, then he will reject any deal that cuts their future Medicare and Social Security benefits period! It is the wrong way for our country to go and it is not necessary. Secondly, he needs to give up his politically charged class warfare rhetoric about raising taxes on the rich and call for the passage of jobs bill by using all of the savings from the ended Iraq war as the pay for. The jobs bill has a chance to put some of those young people into a good job, while raising Warren Buffet’s taxes may feel good but it won’t create one single job.
The Occupy Wall Street movement is also providing cover for the Federal Reserve to move forward on quantitative easing 3, probably this week. In Ben Bernanke’s famous helicopter speech he talked about the importance of coordinating monetary policy with fiscal policy despite the supposed independence of monetary authorities. Look for the fed to go big once again on purchasing mortgages to lower the cost of refinancing distressed mortgages even further. This is sound policy and will even be more effective if the President expands it to all federally backed mortgages. I want to give a shout out to Chris Wallace who criticized Rick Perry’s jobs plan for only aiming to create a far too insufficient 2.5 million jobs. Finally someone in the media is asking where are the plans to create tens of millions of jobs. Wake-up President Obama, he is talking about you too.
Posted by Michael A. Kamperman on October 14, 2011
The Occupy Wall Street movement is all about an economy that is unable to support the aspirations of the majority of its participants. If people had access to good jobs, they wouldn’t be sleeping on the streets to protest economic inequality. Unemployed college grads unable to pay their student loans would much rather have a good job than stay unemployed but see the rich lose a portion of their wealth. But the movement can get lost, or hijacked, if consensus on a common set of demands doesn’t emerge. For one thing, the movement needs to be about how to lift up the 99% rather than how to bring down the fortunate few. Therefore, items under consideration need to be about how to create the 25 million good paying full-time jobs needed that are missing from our economy. Here are seven actionable ideas that could turn the economy around in weeks and months, not years:
1. Demand the Federal Reserve fulfill its dual mandate of price stability and full employment. The Federal Reserve is refusing to take aggressive action on unemployment. The Federal Reserve should start quantitative easing III, which is buying back Treasury bonds, with an aim to repurchase $7 trillion dollars worth of U.S. debt. Then, along with the Treasuries it already holds, it should simply donate the Treasury bonds to the U.S. Treasury, thereby retiring half of the U.S. debt. This action would end the concept that the federal government cannot afford to combat the crisis. It would also take away a very low risk yet very lucrative trade from the banks, forcing them to start making reasonable loans on reasonable terms again.
2. Demand the federal government Federalize Medicaid by taking over 100% of the responsibility for funding the program, which is now jointly funded with the states. This would assure no more cutbacks in medical services for the poor. Importantly, it would also free up state budgets to put teachers back in the classroom. This idea was originally floated by Ronald Reagan, and there is no reason it cannot garner bi-partisan support.
3. Demand every mortgage in America be refinanced at 4% without a credit check or an appraisal. The federal government already guarantees over 90% of all existing mortgages, and the taxpayers are already at risk for losses on these mortgages. Half of all of the people with a mortgage cannot currently qualify to refinance at current market rates because either their home is worth less than the mortgage or they have too low of a credit score. Also, let those with under-water mortgages let a portion of their interest payments go towards principal reduction depending on how far their home has fallen in price. Everyone will still pay all that they owe. Large borrowers get terms like these all the time in debt restructurings. So why not the 99%? This would cost the federal government nothing.
4. Demand that the eligibility age for full Social Security and Medicare be reduced to age 62. This would create millions of new retirees, freeing up jobs for younger workers. Large companies have early retirement buy-outs all the time to reduce the size of their labor force. So why shouldn’t the federal government offer an incentive to people to retire early? The cost of this would be paid for by a combination of a reduction in unemployment claims and the interest savings on the federal debt donated back the Treasury by the Federal Reserve.
5. Demand the federal government fund a 21st century infrastructure program for America. We have millions of people who need jobs, and we have trillions of dollars worth of worthy projects from highways to water. At one time America had the best infrastructure in the world. It’s time to return to the best infrastructure in the world. This benefits 100% of the people, not just the 99%. It can be paid for by stimulating a growing economy and not by some pay-as-you-go offset that Congress has shackled itself to.
6. Demand that the U.S. strive to reach North American energy independence. The U.S. has an abundance of natural gas, and the technology already exists to run our entire transportation fleet on this fuel. The federal government could put forward the seed money to build out the fueling infrastructure required for a mass conversion to natural gas as the primary transportation fuel. Natural gas burns cleaner than oil and is less polluting. The federal government could also push for more wind, solar, and wave energy production. This would create millions of jobs and end our dependence on Mideast oil.
7. Demand an end to free trade and replace it with fair trade. We cannot expect U.S. workers to compete with people in China and elsewhere who work for $4,000 a year with no benefits and no workers’ rights. Our global companies are inventing things here that they then make there to be shipped back and sold here. These corporations supply the same tools and training to the workers there that they do here. How many American jobs have been lost because Apple makes all of its ipads, ipods, and iphones in China?
To have a movement with no demands is to leave the solutions in the hands of Washington. We have all seen how that has not worked out, and that is why Occupy Wall Street is spreading like wildfire. Our politicians come up with plans to create one million jobs. We need to demand they come up with plans to create 25 million good new jobs. The seven actionable ideas above are a starting point for demands for an economic revival. Everyone with an actionable idea should put it forward now.