What is Occupy Wallstreet?

[Taem]

In the meantime, I think I might take some cues from government fiscal policy and start spending more than I earn every year. I mean, they're professionals and they've been doing it for 50 years straight or so, it must be a pretty good strategy, right?

Well, actually: LINK

What If We Paid Off The Debt? The Secret Government Report
by DAVID KESTENBAUM

Planet Money has obtained a secret government report outlining what once looked like a potential crisis: The possibility that the U.S. government might pay off its entire debt.

It sounds ridiculous today. But not so long ago, the prospect of a debt-free U.S. was seen as a real possibility with the potential to upset the global financial system.

We recently obtained the report through a Freedom of Information Act Request. You can read the whole thing here. (It's a PDF.)

The report is called "Life After Debt". It was written in the year 2000, when the U.S. was running a budget surplus, taking in more than it was spending every year. Economists were projecting that the entire national debt could be paid off by 2012.

This was seen in many ways as good thing. But it also posed risks. If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world.

"It was a huge issue.. for not just the U.S. economy, but the global economy," says Diane Lim Rogers, an economist in the Clinton administration.


The U.S. borrows money by selling bonds. So the end of debt would mean the end of Treasury bonds.

But the U.S. has been issuing bonds for so long, and the bonds are seen as so safe, that much of the world has come to depend on them. The U.S. Treasury bond is a pillar of the global economy.

Banks buy hundreds of billions of dollars' worth, because they're a safe place to park money.

Mortgage rates are tied to the interest rate on U.S. treasury bonds.

The Federal Reserve — our central bank — buys and sells Treasury bonds all the time, in an effort to keep the economy on track.

If Treasury bonds disappeared, would the world unravel? Would it adjust somehow?

"I probably thought about this piece easily 16 hours a day, and it took me a long time to even start writing it," says Jason Seligman, the economist who wrote most of the report.

It was a strange, science-fictiony question.

"What would it look like to be in a United States without debt?" Seligman says. "What would life look like in those United States?"

Yes, there were ways for the world to adjust. But certain things got really tricky.

For example: What do you do with the money that comes out of people's paychecks for Social Security? Now, a lot of that money gets invested in –- you guessed it — Treasury bonds. If there are no Treasury bonds, what do you invest it in? Stocks? Which stocks? Who picks?

In the end, Seligman concluded it was a good idea to pay down the debt — but not to pay it off entirely.

"There's such a thing as too much debt," he says. "But also such a thing, perhaps, as too little."

The copy of Life After Debt we obtained reads "PRELIMINARY AND CLOSE HOLD OFFICIAL USE ONLY."

The report was intended to be included in the official "Economic Report of the President" — the final one of the Clinton administration. But in the end, people above Jason Seligman decided it was too speculative, too politically sensitive. So it was never published.

The danger that we would pay off our debt by 2012 has clearly passed. There are plenty of Treasury bonds around these days. U.S. debt held by the public is now over $10 trillion.

[kandrathe]

In the meantime, I think I might take some cues from government fiscal policy and start spending more than I earn every year. I mean, they're professionals and they've been doing it for 50 years straight or so, it must be a pretty good strategy, right?

Yeah, it's kind of crazy that the system is rigged right now to favor debtors, and punish savers.

[Jester]

Yeah, it's kind of crazy that the system is rigged right now to favor debtors, and punish savers.

Howso?

-Jester

[kandrathe]

Yeah, it's kind of crazy that the system is rigged right now to favor debtors, and punish savers.

Howso?

1.06% for a 1yr CD? 1% savings rate if you can find it? If you can save up $10000, and save it in a bank, then after a whole year you'd get $100. Wow. And, the deck is stacked for ongoing inflation, which will allow people to pay for the impulses of today with cheaper dollars.

http://contraryinvesting.com/inflation/t...-analysis/

"If the Federal Reserve didn’t pay interest on those reserves, the result would be inflation rates far beyond anything the U.S. has ever experienced. The monetary base has more than doubled, and without the Federal Reserve paying interest on the recently created boatload of reserves that is essentially keeping them immobilized in accounts at the Federal Reserve Bank in New York, the M1 money supply would more than double and we would have inflation rates that would make the worst days of inflation in Brazil and Argentina look tame."

The US government is paying the banks for excess reserves, which in effect is paying them to keep the money out of circulation and keep inflation in check. The system is tuned for excess consumption at an ever growing rate, and without that we crash into recession, or depression.

It's unsustainable both in the resources we have, and in that we cannot keep borrowing from the future forever (especially with a decreasing population of earners/producers). Europe is there, the US and China are there shortly. India has such a wealth disparity across provinces, that it's hard to predict how they will fair.

Nevertheless, it's a time bomb.

[Taem]

I found this rather interesting article on New Scientist. I've heard of this before many years ago but forgot about it completely. Im on my phone right now so ill just post the link:

http://www.newscientist.com/article/mg21228354.500
http://www.newscientist.com/article/mg21228354.500

Anyways, I thought it was interesting enough to share, and seems to fit right into our discussion.

[Jester]

1.06% for a 1yr CD? 1% savings rate if you can find it? If you can save up $10000, and save it in a bank, then after a whole year you'd get $100. Wow.

Banks set the interest rate, not the government. The US government shouldn't be able to keep (inflation adjusted) interest rates down. And since banks and savers rationally adjust expectations for expected inflation... this really isn't in government hands. Anyone worried about inflation will just hold gold instead of cash. Anyone uninterested in inflation will hold bonds instead of gold. Both are sky high.

Coxon, and many like him, have been singing the hyperinflation song for years now. Hasn't happened.

The US government is paying the banks for excess reserves, which in effect is paying them to keep the money out of circulation and keep inflation in check.

Um, okay... Since the Fed is *trying* to generate inflation, what sense does this make? They triple the monetary base (apparently on a whim?) and then pay banks to not circulate it?

Regardless, a bad economic outlook is not the same as the "system" being "rigged" against savers.

-Jester

[Concillian]

Yeah, it's kind of crazy that the system is rigged right now to favor debtors, and punish savers.

Howso?

-Jester

My next door neighbor a couple years ago bought another house for $3 t 4xx,xxx, handed the keys of his 'bought near the peak' $6xx,xxx house to the mortgage company and is doing fine.

My in-laws had refinanced their originally $200k house near the peak. They took out 80k, and had a mortgage that didn't require principal and interest to be paid each month for the first 3 years. When they reached the point where the payments increased by like $1k per month and they could no longer afford the payments, they owed about $320k on their house. They had blown $120k in three years and had nothing left. They foreclosed, and are renting now, but other than not owning a house they never really had much equity in to begin with, they are none the worse for wear.

Want more examples?
Non-savers are absolutely catered to in the US. They end up in the same situation they started (without savings) but able to blow hundreds of thousands of dollars in the meantime. Not just the homeowners, I have examples of people who do it with credit cards and bankruptcy too. These aren't things I've heard from the news either, these are people I have actually known.

[Jester]

Non-savers are absolutely catered to in the US. They end up in the same situation they started (without savings) but able to blow hundreds of thousands of dollars in the meantime. Not just the homeowners, I have examples of people who do it with credit cards and bankruptcy too. These aren't things I've heard from the news either, these are people I have actually know.

If lenders are being stupid (and they were), they're the ones that set the credit conditions. Credit card companies and banks are businesses - they lend out money, and get it back at profit. They are responsible for whatever due diligence ex ante. The government sets the rules, but the credit industry plays by them. If they didn't want to play the game, nobody is forcing them. That's not catering to non-savers, that's making a high risk gamble, and losing.

Indeed, from the standpoint of strict economic rationality, somebody who can borrow hundreds of thousands and walk away, probably should. It's free money, and in a free society, businesses are allowed to be stupid.

The question is who ends up getting stuck with the cheque at the end. So long as the answer is "investors," then that's just another part of risk and return. If the answer is "taxpayers," then the banks succeeded in passing the buck - but that hits all income earners, not just savers. In that case, it would be the banks, not savers, being catered to, as their downside risk is covered by the government, who has no share of the upside profits.

So long as there is depositor insurance, what's the risk to savings? No depositor lost their piggy bank, even in the latest crash.

-Jester

[Concillian]

The question is who ends up getting stuck with the cheque at the end. So long as the answer is "investors," then that's just another part of risk and return. If the answer is "taxpayers," then the banks succeeded in passing the buck - but that hits all income earners, not just savers. In that case, it would be the banks, not savers, being catered to, as their downside risk is covered by the government, who has no share of the upside profits.

Okay, sure, whatever...

I am not a bank.
I am an individual.

An individual, regardless of occupation (even one who also owns a bank,) can choose to be a saver or to not be a saver. One of those groups will be favored by governmental policy. There may even be policies that favor savers and other policies that favor those who do not save, in this case it is a matter of degrees and which is more favored.

How banks are favored, or who picks up the tab, doesn't really have to be a factor in an individual's decision as to which group he wants to make himself a part of. Inclusion of this factor is allowing emotion and/or morals to enter the decision process. If there's anything the first decade of the 21st century has taught me, it's that emotion and morals often get in the way of good financial decisions.

[kandrathe]

If there's anything the first decade of the 21st century has taught me, it's that emotion and morals often get in the way of good financial decisions.

There was this elderly millionaire farmer that lived near the town where I grew up. The rumor I heard was that he declared bankruptcy every 7 years, and his farm, and most of his assets were held by his adult children. This was back before they changed the law. Evidently, he was unscrupulous.

[Jester]

An individual, regardless of occupation (even one who also owns a bank,) can choose to be a saver or to not be a saver. One of those groups will be favored by governmental policy. There may even be policies that favor savers and other policies that favor those who do not save, in this case it is a matter of degrees and which is more favored.

To save is to invest. Whether you choose to invest your savings in dollars, gold, bonds, stocks, hyper-secure loans to large financial institutions (aka: bank deposits), real estate, or whatever else, is a private decision. Each carries risks and returns, and people are free to negotiate them. And each carries an entirely different set of government regulations, from outright guarantees (gov't bonds) to implicit crisis support ("too big to fail"), to nothing at all.

Government is *very* touchy about savers' deposits, which is why allowing banks to fail has been basically forbidden since the great depression. But other kinds of assets are allowed to fail, more or less, depending on political will.

Non-savers are also protected in various ways. But they are, in some sense, no different - free individuals negotiating contracts with other private entities (banks, mostly). Everyone knows the regulatory environment. Credit card companies do not give out credit cards assuming that none of their creditors will go bankrupt, and they price their interest rates accordingly. No coddling involved. Contracts adapt to the laws, making it very difficult for government to "coddle" anyone, except by doing one of two things: either picking up the tab themselves, or by changing the rules in the middle of the game.

How often does the government pick up the tab for non-savers? Pretty rarely. How often did they pick up the tab for "savers" by bailing out banks? Just look at the last four years. This is not a simple story, measured out in percentages.

How banks are favored, or who picks up the tab, doesn't really have to be a factor in an individual's decision as to which group he wants to make himself a part of. Inclusion of this factor is allowing emotion and/or morals to enter the decision process. If there's anything the first decade of the 21st century has taught me, it's that emotion and morals often get in the way of good financial decisions.

I absolutely agree that introducing morals into this process is at best a distraction, at worst, a serious problem. But, then, it is difficult to tell what the problem was in your example. Someone who took out a $600,000 mortgage, then, when the house price fell below that, and handed back the keys, is just making a very rational decision. They have a contract with the bank. The asset is the collateral, negotiated ex ante. If the collateral is worth less than the debt, then the correct move is to hand back the house. Contract fulfilled, no further obligations incurred. That they bought another house is beside the point. Without a moral dimension of debt, this is just what I said it was - the bank making a very stupid decision.

Similarly with your inlaws. They did not conjure a mortgage out of nowhere, they borrowed it from a bank. The bank decided they'd rather make the loan than not. Maybe they thought the collateral was enough. Or maybe they had insured themselves against default with some kind of credit default swap. Or maybe they took the mortgage, packaged it up with other lousy mortgages, cut it up into slices, and sold them as CDOs. Who knows, who cares - the point is, the bank voluntarily took on the risk, in exchange for the reward. Your inlaws, probably by accident, negotiated a surprisingly good deal, and the banks a surprisingly bad one. But it was all *negotiated*, everyone responsible for their own interests. This is not coddling. This is the free market.

-Jester

[DeeBye]

[kandrathe]

Heh. I've seen something similar.

Corporations have too much power. --> Corporations buy favors from government <-- Government has too much power.

Really the two sides are facing the same travails but have two different answers as to who's to blame. It's the governments fault. No, it's the corporations fault.

[FireIceTalon]

Both are the problem honestly. But I stand firm in my notion that between the two, the corporations are the greater evil, cause money, at the end of the day, has more power than law or politics. Simply put, money and politics do NOT mix if you want a democracy. Congress and the White House are both bought out by the corporations, as are both parties, and if you really think about it, it is the corporations that now make the laws. We are Republic after all, and it is the will of the corporations and elites that is prevailing over the voice of the masses. And with last years decision of Citizens United vs. Fec, the power that big business has over government will become all the more pronounced. Goodbye democracy, hello corporate totalitarianism/fascism

[kandrathe]

Both are the problem honestly. But I stand firm in my notion that between the two, the corporations are the greater evil, cause money, at the end of the day, has more power than law or politics. Simply put, money and politics do NOT mix if you want a democracy. Congress and the White House are both bought out by the corporations, as are both parties, and if you really think about it, it is the corporations that now make the laws. We are Republic after all, and it is the will of the corporations and elites that is prevailing over the voice of the masses. And with last years decision of Citizens United vs. Fec, the power that big business has over government will become all the more pronounced. Goodbye democracy, hello corporate totalitarianism/fascism

According to Justice Kennedy, "If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech." He also noted that since there was no way to distinguish between media and other corporations, these restrictions would allow Congress to suppress political speech in newspapers, books, television and blogs."

Do you think media organizations should be restricted? Unions? Or, just companies?

From Wikipedia, "The American Civil Liberties Union filed an amicus brief that supported the decision, saying that "section 203 should now be struck down as facially unconstitutional", though membership was split over the implications of the ruling and its board sent the issue to its special committee on campaign finance for further consideration."

And, "Campaign finance expert Jan Baran, a member of the Commission on Federal Ethics Law Reform, agreed with the decision, writing that "The history of campaign finance reform is the history of incumbent politicians seeking to muzzle speakers, any speakers, particularly those who might publicly criticize them and their legislation. It is a lot easier to legislate against unions, gun owners, 'fat cat' bankers, health insurance companies and any other industry or 'special interest' group when they can't talk back." Baran further noted that in general conservatives and libertarians praised the ruling's preservation of the First Amendment and freedom of speech, but that liberals and campaign finance reformers criticized it as greatly expanding the role of corporate money in politics."

I guess I would rather have corporate political speech and finances in the light of day, rather than the current charade of back room deals and law writing by special interests. I would like to see them tighten up congressional spending to prevent them from giving money or special deals (including tax breaks and subsidies) for companies altogether.

To me, the whole notion of "bringing home the pork to my district" has got to be removed from federal politics. Whether that is an earmark, some military contract, or a "shovel ready" project. All of these projects should be decided at the State level. For example, our billions in Minnesota to develop light rail. Thanks New York, Florida, California, and Texas. We would have never been able to afford it without the huge influx of federal money, and in fact we'll be coming back every year to have you help us maintain it as well since we can't afford to run it either.

[FireIceTalon]

Anyone who isn't an individual should be restricted in my opinion, media and unions included. I don't think the founders intended for the 1st Amendment to apply to anyone else but individuals. I'm all for free speech, it is an essential part of having a democracy in the first place, but there ARE limitations on it. Obviously, you cannot make terrorist threats, nor can you scream FIRE! in a crowded theater. This situation is another of those where the line must be drawn, in my view, because it basically allows money to become a form of free speech. Which undermines the very democracy freedom of speech seeks to achieve and/or protect. Those with greater wealth now speak much louder than we do. It really kind of makes the whole voting process in vain, since politicians are now simply bought. 1 person, 1 vote. Period.

[Jester]

Anyone who isn't an individual should be restricted in my opinion, media and unions included. I don't think the founders intended for the 1st Amendment to apply to anyone else but individuals.

The phrase guaranteeing free speech is squeezed directly in between two other, closely related freedoms: Free exercise of religion, and freedom of the press.

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Neither churches nor newspapers are individuals. Are you saying the framers did not intend for churches to speak as they please, or newspapers to publish free from censorship? It seems obvious to me that they were considering collective speech cases, and intended freedom of speech to apply. They even spell out the freedom to "assemble," surely indicating that being a group does not curtail one's freedoms.

Now, whether campaign finance is genuinely a free speech issue, is another question, and I sit on the other side of that one. But as for speech itself, I think the constitution is pretty clear.

-Jester

[Taem]

I look forward to your full thoughts Taem, and I'm wondering if you might be able to explain a potential process through which powers vested in the Federal government might be ceded back to the States. Having worked for the government, I can think of a few things I'd prefer handled at a local level, but I cannot for the life of me see a viable path to making that happen.

Alright, I'm finally getting back to you. I haven't had all the time I've wanted to think about this, but in the time I have had, I must concede that I couldn't find a sustainable way break down every single special interest group, or the special session bills, nor the ear-marks add-ons to every single bill affecting commerce between the feds and states... Just commerce; I didn't even check medical, judicial, education, or the plethora of other interests the feds got it's hands in which the states could take control over. At this point, from what I've read, our infrastructure [the American system] is so convoluted with cross-connecting interests between individual states and the fed that unraveling it would be a real headache. It seems to me the states and fed are now in a symbiotic relationship; one part can't survive without the other.

This is just the impression I got from reading many, many online links; no smoking gun. No sites specifically talking about the states getting their own power back, Nothing anyone here doesn't already know.

When I wrote what I wrote, I was thinking small, but after even just some minor review... this is really a rather daunting request, giving the states back some real power. I don't see it happening in our lifetimes, at least not the way I initially proposed. Still, there has got to be a middle-ground. Sure the feds give out loans for tuition to college, support the FDIC for banks, state how our kids learn and what they learn, tell us when and where to fly, legal drinking and smoking ages, and soon to be a "stream-lined" medical system... Perhaps we really should go the way of Denmark. Then we [Americans] will all be healthy, and even, not rich or poor.

[FireIceTalon]

Anyone who isn't an individual should be restricted in my opinion, media and unions included. I don't think the founders intended for the 1st Amendment to apply to anyone else but individuals.

The phrase guaranteeing free speech is squeezed directly in between two other, closely related freedoms: Free exercise of religion, and freedom of the press.

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Neither churches nor newspapers are individuals. Are you saying the framers did not intend for churches to speak as they please, or newspapers to publish free from censorship? It seems obvious to me that they were considering collective speech cases, and intended freedom of speech to apply. They even spell out the freedom to "assemble," surely indicating that being a group does not curtail one's freedoms.

Now, whether campaign finance is genuinely a free speech issue, is another question, and I sit on the other side of that one. But as for speech itself, I think the constitution is pretty clear.

-Jester

The people representing and involved in those newspapers or churches can go to the voting booth like the rest of us, same with the corporations and unions. Money shouldn't be free speech in my opinion.

[kandrathe]

The people representing and involved in those newspapers or churches can go to the voting booth like the rest of us, same with the corporations and unions. Money shouldn't be free speech in my opinion.

I think what we are talking about is political speech, not voting. Can a newspaper engage in political speech? Can the local priest talk to his congregation about being against abortion laws or proposed changes to marriage laws?

A church, a media concern, a corporation or a union are just contractually formed groups of people, who have representatives who speak on their behalf. If I don't like what Rupert Murdoch says, then I'm free to divest myself of his corporations and invest myself in a corporation where I agree with what they are doing and saying.

This is the fundamental concern about union card check laws, and being forced to belong to the union and have dues deducted without your consent. On the one hand, you could just get all the benefits of being employed at a union shop without paying the dues, and on the other, you are forced to belong to this organization in order to get work in certain professions. People don't belong to unions to engage in political speech, just as stock holders probably don't own stock to support a particular corporate political stance. Unions engage in political speech ostensibly to promote their workers rights, and corporations would engage in political speech to promote their cause, or defend their cause.

When government was against big tobacco, big tobacco had its ability to defend itself curtailed (not that I'm in support of them by any means). How does a gun manufacturer, like Beretta (in business since 1526), defend itself against a movie like "Runaway Jury"? Could a Micheal Moore movie even be made, since it's a bunch of corporations engaging in political speech. And... we are talking about a non-profit corporation who made a movie "Hillary: The Movie" -- and if making a documentary movie about a politician violates campaign finance laws.

Just to repeat a part of the post I made earlier that struck me...

"Campaign finance expert Jan Baran, a member of the Commission on Federal Ethics Law Reform, agreed with the decision, writing that "The history of campaign finance reform is the history of incumbent politicians seeking to muzzle speakers, any speakers, particularly those who might publicly criticize them and their legislation. It is a lot easier to legislate against unions, gun owners, 'fat cat' bankers, health insurance companies and any other industry or 'special interest' group when they can't talk back."

And if they don't get free speech, then ...

Does a corporation have the right to not be tried again for the same crime? Does a corporation have the right to a jury trial? Does a corporation have the right to invoke the 5th amendment? How about just compensation for property taken for public use? Do they have the right to protection from unusual search and seizure? How about the 14th amendment equal protection (i.e. not being singled out by law), and the right to due process?