A key idea of 'The NewNewDeal21' :
Eliminating the US National Debt and all current Federal Taxes is not only feasible, it is both a powerful short-term solution to the current economic crisis, and a long-term solution for economic prosperity and political freedom. We define this method as "maxation": replacing traditional modes of taxation with a monetary-policy-based funding. For details, see the previous blog: "What is Money?"
[For an expert article with similar ideas, see:
(Ellen Brown,"The Web of Debt"/National Bank System)
[For an incisive overview of the state of US Politics and Economy, hear:
(Gerald Celente Interview)
Simple, Fast, Effective Stabilization of the Securities and Commodities Markets :
1. the SEC should ban all ‘short sales’ in the Stock Market.
a. This practice clearly played a significant role in amplifying the recent financial disasters. The SEC implicity recogized this by placing an emergency ban on short sales of stocks of selected financial institutions; but this is unfair protection because all companies should be treated equally in the market -- the ban should be universal, without exception.
b. The large professional traders attempt to magnify market volatility to maximize profits at the expense of small investors and corporate shareholders. ‘Short selling’ is their way; they can ‘pump up’ the stock price, place a ‘short’, then profit by ‘popping the bubble’.
c. The ‘short selling’ favors and rewards negative speculation rather than investment.
d. The ‘short selling’ enables powerful criminal elements to profit by damaging businesses.
e. The 'short selling' enables powerful investment bankers to put pressure on national political leaders by initiating punitive orchestrated drops in the markets and thus inciting fear in the majority of ordinary investors and businesses.
e. Do not be swayed by arcane or historical justifications for the practice of ‘short’ equity sales; use common sense: It is absurd for anything to have multiple ‘sole owners’. While ‘naked’ short-selling is a clear problem (you should not be allowed to sell what you do not have), the so-called ‘covered’ short, consisting of informally ‘borrowed’ shares, is equally wrong. The borrower of property should not have the right to sell it (resulting in 2 ‘sole’ owners). This is plain fraud against each of the two who think they are the sole owner of the equity.
f. Currently, there is a dangerous ‘multiplier effect’ because a single real stock share can be 'borrowed’ and ‘re-sold’ any number of times… thereby creating a fraudulent de facto dilution of the share value, forcing a lower price than real economics would dictate. This provides a cost-free leverage to the large 'short' seller, enabling him to force the share prices progressively lower.
2. the CFTC should enforce the existing law/rules meant to prevent manipulations by holders of large concentrated positions.
a. Enforce strict contract-holdings limits for all participants (especially large ‘short’ positions), whether commercial or speculator, in the commodity/futures exchange markets.
b. Require substantial proof that major ‘short’ commercials actually own or have direct access to the underlying commodity, and are able to deliver it promptly.
c. The laws that established the CFTC treated ‘short’ and ‘long’ regulation symmetrically, recognizing that manipulation on either side is equally harmful; but historically the major ‘short’ players have been more politically powerful and gained favorable treatment.
d. Refer to the recent case of the Silver futures market: a single large bank was allowed to carry a huge ‘short’ position (25% of world annual production), contrary to laws and rules in place; even though the bank would not be able to deliver that magnitude of silver. The result was a major manipulation of the price downward (which is now under criminal investigation by the CFTC) with massive losses to silver merchants, miners, and investors.
e. Congress must insist that these recent violations be fully investigated, and that the complicit government officials and exchange administrators be dismissed and at least fined.
It is impossible to know the full extent of the negative effect on the economy of these abusive ‘short-selling’ activities; but it is very possible that they are a major factor, and that this constitutes a crime in progress. The positive market reaction itself will tell the truth after the practice is banned.
The large players in this game, who are secretly profiting most from the economic crash (and driving it into a vicious downward cycle), may well be the same ones who are publicly claiming to be victims and even demanding ‘bail-out’ funds from the government. Their lobbying power over the government was obvious when they persuaded the SEC to place a ban on short-selling of their own stock shares, while allowing short-selling to continue unabated in the general market. Why were they so desperate to protect themselves? Because they know the predatory power of short-selling, and have enjoyed much profit by employing it against others.
In the case of the stock market, by an executive Presidential order the SEC could prohibit any further 'short' selling; then mandate that all broker clearing houses force liquidation of all ‘short’ positions that would provide a gain or 'break-even'. Do this over the course of about a month, in order of position size. For example, the first day all positions of less than $100000 size; and then double the size each successive day. Mutual funds that predominantly ‘short’ the market would be treated specially; they would themselves liquidate progressively their shareholders’ positions who are in the given size-category for each day.
Similarly, the CFTC must set and enforce reasonable contracts-position size limits. For example, no entity (or group related by common ownership/management) should be allowed to hold more than 5% of the total open interest in any commodity (after excluding spreads). Any participant currently exceeding those limits should be forced to liquidate the excess immediately.
In the end, the top 5% - 10% largest position holders would be reported to the Justice Department, for investigation of potential criminal violations.
We predict that a dramatic restoration of stock market valuations will ensue; and a similar benefit will result from proper formulation and enforcement of the commodity trading rules.
Beyond the Short-term fix:
The general pattern during republican administrations is to relinquish progressively more of the Federal government's Constitutionally-mandated control of the US Money Supply. In another essay we discuss the case for a National Central Bank to reclaim this power, with consequent benefits (elimination of national debt and taxation). Here we can go further and consider financial instruments such as corporate equities and commodity futures as a type of money in this Constitutional sense. It should be noted that the vast majority of trading volume on the Market Exchanges represents very-short-term speculative trading; and the majority of that is concentrated in the effective control of a few wealthy individuals and businesses. To counteract the vulnerability of our political process to manipulation by this power block, we should seriously consider nationalization of the stock market and commodity/futures Exchanges. The new federal institutions would modernize the exchange mechanism (similar to the fully-computerized NASDAQ) and eliminate the easily-manipulated drama of the 'open outcry' methods. The National Central Bank would assume the 'market-maker' liquidity function now controlled by large private investment banks and brokerages. This has similar benefits and rationale to the nationalization of banking (see the post 'What is Money?', and can be coordinated with it.
Decisive Fix for Failing Industries (Automobile Manufacturing, etc)...
The following plan attempts to meet the criteria that President-elect Obama has asserted: Any aid package to the US Automobile Industry must be within a framework for positive long-term change within that industry. It speaks to the objection by many Americans and their Representatives, that an unconditional loan now would be a lost cause, simply squandering taxpayer funds on an industry that has had decades to adapt to new economic and environmental realities, but has willfully failed to do so.
The key strategy is that this aid package should be integrated into a long-term National Agenda.
Three relevant components of that Agenda are:
1> Comprehesive National Energy Independence
2> Modernization of the National Transportation Infrastructure
3> Cooperation in the International Environmental Protection (anti-‘global-warming’) treaties
Assertions relevant to the following suggested plan:
> the US automobile industry in the past 3 decades has ignored the many warning signs regarding the need for radical solutions to vastly improve fuel efficiency and minimize environment degradation; instead, it has cultivated only the consumer markets for large cars and assumed ever-low fuel prices.
> this neglect has significantly contributed to the US dependence on foreign petroleum and involvement in expensive, destructive foreign interventions.
> this neglect has significantly delayed any constructive solutions to the future ‘global-warming’ crisis
> it is unlikely that even a reformed private enterprise would be able to respond to these adequately without strong public-policy incentives from the government.
> however, lack of some funding aid would result in massive economic turmoil that is not in the national interest . Bankruptcy of the major domestic US automakers could result in the permanent loss of the auto market to foreign companies; and especially the loss of technical ability to design & manufacture vehicles.
The Plan: Instead of extending a loan to the US Automobile Industry, the federal government should provide the ‘emergency bridge funds’ being requested by the automakers in the form of a PURCHASE AGREEMENT:
The automobile companies must agree to ‘split off’ their current Research & Development Departments (including patent-rights and trade-secrets), which would be merged into a single ’US Vehicle Research & Development Corporation’ owned by the federal government (the aid-funds pay for stock-shares).
This would insure that:
1> we (taxpayers) receive some good value for our dollars.
2> the criteria for future vehicles conform to the National Agenda.
3> the ownership of crucial technologies remain domestic.
The advanced vehicle designs created by this new corporation would be licensed to the various remaining domestic automobile production companies; they would have the option to modify the basic vehicle cosmetically and market it, as long as its fundamental design is not compromised.
The private automobile companies would be free to use the funds received in any manner necessary to avoid bankruptcy and regain viability. However, if they subsequently failed despite the aid, there would be no further government guarantees; new ownership (whether domestic or foreign) would be allowed to re-organize the industry though the bankruptcy process. In any case, the key ‘Research and Development’ component would be already protected from loss to foreign control. And this does not preclude future aid to laid-off workers in the form of extended unemployment benefits, and perhaps bridge-loans to second-tier suppliers to insure that the remaining foreign-owned but domestic-located industry continue able to produce its vehicles in the USA.
With focus and persistence, we can see in 10 years a vehicle fleet of clean hybrid methane/electric vehicles fueled by domestic natural gas; and in 20 years, hydrogen/electric vehicles that minimize global-warming.
This same basic approach is smart for any other endangered industrial sector:
(1) identify the core technologies knowledge/expertise part of the corporation(s)
(2) buy it from the corporation, creating a National Research & Development enterprise
(3) allow the rest of the corporation to attempt to survive with help from the sale funds; allow it to go bankrupt if it cannot.
"TOO BIG to FAIL? and other MTHS"
There is a bit of good news in the 2008 financial debacle-- some doctrines of choice 'conventional wisdom' may finally be seen as truely idiotic. Let's start with the 'Too Big to Fail' mantra.
Consider all those big banks that took multibillions of Mr. Paulson's bailout money and now 'decline' to reveal what they did with it... no surprise: they are holding on to it, waiting for the crisis to hit bottom, whereupon they can buy all sorts of assets for pennies on the dollar, and vastly enrich themselves... as they did during the last Great Depression (the 1930 one). I guess that is what I would do, if Mr. Paulson gave me some of that free money. Maybe we should declare Bernie Madoff 'Too Big to Fail' also? How different is his Ponzi scheme from the whole Housing-Mortgage-Asset bubble? Are those 'poor' banks who convinced the SEC to ban short-selling of their stock, now gleefully short-selling the stock of others (General Motors etc)?
So, if the lesson is that BIG Fools/Criminals (whether individuals or institutions) can cause serious damage to our nation, then a more direct solution would be to prevent such a SIZE ever being achieved. Make that the primary policy. First, if any entity exceeds some reasonable bound of growth velocity, then investigate it. If it is due to criminal actions, prosecute; else if getting 'too big', mandate a partitioning into several smaller independent entities. In short, 'Divide and Conquer' the problem. Let any of those who fail, follow the bankruptcy laws.
However, in the case of Banks and Bank-like entities, the more important lesson regards the fundamental purpose of government as a balance against private enterprise. The false 'libertarians' have promulgated the half-truth that Government cannot be trusted, and the false solution that Private Enterprises can and must be trusted. Perhaps we can agree that the current crisis exposes the error of that.
The full truth is that humans are all fallible, and to some degree untrustworthy, whether they compose governments or corporations. This was a simple axiom of the authors of the US Constitution. Moreover, much of the current crisis is the result not of foolishness, but of simple criminal fraud, enabled by the radical failures of government to regulate and to enforce existing laws. Law-enforcement is Government.
As a start, we can re-assess what portions of economic structure and activity are appropriately allocated to government. The number one change we propose will deal decisively with Money, with Banking. We propose that a large part of what is now 'private banking' and also the semi-private 'Federal Reserve System' belong more safely in a true democratic National Central Bank, integrated with the US federal Treasury. Details of the far-reaching effects are presented in previous posts.
(1) 'Money' is to be defined as a Service, exclusively provided by the Government.
(2) Most government funding is properly done by the simple act of 'Money-Creation'.
Some of this can be provided by the interest on loans made to the private sector by the National Central Bank; the rest, by direct federal spending of created money.
(3) Most forms of Taxation are therefore inefficient, unnecessary, and inappropriate.
(4) Interest-paying U.S. Treasury Debt of all forms can and should be replaced with non-interest-bearing National Central Bank 'Certificates of Deposit'. Such deposits by any global users of U.S. Dollars will reduce/delay the need for Money-Creation.
It will also encourage very large holders (like China) to allow their currency to float and to diversify into other currencies than US Dollar, which is a good thing for a safe/robust global economy (isn't China 'too big too fail'?).
(5) The private banking sector should be only small 'retail' banking services, and the FDIC limits be reduced accordingly (such as $10000 rather than 100000). The federal monopoly on 'no-risk' Certificates of Deposit ensures the feasibility of government funding, and demands that depositors to private banks knowingly bear the risk (presumably in return for receiving higher interest payments from those banks).
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More radical changes should be envisioned. For example, currently it is accepted that the vast majority of Water and Air in the vicinity of our country is properly 'public domain', not privately-owned. We submit that a fine way to avoid future 'real-estate' excesses (boom and bust) is to include 'Land'. The resulting Trinity of Natural Resources would be held-in-trust by the federal government for the entire benefit of the People (ok, and the animals/plants/ecology). It could be selectively leased, based on broad public welfare and sustainability criteria, which would provide yet another modest source of funding for government activities. Credits could be granted for the improvement of value, and penalties for the debasement of value due to the activities of the lessees.
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Is Vermont 'Too Big to Fail'? Note that most of the State Governments of this United States are requesting bail-outs from the federal government in this crisis. We submit that the whole notion of 50 States is woefully obsolete and hugely inefficient. Anyone who tries to operate a business in multiple states knows this! Modern transportation and communications negate the need for such partitioning. An example is New Zealand, which has removed those redundant levels of government to good effect. Most of the U.S. land mass would simply be governed at a federal level. Perhaps the top 20% of large Metropolitan Areas would have some form of local government, but only for appropriately-local issues; basic laws, whether criminal, civil, or commercial, would be uniform in these fully-united-states of america.
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Finally, Is The U.S. Federal Government 'TOO Big to Fail'?
Is it possible that some natural or man-made disaster might, for example, seriously decimate Washington DC? Presumably there is a martial-law option in place to respond to that sort of thing... but Why not be proactive? Can we better ensure continuity of reasonably normal civil federal governance in the aftermath of such a disaster?
We propose that it's a fine candidate for Mr. Obama's 'Fiscal Stimulus by Useful Public Infrastructure Projects'. Apply well-developed technologies of System-Robustness through distributed redundancies... for example, build a couple of new 'DC's... maybe a 'Jefferson DC' in Arkansas? a 'Lincoln DC' in Utah?
Wherein we can create back-ups of critical institutions such as Congress/SupremeCourt/Presidential offices/residences, and the Executive Departments.
The Military is presumably already distributed in various bases, but best to check up on that assumption too...