The Economic Depression by Shri P. R. Sarkar

Economic Depressions

By Shri P.R.Sarkar

17 January 1988, Calcutta

 

In the economic sphere, you must know that two factors are very important. The first is that money will have to be kept in circulation. It must be understood that the more the purchasing capacity of money is not utilized or money is kept stagnant, the more the economic stratum is damaged. The second is that money, and indirectly its interest, can bring about disparities in wealth if it loses its ability to be the unit of economic equilibrium and stability. If these two fundamental factors of economics are even partially forgotten, a worldwide economic depression will result.

 

 

Even if countries or socio-economic regions which have been maintaining a stable economic standard engage in trade related to bullion with other countries, they will have to suffer such a depression partially if not totally. If countries which are prosperous in various spheres and economically unrelated to other countries undergoing a depression, invest their wealth in enterprises of a non-yielding nature such as excessive defence spending, superfluous construction of large buildings, luxury goods, etc. – investments which do not earn any income in return – these countries will also suffer from economic depression.

 

 

However, if a country discontinues trade related to direct or indirect economic transactions and commences barter trade instead with other countries, it will not suffer much from such an economic depression. In this case only a very slight economic depression, which is hardly felt, takes place at the end of every financial year due to imbalances in economic transactions. This type of depression is felt slightly every three years, a bit more every thirty years, and still more every 350 years…

 

 

When something, for some reason or other, descends from its universally accepted position, or its natural value is reduced or brought down, we call it “devaluation”. When the leaders of the state find it difficult to balance the value of the currency with bullion, sometimes they officially reduce the value of the currency. This is called “monetary devaluation”. But, an economic depression is felt throughout a country or the world due to some inherent defects in the existing economic systems.

 

17 January 1988, Calcutta

 

Each and every movement in this universe is systaltic. Nothing ever moves in a straight line. Due to this systaltic motion, internal clash and cohesion take place. The ups and downs of socio-economic life in different phases of the social order are sure to take place due to this systaltic principle. When the period of pause is long, society goes through a phase of extended staticity, and it may lose all its dynamic movement or even cease to exist. If there is lack of dynamic force in the phase of pause, then the stage of dynamicity may not come in the subsequent phase.

 

 

The downfall of both capitalism and communism is inevitable due to their inherent staticity. Both capitalism and communism are on the verge of extinction from this world. The external and internal spheres of capitalism have ordinary acceleration, but there is a contradiction between its internal and external spheres. The contradictions in capitalism are due to the self-centred profit motivated psychology and the accumulation of wealth for the benefit of a few rather than for the welfare of all. Hence, capitalism is not congenial to the integrated growth of human progress. A day is therefore sure to come when capitalism will burst like a fire-cracker.

 

 

Marxism, too, is a transitory phenomenon. In the external sphere of Marxism there is only ordinary acceleration, and in the internal sphere there is staticity. The result is negative dynamicity. That is why Marxism will never be a success either. Marxism is just like a comet on a parabolic path – it is not of hyperbolic order. Marxism can only bring society to an omni-static state; that is, the state of nihilism or cynicism – a sort of negation.

 

 

Economic Depressions – The Result of Staticity

 

 

In the economic sphere depressions are inevitable in both capitalist and communist countries due to this very inherent, intensive and innate staticity. Economic depressions are actually the net result of suppression, repression and oppression – that is, exploitation. When exploitation reaches the culminating point, the mobility and the speed of the society become virtually nil. In such a stage, that is, in this culminating point, a natural explosion takes place. In the case of the material world the explosion is of a material nature, and in the psychic sphere the explosion is of a psychic order, and so on. Depressions may happen in any of the four eras – the Shúdra, Kśatriya, Vipra or Vaeshya Eras.

 

 

Depressions may also take place in the cultural life of society due to suppression, repression and oppression. As a result, every aspect of cultural life becomes perverted and degenerates. This is why we get perverted literature, music, dance, art, architecture, etc.

 

 

In both social and economic life this depression becomes unbearable for one and all. Such a depression took place between 1929 and 1931. During this depression in Bengal, five kilos of brinjal were sold for one paisa, and forty kilos were sold for eight paise in the Burdwan market, but there was no one to purchase these items. There were also big curtailments in salaries, and people had to accept salary cuts of ten percent or more.

 

 

Today also the stage has almost come for such a severe reaction. The explosion will come in two, three or five years. It will surely come within ten years. The difference between the previous depression and the future depression will be that in the previous one there was little inflation, but the future depression will be associated with inflation. Hence, it will be more detrimental to the integrated development of human society.

 

 

This depression will occur in the industrial subsection of the commercial economy. It will have widespread and devastating consequences for humanity.

 

 

An endeavour should be made to shorten the span of this economic depression. Before the final culminating point comes, it is possible to avert the disaster and accelerate the speed of social movement. We can do so by creating a socio-economic and cultural impact on the entire social structure through PROUT. As the world is passing through a most critical phase, we should be more active and create an impact. If the positive impact we create coincides with the explosion, the effect will be excellent.

 

 

It must be borne in mind that both inflation and depression result from the ailment of staticity. If the production in a country is abundant and the gold bullion reserves are in proportion to the country-s economic position, there is no possibility of inflation. However, if the circulation of the capital decreases as a result of staticity and the quantum of production also goes down, then inflation is bound to take place.

 

 

If a country has a constant deficit in foreign trade, in that case also there is the possibility of inflation. In addition, if foreign trade is not conducted according to the barter system and the country has to import foodstuffs and export raw materials, inflation will certainly occur.

 

 

On the other hand, if there is sufficient production and adequate supply, but suddenly the quantum of demand falls, then the value of money suddenly increases for the buyer. This is called “negative inflation” or “deflation”.

 

 

The Causes of Depressions

 

 

There are two main causes for economic depressions – first, the concentration of wealth, and secondly, blockages in the rolling of money. If capital is concentrated in the hands of a few individuals or the state, most people will be exploited by a handful of exploiters. As a result of this process of severe exploitation, a serious explosion takes place. This explosion is known as a depression in the economic world. The concentration of wealth, and particularly the concentration of the value of wealth, is the fundamental cause of a depression.

 

 

Secondly, a depression may occur when money that is in the possession of individual or state capitalists stops rolling. Money remains inert or unutilized because those capitalists think that if the money is allowed to roll freely then their profits will decrease, even though it will bring relief to the common people. The very psychology of capitalists is to make profit from the rolling of money. When they discover that the investment of money does not bring profit up to their expectations, then they stop rolling money. This keeps money immobile or inert; consequently, there is no investment, no production, no income and hence no purchasing power. The situation becomes so dangerous that there are few buyers to buy commodities.

 

 

If there is surplus labour and deficit production, the effect of depression is more acute. Bihar, Andhra Pradesh, especially the Telengana region, and Orissa are surplus labour areas, so during a depression these areas could face indiscriminate closure of business houses and lay-offs. When wages fall, the people in surplus labour areas who used to go to deficit labour areas for employment will be subjected to more hardships. This will aggravate the unemployment problem in surplus labour areas. In such situations, restricting the transfer of food among different socio-economic units could lead to an acute scarcity of food in the deficit production areas, and therefore a cordon system should not be introduced. Countries and regions with surplus production and deficit labour usually suffer less hardships during depression.

 

 

The Effect of Economic Depressions

 

 

An economic depression in capitalist countries will not spare communist or so-called socialist countries, India and the Middle East. India exports many raw materials to industrially developed countries and their satellites. India also purchases raw materials such as raw cotton from other countries, although it used to export such materials in the past. Therefore, to the extent to which India is dependent on other countries for its exports or imports, it will be affected. India also has immense loans, and these loans will put a strain on the Indian economy during the depression. The fire sparks of depression will not spare India. If the financial or monetary trade – or say the trade that affects bullion – is lessened, and barter trade is increased, then the effect of a depression on India will not be much. Therefore, India should try to increase its range of barter trade.

 

 

Bangladesh exports manufactured goods, raw jute and hide, and imports foodstuffs and almost all other articles. If Bangladesh wants to avoid a depression, it will have no alternative but to increase its barter trade.

 

 

In time the Arab countries – those selling oil – will be the most affected. Even the communist countries will not be spared from the onslaught of a depression. These countries have not been able to solve their food problems. Although they have huge buffer stocks, they depend on Canada, the USA and Australia for wheat. If these dollar-based countries suffer from a depression, the communist countries will certainly be affected by a depression, although not much.

 

 

Depression is not a natural phenomenon. Pause is a natural phenomenon. In a Proutistic structure pause may occur but depression will not occur. To save society from depression, the approach of PROUT is to increase purchasing power by increasing production, reduce disparities in the value of wealth, and increase the circulation of money; that is, by keeping money rolling. Empty slogans will not do. Attention will have to be given to increasing the level of production.

 

 

In capitalist and communist countries, the mode of production is defective. In capitalist countries, labour does not work in the interest of the management and management does not allow the rolling of money due to the concentration of wealth. In communist countries, labour does not feel one with the job and that is why there is sluggish production.

 

 

The cooperative model of PROUT is free from both sets of defects. PROUT is well-adjusted with human ideals and sentiments. Other socio-economic systems are ultravires to human existence and all-round elevation.

 

 

Bullion Inflation

 

 

In capitalist economies, production is for the profit of the capitalist and the profit goes to individuals, groups and the state exchequer. In socialist economies or so-called communism, the profit goes to the state exchequer and a microscopic fraction of the profit goes to the actual producers. In both cases capitalism exists, and whenever fresh financial investment is required, inflation takes place.

 

 

In a Proutistic economy, production will be solely for consumption. As there will not be any profit motive, there cannot be any fresh inflation, and the existing inflation will gradually die out. In Proutistic production or consumption, in the first phase the money value remains constant and full-fledged purchasing capacity will be guaranteed to the people. In the second phase, when production increases in the revised economic order, money will get back its natural market value. Finally, after consumption, money will get back its actual value. Inflation will be checked and purchasing capacity and the minimum requirements of life will be guaranteed to the people.

 

 

The second phase will continue for ten to fifteen years. After the expiry of this period, that is, in the third phase, minimum requirements of life will increase and people will acquire more purchasing power. This power will increase at an accelerating rate.

 

 

The printing and issuing of monetary notes having no bullion value must stop immediately, and new notes having bullion value should be issued in new colours and shapes. No monetary notes should be issued by the government from then on without a clear assurance that it is prepared to pay the requisite amount of money in gold coins. This can only be implemented by a Proutistic government.

 

 

Production Inflation

 

 

The problem of production inflation cannot be ignored either. Production inflation may occur in two ways. First, owing to the application of scientific methods, the production of certain commodities may increase in excess of the demand or need in particular socio-economic regions. Then it becomes a problem how such excess production or overproduction can be marketed or consumed. Secondly, it may also happen that all of a sudden under certain circumstances the production of commodities increases, then it becomes difficult to find a market for such production.

 

 

Now a question arises whether or not such production will increase purchasing power as well as elevate the standard of it. In general circumstances such production is not a big problem, not a chronic problem, but if no measure is taken to find a market for such overproduction, then it may take the form of an acute problem. This problem can be tackled by taking three measures.

 

 

First, there should be a free trade system so that overproduction can be consumed by other countries or other economic units. In India, excepting the Punjab and Haryana, there is underproduction of milk. In other states, common people cannot get a sufficient amount of milk. But there are many countries, such as certain European countries, where there is overproduction of milk. In England, Germany and Sweden the authorities even give orders or encourage the public to kill cows. If in these circumstances free trade is allowed among different countries, the countries having overproduction or underproduction can make respective adjustments among themselves so that the overproduction of commodities may be consumed by under-producing countries. In that case the concerned countries will be benefited. Here free trade means that there should not be any imposition of export or import duties, and thus the prices of these commodities will benefit the consumers when they reach the market for actual consumption.

 

 

Secondly, there should be proper arrangement everywhere for the preservation of products which are in excess production. In Malda in Bengal there may be overproduction of mangoes which are perishable commodities. As there is no system of preservation, the ordinary mango growers will have to sell their mangoes at throw away prices. But if they could sell the same products four months later they would get remunerative prices. Moreover, if processing factories are established, they can then produce dried mango, mango candy, mango juice, sauce, jam, etc., which can be preserved for a longer time. There are many countries in Europe or other parts of the world where there is no mango production. If a system of preservation were available, then mangoes could easily be sold in those European countries, and the mango growers could earn a good amount of money.

 

 

In many places in India abundant vegetables are produced in the winter season; for example, in Nadia district, at Ranaghat, Nagi, Bago, etc. In European countries at the same time there cannot be any vegetable production due to the excessive cold. If vegetable processing factories could be installed in those places, then perishable vegetable products could be easily preserved by such processes as canning, and exported to other countries. From Calcutta it takes a maximum of twenty days for a ship to reach Europe, so preservation arrangements could be made for that period. Similar arrangements could be made for betel leaf. If this were done, then the poor growers at Tomluk, Mecheda, Bagnan, etc., would be able to live a well-to-do life.

 

 

Thirdly, new diversified styles of consumption should be invented. That is, consumption should be of a progressive nature and the style of consumption should be diversified. For example, there is only limited utilization of linseed at the moment in India. If the oil extracted from the linseed is deodorized, then it can be widely used as an edible oil. Also linen thread can be manufactured from linseed plants, which generally go to waste. Okra is abundantly produced in India, but it is only used as a vegetable. Oil can be extracted from okra seeds, and this can be processed and marketed as edible oil. Also, fine thread can be manufactured from the okra plant, and good quality clothes can be prepared from that thread.

 

 

In Bangladesh and West Bengal there is overproduction of jute, which is an acute problem today. This problem can be easily tackled by diversifying the methods of jute consumption. For example, we can get fine thread from raw jute to produce good quality clothes.

 

 

In the existing world structure geo-sentiment is an obstacle to the implementation of free trade. Neither the capitalist countries nor the communist countries like the free trade system because it is detrimental to their respective self-interests. But there are some free trade zones in the world which are very bright examples of the success of this sort of system. Singapore is one such example. There was a good proposal to declare Calcutta a free trade zone, but it was not implemented for many reasons, including the failure of the concerned leaders. Bengal could have been greatly benefited by such a system.

 

 

In a revised economic structure – that is, PROUT – there must not be any import or export duties on consumable commodities. If this is done, then this earth will be converted into a golden earth.

 

 

The commune system suffers from the acute problem of chronic shortages of food products, so the communist countries always import food products from capitalist countries, in spite of all sorts of hue and cry raised by them regarding their “isms”. Therefore, they oppose the free trade system.

 

 

In case there is overproduction of non-perishable goods or raw materials, these raw materials must not be allowed to be exported to other countries. Instead, raw materials must be immediately converted into manufactured goods at the place where they are available. For example, Orissa, the western portion of Ráŕh, certain portions of Madhya Pradesh, and certain portions of southern Bihar and Telengana are rich in different kinds of raw materials. These economically undeveloped places can easily be converted into advanced areas like the Rhine region of Germany. Poverty stricken people will live an affluent life if factories in these areas convert raw materials into manufactured goods.

 

 

The export of raw materials is a sign of an unhealthy economy in a country. If overproduction is caused due to the scientific application of improved methods in industry and agriculture, such as good manuring, then consumption may be adjusted through different methods as suggested above. This will also increase the purchasing power of the people. In such a stage the bountifulness of nature will ultimately prove to be a boon for the common people. Hence, in a Proutistic structure production inflation would not be regarded as a problem.

 

 

The Panacea

 

 

PROUT is the panacea for the integrated progress of human society. It aims to bring about equilibrium and equipoise in all aspects of socio-economic life through totally restructuring economics. Without PROUT, socio-economic emancipation will remain a utopian dream. Only PROUT can save the world from depression.

 

 

Furthermore, only PROUT is free from the inherent and exherent staticity. In capitalism there is exherent and inherent staticity. In communism there is extensive and intensive innate staticity. People suffer from the ailments of staticity. These ailments will destroy all forms of “isms” in the very near future. Wise people should utilize this moment.

 

 

We are near the last stage of the Vaeshya Era. If an impact is created, it will help the suffering humanity. It is the most opportune moment for creating an all-round revolution. This is a new sub-theory under Proutistic theory and may be called gati vijiṋána – the science of dynamics in PROUT.

 

Stocks crushed – CNN news

NEW YORK (CNNMoney.com) — Stocks skidded Monday, with the Dow
slumping nearly 778 points, in the biggest single-day point loss ever,
after the House rejected the government’s $700 billion bank bailout
plan.

The day’s loss knocked out approximately $1.2 trillion in
market value, the first post-$1 trillion day ever, according to a drop
in the Dow Jones Wilshire 5000, the broadest measure of the stock
market.

The Dow Jones industrial average (INDU)
lost 777.68, surpassing the 684.81 loss on Sept. 17, 2001 – the first
trading day after the September 11 attacks. However the 7% decline does
not rank among the top 10 percentage declines.

The Standard & Poor’s 500 (SPX)
index lost 8.8%, its seventh worst day ever on a percentage basis and
the biggest one-day percentage drop since the crash of ’87, when it
lost 20.5%. The Nasdaq composite (COMP) fell 9.1%, its third worst day on a percentage basis and also its worst decline since the crash of ’87.

Stocks
tumbled ahead of the vote and the selling accelerated on fears that
Congress would not be able come up with a fix for nearly frozen credit
markets. The frozen markets mean banks are hoarding cash, making it
difficult for businesses and individuals to get much-needed loans. (Full story)

“The
stock market was definitely taken by surprise,” said Drew Kanaly,
chairman and CEO of Kanaly Trust Company, referring to the House vote.
“If you watched the news stream over the weekend, it seemed like it was
a done deal. But the money is being held hostage to the political
process.”

Stocks had fallen from the get-go Monday morning. In
addition to expectations for the bailout, there was also news that
troubled Wachovia had to sell its banking assets to Citigroup. A number
of European banks also collapsed.

But the possibility that the House won’t pass the bailout plan caused stock losses to accelerate.

“It’s a huge disappointment,” said Jack Ablin, chief investment officer at Harris Private Bank.

Although
another version of the plan will likely go before Congress, investors
are concerned that passing the bill could be a more drawn-out process.

On
Monday afternoon Treasury Secretary Henry Paulson said markets around
the world are under great stress and that a plan needs to be passed as
soon as possible.

“People do expect that there will be some
plan put in place, but even before this vote, there was doubt as to
whether it would be enough to avert the crisis,” said Ken Kam,
portfolio manager of the Marketocracy Masters 100 (MOFQX) fund.

Investors thought they would be debating whether the plan was good enough, he said, not whether the plan would even go through.

But the ‘good enough’ question remains in place.

“We
are charting new territory in policy tools and implementation with this
program and there’s no guarantee that it will work,” said Alan Gayle,
senior investment strategist at RidgeWorth Investments.

“That a
number of institutions haven’t been able to last through the
negotiations adds to the uncertainty,” Gayle said, referring to
Washington Mutual’s failure on Friday and the buyout of Wachovia
Monday.

Stocks are also extremely choppy and volatile as Wall
Street moves to the end of the third quarter. Financial institutions
and funds are expected to have their books settled before Wednesday, so
there is a lot of last-minute scrambling, Gayle said.

Treasury prices rallied, sending yields lower, as investors sought safety in government debt.

Government rescue plan:
Congress had supposedly reached a compromise on the $700 billion bank
bailout plan Sunday, but the House voted against the bill Monday.

The
bill is based around Treasury Secretary Henry Paulson’s initial plan to
buy up bad mortgage debt from banks as a means of getting them to lend
to each other again. However, Congressional lawmakers added provisions
to protect taxpayers and enable them to benefit if the companies do as
well. (Full story)

But
it was shot down, with lawmakers voting largely along party lines, with
House Republicans mostly voting against it and House Democrats mostly
voting for it.

Investors also remained skittish amid more bank turbulence – and banks continued to hoard cash.

Meanwhile, the Federal Reserve and other central banks around the world announced steps Monday to make billions available to troubled banks.

Wachovia:
Citigroup is buying the company’s bank assets in a $2.2 billion
all-stock deal that will see the company hold onto its brokerage
business and remain afloat, albeit in a smaller form.

The deal
calls for Citigroup to absorb up to $42 billion in losses and the
Federal Deposit Insurance Corp. to be responsible beyond that.
Citigroup will give the FDIC $12 billion in preferred stock and
warrants in exchange. (Full story)

Wachovia (WB, Fortune 500) shares began trading in the afternoon, plunging 81%. Citigroup (C, Fortune 500) fell almost 12%.

Last week, JPMorgan Chase (JPM, Fortune 500) bought Washington Mutual (WM, Fortune 500), after it suffered the largest failure ever of a U.S. bank. JPM shares fell 15% Monday.

On Monday, regional bank National City (NCC, Fortune 500) slumped 63% on worries that it might be next. Other regional banks dropped too. Bank of New York (BK, Fortune 500) fell 27%, Fifth Third Bancorp (FITB, Fortune 500) fell 43% and Regions Financial (RF, Fortune 500) fell 41%.

Big banks fell too, including Goldman Sachs (GS, Fortune 500), Merrill Lynch (MER, Fortune 500) and Bank of America (BAC, Fortune 500).

Market
breadth was negative. On the New York Stock Exchange, losers beat
winners 19 to 1 on volume of 2.05 billion shares. On the Nasdaq,
decliners topped advancers by over five to one on volume of 2.88
billion shares.

Global markets: Worldwide markets struggled. Asian and European markets ended lower after three European banks fell apart.

Dutch-Belgian bank and insurance giant Fortis was given a $16.4 billion lifeline to avoid it collapsing. The British government nationalized battered U.K. bank Bradford & Bingley.

Germany’s
financial regulators and several banks stepped in Monday to throw a
line of credit to Hypo Real Estate Holding AG in a multibillion-euro
move aimed at shielding the No. 2 commercial property lender.

Credit markets:
Businesses depend on the credit markets to function on a daily basis,
and the absence of ready capital has threatened to stall the broader
financial system.

Several measures of bank fears surged Monday,
suggesting that despite the bailout, banks remain worried. However, as
with stock markets, the freezing up could be an immediate knee-jerk
reaction that is mitigated once Congress passes the bill.

Additionally, credit markets may have been more focused on Wachovia and the other distressed banks, than the bailout.

The Libor-OIS spread, one gauge that banks use to determine lending rates, rose to a record 2.2%.

Meanwhile,
the TED spread hit a more than 26-year high of 3.58% before dipping
back to 3.54%. The TED spread is the difference between what banks
charge each other to borrow for three months and what the Treasury
pays. When banks charge each other a higher premium than the U.S.
government, that’s a sign of fear.

The three-month Treasury bill,
seen as the safest place to park money in the short term, fell to 0.34%
from 0.83% late Friday. Earlier this month, the three-month bill fell
to a 68-year low around 0% as panic gripped financial markets.

Long-term Treasury prices
rose, lowering the yield on the benchmark 10-year note to 3.58% from
3.82% late Friday. Treasury prices and yields move in opposite
directions.

Treasury prices have been rallying recently and
yields tumbling as nervous stock market investors have looked for safer
areas to move their cash.

Other stock movers: Apple (AAPL, Fortune 500)
slumped almost 18% after RBC and Morgan Stanley analysts downgraded the
stock to “neutral” from “buy” saying the consumer spending slowdown
will hurt profits. (Full story)

A variety of other big tech stocks slumped, including Intel (INTC, Fortune 500), IBM (IBM, Fortune 500), Hewlett-Packard (HPQ, Fortune 500), Qualcomm (QCOM, Fortune 500), Cisco Systems (CSCO, Fortune 500), Dell (DELL, Fortune 500) and Applied Materials (AMAT, Fortune 500).

Among other movers, Circuit City (CC, Fortune 500) slipped 21% after it reported a wider-than-expected quarterly loss and withdrew its fiscal 2009 outlook due to tepid sales.

All 30 Dow components ended lower and all lost at least 3%.

Oil and gold: U.S. light crude oil for November delivery fell $10.52 to settle at $96.37 a barrel, in the second-biggest one-day plunge ever. (Full story)

Oil
prices had plummeted over $55 after peaking at $147.27 a barrel on July
11, as investors bet that sluggish global growth will diminish oil
demand. But prices have seesawed in the last few weeks as the financial
crisis has intensified and investors sought to put their money into
hard assets.

COMEX gold
for December delivery rose $5.90 to $894.40 an ounce. Like oil, gold
prices had also rallied during the biggest periods of unrest over the
last few weeks

Other markets: In currency trading, the dollar gained against the euro and fell against the yen.

Gas prices fell for the 12th day in a row, according to a nationwide survey of credit card activity.

Source: http://money.cnn.com/2008/09/29/markets/markets_newyork/index.htm?postversion=2008092918

Video Transcript On Debt and Deficit: McCain, Clinton and Bush By Ravi Batra

 

Video Transcript On

 

Debt and Deficit: McCain, Clinton and Bush

 

By

 

Ravi Batra

 

[video:http://www.youtube.com/watch?v=3M5Of0vdObc]

 

 

Hello friends. It is now well known that the federal deficit and debt have been getting out of hand over the last 30 years. It all started under President Reagan when he decided to slash the income tax drastically, while raising the tax rates on the middle class. The top-bracket tax rate fell from 70% in 1980 to 28% by the end of Reagan’s second term in 1988. At the same time the self-employment tax soared from a factor of 0.09 to 0.15.  Thus the self- employed small businesses saw their tax rate jump by 66%–yes indeed 66%. That is why, you see, Reagan transferred the tax burden from the wealthy to the middle class, because most small business persons belong to the middle-income group.

 

    Incidentally, the current Republican John McCain voted for the vast rise in the self-employment tax in 1983. This was his first major vote, and he used it to raise this middle-class tax by as much as 66%. I repeat this figure because I don’t understand how McCain did this and still claims that he has been a friend of small business people. If you don’t believe me, just look at federal archives for 1983. How can anyone raise your tax bill by 66% and still claim to be on your side?

    What did Reagan’s policy of tax-transformation do to the federal budget deficit and debt?  Of course, they both soared. Reagan and his advisers had foreseen a sharp fall in the deficit, but Reagan’s vice president, George H. W. Bush, who had earlier called such policy voodoo economics, knew better. His warnings came true. As the deficit soared, GDP growth fell below the historical norm, and poverty began to rise.

 

    Then came Bill Clinton in 1993, and he raised the income tax rate on high incomes to slash the deficit, which fell sharply, while GDP growth went up. So poverty figures began to fall under Clinton. The moral of the story is that when the income tax rate fell, the deficit and poverty rose, and when it went up, the deficit and poverty fell. History shows that high income tax rates cut the budget deficit, while high middle class taxes cripple small business and hence the economy.

 

     No government can live without taxes, but the Democrats tax those who can afford to pay them, while the Republicans tax the poor and the middle class. I prefer the Democratic way, because it is not only fair, it is also good for the economy.

 

    The current president George Bush repeated Reagan’s folly and cut the income tax rates again mostly for the wealthiest Americans. So the results are the same. While both the federal deficit and debt have soared, poverty is back to where it was under Bush senior. Please take a look at Table 1. From 1980 to 1988, the number of people living below the poverty line went up by 3 million under Reagan, and then  another 6 million by 1992 under Bush senior. Clinton slashed poverty figures by 6 million, and now George Bush has brought them up again by 5 million.

 

Table 1: Poverty Rise under Various Presidents; 1980-2008

 

President                       Jump in Poverty Figures

Reagan                                       3 million

Bush I                                        6 million

Clinton                                    – 6 million

Bush II                                      5 million

 

Source: The Economic Report of the President, 2008.

 

 

     To me, it is more than a coincidence that poverty rises whenever Republicans take over and falls under Democrats. First, poverty rises under Reagan and then again under Bush senior; it falls under Clinton, and finally it rises again under George Bush. So the record is quite clear that Republicans create poverty and Democrats reduce it. Vice President Dick Cheney says that Reagan proved deficits don’t matter. No! They do matter, because they create poverty.

    So now the federal debt and deficit are out of control. Please take a look at some charts. Figure 1 shows how it all started, how the deficit jumped from Carter to Reagan, then fell under Bill Clinton and now is sky-rocketing.

 

     Figure 2 reveals how our debt fell under every president from Truman to Carter, and then started to rise under Reagan, fell again under Clinton, and is now sky-rocketing. Finally figure 3 displays where our federal debt stands from 1940 till today. It has grown tall, taller and the tallest—at close to $10 trillion today. It cannot go on like this forever. The Bush borrow-and-spend policies must be reversed before the economy collapses. I request Mr. McCain to reconsider his support for Bush’s tax cuts.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Figure 1: Federal Deficits—Reagan, Clinton and Bush

 

 

Clinton

Bush

Carter

Reagan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


     Source: Global Policy Forum

 

 

 

 

 

 

 

 

 

 

 

Figure 2: National Debt since WWII

Source: zfacts.com, and The Economic Report of the President, various years.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 3: Our Federal Debt Today

 

 

 

Source: MarkTaw.com

 

 

 

 

 

McCain vs. Obama on the United States Economy by Ravi Batra

[video:http://www.youtube.com/watch?v=iUJqNmkcmSw]

Video Transcript On

 

McCain vs. Obama on the United States Economy

by

Ravi Batra

 

Commentary

 

I am an economist by profession and an independent voter. In the past I have voted for the Democrats, independents and Republicans in elections, and I feel I can take an objective look at the economic plans offered by John McCain and Barack Obama, especially their tax policies. I will use facts from this book to form my opinion.  This book is called The Economic Report of the President, and appeared in early 2008.

Table 1: Increase in Family Income

 

Bill Clinton (1993-2000)                                        $8,600

 

G W Bush (2001-2006)                                        – $990

 

 

 

GDP Growth and Job Creation

 

 

President                                GDP Growth             Job Creation         Manufacturing Jobs

                                             Per Year           

                                                           

Clinton (1993-2000)                  3.7(%)               23 million                 450,000

   

Bush (2001-2007)                     2.8(%)               5 million                – 3.2 million

 

 

Source: Economic Report of the President, 2008

 

     Please take a look at Table 1. First, under Bill Clinton family income soared by $8600, and under Bush it has actually declined by $990. This information is on page 266 of the president’s own report. Second, under Clinton more than 23 million jobs were created and only 5 million under Bush. This information appears on page 280 of the president’s report.

     Why is job creation so strong under Bill Clinton and very poor under George Bush? After all, GDP growth under the two presidents is not that much different—3.7% vs. $2.8%. So the economy expands under both presidents, yet Clinton created 23 million jobs while bush only 5 million. And with manufacturing, Clinton generated almost half a million jobs, whereas bush has actually destroyed over 3 million such jobs. What is the problem?

 

   There are two reasons. First is outsourcing. Because of Bush’s tax relief to corporations that ship jobs overseas, American multinational companies now mostly hire workers abroad; so American output still rises but few jobs are created at home. Thus, one reason for poor job creation under Bush is the vast growth in outsourcing.

 

    The other reason is a huge rise in taxes on small business. The Republicans are right when they say raising taxes kills the economy and jobs, but they forget that they are the ones who raised such taxes. This perhaps comes as a shock to you.  “ What! The Republicans raising tax rates, and that too on small business?” Nobody would believe that. Aren’t they the party of tax cuts? They are, indeed, but only for the wealthy. They have crippled the small business person with the largest tax rise that occurred on self employment under President Reagan. Please take a look at Table 2.

 

Table 2: Trust Fund Data: Tax Rates for Self Employed Persons

 

Year

Tax Rates (in percent)

1981

9.3

1982-83

9.35

1984

14

1985

14.1

1986-87

14.3

1988-89

15.023

1990 and later

15.3

 

    Source: Social Security administration: www.socialsecurity.gov

 

 

     As you can see, in 1981, when Reagan became president, the self-employment tax was only 9.3 percent and remained more or less the same until 1983. It jumped to 14 percent in 1984, and kept rising until 1990, when Bush senior was the president. So such a giant rise in the self employment tax occurred under the watch of Republicans. This information comes from the Social Security administration.

    There is something else you should know. The tax increase was proposed by a commission headed by Alan Greenspan, the current Republican candidate John McCain voted for it in 1983, and Reagan signed it into law. All of them were prominent Republicans. So this was a Republican tax increase. How strong was this tax rise? It rose from a factor of 9 to 15 or by 66%. Can you even imagine a 66% tax rise? Such a vast tax increase has to kill the jobs machine that small businesses are, especially in a low-growth economy under George Bush.

     Historically, I find that in general the Democrats create jobs, while the Republicans destroy them. President Hoover, who created the Great Depression, after all, was a Republican. Then how come the Republicans are known as a party of tax cuts? Yes, they indeed cut taxes for the rich, but they have raised taxes on the middle class ever since 1983. And now they are also the party of outsourcing that is further killing American employment.

     John McCain wants to cut taxes for corporations and the rich again, but says nothing about the huge self-employment tax that he voted for. Obama wants to cut income taxes for the middle class while raising them on the wealthy.

    We all hate taxes, but like death they are inevitable. No government can live without them. But there are good taxes and bad taxes. Bill Clinton raised taxes on those who can afford to pay them, while John McCain voted to raise taxes on the middle class. Clinton created more jobs than Reagan, Bush senior and George Bush combined. History shows that Obama’s middle class tax cut will create millions of new jobs and raise family income, while McCain’s tax cuts for the wealthy will do what such cuts have done under George Bush—they will destroy millions of manufacturing jobs, and reduce family income even more. My humble request to Mr. McCain is this: please reconsider your giant tax increase for the middle class. My humble request for Mr. Obama is to add a small cut in the self-employment tax to his plan, from the current 15.3% to 12% over two years. After all, small businesses don’t outsource jobs; they actually create them.

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

Economic crisis posted by Dr. Susmit Kumar


We are losing $1 trillion each year ($700 billion BOP/trade deficit page 258 + $400 Budget Deficit) whereas Chinese FOREX is increasing $500 billion each year (page 266)
 
http://www.imf.org/external/pubs/ft/weo/2008/01/pdf/text.pdf
 
Here you can read an news report from Washington Post published yesterday (I have pasted entire article below):
 
‘Andy Xie, an independent economist who was formerly Morgan Stanley‘s chief Asia economist, said the United States needs to accept that a large amount of U.S. assets must be transferred to other countries’ ownership. ‘If the U.S. is not willing to accept that,’ Xie said, ‘they will have to print money and the dollar will fall. And we will be headed toward a global financial meltdown.’
 
Companies in the United States and in Europe are already reaching out to Chinese investors.
 
Morgan Stanley chief executive John Mack has been in contact with the China Investment Corp., the sovereign wealth fund that manages $200 billion, and with China’s Citic Group. La Compagnie Financière Edmond de Rothschild on Thursday announced that it had sold a 20 percent, $340 million stake to Bank of China.
 
It’s unclear how Chinese investors will respond to the overtures, especially given that their biggest investment in Wall Street to date, CIC’s investment in asset manager Blackstone Group, has turned out to be a disaster — its investment has lost half its value.’
 
 
http://www.washingtonpost.com/wp-dyn/content/article/2008/09/19/AR2008091902012_pf.html
 




washingtonpost.com




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Japan, China Locked In by Investments
By Blaine Harden and Ariana Eunjung Cha
Washington Post Foreign Service
Saturday, September 20, 2008; D01
TOKYO, Sept. 19 — Japan is a captive of its investment in the United States economy and its central bank has no real alternative other than to hold on to the massive amounts of U.S. Treasury bonds it owns and work hard to help clean up the mess on Wall Street, Hidehiko Sogano, an associate finance director at the Bank of Japan, said Friday.
‘The reason why we stress the importance of stability is that the amount which we have in U.S. assets is so enormous,’ said Sogano, referring to the roughly $860 billion of the bank’s $1 trillion in reserves that are in U.S. investments, mostly Treasury bonds.
Sogano spoke on a day in which East Asian stock markets sharply rebounded after days of declines. Japan’s Nikkei average was up 3.8 percent, cutting in half losses for the week. The Shanghai Composite Index surged 9.5 percent, while Hong Kong’s Hang Seng index was up 9.6 percent. The rises followed market-calming moves by the U.S. government that helped drive the Dow Jones industrial average up 410 points Thursday and another 368 points Friday.
Japanese banks, finance companies, shipping firms and steelmakers recorded double-digit gains. The nation’s biggest nonbank financial company, Orix, jumped 16 percent, its largest increase in 24 years. The fourth-largest bank in Japan, Resona, was up 18 percent.
Just how deeply Japan is enmeshed in troubled loans in the United States became significantly more clear Friday, when Finance Minister Bunmei Ibuki conceded at a parliamentary hearing that the government and central bank hold about $74.5 billion in debt issued by mortgage finance giants Fannie Mae and Freddie Mac, recently bailed out by the U.S. government.
Sogano, who said he was speaking for the bank, is part of a team at the bank that has worked around the clock this week to calm global markets. ‘If we shift out of the dollar without deep consideration, then that would surely affect the market,’ he said. ‘So that is why we always have to be very careful. If that sounds conservative, it is conservative.’
In a week of epochal market turmoil, for the Bank of Japan being very careful has meant being aggressively interventionist. Besides injecting the equivalent of about $96 billion in four days into money markets for overnight loans, the bank has gone into the business of making dollar loans.
It joined with four other central banks in a $180 billion currency swap with the Federal Reserve and will use its $60 billion share to supply dollars to local and foreign institutions.
Sogano said that the Bank of Japan feels that U.S. market turmoil, even if it continues for months or years, will not alter the central place the United States occupies in global finance and will not undermine the willingness of the Bank of Japan to invest in the United States. ‘There will be no change because we quite understand the importance of the U.S. market and the stability of the dollar,’ he said.
Sogano said that the bank does not support a reduction of interest rates, which are already at 0.5 percent in Japan.
The Bank of Japan will focus primarily on increasing liquidity in money markets, so that short-term rates will fall back to levels of before the turmoil of the past week and banks will again be willing to lend money to each other at the lower rates.
Ibuki, the Finance Minister, said Friday that Japan would consider funding the International Monetary Fund or other international lending agencies to help with bad debt.
Sogano said there is no political support in Japan for mobilizing the several trillion dollars in Japanese pension funds and other savings funds to recapitalize troubled U.S. financial institutions. He agreed that such investments, if properly managed, could increase returns for savers in Japan.
China, however, has signaled some willingness. As U.S. financiers scrambled this week over how to deal with possible collapse of major financial institutions, Chinese Vice Premier Wang Qishan arrived in Washington with a message: To survive the crisis, U.S. equity markets need countries such as China that have massive foreign exchange reserves to jump in a big way.
In recent weeks, finance chiefs from around the world have come to consult with their counterparts at the Federal Reserve and U.S. Treasury about possible interventions.
China’s delegation, headed by a 60-year-old ex-banker who comes from the country’s depressed coal-mining region, has been among the most vocal, according to sources briefed on the discussions.
China has a direct interest in the U.S. crisis. It is estimated to hold a fifth of its currency reserves — as much as $400 billion — in Fannie Mae and Freddie Mac debt. In addition, its banks have billions of dollars worth of exposure to the American International Group, Merrill Lynch, Lehman Brothers and other companies in crisis. The Industrial and Commercial Bank of China, for example, has $151 million in bonds issued or linked to Lehman; China Merchants Bank has $70 million of Lehman bonds; and the Bank of China has $75.62 million of Lehman bonds.
As U.S. officials were deciding in August whether to take over Fannie Mae and Freddie Mac, the Treasury Department held informal talks with officials from the People’s Bank of China, the country’s central bank. At that time, investors in Fannie Mae and Freddie Mac in China were dramatically reducing their holdings. The U.S. side told China that a cash infusion was in the works; China said that it expected the U.S. government to ‘do whatever is necessary’ to protect the investments.
Accompanied by a delegation that includes senior officials from China’s central bank and Ministry of Finance, as well as banking, insurance and securities regulators, Wang had originally traveled to the United States on Sept. 14 for trade talks in Los Angeles. But as new shocks hit earlier this week, Wang flew to Washington to meet with Treasury Secretary Henry M. Paulson Jr.
Wang sought assurances that if the Chinese government were to encourage its companies to seek investments in the United States, the deals would not face the same political opposition that has undone past Chinese investment proposals.
Andy Xie, an independent economist who was formerly Morgan Stanley‘s chief Asia economist, said the United States needs to accept that a large amount of U.S. assets must be transferred to other countries’ ownership. ‘If the U.S. is not willing to accept that,’ Xie said, ‘they will have to print money and the dollar will fall. And we will be headed toward a global financial meltdown.’
Companies in the United States and in Europe are already reaching out to Chinese investors.
Morgan Stanley chief executive John Mack has been in contact with the China Investment Corp., the sovereign wealth fund that manages $200 billion, and with China’s Citic Group. La Compagnie Financière Edmond de Rothschild on Thursday announced that it had sold a 20 percent, $340 million stake to Bank of China.
It’s unclear how Chinese investors will respond to the overtures, especially given that their biggest investment in Wall Street to date, CIC’s investment in asset manager Blackstone Group, has turned out to be a disaster — its investment has lost half its value.
Cha reported from Shanghai.