The Federal Reserve will raise its main interest funds rate by one-quarter of a point, signaling confidence that the economy has finally recovered from the 2008 financial crisis. The move, announced on December 16, 2015 in a statement from the Federal Open Market Committee, was widely expected and marks the first time the central bank has raised the funds rate in almost 10 years. The funds rate is the principal lever for controlling interest rates that borrowers pay. The Federal Reserve cut the rate almost to zero at the height of crisis to spur an economic recovery, the result of which as been anemic for the vast majority of Americans, but has bolstered the capital OWNERSHIP portfolios of the already wealthy OWNERSHIP class.
The Federal Reserve raised its key interest rate in order to demonstrate its confidence in the U.S. recovery. Committee officials are expecting the U.S. economy to grow by 2.4 percent in 2016, according to the Federal Reserve’s forecast released after the announcement. The “official” unemployment rate is expected to level off at 4.7 percent over the next three years. The underlying support for the main interest rate increase is strengthening economic indicators, namely the increasing job growth, albeit mostly low-wage jobs.
It is, however, a misrepresentation, based on questionable economic indicators, that the economy is healthy and has escaped from the “Great Recession.” Raising the Federal Reserve’s main interest rate from near zero to, well, just above zero at 0.25 percent is not a solution to ANYTHING. The economy will continue to head toward the ultimate wreck resulting in significantly expanded wealth inequality at the expense of ordinary citizens who are struggling as wage slaves, welfare slaves, charity slaves and consumer debt slaves with no meaningful savings or the ability to save and invest. Anyone who believes that the economy is robust with a 2.4 percent annual growth expectation does not understand what the real potential is. Any growth under 10 percent is anemic.
To date, the Federal Reserve’s near-zero interest rates have boosted stock (OWNERSHIP participation) speculation for those qualifying for low-cost capital credit and boosted stock prices. The wealthy OWNERSHIP class has been able to buy back stock and further concentrate their OWNERSHIP of corporations. That’s IT!
The bond-buying spree over the past six years now poses the challenge for the Federal Reserve to dispose of the assets on its bloated balance sheet – more than four times larger than when the bond buying began. How much has the balance sheet grown? When the Great Recession hit, the Federal Reserve’s balance sheet was approximately $700 billion dollars, and over the course of the recession and recovery, the asset purchases the central bank made through its various quantitative easing programs expanded the balance sheet to over $4.4 trillion. Note: “quantitative easing” is a monetary policy in which a central bank purchases government securities (bonds or other debt) or other securities from the market exchanges in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with money in an effort to promote increased lending and liquidity to meet financial obligations.
There is very little to show for the Federal Reserve lowering the benchmark interest rate (near zero). While borrowing costs have been lowered to create an incentive for business corporations to expand, what expansion resulted has not really benefited the vast majority of American citizens, who are seeing jobs exported to foreign countries whose economies are being boosted by American corporation investment in productive plant and machinery instead of making investments in productive plant and machinery in the United States. That coupled with the continual impact of technological progress is steadily eliminating well-paying jobs in manufacturing and devaluing the worth of labor, leaving what job prospects remain in the low-pay service industries. As a result income inequality is constantly the result as the divide between the wealthy OWNERSHIP class and the wage serfs and property-less widen.
Without a population with earnings to create demand for products and services, there will not be any significant private sector investment in the growth of the economy. Yet, according to an articled entitled “Fed Hikes Interest Rates” by Jon Prior and Ben White on Politico, “growing numbers of Wall Street analysts now believe that the gentle hike of just a quarter of a percentage point will not be necessarily bad news for markets, and could even provide a short-term stimulus if businesses are inspired to invest in new equipment now rather than wait for higher rates in the future.” But “markets” are ALL secondary, as they are comprised of assets (stocks, bonds and securities) already OWNED, which are then bought and sold among an already wealthy OWNERSHIP class. Markets have nothing to do with the REAL economy – the formation of actual capital assets necessary to productivity growth.
The Federal Reserve’s printing of “new” money to execute its bond purchasing has also caused inflation in the cost of products and services, and put further strain on ordinary working Americans struggling to survive day-to-day, week-to-week, month-to-month and year-to-year with less disposable income to pay for products and services at higher prices, and to pay down credit card and consumer loan debt. And while mortgage rates have been reduced due to the Federal Reserve’s purchase of mortgage-backed securities, still the vast majority of Americans cannot qualify for mortgage loans to purchase housing. And while, on the one hand, Americans are unable to save for their retirement, the Federal Reserve’s efforts to reduce borrowing costs is aimed at creating an incentive for businesses and consumers to spend instead of save.
The Federal Reserve cites the “dramatic” improvement in the unemployment rate but this is just ballyhoo, when in reality unemployment is far more vast and earned incomes are stagnant with most Americans barely getting by. The official unemployment rate, now seemingly relatively low at 5 percent, does not reflect the “new normal,” in which millions have simply stopped looking for jobs or are involuntarily underemployed. Furthermore, wages for working people have remained flat or falling. In other words, the economy is still very depressed, despite nearly a decade of easy money with Federal Reserve borrowing rates held near zero.
Of course, as is conventional wisdom, any program that results in job creation is what is “sold” to the American public, when at its core and hidden by those with a hold on the economy, it is known that it is narrow OWNERSHIP creation that is the REAL result of the stimulus programs. It is the same old game of “make the rich richer” and there will be trickle-down benefits. But that is not the reality of what occurs.
What are the alternatives for stimulating growth, abating wealth inequality and increasing incomes of ALL Americans, without taking from those who already OWN America, an essential practical requirement for reforming the system?
How about instead of the Federal Reserve showing that it is committed to keeping rates low, it can help to trigger significant job-creating activity — from renovating factories to building new factories and new tools, by providing capital credit loans at zero “0” percent interest to local banks who would in turn lend this interest-free money for the specific purpose to finance the creation of new wealth-creating, income-producing capital assets to grow the economy. Who should benefit from such interest-free capital credit should be EVERY child, woman and man, who would then be empowered to acquire over time significant portfolios of self-liquidating capital asset investments in the American economy, with the capital credit loans repaid out of the FUTURE earnings of the investments. After all, that is the same practical logic of corporate finance that the wealthy OWNERSHIP class uses to further enrich their capital wealth portfolios. Note: Self-liquidating denotes an asset that earns back its original cost out of income the asset produces over a fixed period.
Broadening capital OWNERSHIP would increase the pay of the least-advantaged workers (and non-workers) who would be contributing their productive capital to the expansion of the economy. And in this way, EVERY citizen can become a productive contributor to the economy.
The Federal Reserve, which has been largely responsible for the powerlessness of most American citizens, should set an example for all the central banks in the world. Chairman Janet Yellen and other officials of the Federal Reserve need to exert leadership and implement Section 13, Paragraph 2, which directs the Federal Reserve to create credit for local banks to make loans where there isn’t enough savings in the system to finance economic growth. We should not destroy the Federal Reserve or make it a political extension of the Treasury Department, but instead reform it so that the American citizens in each of the 12 Federal Reserve Regions become the OWNERS. The result will be that money power will flow from the bottom up, not from the top down — not for consumer credit, not for credit that doesn’t pay for itself or non-productive uses of credit, but for credit for productive uses to expand the economy’s rate of growth, including investments to transform from reliance on environment-polluting energy sources to clean energy sources, and to build a super-infrastructure all over our nation.
The Federal Reserve needs to stop monetizing unproductive debt, and begin creating an asset-backed currency that could enable every child, woman and man to establish a Capital Homestead Account or “CHA” at their local bank to acquire a growing full dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income. Steadily over time this will create a robust economy with millions of new “customers with money” to purchase the products and services that are needed and wanted.
Our leaders need to put on the table for national discussion this SUPER-IRA idea and the necessary reform of our tax policies that would incentivize corporations to pay out fully their earnings in the form of dividend income, and issue and sell new stock to grow their businesses. Under the proposed Capital Homestead Act, an equal allocation of productive credit would be processed for every citizen, based on the aggregate value of the projected need for new capital formation projects, exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets.
The shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets with future marketable products and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy.
Risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance (a la the Federal Housing Administration concept), but would not require citizens to reduce their funds for consumption to purchase shares.
Essentially, the pressing need is for everyone in a position of influence to encourage President Obama and our next President to raise the consciousness of the American people by making their NUMBER ONE focus the introduction of a National Right To Capital Ownership Bill that restores the American dream of property OWNERSHIP as a primary source of personal wealth.
These proposals are the solutions to America’s economic decline in wealth and income inequality, which will result in double-digit economic growth and simultaneously broaden private, individual OWNERSHIP so that EVERY American’s income significantly grows simultaneously with the growth of the economy, providing the means to support themselves and their families with an affluent lifestyle, and to ensure that their children and grandchildren will benefit even more.
To fully understand the proposed solutions requires a commitment to read and carefully consider the scope of the foundational agendas for reforming the system. The solutions’ core is a conscious and dedicated growth policy that broadens individual personal OWNERSHIP in the economy’s FUTURE wealth-creating, income-producing capital asset creation. “FUTURE” is stressed because the primary solutions are not based on socialistic redistributive policies that tax and punish those in society who are producing, whether through their labor or their “tools” that they OWN, which they contribute as inputs to creating economic value. The solutions are based on the fundamental principle that economic value is created through human and non-human contributions.
The solutions have at their core the truth that labor and physical capital are independently productive. Given the reality that most products, and increasingly services, are exponentially made by physical capital, the solutions require using financial tools that effectively will democratize capital OWNERSHIP, with the full earning dividend income paid out to each capital owner. The basis for this foundational thinking is at the core of binary economics which recognizes that there are two independent factors of production: people (labor workers who contribute manual, intellectual, creative and entrepreneurial work) and physical capital (land; structures; infrastructure; tools; machines; robotics; computer processing; certain intangibles that have the characteristics of property, such as patents and trade or firm names and the like which are OWNED by people individually or in association with others). Fundamentally, economic value is created through human and non-human contributions. NOTE, real physical productive capital isn’t money; it is measured in money (financial capital), but it is really producing power and earning power through OWNERSHIP of the non-human factor of production. Financial capital, such as stocks and bonds, is just an ownership claim on the productive power of real capital. In the law, property is the bundle of rights that determines one’s relationship to things.
The role of physical productive capital is to do evermore of the work, which produces wealth and thus income to those who own productive capital assets. Our current economic policies are proposed in the name of JOB CREATION. But the reality is that full employment is not an objective of businesses.
Companies strive to keep labor input and other costs at a minimum in order to maximize profits for the owners. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever-increasing role. The reason the rich are getting richer is not due to their labor work but due to their expanding OWNERSHIP of wealth-creating, income-producing capital.
Given the indisputable reality that productive capital is increasingly the source of the world’s economic growth, capital should become the source of added property OWNERSHIP incomes for all. It is logical and reasonable to postulate that if both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all. Yet, sadly, the American people and its leaders still pretend to believe that labor is becoming more productive and continue to promote job creation while ignoring the issue of OWNERSHIP and how to broaden OWNERSHIP so that EVERY child, woman and man is empowered to become a capital OWNER.
Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment – thus the political focus on job creation and redistribution of wealth rather than on full production and broader capital OWNERSHIP accumulation. This is manifested in the belief that labor work is the ONLY way to participate in production and earn income. Long ago that was once true because labor provided 95 percent of the input into the production of products and services. But today that is not true. Capital provides not less than 90 to 95 percent of the input. Full employment as the means to distribute income is not achievable. When the “tools” of capital OWNERS replace labor workers (non-capital OWNERS) as the principal suppliers of products and services, labor employment alone becomes inadequate. Thus, we are left with government policies that redistribute income in one form or another.
The capitalism practiced today is what, for a long time, I have termed “Hoggism,” propelled by greed and the sheer love of power over others. “Hoggism” institutionalizes greed (creating concentrated capital OWNERSHIP, monopolies, and special privileges). “Hoggism” is about the ability of greedy rich people to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then accumulate the bulk of the money through monopolized productive capital OWNERSHIP. Our scientists, engineers, and executive managers who are not OWNERS themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital “worker” OWNER more productive. How much employment can be destroyed, by substituting machines for people, is a measure of their success – always focused on producing at the lowest cost. Only the people who already OWN productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital OWNERSHIP in their stationary 1 percent ranks. Yet the 1 percent are not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption. It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital OWNERSHIP to improve their economic well being.
The solutions, through the reform of the system, will END Hoggism. Louis O. Kelso, the father of binary economics, postulated: “When consumer earning power is systematically acquired in the course of the normal operations of the economy by people who need and want more consumer goods and services, the production of goods and services should rise to unprecedented levels; the quality and craftsmanship of goods and services, freed of the corner-cutting imposed by the chronic shortage of consumer purchasing power, should return to their former high levels; competition should be brisk; and the purchasing power of money should remain stable year after year.”
It is imperative that leaders seeking new solutions seize the opportunity presented by the 2016 presidential election to implement effective programs for expanded OWNERSHIP of productive capital, and address the problem of education on this subject.
At one point in 1976, the discussion led to The Joint Economic Committee of Congress endorsing the two-factor policy to broaden capital OWNERSHIP as an economic goal for America. The 1976 Joint Economic Report stated: “To provide a realistic opportunity for more U.S. citizens to become OWNERS of capital, and to provide an expanded source of equity financing for corporations, it should be made national policy to pursue the goal of broadened capital ownership. Congress also should request from the Administration a quadrennial report on the OWNERSHIP of wealth in this country, which would assist in evaluating how successfully the base of wealth was being broadened over time.” Unfortunately the Congress has never paid any attention to this policy, and the goal has subsequently been unacknowledged and unheeded by our plutocratic political leaders.
The stark reality is that we are in a depression reflected in rising under reported unemployment and underemployment and instability that we will never escape from until we change our economic policy. According to the Economic Policy Institute, a family of four needs an income of at least $60,000 dollars a year to reach an “adequate but modest living standard.” But, 50 percent of all Americans make less than half that amount. In essence, they are flat broke. This scenario will worsen as globalization further develops and as technology shifts production from humans to non-humans.
Increasingly, more Americans will not be able to ever purchase a home, due to the packed inflationary wage and welfare base factored into the cost of building homes, which inflate prices, and will be forced to rent their entire life or depend on government living assistance – not able to accumulate equity that can help to sustain them in their retirement years. And this is the new reality now facing people in the middle class. The uncertainty of holding onto a good job is frightening to an increasingly wider base of middle-class working citizens. When you factor in the average non-salaried worker, even with a government-mandated minimum labor wage rate of $10.00+ per hour in some states or proposals for a $15.00 per hour minimum wage, the outcome is grim. Never mind that consumer demand continues to dwindle because of insufficient income, solely tied to labor worker wages. The impact of the decline in consumer demand due to declining labor-worker wages is that production will decline or desist without sustainable consumer demand. And where there are signs of consumer demand, it is virtually always because consumers use credit cards and other forms of consumer debt to purchase products and services.
This is all coming about because we have severely mismatched the power to produce with the possession of unsatisfied needs and wants. Those capital “worker” OWNERS who have unsatisfied needs and wants have ready access through conventional finance to get as much or more capital as they want (especially with the near-zero interest funds rates provided by the Federal Reserve). Our tax laws are designed to further benefit the ultra-rich 1 percent by providing enormous write-offs and credits to producers (corporations) who are owned by the few, who already produce more than they can consume.
Note, though, millions of Americans own diluted stock value through the “stock market exchanges,” purchased with their earnings as labor workers, their stock holdings are relatively minuscule, as are their dividend payments compared to the top 10 percent of capital owners. Pew Research found that 53 percent of Americans own no stock at all, and out of the 47 percent who do, the richest 5 percent own two-thirds of that stock. And only 10 percent of Americans have pensions, so stock market gains or losses don’t affect the incomes of most retirees.
Those who have only their labor power and its precarious value held up by coercive rigging and who desperately need capital OWNERSHIP to enable them to be capital “workers” as well as labor workers to have a way to earn more income, cannot satisfy their unsatisfied needs and wants. With only access to labor wages, the 99 percenters will continue, in desperation, to demand more and more pay for the same or less work, as their input is exponentially replaced by productive capital.
But if we change direction and systematically build earning power into consumers, we have the opportunity to reverse the depression perpetrated by systematically limiting the 99 percent to labor wages alone and through technology eliminating their jobs, and through labor-destroying globalization. We need solutions to grow the economy in ways that simultaneously create productive jobs and widespread equity sharing. We need to systematically make capital credit to purchase capital accessible to economically underpowered people (the 99 percenters) in which the income from the capital investment is isolated until it pays for itself, and then begins to produce a stream of dividend income to the new capital owners. This can only be accomplished by enabling every person to have access to capital OWNERSHIP and purchase the capital, and pay for it out of what the capital produces. It’s time good and well-intentioned people woke up and adopted a JUST Third Way beyond the greed model of monopoly capitalism and the envy model of the traditional welfare state. This will promote peace, prosperity, and freedom through harmonious justice, as well as put us on the path to inclusive prosperity, inclusive opportunity and inclusive economic justice.
If you have read this far then hopefully you will explore in more depth the solutions and agenda for REAL change. The end result is that citizens would become empowered as OWNERS to meet their own consumption needs and government would become more dependent on economically independent citizens, thus reversing current global trends where all citizens will eventually become dependent for their economic well-being on the State and whatever elite controls the coercive powers of government.
If we do not reform the system and create government that justly serves ALL the people, and restrain man’s greed, which otherwise cannot be self-controlled, the wealthy who seek to own productive power that they cannot or won’t use for consumption will continue to beggar their neighbor – the equivalency of mass murder – the impact of concentrated capital ownership, which will inevitably result in turmoil and upheaval, if not revolution.
Read “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” here.
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The Huffington Post has published my article entitled “What Should The Federal Reserve Do To Stimulate The Economy And Abate Economic Inequality?” at http://www.huffingtonpost.com/gary-reber/what-should-the-federal-r_b_8881752.html as well as OpEd News at http://www.opednews.com/articles/What-Should-The-Federal-Re-by-Gary-Reber-Corporate-Greed_Corporate-Profits_Federal-Reserve-System_Money-151228-507.html, the Liberal Voice at http://www.liberalvoice.tv/what-should-the-federal-reserve-do-to-stimulate-the-economy-and-abate-economic-inequality/ and at KJOZ Radio at http://kjozradio.com/what-should-the-federal-reserve-do-to-stimulate-the-economy-and-abate-economic-inequality/, by Unfollow Trump at http://unfollowtrump.com/?p=625.