Dear Citizens and Elected Officials:
This posting is dedicated to the memory and work of William Greider, who passed away last December.
As I was reading the news yesterday on the Covid relief measures tying the Congress up in knots, I was also digesting some financial news in the New York Times about the Federal Reserve. It read: "The Fed left interest rates at near zero on Wednesday and committed to buying $120 billion worth of government-backed bonds per month for the foreseeable future."
I translate that to be some $1.44 Trillion in bonds per year. We can question where exactly that money goes, electronically magic dollars into whose accounts, although two guesses, based on who owns government bonds: not the average citizen, not anymore.
Yet the exercise of Fed Powers in the spring of this year, enabled Congress to pass the largest non-wartime appropriation since the New Deal, without raising the revenue to offset the Three Trillion dollars of authorized expenditures. Without it we would have been in Great Depression level trouble, as the GDP drops in Feb.-March showed.
As is usual, this fiscal power dance between the Congress, the Treasury and the Fed was left very murky less it raise the issue of Modern Monetary Theory (MMT), which tells us when there is no inflation and very low interest rates, and much slack in the labor force, the Treasury’s auctions of gov’t bonds becomes symbolic, a ritual to please Von Mises and Von Hayek's ghosts, and therefore my question to the Federal Reserve was never answered: was there a one-to-one correlation with Treasury bond auctions and the fresh amount of spending/debt the Congress had just authorized? And as sharp economic observers have asked, like Marc Blyth of Brown University and Rana Foroohar of the Financial Times, what is the remaining motivation of the big private sector buyers of US securities if the interest rates are so low, the real rates (market rates minus inflation rates) pushes the yield to zero or below...that would be a posting in itself.
I didn't get an answer, I believe, because a truthful one would be a fatal exposure of conservative economic theory compared to actual current practices, those practices observed over the recent decades having laid the foundation for MMT itself. A clear rendering of the actions and gaps with mainstream thinking would be an implicit endorsement of MMT, which says in fact that the Fed can print money without Congress raising taxes or matching that printing with the various bond sales; perhaps not at all times and circumstances, and not without the tolerance of the private financial sector (which so far has not protested — those hesitant to endorse MMT seem to, when pressed, rest their case mainly on the ideological/political objections of the major players in the speculative private sector — as the views of Martin Wolf at the Financial Times demonstrate) and therefore are most fearful of the full "monetization of the debt."
Yet more than $3 trillion was authorized by Congress without, to the best of my knowledge, any offsetting revenues or taxes increases at all...perhaps, just perhaps, confirmation that the annual spending proposed by some versions of the Green New Deal were not the irresponsible Utopian fiscal measures they were alleged to be. At least not under current circumstances.
Now, however, in the third week of December, I read today that Republican Senator Toomey of PA, and perhaps other Republicans, want to tie the hands of the Federal Reserve to prevent it from using the tools that it did this spring. Actually, it started out as a narrower restraint to prevent the Fed from using unspent monies Congress did authorize to help the private sector recover from those terrible two months last winter, February and March. However, today, Friday, December 18, I see that they are broadening their shackles on the Fed to prevent it from taking similar actions in the future. Given the latest economic data on unemployment, claims, pending evictions and the further collapse of retail and the service sector, or more precisely, the hospitality sectors of the economy, the increasing tidal wave of cases and deaths due to Covid — this is cruel, pathetic and economically irresponsible. Maybe doubly so because of the rather small sums the Republican Right has put on the table: under $1 Trillion.
As to why such MMT leaning tools were tolerable in the spring to the Austrian school of Republican "austerity" (and the Democratic Centrist one too), the answer is straightforward enough: it was government’s Covid Pandemic public health measures and the public panic which brought the economy to the greatest two month declines in GDP (Feb-March, maybe April) since the Great Depression...It was not anything therefore, inherent in the "model" private economy which gave us the longest expansion in economic history - since The Economist magazine has been tracking it well back into the mid-19th century.
Today, however, under no circumstances, trade-offs or compromises must any Democrat support such Fed strangulation measures; it would be an economic suicide pack for the nation, just as the 1990's efforts to pass a balanced budget amendment would have been.
We may yet face a reckoning in the financial world after the longest string of consecutive years without a formal recession should warn us (March 2009 until March 2020) plus the expected seditious Republican Right’s economic response to straightjacketing an incoming Democratic President...a terrible combination. It was the behavior of that Right on fiscal issues towards the Obama administration that reminded me of the breakdown of democracies in the Europe of 1920 and 1930. The signals haven’t eased from the Right as I write today.
We need a Federal Reserve which can act with all the powers and tools it used since the spring of 2020; if that implies an implicit endorsement of MMT, so be it.
And looming just over the horizon are the great and initially expensive measures needed to fight global warming, and deal with the backlash generating, bitter realities for the bottom 80% stemming from the Greatest Transfer of Wealth in Human History, some $47 Trillion dollars, brought to our attention by a RAND Study which came out in September of 2020, yet was never mentioned in the campaign as far as I can find.
Here's the heart of the study in a Time Op-Ed piece:
Let me close by laying out some other unpleasant realities. Given the drama of the Covid Pandemic, the constant Trumpian undermining of the voting process months before the election was held, his refusal to concede, the broader views of the economic landscape have receded from center stage. I regret to say that were it not for Covid, its dramatic impact on the economy, that longest expansion in economic history would have kept Trump in the White House.
He was afraid that the measures needed scientifically to slow Covid’s spread would have damaged his greatest asset, that economic performance, the years without a formal recession, March 2009 until March 2020. Usually, give that run, there would have be some type of distress in the financial/speculative center, but none of the predicted ones ever ballooned into a real storm. On the big two numbers drilled into everyone’s heads since the 1970’s (and the Fed’s mandate to control both), unemployment and inflation...it was hard for the left to get traction unless one got into the distribution of income and wealth, the lack of power of the Unions (except to help destroy the prospects for the Green New Deal) and the ability of the still dominant Neoliberal mindset in both the Right and the Center to prevent, to put it bluntly, anything large being done on any front: until the threat of collapse in March of 2020.
To me, and I don’t see echoes of this sentiment in many places, one of the currents pushing against the survival of our Republic is the market’s endorsement of his presidency — via continuation of that run of months/years of growth; the market makers seemingly having no compunctions about the way he governed, just happy for their choice of investing in gold or the stock market, with US bonds as a safe but unprofitable harbor of third resort. Have they ever given such support to a left of center regime in Central, South America? Or the threat of one, even in Western Europe?
Today, in mid-December 2020, the economic picture is far more dire than it was in January of 2020...and the signal being sent by the Republican Right in Congress now is one that reminds of the inability of Germany in the early 1930’s, the Germany of the Weimar Republic, in the midst of the Great Depression and before Hitler came to power, to agree ideologically-economically on even passing an increase in unemployment benefits. Karl Polanyi saw the meaning of that as the failure of 19th century classical economics...do any of our Democratic Centrists understand where these economic divisions leave us today…which are very close to the ones Polanyi sketched out for us in his book from 1944, The Great Transformation: The Political and Economic Origins of Our Time.
That’s the reason for my alarm.
Thank you for your time and attention to these very important matters: literally, a matter of life and death for tens of millions of American citizens.
Sincerely,
Bill of Rights
Frostburg, MD
PS On Saturday, I called Senator Toomey’s office via the Congressional Switchboard, 202-224-3121 and left a message — there was still room on the recording machine. I said “Damn you, Sir.” Twice.
Still time as of Saturday evening to call; the press is reporting that Toomey’s gambit, a disgraceful one at this late, late date...is the main obstacle to getting help on the way to citizens and small businesses.