Morning Briefing Thursday, December 24, 2015
MERRY CHRISTMAS AND SEASON’S GREETINGS
from the
UNITED FRONT AGAINST AUSTERITY
and the
TAX WALL STREET PARTY
from the
UNITED FRONT AGAINST AUSTERITY
and the
TAX WALL STREET PARTY
Senator Bernie Sanders is running scared, and no wonder. As the British diplomat Lord Cadogan once said, sometimes you have to have the courage to be a coward. Bernie agrees. The Vermont senator has been one of the most craven candidates ever to tread the political boards. Bernie once let two Republican provocateurs takeover his podium and microphone at a scheduled rally. He refused to attack Hillary Clinton for her contemptuous disregard for the rules governing the handling of top-secret documents and US state secrets. In the most recent debate, Bernie apologized to Hillary Clinton because her stooges at the Democratic National Committee had shut him out from his own computerized database at the DNC. In addition, in the most recent debate, Bernie once again flaunted his fanatical devotion to the reactionary, dark ages monarchies of the Gulf and nearby regions – the Saudis, the Qataris, the Jordanians, and so forth. The question as to whether Bernie is really a crypto-monarchist, and not a democratic socialist at all, comes up more and more. Bernie’s much-touted “political revolution,” always bizarre, is falling flat. Bernie’s response is a series of weak and misleading proposals published today in his New York Times op-ed “To Rein in Wall Street, Fix the Fed.”
If you are waiting for serious class-based, mass traction proposals for taking on Wall Street, don’t hold your breath when it comes to Bernie. His proposals amount to one of the meekest exercises in a long time.
Hold onto your hats! Bernie’s first gambit is this: “As a rule, the Fed should not raise interest rates until unemployment is lower than 4 percent. Raising rates must be done only as a last resort — not to fight phantom inflation.” The Fed Open Market Committee has just raised the overnight borrowing rate on federal funds or interbank lending to meet reserve requirements from about 0% to about 0.25%. This is being done with official unemployment hovering at about 5% (real unemployment is much higher, but this issue does not interest Bernie). It is of course true that the Federal Reserve always attempts to slow the economy by raising interest rates as soon as there is the remotest possibility that full employment might be anywhere near the horizon, since full employment might tighten the labor market to a point where working people might be able to bargain a little bit more effectively with their bosses for better wages and working conditions. This the Federal Reserve will never allow. Yellen’s decision to raise the interest rates was of course an obscenity, and one demanded by the Money Power of coupon-clipping rentiers and libertarians who have been demanding more interest on the cash hoards they have accumulated.
So Bernie is demanding that the Fed be prevented from putting on the interest rate and job creation brakes until unemployment is a whole percent lower! This is certainly not the storming of the Winter Palace. It is in fact a microscopic and almost meaningless concession.
A serious proposal would demand that the interest rate of the Federal Reserve be kept at 0% permanently for all kinds of productive and socially necessary activity – including manufacturing, commodity production, tangible physical wealth, agriculture, mining, energy production, transportation, and infrastructure. The list cannot be exhaustive here, but the overall concept should be amply clear. Notice that there should be no provision for cheap public credit for financial speculation, derivatives, real estate swindles, drug money laundering, or other sociopathic and parasitic activities.
But now Bernie moves on to another serious issue:
‘To ensure the safety and soundness of our banking system, we need to fundamentally restructure the Fed’s governance system to eliminate conflicts of interest. Board members should be nominated by the president and chosen by the Senate. Banking industry executives must no longer be allowed to serve on the Fed’s boards and to handpick its members and staff. Board positions should instead include representatives from all walks of life — including labor, consumers, homeowners, urban residents, farmers and small businesses.’
The Federal Reserve System is composed of a Board of Governors which meets in Washington DC. Some members of this board of governors, like Federal Reserve chair Janet Yellen and Vice Chair Stanley Fischer, are nominated by the President and then must be approved by majority vote in the US Senate. This means, for example, that malevolent and incompetent Fed chairs like Paul Volcker, Alan Greenspan, Ben Bernanke, to name just a few, are products of a system that includes a Fed board of governors with some members appointed by the president and approved by the Senate. This is the system Bernie likes.
As Bernie points out, and as all serious students of the Fed already know, the New York Federal Reserve is the scene of colossal iniquities and conflicts of interest. The New York Fed is in every way the flagship of the system, obviously for the reason that it serves Wall Street most directly. The New York Federal Reserve often has more power than the Federal Reserve Board of Governors meeting in Washington DC, and it is also the New York Fed – and not the Washington Board of Governors – which is a member of the infamous Bank for International Settlements in Basel, Switzerland, the so-called central bank of central banks, which is an institution thoroughly dedicated to the interests of a world financial oligarchy which imagines itself to control the entire world.
The New York branch of the Federal Reserve is an institution usurping the constitutional powers of the Congress and which is privately owned and privately controlled. It is privately owned because the bankers of the New York region own the shares of stock which represent ownership of the New York Fed. It is privately controlled because the board of the Federal Reserve Bank of New York is made up of private bankers who dictate policies in line with their own private interests.
This is true of all the branch banks of the Federal Reserve, from Boston and Richmond to Chicago and San Francisco. Every one of them is owned by the banking community in these respective districts (a banking community which has long since passed under the control of Wall Street). So it is unelected and unaccountable bankers who make important decisions about financial and credit matters for each one of these Federal Reserve districts.
But it gets worse. The Federal Open Market Committee, which is once again the group which sets the overnight interest rates on interbank lending, is composed partly of people like Yellen and Fischer, who went through a Washington confirmation process, along with that chairs of several Federal Reserve districts, who are the products of a purely regional selection process dominated by local bankers who are in turn stooges of Wall Street. Therefore, when the Federal Open Market Committee voted last week to raise interest rates, and thus carry out a policy decision of tremendous negative importance for the entire US economy and every person in it, that decision was partly made with the votes of purely private interests who had never had even the pseudo-legitimation of a presidential nomination and a Senate hearing and vote.
So we are left with a situation where the Fed officials like Volcker, Greenspan, Bernanke, and Yellen, who went through the White House and Senate process were completely incompetent and failed every major test they were confronted with, while the regional bankers chosen through the Federal Reserve districts have been more obscure but more recalcitrant and equally unsuccessful.
Bernie seems to think that the appointment of “labor, consumers, homeowners, urban residents, farmers and small businesses” to the Fed boards in the regions and in Washington would actually make a difference. But why these groups and not others? Bernie seems to be operating in the realm of the fascist corporate state, where certain economic forces were institutionalized, and others were not. Bernie’s approach would be a little bit broader than the current one, but not fundamentally different in method.
If Bernie really wants the governance of the Federal Reserve System to be “more democratic,” the only way to do this under the U.S. Constitution is to restore the Federal Reserve System to its status as a part of the US government — not a privately owned monopoly of an independent agency or anything of the sort. The Federal Reserve System, which has failed every important historical challenge it has ever faced, needs to be governed not by some shadowy committee, however representative it may allegedly be, but by public law. This is the only democratic reform of the Federal Reserve possible under the time-tested constitutional system of this country. If the new board members are really people from the more humble walks of life, which Bernie suggests, some lobbyist will soon be busy trying to find the price at which they can be bought, as William Pitt used to say.
This means changing the status of the Federal Reserve from a central bank which directly serves only the needs of bankers and financiers, into the form of a National Bank in the tradition of Alexander Hamilton, which is responsible for optimizing economic growth, real wages, rising standards of living, longevity, availability of material and intellectual culture, capital investment per job, and other important parameters across the entire economy of manufacturing, agriculture, energy production, and infrastructure.
The activities of the Federal Reserve need to be governed by public laws which are passed by the US House of Representatives, then sent to the U.S. Senate, and which are finally signed or rejected by the president. This is the only conceivable mechanism under our system. Each year a bill will be brought in specifying the general amount of credit which will be distributed during the coming fiscal year, what the interest rates will be, what the maturities will be, and what the approved categories of lending will be.
The way to reform the Board of Governors of the Federal Reserve System is to make sure that this board of governors ceases to exist as a policymaking body, and is replaced by a cabinet-level Secretary for the Bank of the United States, assisted by appropriate subcabinet and other competent officials as needed.
Right now, a bill governing the activities of the Bank of the United States would maintain credit at the current rate with the addition of about $6.5 trillion additionally, including $5 trillion to launch a comprehensive rebuilding of the entire infrastructure of the United States, with reference to rail transportation, ports, docks, canals, locks, energy production and transmission, the interstate highway system, plus housing, public buildings, 1000 modern hospitals, schools, University buildings, etc. it would be a combination of the PWA and WPA from the New Deal.
This credit would be distributed for projects approved by governors, county executives, mayors, and other elected officials. The interest rate would be at or near 0%. For the large works of infrastructure, the maturities could range up to 100 years or more – like the famous century bonds recently chosen by Cal Tech.
The remaining $1.5 trillion would be used to buy up and consolidate all student loan debt outstanding and owed to lenders in this country or by American citizens or residents, with a view to neutralizing the crushing burden of student loan debt. Eventually this that should be cancelled, but for now we can certainly prevent it from accruing any further interest. Future student loans, if needed, should also be issued at 0% courtesy of the Bank of the United States.
Bernie’s proposals for the Federal Reserve amount at best to timid and meager process reforms that would have very little appreciable impact on the life of any working family in the United States. Given that, why should any working family lift a finger to bring about these meaningless reforms?
The Tax Wall Street Party approach rejects Bernie’s petty bourgeois method of process reforms, and rather demands mass traction economic reforms that immediately deliver important changes in the everyday lives of working people. A program to rebuild national infrastructure and create 30 million jobs would help everybody who relies on US infrastructure — meaning 100% of the population. The 30 million jobs to be created would impact the labor market in ways that would be very favorable to any wage earner or unemployed person. These are things that anybody can understand, and that anybody can fight for.
Bernie then advances a couple of other points:
Since 2008, the Fed has been paying financial institutions interest on excess reserves parked at the central bank — reserves that have grown to an unprecedented $2.4 trillion. That is insane. Instead of paying banks interest on these reserves, the Fed should charge them a fee that would be used to provide direct loans to small businesses.
Sure. Negative interest rates would be fine, as far as they go. Instead of rewarding unscrupulous corporations that hoarded cash overseas and are now demanding to be rewarded for bringing it back home, we could easily pass a confiscatory tax on such foreign stashes by US corporations. The penalties for tax inversion should become astronomical. But, after Bernie’s multiple capitulations, nobody but nobody believes that he has the guts to do any of this – he is discredited. But he continues:
Third, as a condition of receiving financial assistance from the Fed, large banks must commit to increasing lending to creditworthy small businesses and consumers, reducing credit card interest rates and fees, and providing help to underwater and struggling homeowners.
The Tax Wall Street Party approach is far more sweeping and inclusive, and makes the provision of cheap, long-term, federal credit to any productive business – be it a dry cleaner, a restaurant, an auto repair shop or any other producer of tangible physical wealth – the center of the entire national banking effort. Homeowners could re-finance at 0%. Compared to this, Bernie’s timid proposals add up to rather dubious window dressing.
Bernie has one last point:
We must reinstate Glass-Steagall and break up the too-big-to-fail financial institutions that threaten our economy.
Glass-Steagall was necessary and effective in 1933, and ending it was one of Bill Clinton’s greatest crimes. Indeed, we are still waiting for Hillary to repudiate that disastrous policy step of 1999. But we must also add that Glass-Steagall would today be in no way a panacea — as some political snake oil salesmen have been alleging. To separate investment banking from commercial banking with federally insured deposits and insurance would still be a good thing, but the sources of instability now reside to an inordinate degree in the world derivatives markets. It is the derivatives, whose use is now pervasive at every phase of financial transactions, which magnify the resonance of every financial shock, making instabilities which might have been contained some decades ago into the devastating worldwide tsunamis. To get the kind of stabilizing effect which some seem to expect from Glass-Steagall, it would have to be combined with a 1% Wall Street sales tax to make sure that the instability could in fact be contained.
But we must also pause to take note of Bernie’s very disturbing tendency to throw out important policy points as fast as he can, without pausing to explain exactly what it is he is proposing. In the Democratic debate so far, he has referred a couple of times to his alleged plan for imposing a financial transfer tax, but has passed over this point at supersonic velocity, and has never paused to take the time to explain exactly what it is he is proposing.
Bernie here does the same thing when he calls for the breakup of the Wall Street zombie banks. This proposal has no detail whatsoever, no specifications, and generally leaves the impression that it is merely a verse in the litany which Bernie recites but is not really committed to implementing.
If Bernie believes in the breakup of the banks, he should talk about that a lot while he still has some national attention. Not that breaking up the banks is a very radical proposal at all. Nationalization would be more serious if it were combined with the nationalization of the Federal Reserve, but we have seen, that this is not Bernie’s cup of tea. Simply breaking up certain Wall Street zombie banks would accomplish relatively little. Their lending practices would remain the same, their use of bankrupt and kited derivatives would remain identical, and the remaining banks would in all probability create a new cartel to perpetuate most of the destructive monopoly practices we have seen so far.
We should recall that the traditional methods of breaking up monopolies have not been very successful. Standard Oil of New Jersey was broken up in 1911, but before long ESSO, Exxon-Mobil, and Chevron were back with the same monopoly practices. AT&T was broken up in 1984, and it would be hard to argue that this has improved anything. So, while the expedient of breaking up certain banks might sound very radical to Bernie’s deluded followers, this really does not add up to anything big.
In short, the most effective economic program remains that of the Tax Wall Street Party, and it is by this standard that other proposals should be measured. Bernie is once again a big disappointment.
