OpEdNews - Diary: Economic Reform Update: May 2011

Next meeting time of Common Ground-NYC Agenda overview Economic analysis, Action steps Libya: What are we fighting for? State Banking update What is Money? What is Debt? Petitions for Real Reform

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Common Ground-NY Logo by Common Ground-NYC

Hello Fellow Economic Reformers (names withheld by request):

"Men did not make the earth ... it is the value of the improvement only, and not the earth itself, that is individual property... Every proprietor owes to the community a ground rent for the land which he holds." -Thomas Paine

"Land should be taxed as much as possible and improvements as little as possible." - Milton Friedman

"If I were now to rewrite the book [Brave New World], I would offer a third alternative ... the possibility of sanity ... Economics would be decentralist and Henry Georgian." - Aldus Huxley

"Who reads shall find in Henry George's philosophy a rare beauty and power of inspiration, and a splendid faith in the essential nobility of human nature." - Helen Keller

Our next Common Ground meeting will be held at the Vanderbilt Y again, on June 11, 3:00-7:00. I'll detail the agenda more as we get closer - I am in the process of working out the presenter list and arranging for 1 or more special guests. In keeping with my second-year as goal as president of Common Ground-NYC to enable and encourage more participation by our now-expanded membership (we now have 19 members, and just as many non-member participants), there will be several presentations by our members. This is a terrific development and shows the enthusiasm matched by action of our group. This much I can tell you so far about what we will cover:

1. What the group stands for; our mission. This may be enhanced slightly depending on the results of ballot questions on the recent elections, which we'll know by then, but our core mission to support LVT in NYC, and hopefully, someday, beyond, will not change. We are asking people's views on monetary reform along Greenback lines too, as well as some nuclear power specific issues, which will be more positional than active, even if passed. That is, we'll align ourselves with other groups whose main mission is these kinds of reforms, but will not be very active in them ourselves. Still, this will give us badly needed exposure.
Action Step: Create a Statement of Purpose for CGNYC . This may be a bit different than the CGUSA statement of purpose (see attached flier and also the business card back, if you have one (only members have those)), but should "be consistent" with it. I would like to see a committee formed around this with a member leading.

2. Other election results TBA

3. Presentations by Ron Rubin (Outreach committee), Allen Smith (website design - I hope we can show a home page by then), and Ralph Rivera (t-shirt committee - we will be taking new orders).

4. The status of current LVT legislation (Lindy Davies, Rita & I).

5. Lindy Davies' outreach and Education ideas for Common Ground.

6. Andrew Mazonne's neo-Georgist potential candidacy and platform. He is considering running for city council in Queens, and has some ideas to share. We should all listen and then see how we can help our cause, if possible, through his candidacy.

7 Discussion of next meeting, venue and time.

8. Possible presentation by Teckla C. Negga Melchior, a former graduate of the Henry George School and teacher, on her work in Puerto Rico where she was invited to present a paper and be a panelist, and for the IU, where she is a delegate, and on her plans for a Land Rights timeline. More details forthcoming and confirmation TBD.

9. New Business.

In keeping with recent tradition to present environmentally-oriented, Land-issue films, we will be presenting the 85-minute movie " A Sea Change " after the formal meeting (and a refreshment break). This movie discusses a less-discussed effect of our reliance on fossil fuels - the acidification of the oceans. From the review:

A Sea Change is both a personal journey and a scientifically rigorous, sometimes humorous, unflinchingly honest look at reality. It offers positive examples of new technologies and effective changes in human behavior that we all must choose before the oceans are lost.

Veteran CG member and Georgist Bill Batt has a new website: http://centralresearchgroup.org./ and especially their land value articles here: click here Important reading for an important reform.

Also, check out John K. Galbraith's testimony, with video, directly supporting a Land tax, citing Mason Gaffney, as well as supporting UNbalanced budgets as essential to the stablity and health of the American economy, here: http://urbantools.org/news/a-senate-discussion-on-federal-land-value-taxation

Something's Slippery About the Oil Markets

We've discussed the pernicious effects of the oil futures markets on the price of oil in this space before, but more and more thoughtful people, even outside our traditional Geoist/State Banking/Greenbacker circles are coming to the same conclusions (finally!). Political strategist Robert Creamer writes in today's Huffington Post: Time for Financial Regulators to Limit Speculation in Oil Market:

The big fluctuations in the price of crude oil over the last several weeks gave fresh evidence of the ever increasing influence of speculators on the price every day Americans pay for gasoline...Big price swings show just how little the major fluctuations in the oil market track the underlying fundamentals of supply and demand. Those fundamentals did not provide any justification for a ten percent decline in prices that occurred last week - any more than they justified the earlier 25% plus run up in prices that has resulted in $4.00 to $4.50 per gallon gasoline across the United States.

Of course, the big players are used to this, and even profit handsomely from these man-made fluctuations, while the American middle class can't afford to drive (not that that's a bad thing if you believe in positive incentives to reduce profligate oil usage, but then it should be consistently high), and third world people starve as oil prices drive food to unaffordability (which IS a bad thing). In a rare moment of candor, or simply due to lack of caring what the feckless and powerless public thinks:

"(...)Long-term commodity bull Goldman Sachs warned clients on Monday to lock-in trading profits before oil and other markets reverse, with the bank's estimates suggesting speculators are boosting crude prices as much as $27 a barrel."

Now, Creamer makes a distinction between good speculation and bad speculation, saying:

But speculative bubbles are not inevitable if commodities markets are properly regulated. There are two distinctly different types of investors in commodities futures. Business that produce or use commodities - like airlines, or trucking firms that consume large quantities of fuel - use futures markets as hedging strategies to protect themselves from price volatility. Their goal is to lock in a price range for critical inputs - or, in the case of farmers, for the products they sell. That allows them to invest and produce with the confidence that they can predict their costs or product prices. That kind of predictability is enormously helpful at encouraging them to make the investments they need to plant their crops, buy new airplanes or invest in new plant and equipment.

Financial speculators, on the other hand, don't produce anything. They are gamblers pure and simple. They don't invest in commodity futures to lock in a price or cost. They make money on the fluctuations in commodity prices. They place bets that the price will go up or that it will drop. So they benefit when prices are volatile. They benefit from speculative bubbles. They bid up the price of oil well above the supply and demand fundamentals, since they are simply betting that someone else will keep buy more and more oil futures and the price will keep going up. As soon as the bubble bursts and the price turns, the smart speculator reverses his positions - takes profits and bets against the market - accelerating the market's decline.

But herein lies the problem, and the reason why "regulation" alone has not, and will not, solve the underlying problem. ALL speculation is the same when it comes to nature's bounty - in this case oil - and that is: bad. Does the higher price for oil driven by speculators cause more oil to be produced? Well, yes, it may cause more of it to be found, which may feel like production to us, but it's not. And anyway, by that logic, whenever oil goes below what Rex Tillman, CEO of Exxon calls " the marginal cost of producing the next barrel of oil - which he indicated was now between $60 and $70 dollars a barrel " then it must decrease exploration when the futures price drops too low. In practice, however, oil companies are too smart, and too slow, to respond to every whipsaw in the futures market, and they decide in their own analysis what the price of oil ought to be , which is typically some 10-25% less than recent prices, and then make their plans accordingly.

The solution to this artificial gyration, euphemistically called "price discovery," is to tax the oil at as close to below the wellhead as possible. That is, tax the cost of the raw stuff, before it is drilled, captured, refined, distributed, and sold. The producers keep everything to do with oil, above ground, the public gets a dividend and the government gets a revenue tax, from oil below ground. Let's "price discover" the cost of oil below ground with regular (quarterly?) auctions of comparable quality oil (light sweet vs. heavy sour), then, after land and pollution costs are taken out, let the oil companies keep whatever they make from all the rest. Simple, accurate, less volatile, and correct.

As of this writing, margin requirements have been tightened on oil traders. Result? Oil prices in the futures market have come back below $100 and are dropping, after being as high as $112 recently. What is it, exactly, the traders are short of? It isn't oil.
Speaking of incorrect ideas...

We want Land Value Taxes, not axes to Property Taxes

Governor Cuomo seems determined to Proposition-13 New York State. He is calling for capping property taxes at 2% or the rate of inflation, whichever is lower . Sure, it can be overridden by a 60% public vote, but do you think the overburdened taxpayers will ever do that? We want tax reform too, but a tax shift to Land Value Taxes, and off of buildings . This two-tier tax system, to eventually go to LVT only (one tier) will encourage development, discourage land hoarding, encourage productive activities, discourage speculation.
ACTION STEP: Go to Cuomo's new site, listen to the video, then use the links to write to your Assembly person or State Senator, telling them to taxshift to Land Value Taxes for the reasons listed above. Do it in your own words so it doesn't get trapped as a mass mailing by their email filters. The link is here: http://www.governor.ny.gov/propertytaxcap

Maybe the problem is the word "taxes"? Peter Meakin from South Africa, where LVT is much more close to being implemented, tells us:

The term user-charge instead of land tax is preferred because "taxes' only benefit individuals generally as this definition and where requited means "to pay somebody back for a service performed'

A tax is defined as a compulsory unrequited payment not proportional to the good or service received in return for that payment. Since the payment made by an individual or firm does not necessarily equal the benefit derived, the general benefit principal applies.

User charges can be defined as requited payments for specific goods or services rendered. These payments are based on the individual benefit principle and attempt to link the amount paid to the benefit received by a specific individual.

Environmental Fiscal Reform Study by South African Treasury 2006

Could it be as simple as changing what we call tax, er, resource fee, reform? Perhaps we should try saying we are in favor of abolishing all taxes, and implementing resource and locational fees instead? That'll certainly lead to a different kind of conversation!

Here is a really, really, great new site that explains Land Rent - a better term than Land Value Taxes. This is full of pictures and simple enough for an 8th grader to understand most of it (well, maybe not the very small part in Algebra) .
http://answersanswers.com/

Inflation? What inflation?

OK, so we all know that everything from food to fuel to healthcare to school fees costs more than they did a year ago, a lot more. But why? If the Fed is pumping out money, why aren't wages higher? Most of us know the answer - the QEs I and II are going into the FIRE sectors, pumping up commodity prices, via speculation (though not in housing - that still has a lot of foreclosed inventory to shake off), instead of going into the real economy. In Ellen Brown's latest article:
INFLATION FEARS: REAL OR HYSTERIA?

she highlights this chart, showing the overall decrease in the M3 (or, its reconstructed facsimile):

Brown says:

The chart shows that the overall U.S. money supply is shrinking, despite the Fed's determination to inflate it with quantitative easing. Like Japan, which has been doing quantitative easing (QE) for a decade, the U.S. is still fighting deflation... If QE1 and QE2 are sitting in bank reserve accounts, they're not driving up the price of gold, silver, oil and food; and they're not being multiplied into loans, which are still contracting.

The part of M3 that collapsed in 2008 was the "shadow banking system," including money market funds and repos. This is the non-bank system in which large institutional investors that have substantially more to deposit than $250,000 (the FDIC insurance limit) park their money overnight. Economist Gary Gorton explains:

"[T]he financial crisis . . . [was] due to a banking panic in which institutional investors and firms refused to renew sale and repurchase agreements (repo) short term, collateralized, agreements that the Fed rightly used to count as money.

Of course, if we want to put the money to use, and not to have it "sitting in bank reserve accounts" we have two time-tested options:
1. Create fresh new U.S. Notes (or their electronic equivalent) pumped into Main Street opportunities like infrastructure, and/or
2. Create more State Banks, using state and local tax revenues, not further parked uselessly in "bank reserve accounts" but put to work, creating jobs and new businesses we need.
Brown's article on Yes! magazine (a posi-oriented publication) says we need a New Theory of Money. Sounding remarkably like Stephen Zarlenga as she traces the early history of money, she comes to a somewhat different solution in her support for various public credit systems, and public banking. Read it and you'll never see money the same way again...as more and more people are coming to realize. She is also getting oh-so-close to being a Single Taxer, supporting a Land Value tax, when she says:

The bankers have engaged in what amounts to a massive fraud, not necessarily because they started out with criminal intent (although that cannot be ruled out), but because they have been required to in order to come up with the commodities (in this case real estate) to back their loans. It is the way our system is set up: The banks are not really creating credit and advancing it to us, counting on our future productivity to pay it off, the way they once did under the deceptive but functional faÃ§ade of fractional reserve lending. Instead, they are vacuuming up our money and lending it back to us at higher rates. In the shadow banking system, they are sucking up our real estate and lending it back to our pension funds and mutual funds at compound interest. The result is a mathematically impossible pyramid scheme, which is inherently prone to systemic failure.

I have been nudging her in that direction for some time in public and personal correspondence. I think she will "see the cat" yet, which would be a fantastic addition to our Geoist movement.

But, that does not seem to be the priority for the United States of America. So, instead...

Is the Libyan War all about The Public Bank?

Economic Hitman John Perkins' recently confirmed Ellen Brown's view that the invasion of Libya is about "loans and currency" and not about oil here:
click here saying, in part:

According to the IMF, Libya's Central Bank is 100% state owned. The IMF estimates that the bank has nearly 144 tons of gold in its vaults. It is significant that in the months running up to the UN resolution that allowed the US and its allies to send troops into Libya, Muammar al-Qaddafi was openly advocating the creation of a new currency that would rival the dollar and the euro. In fact, he called upon African and Muslim nations to join an alliance that would make this new currency, the gold dinar, their primary form of money and foreign exchange. They would sell oil and other resources to the US and the rest of the world only for gold dinars.

The US, the other G-8 countries, the World Bank, IMF, BIS, and multinational corporations do not look kindly on leaders who threaten their dominance over world currency markets or who appear to be moving away from the international banking system that favors the corporatocracy. Saddam Hussein had advocated policies similar to those expressed by Qaddafi shortly before the US sent troops into Iraq.

It's worth noting that gold and silver have been especially volatile lately, almost as if they expect the market to be flooded with new supply...gee, I wonder where that might come from? Some vault in some north African country, perhaps? True, the margin requirements were just raised too, but still....

The Money Tree

Is the Libyan War all about Gold?

Speaking of volatile gold, Russia Today has a brief news video describing how the Western nations literally would be unable to pay for Libyan oil - and oil from all of Africa if they adopted Gaddafi's proposed Gold Dinar. See it here.

Or, Maybe the Libyan War is all about Water?

An amateur video explains the recently discovered vast aquifer underlying Libya and possibly the war against it here. Through an elaborate system of pipes, Libya is bringing this water to its 6 million people, and has the potential to green the desert and feed the region, maybe Africa too. All without loans from the World Bank, the IMF - all internally funded. Do you think they like that? Do you think the U.S. agribusiness likes that? Me neither.

OK, before leaving Libya, and the resource wars we are increasingly engaged in, and which underlie the economic system we so desperately need to reform, I thought it worth passing along this article from Johann Hari, an award-winning journalist published in multiple venues. In this article from the Independent , Hari points out in graphic detail the hypocrisy of our warring in Libya, Iraq (which, he admits, he originally mistakenly supported as a way of ridding the world of a dictator) while turning a blind eye to the atrocities going on for years in the Congo (warning: some of this is not for the feint-hearted). Hari says:

So one of the country's best writers, Fatima Bhutto, tells me: "In Pakistan, when we hear Obama's rhetoric on Libya, we can only laugh. If he was worried about the pointless massacre of innocent civilians, there would be an easy first step for him: stop doing it yourself, in my country."

Another easy first step would be to encourage every country to share the wealth of the resources with its own citizens. This might, indeed, add a little to the price of our goods, though not so much, since these countries could scale back their tools of oppression dramatically, as could we in support of them. Plus,

(Obama's) administration claims they are killing al-Qa'ida. But there are several flaws in this argument. The intelligence guiding their bombs about who is actually a jihadi is so poor that, for six months, Nato held top-level negotiations with a man who claimed to be the head of the Taliban -- only for him to later admit he was a random Pakistani grocer who knew nothing about the organisation. He just wanted some baksheesh. The US's own former senior military advisers admit that even when the intel is accurate, for every one jihadi they kill, as many as 50 innocent people die . And almost everyone in Pakistan believes these attacks are actually increasing the number of jihadis, by making young men so angry at the killing of their families they queue to sign up.

It's time to realize our current economic system is neither "efficient" nor "free-market" (what's "free" about the coltan market in the congo that " The major UN investigation into the war ... said bluntly and factually that "armies of business" had invaded Congo to pillage its resources and sell them to the knowing West."?). What it is, is a systematic way of violently stealing resources from an oppressed series of peoples, while supporting their oppressors with economically (if not legally) conscripted armies of the economically stagnant West, to distract the masses, and support the increasingly narrow set of oligarchs who collect all the proceeds in power and money. It's critical to our understanding to grasp that things do not have to be this way in order for us to have a satisfactory and happy (even happier) existence. We have to reject the line of the faux-capitalist/real-imperialist apologists that we have the system we have because there is none better or because every other model leads to tyranny or retardation of progress and prosperity.
It is simply not true. See this running clock on the Cost of War from the National Priorities Project to see what $1.1 Trillion could have bought us in America (this is a very conservative figure - Joseph Stiglitz pegs the cost of both wars at >$7 trillion in his book: The Three Trillion War (that's just for Iraq) from 2008).

What we need to do is change the incentive structure through Resource and Locational taxation, returning to the community that which was produced by the community.
We also need to re-recognize our sovereign right to create money, debt-free, making up for what the private sector won't provide with public money . We have to de-centralize the Money Power, and that brings me to the latest...

State Banking Update

The possibility of a second state getting a State Bank, besides North Dakota, which has had one since 1919, is turning into a probability. See the attached update from Ellen Brown, especially the part about California, where a bill to create a State Bank just passed out of committee, with only a single Nay vote against it. It's worth noting that California's $25 billion deficit would be almost trivial compared to the state's $134 billion in expected revenues, if some of those revenues could be used to backstop new loans that would generate new jobs and ultimately new revenues for the state, in a virtuous cycle. Remember, money is a legal creation and does not come from a fund somewhere, and true wealth is not money, but results from the production of goods and services using the natural resources of the world, that satisfy human desires, including California humans.

An explanation of the debt to a question by one of Ellen Brown's Public Banking Group poster's, by Michael Hudson (the economist, not the reporter. Emphasis added):

I'm on a deadline now, and cannot answer in detail. But the Fed is essentially a government body, although Wall Street has veto power over its appointees and in practice it acts on behalf of the large commercial banks and Wall Street institutions.
Ongoing discussion is available from the UMKC economics blog by Randy Wray and others to clarify matters. Often we may use verbal abbreviations for complex concepts, but I should best refer you to Randy's writings, Warren Mosler and others on the list as well as my own commentray.
The debt is real, because it exists, but it is not expected to be paid off. (Ellen Brown has an article in yesterday's Huffington Post on this.)
Interest charges are built into the roll-over. It is essentially the backing of the banks' credit creation, created on computer keyboards rather than "borrowed" from savers. That is the key: It is NOT created out of prior "savings."
Michael Hudson

The debt is real, because it exists, but it is not expected to be paid off. Think about that for a moment. And remember we have not paid off the debt since Andrew Jackson, and that led to a major depression, induced by a currency shortage (now renamed as a credit-shortage, to confuse the public into thinking that the only source of money is bank-driven credit, ignoring the successful Greenback experiments of the past).

Until next time, good luck and good thinking.