More on the History of Money

Wow! What a start to the new semester. At this rate I'll never have time to post anymore, but fortunately I think things will ease up.

If you have been following the History of Money/Debt, part 2 from the Modern Money Primer at New Economic Perspectives has been posted. Check it out:

COMMODITY MONEY COINS? METALISM VS. NOMINALISM, PART TWO

You can find Part 1 here: COMMODITY MONEY COINS? METALISM VS. NOMINALISM, PART ONE


Tomorrow morning I will post my proposal for a job guarantee program that will immediately bring us to full employment and promote greater price stability than our current system. Darwin, a frequent reader and blogger, has agreed to debate with me over the proposal. So come back tomorrow, follow our debate, and pitch in with your own comments!

Bernanke to Congress: Help me out!

I think Bernanke gets it.

From the Associated Press:

Federal Reserve Chairman Ben Bernanke has a message for Congress: Do more to stimulate hiring and growth -- or risk delaying the economy's return to full health.

Bernanke held out the prospect Friday that the Fed may take further steps later to help the economy. But he offered no new plans for now.

At a time when Congress has focused on shrinking budget deficits, Bernanke agreed that doing so is important for the long term. But he warned lawmakers not to "disregard the fragility of the current economic recovery."

"He appears to be saying that the Fed has largely played its part and that the politicians need to step up their game," said Paul Dales, senior U.S. economist at Capital Economics.

The economy is still hobbled by a depressed housing market, high oil prices and fears that the European debt crisis will deteriorate into a repeat of the 2008 financial crisis. The Dow has lost about 11 percent of its value since late July on fears that the economy might slip back into recession.

On Friday, Bernanke blamed this summer's political squabbling over raising the federal debt limit for undermining consumer and business confidence. And he warned that further gridlock in Washington would "pose ongoing risks to growth."

The Fed chief noted that the depressed housing sector has delayed a full recovery in the broader economy. He said the home market should gradually return to health -- a process he said the government should support.

He said that with oil and other commodity prices easing, he expects long-term inflation to remain low well into 2012.

Others have questioned whether any further lowering of long-term rates is needed. Investors seeking the safety of U.S. debt have forced down the yield on the 10-year Treasury note to 2.19 percent -- a full point lower than it was when the Fed completed its Treasury purchases about two months ago. Yet the economy is still sputtering.

Many economists note, however, that the economy's main problem is not that interest rates are too high. They say the main problem is that consumer spending remains too weak. So businesses feel little incentive to hire, expand and invest.

Until demand for goods and services steps up, the Fed has limited ability to strengthen the economy.

Joshua Shapiro, an economist at MFR Inc., said Bernanke was conceding that the Fed has "basically exhausted its tools."

And, the completely wrong way of thinking about this:

Rep. Jeb Hensarling, R-Texas, co-chair of a committee charged with proposing further deficit cuts, responded to Bernanke's hint that Congress should do more to stimulate growth by saying in a statement:

"The only way to put an end to this spending-driven debt crisis is for Washington to stop spending money we don't have. The committee was created to produce real deficit reduction, and accomplishing that task will help bring confidence back to job creators and grow the economy."

And that argument is coming from both political parties.

All gov't spending (not just spending that is over tax revenue) is 'money it doesn't have'. It's quite literally created out of nowhere. Remember taxes paid in are 'destroyed' not stored until spent by the government.

Reducing deficits won't bring confidence back to job creators, increasing sales will. Reducing deficits will instead decrease sales.

Oh, and don't mistake the title for a quote.

History of Debt

Another Video! Hopefully this is a little more interesting and understandable than my usual posts.

Watch the full episode. See more Need To Know.

History of Money: Debts, Coins, and Religion

Over at the Modern Money Primer, Randall Wray briefly walks us through the history (up til Rome) of money, debts, and coins and their significance to religion, including Christianity.

COMMODITY MONEY COINS? METALISM VS. NOMINALISM, PART ONE

A must read if you want to understand the answer to the question 'What is money?'.

Republicans Want Tax Increase

Really don't understand Republicans on this one...

Why would you fight so virulently against closing tax loopholes for the wealthy to reduce the deficit (which is a dumb idea to begin with...reducing the deficit that is) but be okay with what is essentially a tax hike for very much less wealthy employees by ending the payroll tax break?

Their reasoning?:

Republicans say their stand is consistent with their goal of long-term tax policies that will spur employment and lend greater certainty to the economy.

"It's always a net positive to let taxpayers keep more of what they earn," says Rep. Jeb Hensarling, "but not all tax relief is created equal for the purposes of helping to get the economy moving again." The Texas lawmaker is on the House GOP leadership team.

Many Republicans are adamant about not raising taxes but largely silent on what it would mean to let the payroll tax break expire.

Republicans cite key differences between the two "temporary" taxes, starting with the fact that the Bush measure had a 10-year life from the start. To stimulate job growth, these lawmakers say, it's better to reduce income tax rates for people and for companies than to extend the payroll tax break.

"We don't need short-term gestures. We need long-term fundamental changes in our tax structure and our regulatory structure that people who create jobs can rely on," said Sen. Lamar Alexander, R-Tenn., when asked about the payroll tax matter.

House Majority Leader Eric Cantor, R-Va., "has never believed that this type of temporary tax relief is the best way to grow the economy," said spokesman Brad Dayspring.

Former Massachusetts Gov. Mitt Romney did not flatly rule out an extra year for the payroll tax cut, but he "would prefer to see the payroll tax cut on the employer side" to spur job growth, his campaign said.

Former House speaker Newt Gingrich said Republicans will fall under increasing pressure to extend the payroll tax cut. If they refuse, he said in a recent speech, "we're going to end up in a position where we're going to raise taxes on the lowest-income Americans the day they go to work."

It seems pretty simple to me: businesses won't expand until sales increase. Sales won't increase until people have more money. Why would taking money away from people who buy things help sales? Why would giving more money to businessmen help them expand their business if they won't be able to sell their added production?

They have the line of causation backwards. Money won't 'trickle down' to employees until it 'trickles up' to employers. Even then I'm not sure it will get to the employees...record profits are still being made despite historically low wages and very high unemployment.

I say a complete payroll tax holiday for both employees and employers would be good, but deficit hawks would cry 'foul' (pun intended) because they think deficits are the reason for our bad economy. If you are in this camp I recommend checking out my 'Modern Money Factsheet'.

As for it being too 'temporary', are they worried it won't be spent? If so, say you'll suspend the tax UNTIL we reach full employment. The Central Bank said it would keep rates where they are until the economy is growing again and unemployment goes down. Let's do the same for the payroll tax cut.

But again, this is more about 'people who create jobs'. Those 'people who create jobs' rely on 'people who buy their product'. Just ask small business owners, they'll say that they are in tough positions right now because sales are low not because their taxes are too high or that their regulations are too tough. It doesn't matter how high taxes are or tight regulations are if nobody buys your product. If you want them to increase jobs increase their sales.

This seems to be a major stand in favor of the wealthy. If it isn't can someone please elucidate?


Full story here.

Taxes and Welfare are not Charity

Taxation and welfare can never be substitutes for charity.

Taxation is a destruction of money (or reserves). Government spending is a creation of money (or reserves). Government welfare programs such as TANF, Social Security, Medicaid, Medicare, etc. reallocate or redistribute resources by destroying financial assets of the taxed and creating financial assets of the receivers of welfare.

This is the nature of government taxation and spending. Your taxes are not someone else's welfare and therefore are not a gift of charity. This 'redistribution' can achieve socially desirable goals, but cannot replace a true act of charity which requires a person or persons giving and a person or persons receiving:

Charity is love received and given. It is “grace” (cháris). Its source is the wellspring of the Father's love for the Son, in the Holy Spirit. Love comes down to us from the Son. -- Caritas in Veritate pp. 5

What persons need above all is love or charity, not material goods. Giving of material goods is an act of charity, but the charity is needed more than the material goods.

The government is not capable of charity because it is not a person capable of love. There is no relationship established, it is not a true gift and it isn't a true sacrifice.

So you can't rely on the government to be charitable for you. This does not mean that welfare programs should not exist, but it does mean that they don't replace man's inherent need for charity. You cannot defer your responsibility to both give and receive charity to the government.

Nor can you give out of charity if justice is not met:

Charity goes beyond justice, because to love is to give, to offer what is “mine” to the other; but it never lacks justice, which prompts us to give the other what is “his”, what is due to him by reason of his being or his acting. I cannot “give” what is mine to the other, without first giving him what pertains to him in justice.

If we love others with charity, then first of all we are just towards them. Not only is justice not extraneous to charity, not only is it not an alternative or parallel path to charity: justice is inseparable from charity, and intrinsic to it. Justice is the primary way of charity or, in Paul VI's words, “the minimum measure” of it, an integral part of the love “in deed and in truth” (1 Jn 3:18), to which Saint John exhorts us.

On the one hand, charity demands justice: recognition and respect for the legitimate rights of individuals and peoples. It strives to build the earthly city according to law and justice. On the other hand, charity transcends justice and completes it in the logic of giving and forgiving. The earthly city is promoted not merely by relationships of rights and duties, but to an even greater and more fundamental extent by relationships of gratuitousness, mercy and communion. Charity always manifests God's love in human relationships as well, it gives theological and salvific value to all commitment for justice in the world. -- Caritas in Veritate pp. 6

In summary, the government cannot replace charity and therefore cannot solve all of society's problems which are rooted in an absence of charity and justice nor can we give out of charity if justice is not first met. To rely on the government to solve all our problems for us or to say that 'government is taxing me and giving it to the poor so I don't need to give' is to misunderstand true charity and a person's need for love.