Tag Archives: economics

How Did It Happen?

Does anyone ever wonder how we got the income tax?  This tax has become so universal, on international, federal, state and even local levels, that it is taken for granted, but few people seem to question its legitimacy, history, or even its purpose.

An internet search suggests a form of “wealth tax” or income tax existed in the Roman Republic, ancient Egypt, and China, but the form we know, usually imposed to finance wars, began in England in 1188, by Henry II, for the “Saladin tithe” to fund the Third Crusade.

In his landmark book, Wealth of Nations, in 1776, Adam Smith, a Scott, suggested even the King of Britain could not get away with an income tax.  Tax on interest or money is difficult to calculate without extraordinary “inquisition” into every man’s private circumstances and “would be a source of such continual and endless vexation as no people could support.”  However, a mere nine years after Smith died in 1790, British Prime Minister William Pitt the Younger formally implemented the income tax, designed to pay for the French Revolutionary War, to purchase weapons and equipment.  It was a progressive income tax and in place between 1799 and 1816, but for a short reprieve following the Peace of Amiens in 1803.  It was reintroduced in Great Britain in 1842 by Prime Minister Sir Robert Peel, who was seeking revenues for the government’s increasing budget deficits.

“A heavy progressive or graduated income tax” is the second major tenet of the The Communist Manifesto, as delineated by Karl Marx and Friedrich Engels in 1848.  The fifth tenet advocates “Centralization of credit in the hands of the State by means of a national bank with State capital and an exclusive monopoly.”

In the United States, President Abraham Lincoln instituted the first US income tax in 1861 to pay debts from his war.  It was repealed by Congress in 1872.

The Socialist Labor Party pushed for an income tax in 1887.  The Populist Party demanded it in its 1892 platform, and the Democrats, led by William Jennings Bryan, advocated for the progressive income tax law passed in 1894.   Called the William-Gorman Tariff Act (Revenue Act), it reduced tariffs and imposed a two percent income tax but only on the top ten percent of earners.  In 1895, in Pollock v. Farmers Loan and Trust Co., the Supreme Court declared the tax unconstitutional, based on the constitutional requirements that taxation be apportioned by a state’s population.

Republican Rhode Island Senator Nelson W. Aldrich, who served between 1881 and 1911, was probably the single most influential individual in creating the financial structure we know today.  As chairman of the Senate Finance Committee–which oversaw bank regulation and monetary policy–he was possibly the most powerful man in the nation from 1898 to 1911. The financial Panic of 1907, (which some believe was engineered by banker and Aldrich friend/business associate, J. Pierpont Morgan) led to the Aldrich-Vreeland Act in 1908, which was designed to make the monetary supply more elastic.  It also established the National Monetary Commission with Aldrich becoming chairman.  As chairman, he led a team of “experts” to European capitals to study their banking practices, and returned as a proponent of a national banking system.  He worked in secret with powerful bankers to develop the “Aldrich Plan,” which eventually formed the basis of the Federal Reserve Act of 1913.  The secret dealings that began in 1910 and led to the creation of the Federal Reserve system is well documented in The Creature from Jekyll Island:  A Second Look at the Federal Reserve, by G. Edward Griffin.

Aldrich, who apparently had a habit of publicly opposing things he wanted, then voted in Congress for the corporate income tax in 1909, claiming this was to insure the personal income tax would not be passed.  Ten years before, he had called the income tax “communistic.”  However, later he and President William J. Taft then agreed that a constitutional amendment would be more effective in overriding the Supreme Court’s objections the 1894 law.  Aldrich claimed he believed the 16th amendment would never be approved.

The relationship between the Federal Reserve System and the new income stream generated by the income tax is not well documented, but it resembles that of the Whiskey Tax and the nation’s first central bank in 1791.  At that time, Treasury Secretary Alexander Hamilton introduced legislation for the whiskey tax on December 13, 1790 and for the central bank the next day, on December 14, 1790.

A common thread in the two bank/taxing schemes was that they gave the federal government the authority, if not the right, to investigate every taxpayer’s personal property and bank accounts searching for infractions, and to seize property it decides has been obtained illegally.  This has set the precedent for the federal invasion into private lives that has become so prevalent today.

In the “Gilded Age,” Nelson Aldrich was well known for his close and unsavory ties to business, by which he had become personally wealthy.  He believed his power base would successfully defeat the income tax amendment.  Indeed, while they were opposed, their solidarity had broken down, so individuals like Andrew Carnegie and John D. Rockefeller (whose son John Jr., married Aldrich’s daughter Abby) formed tax-exempt foundations to shelter their wealth before the tax went into effect.

At that time the income tax was promoted as a “class tax,” with only the upper income earners affected, so the idea of wealth re-distribution appealed to lower income earners.  Only later did President Franklin D. Roosevelt expand the “class tax” to a “mass tax,” according to former IRS historian Shelley L. Davis in her book, Unbridled Power: Inside the Secret Culture of the IRS.

Proponents of the income tax used other arguments, too.  It was proposed as a more reliable method than tariffs for raising federal revenues, and gave President Woodrow Wilson justification for reducing tariffs.  Also at that time the idea of Prohibition was in the air, and advocates of Prohibition recognized the government would lose income from excise taxes on alcohol.

The 16th Amendment reads, “The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”  It was passed by Congress on July 2, 1909 and sent to the states for ratification.

It was supposedly ratified by the requisite number of states by February 13, 1913.  However, there is some question about whether it was ever properly ratified.  In 1985, William J. Benson published The Law that Never Was about the income tax.  Here, Benson claimed that in 1984 he had visited national archives and all 48 state capitals looking for records of ratification.  Not only had he found variations in wording and punctuation from the congressionally approved amendment, but he claimed some states which were certified as ratifying never did or voted against the amendment.  He said only two to four states had ratified as written.

Constitutional amendments require ratification by three-fourths of states.  In 1913, there were 48 states, so 36 would have had to ratify.  Benson found that seven states had not ratified at all.  1913 Secretary of State Philander Knox had claimed Kentucky and Tennessee ratified, but Benson said they did not.  Eight states were reported as having ratified, but Benson found no evidence of it.  Six more states did approve, but the governors or other officials required to sign did not sign.  Twenty-five states violated provisions of their own constitutions in ratification, and 29 violated state procedures.  Twenty-two states changed the wording to ratify, one state changed spelling, and 26 states changed punctuation.   Oklahoma changed the wording to say the opposite of what the amendment said.  Tennessee law required a delay until the next session but ignored it.

The American Law Division of Congress’ Congressional Research Service responded in May, 1985 to Benson’s claims.  “While it didn’t rebut Benson’s factual claims,” it said the amendment had been ratified “because Knox said it had been ratified,” says one internet source.

In 1990 Benson went to prison for tax evasion.  He served 15 months before a federal appeals panel overturned the conviction, saying a government witness had given improper testimony in the 1987 trial.  This occurred less than one month before Benson was scheduled for parole.

Benson’s book caused quite a stir, and he was selling packages based on his book to help individuals fight the Internal Revenue Service.  However, those who have used his arguments have not fared well in court.  Also, Benson himself was the loser in court rulings in 2007 and 2009 that determined his “Reliance Defense Package,” which he sold for $3500 to tax protesters, was fraudulent.

Courts have denied requests for evidentiary hearings and have refused to hear the arguments against the 16th amendment itself, claiming “Secretary Knox’ decision is now beyond review.”

In an interview in 2013, Benson remained an income-tax evader and bragged he has never gone back to prison, despite his continued outspoken crusade against the 16th amendment.

 

 

 

Wealth of Nations Synopsis

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Adam Smith’s landmark book, Wealth of Nations, published in 1776, is a 500-plus page treatise on economics, oft cited bur rarely read, except by economists and masochists like me.  If you can overlook Smith’s sing-song style, his tediousness, repetition, generalizations, vague and archaic terminology, and inconsistent reasoning, the book is worth reading, especially as a social history.  It is important to recognize that Smith writes as a spokesman for the monarchy and the wealthy stock holders, landowners, and mercantilists who made the book an immediate hit and won him a position as Commissioner of Customs in Edinburgh, Scotland.  His “commercial society” has enshrined him as the “first modern economist,” or “father of modern capitalism.”

A confluence of factors contributed to the conditions of Smith’s time.  The “industrial revolution” began in Britain with the invention of the steam engine in 1712, first used for pumping water out of coal mines.  Other inventions quickly followed, eventually leading to the growth and dominance of the British Empire, through manufacture, trade, and colonization. Another feature of 1700’s Britain involved war and military conquest.  As an island nation, with England, Scotland, and Wales united as the United Kingdom, or “Great Britain,” in 1707, it developed its sea power and had established dominance in the seas and in trading routes by the time Smith wrote Wealth of Nations.  Competition with other powers brought war and its heavy costs.

Wealth of Nations refers repeatedly to the “late war,” which presumably was the Seven Years’ War, fought between 1756 and 1763.  One of the book’s primary aims appears to be exploring the various modes of taxation the king could use to pay debts from that war.

Meanwhile, the industrial revolution was bringing a rapid shift in social and cultural dynamics, as Great Britain went from predominantly agrarian, rural society to one of urban and industrial predominance.  The textile industry was probably the first to be affected in a major way, with the invention of the spinning jenny–“jenny” is a nickname for “engine”–by Englishman James Hargreaves in 1764.

The iron industry also underwent fast transformation, and with it, the transportation industry.  Communication and banking adapted accordingly.

Because industrialization necessitated large capital investments, business ownership shifted from individuals to groups, including partnerships and corporations.  The banking industry grew by leaps and bounds after the Bank of England was first chartered in 1694.  The London Stock Exchange boomed after the Seven Years’ War.  The government became increasingly dependent on it to finance wars.

Like many of his contemporaries, including Benjamin Franklin, Thomas Jefferson, Alexander Hamilton, and George Washington, he was fascinated by machinery and its commercial potential.

In the first pages of Wealth, Smith presents the plan for the book, summarizing that the real wealth of a nation comes down to the “annual produce of the land and labor of the society.”

He then distinguishes between towns and agriculture and glorifies machines for facilitating division of labor, thus efficiency and productivity.  He uses pin-making as an example, with speed of production due to division of labor the only criterion.

Smith claims farmers are lazy, because as one-man operations, they waste time changing tasks, whereas a group of men in a “workhouse,” each doing one small task repeatedly, are able to produce much more in the same time period.

He says “Cochin-china” is one of several Asian countries that have sea access as well as extensive canals inland, but most of their trade is internal.  He wonders why they have not sought to trade outside their own countries.

Wealth emphasizes the enduring value of labor, despite the fluctuations in metal money.  The discovery of gold and silver in the Americas caused a glut in Europe that reduced the value to a third of what it was before.  A man can only do so much labor, but that labor holds its value through all the ups and downs of markets.

Wealth gives a multiplicity of examples of how labor costs rise and fall in relation to cities versus rural, or demand—such as North America, where labor was in great demand and food relatively inexpensive—and how much a laborer must be paid to sustain himself and children to replace him.  Since 50% of children die before reaching adulthood, says Smith, we need to calculate the cost of feeding four children in every family.  Smith acknowledges that all the laws favor the employers, should the laborers strike for higher wages.

While he presses the point that nothing happens without labor, Smith is happy to squeeze the laborer into a bare subsistence wage, better to keep him working hard to make ends meet.

He cites numerous examples of relationships between labor and stocks. New land, like the colonies, attracted lots of stock capital because it was cheap, full of natural resources, and soil was rich.

Early on “corporations” restricted competition, with the king’s (or queen’s) support.  Smith says 5th of Elizabeth formalized the “Statute of Apprenticeship” that restricted practice of craft or trade to those who had apprenticed seven years.  Church wardens, mandated by the king to provide for the poor in their parishes, did everything possible to keep the poor from moving in.

Corn was the major food crop in Europe.  Smith says tobacco grows well enough in parts of Europe, but it is illegal because it’s too hard to tax individual farmers, so tobacco is imported from (primarily) Virginia and Maryland, warehoused, and resold at profit.  Sugar is in great demand, and is very expensive, imported from Caribbean colonies.  In “Cochin-china” sugar is no more expensive than ordinary food crops and is cultivated alongside them and apparently not exported much.

Labor and landlords benefit from policies that also serve the public.  Stockholders, however, are loud, moneyed, and invested in reducing competition, so they generally work against the public good.

Smith explains how money is not the same as circulating capital.  It is the “wheel” of the economic engine but has no intrinsic value.  A coin is not used up when it is exchanged for goods or services, so the same coin, each time it changes hands, buys its face value for the purchaser, who gets his coin’s “worth” in product.

He also writes about the banks, primarily of Scotland, that used paper money promissory notes in excess of gold deposits for lending.  80% paper to 20% backup.  Merchants could also get lines of credit, so were encouraged to accept that bank’s paper in trade, to promote it to friends and associates, and to spend it.  However, paper was no good in foreign countries, so gold was exported to import foreign products.

“No equal capital puts into motion a greater quantity of productive labor than that of the farmer,” says Smith.  Also, farms stay put, like retail shops, and can’t be outsourced.

He discusses how the American trade is financed by merchants in Great Britain.  He uses the example of hogsheads of tobacco from Virginia and Maryland as commodity money that is bought in excess by England and resold in other places.

But the “great commerce of every civilized society” is between country and town.  In fact, the home trade, by far the most important, was considered subsidiary to foreign trade, based on Man’s book, England’s Treasure in Foreign Trade.  Smith says the mercantile system works in many ways against the enrichment of the country.  It selectively encourages exportation and discourages importation.

He says it is a mistake to politically favor exports over imports.  Restraints on imports consist of high duties and absolute prohibitions.  Exports were encouraged by “drawbacks” (tax relief), “bounties (subsidies), advantageous treaties, and the establishment of colonies.  Smith is down on bounties.  He specifically mentions corn, because it, to him, is the commodity by which the price of everything else is measured.

He claims restraints on importation and prohibitions may be good for the home manufacturers but not for the population or the economy as a whole.  The famous “invisible hand” comes up on page 300, in which Smith mentions the folly of “statesmen” who try to control private enterprise.  He says the market will determine what is needed without government help.

Merchants and manufacturers derive the most benefit from monopolies, says he, whereas farmers and populace derive little and undoubtedly lose by them.  Corn merchants benefit more from subsidies than corn farmers.

The notion of “balance of trade” is “absurd,” and he enumerates reasons.  Smith also states that it is silly for nations to try to improve their wealth at the expense of other nations.  This leads to hostilities rather than friendly exchanges.

Smith asserts again that all wealth comes from the land, with farmers the most productive workers and everyone else subsidiary.  Those who bring raw materials to more useable form, like wool manufacturers, do not add as much value as the farmer does by cultivating the land.

Smith cites the duties of the sovereign.  He claims the sovereign does not have the duty or right to regulate commerce.  At the same time, he says the king’s first duty is to protect the country from other governments.

He makes the case for a standing army and says this is the only way the sovereign can maintain peace and order.  Now “civilized” societies can conquer “barbarous” societies, which don’t have the advantage of gun power.  He believes, therefore, that gun power equals civilization.

Smith mentions highways, bridges, navigable canals, coinage, and the post office as public institutions that facilitate commerce.  Post offices everywhere, he says, are valuable revenue sources for the government, with steady and immediate cash flow and low maintenance costs.

Obviously, a glaring inconsistency in Smith’s premise is between his views on free trade and his belief in the importance of a standing army.  Here we have our pseudo proponent of free trade justifying forts and garrisons in foreign countries to protect merchants’ stores.  Where these countries do not allow forts, it has been necessary to send ambassadors.  Smith believes most ambassadorships were created to protect trade.

He goes into “regulated companies,” which are open to anyone with the money, willing to submit to the rules, and trading his own stock at his own risk.  These are opposed to “joint stock” companies, which sound like publically traded companies today.  Pooled resources and pooled profits.  He says only four types of joint stock companies seem valid.  He cites:  1. The banking industry; 2. Fire and sea-risk insurance companies; 3. Canal or navigable channel companies; and 4. Those bringing water by pipe or otherwise to a great city.  He notes the Bank of England doesn’t have exclusive privilege, except that no other bank in England can employ more than six people, and the Bank of England lends to the sovereign.

The last hundred pages of the book are devoted to taxes and other potential sources of revenue for the commonwealth or sovereign.

He floats the concept of a central bank, calling it a “public bank to support public credit, and upon particular emergencies to advance to government the whole produce of a tax, to the amount, perhaps, of several millions, a year or two before it comes in.”

Smith asserts the king should be wealthier than anyone, with grand style and pomp to support his “dignity.”

He distinguishes between direct and indirect taxes, saying the former, as on land, are easily assessed.  Tax on interest or money is difficult to calculate without extraordinary “inquisition” into every man’s private circumstances and “would be a source of such continual and endless vexation as no people could support.”

“There is no art which one government sooner learns of another, than that of draining money from the pockets of the people.”

Wages on the “inferior classes of workmen” are regulated by demand for labor and the price of provisions.  As taxes on labor go up, wages must go up more, to cover the additional tax.  Manufacturers can pass these costs on to the consumer, but farmers’ landlords must absorb them.  This leads to a decrease in the demand for labor.  “Absurd and destructive as such taxes are, however, they take place in many countries.”

Smith goes into government jobs, which are much sought after, because they are highly paid and carry perquisites (perks).  Taxes on luxuries do not raise the price of other commodities, but those on necessities do, so should not be taxed. He mentions alcohol taxes as by far the most productive.

Excise taxes are generally on home goods destined for home markets and imposed on only certain items of the most general use. Excise laws discourage smuggling more effectively than customs laws.

He acknowledges that poor people, because there are more of them, consume the most, not only in quantity, but in value.

He mentions that war has required even the most frugal republics to contract great debts to maintain independence.  He says it is incorrect to assume money lent to government increases capital, because it is generally wasted, and that money would otherwise be spent on productive labor.  Also, foreigners often buy in.

“When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid.”

Wealth ends rather abruptly on the subject of public debt, saying that when it exceeds taxpayers’ ability to pay with reasonable measures, government uses unreasonable measures, such as issuing interest-free bonds for immediate expenses, or interest-only bonds that are never intended to be repaid.  He says this has “enfeebled” multiple governments.

When governments reach the point where they can’t pay the debt, they either inflate the currency or declare bankruptcy.  He says the latter is more honest, but says the entire system of debt-backed government is “pernicious.”

My take is the tradition of monarchs and overlords has led to societies in which unearned wealth is glorified and held in high esteem.  The most highly respected and emulated are those who have done the least to acquire what they have, in general terms. The very idea, The Wealth of Nations, presumes the nations own the individuals who live within their borders.

 

 

 

Hamilton’s Legacy

As the rich get richer and the poor get poorer, pundits and philosophers theorize about the problems of income inequality, social stratification, and legal injustice.  Proposed solutions flow thick and fast, most advocating government intervention or denouncing government de-regulation since the Great Depression.

The American myth of freedom, democracy, and capitalism dies hard, but the United States has never been free, democratic, or even capitalistic, unless it was before the Europeans arrived.  Stratification of society was built into the system with the arrival of the English and their traditions of monarchs and minions, the French and Spanish, and their long histories of battle and inbreeding among themselves on the European continent.

The American experiment may have represented a break from the past, but it carried with it the same patriarchal patterns of its forebears.  The “Founding Fathers” ultimately adopted a government structure that varied only slightly from that of its British progenitors.

Many US citizens don’t know the difference between the Declaration of Independence, which we celebrate on July 4 every year, and the Constitution, which was drafted in secrecy and signed on September 17, 1787, over eleven years after the Declaration announced the United States’ independence from Britain.

In that eleven year gap, the Revolutionary War had been fought and won.  The now free colonies were struggling with debts to soldiers, domestic, and foreign investors.  The individual states had taxing power, but the loosely formed union did not.  Some states were paying off their debts, but others were lagging.  John Adams had been sent to London to negotiate credit for the fledgling country, and Thomas Jefferson had been sent to France for the same purpose, to replace Benjamin Franklin, who was aging and ill.

James Madison of Virginia and Alexander Hamilton of New York led the effort to revise the Articles of Confederation with a new Constitution that would create a strong central government, supersede state governments, and have the taxing power to pay war debts.  Once gathered at what became the Constitutional Convention in Philadelphia, though, each delegate learned the intent was to completely re-write the Articles and was sworn to strict secrecy. George Washington was unanimously elected president.  Madison sat by his side taking notes and was later acknowledged as having written the Constitution.  Alexander Hamilton was a strong advocate for a centralized government, brilliant and opinionated, an open admirer of the British model, including the monarchy, and wanted to reproduce the British system in the states.  He also extolled wealth and privilege, claiming the masses could not be trusted to manage their own affairs.  Madison was of the same general opinion.

While he initially opposed the Constitution, Hamilton later became its strongest advocate and promoter.  He induced Madison and John Jay to write with him what became the Federalist Papers, a series of anonymous essays distributed to newspapers to promote ratification by the states.  For ratification, the Philadelphia conventioneers chose to bypass state legislatures and rely on specifically convened  ratification conventions.

Hamilton played an early and profound role in shaping the early American government.  According to his biographer, Ron Chernow*, he was an illegitimate child of a dissolute couple, born in 1755 or 1757 on the British island of Nevis in the West Indies.  After his father abandoned the family and his mother died, he was employed at age 13 as a clerk and bookkeeper for wealthy British traders on St. Croix, also in the West Indies.  His employers traded in a variety of goods, but at least one shipment a year was of African slaves.  Those employers eventually financed Hamilton’s migration to the New York colony in 1773, where periodic shipments of slave-produced sugar covered his expenses.

Hamilton, who was dashing and gifted, quickly made his way into New York society, courting and marrying a daughter, Elizabeth, of the prominent Philip Schuyler.  He enlisted in George Washington’s Continental Army, gained Washington’s confidence and became his personal secretary during the Revolutionary War years.  Later, Washington granted him his one and only command, at the battle of Yorktown, where Continental and French forces defeated British General Cornwallis to win the Revolutionary War.

After the war ended, Hamilton practiced law in New York City and involved himself in politics.    He also involved himself in banking, writing the constitution for the Bank of New York in 1784, as agent for his brother-in-law, John B. Church, who was in Britain acting as a member of Parliament.  It was New York’s first bank and exists today as BNY-Mellon, billed as having the longest continually traded stock on the New York Stock Exchange.

After the Constitution was ratified, George Washington became the first US president, elected in 1788.  John Adams was elected vice president, and Hamilton became Washington’s first Treasury Secretary.  Thomas Jefferson, who was still in France, was appointed Secretary of State and confirmed by the Senate before he knew of his appointment.

Hamilton went to work immediately to take control of the nation’s finances.  The day after his confirmation as Secretary of the Treasury, he arranged for a $50,000 loan from the Bank of New York—of which he was a director–to pay salaries of Washington and Congress.  He then arranged for another $50,000 loan from the Bank of North America.  The Hamilton Tariff Act of 1789 was Congress’ second official move, after establishing rules for taking oaths of office.

By 1790, Hamilton was busy working on a plan for the federal government to assume state debts from the Revolutionary War.  In the Constitutional Convention the question of assumption had split—like the slavery issue—essentially along North-South lines, because Southern states had paid off much of their debt, while northern states, like New York, had not.  The issue dovetailed with questions about the ultimate location of the nation’s capital.  Madison, silently backed by George Washington, negotiated for a Potomac River location near Washington’s Mount Vernon plantation in exchange for agreeing that the federal government would assume the states’ debt.

Meanwhile, Hamilton was busy creating the First Bank of the United States, a central bank that could issue credit, capitalized at $10 million, 20% owned by the government and 80% owned by shareholders.  He was also looking for other sources of income and convinced Washington and Congress to support an excise tax on whiskey.  He introduced legislation for the whiskey tax on December 13, 1790 and for the central bank December 14, 1790.  At that point, Washington’s main source of income came from whiskey distillation.

Both James Madison and Thomas Jefferson vigorously opposed the central bank, calling it unconstitutional.  Madison and Hamilton had been allies before, but this difference in interpretation of the Constitution caused a rift that never healed.  Jefferson and Madison wrote letters back and forth condemning the mad stock speculation that greeted the public offering of central bank stock, and the fact that people in the Northeast could talk of nothing else.  Once again, critics claimed Hamilton demonstrated a preference for rich Northerners, as he only offered the stock through three banks, in Boston, New York, and Philadelphia.  Also, opponents pointed to the fact that three-fourths of investors were foreign.  Thirty of the approximately 85 Congressmen bought shares.

Hamilton’s assistant Treasury Secretary, William Duer, could be called one of the nation’s first inside traders.  Philip Schuyler, who would become Hamilton’s father-in-law, had previously done business with Duer and had encouraged him to move from Antigua to New York.  Duer became an early friend when Hamilton immigrated to the continent.  But Duer turned out to be an inveterate gambler and stock speculator who was blamed for causing the Panic of 1892 through debt-backed stock speculation in First Bank of the United States stock. His method was to borrow heavily to make trades, hoping to sell at peak prices, but he ran out of cash and couldn’t make payments on his debts.  People panicked and started selling stock.  Hamilton then used the Treasury’s sinking fund to buy government securities anonymously, to stem the panic.

As a result of the crisis, to restore confidence, and to encourage people to start investing again, 24 stock brokers and merchants formed the New York Stock Exchange in May, 1792, by signing the so-called “Buttonwood Agreement,” under a buttonwood tree on Wall Street.  The signers agreed to trade only with each other, and to charge one-quarter percent commission on trades.  Available stock was limited to insurance companies, the Bank of New York, the First Bank of the United States, and Hamilton Bonds that Hamilton had decided to issue to pay Revolutionary War debt.

The United States has operated as a triumvirate of government, banking, and the stock market ever since.  The “Framers” of the Constitution were wealthy businessmen, planters, bankers, lawyers, and merchants, who designed a structure for exerting control over the population through laws and taxation.  While the Declaration of Independence set the states free, the Constitution bound them in economic slavery to a new taxing authority.  The links to the banking system and the New York Stock Exchange initiated the “public-private partnerships” that define the United States today.

If, in the 21st century the rich are getting richer and the poor getting poorer, it’s probably fair to say it was designed that way.  The Framers knew what they were doing.

 

*  The recent Broadway hit Hamilton is based on Chernow’s book, Alexander Hamilton, 2004.

For Better or Worse

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In late 2006, ten years ago, I started reading an abridged (317 pages) version of Democracy in America, the classic work by French aristocrat Alexis de Tocqueville.  It took several years to finish it, but I noted de Tocqueville’s observations and my reactions along the way.  Below are my comments at that time, along with my retrospective on the 2016 election and its implications so far.

DEMOCRACY IN AMERICA – ALEXIS DE TOCQUEVILLE – 1832

             Democracy in America, the much quoted tome by French aristocrat and dilettante Alexis de Tocqueville, was written after a nine-month tour of the United States in 1831-2.  This 317-paged abridged version was edited by Richard D. Heffner, who wrote the introduction.  It was published in 1956.

Even in 1831, apparently, de Tocqueville recognized attitudes that have led to today’s problems in America, such as the driving greed of all layers of society, and the work-driven ethic.  At that time, class distinctions weren’t so clear, but this is shifting, and the oligarchy today consists in large part of so-called “public servants” who have commandeered public property and cordon it off against the public.

De Tocqueville also astutely observes that a comfortable populace will not revolt.  He didn’t anticipate they would not work, either, if the government makes life too comfortable, as is presumably happening now.

It bugs me that he calls this “democracy,” but I suppose it’s the closest form anyone in recent history has known.

De Tocqueville is optimistic and extremely perceptive, recognizing trends that have become so pronounced now that they are almost pathological, as the preoccupation with material things, for instance.

He was struck even then with the American love for money.  He did not see then the gradual centralization of power, but we didn’t have a democracy, either.  Slaves, Native Americans, and women were irrelevant in the political paradigms.

De Tocqueville’s observations provide perspective on America’s early ideals.  They show to some extent where we went awry.

He distinguishes, for one thing, between centralized government and centralized administration.  He says we have the former but an absence of the latter.

No more, I claim.  De Tocqueville wondered about the wisdom of the arrangement.  He said centralized administration saps initiative from local communities.

THEN AND NOW

            Democracy in America points to US priorities in the 1830s, and they are becoming ever more obvious today.  The fixation on material wealth and status stand out.  The idea that we have centralized government, and now centralized administration, too, seem particularly relevant with the president-elect’s cabinet and administrative picks.

I was one of those who stood aside during this 2016 election year, a part of the process by default but as removed as I could get.  My general belief is it doesn’t matter who the president is.  The machinery of government grinds on as if leaderless and, according to me, has been cruising downhill throughout my life.  That the pace has picked up recently, since the tech explosion, perhaps, or since 9/11, has less to do with the presidency than with general mass awareness and passive collusion with hitherto unseen forces.

Blame social media, “fake news,” the widespread sense of betrayal, and the general—albeit semi-conscious—preoccupation with money and status at all levels of society.  Blame the dissolving faith that government has answers, the disillusionment with delegated power and authority.  Passive aggression and passive resistance make for a general sense of social malaise that leads to personal and social stagnation.  What is left?

I’d like to believe we are undergoing a revolution in consciousness, a period of confusion in which we re-assess what we have believed and whether it remains valid. We are all—all of humanity and other life and non-life–in this stew pot together, for better or worse.  The fortune tellers on the payroll are busy trying to predict what disasters a Trump administration can wreak.  Even his supporters seem disgruntled over his choices of advisors and cabinet heads.

I say we got what we deserved, for better or worse, and, in retrospect it seems we have been heading along this path at least since de Tocqueville visited in 1831.

 

 

 

 

 

 

The Creature from Jekyll Island: Notes and Thoughts

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The Creature from Jekyll Island:  A Second Look at the Federal Reserve
by G. Edward Griffin, first published 1994.
Notes and Thoughts on the first three chapters.

           The Creature from Jekyll Island is astounding in its implications.  It reveals that the money lending game is essentially between banks, with debt fueling the pump.  Powered by individual as well as government debt taken on in  taxpayers’ names, it makes me wonder whether unborn taxpayers can be obligated by federal debt.  Also, if the Fed were abolished, might all this artificial debt cancel itself out?

The book starts with a cameo of a secret meeting on Jekyll Island, Georgia, in 1910 that led to the Federal Reserve Act in 1913.  Nelson Aldrich, Senator from Rhode Island and father-in-law to John D. Rockefeller, Jr., hosted the private rail trip for six other movers and shakers in the banking and finance industries.  These men were to arrive at the train station separately, go by first names only, and say they were going duck hunting.  The regular staff at JP Morgan’s Jekyll Island Club was given a vacation.  Carefully selected others served the men while they were there.

The men were: 1.  Aldrich, who was also Republican “whip” in the Senate, chair of the National Monetary Commission, and a business associate of J. P. Morgan; 2.  Abraham Piatt Andrew, Assistant Secretary of the US Treasury;  3.  Frank A. Vanderlip, president of the National City Bank of New York, the most powerful bank at the time, and representing William Rockefeller and the international investment banking house of Kuhn, Loeb, and Company;  4.  Henry P. Davison, senior partner at JP Morgan Company;  5.  Charles D. Norton, president of JP Morgan’s First National Bank of New York;  6.  Benjamin Strong, head of JP Morgan’s Trust Company;  7.  Paul M. Warburg, partner in Kuhn Loeb and Company, a member of the Rothschild banking dynasty in England and France, and brother of Max Warburg, head of the Warburg banking consortium in Germany and the Netherlands.

When Griffin says the Fed creates money out of nothing, he is not entirely accurate.  Rather, the Fed creates debt out of nothing to lend to Congress and calls it money, because it is backed by congressional promises of future taxpayer earnings (through the income tax, established earlier the same year, 1913).  The incredible credit is then passed off as currency, and no one is the wiser.

Until now.  The lie continues that US taxpayers are obligated by congressional guarantees, but we are not morally obligated to pay that debt.  Unfortunately, since their strategy has included putting everyone on the payroll—in one form or another—everyone is implicated in the scam and terrified of its inevitable unraveling.

Obviously the easiest solution is for individuals to get out of debt.  When debts are paid off, the money vanishes into the red hole it came from, the money supply shrinks, and deflation gives everyone except banks, debtors, and governments—the biggest debtors of all–more buying power.

Griffin gives a good summary at the end of each chapter, thereby simplifying this 600 page tome.

Chapter 1:  “The Journey to Jekyll Island” tells how the skeleton of the Federal Reserve System was worked out at Jekyll Island in 1910 by RI Senator Nelson Aldrich and six other men representing the most powerful banking interests in the Western world.  These included US banks under JP Morgan and John D. Rockefeller; English and French banks under Kuhn, Loeb and Company, representing Rothschild interests in Europe; and Germany and Netherlands banks by the powerful Warburg family.

Author Griffin refers to it as a banking cartel, in which powerful competitors align to prevent other competition and use the government’s police power to enforce their monopoly.  Griffin hints without actually saying that descendants of these five banking dynasties still control the Fed.  These are Morgan, Rockefeller, Rothschild, Warburg, and Kuhn-Loeb.

He says the Jekyll Island meeting had five objectives:  1. Stop the growing competition from the nation’s other banks;  2.  Obtain a franchise to create money through debt;  3.  Get control of all the banks’ reserves so the more reckless ones would not be exposed to currency drains and bank runs;  4.  Get taxpayers to cover the cartel’s losses;  5.  Convince Congress the purpose was to protect the public.

Chapter 2:  “The Name of the Game is Bailout.”  The crucial point is that all the money created through the banking system since the Federal Reserve Act is backed only by debt, primarily by Congress’ obligating taxpayers’ future earnings.  A defaulted loan, thereby, costs the bank little in tangible value.  Therefore, the goal is to continue receiving interest on the loan by lending more (future) money to cover it.  This is especially true with large loans.  With extremely large loans the cartel gets the federal government to guarantee the loan, should the borrower default.  If this tactic fails and the bank is forced into insolvency, the FDIC is used to pay off depositors.  Small banks pay disproportionately for this “insurance” and are least likely to be bailed out, should disaster hit.

Because money is created out of nothing for the purpose of lending, huge sums are dispersed through the economy, devaluing the existing currency and causing inflation.

Griffin does not say that the income tax, passed earlier in the same year, 1913, was the funding source by which the federal government would pay perpetual interest to the Fed on the national debt.  This method mirrored the 1790-1791 creation of the whiskey tax and the nation’s first central bank, a double whammy on taxpayers, devised by Alexander Hamilton and George Washington.  (This from Alexander Hamilton, by Ron Chernow, 2004)

Chapter 3:  “Protectors of the Public.”  This chapter gives multiple examples of previous federal bailouts, beginning with Penn Central in 1970, Lockheed in 1970, the Commonwealth Bank of Detroit in 1974, New York City in 1975, Chrysler in 1978, the First Pennsylvania Bank of Philadelphia in 1979, and Chicago’s Continental Illinois in 1982.  Continental was the first electronic bank run.  It was the nation’s seventh largest bank at the time, with $42 billion in assets, with multiple loans out to high-risk business ventures and foreign governments.  Here the Federal Reserve becomes the “lender of last resort,” meaning it creates money out of nothing to cover, in this case, $4.5 billion in bad loans, and passing costs on to taxpayers in the form of inflation.

And this book has 26 chapters.  Stay tuned . . .

 

 

 

Here’s How 061416: “Value Added Packaging”

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I consider it a triumph when I can extend the life of packaging beyond a single use. To add value to packaging sometimes requires as little as soaking labels off jars or cutting the flaps off a box.  Then I can re-label as needed, using masking tape and a felt pen.

This photo shows some of the uses I’ve found. Jars, preferably those with metal tops, work for everything from keeping mice out of chicken food (and pantry supplies) to serving as storage containers for my dried herbs.  Claussen pickle jar, chutney jar, and preserves jar shown.  The preserves jar holds my chocolate chip/dinner mint/nut snack food.  The tall jar is a re-purposed red wine vinegar jar that serves as a pen dispenser.  It dispenses one pen at a time.  The plastic topped jars that I’ve converted into “Supreme Court Balls Starter Kits” held Publix natural peanut butter (crunchy).

The “Supreme Court Balls Starter Kits” were an inspiration following the infamous 5-4 “Kelo” (eminent domain) decision of 2005. This land grab by Pfizer pharmaceuticals, acting through the New London, Connecticut City Council, invalidated property rights for individuals when a higher bidder comes along.  Subsequent events by all levels of government have proved they are quick to eminent domain property whenever it suits their financial interests.  The jars pictured here hold coins.  One is full of pennies, $6.80 when filled to the brim.  The pennies weigh 2.025 kilos or 4.45 pounds.  The jar holds 400 ml or 1.75 cups of water.  It is 12.7 cm (5 inches) high and 24.75 cm (9.75 inches) in circumference.  So this jar is also a teaching tool for metrics.  It also highlights my belief that saving spare change in jars is a good hedge against bank failure, since they can’t be hijacked by a keystroke, they retain metal value, are hard to steal, and don’t burn up in a fire.

I imagine the “Supreme Court Balls Starter Kits” and the accompanying “Supreme Court Balls Designer Labels” will be worth a lot of money when people wise up to what the Supreme Court has done to individual property rights.

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The metal spice container is now a salt shaker that allows me to add uncooked rice in the large middle opening and shake the salt out of the shaker opening. This is necessary in the humid South, because rice alone does not keep the shaker holes from getting clogged.  For this, it is necessary to close the top.

The yogurt containers (or any dairy container, such as those for sour cream) are useful for cooked food or to freeze cooked food. They are also great for giveaway food.  This maneuver serves the dual purpose of adding food value to used containers and getting rid of the packaging without having to throw it away.  Note the mouse-damaged plastic top that prompted me to transfer chicken food from yogurt container to glass jar.

The home-made pesto is in a re-purposed cake icing container.

Old spice jars are also good for storing small items, like hooks and screws. Film containers (for those of us who still use film cameras) store things like razor blades and small screws.

Then there’s the grocery store produce bag, which can keep whole bowls of food fresh in the refrigerator. This one is protecting grated cheese.

Old shoe boxes make great storage containers for CDs and photographs. Any de-flapped box becomes a great, lightweight tool for organizing and storing clutter.  I use them as trash cans, too.

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Then, there’s the tool room, where old tin cans serve to organize my supplies of bolts, drill bits, and nuts. The plastic containers hold various screws, hooks, and assorted hardware, including replacement blades for the box cutter.

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Chicken food, wild bird seed, and deer corn bags become trash bags. They are sturdy enough to hold sharp objects, like broken glass, without puncturing.  Buckets like the one here that held joint compound are valuable enough by themselves to be sold at outlets like Home Depot.

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Finally, the water-filled milk containers between the mint and stevia plants are an experiment. The idea is to keep plants cool on the hot deck and to have spare water if the pump breaks or the power goes out.  I washed the jugs thoroughly and added 3 drops of chlorine bleach to the water, as we were taught to do during the Cuban missile crisis in the 1960s.  The versatility of concrete blocks will be explored more thoroughly in a future blog about my inventions.

 

 

“We don’t intend to honor patents”

In my wildest dreams, I envision Fidel and Raul Castro refusing to honor foreign patents.  Think of it:  dream dirt, fertilized by oxen and horses since the USSR collapsed in 1991.  Cuba lost its oil source and its sugar market at the same time.  Cubans almost starved, so Fidel invested in the improvements necessary to life:  food and health care.  As a result, he has grown generations of healthy, self-sufficient individuals.

Because of ongoing US spitefulness, in the form of trade embargos, torturing operations, and general scapegoating, Cubans have been forced to remain stuck in time, before tools were made of plastic, before bulldozers and pavement planted thermals in over-heated cities.

Much to United States’ embarrassment, the Castro team has proved that Cuba can survive and prosper without US help.

Hahaha.  Well, if Cuba refused to honor foreign patents, Monsanto and Dow/Dupont’s stockholders would poop in their pants.  Patents are hot commodities, a bloodfest for lawyers, who win either way the FDA blows.  I’ve read that up to 80% of America’s corn is already mutated, so the time for labeling is long past.  Just assume it’s patented food until otherwise proven.

Cuba could then thumb its nose at the FDA, whose nose is up its ass.  (I know this because FDA recommendations stink.  I’m horrified at the succession of FDA-launched food scares, intentional panic-creation with too little or misleading information.)

Beware the patent industry, is all I gotta say to the Castros’ Communal Capitalists, who believe the product is its own patent.  Let the lawyers and government do the paperwork on their own time.

Also, don’t let them trap you into debt.  Eminent domain all foreign assets, including Guantanamo Bay, and especially assets held by corporations like Pfizer, Walmart, and McDonalds.  Use the reclaimed land to pay off any debt, then party with unpatented drugs, and drink to everyone’s health and wealth.

The more I think of it, the better it sounds.  As America drowns in its environmental toxins, it continues to churn out more of them, with no thought of tomorrow.  I think about the growing cesspool of “unintended consequences” now.  I also hate seeing deformed birds, strangled porpoises, and sickly babies that “progress” (downhill fast) is bleeding us to pay for.  Cuba is relatively plastic and packaging free, I hope, at least so far.  Let’s hope they can keep it that way.

Cuba:  A New History, by British journalist Richard Gott, was published in 2004.  I reviewed it on this blog 10/22/15.

In 2005, Harpers‘ published “The Cuba Diet: What will you be eating when the revolution comes?”, by Bill McKibben, April, 2005.  The following month, the ecologist came out with  “Cuba: Health Without Wealth,”  by Brendon Sainsbury, June, 2005.

 

Fortune Tellers on the Payroll

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I was reading the Wall Street Journal the other day, circling predictive and speculative words, and thinking about the term “Know thine enemy.”  I wondered where it originated so Googled it to find it attributed to Chinese warrior Sun Tzu, in his classic work, The Art of War.   The translator of my copy, R. L. Wing, chose to translate the Chinese word “bing” as “strategy” instead of “war.”  He claims in the translation’s notes that he believes this choice is “most faithful to Sun Tzu’s intended objective:  the achievement of triumph through tactical positioning, without resorting to battle.”

 

Wing says it is not clear when Sun Tzu lived, but the work is now believed to have been written between 480 and 221 B.C., during the so-called “Warring States” period.  During that time, more than 300 wars were fought between the separate states of China against the Chou dynasty.

A conflict-avoidant coward like me would rather win than fight, so Sun Tzu’s philosophy speaks to me.  Especially now, when it fights rage all around, and I’m caught in the cross-fire, I keep tabs on those addicted to fighting, if only to stay out of their way.

So The Wall Street Journal, The New York Times, USA Today and their ilk educate me about how the fortune tellers on the payroll subtly manipulate their readership through prognostication.  The addiction to prediction has become so entrenched that I had to start circling predictive and speculative words in news articles to grasp how prevalent it is.  Don’t take my word for it.  Just take note of words like “expects,” “will,” “ won’t,” “if,” “could,” “possibility,” “predicts,” “forecasts,” “thinks,” “believes,” and “suggests,” to name a few.

Predictions are dangerous, especially when they come from authority figures, who should know better.  They include economists, world leaders, government, doctors, “climate scientists,” and, of course, meteorologists.  Those making the predictions have a vested interest in being right, so contribute to the outcomes they expect.  Negative predictions, such as those coming from doctors, put binders on the future, like casting a spell on a vulnerable patient. Global predictions, about “the global economy,” or “climate change,” create unnecessary fear based on a few isolated and disconnected facts.  There is nothing scientific about predictions, no matter what the fortune tellers on the payroll say.

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Chemistry Quiz

  1. What is the difference between organic and inorganic chemistry?
  2. What is this molecule?

                           CH4

3.  What is this molecule?

                           CH3-CH2-OH

Answers:

1.  The difference between organic and inorganic chemistry is carbon. Carbon (C) is the basic building block of life, thus “organic chemistry”. Everything that lives or has ever lived contains it.  Carbon dioxide (CO2), considered a “greenhouse gas” in today’s parlance, is part of the natural life cycle, exhaled by human beings and animals, used by plants for growth.  The earth’s atmosphere is composed of 78 percent nitrogen and 21 percent oxygen.  The remaining one percent consists chiefly of argon, with extremely small amounts of other gases.  Carbon dioxide, then, constitutes significantly less than one percent of the earth’s atmosphere.

Green plants take in carbon dioxide and give off oxygen in “photosynthesis,” a process involving chemical reactions, using the sun as an energy source.

Life is an organizing force which defies “entropy.” “Entropy” has several definitions, but it is generally perceived as the ultimate degradation of matter and energy in the universe toward patternless conformity, degradation, disorder, and death.  However, the organizing force of life concentrates the energy in the living or dead organism.  Wood, coal, oil, and natural gas are examples of stored energy sources derived from living or formerly living organisms.

2.  If you answered that CH4 is methane, you would be right. Methane is another so-called “greenhouse gas.” It is produced by all living and decaying organisms.  It is the simplest molecule in organic chemistry, consisting of one carbon and four hydrogen atoms.  Everything from marshlands to landfill, from animal waste to human farts, add methane to the atmosphere.

If you answered that CH4 is natural gas, you would also be right.  This is why natural gas is considered the cleanest fuel of all, because it produces no toxic by-products.  The chemical reaction for natural gas when used for energy production is:

CH4 + 2O2 + flame = CO2 + 2H2O

Translated, this means that one methane molecule plus two oxygen molecules plus heat of combustion generates one carbon dioxide molecule and two water molecules. Thus, burning natural gas generates twice as much water as carbon dioxide.

If you are considering “greenhouse gases,” you must recognize that water (steam) is a potent one. The cloud cover of the earth has the effect of trapping heat inside the atmosphere.

You will note that “climate change scientists” want to reduce CH4 levels, but oil and gas companies want to capture and sell CH4 in the “global economy.” They are using “fracking” and other techniques to extract CH4 from trapped deposits in the earth.

3.  If you answer that CH3-CH2-OH is whiskey, you would be right. Whiskey is a distilled alcohol, usually from grain, such as rye and maize or corn. It is also distilled from barley.  Corn liquor was an early American product and used in bartering by cash-strapped farmers to pay bills.  George Washington was a large-scale whiskey distiller.  In his later years, he made most of his money from the distilling business.  Distilleries are examples of “economic narrows” that operate as toll gates between producer and retail purchaser.  Washington and Alexander Hamilton conspired to enact the “Whiskey Tax” in 1791 to undermine the bartering system and replace it with a cash-based system that could be more easily taxed. (Alexander Hamilton, Ron Chernow, 2007) This led to the infamous Whiskey Rebellion, in which Washington betrayed the farmers who had fought in the Revolution (thereby neglecting their farms) and were going bankrupt because of debt, taxes, and the devaluation of the Continental dollar, after the new United States currency was introduced.

If you answer that CH3-CH2-OH is ethanol (or ethyl alcohol), you would also be right.  The 2007 Congressional mandate to blend gasoline with at least 10% ethanol proved a boon for Archer Daniels Midland and other corporate giants, which benefitted mightily from the mandate, through tax breaks, other ethanol subsidies, and price supports.

It must be remembered that “farmers” and the “farming industry” are not the same. In fact, “farmers,” as we perceive them, are being displaced in large numbers by corporate mega-farms.  The corporate “farming industry” has significant political clout through donations to both major parties.  They also have armies of lobbyists, lawyers, and friends in federal and state regulatory agencies like the USDA and EPA.  They are the major beneficiaries of federal and state mandates, subsidies, and price supports.  They have their fingers in every point of the farm to table (or vehicle) distribution chain, including storage, distilleries, commodities futures markets, transportation (ADM Trucking is a subsidiary of Archer Daniels Midland), and global sales.

In this election year, while the media and public are focusing on the presidential candidates, let us not forget that the entire House of Representatives and one third of the Senate are up for grabs. Whatever anyone thinks of Donald Trump, we must admit he is a game-changer.  His grass roots appeal is showing the power of the people to make a significant difference in how the game is played.  We may be moving closer to a true democracy, by default, as the “ruling elite” of the two-party system desperately tries to recapture its “market share” of public trust and acceptance.

Yes, the individual can make a difference, whether at the national or local level. If that individual is informed well enough ask the right questions of all candidates, from local to national levels, and to demand informed answers, we might wrest a revolution in consciousness from this circus of political psychodrama.

So far, Ted Cruz is the only presidential candidate who has come out against the ethanol mandate, but he has begun to waffle under political pressure from the “farm lobby” and others. Hillary Clinton does not seem to know the difference between natural gas and methane.  She is not alone.  It is frightening to think that so many people with zero knowledge of science are in positions to write and pass legislation mandating, regulating, and subsidizing industries that affect us all and to such a great extent.

It probably doesn’t matter much who becomes president. The real power is in Congress, which has the power to repeal stupid legislation, like the ethanol mandate.  Especially now that there’s a worldwide oil glut—one of the premiere reasons for passing the mandate—it’s especially good timing to revisit that law and its consequences.

 

 

Spotlight Therapy “You ask questions.”

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I dreamed awhile back that I was in a public meeting about the latest GoverCorp outrage (take your pick). I took my characteristic Spotlight Therapy stance, which involves turning the lights on to reveal triangulation tactics.

Afterwards, a 20s-something minority female, eyes shining, came up to thank me. “What for,” I replied. “I don’t accomplish anything.”

“Yes, you do.” she said. “You ask questions.”

“Triangulation” is a term applied to the strategy of playing both ends against the middle. You don’t confront the enemy directly, but go for things that are important to him.  When you turn the lights on, the previously hidden manipulators are exposed.

When the dot.com bubble burst on March 10, 2000, my stock value suddenly shrank below my mortgage debt. At that time I was naïve and inexperienced.  Had I known then what I know now, I would have sold the stock before the bubble burst and paid off the mortgage.  Instead, I trusted a banker and stockbroker who I thought worked for me.  They wiped me out instead.

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I believe it was intentional. This sounds paranoid, but the financial setback started me on a reading tangent that validated my suspicions.  Books like Confessions of an Economic Hit Man, The Robber Barons, The Creature from Jekyll Island: A Second Look at the Federal Reserve, Supercapitalism, Wealth of Nations, Alexander Hamilton, The Whiskey Rebellion, and None Dare Call it Conspiracy,* to name a few—as well as the US Constitution–opened my eyes, and I was horrified.  These writings revealed how boom and bust cycles are created on purpose to consolidate wealth and political power in the hands of relatively invisible insiders.

Desperate people are capable of desperate acts, to save themselves. Perhaps my banker and stockbroker were feeling the squeeze before the bubble actually burst, and trying to save their own skins.

But the practice of trapping individuals and nations in debt has a long history. It gives the lender—the presumed lender, anyway—a strategic advantage in terms of control.  Often the presumed lender, like a bank, is lending other people’s money, called “leverage.” Newspapers like the Wall Street Journal regularly inform their readers how many billions this or that hedge fund or individual controls.

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This is triangulation in action. Between the stock market and the mortgage market, individual wealth has been gutted by seemingly random events.  Don’t believe it.  Spotlight the Federal Reserve, the “lender of last resort,” which has no wealth of its own.  It creates money out of thin air to “lend” to the federal government, which then disburses it to pay bills and fight wars.  This from The Creature from Jekyll Island, which explains the history of money and banking.  It also reveals the secret beginnings of the Federal Reserve Act, which essentially put Congress in the debt-creation business, to trap taxpayers in un-repayable debt until the sun burns out.  In other words, the dollar is backed only by government promises to pay.

Now anyone who trusts government promises deserves to suffer, and those who believe the government has the right to promise unborn taxpayers’ future earnings, in order to repay the Fed for its fiat money “loans,” is living in LaLa Land.

taxarrow0406 What Creature does not say is that the income tax was also initiated in 1913, two months before the Federal Reserve Act, in order to guarantee perpetual interest income to the Fed.  The precedent for this double whammy was set by first Treasury Secretary Alexander Hamilton.  Hamilton introduced legislation for the Whiskey Tax and the first US central bank December 13 and 14th in 1790, for the same purpose—ostensibly to pay off Revolutionary War debts, but also to provide a vehicle for trapping the fledgling nation in a bottomless barrel of new debt.

In my case, debt would force me to work in a career I had come to detest, to feed the absentee bosses and other middlemen, who work behind the scenes to call the shots, yet take no personal risks.

These days, you can’t get away from news reports, politicians, and “economists,” who are bemoaning the state of “the economy,” the need to “create jobs,” and concerns about unstable stock markets and central banks around the world. The hidden truth behind all this hand-wringing is, as Ron Paul has tried to say, “The US is bankrupt.”  (His book End the Fed, is also well worth reading.)

It appears the balance has begun to shift, because everyone–individuals, corporations, and government—is maxed out on credit. Bills are coming due, without resources to pay.  As the Boomer generation (that’s me), approaches retirement, and Social Security payments can’t keep up with expenses, Boomers are withdrawing money from the stock market to make ends meet.  At the other end of the earning spectrum, the millennials are dealing with student debt, credit card debt, automobile debt, and maybe mortgages, too. Not only are there fewer of them than of seniors, but they don’t have money to invest in the stock market.

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But what’s good for “the economy” is bad for individuals. The “strong dollar,” is hurting exports, meaning Josie Taxpayer’s dollar has more buying power at home. Percentage-wise, she pays less in taxes, too.  This “deflation” that terrifies the money churners could have the effect of grounding the dollar at home, where it belongs.  Also, as people get out of debt–whether paying it off, writing it off, declaring bankruptcy, or walking away–the inflated money supply shrinks even more.  Interest on debt, as well as inflation (a “hidden tax,” according to Creature), reduce the buying power of the money. This is great for people who have no debt, and bad for “the economy,” which now is $19 trillion in debt, equal to the gross domestic product.

For example, on Thursday, February 18, 2016, The New York Times ran an article entitled “Oil Price Soars and Shares Rise.”  The assumption by the NYT and Wall Street Journal is that what’s good for stocks and raises prices is good for America.

This false assumption becomes easier to understand when you realize a goodly portion of America is heavily invested in stocks through “retirement benefits” like pension plans, including public pension plans. Hedge fund and pension fund managers can make significant waves in the stock market by moving those large pots of money around.  “Investors,” then, are not primarily the wealthy “one percent” that the public has been taught to hate.

“Investors” are the groups and individuals who make their money through managing other people’s money, people they assume want the greatest value for their money. Only trouble is, the most profitable stocks are issued by some of the most unscrupulous companies, often those with incestuous ties to the government, and are beneficiaries of large, cushy government contracts.

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As is my habit—and one of my favorite pastimes–I underlined and scribbled in the margins of the above-mentioned article. Here, we are informed that stocks climbed the previous day as “investors clung to hope for an international deal” to cut production.  “The price of oil rose sharply, as did the stocks of major energy companies like Chevron.”

“Who benefits by raising oil prices?” I wrote.  I know the State of Georgia benefitted mightily by low oil prices last summer, as Governor Deal signed a six-cent gas tax increase as soon as oil prices fell.  Now, the State of Georgia can expect even more tax revenues.  Already the accumulated excise and sales taxes on gasoline amount to over 50% of the customer cost.

Who is the greatest consumer of oil and gas? I don’t know for sure, but I believe it’s the military, which probably doesn’t pay the taxes and competes for the oil.  I applaud anyone who wants to research that.

When the NYT repeated that “investors’” hope for an “international deal that will cap or cut production,” I commented it doesn’t matter, as demand remains low.  I also asked if this “deal” to cut production also applies to US offshore well drilling, new oil pipelines, fracking, and other domestic eco-rape.

 

We are told that Chevron and Hess profited. We are also told that Kinder Morgan gained, too, on the news that Warren Buffet has acquired a 1.2 percent stake.

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Now Texas-based Kinder Morgan is a loaded kettle of fish. Founded by Richard Kinder, of Enron fame, it is in the process of appealing the state of Georgia’s denial of eminent domain for its Palmetto Pipeline.  Governor Deal did something right, for a change, when he denied Kinder Morgan’s request.  This would have set a dangerous precedent for publicly traded corporations to use state government to seize private property for a pittance.  Not only are oil prices low, and sales slow, but the pipeline is planned to run through 210 miles of coastal Georgia and to affect 396 landowners across 12 counties, only to transport gasoline, diesel, ethanol, and natural gas to the Savannah, Brunswick, and Jacksonville ports for export.  Kinder Morgan also expects to drastically enlarge its liquid natural gas storage facility on the Savannah River.  Meanwhile on the opposite side of the continent, Kinder Morgan is trying to trample Native American Tl’azt’en Nation’s native hunting and fishing lands in British Columbia.

I congratulate anyone who wants to investigate Kinder Morgan’s ethics and stock investors. I’m especially interested in public pension investments in Kinder Morgan, as well as its customers Marathon Oil and Marathon Petroleum, among others.  Remember that everyone in the decision-making “pipeline” from governor to judges to legislators and the United States Congress, state and federal levels of the Department of Transportation, Environmental Protection Division, Department of Natural Resources—and the military—have taxpayer-funded pensions handled by managers for whom there is no bottom line—if they can get taxpayers to subsidize profits.

 

I abandoned Wall Street in early 2008, when it continued to abandon me. I advise anyone who has more sense than money to do the same.  Also, as any stock broker might advise, “Sell high.”

 

 

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*Authors and publication dates are listed in a previous blog, “Sell the TV and Read.”

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