How We Got Here And What We Can Do

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Saving Reality
Joined: 11/26/2011
How We Got Here And What We Can Do

SAVING REALITY NEWS - Have you ever took the time to admire a 1950's American automobile?  The cars were big and sturdy.  They were heavy enough to get good traction in any weather.  The body and frame were made of solid steel and the inside had plenty of leg room.  The engines were huge and were also made of steel.  Their construction was simple and if something broke it could easily be fixed.  One felt a sense of satisfaction after dialing in just the right frequency and the radio station boomed in crystal clear. They were covered with chrome and they were beautiful machines that had an air of magnificence.  Most importantly, every part of a 1950's American automobile was dreamed up, built, distributed and sold by a vibrant American workforce.

In the 1950's, the American Dream was alive and well.  After nearly two decades of depression, the American economy had rebounded and it seemed like our country was on the right path.  The average American worker's personal income per year was a little over $3,200.  A new house, on average, cost about $8,200.  The average new car was a little over $1,500 and a gallon of gas was only 18 cents.

Today, you can't find a totally American made car anywhere and good luck finding a steel framed car with chrome trim.  In 2011, the average personal income of the American worker is just under $50,000.  The average cost of a new house is more than $232,000.  The average price of a new car is near $29,000 and a gallon of gasoline will cost you around $3.50.

Let's take a closer look at these numbers.  Since 1950, the price of a house has increased over 2,800%.  The price of a car and gasoline have both identically risen slightly over 1,900%.  The average income, however, has not kept pace.  Since 1950, the average income of the American worker has risen by less than 1,600% and the value of the American dollar has declined 61.6%.  

From 1950-1960, the dollar lost nearly 13% of its value, the nation's GDP nearly doubled and the average wage of the American worker nearly doubled as well.  From 1960 to 1970, we again saw the dollar lose another 13% and again we saw the same growth in GDP and wage, as both nearly doubled.  From 1970-1980, we saw a 23 % decrease in the value of the dollar and the GDP and average wage of the American worker both more than doubled.  

From 1980-1990, however, the GDP to wage ratio began to dramatically change.  During that span, the GDP doubled again, but the average American worker this time only saw a 50% increase in wage.  This trend has not subsided.  Since 1980 the nation's GDP has grown more than 400% but the average wage growth has only risen slightly over 200%.  In plain English, the American worker has lost half of its value since 1980.  In this short overview we will analyze the most significant economic shifts of the last three decades, identify the problems in the system that have devalued the American worker, and then suggest solutions that could be implemented to help insert a little bit of justice, integrity and freedom back into the American Dream.  

Three decades ago, an actor turned California Governor named Ronald Reagan became President of the United States of America.  The total national debt was nearing one trillion dollars.  The economy was in a serious recession and one of Reagan's first moves was to implement the Economic Recovery Tax Act of 1981.  This bill promised to reduce the highest tax bracket from 70% to 50% phased in over the next five years.  The added money into the pockets of our wealthiest people and corporations was supposed to "trickle down" into the pockets of the American people.  In reality, revenues were slashed and the annual budget deficit grew.  The Federal Government started dumping Treasury bonds onto the market to cover the deficits.  

When our Federal government doesn't have enough money coming in to cover its bills, one of the things it can do to generate revenue is to put up a series of US Treasury bonds up for sale on the bond market.  The bonds are sold and money is collected.  US Treasury bonds have several time frames from one month to thirty years before they can be redeemed for cash.  Once the agreed upon time frame has lapsed and the bond matures, the bondholder can redeem the bond for a profit.  The government is obligated to pay their bonds and by calculating the total amount of obligations to these bondholders is how we figure up our Federal debt.  US Treasury bonds are essentially a loan pool for our government.  Every time that we sell bonds and print more currency the dollar loses value.

There is a long held economic theory that claims that the added government spending has a "multiplier effect" on the economy which increases GDP growth.  At that time, that had always been true.  The Reagan Administration held tight to this principal and the added money did increase GDP.  The right people began to have faith in our country again and gold and oil prices stabilized.  After a wild ride in the end of the 70's, the American economy seemed to be back on track.

During this time, Japanese auto companies made a splash in America with smaller cheaper cars that got better gas mileage and had longer estimated life spans than most American made cars.  Instead of lobbying Congress for tariffs or competing with the Japanese with similar products, the American auto industry decided to blame their Unions on the fact that they had higher labor costs.  Companies in the auto industry and other sectors said they needed to downsize their workforces for our businesses to stay competitive with the onslaught of cheaper foreign products.  The automotive sector didn't actually downsize, but instead laid off hundreds of thousands of American workers while opening new plants in Mexico where labor costs were significantly lower.  Communities where the downsizing took place were devastated.  The closing of the plants caused a ripple effect on the businesses of their communities.  Millions lost their jobs and lost or sold their houses as a result.  The real-estate values in those areas tumbled, causing huge losses on the balance sheets of the investment banks.  The losses were written off of the books of the banks through tax loopholes.  The Treasury sold bonds and printed money to cover the losses.  The flood of new currency on the market depreciated the dollar.

Meanwhile in the Bat Cave, the Tax Reform Act of 1986 lowered the tax rates of the highest tax bracket from 50% to 28% while raising the lowest tax bracket from 11% to 15%.  To make the resolution “revenue neutral”, the bill took away a tax shelter that allowed investors to write-off real estate losses.  Investment banks started dumping their poor real estate investments, known as toxic assets, for whatever they could get for them, resulting in a crash of the real-estate market.  Investments tanked, devastating the balance sheets of banks that were heavily invested in the housing market.  The lack of credit in the economy hurt small businesses across the country and cost us millions of jobs in the industrial and manufacturing sectors.  

Over the next five years, the decline of American real estate assets led to a series of savings and loans scandals.  The larger banks were bailed out and smaller private banks were marginalized.  The loss of these smaller banks devastated small towns and rural areas all over the nation.   The losses of 747 institutions who were FDIC insured were written off of the books.  The Treasury printed money to cover the losses on the FDIC's balance sheets.  The expansion of the US money supply caused the dollar to inflate to incredible levels.  The effects on the financial system were global and were a significant factor in the fall of the Soviet Union.  

By the Clinton era, personal computers became a necessity, banks expanded credit, and things seemed promising for the American economy.  The stressed federal and state books balanced themselves and politicians were quick to brag that their policies caused the new-found fiscal soundness. (Note in your copy books that the last time the balancing of our governments books occurred, it was because of national economic expansion, not globalism.)  Heightened by the technological boom, Wall Street and their politicians began touting that we would be able to provide everyone cheaper commodities if we set up free trade agreements with countries that would provide lower labor costs.  Congress passed NAFTA and American companies began “outsourcing” their jobs to Mexico for cheaper labor.  Most of the nation's factories and manufacturing plants across the nation either sold into the corporate franchise model of "cut and run" expansion or closed their doors completely.  

As American companies started trading with foreign markets, commodities did become noticeably cheaper at large discount stores.  Retail development parks began to spring up on the outskirts of communities.  The creation of most of these development parks were funded by the local communities through bond debt that is still on their books.  The discount retail stores, fast food and corporate restaurants that spread across the nation snuffed out many of our country's Mom and Pop shops and small family owned businesses that had founded their communities.  Due to risk and lack of liquidity, these small businesses couldn't finance their way into competition, so most sold out or closed their doors.  As a result of a few policies, millions of families lost their right to inherit and run their family business.  Property values declined as businesses on Main Street began to close in every community.  Remarkably, due to the rise of the technological sector and the explosion of retail development parks, the unemployment rate remained stable and the real-estate market began to boom.

In 1997 the FDA changed their laws and pharmaceutical companies were allowed to begin advertising their drugs on national television.  The effect on the nation's children has been significant.  Since that time the number of pharmaceutical drug users, the offenses they commit and their deaths from overdose have skyrocketed.


Towards the turn of the millennium, Microsoft emerged victorious from a federal lawsuit and had risen to dominance in the American economy.  However in 1999, the number of personal computers sold in the US had outnumbered the number of people and speculators assumed the demand for computers had stabilized.  With a draw back in growth destabilizing the tech market shares, Wall Street decided to move its money out of tech stocks and into the seemingly more secure real estate market.  As a result, the “tech bubble” popped and their market shares dramatically contracted.  The banks restricted credit to seemingly risky tech companies.  Thousands of tech companies that were still in the midst of development were ruined and several "in the loop" companies remained.  (Note in your copybooks that the “tech bubble” didn't pop because the tech sector didn't have unbelievable value in it, but because the investment bankers lost faith in it.)  During this time, cable companies began to offer broadband internet service, virtually eliminating locally owned dial-up providers who are restricted access to cable networks.  Surfing the internet became a daily routine for millions of Americans.  The service sector continued to dramatically expand while millions more lost jobs in the technological, industrial and manufacturing sectors.  

Just after the turn of the century, the American economy was loosing traction.  The Republican Congress and the Clinton administration decided to reward Communist China with the “most favored trade status”, because their state run work forces were among the cheapest on the globe.  Human rights violations and the communist policies of the totalitarian regime were no longer questioned and a free trade agreement was quickly passed.  Outsourcing labor intensive (high paying) jobs to China was touted as being able to provide our nation with cheaper goods.  It was said that the American economy was evolving and would continue to grow through its ever-strengthening service sector.  Dozens of free trade agreements with other select countries would be passed during the Republican majority years of Bush's presidency.  

To Wall Street, the American economy seemed to be a risky investment and people's 401(k) retirement plans were losing value.  The newly elected president saw the Federal budget surplus as a sign that the American people were over taxed.  In June of 2001, Bush signed the largest tax cut to the federal budget in American history.  The bill restored the trend of deficit spending that the "Contract with America" of '94 Republican fame promised to end.  Along with the tax cuts, the American taxpayers were presented a "tax refund" that added $300 or more to all tax refund checks.  Republicans touted the stimulus package as a "bail-out" for the American people.   In reality, laws were changed that would allow an increase of foreign investment into US Treasury bond markets.  Since these changes the Federal government has taken on nearly five trillion dollars in bond obligations to foreign countries.  The burden of paying these obligations would be left to the taxpayers grandchildren.  

Exactly three months after Oklahoma City bomber Timothy McVeigh was executed, the events of September 11th killed nearly three thousand people and destroyed or damaged what has been estimated to be up to fifty billion dollars of property.  America was shocked and there was panic as the markets reopened.  It was the largest daily decline ever on record.  The markets were closed and laws were rewritten.  As the panic subsided and the market stops were no longer necessary, Wall Street began to realize that the restrictions on capital placed on them during the Savings and Loan scandals were no longer being implemented.  Poorly run companies were no longer being told their books were over stretched.  As a result, Enron collapsed due to lack of liquidity. The administration spin was that the Enron scandal had nothing to do with the lack of oversight from the Securities and Exchange Commission.  Fear ran rampant through the markets and stocks tumbled.  The largest investment banks began moving their money out of America and into emerging foreign markets.   Credit froze for American small businesses and millions more lost jobs in the technological, industrial and manufacturing sectors.

Due to the staggering loss of meaningful employment in America, average everyday middle class people were now scrambling to find new careers and some began to default on their mortgages, causing home values to decrease and leaving a large amount of troubled assets on the banker's books.  The housing market was losing value at an incredible rate.  Wall Street directed banks to group large mortgages together to stabilize the value of the real estate market as a whole and reduce the number of negative balances on their books.  Banks began splitting assets into shares of shares, known as derivatives and began trading these shares on the market calling them mortgage backed securities.   The economy began to rebound and brokers started to encourage bankers to increase the mortgage pool which would in turn increase the share prices of their mortgage backed securities. Banks began loaning money at incredibly low rates to people who would have never before qualified for credit.  The contracts contained sub-clauses that would ensure default of the property to the bank if payments were missed after the initially low teaser rate had expired.  Wall Street then saw an opportunity to gamble in a whole new realm.  They opened up a market where insurers would cover the losses of these mortgages in case of default.   Enticed by fees, companies like AIG, short for American International Group, were quick to fall for this scheme and began to insure an incredible share of the mortgage backed securities market.  Banks who had risky real estate investments bought this type of insurance to hedge their real estate bets.  The insurance fees were then traded against the mortgage returns, these were known as the credit-default swaps.  

In late 2008, the amount of toxic assets being traded troubled the investment brokers and they pulled out of mortgage backed securities. The real estate market crashed and was getting worse each day.  (Note in your copy books that the market didn't crash due to the fact that the real estate was overpriced, but because the investment bankers lost faith in it.)  Freddie Mac and Fannie Mae were gobbled up by the Federal Government, but that didn't resolve the amount of toxic assets in the market pool, so the markets continued to tumble.  Lehman Brothers collapsed and many of the nation's largest banks merged into conglomerates.  The bankruptcy of Lehman caused their company to default on a large amount of real estate investments.  The shock to AIG who insured their real estate investments was profound.  The Treasury Department, who had just let Lehman collapse, bailed out AIG, because we were told that their incredibly ignorant business model was "too big to fail."  

The failure of Lehman and subsequent bailout of AIG weakened the markets further.  The Treasury went to Congress and pushed through the Troubled Asset Relief Program, otherwise known as TARP, to directly buy the toxic assets off the banker's books.  Investment banks continued to not invest or direct anyone to invest in their stock price.  It looked like the banking system could pop at any given moment.  Horrified by the immense losses on Wall Street, the Federal Reserve jumped in and changed a large amount of its policies.  The Federal Reserve started buying Treasury Notes at an astronomical rate and urged Congress to “bail out” the banks with the subsequent profits to the Treasury Department's balance sheet.  Congress conceded and injected the largest banks with "investment capital" in the name of calming the markets.  Smaller private banks that invested in the Wall Street real estate deals were left out to dry and most were ineligible for TARP.  The larger banks eventually quit shorting their own stock price allowing them to stabilize.  

As the Obama administration began, he passed several stimulus packages from "Cash for Clunkers" to the American Recovery and Reinvestment Act, or ARRA.  The Treasury printed more dollars to cover these investments.  "Cash for Clunkers" was a government program where incentives of up to $3,500 could be earned by trading any existing vehicle for one that provided better gas mileage.  Done under the guise of an environmental package, the true reason for the initiative was to stimulate the "American" auto industry.  The legislation was a flop.  In June of 2009, General Motors filed for "reorganization", which is the soft term for bankruptcy.  Two days later the government stepped in and bought nearly 30% of the company.  Even with the US taxpayer owning a large share of General Motors, the company still continues expanding production of their product in foreign markets.  ARRA was designed to jump-start the economy by advancing future allocations to state and local governments that had projects they had planned but had refrained from implementing because of lack of funds.  These projects, referred to as "shovel ready projects", were implemented by communities with good community improvement committees and out of work contractors.  The areas that didn't have their act together missed out on free roads and bridges.  Some states and communities balked on the free funding for political positioning.

In the next cubicle, the Federal Reserve and the Treasury continued to overprint the dollar and give it to our largest banks.  This monetary expansion has been deemed Quantitative Easing and a third round of the process under this title is in consideration.  These actions have caused the dollar to weaken further and the cash infusions into the investment banks by the Federal Reserve have been invested into the "more profitable" emerging foreign markets.  Wall Street and corporate stocks have risen over the past decade, as communities all over America have been devastated by unemployment.  Since the turn of the millennium, the number of food stamp recipients has risen by thirty million people, half of which have occurred since 2008.

As a result of our globalist policies, small communities all over America are now infested with McDonalds, Dollar Generals, Taco Bells, Subways, and the enormous Lowes and Wal-Mart stores.  As these conglomerates emerged, the locally owned businesses that had helped create these communities disappeared.  Now, the inheritance for which the American people have worked generations evaporates from their midst every time they spend it in their own communities.  Our nations own corporations are investing their profits into foreign countries.  Our government has encouraged the policies that have led to our manic economic existence.  Our national debt is out of control.  We have spent trillions of dollars and our military has killed hundreds of thousands of people in Iraq and Afghanistan in response to nearly three thousand people and fifty billion dollars of property.  Even our churches still send their own to fight.  What in the hell are we doing?

All in sum, we have gone through a lot over the last three decades.  We have seen the Cold War end and the rise of the War on Terrorism.  We have seen the Savings and Loans scandals come and go and then come back again.  We have seen the rise of technology and the decline of industry.  We have seen the rise of corporate America and the fall of small locally owned businesses.  We have seen our military go to war with Iraq twice and our foreign policy has changed from one of mutually assured destruction to the more costly method of preemption.  We have seen our central banks entice investment bankers to invest into foreign markets, while credit for innovation and job creation in US communities became stagnant.  We have seen our American companies, Wall Street and Federal fiscal policy turn against our own people and begin to reach for a global perspective, all in the name of fiscally sound monetary policy.  We have seen these things happen, but sometimes one has to see a broader history to put everything into perspective and see the bigger picture.

So, how did we go from what Reagan called a "bright and shining city on a hill" to a country where a community's wealth depreciates every time they go to the local store?  The short answer is greed, but the real problem is unchecked globalism.  It is no secret that our corporations want to expand into every market around the globe.  Our politicians seem willing to exert their influence to help them do so by any means necessary.  Our Federal Reserve profits off of every expansion, so they aren't stepping in to help.  Our Treasury Department seems intent to print the dollar until there are so many of them that they become meaningless.  Most disappointing of all, the American people, who lost their businesses because of our globalist agenda now flock to buy cheaper foreign products for the huge discount retail stores that have strangled the American Dream to make their ever-weakening dollars stretch and we continue to vote for the political parties that stood and still stand for the corporate cut and run expansions.

Since 1981, we have only had five Presidents and three men hold the title of Chairman of the Federal Reserve and under their rule our politicians have seemed determined to colonize the entire world under American corporate dominance and our corporations are quick to invest in the free trade expansions.  Under the guise of free market capitalism, our companies have chosen to forgo US expansion and instead focus on more profitable emerging foreign markets.  The American workers who built these corporations have been sold out, so the major stockholders could make a little bit more on their investments.

The typical human response in a situation where things are becoming increasingly uncomfortable is to change positions.  For the American economy to change positions we will have to figure out what is responsible for making us uncomfortable and figure out how to best change our position.  Democrats and Republicans were both responsible for implementing these policies.  Voting for either party at this point is just plain sorry and shows a willingness to continue down our rocky road.  Wall Street is responsible for this and investing in them now only drains money from our economy.  The Federal Reserve is responsible for this and we need to return the powers we unconstitutionally surrendered to them in 1913, back to the House of Representatives.  Our Treasury is responsible for this and we need to get our printing presses under control.  Our CEOs and their boards are responsible for this and we need to break up these conglomerates amongst their employees and take back our right to the American Dream.   Most importantly, we are all to blame for this, because we let these things happen. We must stop rewarding the failures of our corrupt system and begin to set things straight.

Some argue that this is all beyond fixing and at this point we are doomed to enter a depression more devastating than the Great Depression of the 1930's.  That may play out, but America is the most innovative nation on this planet and we have been down this road before.  This time we have history to help guide our innovations.  Regardless of how bad it seems, the American economy is still the largest, the most advanced and the most productive economy in the world.  The problems we face today are purely political and by changing the political climate we could quickly and dramatically improve the American economy.  The corporations that have sold us out, also control our political parties through billions of dollars of lobbyist attention.  We have to change positions and get the old bureaucratic “us versus them” type of thinking out of our government.

There are a myriad of things we can do to help turn the profits of the American economy back over to the American people.  Let's rattle a few off.  We could change our laws and allow farmers to grow more food.  This would open up new markets that provide a fresher/healthier product and would bring our food prices down.  We could uncap existing oil and gas wells to help get gas prices down.  We could convert our nations fleets of semi trucks to natural gas and the price of gasoline would dramatically decline or we could reinvest in the railroads and save ourselves a bundle on long haul shipping costs.  Better yet, we could actualize the electric vehicle through the subsidization of its development, its manufacture, and ultimately its final purchase by the consumer to get the market rolling.  We could provide incentives to Wall Street to invest some of the unprecedented savings and assets in corporate America, back into Main Street.  We could use a scientific system to calculate commodity prices instead of speculation.  We could reinvest in our underutilized manufacturing base and start making our own stuff again.  We could end the unregulated corporate welfare system that rewards our failed corporations and banks with bailout money. We could use the size of Medicaid and Medicare payments as tremendous leverage to negotiate with an over-priced prescription drug market and health care system that costs our governments trillions of dollars back to one that only costs us billions again.  We could reduce our over-sized criminal justice system by implementing heavy fines, instead of jail time for non-violent offenses.  We could dramatically reduce our over-reached military presence in the world.  We could quit paying military contractors in Iraq and Afghanistan more than our own troops. We could take back our alienated monetary system from the central bankers of the Federal Reserve and pay off our foreign bond obligations before they destroy us.  Most impressively, we could solve these problems with a 1% annual tax on our 613 trillion dollars worth of currency and credit derivatives in our markets . By implementing just this 1% tax on what we are worth we could eliminate all payroll and income based taxes.  The total revenues would exceed six trillion dollars and our government coffers would have more than enough money to get our debt problems under control.  There are many things we can do.  We just have to do them!