I suppose there are those among the sparse readership of Swans who wonder where I abandoned sanity to challenge the economic wisdom of the enumerati who argue, if at all, not about the nakedness of emperors but rather the cut or colors of their latest ensembles.
I won't tell you what you don't care to hear but rather share some of the ways with which one may personally track the abundant perfidy of the economists, politicians and financial trendsetters. Or should I be polite and say they know not what they peddle?
In case perfidy is not on the tip of your tongue, the Latin roots indicate treacherousness and deceit through faith.
As the domestic and international financial and economic fantasies which ever more tightly govern us are largely the creations of a priesthood always more fiercely protecting their dogmas, those of us who question or doubt are simply heretics. I wear the badge and attending honors with impecunious pride.
However, more soberly and very sincerely, I hope and even pray that we may ease ourselves into other possibilities without the terrible revolutions and convulsions of past economic and political awakenings. The Catch-22 is that you are told to believe or to risk losing everything you are in debt to pay off. I note that debt tends to make believers of debtors.
"Neither a borrower nor a lender be."
One of the peripheral benefits of the Peruvian "hostage" situation is commentary on Peru slipping unbidden onto our TV screens and from commuter radio stations. The dogma or conventional wisdom is that Peru is an economic miracle in South America. The talking heads of the News Hour with Jim Lehrer, pundits of Op-Ed pages and potentates of World Bank and International Monetary fund now point with unbridled pride to the Fujimori-led success. (Fueled mostly by Japanese investment. The US sells/gives mainly weapons and military training to countries like Peru).
Peru, with a GDP, Gross Domestic Product, in plus numbers, labor organizations impotent, guerillas vanquished and peasantry pacified by poverty; we in the U.S. are lulled into greater ignorance and less caring. To pick only one statistic overheard on a local TV "newscast," unemployment in Peru is 88% even by official numbers. The other side of that statistic is that only 12 of every 100 Peruvian workers have a job. How's that for economic miracle! The so-called terrorists seem mostly to be asking for a chance to be heard for once. Little do they know that so few are listening out here--listening in a way which might remotely influence governmental and/or corporate policy and behavior.
Does any more need be said about the pragmatic impacts of savage capitalism, free-markets and the political and economic command and control gained by holding the debt of nations? Sorry, that stuff creeps in now and then. But go on. Do, however, keep in mind how holding debt may influence behavior of debtors, yourself included. Be alert, there may be a story unfolding of both personal and national note.
Recently, I have ranted about wealthfare, the syphoning of funds raised through taxation and theoretically intended for governments into private, very private hands. My gross over-generalization suggested that wealthfare recipients get back about as much, if not more, than they are taxed. The lower estimates of those with some information on this matter suggest further that the wealthfare take is maybe half a trillion dollars annually of tax money.
Five hundred billions of dollars each year [about 3.5 times the current U.S. national deficit rate of one hundred eighty billions of dollars]: pause to count how many zeroes are needed to make 500 billion. Three zeroes for a thousand, six for a million, nine for a billion--but only in the U.S. and France, everyone else in the world with fiscal imaginations make a billion to be a thousand million or twelve zeroes worth, which is "our" trillion.
Here is what twelve zeroes look like after one: 1, 000, 000, 000, 000. Here is what nine zeroes look like after 500: 500, 000, 000, 000. If that thought leaves you unmoved, consider how long it might take to count "one and thousand, two and thousand, three and thousand . . . all the way up to 500 billion. If you did absolutely nothing else, never slept or anything, you could count about a million a day. Five hundred thousand days is about 14, 300 twenty-four hour days or twenty lifetimes of seventy years each. You start first.
Does the evening "newscast" have much to say about wealthfare recipients? No, only welfare cheats make the political commentary more and more masking as "news." Their estimated take? Those who have a need to maximize welfare cheating estimate maybe $12 to $15 billion annually. Look at twelve followed by nine zeroes: 12, 000, 000, 000--12, 000 days of counting will do it. I might even live that long still.
While, in fact, I can barely operate a calculator, I can see a simple ratio of welfare cheating to wealthfare of 12 to 500. I'll take the top estimate and make the ratio 15 to 500 or 0.03 to 1.
Obviously, if I look at voting patterns, I note that those who vote believe the welfare cheats to be a greater menace to society than wealthfare recipients. The only onslaught more enduring than anti-communism in the American ethic is anti-welfare. I will note who benefits from inducing those perceptions among otherwise reasonably decent and caring, moral and ethical folks who vote their conscience and hold religious faith in the Son of God or the One God and such. I understand dimly that He (God and Son both included if needed) is supposed to have said something about holding the least of us as we hold Him. Somebody along the way probably misnamed the rule as golden and became attracted more by the gold than the rule.
Mark Zepezauer and Arthur Naiman, two highly suspicious sounding names if such ever existed, are nevertheless named as authors of "Take the Rich off Welfare", part of an iconoclastic collection called "The Real Story Series" put out September 1996 for $9.00 by Odonian Press, P. O. Box 32375, Tucson AZ 85751, 1-800- REAL STORY. Trying nevertheless to be conservative in their estimates and ruthless in documentation, here is their outline:
Annualized federal level estimates from most recent statistics, usually early 90s or late 80s. (Which understates the current rate and leaves unstated all other governmental levels handing out wealthfare)
|Military waste and fraud||172, 000, 000, 000|
|Social Security tax inequities||53, 000, 000, 000|
|Accelerated depreciation||37, 000, 000, 000|
|Lower tax rates on capital gains|
(not counting home sales)
|41, 000, 000, 000|
|S&L bailout (to continue for 30 years)||32, 000, 000, 000|
|Homeowners' tax breaks||26, 000, 000, 000|
|Agribusiness subsidies||18, 000, 000, 000|
by transnational companies
|12, 000, 000, 000|
|"Tax-Free" municipal bond||9, 100, 000, 000|
|Media handouts||8, 000, 000, 000|
|Excessive government pensions||7, 600, 000, 000|
|Insurance loopholes||7, 200, 000, 000|
|Nuclear subsidies||7, 100, 000, 000|
|Aviation subsidies||5, 500, 000, 000|
|Business meals and entertainment||5, 500, 000, 000|
|Mining subsidies||3, 500, 000, 000|
|Oil and gas tax breaks||2, 400, 000, 000|
|Export subsidies||2, 000, 000, 000|
|Synfuel tax credits|
(Senator Dole's legacy to ADM)
|1, 200, 000, 000|
|Timber subsidies||427, 000, 000|
|Ozone tax exemptions||320, 000, 000|
|Miscellaneous||1, 600, 000, 000|
|Sub-total||452, 447, 000, 000|
(that is billions)
and counting as we go . . . read the book for details and documentation.
Among items not included are:
All the stuff that goes on at state, county and local levels: check who pays for sports stadia as one example of local wealthfare throughout the land of high fives. Tidy little regulations on ocean shipping, for example, subsidize shipowners to the tune of about $3.5MM to $4.00MM per ship or roughly $1, 000, 000, 000 annually. Advanced technology subsidies help out industrial giants like GE, IBM, UA, Xerox and Du Pont to select from a long list of indigent beneficiaries. The poor starving drug companies make timber companies look like pikers. Speaking of deforestation of yews, one drug, Taxol, developed over 15 years of research at a federally supported cost of $32, 000, 000 was given royalty-free to Bristol-Myers Squibb. Pray you never need any.
At a direct cost of $52.50 per recommended dose, B-MS wholesales Taxol at $1, 023.00 (one thousand twenty three dollars and no sense) per dose. Imagine what you who may need it will pay after the HMOs and MDs add their insignificant markons? There used to be a Department of Health and Human Services regulation which required pharmaceutical firms "not to overcharge" for drugs developed with governmental assistance. That went down in April 1995 (I will note the compassion and wisdom of the Republican Congress and Democratic President under which this, among many such de-regulatory changes occurred.)
I'll pull out only one more of the immense wealthfare benefits which even these suspicious-sounded authors only note in passing. Interest on indebtedness. I will note who lends and who borrows. I will then note that lenders receive interest and borrowers pay interest. The lesser of us who borrow money pay more interest that the better of us who also borrow for various reasons. The least of us who borrow money get theirs from varieties of legal and illegal loan sharks--credit card issuers, "finance" companies, street tycoons and knee-cappers. If you, as a consumer borrow money through your credit cards, for example, that interest is not deductible from federal income tax. Nor are the rates of interest charged by credit card issuers in any way regulated by government. Once upon a time, the Bibles named interest as usury. That, of course, was before those guys fastened onto the gold in that rule hinted at above.
Should you, however, be a property owner with equity in your property, you may take out an equity loan on your property and pay off your credit card balances at a much lower rate of interest which is tax deductible--assuming, of course, that you have taxable income against which to deduct it. Not to worry, however, if you have no taxable income this year you may carry forward the deduction until a year in which you do. Good deductions are like faithful dogs that way.
Corporations and business organizations suffer none of these indignities: all of their loan interest is tax deductible to the extent allowed by law--which is bountiful on these matters. Corporation A, a manufacturer, borrows from Corporation B, a bank. Corporation A is a subsidiary of Corporation C as is Corporation B. Corporation C uses the deposit money of anyone who trusts them with their money for the benefit of a subsidiary which avoids taxes to the extent interest is deductible. Should the bank, corporation B, have an accounting loss in spite of its interest income, Corporation C also "earns" through offsetting overall conglomerated income both the extent of the taxes avoided through interest payments of subsidiary Corporation A and the losses of Subsidiary Corporation B. Cute, no?
Now, guess who gets all the money which governments pay in interest? I'll leave that to your imagination while I move on.
In the wondrous arcana known as national accounts lie (or is it lay) more perfidy (remember that word from above?) than all the genies of Aladdins by the billions can fantasize. Should you be the least curious about such matters, a few months of mind-boggling research spent in the bowels of the United Nations headquarters in New York, or the libraries of the national treasuries of most major nations, will leave you impressed with the due diligence of the gnomes of such matters.
Suffice it to say that were heaven to descend to earth, hate give way to love, greed to largess, war to peace--both national accounting and business accounting as practiced would shortly restore the status quo ante pacem--in other words, we would soon be at each others' throats as if nothing had changed. The system fundamentals built into our economic number processes are a key part of what tears us and planet apart a bit more each day.
Some of you, dear but few, readers, may have heard about the most recent twenty six years within which the United States of America went from the number one creditor (lender) on this planet to the number one debtor (borrower). There has been some positive fallout (irony intended) from that exercise in financial and economic magic. No matter how much your Liberal heart may bleed or your lamentations for the poor and disadvantaged echo bleakly in the halls of politics, there is no money left which might possibly be available for governmental programs of alleviation--except, of course, for wealthfare.
Enough opinionating, you say! More directly, then, who do you think owns us, by which I mean the national treasury, debt, honor and integrity of the United States? More directly yet, who buys our debt instruments? Good American citizens and corporations? Yes, to a degree. By no means enough, though. And, more concretely still, the balance between our national perfidy and national deficit is covered by foreigners--those folks who live elsewhere and may not have out interests at heart.
In short, if all those overseas buyers of treasury bonds marked the U.S. "paid," as the Brits say, our technical bankruptcy as a nation would become an actual bankruptcy. As we blithely continue to buy imports for whatever reasons, money goes out to foreign exporters (often subsidiaries of transnational corporations which may be largely American or not). I'll stay away from the equity markets for now. Some of the processes involved might also be called the Walmart Effect in which local money goes from our communities to national and international corporations. We pay less money for some things and lose a little more of community value from each transaction.
As we blithely fund wealthfare with hardly a blip on the political radar, we (as a fiscal entity) sell instruments of debt called bonds, for example, to cover the gaps in current accounts.
The 14th December issue of The Economist, page 30, displays two charts documenting some aspects of this continuing descent into economic hell realms. In the quarter between July and September, the current account shortfall went up to $48, 000, 000, 000 (nine zeroes worth) an increase of 20% over the previous quarter. As recently as 1991, there was a current account surplus close to $10, 000, 000, 000. The slope of the curve downward (1991 to 1996 third quarter) is approximately 45 degrees! In parallel, investment income (the amount paid in interest, dividends and such returns to investors outside the U.S.) is also in free fall statistically. From an overall investment income approximating $6, 000, 000, 000 in 1991, collectively we now pay out about $6, 000, 000, 000 at an annual rate. Among the messages lurking therein is a notable increase in treasury securities held outside on which interest paid from taxes is paid outside also.
Note who is paying taxes and who is not paying taxes. Note who benefits from tax money paid as interest. This is an example of a Walmart Effect on an international scale only with the entire country paying out its economic life blood. Exaggeration? Hardly.
In passing, I will note that all kinds of folks have recently been very upset and very vocal about political contributions from "foreign" interests.
Let's change political contributor to debt holder. Let's imagine how you would respond if your bank called up to tell you your mortgage was being called on rollover date next month. "Why?," you ask in terror instantly calculating your savings account balance as a ratio to your mortgage and deciding against suicide?
"Because we don't like your politics or skin color or national origin or religious beliefs or your son's drooping pants or whatever comes to mind at the moment." Would your behavior be influenced if the lender offered to renew your mortgage if you did as she bid? The blather over foreign political contributions assumes that whoever controls money controls politicians, no? You wouldn't behave like that, would you?
Now, you may have some idea of how international financial interests direct policy decisions and practices in the United States of America and elsewhere throughout the planet. "No tickee, no laundry", used to be a joke with racial overtones disparaging people of Chinese origins who did laundry to earn a living. Remember to laugh when you learn that the so-called "Overseas Chinese" are among the number one, two and three largest creditor groups of the United States. There may be some resentments which are being worked out these days far out of sight and off the evening "newscasts." What goes on in Hong Kong over the next few years will bear close attention for some hints about our future.
To quote The Economist, ". . . despite the progress in reducing the deficit, America still relies heavily on foreigners to buy its government debt. More broadly, a rising deficit on investment income is the natural consequence of running persistent current-account deficits."
Lurking in the three pages of tables at the back of every issue of The Economist are statistics which tell stories also rarely mentioned on your evening "news." Under "Money and Interest Rates," we see that of the fifteen developed nations listed, only three have bank prime rates higher than the U.S. Bank rates are high here because of the need to attract foreign money to finance U.S. investments. That everyone in the U.S. who borrows money also pays higher rates is just fallout on borrowers and bonanza for lenders. That, paradoxically, U.S. Treasury bond interest lags by about three percent suggests yet another perfidy which directly influences the present excesses of the equity markets--but that is another story for another time.
In The Economist tables, go down to "Trade, Exchange Rates and Reserves." Taking the same fifteen developed nations, first let's look at recent trade balance figures. The US trade imbalance is running at a rate of minus $180, 000, 000, 000 annually. Belgium is plus $12, 000, 000, 000. Canada is plus $26, 000, 000, 000. Germany is plus $63, 000, 000, 000. Japan is plus $89, 000, 000, 000. The Netherlands is plus $21, 700, 000, 000. Of the fifteen OECD nations, only Australia (minus $15.6 billion), Britain (minus $20.3 billion), Spain (minus $21.6 billion) are running negative trade balances. Of the fifteen, five including the U.S. are in negative current account balances.
Similarly, five have reduced foreign reserves, led, of course, by the U.S. I will note that the "stumbling" Japanese economy, on which The Economist makes an unrelenting editorial assault, increased foreign reserves from $180.7 billion a year ago to $213.8 billion this year (comparatively the "booming" US economy about which you hear has dragged foreign reserves down from $76.1 billion last year to $64.5 billion now.
When will the lenders call their loans or demand their pounds of flesh? The financial manipulations governing government bond interest require that the relatively "safe" U.S. government bonds pay more than competitors in spite of their alleged relative safety. The actuality of calling loans in any meaningful sense is remote. What has happened in the last twenty years, though, are periods within which foreign investors draw down their US holdings. What is unknown to us is whether investors are using their actions to influence US government policies and practices. Circumstantial evidence suggests whatever one might want to imagine. The possibility exists through our national vulnerability as a debtor nation. One of my suspicions is that the Mexican financial crisis was, at least in part, engineered as a warning to show how vulnerable a debtor nation is to a slight twist of its financial tail.
Lastly, The Economist compares ten year nominal and real government bond yields of the fifteen developed nations. With the fourth highest nominal rate (borrowers pay more interest), the US bonds yield the third lowest real return to investors. Only investors in Austrian and Japanese ten year governmental bonds earn a lower real return.
Now, can we get back to perfidy? Deceiving through faith. A treachery founded in trust. "In God We Trust." Might as well. Someone noted that an ostrich with a head buried in sand is vulnerable to sodomy.
[If all of this is still beyond your capacities to integrate, look also at the latest Worldwatch Paper, No. 133, "Paying the Piper: Subsidies, Politics and the Environment." [December 1996]
I'll quote from the abstract:
"Around the world, government policies shunt at least US$500, 000, 000, 000 [yet another half trillion by US counting] a year toward activities like logging, mining, overfishing and driving that hurt the environment and thus undermine the global economy. These subsidies contribute to environmental problems ranging from deforestation to air and water pollution. The money ultimately comes out of the pockets of consumers and taxpayers, effectively increasing taxes on work, investment and consumption that discourage these very activities thus placing additional drag on economies."
Understatement and paradox to the extreme!
Heisenberg is laughing in his grave, no doubt.
Worldwatch Institute, 1776 Massachusetts Avenue NW, Washington DC 20036-1904 USA. $4.00.
And to all, a good night!
Someone asked for pragmatic suggestions for present and future behavior:
--Get out of debt and stay under the radar.
--Watch Hong Kong and Taiwan closely.
--Listen to short wave radio.
--Plumb the internet and Web for data and analysis.
--Read The World Press Review to learn some of what is thought and printed elsewhere and,
--Follow The Economist statistics (taking their overt editorial biases with a very large dose of skepticism).