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Except for the last year or two of the Clinton years the surplus has never in modern times exceeded revenue from FICA.  Bush and Gore both spoke of the "lock box" for social security.  Neither party has the stomach for it.  Why?  Because Democrats want to spend it on social programs and Republicans want to give it back in tax breaks.  Neither party wants the discipline of the "lock box."  Both parties use the same rhetoric when it suits them. 

 

Even with last year's program increases, federal spending continued to fall in 2001 as a share of the economy. OMB's newest figures suggest that federal expenditures will equal about 18 percent of the gross domestic product (GDP) in 2001, which is the lowest level since 1966.

 

http://www.centeronbudget.org/8-22-01bud3.htm

 

Appropriation bills enacted last fall contributed to the growth of federal spending in 2001, but they are not the reason the 2001 surplus that OMB projected this April has disappeared. The tax cut and the economic slowdown are the reasons. More generally, the 2001 expenditure increases enacted last year are only one-fifth the size of the tax cut over the long run. And as a share of the economy, total federal spending in 2001 is at its lowest level since 1966.

http://www.cbpp.org/8-28-01bud.htm

The CBO update of its baseline estimates shows a total budget surplus of $3.4 trillion between 2002 and 2011, or $2.2 trillion less than the $5.6 trillion surplus that it projected in May. About three-quarters of this decline reflects the impact of the enacted tax-cut package. Only 13 percent represents the effects of the economic slowdown — with much of the impact affecting the projections in the next few years — and the remainder results primarily from revisions to various technical assumptions. Of this $3.4 trillion total surplus, $2.5 trillion represents the surplus in the Social Security trust fund and $404 billion reflects the surplus in the Medicare Hospital Insurance trust fund.

• For the budget outside the Social Security trust fund, CBO estimates a ten-year surplus of $847 billion, but predicts deficits in 2001, 2003, and 2004.⁽¹⁾ (The non-Social Security surplus in 2002 is projected to be a mere $2 billion.)

• For the budget outside both the Social Security and Medicare HI trust funds, CBO projects a ten-year surplus of $443 billion, but anticipates a deficit in each year from 2001 through 2005.

The Congressional Budget Office's new report on the federal budget confirms that the surplus is considerably smaller than previously assumed and that, in some years, the budget outside Social Security will be in deficit. CBO now shows a surplus between 2002 and 2011 that is $2.2 trillion less than it estimated in May; about three-quarters of this decline was caused by the impact of the recently enacted tax-cut package. Moreover, these CBO estimates are less rosy than those released by the Administration last week as part of its Mid-Session Review.

 

 

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Understanding Vietnam -

The national purpose, the public interest, our vital interests is in the spread of reason, truth, justice, prosperity, peace, enterprise, civic institution, knowledge, at home and overseas. We don’t need a big military to do what is important and it may get in the way. If you have a hammer you look for a nail to hit. If you have a idea, a product, a process, a concern, you look for markets, for partners, for synergy.

The case of Senator Kerrey is very fascinating.

The life expectancy of first lieutenants in World War I was counted in hours once they entered the combat. Young officers with the Naval SEAL working behind the "lines" could not have been much better.

Why, Kerrey still asks, would a nation put young men into this situation to kill and be killed. What is the national interests, who and how is the National Security defined, what is vital and protects the global order, our welfare and liberty and what is just dumb and evil.

The real geo-political choices have to do with the multiplier factor. Will actions done or left undone multiply, breed, fester, spread, or diminish, wear out, go away by themselves or with a push rather then a murderess attack. We thought we could just push a bit, then a bit more, and we were sucked into a wreaking pool deeper and deeper. As Forest Gump says " Stupid is as stupid does".

The judgment to go to war is made by elites then sold with slogans and lies.

The cause of Vietnam was part of a global - geo-political theory of the cold war. It started with the Truman doctrine in Greece and Turkey. NATO and the Marshall plan were designed to forestall any further Soviet ( communist ) military, economic or political influence in Europe, the Middle East. In Asia the policy of "containment" of China involved Korea, American Bases in Japan, Guam and the Philippines, supports in Taiwan, Malaysia, Indonesia, and Indochina. It made some sense but contained a fatal flaw. Dominos = geo-political power struggle between the "West" and it’s enemies. We never really believed the socialist systems would not work - that Russia could not maintain an Empire, a modern military and control subject nations for long, that globalization would make this theory of them and us quite wrong.

We never really believed in our own values and democratic theory - that modern industrial societies would be so successful that the model would evolve everywhere naturally.

We didn’t care if the people of Vietnam wanted to be ruled by a Catholic Europeanized minority - or the quality of the civic society in many terrible but non-communist countries. We must have only believed in power, territory, them vs. Us, zero sum games and the real military potential of the evil empire.

The idea was that "communist" would threaten all of Indochina, south east Asia, Cuba then central America etc.

The domino theory - and it was wrong, not even close - so,

How could the "wise men" LBJ consulted been so wrong ? ( Except for George Ball ) -

The good that men do is interned in their bones, the evil lives after them to the third generation.

The first law of wisdom is - Error on the side of the angels - when in doubt do the right thing ! Instead we erred in the cause of evil and failed to promote our interests, but damaged our position everywhere, did not improve but hurt our society, our security, our military authority - one big bad bust which still is not over.

A bunch of fatuous old men and women tied to old ideas - all supporting each other in their foolishness - sounds like most of traditional institutions - the Supreme Court, the national security council, the joint chiefs of staff, the Archbishop of the Catholic Church of NY , the legislatures, the board of directors of American business, the mainstream media, all firmly supported the war in Vietnam as did the Central Committee of the Communist party for the other side.

The multiplier effect is basic to understanding the social economic political process. In a modern semi-closed economy - the multiplier is close to 2.5 which means new activity - a new factory or grant or income source will circulate so one dollar becomes two fifty by the end of the year. John gets a dollar which is spent with Peter who then buys something from Paul and on to Mark. In a tourist economy like St. Thomas, John gets off the boat and buys an imported good from Peter who pays Paul at the counter but Mark who supplies the goods is elsewhere.

The multiplier is one or less.

John has an idea which impresses Peter who brokers money from Paul and sells it to Mark. Ideas and products grow and activity increases so everyone is better off - a win/win non-zero sum but synergy - the whole is more than the sum of it’s parts both positive and negative. Paul believes in decline, stops buying from Peter which frightens John who fires Mark.

In a Global Economy John in here, Peter is there, Paul is elsewhere, and Mark is just getting the message. Like the apostles the message, methods, ideas, hopes, systems are spread from the few to the many.

In geo-politics the issue is leverage - we need a stable, market directed world.

The oil money cycles, the technology spreads, financial circles expand - the natural advantage of multipliers work. Socialism and communist systems have low multipliers - they don’t work. John commands Peter to produce, who hires Paul and Mark but the value of their production is not sold on the open market. Both labor and product is undervalued with no extra circulation, no profit, no surplus, no new investment, no improvement in confidence, no cycle of hope and hype and growth.

Freedom works. Free markets work.

They need a civic culture, the rule of law, social justice. Justice comes from open system, advancement of character and ability, greater resources. In the long run we need not have worried about a independent Vietnam, or that that matter the Soviet Union, or Communist China - they will fail of their own weight.

The leverage is the success of better ideas and the spread of ideas.

That is the national purpose, the public interest, our vital interests is in the spread of reason, truth, justice, prosperity, peace, enterprise, civic institution, knowledge, at home and overseas. We don’t need a big military to do what is important and it may get in the way. If you have a hammer you look for a nail to hit. If you have a idea, a product, a process, a concern, you look for markets, for partners, for synergy.

The Educational Reform Act of 2001:

The several states and territories are hereby entitled to reimbursement for the same proportion of the salaries and benefits of qualified classroom teachers for those professional engaged in basic instruction, the federal government will contribute that same share of these employment costs as the teachers’ students are eligible for the free school lunch program.

The states and territories will be reimbursed based on approved plans and estimates of the numbers and costs with the U.S. Secretary of Education, who may approve definitions of basic instruction, classroom teachers, teacher qualifications, salary programs, and any incentive pay upon which the secretary may authorize quarterly advances and adjustments.

The states may include teachers from charter schools, schools being run by a contractor and non-public schools within an improved plan only in so far as these serve the eligible population.

About $15,000 for a million teachers - some with a small amount some at 100 % = 15 billion - not much more than title I and within range - even if twice that - If the feds pay teachers resources are free for other critical needs.

Then we can move toward a realistic salary - working conditions - qualifications - promotion and specialization system - professionals are the critical in education - then with this base things can really be improved.

The American Public and both parties say that education is their top priority but school reform has become so complex that no one understands what is going on - or is the story reported. Incremental is natural but has a PR problem when there is the complete lack of focus.

The bills them-self are endless - there needs to be a clear focus - something beyond testing because tests do not create solutions only let us know what we already know - a lot of children are not up to grade level.

The only meaningful answer is competition - charter schools if not vouchers - the charter provisions in the current bill are grants and information to state education agencies - or the fox gets the grants for the chickens or for a restructured with the feds taking a major responsibility for instruction. ( State and local build building, transportation, overhead and administration ) All this sound and fury will not do much - but then something is better than nothing.

http://thomas.loc.gov/cgi-bin/query/z?c107:S.1.PCS

original bill to extend programs and activities under the Elementary and Secondary Education Act or S.1

H.R.1

No Child Left Behind Act of 2001

S.303

Three R's Act

Better Education for Students and Teachers Act

Helping Children Succeed by Fully Funding the Individuals with Disabilities Education Act (IDEA) (Introduced in the Senate)[S.466.IS]

Public School Repair and Renovation Act of 2001 (Introduced in the Senate)[S.471.IS] Educational Excellence for All Learners Act of 2001 (Introduced in the Senate)[S.7.IS]

Under a tentative agreement between Democrats and the White House, the Senate bill would require mandatory student testing, help children learn to read by the third grade and give states more leeway in spending federal education funds -- signature issues for Bush during the presidential campaign. http://dailynews.yahoo.com/h/nm/20010426/pl/congress_education_dc_11.html

Most Constitutional questions are informed by these papers.

http://lcweb2.loc.gov/const/fed/fedpapers.html

The clear idea of our form of government is a balance between tyrants ( the colonial experience of Kings and Priests ) and mob rule or anarchy feared under the too weak articles of confederation.

The system will work despite the fact that most people neither understand or approve of our fractured system but believe in majority rule as a base of democracy. Bush says " We won " - even if he did that in itself does not settle anything. Federalism is not a winner take all system but moves forward on ideas, concepts, mind and common sense.

The foundation is civic virtue enlighten by a mystic idea of "the people" as a whole or the General Welfare as a practical concept based on mature judgment of virtue and devotion to country of real leaders - not factions or special interests based on concepts of marketing - not the rich or the poor - not majority rule - not popular idols - not fashion or popular ideas - but a broad, historic concept of the will of the whole -

So the President, the Congress and the Court should address not their base - not this group vs. that group, them vs. us, but their concept of what is the common good or public interests - these views will differ depending on the social class and interests of the viewer - but the theme is it will be good for the republic as a whole.

Gore failed, Bush failed in their appeal ( or even to talk to the whole people ) to give the whole a sense of vision for the nation - a concept of the common good - better race relations, better education, better civic culture, better public management of common affairs, and instinct for freedom and initiative, etc. Now they will disagree as to means - taxes, budgets, environmental regulation, but within a context of the general welfare and national will.

Then when someone wins there is some context to policy. Now we have one group trying to get it's way over another group - and the constitution is expressly designed to prevent this type of victory - and they are willing to pay the price of gridlock rather than split the people when there is no clear consensus.

Give me a break:

So all this talk about tax cuts. Why am I so indifferent - why do most people care less ? Because it does not give me or them a break - it is all about income over $300,000 - not any friends of mine or in this neighborhood ?$10,000 of $35,000 is 28.5 % high but not 1/3 as the tax foundation tax freedom days claim

Reality: Table 2 shows taxes typically paid in 1996 by a household of median income. Note that the federal individual income tax is about one-fifth of taxes paid by median households. 72% of households pay more payroll taxes than federal income taxes.

The median household pays about $3,700 in state and local taxes.

First - income taxes are less than property taxes ( about $3,000 for the average family or 10 % ) because I have various breaks on income taxes - child credit, mortgage deduction, which all ready cut federal income taxes to much less than property taxes which only go up.

Second - payroll taxes are about the same or greater than income taxes for most of the households in America because of the effective rate of income taxes is far less than the 18 % payroll taxes - 15 % Social security, 3 % Medicare.

10 % in Income taxes, 10 % in property, 18 % in payroll, ( employers share is just a hidden tax ) 10 % in sales and exercise ( utility taxes, gas tax, sales tax etc ) = 45 % over all taxes - income tax is only 20 % of total taxes ( 1/5 ) - a 10 % cut is only 2 % of total tax burden so not a big deal !

Third, perhaps even more hidden than many taxes - is the high cost of health coverage - health insurance is about three times income taxes for most households over $ 6,000 ( and a real cost of employment one way or the other ) and in most cases not very good, very bureaucratic, extremely wasteful, fragmented and a real problem for most families.

Basic and public Health, basic education and minimum welfare are basic public services - as are roads, police, law and order, courts and jails, fire, land use and other regulations, which could be provided by private profit or non-profit organizations but are required by civilized societies.

The real tax reform would be to realign the whole tax system !

"However, it is possible for government trust funds currently holding marketable government debt to hold other assets instead. Designing mechanisms to protect against the hazards of government involvement in private securities markets is a serious issue that we do not address here. But it is worth noting that state and local government pension funds already hold $3 trillion in private assets—including $2 trillion in equities—earn competitive returns, do not appear to disrupt financial markets, and—even with virtually none of the safeguards that would be imposed on federal investments—invest only a tiny fraction of their funds in "targeted" investments. Moreover, other investment possibilities are available as well, including but not limited to the president's own proposal to exchange the government debt being held by the Social Security trust fund for the assets held in the individual accounts of a privatized "

Social Security system. http://www.brookings.edu/comm/PolicyBriefs/Pb076/pb76.htm

The idea is to have the fed pay 75 % of the actual cost of basic education ( teacher salaries ) which is 50 % of the cost of public schools - ( about $ 5,000 cost - $ 2500 for instruction and $ 2,500 for all the overhead - building, transport, lunch, administration, sports, - feds pay 75 % of the actual cost of instruction or $ 1875 which would go a long way for vouchers, charter schools and other critical reforms ) also allows for property tax relief. If private education can cost ½ of public - then there are big saving here.

The income tax could be set on a scale ( a chart not a table that has bracket creep ) based on the median income.

The top rate could be 25 % to 33 % and reduced from .5 % to .33 % for each percentile off the top income. So if the top rate is 33 % then the 75 percentile pays 33 % - 25 ( off top ) x .5 = 12.5 % = 20.5 % and goes to 0 under 50 % or median income.

The earned income tax credit used to balance for high payroll rates for low income workers, and higher sales taxes.

A national sales tax of 5 % to 10 %.

A nation system of health and retirement insurance. Individuals and households have a all in one payroll deduction system.

The 15 % in social security and 3 % in Medicare plus other FICA - disability, unemployment, etc. Plus the 401 (k) other insurance, retirement, other savings, etc. Are reported each month in a statement like a credit card plus bank balance.

The rich get to put away more money for retirement tax free, deduct health insurance, and other advantages to savings and investments.

The poor get support from 100 % for the flat broke, to 10 % for the median household to support retirement savings and health coverage.

The actual plans would be like the federal civil service plans - a choice of coverage with more or less additional costs - glasses, dental, prescriptions, mental health, alternative medicines, etc. With different deductions and co-payments.

There is no way these can be made to be a one size fits all federal plan.

The NRA - the holding of real assets by a federal semi-public agency - to hold Social Security, Medicare, Civil and Military pensions funds - maybe ( highway, airport, water and other trust funds ) would be very useful and stabilize public finance and could be used to counter the economic cycles.

The same 45 % of income is used in taxes - more from sales taxes, less from property and income taxes BUT includes better, lower cost health coverage, provides basic health, education and welfare, helps maintain steady growth of the economic pie, puts retirement on a sound footing, makes us a more civilized civil society and will give me a break.

Time for reform:

The central role of government is to provide for the general welfare.

The modern state maintains the social and economic base which promotes or discourages enterprise, prosperity, justice, and security.

There are only three ways to reform pension planning - reduce benefits, raise taxes or get a higher return.

The national defense and welfare depends on a health economy, science and engineering, education, communications, transportation, health, social security and insurance, all depend on a functional and rational government.

The issue is not more government or less government but good government. It is necessary to review the whole system - not just tax cuts but tax reform, not just the federal budget but the whole package of local, state, excise, and other taxes and the services they support.

Taxes are raised to support necessary civil society.

They should interfere as little as possible and support free markets, enterprise, growth and creativity through the provision of physical and cultural infrastructure. If you want more work, saving, investment you support it, home ownership for example - if you want less of something you tax it - drinking and smoking for example.

The whole tax system should be reviewed on how it impacts on the whole system.

First the trust funds should be taken out of the operational budget. A total budget could be reported but in two parts - operations - pay as you go expenditures - now about a trillion dollars - about ½ by formula and ½ by annual appropriations. Another $ 800,000 billion are trust funds, Social Security, Medicare, Civil Service and military retirement, Highway, sewer and water, airport, which could become real reserves with professional managers. First the budget figures what is needed for operation then tax rates are adjusted. Trust funds are run by the treasury, the federal reserve and non-political boards.

Funds are invested in Treasuries - and paid real interest from the operational budget, foreign bonds which support the dollar, Certificates of deposit, investment grade bonds, the international Euro and Euro dollar markets. Compound interest supports retirement and saving funds. Individuals have pretax retirement, health insurance, educational savings, accounts some of which is invested by the national system.

A package of reforms would simplify and lower taxes on income, profits, capital gains, savings, and remove the hundreds of special targeted tax policies.

The reduction of income taxes is the critical part of any reform, to 20 % top, - .25 % for each percentile in the income distribution, to go to 0 for almost half the population. All income would be treated the same - but adjusted gross income would correct for a few important corrections, and the real estate deduction will have to remain - also child and child care credits.

The low income tax credit would have to be increased to correct for payroll taxes and the increases in consumer ( sales, VAT ) taxes.

After a minimum income tax, the other needs for operational budgets should come from consumption taxes. A national rate of 6 % should make the difference. Consumption taxes are healthier than production taxes. It increases international competition because exports don’t pay sales taxes - so they act as a legal and effective subsidies.

National Reserves Administration:

A set of programs of agricultural and business supports, inflation, price stabilization, and public works funded by revenue bonds; numerous trust fund management organizations, e.g., the NATIONAL RESERVES ADMINISTRATION, would have three parts.

These programs would produce long term stability, prosperity, national welfare, social justice, sound currency, and justice.

REVENUES:

Income tax rates are set on a scale ( rather than a tax table with jumps ) - starting at the top rate ( for example 1/3 or 33 % ) and goes down to 0 % at about 40th percentile of median income from last year. Each percentile’s rate is reduced by .5 % ( .05 ) off the top rate so at 80 percentile is the top rate reduced by 20 ( 100 - 80 ) x .05 = 10 from 33 % = 23 % tax rate, 50th percentile is 50 x .05 = 25 % off 33 % or 8 % tax rate, and 40th at 0. Under 25th percentile there is an income tax credit. ( to adjusted for payroll taxes )

The rates are set to produce the revenue needed to balance the budget by law.

Income is gross adjusted income for population groups, marred, child credits, etc. Pretax funds are not counted -

IRA, Pension, health, and other preferred savings are managed by the NRA - in real trust funds.

RESERVES:

Social security, Medicare, Military and civil service retirement funds, highway, airport, water and sewer, soil conservation, supper fund, and other trust funds are managed by the NRA as real reserves. Households get all-in-one statement and can add to various accounts on a pretax basis. Low income households get a subsidy to add to their savings ( IRA’s, pensions, health insurance, educational and other supported savings ).

The 14 % paid into Social Security would show as a pensions savings - be invested by the NRA in bonds, ( US and foreign ) and other investment grade private bonds, index funds, certificates of deposits, London Inter-Bank loans in the Euro and Euro dollar markets. Individuals can add to this or other IRA, pension and retirement funds on a pre-tax basis. This is a lot more practical than pure personal privatization.

The Civil Service system of choice of health plans could be used on a limited basis - people who pay more get more - every gets a minimum -

THIRD -

The national sales tax ( VAT ) - to balance income and revenue a national sales tax could support income transfers and make pensions work.

Advantages:

Fiscal management - saving in good times - expenditures ( based on revenue bond ) in poor time that does not add to long term national debt.

Sates tax get revenue for the large ( 10 % of GNP ) now untaxed as parts of the under ground economy. ( not just street markets, drugs, crime, but a lot of cash services ).

They also act as a support for exports since exports do not pay sales or VAT. ( up to 18 % in Europe )

The purchase of foreign bonds by NRA would help the balance of payments and the trade gap.

Taxes and Reserves:

There is a tax creep - or bracket creep as incomes jump into higher brackets.

The solution is not a flat tax but an index tax set to median income from the prior year.

One of a set of points on a scale arrived at by dividing a group into parts by order of magnitude. For example, a score higher than 97 percent of those incomes is said to be in the 97th percentile.

So the adjusted gross income group ( less credits ) at 75 % of all ( single, married, etc ) would be 55 % of the top rate of 33 % or 18 % - people under 45 % ( median income) about $ 30,000 pay no income taxes. Under 20 % get earned income tax credits - negative tax or income support. Instead of a tax table there is a tax scale or chart.

The rates could be set to produce the necessary revenue.

The use of Reserves:

Some countries do have reserves - real saving - Taiwan -

The oil states - We have trust funds that are not real ( no funds, no trust ) pay as you go systems - Civil Service and military retirement - Highway and Airport funds, social security, Medicare, water and sewers, soil conservation, Supper fund and we could use a school construction, general public works etc. Trillions of dollars cold be in these funds.

We have semi-public agencies such as TVA, Federal reserve, etc. Now we create an agency called "

The Federal Reserve Trust Fund management Agency " FRTF - managed by a board of the federal reserve, treasury, and public members selected for long overlapping terms.

The FRTF would hold the separate funds and work with their managers as clients - and earn real income on the money. When growth rates are over 1 % they build reserves and just hold them for income and pay out costs and use them for their statutory purposes.

When growth drops more than - 1 % additional costs could be made.

Investments would be in U.S. Bonds - ( paid real interests ) foreign bonds ( help balance of payments ) , Certificates of deposit, ( increases saving and lower interest rates ) index funds, as do state and local public retirement funds.

In poor times the FRTF could support public works by buying revenue bonds for highways, airports, schools, water works, to increase income, expenditures, employment, investments, without creating long term debt and currency problems as does direct government borrowing.

They would get the money back in better times because these projects have revenue streams or special fees or taxes.

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What can be done ?

Since there are two firmly held and conflicting theories on Macro Economic policy hard vs. soft money and finance, what can be done that is most likely to create long term prosperity ?

There is a third way:

Fiscal hard money ( gold standard ) conservative ( balanced budgets ) but low inflation and lower interest rates because of less public demand on credit - by using Public Trust Funds to increase saving, investments, and productivity and pump prime when needed.

This could give the treasuary and federal reserve a whole new set of tools. If there were large reserves they could be used to get things moving or to slow things down.

While states and local government have pension funds, and a few even have rainy day funds, the big federal programs are only paper and run on a pay as you go system.

The social security trust fund is not a fund, or are there no real saving put aside for Civil Service Retirements, Military Pensions, Highway and Airport Trust funds, Super fund, etc.

Theses are all under-funded liabilities.

The example of funds managed by semi-private national corporations for housing finance and student loans suggests that either a independent agency or the federal reserve could manage the billions to trillions in such funds independent of political passions.

This would go a long way to fix the demographic crisis and be a public privatization of pension funds.

Of the real money, most would be in treasuries drawing real interest as a charge on the budget ( which is not the current case ), CD’s that increase bank deposits, interest baring credits on the International inter-bank and Euro dollar markets, all which since it increases the supply of credit and saving so lowers the cost of money world wide so more investments become possible. It is a soft money - but without the inflationary side effects of big governmental programs or debts. A small amount maybe in the stock markets - buy when they are low and sell to cut off excessive speculation only using mutual and index funds not individual stocks, a very profitable strategy.

In hard times Governments could increase their borrowings from themselves by using these reserves to finance through the purchase of revenue bonds, public works ( airports, communications, school construction, power plants, water works, etc.) which would be paid back into the trusts in better times.

The size of the funds could make a real multi-trillion dollar difference and not create long term national debts. By definition, poor times means firms are cutting back - there is less demand for capital - so the movement of money from reserves to active projects is all to the good. It will not tighten the money supply or raise interest rates. In good times the building of reserves - and the constraint on expenditures by payment of hard money as interest, will constrain inflation and firm up the currency.

The country would end up with better roads, bridges, water works, power systems, schools, and other infrastructures.

The agency could refinance state and local bonds to create more impact. Many of these projects have a income stream that assures payments.

The old worn out arguments:

The gold standard: One set of ideas are the hard money types.

The Reform ideas that are common in the IMF, Conservative traditional doctrine, monetary theorist, and many other economists is that monetary and fiscal should be tight - hard time require "belt tightening" , cut public expenditures, taxes, and even if interest rates go up. This will shake out excess capacity, get rid of low productivity firms, cut inflation, strengthen weak currencies, and while painful is the medicine that works. This reduces supply with the blind faith that Says law will produce demand at lower prices - but supply side ideas add that low taxes and hard money motivate investment, work and saving so will be productive in the long run.

The problem is that it doesn’t work very well, takes a long time and is not popular.

The silver standard:

The other liberal approach which is associated with Keynes ( who said that in the long run we are all dead ) is to "pump prime" by increases in public works, create deficits, loosen money supply, to lower interest rates and increase demand. Supply will take care of itself if people have money to buy.

The problem is debt and inflation, weak currencies, and big government.

A trillion here, a trillion there and before you know it you are talking about real money:

The great crash of 1929 was caused in part by ill-rational exuberance and margin calls. People bought rising stocks on loans from banks and brokers. When the stocks fell they had to sell to cover their margins which pushed the market down - into a downward cycle which lasted a decade. Margins at brokers were raised as a result.

BUT people can get cash from credit cards, home equity loans, and deposit the money in on-line brokers who have very little in way of responsibility to check the reasonableness of investors ( old style brokers actually warned people of risky strategies ) so they are in the tank as many speculative stocks are close to having nothing of value.

They can’t buy cars and new toys on the never-never and their houses are even in question if there are equity loans. That is why the change in bankruptcy and real fear in financial circles.

The total assets held by U.S. Citizens are about 45 trillion dollars ( 6 times GDP ) - they just lost ( paper gains become paper losses ) at least 3 trillion - or only 6 % BUT millions of firms and households were in a serious negative net worth position before the loss - i.e. their debts are far greater than real assets - and what is left is mostly in real estate which is not liquid or certain.

Their tax deferred saving could be called forcing the market down even further. A small decline in Real estate should be expected and so forth and so on in a downward cycle.

Meanwhile we have a wimp for President and he is scared, uncertain, and weak. Just what the Republicans if not the republic deserved. Tax cuts are small comfort and useless in the face of an large asset based decline.

The currency has to be revalued downward to deal with the real value of assets - ( just like in other places and times, FDR dropped the gold standard )

The credit markets need to be shored up with public funds ( open market purchase of treasurers that lower interest rates and increase money supply ) and loosen reserve requirements - so credit does freeze up as banks and others suffer a wave of bad debt. In Japan and Europe Banks hold stocks as assets. When the value goes down they can become insolvent. A bad loan has a multiplier of 2 or 3 because the bank has made more loans on the belief that the first loan is an asset - this multiplier may be much bigger with the use of secondary and third level instruments that re-capitalize debt. You can see a financial pyramid here.

The IMF tells everyone else facing asset loss to do just the reverse - when real estate tanked in Japan, when markets collapsed in Asia, they were told to stabilize the devalued currency, tighten fiscal policy ( balance the budget ) and wash out bad debt as quickly as possible. This makes things worse in the short run - maybe better in the long run. No one knows who is right - and the US is different because it is the center stone of the whole world wide arching economy. If the key stone cracks the whole thing falls of it’s own weight.

Time for nerve and certainly - and who do we have holding the key to wealth or disaster - ? Not my job man THANK GOD !

There is no one who understands global markets like Rubin does - I hope they can figure it out.

Knee Jerk Reactions:

http://www.wiredbrain.com/public-policy.htm

Political Analysis of many social and physical infrastructure problems require actions that are not politically possible because policy is fixed inside a box. Solutions out-of-the-box are rarely tried. A school shooting and people talk the same dribble.

The standards are stuck in policies we know won't work- fixing schools involves size, control, commitment and money , transportation involves land use, housing involves markets and race, energy involves nuclear power, drugs involves soft ( leave to local government) and hard ( limit enforcement to transportation) , crime, ( make laws with fewer of them ) immigration, ( be rational about labor markets ) modern military structure, ( making less enemies ) et al.

It is further has suggested that programs that were political possible made the situation worse - highways that slow travel, housing programs that decrease the supply of low cost homes, drug enforcement that increase crime, drug abuse, and the profits in illegal drug trade, programs for disabled students that have created a bureaucratic nightmare and diverted resources from the real handicapped ( 5 % )to wasteful programs for 1/4 of students with "learning disabled", behavioral programs, psycho active drugs, and thousands of "pork programs".

http://www.cagw.org/

Nothing very useful will be done under a money driven political system.

The last half century has been driven oil - political power flooded on oil money from LBJ to George W. Now it's still oil and energy, automobiles, medical, drug companies, public employees, financial services,

http://www.cagw.org/publications/prime/pubs.primecuts.home.htm