Attachment - Depression 2023

The window for bipartisan tax reform is just now open and will close quickly. There are members of Congress who are likely under investigation by the other Mr. Smith. These members come from relatively safe Republican districts, however, if the economy collapses during a special election to replace some of them, the current majority will be blamed for what is almost a certain economic downturn.

This downturn will come, not because of the Federal Reserve, but because the last of the income supports under COVID relief are expiring at the end of February. People with marginal incomes are about to experience a drop in income. That they would suddenly increase participation in the labor market is a canard. Instead, they will run up debt and stop paying certain bills, such as rent. 

Some number of enhanced SNAP, enhanced Child Tax Credit and Unemployment Insurance beneficiaries did not waste their money. They invested it, many likely doing so in crypto-currencey. If too many people cash out their coin at once, these markets will be overwhelmed, as will redemption of exchange traded fund investments holding both crypto and mortgage backed securities. Landlords will be selling liquid assets as well.

A depression is inevitable because tax cuts and monetary policy have fueled asset speculation. The current speculative bubble that no one talks about is oil futures in NYMEX. Under Obama, regulations were added to stop balloons. Under Trump, Mick Mulvaney gutted those regs. We now have a big balloon on our hands that is about to pop. There is plenty of oil. Because of the Trump Administration, there is also plenty of price manipulation.

Last year's toy was crypto-currency, especially Bitcoin. Bitcoin is attracting poor people (and some of the stimulus money). Coin collection machines now allow being paid in Bitcoin rather than in store credit or cash. Criminals love it too. It is being sold as a way to invest and grow rich. There is even a fancy name for it: quantum finance.

Dealer claims that Bitcoin has big rises and smaller crashes simply proves the point that we are dealing with a legal Ponzi scheme. When the top of the food chain cashes out, everyone else realizes that they own a worthless product.

In the current bond market, properties that have been seized in foreclosure have been purchased with private equity and are so heavily leveraged that they cannot be sold until the holding company files for bankruptcy in the next Great Recession. See Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream by Aaron Glantz. The C-SPAN Book TV discussion with Mr. Glantz will give the committee a heads-up on what such testimony would include. See https://www.c-span.org/video/?465567-1/homewreckers

The long and short of it is that many now have to rent or own leveraged properties. Our absentee landlords have cashed out and left servicing companies to bleed us dry. They essentially own us because we have to work harder and longer to have a place to live while those who have cashed out live in gated and high-end assisted living communities. In the last year, Exchange Traded Funds have been all the rage. Who wants to bet on where the latest pool of junk is hiding?

Tax credit support for families is a better recession circuit breaker than waiting for the Congress and state legislatures to act, although increasing the child tax credit (which should be inflation adjusted) is the best way to provide immediate stimulus, as do higher Food Stamps (which would be mostly repealed by a higher Child Tax Credit).

The other circuit breaker in a recession is increased income taxation on the wealthy. Recessions do not happen, as Marx and Schumpeter posited, from overproduction or a business cycle. They come about because the wealthy have received tax breaks which encourage asset inflation and questionable investment (often with an assist from the Federal Reserve so that such investments may be migrated to Main Street). Higher income tax rates take money from the savings sector so that the consumption sector can recover (even without government subsidies).

Higher taxes on the wealthy are beneficial to the economy, now and in the next recession, because they take money out of asset inflation in the savings sector and can then be used to increase spending on the elements of GDP: government purchases, household consumption, net exports and plant and equipment investment (which is not part of asset speculation, as supply side economists falsely assert).

Video: https://youtu.be/0yerUsBHSeU

Fighting Forced Labor and Eliminating Counterfeits

Finance: Ending Trade that Cheats American Workers By Modernizing Trade Laws and Enforcement, Fighting Forced Labor, Eliminating Counterfeits, and Leveling the Playing Field, February 16, 2023

I am less worried about China stealing our intellectual property. Their students have come here, gotten advanced degrees and largely returned home.  This may plant the seeds of future revolution in China. It also means that in many areas of technology, particularly artificial intelligence, they are ahead of the game. Perhaps we need to steal more from them. Making it easier for Chinese students to stay would be a good first step.

WM, Trade: The Global Challenge of Forced Labor in Supply Chains: Strengthening Enforcement and Protecting Workers, July 21, 2021

Finance: Fighting Forced Labor: Closing Loopholes and Improving Customs Enforcement to Mandate Clean Supply Chains and Protect Workers, March 18, 2021

Supply chains are global and many nations who have controlled the virus by shutting down the economy rather than tailored quarantines will quickly find that many with less robust immune systems will get very sick when their economies open. There will be a third and fourth waves in these nations, precisely because there are available vectors who have not yet gotten sick. The supply chain will be stressed, if not stopped, even if draconian openings and closings can be imposed in China. 

Draconian measures may be efficient, but they may add a different kind of fever, one that the regime will likely underestimate. Revolution kills production lines once people have too much. China, Inc. may not be as efficient a partner in a post-revolutionary future. Workers with more freedom to bargain and vote will want more stuff, which means higher prices here. Higher prices mean higher wages will be required, but jobs will come back as the economy changes.

The other issue with China, as well as south Asia and the global south, is defacto slavery. Boycotting the products of slavery worked in fighting the Confederacy. The mass migration of slaves had more of an impact. A boycott of Xinjiang cotton and tomatoes is problematic during a pandemic, but generally it cannot succeed as a stand-alone action. Even though it may hurt in the short run, we should still do it. 

To make a boycott work, we cannot do it alone. At minimum, Islamic nations must join in as well and start linking the cause of the Uygurs to the New Silk Road. The ethnic Turkmen range from modern Turkey to Xinjiang, so a little solidarity on their part could go a long way. If we do go this route, the whole effort to interfere in Iran must end. We cannot be with South Asian Muslims on some things and expect solidarity with them on others.

On the moral front, I am not sure we have room to talk. We hold migrants in stark conditions prior to deportation. If you doubt it, visit Lewisburg Federal Prison. Also stop in the Federal Prison Industries factory while you are there. Visit any food processing plant with large immigrant workforces (send people undercover) and see how many workers were trafficked and how local law enforcement reacts when they decide they want to leave. Examine the plight of sex workers in the United States and see how many of their pimps have arrangements with local police.

Our best weapon is our example. As long as slavery exists in the United States, our moral voice is compromised. Again, I am not saying to ignore this situation. I am saying to All In to really fight slavery. Also, call it slavery. On the same subject, examine the Chinese treatment of peasant workers at their factories. There is a two-level society, and American consumers benefit from this. Our commitment to abolishing slavery cannot live only in the fringes.

This is not to say that loopholes cannot be closed, although we must stop our own unfair trade practices as well. American food should not show up in countries just before harvest when doing so depresses the price of local agricultural products. Poverty begets slavery. Making others poor is an invitation to exploitation.

Poor farmers can either be individual or tenant farmers who are essentially peons. The drive for lower food prices for American consumers comes at a human cost. This is especially true when only one buyer dominates the market, as is sometimes the case for export to America (if not often). 

Poor factory workers never have access to collective bargaining. This factor also  drives down wages in American factories - often those with immigrant labor bearing the brunt of bad working conditions, poor wages and lax enforcement. The major difference is that being blacklisted in the United States for attempting to organize is rarely deadly, as it can sometimes be overseas.

Improved enforcement takes money and the willingness to accept higher food prices. More inspectors with more authority are needed at home and abroad. Government or third party inspection is vital to make sure work is safe, fairly compensated and able to organize. We cannot expect worker protection in China or Guatemala if we do not insist on it in North Carolina and Alabama.

Existing supply chains must be reexamined and should not privilege big named brands over smaller importers and suppliers. Citing bad behavior must be cited. There is no better education than a ticket.

As I commented on Tuesday, the long term solution to labor inequality is employee ownership at all points in the supply chain. A multi-national employee owned firm would provide all workers an equal standard of living and ownership rights. I would hope this would start here. The one pebble that will move mountains is allowing market investors the same exception to capital gains taxes when shares are sold to a qualified broad-based ESOP (or COOP) that privately owned companies now receive. A bigger pebble is enacting an asset value added tax with an internationally agreed upon rate with the same loophole. Sometimes loopholes can be a good thing.

Unemployment Fraud

WM:  The Greatest Theft of Taxpayer Dollars: Unchecked Unemployment Fraud, February 8, 2023

Everyone knew that there would be abuses as money was being shoveled out the door to keep the economy running and, as importantly, to keep people eating. The Unemployment Insurance Program, like most Social Security Act programs, does not have an asset test. If extreme spending occurred when beneficiaries received benefits, that spending would likely have occurred anyway. Even without a pandemic, huge purchases would have likely occurred. 

If the Committee wishes to claw back some of that spending, it should enact a goods and services tax. This will stop wealthy citizens from borrowing from their assets to avoid income tax to maintain an “Executive Lifestyle.” Our proposal to enact such a tax, along with employer paid consumption taxes to distribute family and health insurance benefits, can be found in the attachments.

Fair Tax proposals have again been advanced with the new majority. Our proposals would replace the IRS or Social Security from distributing benefits. Instead, employers would do so, or they would be distributed through other income maintenance programs, like unemployment insurance. Ask yourselves, do you want to keep the government as paymaster for child tax credits (which have bipartisan support) as well any Fair Tax Prebate or would you rather have employers distribute the money to offset (and possibly eliminate) their tax burden?

Like the Fair Tax, our proposals would have state governments investigate collection and evasion issues rather than the federal government doing so. Another feature of our plan is to replace capital gains taxes (including those paid on short term gains at the full tax rate) with an asset value added tax paid at sale, marked to market at the first sale after inheritance, gift or donation and at option exercise and initial offering. Doing this would make the SEC responsible for enforcement, not the IRS, and would end the need to self-report annually.

Our tax plan lists an asset VAT rate of 28.8%, which had been the amount negotiated between the White House and Senator Sinema. Now that the Ways and Means Committee is controlled by a new majority, a rate of 26%, which should be bipartisan, is more appropriate. Note that this rate would include the repeal of the Obamacare surtax. Healthcare coverage should be funded by a broad based tax, not one that targets the middle class and wealthy.

The window for bipartisan tax reform is just now open and will close quickly. There are members of Congress who are likely under investigation by the other Mr. Smith. These members come from relatively safe Republican districts, however, if the economy collapses during a special election to replace some of them, the current majority will be blamed for what is almost a certain economic downturn.

This downturn will come, not because of the Federal Reserve, but because the last of the income supports under COVID relief are expiring at the end of February. People with marginal incomes are about to experience a drop in income. That they would suddenly increase participation in the labor market is a canard. Instead, they will run up debt and stop paying certain bills, such as rent. 

Some number of enhanced SNAP, enhanced Child Tax Credit and Unemployment Insurance beneficiaries did not waste their money. They invested it, many likely doing so in crypto-currencey. If too many people cash out their coin at once, these markets will be overwhelmed, as will redemption of exchange traded fund investments holding both crypto and mortgage backed securities. Landlords will be selling liquid assets as well.

Please see the second attachment for what may be coming. Had it not been for the pandemic and supports to counter asset and wage value losses, the coming economic storm would have occurred in 2020.

We may be in for another 2008 redux. This will not come in 2024 during election season. This will come during the 2023 Special Elections to replace certain members who participated in planning actions held in concert with the Insurrection. Being part of the same general network makes one responsible for the actions of the entire network. There will be prosecutions and resignations. If these happen during an economic panic, the current majority party in the House will be blamed.

It might be wise to support the working class more than is planned - or at least rationalize the education, family support and unemployment insurance systems. Last year, I provided testimony to the House Education and Labor Appropriations Subcommittee. I have attached an excerpt here detailing permanent reforms.

Unemployment Insurance could be run like a severance pay arrangement, but with continued payments and remedial training administered by the former company in lieu of paying the a subtraction VAT (or even for a refundable credit).  Beneficiaries would continue to receive the Child Tax Credit and insurance, either from their former company, the government or any training provider offering them retraining or basic education that they missed in the past. 

Insurance for some would be short term while the dislocated worker finds a paid training program, thus stopping habits of idleness.

Attachment: Tax Reform Video links on the page

Attachment: Depression 2023 Video: https://youtu.be/0yerUsBHSeU

Attachment:Labor, HHS, Education Appropriations FY 2023

Video https://youtu.be/iho38sbZTRo