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