Posts Tagged ‘payroll tax holiday’

4 Ways to Change the Fed: A Users Manual

November 7, 2011 17 comments

Here's the sizzle, the last post was the steak

I’ve had a few inbound links to the 4 Ways to Change the Fed .  That post was intended to be very detailed for long time readers – but unfortunately, not many people can understand it easily.

Here is a quick and easy guide to why we want to do these things.

#1. The Fed isn’t under any control at all.  It can do almost anything it wants with monetary policy. It’s not accountable to the president or congress in any meaningful way.  It’s like a rogue bank in the middle of our government, funded by our government, that tries to control our entire economy.

But the Fed flips the middle finger to U.S. citizens when they ask for accountability to minimizing unemployment.  It’s an anti-democratic institution that’s literally out of control.

The solution?  Place the Federal Reserve Under Treasury Control.

Why?  The Treasury reports directly to the President.  If we can trust the president with the nuclear launch codes, we can and should trust him with money.  Put the Fed under the Treasury.

#2.  Normally, banks issue debt, and companies issue stock.

But for the U.S. government, the bank (the fed) issues the stock, and the company (the treasury) issues the debt.

The the fed tries to alter the yield curve with their open market operations.  It’s ass-backwards.

It should be fixed, so people recognize the government can create money at will.  Not only that, this is the way its done in the constitution.

The solution? Have the Treasury and Fed switch places.  The Treasury issues money, the Fed sets the yield curve.

#3: The U.S. is the richest country in the known history of the world.  Yet,  somehow the richest country in the history of the world doesn’t have enough money. Does this seem completely stupid to you?

It should.  We’re can’t run out of money, because we can make all we need.  We can make the money to pay for China ripping us off, and to stimulate the economy.

The Solution? Make several trillion dollar coins.  Deposit them in the Treasury account at the Fed.

We now have the money to pay for programs.   Don’t spend too much- we might get inflation.

But do spend enough to get people working.   In fact, you can spend it on a huge tax cut for working people as #4 will tell us.

#4.  We know a simple fact: Businesses hire when they are swamped with demand!  Don’t believe me? Just ask Mitt Romney! (h/t beowulf!)

Business have high profits right now, but they don’t want to hire because the demand for their products is low.

So how can we boost demand when we need it – and cut back when we don’t need it any more?

The solution: Give people more money when times are tough, and cut back when times are good.

The best way to do this is through a payroll tax holiday.  When times are tough, people get laid off.  But if your buddy gets laid off, you’ll get a raise!

I hope this helps!


Why Payroll Taxes support Massive Military Spending.

August 22, 2011 8 comments

More support for the contention “The Traders Crucible has the best comments section on the web.”

From Clonal Antibody.

“I have also come to the conclusion that the current method of funding Social Security and Medicare is inadvertently responsible for the high US spending on National Security, and therefore responsible for the US foreign adventures! Let me know if you need me to clarify!”

Here’s the nutshell argument:

“The only government segments large enough to absorb the necessary deficit spending are SS, Medicare, Defense and Homeland Security. Since SS and Medicare are funded through an entirely separate federal tax, the necessary deficit spending must happen in defense and homeland security. This level of deficit spending is what the market “demands” for growth, so it happens.”

More from CA:

“If we look at the FY ’12 spending pie, we find that

The main items of govt spending are (highest first)

1) Defense 25%
2) Healthcare 23% (primarily Medicare and medicaid)
3) Pension 22% (primarily Social Security)
4) Welfare 12% (primarily Food Stamps, unemployment and SSI)
5) Interest 6%
6) Education 3%
7) Transportation 3%

These items together account for 94% for the Federal Budget

Healthcare and Social Security account for 45% of Federal outlays. These are always paid for by a dedicated tax, that produces surplus revenues. So these items can never account for the Federal Deficit. The deficit has to be produced from other spending.

As per MMT accounting, the deficit is necessary to fund net private savings and interest.

In the pie above interest accounts for 6% – but this is only the interest paid on government issued Tsy’s.

What are these so called savings? We have previously discussed that interest on bank loans has to come from GDP growth, and in the absence of enough growth, it has to come from the government deficit.

Private credit creation, and charging of interest on it, of necessity require economic growth. This would not be the case with public banking. A “no growth” sustainable economy is only feasible with interest payments going to the government – (Another topic for another day!)

Going back to the deficit – the deficit has to come from a spending area other than those items covered by the “covered” expenses. This leaves defence and homeland security as the major items with which to create a deficit!

We could theoretically cut defence spending by eliminating the SS and Medicare taxes. I believe that the negative effects on the economy will be balanced out by the stimulative effects of the payroll tax cut!”


[Update: Viewed through this model, the U.S. Military becomes a gigantic make work program that focuses on extremely violent work.]

All this comes from thinking about the economy through the lens of accounting, and taking the accounting seriously.  If you don’t spend to grow the economy, you’ll need to focus lots of spending on destroying stuff.

Don’t assume G – T out of existence for the IS/LM model, and clear thoughts develop.     Don’t assume no demand for “net financial assets” and you get clear thinking about what happens in our world.

[Update #2:  It appears that even this spending is being eyed for cuts.  We’re doomed.

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Orszag supports the linking payroll taxes to unemployment rate – aka the TC rule

August 9, 2011 8 comments

Peter Orszag – the former economic advisor to President Obama – really must like the TC rule.

He keeps bringing up linking the payroll tax to the unemployment rate. He talked about it in congressional testimony in June.

The Traders Crucible was the first to propose linking spending to the level of unemployment in April of 2011.  Beowulf – aka one of the guys who got the Trillion Dollar coin into the mainstream press  – and I started linking the level of spending of the TC rule to the level of payroll taxes just a few days later.

Orzag proposes a system of reducing or increasing the level depending on how much unemployment increases or the absolute level.

I think the TC rule is simpler.

Here is the TC rule again:

Spending Deficit =

1.8(current unemployment %-unemployment target %) + (target inflation-current inflation) + Population Growth = %G

I certainly hope some sort of way to link the payroll taxes to unemployment levels gets talked about all over the place.

I talked about why linking the level of payroll taxes to the unemployment rates hits a sweet spot of effective demand that’s really, really hard to target a while back.

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