Who Will Pay, Wall Street or Main Street – the Tobin Tax or the VAT?, Truthout Op-Ed, July 2, 2010, by Ellen Brown, excerpt quoted verbatim:

Wall Street banks have been saved from bankruptcy by governments that are now going bankrupt themselves; but the banks are not returning the favor. Instead, they are engaged in a class war, insisting that the squeezed middle class be even further squeezed to balance over-stressed government budgets. All the perks are going to Wall Street, while Main Street slips into debt slavery. Wall Street needs to be made to pay its fair share, but how?

The financial reform bill agreed to on June 25 may have carved out some protections for consumers, but for  Goldman Sachs and the derivatives lobby, the bill was a clear win, leaving the Wall Street gambling business intact. In a June 25 Newsweek article titled “Financial Reform Makes Biggest Banks Stronger,” Michael Hirsh wrote that the bill “effectively anoints the existing banking elite. The bill makes it likely that they will be the future giants of banking as well.”The federal government and Federal Reserve have advanced literally trillions of dollars to save the big Wall Street players, to the point where the government’s own credit rating is in jeopardy; but Wall Street has not had to pay for the cleanup. Instead, the states and the citizens have been left to pick up the tab. On June 17, Time featured an article by David von Drehle titled “Inside the Dire Financial State of the States,” reporting that most states are now facing persistent budget shortfalls of a sort not seen since the 1930s. Unlike the Wall Street banks, which can borrow at the phenomenally low fed funds rate of 0.2 percent and plow that money back into speculation, states don’t have ready access to credit lines. They have to borrow through bond issues, and many states are so close to bankruptcy that their municipal bond ratings are collapsing. Worse, states are not legally allowed to default. Unlike the federal government, which can go into debt indefinitely, states must balance their budgets; and they cannot issue their own currencies. That puts them in the same position as Greece and other debt-strapped European Union (EU) countries, which are forbidden under EU rules either to issue their own currencies or to borrow from their own central banks.

States, of course, don’t even have their own state-owned banks, with one exception – North Dakota. North Dakota is also the only state now sporting a budget surplus, and it has the lowest unemployment and mortgage delinquency rates in the country. As von Drehle observes, “It’s a swell time to be North Dakota.”

But most states are dealing with serious, chronic defaults, putting them in the same debt trap as Greece: they are being forced to lay off workers, sell public assets and look for ways to squeeze more taxes out of an already overtaxed populace. And their situation is slated to get worse, since the federal government’s stimulus package will soon be cut, along with assistance to the states.

The federal government is not only leaving the states high and dry, but is threatening to impose even more taxes on their beleaguered citizens. Paul Volcker, former Federal Reserve chairman and current White House economic adviser, said in April that Congress needs to consider a value -added tax (VAT)  on various stages of production of consumer goods. A VAT of 17.5 percent is now imposed in Britain, and 20 percent is being proposed, while some EU countries already have a VAT as high as 25 percent. In Europe, at least the citizens get something for their money, including federally-funded health care; but that is not likely to happen in the US, where even a “public option” in health care is no longer on the agenda. The VAT hits the lower and middle classes particularly hard, since they spend most of their incomes on consumables. The rich, on the other hand, put much of their money into speculative trades, and those sales are not currently taxed.

Business Cycle or Class War?

Ismael Hossein-Zadehi, who teaches economics at Drake University in Iowa, calls the whole economic crisis a class war. What is being billed as public debt began as the private debt of financial speculators who offloaded it onto the public. The governments that bailed out these insolvent speculators then became insolvent themselves; but the bailed-out banks, rather than lending a helping hand in return, have demanded their pound of flesh, with payment in full. The perpetrators are blaming the victims and insisting on “fiscal responsibility.” Wall Street bankers are dictating the terms of repayment for debts they themselves incurred.

Fiscal responsibility means cutting spending, something that is inherently deflationary during a recession, as seen in the disastrous Depression-era policies of President Herbert Hoover. Not that it was solely a Republican error. In 1937, President Franklin Roosevelt also cut public spending, tipping the economy back into recession. Spending cuts cause tax revenues to shrink, which results in more spending cuts. Contrary to what we have been told, national governments are not like households. They do not have to balance their budgets and “live within their means,” because they have the means to increase the money supply. They not only have the means, but they must engage in public spending when the private economy is shrinking, in order to keep the wheels of the economy turning. Virtually all money now originates as bank-created credit or debt; and, today, the money supply has been shrinking at a rate not seen since the 1930s because the banking crisis has made credit harder and harder to get.

Instead of “reflating” the collapsed economy, however, national governments are insisting on fiscal responsibility; and the responsibility is all being put on the states and the laboring and producing classes. The financial speculators who caused the debacle are largely getting off scot-free. They not only pay no tax on the purchase and sale of their “financial products,” but they pay very little in the way of income taxes. Goldman Sachs paid an effective income tax rate of only 1 percent  in 2008. Prof. Hossein-Zadehi writes:

“It is increasingly becoming clear that the working majority around the world face a common enemy: an unproductive financial oligarchy that, like parasites, sucks the economic blood out of the working people, simply by trading and/or betting on claims of ownership…. The real question is when the working people and other victims of the unjust debt burden will grasp the gravity of this challenge, and rise to the critical task of breaking free from the shackles of debt and depression.”

Working people don’t rise to the task because they have been propagandized into believing that “fiscal austerity” is something that needs to be done in order to save their children from an even worse fate. What actually needs to happen in a deflationary collapse is to spend more money into the system, not pull it back out by paying off the federal debt; but the money needs to go into the real economy – into factories, farms, businesses, housing, transportation, sustainable energy systems, health care, education. Instead, the stimulus money has been hijacked, diverted into cleaning up the toxic balance sheets of the financial gamblers who propelled the economy into its perilous dive.

Read the full article, here.

See U.S. Experiencing Worst Episode of Prolonged Unemployment Since Great Depression, Common Dreams.org, July 2, 2010, by Center for Economic and Policy Research (CEPR): Adjusting for demographic factors, current labor market downturn steeper than ’82-’83 recession.

Comment by Evans Liberal Politics owner Paul Evans: It looks like we’re in for a period comparable to Japan’s “lost decade” of the nineties. If Congress doesn’t pass a significant jobs bill AND prime the economy’s pump again, at the very least we are in for the second dip of a double dip recession. Economists like Paul Krugman are now saying it’s the Third Depression. No one alive can remember the first one. Few were alive other than as a small child during the soup kitchen and bread lines of the Great Depression. This "Third Depression" has the potential to turn out similarly. I also fear that a regional war in the Middle East could be tempting as a means of priming our economy, more so than an actually fair tax system and an economy fairly producing jobs, which of course would create taxes and spending and pull us out of this mess. To the powers that be, war may be a more palatable option. And Israel may take the option out of our hands. Scary.

Listen to 140 Pop, Rock and Electronic music hits, streaming free for our listeners and rated #1 by Google in two important search categories. Listen to cool rock and pop while you surf the web!

*****

Evans Web Design

Taking Your Message to the World