Our Democracy is Not for Sale

Regardless of whether you are left, right, center, liberal, conservative, progressive, socialist, or libertarian, what we lack right now as a country is something we can all rally together about. Politics can be so frustrating to everyone to the point people just don't want to talk about it. One of the main reasons for this is our country is split more than ever. But what if there was an issue that we could all agree on? 

I think there is...

We need to send a clear message that our democracy is not for sale. There is a lot of money that wants to make sure the American people never come together on an issue like this. There are lobbyists who make a lot of money making sure we remain divided, thereby maintaining the status quo, and insuring that those people who have carved their niche in our society stay in power, at the expense of those who would strive to make our country great again. 

If you have a moment, take a look at United Republic. They are a group striving to bring this issue to more people's attention. What is cool about this group is there are people from both the left and the right that are involved in it. Here are a few examples:

Lawrence Lessig speaks at Google, Buddy Roemer from the Republican party makes a funny superPAC parody, Tom Davis from the Tea Party speaks about corporate giveaways

As we move toward elections, it is not going to matter so much who we elect until we start to send a clear message that our democracy is not for sale. I would love to see more people start to come forward and say they are no longer a member of any party but instead have chosen to do their part in making sure that our demecracy is our democracy, something that is so sacred that it cannot be bought and sold, but earned.

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Why Debt Keeps Increasing

If we are going to make sense of the current state of world economic affairs, we must first answer the difficult question of why debt keeps increasing. More and more debt is being accumulated and right now we are in a place where such debt would take decades to repay. Let's go over some reasons:

1. Because of past mistakes we are paying off old loans with new loans. All over the world there is an increasing amount of revolving credit that is not paid off, similar to how a consumer allows credit card balances to remain elevated, only to find they cannot keep up with the payments, so they go get another credit card. However, in the case of consumers credit is not available like it was in the past. Instead of consumers running up debt, it is banks and governments.

2. In order to "protect" banks from failing, governments are lending money through facilities like the fed discount window at a near zero interest rate in hope this will keep banks solvent, and even that banks will improve their balance sheets. Sadly, even at zero percent banks are continuing to increase their leverage.

3. Banks have been increasing their leverage through ever more complex financial products. Terms like Credit Default Swap and Re-hypothecation sound difficult to understand, and there is a reason for that. Banks do not want people to understand them. But to put it in simple terms, it used to be that banks lent out about 5 times more than they had help in deposits. Now they are lending out more like 30 times more than they have in deposits. Why would they do this?

4. Those running banks are paying out record bonuses for short term profits that are extremely damaging to long term fiscal viablity. By continuing to increase leverage (ex. from 5 to 1, to 30 to 1) they are essentially creating money out of thin air, and then finding ways to pay that money to leading stock holders and board members. How can they get away with this?

5. Governments know that if these mega-banks fail it will dismantle a large part of the financial system. In many ways allowing them to fail is worse than continuing to bail them out. So governments keep pumping money into them hoping they can get the banks fixed. The problem is these banks are massively lobbying the very people whose responsibility it is to regulate them.

So that gives a perspective. I'm not offering solutions, but hopefully as more people understand the dynamic, they will work together to solve these difficult problems.

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Testing Capitalism's Limits

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Inside Job Hosted by Matt Damon

Watch this as it is a great explanation of what happened in the financial crisis, and more importantly, it helps us to understand what is continuing to happen now.

Inside Job, Narrated by Matt Damon (Full Length HD) from jwrock on Vimeo.

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Uncertainty at home and in Europe

One of the Republican talking points over the last year has been that the economy can't get moving again due to "uncertainty". And they are right, except that the uncertainty is probably not the result of government regulation or taxing the rich.

Instead the uncertainty has a lot more to do with people transferring their money to shorter term investments amid record low interest rates. With the difference between investing in a CD and a checking account often being less than 1 percent, billions of dollars have been transferred from CDs to checking and savings accounts. With a lack of long term investment, that creates a lot of uncertainty.

And of course we have Europe. Even if they somehow do manage to prevent the "contagion" where one country defaults leading to the default of others, there is still the problem of Europe being near recession with a projected 2012 growth rate of 0.5%. And that is before the new austerity cost cutting measures in Italy and Greece that will further reduce GDP.

I believe time is going to work some of this through the system, but we have a ways to go still. There is plenty of evidence we will continue to be in a deflationary environment in that areas of home prices, wages, and discretionary spending type items. The only possible area of inflation would be those items links to energy prices like gasoline and food, and should we have that type of inflation it would only increase the chances of deflation in the other areas (wages and home prices).

But on the other side of this we will have more affordable homes and the excess debt will work its way out of the system. Hang in there! 

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