The Capitol I Once Knew and Loved

by Stephen P. Pizzo

http://www.stephen.pizzo.com 

Yesterday's insurrection at our Capitol startled and depressed me in several ways. But mostly it sent my mind back a quarter-century or more.

When I awoke this morning I found myself musing about my early days as a reporter...back in the late 80s and thru the 90s ... when I traveled often to DC. It was, of course, way before 9/11, and the Capitol was wide open.

If I had business at the Capitol, I would just bounce up the steps and walk right into the rotunda, no metal detectors, nothing. One day, a friend with a House aide dragged me to the dead center of the rotunda and pointed up to the dome. "Whenever I get discouraged with how things go around here," he said, "I come and stand here and I look up. At that moment I tell myself, 'I am standing on the most powerful spot on the planet.'"

And I felt it. It felt pretty damn good.

Then he took me to an obscure corner of the rotunda and opened an equally obscure door. Behind it, very old and worn white marble steps descended. Before I could step forward he grabbed my arm and said, "Wait, I want you to know something about these steps. Abe Lincoln used these steps whenever he came to the Capitol." I stepped down them as slowly and full of purpose as I have ever walked down any set of steps. And it felt amazing to be so personally in touch with that particular part of our history.

Then I rambled around in the bowels of the Capitol until I came upon the trolly that takes members of congress the short hop from the Capitol to their offices across the street. I was heading there any way to interview a member of the House, so I jumped aboard. There I was, this insignificant little reporter, sitting arm to arm with members of Congress, one among equal travelers.

Again, no one stopped me. No one challenged me. The Capitol...the "People's House" was open to the people. Wide-open. And I felt that ownership.

The same conditions existed over at the Rayburn building where I was headed. I jumped into an elevator where, once again, the high and mighty and the lowly, stood arm to arm, equals, if for only a minute. The doors opened into long shiny white marble hallways that stretched on and on. American and state flags stood outside each member's office door. And all those doors were wide open. I could, and did, walk into any of them I chose and was greeted politely and professionally by a receptionist.

Of course, after 9/11 all that changed in an instant. And now, after yesterday, security will be tightened another dozen notches as American of old goes into the history books and the new security state is further reinforced. With each tightening caused by acts of terror, Americans are pushed farther and farther away from their House, their Senate, their White House, their Supreme Court. And this during a time when what's needed is for Americans to be able to feel what I felt all those years ago...a sense of pride and ownership.

It's all unimaginable ... but in light of what happened yesterday, sadly unavoidable. For example, if the Secret Service is not talking about moving Biden's inauguration indoors, they are making a big mistake. These right-wing nutters know all about sniper rifles, and some own them. Surely some of those who participated in yesterday's riot are veterans of our Middle Eastern wars, so they know all about snipers.

Well, anyway, thanks for letting me stretch out on your couch and get all this off my chest. I may not have liked covering G. W. Bush or the WH antics of Bill Clinton, but I sure did like Washington DC of those times.

It made me feel proud, rather than ashamed and apprehensive.

Riding the Fiscal Tiger

By Stephen P. Pizzo

www.stephen.pizzo.com

As I write this the Senate is arguing over whether to increase cash aid to those hard hit by the pandemic from $600 to $2000. There's no doubt among those of us out here in the real world that even two grand is not going be enough for many. But, as serious as things are right now, this is a small matter when compared to the fiscal mess America faces going forward, as hard decisions collide with even harder facts.

While being a deficit hawk is considered a “Republican thing,” I am a lifelong progressive, and I worry a great deal about two things: 1) ever-expanding deficits, and 2) the Fed responding to every major economic crisis by flooding the markets with virtually free “fiat currency.” (https://www.investopedia.com/terms/f/fiatmoney.asp )

Businesses, banks, and Wall Streeters have become addicted to the Fed's flood of liquidity as if it were heroin. Evidence lays in their response any time the Fed tries to bump up rates or threatens to turn the money faucet off. When that happens, or even the hint it might happen, Wall Street firms panic, and the hue and cries from the corporate bond world is deafening. And for good reason, the Fed is buying a lot of their corporate debt.

“The Fed holds an expansive list of other companies indirectly, including names like Apple and Goldman Sachs, through exchange-traded funds it has purchased. In addition, it has purchased bonds in speculative-grade companies as well as ETFs, including the SPDR Bloomberg Barclays High Yield Bond, a fund in which the Fed holds a $412 billion position.”

https://www.cnbc.com/2020/06/29/the-fed-is-buying-some-of-the-biggest-companies-bonds-raising-questions-over-why.html

Meanwhile, even as the Fed floods markets with liquidity, the vast majority of working Americans haven't seen much of it and instead remains stuck with incomes that have not seen an inflation-adjusted jump in over four decades.

“Sluggish and uneven wage growth has been cited as a key factor behind widening income inequality in the United States. A recent Pew Research Center report, based on an analysis of household income data from the Census Bureau, found that in 2016 Americans in the top tenth of the income distribution earned 8.7 times as much as Americans in the bottom tenth ($109,578 versus $12,523). In 1970, when the analysis period began, the top tenth earned 6.9 times as much as the bottom tenth ($63,512 versus $9,212).”

https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/

So, where is all this funny-money going? Look no further than the stock market. Even in the throws of the worst pandemic in a century, stocks reach new highs almost daily. Should the Fed turn the money machine off, stocks would drop by a terrifying amount...40%...maybe 50%. So it's like riding a tiger...you would love to get off, but dare not.

“The Fed's actions have essentially made mainstream alternatives to stocks impractical for most investors. Those who want to keep cash available can expect little or no interest at all, and with inflation still positive, that means savers are losing purchasing power every month on their cash savings... Low rates are also bolstering the case for other high-risk assets.” ( ie: stocks and corporate debt.)

https://www.fool.com/investing/2020/12/16/the-fed-just-gave-stock-market-green-light-2021/

But flooding the markets with liquidity isn't a solution, but a treatment, a treatment that has its natural limits...not unlike in physics...sooner or later you hit a point of diminishing returns. As we reach that tipping point, no amount of liquidity will bring this sick patient around. At that point, unless something different is done, you get depression...the real kind.

Also at that very moment, the growing federal deficit becomes a very real anchor around the country's neck. No matter how much money the Fed pumps out, it not only no longer boosts but actually starts hurting the economy. Dollars are like stock...the more of them in circulation, the less each is worth. So the dollar plummets in value, requiring more dollars to buy the same amount of anything. It's not hyper-inflation, yet, but either the Fed has to stop pumping funny-money into the system or hyperinflation is the only outcome.

Add to all this the continuing stream of annual federal budget deficits, which for 2020 came in at a breathtaking $3.1 trillion.

At this point the overall federal deficit is becoming a fiscal Chernobyl...a hard-to-control core meltdown, where $27.6 trillion or more obligations accrue hundreds of billions in interest payments to the deficit, meaning that, even if the Fed turned off the printing presses, the deficit would continue to balloon all on its own. https://www.usdebtclock.org

The federal deficit represents the money we owe to both foreign bond investors, (China holds over 5% of US debt,) (https://www.scmp.com/economy/china-economy/article/3112343/us-debt-china-how-big-it-and-why-it-important) and to ourselves (bonds sold to Americans.)

There is a “cheap” way to pay down we owe, but it would require the Fed sparking raging inflation, slashing the value of the dollar. And, since we must repay all those bonds in dollars, it effectively slashes the actual cost of repayment.

Of course, as the old saying warns, “every shortcut has its rent,” and the rent for that short cut would be unacceptably high. Bond investors would be very unhappy, and unlikely to consider US bonds a safe harbor in the future. The Fed could attract them back, but that too would be unacceptably high. The Fed could significantly raise interest rates. But that in turn would strangle any recovery by raising the cost of borrowing for already struggling businesses. It would also significantly raise the cost of government borrowing, which in turn would further increase the deficit.

Once more we learn, the hard way, that there really is no such thing as a free lunch.

With those moves off the table, the only other apparent option would be for the government to significantly slash spending. But at a moment when federal relief spending is the only thing that keeps millions of Americans' heads above water, that option would be cruel in the extreme.

So, as the nation battles a budget-busting, deficit exploding national emergency, what's the answer to this dilemma. There is one solution, unused and vilified by all conservatives and even some centrist Democrats...raise taxes.

You won't hear many in Congress pushing for tax hikes, even among Democrats. Instead, most of the talk is how much more to add to the deficit to pay for worthy stuff now while worrying about the deficit sometime down the road.

But higher taxes on those who can afford them, and who have garnered so much from previous tax cuts, it the only sane answer. Those tax cuts for the rich have also helped feed the federal deficit while enriching the already filthy rich:

“By the end of 2025, the tally of tax cuts will grow to $10.6 trillion. Nearly $2 trillion of this amount will have gone to the richest 1 percent. By then, the total impact on the deficit will be $13.6 trillion, including interest payments.”

https://itep.org/federal-tax-cuts-in-the-bush-obama-and-trump-years/

So the Biden administration needs to quickly and strongly propose revoking most of the tax cuts for the rich passed by Republicans from George W. Bush to Donald Trump. On top of that an emergency review of the US tax code is required to ferret out and close (really close) tax code loopholes.

That would start the process of refilling the federal coffers with enough money to begin paying down the federal deficit. That has only been tried once in my lifetime, and that was during the Bill Clinton administration. Clinton raised taxes on corporations and top earners and, for the first time since Eisenhower was president we had enough surplus to begin paying down the deficit.

Revoking many if not most of the tax cuts passed during the W. Bush and Trump terms really are the only sustainable solution. Will the Biden administration, and Democrats have the guts to grab this “third-rail” and take the necessary heat to get this done … for the good of the nation and future generations? We'll see.

If they don't, and instead keep “kicking the can down the road,” we'll be coming to a sorry dead-end.