The Port Townsend Think Tank

Essays & Articles


  • Saving Medicare

  • The Road to Fascism

  • Reality Check

  • The Economic Decline Of The U.S. -- Part One

  • The Economic Decline Of The U.S. -- Part Two

  • The Inflation Rate In The United States

  • The Obama State of the Union Speech

  • Why The Obama Stimulus Program Will Not Work

  • China: The New Super Power. US: A Chinese Resource Colony

  • Fact Sheet Concerning the Proposed Boycott of Products From Israel

  • Comments on Free Market Economics
    and the book “The End of the Free Market” by Ian Bremmer.

  • Understanding the US Federal Budget Deficit

  • Local Port Townsend Politics


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    The Economic Decline Of The U.S. -- Part Two

    Wall Street’s 50 Trillion Dollar Ponzi Scheme

    Before 1980 the US had a production- based economy where part of the productivity was passed on to the employees in the form of higher wages. Wages went up. Discretionary income went up. Discretionary income is the money left over at the end of the month after the bills have been paid. Consumer spending increased and the US accounted for 40% of the world consumer market.

    In 1980 President Ronald Reagan was elected. He appointed Donald Regan, ex-CEO of Goldman Sachs, as his Secretary of Treasury the first term and as Chief of Staff the second term. The Reagan Administration proudly announced that the US was the world’s first “post industrial service economy.” The US went from the world’s greatest creditor nation to the worlds biggest debtor nation in 8 years. Nobody seemed to care or speak out.

    The Reagan Revolution was a true revolution. It changed the US from a production- based economy to a financial- service economy with Wall Street in charge. To reiterate, a production-based economy produces goods and services for the middle class and part of productivity is passed on to employees in the form of higher wages. In a financial- service economy people are given easy credit and the ability to borrow against their inflated real estate values. Instead of producing goods and services for the middle class, Wall Street manufactured money by credit, debt, capital gains, and innovative financial instruments. By 2006 the world financial markets were trading 7 to 10 trillion dollars per day in financial instruments.

    A financial service economy manufactures money, but it also restructures the economy. In 1982 there were 13 billionaires, today you need at least a billion dollars to be listed in the Forbes 400 richest people in America. The richest 400 people in America have more assets than the bottom 150 million Americans. Around 10 trillion dollars was manufactured during the Reagan Presidency and 13.7 trillion dollars of capital gains was manufactured during the Clinton years. From 1997 to 2007 the total debt in the US went from 27 trillion dollars to 60 trillion dollars. In 2007 alone new credit increased by 4.7 trillion dollars. Like all Ponzi schemes it imploded and now 16 trillion dollars of paper assets has been sucked out of the US economy.

    Wall Street manufactured 50 trillion dollars of fiat money. They issued trillions of dollars of mortgage backed securities, rated AAA investment grade, that turned out to be worthless. They restructured the wealth of the US, destroying the middle class. Wall Street sold our manufacturing and industrial base to China. The US has a 300 billion dollar trade deficit with China. This represents 6 million high-paying manufacturing jobs. The US imports 5 times more from China that it exports. The US exports raw materials like corn, wheat, and steel scrap and imports manufactured goods. When China wants to take over a manufacturing sector, they sell below cost and put the US companies out of business. The US Government does nothing to defend the US companies against this predatory behavior.

    The Revolutionary war with England was about being a sovereign nation and not a resource colony. Now we are a Chinese resource colony and none of the Presidential candidates even discuss it.

    Remember the good old days when Bill Clinton left office and the US had a 240 billion dollar budget surplus? The US was going to pay off its national debt by 2012. So how did the US wind up a bankrupt country 10 years later?

    1. George W Bush passed large tax cuts for the rich and for corporations. Half of the budget deficit that occurred in the last 10 years has been the result of the Bush tax cuts.

    2. George W. Bush and his chief economic adviser felt that outsourcing jobs was a win-win situation and 47,000 factories left the US for China during his 8 years in office. The US taxpayers pay hundreds of billions of dollars in tax deductions and subsidies to US corporations to develop new technologies. The corporations then take the technology over to China and build a factory with a Chinese partner and ship the consumer products back to the US.

    3. His administration passed unfunded mandates like adding drugs to medicare without providing revenue to pay for the added cost

    4. Bush got the US into two major wars and doubled military spending. For the first time in US history the US cut taxes during wartime and borrowed the money.

    5. The Bush mind-set was that government is the enemy of corporations and the obvious solution is to hire people to make government not work. When he sent corporations over to Iraq, he chose corporations without competitive bidding and when they said they were finished they were paid. Wall Street and US corporations knew that they could do anything and not be prosecuted. Wall Street went into a feeding frenzy and now the real economy is being gutted to pay for their excesses.

    President Obama had good intentions but he made three mistakes:

    1. The economy was dead on arrival when he took office. Nothing except major structural changes in the economy would have revived the economy. Instead, Obama said that if he was elected he could restore the US to a healthy economy. He took responsibility for its state and its recovery.

    2. Obama appointed Geithner as Secretary of Treasury and Larry Summers as chief economic adviser. Both were Wall Street insiders that helped create the economic disaster and both chose to gut the real economy to bail out Wall Street. Obama also has 13 people that formerly worked for Goldman Sachs in the Treasury Department.

    3. The Obama economic stimulus packages were a waste of money because they didn’t address the structural problems in our economy and the US trade deficit. Only money invested in manufacturing and other forms of production in the US create permanent jobs. The government can also create jobs. The government created jobs when it created Bonneville Power Authority, The Tennessee Valley Authority, and the Hoover Dam. Giving local governments money to retain employees does not create jobs and when the federal money runs out the employees are laid off anyway. If the US government built a steel bridge and purchased all the materials in the US it would have a multiplier of about 4 as the money circulated through the economy. The people that built the bridge would be unemployed when the money was spent but at least you would still have the bridge. Only money spent on factories and other forms of production create permanent jobs. That is why the Chinese economy is growing so fast. China and Germany and all the rapidly growing countries know that you must have a solid manufacturing and industrial base and work to protect it.

    Globalization, Free Trade, and Free Market Economics are a failure. For the Free Market Economics to be successful it must raise the standard of living, provide family wage jobs and provide enough tax revenue to run the government. It is doing none of the above. Socialism in Norway. Social Democracy in Germany, and State Capitalism in China are all doing much better. Unless you are in the top one percent of wage earners, free market capitalism comes in dead last.

    Spending by the US federal government is around 24% of the US gross domestic product and of that the income collected by the Federal Government is 15%. The rest is borrowed. In Norway 12 % of the economy is healthcare and 2 % is financial services. In the US 17.5 % of the US economy is healthcare and 24.5 % is financial services. Over 41 % of corporate profits is financial services. The goal of all corporations is higher profits and a greater share of the economy. Wall Street, including the banks and for-profit healthcare corporations, are essentially a cancer that is assimilating the rest of the economy.

    The US has managed to come up with an economic system that has the worst features of socialism and the worst features of capitalism. We over-regulate small companies and allow Wall Street to systematically loot the US economy. Every aspect of the economy is manipulated by government to the advantage of Wall Street and the taxpayers assume the risk. We now have corporations and banks that are too big to fail and too big to prosecute.

    Sincerely,
    James Fritz

    Director: The Port Townsend Think Tank

    
    
    
    Saving Medicare

    Saving Medicare,

    The Republicans in Congress are proposing doing away with Medicare and giving each person over 65 a 8,000 dollar voucher to buy health insurance with. Lets look at the facts. Over 80% of lifetime health costs occur after the person is 65 years old. Medicare pays out on the average 454 thousand dollars per person on Medicare from the time they enroll at age 65 until they die. If a person lived to 80 years old and got a 8 thousand dollar voucher that would amount to only 120 thousand dollars. The Medicare recipient would have to come up with an additional 334 thousand dollars. For a couple that would be 668,000 dollars. Health care now costs 17% of GDP and is going up at 6% faster than inflation. In 15 years health care costs will be 35% of GDP For profit health insurance is not working.

    The administrative costs of Social Security and Medicare is 3%. A Congressional study of private insurance companies determined that they have a administrative cost, overhead and profit of 33%. The government runVeterans Administration which has patients with many service related health problems costs only 60% as much as the average Medicare recipient. The Mayo Clinic in Minnesota , a non-profit, is a low cost hospital even though it is one of the best in the world. For non-profit hospitals the incentive is to keep costs down. For hospitals that turn a profit, the goal is to maximize their profits. Insurance companies are only interested in insuring people that are not likely to get sick. They are not interested in insuring the elderly and if they did the cost would be prohibitive. Eight thousand dollars would only pay for one or two days in intensive care.

    The Republican Party sees the poor, sick, homeless, and elderly as non producers that should be thrown to the wolves. They would use the savings for another round of tax cuts for corporations and the richest segment of society.

    Sincerely,

    James Fritz,
    Director: The Port Townsend Think Tank

    jfritz@olypen.com

    
    
    
    The Road to Fascism

    Republicans in Congress that call themselves conservatives are not promoting conservative Republican principles. They are fascists. I’m watching the US being taken down the road to fascism step by step just like Germany in the 1930's. Dr. Joseph Goebbels would be proud of the current move toward fascism. They are using his game plan. You must have an enemy. You must convince the people they are under attack. And you must convince people that they have to give up their freedom for security. The Nazi party burned the parliament building and blamed the communists. The US had 911. Carl Schmitt, a legal theorist for the Nazi party said, “Only an authoritarian state can guarantee the success of a pure free market economy.” A pure free market economy means that government exists to meet the needs of corporations and government doesn’t interfere in any way with corporate decision making.

    Now that the middle class has been destroyed and the wealth concentrated in the upper one tenth of one percent of the wage earners, the Wall Street power brokers realize they have to control voting and the press because people are going to want their country back. During the Bush administration, Carl Rove instituted his “ Project For a Permanent Republican Majority.” It called for replacing all voting machines with touch machines which can be manipulated with the control cards that are needed before each election.

    My parents were conservative Republicans in the 1950s and 1960s. Then a conservative Republican stood for: a balanced budget, a strong dollar, a trade surplus, the belief that government should be as small and non-intrusive as possible, a healthy scepticism of foreign involvement, that the US couldn’t borrow its way to prosperity and Communism was our enemy. Barry Goldwater was a true conservative. Benito Mussolini, the war time leader of Italy, said, “ Cooperation between government and the corporation is the essence of fascism.” The job description of the President of the United States now is to maximize corporate profits. Notice that even with the bad economy corporate profits are at record levels. Voters get to choose between brand X and brand Y for President. Money is the mother’s milk of politics, so, to get the nomination of either party you have to sell out to the power brokers.

    President George W Bush worked hard to destroy democracy and turn the US into a pure free market economy. He saw government as the enemy of corporations, so his administration hired people to make government not work. Wall Street shifted into high gear and went into a feeding frenzy looting the US. His legacy lives on in the newly elected Republican members of Congress. They see government as the enemy of corporations and bankrupting the US as a way of destroying social security and the social programs they hate. The free market Republicans believe that government should get out of the real estate business. This means that the government should sell off the national parks and forests. The US should sell off the interstate highway system and even government buildings. They see bankrupting the US as a way of achieving their goals.

    Remember when George W. Bush took office the US had a 200 billion dollar budget surplus and we were going to pay off the US national debt in 10 years. The Bush administration started 2 wars and borrowed money from the Chinese to pay for them. This was the first time in the history of the US that the US had tax cuts during wartime. Then there were the unfunded mandates like the medicare drug program.

    In 2007 the credit, debt, capitol gains economy collapsed, forcing that economy back onto the real economy. Unfortunately the real economy had been badly compromised by outsourcing and mergers. The real mistake Obama made was believing that if he spent enough money he could jump start the economy. The middle class has been destroyed and has no discretionary income, credit is tight, and retired people have seen their income drop because of low interest rates. Unless the trade deficit and other structural problems are addressed the economy will continue it’s downward spiral. Remember that Hitler came to power only after the German middle class was destroyed and the German mark became worthless. It could and is happening now in the US.

    Sincerely,

    James Fritz,

    Director -- The Port Townsend Think Tank

    
    
    
    Reality Check

    The Republican Right is rewriting history and turning President Ronald Reagan into a superhero. It’s time for a reality check.

    When Reagan became President, the US was the greatest creditor nation in history. We had a production based economy where productivity was passed on to employees in the form of higher wages. When Reagan left office, the US was the greatest debtor nation in the history of the world.

    Remember how the Reagan Administration boasted that the US was the world’s first post industrial economy? It wasn’t the tax cuts to the rich that stimulated the economy, it was the massive deficit spending that did. Remember how the rich were going to invest their increased income in America and everyone would have a high paying job? Instead they speculated in real estate and invested in Communist China.

    The US during the Reagan administration trained 90,000 Arabs in Afghanistan on how to be successful terrorists and fight a conventional army. We had Saudi Arabia set up 7,000 religious schools across the border in Pakistan to furnish freedom fighters for the fight against the Russians. The Russians said we were crazy and we would regret what we were doing. They were right. All those people we trained are now fighting the US. We forgot that one nation’s freedom fighter is another’s terrorist.

    According to the CIA and Russian sources, Russian military spending peaked in 1978. Reagan did not spend the Russians into bankruptcy; they managed to collapse on their own.

    The Reagan Revolution is a true revolution. The goal is to destroy the middle class and the much hated social programs and concentrate all of the nation’s wealth and political power in the hands of the richest one tenth of one percent of the population. Corrected for inflation, the income of 80% of the American people is the same as it was in 1980. The Reagan revolution achieved what it set out to do.

    Sincerely,
    James Fritz
    Director of The Port Townsend Think Tank

    E. Mail: jfritz@olypen.com

    P.S.

    My parents were conservative Republicans. In the 1950s and ‘60s a conservative Republican stood for: A strong dollar, a trade surplus, the belief that government should be as small and non intrusive as possible, and a healthy skepticism of foreign involvement. Communism was the enemy of democracy and governments couldn’t borrow their way to prosperity. The Republican party of Eisenhower, Nixon, and Ford was completely different than the Republican Party of Reagan and the two Bushes.

    J. Fritz

    
    
    
    The Inflation Rate in the US

    The inflation rate reported by the Bureau of Labor Statistics shows that for the last 15 years inflation has been in the 0 % to 2% range. But, if you turn to where they calculate the inflation rate the way the Bureau of Labor Statistics calculated it in 1980, the current inflation rate is actually in the 7% to 10% range and has been for the last 15 years.

    The US government brought inflation under control by redefining what inflation is. Inflation is defined as the Consumer Price Index, which is a market basket of consumer products. By 1990 the Consumer Price Index [CPI ] had been reworked to give much lower inflation figures. The government removed energy and food from consideration because of their volatility and added correction factors.

    For instance, prescription drug prices are going up at 9% per year. The government contends that you’re getting more for your money than in the past because the drugs are more effective. So, after the correction factor, the inflation rate is only 4%. If the price of one product is going up too fast, they replace it with another product. Consequently, the rate of inflation is much greater than the government is telling the American people.

    If you have a 48-month CD at your local bank, you are probably getting around 1.1% interest. That means that if you have a million dollars in 48-month CD’s, you get 11,000 dollars interest. That’s not enough to live on. If the true rate of inflation is 8%, then you are actually paying the bank to take your money. Social Security is also indexed to the inflation rate. People should be getting a pay raise of 8% per year. Instead they are getting nothing.

    Over 60% of the money the US government borrows is in bonds that have a maturity of 3 years or less. The low interest rates hold down borrowing costs. The interest rate on money borrowed should be the inflation rate plus 3 percent. If the US government was honest, they would have to pay at least 10% on the money they borrow. That would increase the yearly interest costs for the US government to at least a trillion dollars per year. Banks are in the same situation. Banks borrow short term to cover long term loans. If the interest rates went up to 10 percent or more they would have to pay 10% or more to cover loans they made at 5 or 6%. Obviously the US Government and banks cannot be honest without going broke. With interest rates lower than the inflation rate, wealth is being transferred from retired people with savings accounts to the banking system. Also, if the inflation rate is 8%, then instead of a 3% GDP increase the US would have a 5% decrease in GDP.

    Before 1980 the US was a production -based economy and part of productivity was passed on to the employees in the form of higher wages. Non-earned income was taxed at a higher rate than earned income. The feeling was that people that actually created wealth should get more of the benefits. The inflation rate scam is only one of a number of methods the government has used since 1980 to restructure the nation’s wealth upward into the hands of the richest 1% of families.

    James Fritz

    Director: The Port Townsend Think Tank

    jfritz@olypen.com

    
    
    
    The Obama State of the Union Speech

    The State of the Union Speech sounded like a high school coach giving a pep talk to the basketball team before a game. It sounds good to say the US must be more innovative and competitive but that really isn’t the problem. The American taxpayers spend trillions of dollars in subsidies developing technology. Then corporations take the technology to China and build factories to manufacture consumer items. When a US corporation builds a factory in China, they have to take a Chinese partner. They can’t leave China without abandoning their investment. China has over 3000 front companies in the US gathering technology.

    The Swiss organization that ranks competitiveness has ranked the US in the top three countries the last 5 years. That’s considerably higher than China. The problem is that the US has no industrial policy. Under the Free Market concept, US corporations are free to do anything they want and their only goal in to maximize short-term profits. Under George W. Bush 55,000 manufacturing plants left the US for China. George Bush’s economic adviser said that outsourcing was a win-win situation.

    The US has a 250 to 300 billion dollar trade deficit per year with China and a total trade deficit of over 600 billion dollars per year. If you remove the trade surplus China has with the US, China has a trade deficit with the rest of the world. Each billion dollars of our trade deficit represents 10,000 to 20,000 jobs. Every dollar increase in exports increases our GDP by around 5 dollars because money circulates around the economy. Every dollar in our trade deficit decreases our GDP by about 5 dollars. A 600 billion dollar trade deficit decreases our GDP by around 3 trillion dollars.

    The real problem is that the US outsourced the wealth creating portion of our economy [production], and has relied instead on money being created by Wall Street from the credit, debt, and capital gains economy. When the credit , debt, speculation economy collapsed, the economy fell back on the real economy which had been badly compromised. Now Obama and the Federal Reserve are resorting to massive deficit spending and printing money to keep the economy afloat.

    From 1997 to 2007 borrowing in the US went from 25 trillion dollars to 60 trillion dollars. In 2007 credit increased 4.7 trillion dollars. Wall Street created the greatest Ponzi scheme in the history of the world and now the Ponzi scheme and the Great American Empire are collapsing.

    The financial services industry now accounts for 24% of the GDP and 41% of the corporate profits. In Norway, a country most people consider socialist, 48% of the GDP is government and 2% is banking. In the US 25% of the GDP is the Federal government, 15% state and local, 24% is financial services and 17% is health care. Roughly 9% of healthcare is private insurance. As you can see, 50% of expenditures in Norway are government, financial services and healthcare, but in the US it’s 73%. The US has developed a system that is all expenses and very little wealth creation.

    Only investing in the US in production creates permanent jobs. The US needs to protect against unfair competition and protect technology developed in the US. The Obama stimulus package was a waste of money because it didn’t address the underlying structural problems, and the Obama pep talk does nothing for the economy.

    Sincerely,

    James Fritz : Director -- The Port Townsend Think Tank

    Please forward to friends -- 1/28/011

    
    
    
    China: The New Super Power. US: A Chinese Resource Colony

    China is keeping a low profile, but by any rational standard, it is now the lone superpower. Mainland China produces over one half of the worlds steel production. It uses half of the concrete used in the world. China is the worlds biggest exporter and has a sovereign wealth fund with close to 2.6 trillion dollars [ US ] in its investment fund.. Over the last 2 years China has invested 250 billion in oil and gas properties and 600 billion dollars in Australian mining properties to guarantee a supply of raw materials. China produces 97% of the rare earth elements. They are used to produce super magnets and cutting edge technology.

    Under President Clinton, China purchased the company in the US that produced super magnets with the understanding that China couldn’t move it out of the US. President Bush let China move it to China. China is now the world leader in solar cells, wind energy, and nuclear power plants. China has a university dedicated to solar energy and over 5,000 engineers and scientists working on rare-earth element technology. The US has less than 100 scientists and engineers working on rare-earth technology. China is the worlds largest gold producer and the worlds largest silver exporter. The December 18 Economist Magazine lists China as having a 189.9 billion dollar trade surplus for the previous 12 months and the US as having a 639.9 billion dollar trade deficit.

    The Economist Magazine also says [ Dec. 18, page 145 ] that if China and the US continue to grow at the same rate that they have over the past 10 years [10.5 and 1.7 percent respectively], China’s GDP will overtake the US in 2022.

    In the last quarter of 2010, 50% of the Initial Public Offerings on Wall Street were Chinese companies being brought public by U.S. private equity firms, [MSNBC Kudlow report 01/04/011 ]. A U.S. based Exchange Traded Fund, [E.T.F. ], that is funding 32 Chinese research companies advertises:” The last century was the U.S. century. The next century will be the Chinese century. Get in on the ground floor”. The U.S. is turning China into a super power and no one seems to care.

    China sees trade as just another way of waging war with an enemy and is constantly looking for choke points, like rare-earth elements, to cripple the US economy. China has not lived up to any of the trade related agreements it has negotiated.

    There is a massive military buildup in China using stolen US military technology and revenue from their trade surplus with the US and investments in the US. President Obama recently suppressed a 72 page report from the Pentagon on the dangerous military buildup in China. I will discuss this in depth in a later paper.

    The US, by contrast, has been running a 600 to 840 billion dollar per year trade deficit [from the Economist Magazine ], with the rest of the world over the last 5 years. The US currently is running a 250 billion dollar yearly trade deficit with China. The January 14 Wall Street Journal lists the U.S. trade deficit for November at 38.3 billion dollars and of that the U.S. trade deficit with China was 25.63 billion dollars. This is particularly troubling because it’s in manufacturing. A trade deficit represents a transfer of wealth from the US to countries with a trade surplus. China now owns 3 trillion dollars of assets in the US and has at least 2.6 trillion dollars in its sovereign wealth fund. Each billion dollars of the trade deficit represents 10,000 to 20,000 jobs. Foreign financial interest own 11 trillion dollars of assets in the US. Warren Buffett calls the US a share cropper society because our assets are owned by foreigners.

    The US imports 5 times more from China than it exports. The imports are consumer products, office equipment, chemicals, drugs, and other manufactured products. Of the products the US ships to China, most are raw materials like corn, wheat, soybeans and scrap iron. The only major manufactured item is commercial aircraft built by Boeing. China is now coming out with a 190 seat commercial airliner to compete with Boeing, which they announced when President Obama was visiting.

    In a photo op with the leadership of China, Obama said, “We will work closely with China to see that the plane is safe and help them get it certified.” I could hardly believe my ears. The President of the US is more concerned with helping China than protecting a US company.

    Over 60% of the dollar value of Chinese exports to the US are from US companies with manufacturing facilities in China. Wal Mart alone accounts for 10% of Chinese exports. Germany, which is highly unionized and has higher wages than the US, has a trade surplus with China. Germany also has had a 211.6 billion dollar trade surplus with the rest of the world for the past twelve months [ Economist, Dec. 18, page 186]. Germany chose to be a production based economy and invested in itself. The US chose to be a financial service economy and invested off-shore.

    Every American company that does business in China has to license its latest technology, lobby on China’s behalf, and take a Chinese partner. The partners are chosen from the upper levels of the Chinese Communist Party. The Chinese currency is 40% to 50 % undervalued giving China a 40% to 50% advantage. Nothing can be imported without a import license. Sixty four of the sixty five companies that sell retail in China and are listed on the Chinese stock exchange have the majority of stock owned by the Chinese government. The 60 million Chinese government workers must buy products made in China. A January 12 article on trade with China in The Investors Business Daily states, “ In some cases Beijing has insisted that products sold in China must not only be made there but conceived and designed there. The policy goes by the name indigenous innovation.” Each city block has a block watch woman who goes around each month and checks to see that the wife isn’t pregnant and the household doesn’t have any foreign products which would show that they are not loyal to China.

    The US government guarantees most of the corporate investment in China through the Private Overseas Insurance Program. Any taxes that US corporations pay to foreign governments can usually be treated as a tax credit against US taxes and can then be deducted dollar for dollar from their US corporate taxes.

    The problem is not China. China will do what is best for China and they would be foolish if they didn’t do what is best for China. All of the successful economies like Germany, China, and Japan have trade surpluses and production based economies that carefully protest jobs, technology and their productive base.. The U.S. is the only major country where major corporations feel no responsibility or loyalty to the host country.

    The English Colonies in North America fought the Revolutionary War because England wanted to keep the colonies supplying natural resources and as a market for English manufactured goods. The colonies demanded and won the right to be a sovereign independent country. George Washington’s troops left bloody footprints in the snow because their shoes were worn out Over one million men and women in the US military lost their lives during various wars from 1776 to the present. Now the US has come full circle and allowed the US to become a Chinese resource colony. It’s so incredible that it sounds like a bad science fiction plot. And for what? So Wall Street could maximize their short term profits.

    James Fritz, Director The Port Townsend Think Tank

    
    
    
    Fact Sheet Concerning the Proposed Boycott of Products From Israel

    1. Whether to buy a product from Israel or not is a matter of personal conscience. I resent members of the Food Co-op (Port Townsend, Wa.) trying to decide it for me. If they ban products from Israel, I will not shop there and neither will a large number of people.

    2. Members of the board of directors have a fiduciary responsibility to do what is in the best interest of the Food Co-op. Clearly the loss of a large number of customers in not in the best interest of the store.

    3. Do you think Jewish tourists, tourists, musicians and film-makers will come to Port Townsend if it won’t sell products made in Israel? Port Townsend will be stigmatized and this will hurt the economy for years.

    4 Almost all of the workers in Israel belong to labor unions. Labor unions are forbidden by law to discriminate because of race, sex, county of origin, or religion. Israel is one of the most egalitarian countries in the world with people from many cultures and countries. Israel is called the start-up capital of the world and has a vibrant dynamic economy.

    5 Teva is the largest manufacturer of generic drugs in the world and is located in Israel. Would you sooner buy drugs manufactured in Israel or Communist China.

    6. Iran has said that Israel should be erased of off the face of the earth. If a car bomb exploded in down town Port Townsend killing 20 and injuring 50, wouldn’t residents want better border security?. It has been said that if the Palestinians laid down their arms there would be peace. If Israel laid down their arms they would be invaded and all killed. We need to get realistic.

    7. During the Carter administration a two county agreement was agreed on by Israel and the P.L.O. led by Yassar Arofat . Then after everything had been agreed on he said that one more provision had to be added. All of the 7 million Arabs that call Israel their homeland need to be allowed to return. This killed the agreement. To allow 7 million Arabs, most of whom have never visited Israel, to return to a small county with only 5 million Jews would be disaster.

    8 Arab countries like to blame the Western countries and Israel for all of their problems. In reality most problems can be traced to 4 things:
    A. High birth rate. On the West Bank 55% of the people are under 15 years old.
    B. Schools and universities that stress religion and exclude science, world history and political thought.
    C. Lack of water, farmland and natural resources.
    D. In Israel women are scientist, engineers and have equality with men. In Arab countries a woman gets status by the number of sons she gives birth to.

    Sincerely,

    James Fritz

    
    
    
    Why The Obama Stimulus Program Will Not Work

    Only money invested in production will create jobs. From 1940 to 1970 the U.S. had a production based economy and productivity was passed on to employees in the form of higher wages. Family income, corrected for inflation, doubled from 1940 to 1970. From 1980 to the present wages and salaries for 80% of Americans has either remained the same or decreased. After 1980 the U.S. became a post industrial financial service economy and instead of producing goods and services for the middle class, Wall Street began manufacturing money by credit and inflating the price of real estate and stock prices.

    Over half a century ago in by first geography course, on the first page of the first chapter it said,”We owe our standard of living to production from our farms, ranches, forestry, manufacturing, heavy industry, fishing and energy sector. That was what was taught in universities then. The Austrian School of Economics still teaches that only production can create jobs and raise the standard of living. Both Germany and China have huge trade surpluses. They follow the great German economist Frederick List, who said that to be a great nation you must have the means of production in your own country.

    The Obama stimulus package is only creating temporary service jobs. Lets take a hypothetical 20 billion dollar stimulus package and spend it in various ways:

    Case 1
    In case one the government spends 20 billion dollars to save service jobs by giving grants to cities and stated so they won’t have to lay off school teachers, police and civil servants. There is a multiplier of around 1.7. When the grant money runs out, the people get fired and the U.S. government has to borrow the money from China to cover the increased debt. The U.S. has nothing to show for the money spent.

    Case 2
    In this case the government spends 20 billion dollars building bridges and highways. There is a multiplier of three to five because the money circulates through the economy. When the money runs out, the U.S. borrows the money to pay for the increased debt. But the U.S. has bridges and highways to show for the money spent. The workers still get fired when the money runs out.

    Case 3
    In this case the government spends 20 billion dollars building hydroelectric dams and irrigation systems. There is a multiplier of 3 to 5 because the money circulates through the economy. The income from the projects pay of the money borrowed and the jobs are permanent because there is a product produced.

    Case 4
    In this case the government spends 20 billion dollars building manufacturing facilities. Each billion dollars invested in manufacturing creates 10,000 to 20,000 permanent jobs. The high volume of output adds to our Gross National Output and creates secondary jobs throughout the economy.

    China understands the importance of manufacturing and has gone to great lengths to encourage U.S. companies to move to China. China excludes U.S. products by a variety of methods. The U.S. now imports 5 times more from China than it exports. The U.S. imports manufactured goods and exports raw material: products like scrap iron, corn, wheat and soybeans. The U.S. is now a Chinese resource colony. The U.S. fought a Revolutionary war with England because they wanted to keep the Colonies a source or resourcesand a markwt for their manufactured products. Now the U.S. has become a Chinese colony so that U.S. corporations can maximize their short term profits.

    The administration fails to understand the difference between wealth and money. Wealth can only be created by producing a tangible product. Money can be created by the Federal Reserve printing it or by inflating the value of stocks and real estate [sset inflation]. Production creates wealth by producing tangible products. Service jobs consume wealth and are overhead. The U.S. can not be a service economy.

    The U.S. economy will continue to deteriorate because we do not have the economic base necessary to support out standard of living and the level of government spending. The U.S. moved our production overseas to maximize short term profits and became dependent on fiat money being created by Wall Street. In 2006, a trillion dollars was generated by real estate profits and people refinancing their homes. Another trillion dollars was generated by foreign investment in the U.S. Still another trillion dollars was generated by the increase in credit card debt, Wall Street profits and leveraging. When the credit-debt-speculation economy collapsed, the economy reverted back to the real economy. The real economy had been systematically looted by Wall Street. The U.S. economy will continue to deteriorate until we address the structural imbalances that have been created in the last 30 years.


    James Fritz,
    Director, The Port Townsend Think Tank
    E Mail: jfritz@olypen.com


    
    
    
    Comments on Free Market Economics
    and the book “The End of the Free Market” by Ian Bremmer.

    This is a must read for anyone involved in economics, trade or politics. Why it has taken this long for someone to discover that the free market isn’t working is beyond belief. The Chinese economy is growing at least 10% compounded every year and the U.S. is running a 550 billion dollar trade deficit. China is practicing state capitalism and the U.S. is practicing free market capitalism. What China is doing, and to a lesser extent other countries in S.E. Asia, have been doing, is to exclude U.S. products by a variety of creative methods. My criticism of the book is that he didn’t go far enough. The following comments are my own.

    Free market capitalism was designed to maximize short term profits for corporations. Corporations were making huge profits by selling access to the U.S. market. The factors of production are highly mobile, manufacturers can set up shop in any country. It’s the market that is important. But by moving our productive base overseas and lowering wages in the U.S., corporations have destroyed the middle class and the market they were feeding on. Now the U.S. economy is imploding just like the economy in Russia did in the early 1990's . The U.S. no longer has the economic base necessary to sustain our standard of living and our level of government. This totally disfunctional economic system was kept alive by money manufactured by Wall Street and the U.S. Government. Easy credit, asset inflation and the Federal Reserve created at least 25 trillion dollars of money. When the credit, debt, speculation economy created by Wall Street collapsed, it threw the economy back on the real economy. The real economy had been gutted by Wall Street because they moved our productive base overseas. So now the Obaba administration is running a 1.8 trillion dollar deficit and the Federal Reserve is printing a trillion dollars each year trying to jump start the economy. They will fail because they are not addressing the underlying structural problems in the economy.

    We need to look at reality. In 1980 when Ronald Reagan became President, He made Donald Regan, ex C.E.O. of Goldman Sachs, the Secretary of Treasury. The second term President Reagan made Donald Regan his chief of staff. The U.S. went from the worlds greatest creditor nation to the worlds greatest debtor nation and economists didn’t seem to care. Since 1980 the U.S. has had a cumulative trade deficit of over 8 trillion dollars. The U.S. has transferred at least 15 trillion dollars of technology that was subsidized by the U.S. taxpayers to foreign countries. After 1980 the economists and politicians have been proudly boasting that the U.S. is the Worlds first post industrial financial service economy. How can that be? A service economy consumes wealth. Only production that produces tangible products creates wealth. The U.S. trade policy has turned the U.S. into a bankrupt third world country and China into a super power. The U.S. is subsidizing China at least 500 billion dollars each year through our 200 billion dollar trade deficit, technology transfers, and direct foreign investment. China is undergoing a massive military buildup financed by their trade surplus and. profits from their U.S. investment.. Several books have been written by Chinese military officers predicting war with the U.S. in 10 to 20 years. Politicians don’t seem to take them seriously. China sees trade as just another way of waging war against an enemy.

    State capitalism can work effectively. During WW2 the U.S. government took control of production and resources and achieved incredible results. For instance, the U.S. produced 38 thousand Sherman tanks in just 3 years. The U.S. produced tens of thousands of military aircraft. We were mass producing ships faster than the German U Boats could sink them. The U.S. won the war by out producing both Japan and Germany. Think how the outcome of the war might have been different if the U.S. had moved our manufacturing and heavy industry to Japan in the 1930's to cut production costs and make use of their cheap labor.

    Free Market Capitalism essentially means that corporations are free to do anything they want to and the “ Invisible hand of the market” will automatically optimize the outcome for both business and society. The term “The invisible hand of the market” was first used in the book written by Adam Smith in 1776 called the Wealth of Nations. He also said in the book that the invisible hand of the market only works if “no one buying or selling can influence the market”. This qualifying phrase in the Wealth of Nations never seems to be quoted. Obviously every segment of our economy is now managed by a few big players, most of them foreign. Economists no longer talk about monopolies and the need for competition. Instead economists justify mergers of corporations as improving market efficiency.

    It should be kept in mind that Adam Smith was employed by the East India Trading Company to write the book “The Wealth of Nations” and the purpose was to show that the American Colonies should remain suppliers of raw material to England. Now the U.S. has become a resource colony of China. It is so unbelievable that it seems like science fiction.

    The United States has signed trade agreements with countries around the world and is a member of the World Trade Organization. In theory this is supposed to provide a level playing field. In reality every country in the world is playing a different game and that includes the U.S.

    In Japan the trading companies control trade. A trading company may have a many as 44,000 companies operating under the rules of the trading company. By custom, a company in the trading group must buy from a company in the trading group. If the company can’t find the product in the trading group, it can buy the product from a company in Japan. If it can’t find the product in Japan, then it can buy from a foreign producer.

    If a manufacturer of glass decided to buy soda ash from a U.S. company because it was cheaper, the bank in the trading company it does business with would pull it’s low interest loans. Permits that are routinely granted by the government would be denied. The company would be shut down until it conformed to the established custom.

    In one interesting case, a manufacturer in the U.S. of wooden base ball bats was flooding the Japanese market, The Japanese customs made a rule that all imported wooden bats had to be solid wood. In each imported bat they drilled a hole in the narrow part of the bat to make sure it was solid. This obviously ruined the bat and U.S. bats were kept out of Japan.

    The U.S. has had a trade deficit with China for the last several years of between 200 and 250 billion dollars each year. The U.S. imports 5 times more than it exports to China. We send China raw materials like scrap iron and soybeans and get back consumer merchandise. Each billion dollars or the trade deficit represents 10,000 to 20,000 jobs lost. The U. S. is subsidizing China at least 500 billion dollars each year through the trade deficit, technology transfers, and direct foreign investment. China has at least 3 trillion dollars in it’s sovereign wealth fund. In the last 18 months China has purchased at least 200 billion dollars of producing crude oil properties.

    Germany has a trade surplus with China. Germany has higher wages than the U.S. and is highly unionized but it still has a trade surplus with China.. Higher wages in the U.S. can not explain the trade deficit with China.

    China sees trade as just another way of waging war against an enemy. China simply excludes U.S. products. Sixty four of the sixty five companies listed on the Chinese stock exchange that sell retail have a controlling interest owned by The Chinese government. Every block has a block watch woman who checks every month to see that the wife of everyone in the block isn’t pregnant. Anyone who buys any foreign product is considered unpatriotic. U.S. companies doing business in China are required to take a Chinese partner. All corporate positions are filled with people chosen from the upper levels of the Chinese Communist Party. Foreign employees are usually limited to 4 employees.

    When China wanted to dominate the apple juice market, they planted a thousand square kilometers of apples and then sold the juice below cost. Eastern Washington apple growers use the seconds that go for juice to cover their costs and the eating apples are the profit. Without a market for the juice apples they go broke.

    China now produces all of the vitamin C used in the U.S. They sold below cost and now increased the cost 500 percent. The U.S. can’t practice free trade with countries that play by other rules.

    Dr. Nouriel Roubini, a professor of economics at NYU who appears on CNN, said that the trade deficit with China more than offsets the Obama stimulus package and that is why the stimulus package isn’t working.

    Other countries in S.E. Asia also have developed methods of keeping U.S. products out, but China and Japan are the worst offenders.

    I agree with Ian Bremmer in “The End of the Free Market” that the free market isn’t working. If you dig deeper, you will find that the free market never has worked and it has impoverished the U.S. and turned China into a super power.


    James Fritz, Director, The Port Townsend Think Tank
    E Mail: jfritz@olypen.com


    
    
    
    The Economic Decline Of the U.S. -- Part One

    The U.S. economy is not going to recover. What we are facing is far worse than a business cycle recession or even the great depression of the 1930's. The U.S. is facing a steadily deteriorating economy and it will continue to deteriorate until the structural factors that created it are addressed.

    In 1929 the U.S. had a budget surplus, a trade surplus and the U.S. was the worlds largest exporter of crude oil. Today the U.S. imports 70% of its crude oil, has a 1.8 trillion dollar budget deficit and has a 500 billion dollar trade deficit.

    In the 1950's and 1960's the U.S. had a production based economy that produced goods and services for the middle class. Productivity was passed on to workers in the form of higher wages so there was a steadily increasing demand for consumer products. The U.S. became the worlds largest consumer market.

    Every President and every Presidential candidate made a commitment in the 1950's and 1960's that everyone should have a family-wage job and work at their highest skill level. There was enough competition to make the market economy work and enough regulation to protect the American People. The political and business leaders lived through the Great Depression, WW II, were afraid of Communism and recognized that a strong healthy middle class represented political and economic stability.

    In 1980 when Ronald Reagan became President, he appointed Donald Regan, ex CEO of Goldman Sachs, as Secretary of Treasury for the first term and as Chief of Staff for the second term. The Reagan Revolution was a true revolution. The U.S. went from a production based economy to a financial services economy. Instead of producing wealth by producing goods and services for the middle class, the financial services industry started manufacturing money. Money was created by inflating real estate and stock values, easy credit, leveraging, and various innovative financial instruments. During the Clinton administration the value of real estate and stocks increased by 13.7 trillion dollars.

    In the year 2006 a trillion dollars was generated from real estate profits and by people refinancing their homes and taking equity out. Another trillion dollars was generated by foreign investors bringing money into the U.S. And still another trillion dollars was generated from a run up in credit card debt, Wall Street profits and leveraging. The U.S. does not have a 14 trillion dollar Gross Domestic Product, [G.D.P.], it has a 10 trillion dollar G.D.P. on steroids.

    The economy has been stimulated to the breaking point with money created by Wall Street. When the credit-debt-speculation economy collapsed, this falsely inflated economy fell back on the real economy. Unfortunately, much of our manufacturing and heavy industry has been moved offshore, especially to China. The U.S. does not have an adequate economic base necessary to support our standard of living or our level of government. Only production creates wealth and only investment in production in the U.S. will raise the standard of living and provide high paying jobs.

    In addition, foreign financial interests now own 11 trillion dollars of U.S. assets. China alone has 3 trillion dollars of U.S. assets. The wealth of the U.S. is now being used to finance the Chinese Liberation Army, 150 foot Arab yachts on the Mediterranean, and retirement benefits in Europe. The U.S. trade deficit represents a transfer of wealth from the U.S. to foreign countries. The U.S. has had a cumulative trade deficit with the rest of the world since 1980 of at least 8 trillion dollars. Also there has been a transfer of technology subsidized by U.S. taxpayers of at least 15 trillion dollars.

    The national economy of every country can be divided into 3 parts: Production, Distribution, and Consumption. A service economy consumes wealth. Financial services create money, not wealth. The U.S. became addicted to money being created by Wall Street. Now Obama is trying to go to massive deficit spending and the Federal Reserve is printing a trillion dollars each year to try to keep the economy going. The Obama economic policy of massive deficit spending is only creating service jobs in health, education and government. When the money goes away, the jobs will go away. Only investment in the production of goods will cut our trade deficit and provide family-wage jobs . Massive deficit spending will eventually destabilize the dollar and cause interest rates to rise sharply. Rising interest rates will cause the real estate market to collapse and derivatives based on interest rates to default. There are 11 times more interest rate derivatives than derivatives written on mortgage backed securities. It’s not a pretty picture.


    James Fritz, Director, The Port Townsend Think Tank
    E .Mail: jfritz@olypen.com


    
    
    
    Understanding the US Federal Budget Deficit

    Remember when President Clinton left office the US had a 240 billion dollar budget surplus and the economists were saying that we would have the national debt payed off in 10 years? Fed Chairman Greenspan said that he backed the President Bush tax cuts because he felt that it would be bad to pay off the entire national debt. President George W. Bush did 5 actions that crippled the US economy:

    1. There were massive tax cuts to the richest segment of society and corporations. Never before during wartime has a President asked for tax cuts. This added 4 trillion dollars to the national debt over the last 10 years.

    2. Bush got the US into 2 wars and borrowed the money to pay for them. Military spending doubled during his 8 years.

    3. There were unfunded entitlements like adding drugs to Medicare. There was a provision that the US couldn’t negotiate a lower price and people could not purchase drugs from foreign countries.

    4. In President Bushes 8 years 47,000 US factories moved to China. His Chief Economic Adviser on television said that outsourcing was a win-win situation for both countries. We now have a 300 billion dollar trade deficit with China. This represents 6 million high paying manufacturing jobs. Germany, which is highly unionized and has 50% higher wages than the US, has a trade surplus with China.

    5. The Bush Administration and Fed Chairman Greenspan believed that the “ Free Market” was self policing and there should not be government interference with Wall Street or corporations. The Bush Administration hired people with similar views. The financial service industry and other corporations shifted into high gear and systematically looted the US and sold our manufacturing and heavy industrial base to China.

    THE US ECONOMY WAS DEAD ON ARRIVAL WHEN PRESIDENT OBAMA TOOK OFFICE. The mistake he made was to say he could revive the economy and this allowed the Republicans to shift the blame from Bush to President Obama. Interest on the national debt is a subsidy to the banking industry and the richest segment of society. The Republicans don’t want to cut the deficit. Massive budget deficits are part of the conservative Republican wealth restructuring agenda. The Republicans are running a scam: first they create a large budget deficit and then they say we need to cut taxes to stimulate the economy and cut entitlements to cut the deficit.

    
    
    
    
    Commissioners Johnson and Sullivan
    [Jefferson County, Washington State]

    1. They signed a secret agreement with The Washington Environmental Council and sat on it for 5 months and tried to sneak it through the County Planning Commission.

    2. Jefferson County desperately needs jobs. Because of the depressed economy in Jefferson County, it is entitled to two Industrial Land Banks. Instead of passing a Comprehensive Plan amendment to allow a industrial area, they chose to wait until next year to discuss the issue. The political elite in the Jefferson County Democratic Party doesn’t want new companies coming to Jefferson County.

    3. The County Commissioners did away with the Economic Development commission under Ian McFall which was recruiting companies to move to Jefferson County and replaced it with Team Jefferson at W.S.U. which only wants to help companies now located in Jefferson County. When you see an anti-business person like Marty Gay on Team Jefferson, you know nothing is going to happen.

    4. Jim Hagen and Dennis Schultz were on the county planning commission. Both were competent and worked on the Critical Area update from the beginning. When their term expired. At the public job interview, David Woodruff walked in with Ashley Bullett and sat down next to Pat. It was obvious the fix was on. David Woodruff is a member of the elite group that controls the Jefferson County Democratic Party. Ashley and Pat were chosen to no ones surprise.

    5. The Critical Area Minority Report was chosen instead of the majority report. A year's work and over 300,000 dollars of labor donated for free was wasted. The County Commissioners goal is to make it so expensive and difficult to do anything in Jefferson County that only the richest segment of society can live here. The Jefferson County Democratic Party is about money and control.

    6. With Jefferson County going into a recession and the revenue falling, the County Commissioners have continued to hire new employees and add new programs. It is estimated that the payroll of 2009 will be 800,000 dollars larger than 2008. Where will the money come from?

    7. Jefferson County is losing over 6 million dollars each year in tax revenue because we don’t have enough jobs and retail stores to meet the needs of people now living in Jefferson County. We have over 1000 people that commute out of county to jobs. With the price of gas going up, they won’t be able to commute. There are now over 1300 properties for sale in Jefferson County.

    8. The State of Washington requires that the county governments have a septic system management plan in place by 2012. The county commissioners passes a Clean Water Act and attempted to finance it with a 18 dollar per parcel tax. Political pressure forced the county commissioners to Political pressure forced the BOCC to not implement the 18 dollar parcel tax and the septic management plan is being revised. The first septic management plan the BOCC tried to pass would have cost residents several million dollars per year.

    9. Fred Hill Materials and Security Services Northwest are both entitled to due process and any statements made y the county commissioners can compromise the counties case in court. David Sullivan has made a number of statements against the above organizations. Sullivan needs an enemy to focus attention on so he can pretend to be the champion of the people. President George Bush is doing the same thing. The first rule of Fascism is you need a enemy to keep people from examining what you are doing. Fred Hill Materials and SSN should file a lawsuit against David Sullivan personally.

    10. The political elite in and around Port Townsend control the Jefferson County Democratic Party and the Jefferson County Democratic party controls county politics. The political elite consists of 10 to 12 people. Johnson and Sullivan do what the political elite want because the political elite will raise the money and supply the people to run for election. The master plan of the elite is that Port Townsend should be a new Aspen and everything outside the city limits should be micro-managed to fit the new image. What people in rural Jefferson County want is not considered.

    For 8 years I have been saying that a recession is coming and we want to broaden out our tax base and have enough jobs and retail stores to meet the needs of people now living in Jefferson County. I have been told by the New Democrats that there will never be another recession. They tell me that: we have something truly unique, there will be a steady stream of rich retired people moving to Jefferson Co. The transfer payments from the rich retired people is all that we need.

    I’m a lifetime Democrat. I was a civil rights activist in the 60s and I marched in the Seattle WTO march with the labor unions. My opinion is that the Jefferson County Democrats are dishonest and without honor. Democratic parties are supposed to be bottom up organizations. This is a top down organization.

    James Fritz
    E .Mail: jfritz@olypen.com

    
    
    

    The Chinese Economy

    China has a 235 billion dollar trade surplus with the U.S. It is estimated that China has currance that is 40 to 50% undervalued which gives China a trade advantage. They have a foreign exchange reserve of 1.3 trillion dollars and will have a foreign exchange reserve of 2 trillion dollars by 2008. They are using their foreign exchange to tie up oil reserves and critical minerals around the world. The Wall Street Journal quotes the CIA as saying that China has 3000 front companies in the US to collect usefall technology for China. The Central Bank of China requires 5% foreign currancy for every dollar the Central Bank issues. Commercial banks in China are required to keep a reserve requirment of 11% Chinese money in the respective bank. It is easy to see that the huge trade surplus with the U.S. allows China to manufacture almost unlimited amouns of money. Even companies owned by the Chinese government and the Peoples Liberation Army raise money by selling stock on the international market.

    James Fritz P.T.Think Tank [August 5, 2007]
    E .Mail: jfritz@olypen.com

    
    
    

    Trade With China

    Any U.S. company that does business in China has to do 3 things: The company has to license it's latest technology, agree to lobby on China's behalf, and train a partner to be able to run the company. The government has export subsidies on products manufactured in China and import duties of up to 42 % on U.S. products. Of the 66 companies that sell retail on the Chinese stock exchange, 65 are owned by the Chinease government. The U.S. has a 230 billion dollar trade deficit with China because they exclude U.S products.

    James Fritz P.T.Think Tank [August 3, 2007]
    E .Mail: jfritz@olypen.com