Balance Our Federal Budget in One-easy Step

Balance Our Federal Budget
in One-easy Step
. .

But Please Do Not Try This

By Bob Komives

The Tea Party and the Obama party can force a balanced federal budget with one step. (Well, it would take two quick votes and one signature.) They must simply decree that the federal government of U.S. America will abandon the dollar and do all its business with the Euro. Or, if that zone won't have us, with the Yen then--or, the Pound Sterling, or the Norwegian Krone. If we abandon our sovereign currency we have no choice but balance our national budget! Ask Greece; ask Ireland; ask Spain; ask California.

Yes, California, one of the biggest economies in the world, it must come begging for help  to the dollar-zone (the states united in America) when it suffers a devastating earthquake or wild fire. Why?

It's About Investment, Dammit!

It's About Investment, Dammit!

. .

Reason Four

Why Today's Balanced Budget Discussions Are Ridiculous

..

By Bob Komives

but first

let me give you Reason 4a. 

Or, I should say, let Paul Krugman give you Reason 4a. He points to facts that march boldly but unrecognized through the daily news. They show why austerity-now does not work, and worse, causes countries to fail. In other words, my words, why today's balanced budget discussions with their emphasis on not-spending rather than investment are at best ridiculous and and at worst devastatingly harmful.

Here's Krugman (March 24, 2011) and (April 1, 2011).

-----------------------------------------------------------------------------------------------------------------
now my somewhat poetic approach


Partners in Economic Development

Where is the evidence
          that scarcity models work?
Where is the evidence     

          that doing the right thing costs too much

          that doing the wrong thing is affordable

          that nations who follow these models become rich?

Wealth is our preoccupation

          --not our invention.

We do not create economic development

          --we are its partner.

Economic development is an organized invasion

          --life invades the universe.

Let us strive to be knowledgeable partner

          --practice stewardship and equity

          --learn

          --share what we learn

          --organize ourselves to foster the biosphere.

Yes,
we must know that wealth can disappear

          --species, ecosystems, languages and cultures become extinct.
We must guard against the disappearance of life itself

          --for only in life does this sphere know to be wealthy.
Prevent the destruction of our species

          --for we can learn as we survive our poor judgment.
Stop exploiting one another

          --together we partake of more wealth more quickly.
Guard against the natural and man-brought disaster

          --that destroys knowledge

          --leaving machines that no one can use

          --books no one can read

          --science no one can remember.

Yes,
we must know that within abundance there is scarcity,
yet within simplistic, dogmatic models of scarcity lie falsehoods.
Within these falsehoods lie too many lessons in fiscal irresponsibility:

          Do not provide for the welfare of the many

          --because resources for the few are scarce.

          Do not clean and protect scarce resources

          --because, well, our resources are scarce.

Yes,
we must know that between the cataclysms

          (brought by meteor, plate, and super volcano)

          life prospers

          abundance patiently overwhelms scarcities

          abundant biosphere enables civilization.
Within biosphere and civilization lie truths.
Within these truths lie our lessons in fiscal responsibility:

          Well-being requires investment.
          Good investment nourishes and improves life.
          Poor investment risks disaster.

There is no evidence

          that doing the right thing costs too much,

          that doing the wrong thing is affordable?

Evident, indeed, is knowledge of abundance
embedded by life into biosphere and civilization.


As better we know this
as better we become

          partners in economic development.

-----------------------(c) 2011 Bob Komives-----------------------------

co-posted on Komivesian Poetics

Planet Money and the Invention of Money

Thursday, January 20, 2011

Yesterday I sent a second of two emails to Planet Money giving my thoughts and applause to their presentation on the Invention of Money on NPR's This American Life: Sunday, January 7.  I highly recommend you listen to it and contemplate how it changes or adds to your view of money. I admire how articulate and concise they are in describing money's strangely magical qualities. They dwell on the truth that money is trust, a powerful and apt description. Alas, I regret that this may be the first time that the word trust appears in this blog. Thanks, Planet Money. Otherwise, I find support in their words--and much food for further thought. L I S T E N, then read my response:

4. A Crazy Cycle

A Crazy Cycle
Bob Komives
::

In 1984 I had a chance to return with my family to Central America to teach land-use planning and work in watershed management. There, the importance hit me of bridging the gap between my land-use-planning work and my hobby of cogitating economics.

It made no sense to me.
The International Monetary Fund said
Central American governments should
reduce investment in
social
health
and environmental programs
(that were slowly raising quality of life for their citizens)
in order to borrow money
to pay for projects
that would produce exports,
in order to bring in outside money
to spawn development
to trickle down some resources,
in order to bring back
social
health
and environmental programs
to slowly raise the quality of life for their citizens.

A Crazy Cycle

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 4. A Crazy Cycle ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

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19. We are Cursed And Blessed.

We are Cursed and Blessed.
Bob Komives
::

Life reproduces itself, but imperfectly. This imperfection creates an intricate, diverse biosphere.

Humankind has two traits that distinguish us from other species. I believe these traits contribute to our unique role in the biosphere.

We have a brain that has somewhat independent hemispheres in which we process information in at least two different ways at the same time. We have social systems that tend toward stability, but in which we often and inevitably undergo instability.

We seem cursed by the anguish of war between the conscious and subconscious and between the logical and intuitive factions in our brain. We seem cursed by bloody and bloodless wars between factions in our society.

Other species evolved with greater social order. Compared to our own, their brain parts seem to work in harmony. Our unstable society may well be a curse brought on by our unstable brain. Yet, our creative ability to explore the workings of the universe through art, science, engineering and fantasy is a blessing that we also owe to that curse. If there is to be a utopia, we must find it in how we manage our continuing instability.

All species can perceive scarcity in resources, and they see an apparent need to manage scarcity by preventing any change that instability will bring. We, alone, have the blind management power, at this tick in the evolutionary clock, to destroy life and its biosphere of change.

It is also only we who can hope to notice, midst war and destruction, the wealth that instability and change have wrought within our biosphere. Only we can hope to see that beneath the apparent rules of scarcity and competition lie more general rules for us to follow-
rules for abundance, and rules for cooperation.

Blessed Curses

Humankind seems cursed by its heritage of imperfection in ways that other species are not. Yet, we are blessed with a preeminent role in the biosphere. Richard Restak described well how our semi-independent brain hemispheres process two ways of thinking that are generally coordinated but often conflicting. This duality is mirrored in our culture. We experiment with: democracy, dictatorship, republic; polygamy, polyandry, monogamy; matriarchy, patriarchy; monarchy, anarchy. Only the human species has a restless urge to understand and perfect.

Competition seeks instability.
One individual,
one group
tries to gain advantage over another.
When too successful,
competition fails.
It can produce a stable dictatorship,
monopoly,
slavery.
Cooperation seeks stability.
It too can fail
if it is perfectly successful.
Stable wealth stops evolving.
Rebels appear.
Feeling stifled,
they promote instability.
We play hopscotch
through patterns of opposites:
cooperation or competition,
with
stability or instability.
War -unstable competition.
The marketplace -stable competition.
Tradition and rules -stable cooperation.
Invention and information,
though often spawned by cooperation,
bring change -instability.
Each pattern brings the other.
The market creates incentive for invention:
a better mouse trap,
a five-cent cigar.
Invention produces new traditions:
stay home
to watch a ball game at the park,
go to the park
to get away from my computer-cottage office.
A stifling tradition brings revolution and war.
We are special
because we can notice these patterns,
seek to understand them,
and decide to participate.

What Makes Us Special

If an objective visitor from outer space had arrived on Earth a few hundred thousand years ago she would have had to stay around to notice that we naked apes were in any way special. Today, she would quickly pick us out of the crowd. We have made ourselves quite noticeable. Electric hair dryers, tennis shoes, oil spills, and political conventions make us stand out clearly in the crowd of earthly creatures.

We see correctly that we are special, but we have tended to think incorrectly that we are special because we are better. "Better" is a subjective evaluation, but if we equate it with "more perfect" we are wrong. We are special because we are less perfect. We are cursed with imperfections that bless us with flourishing culture. Individually and in groups we play dynamic roles that never allow our species to settle into a comfortable niche.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 19. We are Cursed and Blessed ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

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40. Baby and Student, Investment and Balance

Baby and Student, Investment and Balance
Bob Komives
::

If we measure economic relationships among nations by subtracting imports of trade goods and services from their complementary exports, we produce a figure that says something about trade surplus or deficit. It is a humble figure that has a secure place in the basement of accounting houses. Unfortunately, we often invite this figure to stride out of its basement nook, mount a dark horse, and ride off self-importantly into media and politics. If we fix our attention on this figure as it parades by with its precedents and successors in impressive curves and columns, we miss most of what is important about exchange of wealth.

Much wealth flows across time and international boundaries in ways that do not fit trade figures. If we climb above the parade and broaden our view, we can see that nations form just one layer among complex layers of overlapping, wealth-exchanging communities. We can see that the trade routes connecting nations are but a few conduits in the biosphere's complex network of wealth exchange.

We will see imbalance when we focus on isolated conduits. For trade to happen, local, temporal, item-specific imbalances must exist. There must be vacancies in a housing market; there must be imbalance in trade; there must be imbalance for there to be investment.

Notice, as baby and student come by.
Baby imports wealth
far in excess of export.
Student does more of same.
Do you see an obscure trade deficit
or an obvious good investment?

||

Imports have always exceeded exports in our biosphere. Otherwise, biosphere could not have grown and prospered. Biosphere, our prototype for economic development, does export byproducts to the inanimate universe, but never as requisite to an import. A community with trade imbalance may be investing well in children, education, quality of life, and survival. A business can be responsible while borrowing to invest in its future. So too, a community invests responsibly in its future using trade imbalance to borrow necessary resources from neighboring communities which voluntarily foster their own profitable, responsible imbalance.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 40. Baby and Student, Investment and Balance ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

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41. A Brief Note on Community Artifacts

A Brief Note on Community Artifacts
Bob Komives
::

We build artifacts: transportation and communications systems, schools, libraries, institutions and machinery. We call them public works, and support them by taxing ourselves to build them. As we move through an information age artifacts change. The library building will be less important than the means of access to its information. Safe and convenient routes to recreation facilities may become more important than routes to office or factory. As entrepreneurs have greater geographic flexibility in choosing locations for their operations, the civic, cultural, and governmental institutions that provide a healthy and stimulating environment for worker and family increase in importance. No matter the changes, we will continue to spend much time and energy to supply ourselves with public works --artifacts that sustain our community.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 41. A Brief Note on Community Artifacts ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

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44. A Better Money Legend

Plum Local IV ::: Part III 

National Investment and Money

=== chapters 44 - 50 ===

=== look to right column for direct links to chapters ===

A Better Money Legend
Bob Komives
::

Who Created Money?

Money is one of humankind's great inventions.
I was not around when it was invented,
but I do think I know how it happened.

In the third or fourth grade I was taught:
primitive people traded things for things;
we needed a better means of exchange;
we invented money.
What an image!
These hapless primitive people
dragging around elephants and chickens
to exchange for coconuts,
while their suave modern cousins
sit under a tree sipping coconut milk
passing a few coins back and forth.
I have since heard many adults and children
tell this same simple history.
My hair was turning white
when I found something missing--
Who?
Granted,
trading chickens for coconuts could be cumbersome
for the poor folks who walk to the marketplace,
but poor folks do not create money.
Kings, queens, emperors,
bankers, and empresses create money.
They always have plenty of burly helpers
to carry their chickens and coconuts.
Which one said:

"My poor subjects are so overburdened.
Trade is so bulky.
I, nice person that I am,
will give them a means of exchange."

Even if one leader were that smart and that good,
why did cruel and dim despots continue the practice?

Listen to this story.

Let us imagine that first money was made of gold,
and it was issued by an empress.
Before making her coins the empress needed gold. 
Whether she stole it,
got it through in-kind taxes,
inherited it,
or had it mined in her own mines,
she had a storehouse of gold.
Gold held great value in her empire.
She could buy armies, loyalty, roads, music, or whatever.

Now, suppose her artisan made her a radical proposal:

"Your highness,
you are so beautiful;
I am so skilled.
Let me melt your gold
and cast it into little disks
carrying my beautiful rendering
of your beautiful face."

She feels flattered and tempted.
But she says,"no,"
and puts the artisan in the dungeon for treason.
After all,
some gold would spill on the foundry floor.
The artisan could hide away bits of the gold--
making him a rich and disloyal man.
Many laborers would be needed.
The melting would use up many trees.
The dungeon was almost too little punishment.

Then there arises a great crisis in the empire.
In the east a horde of barbarians prepares to invade.
In the west, three princes want a good road to market.
Without it they may sever their lands from the empire.
The empress summons her advisers.
They report:

An army to defeat barbarians
costs 10,000 pounds of gold.
A good road over the mountains to the west
costs 10,000 pounds of gold.
In the empress's storehouse
are 10,000 pounds of gold.
The barbarian invasion by itself,
or the secession of the princes by itself
will bring destruction of the empire
and death to the empress.

Despair sets upon the empress and her advisers--
until she remembers the artisan.

"Free the artisan
Instruct him to melt all my gold
and mint me 20,000 gold coins carrying my image.
I proclaim,
each coin has a value of one pound of gold.
Spend these coins to raise an army.
Defeat the barbarians.
Build a road over the mountains to the west."

In her selfish interest the empress spends coins.
Her subjects must accept them at twice their value in gold.
Through this great and official hoax
she proposes to save her empire and her life.
To her own amazement,
the hoax works.

She builds the road.
The western provinces boom in productivity
as ever more commerce uses the new road.

She defeats the barbarians.
In the eastern provinces,
under peace and stability,
farmers and artisans produce as never before.

Once coerced to accept the coins,
citizens now covet them.
With more goods and services to buy
people welcome the new means to buy them.

The secret cannot be confined to one empire.
Kings, queens and emperors imitate the great hoax.
Some invest their coins wisely and prosper.
Their subjects revere and follow them.

Other rulers are less wise.
They spend their diluted gold coins
on pleasures that drain wealth rather than nourish it.
Drowning in a sea of over-valued coins,
their subjects resort to trading of a-good-for-a-good,
and they rise up to throw out their worthless rulers.

Who created money?
Someone powerful and selfish and a little wise.
Someone like the empress.

Who Created Money

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 44. A Better Money Legend ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

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47. Three Siblings: Loan, Stock and Money

Three Siblings: Loan, Stock and Money
Bob Komives
::

Every time I use my credit card to buy something I issue a piece of real or symbolic paper --paper which embodies a loan secured only by my promise to pay. A bank gladly accepts my new paper. Its accountant calls my paper promise, an asset. With that new asset my lender bank can invest more than it could lend yesterday. Every time a business buys something using its line of credit it issues a piece of real or symbolic paper --paper that embodies a loan secured only by the business's promise to pay. The lender bank gladly accepts the new paper as a new asset. Today's new asset makes the bank worth more to buyer or investor than it was worth yesterday. The paper loan --floated on nothing but a promise-- is an unsecured loan. This unsecured loan is a sibling of money.

Money has another sibling --a fraternal twin adopted by corporations. Common stock floated by corporations is the fraternal twin of money floated by national governments. Both are worthless paper with an initial value in the marketplace based only on speculation that proceeds from sale of the paper will be invested wisely.

Many corporate leaders and investors, and perhaps you, believe a national government should run like a business --claiming that a government is unbusinesslike if it spends more money than it collects. This dogma makes it difficult to see the family resemblance between stock, loans and money. Please prepare to suspend your belief for several paragraphs. If you hold this dogma the most I can ask is that you consider what you are about to read to be science fiction. Try to enjoy reading of a different world. Later, over a cup of your favorite drink, please ponder the possibility that this different world is our real world.

When good-old General Motors and I had good credit ratings we were allowed (often encouraged) to not balance our budgets --to paper the world with more credit than we can pay for immediately. Lender and investor wanted to hold our paper because they believed they would be well repaid for holding it.

Good-old General Motors issued paper called stock. Each new issue reorganized the investing public so that some of us gullible people played our assigned role and gave General Motors our money in exchange for the stock. If Jane had not been so induced she might have put a California hot tub on her back porch. Part of her wealth would have flowed to a small hot-tub company in California. Instead, it flowed to a giant in Michigan. Mary got laid off in California and moved to Michigan where her cousin, Sid, had just been hired for a new General Motors' project.

When good-old General Motors invested Jane's money poorly, it experienced inflation: Sid got laid off; Mary failed to find a job; Cadillac prices went up, or profits went down; the value of General Motors' common stock went down.

Jane and other stockholders took a risk for potential reward. Her risk and potential reward parallel those of a holder of national currency. If government invests well money holders will be well repaid.

Suppose good-old General Motors had required that anyone who wants to buy one share of its stock must pay for it with one share of Ford Motor Company stock. This may seem strange because General Motors normally asks for payment in money. However, if we suppose a time when one share of GM stock was equal to one share of Ford stock the stock-for-stock policy would be reasonable. It is as reasonable as holders of USA dollars exchanging their money for Canadian dollars of equal value. If General Motors had been trying to take over Ford it would have been quite reasonable to give Ford Stockholders new shares in General Motors in exchange for old shares in Ford. The newly issued General Motors stock would have been balanced by new corporate wealth --the assets of Ford. This is an understandable transaction with real balance.

Now, suppose good-old General Motors had been asked by its investors to achieve balance in the way advocates of balanced budgets say national governments should achieve balance. That is, General Motors had to receive one of its own shares before issuing a new one? Here is balance; nothing does balance nothing. Do you not agree that it is ridiculous balance? It would have been ridiculous to require that General Motors take in one share of its common stock for every new share that it issued. Such a requirement would invalidate accepted practice in corporate finance. It is equally ridiculous to ask the national government to take in one dollar for every one it issues.

A corporate stock issue should be balanced by an increase in corporate wealth coming from responsible investment of the proceeds from the stock issue. A national money issue should balance itself in the same way --through good investment. The public and private investment enabled by the expenditure of new money must create wealth to match the increase in money supply.

To review:

Sibling one, Unsecured Loan
We borrowers must invest the wealth of our lenders in productive ways that by choice or impossibility those lenders will not invest directly. We trade unsecured, paper promissory notes for a loan of investment resources. If we do not invest those resources well, we will fail to pay off loans, our credit rating will fall, our loans will lose value (inflation), and our lenders may rise in revolt to take over our remaining assets.

Sibling two, Common Stock
Corporate directors must invest the wealth of their stockholders in productive ways that would be difficult or impossible for individual stockholders to invest. The corporation trades paper stock for investment resources. If it does not invest those resources well its stock will lose value (inflation), and its stockholders may rise in revolt to install new directors for the corporation.

Sibling three, Money
Government must invest the wealth of its citizens in productive ways that by choice or impossibility will not to be private investment. National government trades paper money for investment resources. If it does not invest those resources well its money will lose value (inflation) and its money holders may rise in revolt to take control of the nation and its government.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 47. Three Siblings: Loan, Stock And Money ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

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48. Efficacy Limits

Efficacy Limits
Bob Komives
::

There are limits to sensible, productive paper investment. They are efficacy limits. If some investment works but more investment does not work, then more is too much. At some point resources and society cannot respond efficiently to the competing demands. At that point some investments fail. They are good ideas that prove ineffective because they are poorly timed. Efficacy limits are not dollar limits. Money is sibling to unsecured loans and common stock. Like good borrowers and good corporate stock issuers, our national government will produce better budgets when it seeks to make good investments that are well timed. National government need not concern itself with the amount of money that it has on hand nor the amount expected to come in. It should rather consider what effect investment and non-investment will have on the wealth of the country and the international community of which it is a dependent.

The insidious implication of the balanced budget fantasy is that a national government would seem to never have to apologize for its expenditures if they do not exceed the amount of currency returning to its treasury:

"We ruined the country
and much of the rest of the biosphere,
but we never ran an unbalanced budget."

from: A War Rages

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 48. Efficacy Limits ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

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49. Banks Add Money and Investment.

Banks Add Money and Investment.
Bob Komives
::

Would you rather have a thousand dollars worth of stock or a thousand stocks worth of dollars? You might say, "That depends." Would you rather have a thousand potatoes worth of dollars, a thousand potatoes worth of stock, or a thousand stocks worth of other people's promissory notes? I suppose, "It still depends." With some creative logistics you can use any of these assets at the stock exchange to buy stock, at the bank to secure a loan, in your will to endow a university, or, in a pinch, most anywhere to trade for most anything. Why? Because there are secondary markets for potatoes, stock, loans and money. After the first transaction that puts them into the marketplace they can be sold again and again. The secondary markets for potatoes, stock, and loans are giant-but-tiny compared to the fluid markets for money. As the principal means of exchange, money is coveted by one side in most transactions. In modern economies we need a lot of money --so much that even free-spending governments can have trouble keeping up with the demand. They need assistance. While good-old General Motors would never allow anyone else to issue its stock (traders were stuck with the number of stock General Motors chose to issue), the demand for money is so great that most national governments let banks assist them in minting. The economy needs new money as enterprise brings forth new goods and services that the public wants. By choice or by default, governments in countries that emphasize the private marketplace let the banking system issue much of their money. Within the limits imposed on them by government, banks issue new money whenever they borrow from their depositors to issue new loans. If the banking system did not print more money there is no way that most bankers could cover their growing obligations to depositors --to return the deposits, with interest, on demand. Nor could borrowers pay their obligations to the banks.

Bank-printed money is easy to see if we consider the banking system as one bank. One day a man who is known to be reliable and productive takes 100 dollars out of his pocket and deposits them in the bank. A day later he borrows 80 dollars from the bank. The morning of day three he withdraws his initial deposit plus one day of earned interest. Now he has 180-plus real dollars in his pocket and an obligation to pay back his loan. He goes out and spends those dollars at stores that quickly send someone to the bank to deposit their earnings. By close of the business day the bank has assets of more than 180 dollars in deposits and more than $80 in good loans. As the cycle goes on, the amount of money in circulation and deposited in the bank continues to rise. Someone printed money, and, oh yes, during these three days government was on a holiday.

Having once put new money into circulation by lending out money that they have guaranteed to hold for depositors, a bank cannot withdraw that money from the marketplace even when investments turn sour. Borrowers have spent the money. It disappeared into the marketplace --eventually returning to the bank, but with no tag to identify it with the initial loan. Where projects fail borrowers never get enough money back from the marketplace to return what they owe to the bank. New money spent on these bad projects stays out in the marketplace searching for goods and services. Since the projects did not produce their promised economic growth, new money competes with old money for old goods and services --forcing up prices. The value of all money declines. That is inflation. Whether bank or government issues money to finance bad projects the effect is the same: inflation. Whether bank or government issues money to finance good projects the effect is the same: economic growth.

Despite the inflation risk, a banking system can serve its country well. A diverse investment structure that includes banks of various sizes in different locations can develop diverse investment strategies. Local banks can help a nation develop the complex organization at all levels that typifies a robust ecosystem. Because government spending should reflect priorities set by the nation, national government spending is the most direct and understandable way to infuse the private investment market with the money it needs. Centralized investment, however, even if intelligently made, even if made by a giant private bank, tends to over simplify the needs and opportunities of a complex society. A complex system of local and regional banks is a complementary money pump to national investment. It fills investment niches that simpler national strategies cannot find.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 49 Banks Add Money and Investment ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

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50 :: Investment Debate is Better Debate.

Investment Debate Is Better Debate.
Bob Komives
::

Neither a national government nor its agent banks can spend wealth that the nation does not have. Citizens expect reasonable balance between new money invested and new wealth produced. They expect monetary balance. It comes from prudent national investment, just as corporate stock balance comes from prudent corporate investment, and ecological balance comes from nature's tendency to invest prudently in itself. These are dynamic balances. Credits can more than balance debits as biosphere, species, nation, and family take dominion over a greater expanse of the inanimate universe.

We should hope to do better
than balance our budget.
We should hope to do better
than debate how best to limit spending.
We can save inferior debate
for the day the sun turns off
and the biosphere dies.

||

A nation that understands the economics of money and communal investment will debate whether proposed investments contribute to the long-term health of society and its economy. Liberals might point to the profitability of social programs. Conservatives might argue strongly for hardware. In U.S. America some debaters will point to the boom in computers and related paraphernalia as wealth that followed investment in the space program; others to the black and brown faces in media and business as economic return from investments in civil rights and social programs; others to the Works Progress Administration under the New Deal as argument for a nation putting its labor force to work when the marketplace fails to do so; others to examples of peace work bringing higher return than war work; and many to the peace and productivity of those people who choose to invest their efforts to enhance the natural environment that they rent from future generations. These will be a difficult debates. For a change, however, they will be meaningful.
Productive investment debate happens within a successful nation that has prudent government knowingly financed by paper money. Growth in this nation's supply of paper money balances itself through growth in national wealth --a collective wealth that incorporates local, international, and biospheric wealth.

Investment debate is better debate.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 50. Investment Debate is Better Debate ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

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51. Against Foreign Loans

Plum Local IV ::: Part IV
National Finance: Debt and Taxes

== chapters 51 - 78 ==

=== look to right column for direct links to chapters ===

51. Against Foreign Loans
Bob Komives
::

Poor countries continue to go into debt to other countries and international banks. They must repay their debt using one of the world's hard currencies --their own, considered too soft. Too often, some lucky citizens in the debtor nations manage to hoard hard currency that comes in through loans, while their governments hoard only the debt. Such problems hobble government and exacerbate the dichotomy between rich and poor in debtor nations, but damage is not restricted to debtors. The world suffers waste. Immense resources, including human effort and intellectual talent, pour into the system that supports international debt. Assume for a moment I can convince you that the system is invalid. Imagine the benefits we would reap if we divert this waste of resources into productive endeavor --endeavor that improves investment within nations and the trading of resources among nations.

As 1987's September turned to October. The members of the International Monetary Fund and World Bank met in Washington D.C. confronted by continuing crises in world finances. They started their meetings with little hope that they would devise a solution to the international debt problem. Their pessimism proved justified. By Christmas, banks in U.S. America had begun to write off large parts of their international loan portfolios as bad debt. If international debt gets less popular attention today than in 1987, perhaps the novelty is gone. International debt is an old problem that still stymies financial leaders.

Certainly some international debt comes from ill-conceived loans on bad projects, but other debt piles up from projects that were good-but-slow-to-prove-it. Money leant to enhance ecological, educational and social systems, for example, may return manifold profit in increased wealth, but the profit may come too slowly to cover the interest on the loan. Other projects may return profits quickly to society in general but too slowly to the marketplace. The market, not reflecting true benefit and detriment, declares the project a failure. Internal, national investment can accept some inflation as tradeoff for long-term and non-market benefits from good-but-slow projects. Instead of paying off the debt directly, the nation lets its money lose a little value --achieving the same end. An international loan, however, requires prompt payment to avoid geometrically escalating debt. Any country that embarks on good-but-slow projects by borrowing foreign money invites default --unnecessary default.

Much in life is unnecessary but quite acceptable, even enjoyable. International debt is unnecessary, but also harmful. I reach the same conclusion if the lender is a private bank or a multinational institution such as the World Bank or the Interamerican Development Bank. I reach the same conclusion even for projects that promise to be good-and-fast. I am against foreign loans.

:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 51. Against Foreign Loans ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

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52. The Unnecessary Burden of Foreign Debt

The Unnecessary Burden of Foreign Debt
Bob Komives
::

In Guatemala
they have a way to carry heavy loads
—primitive, simple, and efficient—
one or two loops of rope engage the load,
carry it to the forehead
where loop closes with strip of leather or cloth.

Body tilts,
bends forward to balance load:
perhaps a bulging sack
holding a quintal of maiz,
or small table
topped by seeming household of furniture,
or wooden frame
with pottery stacked five feet high by four feet wide.

From the bus windows
I watch men carry such loads
down,
up
steep mountain roads,
distant from past town and last house.

I see small loads
watching boys learn the art
under burdens cut to their size.
I enjoy their smiles spurts of speed.
Paces and decades ahead
I see burdens too-large,
postures too-bent,
leathery foreheads too-creased
under burdens saddled to a man.

In Guatemala,
they have a way to weed corn
—primitive, simple, and efficient—
with machete and stick.
The stick is narrowest where it fits the hand.
A subordinate branch makes a hook at the other end.
Though well-chosen and well-fashioned,
the stick may be left by the field to be recovered tomorrow
or replaced,
fashioned anew from branch of a living fence.
The stick gathers and supports grass and weeds
as the machete cuts them at the ground.
Machete strokes begin high from vertical.
Agile wrist and low body
take them quickly down to horizontal.
This smooth, rhythmic movement
fits and fills both the confines of tall corn
and the muscles of a short body.

I see an old man every day
on the road to El Rosario.
His machete and a boy are constant companions.
I know not where they live.
Seldom do I know in which of the fields they work.
I see them on the road between.

They come early
racing a day's work
against sun's rise to oppressive heat.
Yet, they come later than most.
They may start with others,
but in kilometers of walking
they fall behind.
The old man does not move fast.
The boy is in no hurry—
his walk seems youthful,
but two paces behind the old man.

I cannot know
if it is the years of work with the machete
or the carrying of heavy loads
that has bent that back and humped those shoulders.
But, as the man walks by me now,
his eyes focus on the ground
two paces in front of his feet.
Back is tilted;
head is bent
—as if to carry a load of corn.
I choose to believe he can no longer carry such loads.
The machete in one hand hangs as burden enough.

One, hot mid-day as suffered a long walk
I saw them at work in a field.
Old man and boy
propping unwanted growth with theirs sticks,
severing it from its roots with their machetes.
I wanted to believe that the boy does more than his share,

On their walk home
they look no different than when they came.
Neither requires conversation.

The first time I passed,
the sound of a gringo-ish “a dios!”
caused the old man to startle;
he turned his head to reply.
Now, salutations to me
are as those to other familiar voices
—uttered quietly in the rhythm of the resigned pace.
On occasion, I pass by, say nothing.
Neither old man nor boy give apparent notice.

Am I silent from sympathy or reverent from respect?
Have I passed a humble man who has worked too hard, too long?
Am I watching a great man who has long carried great loads?
I look for cues in the eyes of the boy
and choose to see reflections of a hero two paces ahead.

Every day on their walk to work in El Rosario.
—until yesterday.

Heavy Loads, 08

Good governments finance what they hope will be good projects and services --whatever the source of funds. Good projects and services are successful. They benefit society in excess of the resources that go into them. Even developing countries have experts with sophisticated training to evaluate the likelihood of success. Lenders who make loans to developing countries presumably have people with similar training to make the same evaluation. Experts do not know for certain whether a project will succeed or fail, but success is their goal.

International debt is a burden to the developing countries that carry it. I argue that it is unnecessary; the international lending structure need not exist. To illustrate and simplify my argument, I will name Guatemala as a representative developing country and the United States of America as a representative foreign lender.
Guatemala is a small country with a fairly large international debt. It is a wonderful and troubled country. In 1998 we hope that recent peace will hold. In March of 1986 I held high hopes for a new democratically elected government under president Venicio Cerezo which had launched an Economic and Social Reorganization Plan. Within 18 months, however, Cerezo's government acknowledged that the plan had failed. A key factor in the failure seems to have been under spending. Of the amount that it had budgeted for public investment, the Guatemalan government spent only about one third. The limited spending failed to stimulate the economy. Faced with ever decreasing living standards and continuing civil war, the government abandoned its first plan and began a new effort on August 1, 1987, The National Reorganization Plan. The new plan was less ambitious and at least as unsuccessful. The first Guatemalan plan had borrowed some ideas from the New Deal and U.S. America's recovery from the Great Depression. Public projects would help get things moving. However, national coffers went dry. International loans did not make up the difference.
When we hear of the suffering that afflicts many developing nations that have large foreign debt, we should pause to consider that in accumulating this debt their governments probably tried to follow norms of international finance.

Guatemala followed today's norms for responsible finance when it refused to undertake beneficial projects for which there was no money. The public projects that Guatemala proposed but did not undertake were designed by dedicated and well educated planners. It is reasonable to suppose that some of the projects could have stimulated the economy and reduced poverty. Cerezo's government refused to undertake projects for which it had no money. Under conventional wisdom, in failing to act the Guatemalan government acted responsibly. Did it act correctly? If they were good projects, no. Should international lenders have filled the gap and financed these good projects with loans? No. An international loan is never more economically feasible than is internal financing, and international debt is never less burdensome than internal debt.

:: Bob Komives, Fort Collins © 2006-2008 :: Plum Local IV :: 52. The Unnecessary Burden of Foreign Debt ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

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