classical economics
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Trade War by Taxation

Taxation Without Representation

Wayne Jett © October 6, 2011
     Mercantilists have played the protectionism card since before the onset of the Dark Ages. In so doing, they seek monopolies in domestic markets – not jobs for workers. Jobs are destroyed – not created – by protectionism. Dollar devaluation is trade war by means more subtle than tariffs. The U. S. has waged trade war by monetary policy ruthlessly since 1971, destroying jobs both here and abroad, to assist the dominant elite in looting capital and gathering power.
     First, a definition: mercantilists are the few dominant elite who put governments in place and then exploit influence for private enrichment and power. They have done this in America since colonial days, and are now more powerful than ever before. They despise and resent competition from the middle class here and in republican democracies abroad.
Man-made Economic Depression
    The dominant elite began the Great Depression by influencing President Herbert Hoover to ignore their rampant financial fraud in securities trading exchanges, to sign the Smoot-Hawley Tariff Act of 1930, and to sign the Revenue Act of 1932, which quadrupled the lowest rate and trebled the highest rate of taxation on earned income. This troika of political malfeasance was sufficient by 1932 to drive Hoover from a landslide win in 1928 to a landslide loss to Franklin D. Roosevelt in 1932.
     Tragically, Roosevelt was a trusted and utterly ruthless operative of the dominant elite. Rather than do what he was elected to do – roll back the high tariffs, repeal the tax hikes and bring federal law and justice to securities trading – he did the opposite.
     FDR eviscerated international talks to roll back tariffs organized by his own Secretary of State, Cordell Hull, in July, 1933. His “bombshell” radio speech given from Washington, D.C., declared the U. S. would not agree to stabilize the dollar’s value relative to gold or other currencies. This undercut Hull and made reduction of tariffs largely inconsequential, causing the conference to adjourn in disarray.
    Roosevelt did not cut income tax rates. Instead, he raised tax rates and created new taxes every year of his four-term presidency, except one year. In 1939, Democrats in Congress refused to raise tax rates after losing 81 seats in the 1938 House elections. Instead, they passed a meager tax cut which Roosevelt would not sign but allowed to become law.
The Essential SEC Shield
   Roosevelt’s handling of financial fraud in U. S. securities trading proved even more treacherous than his treatment of Hull at the 1933 London conference. Under FDR’s watchful eye, Congress first passed the 1933 Act broadly prohibiting financial fraud, but providing no specific definitions or penalties. Then the 1934 Act established the Securities & Exchange Commission and gave the agency broad discretion to define fraud, to investigate possible violations and to authorize prosecutions.
   With this template ripe for abuse, FDR exploited the opening to benefit of the dominant elite. He appointed Joseph P. Kennedy – reputedly the most notorious financial manipulator on Wall Street of the age – as a commissioner of the SEC and pressured other commissioners, including Ferdinand Pecora, the Senate’s former chief investigator of financial fraud, to select Kennedy as the SEC’s first chairman.
    Kennedy stayed at the SEC only 14 months and drove Pecora off the Commission within six months. He shaped vague regulations easily exploited by Wall Street’s big players, and he fully staffed the agency with Wall Street operatives whose discretion in prosecuting Wall Street crimes could be trusted. Thus was created the bureaucratic shield which to this day assures the dominant elite will not be challenged, much less brought to justice, for their conduct in U. S. financial markets.
    This is by no means all that Roosevelt did to deepen and lengthen the Great Depression. But it is sufficient for now to illustrate the role played by protectionism as an element of the mercantilist agenda.
Shaking China’s Currency Peg
    About 15 years ago, China pegged its currency’s value to the dollar in order to achieve price stability in trading between the two countries. During the years of the peg, prices of Chinese goods have remained stable and relatively cheap for American buyers although the dollar’s value increased sharply in the late 1990s and then dropped dramatically after 2005.
    As the dollar’s value dropped, the dominant elite’s leading exponent in the Senate, Charles Schumer (D-NY), accused China of manipulating its currency by pegging it to the dollar. Now the Senate has passed a bill to impose penalties on imported Chinese goods if China fails to drop the peg and increase its currency’s value relative to the dollar.
    This Senate bill conveys essentially the same message FDR used to disrupt the 1933 London conference: the U. S. refuses to stabilize its currency so international trade can plan accordingly. All nations knew then, as now, currency devaluation is just another way to wage trade war by deceiving the seller about the value of currency accepted in exchange for goods.
    Repercussions would likely be as disruptive now as they were in 1933, except for one thing. Roosevelt had large majorities in both houses of Congress to back his baldly mercantilist play. Presently the Republican-led House declares it will not consider or pass the trade war declaration initiated by Schumer and the Senate.
Devaluation Fall-out in Europe
    The Federal Reserve has devalued the dollar erratically and dramatically since President Nixon stopped any exchange of gold for dollars in 1971, and then in 1973 gave the Fed power to manipulate the dollar’s value. Since then, the Fed has deceived most Americans about its operations and intentions affecting the dollar. The results have included a very rough, unpredictable road to a much less valuable dollar – now down about 98% from its 1970 value in gold purchasing power.
    Due largely to Germany’s memory of devastating inflation in the 1920s, Europe’s central bank has been unwilling to devalue the Euro as fast as the Fed has devalued the dollar. In the past three years, dollar devaluation of about 50% has priced many Europe-produced goods out of the U. S. market, giving rise to higher unemployment in countries like Greece, Spain, Ireland, Italy and Portugal (called the “PIIGS”).
    Do not be misled by Federal Reserve rhetoric. Devaluation is not done to create jobs or otherwise improve the lot of Americans. Knowledge of Fed operations enables insiders to profit greatly through speculation in stock, bond and currency markets. The sheer size of currency speculation attests to the significance of Fed manipulation and the value of knowing its intentions.
Taxation Without Representation
    Another fundamental objection to Federal Reserve dollar devaluation is often ignored: it is taxation without representation. Whenever the Fed creates new dollars (electronically “out of thin air”) and transfers them to another entity, the Fed thereby “waters” or dilutes the value of all other dollars already owned by others in the U.S. and around the world. The value of each new dollar comes from those pre-existing dollars, which is why all of the dollars are devalued simultaneously.
    This devaluation process extracts property value from every American, just as if the Fed were empowered to levy taxes. Devaluing the dollar 50% over three years has the same practical effect as saying: “give me half of all the dollars you own.” This is equivalent to taxation. The Federal Reserve uses the money as it sees fit, just as the federal government does, but Americans have no vote on who controls the privately owned Fed.
    The Constitution requires every law imposing a tax to originate in the House, to be approved by both the Senate and the House, and to be signed (or not vetoed) by the President, or overridden by both House and Senate if vetoed. Congress is not permitted to delegate its taxation power to any other body, even one appointed by Congress, and certainly not to a privately owned bank whose officials represent diverse pecuniary interests. Yet precisely this unconstitutional conduct has oppressed Americans every day since at least August 15, 1971.
Lobbyists’ Two Masters
    On the topic of conflicts of interest, consider the case of political lobbyists in Washington, D.C., who have discovered their communications with federal officials contain inside information valuable to Wall Street and hedge funds. Does it not occur to these lobbyists that the information they sell to the financial sector may be used in ways detrimental to the company which paid them to lobby Congress?
     Say, for example, a gasoline refiner pays a lobbyist to persuade Congress the excise tax on gasoline should not be increased, and the Senate committee chairman controlling that legislation says to the lobbyist “I’m going to double that excise tax or die trying, and I’ve got the votes to do it.” No doubt that little tidbit would be interesting to a short-selling hedge fund, but the lobbyist’s ethical duty ought to limit use of information obtained in representing the refiner.
     This is no call for more legislation. The point to be noted is the state of ethics (or lack of them) in power circles of Washington politics and Wall Street hedge funds. ~