It is evident that if by Tuesday Greece fails to arrange with its EU creditors to refinance, refund in the US Treasury meaning, or freeze its massive debt and pay a nominal and modest interest rate, without capital repayments in the mid term at least, all the forecast calamities will hit its people, its economy, and its government with a marked and mounting risk of civil disruption in a matter of days, with a likely domino effect on the EU. The most dire consequences of default could be possibly staved off if the Greek government immediately prints paper money, or creates electronic money, and disburses it tax free to all Greeks through their bank accounts to keep demand alive and the economy running. Clearly, without any foreign credit Greece will only be able to grow from within, at the pace that its own savings, and renewed FDI would eventually permit, when it reappears, once the Greeks have shown that their economy will not stall, and that those new equity investments, tied to a new Greek determination to reform and sacrifice for increased productivity, would allow. If the current debt were frozen, and nothing more were done beyond the suggested stimulus, it might take twenty years of hardship to pay it back, and the prospects of this happening are extremely unlikely as history indeed shows. Perhaps the only realistic solution to avoid this and future defaults lies in the EU as a whole taking greater risks and invest massively in Greece with a long term view, bolstered by EU sponsored pro-immigration policy and deep policy reforms, to avail Greece of an increased and better qualified workforce for the 21st century, and a real chance to produce, trade and prosper.



More detail:



June 27, 2014



Staving off the impending effects of unemployment through increased consumption



© Enrique Woll Battistini 2014



The Trillion Dollar Platinum Coin financial instrument promoted by Hellen Brown and others in order for the Federal Reserve to fund the Federal Government directly, in my opinion, would certainly not save the economy. The bottom line flaw in such thinking is that the availing of limitless credit or cash to Government, whether Federal or State, by the Federal Reserve, would place the economy -with all it entails- in the hands of Government to an unacceptable degree, and not nearly enough in the hands of the Private Sector, effectively impeding the role of the Federal Government as the main legitimate arbiter and protector of the entirety of society, and ending the key role of the Federal Reserve vis-à-vis the money supply and inflation. The nefarious effects of this paradigmatic shift would not be limited to the United States, but would be felt throughout the globe.



Indeed, given that money is power, the Federal Reserve would quickly loose its independence to the Federal Government, be absorbed, and disappear forever, and given that the Federal Government would be synonymous with money in this scenario, it would soon prove, if it has not done so convincingly enough already, the truth and wisdom of Lord Acton’s words, when he warned that "Power tends to corrupt, and absolute power corrupts absolutely." Moreover, the mere lack of the need to tax people or private enterprise to fund the Federal Government, and the consequent disappearance of the need for new issues of U.S. Government Bonds, together with the instant and worldwide distrust of the U.S. Dollar that would ensue, would simultaneously cause its terminal devaluation and create immense pressure by countries such as China for immediate redemption of the massive U.S. Government Bond debt that they hold, in kind, if not in gold, at historical values. In addition, of course, the currently conducted open market operations by the Federal Reserve for control of the money supply and inflation, and refunding operations by the U.S. Treasury to meet its bond redemption obligations, would immediately cease forever for lack of a market. Control of inflation would depend on the Federal Government alone, and its only tool would be the careful control of additions to the existing money supply. The immediate consequence of this horrific situation would prove to be a catastrophic dilemma, easy to envision, no matter what choice were made, as no middle ground imaginable would satisfy the parties involved.



Moreover, the accompanying notion that States should create State Banks that could pledge State assets such as bridges and roads, and maritime ports and airports, in lieu of Trillion Dollar Platinum Coins of their own, in order to obtain and back their own Federal Reserve loans, is magic thinking of the worst and most dangerous kind, as the Federal Reserve is currently a private institution and as such could end up owning massive and crucial State assets, outright, and under the Federal Trillion Dollar Platinum Coin doomsday scenario described above, as stated, it would be quickly folded into the Government, which, in time, would become the owner of the States, quite literally. Of course, again, this would be a doomsday scenario.



Nevertheless, and in any and every case, one immediate reason why placing the economy exceedingly in the hands of Government would be unacceptable is that, contrary to the teachings of Neo-Classical Economics, and Modern Monetary Theory, it does matter how money is spent, and whether it goes to produce shoes or guns always make a difference, but in the case of increases in the money supply, especially the large ones that would likely result from application of the Trillion Dollar Platinum Coin, how it is spent greatly matters, especially in the first go-around of its endless circulation throughout the economy. The question would be then, who should be doing the first spending and the primary spending? The Government or The People? And lastly, obviously, Central Banks should continue to exist, and to exercise their traditional control over the money supply and inflation, until a superior type of institution can take their place.



The foregoing would seemingly apply around the globe, but, on the other hand, if unconstrained, if nothing transcendentally efficacious is done, the impending effects of the growing unemployment in the Euro Zone –which threatens the world– would be widespread bankruptcy and, very soon after that, general social disorder, national disarticulation, hunger, and for many millions of people in the Fourth World, it would mean, quite literally, starvation. However, staving off these looming effects carries the obvious need to increase employment, and production, in all currently affected countries, and this in turn requires increased and sustained demand, and consumption, acting in perpetual circular virtuous motion. This much is evident, but empty pockets simply cannot result in increased demand. Thus, clearly, the way to end this conundrum is to find the fastest and surest way to jump-start this life-sustaining cycle, and, not surprisingly, the spark required is simply the consumption of all currently available goods and services, period. And in my view, the only way to achieve this crucial change in attitude, on a world-wide scale, in the immediate horizon, is economic stimulus through an impulse-increase in the disposable income of people, and the assurance of continuity into the mid term horizon; that is, through the implementation of periodic economic –cash– stimuli for as long as necessary as dictated by the natural employment and inflation targets of each affected country.



This remedy could take the form of Limited-Life Personal Economic Stimulus Consumption Cards (ESC) issued to consumers across the board on a monthly basis by Governments, and financed by incurring new debt, or by Central Banks, through prescribed increases in the money supply, and implemented in every case through commercial banks in all affected countries. Simply stated, the solution to unacceptable or to widespread unemployment would be the issuance of 30-Day Government Debit Cards. Everyone in possession of this debit card would spend the –cash– purchasing power it granted them on whatever consumer goods and services they needed the most within its 30-day lifespan, given that after its expiration date any unspent amount would be irrevocably lost. In addition, these cards would not be redeemable for cash, and given that they would be personal, and issued to individuals, they could not be pooled, used as collateral, traded, or used in any way other than for personal consumption. And finally, their purchasing power would be subject to automatic renewal at a prescribed value, equal for all, for administrative simplicity, adjusted for attainment of inflation-unemployment equilibrium over time, on the first day of each month for as long as the program lasted.



The first effect of this program would be to reduce inventories and create demand for workers of all levels, rapidly reducing unemployment to its natural levels in these countries. Inflation would happen, as always, if unemployment were reduced below its natural level, and vice-versa, and, as always, prices would soon settle, as must be, at a higher level. However, resulting inflation, if any, could be compensated for the infirm, the poor, the unemployed, and the retired, through this very same program, funded, at the end of the day, by the increased production it seeks and would surely find. The second major effect of this program in all affected countries would be to increase personal incomes and savings, and to increase tax revenues, reduce fiscal deficits and national debts.



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http://www.truth-out.org/news/......



First published on March 19, 2013



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May 20, 2014



The XXI Century Tax Reform



© Enrique Woll Battistini 2011



Taxation is of obvious world importance in this century of growing confrontations between the rich and the poor, in which general social peace will be attained only if we can fast establish a privately led Private Public global articulated system for sustainable development: That is, a system for comprehensive, fair, and environment friendly development. It is also fitting to note that the development and dissemination of an effective proposal for such a system would necessarily require and include a proposal for a complementary major global tax reform through which the public sector could yet make its greatest contributions to development in the XXI century.



Taxes should not be instruments of envy, of punishment, or of abrupt economic or social leveling of the peoples. Most persons, no doubt, would agree with this. And taxes should also not be used by the State primarily as instruments of social manipulation, or of indirect management or control of economic activities, not even those of national interest, because economic health should result, primarily, from essentially unhindered private sector activities. This approach is not direct enough and is subject to the usual corrupting effects of special interest lobbies. Rather, the economy should be free to run its course under a legal framework that restricts it from generating significant negative externalities by directly prohibiting and limiting activities that would give rise to them, by responsibly licensing activities that require regulation, and by ensuring that all such costs be included in pricing.



The State can and should preserve the health of the economy, at the macro level, essentially through the Central Bank, and the Treasury. These institutions must act with independence, and coherence, within the general and specific regulatory frameworks applicable the activities of the public and private sectors. The former, by controlling inflation through adjustments to the discount rate, and through purchase and sale operations of Treasury bonds in the open market, and the latter, by complementing, by exception, the funding of the comprehensive State budget by responsibly incurring and retiring debt, by issuing and calling its bonds as may be appropriate.



Thus, taxes should not only be the source of State funding, in order that it may fulfill its constitutional ends, but must also be its source par excellence, almost exclusive. In addition, the constitutional ends of the State and its consequent activities must constantly aim at the direct search for tangible citizen welfare through the provision of services within its exclusive competence, in the areas of Environment Food and Health Security, Energy Education and Comprehensive Development Security, Social and Internal Security, and National Defense Security, drastically limiting the supplementation of State tax revenues through indebtedness, or complementary activities, or entrepreneurial ventures, particularly those in which it would compete with the private sector, something with which the great majorities would also agree.



Moreover, when State interventions in private sector activities are socially necessary, accepted, and extant, they must not be conducted by the State as entrepreneur, as stated, save in rare exceptions, and must always be done directly, through the comprehensive State budget, targeting the pertinent strategic sectors and actors, without neglecting the most impoverished social strata, and without resorting to special tax regimes.



Now therefore, having linked the tax issue with the constitutional ends of the State, in its natural context, which is the comprehensive State budget, the heart of the State fiscal system, and a fundamental instrument of governance, it should be noted that the State fiscal system in the XXI century must gather certain essential characteristics for the State to be able to comply in the most effective and efficient manner with its central objective, the direct search for tangible citizen welfare:



1. Conceptual simplicity



2. Administrative simplicity



3. Fiscal divorce



4. Absolute transparency



The indicated conceptual and administrative simplicity requirements would demand the existence of a single tax, or sole tax, which would be a sole consumption tax, or SCT, applicable exclusively at the consumer product level without exception, and would have a flat fixed rate, say of less than 20%. That is, the SCT would be applicable to the goods and services produced wholly or partially in the country, for direct personal consumption, acquired by individuals, or by legal entities, regardless of the purposes or uses intended or given, including as inputs, or for resale, or for export. This tax would be paid by individuals and legal entities upon each purchase, in a manner similar to that of the current payment method of the general sales tax, GST, segregating its amount, in the invoice, from the total price of goods and services concerned, with the individuals or legal entities selling, that would collect it, regardless of their nature or size, incurring the obligation of immediate payment to the Tax Authority, as allowed by the information and communication technologies in existence at the time.



The conceptual and administrative simplicity required would also demand, as already stated, the absence of special tax regimes, that is, the absence of tax credits of any kind, or deductions, or exemptions, or reductions, or fragmentations, or waivers, or any distinction in the tax rules applicable to different legal entities or different individuals, or between these categories. Thus, having only the SCT, there would be no taxes on income, or property, or inheritance, for example, and it would per force have to be collected and administered at the central level by the Tax Authority and the Treasury, respectively.



The required fiscal divorce within the State would consist of and require the total and irreversible separation and independence of the category of revenues from the category of expenditures in the comprehensive State budget, that is, of SCT collections from the category of uses or applications of funds to public expense and to public investment, without exception, beyond the correspondence that they must keep to maintain a reasonable fiscal balance and the national debt from Treasury bond issues at a minimum level, and under control. Therefore, the comprehensive State budget must consider and include a National Prosperity Reserve Fund (NPRF) which would allow for the growth of public spending and investment in line with the historical growth of the national GDP in times of Economic Recession, and even of Economic Depression, that is, that would enable the State to perform compensatory counter-cyclical economic stimuli whenever convenient.



Furthermore, in the absence of the referred traditional instruments of manipulation through taxes, in order for the State to be able to comply fully with its primary purpose, which would be the direct search for the tangible citizen welfare, as pointed out, there would per force be cases of socially necessary and accepted State interventions in private sector activities, that it would not perform as an entrepreneur, but rather would be made directly, targeting the pertinent strategic sectors and actors, without forgetting the most impoverished population strata, by means of nonrefundable contributions, or of loans, or of complementary capital stock, by the Treasury according to the referred comprehensive budget. These interventions by the State in the activities of the private sector, through the Treasury, would be subject to private and public oversight, to satisfy the requirement of absolute transparency, by publishing the details of each case in the corresponding Web page, as part of the fiscal accountability of the nation.



This new instrument of economic stimulus, and of social justice, would eliminate the deceptions and errors to which the more complex elements of the current tax system are subject, by individuals and legal entities, as well as the armies of private sector lawyers constantly confronted with the armies of public sector lawyers that produce a zero-sum economic result. In addition, this instrument would simplify the State function, allowing its reorganization, reform, and consequent reduction and public savings, and would eliminate tens of thousands of lawsuits of all types related to tax issues and the consequent futile efforts of and at the Judiciary to make or undo justice, resulting in savings and increased productivity in the private sector.



A fiscal system of this kind, under equal internal and external economic environments, in comparison with the current, traditional system, would not only facilitate but would encourage the establishment of a socially acceptable minimum standard of living for the most impoverished, by aiming to achieve, over time, for the poorest population stratum that would together generate 1% of the national GDP, a monotonically increasing average per capita consumption relative to the national per capita GDP, that, in a context of national per capita GDP growth, especially, would constitute an objective, and realistic, economic and social growth and inclusion index, according to the economic possibilities of the nation.



Thus, a worthy and realistic national goal, in the mid to long term, would be to attain a consumption level for the poorest population stratum together generating 1% of the national GDP of not less than, say, 10% of the consumption level of the strata comprised by the wealthiest individuals together generating a reference level of 50% of the national GDP, with the concomitant stimulus to savings and investment. Over the remainder of this century, this reference level would be slowly and judiciously decreased for greater equality and inclusion of the poor.



Given time, this fiscal system would, at the micro level, achieve this goal and the wider national objective of economic and social inclusion, by allowing the financing of all manner of regular and emergency social support programs, including a program of supplementary liquid income, and their monitoring in a scheme of comprehensive zero-based State budgeting by results, with the necessary transparency to effectively combat corruption in the public and private sectors. Crucially, a fiscal system of this type would enable the citizen determination, in a democratic and direct manner, of the percentage share of the various categories of expense and investment in the comprehensive State budgets, at least for the aforementioned broad categories of Environment Food and Health Security, Energy Education and Comprehensive Development Security, Social and Internal Security, and National Defense Security.



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First published on October 4, 2011