(Week 16 - Monday, Nov. 24)
I would pose a question. Let us imagine that a young worker, say twenty-five years of age, wanted to find a prudent way to insure that he would have enough money when he retired forty years hence. Let's suppose further that he subtracted money out of his paycheck to provide for that eventuality, which would, of course, amount to a foregoing of the benefit of already earned purchasing power for those intervening decades. Would it be reasonable for this worker to hand this money over to a casino gambler based on the assurance that he could be trusted to gamble with it "prudently" and return these funds in due time, with interest, out of his winnings?
Would we not say that this worker was naïve at best, foolhardy at worst, to accept such terms for the supposed safekeeping and management of his heard-earned money? Yet, that is essentially the arrangement people agree to when they allow their money to be given over to retirement portfolio managers to hold in trust and, hopefully, grow the value of their accounts.
I am not saying that retirement portfolio managers are in their own minds willful gamblers with other people's funds, or necessarily dishonest. On the contrary, they may very well be honest brokers who take seriously their fiduciary responsibility to hold in trust and manage wisely their clients funds. The problem is that such pools of deferred earned income act essentially as slush funds out of which "investors" (financial interests looking for ways to earn money with money, as opposed to investing in actual economic enterprise) draw capital to use in speculative financial activity.
We have been through a period of some decades when this scheme seemed to work. After all, have there not been millions of people who have had money deducted from their paychecks or made voluntary contributions to retirement accounts and pension funds who have in due time drawn out the benefits promised? Indeed, this has happened (though not nearly in all cases, to be sure). It should be noted, however, that we have in recent decades lived through an unprecedented era in which real economic output has for many reasons multiplied many-fold. This is true especially since the 1930's, which saw the advent of Social Security and the beginning of the proliferation of privately funded retirement accounts, in large part due to the successes of organized labor at the bargaining table. This burgeoning economic activity has made it possible to keep up with paying benefits promised out of current cash flows. This could not have been done otherwise since, within a "debt"-based monetary system, there is no way that monies supposedly sequestered for decades could actually have been held out of the flows of the money supply without causing catastrophic economic contraction.
The possibilities for continuing in the pretense that income withheld decades ago is somehow the source of funds being drawn upon to maintain current retirees can no longer be maintained. The actual physical economy can no longer double and redouble on a regular basis to keep up with continually compounding promissory paper. That is why retirement accounts are presently losing massive amounts of supposed value, or going broke altogether.
The prerequisite for a solution to the retirement account crisis is to return the money-creation-and-issuance franchise to the public sector, after which it would be possible to maintain the quantity of money in circulation at any level desired as a matter of public policy.
The size of the monetary pool could be set such that a large portion of it could indeed be put away in retirement accounts without creating the need to borrow money into circulation at "interest" to make up for the amount so sequestered. Some of it could even be invested in bonafide economic activity. With the existence of an adequate money supply assured, opportunities for making "investments" that are essentially schemes to "earn" money with money would be greatly reduced, and those who would be inclined to invest their retirement savings would be obliged to seek their opportunities in the role of financial partners to productive enterprise. Thus the genuine activity that current "investment" strategies purport to be would become a reality.
This said, I would recommend that the putting away of monies for funding our "golden years" be deemphasized. Even if this arrangement is supportable within the context of a publicly-issued money supply, it is a bit of a ruse. This is because material wealth generation that is dedicated to supporting needs in any given period of time is actually financed by money flowing in that same time. Injecting funds that have been inactive for decades into that flow would introduce monetary distortions that would have to be compensated for with a great deal of extra "paperwork", both to manage payouts in present time, and to maintain such funds over the years. To be sure, the numbers could be made to work, but why accomplish the same end by a more laborious route?
A better way to handle the situation, I would suggest, is by the establishment of social contracts to manage the distribution of resources to meet real needs in real time. In effect, that is what we are doing anyway, the extra mental gymnastics required to maintain the illusions of money-put-away notwithstanding. A hybrid of the money-put-away and social-contract techniques would be to set up arrangements whereby abstract credits could accrue to work history, the ultimate value of which would be determined at the time benefits were drawn upon.
As a further evolution in our thinking, I would suggest a relatively lesser dependence on financial arrangements, and a greater emphasis on investments in the material and human realities, to provide for our later years. The idea of the myriad members and sectors of society mutually supporting each other across every stage of life, as opposed to each of us competing to have our needs covered individually through financial nest eggs, needs to be explored. One factor that would expedite this evolution would be the removal of the threat to the family homestead caused by property taxes. In my view, property taxes are unwarranted, illegal and anti-ethical liens against already paid-for personal property. Their elimination would be a major factor in enabling people to secure their personal estate in old age.
Finally, I would suggest that we think of the provision for those of advanced years, not so much in terms of special "retirement" benefits, but as an integral part of the securing of the material adequacy and personal dignity of every person. Such a social ethic would contribute to the regarding of our "retirement" years as a period ripe with life and the possibilities of elderhood, rather than a social institution for the presumed idleness and "pensioning off" of those no longer deemed "economically useful" in the labor force.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Monday, November 24, 2008
Friday, November 21, 2008
Column #84 MONETIZING SOCIAL SECURITY
(Week 15 - Friday, Nov. 21)
In the last two columns I have described the problematic financial nature of how retirement accounts are currently conceived and set up. In the case of Social Security it is not realistic to expect that deductions from paychecks would be monies put away on behalf of retirees until the day when they can begin to draw them out. In actuality they constitute a tax that finances current revenue flows, out of which benefits are paid. As for private retirement accounts, money put away, whether by involuntary payroll deductions or voluntary contributions, are effectively transformed from being purchasing power earned in present time, into funds that are used to make financial "investments". These "investments" will, most commonly, be in the form of "debt" contracts that people are obliged to take on in their lives by the very fact that the deferring of purchasing power represented by these retirement accounts will deprive the economy of the ability to complete its own market cycle, and so make such borrowing necessary.
In both of these scenarios the benefit sought through the putting away of money for retirement is ultimately not realized. Such arrangements may have seemed to have worked for the last two or three generations, but that is because the shortchanging of purchasing power could be covered by the taking on of more "debt" to cover current financial flows, and their workings obscured by deceptive concepts and language. Now that cost is coming due, as indicated by the massive losses in the supposed value of retirement funds, or their going bankrupt altogether. The mounting indebtedness of the economy is now reaching the point where even the basis for Social Security appears threatened.
The prerequisite to resolving this crisis is to take back the money-creation franchise from the private banking system, and return it to the public sector. This can be done through a legislative act that would repeal the corporate charter of the Fed, purchase its outstanding stock from member banks, and bring its capabilities under the direction of the U.S. Treasury. From that point, money would be either spent or loaned into existence directly out of the Treasury.
With respect to Social Security, beneficiaries would, as now, receive checks from the Treasury, but the difference is that the Treasury would not itself have to "borrow" the money to cover them, and thereby add to the Federal "debt". It would instead create the money "out of thin air" with the writing of the checks (as banks do now for the money they lend to the government). Monetarily speaking, their ability to do this is unlimited, so the mental ruse of thinking that there must exist some fund out of which the money is being drawn would be less tenable. The only real limit to what can be funded is determined by the physical actualities of the resources available to the society as a whole to provide for the needs of the elderly. An assessment would be made (much in the manner that any budgetary process is conducted now) that would determine what part of the national income would need to accrue to seniors, and then legislated into law. That sum, apportioned between eligible recipients by whatever formula is used, would be what each would receive.
Alternately, within a public monetary system, it would also be possible for the Treasury to maintain enough money in circulation so that deductions could be made from paychecks and put away in a Social Security Trust Fund against the day when it would be drawn upon. This would work in this case simply because money issued publicly would not be obliged to "earn interest". There would be no cost associated with letting such funds lie idle, for decades even, because the additional money that would be needed to compensate for their withdrawal from general circulation could be issued by the Treasury and spent into existence.
That said, I recommend that it not be done this way. This is because to do so would effectively begin to put conditions on the allocation of resources that wound be available when these monies are eventually paid out, which, in turn, could create issues of equity and adequacy that could not be anticipated. As a compromise solution, it would be possible to assign social credits to money earned (instead of subtracting money to be put away), the value of which would be determined at the time of retirement, but this would create additional paperwork and also introduce possible complications with respect to the equities of distribution.
In any case, if we went to a public monetary system all of these options, or combinations thereof, could be made to work on a sound and consistent monetary basis. We as a society would have opened up the possibility of working out provision for the elderly that was reliable, understandable and based upon the physical ability of the economy at the time to provide it.
A question naturally arises concerning whether this inflow of "cost free" money into the economy would balloon the money supply, and thereby cause inflation. If it were managed well it would not, simply because any excess buildup could be removed from circulation through taxation, and retired. Thus would the quantity of money in circulation be maintained at the level required to monetize (lend a monetary dimension to) any activity in the economy that needed to be accounted for, including putting away funds to cover Social Security, if that were what is called for.
In the next column I will describe how a return of the monetary franchise to public control could open the door to resolving the problems associated with private retirement accounts.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
In the last two columns I have described the problematic financial nature of how retirement accounts are currently conceived and set up. In the case of Social Security it is not realistic to expect that deductions from paychecks would be monies put away on behalf of retirees until the day when they can begin to draw them out. In actuality they constitute a tax that finances current revenue flows, out of which benefits are paid. As for private retirement accounts, money put away, whether by involuntary payroll deductions or voluntary contributions, are effectively transformed from being purchasing power earned in present time, into funds that are used to make financial "investments". These "investments" will, most commonly, be in the form of "debt" contracts that people are obliged to take on in their lives by the very fact that the deferring of purchasing power represented by these retirement accounts will deprive the economy of the ability to complete its own market cycle, and so make such borrowing necessary.
In both of these scenarios the benefit sought through the putting away of money for retirement is ultimately not realized. Such arrangements may have seemed to have worked for the last two or three generations, but that is because the shortchanging of purchasing power could be covered by the taking on of more "debt" to cover current financial flows, and their workings obscured by deceptive concepts and language. Now that cost is coming due, as indicated by the massive losses in the supposed value of retirement funds, or their going bankrupt altogether. The mounting indebtedness of the economy is now reaching the point where even the basis for Social Security appears threatened.
The prerequisite to resolving this crisis is to take back the money-creation franchise from the private banking system, and return it to the public sector. This can be done through a legislative act that would repeal the corporate charter of the Fed, purchase its outstanding stock from member banks, and bring its capabilities under the direction of the U.S. Treasury. From that point, money would be either spent or loaned into existence directly out of the Treasury.
With respect to Social Security, beneficiaries would, as now, receive checks from the Treasury, but the difference is that the Treasury would not itself have to "borrow" the money to cover them, and thereby add to the Federal "debt". It would instead create the money "out of thin air" with the writing of the checks (as banks do now for the money they lend to the government). Monetarily speaking, their ability to do this is unlimited, so the mental ruse of thinking that there must exist some fund out of which the money is being drawn would be less tenable. The only real limit to what can be funded is determined by the physical actualities of the resources available to the society as a whole to provide for the needs of the elderly. An assessment would be made (much in the manner that any budgetary process is conducted now) that would determine what part of the national income would need to accrue to seniors, and then legislated into law. That sum, apportioned between eligible recipients by whatever formula is used, would be what each would receive.
Alternately, within a public monetary system, it would also be possible for the Treasury to maintain enough money in circulation so that deductions could be made from paychecks and put away in a Social Security Trust Fund against the day when it would be drawn upon. This would work in this case simply because money issued publicly would not be obliged to "earn interest". There would be no cost associated with letting such funds lie idle, for decades even, because the additional money that would be needed to compensate for their withdrawal from general circulation could be issued by the Treasury and spent into existence.
That said, I recommend that it not be done this way. This is because to do so would effectively begin to put conditions on the allocation of resources that wound be available when these monies are eventually paid out, which, in turn, could create issues of equity and adequacy that could not be anticipated. As a compromise solution, it would be possible to assign social credits to money earned (instead of subtracting money to be put away), the value of which would be determined at the time of retirement, but this would create additional paperwork and also introduce possible complications with respect to the equities of distribution.
In any case, if we went to a public monetary system all of these options, or combinations thereof, could be made to work on a sound and consistent monetary basis. We as a society would have opened up the possibility of working out provision for the elderly that was reliable, understandable and based upon the physical ability of the economy at the time to provide it.
A question naturally arises concerning whether this inflow of "cost free" money into the economy would balloon the money supply, and thereby cause inflation. If it were managed well it would not, simply because any excess buildup could be removed from circulation through taxation, and retired. Thus would the quantity of money in circulation be maintained at the level required to monetize (lend a monetary dimension to) any activity in the economy that needed to be accounted for, including putting away funds to cover Social Security, if that were what is called for.
In the next column I will describe how a return of the monetary franchise to public control could open the door to resolving the problems associated with private retirement accounts.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Wednesday, November 19, 2008
Column #83 THE COUNTER-PRODUCTIVE ASPECT OF RETIREMENT ACCOUNTS FUNDED WITH "DEBT"-BASED MONEY
(Week 15 - Wednesday, Nov. 19)
In yesterday's column I talked about how the Social Security Trust Fund is not a pool of money deducted from paychecks and held in trust, as is commonly assumed, and that the political recriminations over the supposed "raiding" of this fund to cover the general expenses of government are misguided in that there is no way that these funds realistically could be withheld from the general revenue flow without creating an effective need to borrow an additional sum into circulation at "interest" from the private banking system to replace the monies so sequestered. Thinking of it as a fund that is being "raided" distracts our minds away from the fact that the remedy for the "trust fund" issue is dependent on making the transformation from a "debt"-based private monetary system, to one in which our money supply is issued directly out of the U.S. Treasury.
The problem with private retirement funds, including 401k's, Keoghs, company pensions and other private-nest-egg accounts, is similar, though it manifests in a somewhat different way. Rather than being used to make up for deficits in other sectors of the Federal budget, private retirement accounts are effectively capital funds for monetary speculation in the financial markets (government accounts other than Social Security can be a mix of the two). Within the context of an economy whose money supply is borrowed at "interest" from private banks, this could hardly be otherwise.
Most people realize their nest-egg money is being "invested", and generally approve of the idea. After all, the earnings are being applied towards growing the balances of their accounts. To be sure, this is one way their money can be managed, but I would suggest that if people thought through fully the implications such an arrangement, they would see the high cost that they, and the social order in general, are paying for the widespread practice of providing for retirement accounts via private "investing" of "debt"-based money.
To understand this, we need to take a look at the basic dynamics of the free-enterprise market cycle. Goods are produced, and then they are sold in the marketplace. The cost of bringing goods to market is accounted for exactly by the wages, salaries and profits paid to those who are responsible for producing them. In the aggregate, the number of dollars paid to those responsible for producing goods (i.e. the cost of production) always matches, to the dollar, the income they take receive as they transition to the role of consumers (i.e. gross income). This is a mathematical identity, and its balance cannot be upset any more that a drop of fluid circulating in a closed system can avoid coming back to the place where it started, unless, that is, there is a leak in system.
In a market cycle within which the circulating medium is "debt"-based dollars there is indeed a leak in the system; specifically the leakage cause by the obligation to pay "interest" for the use of the currency. The way that works out is this:
Let us say that a worker gets paid $2000 for whatever value he is responsible for producing. He takes home his paycheck and pays his bills. Let suppose that he makes a mortgage payment of $600, of which $200 is applied to the retirement of the loan, and $400 is credited towards the "interest" payment.
In his role as producer, our consumer accounted for $2000 dollars worth of goods, but on the consumer side of the equation he has less than that to spend. The $200 dollars applied to the retirement of the loan is actually accounted for as purchasing power, because it is part of the sum of money he borrowed to compensate other people for building his house. For the $400 paid towards the "interest", however, he receives no goods of tangible value. This means that by the time he has spent his paycheck he will be able to purchase only $1600 dollars worth of goods, and an equivalent of $400 worth of unsold goods will pile up in some producer's inventory.
If money paid out as the cost of production does not show up fully as disposable income, goods go unsold, orders for new goods decline, workers are laid off, less goods are produced, and the market cycle goes into a spiraling contraction. The only way this tendency can be prevented is for someone to keep borrowing more money into circulation to buy up otherwise un-sellable goods.
Just as "interest" charges attached to the creation of money cause a shortfall in purchasing power, so does the subtraction of money from the income of a working person to fund a retirement account. Rather than being used to buy up goods produced in present time, purchasing power deferred until retirement is "loaned" back to workers in the economy indirectly through "investments". These will include buying up the "debt" contracts that people will increasingly be obliged to take on in their lives by the very fact that the deferring of purchasing power represented by these retirement accounts will rob the economy of the ability to complete its own market cycle, and so make such borrowing necessary.
Thus, a pernicious cycle is set up whereby income earned becomes purchasing power deferred, which is compensated for by its transformation into "money loaned". The irony is that the very funding of retirement accounts with "debt"-based money eats away at and eventually destroys the economic base that retirees will depend upon. The cumulative burden of this snowballing "debt" and speculative expectation is precisely what is causing millions of retirement accounts at present to lose much of their value, or go belly-up altogether.
None of this is to say that the material wellbeing of the elderly portion of our population cannot be provided for. On the contrary, to do so is both a moral and an economic imperative. We will be exploring ways to make it happen on a sound and consistent basis as these columns continue.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
In yesterday's column I talked about how the Social Security Trust Fund is not a pool of money deducted from paychecks and held in trust, as is commonly assumed, and that the political recriminations over the supposed "raiding" of this fund to cover the general expenses of government are misguided in that there is no way that these funds realistically could be withheld from the general revenue flow without creating an effective need to borrow an additional sum into circulation at "interest" from the private banking system to replace the monies so sequestered. Thinking of it as a fund that is being "raided" distracts our minds away from the fact that the remedy for the "trust fund" issue is dependent on making the transformation from a "debt"-based private monetary system, to one in which our money supply is issued directly out of the U.S. Treasury.
The problem with private retirement funds, including 401k's, Keoghs, company pensions and other private-nest-egg accounts, is similar, though it manifests in a somewhat different way. Rather than being used to make up for deficits in other sectors of the Federal budget, private retirement accounts are effectively capital funds for monetary speculation in the financial markets (government accounts other than Social Security can be a mix of the two). Within the context of an economy whose money supply is borrowed at "interest" from private banks, this could hardly be otherwise.
Most people realize their nest-egg money is being "invested", and generally approve of the idea. After all, the earnings are being applied towards growing the balances of their accounts. To be sure, this is one way their money can be managed, but I would suggest that if people thought through fully the implications such an arrangement, they would see the high cost that they, and the social order in general, are paying for the widespread practice of providing for retirement accounts via private "investing" of "debt"-based money.
To understand this, we need to take a look at the basic dynamics of the free-enterprise market cycle. Goods are produced, and then they are sold in the marketplace. The cost of bringing goods to market is accounted for exactly by the wages, salaries and profits paid to those who are responsible for producing them. In the aggregate, the number of dollars paid to those responsible for producing goods (i.e. the cost of production) always matches, to the dollar, the income they take receive as they transition to the role of consumers (i.e. gross income). This is a mathematical identity, and its balance cannot be upset any more that a drop of fluid circulating in a closed system can avoid coming back to the place where it started, unless, that is, there is a leak in system.
In a market cycle within which the circulating medium is "debt"-based dollars there is indeed a leak in the system; specifically the leakage cause by the obligation to pay "interest" for the use of the currency. The way that works out is this:
Let us say that a worker gets paid $2000 for whatever value he is responsible for producing. He takes home his paycheck and pays his bills. Let suppose that he makes a mortgage payment of $600, of which $200 is applied to the retirement of the loan, and $400 is credited towards the "interest" payment.
In his role as producer, our consumer accounted for $2000 dollars worth of goods, but on the consumer side of the equation he has less than that to spend. The $200 dollars applied to the retirement of the loan is actually accounted for as purchasing power, because it is part of the sum of money he borrowed to compensate other people for building his house. For the $400 paid towards the "interest", however, he receives no goods of tangible value. This means that by the time he has spent his paycheck he will be able to purchase only $1600 dollars worth of goods, and an equivalent of $400 worth of unsold goods will pile up in some producer's inventory.
If money paid out as the cost of production does not show up fully as disposable income, goods go unsold, orders for new goods decline, workers are laid off, less goods are produced, and the market cycle goes into a spiraling contraction. The only way this tendency can be prevented is for someone to keep borrowing more money into circulation to buy up otherwise un-sellable goods.
Just as "interest" charges attached to the creation of money cause a shortfall in purchasing power, so does the subtraction of money from the income of a working person to fund a retirement account. Rather than being used to buy up goods produced in present time, purchasing power deferred until retirement is "loaned" back to workers in the economy indirectly through "investments". These will include buying up the "debt" contracts that people will increasingly be obliged to take on in their lives by the very fact that the deferring of purchasing power represented by these retirement accounts will rob the economy of the ability to complete its own market cycle, and so make such borrowing necessary.
Thus, a pernicious cycle is set up whereby income earned becomes purchasing power deferred, which is compensated for by its transformation into "money loaned". The irony is that the very funding of retirement accounts with "debt"-based money eats away at and eventually destroys the economic base that retirees will depend upon. The cumulative burden of this snowballing "debt" and speculative expectation is precisely what is causing millions of retirement accounts at present to lose much of their value, or go belly-up altogether.
None of this is to say that the material wellbeing of the elderly portion of our population cannot be provided for. On the contrary, to do so is both a moral and an economic imperative. We will be exploring ways to make it happen on a sound and consistent basis as these columns continue.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Monday, November 17, 2008
Column #82 THE SUPPOSED "RAIDING" OF THE SOCIAL SECURITY TRUST FUND
(Week 15 - Monday, Nov. 17)
The virtually universal view of pensions or retirement accounts is that they are monies that are put away in dedicated funds that are held in trust until the day they can be drawn upon when the beneficiary reaches an eligible age. This is not, in my view, an accurate description of how these accounts are presently constituted within the current monetary system, and the widespread misunderstanding about that has led to expectations that cannot possibly be fulfilled. The result is that, while we as a society have enacted social contracts designed to insure the financial wellbeing of those who have attained an advanced age, they have been formulated in such a way that millions of people who are counting on the solvency of such arrangements are in the current financial crisis seeing their value decline precipitously, or are losing them altogether.
Retirement accounts can take on many forms. Let us look first at the one we citizens of the nation hold most in common, and perhaps take most for granted; i.e. the Social Security Trust Fund.
Let us imagine a situation in which money is deducted from the wages of a worker early in his productive years and "put away" in this fund. Now fast-forward to, say, three decades later when this person retires and draws his first Social Security check. Let us suppose that he spends the first of those dollars on eggs for his morning breakfast. I would ask the question, were those eggs really purchased with dollars that were earned thirty years before? If one answered "yes", one would also have to answer the question, "Where, then, have these dollars been held for all that time?"
For some strange reason we in this "financially sophisticated" society seem to think that when retirement money is deducted from a paycheck it must be put into some vault where it is kept for safekeeping until the day that we need it. I would point out that if that were indeed the case, then the money so sequestered would constitute a net withholding of money from circulation that would have to made up for by someone "borrowing" an equivalent amount into circulation from the private banking system. To "fully fund" the Social Security Trust Fund, therefore, the social order would be obliged to take on an immense amount of new "debt" on which compounding "interest" payments would need to be made. What is more, these idle funds held in trust would themselves represent a vast quantity of money that had been borrowed into circulation, and upon which "interest" payments would need to be paid in an ongoing manner. Essentially we the people would be paying double "interest" charges for the use of the sum of money held in the trust fund. Monetarily speaking, this is a prohibitively expensive arrangement.
Nonetheless, in our political dialogue we as a society seem to lack a basic understanding of this fact. If that were not so, why then in the political arena is there an almost universal chorus of protest raised about the supposed raiding of the Social Security Trust Fund to finance general expenses of the Federal government? Do we really expect that these hundreds of billions of dollars should be left to languish in a vault unused until the workers from whose checks they were deducted retire and start to draw them out? The "interest" payment on such a sum would of itself typically offset the whole value of the fund, or more.
This professed platform plank is so contrary to the realities they are obliged to deal with in their budget-making processes that it makes me wonder what they could be thinking of when they say such things. Assuming that they are for the most part sincere, then the passion and tenacity with which they cling to this dubious idea can only be a telling example of the great disconnect between their understanding of the monetary realities they are called upon to deal with, and the economic notions that they hold. Truth be told, I don't think that our leaders are alone in this confusion, as I almost never hear anyone challenge them on this view in the public domain. On the contrary, almost invariably there comes an echoing demand from the public to "get spending under control" and stop the supposed "raid on their money".
The economic activity required to produce the first eggs of post-workforce life occurred within a few short days prior to their being consumed, and the money that financed that activity had to have come from cash flow that was concomitant with the productive process that was responsible for the material manifestation of the product itself. In other words, material wealth that is coming into existence today is financed by dollars flowing today. Whatever dollars were deducted from a worker's paycheck years ago had to have long since flowed into other economic activities. The notion that this could be otherwise within the current "debt"-based monetary system is a bookkeeping fantasy. Our failure to understand the actualities of our financial lives and deal with them in a clear and positive way is at the core of why we have become so anxious about the certainly of these so-called dedicated funds being there when we reach retirement age.
In truth the Social Security "Trust Fund" is not a trust fund. It is not money that has been put away. It is, rather, a system for the tallying of credits that determine the eligibility of each citizen for access to the money that is flowing through its operating budget in any given month after one has reached the age of eligibility. The monies that are is paid out through Social Security do not come out of a pool of capital that has been put away for that use, but are taken out of revenues flowing through government coffers in present time.
The problem with thinking of it as a fund that is being raided is that it distracts our minds away from the true nature of the threat to the national economy which underwrites this social welfare program, which in turn is the source of the perception that it is being raided it in the first place; that is, the unrelenting demands placed upon the economy in general, and government budgets in particular, by the "interest" payments required to maintain the money supply. Such misunderstanding leads to the misguided proposal to insure the purported fund's solvency into the future by opening it up for "investment" in the financial markets. The ultimate irony is that if such a proposal is carried out, it truly will become a fund that has been raided. I will continue with this analysis in the next column.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
The virtually universal view of pensions or retirement accounts is that they are monies that are put away in dedicated funds that are held in trust until the day they can be drawn upon when the beneficiary reaches an eligible age. This is not, in my view, an accurate description of how these accounts are presently constituted within the current monetary system, and the widespread misunderstanding about that has led to expectations that cannot possibly be fulfilled. The result is that, while we as a society have enacted social contracts designed to insure the financial wellbeing of those who have attained an advanced age, they have been formulated in such a way that millions of people who are counting on the solvency of such arrangements are in the current financial crisis seeing their value decline precipitously, or are losing them altogether.
Retirement accounts can take on many forms. Let us look first at the one we citizens of the nation hold most in common, and perhaps take most for granted; i.e. the Social Security Trust Fund.
Let us imagine a situation in which money is deducted from the wages of a worker early in his productive years and "put away" in this fund. Now fast-forward to, say, three decades later when this person retires and draws his first Social Security check. Let us suppose that he spends the first of those dollars on eggs for his morning breakfast. I would ask the question, were those eggs really purchased with dollars that were earned thirty years before? If one answered "yes", one would also have to answer the question, "Where, then, have these dollars been held for all that time?"
For some strange reason we in this "financially sophisticated" society seem to think that when retirement money is deducted from a paycheck it must be put into some vault where it is kept for safekeeping until the day that we need it. I would point out that if that were indeed the case, then the money so sequestered would constitute a net withholding of money from circulation that would have to made up for by someone "borrowing" an equivalent amount into circulation from the private banking system. To "fully fund" the Social Security Trust Fund, therefore, the social order would be obliged to take on an immense amount of new "debt" on which compounding "interest" payments would need to be made. What is more, these idle funds held in trust would themselves represent a vast quantity of money that had been borrowed into circulation, and upon which "interest" payments would need to be paid in an ongoing manner. Essentially we the people would be paying double "interest" charges for the use of the sum of money held in the trust fund. Monetarily speaking, this is a prohibitively expensive arrangement.
Nonetheless, in our political dialogue we as a society seem to lack a basic understanding of this fact. If that were not so, why then in the political arena is there an almost universal chorus of protest raised about the supposed raiding of the Social Security Trust Fund to finance general expenses of the Federal government? Do we really expect that these hundreds of billions of dollars should be left to languish in a vault unused until the workers from whose checks they were deducted retire and start to draw them out? The "interest" payment on such a sum would of itself typically offset the whole value of the fund, or more.
This professed platform plank is so contrary to the realities they are obliged to deal with in their budget-making processes that it makes me wonder what they could be thinking of when they say such things. Assuming that they are for the most part sincere, then the passion and tenacity with which they cling to this dubious idea can only be a telling example of the great disconnect between their understanding of the monetary realities they are called upon to deal with, and the economic notions that they hold. Truth be told, I don't think that our leaders are alone in this confusion, as I almost never hear anyone challenge them on this view in the public domain. On the contrary, almost invariably there comes an echoing demand from the public to "get spending under control" and stop the supposed "raid on their money".
The economic activity required to produce the first eggs of post-workforce life occurred within a few short days prior to their being consumed, and the money that financed that activity had to have come from cash flow that was concomitant with the productive process that was responsible for the material manifestation of the product itself. In other words, material wealth that is coming into existence today is financed by dollars flowing today. Whatever dollars were deducted from a worker's paycheck years ago had to have long since flowed into other economic activities. The notion that this could be otherwise within the current "debt"-based monetary system is a bookkeeping fantasy. Our failure to understand the actualities of our financial lives and deal with them in a clear and positive way is at the core of why we have become so anxious about the certainly of these so-called dedicated funds being there when we reach retirement age.
In truth the Social Security "Trust Fund" is not a trust fund. It is not money that has been put away. It is, rather, a system for the tallying of credits that determine the eligibility of each citizen for access to the money that is flowing through its operating budget in any given month after one has reached the age of eligibility. The monies that are is paid out through Social Security do not come out of a pool of capital that has been put away for that use, but are taken out of revenues flowing through government coffers in present time.
The problem with thinking of it as a fund that is being raided is that it distracts our minds away from the true nature of the threat to the national economy which underwrites this social welfare program, which in turn is the source of the perception that it is being raided it in the first place; that is, the unrelenting demands placed upon the economy in general, and government budgets in particular, by the "interest" payments required to maintain the money supply. Such misunderstanding leads to the misguided proposal to insure the purported fund's solvency into the future by opening it up for "investment" in the financial markets. The ultimate irony is that if such a proposal is carried out, it truly will become a fund that has been raided. I will continue with this analysis in the next column.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Friday, November 14, 2008
Column #81 THE MONETARY ASPECTS OF INSURANCE
(Week 14 - Friday, Nov. 14)
The essence of insurance agency is the formation of a pool of money into which people make a contribution, and from which they can expect to receive compensation to cover the financial cost of a potentially catastrophic loss of life, limb or property. These funds are generally managed by corporations. This means, supposedly, that such businesses have been issued a corporate charter by the society they supposedly serve to perform this specific function for the benefit of that society. As long as what transpires stays within these bounds, everything is very upfront, straightforward and transparent. The function for which the agency was formed is perfectly legitimate, and the social order that chartered it is well served.
Over time, this has been less-and-less the case. The premium payments which people make have been dedicated less to protecting them from loss, and more to forming pools of capital out of which financial speculators gamble with their money. This is done in the name of "investing" their premiums to help defray their cost, but in reality it is a withholding of policyholders money under deceptive pretenses, which is then used to buy up the increased quantity of "debt" paper that the public (including the company's clientele) is obliged to take on due to the decreased consumer buying power that is caused by the very withholding of that money.
Understood in this way, this widespread mode of doing business by the insurance industry can be seen, not only as a matter of questionable business ethics, but also as a practice with monetary implications. To put it succinctly, insurance companies have become financial purveyors on behalf of their stockholders at the expense of their policyholders and the public at large.
The question then becomes, what can be done about it? The obvious answer may seem to be more regulation, but this does not get at the root of the problem, which is that within a monetary system in which money is borrowed into circulation at "interest" from private banks, there exists a virtual financial imperative for that "money" itself to earn "interest" to cover the "interest" cost of maintaining it in circulation. It is very difficult for a person in a position of fiduciary trust to justify doing otherwise.
If regulations governing the insurance industry were put into effect which mandated that they maintain the monies collected through premiums as idle (non-invested) pools of capital, then that in itself would constitute a diminishing of the money supply which would have to be made up for with more borrowing by the nation as a whole, whether privately or through government. This is a catch-22 that executives of the insurance industry are not realistically in a position to do anything about by themselves (whether they realize the nature of their dilemma, and would be inclined to do anything about it is another matter). For the most part they are playing the game the only way they can see to play it.
The solution for the problem needs to come from society as a whole through its political process. The key is for the People to direct their government to reclaim their rightful money creation franchise from the private banking system. The initial steps in that process would be to repeal the Federal Reserve Act of 1913, purchase the outstanding stock of the Fed from the member banks who are holding it, and convert its resources and employees to the task of facilitating issuance of public money under the direction of the U.S. Treasury.
The Treasury would thereby gain the ability to maintain a quantity of currency in circulation that is calculated with precision to meet the needs of commerce for the nation. If one of those needs is to maintain an extra margin of money in circulation so that a certain amount is available to lie "un-invested" in pools of capital required to underwrite insurance policies, that is not a problem, as the increment of funds so designated can be issued at virtually no cost simply by adjusting the level of money supply.
The amount of capital needed to underwrite insurance policies is in the national aggregate considerable, even under the strictest interpretation of the requirements of the business. As such, it represents a great sum of money upon which, within the current system, someone is obliged to make "interest" payments just to keep it available for that purpose. To "invest" such funds, then, can seem to be the responsible option, the fact that this is in the larger picture monetarily self-defeating notwithstanding.
The very existence of such an "investment" opportunity attracts financial players who are not necessarily concerned about the ethics or logic of the way insurance companies do business, but are simply looking for a way to make money with money. Through the ownership of insurance company stock, they can make their demands and reap their reward. Whatever the case, insurance executives are effectively pressed into being agents for "investors" seeking a "profit" through the control of their policyholders' excess premium payments.
With the establishment of a system in which money is issued publicly, this seeming fiscal imperative (in the case of good-faith insurance agency), or opportunity (to the financial speculator) is effectively removed. This is because whatever amount of money was needed to be tied up in pools of insurance capital could be made up for quite readily by letting the level of the money supply rise as a matter of public policy.
Insurance companies could then be limited to being compensation pool managers by restrictions written into their corporate charters. As businesses, this need not be experienced as an arbitrary limitation, because it would allow them to focus on the crux of their task; or as a competitive hardship, because other companies working in the field would be obliged to observe the same boundaries. Their operations would be simplified, their costs lowered, and, I can imagine, the burdens of management greatly relieved. The net contributions through premium payments, and payouts for claim satisfaction could be tracked through a transparent public accounting. The company's customers and the public at large would be well served, and, I suggest, there would never have arisen a need for any massive "bailout". I wonder if the executives at AIG would agree.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
The essence of insurance agency is the formation of a pool of money into which people make a contribution, and from which they can expect to receive compensation to cover the financial cost of a potentially catastrophic loss of life, limb or property. These funds are generally managed by corporations. This means, supposedly, that such businesses have been issued a corporate charter by the society they supposedly serve to perform this specific function for the benefit of that society. As long as what transpires stays within these bounds, everything is very upfront, straightforward and transparent. The function for which the agency was formed is perfectly legitimate, and the social order that chartered it is well served.
Over time, this has been less-and-less the case. The premium payments which people make have been dedicated less to protecting them from loss, and more to forming pools of capital out of which financial speculators gamble with their money. This is done in the name of "investing" their premiums to help defray their cost, but in reality it is a withholding of policyholders money under deceptive pretenses, which is then used to buy up the increased quantity of "debt" paper that the public (including the company's clientele) is obliged to take on due to the decreased consumer buying power that is caused by the very withholding of that money.
Understood in this way, this widespread mode of doing business by the insurance industry can be seen, not only as a matter of questionable business ethics, but also as a practice with monetary implications. To put it succinctly, insurance companies have become financial purveyors on behalf of their stockholders at the expense of their policyholders and the public at large.
The question then becomes, what can be done about it? The obvious answer may seem to be more regulation, but this does not get at the root of the problem, which is that within a monetary system in which money is borrowed into circulation at "interest" from private banks, there exists a virtual financial imperative for that "money" itself to earn "interest" to cover the "interest" cost of maintaining it in circulation. It is very difficult for a person in a position of fiduciary trust to justify doing otherwise.
If regulations governing the insurance industry were put into effect which mandated that they maintain the monies collected through premiums as idle (non-invested) pools of capital, then that in itself would constitute a diminishing of the money supply which would have to be made up for with more borrowing by the nation as a whole, whether privately or through government. This is a catch-22 that executives of the insurance industry are not realistically in a position to do anything about by themselves (whether they realize the nature of their dilemma, and would be inclined to do anything about it is another matter). For the most part they are playing the game the only way they can see to play it.
The solution for the problem needs to come from society as a whole through its political process. The key is for the People to direct their government to reclaim their rightful money creation franchise from the private banking system. The initial steps in that process would be to repeal the Federal Reserve Act of 1913, purchase the outstanding stock of the Fed from the member banks who are holding it, and convert its resources and employees to the task of facilitating issuance of public money under the direction of the U.S. Treasury.
The Treasury would thereby gain the ability to maintain a quantity of currency in circulation that is calculated with precision to meet the needs of commerce for the nation. If one of those needs is to maintain an extra margin of money in circulation so that a certain amount is available to lie "un-invested" in pools of capital required to underwrite insurance policies, that is not a problem, as the increment of funds so designated can be issued at virtually no cost simply by adjusting the level of money supply.
The amount of capital needed to underwrite insurance policies is in the national aggregate considerable, even under the strictest interpretation of the requirements of the business. As such, it represents a great sum of money upon which, within the current system, someone is obliged to make "interest" payments just to keep it available for that purpose. To "invest" such funds, then, can seem to be the responsible option, the fact that this is in the larger picture monetarily self-defeating notwithstanding.
The very existence of such an "investment" opportunity attracts financial players who are not necessarily concerned about the ethics or logic of the way insurance companies do business, but are simply looking for a way to make money with money. Through the ownership of insurance company stock, they can make their demands and reap their reward. Whatever the case, insurance executives are effectively pressed into being agents for "investors" seeking a "profit" through the control of their policyholders' excess premium payments.
With the establishment of a system in which money is issued publicly, this seeming fiscal imperative (in the case of good-faith insurance agency), or opportunity (to the financial speculator) is effectively removed. This is because whatever amount of money was needed to be tied up in pools of insurance capital could be made up for quite readily by letting the level of the money supply rise as a matter of public policy.
Insurance companies could then be limited to being compensation pool managers by restrictions written into their corporate charters. As businesses, this need not be experienced as an arbitrary limitation, because it would allow them to focus on the crux of their task; or as a competitive hardship, because other companies working in the field would be obliged to observe the same boundaries. Their operations would be simplified, their costs lowered, and, I can imagine, the burdens of management greatly relieved. The net contributions through premium payments, and payouts for claim satisfaction could be tracked through a transparent public accounting. The company's customers and the public at large would be well served, and, I suggest, there would never have arisen a need for any massive "bailout". I wonder if the executives at AIG would agree.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Wednesday, November 12, 2008
Column #80 - THE AIG "BAILOUT PACKAGE"
(Week 14 - Wednesday, Nov. 12)
The lead article in Monday's Wall Street Journal announced that the Federal government has agreed to offer AIG (American International Group), the nation's largest insurance company, a "bailout package" worth $150 billion. This raises the question, has there occurred somewhere recently massive losses of life, injury and property that have made such a financial rescue plan a necessity? Clearly there has not. If we follow this line of inquiry through to its logical conclusion, we will discover that "insurance companies" are no longer primarily insurance companies. Rather, they have become more-and-more a means to create pools of capital to be used for financial speculation.
Theoretically an insurance company is a business that has been granted a corporate charter by the society it supposedly serves to gather and manage a pool of money for the purpose of providing people with protection against catastrophic financial expenses brought on by loss of life, health or property. The idea is that each person that subscribes to the service contributes money to a common pool of funds through the payment of premiums, and those relatively few people who experience a loss are then compensated out of it. The premium rates, then, would presumably be set at such a level that the amount of money in the pool would be adequate to compensate expected claims, plus provide enough left over to cover the actual expenses of the company, and allow for a modest profit. This is all so straightforward that it hardly warrants explanation, but increasingly it is not what happens.
Instead, insurance companies use the premiums they collect to create "investment" funds, which they then use for speculation in financial markets. While it is true that they do in fact pay claims out of premiums collected, their unstated financial speculation agenda causes them to have to charge higher premiums than they would otherwise have to merely to cover claims. They justify their "investments" by saying that they are merely acting responsibly with their customer's money. After all, so the rationale goes, since there always needs to be a substantial pool of capital maintained to insure that there are adequate funds available for when their customers experience a loss, they may as well "invest" these funds so that the income they produce in the meantime can be used to defray part of the cost of the premiums. On the surface this sounds reasonable. On a deeper level it is very deceptive.
To begin with, excess funds that are bound up in such "investments" are not, relatively speaking, very "liquid". That is, they are not readily available to cover ordinary day-to-day claims made against the capital pool. Therefore, the "investment" pool is essentially extra capital that must be maintained over and above the actuarial requirements of the insurance function itself.
It could be claimed that the nature of a given company's business is such that it insures against losses that occur infrequently and on a large scale, as might be the case, for example, for one whose primary business is to cover losses incurred from natural disasters. It would make good business sense, supposedly, to earn "interest" from these idyll funds while they are lying for long periods of time at the ready, so to speak. This argument too breaks down. Such a monies may need to be paid out on short notice, and therefore the essential financial quality that is called for is liquidity. A large capital pool that is bound up in a portfolio is almost by definition not very liquid, and the necessity to make it so quickly may result in having to dump its speculative-paper contents on the market in what is essentially a fire-sale circumstance, thereby driving down the its redeemable value. That would tend to defeat the argument that the purpose of "investing" their customers' premiums is a way to defray their cost. As a hedge against this, the tendency will be again to maintain a fund that is larger than is necessary for the purposes of insurance alone.
Looking deeper into the problem, when an insurance company collects a premium, it is taking money out of the money supply for which the consumer receives no immediate value in return. Essentially the buying power it represents is held in abeyance until a claim is made and the money paid back out. To the extent that this is necessary it can be justified as a business practice. To the extent that premiums are "invested", however, it cannot.
With respect to the market cycle in the economy, the "investment" of insurance premiums has a net affect that is similar to that created when "interest" payments are made on private bank loans, whereby the payments go to "investors" who have bought the "debt" contracts by which the loans were created so that they might be the recipients of those payments. The consumer in the aggregate is shortchanged of the earned income required to pay the cost of the goods and services equivalent to what he produces. This money is effectively withheld from circulation until someone comes along who is willing to "borrow" such funds from the "investor", thereby returning it to the money supply, but now with an increased "debt" obligation attached.
The money that is paid in as premium payments to an insurance company that is excess to the amount required to cover claims, plus the actual material costs of and a reasonable profit to the company, acts in much the same way as those "interest" payments made on bank loans. These net over-payments represent a net subtraction from the money supply, which, in turn, creates a need for someone to "borrow" this money back into circulation so that the market cycle can be completed.
This practice, then, of insurance companies maintaining capital pools that are "invested" in financial instruments, supposedly for the benefit of their customers, is revealed to be a wealth transference scheme that is carried out at the expense of their customers, and of the society at large. Increasingly, the insurance industry has become a cash-cow for the speculative financial industry, and AIG is the prime example. If that is not so, then where are the actual losses in life, limb and property that the citizenry is being called upon to pay? With this AIG "bailout" package, We the People, through our government, are being asked to take on an enormous "debt" to cover the losses of financial speculators. It has absolutely nothing to do with the legitimate functions of the insurance business.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
The lead article in Monday's Wall Street Journal announced that the Federal government has agreed to offer AIG (American International Group), the nation's largest insurance company, a "bailout package" worth $150 billion. This raises the question, has there occurred somewhere recently massive losses of life, injury and property that have made such a financial rescue plan a necessity? Clearly there has not. If we follow this line of inquiry through to its logical conclusion, we will discover that "insurance companies" are no longer primarily insurance companies. Rather, they have become more-and-more a means to create pools of capital to be used for financial speculation.
Theoretically an insurance company is a business that has been granted a corporate charter by the society it supposedly serves to gather and manage a pool of money for the purpose of providing people with protection against catastrophic financial expenses brought on by loss of life, health or property. The idea is that each person that subscribes to the service contributes money to a common pool of funds through the payment of premiums, and those relatively few people who experience a loss are then compensated out of it. The premium rates, then, would presumably be set at such a level that the amount of money in the pool would be adequate to compensate expected claims, plus provide enough left over to cover the actual expenses of the company, and allow for a modest profit. This is all so straightforward that it hardly warrants explanation, but increasingly it is not what happens.
Instead, insurance companies use the premiums they collect to create "investment" funds, which they then use for speculation in financial markets. While it is true that they do in fact pay claims out of premiums collected, their unstated financial speculation agenda causes them to have to charge higher premiums than they would otherwise have to merely to cover claims. They justify their "investments" by saying that they are merely acting responsibly with their customer's money. After all, so the rationale goes, since there always needs to be a substantial pool of capital maintained to insure that there are adequate funds available for when their customers experience a loss, they may as well "invest" these funds so that the income they produce in the meantime can be used to defray part of the cost of the premiums. On the surface this sounds reasonable. On a deeper level it is very deceptive.
To begin with, excess funds that are bound up in such "investments" are not, relatively speaking, very "liquid". That is, they are not readily available to cover ordinary day-to-day claims made against the capital pool. Therefore, the "investment" pool is essentially extra capital that must be maintained over and above the actuarial requirements of the insurance function itself.
It could be claimed that the nature of a given company's business is such that it insures against losses that occur infrequently and on a large scale, as might be the case, for example, for one whose primary business is to cover losses incurred from natural disasters. It would make good business sense, supposedly, to earn "interest" from these idyll funds while they are lying for long periods of time at the ready, so to speak. This argument too breaks down. Such a monies may need to be paid out on short notice, and therefore the essential financial quality that is called for is liquidity. A large capital pool that is bound up in a portfolio is almost by definition not very liquid, and the necessity to make it so quickly may result in having to dump its speculative-paper contents on the market in what is essentially a fire-sale circumstance, thereby driving down the its redeemable value. That would tend to defeat the argument that the purpose of "investing" their customers' premiums is a way to defray their cost. As a hedge against this, the tendency will be again to maintain a fund that is larger than is necessary for the purposes of insurance alone.
Looking deeper into the problem, when an insurance company collects a premium, it is taking money out of the money supply for which the consumer receives no immediate value in return. Essentially the buying power it represents is held in abeyance until a claim is made and the money paid back out. To the extent that this is necessary it can be justified as a business practice. To the extent that premiums are "invested", however, it cannot.
With respect to the market cycle in the economy, the "investment" of insurance premiums has a net affect that is similar to that created when "interest" payments are made on private bank loans, whereby the payments go to "investors" who have bought the "debt" contracts by which the loans were created so that they might be the recipients of those payments. The consumer in the aggregate is shortchanged of the earned income required to pay the cost of the goods and services equivalent to what he produces. This money is effectively withheld from circulation until someone comes along who is willing to "borrow" such funds from the "investor", thereby returning it to the money supply, but now with an increased "debt" obligation attached.
The money that is paid in as premium payments to an insurance company that is excess to the amount required to cover claims, plus the actual material costs of and a reasonable profit to the company, acts in much the same way as those "interest" payments made on bank loans. These net over-payments represent a net subtraction from the money supply, which, in turn, creates a need for someone to "borrow" this money back into circulation so that the market cycle can be completed.
This practice, then, of insurance companies maintaining capital pools that are "invested" in financial instruments, supposedly for the benefit of their customers, is revealed to be a wealth transference scheme that is carried out at the expense of their customers, and of the society at large. Increasingly, the insurance industry has become a cash-cow for the speculative financial industry, and AIG is the prime example. If that is not so, then where are the actual losses in life, limb and property that the citizenry is being called upon to pay? With this AIG "bailout" package, We the People, through our government, are being asked to take on an enormous "debt" to cover the losses of financial speculators. It has absolutely nothing to do with the legitimate functions of the insurance business.
Richard Kotlarz
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
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