Delusion of Middle-Class Economics:
Delhi Poll Verdict to Repeal the Established System of Robbery

Dr. Sankarshan Acharya
Founder, Pro-Prosperity.Com and Citizens for Development

February 11, 2015. Updated February 22, 2015

This is a memo written to the US President Barack Obama and Indian Prime Minister Modion on February 11, 2015. It is updated as of the date of update and available at http://pro-prosperity.com/Delhi-Poll-Verdict-to-Repeal-the-Established-System-of-Robbery.html . The copy of this memo is distributed among US Senators Richard Shelby, Rand Paul and Elizabeth Warren, Mr. Arvind Kejriwal, Newly Elected leader of Ordinary People’s Party (AAP) of India and all concerned with civilized coexistence.

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The tsunami in the just concluded Delhi polls–with a landslide victory for the ‘ordinary people’s party’ called Aam Admi Party–has far-reaching consequences for established political leaders throughout India as well as the rest of the world.  The message of this verdict for politicians is: perish or aver to repeal the currently established system of governance that facilitates usurpation of public and private wealth of people producing globally competitive goods and services.   

Why the Delhi Poll Verdict is Crucial for humanity?

Delhi is microcosm of India.  The latest research on origin and migration of humanity based on extensive DNA mapping of people all over the world, conducted by IBM scientists, tells that humans popped in East Africa, migrated to India, discovered the ways to coexist by thwarting the onslaught of violent animals and evil designs of other humans, and then emigrated to the rest of the world.  This is the reason for why, as the researchers infer, India is the only country that has all global human forms like Caucasian, Mongoloid, Africanoid, etc.   By extrapolating the findings of this research, one can conclude that Delhi is the epicenter of discoveries on the philosophy of coexistence of humans.  A place called Mathura near Delhi is the birthplace of Krishna, who had propounded in 5000BC a unanimously acceptable philosophy of governance for coexistence: for rulers to not facilitate usurpation of public and private wealth, even surreptitiously, through any rule, act, policy or procedure

Absolute Knowledge on Governance Permeating Rapidly

Here are some excerpts of the January 18, 2015 memo, entitled, “Absolute Knowledge on Governance,” that is rapidly permeating across the world to facilitate political transformation everywhere:[1]

A dominant ancient human discovery about knowledge, stated in Sanskrit as “Eka Brahma Dwitiya Nasti,” translates to “Absolute Knowledge is Unique.”  Absolute knowledge is an incontrovertible fact established by unanimous acceptance, like “2 is not equal to 3.”[2]

The existence of different political parties or multitude views within a party tells unambiguously that rulers believe in nonexistence of any absolute knowledge on how people want to be governed and presume they can make people embrace their views of governance. In other words, rulers bank on indoctrinating people to believe in nonexistence of any unanimously acceptable principle of governance.

The truth, however, is that there exists a fundamental principle of governance which is unanimously agreeable or which is absolute knowledge in governance.  It is that nobody wants the government to facilitate usurpation of private or public wealth, even surreptitiously.  Not even the usurpers want their loot taken away by anybody including powerful rulers.  Incidentally, wealth includes “life, liberty and pursuit for happiness.” 

The founding fathers of America went to war to embrace the absolute knowledge on governance in the preamble of the first-ever written constitution of mankind.  They were impelled to do so after the colonists agitated over selling their sweat-filled service and merchandise for printed fiat money.  The epic war of Mahabharat too was waged to recoup private wealth usurped by the rulers through a rigged but legal game.  The preamble of the modern constitution is akin to Dharma of Gita, which is the message of Krishna.[3]    

The American founding fathers as well as Krishna, however, made a grave mistake of not explicitly proscribing passage of laws for surreptitious usurpation of public and private wealth.  Rulers have taken advantage of this mistake to design sophisticated laws for surreptitious usurpation of public and private wealth.  Such laws have caused rampant financial bondage of the vast majority of mankind.  The preamble of the constitution needs to be reframed to avoid passage of unconstitutional rules.[4]

The lapse on the part of the American founding fathers has led to myriad rules passed by elected political leaders in USA and other countries including India that copied the US model of governance, supported by specious academic research,[5] to legalize usurpation of public and private wealth by individuals willing to share with lawmakers the loot in form of lavish political contributions, if not direct clandestine transfers through private hedge funds, donations to charitable trusts, or otherwise.  Political leaders have even passed, brazenly, laws to let them and their family members “trade based on insider information” while they have made such trades by others illegal and punishable.

The currently established model of governance is to pass laws to legalize usurpation of public and private wealth through trusted subservient usurpers willing to share the loot with lawmakers.  This model has burst into flames in 2008.  To douche the flames of the 2008 market crash, rulers have resorted to printing oodles of new fiat money and given away enormous tax subsidies and bailout funds to the same colluding usurpers.  They have even made the usurpers systemically important, which means printing unlimited sums of money to let them usurp by remaining afloat.

Rulers do not seem concerned about the latest published research which proves that the currently established system is unconstitutional, inefficient and unstable.[6]  This research seems epochal because it challenges the rulers and embedded usurpers for breaking the constitution they have sworn in. 

Humans had to abandon the rules of the jungle that used to destroy lives and properties of each other for survival of their species. They adopted constitutional democracy to avert mutual destruction. Abandoning the constitution, even surreptitiously, has essentially restored jungle raj that guarantees mutual destruction dreaded by all.

Implication on US Presidential Race of 2016

The reason for including US Senators Warren and Paul in this discourse is not just that they might be considering a run for US presidency in 2016 from two opposing parties.  It is also to convey to them that their proposal to monitor the US Federal Reserve–the epicenter of 2008 financial catastrophe that jolted the global economy and caused a global depression–is consistent with the overwhelming mandate of the people in a small but important part of the world (Delhi) that has provably shaped the philosophy for coexistence of humans everywhere.  Senator Shelby not only belongs to the currently victorious Republican Party.  He too has joined political leaders willing to monitor the actions of the Federal Reserve.  I am sure President Obama and Prime Minister Modi too are open not only to monitoring but also to reforming the governance of their respective central banks founded in the colonial era.

The idea of the US Congress monitoring the Federal Reserve is very timely.  What is necessary for the US economy, though, is to strip the Federal Reserve of the authority it has arrogated to print money. 

Reforming Governance of the Federal Reserve (US Central Bank)

Established experts have justified Fed’s printing of money for recovery from the 2008 financial catastrophe.  They have, however, remained quiet about how the authority to print enormous amounts of new money (as and when the Fed wants) has made the Fed and the mega banks (Masters of the Universe) monitored by it feel presumptuous, omniscient and omnipotent (‘God’) without caring an iota about the risks they have been imposing on the economy and taxpayers.  The Fed chiefs, Masters of the Universe” and the established experts in the Academy of Economics and Finance have admitted before the Congressional Financial Crisis Inquiry Commission that they did not see the 2008 crisis coming and that it was an act of invisible hands (‘God’), thus vanquishing their own ex ante hallo that they were the gods.     

A unique set of unanimously agreeable principles of governance of banks, central bank and financial market exists (see Pro-Prosperity.Com for details): 

  1. In the modern era of financial securitization of assets and portfolios of such securities as repertoires of wealth of households and business enterprises, a unanimously agreeable principle of portfolio allocation is to hold a part of the savings absolutely safely and invest the rest in risky securities. 
  2. No one will agree to be forced to hold any part of his savings he wants to be kept absolutely safely in a private bank.  [It was vivid during Banking Panics of 1907.] This necessitates a safe central bank.
  3. Everyone will agree that government insurance of such safe holdings, kept under the custody of private banks, will cause severe ‘moral hazard.’ This is because private banks take these savings to profit by betting against the risky investments of households and businesses.  As the losses on risky investments mount, the households and businesses panic and salvage their investments to transfer the same to bank deposits or government securities.  As investments in risky assets decline, businesses shrink and eliminate workers.  The economy then nosedives.  The central bank is then forced (or blackmailed due to the shenanigans of private banks) to cut the rate of interest on safe deposits.  This usuriously benefits the private banks that thus cause havoc for the real economy.  [This was vivid during the 2008 financial catastrophe.  I have argued in formal papers mimeographed at the Fed since 1991 that such moral hazard in the economy makes the system unstable, inefficient and fundamentally unfair.]
  4. Everyone will agree with stripping the Central Bank off its authority to print money by fiat, let alone give any printed money to a few privileged private banks, notwithstanding the Federal Reserve Act of 1913.  [Neither will people agree that the government borrows money (a form of printing) to give subsidies to some group or the other.[7]  I wrote memos to the Federal Reserve Board in 2008 to extend its lending facility to nonbanks and housing sector, to alleviate the crisis caused by it.  The 2008 panic must have unnerved the Fed sufficiently for it to describe the catastrophe as worse than the Great Depression and, and to heed to suggestions for historically unprecedented actions of lending to non-banks and to the mortgage financing industry, contrary to the letter of the FRA of 1913.         

 

Economic Equilibrium for Stability, Efficiency, Competitiveness and Fairness

The above unanimous principles of governance of central bank and private banks constitute economic equilibrium within the most general mathematical model of micro-economics, ever written in the literature, to obtain macro governance of banks, central bank and financial market.[8]  A true test of general equilibrium is unanimous acceptability of equilibrium outcomes.  Why do the ‘established experts’ of the academy of finance and economics not publish such unanimously acceptable general economic equilibrium outcomes?  It is obvious that they benefit from the current unconstitutional, unstable and inefficient system they helped to establish.  It is why the Financial Crisis Inquiry Commission ‘found’ that the failure of ‘established experts’ caused the 2008 financial disaster. 

In fact, the ‘established experts’ deliberately suppressed the truth about the above unanimously acceptable principles of governance obtained in the most-general equilibrium model of economics ever written in the literature to obtain macro policies of enormous significance to the economy.  My first-hand experience is indeed a true testimony for the saga faced by the economy, globally, caused by the now-failed experts.  After my paper on efficient resolution of moral hazard was first mimeographed at the Federal Reserve in 1991, my research was blocked and black-listed with tangential comments like “it is too complicated,” or “it is too political,” while directly chiding me like “take it to Congress, no one will understand your math.” When the economic analysis was made simple, the comments then became "it has no math-analytical foundation." 

Ordinary People Understand Unanimously Acceptable Principles of Governance

The irony is that even my undergraduate students at UIC unanimously agree with the above principles of governance of the central bank and private banks and see how these principles are supported by general economic equilibrium.[9] To be sure, it took me twelve years (1991-2003) of rumination to articulate the general equilibrium math-econ model in plain English for common people and their political representatives to understand in modern economic lingo of established experts.  This left no room for the established experts to refute speciously the unanimously acceptable principles of governance supported by general economic equilibrium.  The established experts miscalculated that I would succumb to their tacit threat on my un-employability (as they blocked publication of my research through the blind-review system they have established[10]), conveyed through trustworthy intermediaries, to give up my pursuit for spreading the truth.      

I submitted my first paper written in plain English, titled, “Safe [Central] Banking,” directly to the members of US Senate on March 31, 2003.[11] The Senate must have taken a serious note of it to have the Fed testify and then hold a conference on safety and soundness of the banking system in October and November 2003, respectively.  The established experts in the conference declared that the banking system was invincible and safe.  This confidence was also echoed by the then President of the American Economic Association in 2003.  The established experts, their top disciples heading mega banks with a hallo of “Masters of the Universe” and government regulatory agencies have, however, failed and their failure caused the financial catastrophe of 2008, according to the Report of the Congressional Financial Crisis Inquiry Commission released in 2011.

In fact, I have found through direct experience (detailed in postscript) as a Financial Economist at the Federal Reserve and in selfless research since 1989 that the Federal Reserve, along with its cohort of clearing house member banks and associated members of the academy, has been the epicenter of periodic destruction of wealth of the vast majority of people who produce globally competitive goods and services which make the US economy and which prop the rich, the poor, the politicians and the government.  I had conveyed to the US Congress and POTUS in January 2005 that such periodic destruction of wealth of the crucial vast majority of productive wealth creators of the economy would result in recurrence of the Great Depression.[12] 

A recent (2013) paper published in the Journal of Financial Transformation (which claims to have 18 Nobel Laureates as authors) shows that the system of money and finance embraced by the Federal Reserve, FDIC and SEC, through Congressional Acts foisted by mega private banks through ‘blackmailing’ of People during times of economic calamity, is unconstitutional (fundamentally unfair), unstable (prone to cause social chaos) and inefficient (leading to decaying national competitiveness).[13] 

Unprivileged People are Voting for Freedom from the Current System of Robbery

The response of unprivileged ordinary people in polls since the 2008 financial catastrophe is primarily being driven by their belief about political leaders capable of changing the established system of robbery (facilitating usurpation of public and private wealth by a few privileged individuals associated with the establishment).  No sooner the voters noticed the elected leaders–promising change–have been once again absorbed by the same establishment, did they swiftly reverse their verdict. 

The Ordinary People’s Party (AAP) won a landslide victory in Delhi as soon as people noticed that a popular leader, Mr. Narendra Modi, who had promised change barely 8 months ago was absorbed by the establishment and that the AAP appeared to be the only credible alternative for change. 

Ordinary unprivileged people everywhere are decisively marching towards constitutional capitalism to preserve their hard earned wealth which is necessary for their freedom and which requires a repeal of the established system of robbery.  The rise of AAP may be epochal for humanity, marching along the rapidly permeating absolute knowledge on governance.[14]  The AAP is led by a graduate of the Indian Institute of Technology, Kharagpur (my alma mater), who served as an Indian government income tax official.  Even the US Congress has recognized the contribution of IIT graduates to the US economy.[15]  The AAP includes professionals and professors from developed economies like US, Europe, and Singapore as well as India.  It comprises of ordinary villagers.  They all have volition to abandon the privileges of elected political leaders.  They seem determined to eliminate the VIP culture in governance in order to serve everyone fairly.  

The Ordinary People’s Party seems to embrace the unanimously acceptable principles of governance.  This radically contrasts how the failed established experts have jettisoned such principles as “too complicated.”

The privileged few aligned with the establishment to perpetuate their self-entrenchment and self-aggrandizement will, of course, continue to speciously justify the current system of robbery, and call the challengers like the AAP anarchist. This is akin to blacklisting and blocking publication of research on constitutional capitalism as anarchist. 

The quick reversals of poll verdicts since the 2008 financial catastrophe in favor of candidates promising change shows, however, the advent of a new dawn, a new era of commonly longed constitutional capitalism.      

I have once proposed to President Obama to form an Unprivileged People’s Party in which I could be a member.  His recent advocacy for middle-class economics may yet carve out a new privileged group of people, namely, those that will look after the middle-class.  The “middle-class economics” does not move humanity towards unanimous longing of people for constitutional capitalism.

Delusion of Middle-Class Economics (February 22, 2015): The ulterior modus operandi of "middle class economics" will be (like all other existing systems of governance) to take a higher rate of taxes from the "rich" to grant largesse (for votes?) to the deprived "middle class" in addition to all other deprived classes that are already receiving such subsidies. The "middle class economics" does not delve into the causes of deprivation of any class including the rich: the unconstitutional, unstable and inefficient system of usurpation of public and private weath of the wealth creators. Should rulers simply be concerned with getting a share of the unconstitutionally usurped wealth for sharing with voters to remain entrenched in power? Or, they should root out all policies, procedures, laws and acts of government that allow even surreptitious usurpation of public and private wealth and, thus, avert all forms of fundamentally unfair (unconstitutional) deprivation of all classes, the rich, middle and poor? 

The only unanimous aspiration of people that will drive future poll verdicts is a thorough repeal of the currently established system of robbery in favor of unanimously longed constitutional capitalism, which offers no government-ordained privilege or subsidy based on any criterion defined by attributes at birth or later. 

With profound regards,     

SankarshanAcharya      
Founder, Citizens for Development & Pro-Prosperity.Com
Director, Research Center on Finance and Governance

PS: Tryst with the established modern system of governance.

1. The financial markets had crashed in 1987 and the banks and Savings and Loans institutional were unstable.  It was then that I with a colleague at NYU discovered that foreclosure of banks and financial institutions is needed to keep the economy stable (long-run equilibrium).  The optimal foreclosure rule paper was published in Journal of Finance and was immediately adopted as law, passed in FDICIA - 1991.  http://pro-prosperity.com/Research/Bank-foreclosure-rule-paper-Acharya-Dreyfus-Journal-of-Finance-1989.pdf The ensuing stability in the banking system led to quadrupling of the economy and markets in USA.  Foreclosure of banks was then unprecedented in the history of USA or any other part of the world.  Prior to enactment of bank foreclosure rule in FDICIA-1991 only the banks could foreclose households and businesses, while no law existed to foreclose banks.

2. Research on optimal foreclosure of banks led the Federal Reserve to invite me to serve as a financial economist, which I accepted in 1990.  By 1994, I had discovered the bank holding company structure was used as a conduit to reap enormous profits by transgressing the bank foreclosure law through multi-tier leveraging - with consolidated capital as low as 10% of the minimum required under the new bank foreclosure law - which was piling enormous risk on the US taxpayers (public exchequer) with tacit acquiescence of the Federal Reserve Board, which I had challenged in several meetings including at a meeting with the top management of Citicorp.  

3. My research then discovered - through the most general math-econ model ever developed in the fields of economics and finance - that the prevalent moral hazard in governance of banks and financial markets could be resolved uniquely through first-best efficient policies like safe central banking.  http://pro-prosperity.com/Research/moralhazardliberty.pdf The profession supported by big bank tried their utmost to suppress this research.  

4. I left the Fed in 1995 and wrote my general equilibrium math model of the economy (for efficient resolution of moral hazard) in plain English to communicate with the Congress directly. In March 2003, I completed one such paper - Safe [Central] Banking - written in plain English which I submitted to Congress with a warning that unless safe central banking policy discovered in my research was enacted as law, the unstable US economy would crash and that vested interests would not let enactment of this law until taxpayers lost trillions of dollars.  http://pro-prosperity.com/Global%20Economy%20Chatterbox/Warning-USCongress-In-2003-On-Home-Mortgage-Debacle.html The Congress asked the Fed to testify on safety and soundness of banks in October 2003 and then hold a conference of experts in November 2003 to which I too was invited.  The experts, who were underhandedly suppressing my research by taking advantage of the blind review system, made their recommendation that the US system of banking and finance was stable and invincible.

5. I then followed up with the Congress and President though a memo "Enhancing American Competitiveness" in January 2005 and opened a website for communication with people after a neighbor suggested that such findings must reach every American.  http://pro-prosperity.com/USPresident013105.html This memo had warned about recurrence of the Great Depression unless the Ponzi Scheme centered at the Federal Reserve is resolved. The US President then chose a GD-expert to head the Fed and the CEO of Goldman Sachs as US Treasury Secretary to reform the banking system.  I received 'thank you' notes from the UST and then Senator Obama.  The UST then demanded that bank holding companies raise sufficient capital and deleverage there balance sheets.  The UST also threatened to shut down those BHCs that did not have sufficient capital on a consolidated basis.  Most bank holding companies had gone bankrupt due to their high leverage and insufficient capital under the law (that I had challenged since 1994).  

6. The US Treasury took over Fannie and Freddie in 2008 to use their equity and more public funds transferred from UST to buy the toxic assets of the private banks via Fannie and Freddie kept locked in conservatorship.  The UST thus committed an unconstitutional and unstable act to suppress from public private BHCs' transgression of the bank foreclosure law to save the favored highly leveraged bank holding companies.    

7. The markets crashed in 2008.  This exposed, publicly, the moral hazard in banking and financial markets and in governance of banks and financial markets.  The effort to suppress my research was, thus, a temporal pyrrhic victory for the private banks and their guardians at the Fed and Academy of Economics and Finance. The Federal Reserve recently admitted that its models do not work and that moral hazard was a serious problem (see my earlier links).  The FCIC found that the crisis was due to failure of these banks, established experts and regulatory agencies.  The truth is that suppression of my research was the penultimate cause of the crisis, which is still ongoing.  

7. Not only was the bank foreclosure law shaped by my research.  This research has also discovered efficient, stable and constitutional policies - like safe central banking and bank capital requirement on a consolidated basis for bank holding companies - which the Congress had to adopt as necessary for stability and competitiveness of the economy.  Just to stem the domino of crashing markets, the Fed-USG-Congress had to adopt my safe central banking policy in 2008 in terms of Fed-assisted insurance of trillions of dollars in previously uninsured money market funds and private bank debts and require bank holding companies to hold minimum capital on a consolidated basis.  This proves the efficacy of the discoveries of my research on efficient resolution of moral hazard discovered in the most general math-econ equilibrium model of the economy.  

8. The discoveries of my research are rules of governance necessary to beget first-best status for principals (citizens) in a stable, efficient, competitive and uniformly fair economy.

9.  The attempts to shut down Fannie and Freddie have landed in a fiasco.  Even the mighty US government supported by the Masters of the Universe aided by the Federal Reserve and ‘established experts’ could not eliminate Fannie and Freddie, thanks to my latest research "Coalitions of Lenders and Borrowers, Government-Regulated Lender, Safe Central Bank and Interest Rate in Equilibrium,"  http://pro-prosperity.com/Research/Coalition%20of%20Borrowers.pdf

Feedback of ordinary people on my research is published and continually updated at http://pro-prosperity.com/Research/Feedback%20on%20Economic%20Theory%20of%20Constitutional%20Governance.html 

[1] http://pro-prosperity.com/Absolute%20Knowledge%20on%20Governance.html
[2] http://pro-prosperity.com/Unanimously%20Agreeable%20Rationale%20of%20Governance.html
[3] http://pro-prosperity.com/Origin%20and%20Triumph%20of%20Modern%20Constitution.html
[4] http://pro-prosperity.com/India/We%20the%20People%20Want%20Constitutional%20Raj%20Dharma.html
[5] http://pro-prosperity.com/Constitutional%20Capitalism.pdf
[6] http://pro-prosperity.com/Research/Constitutional-Monetary-Finance-System.pdf
[7] http://pro-prosperity.com/Research/Governance-and-Most-Efficient-Competitive-Economy.pdf
[8] http://pro-prosperity.com/Research/moralhazardliberty.pdf
[8] http://pro-prosperity.com/Research/Feedback%20on%20Economic%20Theory%20of%20Constitutional%20Governance.html
[9] http://pro-prosperity.com/Blind-Review-Academic-Papers-Unconstitutional-Uncompetitive.html
[13] http://pro-prosperity.com/March%20Towards%20Constitutional%20Capitalism.html
[14] http://pro-prosperity.com/Absolute%20Knowledge%20on%20Governance.html
[15] http://www.pro-prosperity.com/usa/USCongressIIT.htm