Mitt Romney’s proposed tax cuts for the rich will destroy jobs. That’s because the 1 percent invest their money in things like derivatives. According to Wikipedia, “A derivative is a financial instrument whose value is based on one or more underlying assets.” In other words, the value of derivatives and the money the owner of the derivatives receives comes from such underlying assets as car loans, mortgages, student loans, other commodities, stocks, bonds, interest rates and currencies. Currently, there is an estimated 200-500 trillion dollars in derivatives.
The rich invest mostly in derivatives. None of these derivatives create jobs, except on Wall Street; most help to destroy jobs by pressuring CEO’s to ship them overseas. The very existence of derivatives often place pressure on corporations to force employees to work longer while earning less per hour. Virtually every derivative forces the 99 percent to pay more for things, and the difference between the old, lower rate at which people paid for things and the new, higher rate goes into the pockets of the 1 percent via their derivatives.
Take student loans, for example. When somebody on Wall Street created a bond backed by student loans more than thirty years ago, Wall Street placed pressure on politicians to cut Pell and other government educational grants, so as to force students to take out more loans, which served the interest of Wall Street investors, which Wall Street’s President, Ronald Reagan was happy to comply with. Since business leaders insist that education is the key to a strong economy, the government made a move against the interests of the US, and they did it all to appease rich investors. Student loan debt now exceeds $1 trillion, which is more than total credit card debt. That’s why we now pay more in student loans; it’s thanks to the development of the derivatives market.
Derivatives attract investors, and therefore they compete with stocks and bonds, which also need investors, otherwise the value of these assets will plummet to zero. To keep stock prices competitive with derivatives, CEOs are forced to ship jobs overseas, and the difference between the old higher pay in the US and the new lower pay over there goes into the pockets of the 1 percent. The middle class people who lose their jobs pay the price. But it’s worse than that because when jobs are shipped overseas, part of the tax base that supports schools, police, road building and repair, fire fighters and other jobs are shipped oversea, or so it appears. In reality, the lost part of the tax base is shipped into the wallets of the 1 percent. That’s why there’s so many cuts in education nowadays, kindergarten through universities.
That’s how rich investors have become parasites to the 99 percent. And that’s the kind of havoc that Wall Street Mitt the Twit’s tax cuts will wreck on the US economy. They will also redistribute massive amounts of income from the 99 to the 1 percent, and utterly destroy the demand for goods and services in the process. His economic plan is a disaster waiting to happen.
Derivatives are where the rich will invest much of their newly available cash if they get a tax cut from President Mitt. And we’ll all be paying for those cuts, not benefiting from them. By the way, what I have outlined here is also why trickle down economics is really trickle up economics.
According to Wikipedia, “Under US law and the laws of most other developed countries, derivatives have special legal exemptions that make them a particularly attractive legal form to extend credit. The strong creditor protections afforded to derivatives counterparties, in combination with their complexity and lack of transparency however, can cause capital markets to underprice credit risk. This can contribute to credit booms, and increase systemic risks. Indeed, the use of derivatives to conceal credit risk from third parties while protecting derivative counterparties contributed to the financial crisis of 2008 in the United States.
Financial reforms within the US since the financial crisis have served only to reinforce special protections for derivatives, including greater access to government guarantees, while minimizing disclosure to broader financial markets.