THE GOOD, THE BAD AND THE UGLY – PART THREE

93 comments

Posted on 29th September 2012 by Administrator in Economy |Politics |Social Issues

, , , , , , , , , , , , ,

“You see in this world there’s two kinds of people, my friend. Those with loaded guns, and those who dig. You dig.” -  Blondie – The Good, the Bad and the Ugly

“There are two kinds of people in the world, my friend. Those who have a rope around their neck and those who have the job of doing the cutting.” – Tuco – The Good, the Bad and the Ugly

The economic peril that we find ourselves confronted with, has been ninety-eight years in the making. The confluence of debt, demographics, delusion, and denial has left the country at the precipice of annihilation. There are two kinds of people in the world, those who control the money and those that are controlled by those who control the money. The last century has been marked by a methodical looting of the good (working middle class) by the bad (Federal Reserve & bankers) and supported by the ugly (Washington D.C. politicians). When historians pinpoint the year in which the Great American Empire began its downward spiral they will conclude that year to be 1913. In this dark year for the Republic, slimy politicians, at the behest of the biggest bankers in the country, created a private central bank that has since controlled the currency of the United States. This same Congress staked their claim as the most damaging group of politicians in US history by passing the personal income tax in the same year. These two acts unleashed the two headed monster of inflation and taxation on the American people.

The government began keeping official track of inflation in 1913, the year the Federal Reserve was created. The CPI on January 1, 1914 was 10.0. The CPI on January 1, 2011 was 220.2. This means that a man’s suit that cost $10 in 1913 would cost $220 today, a 2,172% increase in ninety-eight years. This is a 95.6% loss in purchasing power of the dollar.  The average American does not understand the insidious nature of central bank created inflation. It makes you think you are wealthier while you are driven into abject poverty. The Federal Reserve and politicians have pulled the wool over your eyes. The CPI was 30.9 in 1964. Today, it is 223.5. This means prices have risen 723% since 1964. The only problem is your wages have not risen at the same rate, even using the government manipulated CPI. Using a true CPI figure, average weekly earnings are 64% below what they were in 1964. This explains why a family of five could live well with one parent working in 1964, but even with both parents working and accumulating debt in prodigious amounts, the average family cannot live as well today.

It is not a coincidence that the percentage of the working age population employed bottomed in 1964 at 59%. The participation rate rose steadily for the next thirty six years, topping out in 2000 at 67.1%. The employment to population ratio also bottomed at 55% in 1964. It rose to 64.4% by 2000. It seems that future historians will mark the year 2000 as the peak of the American Empire. Apologists for the Federal Reserve and politicians who have steered this country since 1964 would argue the increase in the percentage of the population working was a positive development. Nothing could be further from the truth.

The American middle class was forced to send both parents into the workforce just to keep up with the ever declining real weekly earnings. The Federal Reserve created inflation has methodically destroyed the American dream for the middle class. As both parents had to go into the workforce, American children were left to fend for themselves or be raised by strangers in daycare centers. The pressure of trying to keep up with inflation strained families to the breaking point. The number of divorces per thousand marriages was 10 in the early 1960s. It more than doubled to 22.6 by 1980 and still resides at 17 today. There are many factors for the disintegration of the traditional family unit, but the financial strain on families to maintain a consistent standard of living due to relentless inflation has been a key factor.

From the founding of our country there had been constant conflict between corrupt bankers trying to control the currency of the nation to further their own enrichment at the expense of the people and a few courageous leaders willing to fight them. The bankers won the century old battle in 1913.

Den of Vipers & Thieves

“I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank…You are a den of vipers and thieves. I have determined to rout you out and, by the Eternal, I will rout you out.” - Andrew Jackson

The First Bank of the United States was created in 1791. Alexander Hamilton, the 1st Secretary of the Treasury, proposed this bank and convinced a hesitant President Washington to agree. John Adams and Thomas Jefferson were against the concept. It favored the moneyed classes of the North versus the agrarian South. The bank was given a 20 year charter and President James Madison let it expire in 1811. He understood the true nature of the banking interests:

“History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance”.

Madison had to renew the charter in 1816 as the War of 1812 resulted in large government debts. Politicians always turn to bankers when funding wars and programs to get them re-elected. As usual, once unshackled, the bankers immediately caused a boom through their loose monetary policies. The Bank created a fake boom by 1818 through its reckless lending, which encouraged speculation in land. This lending allowed almost anyone to borrow money and speculate in land, sometimes doubling or even tripling the prices of land (remind you of another time in recent history?). In the summer of 1818, the national bank managers realized the bank’s massive over-extension, and instituted a policy of contraction and the calling in of loans. This recalling of loans simultaneously curtailed land sales and slowed the U.S. production boom due to the recovery of Europe. The result was the Panic of 1819. There was a wave of bankruptcies, bank failures, and bank runs; prices dropped and wide-scale urban unemployment struck the country. By 1819 many Americans did not have enough money to pay off their property loans. Do you see any difference between 1816 – 1819 and 2005 – 2011? Central banks don’t eliminate financial panics, they cause them. Booms and busts have always existed. They have become more common and extreme since the unleashing of greedy corrupt central bankers in the U.S., going back two centuries.

Andrew “Old Hickory” Jackson became President in 1829 and proceeded to declare war on the Second National Bank. He was the first and only President in U.S. history to pay off the National Debt. He worked tirelessly to rescind the charter of the Second Bank of the United States. His reasons for abolishing the bank were:

  • It concentrated the nation’s financial strength in a single institution.
  • It exposed the government to control by foreign interests.
  • It served mainly to make the rich richer.
  • It exercised too much control over members of Congress.
  • It favored northeastern states over southern and western states.

President Jackson believed that only Congress should be responsible for the issuance and control of the currency. Delegating that duty to powerful New York bankers was distasteful to him:

“If Congress has the right to issue paper money, it was given to them to be used … and not to be delegated to individuals or corporations”

President Jackson vetoed the extension of their bank charter in 1832. He redirected government tax revenue to other state banks.  The Second Bank of the United States was left with little money and, in 1836, its charter expired and it turned into an ordinary bank. Five years later, the former Second Bank of the United States went bankrupt. Those who believe that a central bank is essential to economic progress need to examine the “free banking” period from 1837 to 1861. In the last five years of the Second Bank’s existence prices rose by 28%. Over the next 25 years, prices in the U.S. fell by 11%. We experienced the dreaded deflation. Did deflation destroy America? Not quite. GDP grew from $1.5 billion in 1836 to $4.6 billion in 1861. Deflation is only fatal to debtors. Inflation is the friend of lenders and the moneyed classes.

The American Civil War brought about the National Banking Act of 1863, which created a network of national banks. Politicians always need bankers to fight their wars and Abraham Lincoln was no different. By 1870 there were 1,638 national banks. This did not eliminate the booms and busts that punctuate human history, but the booms and busts were not scientifically created by a small cabal of bankers. With thousands of banks, those who made bad lending decisions failed. The economy withstood the periodic panics and continued to grow. The GDP of the U.S. grew from $7.6 billion in 1863 to $39 billion by 1913, with virtually no inflation. The Federal government ran surpluses or very small deficits during this entire time period. These facts refute the argument that a strong central bank was necessary to keep our economic system operating smoothly. It seems the Big Lie was not invented by the Nazis.

Creature from Jekyll Island – Control the Money, Control the Country

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. No longer a government by free opinion, no longer a government by conviction and vote of majority, but a government by the opinion and duress of a small group of dominant men.” – President Woodrow Wilson

Any impartial assessment of inflation throughout the history of the United States confirms that from the beginning of our nation through the War of 1812, the Mexican American War, the Civil War, the Spanish American War and the Industrial Revolution, the country experienced virtually no inflation as bankers were kept from controlling the U.S. currency and our legal tender was backed by gold. The creation of the Federal Reserve in 1913 and the closing of the gold window by Richard Nixon in 1971 unleashed a tsunami of inflation that continues to inundate our country today, killing the once prosperous middle class.

The Rothschilds of London understood that a fiat currency system would benefit the few (bankers & politicians) who understood it and the masses would be too ignorant to understand they were being screwed:

“Those few who can understand the system (check book money and credit) will either be so interested in its profits, or so dependent on it favors, that there will be little opposition from that class, while on the other hand, the great body of people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear it burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”

The House of Rothschild had been the dominant banking family in Europe for two centuries. They were known for making fortunes during Panics and War. Some claimed they would cause Panics in order to take advantage of those who panicked. American bankers learned the lesson well. The Panic of 1907 was the used as the reason for creating the Federal Reserve. A small cabal of powerful U.S. banking interests understood that if they could control the currency of the U.S., they could control the country, its politicians, and its people.

In 1906, Frank Vanderlip, Vice President of the Rockefeller owned National City Bank, convinced many of New York’s banking establishment they needed a banker-controlled central bank that could serve the nation’s financial system. Up to that time, the House of Morgan had filled that role. JP Morgan had initiated previous panics in order to initiate stronger control over the banking system. Morgan initiated the Panic of 1907 by circulating rumors the Knickerbocker Bank and Trust Co. of America was going broke. There was a run on the banks creating a financial crisis which began to solidify support for a central banking system. During this panic Paul Warburg, a Rothschild associate, wrote an essay called “A Plan for a Modified Central Bank” which called for a Central Bank in which 50% would be owned by the government and 50% by the nation’s banks.

In November 1910 a secret conference took place on Jekyll Island off the coast of Georgia. Those in attendance were:  Paul Warburg, Bernard Baruch, Senator Nelson Aldrich, Colonel House, Frank Vanderlip, Benjamin Strong, Charles Norton, Jacob Schiff, and Henry Davison. From this meeting of the most powerful bankers and politicians in the country came the plan for a Central Bank. This conference was unknown until 1933. In 1935, Frank Vanderlip wrote in the Saturday Evening Post: “I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System.”

Behind the scenes these powerful men were formulating the plan for a Federal Reserve System. There was no outcry from the public to implement this plan. The public knew nothing of this. The Aldrich Plan was renamed the Federal Reserve Act and pushed forward by Paul Warburg and Colonel House. Warburg essentially wrote the Act and pressured Congressmen to see his way or lose the next election. Colonel House, who had socialist leanings, was the top advisor to President Wilson.

 

The Glass Bill (the House version of the final Federal Reserve Act) had passed the House on September 18, 1913 by 287 to 85. On December 19, 1913, the Senate passed their version by a vote of 54-34. More than forty important differences in the House and Senate versions remained to be settled, and the opponents of the bill in both houses of Congress were led to believe that many weeks would elapse before the Conference bill would be taken up. The Congressmen prepared to leave Washington for the annual Christmas recess, assured that the Conference bill would not be brought up until the following year. The creators of the bill then pulled the ultimate swindle on the American public. In a single day, they ironed out all forty of the disputed passages in the bill and quickly brought it to a vote. On Monday, December 22, 1913, the bill was passed by the House 282-60 and the Senate 43-23. This meant that the single most important piece of legislation ever passed by the Senate was missing the votes of 26 Senators because it was passed during the Christmas recess. President Wilson, at the urging of Bernard Baruch, signed the bill on December 23, 1913.

File:Fed Reserve.JPG

The Road to Hell is Paved by Central Bankers

“Banking was conceived in iniquity, and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen, they will create enough deposits, to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear, and they ought to disappear, for this would be a happier and better world to live in. But if you wish to remain the slaves of Bankers, and pay the cost of your own slavery, let them continue to create deposits.” – Sir Josiah Stamp (President of the Bank of England in the 1920′s, the second richest man in Britain)

 

The results speak for themselves. The Federal Reserve has been in existence for ninety eight years and over that time the U.S. Dollar has lost 95.6% of its purchasing power. In other terms, the bankers who have controlled our currency since 1913 have generated 2,172% of inflation in just under a century. In the prior one hundred years, when the country was growing by leaps and bounds, there was virtually no inflation. I’m not sure the average person fully understands this concept. To put it in layman’s terms, something that cost $4.40 in 1913 will cost you $100 today. A pair of boys’ school shoes cost 98 cents in 1913. You could purchase three loaves of bread for 10 cents. You could purchase six rolls of toilet paper for 26 cents. The truly frightening impact on the American middle class has happened since Richard Nixon closed the gold window in 1971 and allowed the Federal Reserve to print money unfettered by consequences and slimy politicians to make irresponsible unfulfilled promises as bribes for votes. This chart should worry even the most ignorant of the masses.

Items 1971 2010/11 % Increase
Average Cost of new house $28,000 $273,000 975%
Median HH Income $10,300 $47,000 456%
Average Monthly Rent $150 $750 500%
Cost of a gallon of Gas $0.40 $3.80 950%
Average New Car Price $3,430 $29,200 851%
United States postage Stamp $0.08 $0.44 550%
Movie Ticket $1.50 $7.89 526%

 

Even with the proliferation of two worker households since 1971, household income has not come close to keeping up with the costs of daily living. The average American’s standard of living has declined dramatically over the last forty years and they don’t even know it. Americans have become the slaves of bankers and pay the cost of their own slavery through inflation and debt. It is not a coincidence that consumer debt, which was virtually non-existent prior to the 1960s, began to take off in the 1970s and went nearly parabolic from the early 1990s until the 2008 financial collapse. As the Federal Reserve and political class created inflation, which reduced your standard of living, the bankers who own the Federal Reserve and control the politicians used their slick marketing machine to convince you that acquiring goods using vast quantities of debt was just as good as buying things with cash you saved.

Who benefits from inflation and the issuance of trillions in debt to average Americans? Based upon the decades of gargantuan Wall Street profits, mammoth bonuses paid to bank executives, and fact that Washington politicians absconded with trillions from American taxpayers to save their Wall Street masters, it appears that bankers and politicians are the beneficiaries. A gutted, indebted, jobless, demoralized middle class were the recipients of the downside of inflation and debt. Without a Central Bank issuing a fiat currency, with no constraints, none of this could have happened.

The Federal Reserve is primarily responsible for the destruction of the American middle class. In 1915, according the Federal Reserve annual report, they operated with 35 total employees. Today, they operate with over 20,000 employees and the cost to operate the system exceeds $3.3 billion. The Federal Reserve has failed on every one of its stated mandates:

  • It was created to stabilize the banking system and keep bank panics from occurring. Within sixteen years of its creation it caused the near collapse of the banking system and the Great Depression. The stagflation of the 1970s was caused by Fed policies. The Savings & Loan crisis was created by their policies. The internet bubble, housing bubble and eventual financial collapse were caused by Federal Reserve blunders. There have been 18 recessions since the creation of the Federal Reserve.
  • The stable prices mandate has been a wretched failure, as the Fed has manufactured 2,171% of inflation and destroyed 96% of the currency’s purchasing power. This manufactured inflation has enabled the creation of our welfare/warfare state.
  • The Federal Reserve mandate of moderate long-term interest rates has clearly not been met. The Fed Funds Rate has plotted a path of extremes over the decades, ranging from 0% to 19%, not exactly stable. The Federal Reserve has consistently set rates too low, leading to credit bubbles, which always pop and end in recession or depression.
  • The mandate of maximum employment has also been a miserable failure. The easy credit policy of the Federal Reserve during the 1920s led to the Great Depression with unemployment rates exceeding 20%. Unemployment has averaged between 5% and 15% consistently since the formation of the Federal Reserve. The true unemployment rate today exceeds 15%.
  • The Federal Reserve was supposed to supervise and control the activities of banks. Instead, under Alan Greenspan and Ben Bernanke, they stepped aside and let banks take preposterous risks while giving an unspoken assurance that the Fed would clean up any messes they caused with their debt based enrichment schemes. This total dereliction of duty and gross regulatory negligence led the greatest financial collapse in history.

The American working middle class (Good) have been deceived by the Federal Reserve, the banks that control them (Bad) and the Washington DC political class (Ugly) into believing that a fiat currency, un-backed by gold, supported by systematic inflation is beneficial to their wealth. This has been the Big Lie for the last century and has positioned the country for an epic collapse. Presidential candidate Ron Paul has been the lone voice of sanity in Washington DC for the last two decades and his assessment of the Federal Reserve while questioning Ben Bernanke in 2009 needs to be understood by every American:

“The Federal Reserve in collaboration with the giant banks has created the greatest financial crisis the world has ever seen. The foolish notion that unlimited amounts of money and credit created out of thin air can provide sustainable economic growth has delivered this crisis to us. Instead of economic growth and stable prices, (The Fed) has given us a system of government and finance that now threatens the world financial and political institutions. Pursuing the same policy of excessive spending, debt expansion and monetary inflation can only compound the problems that prevent the required corrections. Doubling the money supply didn’t work, quadrupling it won’t work either. Buying up the bad debt of privileged institutions and dumping worthless assets on the American people is morally wrong and economically futile.”

I’ve now completed three parts of the five part series, documenting the downfall of the great American Empire. Part four, Outlaw Josey Wales, will scrutinize the looting of America by a small group of powerful, connected, super rich men lurking in the shadows, but pulling the strings on our puppet politicians. Lastly, Unforgiven  will detail the impending collapse of our economic system and the retribution that will be handed out to the guilty.

The smell of revolution is in the air.

Part One – For a Few Dollars More

Part Two – Fistful of Dollars

YOU AIN’T SEEN NOTHING YET – PART TWO

54 comments

Posted on 4th April 2012 by Administrator in Economy |Politics |Social Issues

, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

This is Part Two of a three part series trying to make sense of the Crisis period we entered in 2008. Click here to read: PART ONE

Catalyst of Change

“As late as December 1773, November 1859, and October 1929, the American people had no idea how close it was. Then sudden sparks (the Boston Tea Party, John Brown’s raid and execution, Black Tuesday) transformed the public mood, swiftly and permanently. Over the next two decades or so, society convulsed. Emergencies required massive sacrifices from a citizenry that responded by putting community ahead of self. Leaders led, and people trusted them. As a new social contract was created, people overcame challenges once thought to be insurmountable – and used the Crisis to elevate themselves and their nation to higher plane of civilization.” – Strauss & Howe - The Fourth Turning

 

 

 

Anyone who hasn’t sensed a mood change in this country since the 2008 financial meltdown is either ignorant or in denial. Millions of Americans fall into one of these categories, but many people realize something has changed – and not for the better. The sense of pure financial panic that existed during September and October of 2008 had not been seen since the dark days of 1929. Our leaders used the initial terror and fear to ram through TARP and stimulus packages that rewarded the perpetrators of the financial collapse rather than helping the middle class who lost 8 million jobs, destroyed by Wall Street criminality. The stock market plunged by 57% from its 2007 high by March 2009. What has happened since September 2008 has set the stage for the next downward leg in this Crisis. The rich and powerful have pulled out all the stops and saved themselves at the expense of the many. Despite overwhelming proof of unabashed mortgage fraud, rating agency bribery, document forgery on a grand scale and insider trading based on non-public information, the brazen audacity of Wall Street oligarchs is reminiscent of the late stages of the Roman Empire.    

“Crime, once exposed, has no refuge but in audacity.”
― Tacitus, Annals

The actions of the governing elite have provoked the darkening mood creeping across the land. The rise of the Tea Party in 2009 was fueled by anger over the bank bailouts, out of control federal spending and ever increasing taxes. The anger spilled over into town hall meetings, as Congressmen felt the wrath of public dissatisfaction. The fury propelled Tea Party Republicans to being elected in large numbers in 2010. But the movement was hijacked by the Republican establishment and defanged. As 2011 progressed, with Wall Street continuing to pillage the American middle class, the Occupy Movement spread to cities across America and around the world. The movement, led by Millenials, claims that mega-corporations and Wall Street manipulate the world in an unbalanced way that disproportionately benefits a super wealthy minority and is undermining democracy. They have shone a light upon the fact the 1% has used their wealth and power to plunder the national treasury, while impoverishing the 99%. The audacity of the 1% was on display for all to see when former Goldman Sachs CEO and former U.S. Senator Jon Corzine absconded with $1.2 billion of his customers’ money and continues to hide it in the vaults of his fellow robber baron Jamie Dimon at J.P. Morgan. To this day, no one has been jailed for this heist or any of the thousands of other crimes committed by the Wall Street titans. These psychopaths will not be satisfied until nothing remains of our country but a barren desert.

“They have plundered the world, stripping naked the land in their hunger… they are driven by greed, if their enemy be rich; by ambition, if poor… They ravage, they slaughter, they seize by false pretenses, and all of this they hail as the construction of empire. And when in their wake nothing remains but a desert, they call that peace.” – Tacitus, The Agricola and the Germania

A few weeks ago I watched The Grapes of Wrath movie for the first time in many years. The novel was written by John Steinbeck during the last Fourth Turning. It is as powerful today as it was in the 1941. It perfectly captures the mood of the country during the Great Depression. The message of the working class being exploited and manipulated by wealthy landowners resounds today. The Joads only sought an opportunity for a job, their own land, simple human dignity, and the chance for a better future. Wall Street has replaced the wealthy landowners as the exploiters of the working class. Steinbeck saw the Federal Government as a solution during the 1930s, but they are a major part of the problem today, as politicians have been captured by corporate and special interests. Their solutions do not benefit the average middle class American.

 

The feelings about our government and political system is reflected in Suzanne Collins’ Hunger Games novel, which captures the vein of government brutality, oppression of the working class, excessive wealth inequality, and the vapid shallowness of our American Idol culture. The Hunger Games was written in 2008 and the movie version has become a worldwide sensation. The immense divide between the wealthy ruling class, living an obscenely decadent lifestyle, and the exploited working class on the verge of starvation, is portrayed in a cruelly sadistic manner. The fact that it is appealing to Millenials and all generations says much about the changing of attitudes in the last four years. Hunger Games will be viewed as the modern day Grapes of Wrath by future generations.         

There is no denying the darkening disposition of the country, except by those whose job it is to deny the reality of our deteriorating situation. Those whose power and wealth are dependent upon a citizenry being kept in the dark and convinced the way out of this mess is to resume spending borrowed money, have pulled out all the stops since the initial catalyst for this Fourth Turning struck with its full fury in 2008. The frantic efforts by those in power to prop up the status quo were predictable. If our leaders had dealt with the initial crisis in a realistic manner, many wealthy powerful men would have gone broke. They have been able to temporarily fend off a full-fledged catastrophe as predicted by Strauss & Howe:

“At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where, during the Unraveling, America will have neglected, denied, or delayed needed action. Anger at “mistakes we made” will translate into calls for action, regardless of the heightened public risk. It is unlikely that the catalyst will worsen into a full-fledged catastrophe, since the nation will probably find a way to avert the initial danger and stabilize the situation for a while. Yet even if dire consequences are temporarily averted, America will have entered the Fourth Turning.”

But they have solved nothing. In fact, they have exacerbated the problem areas of debt, civic decay and global disorder with their “solutions”. Our leaders have added $5.6 trillion to the National Debt; the Federal Reserve tripled their balance sheet by taking on $2 trillion of Wall Street toxic debt; the Federal Government assumed trillions in new debt by taking over Fannie Mae, Freddie Mac and Sallie Mae; and real GDP went up by a mere $103 billion (.8%) between the 4th quarter of 2007 and the 4th quarter of 2011. Rescuing the 99% was never the focus of their solutions. It was to save the bankers and wealthy investors (1%) who took the world destroying risks and should have borne the losses of their risk taking. The oligarchs have been wildly successful in this effort. The stock market has doubled from its lows. Borrowing at 0% from the Federal Reserve has done wonders for banker bonuses.   Global disorder increases by the day, as politicians and bankers force austerity on their citizens, while continuing to harvest billions in profits and bonuses still waging wars of choice, further enriching the peddlers of debt and the peddlers of death (military industrial complex).

  

The Great Depression lasted from 1929 until 1940. The GDP of the country actually grew by 80% between 1933 and 1940. The stock market soared by 100% from the 1932 low to its 1933 high. It then soared another 100% from 1934 through 1937. Despite these fabulous economic statistics and investment riches scooped up by the 2.5% of the population that owned stocks, they still call this time period the Great Depression. With unemployment ranging from 15% to 25% during this entire time frame, the common man suffered greatly. There was no recovery for the 99%.

The net worth of the 99% is highly dependent on the value of their homes and their ability to increase their annual wages. Home prices have fallen 34% from their peak and continue to fall, recently reaching 2002 levels. Real median weekly earnings are lower than they were in 2003 and have fallen 3% since the economy supposedly entered its recovery in December 2009. Gas prices have doubled since early 2009. The 1% rejoices as they treat oil as an investment in their diversified portfolio. The 99% suffer as the average household is spending $2,500 per year more to fill up their vehicles. Food prices are up 15% to 25% in the last three years, even using the manifestly manipulated BLS figures.

It is essential for those in power to utilize their mainstream media propaganda machines, massaging of economic information and Ben Bernanke’s printing press to give the appearance of recovery to the masses. In the last three months the hyperbole and extreme spin from the corporate mainstream media has become exceedingly robust. It smells of desperation. Even as the media touts a recovery and Obama peddles drivel about millions of new jobs, Bernanke keeps the throttle of quantitative easing and zero interest rates wide open. Their actions are not consistent with their rhetoric. People who had jobs as accountants making $55,000 per year in 2007 are now stocking fertilizer in the garden center at Lowes making $20,000, with no benefits. This is the face of the jobs recovery. Only a corporate media doing the bidding of their masters could possibly rejoice at the February data showing consumers spending at a rate 450% higher than their income gains as a sign of recovery. There is a concerted effort to revive the auto market by the Federal Government (Ally Financial) and the Wall Street banks by employing exceptionally loose credit standards for auto loans and leases that are reminiscent of the subprime mortgage debacle. I’m sure it will turn out better this time. The downward spiral of trust is accelerating as predicted by Strauss & Howe:

“As the Crisis catalyzes, these fears will rush to the surface, jagged and exposed. Distrustful of some things, individuals will feel that their survival requires them to distrust more things. This behavior could cascade into a sudden downward spiral, an implosion of societal trust.”

The downward spiral of societal trust is well founded. The monied interests have captured the political process. The regulated have captured the regulators. Wall Street has always controlled the Federal Reserve. Corporations and the wealthiest among us select the politicians that will best serve their interests. The governing elite of psychopathic bankers, corrupt politicians, and powerful mega-corporations create crises, then save us from the crises they created, while accumulating more control, wealth and power. This perpetual swindle has been going on for decades and has reached its zenith as it did during the last Fourth Turning. Income inequality has reached the extreme levels last seen in the 1930s. The capitalism storyline has grown old and tired. Complete systematic capture is the reason for those at the top reaping all the benefits of our dysfunctional economic system.

The rampant mortgage fraud, the robo-signing crimes, trillions of shadowy derivatives, unfunded government pensions, unfunded Medicare and Social Security promises, and the bald-faced looting of customer accounts at MF Global have brought about a realization among those capable of critical thought that this Crisis is growing worse by the day. Strauss & Howe clearly understood the factors that would lead to this deficit of trust:

“But as the Crisis mood congeals, people will come to the jarring realization that they have grown helplessly dependent on a teetering edifice of anonymous transactions and paper guarantees. Many Americans won’t know where their savings are, who their employer is, what their pension is, or how their government works. The era will have left the financial world arbitraged and tentacled: Debtors won’t know who holds their notes, homeowners who owns their mortgages, and shareholders who runs their equities – and vice versa.”

Here we stand, three and a half years since the catalyst of this Crisis. What event or events will produce the regeneracy stage of this Fourth Turning and when can we expect its arrival? I’ll try to make some educated guesses in Part Three of this series.

Click here to read: PART ONE

 



 

CAUSE, EFFECT & THE FALLACY OF A RETURN TO NORMALCY

120 comments

Posted on 6th March 2012 by Administrator in Economy |Politics |Social Issues

, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

 “Thousands upon thousands are yearly brought into a state of real poverty by their great anxiety not to be thought of as poor.” – Robert Mallett

 

I hear the term de-leveraging relentlessly from the mainstream media. The storyline that the American consumer has been denying themselves and paying down debt is completely 100% false. The proliferation of this Big Lie has been spread by Wall Street and their mouthpieces in the corporate media. The purpose is to convince the ignorant masses they have deprived themselves long enough and deserve to start spending again. The propaganda being spouted by those who depend on Americans to go further into debt is relentless. The “fantastic” automaker recovery is being driven by 0% financing for seven years peddled to subprime (aka deadbeats) borrowers for mammoth SUVs and pickup trucks that get 15 mpg as gas prices surge past $4.00 a gallon. What could possibly go wrong in that scenario? Furniture merchants are offering no interest, no payment deals for four years on their product lines. Of course, the interest rate from your friends at GE Capital reverts retroactively to 29.99% at the end of four years after the average dolt forgot to save enough to pay off the balance. I’m again receiving two to three credit card offers per day in the mail. According to the Wall Street vampire squids that continue to suck the life blood from what’s left of the American economy, this is a return to normalcy.

The definition of normal is: “The usual, average, or typical state or condition”. The fallacy is calling what we’ve had for the last three decades of illusion – Normal. Nothing could be further from the truth. We’ve experienced abnormal psychotic behavior by the citizens of this country, aided and abetted by Wall Street and their sugar daddies at the Federal Reserve. You would have to be mad to believe the debt financed spending frenzy of the last few decades was not abnormal.

The Age of Illusion

“Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.” - Sigmund Freud

In my last article Extend & Pretend Coming to an End, I addressed the commercial real estate debacle coming down the pike. I briefly touched upon the idiocy of retailers who have based their business and expansion plans upon the unsustainable dynamic of an ever expanding level of consumer debt doled out by Wall Street banks. One only has to examine the facts to understand the fallacy of a return to normalcy. We haven’t come close to experiencing normalcy. When retail sales, consumer spending and consumer debt return to a sustainable level of normalcy, the carcasses of thousands of retailers will litter the highways and malls of America. It will be a sight to see. The chart below details the two decade surge in retail sales, with the first ever decline in 2008. Retail sales grew from $2 trillion in 1992 to $4.5 trillion in 2007. The Wall Street created crisis in 2008/2009 resulted in a decline to $4.1 trillion in 2009, but the resilient and still delusional American consumer, with the support of their credit card drug pushers on Wall Street, set a new record in 2011 of $4.7 trillion.

A two decade increase in retail sales of 135% might seem reasonable and normal if wages and household income had grown at an equal or greater rate. But total wages only grew by 125% over this same time frame. Interestingly, the median household income only grew from $30,600 to $49,500, a 62% increase over twenty years. It seems the majority of the benefits accrued to the top 20%, with their aggregate share of the national income exceeding 50% today, versus 47% in 1992 and 43% in the early 1970s. The top 5% are taking home in excess of 21% of the national income versus less than 19% in 1992 and 16% in the early 1970s. It appears the financialization of America, after Nixon closed the gold window and allowed unlimited money printing by the Federal Reserve, has benefitted the few, at the expense of the many. The bottom 80% of households has seen their share of the national income steadily decrease since the early 1970s. There are 119 million households in the United States and 95 million of these households have seen their wages and income stagnate. One might wonder how the 80% were able to fuel a two decade surge in retail sales with such pathetic wage growth.

Your friendly Wall Street banker stepped into the breach and did their part to aid a vast swath of Americans to enslave themselves in debt. As the chart above reveals, the slave owners on Wall Street have been the chief beneficiary of the decades long debt deluge. It seems that charging 18% interest on hundreds of billions in credit card debt can be extremely profitable for the shyster charging the interest. Decades of mailing millions of credit card offers, inundating financially ignorant Americans with propaganda media messages convincing them they needed a bigger house, fancier car, or latest technological gadget and creating complex derivatives that permitted banks to market debt to people guaranteed not to pay them back but not care since they sold the packages of these toxic AAA rated loans to pension funds and little old ladies, has done wonders for earnings per share, stock option awards, executive salaries and bonus pools. It hasn’t done wonders for the net worth of the average American who has been entrapped in the chains of debt, forged link by link over decades of purposeful deception and willful delusion.

The 135% increase in retail sales over two decades may have been slightly enhanced by the 213% increase in consumer credit outstanding. Consumer revolving credit rose from $800 billion to the current level of $2.5 trillion over the last two decades. Those 15 credit cards in our possession were so easy to use that we financed our trips to Dollywood, Sandals, and Euro-Disney, in addition to financing our 72 inch 3D HDTVs, granite countertops, stainless steel appliances, decks, pools, recliners with a built in fridges, home theatre rooms, Coach pocketbooks, Jimmy Cho shoes, Rolex watches, yachts, bigger and better boobs, and of course our smokes and beer. Much has been made about the great de-leveraging by the American consumer. There’s just one inconvenient fact – it hasn’t happened – yet.

Total consumer credit outstanding peaked at $2.58 trillion in July 2008. Today it stands at $2.50 trillion. Revolving credit card debt peaked at $972 billion in September 2008 and subsequently declined to $790 billion by April 2011. It now stands at $801 billion, as living well beyond our means has resumed its appeal. Meanwhile, non-revolving credit for automobiles, boats, student loans, and mobile homes peaked at $1.61 trillion in July 2008 and “crashed” all the way down to $1.58 trillion in May 2010. Once Bennie fired up the printing presses, the government car companies decided to make subprime auto loans again and the Federal government started doling out student loans like a pez dispenser, all was well in the non-revolving consumer loan world. The debt outstanding has soared to $1.7 trillion, a full $90 billion above the pre-crash peak. So, after three and a half years of “austerity” and supposed deleveraging, consumer debt outstanding has fallen by 3%.

The Big Lie of austerity and consumer deleveraging is unquestioned by the talking heads in the mainstream media. They are incapable or unwilling to examine the actual data which substantiates the fact that Americans have NOT deleveraged and have NOT taken austerity to heart. The most basic facts fly in the face of consumers even having the wherewithal to pay down their debt. Median household income has declined from $50,300 in 2008 to $49,400 today. There are 5 million less people employed today than employed in 2008. Total wages in the country have only grown from $6.6 trillion in 2008 to $6.8 trillion today. This increase was concentrated among the .01%, who do not carry credit card debt. They profit from credit card debt. Real disposable personal income has fallen by 5% since the peak in 2008 as Bernanke’s Wall Street bailout zero interest rate policy has caused prices for everything except our houses to surge. The people carrying most of the credit card debt are the least able to pay it off. These are the same people who have swelled the food stamp rolls from 28 million in 2008 to 46.5 million today.

A CNBC bubble headed arrogant bimbo might sarcastically ask, “If the American consumer isn’t deleveraging, than how did revolving credit card debt drop by $182 billion over three years?” Rather than do the minimal research needed to find the answer, they would rather parrot the company/government line. The chart below, compiled from Federal Reserve data, provides the answer. The Wall Street banks have written off $193.3 billion of bad debt since 2008. Now for some basic math, that will probably be over the head of most Wall Street analysts and CNBC parrots. If you start with $972 billion of credit card debt and you write-off $200 billion (assuming another $7 billion in the 4th Quarter of 2011) and your ending balance is $801 billion, how much debt did the American consumer pay down? It’s a trick question. The American consumer ADDED $29 billion of credit card debt since 2008 to go along with the $90 billion of auto and student loan debt ADDED onto their aching backs. So much for the deleveraging storyline. It’s comforting to convince ourselves we’ve changed, but we haven’t. And the powers that be need you to keep believing, so they can continue to keep you enslaved and under their thumbs.

Consumer Credit Card Debt and Charge-off Data (in Billions):

Outstanding Revolving Consumer Debt Outstanding Credit Card Debt Quarterly Credit Card Charge-Off Rate Quarterly Credit Card Charge-Off in Dollars
Q3 2011 $793.4 $777.5 5.63% $10.9
Q2 2011 $787.4 $771.7 5.58% $10.8
Q1 2011 $779.6 $764.0 6.96% $13.3
2010 $826.7 $810.2 $75.1
Q4 2010 $825.7 $810.2 7.70% $15.6
Q3 2010 $806.9 $790.8 8.55% $16.9
Q2 2010 $817.4 $801.1 10.97% $22.0
Q1 2010 $828.5 $811.9 10.16% $20.6
2009 $894.0 $876.1 $83.2
Q4 2009 $894.0 $876.1 10.12% $22.2
Q3 2009 $893.5 $875.6 10.1% $22.1
Q2 2009 $905.2 $887.1 9.77% $21.6
Q1 2009 $923.3 $904.8 7.62% $17.2
Q4 2008 $989.1 $969.3

(Source: CardHub.com, Federal Reserve)

Loving Our Servitude

“There will be, in the next generation or so, a pharmacological method of making people love their servitude, and producing dictatorship without tears, so to speak, producing a kind of painless concentration camp for entire societies, so that people will in fact have their liberties taken away from them, but will rather enjoy it, because they will be distracted from any desire to rebel by propaganda or brainwashing, or brainwashing enhanced by pharmacological methods. And this seems to be the final revolution.” Aldous Huxley

The American people have come to love their servitude through a combination of self- delusion, corporate mass media propaganda, and an irrational desire to appear successful without making the necessary sacrifices required to become successful. The drug of choice used to corral the masses into their painless concentration camp of debt has been Wall Street peddled financing. Can you think of a better business model than being a Wall Street bank? You hand out 500 million credit cards to 118 million households, even though 60 million of the households make less than $50,000. You then create derivatives where you package billions of subprime credit card debt and convince clueless dupes to buy this toxic debt as if it was AAA credit. When the entire Ponzi scheme implodes, you write-off $200 billion of bad debt and have the American taxpayer pick up the tab by having your Ben puppet at the Federal Reserve seize $450 billion of interest income from senior citizens and re-gift it to you through his zero interest rate policy. You then borrow from the Federal Reserve at 0% and charge an average interest rate of 15% on the $800 billion of credit card debt outstanding, generating $120 billion of interest and charging an additional $22 billion of late fees. Much was made of the closing of credit card accounts after the 2008 financial implosion, but most of the accounts closed were old unused credit lines. Now that the American taxpayer has picked up the tab for the 2008 debacle, the Wall Street banks are again adding new credit card accounts.

With 40% of all credit card users carrying a revolving balance averaging $16,000, they are incurring interest charges of $2,400 per year. Some of the best financial analysts in the blogosphere have been misled by the propaganda spewed by the Wall Street media shills at Bloomberg and CNBC. The following chart, which includes mortgage and home equity debt, gives the false impression households are sensibly deleveraging, as household debt as a percentage of disposable personal income has fallen from 115% in June 2009 to 101% today. As I’ve detailed ad nauseam, $200 billion of the $1.2 trillion of “household deleveraging” was credit card write-offs. The vast majority of the remaining $1 trillion of “deleveraging” could possibly be related to the 5 million completed foreclosures since 2009. Of course, this pales in comparison to the unbelievably foolhardy mortgage equity withdrawal of $3 trillion between 2003 and 2008 by the 1% wannabes.  Bloomberg might be a tad disingenuous by excluding the $1 trillion of student loan from their little chart. If student loan debt is included, household debt outstanding surges to $11.5 trillion.

Based on the Bloomberg chart you would assume wrongly that American consumers are using their rising incomes to pay down debt. Besides not actually reducing their debts, the disposable personal income figure provided by the government drones at the BEA includes government transfer payments for Social Security, Medicare, Medicaid, unemployment compensation, food stamps, veterans benefits, and the all- encompassing “other”. Disposable personal income in the 2nd quarter of 2008 reached $11.2 trillion. It has risen by $500 billion, to $11.7 trillion by the end of 2011. Coincidentally, government social transfers have risen by $400 billion over this same time frame, a 20% increase. Excluding government transfers, disposable personal income has risen by a dreadful 1.1%. For the benefit of the slow witted in the mainstream media, every penny of the social welfare transfers has been borrowed. Only a government bureaucrat could believe that borrowing money from the Chinese, handing it out to unemployed Americans and calling it personal income is proof of deleveraging and austerity.

Household debt as a percentage of wages in 2008 was 185%. Today, after the banks have written off $1.2 trillion of debt, this figure stands at 169%. Meanwhile, total credit market debt in our entire system now stands at an all-time high of $54 trillion, up $3 trillion from 2007. It stands at 360% of GDP. In 1992, total credit market debt of $15.2 trillion equaled 240% of GDP ($6.3 trillion). Was it a sign of a rational balanced economic system that total credit market debt grew by 355% in the last two decades while GDP grew by only 238%? I think it is pretty clear the last two decades have not been normal or built upon a sustainable foundation. In the three decades prior to 1990 household debt as a percentage of disposable personal income stayed in a steady range between 60% and 80%. The current level of 101% is abnormal. In order to achieve a sustainable normal level of 80% will require an additional $2 trillion of debt destruction. No one is prepared for this inevitable end result. The impact of this “real” deleveraging will devastate our consumer dependent society.

The colossal accumulation of debt in the last two decades was the cause and abnormally large retail sales were the effect. The return to normalcy will not be pleasant for consumers, retailers, mall owners, local governments or bankers.

Demographics are a Bitch

In addition to an unsustainable level of debt, the pig in the python (also known as the Baby Boomer generation) will relentlessly impact the future of consumer spending and the approaching mass retail closures. Baby Boomers range in age from 51 to 68 today. The chart below details the retail spending by age bracket. Almost 50% of all retail spending is done by those between 35 years old and 54 years old. This makes total sense as these are the peak earnings years for most people and the period in their lives when they are forming households, raising kids and accumulating stuff. As you enter your twilight years, income declines, medical expenses rise, the kids are gone, and you’ve bought all the stuff you’ll ever need. Spending drops precipitously as you enter your 60’s. The spending wave that began in 1990 and reached its apex in the mid-2000s has crested and is going to crash down on the heads of hubristic retail CEOs that extrapolated unsustainable debt financed spending to infinity into their store expansion plans. The added kicker for retailers is the fact Boomers haven’t saved enough for their retirements, have experienced a twelve year secular bear market with another five or ten years to go, are in debt up to their eyeballs, and have seen the equity in their homes evaporate into thin air in the last seven years. This is not a recipe for a spending up swell.

Demographics cannot be spun by the corporate media or manipulated by BLS government drones. They are factual and unable to be altered. They are also predictable. The four population by age charts below paint a four decade picture of reality that does not bode well for retailers over the coming decade. The population by age data correlates perfectly with the spending spree over the last two decades.

  • 26% of the population in the prime spending years between 35 and 54 years old.
  • Only 14% of the population over 65 years old indicating reduced spending.

  • 31% of the population in the prime spending years between 35 and 54 years old.
  • Only 13% of the population over 65 years old indicating reduced spending.

  • 28% of the population in the prime spending years between 35 and 54 years old.
  • A rising 14% of the population over 65 years old indicating reduced spending.

  • 24% of the population in the prime spending years between 35 and 54 years old.
  • A rising 17% of the population over 65 years old indicating reduced spending.

The irreversible descent in the percentage of our population in the 35 to 54 year old prime spending age bracket will have and is already having a devastating impact on retail sales. In addition, the young people moving into the 25 to 34 year old bracket are now saddled with $1 trillion of student loan debt and worthless degrees from the University of Phoenix and the other for-profit diploma mills, luring millions with their Federal government easy loan programs. The fact that 40% of all 20 to 24 year olds in the country are not employed and 26% of all 25 to 34 year olds in the country are not working may also play a role in holding back spending, as jobs are somewhat helpful in generating money to buy stuff. Even with Obama as President they will have a tough time getting onto the unemployment rolls without ever having a job. The 55 and over crowd, who have lived above their means for three decades, will be lucky if they have the resources to put Alpo on the table in the coming years. The unholy alliance of debt, demographics and delusion will result in a retail debacle of epic proportions, unseen by retail head honchoes and the linear thinkers in the media and government.

We’re Not in Kansas Anymore Toto

“We tell ourselves we’re in an economic recovery, meaning we expect to return to a prior economic state, namely, a turbo-charged “consumer” economy fueled by easy credit and cheap energy. Fuggeddabowdit. That part of our history is over. We’ve entered a contraction that will seem permanent until we reach an economic re-set point that comports with what the planet can actually provide for us. That re-set point is lower than we would like to imagine. Our reality-based assignment is the intelligent management of contraction. We don’t want this assignment. We’d prefer to think that things are still going in the other direction, the direction of more, more, more. But they’re not. Whether we like it or not, they’re going in the direction of less, less, less. Granted, this is not an easy thing to contend with, but it is the hand that circumstance has dealt us. Nobody else is to blame for it.” – Jim Kunstler

 

The brilliant retail CEOs who doubled and tripled their store counts in the last twenty years and assumed they were geniuses as sales soared are getting a cold hard dose of reality today. What they don’t see is an abrupt end to their dreams of ever expanding profits and the million dollar bonuses they have gotten used to. I’m pretty sure their little financial models are not telling them they will need to close 20% of their stores over the next five years. They will be clubbed over the head like a baby seal by reality as consumers are compelled to stop consuming. As we’ve seen, just a moderation in spending has resulted in a collapse in store profitability. Retail CEOs have failed to grasp that it wasn’t their brilliance that led to the sales growth, but it was the men behind the curtain at the Federal Reserve. The historic spending spree of the last two decades was simply the result of easy to access debt peddled by Wall Street and propagated by the easy money policies of Alan Greenspan and Ben Bernanke. The chickens came home to roost in 2008, but the Wizard of Debt – Bernanke – has attempted to keep the flying monkeys at bay with his QE1, QE2, Operation Twist, and ZIRP. As the economy goes down for the count again in 2012, he will be revealed as a doddering old fool behind the curtain.

There are 1.1 million retail establishments in the United States, but the top 25 mega-store national chains account for 25% of all the retail sales in the country. The top 100 retailers operate 243,000 stores and account for approximately $1.6 trillion in sales, or 36% of all the retail sales in the country. They are led by the retail behemoth Wal-Mart and they dot the suburban landscape from Maine to Florida and New York to California. These super stores anchor every major mall in America. There are power centers with only these household names jammed in one place (example near my home: Best Buy, Target, Petsmart, Dicks, Barnes & Noble, Staples). These national chains had already wiped out the small town local retailers by the early 2000s as they sourced their goods from China and dramatically underpriced the small guys. The remaining local retailers have been closing up shop in record numbers in the last few years as the ability to obtain financing evaporated and customers disappeared. The national chains have more staying power, but their blind hubris and inability to comprehend the future landscape will be their downfall.

Having worked for one of the top 100 retailers for 14 years, I understand every aspect of how these mega-chains operate. They all approach retailing from a very scientific manner. They have regression models to project sales based upon demographics, drive times, education, average income, and the size of the market. They will build any store that achieves a certain ROI, based on their models. The scientific method works well when you don’t make ridiculous growth assumptions and properly take into account what your competitors are doing and how the economy will realistically perform in the future years. This is where it goes wrong as these retail chains get bigger, start believing their press clippings and begin ignoring the warnings of sober realists within their organizations. When the models show that cannibalization of sales from putting stores too close together will result in a decline in profits, the CEO will tweak the model to show greater same store growth and a larger increase in the available market due to higher economic growth. They assume margins will increase based upon nothing. At the same time, they will ignore the fact their competitor is building a store 2 miles away. Eventually, using foolhardy assumptions and ignoring facts leads to declining sales and profitability.

There is no better example of this than Best Buy. They increased their U.S. store count from 500 in 2002 to 1,300 today. That is a 160% increase in store count. For some perspective, national retail sales grew by 42% over this same time frame. Their strategy wiped out thousands of mom and pop stores and drove their chief competitor – Circuit City – into liquidation. But their hubris caught up to them. There sales per store has plummeted from $36 million per store in 2007 to less than $28 million per store today, a 24% decline in just five years. They have cannibalized themselves and have seen a $6 billion increase in revenue lead to $100 million LESS in profits. It appears the 444 stores they have built since 2007 have a net negative ROI. Top management is now in full scramble mode as they refuse to admit their strategic errors. Instead they cut staff and use upselling gimmicks like service plans, technical support and deferred financing to try and regain profitability. They will not admit they have far too many stores until it is too late. They will follow the advice of an earnings per share driven Wall Street crowd and waste their cash buying back stock. We’ve seen this story before and it ends in tears. I was in a Best Buy last week at 6:00 pm and there were at least 50 employees servicing about 10 customers. Tick Tock.

Best Buy - Annual Store Count Growth

Best Buy - Annual Sales per Store

You would have to be blind to not have noticed the decade long battles between the two biggest drug store chains and the two biggest office supply chains. Walgreens and CVS have been in a death struggle as they have each increased their store counts by 80% to 90% in the last 10 years. Both chains have been able to mask poor existing store growth by opening new stores. They are about to hit the wall. I now have six drug stores within five miles of my house all selling the exact same products. Every Wal-Mart and Target has their own pharmacy. At 2:00 pm on a Sunday afternoon I walked into the Walgreens near my house and there were six employees, a pharmacist and myself in the store. This is a common occurrence in this one year old store. It will not reach its 3rd birthday.

Walgreens - Annual Store Count Growth

CVS - Annual Retail Store Growth

Further along on the downward death spiral are Staples and Office Depot. They both increased their store counts by 50% to 60% in the last decade. Despite adding almost 200 stores since 2007, Staples has managed to reduce their profits. Sales per store have declined by 20% since 2006. Office Depot has succeeded in losing almost $2 billion in the last five years. These fools are actually opening new stores again despite overseeing a 36% decrease in sales per store over the last decade. These stores sell paper clips, paper, pens, and generic crap you can purchase at 100,000 other stores across the land or with a click of you mouse. Their business concept is dying and they don’t know it or refuse to acknowledge it.

Staples - Annual Store Count Growth

Office Depot - Annual Store Count Growth

Even well run retailers such as Kohl’s and Bed Bath & Beyond have hit the proverbial wall. Remember that total retail sales have only grown by 42% in the last ten years while Kohl’s has increased their store count by 180% and Bed Bath & Beyond has increased their store count by 175%. Despite opening 200 new stores since 2007, Kohl’s profits are virtually flat. Sales per store have deflated by 26% over the last decade as over-cannibalization has worked its magic. Bed Bath & Beyond has managed to keep profits growing as they drove Linens & Things into bankruptcy, but they risk falling into the Best Buy trap as they continue to open new stores. Their sales per store are well below the levels of 2002. Again, there is very little differentiation between these retailers as they all sell cheap crap from Asia, sold at thousands of other stores across the country. With home formation stagnant, where will the growth come from? Answer: It won’t come at all.

Kohl's - Annual Store Count Growth

Bed Bath & Beyond - Annual Store Count Growth

The stories above can be repeated over and over when analyzing the other mega-retailers that dominate our consumer crazed society. Same store sales growth is stagnant. The major chains have over cannibalized themselves. Their growth plans were based upon a foundation of ever increasing consumer debt and ever more delusional Americans spending money they don’t have. None of these retailers has factored a contraction in consumer spending into their little models. But that is what is headed their way. They saw the tide go out in 2009 but they’ve ventured back out into the surf looking for some trinkets, not realizing a tsunami is on the way. The great contraction began in 2008 and has been proceeding in fits and starts for the last four years. The increase in retail sales over the last two years has been driven by inflation, not increased demand. The efforts of the Federal Reserve and Wall Street to reignite our consumer society by pushing subprime debt once more will ultimately fail – again. The mega-retailers will be forced to come to the realization they have far too many stores to meet a diminishing demand.

The top 100 mega-retailers operate 243,000 stores. Will our contracting civilization really need or be able to sustain 14,000 McDonalds, 17,000 Taco Bells & KFCs, 24,000 Subways, 9,000 Wendys, 7,000 7-11s, 8,000 Walgreens, 7,000 CVS’, 4,000 Sears & Kmarts, 11,000 Starbucks, 4,000 Wal-Marts, 1,700 Lowes and 1,800 Targets in five years?  As our economy contracts and more of our dwindling disposable income is directed towards rising energy and food costs, retailers across the land will shut their doors. Try to picture the impact on this country as these retailers are forced to close 50,000 stores. Where will recent college graduates and broke Baby Boomers work? The most profitable business of the future will be producing Space Available and For Lease signs. Betting on the intelligence of the American consumer has been a losing bet for decades. They will continue to swipe that credit card at the local 7-11 to buy those Funions, jalapeno cheese stuffed pretzels with a side of cheese dipping sauce, cartons of smokes, and 32 ounce Big Gulps of Mountain Dew until the message on the credit card machine comes back DENIED.

There will be crescendo of consequences as these stores are closed down. The rotting hulks of thousands of Sears and Kmarts will slowly decay; blighting the suburban landscape and beckoning criminals and the homeless. Retailers will be forced to lay-off hundreds of thousands of workers. Property taxes paid to local governments will dry up, resulting in worsening budget deficits. Sales taxes paid to state governments will plummet, forcing more government cutbacks and higher taxes. Mall owners and real estate developers will see their rental income dissipate. They will then proceed to default on their loans. Bankers will be stuck with billions in loan losses, at least until they are able to shift them to the American taxpayer – again. No politician, media pundit, Federal Reserve banker, retail CEO, or willfully ignorant mindless consumer wants to admit the truth that the last three decades of debt delusion are coming to a tragic bitter end. The smarmy acolytes of Edward Bernays on Wall Street and in corporate America have successfully used propaganda and misinformation to lure generations of weak minded people into debt servitude. But, at the end of the day, you need cash to service the debt. Mind control doesn’t pay the bills.  We will eventually return to normal, just not the normal many had in mind.

“If we understand the mechanism and motives of the group mind, it is now possible to control and regiment the masses according to our will without them knowing it.” – Edward Bernays