WHAT WOULD COOL HAND LUKE & VIRGIL HILTS DO?

“Is life so dear, or peace so sweet, as to be purchased at the price of chains and slavery? Forbid it, Almighty God! I know not what course others may take; but as for me, give me liberty or give me death!”Patrick Henry

Hilts in The Great Escape | BAMF Style

“If ever a time should come, when vain and aspiring men shall possess the highest seats in Government, our country will stand in need of its experienced patriots to prevent its ruin.”Samuel Adams

After observing the reaction of the America people, over the last two months, to a virus that will not kill 99.97% of them, I wondered how could a country created upon the blood and courage of patriot farmers and leaders who knew they would hang if their revolution failed, have degenerated into an infantilized nation of obedient slaves to un-Constitutionalized authoritarianism. It saddens me that a country borne by revolutionary means against an overbearing authoritarian monarchy has turned into a nation of bed-wetters curled up in their basements sucking their thumbs, begging government overlords to protect them from a virus.

I guess it shouldn’t be surprising after decades of government public school indoctrination where U.S. History facts have been usurped by feelings, diversity and gender agendas pushed by less than mediocre teachers. Government controlled education hasn’t taught children to think critically or question authority, but to obey rules and allow emotions to drive their actions. When multiple generations have been programmed to feel, rather than think, using panic and fear to make them do as they are told isn’t a difficult task. This pandemic reaction is a testament to their decades long propaganda and misinformation campaign. Rather than developing herd immunity the country developed a herd mentality.

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WORST CASE SCENARIO = 73% DOWN FROM HERE

As the stock market gyrates higher and lower in a fairly narrow range, the spokesmodels and talking heads on CNBC breathlessly regurgitate the standard bullish mantra designed to keep the muppets in the market. They are employees of a massive corporation whose bottom line and stock price depend upon advertising revenues reaped from Wall Street and K Street. They aren’t journalists. They are propagandists disguised as journalists. Their job is to keep you confused, misinformed, and ignorant of the true facts.

Based on the never ending happy talk and buy now gibberish spouted by the pundit lackeys, you would think we are experiencing a bull market of epic proportions and anyone who hasn’t been in the market has missed out on tremendous gains. There’s one little problem with that bit of propaganda. It’s completely false. The Fed turned off the QE spigot at the end of October 2014 and the market has gone nowhere ever since.

QE1 began in September 2008, taking the Fed balance sheet from $900 billion to $2.3 trillion by June 2010. This helped halt the stock market crash and drove the S&P 500 up by 50% from its March 2009 lows. QE2 was implemented in November 2010 and increased the Fed balance sheet to $2.9 trillion by the end of 2011. This resulted in an unacceptable 10% increase in the S&P 500, so the Fed cranked up their printing presses to hyper-speed and launched the mother of all quantitative easings, with QE3 pushing their balance sheet to $4.5 trillion by October 2014, when they ceased their “Save a Wall Street Banker” campaign.

As Main Street dies, Wall Street has been paved in gold. The S&P 500 soared to all-time highs, with 40% gains from the September 2012 QE3 launch until its cessation in October 2014. Like a heroine addict, Wall Street has experienced withdrawal symptoms ever since, and begs for more monetary easing injections. Yellen and her gang of central bank drug dealers keep the patient from dying by continuing doses of ZIRP and psychologically comforting dialogue designed to cheer up Wall Street bankers.

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THEY’RE GONNA NEED A BIGGER BALANCE SHEET

Driving home from work on Friday night I found it terribly amusing listening to the “business journalists” on the local news station trying to explain the 531 point plunge in the Dow and the 1,105 point plummet from the Tuesday high. The job of these faux journalist mouthpieces for the status quo is not to report the facts, analyze the true factors underlying the market, or seek the truth. Their job is to calm the masses, keep them sedated, and paint the rosiest picture possible.

The brainless twit who reported the stock market bloodbath immediately went into the mode of counteracting the impact of what was happening. She said the market is overreacting, as the country has strong job growth, low inflation, a strongly recovering housing market, and an improving economy. The fact that everything she said was a complete and utter falsehood was exacerbated by her willful ignorance of the Fed created bubble leading to the most overvalued stock market in history. How can these people pretend to be business journalists when they haven’t got a clue about stock market valuations and just say what they are told to say?

Anyone who listens to a mainstream media pundit, talking head, or spokes bimbo deserves the reaming they are going to receive. They are paid to lie, obfuscate, spin, and propagandize on behalf of their corporate media executives, who are beholden to Wall Street bankers, mega-corporations, and the government for their advertising dollars. The mainstream media is nothing but entertainment for the masses, part of the bread and circuses designed to distract the dumbed down, iGadget addicted, ignorant masses.

The entire stock market bubble has been created and sustained by the Federal Reserve and their QE and ZIRP schemes to prop up insolvent Wall Street banks, enrich corporate executives, and produce the appearance of a recovering economy. The wealth was supposed to trickle down to the masses, but the trickle has been yellow in appearance and substance. The average American is far worse off today than they were in 2007, with the Greater Depression Part 2 underway.

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FOURTH TURNING – THE SHADOW OF CRISIS HAS NOT PASSED – PART THREE

In Part One of this article I attempted to illuminate the concept of generational theory as articulated by Strauss and Howe in The Fourth Turning.  In Part Two I provided proof this Crisis is far from over, with ever increasing debt, civic decay and global disorder propelling the world towards war.

Seeds of Crisis & War

“The seasons of time offer no guarantees. For modern societies, no less than for all forms of life, transformative change is discontinuous. For what seems an eternity, history goes nowhere – and then it suddenly flings us forward across some vast chaos that defies any mortal effort to plan our way there. The Fourth Turning will try our souls – and the saecular rhythm tells us that much will depend on how we face up to that trial. The saeculum does not reveal whether the story will have a happy ending, but it does tell us how and when our choices will make a difference.”  – Strauss & Howe – The Fourth Turning

When you accept the fact history is cyclical and continuous linear progress is not what transpires in the real world, you free yourself from the mental debilitation of normalcy bias and cognitive dissonance. Things do get worse. There are dark periods of history and they recur on a regular cycle. And we are in the midst of one of those dark periods. This Crisis will not be resolved without much pain, sacrifice, bloodshed, and ultimately war. Catastrophe is a strong possibility. The core elements of this Crisis – debt, civic decay, global disorder – are coalescing into a perfect storm which will rage for the next ten to fifteen years. The rhythms of history only provide a guidepost of timing, while the specific events and outcomes are unknowable in advance. The regeneracy of society into a cohesive, unified community, supporting the government in a collective effort to solve society’s most fundamental problems seems to have been delayed. Or has it?

Maybe the answer can be found in the resolution of the last Fourth Turning. The seeds of the next crisis are always planted during the climax of the previous crisis, when the new social order is established. The American Revolution Crisis created a new nation, but left unresolved the issue of slavery. This seed grew to become the catalyst for the Civil War Crisis. The resolution of the Civil War Crisis greatly enhanced the power of the central government, while reducing the influence of the States. The rise of central authority led to the creation of the Federal Reserve, the implementation of income taxes to fund a vastly larger Federal government and the belief among the political class that America should intervene militarily in the affairs of other countries. The Great Depression was created by the monetary policies of the Federal Reserve; the New Deal programs were a further expansion of Federal government; FDR outlawed the ownership of gold; and America’s subsequent involvement in World War II created a military and economic superpower.

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THIS IS YOUR RECOVERY AND THIS IS YOUR RECOVERY WITHOUT DRUGS

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”Thomas Jefferson

Does this chart portray an economic recovery in any way? Wages have been stagnant since the START of the supposed recovery in 2010. Real median household income, even using the highly understated CPI, is on a glide path to oblivion. You just need to observe with your own two eyes the number of Space Available signs in front of office buildings, strip centers and malls across America to realize we have further to fall. Low paying, part-time burger flipping jobs aren’t going to revive this debt saturated economic system. But at least the .1% are enjoying their Federal Reserve created high. Fiat is a powerful drug when administered in large doses to addicts on Wall Street.

The S&P 500 has risen from 666 in March of 2009 to 1,972 today. That is a 196% increase in a little over five years. During this same time, real household income has fallen by 7%. There have been a few million jobs added, while 11 million people have left the labor market. According to Robert Shiller’s CAPE ratio, the stock market valuation has only been higher, three times in history – 1929, 1999, and 2007. He seems flabbergasted by why valuations are so high. Sometimes really smart people can act really dumb.

The Federal Reserve balance sheet was $900 billion before the 2008 financial crisis. Today it stands at $4.4 trillion. The Fed has increased their balance sheet by 220% since the March 2009 market lows. Do you think there is any correlation between the Fed puppets printing $2.4 trillion and handing it to their Wall Street puppeteers, who used their high frequency trading supercomputers and ability to rig the markets so they never lose, and the third stock bubble in the last 13 years? It’s so self evident that only an Ivy League economist or CNBC anchor wouldn’t be able to see it.

sp500fedbal

 

Let’s look at the amazing stock market recovery without Federal Reserve heroine pumped into the veins of Wall Street banker addicts. If you divide the S&P 500 Index by the size of the Federal reserve balance sheet, you see the true purpose of QE1, QE2, and QE3. It wasn’t to save Main Street. It was to save Wall Street. Without the Federal Reserve funneling fiat to the .1% banking cabal and creating inflation in energy, food, and other basic necessities for the 99.9%, there is no stock market recovery. The recovery has occurred in Manhattan and the Hamptons. It’s been non-existent for the vast majority of people in this country. The wealth effect and trickle down theory have been disproved in spades. The only thing trickling down on the former middle class from the Fed is warm and yellow.

sp500fedbalratio

The entire stock market advance has been created on record low trading volumes and record high levels of monetary manipulation. Even though the Federal Reserve has driven senior citizens further into poverty with 0% interest rates, those with common sense have refused to be lured back into the lion’s den. They have parked record levels of fiat in no interest bank and money market accounts. They are tired of being muppets led to slaughter.

Quantitative easing was supposed to force little old ladies into the stock market and consumers to spend their debased dollars before they lost more value. The spending would revive the dormant economy just as the Keynesian text books promised. It didn’t happen. The peasants haven’t cooperated. Quantitative easing and ZIRP sapped the life from the middle class as their wages have stagnated and their living expenses have skyrocketed. Mission Accomplished by the Fed. Of course, the CNBC bimbos and shills would declare this $10.8 trillion to be money on the sidelines ready to boost the stock market ever higher. I love that storyline. It never grows old.

The MSM, government and Wall Street continue to flog the story about a housing recovery. It’s been nothing but a confidence game based upon the Fed’s easy money and the Wall Street scheme to buy up foreclosed properties with the Fed’s money. The scheme was to artificially boost home prices by restricting home supply through foreclosure manipulation, in order to allow the insolvent Wall Street banks to get out from under their billions in toxic mortgage loans.

Shockingly, the Case Shiller home price index has soared by 25% since 2012 despite first time home buyers being virtually non-existent and mortgage applications plunging to 14 year lows. How could that be? Don’t people need mortgages to buy houses? Isn’t real demand necessary to drive prices higher? Not when Uncle Ben and Madam Yellen are in charge of the printing press. Housing bubble 2.0 has arrived. I wonder if the Federal Reserve balance sheet increase of 50% since 2012 has anything to do with the new housing bubble.

It seems a similar result is obtained when dividing the Case Shiller Index by the size of the Fed’s balance sheet. The real housing market for real people is worse than it was in 2009. The national home price increase has been centered in the usual speculative markets, aided and abetted by the Fed’s easy money, managed by the Wall Street hedge funds, and exacerbated by the late arriving flippers who will be left holding the bag again. The Fed/ Wall Street scheme has priced young people out of the market and has failed to ignite the desired Keynesian impact. Investors/flippers account for 34% of all home sales. Foreigners with no knowledge of value metrics account for 30% of all home sales. The lesson of history is that most people don’t learn the lessons of history. The 2nd housing bubble in seven years is seeking a pin.

If ever you needed proof of the confidence game in its full glory, the chart below from Zero Hedge says it all. Mortgage rates have been falling for the past year, home builders have been reporting soaring confidence about the future, and the National Association of Realtors keeps predicting a surge in home buying any minute now. One small problem. Mortgage applications are in free fall, new home sales are at 1991 levels, and existing home sales are falling. Home prices have peaked and are beginning to roll over. The Wall Street hedgies are all looking to exit stage left. Young people are saddled with over a trillion of government issued student loan debt and millions of older subprime borrowers have been lured into more auto loan debt. Home sales will be stagnant for the next decade.

 

Quantitative easing will cease come October, unless Yellen and Wall Street can create a new “crisis” to cure with more money printing. By every valuation measure used over the last 100 years, stocks are overvalued by at least 50%. By historical measures, home prices are overvalued by at least 30%. Ten year Treasuries are yielding 2.4%, while true inflation is north of 5%. With real interest rates deep in negative territory, the bond market is even more overvalued than stocks or houses. These simultaneous bubbles have been created by the Federal Reserve in a desperate attempt to keep this debt laden ship afloat. Their solution to a ship listing from too much debt was to load it down with trillions more in debt. The ship is taking on water rapidly.

We had a choice. We could have bitten the bullet in 2008 and accepted the consequences of decades of decadence, frivolity, materialism, delusion and debt accumulation. A steep sharp depression which would have purged the system of debt and punishment of those who created the disaster would have ensued. The masses would have suffered, but the rich and powerful bankers would have suffered the most. Today, the economy would be revived, saving and investing would be generating needed capital for expansion, and banks would be doing what they are supposed to do – lending money to businesses and individuals. Instead, the Wall Street bankers won the battle and continue to pillage and loot the national wealth while impoverishing the masses.

The arrogance, hubris and contempt for morality displayed by the ruling class is breathtaking to behold. They think they are untouchable and impervious to norms followed by the rest of society. They may have won the opening battle, but will lose the war. Discontent among the masses grows by the day. The critical thinking citizens are growing restless and angry. They are beginning to grasp the true enemy. The system has been captured by a few malevolent men. When the stock, bond and housing bubbles all implode simultaneously, all hell will break loose in this country. It will make Ferguson, Missouri look like a walk in the park. I wonder if the occupants of the Eccles building in Washington DC will get out alive.

“It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.”Henry Ford

Charts provided by Confounded Interest

UNFORGIVEN – PART FIVE

 

 

“You’d be William Munny out of Missouri, killer of women and children”. – Little Bill Daggett – Unforgiven 

 “That’s right, I’ve killed women and children, I’ve killed just about everything that walked or crawled at one time or another, and I’m here to kill you Little Bill, for what you did to Ned” – Willam Munny – Unforgiven 

Funny thing, killin’ a man. You take away everything he’s got and everything he’s gonna have.William Munny – Unforgiven 

Clint Eastwood’s final western was one of the darkest, most violent, vicious westerns ever made. Much of the film takes place in darkness. The tone of the film is depressing, with a drained wintery look reminiscent of High Plains Drifter. The script had been written in 1976 during our last Awakening, but Eastwood held off making the movie until 1991 when he was old enough to play the lead role. Age, stages of life, and mood are key elements in the movie, as they are in the plot playing out in the world today. Unforgiven  is a story of atonement, justice and retribution. The cold forbidding atmosphere reflects a Fourth Turning mood. We’ve entered our hibernal Crisis, with its violent struggles and compulsory sacrifices in an era of maximum danger and ultimately a fight for survival. This decisive test of human strength and fortitude was as predictable as the change in seasons. Strauss and Howe understood the generational dynamics of the country would align to create the mood change which would usher in the third Fourth Turning in American history:

“The next Fourth Turning is due to begin shortly after the new millennium, midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire. The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II.” – Strauss & Howe – The Fourth Turning 

Unforgiven  follows the journey of William Munny, a cold blooded vicious bandit in his youth, turned peaceful farmer in his old age. As a widower with two kids and a failing farm, he agrees to kill two cowboys who had disfigured a prostitute in the town of Big Whiskey, in return for a reward of $1,000. In his youth he drank heavily and murdered for fun, now he was killing for money. The town is run with an iron fist by an aging gunfighter, turned sheriff, named Little Bill Daggett, who doesn’t allow guns in his town. Munny and his two companions arrive amidst a driving rain storm in the middle of the night. They proceed to execute the two cowboys, but both of Munny’s companions reveal they don’t have a stomach for killing anymore. After collecting the reward, Munny finds out that his friend Ned was captured, tortured, and murdered by Little Bill Daggett. He takes a drink of whiskey and the tale turns into a story of retribution and atonement. He arrives back in town in the pitch black of night and enters the saloon where Little Bill and his men are gathered. He guns down six men, including Little Bill. As he lies on the floor wounded, Bill laments that he doesn’t deserve to die this way. Munny declares:

“deserves got nothin’ to do with it.”

Bill tells Munny he will “see him in hell”, a sentiment which Munny agrees with. Munny then kills him. There is no rousing ending. No cheers from the audience. The ugliness of violence is portrayed realistically and myths of the Old West are demolished. You are left to meditate about the concepts of age, repute, courage, heroism and the fine line between good and evil.

The themes, atmosphere, violence, brutality and finale of this eulogy to the western genre are a perfect representation of our current dire circumstances. The town of Big Whiskey represents the United States. The sheriff rules with an iron fist over the population, but his cronies can get away with murder. Hypocrisy abounds across the U.S. as politicians use the rule of law to keep the masses controlled while rewarding their corporate and banker cronies with government handouts, tax breaks, and free money. I see Munny, his companions and the prostitutes as symbols of the flawed citizens of the United States. They’ve made mistakes, committed crimes, made poor life choices, but they ultimately tried to make an honest living as upstanding citizens. When the authorities pushed them to the brink with their overbearing regulations, brazen criminal actions and blatant institutional corruption, each constituent reacted differently. Some responded with defiance, most rolled over, some ran away, and Munny responded with viciousness and retribution.   

This is how it will play out over the next ten to fifteen years. Cynicism about solutions put forth by corrupt politicians, distrust of government bureaucrats and crooked bankers, and a society wide demoralization, as widespread unemployment and declining living standards for middle class Americans has darkened the landscape like an approaching winter storm. The disillusionment of average Americans is reflected in poll after poll, with only 20% of the population satisfied with the direction of the country versus 70% just prior to 9/11. The mood change in the country since 2005 is palpable. The gap between the Haves and the Have Nots has never been greater and continues to widen. The middle class has floundered for decades, while bankers, politicians and corporate titans have reaped vast riches through peddling debt and gaming a system rigged in their favor.

In general, are you satisfied or dissatisfied with the way things are going in the U.S. at this time?

Recent data from the Pew Foundation finds that Americans are sick of being the world’s policeman. Even conservative Republicans are becoming more isolationist in their views. This was also the case during the 1930’s in the last Fourth Turning. The vast majority of Americans want to keep our noses out of other countries’ affairs because they realize the trillions spent are bankrupting the country.

Even though Americans, by a large majority, favor slashing foreign aid, ending our three foreign wars of aggression, and no longer allowing the super rich and mega-corporations to use the 60,000 page tax code as their means to avoid taxes, our leaders increase war spending, continue to meddle in the affairs of foreign countries, and seek further tax benefits for the super rich and mega-conglomerates. The will of the people is ignored because the government has been bought by the financial and military industrial complex, with funding by the Federal Reserve and the banking cartel that pulls the strings on their puppet – Ben Bernanke.

 

I’ve previously detailed how the baby boom generation contributed to our financial quandary in Part One – For a Few Dollars More, how the traitorous deeds of the Federal Reserve over the last few decades have ruined the middle class and placed the country on the precipice of disintegration in Part Two – Fistful of Dollars, addressed the nefarious conception of a central bank in Part Three – The Good, the Bad, and the Ugly and revealed how the super rich have used the tax code and their control of politicians to pillage the nation in Part Four – Outlaw Josey Wales. Now I will detail the likely result of years of frivolous consumerism, creation of a debt tsunami, corrupt myopic leadership, crooked bankers, and a angry despondent populace. The lack of preparation by government and individuals ensures this Crisis will be far worse than it had to be. The violent clash between competing forces will be extreme, bloody and result in retribution dished out to the guilty. Ultimately, the country will need to atone for its sins.    

Preparation

“Reflect on what happens when a terrible winter blizzard strikes. You hear the weather warning but probably fail to act on it. The sky darkens. Then the storm hits with full fury, and the air is a howling whiteness. One by one, your links to the machine age break down. Electricity flickers out, cutting off the TV. Batteries fade, cutting off the radio. Phones go dead. Roads become impossible, and cars get stuck. Food supplies dwindle. Day to day vestiges of modern civilization – bank machines, mutual funds, mass retailers, computers, satellites, airplanes, governments – all recede into irrelevance. Picture yourself and your loved ones in the midst of a howling blizzard that lasts several years. Think about what you would need, who could help you, and why your fate might matter to anybody other than yourself. That is how to plan for a saecular winter. Don’t think you can escape the Fourth Turning. History warns that a Crisis will reshape the basic social and economic environment that you now take for granted.” – Strauss & Howe The Fourth Turning

This Fourth Turning was as predictable as the seasons. The American Revolution Crisis ended in 1794. The Civil War Crisis arrived 66 years later in 1860. That abbreviated vicious Crisis ended in 1865. The Depression/World War II Crisis arrived 64 years later in 1929. Our current Crisis arrived in the 2008/2009 time frame, exactly 64 years after the end of the last Crisis. Strauss and Howe wrote their book in 1996. They knew we had about a decade to prepare for the looming winter ahead. We had time to fortify, prepare, save, not waste our seed corn on foreign adventures, and reduce all non-essential spending. Not only did we not do what needed to be done, we did the exact opposite of what needed to be done.

The reason is the country has been run by ideologue linear thinkers. Believers in linear history are constantly blindsided by the fact that history is cyclical and periods of progress are counterbalanced by periods of regression. As neo-con Republicans continue to push their lowering taxes on the rich, Christian fundamentalism, drill drill drill energy plan, bowing down to Wall Street bankers and wars on Muslims, drugs, and immigrant agenda, the mood of the country has shifted away from their falsehoods and fabrications. As ultra-liberal Democrats continue to push their agenda of ever increasing entitlements, ridiculous Keynesian stimulus, disengenuous green energy plans, blind support of corrupt unions, wars to prove they’re as tough as Republicans, pushing for gay marriage and rolling over for Wall Street bankers the people of the country have tired of their lies and deceit.

Our country had a decade to prepare for the coming tempest. All generations should have worked to elevate the moral and cultural standards of the country. Instead the decadence, selfishness, materialism and profligacy of the nation were taken to new heights. The complete lack of self control exercised by the media and the public has allowed government bureaucrats to impose despotic laws and regulations to protect us from ourselves and phantom terrorists. The Federal government needed to cut back its size and scope so that it would be nimble in the face of the Crisis. Politicians needed to prevent further civic decay by speaking bluntly and honestly to the American people about the future challenges, while stressing collective duties over personal rights. We needed a revival of citizenship over individualism, with a focus on future generations who would be left with the fallout of thirty years of debt induced societal degradation. The government should have shifted its budgetary focus away from the non-needy old to the young people of our once great Republic. The future of the country depends on the young, not the old. The preparation scorecard on all these accounts is a miserable failure:

  • Since 9/11 the American public has willingly allowed the government to strip liberties and freedoms away in the name of safety and security through passage of the Patriot Act, spying on US citizens, and wars of aggression in Iraq, Afghanistan and Libya.
  • The government wolves control the sheep through the use of fear and misinformation. The War on Terrorism is used at every opportunity to keep the sheep-like populace under control in their holding pens.
  • The corporate owned mainstream media glorifies wealth, celebrity, and sensationalism while infecting the culture with a vapid mind numbing array of TV shows and spewing toxic levels of filth and porn across the airwaves and internet.
  • The Federal government cut back its scope by increasing its annual spending to $3.8 trillion in 2011 versus the $1.6 trillion it spent in 1996, a 138% increase in fifteen years. Meanwhile, GDP only increased by 92% over this same time frame.

 

  • Our leaders prepared for the tough times ahead by increasing the National Debt from $5.2 trillion to $14.3 trillion in fifteen years, a 175% increase, or almost twice the rate of GDP growth. Rational leaders always triple their debt level when knowing harsh times are coming.
  • The blunt talk coming from politicians since 1996 included: buy an SUV with 0% financing to defeat terrorism; sure we can pay for your drug costs with Medicare Part D; home prices never fall and everyone deserves a house; free market capitalism always works; cutting taxes on the rich will increase tax revenue; they have weapons of mass destruction; debt doesn’t matter; giving bankers $700 billion will save our economy; spending $800 billion will generate 3.5 million jobs; and QE2 will reduce mortgage rates and jump start the economy.
  • Our leaders have thrown the Millenial generation under the bus, while promising to never cut Medicare, Medicaid, or Social Security for the 76 million Boomers that make up the largest voting bloc in the country. The collective long-term survival of the country has been cast aside in the name of the selfish desires of the generations in power.

The lack of cultural and civic preparation has been far outdone by the extraordinarily deficient amount of preparation in the economic and military areas. Everyone knows that when you discern tumultuous times are on the horizon, you conserve, save, and marshal your forces for the coming storm. Our leaders needed to level with Americans and tell them the entitlements they were promised could never be honored. Americans needed to ramp up their savings and become more self reliant in preparing for their old age. Federal, state and local governments needed to shift their employees from defined benefit plans to defined contribution plans. Americans needed to pare back their debt and stop over-consuming. The government needed to balance budgets, reform the tax code shifting toward consumption, and reduce entitlement promises. America needed to gird for a possible war whose scale, cost, manpower and casualties would seem impossible in 1996 (every prior Fourth Turning led to all encompassing war). The preparation scorecard for these areas was dreadful:

  • The most damning data in proving how delusional the government, consumers, businesses and banks has approached the future is the rise in total credit market debt from $18 trillion in 1996 to an all-time high of $52.6 trillion today, or 350% of GDP.

 

  • Rather than level with people and explain that entitlement promises could not be fulfilled, a supposedly fiscal conservative Republican President added another $15 trillion unfunded liability to our $100 trillion obligation. 

   

  • Our current socialist president rammed through a national healthcare bill that will filter 30 million people into the system and will add in excess of $1 trillion of unpaid for costs, further burying the hopes and dreams of our youth under a mountain of un-payable obligations.
  • Americans, who used to save 10% of their disposable income, were only saving 5.5% in 1996. Rather than prepare for the future by saving more, they put their faith in housing values growing 10% per year for infinity, and let their savings rate drop below 1% by 2005. The current level of 4.9% is not sufficient and is reflected in the fact that two-thirds of all workers have less than $50,000 in total savings.

 

  • States have unfunded pension liabilities approaching $3 trillion, with the Federal government carrying a $1 trillion pension liability. Unfunded liabilities are really future tax increases on unborn generations.
  • The one area that seemed under control in the late 1990s was budget deficits. Budget surpluses in the late 1990s turned into $1.5 trillion annual deficits today and as far as the eye can see. The national debt at 95% of GDP has past the point of no return.
  • The price for a barrel of oil was $12 in 1998. Rather than take advantage of this Indian summer and creating a plan to transition from depleting oil to other energy sources, our leaders did nothing. The American people bought massive SUVs, minivans and pickups and moved further into the suburban countryside, miles from civilization. The bumpy plateau of peak oil has arrived and oil prices have ranged between $70 and $140 a barrel for the last few years. We will long for these prices in a few short years.

 

  • Rather than conserving our military forces and preparing for a future major confrontation we have overextended our limited forces, spent $1.2 trillion on wars of choice, killed 7,300 American soldiers, and wounded another 43,000 soldiers.

The complete lack of preparation, indeed the choice to actively do the opposite of prepare, has insured this Fourth Turning Crisis will be that much more destructive.

“History offers no guarantees. If America plunges into an era of depression or violence which by then has not lifted, we will likely look back on the 1990s as the decade when we valued all the wrong things and made all the wrong choices.” – Strauss & Howe – The Fourth Turning

Retribution

“The refusal of the political class to imposes losses on large bank creditors since the collapse of Lehman Brothers and Washington Mutual in 2008 illustrates the extent to which the financialization of the western industrial economies has turned into a gradual coup d’état by the banks and the global speculators who dominate their client base.” – Chris Whalen

 

“We’re not moving toward Hitler-type fascism, but we’re moving toward a softer fascism: Loss of civil liberties, corporations running the show, big government in bed with big business. So you have the military-industrial complex, you have the medical-industrial complex, you have the financial industry, you have the communications industry. They go to Washington and spend hundreds of millions of dollars. That’s where the control is. I call that a soft form of fascism — something that’s very dangerous.”Ron Paul 

As the average American continues their epic struggle to stay afloat in these turbulent times it is clear to those with critical thinking skills, like Chris Whalen and Ron Paul, that the game is rigged in favor of those with enormous wealth and power. There is no doubt the levers of government and finance have been seized by a super rich minority of men, willing to use all means necessary to increase their wealth and power at the expense of those they consider lowly expendable peasants. The myth perpetuated by those in control of the system is that everyone in America has ample opportunity to move up the ladder, even as they push the ladders away from the parapet surrounding their castle.

The talking points of the super rich, which are pounded into the brains of slumbering Americans, are they pay all the taxes, create all the jobs, create all the wealth, and drive innovation. The facts say otherwise. The super rich aren’t creators, they are destroyers. The top 0.1% richest Americans didn’t get rich by creating new companies and letting their entrepreneurial talents shine. These 152,000 people, with an average income of $5.6 million per year are overwhelmingly executives at large corporations, banks, law firms, and real estate firms. These people account for 68% of the richest of the rich. Entrepreneurial creators and producers account for less than 10% of the richest Americans. The executives that make up the 68% are masters of creating debt, wealth for themselves by peddling debt to the middle class, and creating jobs in China and India by outsourcing U.S. jobs.

The average income of the 137 million people that sit at the bottom of the income pyramid has declined by 1% since 1970. The people at the top of the pyramid saw their average income rise by 385%. Was this because they worked harder? No. It was because they used their existing wealth to buy politicians and pay lobbyists to write laws, create loopholes, reduce regulations, and alter the tax code in their favor. This was not a conspiracy. It was human nature. Humans are driven by greed and fear. Lusting for power and wealth is a common human frailty. Those who are able to acquire wealth and power through their superior abilities and intellect are usually driven individuals. It is built into their DNA to seek more wealth and power. There are 310 million Americans and based on the chart below, only 1.5 million would be classified as very rich or extremely rich. Many of these people associate in the same circles. This incestuous relationship is what breeds the growing inequality in our country. The game is rigged in favor of these 1.5 million people because they run the corporations, occupy the halls of Congress, peddle the debt products to the bottom 90%, and use their mass media to control the message to the under-educated, over-medicated, gadget distracted masses.

 

The problem with humans is they always push the envelope too far. The rich and powerful have methodically accumulated more wealth and more power since their glorious coup in 1913 with the creation of the Federal Reserve and the personal income tax. They have used inflation and the tax code to further their agenda. The rate of their pillaging has waxed and waned over the last century as the mood of the country has oscillated during the five turnings between crisis and triumph. The rate of looting has accelerated in the last thirty years as their false message of free market capitalism, lower tax rates for the rich, and the issuance of unparalleled amounts of debt was bought hook line and sinker by the American public. Their plundering of the national wealth reached a sickening crescendo in the last ten years, as their internet bubble was replaced by their housing bubble, which has been replaced by their debt bubble of immense proportions. As the middle class has been impoverished, 30 million people are unemployed or underemployed, senior citizens have been sacrificed at the altar of Wall Street and 45 million people are forced to use food stamps, the top 1% has done fabulously. They continue to rake in a greater proportion of the national income every year.  In 2009, in the midst of an epic financial crisis, the number of millionaires in the United States soared by 16% to 7.8 million as despair and hopelessness spread across the land and fearful Americans were railroaded into bailing out the bankers that initiated the crisis and believing the Obama’s Keynesian solutions would actually trickle down to them.

 

As the game approaches its inevitable termination those in control have become increasingly audacious and frantic in their attempts to embezzle what remains of middle class wealth. The anger and disillusionment grows by the day. The mood of the country darkens like the sky before an approaching blizzard. The intensity and violence during a Fourth Turning hastens as events spiral toward a climax. The extreme actions taken by those in power since September 2008 have set in motion a chain of events that will lead to civil war. The powerful elite in government (Bush, Paulson, Bernanke, Congress) chose to bail out the powerful elite on Wall Street (Blankfein, Dimon, Pandit, Lewis) on the backs of the American middle class. TARP, QE1, QE2, and the $800 billion stimulus package were all created by the ruling elite to benefit the ruling elite, who control the vast amount of financial wealth in the country. Savers and seniors have been thrown under the wheels of a Lamborghini driven by the profligate Wall Street gamblers.

financial-wealth-united-states

Average Americans feel betrayed by politicians, bankers and corporate America. The Tea party movement is a reflection of that anger. Fourth Turnings always sweep away the old order and replace it with a new order. The old order isn’t ready to be swept away, but their time is coming. The U.S. economic model is unsustainable and is guaranteed to collapse in the near future. Those in power are trying to engineer a controlled collapse, but they will lose control just as they did in 2008. Panic and depression will ensue. Vast amounts of wealth will be destroyed. When the middle class realizes they have been screwed again by Wall Street and K Street, and they no longer have anything left to lose, they will lose it.

The welfare class will only riot if their EBT cards stop working and the monthly welfare direct deposit ceases. It’s the critical thinkers in the middle class that will lead a revolution. There are 250 million guns owned by Americans. With this amount of firepower and millions of Americans with nothing left to lose, those attempting to retain power will be at a distinct disadvantage. I believe armed vigilantes will hunt down those responsible for the destruction of the American economy and invoke their own justice. Their gated communities and penthouse suite doormen will not protect them. No politician, banker, or corporate executive will be safe. Some will escape in their Lear jets to foreign lands, but the rest of the world will be equally chaotic and unsafe for those who committed crimes against humanity. Innocent people will die. Deserve will have nothing to do with it. The very existence of our country will hang in the balance.

Atonement

“The seasons of time offer no guarantees. For modern societies, no less than for all forms of life, transformative change is discontinuous. For what seems an eternity, history goes nowhere – and then it suddenly flings us forward across some vast chaos that defies any mortal effort to plan our way there. The Fourth Turning will try our souls – and the saecular rhythm tells us that much will depend on how we face up to that trial. The saeculum does not reveal whether the story will have a happy ending, but it does tell us how and when our choices will make a difference.”  – Strauss & Howe – The Fourth Turning

“Don’t think you can escape the Fourth Turning the way you might today distance yourself from news, national politics, or even taxes you don’t feel like paying. History warns that a Crisis will reshape the basic social and economic environment that you now take for granted. The Fourth Turning necessitates the death and rebirth of the social order. It is the ultimate rite of passage for an entire people, requiring a luminal state of sheer chaos whose nature and duration no one can predict in advance.” – Strauss & Howe – The Fourth Turning

No one can predict the exact events (debt ceiling, Euro collapse, Middle East war) that will propel this Fourth Turning. But, the underlying drivers are clear: public debt, private debt, banker coup, military overreach, corporate fascism, Federal Reserve created inflation, an oil dependent society with depleting oil and rampant corruption across all levels of government. The fingers of instability grow longer as we add $4 billion per day to the national debt. A grain of sand will fall on the wrong part of the sand pile triggering a collapse of our currency. The event is unknown, the timing unclear, but the destination is certain. A dollar collapse will trigger a surge in interest rates, which will be fatal to our debt bloated society. Every previous Fourth Turning involved revolutionary aspects. The American Revolution and Civil War were wars of revolution. The stirrings of revolution were rampant in the early 1930s, with a plot foiled by General Smedley Butler. The New Deal was a response designed to quell discontent among the masses. Enough people are becoming aware of who to blame for the ills in our society that Henry Ford’s prediction is ever closer to being realized:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before morning.”

 

An uprising against the super rich and their banking cartel partners in crime is in the cards over the next ten years. Our society has degenerated and has been ransacked by sociopaths in suits as Jesse from Jesse’s Café Americain  so eloquently states:

“Not all sociopaths wield knives and knotted cords. Some wear suits, and are exceptionally intelligent and articulate, obsessively driven, and are able to use and undermine the law and the rules for their advantage, like weapons.  It is never about the win, never about the money.  It is about the kill, the expression of their hatred, about elevating themselves with the suffering of others. Bind, torture, kill.  Not only with ropes and knives, but also with power and money, and the subversion of law.  Lawlessness is their addiction, their will to power.

When societies become lax and complacent, these sociopaths can possess great political power through great amounts of unprincipled money.  And over time they become almost anti-human, destroyers of all that is good, all that is life, all that offends their insatiable sickness with its goodness.  They twist the public against itself, and turn a broad sweep of society into their killing grounds. This is the undeniable lesson of the last century.  There are monsters, and they walk among us.” 

Human beings are a flawed species. We are often driven by emotion rather than reason. We are easily convinced of things we want to be convinced about. Those with superior intelligence often take advantage of those with inferior intelligence. We are prone to mass hysteria and believing things that, in retrospect, were utterly ridiculous. We can be swayed by fear and greed in alternating degrees of delusion. History teaches us that this time isn’t different. We’ve experienced depression, war and social upheaval on an epic scale three times since the founding of this country. With only three data points it is tough to discern patterns that would reveal exactly how this Fourth Turning will play out. But it is apparent to me that each Fourth Turning alternates between a mostly external struggle and a mostly internal struggle. The American Revolution was a struggle against an external oppressor – Great Britain. The Civil War was an internal struggle between the industrial North and the agrarian South. The Depression/World War II struggle was mainly against an external threat – Germany, Japan, and Italy.

The Fourth Turnings that centered upon an external threat ended with a glorious High. The Civil War Fourth Turning resolution felt more like defeat, with the country exhausted, bitter and angry. All indications are this Fourth Turning will be mainly an internal struggle between the ruling class of bankers, business elites, and politicians and the downtrodden middle class. The lying, cheating, fraud, theft and other wrongs committed by those in power will need to be atoned for. The generational dynamics in place will drive the reactions of the country moving forward. We have been badly led. A vast swath of the populace has lived beyond their means. The existing system is unsustainable. The Boomer generation does not want to yield on their perceived entitlements. The Millenial generation will be saddled with un-payable debts. Generation X is caught in the middle of this generational struggle. The huge imbalances in our society have built up over decades like flood waters behind a weakening levee. When the levee breaks the existing order will be swept away in the raging torrent that will follow.

The ruling class will be stripped of their unseemly acquired wealth; the Boomer generation will be scorned for their reckless disregard for future generations and stripped of their entitlements; Generation X will resign themselves to a lower standard of living, knowing full well by doing so, their children will not be saddled with crushing levels of debt; Millenials will have borne the burden of the revolution and violence which will be inevitable as the ruling class fights to retain their dominating position in society.  Darkness descends upon our land. Storm clouds gather on the horizon. We’ve all played a part in the catastrophe that lies before us. Everyone in our crumbling society will need to atone for its sins, whether they deserve to or not. Will Munney was not an innocent man, but he ultimately atoned for his sins by digging deep into his soul and finding the strength and fortitude to fight the evil establishment. Each generation’s rendezvous with destiny awaits. There are no guarantees. The myth of American Exceptionalism will not protect us from the choices we’ve made. God will not shield us from the consequences of our actions. The American Empire hangs in the balance. As the ghosts of Roman emperors whisper – Glory is fleeting.

“The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction, and in mankind’s willingness to use it.” – Strauss & Howe – The Fourth Turning

“History offers no guarantees. Obviously, things could go horribly wrong – the possibilities ranging from a nuclear exchange to incurable plagues, from terrorist anarchy to high-tech dictatorship. We should not assume that Providence will always exempt our nation from the irreversible tragedies that have overtaken so many others: not just temporary hardship, but debasement and total ruin. Losing in the next Fourth Turning could mean something incomparably worse. It could mean a lasting defeat from which our national innocence – perhaps even our nation – might never recover.” – Strauss & Howe – The Fourth Turning

 

 

 

ECONOMIC REPORT CARD – FAIL

We are now three and one half years into Barack Obama’s presidency. I thought a few pertinent charts would help us assess the success of his economic policies. Upon his election he demanded an $800 billion stimulus package in order to keep the unemployment rate from surpassing 8%. The $800 billion was to be spent over two years we were told and then government spending would be scaled back to pre-stimulus levels. There were 145 million Americans employed when Obama was elected. There are 9 million more working age Americans today than there were in 2008. There are now 142.4 million employed Americans. So, we’ve added 9 million potential workers and still have 2.6 less Americans employed. We have the same number of Americans employed as we did in early 2006, when there were 17 million less working age Americans.

The Obama stimulus plan was passed with everything he wanted. Democrats controlled the House and Senate and gave him exactly what he proposed. By October 2009, the unemployment rate was 10%. Obama’s stimulus package and economic policies have been so successful that he has been able to get the unemployment rate all the way down to 8.2% after three and one half years, even though he said his stimulus package would keep the unemployment rate under 8%. And all it took to get the unemployment rate down to 8.2% was for 8 MILLION Americans to leave the labor force. A critical thinking person who doesn’t swallow the crap peddled by the BLS and the rest of the government propaganda machine might question WHY 8 million Americans would leave the workforce when people desperately need income. If the labor participation rate had stayed constant, the current unemployment rate is 10.9%.

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The long-term chart below tells the true story. The BLS classifying millions as not in the labor force is a crock. The Obama apologists and sycophants peddle a false storyline about Baby Boomers retiring as the cause for this labor force decline. The fact is people over the age of 55 have the highest participation rate in history and it continues to rise. Of the 142.4 million employed Americans, only 114 million works more than 35 hours per week, with 28.4 million working part-time. That means that 20% of those employed are part time workers with no benefits. In 2008, prior to the ascendency of Obama, there were 125 million full-time workers and 20 million part-time workers. Obama has been able to increase the percentage of part-time workers from 14% to 20% in just over 3 years. Remember this fact when Obama touts the 3 million new jobs he’s created since 2010.

If you were wondering what the 8.5 million Americans who have left the labor force since 2008 were doing, look no further than the millions of bedrooms now functioning as classrooms for the University of Phoenix and the other on-line, for profit diploma mills that have proliferated with the doling out of hundreds of billions in cheap government student loans. These for profit diploma mills know how to game the system and get their money even if the students drop out after a few months. They educate 12% of students, receive 25% of federal student aid and account for nearly 50% of loan defaults. Sounds like a great business model.

Low interest Federal government loans have skyrocketed from $100 billion when Obama took office to $450 billion today. Total student loan debt has surpassed $1 trillion, with the average student graduating with $25,000 of debt and many more burdened with $100,000 or more of debt. Those part-time jobs making lattes at Starbucks aren’t cutting it. Default rates are already at a ten year high and are poised to skyrocket as more people graduate into a jobless job market. Not only is the American taxpayer on the hook for the $450 billion of direct Federal student loans, but the Federal government is guaranteeing another $450 billion. When the student loan bubble pops, the taxpayer financed bailout will be epic. And this is all being engineered by the Obama administration in order to artificially reduce the unemployment rate. Does this graph remind you of another bubble that resulted in a few problems for the American taxpayer?

After three and a half years, Obama’s policies have led to 11 million less full-time workers and 8 million more part-time workers – just like he drew it up on the board when he committed $800 billion of your tax dollars to saving our economy through classic Keynesianism. Obama declared the stimulus would be a two year jolt to get our economy back on track. Federal government spending was $2.7 trillion in 2006, $2.7 trillion in 2007 and $3.0 trillion in 2008, the last three years of Bush’s administration. If spending stayed on a standard trajectory, it would have been $3.1 trillion in 2009, $3.2 trillion in 2010, $3.3 trillion in 2011 and $3.4 trillion in 2012. With the end of the Iraq occupation in 2010, it should have dropped by $200 billion, resulting in total spending of $3.1 trillion in 2011 and $3.2 trillion in 2012.

Obama declared the stimulus would be short-term. Federal government spending should have risen to $3.5 trillion in 2009, $3.6 trillion in 2010 ($300 billion stimulus – $200 billion Iraq withdrawal), and then revert back to $3.3 trillion in 2011 and $3.4 trillion in 2012. Let’s see whether Obama was honest in his promises:

Federal Government Spending

2009 – $3.5 trillion

2010 – $3.5 trillion

2011 – $3.6 trillion

2012 – $3.8 trillion

After three and one half years of stimulus spending, Cash for Clunkers, Home Buyer Tax Credits, mortgage modification programs, Fannie, Freddie & FHA accumulating billions in bank losses, zero interest rates, QE1, QE2, Operation Twist, unlimited student loans, wars of choice in the Middle East, mark to fantasy accounting standards for Wall Street, and hundreds of billions in bonuses for criminal bankers, we are left with a $5.3 trillion (50% increase) higher national debt and a $300 billion (2.3% increase) higher real GDP. That’s not exactly a big bang for your Keynesian buck. The response you will get from the Obama apologists is, “Imagine how bad it would have been if we didn’t spend the money”. This is a classic liberal response when their solutions are a total failure. Krugman will declare that if we had only spent another $2 trillion all would be well.

As you can see, Obama and all the politicians in Washington DC are really good at spending your money on pork projects, paying off campaign contributors and compensating their corporate cronies. Do you see any reversion back to normalized spending? How can current spending be $300 billion higher than the two stimulus years if Obama was telling the truth in 2009? The Obamanistas declare we are still in an emergency and must borrow and spend to save the economy. The emergency never ends for politicians of both parties. This is how they have bastardized John Maynard Keynes’ theory. They love to implement spending when the economy is in the dumper, but they forget his admonition to pay down debt during the good times. It never happens. There will always be another emergency. Even 2nd grade level Sesame Street fans can see the Federal government spending and debt accumulation never reverses. It couldn’t be any more obvious, unless you are an intellectually dishonest Keynesian ideologue hack (aka Krugman).

This brings us to the crowning economic achievement of the Obama administration. His most successful program is unequivocally the SNAP food stamp program. When Obama assumed power in January 2009 there were 32 million Americans on food stamps and the annual cost of the program was $44 billion. Today there are 46 million Americans on food stamps and the annual cost is pacing at $75 billion. He has been able to get fully 15% of the U.S. population enrolled in this fantastic program and the Department of Agriculture is even running advertisements to convince more people to join.

And don’t worry about any restrictions. You can buy as much soda, ice cream, cheetos, and fudge brownies with your SNAP card as you choose. Of course, you are still free to purchase higher end fare.

A cynical less trusting soul than me might even conclude that Obama’s goal is to provide government entitlements to as many people as possible in order to win votes in the upcoming election. One might ask how he can tout an economic recovery and the millions of “new” jobs he has created since 2010, when 6 million people have been added to the food stamp rolls since his economic recovery officially began in 2010. I’m confused by the Obama distinction between success and utter failure.

Not far behind the food stamp program, the SSDI program has been another resounding Obama success. He has been able to enroll twice as many participants in this program as jobs created since the end of the recession. There are already 10 million people on SSDI costing the American taxpayer in excess of $150 billion per year. There are 250,000 people per month applying for benefits and the program will be broke by 2015. In a shocking development, when people began to roll off the 99 week unemployment gravy train, the number of new SSDI applications soared. I guess they were depressed at not being able to collect unemployment for two more years.

Bob Adelman recently summed up the SSDI scam:

“The program, funded federally but administered by the states, is being milked by many who have run out of unemployment benefits and other resources and haven’t been able to find work. At present one out of every eight working-age, non-retired individuals receive disability payments, some for “mental disorders” and “back pain.” Claims for mental disorders, for instance, have more than tripled from 10 percent of cases in 1982 to 32.8 percent in 2012, with half of those based on “mood disorders” such as depression or anxiety. Back or neck “problems” have increased by 31 percent and were the top cause of disability for 50- to 64-year olds. Depression and anxiety and other emotional problems increased by 20 percent, and now constitute one-third of all disability claims. Once on the rolls, beneficiaries have little incentive to return to work because their disability entitles them to additional benefits such as food stamps, Medicaid, Section 8 housing, and student-loan forgiveness. As a result less than one half of one percent of those on disability ever go back to work.”

I’m depressed by the results of Obama’s economic policies. Maybe I should apply for SSDI.

It appears that former college professor Obama never paid attention in his macroeconomics undergraduate course. The “guns versus butter model” doesn’t enter the equation for a profound thinker like Barack. Why do hard choices need to be made when Ben Bernanke is manning the printing press? In the real world, a nation has to choose between two options when spending its finite resources. It can buy either guns (invest in defense/military) or butter (invest in production of goods), or a combination of both. This can be seen as an analogy for choices between defense and civilian spending in more complex economies. Politicians and bankers have been ignoring this rational model since 1971 when Nixon closed the gold window. Why make difficult choices when you can borrow and print your way to prosperity? As a country we’ve chosen guns, butter, BMWs, McMansions, free unfunded healthcare, unfunded pensions, unfunded sickcare, and DHS implemented security for all. In order to prove himself tougher than George W., Obama, the socialist, has actually increased war spending by 23% to an all-time high. Fiat currency is an amazing invention. Guns, butter and healthcare for all.

Mainstream media liberals like Ezra Klein dutifully trot out charts and storylines trying to convince the ignorant masses that Obama is not to blame for the soaring national debt. They declare it was the Bush tax cuts and his wars. This blame Bush storyline is growing old as Obama has already extended the Bush tax cuts once, ramped up wars in the Middle East and cut payroll taxes for the last two years. The Office of Management and Budget has calculated the total increase in the national debt will be $7.8 trillion after eight years of Obama, 269% more than was accumulated during the Bush reign of error. I believe the $7.8 trillion is ridiculously optimistic. The national debt has increased by $5.3 trillion since Obama took office. It will go up another $200 billion by the end of this fiscal year. It will surely exceed $1 trillion per year during a 2nd Obama term as he would extend most of the Bush tax cuts, extend the payroll tax cuts, continue to increase war spending, and the hidden delayed Obamacare costs would arrive. His eight year report card will show a $9.5 trillion increase in the national debt, reaching the magic grand total of $20 trillion. The national debt to GDP ratio will be close to 120%.

This scathing assessment of Obama’s economic policies is by no means an endorsement of Mitt Romney or his economic plan, since he has never provided a detailed economic plan. After four years of a Romney presidency, the national debt will also be $20 trillion as his war with Iran and handouts to his Wall Street brethren replace Obama’s food stamps and entitlement pork. There was only one presidential candidate whose proposals would have placed this country back on a sustainable path. The plutocracy controlled corporate mainstream media did their part in ignoring and then scorning Ron Paul during his truth telling campaign. The plutocracy wants to retain their wealth and power, while the willfully ignorant masses don’t want to think. The words of Ron Paul sum up what will occur over the coming years as the interchangeable pieces of this corporate fascist farce drive the country to ruin:

“Deficits mean future tax increases, pure and simple. Deficit spending should be viewed as a tax on future generations, and politicians who create deficits should be exposed as tax hikers.” 

“A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank.”

“Believe me, the next step is a currency crisis because there will be a rejection of the dollar, the rejection of the dollar is a big, big event, and then your personal liberties are going to be severely threatened.”

 

The politicians, bankers and corporate titans running this country are too corrupt and cowardly to reverse the course on our path to destruction. The debt will continue to accumulate until our Minsky Moment. At that point the U.S. dollar will be rejected and chaos will reign. The Great American Empire will be no more. At that time sides will need to be chosen and blood will begin to spill. Decades of bad decisions, corruption, cowardice, ignorance, greed and sloth will come to a head. The verdict of history will not be kind to the once great American Empire.

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WHO DESTROYED THE MIDDLE CLASS – PART 2

In Part 1 of this three part series I addressed where and how the net worth of the middle class was stolen. In Part 2, I will tackle who stole your net worth and in Part 3, why they stole your net worth. Now let’s zero in on the culprits of this crime.

Dude, Who Stole My Net Worth?

“Thus far, both political parties have been remarkably clever and effective in concealing this new reality. In fact, the two parties have formed an innovative kind of cartel—an arrangement I have termed America’s political duopoly. Both parties lie about the fact that they have each sold out to the financial sector and the wealthy. So far both have largely gotten away with the lie, helped in part by the enormous amount of money now spent on deceptive, manipulative political advertising.” Charles FergusonPredator Nation

When you dig into the charts and data supplied by the Federal Reserve generated report, the data which goes back to 2001 tells a story not addressed by the deceptive, manipulative, political propaganda that passes for investigative reporting by the captured mainstream media. The chart below compares the median versus mean income growth from the last three Fed consumer surveys. Overall, it reveals a lost decade of negative income growth for the average middle class family. In the early part of the decade the average middle class family made some progress as jobs were relatively plentiful and the internet crash mostly impacted the rich, who own most of the stocks in the country. This is why the median income rose while the average income fell. The wealthy have a large impact on the average because they own the vast majority of assets in this country. The stock market debacle was unacceptable to the oligarchs and their money printing puppet Greenspan.

Both the liberal and conservative wings of the ruling oligarchy were in complete agreement. A new bubble needed to be blown in order to refill the coffers of the ruling class. Paul Krugman spoke for the liberal wing:

“To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

Greenspan and his handpicked successor Bernanke represented the conservative wing by reducing interest rates to ridiculously low levels, failing to carry out their regulatory obligations, encouraging recklessness, and purposefully failing to acknowledge and deflate the greatest housing bubble in world history:

“American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.” Alan Greenspan – February 2004

“House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.” – Ben Bernanke – October 2005

“With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.” – Ben Bernanke – November 2005

The master plan worked like a charm from 2004 through 2007 as you can see by the tremendous surge in average income. The stock market rocketed by 75% between 2003 and 2007 and national home prices shot up by 50%. Wall Street creatively invented no doc, negative amortization, interest only, subprime mortgages and generated a frenzy of demand from anyone that could scratch an X on a loan document, just as Greenspan had demanded. Being “sophisticated” financial institutions, they were able to assemble thousands of shit loans that were certain to default into one big derivative package of shit and their captured lackeys at the “sophisticated” rating agencies stamped a AAA rating on the smelly pile of feces. Always looking out for the best interests of their clients (aka muppets), the upstanding Wall Street firms sold the derivative piles of shit to them as can’t miss investments. Wall Street profits went off the charts. Billions in bonuses flowed to the rich and powerful Wall Street titans. Mega-corporations generated record profits as consumers utilized the Fed induced tsunami of easy debt to buy BMWs, 72 inch HDTVs, home theaters, stainless steel appliances, granite counter-tops, Caribbean cruises, Jimmy Choo shoes, and Rolex watches in a mad frenzy of consumer delusion.

What you might also notice in the chart above is that median household income somehow declined during this decadent orgy of corporate fascist pleasure. How could this be? Table 2 from the Fed report makes it clear. The vast majority of households in this country generate 75% to 81% of their income from wages. Virtually none of the income generated in 85 million households (the bottom 75%) comes from interest, dividends or capital gains. You need money to make money. The top 10% only generated 46% of their income from wages. The report does not provide details on the top 1%, but wages most certainly account for less than 20% of their income. Interest, dividends and capital gains represented 22.2% of the income for the top 10%, while it represented less than 1% of income for the bottom 75%. This data is the smoking gun that proves that Federal Reserve policy and control fraud on a grand scale by the titans of Wall Street was designed and executed to benefit only the wealthy elite billionaire class and their co-conspirators. All the income gains during this time accrued to the psychopathic amoral financial oligarchy. The average family saw their real wages decline and anyone lured into the housing market during this time frame by the “sophisticated” financial experts at Citicorp, Bank of America, Wells Fargo, Merrill Lynch, Countrywide, Washington Mutual, Wachovia, Bear Stearns, Goldman Sachs, Lehman Brothers, and the other members of the Too Big To Fail criminal syndicate was set up for epic loses.

Source of Household Income By Percentile of Net Worth

As expected, the psychopathic banker class could not be satisfied with the results of their looting. Their gluttonous voracious greed culminated in a historic collapse of the worldwide financial system resulting in a housing implosion, stock market crash and 8 million middle class Americans losing their jobs.  The Fed report does show that average household income declined more than median household income after this historic financial oligarchy created collapse. One look at Table 6 from the Fed report will explain why. Only 15% of families own stocks and only 50% have retirement accounts. Approximately 50 million households in the country have virtually no stocks and less than 30% have retirement accounts. The top 10% wealthiest households, with a median household net worth of $1.2 million, proportionately own 3 times as much stock as the average family and 90% have retirement accounts. Therefore, the 57% crash in stocks impacted the top 10% to a greater extent, while the average family was most impacted by the 28% drop in home prices.

9 out of 10 Young People Don't Invest in Stocks

Despite the fact that the median net worth of the top 10% actual rose from $1.17 million in 2007 to $1.19 million in 2010 (while the bottom 80% saw their net worth decline by 36%) the losses in the stock market were intolerable to the banker predators and their captured government parasite politicians. All the “solutions” to the Wall Street induced financial debacle have been designed to benefit those who committed the crime and should have done the time. The singular design of those pulling the strings was to replenish the treasure chests on Wall Street, engineer a stock market rally to pump up the net worth and capital gain income for the 1%, and protect the vested interests of the financial elite. All the obscene criminally generated profits created during the boom were privatized into the grubby hands of the financial predators, while the subsequent gargantuan losses were socialized onto the backs of the American middle class taxpayers and future unborn generations.

TARP was rammed through the captured Congress by the oligarchs despite a 300 to 1 opposition from the public in order to protect obscenely wealthy bankers, stockholders and bondholders. The $800 billion of debt financed political pork, disguised as stimulus, was doled out to corporate contributors, union thugs, and a myriad of other special interests. Zero interest rates are specifically geared to generate billions of risk free profits for Wall Street and to force retirees to gamble their dwindling retirement funds in the rigged stock market. Bernanke and Paulson threatened the limp wristed pocket protector CPAs at the FASB into allowing Wall Street banks to make up the value of their loan portfolios in order to mislead the public regarding their insolvency. The tripling of the Federal Reserve balance sheet from $950 billion in September 2008 to $2.9 trillion today was done to remove the toxic assets from the balance sheets of the Too Big To Fail Wall Street cabal at 100 cents on the dollar.  QE1, QE2, and Operation Twist have had the sole purpose of providing the “sophisticated” financial elite with the funds to pump into the stock market using their high frequency trading super computers.

The subsequent Federal Reserve contrived 100% increase in the S&P 500 has repaired the damaged balance sheets of the moneyed interests, while the average middle class family has sunk further into debt and despair. The powerful entrenched sociopathic marauder class cares not for the average middle class American. They can barely conceal their contempt and disgust for the masses as they blatantly flaunt their hegemony and supremacy over our decrepit decaying corrupted economic system. M. Ramsey King described the disgusting display last week:

“Jamie Dimon’s appearance before the Senate Banking Committee was a sickening display that clearly demonstrated that Congress has been thoroughly corrupted by Wall Street. Instead of grilling Dimon, Senators acted like overly affectionate puppies fighting each other for an opening to smooch their master.”

The destruction of the middle class has been methodical and systematic. The top 10% of earners had a median net worth of $1.19 million, or 192 times as much as the median wealth of $6,200 of those in the bottom 20% in 2010. In 2007, the top 10% had 138 times as much wealth as the bottom 20%. In 2001, it was 106 times as much. With the continued rise in the stock market, declining real wages for the middle class, and further home price declines, the gap between the top 10% and the bottom 20% has continued to widen. The level of pain being experienced by the middle class has reached an unprecedented extreme. A few data points from David Rosenberg make that clear:

  • Forty-six million Americans (one in seven) are on food stamps.
  • One in seven is unemployed or underemployed.
  • The percentage of those out of work defined as long-term unemployed is the highest (42%) since the Great Depression.
  • 54% of college graduates younger than 25 are unemployed or underemployed.
  • 47% of Americans receive some form of government assistance.
  • Employment-to-population ratio for 25- to 54-year-olds is now 75.7%, lower than when the recession “ended” in June 2009.
  • There are 7.7 million fewer full-time workers now than before the recession, and 3.3 million more part-time workers.
  • Eight million people have left the labor force since the recession “ended” — adding those back in would put the unemployment rate at 12% instead of 8.2%.
  • The number of unemployed looking for work for at least 27 weeks jumped 310,000 in May, the sharpest increase in a year.

I would add a few more data points to David’s list of woe:

  • Over 7.5 million homes have been foreclosed upon by the Wall Street bankers since 2008.
  • The National Debt has increased by $5.7 trillion (57% increase) since September 2008, while real GDP has risen by $305 billion (2.3% increase) since the 3rd quarter of 2008.
  • Interest income paid to senior citizens and savers has declined by $400 billion (29% decline) since September of 2008 due to Ben Bernanke’s ZIRP.
  • Government transfer payments have risen by $500 billion (32% increase) since September 2008, while private industry wages have risen by $200 billion (4.7% increase).
  • The price of a gallon of gas has risen from $1.70 in December 2008 to $3.53 today.
  • Food prices have risen by 7% to 10% since late 2008, even using the falsified BLS data. A true assessment by anyone who actually goes to a grocery store (not Bernanke – his maid does the shopping) would be a 10% to 20% increase.

The middle class has a gut feeling they are being screwed by somebody, they just can’t figure out who to blame. The ultra-wealthy elite keep up an endless cacophony of propaganda and misinformation designed to confuse an increasingly uneducated and willfully ignorant public while blurring the facts for those educated few capable of understanding the truth. They have been able to keep the masses dumbed down through government run education; distracted by sports, reality TV, Facebook, internet porn, and igadgets; lured by mass media messages of materialism; and shackled with the chains of debt used to acquire the goods sold by mega-corporations. We’ve become a society oppressed by a small faction of ultra-wealthy masters served by millions of impoverished, uneducated, sedated slaves. But the slaves are getting restless and angry. The illegally generated wealth disparity chasm is growing so large that even the ideologue talking head representatives of the elite are having difficulty spinning it. Even uneducated rubes understand when they are getting pissed on.

“Senator, don’t piss down my back and tell me it’s raining” – Fletcher – Outlaw Josey Wales

The situation is growing increasingly unstable and has left the country susceptible to an extreme outcome when this teetering tower of debt topples.

The moneyed interests have brilliantly pitted the middle class against the lower classes through their control of the media, academia, and the political system. They have cleverly blamed the victims for their own plight. They have convinced the general public that millions have lost their homes to foreclosure because they were careless, greedy and stupid. They blame the Community Reinvestment Act. They blame others for taking on too much debt when they were the issuers of the debt. The Wall Street moneyed interests created the fraud inducing mortgage products, employed the thousands of sleazy mortgage brokers, bullied appraisers into fraudulent appraisals, paid off rating agencies, bribed the regulators, bet against the derivatives they had sold to their clients, threatened to burn down the financial system unless Congress handed them $700 billion, and paid themselves billions in bonuses for a job well done. But, according to these greedy immoral bastards, the real problem in this country is the lazy good for nothing parasites on food stamps and collecting unemployment, who need to stop complaining and pick themselves up by their bootstraps and get a damn job. It’s a storyline used against Occupy Wall Street and anyone who questions their right to plunder what is left on the carcass of America. The vilest fraud in the history of man was perpetrated by these evil men and not one executive of these firms has been prosecuted. Obama, the champion of the little people, has proven to be nothing but a figurehead for the powers that be. Proof that the Wall Street syndicate is winning the war couldn’t be any clearer than the fact that the top six criminal banks now have 40% more of the nation’s assets in their vaults than they did before they burned down the economy.

The demonization of the victims continues, while the perpetrators prosper. The sociopaths appear to be winning; just as they seemed to be winning in the later stages of the Roman Empire.

“And we often fall into this bias on the prompting of con men and sociopaths of the predator class who use it to justify their own criminal actions and personal injustice. They are not burdened with empathy for their victims, and even delight in their misfortune. But they must find ways to make their actions more acceptable to society as a whole that normally does have such concerns for equity and justice.”Jesse

 

“Are we like late Rome, infatuated with past glories, ruled by a complacent, greedy elite, and hopelessly powerless to respond to changing conditions?” –  Camille Paglia

I think you know the answer to this question.

If you missed the first part of this series, CLICK HERE to read it.

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CAUSE, EFFECT & THE FALLACY OF A RETURN TO NORMALCY

 “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



 

2011 – CATCH-22 YEAR IN REVIEW

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” – Mark Twain

 

I published my predictions for 2011 on January 3, 2011 in my article 2011 – The Year of Catch-22. Humans evidently enjoy being embarrassed by how pitiful they are at predicting the future, because we continue to do it year after year. The mainstream media pundits don’t dare look back at their predictions or the predictions of the Wall Street shills that parade on CNBC and get quoted in the Wall Street Journal, eternally predicting 10% to 15% stock market gains. The multi-millionaire Wall Street strategists like the spawn of the squid, Abbey Joseph Cohen, have used all of their Ivy League brain power to predict at least a 10% stock price gain every year since 1999. The S&P 500 stood at 1,272 on January 6, 1999. As of this writing it currently stands at 1,261. ZERO appreciation over the last twelve years.

The Wall Street mantra of stocks for the long run is beginning to get a little stale. If Abbey Joseph Cohen had been right for the last twelve years, the S&P 500 would be 4,000. For this level of accuracy, she is paid millions. Her 2011 prediction of 1,500 only missed by16%. The S&P 500 began the year at 1,258 and hasn’t budged. The lowest prediction from the Wall Street shysters at the outset of the year was 1,333, with the majority between 1,400 and 1,500.

The same Wall Street clowns are now being quoted in the mainstream media predicting a 10% to 15% increase in stock prices in 2012, despite the fact we are headed back into recession, China’s property bubble has burst, and Europe teeters on the brink of dissolution. They lie on behalf of their Too Big To Tell the Truth employers by declaring stocks undervalued, when honest analysts such as Jeremy Grantham, John Hussman and Robert Shiller truthfully report that stocks are overvalued and will provide pitiful returns over the next year and the next decade.

I will take my chances with a few predictions for 2012 after reviewing my lack of foresight regarding 2011. I declared 2011 the year of Catch-22 because no matter what happened, it would not translate into a positive result for the American people. This was my thesis:

The United States and its leaders are stuck in their own Catch 22. They need the economy to improve in order to generate jobs, but the economy can only improve if people have jobs. They need the economy to recover in order to improve our deficit situation, but if the economy really recovers long term interest rates will increase, further depressing the housing market and increasing the interest expense burden for the US, therefore increasing the deficit. A recovering economy would result in more production and consumption, which would result in more oil consumption driving the price above $100 per barrel, therefore depressing the economy. Americans must save for their retirements as 10,000 Baby Boomers turn 65 every day, but if the savings rate goes back to 10%, the economy will collapse due to lack of consumption. Consumer expenditures account for 71% of GDP and need to revert back to 65% for the US to have a balanced sustainable economy, but a reduction in consumer spending will push the US back into recession, reducing tax revenues and increasing deficits. You can see why Catch 22 is the theme for 2011.

My predictions for 2011 were as follows:

  • The first half of 2011 is guaranteed to give the appearance of recovery. The lame-duck Congress ”compromise” will pump hundreds of billions of borrowed dollars into the economy. The continuation of unemployment benefits for 99 weeks (supposedly to help employment) and the 2% payroll tax cut will goose consumer spending. Ben Bernanke and his QE2 stimulus for poor Wall Street bankers is pumping $75 billion per month ($3 to $4 billion per day) directly into the stock market. Since Ben gave Wall Street the all clear signal in late August, the NASDAQ has soared 25%. Despite the fact that there are 362,000 less Americans employed than were employed in August 2010, the mainstream media will continue to tout the jobs recovery. The goal of all these efforts is to boost confidence and spending. Everything being done by those in power has the seeds of its own destruction built in. The Catch 22 will assert itself in the 2nd half of 2011.

The payroll tax cut, extension of unemployment benefits and Bernanke’s gift to Wall Street criminal banks did nothing to help real Americans in the real world. The government manipulated GDP has languished between 0.4% and 1.8% in the first three quarters of 2011. Using a true measure of inflation, as detailed by John Williams at www.shadowstats.com, GDP has remained at a recessionary level of -2% to -3%.

 

Easy Ben accomplished his goal of pumping up the stock market with his QE2 gift to Wall Street bankers during the first six months of 2011, with the S&P 500 peaking at 1,364 in late April. The market began to fall the second Ben stopped handing Jamie Dimon and his friends $4 billion per day, with the market dropping 18% in three months. The market has risen back near the breakeven level for the year based on Ben’s promise to keep interest rates at zero forever and the hope of QE3.

  • A new perfect storm is brewing for housing in 2011 and will not subside until late 2012. You may have thought those bad mortgages had been all written off. You would be wrong. There will be in excess of $200 billion of adjustable rate mortgages that reset between 2011 and 2012, with in excess of $125 billion being the dreaded Alt-A mortgages. This is a recipe for millions of new foreclosures.

The brainless twits on CNBC will dutifully report the number of completed foreclosure sales plunged by 24% in 2011, giving the impression to their non-critical thinking viewership that all is well on the housing front. What they will fail to point out is that the number of foreclosures in process went up in 2011 and now stands 59% ABOVE the level in 2009 at the height of our recession. The reason that completed foreclosures have fallen is twofold. The criminal Wall Street banks can’t prove they hold the mortgage notes on hundreds of thousands of homes and they have a few legal issues related to the massive robo-signing fraud they committed. Kicking old ladies and Iraq War veterans out into the street using fraudulent documentation has caused the Wall Street Too Evil To Believe Banks some public relations issues. Secondly, the Wall Street Plutocrats have these mortgage loans valued at 100% on their balance sheets due to the FASB gift of mark to fantasy accounting rules. Foreclosing actually reveals their assets to be overvalued by at least 50%. This may explain why millions of Americans are still in their homes after not making a mortgage payment for two years, as detailed by economist Tom Lawler:

Given the number of loans either seriously delinquent or in the process of foreclosure at the beginning of the year, the number of completed foreclosure sales in 2011 is almost absurdly low, reflecting the complete screw-up of the mortgage servicing industry, and the resulting dramatic slowdown in foreclosure resolutions. As of the end of October, 2011 LPS estimated that there were 1.759 million seriously delinquent loans with the average number of days delinquent at 388 (compared to 192 days in January 2008), and there were 2.210 million loans in the foreclosure process that had been on average delinquent for 631 days.

Completed Foreclosure Sales And Short Sales/DILs (thousands, estimates)
  2008 2009 2010 2011(E)
Completed Foreclosure Sales 914 949 1,070 815
Owner-occupied N.A. N.A. 785 608
Non-owner-occupied N.A. N.A. 285 207
Short Sales/DILs 105 270 354 380
Foreclosures plus Short Sales/DILs 1,019 1,219 1,424 1,195
Outstanding first liens: Jan-08 Jan-09 Jan-10 Jan-11
Seriously Delinquent (90+) 1,016 1,983 3,061 2,168
In Process of Foreclosure 860 1,386 2,110 2,203
 
The concerted effort to not complete foreclosures did nothing to slow the continued descent in home prices. As you can see in the chart below from http://www.calculatedriskblog.com/, real home prices will have fallen another 5% in 2011. Obama and his minions threw $50 billion of your tax dollars at the housing market in 2009 – 2010 with tax credits, loan modification programs, homebuilder tax loss carry-backs, and a myriad of other Keynesian claptrap solutions. They succeeded in pissing your tax dollars down the toilet as prices have declined another 12% in the last 18 months. Prices have fallen 42% nationally since 2006. I wonder who missed the boat on that development?
 
“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit.” – Ben Bernanke – July 2005
 
 

There are approximately 48.5 million homes with mortgages in the United States and 10.7 million of them have negative equity. Another 2.4 million have less than 5% equity. Considering it costs more than 5% in closing costs to sell a house that means 27% of home occupiers with a mortgage are trapped like rats in a cage. With 2.2 million foreclosures still in the pipeline and a looming recession, home prices will continue to fall another 10% to 20% over the next two years and one third of all home occupiers will be underwater. That sounds like a recipe for 10% to 15% stock market gains.

  • Quantitative easing has benefited only Wall Street bankers and the 1% wealthiest Americans. The $1.4 trillion of toxic mortgage backed securities on The Fed’s balance sheet are worth less than $700 billion. How will they unload this toxic waste? The Treasuries they have bought drop in value as interest rates rise. Quantitative easing’s Catch 22 is that it can never be unwound without destroying the Fed and the US economy.

Bennie and his Inkjets did a bang up job in 2011. He was able to expand his balance sheet from $2.47 trillion to $2.95 trillion in twelve short months. According to Ben and his Federal Reserve friends, increasing your balance sheet by $480 billion isn’t really printing money out of thin air and handing it to their Wall Street owners for free, so they can prop up the stock market and enrich their executives. Ben is now leveraged 57 to 1. He should move to Europe, where this level of leverage is commonplace. In comparison, Lehman Brothers and Bear Stearns were leveraged 40 to 1 when they went belly up.

There is absolutely no way that Ben Bernanke could ever reduce the Federal Reserve balance sheet to the pre-crisis level without destroying the U.S. economy. He knows that and will never sell off those toxic mortgage assets. Not only won’t he reduce the Fed balance sheet, but by mid-2012 he will institute QE3 and buy another $600 billion of mortgage debt. His hubris knows no bounds, as his reckless illegal actions thus far have not driven interest rates sky high – YET. He has only destroyed the finances of senior citizens, savers and people who eat food and use gasoline. He will surely go down in history, but not the way he envisions.

  • The rise in oil to $91 a barrel will not be a top. The Catch-22 of a declining dollar is that prices of all imported goods go up. If the dollar falls another 10%, the price of oil will rise above $120 a barrel and push the economy back into recession.

As Bernanke printed like a drunken sailor during the first six months of 2011, the USD fell by 9% and the price of oil did exactly as expected, rising to a peak above $125. The NATO “intervention” in Libya also added a few bucks to the price of a barrel of sweet crude.

                  DXY

One-Year Chart for DOLLAR INDEX SPOT (DXY:IND)

The complete implosion of Europe and the ensuing weakness of the Euro have given the false impression that the U.S. dollar is a safe haven. The USD has regained its losses and will end the year exactly as it started versus a Euro heavy basket of world currencies. With annual deficits equaling 10% of GDP, a national debt now exceeding 100% of GDP, and Ben Bernanke in perpetual printing mode, the USD is destined to reach its intrinsic value of zero. With Brent crude still above $108 a barrel, employment still weak, and double digit food and energy inflation slowing consumer spending, the ECRI knows a recession during 2012 is baked in the cake.  

 

  • The imminent collapse of the European Union as Greece, Ireland, Portugal and Spain are effectively bankrupt. Spain is the size of the other three countries combined and has a 20% unemployment rate. The Germans are losing patience with these spendthrift countries. Debt does matter.

It seems I was wrong about Europe. It turned out to be much worse than anyone envisioned, with Italy now the likely fuse that blows the whole thing sky high. The ECB has made Ben Bernanke look like a lightweight by increasing their balance sheet by 44% to over $3.5 trillion in a futile effort to solve a debt crisis with more debt. It seems central bankers are programmed to print until the very end (see Weimar). The European Union will not survive 2012. Too many countries, too much government debt, too many zombie banks, too many bureaucrats, too much austerity rammed down the throats of citizens, and not enough honesty or reality based solutions.

  • State and local governments were able to put off hard choices for another year, as Washington DC handed out hundreds of billions in pork. California will have a $19 billion budget deficit; Illinois will have a $17 billion budget deficit; New Jersey will have a $10.5 billion budget deficit; New York will have a $9 billion budget deficit. A US Congress filled with Tea Party newcomers will refuse to bailout these spendthrift states. Substantial government employee layoffs are a lock.

State and local governments have laid off 535,000 workers since 2008. With borrowed Federal government stimulus handouts evaporating into thin air during 2011 – 2012, this total will reach 800,000 by the end of the next year. The U.S. Postal Service will do their part by cutting 28,000 jobs in 2012, even though they need to cut 100,000. States and municipalities based their budgets on the revenues produced by the fake debt driven housing boom from 2003 – 2007. The tax revenue dried up, but the union jobs added are a gift that keeps on costing taxpayers billions. States and localities can’t print, so layoffs will continue.   

 

  • There is a growing probability that China will experience a hard landing as their own quantitative easing has resulted in inflation surging to a 28 month high of 5.1%, with food inflation skyrocketing to 11.7%. Poor families spend up to half of their income on food. Rapidly rising prices severely burden poor people and can spark civil unrest if too many of them can’t afford food.

According to official government statistics China’s economy continued to boom in 2011. But, of course Chinese government reports make the BLS look honest. The fact is the Chinese stock market has fallen 28% since April as the property bubble deflates. If their economy has truly grown at an annual rate of 8% to 10% over the last five years, why is their stock market down 62% from its 2007 high?

   SHANGHAI INDEX

One-Year Chart for Shanghai Stock Exchange Composite Index (SHCOMP:IND)

The price inflation in food and energy prices, along with the property bubble bursting has led to breakouts of civil unrest across China. China’s two biggest markets – Europe & the United States – are in or near recession and are buying less of their crap. They can only build so many vacant cities and shopping malls to create the appearance of growth. The hard landing is about to get harder in 2012.

  • The Tea Party members of Congress are likely to cause as much trouble for Republicans as Democrats. If they decide to make a stand on raising the debt ceiling early in 2011, all hell could break loose in the debt and stock markets. 

It seems I got the timing wrong on this prediction, but the August showdown was a doozy. The threat of a government shutdown resulted in the stock market collapsing by 18% in a matter of weeks in August. Our beloved politicians then came up with another bullshit non-solution by creating a commission which, after months of negotiations, failed to do anything. The $1.2 trillion of automatic spending cuts will never happen. The slime that inhabit the hallowed halls of Congress will pretend to cut, while actually increasing spending. And so it goes. The stock market has risen from its October low based on Easy Ben’s assurances to keep interest rates at zero forever and the anticipation of QE3 in the new year.

  • Will the consensus forecast of a growing economy, rising corporate profits, 10% to 15% stock market gains, 2 million new jobs, and a housing recovery come true in 2011? No it will not. By mid-year confidence in Ben’s master plan will wane.

Corporate profits did rise, mostly due to Ben Bernanke providing free money to the Wall Street Mega-Banks so they could generate risk free profits on the backs of senior citizens getting .15% on their savings. It also helps when the same Wall Street banks can make accounting entries declaring that future loan losses will be minimal and the toxic mortgages on their books aren’t really worthless. Who knew accountants could do so much for America? Abbey Joseph Cohen only missed her stock market projection by a smidgeon. The S&P 500 is essentially unchanged for the year, while the NASDAQ and Russell 2000 will finish in the red.

The country did not add 2 million new jobs. It added 1.4 to 1.5 new jobs. Too bad the working age population went up by 1.7 million people. But our friends at the BLS, when they aren’t manipulating away the inflation that real people in the real world experience every day, have the gall to declare the unemployment rate has fallen from 9.8% to 8.6% in the last twelve months. How could this be you might ask, since the working age population went up by more than the number of people who found jobs. Easy if you are a BLS government drone. Everyone knows that things are so good out in the real world that 1.8 million Americans decided to kick back and enjoy the good life by leaving the workforce. It wasn’t because they gave up looking for the jobs that were shipped to the Far East by the mega-corporations making record profits and paying record bonuses to their executives. It’s just a rumor that those long lines at food banks around the country have a few of these “lucky” non-members of the workforce in them.

The housing recovery is just around the corner. Larry Yun, chief liar for the National Association of Realtors, assures us that it’s the best time to buy. We all know that the NAR is a bastion of honesty and truth. Just because they reported 3 MILLION more home sales than actually occurred between 2007 and 2010, you can’t scorn, ignore and treat everything they say as a bald faced lie. If Larry says the housing recovery has arrived, it must be true.

  Revised Previous % Change
2007 5,022,000 5,652,000 -11.1%
2008 4,124,000 4,913,000 -16.1%
2009 4,334,000 5,156,000 -15.9%
2010 4,182,000 4,907,000 -14.8%

When the pundits on CNBC sum up the year, they will not be touting the fact that gasoline prices went up 10% in the past year and the average price for a gallon of gas was the highest in U.S. history. They will not be proclaiming that even the government manipulated CPI shows food prices up 6% and clothing prices up 5% in the last year. I’m sure glad Ben Bernanke doesn’t see any inflation on his radar. Maybe he should ask his chauffer about his inflation. Lastly, the stocks for the long run crowd will not be yakking about the fact that gold finished up 10% for the year and has been up for TEN consecutive years. I wonder whether the numbskulls on CNBC can look at the chart below and figure out why gold is up ten years in a row. The national debt reaching $20 trillion by 2015 is a given. I wonder whether the price of gold will be higher. Maybe I’ll give Abbey Joseph Cohen a call and ask for her prediction.

Overall, my assessment of what would happen in 2011 wasn’t too far off. But, it was the things that I and virtually everyone on the planet missed that will reverberate in 2012 and for the next ten years. Our 20 year Crisis deepened, became more violent, and clearly revealed that the establishment will use all their power to put down protests and crush opposition to their corrupt crony capitalistic policies. The major developments I missed regarding 2011 included:

  • The self-immolation of a young Tunisian man set off revolutions around the globe, toppling U.S. supported dictators in Tunisia and Egypt. Dictators attempted to retain power by killing citizens by the thousands. The self-immolation of a man in New Hampshire in front of a courthouse was completely ignored by the mainstream media. I wonder why.
  • The Arab Spring has resulted in revolutions in Yemen, Bahrain, Syria and Libya. Depending upon how much oil was at stake, the U.S. has supported the dictator or the people whenever it suited them. This is called democratic principles.
  • Young people across the U.S. were inspired by the Arab Spring and began to Occupy Wall Street and many other streets in 97 other U.S. cities this past Fall. The spirit of these protests was against Wall Street criminality, Washington corruption, and corporate malfeasance. Peaceful civil disobedience by citizens of this country was met with beatings, tear gas, mass arrests and bulldozing their encampments. Students were maced while sitting in front of a college building. Ultimately a Department of Homeland Security coordinated attack on all the protests squashed the movement. The American people were too distracted by Dancing With the Stars and the latest iGadget to notice. The corporate media did their part by spewing misinformation and propaganda about the Occupy Movement, while the Wall Street Elite giggled with delight from their NYC penthouse suites.
  • Shockingly, no bankers were prosecuted despite clear unequivocal evidence of the greatest financial fraud in world history. The former head of Goldman Sachs, U.S. Senator, and NJ Governor continues to eat caviar and drink champagne in his glorious mansion after stealing $1.2 billion directly from customers’ accounts. These funds now reside in the pocket of Jamie Dimon and his upstanding JP Morgan institution.
  • The Federal government methodically moved closer to a totalitarian regime by passing legislation that will enable them to imprison U.S. citizens without charges. The only remaining area that has allowed critical thinking Americans to find the truth – the Internet – is on the verge of being locked down by the Feds. Pending legislation will allow them to shut down any website that may inconvenience their agenda. We inch ever closer to Orwell’s vision of the future.
  • No one in the MSM or government anticipated that the only truthful, honest, forthright politician in Washington D.C. – Ron Paul – could possibly win the Iowa caucus. His message of freedom, liberty, self reliance, and non-interventionism has struck a chord with young people and those capable of distinguishing between MSM propaganda and reality. The establishment is terrified of Ron Paul and is now on a mission to destroy him. What they don’t realize is their time is coming to an end. The existing social order will be swept away in a violent manner. The youth of this country will lead the charge. 2012 should be a real doozy.

I’ll take another shot at predicting the unpredictable with my next article:  2012 – The Year of Living Dangerously.

KEYNESIAN SOLUTIONS – AFTER TOTAL FAILURE – TRY, TRY AGAIN

“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” – John Maynard Keynes – The Economic Consequences of the Peace

  

While Barack Obama vacations on Martha’s Vineyard this week he’ll be thinking about his grand vision to save America – again. There is one thing you can say about Obama – he’s predictable. He promises to unveil his “new” plan for America in early September. The White House said Obama will give a speech after the September 5 Labor Day holiday to outline measures to boost hiring and find budget savings that surpass the $1.5 trillion goal of a new congressional deficit-cutting committee. It is heartening to see that Barack has turned into a cost cutter extraordinaire. He should be an inspiration to the Tea Party, except for one little problem. The plan he unveils in a few weeks will increase spending now and fret about spending cuts at some future unspecified date.

I can reveal his plan today because the White House has already leaked the major aspects of his plan. He will call for an extension of the Social Security payroll tax cut of 2% for all working Americans. This was supposed to give a dramatic boost to GDP in 2011. Maybe it will work next time. He will demand that extended unemployment benefits be renewed. Somehow providing 99 weeks of unemployment benefits is supposed to create jobs. It’s done wonders thus far. He will propose some semblance of an infrastructure bank or tax cuts to spur infrastructure spending. It will include a proposal for training and education to help unemployed people switch careers. He will attempt to steal the thunder from the SUPER COMMITTEE of 12 by coming up with $2 trillion of budget savings by insisting the Lear jet flying rich fork over an extra $500 billion.

You may have noticed that followers of Keynesian dogma like Paul Krugman, Larry Summers, Brad Delong, Richard Koo, John Galbraith, every Democrat in Congress, and every liberal pundit and columnist have been shrieking about the Tea Party terrorists and their ghastly budget cuts that are destroying our economy. They contend the stock market is tanking and the economy is heading into recession due to the brutal austerity measures being imposed by the extremists in the Republican Party. There is just one small issue with their argument. It is completely false. It is a bold faced lie. This is 2011. The economy has been in freefall since January 1. No spending cuts have occurred. Nada!!! As the CBO chart below reveals, the horrendous slashing of government will amount to $21 billion in 2012 and $42 billion in 2013. Of course, those aren’t even cuts in spending. They are reductions in the projected increases in spending. Politicians must be very secure in the knowledge that Americans are completely ignorant when it comes to anything other than the details of Kim Kardashian’s wedding and who Snooki is banging on Jersey Shore.

 

I’d like to remind the Harvard educated Keynesian economists that Federal government spending is currently chiming in at $3.8 trillion per year. Federal spending was $2.7 trillion in 2007 and $3.0 trillion in 2008. Keynesians believe government spending fills the gap when private companies are contracting. Obama has taken Keynesianism to a new level. Federal spending will total $10.8 trillion in Obama’s 1st three years, versus $8.4 trillion in the previous three years. Even a Harvard economist can figure out this is a 29% increase in Federal spending. What has it accomplished? We are back in recession, unemployment is rising, forty six million Americans are on food stamps, food and energy prices are soaring, and the middle class is being annihilated. The standard Keynesian response is we would have lost 3 million more jobs, we were saved from a 2nd Great Depression and the stimulus was too little. It would have worked if it had just been twice as large.

The 2nd Great Depression was not avoided, it was delayed. Our two decade long delusional credit boom could have been voluntarily abandoned in 2008. The banks at fault could have been liquidated in an orderly bankruptcy with stockholders and bondholders accepting the consequences of their foolishness. Unemployment would have soared to 12%, GDP would have collapsed, and the stock market would have fallen to 5,000. The bad debt would have been flushed from the system. Instead our Wall Street beholden leaders chose to save their banker friends, cover-up the bad debt, shift private debt to taxpayer debt, print trillions of new dollars in an effort to inflate away the debt, and implemented every wacky Keynesian stimulus idea Larry Summers could dream up.  These strokes of genius have failed miserably. Bernanke, Paulson, Geithner and Obama have set in motion a series of events that will ultimately lead to a catastrophic currency collapse. We have entered the 2nd phase of the Greater Depression and there are no monetary or fiscal bullets left in the gun. Further expansion of debt will lead to a hyperinflationary collapse as the remaining confidence in the U.S. dollar is exhausted. We are one failed Treasury auction away from a currency crisis.

John Maynard Keynes argued the solution to the Great Depression was to stimulate the economy through some combination of two approaches: a reduction in interest rates and government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.

It sounds so good in theory, but it didn’t work in the Depression and it hasn’t worked today. It is a doctrine taught in every business school in America with no actual results to support it. Who needs facts and actual results when a good story believed and perpetuated by non-thinking pundits will do? Every Keynesian play in the playbook has been used since 2008. The American people were told by Obama and his Keynesian trained advisors that if we implemented his $862 billion shovel ready stimulus package, unemployment would peak at 7.9% and would decline to 6.5% by today. The cascade of recovery was going to be jump started by a stimulus package that equaled 27% of the previous year’s entire spending. Obama’s complete package was implemented. The outcome was an eye opener. If you show a Keynesian this chart, their response would be: “Imagine how bad it would have been if we didn’t spend the $862 billion.”

 

John Maynard Obama got everything he asked for in January 2009. He had both houses in Congress and did not need to consult Republicans to pass his Keynesian $862 billion porkulus bill. It seems that $252 billion, or 29% of the package was nothing more than transfer payments. Of course, according to Keynesians, the $252 billion should have had a multiplier effect when it was handed out. I think they were right. Obama was able to multiply the number of people on food stamps in January 2009 from 32 million to the current tally of 45.8 million. The monthly food stamp transfer payment has gone from $3.6 billion to $6.1 billion. Keynesians should be thrilled by this success story.

 [Review & Outlook]

Obama’s Keynesian dream bill included:

  • $1 billion for Amtrak, the federal railroad that hasn’t turned a profit in 40 years.
  • $2 billion for child-care subsidies.
  • $50 million for that great engine of job creation, the National Endowment for the Arts.
  • $400 million for global-warming research.
  • $2.4 billion for carbon-capture demonstration projects.
  • $650 million on top of the billions already doled out to pay for digital TV conversion coupons.
  • $8 billion for renewable energy funding.
  • $6 billion for mass transit that had a low or negative return on investment.
  • $600 million more for the federal government to buy new cars. Uncle Sam already spends $3 billion a year on its fleet of 600,000 vehicles.
  • Congress earmarked $7 billion for modernizing federal buildings and facilities.
  • The Smithsonian received $150 million.
  • The Department of Education got $66 billion, more than the entire Education Department spent a just 10 years ago. $6 billion of this subsidized university building projects.

Obama declared in December 2008 there were shovel ready projects across the land that would create immediate jobs. Too bad he didn’t tell the American public only $30 billion of the $862 billion mountain of pork was earmarked for highways and bridges. Obama declared his stimulus would create 3.5 million jobs, later changed to “create or save”. There were 144 million Americans employed in January 2009. Today, there are 139 million Americans employed. Obama gives the term “success story” a new meaning. The Keynesians had their chance and now they want a do-over. Sorry, that isn’t how it works in the real world. As Speaker Nancy Pelosi put it, “We won the election. We wrote the bill.” No truer words have ever been spoken.

As we know, that was only the beginning of our Keynesian debt nightmare. Let’s do some critical thinking and assess the results of Obama’s other Keynesian solutions:

  • The Homebuyer Tax Credit cost taxpayers $27 billion or $43,000 per additional house sold. The Keynesians handed 3.9 million people $7,000 to do something they were going to do anyway. They lured first time home buyers into the market. Since the credit expired, median home prices have fallen $15,000 and continue to fall. This wonderful government program has created more underwater homeowners and did nothing to stabilize the housing market or home prices.
  • Cash for Clunkers cost taxpayers $3 billion. An incremental 125,000 cars were sold at a cost of $24,000 per car. This Keynesian dream program lured more people into debt and warped the used car market by destroying used cars and driving up prices for poor people who couldn’t afford a new car. There were no carryover benefits except for government controlled union car makers.
  • Obama’s HAMP program allocated $11 billion to supposedly allow 4 million homeowners to modify their mortgages, reduce their monthly mortgage payments and avoid foreclosure. HAMP has proven a colossal failure that has done more to harm than help debt-laden homeowners. It has achieved slightly more than 500,000 permanent modifications, 40% of which the Treasury expects to default. Far more borrowers have dropped out of the program than successfully achieved permanent loan modification. These borrowers, along with those who later default, will often be left with larger outstanding debt, worse credit scores, and less home equity.
  • Obama even handed $30 billion to the largest homebuilder corporations in the country, run by billionaires like Bob Toll, by allowing them to carry back their losses and wipe out tax liabilities in prior years. This did wonders for the housing market. It did stimulate bonus payments for the CEOs of these companies.
  • Billions of tax revenue was lost by handing out $1,500 tax credits for people to buy new windows, doors, and appliances they were going to buy anyway. We are still waiting for that multiplier effect.

The usual suspects are now declaring that we can’t make the same mistakes FDR made in 1937 resulting in a dramatic downturn in 1938. As usual, the Keynesian storyline about the Great Depression is false.

Depression Keynesian Fallacy

One thing to remember is that while the depression that started in 1929 may have come to a bottom in 1933, it took a long time to recover. There was a cyclical recovery in 1937, and why was that? Roosevelt had the good luck to have been elected dead flat at the bottom. So it wasn’t his policies that cured the last depression, it was luck and good timing, combined with the fact that they were creating a lot of money after Roosevelt took the dollar off the gold standard. That resulted in a false recovery, from 1933 to 1937, and it went downhill again. – Doug Casey   

 

Keynes′ theory suggested that active government policy could be effective in managing the economy. Rather than seeing unbalanced government budgets as wrong, Keynes advocated what has been called countercyclical fiscal policies, that is, policies that acted against the tide of the business cycle: deficit spending when a nation’s economy suffers from recession or when recovery is long-delayed and unemployment is persistently high—and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays. He argued that governments should solve problems in the short run rather than waiting for market forces to do it in the long run. Keynes had too much faith in the wisdom of politicians and Federal Reserve bankers. They mastered the art of deficit spending, but fell a little short on paying off the debts during boom times. About $14.6 trillion short so far.

The Great Depression had the same origins as our current Greater Depression. The three Republican administrations of the 1920s practiced laissez-faire economics, starting by cutting top tax rates from 77% to 25% by 1925. Non-intervention into business and banking became government policy. These policies led to overconfidence on the part of investors and a classic credit-induced speculative boom. Gambling in the markets by the wealthy increased. While the haves got richer, millions of have-nots lived below the household poverty line of $2,000 per year. The rip roaring party came to an abrupt end in October 1929, with the Great Stock Market Crash.

Between 1929 and 1932, the market fell 89% from its high. The Keynesian storyline is that Herbert Hoover’s administration did nothing to try and revive the economy. It took Franklin Delano Roosevelt and his New Deal Keynesian policies to save the country. It’s a nice story, but entirely phony. Between 1929 and 1933 the Hoover administration increased real per-capita federal expenditures by 88%, not exactly the austerity measures described in fantasy stories concocted by the mainstream media.  

Bureau of Economic Analysis National Income and Product Accounts Table

Table 1.1.6A. Real Gross Domestic Product, Chained (1937) Dollars [Billions of chained (1937) dollars]
 
 1929 
 1930 
 1931 
 1932 
 1933 
 1934 
 1935 
 1936 
 1937 
 1938 
 1939 
Gross domestic product
87.3
79.8
74.6
64.9
64.0
71.0
77.3
87.4
91.9
88.7
95.9
Personal consumption expenditures
63.1
59.7
57.8
52.6
51.5
55.1
58.5
64.5
66.8
65.8
69.4
Gross private domestic investment
12.2
8.1
5.1
1.5
2.3
4.1
7.6
9.7
12.2
8.0
10.3
Net exports of goods and services
0.8
0.4
0.2
0.0
-0.1
0.2
-0.5
-0.3
0.1
0.9
1.0
Government consumption expenditures and gross investment
9.2
10.2
10.6
10.2
9.9
11.1
11.5
13.4
12.8
13.8
15.0

 

The Great Depression officially lasted from 1929 until 1940. What is not well known is that real GDP was at the same level in 1936 as it had been in 1929. In no small part because real GDP soared by 37% between 1933 and 1936. The unemployment rate in 1929 was 5%. In 1936, even after real GDP had recovered to pre-depression levels, the unemployment rate was still 15%. It spiked back to 18% in 1938 and stayed above 15% until World War II. Tellingly, in 1936, private domestic investment was 21% below the level of 1929. 

By contrast, government expenditures surged by 46% between 1929 and 1936. With the government creating new agencies and employing people in make-work projects, private industry was crowded out. The extensive governmental economic planning and intervention that began during the Hoover administration swelled drastically under Roosevelt. The bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending on public works prolonged the Great Depression.

The facts powerfully contradict the notion endorsed by Krugman and other Keynesian devotees that the supposed 1937-38 Depression within the Great Depression was caused by Roosevelt slashing spending. In fact, real GDP only dropped by 3.5% in 1938 and rebounded by 8.1% in 1939. What actually collapsed in 1938 was private investment, which fell 34%. By contrast, government spending declined by only 4.5% in 1938, proving that Roosevelt did not drastically cut spending. To the extent that he eased up on the accelerator, it was by cutting back on useless jobs programs like those provided by the Works Progress Administration and the Public Works Administration. Austerity did not derail the recovery.

The reason private investment collapsed in 1938 was Roosevelt’s anti-business crusade. He denounced big business as the cause of the Depression. In March 1938, FDR appointed Yale University law professor Thurman Arnold to head the antitrust division of the Justice Department. Arnold soon hired some 300 lawyers to file antitrust lawsuits against businesses. Arnold launched cases against entire industries, with lawsuits against the milk, oil, tobacco, shoe machinery, tires, fertilizer, railroad, pharmaceuticals, school supplies, billboards, fire insurance, liquor, typewriter, and movie industries.

Paul Krugman’s recent veiled yearning for a war or staged crisis to revive the economy through spending to fight the war is another Keynesian fallacy perpetuated by the mainstream media. These mindless non-critical thinking talking heads actually believe World War II ended the Great Depression. Doug Casey obliterates their fantasy:

“People say that World War II cured the Depression, but in fact, it made it worse. As bad as things were in the ‘30s, they were worse during the war in the ‘40s. You couldn’t get shoes. You couldn’t get gasoline. You couldn’t get tires. You couldn’t get just about anything that was being used for the war. The war prolonged and deepened the Depression. The thing that ended the Depression was not the war but the fact that since people could not consume, they were forced to save. That delayed consumption resulted in a huge amount of savings, and that’s what caused the recovery in the late 1940s.

 

The fact that the entire world was left in smoldering ruins after World War II, except for the United States, may have contributed slightly to our recovery from the Great Depression.

According to Murray Rothbard, in his book America’s Great Depression, the artificial meddling in the economy was a disaster prior to the Great Depression, and government efforts to prop up the economy after the crash of 1929 only made things far worse. Government intrusion delayed the market’s correction and made the road to complete recovery more difficult. Today’s myopic politicians, captured monetary authorities and Harvard trained Keynesian economists have learned the wrong lessons from the Great Depression. The upshot will be a second Greater Depression and further impoverishment of the dwindling middle class. The implications of more wasteful government stimulus programs, more quantitative easing and more debt are: further debasement of the currency and ultimately a hyperinflationary collapse. The great economist John Maynard Keynes understood currency debasement:

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

How to Cut Spending While Actually Increasing Spending

“Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.” – John Maynard Keynes – The Economic Consequences of the Peace

Obama’s plan to revive America will be announced with great fanfare in two weeks. We know for sure he will propose these two brilliant ideas:

  • Extending unemployment compensation again at a total 2012 cost of $65 billion. Because we know that paying people to not work creates millions of jobs. The multiplier effect is off the charts. Why work when you can watch The View and chow down on cheese doodles purchased with your SNAP card for 99 weeks?
  • Extending the payroll tax cut at a total 2012 cost of $100 billion. This was supposed to give a dramatic boost to the economy in FY11. Have you noticed any boost? A Keynesian will argue, “Imagine if we hadn’t done it.” A critical thinker might ask: Is it prudent to increase the unfunded Social Security liability by another $100 billion and hand the bill to future unborn generations, so we can buy a new IPod 2 today?

It is a certainty that Obama will announce an infrastructure bank or some variation to spur investment in our national infrastructure that is crumbling by the day. Top Keynesian, and architect of the Obama stimulus plan, Larry Summers has been blathering about this for months. Even though the first stimulus plan was sold as an infrastructure plan, they mean it this time. As usual, the storyline is false. You can’t drive anywhere in this country and not be inconvenienced by road widening, bridge building, and repaving projects. The Keynesians act like infrastructure projects are highly unusual and need new Federal dollars to jump start the engine. The fact is that every Federal, State and municipal government has a capital fund that is budgeted every year. Most of the projects have multiple year lead times. They require planning and coordination. The reason we have 160,000 structurally deficient or obsolete bridges and thousands of miles of crumbling underground pipes is because politicians decided to spend their budgets on something more useful like train museums, murals, turtle crossings, and studies on the mating habits of ferrets.

The country has lost approximately seven million jobs since 2007. Five million of the jobs were lost in sales industries and manufacturing industries. There are 139 million jobs in America today and only seven million, or 5% of all jobs, in the construction industry. How do Keynesians expect to revive the job market with an infrastructure bank that will benefit, at most, 5% of the U.S. workforce? Let me guess. They will propose billions of new spending on education so they can retrain sales clerks from Wal-Mart into architects for designing 160,000 new bridges.

Barack Obama will stand in front of the American people and lie. He is a born again cost cutter, who will propose new spending. As anyone with a calculator can figure out, the two guaranteed proposals from his upcoming speech will increase spending by $165 billion in 2012. If you go back to the handy dandy chart from the CBO showing the “horrific spending cuts” from the recent debt ceiling deal you will see  these “cuts” total $122 billion between 2012 and 2014. Barack will wipe out all of the supposed savings through mid 2015 with his new Keynesian plan. But don’t worry. His plan will have huge spending cuts in 2017 after his hoped for 2nd term is finished. Keynesians always promise to cut spending once their current emergency ends.     

The Keynesians had their chance. They controlled the Presidency and both houses of Congress. A Keynesian runs the Federal Reserve. They implemented everything they proposed. The $862 billion porkulus program, the $700 billion TARP program, home buyer tax credits, energy efficiency credits, loan modification programs, zero interest rates, QE1 and QE2. They increased social welfare transfers for Social Security, Unemployment Compensation, food stamps, Medicare, Medicaid, and Veterans by $600 billion since 2007, a 35% increase in four years. No one has foiled their plans. The Tea Party didn’t really exist until 2010. They didn’t lose the House until November 2010. They cannot blame the Tea Party extremists, but they do.

The Keynesians have successfully increased Federal spending by $1.1 trillion, or 41% since 2007, and are running deficits exceeding 10% of GDP, but they call the Tea Party extremists. Domestic investment is still 9% below 2008 levels as the Federal government has crowded out the small businesses that create the jobs in this country. And now the Keynesians declare we need more stimulus, more programs, more debt, more quantitative easing and lower interest rates. It just wasn’t enough the first time. You have to give the Keynesians credit. Despite the utter absolute failure of every scheme they have implemented, they will worship their models and theories until they successfully collapse our economic system. Then they’ll blame the Tea Party terrorists who foiled their plans.

None of the Keynesian solutions worked during this crisis, just as they didn’t work during the Great Depression. The solution was simple, yet painful. The banking system needed to be saved, not the banks. The bad debt needed to be purged from the system. Wall Street criminals needed to be prosecuted. Bondholders and stockholders needed bear the losses from their foolish investments. Saving and investment in the country needed to be encouraged, while borrowing and consuming needed to be discouraged. Our leaders have failed to lead. The American people have failed to accept the consequences of their actions. And now we are going to pay a heavy price as Ludwig von Mises predicted:

“There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.”

 

BERNANKE PLEDGES TO SCREW YOUR GRANDMOTHER FOR AT LEAST TWO MORE YEARS

“A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank.” – Ron Paul

  

I wonder what goes through Ben Bernanke’s mind as he sits in his gold plated boardroom in the majestic Marriner Eccles building in Washington DC and decides to screw grandmothers in order to further enrich Wall Street bankers. He just pledged to keep interest rates at zero percent for two more years. Ben is a supposedly book smart man. Does he have no guilt or shame for what he has wrought? How does he sleep at night knowing he has created bloody revolutions around the globe due to his inflationary zero interest policy? People are dying because he has decided that an elite group of Wall Street bankers who recklessly brought down the worldwide financial system in 2008 deserve to be kept alive and enriched at the expense of the many.

He uses words like transitory to describe inflation. Even as the price of gold reveals his lies he continues to promote policies that will lead to the demise of the USD and our economic system. There is only one way to counter his lies – truth. With a corporate fascist government run by the few for the benefit of the few, telling the truth is treason as stated by Ron Paul:

“Truth is treason in the empire of lies.”

The storyline being sold to you by Bernanke, his Wall Street masters, and their captured puppets in Washington DC is that deflation is the great bogeyman they must slay. They make these statements from their ivory jewel encrusted towers as the real people in the real world deal with reality. The reality since Ben Bernanke announced his QE2 policy in August 2010 is:

  • Unleaded gas prices are up 45%.
  • Heating oil prices are up 46%.
  • Corn prices are up 71%.
  • Soybean prices are up 26%.
  • Rice prices are up 13%.
  • Pork prices are up 31%.
  • Beef prices are up 25%.
  • Coffee prices are up 38%.
  • Sugar prices are up 48%.
  • Cotton prices are up 13%.
  • Gold prices are up 42%.
  • Silver prices are up 115%.
  • Copper prices are up 23%.

These are the facts and they fly in the face of the lies being spouted by Bernanke and his Federal Reserve cronies. Words like transitory, quantitative easing, extended period, and liquidity are used by Professor Bernanke to obscure what he is doing to the average American. He lives in a world of theories and models, while the rest of us live in the real world, where theories kill and impoverish millions. There are 40 million Americans over the age of 65 today. You might even know a few of them. There will be 10,000 people per day joining their ranks for the next nineteen years as the Baby Boomers retire en masse. The vast majority of these senior citizens are risk averse. Some disturbing facts reveal the true picture for seniors today:

  • Most senior citizens do not have a traditional pension plan because they have been going out of style over the past 30 years.  In 1980, some 39% of private-sector workers had a pension that guaranteed a steady payout during retirement. Today that number stands closer to 15%, according to the Employee Benefit Research Institute in Washington, D.C. 
  • 35% of Americans already over the age of 65 rely almost entirely on Social Security payments alone. 
  • Approximately 3 out of 4 Americans start claiming Social Security benefits the moment they are eligible at age 62.  Most are doing this out of necessity. This probably has something to do with the fact that the median retirement savings of households over the age of 65 is less than $45,000.   
  • The median household net worth of all Americans fell from $97,000 in 2005 to $70,000 in 2009. The median household net worth of households over 65 years old fell from $200,000 in 2005 to approximately $150,000 in 2009. Two thirds of seniors’ net worth is the equity in their primary residence, meaning they have $50,000 or less of financial assets (cash, stocks, bonds). 
  • 20% of all the households in the United States have zero or negative net worth.  

This data sets the scene for the crime of the century committed by Ben Bernanke and his co-conspirators on the Federal Reserve Board. The easiest way to understand how Ben has screwed seniors and savers to pay off his Wall Street and K Street benefactors is to use a real life example.

A seventy five year old widow living in her paid off row home, bought in 1955, gets by on her annual social security income of $17,000 and the income generated from the $125,000 in retirement savings left from her husband’s forty years working as a truck driver. She is a child of the Depression, financially unsophisticated and risk averse. This describes most senior citizens. The widow and her late husband were only comfortable investing their money in CDs and money market funds. In 2007, before the Wall Street created financial collapse, savers and risk averse senior citizens could earn 5% in a money market fund, 5.5% in a 2 year CD and 6% in a 5 year CD. The widow could supplement her meager social security income with an additional $6,000 of interest income. This money was used to pay the ever increasing real estate taxes, medical insurance premiums, upkeep on the old house, and necessities like food, fuel, insurance and heating.

Fast forward four years to 2011. Savers and seniors are getting average interest rates on 6-month CDs this week of 0.58% nationwide, according to Bankrate.com. Rates on one-year CDs fell this week to 0.86%, while 5- year CDs fetched 2.04%. Money market funds are paying a pitiful 0.16% on average. The widow that was able to generate a risk free $6,000 only four years ago has only been able to generate less than $500 per year for the last three years. In addition, the government manipulated CPI, as calculated by the drones at the Bureau of Labor Statistics, was used to deny senior citizens an increase in their Social Security payments for the last two years. Meanwhile, the prices of food, fuel, clothing, insurance, medical care, and local taxes have been skyrocketing due to Federal Reserve created inflation. Do you think the number of Americans on food stamps surging from 26.3 million in 2007 to 45.8 million today has anything to do with Bernanke’s zero interest rate, inflationary policies?

This is not a theoretical hypothesis. Ben Bernanke has purposely sacrificed the savers and seniors in this country at the satanic altar of his Wall Street high priests of debt. According to the BEA data on personal income, in the 3rd quarter of 2008 savers and seniors were able to earn $1.42 trillion of interest income. By the 3rd quarter of 2010 these same people were only able to earn $984 billion of interest income due to Ben Bernanke’s zero interest rate policy. Make no mistake about it, the $436 billion difference was taken out of the pockets of senior citizens and Americans trying to save for their futures and deposited into the accounts of the mega-Wall Street banks that destroyed our financial system with their reckless greed induced debt toga party. The beneficiaries of zero interest rates, QE1, QE2, and all future QEs are Wall Street bankers and heavily indebted entities – namely our profligate Federal Government, who make drunken sailors, seem fiscally responsible. The victims of zero interest rates and quantitative easing are savers and risk averse senior citizens as their income has plummeted and inflation has ravaged their everyday existence. Meanwhile, the Wall Street fat cats have paid themselves over $70 billion in bonuses since 2008.

The fantasy world of moderate inflation is a myth created by the Federal Reserve in conjunction with the government bureaucrats in Washington DC. These people have tortured the CPI calculation worse than a Muslim being water boarded at Guantanamo Bay. Alan Greenspan, bubble blower extraordinaire, began the process of systematically screwing grandmothers in the 1980s. As a way to hide and obscure the true level of inflation caused by running endless deficits supporting a welfare/warfare empire, Greenspan and Clinton implemented devious adjustments to the CPI in order to screw senior citizens and allow Big Government to get bigger while stealthily impoverishing the middle class. One man has pulled back the curtain on the Wizards of Inflation to reveal the truth. John Williams at www.shadowstats.com publishes the true rate of inflation as measured in 1980, prior to the fraudulent manipulation of the CPI. The reality is that inflation has not dropped below 5% since 1987 and currently exceeds 10%.

  

John Williams described the Greenspan/Clinton conspiracy to defraud Americans:

“The Greenspan argument was that when steak got too expensive, the consumer would substitute hamburger for the steak, and that the inflation measure should reflect the costs tied to buying hamburger versus steak, instead of steak versus steak. Of course, replacing hamburger for steak in the calculations would reduce the inflation rate, but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that. Over a period of several years, straight arithmetic weighting of the CPI components was shifted to a geometric weighting. The Greenspan benefit of a geometric weighting was that it automatically gave a lower weighting to CPI components that were rising in price, and a higher weighting to those items dropping in price.” 

Now we hear the latest bipartisan plan to “save” Social Security is to alter the CPI again and further defraud Americans by pretending inflation does not exist. Why address a problem when you can obfuscate, misinform and lie? Anyone with critical thinking skills can clearly see that since 2007 real inflation for our widow has ranged between 5% and 10%, while her subsistence level income has been slashed by 26% due to Ben Bernanke’s zero interest rate policy. The good news is our widow will have the peace of mind knowing the price of steak and hamburger hasn’t really risen as she decides on whether to dine on dog food or cat food tonight.

 

“Government spending is always a “tax” burden on the American people and is never equally or fairly distributed. The poor and low-middle income workers always suffer the most from the deceitful tax of inflation and borrowing.” – Ron Paul

 

The Road to Impoverishment & Authoritarianism

There is a direct connection between Federal Reserve policies and the impoverishment of the middle class and seniors. The average American does not appreciate the disastrous consequences of deficit spending and currency devaluation by the Federal Reserve. Ron Paul has been sounding the warning for over a decade, but no one has been listening:

“The greatest threat facing America today is the disastrous fiscal policies of our own government, marked by shameless deficit spending and Federal Reserve currency devaluation. It is this one-two punch– Congress spending more than it can tax or borrow, and the Fed printing money to make up the difference– that threatens to impoverish us by further destroying the value of our dollars.”

It is no longer a threat. It is reality. The chart below tells the story.

The Federal Funds rate was 6.5% when George W. Bush assumed the presidency in 2000. The economy was booming, unemployment was 4.2%, the country was running fiscal surpluses, and the National Debt stood at $5.7 trillion. Alan Greenspan was the Federal Reserve Chairman and had been in that position since 1987. The Federal Funds Rate averaged 5.25% from 1990 through 2000 as the country grew strongly and America came the closest to full employment in its history. In 2001 Greenspan set in motion the creation of a tsunami of debt that swept over the entire country in 2008. The short shallow 2001 recession convinced Greenspan to reduce rates to 1% and keep them below 3% until the middle of 2005. He did this with the full support of his right hand man at the Fed – Ben Bernanke.

“The failure of Chairman Greenspan and other FOMC members to address the fiscal and monetary problems of the United States during his almost two decades at the Fed has left the United States on a trajectory for economic stagnation, hyperinflation, and the attendant political and social costs of such policies.”Chris Whalen Inflated – How Money & Debt Built the American Dream 

Greenspan kept interest rates excessively low three years into an economic recovery, creating the largest bubble in world history. He handed the inflation baton to Bernanke in February 2006 and Ben has been sprinting at top speed for the last five years printing money faster than a Japanese bullet train. With a true rate of inflation running between 5% and 10% during the 2000 through 2011 time frame, market driven interest rates should have been in that same range. But Alan and Ben have kept the Federal Funds rate at an average level of 2.25% over this period. The result has been a consumer debt bubble, housing bubble and now a government debt bubble. Instead of accepting the consequences of excessive liquidity, excessive debt and mal-investment by the Wall Street banks and liquidating the toxic poison from our economic system with the resulting economic depression and losses borne by the stockholders and bondholders of the criminal Wall Street enterprises, Ben Bernanke and Tim Geithner chose to sacrifice the American taxpayer, savers, and seniors to keep their Wall Street masters in their NYC penthouses and Hamptons estates.

The shrieking liberal left blames capitalism and demands more social welfare benefits for their entitled constituents. The fact is we have not had true capitalism in this country since 1913.

“Capitalism should not be condemned, since we haven’t had capitalism. A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank.” – Ron Paul

 

The Day the Dollar Died – August 15, 1971

“With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.” – F.A. von Hayak 

“The road paved with inflation and debt is also the road to authoritarianism.” – Chris Whalen Inflated – How Money & Debt Built the American Dream 

On August 15, 1971, exactly forty years ago this week, Richard Nixon closed the gold window and removed the last vestiges of restraint on politicians and central bankers. Politicians were free to make promises that couldn’t be kept to buy votes and central bankers were free to print fiat dollars and create inflation to support an ever growing warfare/welfare state. On that date the non-manipulated CPI was 40.8. Today, forty years later, the highly manipulated CPI is 225.7, a 553% increase. In reality, true inflation has risen more than 700% since August 1971. Some other facts put this relentless inflation into perspective:

  • GDP has ascended from $1.1 trillion to $15.0 trillion today, a 1,364% increase in forty years.
  • The National Debt has risen from $400 billion to $14.5 trillion, a 3,625% increase in forty years.
  • Total wage income has grown from $588 billion to $6.627 trillion today, a 1,127% increase in forty years.
  • Consumer credit outstanding has accumulated from $141 billion to $2.446 trillion today, a 1,735% increase in forty years.
  • War spending has increased from $95 billion to $966 billion today, a 1,017% increase in forty years. The U.S. was in the midst of the Vietnam War in 1971.
  • Social welfare transfers from the Federal government for Social Security, Medicare, Medicaid, Veterans, and Unemployment increased from $87 billion to $2.305 trillion today, a 2,649% increase in forty years.

These facts prove how twisted and warped our economic system and society have become. Real wages are lower than they were in 1971 as families were forced to put two parents into the workforce forcing children to be raised by strangers, with the resultant social consequences. The corporate media, financial industrial complex and housing industrial complex convinced Americans they had to keep up with the Joneses with new luxury automobiles, extravagant McMansions, and the expensive accoutrements that went along with these representations of fake wealth. The financial plundering of the country by the peddlers of debt on Wall Street could not have happened without the easy money, no regulation policies of the Federal Reserve for the last decade. The National Debt is increasing at a rate of 10% per year while GDP is increasing at a rate of less than 2% per year. Anyone with even the most basic math skills can see this train is going to go off the tracks. Our spending on social welfare benefits has grown at a rate twice as high as our GDP growth for the last forty years and the establishment in Washington has no resolve to address these un-payable promises. The liberals squealed like stuck pigs over the horrific non-cuts in the recent joke debt ceiling compromise. The neo-cons who control the Republican agenda think $1 trillion per year for their war machine is far too little and endangers our very existence. Consumers refuse to accept the reality of their precarious existence balanced on the edge of their 13 credit cards.

Americans of all parties, ages, races, persuasions, education and beliefs have shirked their civic and moral responsibility to future generations. The rampant greed on Wall Street, corruption in Washington DC, shallowness of the American people and cowardice of all in not accepting responsibility for their actions will lead to the end of this country as we know it. There is no courage among the political class in Washington DC to truly take the steps required to save this country from the most predictable cataclysm in history. The politicians and citizens they represent have decided to delegate their civic responsibility to Ben Bernanke. He has tripled the Federal Reserve’s balance sheet by acquiring the toxic mortgage “assets” of the Wall Street banks and buying $600 billion of U.S. Treasuries. The Federal Funds Rate is .07%. His announcement of zero interest rates for two more years proves he has run out of theories and ammo. Jim Rickards, in 2010, pointed out the danger in Bernanke’s reckless policies:

“Fed Chairman Bernanke wakes up every morning and tries to trash the dollar with quantitative easing, zero interest rates and swap lines with the central banks. But it has not been working. The Fed has never taken it to the next step and asked what happens when quantitative easing does not work.”

The utter failure of QE2, hollow Congressional spending “cuts” that will keep the National Debt on track towards $23 trillion by 2021, S&P downgrade and recent plunge in the stock market are the first cracks in the façade of the great American Empire. We have entered a period of institutional crisis and this fiscal spiral will lead us further into the clutches of a more centralized authoritarian form of government unless the people stand up to the junta of mercantilist oligarchs that control this country. Do we want to relinquish our remaining freedoms and liberties for the cloak of corporate fascist authoritarian central planning disguised as safety and security? The Romans chose security over freedom. The time has come to make a choice about what we will become. Ben Franklin stated the obvious two centuries ago:

 Those who would give up Essential Liberty
to purchase a little Temporary Safety,
deserve neither Liberty nor Safety.

– Ben Franklin

 

THE BEST LOOKING HORSE IN THE GLUE FACTORY

“Believe me, the next step is a currency crisis because there will be a rejection of the dollar, the rejection of the dollar is a big, big event, and then your personal liberties are going to be severely threatened.” Ron Paul

As usual the MSM did its usual superficial dog and pony show for the American public on Saturday and Sunday. The overall tone on every show (not journalism) was to calm the audience. Every station had a “downgrade special” to explain why you shouldn’t panic over the downgrade of the United States. As we can see, it didn’t work. Worldwide markets went berserk. The reactions of the various players in this saga have been very enlightening to say the least.

As I watched, listened and read the views of hundreds of people over the last few days, I recalled a statement by David Walker in the documentary I.O.U.S.A. This documentary was made in late 2007 before the financial crisis hit. The documentary follows Walker, the former head of the GAO, and Bob Bixby, head of the Concord Coalition, on their Fiscal Wake Up tour.

In the film, Walker tells the audience: “We suffer from a fiscal cancer. If we don’t treat it there will be catastrophic consequences.” He argued the greatest threat to America was not a terrorist squatting in a cave in Afghanistan, but the US debt mountain. He was nervous about the increasing dependence on countries such as China, which are the biggest holders of US Treasury bonds. Bixby explained: “If you knew a levee was unsound and people were moving into that area, would you do nothing? Of course not.” These men were sounding the alarm when our National Debt was $9 trillion. Evidently, no one in Washington DC went to see the movie. They’ve added $5.5 trillion of debt to our Mount Everest of obligations.

After listening to the shills, shysters, propagandists, and paid representatives of the vested interests over the last few days, Mr. Walker’s response to someone pointing out Europe and other countries were in worse shape than the U.S. came to mind:

“What good does it do to be the best-looking horse in the glue factory?”

At the end of the documentary there was a prestigious panel of thought leaders discussing ideas to alter the country from its unsustainable fiscal path. I was shocked when Warren Buffett basically stated there was nothing to worry about:

“I’m going to be the token Pollyanna here. There is no question that our children will live better than we did. But it’s just like my investments. I try to buy shares in companies that are so wonderful, an idiot could run them, and sooner or later one will. Our country is a bit like that.”

Buffett has since turned into a Wall Street/Washington apologist, talking his book. He declared this weekend the US deserves a quadruple A rating. He has tried to protect his investments in GE, Goldman Sachs, Moodys and Wells Fargo by declaring their businesses as sound and their balance sheets clean. He is now just a standard issue sellout spewing whatever will protect his vast fortune. Truth is now optional in Buffett World.

The Oracle of Omaha has continuously bad mouthed gold and pumped up the economic prospects for the U.S. He trashed gold in his March 2011 report to shareholders:

“Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.”

I guess the leadership of this country has created a bit of fear in the market, as gold has risen from $1,400 to $1,750 and Warren’s beloved financial holdings have tanked, along with the stock price of Berkshire Hathaway (down 23% since March). There seems to be an inverse relationship between the barbarous relic and lying old men shilling for the vested interests.

Vested Interests

When you watch the corporate mainstream media, or read a corporate run newspaper, or go to a corporate owned internet site you are going to get a view that is skewed to the perspective of the corporate owners. What all Americans must understand is everyone they see on TV or read in the mainstream press are part of the status quo. These people have all gotten rich under the current social and economic structure. Buffett, Kudlow, Cramer, Bartiromo, Senators, investment managers, Bill Gross, Lloyd Blankfein, Jamie Dimon, Jeff Immelt, and every person paraded on TV have a vested interest in propping up the existing structure. They are talking their book and their own best interests. Even though history has proven time and again the existing social order gets swept away like debris in a tsunami wave, the vested interests try to cling to their power, influence and wealth. Those benefitting from the existing economic structure will lie, obfuscate, misdirect, and use propaganda and misinformation to retain their positions.

The establishment will seek to blame others, fear monger and avoid responsibility for their actions. Ron Paul plainly explains why the US was downgraded:

“We were downgraded because of years of reckless spending, not because concerned Americans demanded we get our finances in order. The Washington establishment has spent us into near default and now a downgrade, and here they are again trying to escape responsibility for their negligence in handling the economy.”

The standard talking points you have heard or will hear from the vested interests include:

  • Stocks are undervalued based on forward PE ratios.
  • Ignore the volatility in the market because stocks always go up in the long run.
  • Buy the f$%ing dip.
  • America is not going into recession.
  • The market is dropping because the Tea Party held the country hostage.
  • The S&P downgrade is meaningless because they rated toxic subprime mortgages AAA in 2005 – 2007.
  • The market is dropping because the debt ceiling deal will crush the economy with the horrific austerity measures.
  • The S&P downgrade is meaningless because Treasury rates declined after the downgrade.
  • Foreigners will continue to buy our debt because they have no other options.
  • Foreigners will continue to invest in the U.S. because Europe, Japan and China are in worse shape than the U.S.
  • America is still the greatest economy on the planet and the safest place to invest.

Each of these storylines is being used on a daily basis by the vested interests as they try to pull the wool over the eyes of average Americans. A smattering of truth is interspersed with lies to convince the non-thinking public their existing delusional beliefs are still valid. The storylines are false.

Here are some basic truths the vested interests don’t want you to understand:

  • As of two weeks ago the stock market was 40% overvalued based upon normalized S&P earnings and was priced to deliver 3% annual returns over the next decade. The S&P 500 has lost 17%, meaning it is only 23% overvalued. Truthful analysts John Hussman, Jeremy Grantham and Robert Shiller were all in agreement about the market being 40% overvalued. This decline is not a buying opportunity.
  • The S&P 500 was trading at 1,119 on April 2, 1998. The S&P 500 closed at 1,119 yesterday. In March 2000 the S&P 500 traded at 1,527. By my calculation, the stock market is 27% below its peak eleven years ago. As you can see, stocks always go up in the long run. It is just depends on your definition of long.
  • The talking heads on CNBC told you to buy the dip from October 2007 through until March 2009. The result was a 50% loss of your wealth.
  • The government will report the onset of recession six months after it has already begun. People who live in the real world (not NYC or Washington DC) know the country has been in recession for the last seven months. The CNBC pundits don’t want to admit we are in a recession because they know the stock market drops 40% during recessions on average and don’t want you to sell before they do.
  • The stock market held up remarkably well during the debt ceiling fight. It did not begin to plunge until Obama signed the toothless joke of a bill that doesn’t “cut” one dime of spending. The markets realized  the politicians in Washington DC will never cut spending. The National Debt will rise from $14.5 trillion to $20 trillion by 2015 and to $25 trillion by 2021, even with the supposed austere spending “cuts”.

 

  • The left wing media and the frothing at the mouth leaders of the Democratic Party have conducted focus groups and concluded that blaming the extreme, terrorist Tea Party for the stock market crash and the S&P downgrade plays well to their hate mongering ignorant base. They have rolled out their rabid dogs, Joe “gaffe machine” Biden, Howard “AYAHHHHHH!!!” Dean and John “ketchup” Kerry, to eviscerate the Tea Party terrorists.

  • The mainstream liberal media would like you to believe the Tea Party is an actual cohesive group that wants to throw grandmothers and the poverty stricken under the bus. The neo-cons in the Republican Party and their mouthpieces on Fox News have tried to co-opt the Tea Party movement for their purposes. There is no one Tea Party. It is a movement born of frustration with an out of control government. Ron Paul represented the Tea Party before it even existed and is the intellectual leader of the movement. His is the only honest truthful voice in this debate:

“As many frustrated Americans who have joined the Tea Party realize, we cannot stand against big government at home while supporting it abroad. We cannot talk about fiscal responsibility while spending trillions on occupying and bullying the rest of the world. We cannot talk about the budget deficit and spiraling domestic spending without looking at the costs of maintaining an American empire of more than 700 military bases in more than 120 foreign countries. We cannot pat ourselves on the back for cutting a few thousand dollars from a nature preserve or an inner-city swimming pool at home while turning a blind eye to a Pentagon budget that nearly equals those of the rest of the world combined.”

  • S&P’s opinion about any debt should be taken with a grain of salt. They, along with Warren Buffet’s friends at Moodys, were bought and sold by the Wall Street criminal element. Anyone with a smattering of math skill and an ounce of critical thinking would have concluded the U.S. was a bad credit three years ago. A Goldman Sachs trader had this opinion of the brain dead analysts at Moodys: “Guys who can’t get a job on Wall Street get a job at Moody’s.” Michael Lewis, in his book The Big Short, summarized the view of the rating agencies:

“Wall Street bond trading desks, staffed by people making seven figures a year, set out to coax from the brain-dead guys making high five figures the highest possible ratings for the worst possible loans. They performed the task with Ivy League thoroughness and efficiency.”

  • The most laughable storyline spouted by the Democrats and their lapdogs on MSNBC is the extreme austerity measures forced on the country by the Tea Party has caused the stock market to collapse. The plan “cuts” $22 billion in 2012 and $42 billion in 2013. Over this time frame, the Federal government will spend $7.4 TRILLION. The horrific spending “cuts” amount to .86% of spending over the next two years. Meanwhile, we will add at least $3 trillion to the National Debt over this same time frame. Of course, we could listen to Paulie “Spend More” Krugman and add $6 trillion to the national debt with another stimulus package. When a Keynesian solution fails miserably, just declare it would have worked if it was twice the size.
  • Barack Obama, the James Buchanan of our times, gave one of the worst Presidential speeches in the history of our country yesterday. In full hubristic fury he declared the United States of America would ALWAYS be a AAA country. The American Exceptionalism dogma is so very amusing. We are chosen by God to lead the world. Barack should have paid closer attention in history class. The Roman, Dutch, Spanish and British Empires all fell due to their hubris, fiscal mismanagement and overseas military exploits. The American Empire has fallen and can’t get up.

And now we come to the $100 trillion question. The establishment/vested interests/status quo declares the United States as the safest place in the world for investors. They frantically point out that people are pouring money into our Treasuries and interest rates are declining. They hysterically blurt out that Europe has much bigger problems than the U.S. and China’s real estate bubble will implode in the near future. These are the same people who told you the internet had created a new paradigm and NASDAQ PE ratios of 150 in 2000 were reasonable. The NASDAQ soared to 5,000 in early 2000. Today it trades at 2,358, down 53% eleven years later. These are the same people who told you they aren’t making more land and home prices in 2005 were reasonable. They told you home prices had never fallen nationally in our history, so don’t worry. Prices are down 35% and still falling today.

Medicare and Medicaid spending rose 10% in the second quarter of 2011 from a year earlier to a combined annual rate of almost $992 billion, according to the Bureau of Economic Analysis (BEA). The two programs are likely to crack $1 trillion before the end of the year. Medicare’s unfunded liability alone amounts to $353,350 per U.S. household. The National Debt will reach 100% of GDP in the next four months as we relentlessly add $4 billion per day to our Mount Everest of debt. Federal spending in 2007 was $2.7 trillion. Today, they are spending $3.8 trillion of your money. The country does not have a revenue problem. We have a spending addiction and the addict needs treatment. Doctor Ron Paul has our prognosis:

“When the federal government spends more each year than it collects in tax revenues, it has three choices: It can raise taxes, print money, or borrow money. While these actions may benefit politicians, all three options are bad for average Americans.”

The politicians and bankers who control the developed world have made the choice to print money and create more debt as their solution to an un-payable debt problem. Europe, Japan, the U.S., and virtually every country in the world want to devalue their way out of a debt problem created over the last forty years. It has become a race to the bottom, with no winners. Every country can’t devalue their currency simultaneously without blowing up the entire worldwide monetary system. But, it appears they are going to try. The United States will never actually default on its debts. Ben Bernanke will attempt to default slowly by paying back the interest and principal to foreigners in ever more worthless fiat dollars. This will work until the foreigners decide to pull the plug. For now interest rates are low and the U.S. is the best looking horse in the glue factory. But we all know what happens to all the horses in the glue factory – even Mr. Ed.

 “It is true that liberty is not free, nor is it easy. But tyranny – even varying degrees of it – is much more difficult, and much more expensive. The time has come to rein in the federal government, put it on a crash diet, and let the people keep their money and their liberty.” – Ron Paul

QE2 – THE BERNANKE CHRONICLES

Our self proclaimed “expert” on the Great Depression, Ben Bernanke, seems to be feeling the pressure. His theories worked so well when he modeled them in his posh corner office at Princeton. He could saunter down the hallway and get his buddy Krugman to confirm his belief that the Federal Reserve was just too darn restrictive between 1929 and 1932, resulting in the first Great Depression. I wonder if there will be a future Federal Reserve Chairman, 80 years from now, studying how the worst Federal Reserve Chairman in history (not an easy feat) created the Greatest Depression that finally put an end to the Great American Military Empire. Bernanke spent half of his speech earlier this week trying to convince himself and the rest of the world that his extremist monetary policy of keeping interest rates at 0% for the last two years, printing money at an astounding rate, and purposely trying to devalue the US currency, had absolutely nothing to do with the surge in oil and food prices in the last year. Based on his scribbling since November of last year, it seems that Ben is trying to win his own Nobel Prize – for fiction.

His argument was that simple supply and demand has accounted for all of the price increases that have spread revolution across the world. His argument centered around growth in emerging markets that have driven demand for oil and commodities higher, resulting in higher prices. As usual, a dollop of truth is overwhelmed by the Big Lie. Here is Bernanke’s outlook for inflation:

“Let me turn to the outlook for inflation. As you all know, over the past year, prices for many commodities have risen sharply, resulting in significantly higher consumer prices for gasoline and other energy products and, to a somewhat lesser extent, for food. Overall inflation measures reflect these price increases: For example, over the six months through April, the price index for personal consumption expenditures has risen at an annual rate of about 3.5%, compared with an average of less than 1% over the preceding two years. Although the recent increase in inflation is a concern, the appropriate diagnosis and policy response depend on whether the rise in inflation is likely to persist. So far at least, there is not much evidence that inflation is becoming broad-based or ingrained in our economy; indeed, increases in the price of a single product–gasoline–account for the bulk of the recent increase in consumer price inflation. An important implication is that if the prices of energy and other commodities stabilize in ranges near current levels, as futures markets and many forecasters predict, the upward impetus to overall price inflation will wane and the recent increase in inflation will prove transitory.”

So our Federal Reserve Chairman, with a supposedly Mensa level IQ, declares that prices have risen due to demand from emerging markets. He also declares that US economic growth will pick up in the 2nd half of this year. He then declares that inflation will only prove transitory as energy and food prices will stop rising. I know I’m not a Princeton economics professor, but if US demand increases due to a recovering economy, along with continued high demand in emerging markets, wouldn’t the demand curve for oil and commodities move to the right, resulting in even higher prices?

 

Ben Bernanke wants it both ways. He is trapped in a web of his own making and he will lie, obfuscate, hold press conferences, write editorials, seek interviews on 60 Minutes, and sacrifice the US dollar in order to prove that his economic theories are sound. They are not sound. They are reckless, crazy, and will eventually destroy the US economic system. You cannot solve a crisis caused by excessive debt by creating twice as much debt. The man must be judged by his words, actions and results.

November 4, 2010

With the U.S. economy faltering last summer, Ben Bernanke decided to launch a desperate attempt to re-inflate the stock market bubble. The S&P 500 had peaked at 1,217 in April 2010 and had fallen 16% by July. This was unacceptable to Bernanke’s chief clientele – Wall Street and the richest 1% in the country. At Jackson Hole in August he gave a wink and nod to his peeps, letting them know he had their backs. It was safe to gamble again. He’d ante up the $600 billion needed to revive Wall Street. It worked wonders. By April 2011, the S&P 500 had risen to 1,361, a 33% increase. Mission accomplished on a Bush-like scale.

Past Federal Reserve Chairmen have kept silent about their thoughts and plans. Not Bernanke. He writes editorials, appears regularly on 60 Minutes, and now holds press conferences. Does it seem like he is trying too hard trying to convince the public that he has not lost control of the situation? QE2 was officially launched on November 4, 2010 with his Op-Ed in the Washington Post. He described the situation, what he was going to do, and what he was going to accomplish. Let’s assess his success.

“The Federal Reserve’s objectives – its dual mandate, set by Congress – are to promote a high level of employment and low, stable inflation. Unfortunately, the job market remains quite weak; the national unemployment rate is nearly 10 percent, a large number of people can find only part-time work, and a substantial fraction of the unemployed have been out of work six months or longer. The heavy costs of unemployment include intense strains on family finances, more foreclosures and the loss of job skills.” – Ben Bernanke – Washington Post Editorial – November 4, 2010

Ben understands his dual mandate of high employment and low inflation, but he seems to have a little trouble accomplishing it. Things were so much easier at Princeton. Since August 2010 when Ben let Wall Street know he was coming to the rescue, the working age population has gone up by 991,000, while the number of employed Americans has risen by 401,000, and another 1,422,000 people decided to kick back and leave the workforce. That is only $1.5 million per job created. This should get him a spot in the Keynesian Hall of Shame.

The official unemployment rate is rising after Ben has spent $600 billion and stands at 9.1% today. A true measurement of unemployment as provided by John Williams reveals a true rate of 22%.

Any reasonable assessment of Ben’s success regarding part one of his dual mandate, would conclude that he has failed miserably. He must have focused his attention on mandate number two – low inflation. Bernanke likes to call inflation transitory. Inflationistas like Bernanke will always call inflation transitory. His latest proclamations reference year over year inflation of 3.5%. This is disingenuous as the true measurement should be since he implemented QE2. The official annualized inflation since December 2010 is 5.3%. The real inflation rate as calculated exactly as it was in 1980 now exceeds 10%.

  

Mr. Dual Mandate seems to have slipped up. As he stated in his editorial, he wanted to fend off that dreaded deflation:  

“Today, most measures of underlying inflation are running somewhat below 2 percent, or a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth in the long run. Although low inflation is generally good, inflation that is too low can pose risks to the economy – especially when the economy is struggling. In the most extreme case, very low inflation can morph into deflation (falling prices and wages), which can contribute to long periods of economic stagnation.”

He certainly has succeeded in fighting off deflation. Let’s list his anti-deflation accomplishments:

  • Oil prices have risen 35% since September 2010.
  • Unleaded gas has risen 50% since September 2010.
  • Gold has risen 24% since September 2010.
  • Silver has risen 85% since September 2010.
  • Copper has risen 20% since September 2010.
  • Corn has risen 67% since September 2010.
  • Soybeans have risen 40% since September 2010.
  • Coffee has risen by 44% since September 2010.
  • Cotton has risen 88% since September 2010.

Amazing how supply and demand got out of balance at the exact moment that Bernanke unleashed a tsunami of speculation by giving the all clear to Wall Street, handing them $20 billion per week for the last seven months. Another coincidence seemed to strike across the Middle East where the poor, who spend more than 50% of their meager income on food, began to revolt as Bernanke’s master plan to enrich Wall Street destroyed the lives of millions around the globe. Revolutions in Tunisia, Egypt, Libya, Yemen, Bahrain, and Syria were spurred by economic distress among the masses. Here in the U.S., Bernanke has only thrown savers and senior citizens under the bus with his zero interest rate policy and dollar destruction.

Bernanke’s Virtuous Circle

“This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”  Ben Bernanke – Washington Post Editorial – November 4, 2010

Ben Bernanke could not have been any clearer in his true purpose for QE2. He wanted to create a stock market rally which would convince the public the economy had recovered. As suckers poured back into the market, the wealth effect would convince people to spend money they didn’t have, again. This is considered a virtuous cycle to bankers. He declared that buying $600 billion of Treasuries would drive down long-term interest rates and revive the housing market. His unspoken goal was to drive the value of the dollar lower, thereby enriching the multinational conglomerates like GE, who had shipped good US jobs overseas for the last two decades. Bernanke succeeded in driving the dollar 15% lower since last July. Corporate profits soared and Wall Street cheered. Here is a picture of Bernanke’s virtuous cycle:

Chart forTiffany & Co. (TIF)

Whenever a talking head in Washington DC spouts off about a new policy or program, I always try to figure out who benefits in order to judge their true motives. Since August 2010, the stock price of the high end retailer Tiffany & Company has gone up 88% as its profits in the last six months exceeded its annual income from the prior two years. Over this same time frame, 2.2 million more Americans were forced into the Food Stamp program, bringing the total to a record 44.6 million people, or 14.4% of the population. But don’t fret, Wall Street paid out $21 billion in bonuses to themselves for a job well done. This has done wonders for real estate values in NYC and the Hamptons. See – a virtuous cycle.

Do you think Bernanke mingles with Joe Sixpack on the weekends at the cocktail parties in DC? Considering that 90% of the US population owns virtually no stocks, Bernanke’s virtuous cycle only applied to his friends and benefactors on Wall Street.

stock-markets

But surely his promise of lower interest rates and higher home prices benefitted the masses. The largest asset for the vast majority of Americans is their home. Let’s examine the success of this part of his master plan. Ten year Treasury rates bottomed at 2.4% in October 2010, just prior to the launching of QE2. Rates then rose steadily to 3.7% by February 2011. I’m not a Princeton professor, but I think rising rates are not normally good for the housing market. Today, rates sit at 2.9%, higher than they were prior to the launch of QE2.

One-Year Chart for US Generic Govt 10 Year Yield (USGG10YR:IND)

I’m sure Ben would argue that interest rates rose because the economy is recovering and the virtuous cycle is lifting all boats (or at least the yachts on Long Island Sound). Surely, housing must be booming again. Well, it appears that since Ben fired up his helicopters in November, national home prices have fallen 5% and are accelerating downward at an annual rate of 10%. There are 10.9 million home occupiers underwater on their mortgage, or 22.7% of all homes with a mortgage. There are over 6 million homeowners either delinquent on their mortgage or already in the foreclosure process. It certainly looks like another Bernanke success story.

Bernanke’s conclusion at the end of his Op-Ed in November 2010 was that his critics were wrong and his expertise regarding the Great Depression trumped rational economic theory. By enriching Wall Street and creating inflation, his virtuous cycle theory would lead to job creation and a chicken in every pot.

“Although asset purchases are relatively unfamiliar as a tool of monetary policy, some concerns about this approach are overstated. Critics have, for example, worried that it will lead to excessive increases in the money supply and ultimately to significant increases in inflation. But the Federal Reserve has a particular obligation to help promote increased employment and sustain price stability. Steps taken this week should help us fulfill that obligation.” Ben Bernanke – Washington Post Editorial – November 4, 2010

Anyone impartially assessing the success of QE2 would have to conclude that it has been an unmitigated failure and has put the country on the road to perdition. In three weeks, the Federal Reserve will stop pumping heroin into the veins of Wall Street. The markets are already reacting negatively, as the S&P 500 has fallen 6% and interest rates have begun to fall. As soon as Bernanke takes his foot off the accelerator, the US economy stalls out because we never cleaned the gunk (debt) out of the fuel line. Jesse puts it as simply as possible.

“The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.” – http://jessescrossroadscafe.blogspot.com/

Bernanke and his Wall Street masters want to obscure the truth so they don’t have to accept the consequences of their actions. The economy and the markets will decline over the summer. Bernanke is a one trick pony. His solution will be QE3, but it will be marketed as something different. He will appear on 60 Minutes and write another Op-Ed. Ben Bernanke will go down in history as the Federal Reserve Chairman that brought about the Greatest Depression and hammered the final nails into the coffin of the Great American Empire.

2011 – THE YEAR OF CATCH-22

I wrote this on January 3. It was my outlook for 2011. Whenever I think I’m too pessimistic about the world, I go back and read old articles. This article is less than 4 months old and the situation has gotten much worse, much faster than I anticipated. The economy has slowed dramatically, even with the payroll tax cut and Ben’s QE2. I now think the 2nd half of 2011 will be outright recession. Again, my own words prove than I’m actually an optimist compared to what really happens. Think about that the next time you get depressed by one of my articles.

As I began to think about what might happen in 2011, the classic Joseph Heller novel Catch 22 kept entering my mind. Am I sane for thinking such a thing, or am I so insane that asking this question proves that I’m too rational to even think such a thing?  In the novel, the “Catch 22” is that “anyone who wants to get out of combat duty isn’t really crazy”. Hence, pilots who request a fitness evaluation are sane, and therefore must fly in combat. At the same time, if an evaluation is not requested by the pilot, he will never receive one (i.e. they can never be found “insane”), meaning he must also fly in combat. Therefore, Catch-22 ensures that no pilot can ever be grounded for being insane – even if he were. The absurdity is captured in this passage:

There was only one catch and that was Catch-22, which specified that a concern for one’s own safety in the face of dangers that were real and immediate was the process of a rational mind. Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions. Orr would be crazy to fly more missions and sane if he didn’t, but if he was sane, he had to fly them. If he flew them, he was crazy and didn’t have to; but if he didn’t want to, he was sane and had to. Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle. “That’s some catch, that Catch-22,” he observed. “It’s the best there is,” Doc Daneeka agreed. – Catch 22 – Joseph Heller

The United States and its leaders are stuck in their own Catch 22. They need the economy to improve in order to generate jobs, but the economy can only improve if people have jobs. They need the economy to recover in order to improve our deficit situation, but if the economy really recovers long term interest rates will increase, further depressing the housing market and increasing the interest expense burden for the US, therefore increasing the deficit. A recovering economy would result in more production and consumption, which would result in more oil consumption driving the price above $100 per barrel, therefore depressing the economy. Americans must save for their retirements as 10,000 Baby Boomers turn 65 every day, but if the savings rate goes back to 10%, the economy will collapse due to lack of consumption. Consumer expenditures account for 71% of GDP and need to revert back to 65% for the US to have a balanced sustainable economy, but a reduction in consumer spending will push the US back into recession, reducing tax revenues and increasing deficits. You can see why Catch 22 is the theme for 2011.

It seems the consensus for 2011 is that the economy will grow 3% to 4%, two million new jobs will be created, corporate profits will rise, and the stock market will rise another 10% to 15%. Sounds pretty good. The problem with this storyline is that it is based on a 2010 that gave the appearance of recovery, but was a hoax propped up by trillions in borrowed funds. On January 1, 2010 the National Debt of the United States rested at $12.3 trillion. On December 31, 2010 the National Debt checked in at $13.9 trillion, an increase of $1.6 trillion.

The Federal Reserve Balance Sheet totaled $2.28 trillion on January 1, 2010. Today, it stands at $2.46 trillion, an increase of $180 billion.

 

Over this same time frame, the Real GDP of the U.S. has increased approximately $350 billion, and is still below the level reached in the 4th Quarter of 2007. U.S. politicians and Ben Bernanke spent almost $1.8 trillion, or 13% of GDP, in one year to create a miniscule 2.7% increase in GDP. This is reported as a recovery by the mainstream corporate media mouthpieces. On September 18, 2008 the American financial system came within hours of a total meltdown, caused by Wall Street mega-banks and their bought off political cronies in Washington DC. The National Debt on that day stood at $9.7 trillion. The US Government has borrowed $4.2 since that date, a 43% increase in the National Debt in 27 months. The Federal Reserve balance sheet totaled $963 billion in September 2008 and Bernanke has expanded it by $1.5 trillion, a 155% increase in 27 months. Most of the increase was due to the purchase of toxic mortgage backed securities from their Wall Street masters.

Real GDP in the 3rd quarter of 2008 was $13.2 trillion. Real GDP in the 3rd quarter of 2010 was $13.3 trillion.

Think about these facts for one minute. Your leaders have borrowed $5.7 trillion from future unborn generations and have increased GDP by $100 billion. The financial crisis, caused by excessive debt creation by Wall Street and ridiculously low interest rates set by the Federal Reserve, 30 years in the making, erupted in 2008. The response to a crisis caused by too much debt and interest rates manipulated too low was to create an immense amount of additional debt and reduce interest rates to zero. The patient has terminal cancer and the doctors have injected the patient with more cancer cells and a massive dose of morphine. The knowledge about how we achieved the 2010 “recovery” is essential to understanding what could happen in 2011.

Confidence Game

Ben Bernanke, Timothy Geithner, Barack Obama, the Wall Street banks, and the corporate mainstream media are playing a giant confidence game. It is a desperate gamble. The plan has been to convince the population of the US that the economy is in full recovery mode. By convincing the masses that things are recovering, they will begin to spend and buy stocks. If they spend, companies will gain confidence and start hiring workers. More jobs will create increasing confidence, reinforcing the recovery story, and leading to the stock market soaring to new heights. As the market rises, the average Joe will be drawn into the market and it will go higher. Tax revenues will rise as corporate profits, wages and capital gains increase. This will reduce the deficit. This is the plan and it appears to be working so far. But, Catch 22 will kick in during 2011.

Retail sales are up 6.5% over 2009 as consumers have been convinced to whip out one of their 15 credit cards and buy some more iPads, Flat screen TVs, Ugg boots and Tiffany diamond pendants. Consumer non-revolving debt for autos, student loans, boats and mobile homes is at an all-time high as the government run financing arms of GMAC and Sallie Mae have issued loans to anyone that can fog a mirror with their breath. Total consumer credit card debt has been flat for 2010 as banks have written it off as fast as consumers can charge it. The savings rate has begun to fall again as Americans are being convinced to live today and not worry about tomorrow. Of course, the current savings rate of 5.9% would be 2% if the government was not dishing out billions in transfer payments. Wages have declined by $127 billion from the 3rd Quarter of 2008, while government transfer payments for unemployment and other social programs have increased by $441 billion, all borrowed.

  Graph of Personal Saving Rate

Both the government and its citizens are living the old adage:

Everybody wants to get to heaven, but no one wants to practice what is required to get there.

The government politicians and bureaucrats promise to cut unsustainable spending as soon as the economy recovers. The economy has been recovering for the last 6 quarters, according to GDP figures, but there are absolutely no government efforts to cut spending. This is proof that politicians always lie. It will never be the right time to cut spending. Another faux crisis will be used as a reason to continue unfunded spending increases. Having consumer spending account for 70% of GDP is unbalanced and unsustainable. Everyone knows that consumer spending needs to revert back to 65% of GDP and the Savings Rate needs to rise to 8% or higher in order to ensure the long-term fiscal health of the country. Savings and investment are what sustain countries over time. Borrowing and spending is a recipe for failure and bankruptcy. The facts are that consumer expenditures as a percentage of GDP have actually risen since 2007 and Congress and Obama just cut payroll taxes in an effort to encourage Americans to spend even more borrowed money. Catch 22 is alive and well.

The first half of 2011 is guaranteed to give the appearance of recovery. The lame-duck Congress “compromise” will pump hundreds of billions of borrowed dollars into the economy. The continuation of unemployment benefits for 99 weeks (supposedly to help employment) and the 2% payroll tax cut will goose consumer spending. Ben Bernanke and his QE2 stimulus for poor Wall Street bankers is pumping $75 billion per month ($3 to $4 billion per day) directly into the stock market. Since Ben gave Wall Street the all clear signal in late August, the NASDAQ has soared 25%. Despite the fact that there are 362,000 less Americans employed than were employed in August 2010, the mainstream media will continue to tout the jobs recovery. The goal of all these efforts is to boost confidence and spending. Everything being done by those in power has the seeds of its own destruction built in. The Catch 22 will assert itself in the 2nd half of 2011.

Housing Catch 22

Ben Bernanke, an Ivy League PhD who should understand the concept of standard deviation, missed a 3 standard deviation bubble in housing as ironically pointed out by a recent Dallas Federal Reserve report.

Chart 1: U.S. Real Home Prices Returning to Long-Term Mean?

Home prices still need to fall 23%, just to revert to its long-term mean. That is a fact that even Bernanke should be able to grasp (maybe not). Anyone who argues that housing has bottomed and will resume growth either has an agenda (NAR) or is a clueless dope (Bernanke). A new perfect storm is brewing for housing in 2011 and will not subside until late 2012. You may have thought those bad mortgages had been all written off. You would be wrong. There will be in excess of $200 billion of adjustable rate mortgages that reset between 2011 and 2012, with in excess of $125 billion being the dreaded Alt-A mortgages. This is a recipe for millions of new foreclosures.

[SNLCreditSuisse.jpg]

According to the Dallas Fed, in addition to the 3.9 million homes on the market, there is a shadow inventory of 6 million homes that will be coming on the market due to foreclosure. About 3.6 million housing units, representing 2.7% of the total housing stock, are vacant and being held off the market. These are not occasional-use homes visited by people whose usual residence is elsewhere but units that are vacant year-round. Presumably, many are among the 6 million distressed properties that are listed as at least 60 days delinquent, in foreclosure or foreclosed in banks’ inventories.

The coup de grace for the housing market will be Ben Bernake’s ode to Catch 22. In his November 4 OP-ED piece he had this to say about his $600 billion QE2:

“Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance.”Housing sage Ben Bernanke

On the day Bernanke wrote these immortal words 30 Year Mortgage rates were 4.2%. Today, two months later, they stand at 5.0%. This should be a real boon to refinancing and the avalanche of mortgage resets coming down the pike. It seems that money printing and a debt financed “recovery” leads to higher long-term interest rates. The more convincing the recovery, the higher interest rates will go. The higher interest rates go, the further the housing market will drop. The further housing prices drop, the number of underwater homeowners will grow to 30%. This will lead to more foreclosures. Approximately 50% of all the assets on banks books are backed by real estate. Billions in bank losses are in the pipeline. Do you see the Catch 22 in Bernanke’s master plan? The Dallas Fed sees it:

This unease highlights the housing market’s fragility and suggests there may be no pain-free path to the eventual righting of the market. No perfect solution to the housing crisis exists. The latest price declines will undoubtedly cause more economic dislocation. As the crisis enters its fifth year, uncertainty is as prevalent as ever and continues to hinder a more robust economic recovery. Given that time has not proven beneficial in rendering pricing clarity, allowing the market to clear may be the path of least distress. – Dallas Fed

Quantitative Easing Catch 22

Ben Bernanke’s quantitative easing (dropping dollars from helicopters) is riddled with Catch-22 implications. Bernanke revealed his plan in his 2002 speech about deflation:

“The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.”

The expectations of most when reading Ben’s words were that his helicopters would drop the dollars across America. What he has done is load up his helicopters with trillions of dollars and circled above Wall Street for two years continuously dropping his load. Bernanke’s quantitative easing, which will triple the Fed’s balance sheet by June of 2011, began in earnest in early 2009. The price for a gallon on gasoline was $1.62. Today, it is $3.05, an 88% increase in two years. Gold was $814 an ounce. Today, it is $1,421 an ounce, a 61% increase in two years. In the last year, the prices for copper, silver, cotton, wheat, corn, coffee and other commodities have risen in price by 30% to 90%.  

2 year gold price per ounce

Quantitative easing has been sold to the public as a way to avoid the terrible ravages of deflation. The fact is there are less jobs, lower wages, lower home prices, zero returns on bank deposits, higher fuel costs, higher food costs, higher real estate taxes, higher medical insurance premiums and huge jaw dropping bonuses for the bankers on Wall Street. Somehow the government has spun this toxic mix into a CPI which has resulted in fixed income senior citizens getting no increases in their pitiful Social Security payments for two years. You can judge where Ben’s Helicopters have dropped the $2 trillion. Quantitative easing has benefited only Wall Street bankers and the 1% wealthiest Americans. The $1.4 trillion of toxic mortgage backed securities on The Fed’s balance sheet are worth less than $700 billion. How will they unload this toxic waste? The Treasuries they have bought drop in value as interest rates rise. Quantitative easing’s Catch 22 is that it can never be unwound without destroying the Fed and the US economy.

The USD dollar index was at 89 in early 2009. Today, it stands at 79, an 11% decline, which is phenomenal considering that Europe has imploded over this same time frame. Bernanke’s master plan is for the USD to fall and ease the burden of our $14 trillion in debt. He just wants it to fall slowly. Foreigners know what he is doing and are stealthily getting out of their USD positions. This explains much of the rise in gold, silver and commodities. The rise in oil to $91 a barrel will not be a top. The Catch-22 of a declining dollar is that prices of all imported goods go up. If the dollar falls another 10%, the price of oil will rise above $120 a barrel and push the economy back into recession. Then there is the little issue of at what level of printing and debasing the currency does the rest of the world lose its remaining confidence in Ben and the USD.

U.S $ INDEX (NYBOT:DX)

A few other “minor” issues for 2011 include:

  • The imminent collapse of the European Union as Greece, Ireland, Portugal and Spain are effectively bankrupt. Spain is the size of the other three countries combined and has a 20% unemployment rate. The Germans are losing patience with these spendthrift countries. Debt does matter.
  • State and local governments were able to put off hard choices for another year, as Washington DC handed out hundreds of billions in pork. California will have a $19 billion budget deficit; Illinois will have a $17 billion budget deficit; New Jersey will have a $10.5 billion budget deficit; New York will have a $9 billion budget deficit. A US Congress filled with Tea Party newcomers will refuse to bailout these spendthrift states. Substantial government employee layoffs are a lock.

  • There is a growing probability that China will experience a hard landing as their own quantitative easing has resulted in inflation surging to a 28 month high of 5.1%, with food inflation skyrocketing to 11.7%. Poor families spend up to half of their income on food. Rapidly rising prices severely burden poor people and can spark civil unrest if too many of them can’t afford food.
  • The Tea Party members of Congress are likely to cause as much trouble for Republicans as Democrats. If they decide to make a stand on raising the debt ceiling early in 2011, all hell could break loose in the debt and stock markets. 

The government’s confidence game is destined to fail due to Catch-22. Will the consensus forecast of a growing economy, rising corporate profits, 10% to 15% stock market gains, 2 million new jobs, and a housing recovery come true in 2011? No it will not. By mid-year confidence in Ben’s master plan will wane. He is trapped in the paradox of Catch-22. When you start hearing about QE3 you’ll know that the gig is up. If Bernanke is foolish enough to propose QE3 you can expect gold, silver and oil to go parabolic. Enjoy 2011. I don’t think Ben Bernanke will.

“That’s some catch, that Catch-22.” -Yossarian

YEARS OF THE MODERN

Is humanity forming en-masse? for lo, tyrants tremble, crowns grow dim,
The earth, restive, confronts a new era, perhaps a general divine war,
No one knows what will happen next, such portents fill the days and
nights;

Years prophetical! the space ahead as I walk, as I vainly try to
pierce it, is full of phantoms,

Unborn deeds, things soon to be, project their shapes around me,
This incredible rush and heat, this strange ecstatic fever of dreams
O years! – Years of the Modern
– Walt Whitman

The great American poet Walt Whitman wrote these words in 1859. Whitman was trying to peer into a future of uncertainty. He was sure the future would be bleak. He had visions of phantoms. Maybe he saw the 600,000 souls who would lose their lives in the next six years. Whitman had captured the mood of a country entering the Fourth Turning. He didn’t know what would happen, but he felt the beat of war drums in the distance. Whitman did not have the benefit of historical perspective that we have today.

There have been three Fourth Turnings in American History. The American Revolution Fourth Turning ended in 1794 with the Crisis mood easing with the presidency of George Washington. Whitman didn’t realize that, 64 years after the previous Fourth Turning, the mood of the country was ripe for revolution and the sweeping away of the old order. When the stock market crashed in 1929, 64 years after the exhausting conclusion to the Civil War Fourth Turning, Americans didn’t realize the generational constellation was propelling them toward a new social order and a horrific world war. It is now 66 years since the conclusion of the Depression/WWII Fourth Turning. All indications are that the current Fourth Turning began in the 2007 – 2009, with the collapse of the housing market and the ensuing financial system implosion.

I find myself vainly trying to pierce the veil of events yet to be. The future is filled with haunting phantoms of unborn deeds which could lead to renewed glory, untold death and destruction, or the possibly the end of the great American experiment. Walt Whitman captured the change of mood in the country with his poem. History books are filled with dates and descriptions of events, battles, speeches and assassinations. What most people don’t understand is Fourth Turnings aren’t about events, but about the citizens’ reaction to the events.

The Boston Massacre did not start the American Revolution Fourth Turning, but the Boston Tea Party did. John Brown’s attack on Harper’s Ferry did not start the Civil War Fourth Turning, but the election of Abraham Lincoln did. World War I did not start the Great Depression/World War II Fourth Turning, but the 1929 Stock Market Crash did. The 9/11 terrorist attack did not start latest Fourth Turning, but the Wall Street induced housing/financial system collapse did. In each instance, the generations were aligned in a manner that would lead to a sweeping away of the old civic order and a regeneracy with the institution of a new order.   Old Artists disappear, Prophets enter elder hood, Nomads enter midlife, Heroes enter young adulthood—and a new generation of child Artists is born.

 

One hundred and fifty years ago this week Fort Sumter was bombarded by upstart revolutionaries attempting to break away from an overbearing Federal government based in Washington D.C. Exactly four years later the butchery and death concluded dramatically with Robert E. Lee surrendering to Ulysses S. Grant at Appomattox and the assassination of Abraham Lincoln by John Wilkes Booth at Ford’s Theatre. For the next four years we will celebrate the 150th anniversary of various battles that marked the Civil War. What people will not consider are the similarities between that tumultuous period in our history and the period we are in today. Fourth Turnings are marked by different events but the same mood of upheaval, anger and fury.

As Strauss & Howe note in their book, the morphology of a Fourth Turning follows a predictable pattern:

  • A Crisis era begins with a catalyst – a starting event (or sequence of events) that produces a sudden shift in mood.
  • Once catalyzed, a society achieves a regeneracy – a new counter entropy that reunifies and reenergizes civic life.
  • The regenerated society propels toward a climax – a crucial moment that confirms the death of the old order and birth of the new.
  • The climax culminates in a resolution – a triumphant or tragic conclusion that separates the winners from losers, resolves the big public questions, and establishes the new order.

Strauss & Howe describe the normal sequence:

This Crisis morphology occurs over the span of one turning, which (except for the U.S. Civil War) means that around fifteen to twenty-five years elapse between the catalyst and the resolution. The regeneracy usually occurs one to five years after the era begins, the climax one to five years before it ends.

The catalysts are relatively easy to identify, but the point of regeneracy is more subtle and harder to grasp.

Fiery Moment of Death & Discontinuity

“Like nature, history is full of processes that cannot happen in reverse. Just as the laws of entropy do not allow a bird to fly backward, or droplets to regroup at the top of a waterfall, history has no rewind button. Like the seasons of nature, it moves only forward. Saecular entropy cannot be reversed. An Unraveling cannot lead back to an Awakening, or forward to a High, without a Crisis in between. The spirit of America comes once a saeculum, only through what the ancients called ekpyrosis, nature’s fiery moment of death and discontinuity. History’s periodic eras of Crisis combust the old social order and give birth to a new.”Strauss & Howe – The Fourth Turning

 

 

The catalyst for the American Revolution was the Boston Tea Party. The catalyst for the Civil War was the election of Abraham Lincoln. The catalyst for the Great Depression was the 1929 Stock market crash. The catalyst for the current Crisis was the housing/financial system collapse. The catalyst is an event that terminates the brooding mood of the Unraveling and unleashes the fury of a Crisis. The three previous Crisis periods in American history were driven by different events, but similar generational dynamics. By closely examining the dynamics and threats that were facing the country during these previous Crisis periods, we may be able to peer into the murky fog of the future and make out the phantoms of events to come. What we know for sure is every previous Crisis had an economic and fairness dimension that provided the initial spark, triggering a series of events that eventually led to an all encompassing war for survival.

American Revolution – The economic dimension that led to the onset of the American Revolution can be summed up in the rallying cry of the colonists, “No Taxation, Without Representation.”  The British felt that the colonies were created to be used in the way that best suited the crown and parliament. The French & Indian War left the British Empire deeply in debt. They responded by demanding more revenue from the colonies. The British Parliament continued to pass taxation Acts which became increasingly onerous to the independent minded American colonists:

  • Sugar Act – 1764
  • Currency Act – 1765
  • Stamp Act – 1765
  • Townshend Acts – 1767
  • Tea Act – 1773

The increasing levels of taxation and control resulted in the formation of Committees of Correspondence and the Sons of Liberty. Samuel Adams, Thomas Paine and the other firebrands led the movement for independence. The colonists grew increasingly angry with the heavy handedness and harshness of the British Monarchy. These incidents and actions solidified the mood for independence:

  • Quartering Act – 1765
  • Boston Massacre – 1770
  • Intolerable Acts – 1774

As you can see there were years of economic and political turmoil before the Boston Tea Party catalyst event ignited the revolution. The mood of enough citizens had shifted as the generational alignment no longer allowed for compromise. In the end, the increase of economic restrictions and limiting of freedom led to the revolution. As a side note, a Fourth Turning does not need a majority to be initiated. Only one-third of the colonists actively supported the rebellion.

American Civil War – The economic dimension that drove the dynamics of the Civil War related to the Southern agrarian society based upon growing cotton and the rapidly industrializing North with its cities and manufacturing prowess. The invention of the cotton gin led to many more plantations in the South depending solely on cotton to support their way of life. Cotton farming required vast amounts of cheap human labor, and slaves fit the bill. Abolitionists in the North had the moral high ground as Southern plantation owners treated human beings as property. Attitudes became more intense after the publication of  Uncle Tom’s Cabin, the Dred Scott Decision, and the John Brown raid on Harper’s Ferry. The issue of slavery had been boiling beneath the surface since the adoption of the US Constitution. Various compromises had been struck over the years to keep the issue at bay:

  • Missouri Compromise
  • Compromise of 1850
  • Kansas – Nebraska Act

These economic and human rights issues became wrapped in the mantle of states’ rights and the struggle between the Federal government and State governments. The battle reached back to the earliest days of the Republic between Jefferson and Hamilton.  Many felt that the new constitution ignored the rights of states to continue to act independently. They felt the states should still have the right to decide if they were willing to accept certain federal acts. This resulted in the idea of nullification, whereby the states would have the right to rule federal acts unconstitutional. The federal government denied states this right. With the election of Abraham Lincoln, the Southern states saw a man who was against slavery, believed in a strong Federal government, and supporter of the industrial North. The years of compromise were over. The firebrand prophet generation took control in Washington DC and Richmond Virginia. A fight to the finish was unavoidable.

Great Depression/World War II – The economic dimension that drove the onset of this Crisis was the unbridled greed and speculation of Wall Street banks. The easy money policies of the Federal Reserve, formed in secret and voted into existence on Christmas Eve with many members of Congress not present created the Roaring 20’s. While farmers struggled to survive on the drought stricken plains and the average person lived a hard scrabble existence, the banking elite reaped obscene profits, with the top 1% sucking 23.9% of all the national income – the highest level in U.S. history.

The 1920’s were a time of cultural decay, decadence and disillusionment. This mood was reflected in F. Scott Fitzgerald’s The Great Gatsby. As we know too well, every boom eventually goes bust. The bust came in October 1929, with a stock market crash. Stockholders lost $40 billion. The market dropped 89% over a two year period. By 1933, 11,000 of the 25,000 banks in the US had failed. These were mostly small regional banks. The major NY banks such as JP Morgan and Mellon became more powerful. The artificial interference in the economy by the Federal government and Federal Reserve was a disaster prior to the Depression, and government efforts to prop up the economy after the crash of 1929 only made things worse. Passage of the Smoot-Hawley tariffs spread the depression around the world. The economic hardship in Germany led to the election of Adolf Hitler and set the stage for a future war that would kill 65 million people. FDR’s New Deal programs crowded out private industry and resulted in unemployment staying at levels exceeding 15% for an entire decade. Keynesian government spending prolonged the depression and put into place social programs that set in motion the debt bomb that threatens the country today.

Force Advancing with Irresistible Power

I see not America only, not only Liberty’s nation but other nations
preparing,

I see tremendous entrances and exits, new combinations, the solidarity
of races,

I see that force advancing with irresistible power on the world’s stage,
(Have the old forces, the old wars, played their parts? are the acts
suitable to them closed?)

I see Freedom, completely arm’d and victorious and very haughty,
with Law on one side and Peace on the other,

A stupendous trio all issuing forth against the idea of caste;
What historic denouements are these we so rapidly approach?
I see men marching and countermarching by swift millions,
I see the frontiers and boundaries of the old aristocracies broken,
I see the landmarks of European kings removed,
I see this day the People beginning their landmarks, (all others give
way;)

Never were such sharp questions ask’d as this day,
Never was average man, his soul, more energetic, more like a God,

Years of the Modern– Walt Whitman

 

 

Walt Whitman foresaw vast armies on the march and old orders being swept away by the historic denouements that were rapidly approaching. But even he couldn’t have foreseen the butchery and tragic deaths of over 600,000 men in the next four bloody years. The economic dimensions of the current Crisis were foreseeable at least a decade before the Crisis arrived. The Federal Reserve, under the “wise” supervision of former Ayn Rand disciple Alan Greenspan, progressively blew one bubble after another through its easy money policies. The Greenspan Put allowed the Wall Street vampire squids to suck the life out of the American economic system without fear of being harpooned for taking financial system endangering leveraged bets. The financial oligarchs used their influence, power and vast wealth to repeal Glass-Steagall, capture and buy off the rating agencies, neuter the SEC and other regulatory agencies and place their executives in high level government positions. The ruling wealthy elite again matched their peak take of the national income, just as they did in 1928.

The debt, fraud and lack of financial regulation that catalyzed the near collapse of the worldwide financial system in 2008, 63 years after the end of the last Fourth Turning, have not been purged from the system. In fact, those in power have decided more debt, accounting fraud and financial ignorance is the path to recovery for America. The issues which will be the driving forces during this Crisis are clear to anyone with their eyes open:

  • A National Debt the will approach $20 trillion by 2015 and has already surpassed 90% of GDP, the point of no return.
  • Annual deficits exceeding $1.5 trillion and equal to over 10% of GDP.
  • The unfunded promises made by slimy politicians over decades for Medicare, Medicaid and Social Security exceeds $100 trillion and can never be paid.
  • A military industrial complex that controls Congress, is fighting three wars, occupies hundreds of bases throughout the world and spends $1 trillion per year, seven times more than any other country in the world.
  • A financial industry debt peddling complex that has gained control over the government and media to such an extent they have been able to rape and pillage the American people for three decades, convincing regulatory agencies to allow them 40 to 1 leverage, crashing the financial system through a massive mortgage/derivatives fraudulent ponzi scheme, threatening the American people into giving them $4 trillion of taxpayer money, paying themselves hundreds of billions in bonuses for a job well done, and then insisting on lower taxes for their corporations and the rich oligarchs who inhabit these towers of evil in downtown Manhattan.
  • Wealthy elite who use their existing wealth to control Congress, the media and the financial debt peddling industry, abscond with 25% of the national income and control 42% of the financial wealth in the country. At the same time real wages of middle class Americans have been stagnant for 4 decades, real unemployment exceeds 20%, 45 million people need food stamps to make ends meet, and real inflation on the things middle class Americans need hovers around 10%. The gap between the Haves and Have Nots has never been greater.

   

  • The Federal Reserve has boxed itself into a corner and will be unable to extricate itself with its only weapon – the printing press. It has tripled the size of its balance sheet to $2.7 trillion, with at least half of the “assets” consisting of toxic worthless mortgages bought from their Wall Street masters. 0% interest rates for two and a half years, QE1 and QE2, and allowing banks to fraudulently report the value of their loans have failed to jumpstart the economy. Come June of 2011 they will be faced with a dilemma – PRINT or DIE. If they stop buying U.S. Treasury debt, interest rates will go up dramatically. If they keep printing to buy U.S. Treasury debt, the dollar will continue to fall and inflation will accelerate from its already high level.
  • The biggest wildcard among the Fourth Turning catalysts is Peak Oil. The modern industrial world is completely dependent upon cheap accessible oil. Globalization, consumerism, suburban sprawl, food production and distribution, and all means of transportation are dependent upon cheap abundant oil. Peak world oil production has occurred. Demand will outstrip supply going forward at an ever increasing rate. Various levels of chaos will ensue as the realization of this fact becomes evident to everyone.
  • The peak oil scenario will mix with the toxic brew of religion. The centuries old war between Christianity and Islam has been gaining strength over the last three decades. The revolutions spreading across the Middle East will not die down. They will intensify and create havoc for the existing despotic regimes. The new regimes will not be friendly towards the U.S. The combination of peak oil, with the fact that 56% of the world’s oil reserves are controlled by Muslim countries in the Middle East provides an unsettling backdrop for the U.S., which controls less than 2% of the world’s oil reserves.

 

  • The technological complexity and interconnectedness of people across the world is a danger and a possible boon to civilization. Our entire world is dependent upon computers and networks to run our infrastructure, defense, commerce, and everyday lives. Armies, naval ships, and massed confrontation will be made obsolete by cyber warfare. Computer hackers will be able to do more damage to a country in minutes than armies could do in years of traditional warfare. The trillions the US spends on aircraft carriers, fighter jets and tanks will be wasted. The positive side of technology has been realized in its ability to organize people to fight oppression and government propaganda. Likeminded people have been able to use technology to seek and reveal the truth.

The initial stage of this Fourth Turning has run its course. The catalyst was easy to recognize. The issues that confront the nation over the next twenty years are clear. What is completely unclear to me is how our fractured society achieves a regeneracy – a new counterentropy that reunifies and reenergizes civic life. The regeneracy usually occurs one to five years after the Crisis era begins. This means that the country would need to reunify and begin to confront our challenges by 2013. Regeneracy began with the Declaration of Independence during the American Revolution. Regeneracy began with Abraham Lincoln demanding the enlistment of 500,000 men after the Battle of Bull Run. Regeneracy began with FDR’s New Deal programs in 1933 during the Great Depression. What will begin the Regeneracy this time?

Something Wicked This Way Comes 

“Decisive events will occur – events so vast, powerful, and unique that they lie beyond today’s wildest hypothesis. These events will inspire great documents and speeches, visions of a new political order being framed. People will discover a hitherto unimagined capacity to fight and die, and to let their children fight and die, for a communal cause. The Spirit of America will return, because there will be no other choice. Thus will Americans reenact the great ancient myth of the ekpyrosis. Thus will we achieve our next rendezvous with destiny.” – Strauss & Howe – The Fourth Turning

 

The storyline promulgated by the mainstream linear thinking opinion leaders is the economy is recovering, the banking system is sound, the stock market is booming, buying a house is a great investment, inflation is below 2%,  jobs are being created, and consumers have regained their confidence and spending power. This message is hammered home on a daily basis by the corporate run mainstream media. It is patently false and the thinking members of the American public know it. The economic condition of the country is rapidly deteriorating. While politicians posture and lie to the citizens, the fissures in our financial system grow wider. As of today, regeneracy and unification behind one common national purpose seems light years away. Strauss & Howe speculated in 1997 about potential events that could spur events during the next Fourth Turning. One of their possible scenarios looms in the near future:

  • An impasse over the federal budget reaches a stalemate. The president and Congress both refuse to back down, triggering a near-total government shutdown. The president declares emergency powers. Congress rescinds his authority. Dollar and bond prices plummet. The president threatens to stop Social Security checks. Congress refuses to raise the debt ceiling. Default looms. Wall Street panics. 

The event necessary to cause a regeneracy in this country will need to be on an epic scale. Based upon a review of the foreseeable issues confronting our society it is clear to me that a worse financial implosion will strike before the 2012 presidential election. It may be triggered by a debt ceiling confrontation, the ending of QE2, a panic out of the USD, hyperinflation, a surge in oil prices, or some combination of these possibilities. The ensuing collapse of the stock and bond markets will remove the last vestiges of trust in the existing financial system and the government bureaucrats who have taken taxpayer dollars and funneled them to these Wall Street oligarchs.

The economic chaos will likely lead to a Republican landslide in the 2012 election. A Boomer Prophet with a reputation for fixing financial disasters (aka Mitt Romney) would be given a mandate to fix the economic system. All generations will realize that generational promises made cannot be fulfilled. People of a libertarian mindset, like me, will not be happy with the turn of events. In a chaotic scenario, the Federal government is likely to assume even more power than they have today. The American people will be fearful and angry. If the financial criminals on Wall Street are brought to justice, the chances of a unified populace will increase. A drop in everyone’s standard of living would be acceptable, as long as the rich shared equally in the burden. If the super wealthy oligarchs retain their power, a fracturing along class lines would become a distinct possibility. Social unrest, riots, and violent protests along the lines of the current situation in the Middle East could develop. Then a question of military use against the civilian population becomes paramount to what would happen next.

Amidst the financial chaos will be the ever present peak oil issue. The increasingly high prices and imminent shortages of supply will exacerbate the pain for the American people. The current War on Terror is really a cover for keeping American troops in the Middle East as a forward vanguard to keep the oil flowing. The U.S. consumes 7 billion barrels of oil per year and will use all means necessary to keep it flowing. With a Boomer Prophet leader invoking American manifest destiny, it is likely we will intervene to protect Saudi Arabia, Iraq, and Kuwait in the name of democracy. A terrorist incident in the U.S. would provide convenient cover for further intervention in the Middle East. As with most wars the unintended consequences will overwhelm the best laid plans of politicians and generals. Further U.S. intervention into an already exploding Middle East will likely spur a larger conflict between Islam and Christianity. Ground zero could shift to Europe as millions of Muslims have settled there and will not react positively to western powers siphoning oil from Islamic countries in the name of Christianity. History has taught us that Fourth Turnings end in all out war. The outcome of wars is always in doubt. 

“History offers more sobering warnings: Armed confrontation usually occurs around the climax of Crisis. If there is confrontation, it is likely to lead to war. This could be any kind of war – class war, sectional war, war against global anarchists or terrorists, or superpower war. If there is war, it is likely to culminate in total war, fought until the losing side has been rendered nil – its will broken, territory taken, and leaders captured. And if there is total war, it is likely that the most destructive weapons available will be deployed.” – Strauss & Howe – The Fourth Turning

“Each of the last three American Crises produced moments of extreme danger: In the Revolution, the very birth of the republic hung by a thread in more than one battle. In the Civil War, the union barely survived a four-year slaughter that in its own time was reagrded as the most lethal war in history. In World War II, the nation destroyed an enemy of democracy that for a time was winning; had the enemy won, America might have itself been destroyed. In all likelihood, the next Crisis will present the nation with a threat and a consequence on a similar scale.” – Strauss and Howe – The Fourth Turning

It may be 150 years since Walt Whitman foresaw the imminent march of armies, visions of unborn deeds, and a sweeping away of the old order, but history has brought us right back to where we started. Immense challenges and threats await our nation. Will we face them with the courage and fortitude of our forefathers? Or will we shrink from our responsibility to future unborn generations? The drumbeat of history grows louder. Our rendezvous with destiny beckons.