P FOR PANDEMIC

“People should not be afraid of their governments. Governments should be afraid of their people.” – Alan Moore – V for Vendetta

Coronavirus is close to becoming a pandemic, WHO warns - The ...

“Authority, when first detecting chaos at its heels, will entertain the vilest schemes to save its orderly facade.” – Alan Moore – V for Vendetta

I wrote an article called V for Vendetta – 2011 just over nine years ago on the day after the Tucson shooting where congresswoman Gabrielle Giffords and eighteen others were shot by a psychologically disturbed lunatic, with six dying. At the time, I thought of the scene from the V for Vendetta movie where someone did something stupid and all hell broke loose. I expected a similar result from this act, but those in control of our society were successfully able to put a cork in the bottle, preserving their façade of order.

We learned shortly thereafter, through the patriotic efforts of Edward Snowden and Julian Assange, how the government was using the vilest of schemes to surveil every American through their abuse of the Patriot Act. The government has become an enemy of the people.

The Immelman Turn » Blog Archive » Giffords Assassination Attempt

It is interesting to go back and view my conclusion from nine years ago and assess its accuracy as of today:

“This country has not reached the level of control and fear seen in Orwell’s 1984 and V for Vendetta, yet. We are moving relentlessly in that direction. Surveillance, monitoring, spying, censorship, secret prisons, predator drones, and conforming to state rules and regulations put citizens further under the thumb of an all-powerful state. The freedom to dissent, the freedom to be left alone, the freedom to speak out against injustice, the freedom to disagree with your government, and the freedom to present your ideas without fear of retribution or penalty are essential in a democratic society.

The next phase of this Fourth Turning will surely include another downward spiral in financial markets as un-payable debts accumulate to a tipping point level. When ATM machines stop spitting out twenties, food shelves are bare and gas stations are shuttered, social chaos will ensue. The government will react with further command and control measures. In V For Vendetta, the government creates a terrorist incident in order to gain unquestioned control over the population. Americans will need to be more vigilant than they have been over the last ten years in keeping an eye on their government.”

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STEVE EISMAN: SMART, LUCKY, ABRASIVE & NOW ONE OF THEM

I loved Michael Lewis’ book – The Big Short – about the 2008 Wall Street created global financial catastrophe, that is still impacting the little guys on Main Street eight years after it was supposedly resolved by Paulson, Bernanke and Obama. I even wrote an article about it called The Big Short: How Wall Street Destroyed Main Street. I also loved one of the main characters in the book – Frontpoint Partners hedge fund manager Steve Eisman – a foul mouthed, highly skeptical, open minded guy who figured out the fraudulent subprime mortgage scheme and shorted the crap out of the derivatives backing the fraud, making hundreds of millions in the process.

I had the opportunity to attend a 90 minute talk by Steve Eisman last night where he discussed the financial crisis, the response by the Fed and government, and the future for the financial industry. My perception of him, based on the book and movie, was he was a cantankerous asshole who didn’t care what anyone thought about him. My perception matched what I experienced. He was dropping f-bombs, insulting the institution hosting his talk, making fun of business school students (he graduated with a liberal arts degree) and dismissing any question he found to be stupid.

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THE DAY THE SPINELESS FASB ACCOUNTANT WEENIES AGREED TO ALLOW WALL STREET BANKS TO REPORT FRAUDULENT FINANCIAL STATEMENTS

The captured corporate MSM is celebrating the six year anniversary of when the stock market bottomed in March 2009. They will spin a false narrative of Bernanke, Obama and Geithner saving the world with TARP, QE, and the $800 billion Porkulus bill. What great heroes. Bernanke now gets $300,000 for a lunchtime speech at Bank of America gatherings. He is raking in north of $10 million per year now. He made $200,000 per year as the Fed Chairman. His wisdom must be on par with Jesus Christ to get $300,000 for a one hour speech. Bernanke’s Sermon on the Mount tour:

The millions he is getting paid by the Wall Street banks for speeches isn’t a payoff. Right?

Bernanke and Geithner stopped the market from falling in March 2009 by threatening the accounting geeks at the FASB and forcing them to allow fraudulent reporting by the insolvent Wall Street banks. The crisis ended – precisely – on March 16, 2009, when the Financial Accounting Standards Board abandoned FAS 157 “mark-to-market” accounting, in response to Congressional pressure from the House Committee on Financial Services and threats from Bernanke and Geithner on March 12, 2009. That change immediately removed the threat of widespread insolvency by making insolvency opaque. Mark to fantasy was born. Profits for everyone!!!

The fix was in. Every Wall Street bank was insolvent in March 2009. Citicorp and Bank of America were dead. There were hundreds of billions in worthless toxic mortgage securities, derivatives, auto loans, and credit card debt sitting on their books. FAS 157 required them to price those assets at what they could sell them for in the market. You remember free market capitalism? Something is worth whatever an independent party is willing to pay. The fat cats love free market capitalism when they are making billions. Not so much when they blow up the financial system and are faced with the consequences of THEIR actions.

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IT AIN’T OVER ‘TIL IT’S OVER

It ain’t over until it’s over. The lows were not reached in 2009. Central bank manipulations and schemes temporarily delayed reaching a true bottom. They have failed. A true secular bottom would be 60% to 80% below today’s levels. Are you prepared for that? That would put the Dow at 7,000 or below. Do you think that is impossible? It was trading at 6,500 in March of 2009. If Bernanke and Geithner hadn’t forced the FASB to allow Wall Street bankers to value their worthless assets as if they were worth 100 cents on the dollar, the 4,000 secular low would have been reached. Now we will pay the price with a far worse scenario. The Fed has shot their load. Fourth Turnings are relentless and nasty.

Are We About to Enter a Secular Bear Market?

Guest Post by Chris Hunter


Wall_Street_bubbles_-_Always_the_same_-_Keppler_1901_1

Source: wikimedia

Today’s chart, from the folks at Crestmont Research, speaks volumes about current investor behavior.

In particular, it calls into question claims being bandied about in the mainstream media that we could be at the start of a new secular bull market in US stocks.

It shows that previous secular (long-term) bear market cycles tend to start when the US stock market is trading on a Shiller P/E – a price-to-earnings ratio is based on average inflation-adjusted earnings from the previous 10 years – of between 20 and 25 (blue-shaded area on the chart).

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FASCIST U.S. GOVERNMENT DOLES OUT RETRIBUTION TO ENEMIES OF THE STATE

Spying on every U.S. citizen. Conducting military exercises in major U.S. cities. Shutting down the 20th largest city in America and breaking into the homes of citizens. Arming local police forces with military level weapons. Using the IRS and other government agencies to dole out retribution to dissenters. Attempting to disarm the populace. And now carrying out vendettas against companies that tell the truth about the government financial disaster. We slowly but surely descend into a totalitarian surveillance state.

Geithner Warned S&P Chairman US Would Retaliate For Downgrade

Tyler Durden's picture

Who can forget Tim Geithner’s historic interview from April 2011, in which he said:

Peter Barnes “Is there a risk that the United States could lose its AAA credit rating? Yes or no?”

 

Geithner’s response: “No risk of that.”

 

“No risk?” Barnes asked.

 

“No risk,” Geithner said.

Considering that the US was downgraded by S&P just 4 months later, one person who certainly will never forget his idiotic preannouncement, is the former Treasury secretary, Tim Geithner. And being the sore loser that everyone suspected he was (although one hopes his recent well-paid move to Warburg Pincus will help soothe his sensitivity) it will come as no surprise that Geithner told the Chairman of embattled rating agency Standard & Poor’s, that its downgrade of the US from AAA to AA+ “would be met by a response.

From Bloomberg:

S&P filed a declaration of McGraw yesterday in federal court in Santa Ana, California, as part of a request to force the U.S. to hand over potential evidence the company says will support its claim that the government filed a fraud lawsuit against it last year in retaliation for its downgrade of the U.S. debt two years earlier.

 

In his court statement, McGraw said Geithner called him on Aug. 8, 2011, after S&P was the only credit ratings company to downgrade the U.S. debt. Geithner, McGraw said, told him that S&P would be held accountable for the downgrade. Government officials have said the downgrade was based on an error by S&P.

 

“S&P’s conduct would be looked at very carefully,” Geithner told McGraw according to the filing. “Such behavior would not occur, he said, without a response from the government.”

 

The Justice Department last year accused S&P of lying about its ratings being free of conflicts of interest and may seek as much as $5 billion in civil penalties. The government alleged in its Feb. 4, 2013, complaint that S&P knowingly downplayed the risk on securities before the credit crisis to win business from investment banks seeking the highest possible ratings to help sell the instruments.

None of this somces as a surprise, and it has been well-known for a long time that the only reason the US Department of Injustice targeted only S&P and not Moody’s or Fitch for their crisis era ratings of mortgages is precisely due to Geithner’s vendetta with S&P. Of course, this kind of selective punishment simply means that nobody else will dare to touch the US rating ever again, or speak badly against the sovereign in a public medium for fears of retaliation.

Naturally, while this means that the credibility of the rating agencies is now non-existent even among the head in the sand groupthink, what is worse is observing the US’ slide into the kind of totalitarian, 1st Amendment quashing tactics that worked out so well for all previous fascist regimes.

2012 – YEAR OF LIVING DANGEROUSLY IN REVIEW

On January 8 of this year I posted my annual prediction article for this year – 2012 – The Year of Living Dangerously. Now it’s time to assess my complete and utter cluelessness when it comes to predicting things within a given time frame. Despite the fact that myself and everyone else acting like they know what lays ahead are proven wrong time and time again, we continue to make predictions about the future. It makes us feel like we have some control, when we don’t. The world is too complex, too big, too corrupt, too lost in theories and delusions, and too dependent upon too many leaders with too few brains to be able to predict what will happen next. This is the time of year when all the “experts” will be making their 2013 predictions. I haven’t seen too many of these experts going back and honestly assessing their 2012 predictions, which didn’t happen.

What I’ve learned is that “experts” usually have an agenda. Their predictions are designed to convince you to buy the stocks they recommend or purchase their newsletter. Many of these “experts” work for Wall Street, the corporate MSM, a political party or corporate interest. Half of the “experts” represent the status quo and want the masses to think everything is just fine and will steadily improve. The other half are fear mongers that want to scare you into buying their products with predictions of impending collapse at any moment. I like to read the predictions of a wide variety of pundits, bloggers, and so called journalists, while understanding they probably have an agenda.

Personally, I try to make my predictions based on the facts I observe and try to gather. My agenda is to prepare my family for whatever these facts tell me is likely to happen. My website is just a place for me to post my thoughts. I don’t depend upon it for a living and I have nothing to sell. That doesn’t mean that my biases, hopes, and desires do not color my predictions. As I reread my article yesterday, I found myself thinking, “when is this long winded gasbag going to actually make some predictions?” My article was supposed to make 2012 predictions but ended up trying to tie 2012 into the Fourth Turning Crisis paradigm. When I eventually got to the predictions, I realized that a monkey throwing darts could have done just as well. If I was one of those “experts”, I’d say that I wasn’t wrong, I was just early. Of course, that is a cop-out. Being early is the same as being wrong.

I’m more interested in why I was wrong. It seems I always underestimate the ability of sociopathic central bankers and their willingness to destroy the lives of hundreds of millions to benefit their oligarch masters. I always underestimate the rampant corruption that permeates Washington DC and the executive suites in mega-corporations across the land. And I always overestimate the intelligence, civic mindedness, and ability to understand math of the ignorant masses that pass for citizens in this country. It seems that issuing trillions of new debt to pay off trillions of bad debt, government sanctioned accounting fraud, mainstream media propaganda, government data manipulation and a populace blinded by mass delusion can stave off the inevitable consequences of an unsustainable economic system. But enough excuses. Let’s see how wrong I was:

  • All the episodes which will occur in 2012 will have at their core one of the three elements described by Strauss & Howe in 1997: Debt, Civic Decay, or Global Disorder.

This was a generic prediction. Those are a lot easier to take credit for as being right. Considering the country is about to go over the fiscal cliff, I’d say that debt has had a major impact in 2012. The disgusting political campaign, the anger over efforts to ban guns, urban violence, 20% of nation on food stamps, and real unemployment rate of 23% certainly prove that civic decay is accelerating. Uprisings in Egypt, Syria and across the Middle East intensified. Israel and Iran got closer to inevitable war. Japan and China are on the verge of conflict. The U.S. is still bogged down in Afghanistan and has failed miserably in efforts to democratize the Middle East. I’d say we have had a bit of global disorder.

  • At best, the excessive levels of sovereign debt will slow economic growth to zero or below in 2012. At worst, interest rates will soar as counties attempt to rollover their debt and rolling defaults across Europe will plunge the continent into a depression.

The best case scenario for European bankers and politicians came to pass in 2012. The GDP for the European Union went negative in the 3rd quarter of 2012. The southern European nations are experiencing depression level conditions with soaring unemployment, social unrest, and higher interest rates. But even Germany is experiencing a dramatic slowdown. The bankers continue to call the shots, with various debt schemes designed to keep the bankers whole, while throwing the people to the wolves. They have postponed the day of reckoning, but it is coming. They do not have a liquidity problem. They have a solvency problem. You cannot resolve a debt problem by creating more debt.

  • The truth that no one wants to acknowledge is the standard of living for every person in Europe, the United States and Japan will decline. The choice is whether the decline happens rapidly by accepting debt default and restructuring or methodically through central bank created inflation that devours the wealth of the middle class. Debt default would result in rich bankers losing vast sums of wealth and politicians accepting the consequences of their phony promises. Bankers and politicians will choose inflation.

This was an easy one. Bankers and politicians will never choose pain for themselves when they can shift it to the people. Bernanke and the rest of the world’s central bankers, in cooperation with their captured politicians, have chosen to inflate the debt away by printing money. They trust in the shallowness and ignorance of the masses to not notice as their standard of living steadily declines.

Controlling the distribution of data allows the oligarchs to falsify the true level of inflation and the corporate MSM dutifully spews the propaganda to the masses.

  • The European Union will not survive 2012 in its current form. Countries are already preparing for the dissolution. Politicians and bankers will lie and print until the day they pull the plug on the doomed Euro experiment.

I was 100% wrong in this assessment. The politicians and bankers are most certainly lying, but they have succeeded in keeping the EU intact. The dissolution would imperil too many bankers. Whether they can keep it intact through 2013 is another question.

  • The National Debt will be $16.5 trillion when the next president takes office in January 2013.

Barack Obama will be inaugurated on January 20, 2013. As of December 26, 2012 the National Debt stood at $16.34 trillion and according to Turbo Tax Timmy will hit the debt limit of $16.4 trillion on December 31. He will use accounting gimmicks and not fund government pensions to not exceed the limit, but the debt will continue to accumulate at a rate of $3.5 billion per day. The National Debt will be at approximately $16.47 trillion when Obama starts his 2nd term. Close enough for government work.

  • As debt servicing grows by the day, the economy losses steam. The excessive and increasing debt levels will lead to a renewed recession in 2012.

Despite the fact that the government and corporate media continue to report economic growth and a barely positive GDP, a recession did begin this past summer. Using a true level of inflation, GDP has been negative since 2006.

The horrific Christmas retail sales and declining corporate profits reveal the truth. Fourth quarter GDP will be negative and the government will eventually adjust the prior quarters lower. Excel spreadsheet models, fake inflation figures and seasonal adjustments cannot deny reality or the facts.

  • As foreclosures rise a self-reinforcing loop will develop. Home prices will fall as banks dump houses at lower prices, pushing millions more into a negative equity position. Home prices will fall another 5% to 10% in 2012, with a couple years to go before bottoming. 

Another 100% wrong prediction. I again underestimated the willingness of corrupt Wall Street bankers, in cahoots with the Federal government, to fraudulently boost home prices by withholding foreclosures from the market and creating a fake housing shortage. The Feds have willingly used Fannie, Freddie and the FHA to guarantee more bad mortgage loans and put the taxpayer further on the hook for the billions of bad debt. Bennie has swooped in and bought up billions of toxic mortgage debt from the criminal Wall Street banks, while driving mortgage rates to record low levels. With this massive intervention, they have managed to increase home prices by 4% and increase home sales to levels 60% below the peak. Job well done.

  • The working age population will increase by 1.7 million, the number of people employed will go up by 1 million, but the official unemployment rate will drop to 7% as the BLS reveals that 10 million people decided to relax and leave the workforce. Surely I jest. The government manipulated unemployment rate will rise above 9%, while the real rate will surpass 25%.

I made what I thought was an outrageous prediction as an attempt at humor, but my outrageous prediction was closer to the truth. The working age population has grown by 3.7 million people, the number of employed people has gone up by only 2.7 million, 2.4 million people decided to kick back and leave the workforce, resulting in the unemployment rate “plunging” from 8.7% to 7.7%.

Measuring unemployment on par with the method used during the 1930s would put the level at 23% today. But you should trust the BLS. Why would they lie?

  • Ben Bernanke, Wall Street shysters and Barack Obama want you to be drawn in by the allure of short-term gains based on hopes of QE3. The stock market will be volatile in 2012 with stocks falling 20% when it becomes evident the country is going back into recession. Ben will try to ride to the rescue with QE3 as he buys up more toxic mortgage debt. Wall Street will do their usual touchdown dance celebration, but the bloom will fall off this rose fast, as quantitative easing has proven to be a failure in stimulating economic growth.Gridlock in Washington D.C., chaotic national conventions, and the implosion of Europe will contribute to the market finishing down by at least 15% for the year.

I hope you didn’t follow my stock market advice as it looks like I missed by only 25% or 30% with this prediction. It is amazing what zero interest rates for Wall Street banks, QE to infinity, high frequency trading supercomputers, and fake Wall Street earnings can do for a stock market. Since the recession has not been acknowledged and rigged corporate profits still sit near their peak, the stock market has continued to rise. I applaud the oligarchs for their ability to extract every last dime from the pockets of the middle class in their avaricious plundering of America. Bernie Madoff is proudly admiring their work from his prison cell.

  • The average price of oil will exceed $100 during 2012 resulting in the highest average gas price in history for American drivers. These high prices, along with various weather related issues will keep food prices elevated, with 5% or higher increases likely. This should spur a few more peasant revolutions around the globe.

I nailed this prediction. Americans paid the highest average price for a gallon of gasoline in history during 2012. Agricultural commodities like corn, wheat and soybeans soared by 7% to 20%, as the high oil prices and drought drove food prices higher. Meat prices will rise in 2013 as herds had to be thinned in 2012 because of the high feed costs. But don’t worry. The BLS will just adjust the food inflation away as they assume you switch from hamburger to cat food.

  • Gold will finish the year higher. As always, it will be volatile and manipulated by the powers that be. A drop below $1,500 in the beginning of the year is possible, but when Ben announces QE3, it will be off to the races. I expect gold to reach $1,900 by year end. Silver will be more volatile, but will likely reach $40 by year end.

Gold will finish the year higher for the twelfth consecutive year. It was volatile, with a high of $1,796 and a low of $1,527. It will finish the year in the mid $1,600s. Silver was equally volatile, but also up for the year. It ranged between $37.50 and $26. It will finish the year in the $30 range. The powers that be know that rising gold and silver prices reveal their deceitful inflationary master plan, so they use all of their market manipulative powers to suppress the prices of these metals. The higher our debt, the higher their prices will go. When the confidence game is revealed to be a Ponzi scheme, the prices of gold and silver will be unleashed.

  • Old line mall based retailers like Sears and J.C. Penney die a slow agonizing death as they stagger into the sunset like Montgomery Ward, Circuit City and thousands before them. 

I was wrong about JC Penney. They are dying a fast agonizing death as the idiot savant from Apple has driven them straight into the ground, with sales plunging by 26% versus last year. It isn’t a matter of if, but when this employer of 159,000 declares bankruptcy. The “brilliant” (Jim Cramer says so) Eddie Lampert has Sears on a glide path to liquidation. This Christmas season will reveal these CEOs to be frauds.

  • The Occupy Movement will become more extreme with more disruptions of the economic system with less warning so the authorities don’t have time to prepare. I expect more cyber hacking into Wall Street, government, and media computer networks, causing disarray and uncertainty regarding financial information. I expect the Democratic and Republican presidential conventions to be overrun by protestors. The authorities will respond with excessive force, resulting in further violent protests in other cities.  

Another 100% miss. The Occupy Movement splintered and petered out after being brutally dismantled by the armed mercenaries of the status quo. There were some cyber-attacks, but they caused minimal disruption. The masses are satiated with their techno-gadgets and reality TV shows. No one protested. No one cared.

  • The Federal government grows ever more panicked by the knowledge that its Ponzi scheme economy is going to collapse. This is why passage of the NDAA and the future passage of SOPA are so important to them. Imprisonment of citizens without charge and shutting down the only remaining means of truth – the Internet – are essential to retaining their power and control over the masses. At the same time, gun sales are at record levels. Critical thinking Americans can see the writing on the wall and no longer trust corrupt politicians of either party. Arming yourself and buying physical gold and silver is a prudent act in today’s world.

The outrage over SOPA, led by the alternative online media, stopped it from being passed. The tyrants continue their efforts to suppress free speech on the internet, as Facebook shuts down pages that do not conform to the corporate fascist government agenda. Gun sales are off the charts, as critical thinking people no longer trust the corrupt government. Physical gold and silver sales are soaring as critical thinking people no longer trust our corrupt economic system.

  • The ruling elite hand selected puppets for the 2012 presidential election are Obama and Romney. They are virtually interchangeable and both are acceptable to the Wall Street oligarchs. The monkey wrench in the gears is Ron Paul. He will run as a 3rd Party candidate and focus a light on the crony capitalism that passes for free markets in America today. He will be vilified by both parties and their media mouthpieces, but if he gains traction I fear an unfortunate accident will befall him. Either way, he will have a dramatic impact on the debate and the outcome of the 2012 election.

With this prediction I allowed my hope to overcome reason. The oligarchs are too powerful. Ron Paul’s grassroots campaign made the oligarchs extremely uncomfortable. He drew huge crowds of young people on college campuses across the country. His message of liberty and freedom resonated with millions, but he was no match for the billionaires that call the shots in this country. He was silenced by the Republican establishment and chose not to run as a 3rd party candidate. The puppet on the left won the election. The puppet on the right retreated to one of his six mansions. Ron Paul rode off into the sunset knowing he gave it his best shot.

  • It seems more likely by the day that someone will do something stupid in or around Iran and the Persian Gulf will explode into a virtual hell on earth. The unintended consequences of such a development will far outweigh the intended consequences. The revolutions, protests, and brewing civil wars in Egypt, Syria, Libya and Iraq will flare up even if Iran doesn’t explode into a shooting war. The tensions in the Middle East will keep oil prices above $100, despite a world plunging into recession.

The showdown between Israel and Iran did not happen in 2012, despite increasingly angry rhetoric. The stealth war with Iran began, as economic sanctions and cyber warfare have begun to destroy their economy and impoverish their people. Revolutions, riots, protests and civil war spread across the Middle East throughout 2012 resulting in high oil prices and a worldwide economic contraction which is picking up speed as 2012 comes to a conclusion.

  • China’s hard landing will arrive in 2012. Keynesianism on steroids has failed as they’ve built more than enough vacant malls, vacant cities, vacant condo towers, and bridges to nowhere. Property prices will plunge, exports will decline, and peasants will revolt as food and energy prices push them over the edge.

China has come in for a hard landing. With a government more corrupt than even ours, their reported economic data would make a BLS drone blush with pride. Property prices are falling. Exports are falling. But somehow they report economic growth of 7%. And the MSM dutifully reports this gibberish as truth. Unrest and protests are a daily occurrence in China, but they are immediately crushed. The Chinese authorities continue to clamp down on the internet and media. China’s economic system is a rotting Keynesian nightmare.

I also raised the generic possibilities of earthquakes, hurricanes, pandemics and terrorist attacks. I noted that a terrorist attack in a public venue might cause a government over-reaction. Even though the slaughter of young school children by a deranged mental defective doesn’t constitute a terrorist attack, the reaction by government officials and their liberal control freak allies in the mainstream media are exactly what I feared. Every tragedy is used to gain more control over our lives and take away our Constitutional rights in the name of safety and security. The ignorant masses willingly give up their freedom and liberty, believing their Orwellian government protectors will look out for them. As we enter 2013, time grows shorter. The power hungry psychopaths continue to pillage and plunder. Our unsustainable economic system struggles under the weight of debt, despair and delusion as the endgame approaches. The willfully ignorant populace is lost in their techno-narcissistic dream world.

Will 2013 be the year it all collapses in a flaming heap of rubble? I don’t know. Maybe you should ask an “expert”.

It guarantees to be an interesting year. I’ll be hiring Bonzo the chimp to help me make my 2013 predictions in the next week or so.



 

 

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

 

 

 

SUBPRIME AUTO NATION

Have you heard the news? Auto sales are booming. Total sales for the month of August were 1,285,202 vehicles, according to Autodata Corp, the highest monthly sales figure for any August since 2007, when 1.47 million autos were sold in the United States. Year to date auto sales have totaled 9.7 million and are on track to reach 14.5 million. Between 2006 and 2007, auto sales ranged between 16 million and 18 million. They crashed below 10 million in 2009. The Keynesians running our government have pulled out all the stops to restart this engine of consumer spending. First they wasted $3 billion of taxpayer funds on the Cash for Clunkers debacle. Almost 700,000 perfectly good cars were destroyed in order to keep union workers happy.  This Keynesian brain fart distorted the used car market for two years, raising prices for cars needed by the working poor. After that miserable failure, they realized the true secret to selling vehicles is to give them away to anyone that can scratch an X on a loan document, with 0% interest for 60 months, financed by Federal government controlled banking interests. Add in some massive channel stuffing and presto!!! – You’ve got an auto sales boom.

General Motors sales are up 3.7% over 2011. Ford Motors sales are up 6% over 2011. The Obama administration continues to tout their saving of the U.S. auto industry with their bailout in 2009 that saved unions and screwed bondholders. If this strong auto recovery is not an illusion, how do you explain the two charts below? General Motors stock is down 42% since 2011. The highly proclaimed success story called Ford Motors has seen their stock collapse by 50% since 2011. This is surely a sign of tremendous success and anticipation of soaring profits for these bastions of American manufacturing dominance.

Chart forGeneral Motors Company (GM)

Chart forFord Motor Co. (F)

This is America, land of the delusional and home of the vain. The appearance of success is more important than actual success. The corporate mainstream media dutifully reports the surge in auto sales is surely a sign the economy is recovering and the consumer has finished deleveraging and is ready to spend again. The government propaganda machine proclaims the surging auto sales are due to their wise and forward thinking policies (like the Chevy Volt). Luckily for them, there are millions of gullible Americans who believe the storyline and are easily convinced that driving a $30,000 new car, financed over seven years, makes them a success. The decades of Bernaysian marketing propaganda has worked its magic on the government educated, math challenged citizenry. There are only two things that matter to the non-thinking auto buyer (renter) – the monthly payment and what the next door neighbor and his coworkers will think. Buying a fuel efficient car they can afford, paying it off in three or four years, and driving it for ten years, while saving the monthly car payment, is what a practical, rational thinking person would do. The fact that only 20% of the 9.7 million vehicles sold this year have been small cars and the average sales price of new cars sold is now $31,000 proves Americans are still living in a delusional fantasyland of cheap gas and monthly payments for eternity.

As gas prices surpass $4 per gallon across the country, somehow 4.7 million of the 9.7 million vehicles sold in 2012 have been pickups, vans, crossovers or SUVs. Three of the top eight selling vehicles are pickups. Luxury vehicle sales are booming, with Mercedes, BMW, Porsche, Land Rover and Audi showing double digit percentage sales gains over 2011. We’ve entered a recession, gas prices are approaching all-time highs, job growth is pitiful, and Americans continue to buy luxury gas guzzlers on credit. This will surely end well.

The average payment on a new car in 2012 is $461. For used cars, the average monthly payment is $346. Today, 77% of new car purchases are financed. About half of all used vehicles involve financing. Of those cars financed, 89% are through a loan vs. 11% with a lease. A critical thinking person might wonder how a country with 4 million less employed people than we had in 2007, median household net worth down 35%, and real wages lower than they were in 2007, could be experiencing an auto boom. The answer is a government/corporate/banker/media effort to funnel taxpayer funds to deadbeats across the land in a fruitless attempt to create a facade of recovery. Our governing elite are convinced that more debt peddled to the masses is the path to recovery for an economy that imploded due to excessive debt peddled to the masses in the first place. Essentially, it comes down to who benefits from the peddling of debt. It isn’t the masses, as they become enslaved in the chains of debt and monthly payments in perpetuity. Debt peddling benefits Wall Street bankers, politicians, and mega-corporations selling crap to the masses.

The storyline being sold to the vegetative dupes (watching Honey Boo Boo) that occupy space in this delusional paradise we call America, by the corporate media, is that consumers have deleveraged and are ready to resume their “normal” pattern of spending money they don’t have on stuff they don’t need. Of course, the facts always seem to get in the way of a good yarn. Consumers have never deleveraged. Consumer credit outstanding is at an all-time high of $2.58 trillion. The decline from $2.55 trillion in 2008 to $2.4 trillion in 2010 was NOT deleveraging. It was the Wall Street Too Big To Fail banks taking a big dump on the American taxpayers. They passed their bad debts to you through TARP, the Federal Reserve buying their toxic “assets”, and ZIRP. 

Revolving credit (credit card) debt peaked at just above $1 trillion in 2008 and “declined” to $850 billion during 2010.  The media storyline is that you buckled down and paid off your credit cards, therefore depressing consumer spending and creating a recession. Sounds convincing except for the fact that it’s a load of bullshit. The Federal Reserve’s own data proves it to be false. Your friendly Wall Street banks have written off $213 billion of credit card debt since 2008 and passed the bill to the few remaining taxpayers in this country. For the math challenged, this means that consumers have actually INCREASED their credit card debt by $68 billion since 2008. The bad news for our Chinese crap peddling mega-retailers is that the significantly poorer average middle class American household is using their credit cards to pay their property tax bills, IRS bills, and utility bills in order to survive.  

Credit Card Charge-off in Dollars 2005 – 2011 — Not Seasonally Adjusted:

Year Dollar Amount
2011 $46,017,459,671
2010 $75,090,106,350
2009 $83,179,901,000
2008 $53,506,353,600
2007 $38,149,440,000
2006 $32,111,934,400
2005 $40,634,994,400
Year & Quarter Dollar Amount
2012Q1 $8,772,385,443

 

The category of debt that barely budged in the 2009 collapse was non-revolving credit. It stayed in the $1.5 trillion range in 2009 and has since surged to over $1.7 trillion in 2012. What could possibly have made this debt skyrocket by $200 billion when the GDP has only grown by 12% over the same time frame? You guessed it – your corporate fascist friends in Washington DC and on Wall Street. Non-revolving debt consists of auto loan debt of $663 billion and student loan debt of approximately $1 trillion. Student loan debt has shot up by $300 billion since 2008. This student loan debt is being distributed, like candy by a pedophile, from the Federal government in an effort to artificially hold down the unemployment rate.

Approximately $500 billion of the student loan debt is held directly by the Federal government, up from $100 billion in 2008. The Feds guarantee the majority of the remaining student loan debt. Can you think of a more subprime borrower than a 40 year old former construction worker getting a liberal arts degree from the University of Phoenix, sitting at his computer in his underwear scratching his balls, and paying with a $10,000 Federal student loan from you? This fraudulent attempt to obscure the true employment situation will end in tears for the borrowers and the American taxpayer. It’s tough to make a loan payment without a job. The student loan bailout is just over the horizon and will cost you at least $300 billion. Delinquencies are already off the charts.

        

When has offering low interest debt in ample portions to people without jobs, income or assets ever backfired before? The bankers and politicians that control this country seem to be a one-trick pony. They will never admit that debt is the problem and reducing it the solution. The real solution would make them poorer, so their solution is to pour gasoline on the fire with more debt at lower interest rates to more people. The addict will keep injecting more poison into their system until sudden death. The bankers and politicians know we are a car-centric society and appeal to our vanity and poor math skills to keep the game going.     

During the first quarter of this year, total U.S. car loans totaled $52.5 billion. That’s 49% higher than the same period in 2009. Also during the first quarter, the average amount financed on new vehicles rose by $589, to $25,995, and for used cars by $411, to $17,050. Furthermore, buyers are stretching out payments for longer terms: The average length of new- and used-vehicle loans jumped a full month during the first three months of this year, to 64 and 59 months, respectively. The surge in auto sales is being completely driven by doling out more loans for a longer time frame to deadbeat borrowers. Subprime auto loans now make up 45% of all car loans and the vast majority of all used car loans.  They have even created a category called Deep Subprime. Borrowers classified as “deep subprime” (i.e. those with Vantage scores below 600) account for 10.7% of auto loans. You can also classify them as loans that will never be repaid.

 

Two thirds of all car sales are for used cars, so the fact that 37% of all new cars are being sold to subprime borrowers is exacerbated by the ridiculous lending practices for used cars. The fine folks at Zero Hedge have provided the outrageous data and a chart that proves beyond a shadow of a doubt what awaits the American taxpayer – another bailout. Zero Hedge has already revealed the GM fake recovery by detailing their channel stuffing over the last two years. Now they’ve dug up more dirt on why car sales are surging. What could possibly go wrong providing loans for more than the value of the asset to people with a history of not paying their debts?

  • Subprime borrowers received 56.46% of loans on used cars in the quarter, up from 52.70% a year earlier.
  • The average loan-to-value on new cars was 109.55%
  • The average used car loan-to-value ratio rose to 126.62%
  • 77% of Subprime Auto Loans are for a period greater than five years

It’s amazing how many cars you can sell when you aren’t worried about getting paid. This is the beauty of a fiat currency, a printing press, and a taxpayer available to pick up the tab after the drunken party gets out of hand. The chart below provides the details of our superhighway to disaster. The percentage of used car loans to prime borrowers is now at an all-time low, while the percentage of loans to subprime borrowers is near all-time highs reached just prior to the 2008 crash. When lenders cared about being paid back in the early 2000’s, they rarely made loans longer than five years. Today, more than 77% of all subprime used car loans are longer than five years and average FICO scores are now well below 600. Just to clarify – if your FICO score is below 600 – YOU ARE A DEADBEAT.

When you start to connect the dots, things that didn’t seem to make sense begin to crystallize. This is all part of the master plan concocted by Bernanke, Geithner, Obama and the Wall Street Shysters. The auto section of my local paper now makes sense. Offers of 7 year financing at 0% interest and monthly lease offers of $150 to $200 for brand new cars now are understandable. The newer model BMWs, Cadillac Escalades, Volvos, and Jaguars I see parked in front of the low income luxury gated townhome community in West Philadelphia now makes sense. A pizza delivery guy driving a new Lexus is now explainable.   

The master plan is fairly simple. The Federal Reserve lends money to the Wall Street banks for 0% interest. These banks then turn around and provide credit card debt at 13% interest, new & used car loans to prime borrowers at 5% interest, and new & used car loans to subprime borrowers at 16%. When you can borrow for free, you can take a chance that a significant number of your borrowers will default. Essentially, Ben Bernanke is screwing the prudent savers and senior citizens by paying them 0.15% on their savings in order to subsidize the bankers that destroyed the country so they can make auto loans to the same people who took out the zero percent down interest only no doc mortgage loans in 2005. In addition, Wall Street knows the Bernanke Put is still in place. If and when these subprime loans explode in their faces again, Bennie, Timmy and Obamaney will come to the rescue with your tax dollars. Its heads you lose, tails you lose, again.    

 The chart below is like a who’s who of TARP recipients. The top 20 auto lenders control half the market. And look at the leader of the pack. Our friends at Ally Bank are the market share leader. You remember Ally Bank – they conveniently changed their name from GMAC (also known as Ditech – biggest subprime mortgage lender) after losing billions and being bailed out by you. They still owe you $11 billion and are 85% owned by the U.S. Treasury. No conflict of interest there. You have the biggest auto lender on earth controlled by the Obama administration. Do you think they have an incentive to make as many loans as humanly possible to help Obama create the illusion of an auto recovery? The only downside is for the American taxpayer when we have to eat billions more in Ally/GMAC losses. This insolvent excuse for a lending institution has been extremely aggressive in the subprime auto lending market and has forced the other wannabes – Wells Fargo, JP Morgan, Capital One and Bank of America – to lower their lending standards. Does this scenario ring a bell? 

top_20_car_lenders_market_share

We’ve become a subprime auto nation, addicted to easy debt, living lives of hope, delusion and minimum monthly payments. Storylines about economic recovery, fraudulent government statistics showing lower unemployment, feel good propaganda from the corporate mainstream media, and a return to easy money debt fueled spending does not constitute a real recovery. Until the bad debt is purged from the system and saving takes precedence over spending, the country will stagger and ultimately fall under the weight of its immense debt. We are lost in a blizzard of lies. This subprime fueled engine of recovery will propel the country into the same canyon of reality we entered in 2008. The crack up boom approaches.

 

survival seed vault

 

AIN’T NO REST FOR THE WICKED



 

DO YOU BELIEVE? (Oldie but Goodie)

The breakup of REM this week reminded me of an article I wrote in April 2009, at the height of the economic meltdown. I used REM lyrics in the article to help describe the fact that the government and Federal Reserve were fraudulently covering up that fact that our biggest banks were insolvent and bankrupt. Isn’t it fitting that two and a half years later our banking system is unraveling. I like to go back and test whether my reasoning was sound. Judge for yourself. Of course, if I recall correctly, the comment thread on TBP 1 turned into a 9/11 flamefest due to my opening line. What a surprise.

Hey Andy, did you hear about this one? Tell me, are you locked in the punch?
Hey Andy, are you goofing on Elvis? Hey baby, are we losing touch?
If you believed they put a man on the moon, man on the moon
If you believe there’s nothing up my sleeve, then nothing is cool

Man on the Moon – REM

The conspiracy theorists of the world believe the U.S. government faked the landing of Apollo 11 on the moon. They also believe 9/11 was an inside job, ordered by operatives within the government. The rationale of these acts was to distract the masses from the disastrous Vietnam War and the plummeting stock market, while escalating their control over the American people. I believe I have uncovered the largest conspiracy in history. The government wants you to believe that banks are recovering, housing has bottomed, stimulus works, borrowing leads to prosperity and war leads to peace. President Obama and his cronies at Treasury and the Federal Reserve are trying to mislead the public regarding the health of our banking system. If you believe their spin on these issues, I have a structurally deficient bridge in Brooklyn I’d like to sell you.

The government has something up its sleeve this time. They are perpetrating the greatest fraud in the history of the world. The conspirators are Barack Obama, Timothy Geithner and the Treasury Department, Ben Bernanke and the Federal Reserve, Sheila Bair and the FDIC, and Barney Frank and the Democratic Congress. They have colluded to commit taxpayer funds to enrich bankers that brought down the financial system, without getting Congressional approval. They have delayed foreclosures and have tried to artificially prop up the housing market. They have poured billions of stimulus pork into the states praying for some of it not to be wasted. They have confiscated billions in taxpayer funds, bestowed them on reckless banks and forced them to lend it to anyone with a pulse, again. The outrage from the public during the TARP confiscation made it crystal clear to courageous Congressmen they didn’t want to vote on something requiring fortitude and bravery again. They have outsourced their obligation to safeguard their citizens’ tax dollars to unelected bureaucrats at Treasury and the Federal Reserve. They have already sacrificed their obligation to declare war to the Presidential branch. What is the point of having a Congress?

Nothing Up Their Sleeve

 Hey Andy, did you hear about this one? Tell me, are you locked in the punch?
Hey Andy, are you goofing on Elvis? Hey baby, are we losing touch?
If you believed they put a man on the moon, man on the moon
If you believe there’s nothing up my sleeve, then nothing is cool

                                                            Man on the Moon – REM

Barack Obama and his henchmen in Treasury and the Federal Reserve have chosen to play for time, pretend the banking system is solvent, and hope that the average American doesn’t care. As long as the ATM still spits out $20 bills, everything is OK. The International Monetary Fund has estimated total credit write-downs of $4.1 trillion, with $2.7 trillion in U.S. institutions. McKinsey has concluded that there are still $2 trillion of toxic assets sitting on the books of U.S. banks. Nouriel Roubini, who has been correct from the beginning, estimates total losses on loans made by U.S. financial firms and the fall in the market value of the assets they are holding will reach $3.6 trillion ($1.6 trillion for loans and $2 trillion for securities). The U.S. banks and broker dealers are exposed to half of this figure, or $1.8 trillion; the rest is borne by other financial institutions in the US and abroad. With $2 trillion of write-offs to go, how could Treasury Secretary Timothy Geithner make the following statement to a Congressional panel last week, “Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators.”? Is he lying or shading the truth? Does it matter?

Roubini’s estimate of $1.8 trillion more losses for U.S. banks will cause a slight problem for the U.S. banking system. The entire U.S. banking system has only $1.4 trillion of capital. Therefore, the U.S. banking system is effectively insolvent. Mr. Geithner would contend that he was not lying. There are 8,500 banks in the United States. The top 19 banks control 45% of all the deposits in the country. These are the banks that are insolvent. Mom & Pop Bank in Louisville, Kentucky didn’t create toxic loan instruments that infected the worldwide economic system. The vast majority of the 8,500 banks in the country are in good shape. Citigroup (C), Bank of America (BAC), Wells Fargo (WFC) and the other “Too Big To Fail” banks destroyed the economic system. The Fed, Treasury, and FDIC are already backstopping or supplying 70% of the entire banking system balance sheet. It is time to allow the well run banks to take the deposits of the horribly run banks. The $1.8 billion of future losses do not include the commercial real estate losses, credit card losses and losses from the next wave of mortgage resets in 2010 that will wash over these banks.

Click to enlarge

Source: Tyler Durden – Zero Hedge

Of course we all know that the “Too Big To Fail” banks all reported profits better than expected in the last two weeks. CNBC said so. Let’s examine these tremendous profits.

Bank of America reported profits of $4.2 billion.

  • $1.9 billion came from the gain on sale of CCB shares.
  • $2.2 billion came from marking to market adjustments of Merrill Lynch notes.
  • Non-performing assets were $25.7 billion compared to $7.8 billion one year ago, a 329% increase in one year.

Without these convenient accounting adjustments, Bank of America would have lost money. Andrew Ross Sorkin pointed out in a recent NYT article:

With Goldman Sachs, the disappearing month of December didn’t quite disappear (it changed its reporting calendar, effectively erasing the impact of a $1.5 billion loss that month); JP Morgan Chase (JPM) reported a dazzling profit partly because the price of its bonds dropped (theoretically, they could retire them and buy them back at a cheaper price; that’s sort of like saying you’re richer because the value of your home has dropped); Citigroup pulled the same trick.

 

The first quarter bank profits were faked. They were manufactured as a public relations effort to convince the country that the big banks are in fine shape. If the banks are in such good shape why has the government had to use taxpayer funds to rollout the two dozen rescue plans listed below. And now we breathlessly await the results of the stress tests.

Click to Enlarge

Source: Tyler Durden – Zero Hedge

The FSP (Financial Stability Plan for those not in the know) rolled out by Tim Geithner was supposed to save our banking system. The plan was described by Treasury as:

Increased Transparency and Disclosure: Increased transparency will facilitate a more effective use of market discipline in financial markets. The Treasury Department will work with bank supervisors and the Securities and Exchange Commission and accounting standard setters in their efforts to improve public disclosure by banks. This effort will include measures to improve the disclosure of the exposures on bank balance sheets. In conducting these exercises, supervisors recognize the need not to adopt an overly conservative posture or take steps that could inappropriately constrain lending.

Coordinated, Accurate, and Realistic Assessment: All relevant financial regulators — the Federal Reserve, FDIC, OCC, and OTS — will work together in a coordinated way to bring more consistent, realistic and forward looking assessment of exposures on the balance sheet of financial institutions.

Forward Looking Assessment – Stress Test: A key component of the Capital Assistance Program is a forward looking comprehensive “stress test” that requires an assessment of whether major financial institutions have the capital necessary to continue lending and to absorb the potential losses that could result from a more severe decline in the economy than projected.

It is fascinating that in the first paragraph they specifically state they don’t want to be overly conservative. Which of the top 19 banks in the country have run their businesses in an overly conservative manner in the last ten years? Has the Federal Reserve been overly conservative in the last ten years? Have the SEC and FDIC been overly conservative in the last ten years? Have consumers, homebuilders, credit card companies and retailers been overly conservative for the last ten years? If there was ever a time to be overly conservative, it is now. It is also nice to know Treasury wants accuracy and better disclosure, but then twists the arm of the FASB to relax mark to market rules, so banks can continue to lie about the value of “assets” on their books. They allow Goldman Sachs (GS) to bury the fact that it left December out of its financial results deep in its footnotes. Shockingly, Goldman lost $1.5 billion in December. They continue to allow banks to report one time gains as part of ongoing operations, but billions in losses that are recorded quarter after quarter are not from ongoing operations. The morons on CNBC report whatever the banks say, no questions asked.

Stress Test Sham

This brings us to the stress tests for the 19 biggest banks in the land. The most stressful conditions are supposed to be 10% unemployment and a 20% further fall in home prices. That doesn’t sound too stressful to me. Considering the government reported figures are a manipulated lie, we already have unemployment between 15% and 20% in the real world. A 20% further decline in home prices is a given. The Case Shiller futures index forecasts that the New York Metro area will fall by 31% by the end of 2010. The massive overhang of housing inventory, the coming onslaught of mortgage resets in 2010, and the millions of foreclosures in the pipeline guarantee at least 20% further downside in housing prices. I have a feeling these 19 banks are going to need to study a little harder for their test. Professor Geithner is giving them an open book take home exam and gave them the answers. They will still flunk.


William Black is a former senior bank regulator. He is currently an Associate Professor of Economics and Law at the University of Missouri. Mr. Black held a variety of senior regulatory positions during the S&L crisis. He managed investigations with teams of examiners reporting to him, redesigned how exams were conducted, and trained examiners. He calls the stress tests conducted on the 19 biggest banks in the country a complete sham. In his own words:

If you did a real stress test, as Geithner explained them, you wouldn’t just have a $2 trillion hole — you’d impose regulatory capital requirements of 50%. (FYI, the regulators have the power to set HIGHER individual capital requirements based on unusually large risks at a particular bank.)

You can’t conduct a meaningful stress test without reviewing (sampling) the underlying loan files and it seems likely that the purchasers of securitized instruments (not just mortgages) do not even have the loan file data. Moreover, loss ratios vary enormously depending on the issuer, so even a bank that originates (or has purchased a bank that originates) similar product cannot simply take its own loss rate and extrapolate it to the measure the risk on the value of securitized credit instruments.

It is vastly more difficult to examine a bank that is engaged in accounting control fraud. You can’t rely on the bank’s books and records. It doesn’t simply take more, far more, FTEs — it takes examiners with experience, care, courage, and investigative instincts and abilities. Very few folks earning $60K are willing to get in the face of the CEO and CFO making $25 million annually and tell them that they are running a fraudulent bank and they are liars. FYI, this is one of the reasons, why having “resident examiners” never works. The examiners don’t even get to marry the natives. They get to worship God’s anointed. Effective examination is good for you, but it is very unpleasant, ala a doctor’s finger up your rectum. It requires total independence. So, the examination force doesn’t have remotely the numbers or the relevant experience and mindset to examine the largest banks with the greatest problems.

Examiners certainly can’t do the stress testing that Geithner describes or evaluate the reliability of a large bank’s proprietary stress test. If they were serious about constructing reliable stress tests, which they aren’t, you’d require their analytics to be made public. You’d have the industry fund independent investigations by rocket scientists chosen by a committee selected by the regulators of the soundness of the analytics. You’d also have the industry fund competitions to rip them apart (a bit like we hire legit hackers to test security by trying to defeat it) and show where they produce absurd results. The geeks would have a field day (that would probably last a decade). There are probably zero examiners that have the modeling skills required to evaluate the most sophisticated stress test models. The concept that there are 100 examiners with these skills, suddenly freed up from all other duties, assigned to CONDUCT stress tests is a lie.

On Monday we will see how much transparency and disclosure the Treasury and Federal Reserve will provide regarding the not so stressful tests. Obama’s minions have been hinting that six banks have failed. Sheila Bair stated that the $110 billion left in the TARP kitty should be enough to cover the capital shortfalls. This is a lie. As we saw previously, the U.S. banking system will need close to $1 trillion more capital to stay viable. If the Federal Reserve was so keen on disclosure and transparency, why haven’t they released the names of the banks that have borrowed from them, and the collateral provided for the loans? Because the Fed has taken worthless toxic paper onto their books and loaned newly printed dollars against the worthless paper. The taxpayers are on the hook.

Fraudulent Fed

Ben Bernanke has a number of obligations as head of the Federal Reserve. Among his mandates are:

To strike a balance between private interests of banks and the centralized responsibility of government

  • To supervise and regulate banking institutions
  • To protect the credit rights of consumers

To manage the nation’s money supply through monetary policy to achieve:

  • maximum employment
  • stable prices, including prevention of either inflation or deflation

To maintain the stability of the financial system and contain systematic risk in financial markets

Let’s assess how Helicopter Ben Bernanke and Mad Dog Alan Greenspan have fulfilled their mandates. They were supposed to supervise and regulate banking institutions. They apparently slipped up slightly on this mandate. It appears that letting banks regulate themselves was a slight miscalculation on Mr. Greenspan’s part. The man who never saw a bubble in his life had this to say:

The presumption that you could incrementally defuse a bubble was a fantasy. Clearly, you cannot defuse these things, unless you hit them right on the head and break the economy. Essentially, break the potential profitability that is engendering that sort of stuff. We could have basically clamped down on the American economy, generated a 10 percent unemployment rate. And I will guarantee we would not have had a housing boom, stock market boom or indeed a particularly good economy either. 

 

So, Greenspan stepped aside as banks sold adjustable rate negative amortization loans to subprime borrowers with no proof of income or assets required. The job of an independent responsible Central Banker is to take the punch bowl away before the party gets out of hand. The politically connected fawning Greenspan chose to spike the punch bowl with 1% interest rates and exhorting the party goers to take out adjustable rate mortgages. Free market capitalism with no rules was the path to prosperity in his mind. The Greenspan Put was in place. Party like it was 1999 and he’d clean up afterwards. Instead, the American taxpayer is stuck with the bill and Greenspan gets $100,000 per self serving speech.

Mr. Greenspan made his biggest mark with his hands off attitude regarding derivatives. His quote from May 2005 will get him into the Federal Reserve Hall of Fame:

The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions …. Derivatives have permitted the unbundling of financial risks.

 

Would you pay this dude $100,000 for his words of wisdom? Didn’t this man have hundreds of PhDs gathering wads of information about the practices of our biggest financial institutions? He was either the most incompetent Federal Reserve Chairman in history, or he was in the back pocket of the banking cartel. Take your choice. The major banks became gambling casinos run by multi-millionaire MBAs, tooling around in their private jets, using derivatives as the chips in their trillion dollar game of craps. When these Masters of the Universe MBAs rolled snake eyes, the world wide financial system collapsed. Mandate #1 was not a success story.

Mandate #2 was to protect the credit rights of consumers. Considering Americans have lost $10 trillion of net worth in the last 18 months due to the Federal Reserve mismanaging interest rates, failing to properly regulate banks, and allowing mortgage brokers to mislead millions of immigrants into mortgages they didn’t comprehend, it appears they may have failed on mandate #2. Now, Ben Bernanke has lowered interest rates to 0% in an attempt to enrich the major banks at the expense of senior citizens living on a fixed income. Investors who were receiving 5% on their money market deposits in 2007 are now receiving less than 0.5%. Ben would prefer that 85-year-old grandmothers invest in high yield bonds. He is systematically stealing from the poor to give to the rich.

Mandate #3 regarding maximum employment doesn’t seem to be working out too well either. The government massaged numbers show unemployment at 8.5%, the highest rate since 1983. Unemployment will easily reach 10% during 2009 and may reach the highest levels since the Great Depression. It appears the Federal Reserve misunderstood their mandate and is working towards minimizing employment as less than 60% of working age population is employed today. By reducing interest rates to generational lows, the Federal Reserve created the boom that led to the bust. Their interest rate manipulations have led to 13 million Americans being unemployed today, an increase of 6 million in less than two years.

Mandate #4 of stable prices with prevention of inflation and deflation has been somewhat of a challenge for geniuses at the Federal Reserve. Using the non-manipulated consumer price index, inflation has consistently run above 8% since the 1980s, peaking above 12% in 2008. By falsifying the calculations, Ben Bernanke is able to leave interest rates at 0%. The government reported figures show no inflation. By manipulating the CPI, the government is able to pay senior citizens 1%, while their costs for food and energy go up 6%. It is good to see the Federal Reserve is looking out for the most susceptible in society.


Lastly, the Federal Reserve was supposed to maintain stability in the financial markets. The last 18 months have been the most unstable period for financial markets in history. The Federal Reserve allowed at least a dozen financial institutions to become too big to fail. By coming to the rescue of the financial markets every time something bad happened starting with LTCM, the Federal Reserve encouraged excessive risk taking by financial firms. These institutions knew the Federal Reserve would clean up their messes. They were right.

 

With a perfect record in the mandates they were asked to fulfill, you can see why we would want to give the Federal Reserve more power and more mandates. Paul Volcker, the only decent Federal Reserve Chairman in history, thinks otherwise:

The Federal Reserve is going beyond the traditional role of central banks here or abroad. At some point it’s reasonable to ask should this particular institution, with its independence very well protected, be allocating so much of what is essentially government money. The inflation problem, which should be a real threat for the future, is not right on the doorstep. But two or three years from now that may be the critical problem, how that’s handled. Because, given what the Federal Reserve has been doing, it’s going to be harder to retrace their steps, so to speak, than it ordinarily would be.

 

Goofing on Elvis, Are We Losing Touch?

 

The stock market has been soaring as banks report fraudulent earnings. These banks are purposely underestimating future losses to make current earnings appear better than they really are. Hank Paulson and Ben Bernanke demanded that Ken Lewis commit fraud by not revealing material information to the public about Merrill Lynch. Why are they not being prosecuted? Bankers protect the members of their bankers club. Dr. John Hussman describes how it works in today’s world:

That’s what these bureaucrats want during their stint in government service, that’s how they advise our elected officials, and then their revolving door takes them right back to Wall Street. This thing is run by investment bankers and corporate bondholders for the benefit of investment bankers and corporate bondholders.

 

The government is desperately attempting to convince the world that the banking system is sound and recovery is under way. The actions they have taken have not and will not fix the system. The waves have washed away the foundations of sand propping up the U.S. financial system. Instead of learning from their mistakes, officials have decided to rebuild on a new foundation of sand. We are borrowing from foreigners to bailout bankers and handing the bill to future generations. With government dictating the future of our banking system we can count on massive fraud, waste and mismanagement. Dr. Hussman’s frustration is well founded:

It’s frustrating, but we are wasting trillions of dollars that could bring enormous relief of suffering, knowledge, productivity, and innovation in order to defend bondholders of mismanaged financials, and nobody cares because hey, at least the stock market is rallying. If one thing is clear from the last decade, it is that investors have no concern about the ultimate cost of the wreckage as long as they can get a rally going over the short run.

This public relations effort will fail. There are hundreds of billions of losses left to be recorded by our big bad banks. If you believe this is almost over, you are not paying attention.

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.”

 

EXTEND & PRETEND IS WALL STREET’S FRIEND

“We now have an economy in which five banks control over 50 percent of the entire banking industry, four or five corporations own most of the mainstream media, and the top one percent of families hold a greater share of the nation’s wealth than any time since 1930.   This sort of concentration of wealth and power is a classic setup for the failure of a democratic republic and the stifling of organic economic growth.” Jesse – http://jessescrossroadscafe.blogspot.com/

Source: Barry Ritholtz

“All of the old-timers knew that subprime mortgages were what we called neutron loans — they killed the people and left the houses.” – Louis S. Barnes, 58, a partner at Boulder West, a mortgage banking firm in Lafayette, Colo

The storyline that has been sold to the public by the Federal government, Wall Street, and the corporate mainstream media over the last two years is the economy is recovering and the banking system has recovered from its near death experience in 2008. Wall Street profits in 2009 & 2010 totaled approximately $80 billion. The stock market has risen almost 100% since the March 2009 lows. Wall Street CEOs were so impressed by this fantastic performance they dished out $43 billion in bonuses over the two year period to their thousands of Harvard MBA paper pushers. It is amazing that an industry that was effectively insolvent in October 2008 has made such a spectacular miraculous recovery. The truth is recovery is simple when you control the politicians and regulators, and own the organization that prints the money.

A systematic plan to create the illusion of stability and provide no-risk profits to the mega-Wall Street banks was implemented in early 2009 and continues today. The plan was developed by Ben Bernanke, Hank Paulson, Tim Geithner and the CEOs of the criminal Wall Street banking syndicate. The plan has been enabled by the FASB, SEC, IRS, FDIC and corrupt politicians in Washington D.C. This master plan has funneled hundreds of billions from taxpayers to the banks that created the greatest financial collapse in world history. The authorities had a choice. This country has bankruptcy laws. The criminally negligent Wall Street banks could have been liquidated in an orderly bankruptcy. Their good assets could have been sold off to banks that did not take their extreme greed based risks. Bond holders and stockholders would have been wiped out. Today, we would have a balanced banking system, with no Too Big To Fail institutions. Instead, the years of placing their cronies within governmental agencies and buying off politicians paid big dividends for Wall Street. Their return on investment has been fantastic.

The plan has been as follows:

  • In April 2009 the FASB caved in to pressure from the Federal Reserve, Treasury, and Wall Street to suspend mark to market rules, allowing the Wall Street banks to value their loans and derivatives as if they were worth 100% of their book value.
  • The Federal Reserve balance sheet consistently totaled about $900 billion until September 2008. By December 2008, the balance sheet had swollen to $2.2 trillion as the Federal Reserve bought $1.3 trillion of toxic assets from the Wall Street banks, paying 100 cents on the dollar for assets worth 50% of that value.

  • In November 2009 the Federal Reserve and IRS loosened the rules for restructuring commercial loans without triggering tax consequences. Banks were urged to extend loans on properties that had fallen 40% in value as if they were still worth 100% of the loan value.
  • By December 2008 the Federal Reserve had moved their discount rate to 0%. For the last two years, the Wall Street banks have been able to borrow from the Federal Reserve for free and earn a risk free return of 2%. The Federal Reserve has essentially handed billions of dollars to Wall Street.
  • When it became clear in October 2010 that after almost two years of unlimited liquidity being injected into the veins of zombie banks was failing, Ben Bernanke announced QE2. He has expanded the Fed balance sheet to $2.6 trillion by injecting $3.5 billion per day into the stock market by buying US Treasury bonds. Bernanke’s stated goal has been to pump up the stock market. While taking credit for driving stock prices higher, he denies any responsibility for the energy and food inflation that is spurring unrest around the world.
  • The Federal Reserve has increased the monetary base by $500 billion in the last three months in a desperate attempt to give the appearance of recovery to a floundering economy.

FRED Graph

  • Beginning on December 31, 2010, through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions.  The unlimited insurance coverage is available to all depositors, including consumers, businesses, and government entities. This unlimited insurance coverage is separate from, and in addition to, the insurance coverage provided to a depositor’s other deposit accounts held at an FDIC-insured institution.

When You’re Losing – Change the Rules

Wall Street banks had absolutely no problem with mark to market rules from 2000 through 2007, as the value of all their investments soared. These banks created products (subprime, no-doc, Alt-A mortgages) whose sole purpose was to encourage fraud. Their MBA geniuses created models that showed that if you packaged enough fraudulent loans together and paid Moody’s or S&P a big enough bribe, they magically became AAA products that could be sold to pension plans, municipalities, and insurance companies. These magnets of high finance were so consumed with greed they believed their own lies and loaded their balance sheets with the very toxic derivatives they were peddling to the clueless Europeans. They didn’t follow a basic rule. Don’t crap where you sleep. When the world came to its senses and realized that home prices weren’t really worth twice as much as they were in 2000, investment houses began to collapse like a house of cards. The AAA paper behind the plunging real estate wasn’t worth spit. After Lehman Brothers collapsed and AIG’s bets came up craps for the American people, the financial system rightly froze up.

After using fear and misinformation to ram through a $700 billion payoff to Goldman Sachs and their fellow Wall Street co-conspirators through Congress, it was time begin the game of extend and pretend. Market prices for the “assets” on the Wall Street banks’ books were only worth 30% of their original value. Obscuring the truth was now an absolute necessity for Wall Street. The Financial Accounting Standards Board already allowed banks to use models to value assets which did not have market data to base a valuation upon. The Federal Reserve and Treasury “convinced” the limp wristed accountants at the FASB to fold like a cheap suit. The FASB changed the rules so that when the market prices were not orderly, or where the bank was forced to sell the asset for regulatory purposes, or where the seller was close to bankruptcy, the bank could ignore the market price and make up one of its own. Essentially the banking syndicate got to have it both ways. It drew all the benefits of mark to market pricing when the markets were heading higher, and it was able to abandon mark to market pricing when markets went in the toilet. 

“Suspending mark-to-market accounting, in essence, suspends reality.” – Beth Brooke, global vice chair, at Ernst & Young

Wall Street desired all the billions of upside from creating new markets for new products. Their creativity knew no bounds as they crafted MBOs, MBSs, CDOs, CDSs, and then chopped them into tranches, selling them around the world with AAA stamps of approval from the soulless whore rating agencies. When the net result of a flawed system of toxic garbage paper was revealed, there was no room at the exits for the stampede of investment bankers. The toxic paper was on the banks’ books and no one wanted to admit the greed induced decision to purchase these highly risky, volatile “assets”. The trade had not gone bad, the ponzi scheme had unraveled. Suspending FASB 157 has been an attempt to hide this fraudulent business model from investors, regulators and the public. By hiding the true value of these assets, the financial system has never cleared. The banks remain in a zombie vegetative state, with the Federal Reserve providing the IV and the life support system.

Let’s Play Hide the Losses

Part two of the master cover-up plan has been the extending of commercial real estate loans and pretending that they will eventually be repaid. In late 2009 it was clear to the Federal Reserve and the Treasury that the $1.2 trillion in commercial loans maturing between 2010 and 2013 would cause thousands of bank failures if the existing regulations were enforced. The Treasury stepped to the plate first. New rules at the IRS weren’t directly related to banking, but allowed commercial loans that were part of investment pools known as Real Estate Mortgage Investment Conduits, or REMICs, to be refinanced without triggering tax penalties for investors.

 

The Federal Reserve, which is tasked with making sure banks loans are properly valued, instructed banks throughout the country to “extend and pretend” or “amend and pretend,” in which the bank gives a borrower more time to repay a loan. Banks were “encouraged” to modify loans to help cash strapped borrowers. The hope was that by amending the terms to enable the borrower to avoid a refinancing that would have been impossible, the lender would ultimately be able to collect the balance due on the loan. Ben and his boys also pushed banks to do “troubled debt restructurings.” Such restructurings involved modifying an existing loan by changing the terms or breaking the loan into pieces. Bank, thrift and credit-union regulators very quietly gave lenders flexibility in how they classified distressed commercial mortgages. Banks were able to slice distressed loans into performing and non-performing loans, and institutions were able to magically reduce the total reserves set aside for non-performing loans.

If a mall developer has 40% of their mall vacant and the cash flow from the mall is insufficient to service the loan, the bank would normally need to set aside reserves for the entire loan. Under the new guidelines they could carve the loan into two pieces, with 60% that is covered by cash flow as a good loan and the 40% without sufficient cash flow would be classified as non-performing. The truth is that billions in commercial loans are in distress right now because tenants are dropping like flies. Rather than writing down the loans, banks are extending the terms of the debt with more interest reserves included so they can continue to classify the loans as “performing.” The reality is that the values of the property behind these loans have fallen 43%. Banks are extending loans that they would never make now, because borrowers are already grossly upside-down.

Extending the length of a loan, changing the terms, and pretending that it will be repaid won’t generate real cash flow or keep the value of the property from declining. U.S. banks hold an estimated $156 billion of souring commercial real-estate loans, according to research firm Trepp LLC. About two-thirds of commercial real-estate loans maturing at banks from now through 2015 are underwater. Media shills proclaiming that the market is improving, doesn’t make it so. The chart below details the delinquency rates from 2007 through 2010 as reported by the Federal Reserve:

  Real estate loans Consumer loans
All Booked in domestic offices All Credit cards Other
Residential Commercial
2010 4th Qtr 9.01  9.94  7.97  3.71  4.17  3.10 
2010 3rd Qtr 9.77  10.90  8.69  4.03  4.60  3.39 
2010 2nd Qtr 10.02  11.32  8.74  4.25  5.07  3.37 
2010 1st Qtr 9.78  10.97  8.66  4.63  5.76  3.48 
2009 4th Qtr 9.48  10.29  8.74  4.64  6.36  3.48 
2009 3d Qtr 9.00  9.67  8.57  4.72  6.51  3.61 
2009 2nd Qtr 8.19  8.69  7.84  4.85  6.75  3.69 
2009 1st Qtr 7.19  7.89  6.55  4.62  6.50  3.52 
2008 4th Qtr 5.99  6.57  5.49  4.29  5.65  3.37 
2008 3rd Qtr 4.88  5.26  4.66  3.73  4.80  3.05 
2008 2nd Qtr 4.21  4.39  4.15  3.55  4.89  2.80 
2008 1st Qtr 3.56  3.70  3.50  3.48  4.76  2.76 
2007 4th Qtr 2.89  3.06  2.75  3.41  4.60  2.66 
2007 3rd Qtr 2.40  2.78  1.98  3.20  4.41  2.48 
2007 2nd Qtr 2.01  2.30  1.63  2.99  4.02  2.37 
2007 1st Qtr 1.77  2.03  1.43  2.93  3.97  2.29 

 

Delinquency rates on residential and commercial loans in early 2007 were in the range of 1.5% to 2.0%. Now the MSM pundits get excited over a decline from 8.7% to 8.0%. These figures show that even after trillions of Federal Reserve and Federal Government intervention, delinquencies remain four times higher than normal. In the real world, cash flow matters. Payment of interest and principal on a loan matters. Actual market values matter. According to Trepp, LLC, a data firm specializing in commercial data, non-performing commercial real estate loans makes up 72% of the $320 million in non-performing loans reported by banks in February. These figures are after the “extremely” relaxed definition of non-performing allowed by the Federal Reserve. The game is ongoing. Misinformation abounds. The SEC now issues press releases saying they are worried that banks are covering up losses, when they were involved in encouraging the banks to cover-up their losses. Last week the SEC announced they have become concerned that extend and pretend, along with another practice known as “troubled debt restructuring” that allows banks to break loans into pieces, may have been abused in order to diminish the volume of reserves banks are holding. What a shocking revelation. Who could have known?

Are You Smarter than a Wall Street CEO?

The Federal Reserve paid shills and Wall Street front men are out in droves declaring that TARP was a success and the banking system is recovering strongly. Columnists like Robert Samuelson declare  TARP was a great investment and will profit the taxpayer. Samuelson says that the Treasury has recouped $244 billion of the $245 billion it invested in banks and that, when it winds down its last investments, it likely will show a $20 billion profit from the banks. This type of propaganda is ludicrous, as Barry Ritholtz succinctly points out:

“No, we are not profitable on the bailouts. TARP has $123B to go before breakeven, and the GSEs are $133B in the hole. All told, the Taxpayers have a long way to go before we are breakeven. That’s before we count lost income from savings, bonds, etc., the increased costs of food stuff and energy due to inflation (the Fed’s has done this on purpose as part of their rescue plan), the higher fees the reduced competition of megabanks has created, and the future costs our Moral Hazard will have wrought in increased risks and disasters.”Barry Ritholtz

Source: Barry Ritholtz

Fannie Mae and Freddie Mac have hundreds of billions in bad loans sitting on their balance sheets. Their total cost to taxpayers will reach $400 billion, and never be repaid. The Federal Reserve has over $1 trillion in toxic assets on its balance sheet, off loaded by the TARP recipient banks in 2009. The taxpayer will never be repaid for this toxic waste. The government is implementing the Big Lie theory. If you tell a big lie often and loud enough, the non-thinking masses will believe it. That leaves us with today’s fantasy world.

The reality on the ground does not match the rhetoric coming from the government, Wall Street and the corporate mainstream media. The truth is as follows:

  • The vacancy rate for office space in the U.S. is currently 16.5%.
  • The vacancy rate for industrial space in the U.S. is currently 14.2%.
  • The vacancy rate for retail space in the U.S. is currently 13%.
  • Delinquencies within collateralized debt obligations in commercial real estate loans rose to 14.6% in February. The increase signals a trend of higher delinquencies in the segment. Signs of pressure surfaced as early as January when the delinquency rate on CDOs within commercial real estate loans hovered well above 13%.
  • According to Moody’s, CRE prices are down 4.3% from a year ago and down about 43% from the peak in 2007.
  • The delinquency rate on loans packaged and sold in commercial mortgage-backed securities rose to a record 9.2% in February, according to a March 15 report by Moody’s.
  • Regional and local community banks have as much as 80% of their balance sheets tied up in commercial real estate, and very few other sources of significant fee income to offset CRE losses.
  • CRE once had an estimated national value of $6.5 trillion.  Today it stands at an optimistic $3.5 trillion.
  • There are 1.8 million homes seriously delinquent, in the foreclosure process or REO that are not currently listed for sale.
  • There are about 2 million current negative equity loans that are more than 50% “upside down”.
  • Home prices are off 31.3% from the peak. The Composite 20 is only 0.7% above the May 2009 post-bubble bottom and will probably be at a new post-bubble low soon.

In the face of this data, mouthpieces for the Federal Reserve go before Congress and try to paint an optimistic picture. “While we expect significant ongoing CRE-related problems, it appears that worst-case scenarios are becoming increasingly unlikely,” Patrick Parkinson, the Federal Reserve’s director of banking supervision and regulation, told Congress. Parkinson said that since the beginning of 2008 through the third quarter of 2010, commercial banks had incurred almost $80 billion of losses from commercial real estate exposures. Banks are estimated to have taken roughly 40% to 50% of losses they will incur over this business cycle, he said.

The Federal Reserve will be forced by the Federal Courts to reveal the banks they have saved from failure since 2008 by funneling billions of practically interest free tax payer dollars into their hands. The Fed is expected to release this week documents related to discount window lending from August 2007 to March 2010, including the peak month of October 2008, when loans hit $111 billion. It will be revealed they kept alive hundreds of banks that should have died. Shockingly, the supposedly taxpayer protecting Dodd-Frank law exempts past discount window lending from an audit by the Government Accountability Office, that’s examining much of the central bank’s other crisis-era programs. That champion of the little people, Barney Frank, said such disclosures might have “a negative market effect. If people saw the data the next day, they come to the conclusion that the bank must be in trouble.” Openness and transparency are evidently grey areas for Mr. Frank. Despite the non-disclosures, free Fed bucks, accounting fraud and uninterested regulators, over 300 banks managed to go out of business in the last two years, essentially bankrupting the FDIC. Have no fear. The Treasury gave the FDIC an unlimited line of credit with your money.

 

It is fascinating that every Friday afternoon the FDIC announces approximately three bank failures. Steady as she goes. No panic. Just a slow trickle of failure. But the reality is much worse than the show. Despite the gimmicks of extending and pretending, there are 900 banks essentially insolvent sitting on the FDIC “Problem” list. This is after closing the 300 banks. There are at least a couple hundred billion of losses in the pipeline, to be funded by the American people/Chinese lenders. A critical thinking American might ask, if things are getting better, why does the number of troubled banks continue to rise week after week, month after month?

One year ago the website www.businessinsider.com listed the 10 major regional banks with the highest risk from commercial real estate loans. These 10 banks had $133 billion of commercial real estate loans on their books. Most, if not all, are still in business today. The fact is those real estate loans are worth 30% to 50% less than they are being carried on the books. A true valuation of these loans would put all 10 of these banks out of business. They are dead banks walking. In a world where transparency, honesty, and true free markets reigned supreme, these banks would pay for their poor risk taking choices. They would be liquidated and their assets would be sold off to banks that did not make horrific lending decisions. Failures would fail.  

Bank CRE Loans (bil.) % of Tier 1 Capital
NY Community Bank $22.0 915%
Wintrust Financial Corp. $3.4 419%
M&T Bank $20.8 378%
Synovus $11.2 376%
Wilmington Trust $4.0 369%
Marshall & Iisley $13.8 283%
Zions Bancorporation $13.4 253%
Regions Financial $28.3 218%
UMB Bank $1.3 156%
Comerica $14.3 97%

 

How could anyone deny the world is back on track after examining the following chart?

 

It should warm your heart to know that Financial Profits have amazingly reached their pre-crash highs. All it took was the Federal Reserve taking $1.3 trillion of bad loans off their books, overstating the value of their remaining loans by 40%, borrowing money from the Fed at 0%, relying on the Bernanke Put so their trading operations could gamble without fear of losses, and lastly by pretending their future losses will be lower and relieving their loan loss reserves. The banking industry didn’t need to do any of that stodgy old school stuff like make loans to small businesses. Extending and pretending is much more profitable. 

The big four of JP Morgan, Citigroup, Bank of America, and Wells Fargo should have undergone orderly bankruptcy liquidation in 2008. They took on a vast amount of leverage and a vast amount of risk. Their greedy bets went bad. In a true capitalist system, they would have failed. Instead, in our crony capitalist system, they were bailed out by taxpayers and continue to function as zombie banks pretending to be healthy. They reported profits of $34.4 billion in 2010. Every dime of these profits was generated through accounting entries that relieved their provisions for loan losses. These “brilliant” CEOs who virtually destroyed the worldwide financial system in 2008, looked into their crystal balls and decided their loan losses in the future would be dramatically lower. I’ll take the other side of that bet. I dug into their SEC filings to get the information in the chart below. Just the fact that Citicorp and Bank of America have still not filed their 10K reports after 3 months tells a story.

Bank   Source CRE Mortgages Credit Card Total Loans Loss Reserve % of Loans
JP Morgan 12/31 10K $53,635 $174,211 $137,676 $692,927 $32,266 4.7%
Citicorp 9/30 10Q $79,281 $209,678 $216,759 $654,311 $43,674 6.7%
Bank of America 9/30 10Q $77,062 $394,007 $142,298 $933,910 $43,581 4.7%
Wells Fargo 12/31 10K $129,783 $337,105 $22,375 $757,267 $23,022 3.0%

 

These four “Too Big To Fail” bastions of crony capitalism have $340 billion of commercial real estate loans on their books. That’s a lot of extending and pretending. Just properly valuing those loans at their true market value would wipe out most of their loan loss reserves. I wonder if Vikrim and his buddies have noticed that home prices have begun to plunge again. Deciding to not foreclose on home occupiers that haven’t made a mortgage payment in two years is not a long term strategy. These four banks have $1.1 billion of outstanding mortgage debt on their books. I wonder what a 20% further decline in home prices will do to these loans. Throw in another half a billion of credit card loans to Americans being hammered by soaring energy and food prices and you have a toxic mix of future losses. These banks are gonna need a bigger boat.

The game of extend and pretend at the expense of the American working middle class is growing old. When this game is over, Wall Street will be looking for another bailout. The American people will not fall for the lies again. Wall Street’s oppression reeks of greed and disgrace. They are liars and thieves. They have pillaged and stolen all that was left to steal. I will be surprised if they get out alive.

Well you are my accuser, now look in my face
Your opression reeks of your greed and disgrace
So one man has and another has not
How can you love what it is you have got
When you took it all from the weak hands of the poor?
Liars and thieves you know not what is in store

There will come a time I will look in your eye
You will pray to the God that you always denied
The I’ll go out back and I’ll get my gun
I’ll say, “You haven’t met me, I am the only son”

Dust Bowl Dance – Mumford & Sons

DUDE, WHERE’S MY JOB? (Featured Article)

The storyline being sold to the American public by the White House and the corporate mainstream media is that the economy is growing, jobs are being created, corporations are generating record profits, consumers are spending and all will be well in 2011. The 2% payroll tax cut, stolen from future generations to be spent in 2011, will jumpstart a sound economic recovery. Joseph Goebbels would be proud.

It was another wise old man named Ben Franklin who captured the essence of what those in control are peddling:

“Half a truth is often a great lie.”

The economy is growing due to unprecedented deficit spending by the government, fraudulent accounting by the Wall Street banks, the Federal Reserve buying $1.5 trillion of toxic mortgage “assets” from their Wall Street owners, various home buyer and auto tax credits and gimmick programs, and Fannie, Freddie, and the FHA accumulating taxpayer loses so morons can continue to purchase houses. Jobs are being created. According to the BLS, we’ve added 951,000 jobs since December 2009, an average of 79,000 per month. Of course, the population of the US is growing at 175,000 per month. It seems that there are millions of jobs being created, just not here as shown on these graphs from the NYT.

The storyline of corporate profits is true. As a percentage of national income, corporate profits are 9.5%. They have only topped 9% twice in history – in 2006 and 1929. When you see the paid Wall Street shills parade on CNBC every day proclaiming the huge corporate profit growth ahead, keep these data points in mind. Do profits generally rise dramatically from all time peaks?

You might ask yourself, if corporations are doing so well how come real unemployment exceeds 20%? The answer lies in who is generating the profits and how they are doing it. It seems that the fantastic profits are not being generated by domestic non-financial companies employing middle class Americans producing goods. Pre-tax domestic nonfinancial corporate profits are not close to record levels as a share of national income. They exceeded 15% of national income once in the late 1940s, and repeatedly topped 12% in the 1950s and 1960s; in the third quarter of this year, they were 7.03% of national income. I wonder who is making the profits.

According to BEA data, financial industry profits and “rest of world” profits — that is, the money U.S.-based corporations make overseas — are relatively much higher now than they were in the 1950s or 1960s. And the taxes paid by corporations are much lower now than they were then, as a share of national income. The reason that corporate profits are near their all-time highs is that Wall Street corporations and mega multinational corporations are making gobs of loot and paying less of it out in taxes. Isn’t that delightful for the CEOs and top executives of these companies?

The profits are being generated on Wall Street through collusion with the Federal Reserve, as the insolvent Wall Street banks accept free money from the Federal Reserve to generate speculative profits at the expense of senior citizens earning .20% on their CDs. The mega-multinationals are “earning” their profits by continuing to ship American jobs overseas at a record pace. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9 percent, says Robert Scott, the institute’s senior international economist. “There’s a huge difference between what is good for American companies versus what is good for the American economy,” says Scott. The hollowing out of the American economy has been going on for decades and despite the usual rhetoric out of Washington DC, it continues unabated today.

But consumer spending has surged, so the recovery must be solid and self-sustaining say the brainless twits on CNBC. Consumer spending is rising because the top 1% wealthiest Americans are doing splendidly as they are now reaping 20% of the income in the country, levels last seen in 1929. The Haves have more, the Have Nots have less. The top 10% wealthiest Americans own 98.5% of all the stocks in the country. They feel richer because Ben Bernanke has propped up the stock market with trillions of borrowed money from future generations. The other 90% of Americans have stagnant or non-existent wages, rising costs for fuel and food, falling home prices, rising debt levels and little hope for the future. They have been thrown a bone of extended unemployment bennies, a temporary payroll tax cut, and extended tax cuts. Any spending they are doing is on credit cards as the austerity deleveraging storyline is another big lie by the MSM.

Greater Depression

The figure of 15 million unemployed reported by the government and regurgitated by the corporate media is one of the biggest lies in the history of lies. The real figure is 30 million and I will prove it using the government’s own data. I created the chart below from BLS data (ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb1.txt) to prove that we are in the midst of a Greater Depression and no amount of spin by politicians and the media can wish it away. When we look at jobs in America across the decades, a picture of a country in decline, captured by financial elites, reveals itself. In 1970, America still produced goods, ran trade surpluses, and paid wages that allowed families to thrive with only one parent working. Only 34.6% of the population was employed, with a third of these workers producing goods.

(Millions Employed) 1970 1980 1990 2000 2007 Dec-09 Nov-10
Mining & Logging 677 1,077 765 599 724 676 763
Construction 3,654 4,454 5,263 6,787 7,630 5,696 5,615
Manufacturing 17,848 18,733 17,695 17,263 13,879 11,534 11,648
Trade, Transport. & Utilities 14,144 18,413 22,666 26,225 26,630 24,653 24,806
Information 2,041 2,361 2,688 3,630 3,032 2,748 2,717
Financial Activities 3,532 5,025 6,614 7,687 8,301 7,657 7,573
Professional & Business Serv. 5,267 7,544 10,848 16,666 17,942 16,488 16,861
Education & Health Services 4,577 7,072 10,984 15,109 18,322 19,350 19,719
Leisure & Hospitality 4,789 6,721 9,288 11,862 13,427 12,991 13,174
Other Serices 1,789 2,755 4,261 5,168 5,494 5,314 5,402
Government 12,687 16,375 18,415 20,790 22,218 22,481 22,261
TOTAL EMPLOYED 71,005 90,530 109,487 131,786 137,599 129,588 130,539
US Population 205,052 227,225 249,439 281,422 299,398 308,200 310,300
% of US Population Employed 34.6% 39.8% 43.9% 46.8% 46.0% 42.0% 42.1%
Source: BLS Establishment Data

 

Whether it was due to the woman’s movement of the 1970s or due to financial necessity, the percentage of the population employed grew relentlessly until it reached 46.8% in the year 2000. The level of 46.8% meant that when the opportunity to be employed was available, this percentage of Americans wanted a job. Since 2000 the population of the U.S. has grown by 28.9 million people. The labor force between the ages of 18 and 64 has grown by 26.1 million people since 2000. The government insists that millions of Americans have chosen to “leave the workforce” and should not be considered unemployed. This is laughable. Why would people choose to leave the workforce when wages are stagnant, retirement looms, prices relentlessly rise, and they are drowning in debt? The truth is that at least 46.8% of the population wants to be employed. That means that 145.2 million Americans would be working if they had the chance. Only 130.5 million are currently employed. This means that there are really 30 million Americans unemployed versus the 15 million reported by the government and MSM.

Not only is the country short 30 million jobs, but the type of jobs reveal a country of paper pushers, consultants, temp workers, government drones, waitresses, and clerks. The chart below shows the distribution of jobs through the decades.

(% of Employed) 1970 1980 1990 2000 2007 Dec-09 Nov-10
Mining & Logging 1.0% 1.2% 0.7% 0.5% 0.5% 0.5% 0.6%
Construction 5.1% 4.9% 4.8% 5.2% 5.5% 4.4% 4.3%
Manufacturing 25.1% 20.7% 16.2% 13.1% 10.1% 8.9% 8.9%
Trade, Transport. & Utilities 19.9% 20.3% 20.7% 19.9% 19.4% 19.0% 19.0%
Information 2.9% 2.6% 2.5% 2.8% 2.2% 2.1% 2.1%
Financial Activities 5.0% 5.6% 6.0% 5.8% 6.0% 5.9% 5.8%
Professional & Business Serv. 7.4% 8.3% 9.9% 12.6% 13.0% 12.7% 12.9%
Education & Health Services 6.4% 7.8% 10.0% 11.5% 13.3% 14.9% 15.1%
Leisure & Hospitality 6.7% 7.4% 8.5% 9.0% 9.8% 10.0% 10.1%
Other Serices 2.5% 3.0% 3.9% 3.9% 4.0% 4.1% 4.1%
Government 17.9% 18.1% 16.8% 15.8% 16.1% 17.3% 17.1%
TOTAL EMPLOYED 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
 Source: BLS

 

In 1970, jobs in the goods producing industries made up 31.2% of all jobs. Today, they account for 13.8% of all jobs. The apologists will proclaim that corporate America just got phenomenally more efficient and productive. That is another falsehood. In 1970, we were a net exporter, consumer expenditures accounted for 62.4% of GDP, and private investment accounted for 14.7% of GDP. Today, we consistently run $500 billion to $700 billion annual trade deficits, consumer expenditures account for 71% of GDP, and private fixed investment is a pitiful 11.5% of GDP. We’ve degenerated from a productive goods producing society to a consumption based, debt fueled society. This is a classic late stage trait of declining empires. Rome and Britain before us experienced similar declines.

The most damning facts that can be garnered from the BLS data relate to how we’ve become a nation of bankers, real estate agents, accountants, lawyers, tax specialists, and fast food fry cooks. Manufacturing jobs have dropped from 25% of all jobs in 1970 to less than 9% today. Jobs in the spreadsheet generating, credit default swap creating, subprime mortgage pushing, frivolous lawsuit filing, tax evasion sector of the economy went from 12% in 1970 to 19% today.

The misinformation and lies will continue. The MSM keeps repeating that jobs are coming back. You don’t hear which jobs. Hysterically, the four fastest growing job categories according to the BLS are:

  1. Administrative and support services
  2. Food services and drinking places
  3. Couriers and messengers
  4. Performing arts and spectator sports

The well paying goods producing jobs are never coming back. American manufacturing jobs have been shifted overseas for more than two decades by corporate America. Now those jobs have become more sophisticated, like semiconductors, software and even medical and finance.  The American middle class is relegated to being McDonalds fry cooks, Wal-Mart greeters, and temp workers. What has happened to the American middle class was not an accident. The wealth of the country has been pillaged by an elite group at the very top of the economic food chain, who were able to reap the rewards of globalization (outsourcing American jobs), manipulate the debt based financial system through synthetic fraud products, and avoid taxes by hiring thousands of lawyers, accountants and tax consultants. When you hear that the rich need lower taxes, corporate taxes are too high and increased productivity is great for America, remember what they have done to the country since 1970. If corporate America and its leaders continue to reap obscene profits while the middle class falls further into the abyss, societal unrest will beckon.