PUMP IT UP

Down in the pleasure centre,
hell bent or heaven sent,
listen to the propaganda,
listen to the latest slander.
There’s nothing underhand
that she wouldn’t understand.
Pump it up until you can feel it.
Pump it up when you don’t really need it.

Elvis Costello – Pump It Up

I had been planning an article based on the Green Day song – Static Age – about the propaganda, lies and misinformation that are endlessly directed at the American people by the government, the mainstream corporate media, and the wealthy elite that control the levers of our society. Then Barack Obama presented his 2012 Budget proposal, including his 10 year projection for our country. I know you’ve heard the term Peak Oil, but the term that came to my mind when I saw Obama’s budget was Peak Bullshit. I thought that would be a great article name, but some sites wouldn’t like the foul language. I was in a quandary until the Elvis Costello song Pump It Up came on the radio while I was driving to work. Down in the pleasure center of Washington DC, the propaganda, slander and most blatant lies are spoken without a hint of guilt or even the faintest whiff of shame. The politicians in Washington DC on both sides of the aisle believe the American people are stupid, gullible, apathetic and easily manipulated. They may be right, but there are a few people out there who can cut through their bullshit and find the truth.

Obama, Wall Street, and the corporate mouthpieces in the mainstream media have been pumping up the American people for months with false data, unwarranted optimism, bank profits created out of thin air by accounting fraud, and attempting to create an economic recovery built on a foundation of sand, supported only by lies. The Obama budget is worse than a joke. It is a tragic joke. It amazes me that he can stand in front of the American people and present such a lie. The liberal media then unquestioningly presents the budget as a frugal cost cutting proposal that will reduce deficits and inflict painful cuts upon the poor American people. It would be laughable, if it wasn’t so sad. One look at Obama’s deficit projections for FY11 and FY12, presented one year ago, should be enough to convince you that no one in Washington DC has a clue what they are doing.

Federal (Deficit)
Year Spending Surplus
2011 $3,834 -$1,267
2012 $3,755 -$828

Obama projected a two year deficit of $2.1 trillion. His current projection, just one year later, is $2.75 trillion. He missed it by this much.

The rocket scientists running our country underestimated the deficit by 31% in the space of one year. I suppose that is considered highly accurate for a government drone. Now let’s get some perspective on Obama’s projected FY11 deficit of $1.65 trillion. This is the projected DEFICIT. Do you remember back to the Clinton administration? Did you feel like your Federal government wasn’t spending enough? In 1998 the TOTAL SPENDING of the Federal government was $1.65 trillion. We now run deficits that equal the entire budget of the United States in 1998, without blinking an eye or questioning how we got here. The politicians have scared the populace into thinking that the country will collapse without the Federal Government spending $3.8 trillion of your money, every year.

Static Age

Can you hear the sound of the static noise?
Blasting out in stereo
Cater to the class and the paranoid
Music to my nervous system
Advertising love and religion
Murder on the airwaves
Slogans on the brink of corruption
Vision of blasphemy, war and peace
Screaming at you

I can’t see a thing in the video
I can’t hear a sound on the radio
In stereo in the static age  –
Green Day – Static Age

The politicians prefer their actions be bathed in shades of grey. The corporate payoffs, backroom deals, union arm twisting and selling of votes to the highest bidder are how business is done in Washington DC. They believe that if there is enough static noise being generated by the mainstream media, then the American public will be distracted and not notice they have destroyed the country. When analyzing Obama’s budget we need some perspective. Below is a chart showing actual Federal spending and deficits from 1999 through 2010 and projections from 2011 through 2021. My assessment is that the Great American Empire peaked in 1999-2000. The unemployment rate was 4% and 64.4% of the working age population, or 137 million Americans, were employed. Corporate profits were surging, along with the stock market. The Federal government was spending $1.8 trillion and generating budget surpluses of $236 billion. The National Debt of $5.7 trillion was only 57% of GDP.

The decline of the American Empire can be seen in the chart of woe. The unemployment rate today is 9%. Only 58.4% of the working age population is employed. Eleven years after peak empire, the working age population has grown by 26 million people and the number of employed Americans has grown by 2.4 million. At least 64.4% of the population would like to be working. This means that there are 14.4 million people who would work if the jobs were available. The Federal government is spending $3.8 trillion and generating deficits of $1.6 trillion. The National Debt is $14.2 trillion, or 94% of GDP. Except for Wall Street banks and mega-corporations, small business profits are weak and the stock market is at the same levels reached in 1999. These are the truths you won’t hear from politicians or the mainstream media.

Federal   (Deficit)
Year Spending % Change Surplus
1999 $1,702 $125
2000 $1,789 5.1% $236
2001 $1,863 4.1% $128
2002 $2,011 7.9% -$158
2003 $2,160 7.4% -$378
2004 $2,293 6.2% -$413
2005 $2,472 7.8% -$319
2006 $2,655 7.4% -$249
2007 $2,729 2.8% -$161
2008 $2,983 9.3% -$459
2009 $3,518 17.9% -$1,413
2010 $3,456 -1.8% -$1,293
2011F $3,819 10.5% -$1,645
2012B $3,729 -2.4% -$1,101
2013B $3,771 1.1% -$768
2014B $3,977 5.5% -$645
2015B $4,190 5.4% -$607
2016B $4,468 6.6% -$649
2017B $4,669 4.5% -$627
2018B $4,876 4.4% -$619
2019B $5,154 5.7% -$681
2020B $5,422 5.2% -$735
2021B $5,697 5.1% -$774

So now let’s assess the reality of Obama’s ten year budget. If you were to believe the reports in the media, you would think that Obama is cutting deficits and making hard choices. Amazingly, deficits plummet all the way down to “only” $600 billion to $800 billion after 2012. In the chart above, I ignore the revenue side of the equation, because Obama’s assumptions are beyond ridiculous. His assumption of the GDP growing from $15 trillion in 2011 to $24.6 trillion in 2021, a 64% increase, is a fantasy. During the last 10 years, GDP grew by only 51%. So, despite mind numbing debt levels, structurally high unemployment, peak oil, and a rapidly aging population, GDP is going to surge over the next ten years? I certainly believe that. Under the Obama budget, tax revenues will grow from 14.4% of GDP in 2011 to 20% of GDP in 2021. By comparison, the historical average is only 18% of GDP. Some of Obama’s tax revenue assumptions are as follows:

  • Raising the top marginal income tax rate from 35% to 39.6%. This is a $709 billion/10 year tax hike
  • Raising the capital gains and dividends rate from 15% to 20%
  • Raising the estate tax rate from 35% to 45% and lowering the estate tax exemption amount from $5 million ($10 million for couples) to $3.5 million. This is a $98 billion/ten year tax hike
  • Capping the value of itemized deductions at the 28% bracket rate. This will effectively cut tax deductions for mortgage interest, charitable contributions, property taxes, state and local income or sales taxes, out-of-pocket medical expenses, and unreimbursed employee business expenses. A new means-tested phase-out of itemized deductions limits them even more. This is a $321 billion/ten year tax hike
  • Massive new taxes on energy, including LIFO repeal, Superfund, domestic energy manufacturing, and many others totaling $120 billion over ten years
  • Increasing unemployment payroll taxes by $15 billion over ten years
  • Increasing tax penalties, information reporting, and IRS information sharing. This is a ten-year tax hike of $20 billion.

It is an absolute certainty that the Democrats will lose control of the Senate in 2012. Obama will never get any of his tax increases through a Republican controlled Congress. They are DOA. Therefore, his revenue assumptions are overstated by hundreds of billions every year. Even using his optimistic assumptions, the National Debt would reach $18 trillion in 2015. Using real world numbers, the National Debt will exceed $20 trillion in 2015. In what must be a gag, Obama says that interest on the debt will “only” be $500 billion in 2015. Hysterically, this would mean our debt holders will only require a crumbling empire to pay 2.5% on our debt. How about 5% as a minimum and 10% as a more likely rate? This would put interest on the debt between $1 trillion and $2 trillion per year. The collapse of America is a certainty if Obama’s budgeted spending and deficits play out. Somehow, the majority of Americans are overwhelmed with indifference.

Overwhelmed By Indifference

Some of my friends sit around every evening
and they worry about the times ahead
But everybody else is overwhelmed by indifference
and the promise of an early bed
You either shut up or get cut up;
they don’t wanna hear about it.
– Elvis Costello – Radio, Radio 

Do you remember when the politicians of both parties were making dire predictions of Great Depressions, economic collapse and 10% unemployment if we didn’t pass their “save an investment banker” rescue package and the $800 billion “jobs creation” stimulus package? They assured the American people that these expenditures were temporary and were only being made to save the country. Before the crisis, Federal spending was $2.7 trillion. The talking heads at the Fed and in the White House assure us they saved the world. GDP is growing and Obama told me we’ve added over 1 million jobs in the last year. Sounds like the emergency is over. The $400 billion per year of emergency spending should now be rolled back, since it was temporary. Therefore, Obama’s budget surely must going from $3.8 trillion back down to a pre-emergency level of $3.0 trillion in 2012. Not quite. You see, government spending never goes down. His proposal shows $3.7 trillion of spending in FY12. Emergencies never end for a politician in Washington DC. Spending equals power and control over our lives. There will always be another emergency that requires more spending.

You are now hearing the spin from the ideologues on both sides of the aisle about their cost consciousness and desire to restrain spending. It’s all a load of bull. Bush and the Republicans added $4.3 trillion to the National Debt during their reign of error. Obama has matched Bush in the space of 2 1/2 years by adding another $4.3 trillion. There is no effort to cut spending. Obama’s budget shows spending rising from $3.7 trillion in FY12 to $5.7 trillion in FY21. The propaganda and misinformation being spewed from these corrupt politicians is mind numbing.

Again, some perspective is needed to realize how out of control our Federal Government has become. According to the BLS, inflation has risen by 33% since 1999. Real GDP has grown by 23%. The population of the U.S. has grown by 10%. The number of employed Americans has risen by 1.8%. The average pay for a Federal drone (aka worker) has risen by 58%, while the average pay for real workers has risen by only 30%. Therefore, the average non-government employee has seen a decrease in their standard of living as inflation has risen faster than wages. As you can calculate yourself, Federal government spending surged by 124% between 1999 and today. Have you noticed a doubling in service level, competence, educational scores, new energy solutions, or safety and security? What did we get for an extra $2.1 trillion of spending?

What we got was exhausting wars of choice, less freedom, less liberties, less safety, more rules, more regulations, more bureaucrats, more corruption, a financial collapse, and a government that has put us on a path to fiscal ruin. We’ve almost tripled spending on Defense. Are we safer? We’ve more than doubled spending on healthcare. Are we healthier? We’ve more than doubled spending on welfare. Are the poor less impoverished? We’ve more than doubled spending on education. Are our children smarter? The Federal government is out of control. When you hear a politician or pundit detailing the horrors of “spending cuts”, please keep in mind they are lying. There will be no cuts until they are forced upon the government by the looming collapse of our economic system.

Year Defense Pensions Health Care Welfare Education
1999 $333 $431 $332 $165 $56
2000 $359 $454 $352 $171 $60
2001 $366 $481 $390 $183 $64
2002 $422 $503 $427 $224 $78
2003 $483 $518 $469 $242 $91
2004 $543 $537 $509 $238 $96
2005 $600 $565 $549 $246 $106
2006 $621 $591 $583 $250 $128
2007 $653 $636 $642 $254 $102
2008 $730 $669 $671 $313 $102
2009 $794 $739 $764 $407 $91
2010 $847 $756 $821 $496 $140
2011F $965 $801 $882 $488 $130
2012B $925 $813 $866 $424 $121
% Increase 177.8% 88.6% 160.8% 157.0% 116.1%

Now the question is what do we do about it? I know my first inclination would be to do what that Iraqi reporter did a few years ago during a Bush press conference in Iraq. I’d love to throw my shoes at Obama and every lying corrupt politician in America, but the momentary feeling of pleasure would be snuffed out in seconds by a hail of bullets from the Department of Homeland Security thugs guarding these traitors to the American republic.

 

 

Below is my CHART OF DOOM. Using real world assumptions, the National Debt will reach $25 trillion by 2019. That level of debt would be 130% of a realistic GDP figure. The interest on this level of debt would likely exceed $2 trillion per year, more than the entire Federal spending budget in 2002. This chart will not come to pass. Our economic system will collapse well before we reach a $25 trillion debt level. This is already baked in the cake. There are not enough politicians willing to tell the truth and not enough citizens that want to hear the truth. The result will be default, insolvency, currency collapse, vaporization of wealth, chaos, and pain.

The only way to avert the coming financial catastrophe is to go Egyptian on their asses. Maybe mobs of Americans surrounding the White House, Federal Reserve building and Wall Street bank headquarters would get their attention. It wouldn’t take a majority, but a minority of angry Americans willing to fight for the future of the country. The anger is building. More people are becoming aware. The internet is working its magic, just as it is doing in the Middle East. Those in control can keep pumping out their lies and propaganda, but the truth is plain to see, if you open your eyes.
 
“It does not take the majority to prevail, but rather an irate, tireless minority, keen on setting brush fire freedom in the minds of men.” – Samuel Adams 
 
 
 
 
 

 

 

 

KEEP ON ROCKIN IN THE FREE WORLD (Oldie but Goodie)

 With all that is going on in the Middle East, I thought this would be a nice repost. I originally wrote it in April 2009 after the stock market had dropped 50%.

The American Republic is 226 years old. The Roman Empire lasted 13 centuries before collapsing. The Roman emperors attempted to stave off the collapse by providing bread and circuses to the masses. Feeding Christians to lions worked only for so long. I picture Caligula “Mad Money” Cramer exhorting the masses that the worst was over and not to worry about the Vandals and the Huns. Nero “Mustard Seed” Kudlow probably saw a recovery on the horizon as Barbarians were at the gates of the city. Cleopatra “Money Honey” Bartiromo was proclaiming that the stupid masses didn’t know what was best for the system. Caesar “Glimmers of Hope” Obama was sure that if they just distributed more bread and added a few more circuses, things would improve by the Ides of March.

The false prosperity we have been experiencing for the last thirty years has come to an abrupt conclusion in the last 18 months. The amount of wealth destroyed is beyond comprehension. Household net worth has declined by $12 trillion in a matter of months. It will take years for average Americans to restore their wealth to 2007 levels. If your investment portfolio has declined by 50%, it will need to increase by 100% to break even.

According to the Wall Street shills on CNBC, it should take at least 3 months. An honest financial advisor would tell you 10 to 15 years. Americans have no choice but to substantially increase their rate of savings. Think back to yesteryear in 1981 when the savings rate was 12%. Back then, Americans accepted as a truth that hard work and a saving ethic led to long-term success. I can’t look at this chart without questioning why this happened. It always brings me back to the dreaded Baby Boomers. Their delusional belief that somehow they could borrow and spend today with real estate wealth funding their retirement came crashing down around them in the last 18 months. The bailing out of these delusional boomers with tax dollars has generated incredible anger in the country. Those who followed the rules are being compelled by the authorities to pay for the sins of those who didn’t follow the rules.

The stupendous fabric of the country is straining and in danger of yielding to the immense pressure building up in our society. I believe the actions taken by politicians and Washington bureaucrats in the last year have marked a point of no return. If we continue on the chosen path, time or accident will ultimately result in the demise of the Great American Experiment. I’m irate at the government for choosing to bailout excessive risk takers at my expense. There are millions of other Americans who feel the same way. This is why tea parties are taking place across the nation. I truly believe that every American has the right to make his or her own financial decisions. While I do not judge individuals on how they live their lives, I feel entitled to pass judgment on clusters of people whose individual decisions have negatively impacted my life. With the support of Congress, the Treasury and the Federal Reserve, these individuals are seizing my tax dollars as compensation for their idiotic behavior.

Don’t Feel Like Satan
 

There’s colors on the street
Red, white and blue
People shufflin’ their feet
People sleepin’ in their shoes
But there’s a warnin’ sign
on the road ahead
There’s a lot of people sayin’
we’d be better off dead
Don’t feel like Satan,
but I am to them
So I try to forget it,
any way I can.

Keep on rockin’ in the free world,
Keep on rockin’ in the free world
Keep on rockin’ in the free world,
Keep on rockin’ in the free world.

 

Neil Young –Rockin in the Free World

Neil Young wrote the song “Keep on Rockin in the Free World” in 1989. It is an angry song and I believe its lyrics are more relevant today. Neil and a member of his band, Pancho Sampedro, were glancing at newspaper photographs of the funeral of Ayatollah Khomeini in Iran as the angry mob set American flags on fire and chanted death to America. These Iranians thought America was the great Satan. Sampedro commented, “Whatever we do, we shouldn’t go near the Mideast. It’s probably better we just keep on rockin’ in the free world.” I wish we had made this guy our Secretary of State.

 

When Iraq invaded Kuwait in 1991, President George Bush decided it was America’s responsibility to protect Saudi Arabia’s oil fields and liberate Kuwait from the clutches of the dictator we had previously supported. The American military crushed Saddam Hussein’s Republican Guard and liberated Kuwait. After the Gulf War, the U.S. left 4,000 American troops in Saudi Arabia, eventually growing to 7,000 troops. These troops became a rallying point for Muslim fundamentalists, who charged the U.S. was trying to increase its influence over the Saudi royal family and the nation’s oil reserves. “The presence of the U.S. forces gave a lot of fuel to the virulent, anti-American Islamic forces that certainly commanded an audience in Saudi, and in the broader Arab world,” said Jamil Khoury, an Arab specialist and business consultant who teaches at the University of Chicago.

The U.S. has spent $7 trillion on Defense since 1991. Most of these funds were used to develop offensive weapons, not defensive weapons. The Heritage Foundation will argue that military spending as a percentage of GDP was only 4% in 2007, well below the 45 year average of 5.5%. This period includes the Cold War, Korean War, and Vietnam War. The 2010 budget spending will increase it to at least 5.6% of GDP.

The real question isn’t what percentage of GDP is proper it is whether $7 trillion could have been spent more intelligently. Would $4 trillion have been sufficient to defend the country? The military launched approximately 1,000 cruise missiles during the Iraq War at a cost of $1 million per missile. This was a choice to spend $1 billion blowing up bridges, water plants, and electrical facilities in Iraq rather than spending it repairing our 156,000 structurally deficient bridges, replacing our decaying water pipes, and upgrading our electrical grid. Would the $7 trillion have been better spent by private individuals? Could it have been better spent jump starting efforts to wean ourselves off Middle East oil? I don’t know the answer. But, I do know that the vast majority of the $7 trillion was borrowed from China, Japan and my grandchildren.

Kinder, Gentler, Machine Gun Hand

We got a thousand points of light
For the homeless man
We got a kinder, gentler,
Machine gun hand
We got department stores
and toilet paper
Got styrofoam boxes
for the ozone layer
Got a man of the people,
says keep hope alive
Got fuel to burn,
got roads to drive.

Keep on rockin’ in the free world,
Keep on rockin’ in the free world
Keep on rockin’ in the free world,
Keep on rockin’ in the free world.

 

Neil Young –Rockin in the Free World

Neil Young’s cynical view of our President, national priorities, and future was well founded. He saw the social fabric of the country ripping apart in 1989. I believe everyone has a right to live their lives as they see fit. This is America, land of the free, home of the brave. When powerful government bureaucrats choose to subsidize the conscious blunders of others through the utilization of my tax dollars, I’ve got a big problem. There are approximately 308 million people living in the United States. 75 million of these people are under 18 years old and 40 million are over 65 years old. They are generally off the hook regarding the current financial crisis. That leaves 195 million people. The 80 million Baby Boomers (the pig in the python) are at the root of most problems in our society today. As I walked from the parking garage to my office the other day I noticed a license plate on a parked BMW 335i. It read 335-4-NOW. This boomer’s goal in life was to move up from a $40,000 automobile to a $60,000 automobile. Very noble goal, but it reflects that the priorities for many in this country have become warped.

Approximately 12% of the U.S population (36 million people) is considered poor and is totally dependent upon the State to keep from starving. The working class makes up 40% of the population, the middle class 45%, and the ruling elite class 3%. All of these classes made dreadful mistakes in the last decade. The poor pretended to be middle class. They were able to buy $200,000 houses, lease $30,000 cars, own cell phones, get monthly cable, and eat out three times per week. Their friendly neighborhood banker loaned them the money to live this fantasy life. The working and middle class were able to buy $700,000 McMansions, go on trips to Europe, lease $50,000 cars and generally live the life of the rich and famous. A different banker in a nicer neighborhood also loaned them the money to live like rock stars. A portion of all these classes were the extremists that led us down the erroneous path to destruction.

Extreme behavior by individuals throughout our society, encouraged by banks, the government, Federal Reserve, and the mainstream media have pushed our country to the brink of disaster. Half of the households in America make less than $46,000 per year. I can guarantee you that the household incomes in the neighborhoods of West Philadelphia that I drive through to work every day are much lower than $46,000. Half the houses are boarded up, and rats are the predominant tenants. When I see a middle aged lower income woman driving an $87,000 Mercedes SUV or a young punk driving an $85,000 BMW, I know something has gone seriously off course. The auto financing companies were willing to make 7 year 0% interest loans or $400 a month leases available to these people. They did it because they were able to parcel these awful loans into a package, get it rated AAA by Moody’s and sell the toxic stench bomb to pension funds and life insurance companies. Meanwhile the deadbeats cruising around in the luxury wheels got to live the Fake American Dream for awhile.

Extremism was not relegated to only the poor. The lifestyles of the rich and famous are nauseating and revolting to the average middle class American. Watch one episode of Housewives of Orange County or New York to understand the shallowness and pretentiousness of the privileged rich. Across America there are millions of people whose sense of worth is tied to the McMansion they live in, the brand of car they drive, the school they send their kids to, and the number of electronic gadgets they can accumulate. The majority of these people can be found on the East Coast and West Coast. Wall Street and Hollywood are the Mecca for these arrogant, vain, self centered snobs. The powerful few in our society took extreme risks in the casinos of Wall Street. AIG, Goldman Sachs (GS), Lehman Brothers, and Bear Stearns, among others were inhabited by multi-millionaire gamblers. They had already socked away millions in bonuses and stock options, but their arrogance and pride led them to take even more extreme risks. They ultimately destroyed the financial system. Now they want you and I to come to their rescue, for the good of the country.

Let’s See How Far We’ve Come

 

Said where you going man you know the world is headed for hell
Say your goodbyes if you’ve got someone you can say goodbye to

I believe the world is burning to the ground
Oh well I guess we’re gonna find out
Let’s see how far we’ve come
Let’s see how far we’ve come

 

How Far We’ve Come – Matchbox 20

I believe the world is burning to the ground. The United States is spending trillions per year propping up social safety nets and waging foreign wars while borrowing the funds to do so. The currency is being debased day by day and will eventually be worthless. Our current path will lead us to hell. I think I can address the anger and disillusionment of the vast majority of hard working Americans:

  • The materialism and wastefulness of our society is reflected in how our minimum living standards have changed since 1970. The average household size has declined from 3.1 to 2.5, a 20% reduction. Our average home size has increased from 1,400 sq ft to 2,600 sq ft, an 86% increase. The average number of vehicles per household has increased from 1.1 to 2.3, a 109% increase. Bigger is better has been the American mantra for decades. These figures are skewed, as many people live in 6,000 sq ft McMansions and drive 4 or more cars. It is clear that millions cannot distinguish between a need and a want.
  • I bought my home in 1995. The minor upgrades (finished basement, hardwoods) we’ve made over fourteen years were paid for in cash. The other major expenditures were to replace appliances that broke. When the value of the house miraculously doubled between 2000 and 2005, I opened a home equity line of credit with my Credit Union as an emergency fund. It has not been used to take vacations, buy a new car, or install a $25,000 kitchen. The extreme risk takers bought houses with 105% leverage, lied on their mortgage applications, attempted to flip multiple condos, used the appreciation in their home value to live the lifestyle of Madonna and vacationed on the French Riviera. Now the politicians running our government are using my tax dollars to insure that these extreme risk takers stay in their homes. Rewarding reckless behavior leads to more reckless behavior.
  • I drive a paid for 7 year old CRV with 120,000 miles. My wife drives a paid for 9 year old Minivan with 95,000 miles. I have never been a car person. My Dad always bought used cars. I don’t see the point in spending money on a depreciating asset. My self esteem is not tied to the car I drive. I’ve owned 2 new cars in the 30 years I’ve been driving. I’ve financed my cars over four years. Every month that I don’t have to make a car payment allows me to put that money towards my kid’s college fund or my retirement account. GMAC, Chrysler Financial, and Ford Credit have been the credit drug pushers that have permitted luxury addicts all over the country to tool around in a Mercedes, BMW, or Porsche of their choice. Shockingly, lending money to subprime borrowers led to billions in losses. GMAC rationally decided in October 2008 to limit loans to people with credit scores above 700. In December the government delivered $5 billion of taxpayer TARP funds to GMAC, who then decided to again lend money to subprime borrowers with 620 credit scores. Their plan is to lose money on these loans, but make it up on volume. When you see an 18 year old punk driving a BMW, you are probably making his car payment.
  • We use a credit card to pay for virtually all of our monthly expenses. 1% of the charges go into my son’s 529 college account. I have not paid an interest charge since 1990. I’m a credit card company’s worst customer. No interest income, no late charges and I’ve received maximum rewards. I’m not the average American. The average American owes $9,000 on their credit cards. In a fair world, when these people couldn’t repay their debts the bank would take a major loss and the consumer face bankruptcy with the inability to borrow for years. The top credit card issuers JP Morgan (JPM), Bank of America (BAC), Citicorp (C), and Capital One (COF) issued credit cards to anyone with a pulse because they just sold the package of bad debt to widows and the Chinese. Then they drank their own poisoned Kool-Aid. Now our clueless Treasury Secretaries (Mr. Paulson & Mr. Geithner) have shoveled $78 billion of your tax dollars to these banks so they can continue to send out 5 billion credit card solicitations per year to more deadbeats. Loaning money to people incapable of repaying you is generally not a good business practice, except in the America of today.
  • Every individual in the United States has right to live any way he or she chooses. Many have chosen to borrow and live the good life today and not worry about tomorrow. They will vote for the politician that promises them bread and circuses without requiring them to sacrifice, save for a rainy day, take responsibility for their future or exercise any self control. This is where reality and fantasy meet. People can only borrow and spend if the Federal Reserve and bankers provide the funds to do so. By creating money out of thin air and handing it out to people with no legitimate means of repaying, the bankers who run this country have put this country on the road to ruin. The government solution is to confiscate your tax dollars, give it out to bankers, who will lend it to new subprime borrowers, who will not repay these debts. They are doing this in a last ditch attempt to retain power and control.

The people of our great country must heed the words of David Walker, unless we want it to collapse into a heap of smoldering ashes.

The US government is on a ‘burning platform’ of unsustainable policies and practices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon. There are striking similarities between America’s current situation and the factors that brought down Rome, including declining moral values and political civility at home, an over-confident and over-extended military in foreign lands and fiscal irresponsibility by the central government.

 

Let’s see how far we’ve come. I guess we’re going to find out.

SMOOT-HAWLEY REDUX (Featured Article)

This article originally appeared in the November 2010 edition of the Casey Report.

As the Greater Depression continues along a parallel pathway with the Great Depression of the 1930s, Congress is about to commit the same blunder it made in 1930. The rocket scientists in the House of Representatives in September passed the Currency Reform for Fair Trade Act, which aims to crack down on Chinese currency manipulation by targeting imports from China and other countries with currencies that are perceived to be undervalued.

The vote was 348 to 79, with more than 100 Republicans voting in favor of the bill. It died in the Senate before the mid-term elections, but Representative Sander Levin, Representative Tim Ryan and Representative Tim Murphy are expected to reintroduce the bill when the House returns in February from a congressional district work break. Senators Shumer and Casey are also planning legislation to punish the Chinese for unfair trade practices.

The head rocket scientist, Nancy Pelosi, declared:

“For so many years, we have watched the China-U.S. trade deficit grow and grow and grow. Today, we are finally doing something about it by recognizing that China’s manipulation of the currency represents a subsidy for Chinese exports coming to the United States and elsewhere. We owe that to American workers.”

This legislation is part of the Democrats’ “Make It in America” initiative that endeavors to increase domestic manufacturing and creating new American jobs. In classic congressional fashion, they are attempting to pass a bill that will make them look good in the eyes of their constituents, but will exacerbate already dangerous world trade imbalances.

You can count on Congress to pander to unions, protectionists, and America Firsters with hollow legislation, when 40 years of bad decisions, bad policies, and bad choices placed us in this situation. When you have made legislative choices that will require the U.S. government to borrow another $6 trillion in the next four years and you already owe someone $868 billion, it is not a good idea to punch them in the nose.

The U.S. is running an annual trade deficit exceeding $500 billion per year. It has not run an annual trade surplus since 1975. The trade deficit peaked at $769 billion in 2006, subtracting 5.7% from GDP. The enormous trade deficits are a result of government spending policies, Federal Reserve monetary policies, and corporate outsourcing that have gutted the industrial base of the U.S. These policies resulted in personal consumption expenditures surging from 62% of GDP in 1970, to 71% of GDP in 2009.

The trade deficits are not the fault of the countries selling goods to American consumers. Trade subtracted 3.5% from growth in April through June, the most since 1947, as imports surged at the fastest pace since 1984.

The trade deficit with China reached a record level in August of $28 billion, as imports skyrocketed. The U.S. is on track to exceed the 2008 record trade deficit with China of $268 billion. The facts that you don’t hear from the protectionist crowd is that exports to China are on track to reach $84 billion in 2010, 20% higher than the previous peak in 2008. Exports to China have increased by 525% since 2000, while imports from China have increased by 340%. The storyline about China not allowing U.S. imports into their country is false. Putting tariffs or quotas on goods coming from China will not create jobs in America and will only deepen and lengthen the current depression, just as it did in the 1930s.

Protectionism During the Great Depression

The complete collapse of worldwide trade during the 1930s, with its root in trade protectionism, did not cause the Great Depression, but it certainly didn’t help. In 1929, exports totaled $5.9 billion and accounted for 5.7% of GDP. By 1933, exports had plunged to $2.0 billion and accounted for only 3.5% of GDP. Imports plummeted by an equal amount. Global trade declined by 60% as tariffs were imposed and retaliation created a downward spiral. The U.S. provoked the trade war with the passage of the Smoot-Hawley Tariff Act.

Senators Reed Smoot and Willis C. Hawley sponsored the bill, and it was signed into law on June 17, 1930, by Herbert Hoover. It raised U.S. tariffs on over 20,000 imported goods to the highest levels since 1828. The new tariff imposed an effective tax rate of 60% on more than 3,200 products and materials imported into the United States, quadrupling previous tariff rates. According to the U.S. Statistical Abstract, the overall effective tariff rate was 13.5% in 1929 and 19.8% by 1933.

It seems politicians never change. During the 1928 presidential campaign, Herbert Hoover promised to help beleaguered farmers by increasing tariffs on agricultural products. After getting elected, Hoover asked Congress for an increase of tariff rates for agricultural goods and a decrease of rates for industrial goods. The Republican-dominated House and Senate did him one better and increased tariffs across the board.

In May 1930, a petition was signed by 1,028 economists asking President Hoover to veto the legislation. Henry Ford begged him to veto the legislation. Hoover opposed the bill and called it “vicious, extortionate, and obnoxious” because he felt it would undercut his pledge to international cooperation. Then he proved that he was a standard-issue weak-kneed politician by signing the bill. Hoover’s initial instinct proved correct. The international community levied their own tariffs in retaliation after the bill became law. Canada, Britain, and other European countries immediately imposed their own tariffs. World trade came to a grinding halt.

Germany, with its war reparations, was particularly vulnerable to this contraction. Ironically, the U.S. was the lender to the world during the 1920s. American lending propped up the entire world economy. Former allies paid war-debt installments to the U.S. chiefly with funds obtained from German reparations payments, and Germany was able to make those payments only because of large private loans from the U.S. and Britain. Similarly, U.S. investments abroad provided the dollars, which alone made it possible for foreign nations to buy U.S. exports.

By killing world trade with the Smoot-Hawley tariffs, the U.S. shot itself in the foot and contributed to worsening the Depression in Germany. This inadvertently led to the rise of Hitler. Talk about unintended consequences.

Decades of Bad Choices

Blustering politicians like Nancy Pelosi and Chuck Schumer are attempting to ram through populist legislation in order to appear to be on the side of the American people. The Treasury secretary of the United States has declared China a currency manipulator. Chinese Premier Wen Jiabao responded in kind:

“If we increase the Yuan by 20% to 40%, as some people are calling for, many of our factories will shut down and society will be in turmoil. If China saw social and economic turbulence, then it would be a disaster for the world.”

They are playing a high-stakes game of chicken, and the ante is much higher than it was in 1930. Exports account for 12.5% of our GDP today, versus 5.7% prior to the Great Depression.

The United States was a net exporter when the 1970s started. Our enormous trade deficits, which subtract from GDP, were not imposed on us by foreign countries. We are in this predicament because we made appalling choices.

We chose to allow the Federal Reserve to inflate away 95% of the purchasing power of the USD since 1971. We chose to elect politicians that have driven the national debt from $371 billion in 1970 to $13.6 trillion today. We chose to support “free trade” legislation that allowed corporate CEOs to gut our industrial base and ship good-paying jobs to China, while filling the pockets of these executives with millions. We chose to spend rather than save and invest in our country. We chose to become a consumer debt-centered society, relishing in the cheap goods we could buy from China on credit. We chose low prices at Walmart over small-business owners and sustainable domestic production of goods. Decades of bad choices cannot be reversed through taxation, tariffs, and quotas.

The Chinese have pegged their currency to the USD since 1995. For a decade, the U.S. was just fine with the peg, as American consumers got cheap goods, American corporations reaped huge profits from outsourcing, and banks raked in billions by lending money to everyone. Now that we have entered the Greater Depression, the finger pointing and accusations have begun.

Politicians and the people who elected them want someone to blame for their bad choices. The Chinese are the bogeyman that forced Americans to buy on credit. They forced American corporations to offshore millions of U.S. jobs. If the U.S. had a strong dollar policy, ran surpluses, and lived within its means, the Chinese peg would be meaningless.

U.S. GDP has grown by 335% since 1985. Over this same time frame, exports to China have grown by 1,800%, and imports from China have grown by 7,700%. Do politicians actually believe that imposing 30% tariffs on all Chinese products will magically create new manufacturing jobs in America? The 42,400 factories that have closed since 2001 and the 5.4 million manufacturing jobs lost are not coming back. A 30% upward revaluation of the yuan or 30% tariffs on Chinese products would devastate an economy that is still 70% dependent upon consumer spending. Just as in 1930, protectionist measures would boomerang and smack America in the back of the head.

If the pandering politicians in Washington D.C. are myopic enough to ignore the lessons of the past and start a trade war with China and/or the rest of the world, the possible implications would be:

  • An immediate increase in the prices of goods from China, which would proportionately hurt the lower and middle classes who shop at Walmart.
  • Retaliatory tariffs and protectionist policies by other countries, resulting in a decline in U.S. exports.
  • A net loss of U.S. jobs as the decline in consumer spending-related jobs will far outweigh any benefits to exporting businesses.
  • A decrease in world trade, resulting in a deepening of the current worldwide depression.
  • Possible unintended consequences similar to what happened in Germany after the hyperinflationary collapse of their currency (dictators, war, chaos).

The investment implications of trade barriers, tariffs, quantitative easing, and currency debasement are clear. Gold, silver, and virtually all commodities are likely to soar in this environment. To find out how to profit from this certain trend, check out Casey Research’s BIG GOLD REPORT.

AMERICAN EULOGY (Featured Article)

The Founding Fathers described the kind of country they were shaping on July 4, 1776 with the most well known sentence in the English language:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. Declaration of Independence

In 1776, America was an idea born of noble intentions. An idea that every citizen had the opportunity to succeed, prosper and achieve based upon their hard work and abilities. The government did not provide advantages or a safety net for its citizens. People were free to succeed or fail based upon their own merits. America had a frontier spirit because it was still a frontier. Individual effort, intellect and willingness to sweat allowed you to move up the socio-economic ladder. The government provided a National Defense, and very little else. In 1794, the country had a population of 4.4 million and a GDP of $310 million. Government spending totaled $7.1 million, or 2.3% of GDP, and was split between Defense and interest on the Revolutionary War debt. Today, Federal Government spending totals $3.7 trillion, or 25% of GDP.

James Truslow Adams in his 1931 Epic of America described the America that once existed in reality, but only exists as a phantom today: 

“The American Dream is that dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, also too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

“The American Dream that has lured tens of millions of all nations to our shores in the past century has not been a dream of material plenty, though that has doubtlessly counted heavily. It has been a dream of being able to grow to fullest development as a man and woman, unhampered by the barriers which had slowly been erected in the older civilizations, unrepressed by social orders which had developed for the benefit of classes rather than for the simple human being of any and every class.” – James Truslow Adams – Epic of America

His assessment of the American Dream was made in 1931. He saw signs that the American Dream had begun to die. He was right. The American Dream began to develop a terminal illness in 1913 with the creation of the Federal Reserve and the passage of the 16th Amendment to the Constitution, creating a permanent income tax.

Song of the Century

Sing us a song of the century
It sings like American Eulogy
The dawn of my love and conspiracy
Forgotten hope and the class of 13
Tell me a story into that goodnight
Sing us a song for me – 
American Eulogy – Green Day

 

At the outset of the last century America was still a vital, free, growing country on the rise. The song of the century began as a joyous ballad and ended as a funeral dirge. The creation of a Central Bank, which could create inflation on demand, and allowing politicians the ability to buy votes through pork spending, paid for with ever increasing taxation, have sucked the life out of the American Dream. According to the Federal Reserve’s own website, their mandates were clear. Below are those mandates and an assessment of their success.

Conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.

  •  Due to loose monetary policy in the 1920’s, the Federal Reserve created a stock bubble, a stock market crash of 89%, a decade long Great Depression, and unemployment of 25% in the 1930’s.
  • Due to loose monetary policies in the 1970’s, the Federal Reserve created raging inflation that reached 14% in the early 1980’s and needed to raise interest rates to 18% in order to break the back of inflation, resulting in unemployment surging to 9.7% in 1982.
  • Due to loose monetary policies in the early 2000’s, the Federal Reserve created the largest housing bubble in history, with the subsequent collapse bringing the financial system to within hours of collapse, and driving unemployment to 9.9% in 2009.
  • Due to the loosest monetary policy in history, today, inflation has begun to rage across the globe, leading to riots, protests and bloody revolutions, with more on the way.
  • The Federal Reserve has achieved their stable prices mandate by inflating away 96% of the purchasing power of the US dollar in less than 100 years. The price of gold continues to soar, as faith in the US dollar diminishes by the minute. I guess stability is in the eye of the beholder. 

Supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers.

Historical US Bank Failures thru 2010

  •  The Federal Reserve’s supervisory and regulatory expertise can be observed in the graph above. This graph doesn’t do the Fed justice, as it begins in 1934. Sixteen years after its origination, the Fed managed to let 10,000 out of 25,000 banks in the country fail between 1929 and 1932.
  • Their glorious history also includes residing over the failure of 2,800 banks during the 1980’s S&L crisis.
  • While protecting their mega-bank Wall Street masters, the Fed has allowed over 300 small banks to go under so far. There are 900 banks on the troubled list that will eventually meet their maker.  

Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets.

  • Generally, maintaining the stability of the financial system and containing systematic risk doesn’t include allowing the worldwide financial system to come within hours of collapse as described by Rep. Paul Kanjorski:
  • “On Thursday [the 18th], at about 11 o’clock in the morning, the Federal Reserve noticed a tremendous drawdown of money market accounts in the United States to a tune of $550 billion being drawn out in a matter of an hour or two. The Treasury opened up its window to help. They pumped $105 billion into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks.

    They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn’t be further panic and there. And that’s what actually happened. If they had not done that their estimation was that by two o’clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.

    Now we talked at that time about what would have happened if that happened. It would have been the end of our economic system and our political system as we know it.”

Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system.

  • It seems this is the only mandate the Federal Reserve has taken seriously is providing services to its owners, the banks. Did the bankers and politicians that met on Jekyll Island to mastermind this Central Bank envision that those services would include: buying $1.5 trillion of toxic mortgages from the banks; allowing the mega-banks to borrow from the Fed at 0% and reinvest those funds at 2.5% risk free; pumping $600 billion directly into the stock market through their QE2 scam; allowing banks to falsely overstate the value of their mortgage and commercial loans; and never ever enforcing basic risk management regulations.
  • While providing Wall Street banks with billions of unearned risk free profits, 0% interest rates further impoverish the savers and senior citizens of the country. The Federal Reserve has fulfilled their unstated mandate of enriching bankers at the expense of middle class Americans.  

To strengthen U.S. standing in the world economy.

  • The Federal Reserve’s affect on the world economy is best revealed in a pictorial tribute to their policies:

                                    TUNISIA

                                     ALGERIA

                                         EGYPT

The Federal Reserve has not been alone in killing the American Dream. Politicians since 1913 have done their part in suffocating the dream. The tax code consisted of 400 pages in 1913 and tax rates ranged from 1% to 7%. In less than a century politicians of both parties have carved out 70,000 pages of payoffs, entitlements, and bribes for their contributors and constituents. Tax rates now range from 10% to 35%. Those 70,000 pages of rules, regulations and tax breaks do not benefit the average middle class American. They benefit those who had the money and power to buy off a Congressman.

The Federal Reserve and the US Tax Code bastardized the American Dream, created barriers to economic advancement, and supported the accumulation of wealth and power by a select few. The ruling elite have used their power and control over the media to convince the majority of Americans that the American Dream is about accumulating material possessions with debt. The American Dream no longer meant attaining the fullest measure of your capabilities, but living in the biggest McMansion, driving the nicest BMW, watching the biggest TV and wearing the latest fashions, all acquired with debt. America is dying. 

Mass Hysteria

Red alert is the color of panic
Elevated to the point of static
Beating into the hearts of the fanatics
And the neighborhood’s a loaded gun
Idle thought lead to full-throttle screaming
And the welfare is asphyxiating
Mass confusion is all the new age and it’s creating a feeding ground for the bottom feeders of hysteria

Hysteria, mass hysteria!
Mass hysteria!
Mass hysteria!
Mass hysteria! –  American Eulogy – Green Day

 

Green Day captures the essence of America since the turn of the century. The country has been in the throes of mass hysteria since 9/11. The once independent, self sufficient individualists that populated this country have become dependent, government reliant, quivering shadows of the frontiersmen that created this country. In the name of safety and security, the American people have allowed their government to accumulate complete control over every aspect of our lives. Only a country in the grip of mass hysteria would allow their leaders to run the National Debt from $5.8 trillion to $14.1 trillion in less than 10 years. Only a country in the clutches of mass hysteria could believe they could get rich by trading internet stocks and houses to a greater fool. Only a country seized by mass hysteria would allow its leaders to promote democracy at the point of a cruise missile as we continue to fight $3 trillion wars in the Middle East, while nearly tripling the amount spent on Defense to more than $1 trillion per year.

 Defense Budget Breakdown for 2011

Defense-related expenditure 2011 Budget request & Mandatory spending Calculation
DOD spending $721.3 billion Base budget + “Overseas Contingency Operations”
FBI counter-terrorism $2.7 billion At least one-third FBI budget.
International Affairs $10.1–$54.2 billion At minimum, foreign arms sales. At most, entire State budget
Energy Department, defense-related $20.9 billion  
Veterans Affairs $66.2 billion  
Homeland Security $54.7 billion  
NASA, satellites $3.4–$8.5 billion Between 20% and 50% of NASA’s total budget
Veterans pensions $58.4 billion  
Other defense-related mandatory spending $7.5 billion  
Interest on debt incurred in past wars $114.8–$454.2 billion Between 23% and 91% of total interest
Total Spending $1.060–$1.449 trillion  

 

If you had told someone on September 10, 2001 that ten years later America would be running $1.5 trillion annual deficits, fighting two wars of choice in countries that despise our presence, and had not only not addressed the $100 billion of unfunded welfare liabilities but added billions more with Medicare D and Obamacare, they would have thought you were a crazy doomster predicting the end of the world. They would have put you away in a padded cell if you had further predicted that politicians would cut taxes three separate times, that the Wall Street banks that leveraged themselves 40 to 1 and destroyed the financial system were handed $2 trillion of taxpayer funds so they could pay themselves multi-million dollar bonuses, and that the Federal Reserve would triple its balance sheet to $2.45 trillion by running its printing presses at hyper-speed and handing the money to those same Wall Street Mega-Banks. 

What caused the mass hysteria that has destroyed the soul of America? Was it just the madness of crowds? Or was it something more sinister? 

True sounds of maniacal laughter
And the deaf-mute is misleading the choir
The punch-line is a natural disaster
And it’s sung by the unemployed
Fight fire with a riot
The class war is hanging on a wire because the martyr is a compulsive liar
When he said “it’s just a bunch of niggers throwing gas into the ….” – American Eulogy – Green Day

Whenever an act doesn’t make sense and seems irrational, you need to ask yourself, “who benefits?” Who has benefitted from the hysteria? The answer is in plain sight. The moneyed interests benefitted. The military industrial complex benefitted. The Federal Government bureaucracy benefitted. Wall Street bankers benefitted. Mega-corporations and their CEOs benefitted. The top 1% ruling elite gained more wealth and more power. They created the mass hysteria with the assistance of their corporate owned mainstream media and completed their pillaging of the middle class with the cooperation of regulators, rating agencies and their ultimate weapon, the privately owned Federal Reserve bank, that has enriched its owners while impoverishing those whose only aspiration was to do an honest day’s work, raise their families, and live in relative comfort, safety, and happiness.

I Don’t Wanna Live In The Modern World

I don’t wanna live in the modern world!
I don’t wanna live in the modern world!
I don’t wanna live in the modern world!
I don’t wanna live in the modern world!

I am a nation without bureaucratic lies
Deny the allegation as it’s written (fucking lies!)

I want to take a ride to the great divide
Beyond the “up to date” and the neo-gentrified
The high definition for the low resident
Where the value of your mind is not held in contempt
I can hear the sound of a beating heart
That bleeds beyond a system that’s falling apart
With money to burn on a minimum wage
I don’t give a shit about the modern age – American Eulogy – Green Day

 

The modern world in no way resembles the world  James Truslow Adams wrote so passionately about in 1931. Green Day’s version of bureaucratic lies, high definition TVs for the poor, contempt for those who use their minds, and a debt flooded system that is falling apart is an accurate assessment of America today. The modern world is ruled by the few with wealth and power, sustained by government. The misinformation and propaganda dished out by the mainstream media creates a smokescreen that obscures who wields the true power in this country. The corporate mainstream media has done such a good job spreading the Big Lie that a vast number of Americans actually admire and worship the ultra-rich.

Most Americans still believe the fairy tale of the American Dream, that no matter how humble your beginnings, everyone has a fair chance to become rich in America. The truth is that the wealthy ruling class owns the country. The top 1% control 43% of the financial wealth of the nation. The top 10% control 83% of the financial wealth of the nation. There is a  misperception that the ultra-rich earn their wealth. The facts show otherwise. In 2008, only 19% of the income reported by the 13,480 individuals or families making over $10 million came from wages and salaries. Remember the financial crisis of 2008-2009 that wiped out 7 million jobs, cut the value of many homes in half, and required a taxpayer bailout of Wall Street? According to research done by economist Edward Wolff, “there has been an “astounding” 36.1% drop in the wealth (marketable assets) of the median household since the peak of the housing bubble in 2007. By contrast, the wealth of the top 1% of households dropped by far less: just 11.1%. So as of April 2010, it looks like the wealth distribution is even more unequal than it was in 2007.”

Source: William Domhoff

The bottom 90% own less than 19% of stocks and mutual funds in the country. Reality is that the 10% richest Americans own the country. The top 1% control 50% of the investment assets and only 5% of the total debt in the country. The bottom 90% control 12% of the investment assets and are burdened with 73% of the total debt. You can clearly see that the Wall Street bailout and the current Federal Reserve QE2 plan to boost stock prices have only benefitted the top 10% richest Americans. What is good for Wall Street is  not good for Main Street. The American middle class has been lured into debt by the purveyors of debt, the ultra-rich elite who control the financial industry. The further into debt the bottom 90% descend, the greater the enrichment of the ruling class. This is why Wall Street shysters, political hacks and the corporate mainstream media have urged Americans to whip out those credit cards and “Save America” by spending money they don’t have, again. It is reminiscent of President Bush’s heartfelt plea to the American public to defeat terrorism by buying a GM car with 0% down.

The propaganda that is constantly pounded into the brains of Americans about “death taxes” and the rich paying more than their fair share of taxes is part of the Big Lie perpetrated by the powerful ruling class. The “huge” issue of estate tax impacts only the few thousand richest Americans.  According to a study published by the Federal Reserve Bank of Cleveland, only 1.6% of Americans receive $100,000 or more in inheritance. Another 1.1% receive $50,000 to $100,000. On the other hand, 91.9% receive nothing (Kotlikoff & Gokhale, 2000). The richest families in the country provide the funding for the mainstream media propaganda needed to eliminate estate taxes.

 The lies about the ultra-rich paying more than their fair share of taxes are refuted in the graph above. The top 1% actually pays a lower percentage of their income than the next 9%. The tax code isn’t 70,000 pages for nothing. The ultra-rich have used their wealth to great advantage by having loopholes and tax dodges inserted into the tax code by their bought off congressmen. The average American can’t afford high powered tax specialists and lawyers to help them stash their wealth in off-shore tax havens in the Caribbean and Switzerland. The consistent theme in America today is that the middle class gets screwed and the ultra-rich ruling class accumulates more wealth and power.

The Death of America

“Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.” – John Adams

Two hundred and thirty five years ago, our Founding Fathers declared that we all had the unalienable rights of life, liberty and the pursuit of happiness. These rights have been restricted and bastardized over two centuries. Liberties have been severely restricted as your government tracks you through your social security number, is able to monitor your phone and internet communications, and regulates your education, healthcare, business, and a thousand other daily activities. The right to happiness was based upon James Treslow Adams’ view that we were free to attain “the fullest stature of which they are innately capable”. The happiness of becoming a success through your individual exertion, intelligence and efforts has been subverted by the happiness of material goods acquired through the use of debt, peddled by the ruling class.

The American Dream where every person had the opportunity to live a richer and fuller life began to die in 1913. Every generation born in this country had an excellent chance to live a better life than their parents. Relentless progress was the American way. I have three teenage sons. Based on the actions of this country’s ruling oligarchy, I doubt that my sons will live a richer and fuller life than myself. The debts are too extreme, the military overreach too excessive, the looting by the financial class too great, the political corruption too extensive, and the opportunities too few. The dream of a social order where everyone could rise to the highest level of their capabilities regardless of their birth has been systematically squashed. With 66% of households making less than $65,000 and college costs out of reach for 80% of Americans without incurring crushing levels of debt, the chances for most Americans to climb the social ladder through educational advancement are nil. Even if they do graduate from college, the CEOs in corporate America, who “earn” 300 times the average worker, have outsourced their jobs to China and India.

 The ruling class provides their children with private schooling and necessary preparation to keep their place in the social order. Wealth begets wealth. The elite send their kids to the elite Ivy League schools and use their connections with their fellow ruling elite to get them jobs on Wall Street, the prestigious connected corporations or government jobs in Washington DC. The wealth of the few has erected barriers to advancement of the many. America has progressively become a stratified class oriented society that has begun to spiral downward as the ruling class has gone too far. The revolutions flaring across the globe are occurring because the ruling class went too far and took too much. The ruling class in America should take note. They have shattered the American Dream and the retribution from those who have been swindled will be unexpected and violent.

http://www.youtube.com/watch?v=bunhVPAXcJA

ALL YOU ZOMBIES (Oldie but Goodie)

With the events of the last week pushing the world further into Crisis, I thought this November 2009 article would be appropriate to rerun. I’m finalizing an article that I hope will be a bookend to this piece.

zombies

The LORD saw how great man’s wickedness on the earth had become, and that every inclination of the thoughts of his heart was only evil all the time.  The LORD was grieved that he had made man on the earth, and his heart was filled with pain.  So the LORD said, “I will wipe mankind, whom I have created, from the face of the earth—men and animals, and creatures that move along the ground, and birds of the air—for I am grieved that I have made them.”  But Noah found favor in the eyes of the LORD. – Genesis 6

Everyone is familiar with the story of Noah. God was angry at the evil and wickedness of mankind. God instructed Noah to build an ark in order to save his family and two of each animal on earth from the coming flood. Noah could have ignored God’s warning and continued to live his life as before. By heeding God’s warning and building the ark, Noah was able to save himself, his family, and two of every animal from death and destruction. The warning signs regarding the current American Crisis have been discernible since the 1990’s. The un-sustainability of the government’s fiscal social guarantees, the inevitability of peak cheap oil, and the policing of a far flung empire with troops in 130 countries, were all known during the 1990’s. Americans had swelled their use of debt since 1980 and had not saved enough for their looming retirement years. The culture wars fractured the country. Just like a squirrel prepares for winter by collecting acorns and storing them in his nest, Americans had an opportunity to prepare for the coming winter. Instead we squandered the remaining days of autumn, ignoring our monetary problems, buying $45,000 SUVs, borrowing at 125% of the value of overpriced McMansions, initiating wars of choice, expanding our empire and enlarging our police state.

We had the power to influence history in a positive manner. Appropriate preparation could have lessened the impact of the long cold hard days ahead. Some winters are bitter and deadly. Others are mild and harmless. Since most Americans, including our leaders, think linearly they never see the turning of the seasons of history until it is too late. We are currently in the midst of a Fourth Turning, and most people have no clue. With winter approaching, it is always wise to get the heater checked, buy some firewood, make sure the snow plow has gas, store some food and water in case of a blizzard, buy some salt in case of ice, and tune up the car.  

Instead of having their heater tuned up, Americans decided a new kitchen with granite counters and stainless steel appliances paid for with a home equity loan was a better idea. Instead of buying firewood, Americans bought a 52 inch HDTV using their platinum credit card. Instead of making sure the snow plow had gas, Americans outsourced their lawn care and snow removal to illegal immigrants. Instead of storing food and water, Americans decided to spend their money eating out four times per week. Instead of buying salt for an icy winter, Americans bought salt for the rims of their margarita glasses. Instead of tuning up their cars, they leased a new BMW every two years. Bitter winds have begun to blow, dark clouds are on the horizon, and winter has arrived. The country is completely and utterly unprepared.

Only Noah Saw It Coming

All you zombies hide your faces
All you people in the street
All you sittin’ in high places
The pieces gonna fall on you
No one ever spoke to Noah
They all laughed at him instead
Working on his ark, working all by himself
Only Noah saw it coming
Forty days and forty nights
Took his sons and daughters with him
Yeah they were the Israelites –
Hooters – All You Zombies

The Hooters were a Philadelphia rock group from the 1980’s. The first concert I attended was a Hooters performance at the Spectrum. Their music still rings true today. The American zombies had a chance to prepare for the coming Crisis. They instead laughed at Noah. Now the pieces will fall on them. The pieces will fall on the average American and the elitist rulers in Washington and on Wall Street. When Strauss and Howe wrote their book The Fourth Turning in 1997 there was approximately a decade to prepare for the coming Crisis. They warned that the two parties needed to change their messages to prepare the country for the coming winter:

“Yet both parties are also harmfully post-seasonal. In their quest for an ever bigger harvest, Democrats want to remove sacrifice ever further from the public lexicon. They seek entitlements for every victim, including the entire middle class, without caring whether all this guaranteed consumption is sustainable. If Democrats get their way, they would impose huge debts and future taxes on Millennial children. In their quest for ever more individualism, Republicans want to make public authority ever more dysfunctional. They seek to starve all government of revenue and are willing to shut down whole federal agencies to make their point. If Republicans get their way, they would prevent Millennials from forging a positive bond with government and limit the public resources directed toward the care and schooling of the neediest children.”

The Fourth Turning requires personal sacrifice by all Americans and the government must be seen as a high functioning authority that protects its citizens and successfully accomplishes big missions. In the last twelve years, we have done the exact opposite of what was needed to prepare for the Crisis. The two Parties reached a consensus by increasing entitlements for everyone with passage of Medicare Part D, creating a new $15 trillion unfunded liability. George Bush provided rich people with entitlements of lower taxes and middle class entitlements with rebate checks. The banking industry was given free rein to rape the American public and the rest of the world with the repeal of the Glass-Steagall Act. Rather than killing or reducing governmental agencies, George Bush used 9/11 as an excuse to greatly expand government by creating the Department of Homeland Security and increasing Defense Spending by 200%. Democratic politicians, with the wholehearted support of George Bush, used their authority over Fannie Mae, Freddie Mac and threats against banks to open the mortgage market to people who had no means to actually make a mortgage payment. The two wars of choice in Iraq and Afghanistan have cost $934 billion since 2003.

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In 1997, the United States spent approximately $300 billion annually on Defense related areas. Today, we are spending in excess of $900 billion in those same areas. At the end of 1997, the National Debt was $5.4 trillion. If Congress and the Presidents had chosen to prepare the country for the unavoidable Crisis period of twenty years, they would have scaled back government spending, tackled the Social Security and Medicare train wreck, developed a multi-pronged energy plan, and asked Americans to save. Instead, they pressed their foot to the accelerator as they approached a curve on a mountain road.

Today, the National Debt stands at $12.1 trillion. Our politicians proceeded to saddle us with an additional $6.7 trillion of debt in the space of 12 years, after taking 208 years to accumulate $5.4 trillion of debt. Based on current projections, the National Debt will exceed $25 trillion by 2019. These reckless actions were akin to entering winter by not paying your utility bill for a year, having your windows wide open, not having the oil changed in your car for 10,000 miles, and being two quarts low with your anti-freeze.

Strauss & Howe recommended that the country prepare in the following ways:

  • Prepare values: Forge the consensus and uplift the culture, but don’t expect near-term results.
  • Prepare institutions: Clear the debris and find out what works, but don’t try building anything big.
  • Prepare politics: Define challenges bluntly and stress duties over rights, but don’t attempt reforms that can’t now be accomplished.
  • Prepare society: Require community teamwork to solve local problems, but don’t try this on a national scale.
  • Prepare youth: Treat children as the nation’s highest priority, but don’t do their work for them.
  • Prepare elders: Tell future elders they will need to be more self-sufficient, but don’t attempt deep cuts in benefits to current elders.
  • Prepare the economy: Correct fundamentals, but don’t try to fine tune current performance.
  • Prepare the defense: Expect the worst and prepare to mobilize, but don’t pre-commit to any one response.

Rather than finding common ground and forging alliances, Baby boomer culture warriors upped the ante. The extreme wings of the Democratic and Republican parties gained control of the dialogue. Neo-conservatism has dominated the thinking in the Republican Party while ultra-liberals have dominated the Democratic Party. The culture has deteriorated, with the media perpetuating a nihilistic, selfish, materialistic attitude among the citizens. TV and movies have portrayed lives of the dregs and lowlifes of society as desirable and normal. The lives of washed up rock stars, drugged out TV personalities, vapid housewives, and brainless house flippers passes for entertainment in today’s society. Getting rich by any means necessary has been glorified.

The best and brightest MBA students graduated and trooped off to Wall Street. Working at real companies that produced something became passé. The degeneration of moral, ethical, and cultural standards has made it more likely that a fascist government could gain control during the Crisis. The dysfunction of both the Federal government and state and local governments have dramatically reduced the trust level of the American public in these institutions. During a Crisis, public faith in government is necessary for swift decisive action. With an approval rating of 26%, Congress is more despised than Osama bin Laden.

The politicians who have chosen to lie to the American people and not face up to the national problems of deficits, unfunded promises, and peak oil, have set the country up for a cataclysmic Crisis. The only statesmen who have spoken candidly about the coming Crisis have been David Walker and Ron Paul.

“Washington has charged everything to the nation’s credit card – engaging in tax cuts and spending increases without paying for them. Washington’s imprudent, unethical and even immoral behavior is facilitated by a lack of transparency.  While the US government is too big to fail, continuing on our current path will have adverse implications for our economy and international standing. The sooner Washington acts, the better. Our country, children and grandchildren deserve no less.”    David Walker – 9/2008

“We’re indeed stuck between a rock and a hard place, and we don’t talk about how we got here; we talk about how we are going to patch it up. The solutions proposed so far – stimulus packages, bailouts and interest rate cuts – just amount to printing more money, which will lead to greater currency devaluation, contribute to the rising cost of living, and further squeeze the middle class and our senior citizens.”  Ron Paul – 8/2008

A candid discussion of these issues has been avoided at all costs by the cowards who crawl around the halls of Congress. Politicians had a chance to stem the downward slide of cynicism, apathy, and disgust with government. They failed miserably. As the Crisis deepens, Americans will turn to those who told the truth. It is a small list.

Society needed to prepare our youth for the test that awaited them during the Crisis. Civic duty, teamwork, and a sense of community needed to be encouraged by adults in our youth. The Millenials (Hero generation) will be the generation on the front lines during this Crisis. The youth of today have been coddled, protected, and have not been required to participate in community efforts. Government efforts such as No Child Left Behind have been failures, as school districts concern themselves with bureaucratic test results and bringing the poor students up to average rather than giving added support to the truly outstanding students. Overall performance of students has continued to decline. Selfish narcissistic Boomer parents have concerned themselves with materialistic trinkets and their own self actualization rather than sacrifice for their children’s future. Our youth are entering the Crisis unprepared for the harsh winter.

The youngest Boomers reached the 50’s in 1997. Government leaders needed to prepare the Boomers for less benefits in the future, which would have pushed Boomers to save more for their retirement. The 50 year average national savings rate has been 6.5%. In 1997, the national savings rate was already below average at 4%. Government leaders urged Americans to buy houses, buy cars, and spend, spend, spend. The American zombies heeded the call and drove down the savings rate to below 0% in 2005. It has subsequently risen to 3% as the Crisis has unfolded. The Baby Boomers are completely unprepared for their old age and will fight all efforts to cut their benefits. Rather than accepting cuts in benefits to secure the future well being of their children and grandchildren, Boomers continue to push for more healthcare benefits. A bitter generational war is now a certainty.

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“During the Crisis, the American economy will experience the most extreme shocks to asset values, production, employment, price levels, and industrial structure in living memory. The economy may also, at some point be pushed to the breaking point in order to produce the tools necessary to save the nation and, later the infrastructure that will underlie the next saeculum.” – Strauss & Howe – The Fourth Turning

What was required was a build out of our energy infrastructure, with natural gas, nuclear, geothermal, wind, and solar all playing a part in weaning us off Middle Eastern oil. Instead, the myopic government bureaucrats, NIMBY crowd and green extremists have succeeded in driving our usage of Middle Eastern oil to new heights as we now import 67% of all our needs. Peak oil will hit the United States like a sledgehammer. Americans needed to increase the national savings rate so we would have the ability to invest in new dynamic technologies. Instead we chose a debt fueled frat party, driving the national savings rate below 0%. The government needed to run budget surpluses as we entered the Crisis period. Accepting a recession during the Third Turning would have mitigated the chances of a Depression in the Fourth Turning. A recession was unacceptable to George Bush and Alan Greenspan. Tax rebate checks and 1% interest rates, along with Bush urging Americans to defeat terrorism by shopping, buying cars and buying houses, resulted in immense deficits. Obama has since added $1.8 trillion to the national debt in one year. Tax policy should have shifted toward taxing consumption and not taxing investment. The economic path chosen by our politician leaders has ensured a 2nd Great Depression.

 From a foreign policy and military preparation standpoint, our leaders have squandered an opportunity to strengthen alliances and form new alliances in advance of the coming battles. Every prior Fourth Turning has resulted in all-out war for survival. Strauss & Howe provided the roadmap to our future:

“But before the Fourth Turning catalyzes, America should gird for something else: a possible war whose scale, cost, manpower, armaments, casualties, and home-front sacrifices far exceed anything the nation would tolerate now.”

Instead of conserving our strength for the coming epic challenges, our leaders have engaged in two wars which have depleted our Treasury, stretched our manpower beyond the breaking point, used up valuable military equipment, strained our alliances, and diminished our moral standing in the world. These wars have revealed our weakness and have made it more likely that potential foreign adversaries will contest our super power status. These foreign ventures have failed to secure democracy in the Middle East or secure future supplies of oil. They have succeeded in inflaming the Muslim world and creating more terrorists than existed on September 10, 2001. The loss of credibility and moral high ground will make it more difficult for Crisis Saeculum leaders to rally the American people to a higher cause.

As I watch ancient doddering Congressmen parade and bluster while debating the Obama healthcare bill, I can’t help but think that these are the wrong people, at the wrong time, fighting the wrong war, for the wrong cause. The country is in the midst of a Crisis and our leaders have decided to expand the welfare state, bailout failures with our grandchildren’s money, expand our wars of choice, and stifle the ingenuity of the American people. This will surely not end well. 

Stupid Is As Stupid Does

We know with certainty that our leaders have not prepared the country for this Crisis. As individuals, we also had the opportunity to prepare. Did you harvest the crops, fatten the livestock, cut the firewood, stockpile the propane, hoard ammunition and batten down your farmstead? Did you deepen your relationships with family and neighbors who would support you during a Crisis? With a potentially devastating howling blizzard forecast in the near future, delay could be fatal. What if the blizzard lasted five years? There is no way to avoid this blizzard. The snow has begun to fall and Americans are concerned with Michael Jackson’s corpse, the breakup of Jon and Kate, Oprah’s future plans, Britney Spears’ weight, and whether President Obama should be bowing to the Japanese emperor. Talking heads on the Sunday morning talk shows distract the public with meaningless drivel regarding polls and minor differences between the corrupt political parties. The bitter winds have begun to howl.

During a Crisis the virtues of faith, trust, reliability, endurance, perseverance, frugality and self-sacrifice are essential. These virtues were indispensible during the Great Depression and World War Two. Strauss and Howe recommended preparation by individuals in the following areas:

  • Rectify: Return to the classic virtues.
  • Converge: Heed emerging community norms.
  • Bond: Build personal relationships of all kinds.
  • Gather: Prepare yourself (and your children) for teamwork.
  • Root: Look to your family for support.
  • Brace: Gird for the weakening or collapse of public support mechanisms.
  • Hedge: Diversify everything you do.

Your reputation will be crucial during the Crisis. Are you a man or woman of your word? Can your family and neighbors count on you? Your honor and word will be judged by others during the Crisis. If you are seen as an outcast, loner, or opponent of the majority, you risk personal harm. The materialistic investment banker swine who have feasted off the carcasses of the American middle class and senior citizens are at extreme risk. Their gated McMansion communities and their BMW getaway cars will not save them from the angry lynch mobs. The community will require your acquiescence to their norms. A more authoritarian government will punish those who do not fall into line. It will be important that your personal relationships with authority figures be in good order. The lone wolf will not survive the deep snows of a Crisis.

The final resolution of this Crisis will depend upon the youth of today. Their ability to function in teams and use technology to overcome their opponents will be critical. Boomer parents who have smothered their children, fought their battles, did their class projects for them, and generally coddled them, have not done them any favors. If they are unprepared or unwilling to take the mantle of the GI Generation, our society may be in its final stages. Social outcasts will not fare well during the Crisis. Strong families will be essential to survival, with multigenerational households providing support and safety in dangerous times. The continued disintegration of the family unit, especially in the inner cities, will make it more difficult for many in the Crisis. Divorce rates have declined to 40% of all marriages, but marriage rates have declined to a greater degree. Children living in one parent households have increased, as millions of men have shirked their fatherhood duties.

The un-sustainability of Social Security, Medicare, Medicaid, and government employee pension plans was clear in 1997 and it is clearer today. Americans with half a brain should have seen that the government could never deliver on the social fiscal pledges they’ve made. The $100 trillion unfunded liability will never be paid. The government is going to stiff the elderly. Americans should have increased their personal economic security by saving for emergencies, saving for retirement, cutting back on their excessive lifestyle choices, distinguishing between needs and wants and ratcheting their lifestyles down to a sustainable level in an effort to prepare for hard times. Instead, millions or morons proved that stupid is as stupid does.

The average 401k balance for those over 60 years old is only $93,000. This is skewed higher by a few high savers. The median balance is in the range of $60,000. The Boomer generation has proven to be the most spendthrift, irrational, delusional generation in history. The life expectancy of a 60 year old is twenty years. How do these people expect to live twenty years on $60,000 to $100,000? A rational human being approaching 50 years old in 1997 with $50,000 in retirement savings should have realized their dire predicament and maxed out their savings for the next fifteen years.

Average 401(k) Balance by Age Group

Age         2007 Balance        2008 Balance
20s          $9,190                 $6,690
30s          $40,990                $27,360
40s          $93,350                $62,580
50s          $138,660              $99,420
60+          $115,700              $93,470

Source: Hewitt Associates

Instead of acting rationally, the Boomers went on a glutton-like spending spree, buying McMansions, beach houses, Mercedes, 60 inch HDTVs, electronic gadgets, and taking exotic vacations to the Far East. Household debt as a percentage of GDP soared from 90% in 1997 to over 135% today. Over this same time, personal savings plummeted. The delusional Boomers convinced themselves that 10% annual gains in the value of their houses for eternity would fund their every material desire and pay for their comfortable retirement. 

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Option ARM loans, home equity withdrawals, auto loans, and credit card debt were the weapons of choice. In the last two years zombie Americans have learned a brutal lesson they should never forget. Home prices can drop 30%, but the debt remains like an anchor around their necks. Consumers increased their debt from $5 trillion in 1997 to over $13 trillion today. Most Americans are completely unprepared financially for a harsh winter.

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The American financial system’s near disintegration in 2008, initiated by the housing crash, revealed who was swimming naked. If Americans had diversified their portfolios with foreign stocks, bonds, gold, and commodities they would have survived the stock market crash with minimal losses. We sit here late in 2009 with thousands of Boomers reaching the age of 60 every day. They are racked with immense debts, have saved little for their retirement, and have trillions of government IOUs in their pockets. The only way the government can pay these obligations is to double taxes on the children and grandchildren of Boomers. Will Boomers be selfish and egotistical enough to rob their kids because they chose not to prepare for winter?  

Ten Years Have Got Behind You

Ticking away the moments that make up a dull day
You fritter and waste the hours in an offhand way
Kicking around on a piece of ground in your home town
Waiting for someone or something to show you the way
Tired of lying in the sunshine
Staying home to watch the rain
And you are young and life is long
And there is time to kill today
And then one day you find
Ten years have got behind you
No one told you when to run
You missed the starting gun
And you run, and you run to catch up with the sun, but it’s sinking
Racing around to come up behind you again
The sun is the same in a relative way, but you’re older
Shorter of breath and one day closer to death –
Pink Floyd – Time

America has frittered away ten years. Americans missed the starting gun. If you had prepared for the Crisis and it hadn’t touched you personally, the loss of material satisfaction would have been a minor inconvenience. Strauss & Howe describe the implications of not preparing:

“If you haven’t prepared, you will have put much at risk. History warns that saecular winters can be searing times for everyone, especially for those who are caught entirely by surprise. No matter what your age, sex, income, race, family status, or line of work, sensible choices today could help you avoid truly desperate choices in the Fourth Turning.”

The sad truth is that the nation and most of its citizens did the exact opposite of what Strauss and Howe recommended in 1997. The nation and its people are now destined to experience a terrible winter on par with the Civil War and World War II, with no safety net. The politicians driving the country into this Crisis period continue to think linearly and will be blindsided as the Crisis deepens. Politicians in Washington continue to do business as usual, passing laws and programs that will only worsen the Crisis. Every prior Fourth Turning has seen a Grey Champion Prophet figure appear on the scene to lead the country through the storm. Washington, Lincoln, and FDR proved their mettle in times of extreme danger. Barack Obama is not today’s Grey Champion. He will be cast aside in 2012. A Boomer leader must arise to lead the country through the difficult days ahead.

With a National Debt projected to reach $25 trillion by 2019, a government that has promised Boomers $100 trillion more than it can deliver, the end of the cheap oil age, looming resource wars, and nuclear proliferation, it is hard to fathom a happy ending to this Crisis. We appear to be hurtling towards the abyss and no one in charge seems capable of averting disaster. Americans need to understand the danger that is approaching. The final outcomes of this Crisis range from Armageddon to a restoration of the American Republic. The final pages of the Fourth Turning are truly frightening. The possibilities according to Strauss & Howe are:

  • The next Fourth Turning could mark the end of man. It could be an omnicidal Armageddon, destroying everything, leaving nothing.
  • The Fourth Turning could mark the end of modernity.
  • The Fourth Turning could spare modernity but mark the end of our nation.
  • Or the Fourth Turning could simply mark the end of the Millennial Saeculum. Mankind, modernity, and America would all persevere. Afterward, there would be a new High.

Several months ago my University repaved the walkway leading to my building. Along with the new bricks they placed stones within the walkway with words of wisdom from Ben Franklin. Every morning I walk across the same words and ponder their significance.  “Lost Time, is never found again.”

The nation and its citizens have not made good use of our time. We have entered this Crisis severely weakened and vulnerable. Our appalling fiscal choices and failure to address the coming energy crisis have set us up for a calamity of epic proportions. The linear status quo statists argue that our ingenuity and technological prowess will save the day. They ignore the fact that our best and brightest have spent the last three decades focused on creating financial weapons of mass destruction, pilotless drones that make war as easy as playing on your PS3, improving the distribution chain for aerosol cheese, and inventing the drive thru fast food window. The corporate fascists who have Congress in their back pockets, supported by the Federal Reserve and the banking cartel, have raped and pillaged America to the point that there is nothing left for the middle class. The ruling elite have no intentions of relinquishing their wealth or control without a fight.

I’m just an average guy who has lived his whole life in suburban America. I’m the guy at the little league baseball field and the local ice hockey rink cheering my sons on. I shop at Wal-Mart and I take my family to the Jersey shore on vacation. I decorate my house with multitudes of Christmas lights every year after I untangle the ball from the previous year. I’m an average guy who is also a wide eyed realist. My heart and my mind tell me that our leaders have failed us mightily. The next 15 years will be full of pain, suffering and angst. In the previous two Crisis periods, America entered with the moral high ground. The Civil War was ultimately seen as a moral war to free the slaves. World War II was fought against evil Nazis and Fascists. I fear that America’s next Great War will be fought for oil. The shortsighted narrow-minded morons who have controlled our nation will try to cover-up their epic failures by falsifying the reasons for war. I have said this once in a previous article. I will not sacrifice my sons for oil. That is not a cause worth fighting for. Hell no, they won’t go.

I do not believe Americans will fall into line behind a leader whose cause is fighting to secure some other country’s oil. I do believe that the credibility and honesty of our politician leaders has been destroyed through their own corrupt immoral actions. A splintering of the country into competing factions and/or regions is a distinct possibility. There is precious little time left, as the howling blizzard gains strength. You will need to hunker down for a long hard winter. Build close relationships, protect your family at all costs, don’t trust government officials, don’t expect the government to honor any fiscal promises, don’t trust the mainstream media, learn to live locally, buy a gun, buy some gold and silver, and be prepared to fight for the truth.

THE FOURTH AMERICAN REVOLUTION (Featured Article)

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. – The Fourth Turning – Strauss & Howe -1997

  

        Harpers Ferry – 1859                         Tucson – 2011

The mass murder in Tucson is another brick in the wall of this Fourth Turning Crisis. The importance of this tragic event is not what happened in that Safeway parking lot, but the reaction in the aftermath of the shooting. Turnings are not about specific events, but how generations react to the events based on their stages of life. A turning is an era with a characteristic social mood, a new twist on how people feel about themselves and their nation.  It results from the aging of the generational constellation.  A society enters a turning once every twenty years or so, when all living generations begin to enter their next phases of life. We entered this Fourth Turning between 2005 and 2008, with the collapse of the housing market and subsequent financial system implosion.

We have crossed the threshold into a decisive era of secular upheaval, when the values regime will propel the replacement of the old civic order with a new one.  The Silent Generation (1925-1942) is dying off, Baby Boomers (1943-1960) are entering elder hood, Generation X is entering midlife, Millenials are entering young adulthood—and a new generation of child Artists are being born. Strauss & Howe have documented that a long human life of 80 to 100 years makes up a social cycle of growth, maturation, entropy, and death (and rebirth) known as a Saeculum. Within each cycle, four generations proceed through their four stages of life. Every 15 to 25 years a new Turning surprises those who only think of history in a linear way. Strauss & Howe are historians who have been able to document this generational cycle going back to the 1400s.

The Anglo-American saeculum dates back to the waning of the Middle Ages in the middle of the fifteenth century.  In this lineage, there have been seven saecula:

  • Late Medieval (1435-1487)
  • Reformation (1487-1594)
  • New World (1594-1704)
  • Revolutionary (1704-1794)
  • Civil War (1794-1865)
  • Great Power (1866-1946)
  • Millennial (1946-2026?)

The Turnings of history are like the seasons of nature. Seasons cannot be rearranged, seasons cannot be avoided, but humans and nations can prepare for the challenges presented by each season. Winter has descended upon our nation.

We are still in the early stages of this Fourth Turning and the mood of the country continues to darken like the sky before an approaching blizzard. Generational theory does not predict the specific events that will happen during a Turning. The events, personalities, and policies that become the chapters in history books are not what drive a Turning, it is how each generation reacts to the events, personalities and policies. Someone who is 60 years old will react differently to an event than they would have reacted at 20 years old. The issues that are driving this Fourth Turning (un-payable entitlement obligations, Wall Street greed & power, globalization gutting the middle class, increasing government control, wealth distribution) were all known and understood in 1997. It took the spark of a housing market collapse and the generations being in proper alignment to catalyze the mood of the country.

Chapter one of this Fourth Turning is approaching its end. Chapter two guarantees to be more intense, with more violence, and periods of great danger. Strauss & Howe envisioned this chapter based upon their analysis of the issues looming back in 1997:

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. Thus, might the next Fourth Turning end in apocalypse – or glory. The nation could be ruined, its democracy destroyed, and millions of people scattered or killed. Or America could enter a new golden age, triumphantly applying shared values to improve the human condition. The rhythms of history do not reveal the outcome of the coming Crisis; all they suggest is the timing and dimension. – The Fourth Turning – Strauss & Howe -1997

American Revolutions

“A Fourth Turning is a solstice era of maximum darkness, in which the supply of social order is still falling but the demand for order is now rising. As the community instinct regenerates, people resolve to do more than just relieve the symptoms of pending traumas. Intent on addressing root causes, they rediscover the value of unity, teamwork, and social discipline. Far more than before, people comply with authority, accept the need for public sacrifice, and shed anything extraneous to the survival needs of their community. This is a critical threshold: People either coalesce as a nation and culture – or rip hopelessly and permanently apart.”The Fourth Turning – Strauss & Howe -1997

 

  

“Photo credit: ComfortBetrays.com”

There have been three prior Fourth Turnings in U.S. history: the American Revolution, Civil War and Great Depression/World War II. The American Revolution preceded the Civil War by 87 years. The Great Depression followed the Civil War by 69 years and this Millenial Crisis arrived 76 years after the Great Stock Market Crash of 1929. Essentially, each prior Fourth Turning has represented a Revolution in American history.

The First American Revolution began in 1773 when Parliament’s response to the Boston Tea Party ignited a colonial tinderbox—leading directly to the first Continental Congress, the battle of Concord, and the Declaration of Independence. History always seems easy to predict in retrospect. This is another of the many faults in human thinking. There was very little talk or thought of the colonies breaking away from the mother country during the 1760s. Up until the Boston Tea Party catalyst event, no one could have predicted the events which would occur in a chain reaction over the next 21 years. There were dark cold bitter days during this Crisis winter. In the end, George Washington’s honor, courage and fortitude symbolized the character of a new nation.

Historians Charles and Mary Beard described the Civil War as the Second American Revolution.  The Civil War Crisis began with a presidential election that southerners interpreted as an invitation to secede. The attack on Fort Sumter triggered the most violent conflict ever fought on New World soil. The war reached its climax with the Emancipation Proclamation and Battle of Gettysburg (in 1863). The epic conflagration redefined America. The slavery issue was settled for good, signed in the blood of 600,000 men. The industrial might of the North was rechanneled toward progress as a world industrial powerhouse. In retrospect many will say the Civil War was entirely predictable, but that is completely untrue.

The great compromise generation (Henry Clay, John C. Calhoun, Daniel Webster) of the 1850s passed from the scene, leaving the country in the hands of firebrands on both sides. John Brown’s raid on Harper’s Ferry and subsequent execution served to increase the brooding mood of the country. The bloodiest war in the history of mankind was not predictable even one year before it began. The aristocracy of Washington DC actually took carriages in their Sunday best to watch the First Battle of Bull Run. Shortly thereafter Lincoln mobilized 500,000 men and unleashed a catastrophic spiral of butchery over the next four years that exhausted itself with the assassination of Lincoln and the surrender at Appomattox in the same week. The resolution of this Crisis felt more like defeat than victory.

Renowned American historian Carl Degler called FDR’s New Deal the “Third American Revolution”. The Crisis began suddenly with the Black Tuesday stock-market crash in 1929.  After a three-year economic free fall, the Great Depression triggered the New Deal Revolution, a vast expansion of government, and hopes for a renewal of national community.  After Pearl Harbor, America planned, mobilized, and produced for world war on a scale never seen in the history of  mankind, making possible complete victory over the Nazis and Fascists. In 1928 did anyone foresee an 89% stock market crash, worldwide depression, vast expansion of government power, a world war more devastating than the prior war, and the usage of an atomic weapon of mass destruction? Not a chance. Only in retrospect do people convince themselves that it was predictable.

Black Tuesday, October 29, 1929 marked the abrupt unforeseen end of the Roaring Twenties. The bewilderingly rapid collapse of the worldwide financial system in the space of three years left the American people shaken and desperate. With their wealth destroyed and unemployment exceeding 20%, the American public turned to Franklin Delano Roosevelt and his New Deal promises of government social and work programs. He declared “nationwide thinking, nationwide planning, and nationwide action, the three essentials of public life”. This was truly a Third American Revolution. FDR’s policies changed the course of American history. The renewed spirit of American youth during the 1930s was essential in preparing them for the trials that awaited from 1941 through 1945. It is somewhat ironic that FDR’s revolutionary social programs, begun during the last Crisis, will be a major factor in the current Crisis – the Fourth American Revolution.

Fourth American Revolution

“The US government is on a “burning platform” of unsustainable policies and practices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon.” – David M. Walker

 

 

No one knows exactly what events will transpire over the next 15 to 20 years as this Fourth Turning morphs from regeneracy to climax and finally to resolution. The mainstream media, most politicians, and self proclaimed progressives are blind to the cyclicality of history. They believe history proceeds in a linear upwards path. These are the people you see on TV talking about toning down the rhetoric, false gestures of bipartisanship, and soothing words about the financial crisis being a thing of the past. They fail to understand that once the mood of the country is catalyzed by a trigger event or events, there is no turning back the clock. Winter must be dealt with head on. Very few, if any, “financial experts” anticipated a housing collapse, followed by a deep recession, a 50% stock market crash, and a financial system which came within hours of total implosion on September 18, 2008 (as detailed in the documentary Generation Zero). Absolutely no one anticipated the extreme measures taken by the U.S. government and Federal Reserve to “Save” the country from a 2nd Great Depression. These measures have added $5 trillion to the National Debt in the last 40 months. It took 205 years to accumulate the 1st $5 trillion of debt.

While it is impossible to predict the exact trials and tribulations that will confront America over the next decade, the issues that will drive this Fourth Turning were clearly visible to anyone with their eyes open, many years in advance of the Crisis.  Strauss & Howe clearly detailed the easily observable issues that led to the current Crisis back in 1997. Their book is not prophecy, but historically provable interactions between generations based upon the circumstances confronting society at the time.

“Sometime around the year 2005, perhaps a few years before or after, America will enter the Fourth Turning. A spark will ignite a new mood. It will catalyze a Crisis. In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. It could be a rapid succession of small events in which the ominous, the ordinary, and the trivial are commingled.” – The Fourth Turning – Strauss & Howe -1997

The authors use their common sense, based upon known trends, to posit potential catalyst scenarios such as:

  • A global terrorist group blows up an aircraft and announces it possesses nuclear weapons.
  • Beset by a fiscal crisis, states begin to balk at Federal mandates leading to secession actions, militia violence, cyber attacks on the IRS, and demands for a new Constitutional Convention.
  • An impasse over the federal budget reaches a stalemate. The government shuts down. The President declares emergency powers. Congress rescinds his authority. Financial markets spiral out of control. Default looms.

These “theoretical” scenarios were put forth in 1997. The authors concluded that these were unlikely, but that no matter what the catalyst, the response by the generations would be predictable. It seems this Fourth Turning is being driven by a succession of smaller triggers, rather than one large trigger. The housing collapse, which began in 2005, ultimately led to the world financial system collapse in 2008. The overreach by government in attempting to repair the damage done by Wall Street and K Street led to the Rick Santelli Tea Party Rant heard round the world in February 2009. The Tea Party movement has since taken the country by storm, surprising the linear thinkers and stunning the ruling elite. Last week a congresswoman and a dozen bystanders were gunned down, further darkening the mood of the country and inflaming passions among competing political ideologies. So what happens next?

Strauss & Howe postulated on the possible path of this Crisis and I see nothing to doubt their analysis:

“An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. It is unlikely that the catalyst will worsen into a full fledged catastrophe, since the nation will probably find a way to avert the initial danger and stabilize the situation for a while.” – The Fourth Turning – Strauss & Howe -1997

The CNBC talking heads, mainstream media pundits, clueless Washington politicians, corrupt Wall Street shysters, and non-thinking robotic masses have been convinced that the actions taken by Ben Bernanke, Barack Obama, Tim Geithner and Congress have averted a financial disaster and saved the world. One hundred years from now when Chinese historians look back on the period from 2000 until 2025 they will ask themselves, “what the hell were they thinking?” The causes of this Crisis are as clear as day to anyone willing to see. A small group of Wall Street bankers and corporate interests through their proxy, the Federal Reserve, created the largest housing bubble in the history of the world generating hundreds of billions in obscene undeserved profits, while destroying the wealth and futures of millions of middle class Americans. Once the fraudulent nature of the bankers’ pillaging of the nation’s wealth came to light, the entire ponzi scheme collapsed, as they always do. On a parallel track, the Federal government, knowing full well that its un-payable social welfare commitments could never be fulfilled, decided to engage in two wars of choice, made additional un-payable social welfare commitments, and created new bloated bureaucratic agencies in the name of security and safety.

What will truly amaze future historians is the “solutions” that our leaders chose to save the country. Despite already being the largest debtor the planet has ever seen, with a National Debt of $8 trillion in 2005, the President and Congress have added an additional $6 trillion of debt, with plans to increase that debt at a rate of $1.5 trillion per year for the foreseeable future. Despite the fact that the housing boom was created by loose monetary policy and non-enforcement of existing laws and regulations by the Federal Reserve, our leaders have allowed this bank owned entity to reduce interest rates to 0%, buy $1.5 trillion of toxic mortgages from the Wall Street banks that caused the crisis, suspend requirements for banks to report their assets at their FMV, monetize the debt spending by the Federal Government, and create inflation through the printing of money out of this air. The Federal government’s response to the crisis was to create a mandated healthcare benefit for 35 million more Americans with no means to pay the untold trillions in future costs. Our leaders’ solution to a crisis caused by excessive debt has been to create twice as much debt. A passage from the Book of Matthew which Abraham Lincoln utilized during a prior Fourth Turning Crisis is a fitting description of where we stand today:

“Every kingdom divided against itself is brought to desolation; and every city or house divided against itself shall not stand.” – Matthew 12:25

The country is deeply divided. There is a vast swath of America that has chosen ignorance over knowledge. With 50% of Americans paying no income taxes, they will vote for anyone who promises them more. The rest of America is split between those who believe the answer lies in increased Federal government coordination and control and those who want a return to liberty, individual responsibility and a vastly reduced Federal government footprint. As I have tried to figure out the most likely path of this Fourth Turning I was focused on an external conflict in the Middle East or an incident on the Korean Peninsula providing the next spark. After the shooting in Tucson, this Fourth Turning is beginning to crystallize.

What I realized was that the three previous American Revolutions all occurred on U.S. soil. The First American Revolution was fought on American soil by a loose confederation of autonomous states against the overbearing control of a great European empire. The Second American Revolution was fought by Americans against Americans and resulted in a vast expansion of Federal government power and diminishment of state power. The Third American Revolution took place under the auspices of saving America from the depths of Depression with government social programs and the birth of the Nanny State. Each Revolution has further expanded the power and control of the Federal government. I believe the Fourth American Revolution will ultimately come down to a battle between the Liberty movement and the ruling oligarchy of Wall Street, Mega-corporations and supporters of the Military Nanny State.

I trust that Strauss & Howe correctly assessed the main factor that will drive the next phase of this Crisis – the Great Devaluation:

“It could be a series of downward ratchets linked to political events that sequentially knock the supports out from under the residual popular trust in the system. As assets devalue, trust will further disintegrate, which will cause assets to devalue further, and so on. Every slide in asset prices, employment, and production will give every generation cause to grow more alarmed. With savings worth less, the new elders will become more dependent on government, just as government becomes less able to pay benefits to them. Before long, America’s old civic order will seem ruined beyond repair.” –  The Fourth Turning – Strauss & Howe -1997

There is no doubt in my mind that the next downward ratchet in this Crisis will be caused by Ben Bernanke and his attempt to generate just enough inflation to make our un-payable debt load less burdensome. His track record regarding economic forecasting, assessment of housing prices and anticipation of economic distress is flawless. He hasn’t been right once. With the top 1% richest Americans controlling 42% of the financial wealth in the country, an all-time high, the next leg down will boil over into class warfare. The middle class has been devastated thus far. Another stock market collapse and more job losses would push them over the edge. The evident failure of government solutions will invigorate the Liberty Movement to become even more strident in their anti-government message. The subsequent battle between the Haves and Have Nots is likely to flair into protests, riots and increasing violence. There will be no compromises. The 2012 Presidential election could incite reactions on par with the election of Lincoln in 1860. While the country convulsively flails about, foreign adversaries will take advantage of our weakness. Peak oil will throw a further wrench into the downward spiral. Out of this tempest, the country will either turn to a strong leader and more government control or move back toward a smaller Federal government footprint and a return to rule by the people and for the people. The outcome is unknown, but the path is foreseeable. Let’s hope that Ben Franklin was right.

All of us who were engaged in the struggle must have observed frequent instances of superintending providence in our favor. To that kind providence we owe this happy opportunity of consulting in peace on the means of establishing our future national felicity. And have we now forgotten that powerful friend? Or do we imagine that we no longer need his assistance? I have lived, Sir, a long time, and the longer I live, the more convincing proofs I see of this truth-that God governs in the affairs of men. And if a sparrow cannot fall to the Ground without his Notice, is it probable that an Empire can rise without his Aid?” – Benjamin Franklin, To Colleagues at the Constitutional Convention

 

“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.”  – The Fourth Turning – Strauss & Howe -1997

WHO ARE THOSE GUYS? (Oldie but Goodie)

The recent debate about the China bubble misses the point. I wrote this article in June 2009. I clearly come down on the side of this being China’s Century unless they do something really stupid to screw it up. But that does not mean that they will not create bubbles along the way, which will pop. Some people need to open their minds and let the sun shine in.

Butch Cassidy: Ah, you’re wasting your time. They can’t track us over rocks.
Sundance Kid: Tell them that.
Butch Cassidy: [after looking for himself] They’re beginning to get on my nerves. Who are those guys?

Do you ever get the feeling that we are being pursued by someone who wants to kill us? No matter what we do, they are still in pursuit. They never let up. We’ve tried deception, trickery, and frantic escapes. Now we have climbed a steep mountain and are cornered in a canyon with our pursuers above and a river below. We don’t have many choices. We could give up, we can fight and die, or jump and hope to live another day. Our pursuers are not going to surrender. They are going to keep pursuing us until we’re caught or dead.

The United States once had a Western frontier spirit. No challenge was too daunting. We were the pursuers, Great Britain was the pursued. We were a young nation with a rural population anxious to move to the big city and make their fortune. With fertility rates exceeding 6 births per woman for the 1st half of the 1800’s, a population explosion took place in the U.S. Fertility rates declined steadily, but still stayed above 4 for most of the 1800’s. The youthful nation created the Industrial Revolution, built thousands of miles of railroad tracks, created a financial banking system, became a manufacturing powerhouse, and adapted to an urban society. It wasn’t smooth progress, but it was relentless progress.

Year Fertility Rate
1800 7.04
1810 6.92
1820 6.73
1830 6.55
1840 6.14
1850 5.42
1860 5.21
1870 4.55
1880 4.24
1890 3.87
1900 3.56

Source: US Census

A creative entrepreneurial spirit was unleashed with all its fury during the 1800’s in America. No problem was too big to solve. Mountains, rivers, oceans, wilderness, and darkness were just obstacles to a better tomorrow. Capitalism and the possibility of wealth and success drove many to create and innovate. The invention of the Cotton Gin revolutionized farming. The invention of the Steamboat revolutionized river travel. The creation of the steam locomotive and railways revolutionized land travel. The sewing machine revolutionized the textile industry. The telegraph and telephone revolutionized communication. The light bulb, electric motors, and diesel engine changed the world.

Person Invention Date
James Watt First reliable Steam Engine 1775
Eli Whitney Cotton Gin, Interchangeable parts for muskets 1793, 1798
Robert Fulton Regular Steamboat service on the Hudson River 1807
Samuel F. B. Morse Telegraph 1836
Elias Howe Sewing Machine 1844
Isaac Singer Improves and markets Howe’s Sewing Machine 1851
Cyrus Field Transatlantic Cable 1866
Alexander Graham Bell Telephone 1876
Thomas Edison Phonograph, Incandescant Light Bulb 1877, 1879
Nikola Tesla Induction Electric Motor 1888
Rudolf Diesel Diesel Engine 1892
Orville and Wilbur Wright First Airplane 1903
Henry Ford Model T Ford, Assembly Line 1908, 1913

 

The period from 1865 to 1901 is referred to as The Gilded Age, coined by Mark Twain in 1873. This period witnessed the establishment of a modern industrial economy. A national transportation and communication network was created, the corporation became the foremost form of business organization, and a managerial revolution transformed business operations. By the beginning of the twentieth century, per capita income and industrial production in the United States exceeded that of any other country except Britain. Long hours and hazardous working conditions led many workers to attempt to form labor unions despite strong opposition from industrialists and the courts. The businessmen created industrial towns and cities in the Northeastern U.S. with new factories, and contributed to the creation of an ethnically diverse industrial working class which produced the wealth owned by rising super-rich industrialists and financiers such as Cornelius Vanderbilt, John D. Rockefeller, Andrew Carnegie, and J.P. Morgan. Their critics called them robber barons, referring to their use of overpowering and sometimes unethical financial manipulations.

A confluence of demographic factors, the industrial revolution, and urbanization led the United States to become the greatest financial and manufacturing powerhouse in world history, eventually overtaking Great Britain in the early years of the 20th Century. We have retained this position into the 21st Century. Based on the current confluence of demographic trends, bad decisions by U.S. policymakers, the urbanization of the developing world, and the overreach that global empires always succumb to, the United States will not be the dominant world power at the end of the 21st Century. The likely successor will be China.

Demographics

The population of the United States literally exploded during the mid 1800’s. From 17 million inhabitants (2.5 million which were slaves) in 1840, the United States experienced a fivefold increase to 76 million citizens by 1900. This enormous increase occurred despite the loss of 600,000 men in the prime of life during the Civil War. Great Britain’s population doubled over this same time frame. With fertility rates between 4 and 7 children (versus 2 today) during the 1800’s, much of the growth was home grown. More than 80% of the population lived on farms in the early 1800’s as it was essential to have many children to work the farm. The fertility rates steadily declined as the country shifted from a rural society to an urban society.

During the Gilded Age approximately 10 million immigrants came to the United States, many in search of religious freedom and greater prosperity. This mammoth immigration from Europe and Asia sparked tension and anger among many in the U.S. The new immigrants came to urban America, where disease, overcrowding and crime festered. As a result, relations became openly hostile, with many Americans becoming anti-immigrant, fearing the customs, religion, and poverty of the new immigrants, considering them less desirable than old immigrants. In reality, these new immigrants were essential to the growth of the country. Between 1870 and 1880, 140,000 Chinese immigrants arrived in the U.S. with many working on the Transcontinental Railway project. Labor unions such as the American Federation of Labor strongly opposed the presence of Chinese labor, by reason of both economic competition and race. Congress banned further Chinese immigration through the Chinese Exclusion Act in 1882, which prohibited Chinese laborers from entering the United States. This racism is why every major city in the U.S. has a Chinatown.

U.S. POPULATION

The other huge demographic benefit that the U.S. had over Great Britain and Germany was its youth. In 1860, the median age of the U.S. population was 19.4 years old. The median age in England was 27 years old. With 50% of the U.S. population under the age of 20 from 1860 through 1880, there was an unlimited supply of labor to supercharge the engine of growth. The youthfulness of America led to a tremendous sense of vitality and optimism about the future. The percentage decrease in the 20 to 39 age group between 1860 and 1880 is a reflection of the youth wiped out by the Civil War. Despite this setback, the young Americans changed the world. The benefit of a youthful society is that failure and obstacles are brushed off. The reckless adventure of youth leads to discoveries, inventions and new ideas. The older a society gets the more cautious and set in their ways. The following chart paints a disturbing picture for America. In 1860 over 50% of the population was under 20 years old. By 2040 less than 26% of the population will be under 20 years old. With 20% of the population expected to be over 64 years old, the passion, reckless adventurism, and vitality will be in limited supply. Just the cost to support 80 million old folks will be crushing. Developing countries with young populations will be gaining on us.

Age 1860 % 1880 % 1900 % 2000 % 2040F %
under 20 13.7 50.6% 25.5 49.4% 33.8 44.4% 80.4 28.6% 101.6 25.9%
20 to 39 8.5 31.4% 15.6 30.2% 24.6 32.3% 81.6 29.0% 120.3 30.7%
40 to 64 4.1 15.1% 8.8 17.1% 14.6 19.2% 84.4 30.0% 90.2 23.0%
over 64 0.8 3.0% 1.7 3.3% 3.2 4.2% 35 12.4% 79.8 20.4%
                     
Totals 27.1 100.0% 51.6 100.0% 76.2 100.0% 281.4 100.0% 391.9 100.0%

Source: US Census

Urbanization & Industrialization

The 2nd Industrial Revolution from 1850 until 1900 changed the face of America. In 1850, more than 80% of Americans lived on farms. By 1920, only 50% lived on farms. Today, only 20% of Americans live in rural areas. This shift resulted from technological progress. A six-fold increase in real wages made children more expensive in terms of forgone opportunities to work and increases in agricultural productivity reduced rural demand for labor, a substantial portion of which traditionally had been performed by children in farm families. The US rural population plummeted, as farmers were displaced by mechanization and forced to migrate to urban factory jobs. America’s westward expansion allowed over 400 million acres of new land to be put under cultivation between 1870 and 1910 while the number of Americans involved in farming dropped by one third.

New farming techniques and agricultural mechanization facilitated both processes. The reaper allowed farmers to quadruple their harvesting efficiency by replacing hand labor with a mechanical device. Manufacturing became the dominant industry after the Civil War. The world was taken by storm as the United States exited the Civil War with a 5% share of worldwide manufacturing output and expanded it to almost 20% by 1900. The market share was stolen from the United Kingdom and France.

 

The period between 1850 and 1900 was marked by the increasing concentration of people, political power, and economic activity in urban areas. In 1860, there were nine cities with populations over 100,000 and by 1910 there were fifty. These new large cities were laid inland along new railroad routes such as Denver, Chicago, and Cleveland. Industrialization and urbanization reinforced each other and urban areas became increasingly congested. As a result of unsanitary living conditions, diseases like cholera, dysentery, and typhoid fever struck urban areas with increasing frequency. Cities responded by paving streets, digging sewers, sanitizing water, constructing housing, and creating public transportation systems.

The completion of the Transcontinental Railroad in 1869 had the effect of stimulating a period of consolidation and technological standardization. It was during this time that railroad magnates such as Jay Gould and Cornelius Vanderbilt amassed vast power and fortunes from consolidation of smaller rail lines into national corporations. Between 1850 and 1890, over 120,000 miles of railroad were laid. This was a huge undertaking that required vision, brute strength, and the promise of potential riches if accomplished. Capitalism is not pretty, but has proven to generate wealth and progress better than any other system.

Table 1: RAILROAD MILEAGE INCREASE BY GROUPS OF STATES
  1850 1860 1870 1880 1890
New England 2,507 3,660 4,494 5,982 6,831
Middle States 3,202 6,705 10,964 15,872 21,536
Southern States 2,036 8,838 11,192 14,778 29,209
Western States and Territories 1,276 11,400 24,587 52,589 62,394
Pacific States and Territories   23 1,677 4,080 9,804
TOTAL USA 9,021 30,626 52,914 93,301 129,774
SOURCE: Chauncey M. Depew (ed.), One Hundred Years of American Commerce 1795–1895 p 111

 

Thomas Edison and Alexander Graham Bell transformed the country with the invention of the light bulb and the telephone between 1876 and 1880. Between 1882 and 1920 the number of generating plants in the US increased from one in downtown Manhattan to nearly 4,000. While the earliest generating plants were constructed in the immediate vicinity of consumers, plants generating electricity for long-distance transmissions were in place by 1900. Between 1877 and 1893 (the term of Bell’s patent coverage) the number of phones leased by Bell’s company increased from 3,000 to 260,000, although these were largely limited to businesses and government offices that could afford the relatively high rates. After the Bell patents expired, thousands of independent operators became incorporated and their competition for services to middle and low-class households as well as rural farmers drove prices down significantly. By 1920, there were 13 million phones in the United States providing service to 39 percent of all farm households and 34 percent of non-farm households.

The discovery of oil in western Pennsylvania in 1859 changed the course of America for the next century. Between 1880 and 1920, the amount of oil refined annually jumped from 26 million barrels to 442 million. The discovery of large oil fields in Texas, Oklahoma, Louisiana, and California in the early 20th century contributed greatly to these states’ rapid industrialization. America became addicted and dependent on oil for heating, lighting, lubricating, and running cars, trucks, and machinery. This dependence on oil could ultimately contribute to the downfall of the U.S. economy.

Economic Growth

The 1800’s had the usual ups and downs economically. But, there were a few themes that dominated. GDP grew consistently, with a big spike in the 2nd half of the century. The 1800’s were also characterized by deflation. The U.S. was able to generate tremendous growth using virtually no government debt, except during the Civil War. The National Debt stood at $2.3 billion in 1872 and dropped to $1.7 billion by 1888. Lastly, the U.S. currency was rock steady because it was backed by gold. The National Currency Act of 1863 established the dollar as the national currency. The National Banking Acts of 1864 and 1865 created the infrastructure of our national banking system. In 1865 there were 1,643 banks in the U.S. By 1896 there were 11,500 banks operating in the U.S. Financial panics occurred when expansion and over-investment got out of hand in 1873 and 1893. They were violent and short.

The GDP per person grew moderately in the 1800’s as the population of the country exploded. As the Industrial Revolution progressed, GDP per Capita accelerated. The late 1800’s were a time of good deflation from excess supply, driven by new technology. The new inventions (light bulb, telephone), railroads and machines powered by oil created tremendous productivity and excess capacity. The economy grew an extraordinary 4% per year in real terms between 1870 and 1896, as wholesale prices fell 50%. Tremendous growth and progress were achieved while deflation reigned. The U.S. also learned that there can be economic benefits to war. The Spanish-American War began in 1898. The U.S. gained control of the former colonies of Spain in the Caribbean and Pacific. The war increased the business and earnings of American railroads, increased the output of American factories, and stimulated industry and commerce.

Data compiled by the Federal Reserve Bank of Minneapolis paints a fascinating picture about inflation. During the entire 100 years from 1800 to 1900, there was inflation in only 22 of those years. There was deflation during 39 of those years, and zero inflation in the other 39 years. Most of the inflation occurred during the War of 1812 and the Civil War. An item that cost you $100 in 1800 would have cost you $50 in 1900. It does appear that tremendous economic growth can be achieved without inflation. This has not been what has been preached since 1913. In the 98 years of the Federal Reserve’s existence, the United States has had 86 years of inflation and 12 years of deflation. The massive inflation has generated false growth in GDP, especially since Nixon closed the gold window in 1971.

The U.S. achieved phenomenal growth with no inflation and utilization of very little public debt. Except for the spike during the Civil War, political leaders kept a lid on government spending. All revenues were generated from excise taxes and tariffs. There was no personal or corporate income tax during the 1800’s except for a brief period during the Civil War. The U.S. entered the 19th Century with public debt at 10% of GDP and departed the 19th Century with public debt at 10% of GDP. Today, it stands at 80% of GDP and accelerating upwards. These low debt levels gave the U.S. a tremendous competitive advantage over the UK. With a vast global empire, the UK had public debt exceeding 250% of GDP in the early 1800’s and had to utilize considerable resources to paying that debt down throughout the 19th Century.

 

The U.S. dollar was stable during the entirety of the 1800’s, except during the brief inflationary period during the War of 1812 and the more dramatic inflationary period during the Civil War. The stability of the dollar was constant versus gold from 1870 until FDR seized all the gold in the country in the early 1930’s, when it collapsed by approximately 50%. Since Nixon closed the gold window in 1971, the dollar has collapsed another 47% versus gold. Stating that we have a strong dollar policy has been a bold faced lie.

China Rising

The United States began its long trek to becoming a worldwide economic powerhouse during the 19th Century, leading to domination of the 20th Century. The dominant power at the start of the 19th Century was the United Kingdom. Today, they have the 6th highest GDP, just ahead of Italy. In 1970, U.S. GDP was $1 trillion and has risen to $14 trillion today. China’s GDP in 1970 was $92 billion. Today, it is $4.2 trillion a 4,450% increase in 28 years. China has been growing their GDP at an 8% to 10% pace for over a decade. They now have the 3rd largest economy in the world, and will pass Japan as the 2nd largest economy on the planet within the next 5 years. Sometime between 2030 and 2050, China will overtake the United States as the largest economy in the world.

The tremendous growth is being driven by the migration of millions of people from farms to the cities. By 2007, 594 million Chinese lived in urban areas. The United Nations has forecast that China’s population will have about an equal number of people staying in the rural and urban areas by 2015. In the long term, nearly 70% of the population will live in urban areas by 2035. According to Professor Lu Dadao, president of the Geographical Society of China (GSC), China’s urbanization took 22 years to increase to 39.1% from 17.9%. It took Britain 120 years, the U.S., 80 years, and Japan more than 30 years to accomplish this.

This rapid urbanization will create huge infrastructure growth as more roads, sewers, houses, manufacturing plants, power plants, public transportation, and office buildings will need to be built. This trend is identical to the U.S. trend in the 1800’s. The urbanization has caused pollution, illness and congestion problems. These issues also occurred in the U.S. during the 1800’s. The efforts to solve these problems will create even more growth. The manufacturing of goods for America will slowly be replaced by production for its own internal demand. Eventually, China will not be as dependent on the U.S. for its economic existence.

The population of China is currently 1.3 billion, more than 4 times the size of the U.S. population. China’s population is not expected to grow much, if at all, between now and 2050. This is a dramatic difference from the U.S. in the 1800’s, as immigration and high birthrates drove the population upward. The birthrate in China of 1.7 is not high enough to even maintain its current population level over the long-term.

Most of the arguments that I hear regarding why China will not pass the U.S. economically relate to their aging population. After examining the current age distribution and the projected distribution between now and 2050, there is very little difference between the U.S. and China on a percentage basis. It is clear that young populations lead to more vitality, growth, and invention. As the chart below details, 20.1% of the Chinese population is under the age of 15. In the U.S., 21.4% of the population is under the age of 15. Now here is where the rubber meets the road. Because China’s total population is 1.3 billion, 20.1% under 15 years old equals 267 million people. Their youth almost equals the United States’ entire population. The U.S. only has 60 million people under the age of 15.

Age structure:
0-14 years: 20.1% (male 142,085,665/female 125,300,391) (2008 est.)
15-64 years: 71.9% (male 491,513,378/female 465,020,030) (2008 est.)
65-over: 8% (male 50,652,480/female 55,472,661) (2008 est.)

 

By 2050 the U.S. demographic picture will only be slightly better than China’s on a percentage basis. In addition to the fact that China starts with a population 4 times the size of the U.S., they will benefit greatly from the shift from a rural society to an urban society. The U.S. already has 80% of its population living in non-rural areas. By 2050, China will likely reach a similar percentage. This means that approximately 600 million people will move from rural areas to urban areas in the next 40 years. This figure is mind boggling. In addition, the people moving are likely to be young. The old people will stay on their farms and subsist as they always have. The youthful urban population will drive progress and advancement.

The piece of the pie that is missed by many is the rapid education of China’s youth. In 1978 there were virtually no Chinese students enrolled in Post-graduate programs or studying abroad. Today, there are close to 1 million Chinese students in Post-graduate programs and in excess of 100,000 students studying abroad. One third of all the graduate students in U.S. Science and Engineering programs are not U.S. citizens. With 267 million children under the age of 15 combined with rapid urbanization and desire for advanced education, China is an economic juggernaut. There will be no denying them the economic crown by the middle of this century. It is inevitable.

The ascendancy of China does not necessarily mean that the United States will descend. The United Kingdom entered the 1800’s with a tremendous amount of public debt. Through economic growth, fewer military conflicts, and control of spending, they were able to reduce their debt from 250% of GDP to 50% of GDP by 1900. The current U.S. economic position appears to be more dire than that of the UK in 1800. With total debt exceeding 350% of GDP, a global empire with troops stationed in 120 countries, two ongoing wars, a National Debt that will reach $14 trillion in the next two years, $56 trillion of unfunded future liabilities, and a rapidly aging populace, the ability for rapid economic growth is nil. We’ve lived above our means for decades and now we’re broke.

 

Sheriff Ray Bledsoe: [to Butch and Sundance] You should have let yourself get killed a long time ago when you had the chance. See, you may be the biggest thing that ever hit this area, but you’re still two-bit outlaws. I never met a soul more affable than you, Butch, or faster than the Kid, but you’re still nothing but two-bit outlaws on the dodge. It’s over, don’t you get that? Your times is over and you’re gonna die bloody, and all you can do is choose where.

Americans have a lot of fight left in them. If we go straight and kick our spending and debt habit we can push off the day of reckoning. If we continue on the reckless current fiscal path, the Chinese, among others, will catch and pass us before the middle of the century. Our standard of living will enter permanent decline and we will become the Great Britain of the 21st Century. The choice is ours.

HOW MANY SENATORS DOES IT TAKE TO SCREW A TAXPAYER? (Featured Article)

 

“Today, the government decides and they misdirect the investment to their friends in the corn industry or the food industry. Think how many taxpayer dollars have been spent on corn [for ethanol], and there’s nobody now really defending that as an efficient way to create diesel fuel or ethanol. The money is spent for political reasons and not for economic reasons. It’s the worst way in the world to try to develop an alternative fuel.” Ron Paul

When bipartisanship breaks out in Washington DC, check to make sure your wallet is still in your pocket. Every time you fill up your car this winter you are participating in the biggest taxpayer swindle in history. Forcing consumers to use domestically produced ethanol is one of the single biggest boondoggles ever committed by the corrupt brainless twits in Washington DC. Ethanol prices have soared 30% in the last year as the supplies of corn have plunged. Only a policy created in Washington DC could drive up the prices of gasoline and food, with the added benefits of costing the American taxpayer billions in tax subsidies and killing people in 3rd world countries.

The grand lame duck Congress tax compromise extended a 45-cent incentive to ethanol refiners for each gallon of the fuel blended with gasoline and renewed a 54-cent tariff on Brazilian imports. The extension of these subsidies, besides costing American taxpayers $6 billion per year, has the added benefit of driving up food costs across the globe, causing food riots in Tunisia, and resulting in the starving of poor peasants throughout the world. This taxpayer boondoggle is a real feather in the cap of that fiscally conservative curmudgeon Senator Charley Grassley. He was joined in this noble effort by another fiscal conservative, presidential hopeful John Thune. It seems these guys hate wasteful spending, except when it benefits their states. The bipartisanship in this effort was truly touching, as Democrats Kent Conrad and Tom Harkin also brought home the pork for their states.

A bipartisan group of 15 senators signed a letter in late November demanding an extension of U.S. ethanol subsidies. I wonder if the fact they have received hundreds of thousands of dollars in campaign contributions during the past six years from pro-ethanol companies and interest groups like ADM, Monsanto, the National Corn Growers Association, and the Iowa Renewable Fuels Association had anything to do with this demand. You can always count on a Senator to do what’s best for his re-election campaign rather than what is best for the country. These symbols of political integrity will always spout the standard talking points:
  • Promoting ethanol reduces our dependence on foreign oil
  • Ethanol is green renewable energy
  • Ethanol is cheaper than gasoline

As we all know when dealing with a politician, “half the truth, is often a great lie.”

Amaizing 

Corn is the most widely produced feed grain in the United States, accounting for more than 90% of total U.S. feed grain production. 81.4 million acres of land are utilized to grow corn, with the majority of the crop grown in the Midwest.  Although most of the crop is used to feed livestock, corn is also processed into food and industrial products including starch, sweeteners, corn oil, beverage and industrial alcohol, yogurt, latex paint, cosmetics, and last but not least, fuel Ethanol. Of the 10,000 items in your average grocery store, at least 2,500 items use corn in some form during the production or processing. The United States is the major player in the world corn market providing more than 50% of the world’s corn supply. In excess of 20% of our corn crop had been exported to other countries, but the government ethanol mandates have reduced the amount that is available to export.

This year, the US will harvest approximately 12.5 billion bushels of corn. More than 42% will be used to feed livestock in the US, another 40% will be used to produce government mandated ethanol fuel, 2% will be used for food products, and 16% is exported to other countries. Ending stocks are down 963 million bushels from last year. The stocks-to-use ratio is projected at 5.5%, the lowest since 1995/96 when it dropped to 5.0%. As you can see in the chart below, poor developing countries are most dependent on imports of corn from the US. Food as a percentage of income for peasants in developing countries in Africa and Southeast Asia exceeds 50%. When the price of corn rises 75% in one year, poor people starve.

The combination of an asinine ethanol policy and the loosest monetary policy in the history of mankind are combining to kill poor people across the globe. I wonder if Blankfein, Bernanke, and Grassley chuckle about this at their weekly cocktail parties while drinking Macallan scotch whiskey and snacking on mini beef wellington hors d’oeuvres. The Tunisians aren’t chuckling as food riots have brought down the government. This month, the U.N. Food and Agricultural Organization (FAO) reported that its food price index jumped 32% in the second half of 2010 — surpassing the previous record, set in the early summer of 2008, when deadly clashes over food broke out around the world, from Haiti to Somalia.

Let’s Starve a Tunisian

“What is my view on subsidizing ethanol and farmers? Under the constitution, there is no authority to take money from one group of people and give it to another group of people for so called economic benefits. So, no, I don’t think we should do that. Besides, bureaucrats and the politicians don’t know how to invest money.” Ron Paul

The United States is the big daddy of the world food economy. It is far and away the world’s leading grain exporter, exporting more than Argentina, Australia, Canada, and Russia combined. In a globalized food economy, increased demand for corn, to fuel American vehicles, puts tremendous pressure on world food supplies. Continuing to divert more food to fuel, as is now mandated by the U.S. federal government in its Renewable Fuel Standard, will lead to higher food prices, rising hunger among the world’s poor and to social chaos across the globe. By subsidizing the production of ethanol, now to the tune of $6 billion each year, U.S. taxpayers are subsidizing skyrocketing food bills at home and around the world.

The energy bill signed by that free market capitalist George Bush in 2008 mandates that increasing amounts of corn based ethanol must be used in gasoline sold in the U.S. This energy legislation requires a five-fold increase in ethanol use by 2022. Some 15 billion gallons must come from traditional corn-blended ethanol. Nothing like combining PhD models and political corruption to cause worldwide chaos. Ben Bernanke and Charley Grassley have joined forces to bring down the President of 23 years in Tunisia. People tend to get angry when they are starving. Bringing home the bacon for your constituents has consequences. In the U.S. only about 10% of disposable income is spent on food.  By contrast, in India, about 40% of personal disposable income is spent on food. In the Philippines, it’s about 47.5%.  In some sub-Saharan Africa, consumers spend about 50% of the household budget on food. And according to the U.S.D.A., “In some of the poorest countries in the region such as Madagascar, Tanzania, Sierra Leone, and Zambia, this ratio is more than 60%.”

  

The 107 million tons of grain that went to U.S. ethanol distilleries in 2009 was enough to feed 330 million people for one year at average world consumption levels. More than a quarter of the total U.S. grain crop was turned into ethanol to fuel cars last year. With 200 ethanol distilleries in the country set up to transform food into fuel, the amount of grain processed has tripled since 2004. The government subsidies led to a boom in the building of ethanol plants across the heartland. As usual, when government interferes in the free market, the bust in 2009, when fuel prices collapsed, led to the bankruptcy of almost 20% of the ethanol plants in the U.S.

People fed by US ethanol grain

The amount of grain needed to fill the tank of an SUV with ethanol just once can feed one person for an entire year. The average income of the owners of the world’s 940 million automobiles is at least ten times larger than that of the world’s 2 billion hungriest people. In the competition between cars and hungry people for the world’s harvest, the car is destined to win. In March 2008, a report commissioned by the Coalition for Balanced Food and Fuel Policy  estimated that the bio-fuels mandates passed by Congress cost the U.S. economy more than $100 billion from 2006 to 2009. The report declared that “The policy favoring ethanol and other bio-fuels over food uses of grains and other crops acts as a regressive tax on the poor.” A 2008 Organization for Economic Cooperation and Development (O.E.C.D.) issued its report on bio-fuels that concluded: “Further development and expansion of the bio-fuels sector will contribute to higher food prices over the medium term and to food insecurity for the most vulnerable population groups in developing countries.” These forecasts are coming to fruition today.

It Costs What?

The average American has no clue about the true cost of ethanol. They probably don’t even know there is ethanol mixed in their gasoline. The propaganda spread by the ethanol industry and their mouthpieces in Congress obscures the truth and proclaims the clean energy mistruths and the thousands of jobs created in America. The truth is that producing ethanol uses more energy than is created while driving costs higher. The jobs created in Iowa are offset by the jobs lost because users of energy incur higher costs and hire fewer workers as a result. It takes a lot of Saudi oil to make the fertilizers to grow the corn, to run the tractors, to build the silos, to get the corn to a processing plant, and to run the processing plant. Also, ethanol cannot be moved in pipelines, because it degrades. This means using thousands of big diesel sucking polluting trucks to move the ethanol – first as corn from the fields to the processing plants, and then from the processing plants to the coasts.

The current ethanol subsidy is a flat 45 cents per gallon of ethanol usually paid to the an oil company, that blends ethanol with gasoline. Some States add other incentives, all paid by the taxpayer. On top of this waste of taxpayer funds, the free trade capitalists in Congress slap a 54 cent tariff on all imported ethanol. Ronald R. Cooke, author of Oil, Jihad & Destiny, created the chart below to estimate the true cost for a gallon of corn ethanol. Cooke describes a true taxpayer boondoggle:

It costs money to store, transport and blend ethanol with gasoline. Since ethanol absorbs water, and water is corrosive to pipeline components, it must be transported by tanker to the distribution point where it is blended with gasoline for delivery to your gas station. That’s expensive transportation. It costs more to make a gasoline that can be blended with ethanol. Ethanol is lost through vaporization and contamination during this process. Gasoline/ethanol fuel blends that have been contaminated with water degrade the efficiency of combustion. E-85 ethanol is corrosive to the seals and fuel systems of most of our existing engines (including boats, generators, lawn mowers, hand power tools, etc.), and can not be dispensed through existing gas station pumps. And finally, ethanol has about 30 percent less energy per gallon than gasoline. That means the fuel economy of a vehicle running on E-85 will be about 25% less than a comparable vehicle running on gasoline.

Real Cost For A Gallon Of Corn Ethanol

   
Corn Ethanol Futures Market quote for January 2011 Delivery $2.46
Add cost of transporting, storing and blending corn ethanol $0.28
Added cost of making gasoline that can be blended with corn ethanol $0.09
Add cost of subsidies paid to blender $0.45
Total Direct Costs per Gallon $3.28
   
Added cost from waste $0.40
Added cost from damage to infrastructure and user’s engine $0.06
Total Indirect Costs per Gallon $0.46
   
Added cost of lost energy $1.27
Added cost of food (American family of four) $1.79
Total Social Costs $3.06
   
Total Cost of Corn Ethanol @ 85% Blend $6.80

 

Multiple studies by independent non-partisan organizations have concluded that mandating and subsidizing ethanol fuel production is a terrible policy for Americans:

  • In May 2007, the Center for Agricultural and Rural Development at Iowa State University released a report saying the ethanol mandates have increased the food bill for every American by about $47 per year due to grain price increases for corn, soybeans, wheat, and others. The Iowa State researchers concluded that American consumers face a “total cost of ethanol of about $14 billion.” And that figure does not include the cost of federal subsidies to corn growers or the $0.51 per gallon tax credit to ethanol producers.
  • In May 2008, the Congressional Research Service blamed recent increases in global food prices on two factors: increased grain demand for meat production, and the bio-fuels mandates. The agency said that the recent “rapid, ‘permanent’ increase in corn demand has directly sparked substantially higher corn prices to bid available supplies away from other uses – primarily livestock feed. Higher corn prices, in turn, have forced soybean, wheat, and other grain prices higher in a bidding war for available crop land.”
  • Mark W. Rosegrant of the International Food Policy Research Institute, testified before the U.S. Senate on bio-fuels and grain prices. Rosegrant said that the ethanol scam has caused the price of corn to increase by 29 percent, rice to increase by 21 percent and wheat by 22 percent. Rosegrant estimated that if the global bio-fuels mandates were eliminated altogether, corn prices would drop by 20 percent, while sugar and wheat prices would drop by 11 percent and 8 percent, respectively, by 2010. Rosegrant said that “If the current bio-fuel expansion continues, calorie availability in developing countries is expected to grow more slowly; and the number of malnourished children is projected to increase.” He continued, saying “It is therefore important to find ways to keep bio-fuels from worsening the food-price crisis. In the short run, removal of ethanol blending mandates and subsidies and ethanol import tariffs, in the United States—together with removal of policies in Europe promoting bio-fuels—would contribute to lower food prices.”

The true cost of the ethanol boondoggle is hidden from the public. The mandates, subsidies and tariffs take place out of plain view.  The reason blenders (and gas stations) will pay the same for ethanol is because they can sell it at the same price as gasoline to consumers. A consumer will pay the same for ten gallons of E10 as for ten gallons of gasoline even though the E10 contains a gallon of ethanol. Consumers pay the same for the gallon of ethanol for three reasons. (1) They don’t know there’s ethanol in their gasoline. (2) There is often ethanol in all the gasoline because of state requirements, so they have no choice. (3) They never know the ethanol has only 67% the energy of gasoline and gets them only 67% as far. The result is that drivers always pay much more for ethanol energy than for gasoline energy, simply because they pay the same amount per gallon. When gasoline prices are $3.00 per gallon, Joe Six-pack pays $4.50 for the same amount of ethanol energy.

You know a politician, government bureaucrat or central banker is lying when they open their mouths. Whenever evaluating a policy or plan put forth by those in control, always seek out who will benefit and who will suffer. Who benefits from corn based ethanol mandates and subsidies? The beneficiaries are huge corporations like Archer Daniels Midland and Monsanto, along with corporate farming operations (80% of all US farm production), and Big Oil. The mandated ethanol levels are set in law. By providing tax subsidies we are bribing oil companies with taxpayer dollars to do something they are legally required to do, resulting in a $6 billion windfall profit to oil companies.  The other beneficiaries are the Senators and Representatives from the farming states who are bankrolled by the corporate ethanol beneficiaries and their constituents who will re-elect them. The environment does not benefit, as many studies have concluded that it requires more fossil fuel energy (oil & coal) to produce a gallon of ethanol than the energy created. The jobs created in the farm belt at artificially profitable ethanol plants are more than offset by job losses due to the added costs in the rest of the economy. When subsidies are removed or oil prices drop, the ethanol plant jobs disappear, resulting in a massive capital mal-investment. 

Our supposedly wise PhD and MBA leaders have created a perfect storm. The unintended consequences of government intervention in the markets are causing havoc, food riots, starvation and intense suffering for the poor and middle class. Brazil produces sugar cane ethanol in vast quantities and can export it to the U.S. much cheaper than we can produce corn ethanol. Fuel prices would be lower without tariffs on Brazilian ethanol imports. The average cost of food as a percentage of disposable income for an American is 10%. Averages obscure the truth that the cost is probably .0001% for Lloyd Blankfein, Ben Bernanke and Chuck Grassley, while it is 30% for a poor family in Harlem. America’s horribly misguided ethanol policy combined with Ben Bernanke’s Wall Street banker subsidy program are resulting in soaring fuel and food prices across the globe. Poor people around the world suffer greatly from these policies. Below are two assessments of ethanol.     

 “Everything about ethanol is good, good, good.”Senator Chuck Grassley, Iowa

“This is not just hype — it’s dangerous, delusional bullshit. Ethanol doesn’t burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption — yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World.”Jeff Goodell

Who do you believe?

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.

THE BENNIE WHO STOLE CHRISTMAS (Featured Article)

Ben Bernanke is a highly educated PhD from Princeton who has never worked a day in the real world since he graduated from college in 1975. His entire life has been spent in the ivory tower of academia surrounded by models and theories that work perfectly in the comfort of his office. After building his reputation as an “expert” on the Great Depression by studying it and reaching the wrong conclusions, he came down from his ivory tower in 2002 to join an organization that has systematically destroyed the value of the US currency, thereby undermining the well being of the once vibrant middle class.

He became a member of the Federal Reserve and has served his masters (Wall Street Banks, Mega-corporations, Washington politicians) unswervingly since. When he makes his now regular appearances on 60 Minutes, he tries to give the appearance of being someone concerned about the average American. The facts in the real world completely obliterate the lies he nervously mouths while answering softball questions underhanded to him by corporate media mouthpieces. His quivering lip and nervous ticks reveal his true nature. How could Bernanke blatantly take measures that destroy the lives of millions of Americans?  Maybe Dr. Seuss had the answer: 

 

It could be his head wasn’t screwed on just right.
It could be, perhaps, that his shoes were too tight.
But I think that the most likely reason of all,
May have been that his heart was two sizes too small.
Whatever the reason, His heart or his shoes,
He stood there on Christmas Eve, hating the Whos,
Staring down from his cave with a sour, Grinchy frown –
Dr Seuss

If the Grinch had been pimping for a small pack of Grinchsters who impoverished the honest people of Whoville, then the Dr. Seuss poem would have perfectly described Ben Bernanke, the Federal Reserve and the banksters that run the show here in the USA. The actions taken by Ben Bernanke, Alan Greenspan and their brethren on the Federal Reserve over the last quarter century have destroyed the middle class and left senior citizens impoverished, while enriching its Wall Street masters. Now he is stealing Christmas from the hard working middle class of this country.

Bernanke’s latest theoretical venture into manipulating the puppet strings of the economy began with his speech at Jackson Hole in August and concluded with his Op-Ed on November 4. His master plan to buy an additional $600 billion of Long-term Treasuries is being implemented on a daily basis. This QE2 follows his previous QE1, which consisted of buying $1.4 trillion of toxic mortgage securities from his masters, the insolvent Wall Street banks. What follows are Ben Bernanke’s own words:   

“I believe that additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions.”Ben Bernanke – August 27, 2010 –  Jackson Hole

“Given the Committee’s objectives, there would appear–all else being equal–to be a case for further action. For example, a means of providing additional monetary stimulus, if warranted, would be to expand the Federal Reserve’s holdings of longer-term securities. Empirical evidence suggests that our previous program of securities purchases was successful in bringing down longer-term interest rates and thereby supporting the economic recovery.”Ben Bernake – October 15, 2010 – Boston Speech

“To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.”Ben Bernanke Fed Announcement – November 3, 2010

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

Ben and his friends on the Federal Reserve have a PR machine to help sell their lies. Let’s assess whether Ben and his Federal Reserve have helped or hurt the average American.

Throwing Senior Citizens Under the Bus

Then he slunk to the ice box. He took the Whos’ feast, he took the who pudding, he took the roast beast. He cleaned out that ice box as quick as a flash. Why, the Grinch even took their last can of Who hash. – Dr Seuss

 

There are approximately 40 million senior citizens living in 25 million households in the US. According to the Census Bureau, more than 12 million of these households survive on less than $30,000 of income per year. The median household income in the US is $49,777. A full 70% of all over 65 households make less than the median income.  A recent study found that 58% of those between 60 and 84 will at some point fail to have enough liquid assets to allow them to get through unanticipated expenses or declining income.

The vast majority of their income is from Social Security payments. Most senior citizens are rightly risk adverse and dependent upon income from certificates of deposit. During the 1990’s and as recently as 2007, a senior citizen could get a 5% return on a CD. Many of these people depended on this interest income to pay their everyday expenses. Below is a chart that plots the average interest rate for 6 month CDs since 1964. Today the average rate on a 6 month CD is .30%.

Ben Bernanke is to thank for this poverty enhancing rate. He reduced the discount rate to 0% while paying interest on deposits at the Fed. The affect of this policy has been to transfer hundreds of billions to the Wall Street criminal banks from the pockets of senior citizens and other Americans dependent upon interest income to sustain their meager lives. A brainless CNBC anchor can look at this chart and realize that the Federal Reserve caused the housing crisis by driving down rates from 2002 through 2005. Ben Bernanke, who never saw the housing collapse coming and personally had an exploding adjustable rate mortgage, has learned nothing from the prior disaster. He has driven rates down to 0% in order to force people into speculative investments. The Federal Reserve is a perennial bubble blower. This will likely be the final bubble of Bennie’s career.

 Graph: 6-Month Certificate of Deposit: Secondary Market Rate

These recent actions by the Federal Reserve are just the tip of the iceberg. Alan Greenspan, the Federal Reserve and the US Government have systematically screwed senior citizens for decades by purposely understating CPI. The result has been that the cost of living adjustments to Social Security has seriously lagged real inflation. For the 2nd consecutive year senior citizens will get no cost of living increase on their Social Security. The average monthly Social Security payment is $1,074. While seniors struggle to make ends meet, Wall Street banks are handed billions in free money by Ben Bernanke. The chart below details the COLA increases since 1975. Alan Greenspan and his commission began manipulating the CPI in the early 1980s. 

Social Security Cost-Of-Living Adjustments
Year COLA
1975 8.0
1976 6.4
1977 5.9
1978 6.5
1979 9.9
1980 14.3
1981 11.2
1982 7.4
1983 3.5
1984 3.5
1985 3.1
1986 1.3
1987 4.2
1988 4.0
1989 4.7
Year COLA
1990 5.4
1991 3.7
1992 3.0
1993 2.6
1994 2.8
1995 2.6
1996 2.9
1997 2.1
1998 1.3
1999 2.5
2000 3.5
2001 2.6
2002 1.4
2003 2.1
2004 2.7
Year COLA
2005 4.1
2006 3.3
2007 2.3
2008 5.8
2009 0.0
2010 0.0
a The COLA for December 1999 was originally determined as 2.4 percent based on CPIs published by the Bureau of Labor Statistics. Pursuant to Public Law 106-554, however, this COLA is effectively now 2.5 percent.

 

Since 2000, seniors have seen their monthly payment increase by 27%, or less than 2.5% per year. I challenge anyone to convince me that inflation has been 0% for the last two years. I have calculated my real inflation and it is four times the government reported figure. I suppose government bureaucrats and Federal Reserve Chairmen don’t fill up their gas tanks or go food shopping. John Williams at www.Shadowstats.com calculates the CPI as it was calculated prior to the Greenspan fraud. Based on this true assessment of inflation, prices have increased by 100% since 2000, or 8% per year.

Only an Ivy League academic could examine the following yearly price data and conclude, as Bernanke has, that inflation is well contained:

  • Unleaded gas up 24%
  • Heating Oil up 28%
  • Corn up 50%
  • Wheat up 48%
  • Coffee up 56%
  • Sugar up 27%
  • Soybeans up 30%
  • Beef up 26%
  • Pork up 22%
  • Cotton up 101%
  • Copper up 33%
  • Silver up 72%

I wonder what a can of Who Hash will cost in 2011?

The truth is that senior citizens spend a much higher percentage of their limited income on the basics of housing, transportation, food, and insurance. So, these increases have a much greater impact on seniors than rich bankers and Princeton scholars. The figures for key items over the last decade prove the point that seniors have fallen further due to the inflationary policies of the Federal Reserve.

Category Expense Cost in 2000 Cost in 2010 % Increase, 2000 – 2010
Housing Homeowner’s insurance (annual) $508.00 $1,059.00 108%
  Real estate tax (annual) $690.00 $1,223.88 77%
  Heating oil (gallon) $1.15 $2.88 150%
  Natural gas (per thousand cubic foot) $6.37 $10.39 63%
  Electricity (per kw hr) $0.08 $0.12 50%
Transportation Regular gas (gallon) $1.26 $2.75 118%
Medical Medicare Part B premiums (monthly) $45.50 $110.50 143%
Food 10 lbs. potatoes $2.98 $4.98 67%
  Eggs (dozen) $0.93 $1.79 93%
  Ground chuck (lb.) $1.90 $2.83 49%
  Bread, white loaf $0.91 $1.36 50%

 

Helping Housing?

And the one speck of food That he left in the house,
Was a crumb that was even too small for a mouse.
Then He did the same thing To the other Whos’ houses
Leaving crumbs Much too small For the other Whos’ mouses! –
Dr. Seuss

Not only was Ben Bernanke complicit in aiding Greenspan in creating the housing bubble by keeping interest rates too low for too long, completely missing a two standard deviation (PhDs love this stuff) price bubble right in front of his eyes, telling Americans that we had a strong housing market, telling Americans that housing price declines would not affect the economy, not regulating or policing the rampant mortgage fraud that was happening under his nose, and aiding and abetting the very criminal banks that created the bubble, but now he has blatantly lied by saying his QE2 $600 billion monetization of our debt is to support the housing market. If you believe this, I have some prime real estate with great views in the mountains of Afghanistan to sell you. 

In his October 15 speech, Bernanke assured the world that QE2 would reduce long term interest rates. On November 4, he stated:

“Lower mortgage rates will make housing more affordable and allow more homeowners to refinance.” 

On October 7, one week before Bernanke gave the green light to QE2, the 10 Year US Treasury rate was 2.38%. Today it stands at 3.3%, almost 100 basis points higher. I’m guessing this guy isn’t very good picking his weekly football pool. Interest rates have done the exact opposite of what he proclaimed they would do. These rates have surged in the face of an already weakening economy, as unemployment continues to rise and home prices continue to fall. A 100 basis point rise in Treasury bonds piles approximately $120 billion more interest expense per year onto the backs of future generations.

 Chart forCBOE Interest Rate 10-Year T-No (^TNX)

The rate on 30 year fixed mortgages has surged to 5.07% from 4.4% in mid-October. That should do wonders for refinancing and home purchases. Bernanke’s actions have priced millions of people out of the market. He has inflicted more damage on an already teetering housing market and has insured that home prices will plunge by another 20% in the next year.

Mortgage rates for Dec. 15, 2010

Despite the trillions of dollars thrown at the housing market by Bernanke and Obama through home buyer tax credits, mortgage modification programs, purchasing toxic mortgages from the criminal banks at 100 cents on the dollar, artificially reducing mortgage rates, and forcing those government run disasters Fannie Mae, Freddie Mac and the FHA to backstop more bad loans, home prices are resuming their downward trajectory to fair value. That value is at least 20% lower. With 22.5% of all properties (10.8 million properties) with a mortgage having negative equity, the housing market was already in dire straits. With the surge in mortgage rates caused by Ben Bernanke’s actions, a rapid plunge in prices can be expected in 2011, resulting in more foreclosures and negative equity swamping millions.  

The truth is that Ben Bernanke could care less about the average American homeowner making $48,000 per year. The real purpose of QE2 was to further enrich his masters on Wall Street and the ruling elite who control the wealth in this country.

Wall Street Wealth Bailout

 

 

“When the Fed uses QEII to subsidize the largest players on Wall Street, it is disadvantaging the smaller, better run banks, and it is also playing with politics. Priyank Gandhi and Hanno Lustig, in a National Bureau of Economic Research working paper issued in November (No. 16553), suggest that the implicit collective guarantee extended to large U.S. financial institutions reflects an annual subsidy to the largest commercial banks of $4.71 billion per bank, measured in 2005 dollars. But, even more important, the paper notes that subsidies for the “too big to fail” banks shows the Fed’s willingness to support the equity markets, an extraordinary and ultimately political act that requires further hearings by the Congress.”Chris Whalen

Chris Whalen and a few other brilliant analysts realize the true purpose of Ben Bernanke’s actions. Bernanke even revealed his true intentions in his November 4 Op-Ed:

“Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.”

On August 26, the day before Bernanke’s Jackson Hole speech, the S&P 500 was at 1,047. Today, it stands at 1,247, a 19% increase in the face of  weakening economic conditions for the middle class worker. The more speculative NASDAQ stood at 2,119 on August 26, and today sits at 2,649, a phenomenal 25% increase as more middle class Americans have lost their jobs. Over this same time frame, according to the BLS, there are 500,000 less Americans employed.

The truth is that Ben Bernanke’s sole reason for implementing QE2 is to enrich the few at the expense of the many. The chart below paints the picture clearer than the lies and misinformation you will get from CNBC and Fox. The top 1% wealthiest Americans own 60.6% of all the stocks in America, with the next 9% wealthiest owning 37.9% of the stocks in America. That leaves a full 1.5% of stocks in the hands of the remaining 90% of Americans. Who is benefitting from QE2?

Part 2 of the table clarifies who Bennie is working for. The 90% of Americans have 42.3% of the liquid deposits, 61.5% of residential investment and 73.4% of the debt in the country. Ben Bernanke’s actions have resulted in liquid deposits paying 0% interest (19 largest banks out of 7,700 banks control 50% of all deposits), residential real estate prices declining, and the cost of carrying debt to rise. Meanwhile, the top 1% convinced the public they needed a tax cut so they could continue to buy  gifts like Clive Christian’s $247,000 Imperial Majesty perfume, packaged in a diamond-encrusted Baccarat crystal bottle.

Table 2: Wealth distribution by type of asset, 2007
  Investment Assets
Top 1 percent Next 9 percent Bottom 90 percent
Business equity 62.4% 30.9% 6.7%
Financial securities 60.6% 37.9% 1.5%
Trusts 38.9% 40.5% 20.6%
Stocks and mutual funds 38.3% 42.9% 18.8%
Non-home real estate 28.3% 48.6% 23.1%
TOTAL investment assets 49.7% 38.1% 12.2%
 
  Housing, Liquid Assets, Pension Assets, and Debt
Top 1 percent Next 9 percent Bottom 90 percent
Deposits 20.2% 37.5% 42.3%
Pension accounts 14.4% 44.8% 40.8%
Life insurance 22.0% 32.9% 45.1%
Principal residence 9.4% 29.2% 61.5%
TOTAL other assets 12.0% 33.8% 54.2%
Debt 5.4% 21.3% 73.4%
 
From Wolff (2010).

 

 Of course, we all know the rich create all the jobs. Too bad they were created in India and China. No more conclusive evidence of the Federal Reserve destroying the American middle class can be found on the US Census Bureau site. The median household income in the US reached its all-time peak in 1999 at $52,388, in today’s dollars (key data point). Ten years later the median household income is $49,777. The standard of living for the median household in the US has fallen by 5% in the last decade, even using the government manipulated CPI.

The mainstream media will not report this fact. They will report the non-inflation adjusted figures that show a 22% increase in the median household income. They do this because they know that the average American has no clue what the term “inflation adjusted” means. Ben Bernanke, the Federal Reserve, and the ruling oligarchy can only retain their power through the use of inflation, while slowly destroying the currency, impoverishing the masses and enriching them. The website www.mybudget360.com has suggested the proper mission statement for Bennie and the Feds should be:

“To aggregate as much wealth into the banking system while eliminating the American middle class by a slow systematic dilution of their currency and financial well being and standard of living.”

   
Table H-6.  Regions–All Races by Median and Mean Income: 1999 to 2009
(Households as of March of the following year.  Income in current and 2009 CPI-U-RS adjusted dollars (28))
Region and year Number (thousands) Median income Mean income
Current dollars 2009 dollars Current dollars 2009 dollars
 
2009 117,538 49,777 49,777 67,976 67,976
2008 117,181 50,303 50,112 68,424 68,164
2007 116,783 50,233 51,965 67,609 69,940
2006 116,011 48,201 51,278 66,570 70,819
2005 114,384 46,326 50,899 63,344 69,597
2004 113,343 44,334 50,343 60,466 68,662
2003 112,000 43,318 50,519 59,067 68,886
2002 111,278 42,409 50,563 57,852 68,976
2001 109,297 42,228 51,161 58,208 70,521
2000 108,209 41,990 52,301 57,135 71,165
1999 106,434 40,696 52,388 54,737 70,462

 

While real average weekly earnings for the average American are lower today than they were in the early 1970s, you will be happy to know that Wall Street bonuses have recovered nicely from the dip in 2008.  Compensation at Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, and Citicorp increased by 31% in 2009. Average compensation rose by 27% to more than $340,000. Bonuses jumped above the $20 billion mark in 2009, but sadly trail the record of $35.5 billion in 2006 just before Wall Street destroyed the financial system of the entire world. According to the NYT, 2010 will be a banner year:

“Wall Street’s five biggest firms have put aside nearly $90 billion for bonuses. Whether it’s for jewelry, high-end clothing or apartments, bonus spending has long fed a post-holiday boom in January and February, especially in Manhattan and expensive suburbs like Greenwich.”

I’m sure this information warms the cockles of your heart.

At the end of Dr. Seuss’ poem, the Grinch repents and brings a happy ending to Whoville:

That the Grinch’s small heart Grew three sizes that day!
And the minute his heart didn’t feel quite so tight,
He whizzed with his load through the bright morning light,
And he brought back the toys! And the food for the feast!
And he, HE HIMSELF! The Grinch carved the roast beast! –
Dr. Seuss

Even if Ben Bernanke’s heart was to grow three sizes, he would be discarded by the other Grinchsters (banksters) like piece of Whoville tinsel. The truth of our current situation is better captured by Mick Jagger in his song Sympathy for the Devil:

I’m a man of wealth and taste
I’ve been around for a long, long year
Stole many a man’s soul and faith

But what’s confusing you
Is just the nature of my game

The people running the show in this country will not be bringing joy to Whoville. You need to understand the nature of their game.

ORWELL’S 2009 (Oldie but Goodie)

I originally wrote this article in January, 2009. It seems even more pertinent today. The term Doublespeak came to mind as I watch Obama and Bernanke.

war is peace
freedom is slavery
ignorance is strength

“All political thinking for years past has been vitiated in the same way. People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome. Political language… is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind.” George Orwell

George Orwell wrote his legendary novel 1984 just after World War II. It is renowned for its portrayal of government’s encroachment on the rights of the individual. It was Orwell’s warning against totalitarianism, specifically Stalin’s Soviet Union. Pervasive thought control and surveillance of citizens is prominent throughout the novel. After living through the last eight years under the Bush administration and observing the marketing effort of the coming stimulus plan by the Obama team, the U.S. has moved closer than ever to Orwell’s nightmare world. In the novel, The Party maintained control of Oceania by manipulating facts, history, and citizens to retain power and dominate the masses. In the United States of today we theoretically have two major parties, Democrats and Republicans. In reality, we have one Party made up of the wealthy elite ruling class backed by enormous corporate interests and protected by the military industrial complex. There are no major differences between Republicans and Democrats, just minor meaningless variations. They are both under the control of the fascist corporate oligopoly that runs this country. Representative Ron Paul explains how The Party is able to maintain control in today’s world:

“Pretending that a true difference exists between the two major candidates is a charade of great proportion. Many who help to perpetuate this myth are frequently unaware of what they are doing and believe that significant differences actually do exist. Indeed, on small points there is the appearance of a difference. The real issues, however, are buried in a barrage of miscellaneous nonsense and endless pontifications by robotic pundits hired to perpetuate the myth of a campaign of substance. Influential forces, the media, the government, the privileged corporations and moneyed interests see to it that both party’s candidates are acceptable, regardless of the outcome, since they will still be in charge. It’s been that way for a long time. The two parties and their candidates have no real disagreements on foreign policy, monetary policy, privacy issues, or the welfare state. They both are willing to abuse the Rule of Law and ignore constitutional restraint on Executive Powers. Neither major party champions free markets and private-property ownership. Those candidates who represent actual change or disagreement with the status quo are held in check by the two major parties in power, making it very difficult to compete in the pretend democratic process. This is done by making it difficult for third-party candidates to get on the ballots, enter into the debates, raise money, avoid being marginalized, or get fair or actual coverage.”

Government has progressively acquired more power over the lives of Americans. They have done it subtly for decades but it has accelerated at warp speed in the last eight years. Since 9/11, Americans have seen their liberties taken away on a scale reminiscent of the McCarthy years during the 1950s. In the last year, government has taken advantage of this financial crisis to step into the breach and gained complete control over our banking system and auto industry. They are choosing the winners and losers in our society. They have chosen to save their rich ruling elite brethren who made billions by taking excessive criminal risk, and throw the middle class under the bus. The average American does not see the insidious method that The Party has used to gain overwhelming power over their lives. The U.S. government has used chaos, fear, and exaggeration to expand their control. The method used to gain control is simple. Government creates a problem, fans the flames to make the problem appear to be extremely dangerous, and then provide a solution that only government can implement.

The Government now spends $2.9 trillion per year, or 20% of GDP. With the proposed stimulus, government spending could breach 30% of GDP. In 1929, Government spending accounted for only 9% of GDP. In 2000, when President Bush ascended to power, spending on National Defense was 3.8% of GDP. Today it is 4.8%, having risen by 79% since 2000. In 1940, prior to WW II, National Defense accounted for 2.5% of GDP.

                              TRUTH                                                          GOVERNMENT PROPAGANDA
FY2009 federal piechartthe government's deceptive pie chart
Source: www.warresisters.com                                   Source: CBO

By 2011, 30% of all the spending in our country will be done by BIG GOVERNMENT. When the costs of Homeland Security, veteran’s benefits, interest on the debt related to military spending, spending on NASA and nuclear arms are included, National Defense accounts for 54% of Government spending. The Military Industrial Complex is calling the shots when it comes to how government operates. A question everyone needs to ask themselves:

Is it worth the loss of liberties and rights to allow the government to control and protect you?

Control of Information and History

Who controls the past controls the future. Who controls the present controls the past.           

Party slogan 1984

The complete lack of interest or care about American history by the vast majority of citizens, allows them to be misled by the State. The past is portrayed as being worse than today. The public is easily manipulated by the propaganda put out by the government and trumpeted by Big Media. As the Democrats make their misleading case for a $1 TRILLION pork filled stimulus package, they are telling the American public that FDR’s New Deal spending in the 1930s worked to pull the country out of the Great Depression. That is a bold faced lie. The GDP of the U.S. was $104 billion in 1929. It did not exceed that level until 1941 as spending on National Defense jumped by 500%. Unemployment was still 19% in 1938, years after the New Deal programs had been instituted. Economists Lowell E. Gallaway and Richard K. Vedder argue that the “Great Depression was very significantly prolonged in both its duration and its magnitude by the impact of New Deal programs. Without Social Security, work relief, unemployment insurance, mandatory minimum wages, and without special government-granted privileges for labor unions, business would have hired more workers and the unemployment rate during the New Deal years would have been 6.7% instead of 17.2%.” If the American public was not being misled, they would see that the next decade will be a government induced nightmare.

The Bush administration led by Dick Cheney, have been masters of manipulating the masses through lies, deception and half truths. I can easily envision Dick Cheney speaking the O’Brien dialogue from 1984.

There will be no curiosity, no enjoyment of the process of life. All competing pleasures will be destroyed. But always—do not forget this, Winston—always there will be the intoxication of power, constantly increasing and constantly growing subtler. Always, at every moment, there will be the thrill of victory, the sensation of trampling on an enemy who is helpless. If you want a picture of the future, imagine a boot stamping on a human face … forever.

In the 1980s the United States provided Sadaam Hussein with the weapons and funding to fight a war with our mortal enemy, Iran. We provided Osama Bin Laden with weapons to defeat our other mortal enemy, the Soviet Union. We enabled these maniacs to gain power and prestige in the Muslim world. By the 1990’s these two were our sworn enemies. The vast majority of Americans have no idea that we supplied these men with weapons and financial support, which ultimately led to thousands of American deaths. Alliances and enemies are interchangeable in the America of today, very much like Oceania in Orwell’s 1984.

Oceania was at war with Eurasia and in alliance with Eastasia. In no public or private utterance was it ever admitted that the three powers had at any time been grouped along different lines. Actually, as Winston well knew, it was only four years since Oceania had been at war with Eastasia and in alliance with Eurasia. But that was merely a piece of furtive knowledge which HE happened to remember. Officially the change of partners had never happened. Oceania was at war with Eurasia: therefore Oceania had ALWAYS been at war with Eurasia. The enemy of the moment always represented absolute evil, and it followed that any past or future agreement with him was impossible. Everything faded into mist. The past was erased, the erasure was forgotten, the lie became truth    Jackie Jura – www.orwelltoday.com

The U.S. government controls the flow of information that is used to stage-manage public opinion. Every statistic is massaged in a way to reflect the most positive view of the world. The gullible public and clueless Wall Street professionals accept these statistics with no questions asked. Government has learned that they can make bad news seem like a victory if they’ve built expectations for worse news. The Bush administration a few years ago forecasted a budget deficit of $400 billion and broke out champagne bottles when it finished at $300 billion. Only government bureaucrats could celebrate such a disastrous result. The Party attempts to keep the public in the dark, but the Resistance exists to shed light on their lies. Economist John Williams has been uncovering the government manipulation of facts and revealing the truth for many years.

Chart of Unemployment Rate. U-3, U-6, SGS
Source: www.Shadowstats.com

The government reports an unemployment rate of 7.2% to the public. This figure does not include discouraged workers or marginally attached workers. A discouraged worker is one who is willing, able and ready to work but has given up looking because there are no jobs to be had.

This level is currently 13.8%. During the Clinton administration, The Party decided that if you were discouraged for more than a year, you no longer counted. If these people are included, the current unemployment rate is 17.8%. This is a comparable figure to the 25% rate from the Great Depression. If you use the non-seasonally adjusted change in employment figures, the U.S. lost 2.8 million jobs in 2008. In this figure is a made up number that is supposed to account for the number of jobs gained or lost by small business. This birth/death model adjustment added 904,000 phantom jobs in 2008. This is an insult to the intelligence of all thinking Americans.

Luckily for the government, there are very few thinking Americans who care about such things. Reality is that small businesses probably lost 1 million jobs, which would make the true loss 4 to 5 million jobs. The Party will report the true numbers two years from now in a footnote after the market closes on a Friday.

Inflation: Chart of the CPI.
Source: www.Shadowstats.com
 Inflation was 14% in 1980. Government data cleansers have methodically used gimmicks to reduce the reported rate of inflation. Alan Greenspan spearheaded the effort to save Social Security by saying that if the price of steak rose, people would substitute with hamburger so the price didn’t really go up. If the price of hamburger rose, I’m sure a government robot would theorize that we would substitute with dog food. Further hedonistic “adjustments” were introduced to reduce reported inflation. Based on the methodology used in 1980, our current “deflationary” environment has led to a drop from 13% to 9%. Ask yourself whether your true everyday costs are up 1% or 9% in the last year.
When using the real inflation figures, you realize that we have been in a recession since 2000. This explains why the majority of Americans have fallen behind in the last eight years. The median household income was $50,557 in 2000. Using the government CPI adjusted figure for 2007, median household income had fallen to $50,233. If you used real inflation, the figure would be in the range of $47,000. Trickle down hasn’t worked as advertised. Only the rich ruling elite surged ahead. The criminals on Wall Street partied like it was 1999, while the middle class fell further into oblivion. Now that the rich are losing their shirts in the market, we have a REAL crisis. All the government information manipulators are working around the clock to spin the story in a way that will ensure permanent government control of our economy and our lives.

U.S. Gross Domestic Product (GDP) Chart
Source: www.Shadowstats.com
Psychological Manipulation
Freedom is Slavery, War is Peace

Party Slogan 1984
The concept of doublethink as described in Orwell’s 1984 is being used effectively by The Party in our current totalitarian state:
The power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them….To tell deliberate lies while genuinely believing in them, to forget any fact that has become inconvenient, and then, when it becomes necessary again, to draw it back from oblivion for just so long as it is needed, to deny the existence of objective reality and all the while to take account of the reality which one denies — all this is indispensably necessary. Even in using the word doublethink it is necessary to exercise doublethink. For by using the word one admits that one is tampering with reality; by a fresh act of doublethink one erases this knowledge; and so on indefinitely, with the lie always one leap ahead of the truth.

The Bush administration has used doublethink almost exclusively since 9/11. In both foreign affairs and the economy they have told deliberate lies, while ignoring inconvenient facts, in order to create an artificial reality. Karl Rove understood what journalist Walter Lippman noted in 1922 about the average American:

“Elites can manufacture consent because the average American is like a deaf spectator in the back row at a sporting event: He does not know what is happening, why it is happening, what ought to happen.”

The Bush/Cheney/Rove propaganda machine that convinced the majority of Americans to support a pre-emptive war against Iraq spun, scores of lies using partial facts and ignoring any fact that did not fit into their reality. Satellite pictures of mobile biological weapons labs, listening to informants (Curveball) that provided information they wanted to hear, ignoring information that didn’t fit, and creating fantasy meetings between 9/11 hijackers and Iraqi agents were all spun to keep the lie one step ahead of the truth. Orwell was clearly speaking about people like Dick Cheney and Karl Rove when he wrote these words:

“All the war-propaganda, all the screaming and lies and hatred, comes invariably from people who are not fighting.”

When Joe Wilson exposed the Bush administration lies about Iraq trying to obtain materials to build nuclear bomb from Africa, his wife was revealed as a CIA agent by Karl Rove and Dick Cheney as retribution for interfering with their reality. Only in the doublethink world created by Karl Rove could a man get shot three times, win three Purple Hearts and a Silver Star fighting in Vietnam, like John Kerry, and be declared a coward and traitor. In the meantime, his presidential opponent was protecting the skies of Texas during the Vietnam War.

Other examples of doublethink are as follows:

  • Fighting for Peace You cannot fight for peace. You fight to kill. George Carlin once said “Fighting for peace is like screwing for virginity”. Fighting, or any form of conflict, is the very thing that stands in the way of peace. Fighting is the opposite of peace. This is reminiscent of the Ministry of Peace, which conducts perpetual war. The Iraq war wasn’t about democracy, it was about oil. Orwell knew the reality of war.

“War against a foreign country only happens when the moneyed classes think they are going to profit from it.”

  • PreEmptive War – This concept is a warped rationale for attacking an opponent before they attack you. The Bush/Rove propaganda machine provided visions of mushroom clouds and weapons of mass destruction as their reason for attacking a country that had no nuclear or mass destruction weapons. Orwell described war in 1948:

“Every war when it comes, or before it comes, is represented not as a war but as an act of self-defense against a homicidal maniac.”
The Iraq War was sold as an act of self defense against Sadaam Hussein.

  • Peace-Keeping Forces – Peace keeping forces are those troops left in a country to help enforce a particular regime. The very fact that a military presence is required would suggest that there is no peace there to ‘keep’. The U.S. soldiers that will be left in Iraq for eternity will be called peace keepers, as civil war simmers and bombs explode daily.
  • Department of Defense – The Department of Defense bears striking resemblance to Orwell’s ‘Ministry of Peace’ not only in the classic use of doublethink in the name but also in its actions. Both are primarily concerned with warfare and seem to spend the majority of their time and efforts dealing in attack and invasion as opposed to the implied defense or peace. Another country has not attacked the U.S. since 1941, but we have invaded other countries seven times since then.
  • War on Terror – The definition of war according to Webster’s is a state of usually open and declared armed hostile conflict between states or nations. President Bush’s war on terror is an open ended war against no nation or state in particular. It can never be won or lost. It is just a justification for never ending expenditures and restrictions on civil liberties. Orwell described the effect of nationalism:

“The nationalist not only does not disapprove of atrocities committed by his own side, but he has a remarkable capacity for not even hearing about them.”

The war on terror concept allows Dick Cheney to think it is fine to torture prisoners and not give them a fair trial while spending years in Guantanamo. Don Rumsfeld thought it was OK to abuse prisoners at Abu Ghraib, until someone took a few pictures and ruined his party. The following quotes from Mr. Rumsfeld show his level of remorse:

“We’re functioning in a — with peacetime restraints, with legal requirements in a wartime situation, in the information age, where people are running around with digital cameras and taking these unbelievable photographs and then passing them off, against the law, to the media, to our surprise, when they had not even arrived in the Pentagon.”

“What has been charged so far is abuse, which I believe technically is different from torture. I’m not going to address the ‘torture’ word.”

He is more concerned with people breaking the law with cameras then about the torture being inflicted upon prisoners.

  • Sacrificing Rights to Insure Freedom – This is the most dangerous aspect of doublethink in our society today. With Orwellian surveillance like listening in on private conversations and acts such as ‘The Patriot Act’, we are being forced to give up the very freedoms that ‘The War on Terror’ is alleged to protect, all in the name of freedom.
  • Affirmative Action – This is the concept of discriminating against white people or men in an attempt to end discrimination. The best person for a job is not chosen because a quota for minorities must be met. This is to justify the years of discrimination against minorities and women. A new era of discrimination will surely solve a past era of discrimination. Orwell explains who could go along with such doublethink:

“There are some ideas so wrong that only a very intelligent person could believe in them.”
Corporations, government and educational institutions have instituted this reverse discrimination policy to relieve their perceived guilt for past offenses.

Language as Thought Control

“In our age there is no such thing as ‘keeping out of politics.’ All issues are political issues, and politics itself is a mass of lies, evasions, folly, hatred and schizophrenia.”

If George Orwell thought politics were like that in the 1940’s, imagine what his thoughts would be if he were alive today. With 17,000 lobbyists, hundreds of PACs, thousands of PR leeches, and thousands of sleazy lawyers running Washington DC, orchestrating the actions of 550 elected officials, the game of politics has never been at such a low point. The best job in Washington is at the Ministry of Slogans & Acronyms. The use of acronyms fits into the Orwellian concept of Newspeak, “the only language in the world whose vocabulary gets smaller every year.” The aim of The Party is make thoughtcrime or speech impossible by removing any words or possible constructs which describe the ideas of freedom or rebellion. The dumbing down of concepts before they are sold to the American public is how this is accomplished today.

Shock and Awe – This was the Don Rumsfeld marketing phrase for the initial stage of the Iraq Invasion. The U.S. military launched 1,700 air attacks, including 504 cruise missiles on March 21, 2003. The U.S. military insisted that the strikes were surgical and we did everything to avoid civilian casualties. Reports of casualties ranged from 3,000 to 6,000. We inflicted devastation on par with 9/11 on innocent Muslim citizens. This was U.S. terrorism disguised as self defense. The U.S. military refers to this as collateral damage.

USA Patriot ActUniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001. It is beyond comprehension that people in our government spend their time creating acronyms that disguise the fact that they are taking away civil liberties. These people must work in the Ministry of Truth, the masters of propaganda. The definition of Patriot according to Webster’s is, one who loves his or her country and supports its authority and interests. By naming it the Patriot Act, anyone that voiced dissent, didn’t love their country and was cast as a traitor. This act was rammed through Congress on October 26, 2001, only forty-five days after the 9/11 attack. Senators and Congressmen did not even read the law before passing it. The Party now has legal authority without a court order to wiretap your phone, read your emails, listen to cell phone conversations, search your mail, search your financial records, search your medical records, detain anyone who they suspect may commit terrorism, and indefinitely detain you based on secret evidence.

Terror Threat Levels – The threat levels are used by government officials to manipulate the public through the use of fear. The local law enforcement authorities have no idea what they are supposed to do when the level is changed. The public has no idea what the colors mean. The threat level was raised shortly before the 2004 Presidential election. No one ever explains why the level is raised or lowered.

Operation Iraqi Freedom – The Party always has a catchy patriotic slogan for the invasion of other countries. The “facts” sold to the gullible American public was that we needed to attack Iraq because they had Weapons of Mass Destruction that would eventually be used on American cities. False links to 9/11 and fake stories about nuclear weapons from Africa were the immediate reasons. Freedom and Democracy were not part of the equation. Only after we found no WMD did the invasion purpose become freeing Iraqis from the tyranny of Sadaam Hussein. If this was the real reason, then we should be invading North Korea, Russia, China and 50 other dictatorships throughout the world.

Community Reinvestment Act – This should be named the U.S. Taxpayer Gets Screwed Act. This law forced banks to make mortgage loans to poor people who should have been renting. This is another Democratic Party welfare state boondoggle. Bob McTeer, president of the Dallas Federal Reserve Bank from 1991 to 2004, described the pressure on banks:

“There was a lot of pressure from Congress and generally everywhere to make homeownership affordable for poor and low-income people. Some mortgages were made that would not have ordinarily been made. When a bank made a decision to purchase mortgaged-backed securities, they would somehow determine if some of them were in zip codes covered by the CRA, and therefore they could get CRA credit.”

The result was subprime losses in the billions being foisted onto the backs of American taxpayers who made their mortgage payments. People who received these loans don’t pay taxes.

Death Tax – A deliberate and carefully crafted word designed by the Republican Party in order to gain support for repealing the estate tax. Repealing the estate tax had no support among the American public. Manipulating the name of the tax generated support for repeal.

Housing and Economic Recovery Act of 2008 – This brilliant piece of legislation signed in July 2008 was designed to instill confidence in Fannie Mae and Freddie Mac and keep subprime borrowers in their homes. It didn’t help housing or the economy recover. It just poured more money down a rat hole. Fannie & Freddie collapsed under the weight of their incompetence and billions of losses in September 2008. They continue to make bad loans to undeserving borrowers, but now the losses flow directly to you and I, the American taxpayer.

Government Accountability – If this isn’t the biggest oxymoron in history, I don’t know what is. The Party has a tremendous interest in making sure that no one knows where our tax dollars are spent and whether they were spent wisely. A company has a bottom line and can calculate a return on the investments they make. No one can calculate a return on anything Government does. If every government project was listed on-line and citizens could see what was spent and for what purpose, the bureaucracy would come crashing down. Therefore, The Party will never allow light to be shone upon their deeds.

Department of Homeland Security – Its stated goal is to prepare for, prevent, and respond to domestic emergencies, particularly terrorism. This department most resembles Orwell’s Ministry of Love, the agency responsible for the identification, monitoring, arrest and torture of dissidents, real or imagined. We aren’t too far off from being monitored by telescreens. This department was created after 9/11. Its biggest claim to fame is the response to Hurricane Katrina, when 1,836 Americans died. Mismanagement, incompetence, lack of preparation, and slow response were the traits best exhibited by this agency that spends $50 billion per year and employs 208,000 bureaucrats. The department was blamed for up to $2 billion of waste and fraud after audits by the GAO revealed widespread misuse of government credit cards by DHS employees, with purchases including beer brewing kits, $70,000 of plastic dog booties that were later deemed unusable, boats purchased at double the retail price (many of which later could not be found), and iPods ostensibly for use in “data storage”. It is pure luck that we have not experienced another terrorist attack. It is not due to the actions of this agency.

Troubled Asset Relief Program – This is also known as TARP or the Emergency Economic Stabilization Act of 2008. It’s lucky they put a date at the end, so we can have another in 2009 and another in 2010. A better name would be WARP – Worthless Asset Reprieve Program. This catchy little acronym described assets as if they had a bad day at the office. I’m troubled by the bullshit that keeps being rammed down my throat by politicians and bankers. Assets aren’t troubled. The “assets” on the books of the biggest banks in the world are worthless. They are fictitious pieces of paper backed by nothing. This $700 billion bad banker bailout was supposed to buy these assets from the banks and allow the banks to lend. Henry Paulson lied to Congress and used the first $350 billion to buy preferred stock in the banks. It has been a miserable failure. The second $350 billion will be thrown at these same banks and nothing will happen. No one knows how the money is being spent and Bank of America and Citicorp are on the brink again. The U.S. banking system is insolvent and is being propped up by the American taxpayer.

Stable Prices – It seems the politicians running The Party these days like to pick and choose what they want from John Maynard Keynes. They prefer the goodies of increased government spending and ignore the other advice:

“The best way to destroy the capitalist system is 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.”

One of the key mandates of the Federal Reserve is price stability. This is a lie. The facts are that the Federal Reserve purposefully generates unending inflation which slowly lowers the standard of living of every American. The US dollar has lost 95% of its purchasing power since 1913 when the Federal Reserve was created by a Congress in the back pockets of bankers.

Foreclosure Mitigation – Barney Frank is demanding that the 2nd $350 billion of TARP funds be used for this purpose. It is a noble goal to reduce foreclosures. I’m sure Mr. Frank is a noble man. What this really means is that he would like to take your tax dollars and give them to people who bought houses with mortgages they could not afford. Rather than being properly kicked out of the house, you will make their mortgage payment for them, along with your own monthly mortgage payment. That is what mitigation means.

Quantitative Easing – This is a luminous term that 98% of Americans don’t understand. It sounds so soothing. When Ben Bernanke uses the term in his speeches you can imagine blue birds singing on his shoulder. What it means is that the Federal Reserve will print as many dollars as it takes to generate inflation so that the country’s enormous debt burden can be inflated away. Instead of one helicopter, picture thousands of B-52s dropping dollars over NYC. Japan tried the same thing in the 1990s with absolutely no success. Ben’s motto is, when you earnestly believe you can compensate for a lack of skill by doubling your efforts, there’s no end to what you can’t do.

Economic Recovery Program – This is Barrack Obama’s first contribution to Newspeak. His shrewd economic team didn’t like the sound of stimulus program. It sounded too much like Bush’s rebate checks, which didn’t work. Of course, one of the key elements of this plan is a $500 rebate per person. The term investment is used quite often in this plan. Investment in infrastructure, education, green initiatives, and energy are the backbone of the plan. Ask yourself why we have 156,000 structurally deficient bridges, crumbling water pipes, antiquated power grid, urban decay, and dangerous schools. It is because we have relied on the Government to be responsible for these things with taxes we have already paid. Now we are supposed to support a program with future tax dollars to do what Government should have done in the first place. When you are stuck in a traffic jam next year and see six union construction workers standing on the side of the road all making $50 an hour watching one guy with a jack hammer working, know that your tax dollars have been spent wisely.

Love Big Brother or Make a Stand Now
In the end, Winston Smith, the rebel in Orwell’s 1984, is brought to Room 101 and O’Brien threatens to let rats chew his face off if he doesn’t pledge his love for Big Brother. He cracks and learns to Love Big Brother. We are nearing a point of no return in this country. Government is acquiring more power and the citizens are losing their liberty and freedom. We can either learn to love it or make a stand against it now.

Ayn Rand in her book Atlas Shrugged describes how we have slowly transformed our country into Orwell’s Oceania:

“Politicians invariably respond to crises — that in most cases they themselves created — by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism.”

Orwell lived during a time of unadulterated evil, with madmen like Hitler and Stalin using the Big Lie and military brutality to keep their populations under their jackboot. Orwell saw a bleak future:

“The very concept of objective truth is fading out of the world. Lies will pass into history. During times of universal deceit, telling the truth becomes a revolutionary act.”

We are living in times of universal deceit. Your government is lying to you, the media is lying to you, organized religion is lying to you and corporations are lying to you. Most Americans are oblivious to the lies or simply don’t care. If you believe that bigger government will solve our troubles, borrowing more money will solve the quandary of too much debt, giving your tax dollars to the worst run banks and corporations is good policy, letting government choose the winners and losers in banking, autos, and energy is a good scheme, debasing the currency is a fine idea and allowing government agencies to monitor your conversations and emails makes you safer, then learn to Love Big Brother.

I, on the other hand, will not sit idly by while this country goes into permanent decline. I prefer liberty, freedom of speech, freedom of thought, free markets, and freedom to live my life as I wish. Government is too big, too powerful, and too regulating. New regulation is the current mantra from the Democrats. We had plenty of regulations. Government is just not capable of enforcing the laws that already exist. More laws will not make government more competent. Much of what I write, people do not want to hear. Orwell understood what liberty meant.

“If liberty means anything at all, it means the right to tell people what they do not want to hear.”

I’m angry with what has been going on in this country for the last eight years. I believe there are millions of other frustrated angry Americans who are tired of having this country dominated by crooked politicians in the back pocket of corporate fascists from the Defense Industry, Financial Industry, and Healthcare Industry. Only a few people within Government are as angry and ready to fight for liberty. Ron Paul is able to channel that anger:

“The issue boils down to this: do we care about freedom? Do we care about responsibility and accountability? Do we care that our government and media have been bought and paid for? Do we care that average Americans are being looted in order to subsidize the fattest of cats on Wall Street and in government? Do we care? When the chips are down, will we stand up and fight, even if it means standing up against every stripe of fashionable opinion in politics and the media? Times like these have a way of telling us what kind of a people we are, and what kind of country we shall be.”

Together we stand, divided we fail. Get involved with organizations that tell the truth about our economic and political crisis. David Walker, Ross Perot and Ron Paul are those people.

WILL 2012 BE AS CRITICAL AS 1860? (Featured Article)

“We are not enemies, but friends. We must not be enemies. Though passion may have strained, it must not break our bonds of affection. The mystic chords of memory will swell when again touched, as surely they will be, by the better angels of our nature.”  – Abraham Lincoln

We are approximately five years into The Fourth Turning Crisis. Every previous Fourth Turning had an economic dimension that eventually led to a do or die all out war. The mainstream linear thinkers see a recovery and a return to their concept of normality. They will be shocked and flabbergasted when they realize that this is only the beginning of a 20 year period of turmoil, chaos and war. It seems that some study of history would benefit the mainstream talking media heads pretending to know what is happening and political hacks in Washington D.C. who pretend to administer the affairs of state. The cycles of history are not identical, but the alignment of generations is always the same. The cycles are consistent because a long human life is always between 80 and 100 years. The previous Fourth Turnings in U.S. history were the American Revolution, the Civil War and the Great Depression/World War II. The descriptions are as follows:

American Revolution (Fourth Turning, 1773-1794) began when Parliament’s response to the Boston Tea Party ignited a colonial tinderbox—leading directly to the first Continental Congress, the battle of Concord, and the Declaration of Independence.  The war climaxed with the colonial triumph at Yorktown (in 1781).  Seven years later, the new “states” ratified a nation-forging Constitution.  The crisis mood eased once President Washington weathered the Jacobins, put down the Whiskey Rebels, and settled on a final treaty with England.

The Civil War (Fourth Turning, 1860-1865) began with a presidential election that many southerners interpreted as an invitation to secede. The attack on Fort Sumter triggered the most violent conflict ever fought on New World soil. The war reached its climax in the Emancipation Proclamation and Battle of Gettysburg (in 1863). Two years later, the Confederacy was beaten into bloody submission and Lincoln was assassinated–a grim end to a crusade many had hoped would “trample out the vintage where the grapes of wrath are stored.”

The Great Depression & World War II (Fourth Turning, 1929-1946) began suddenly with the Black Tuesday stock-market crash.  After a three-year economic free fall, the Great Depression triggered the New Deal revolution, a vast expansion of government, and hopes for a renewal of national community.  After Pearl Harbor, America planned, mobilized, and produced for war on a scale that made possible the massive D-Day invasion (in 1944).  Two years later, the crisis mood eased with America’s surprisingly trouble-free demobilization.

There is a consistent tempo to all Fourth Turnings. An event or series of events leads to the initial Crisis. As the Fourth Turning progresses it becomes more intense, chaotic, dire and bloody. It eventually exhausts itself as a victor is left in control of the battlefield. Picture George Washington at Yorktown, Ulysses S. Grant at Appomattox, and Douglass McArthur on the Battleship Missouri. The events during a Fourth Turning will always be different. The consistent aspect of all Fourth Turnings is the mood of the country, the same generational dynamics, and the reactions of the generations to events. Strauss & Howe describe this Crisis period as follows:

“The spirit of America comes once a saeculum, only through what the ancients called ekpyrosis, nature’s fiery moment of death and discontinuity. History’s periodic eras of Crisis combust the old social order and give birth to a new. A Fourth Turning is a solstice era of maximum darkness, in which the supply of social order is still falling but the demand for order is now rising.”

The turnings of history are like the seasons. It is impossible to go directly from Fall to Spring. You must withstand the bitter harshness of Winter in order to get to the revitalizing warmth of Spring. The intensity and depth of Winters will vary. Those who prepare for a potentially harsh Winter in advance will be more likely to survive.  The morphology of Fourth Turnings as described by Strauss & Howe is:

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

An honest assessment of where we sit in this cycle shows that we are still in stage one. The housing collapse brought about the near destruction of the worldwide financial system. The sudden shift in mood has been borne out by the angry rise of the Tea Party and the startling result from the recent election. Society is on the verge of stage two. There has yet to be the reunification and reenergizing of society. It still feels like things are falling apart. The sun is slowly setting on this stage and a dark brutal Winter night beckons.

1860 Election – Spark that Ignited an Epic Conflagration

 

Turnings throughout history have consistently lasted between 15 and 25 years, except one. The Civil War Crisis Turning lasted only 5 years and seems to not fit the standard definition of a Turning. Strauss & Howe reflected that:

“By the usual pattern of history, the Civil War Crisis catalyst occurred four or five years ahead of schedule and its resolution nearly a generation too soon.”

The truth is that instead of a drawn out Crisis over 15 to 20 years that would have had undulations of pain and suffering, the U.S. experienced the most savage 5 years in our history, with 620,000 Americans killed and 400,000 wounded. Ten percent of all Northern males 20–45 years of age died, as did 30 percent of all Southern white males aged 18–40. Strauss and Howe conclude that there are two lessons from the Civil War Crisis:

  1. The Fourth Turning morphology admits to acceleration.
  2. That acceleration can add to the tragedy of the outcome.

The catalyst for the Crisis was the election of Abraham Lincoln as President of the United States. After the Compromise of 1850, who would have envisioned the election of an unknown Congressman from an abolitionist party that didn’t even exist in 1850. Beyond that, could anyone have predicted the carnage from the bloodiest war in the history of mankind being the result of that election? Many people do not know that there were four candidates for President in 1860 and that Lincoln won the election with only 39.8% of the popular vote. Lincoln won the Presidency and he wasn’t even on the ballot in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Tennessee, or Texas.

The Republican Party realized they had a tremendous opportunity to win the Presidency as the Democrats were in disarray. Since it was essential to carry the West, and because Lincoln had a national reputation from his debates and speeches as the most articulate moderate, he won the party’s nomination on the third ballot on May 18, 1860. The Republican platform stated that slavery would not be allowed to spread any further, and it also promised that tariffs protecting industry would be imposed, a Homestead Act granting free farmland in the West to settlers, and the funding of a transcontinental railroad.  All of these provisions were highly unpopular in the South.

The Democratic Party split into two factions due to the issue of slavery. Stephen A. Douglass became the Northern Democrat candidate. He was a moderate on the slavery issue. John C. Breckinridge was selected by the Fireaters from the Deep South. Breckinridge supported extending slavery into territories whose voters did not want it. A fourth party called the Constitutional Union Party made up of die-hard former Southern Whigs and Know Nothings who felt they could support neither the Democratic Party nor the Republican Party was formed. They nominated John Bell of Tennessee for President. The party platform advocated compromise to save the Union, with the slogan “the Union as it is, and the Constitution as it is.”

The voter turnout rate in 1860 was the second-highest on record (81.2%, second only to 1876, with 81.8%). The voter turnout in 2008 of 56.8% was the highest for a Presidential election since 1968.

File:Abraham Lincoln by Alexander Helser, 1860-crop.jpg  File:John C Breckinridge-04775-restored.jpg

Nominee: Abraham Lincoln                        Nominee: John C. Breckinridge

Party: Republican                                          Party: Southern Democrat

% of Vote: 39.8%                                              % of Vote: 18.1%

Electoral Votes: 180                                      Electoral Votes: 72

  File:StephenADouglas.png

Nominee: John Bell                                        Nominee: Stephen A. Douglass

Party: Constitutional Union                          Party: Northern Democrat

% of Vote: 12.6%                                                % of Vote: 29.5%

Electoral Votes: 39                                         Electoral Votes: 12

As the 1850s progressed the firebrands in the North and South became more entrenched in their dogmatic positions. The Transcendental Generation Prophets came to power and compromise was no longer an option. Both Lincoln and Jefferson Davis were from this Prophet generation. Aging Prophets are always the moralistic drivers of Fourth Turnings. Strauss & Howe stress the importance of the Prophet Generation during a Fourth Turning:

A Crisis catalyst occurs shortly after the old Prophet archetype reaches its apex of societal leadership, when its inclinations are least checked by others. A regeneracy comes as the Prophet abandons any idea of deferral or retreat and binds the society to a Crisis course. A climax occurs when the Prophet expends its last burst of passion, just before descending rapidly from power.

The election of Abraham Lincoln proved to be the catalyst for the Crisis. Seven southern states seceded from the Union before Lincoln took office. The attack on Fort Sumter started a spiral of carnage and butchery that could not be reversed. The Crisis reached regeneracy after the Union debacle during the First Battle of Bull Run. Lincoln realized winning this war would require full mobilization and all out war. He ordered the enlistment of 500,000 soldiers, suspension of habeas corpus, taxation, and expansion of government power. The next four years were a swirl of savagery and unprecedented tragedy. It convulsed to a chaotic conclusion with the surrender at Appomattox and assassination of Lincoln in the same week. The Crisis exhausted itself with the climax seeming more like a defeat than a victory.

Are the actions of politicians 150 years ago worth understanding in order to determine how our current Crisis will develop? Since every Crisis period has the exact same generational configuration and generations react to events in similar manner, I believe it is worthwhile to examine the Civil War dynamics. Historian Gordon Leidner’s conclusions about the Civil War period are revealing:

  • Although the majority of the American people– including many moderate politicians like Abraham Lincoln–wanted to avoid Civil War and were content to allow slavery to die a slow, inevitable death, the most influential political leaders of the day were not.
  • On the southern side, “fire-eaters” like Robert Rhett and William Yancey were willing to make war to guarantee the propagation of their “right” to own slaves.
  • On the northern side, abolitionists like John Brown and Henry Ward Beecher of Connecticut were willing to make war in order to put an immediate end to the institution of slavery.
  • Southern politicians convinced their majority that the North was threatening their way of life and their culture. Northern politicians convinced their majority that the South, if allowed to secede, was really striking a serious blow at democratic government. In these arguments, both southern and northern politicians were speaking the truth–but not “the whole truth.”
  • It was also about the constitutional argument over whether or not a state had a right to leave the Union, and–of primary concern to most southern soldiers–the continuation of antebellum southern culture. Although the majority of Southerners had little interest in slaves, slavery was a primary interest of Southern politicians–and consequently the underlying cause of the South’s desire to seek independence and state rights.

The insights gained from the Civil War Crisis are that compromise and moderation are discarded. The firebrands control the field. The Prophets push for an all out war to settle the pressing issues of the day. They are willing to sacrifice the young in their moralistic fervor to satisfy their vision of the future. The final verdict will depend on the strength, judgment, and wisdom of the Prophet leaders during a Crisis.

2012 Election – Crisis Leader Sets Stage for Dark Days Ahead

  

     Nomad (Gen X)                         Prophet (Boomer)              Prophet (Boomer)

  

  Prophet (Boomer)                        Nomad (Gen X)                         Prophet (Boomer)

        Artist (Silent)

By 2012 we will have reached the 7th year of this Crisis. The linear thinking media and supposed “thought leaders” are convinced that the worst days of this Crisis have passed. They believe that the Federal Reserve and Government leaders have taken the proper actions to avert a Great Depression. They will be shocked when the Crisis deepens and gets far worse than today. Every action taken by our leaders since 2005 has  worsened the Crisis. Rather than letting the culprits of the financial crisis fail, they have propped up these criminal institutions with taxpayer funds. By not accepting the pain early in this Crisis, these leaders have ensured that this Crisis will be more tragic, brutal and wrenching. The mood of the country continues to darken, even as the mainstream media and government cheerleaders falsely insist that things are getting better.

By year 7 of the American Revolution Crisis, George Washington was on the verge of defeating the British at Yorktown and bringing that Crisis to a positive conclusion. The Civil War Crisis had concluded with Union victory by year 5. The Great Depression/WWII Crisis was in a lull period, with GDP growing by 13% in 1936 as government spending and personal consumption surged. The economy gave the appearance of recovery because FDR’s New Deal programs created make work schemes using government funds. Americans know the 1930s as the Great Depression. As proof of how meaningless GDP calculations are versus how real Americans are affected, the GDP increased by 63% in the four year period between 1934 and 1937. Despite this phenomenal growth, the unemployment rate remained at 17%. In comparison, GDP has advanced by only 5.1% from the bottom in the 2nd quarter of 2009 until today and the unemployment rate on a comparable basis is 23%. Franklin Delano Roosevelt won the 1936 election over Alfred Landon in one of the greatest landslides in history, with 523 electoral votes to Landon’s 8.

The current Crisis appears to be in a lull similar to the 1930s. Government actions can mask deeper problems for awhile, but pressure continue to build. The problems did not go away. The bad debts did not disappear. The Wall Street criminals are still free to loot the American middle class. No one has been prosecuted for the greatest financial fraud in history. The National Debt continues to balloon by $4 billion per day. The USD is slowly being replaced as the worldwide reserve currency. Political ideologues have taken control of both parties. Worldwide trade tensions and social contract broken promises are leading to riots and chaos across the Europe. The onset of peak cheap oil is raising prices for fuel and food and setting the stage for coming resource wars. Fundamentalist religious leaders are pushing for a religious war between Christianity and Islam. The extremists are gaining control of the agenda.

The sudden shift in mood has occurred. The hard working middle class of this country are frustrated, angry and feel betrayed by their leaders. The American people are fed up with all politicians. The liberal ideologues and conservative ideologues have staked out immovable positions on social, financial, and foreign trade issues. Compromise is as likely as it was in 1860. The Tea Party will not compromise. Their agenda is to change politics in Washington DC. They will be a thorn in both party’s side. The possibility of the Tea Party becoming a 3rd party is quite possible. This brings us to the 2012 Presidential election. The current configuration of Congress guarantees that absolutely nothing will get done in the next two years. Both parties will ignore the looming disaster of debt, devaluation, and depression as they position themselves for the 2012 election. The Crisis has not yet entered the regeneracy stage. This is the stage where the country unifies behind a leader and deals with the sudden threats that previously have been ignored or deferred, but which are now perceived as dire. The likely threats are the National Debt, a currency collapse, the Christian/Muslim conflict, Peak Oil, the rise of China, or more likely a combination of some of these issues.

Strauss & Howe‘s words regarding the approaching Crisis, written in 1997, are eerie and haunting:

“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability –  problem areas where America will have neglected, denied, or delayed needed action.”

As I try to assess the next phase of this Crisis, I have been seeking guidance from previous Fourth Turnings. At this juncture, the Crisis seems to have aspects of the Great Depression/World War II and Civil War Fourth Turnings. A financial crisis morphed into recession, much like the 1929 Crash and subsequent recession. Like the Great Depression, government borrowing and spending has given the false hope of recovery. The difference is that  government actions have failed to generate a strong rebound in GDP and unemployment continues to ratchet higher. A landslide election victory by Barack Obama in 2012 is not only impossible; he may not even be the Democratic nominee. The 2012 Presidential election is already destined to be a defining moment in our country’s history. The future path, intensity and pain of this Crisis will be greatly impacted by the outcome of this election. The darkening skies of Crisis are likely to become more threatening by 2012.

A recent Gallup poll gives an early indication of the likely Republican nominee in 2012. The front runners (Mitt Romney, Sarah Palin) have remained static, while the firebrands (Newt Gingrich, Mike Huckabee) have gained ground. The move towards a moralistic Prophet summoner of human sacrifice is not a surprise. The financial and world events that lead up to the 2012 election will determine which candidate is selected from the Republican field. The firebrands are likely to push to resolve ever-deepening moral choices through military force.

November 2010: Which of These Candidates Would You Be Most Likely to Support for the Republican Nomination for President in 2012? Based on Republicans and Republican-Leaning Independents

Usually an incumbent President can be sure of re-nomination as the Democratic candidate, but Obama’s popularity is so low and his effectiveness as President has been so wanting that a challenge from Hillary Clinton is a distinct possibility. Clinton has the Prophet persona and would command the respect of Americans looking for foreign relations expertise. A failed challenge to Obama’s nomination would likely weaken Obama and allow the Republican candidate an easy victory. A potential wildcard would be an insurgent independent campaign by billionaire Michael Bloomberg. His financial background and moderate positions on social issues could attract moderate Republican and Democratic voters. Another possibility is that the Tea Party is unable to assimilate within the Republican Party and decides to nominate its own candidate. This could lead to an 1860 like situation, with four candidates vying for the Presidency. The victor in this scenario might need to be selected by the Electoral College. The next President could be elected with less than 40% of the popular vote. Could this election result lead to secession movement? Will large segments of the population not accept the election verdict?

Will America Survive this Fourth Turning?

 

 

We are poised on the brink of the regeneracy phase of this Fourth Turning. The open question is what incident or events will lead to Americans rallying around a Prophet leader. Regeneracy during the American Revolution occurred in 1776 with the Declaration of Independence. It occurred during the Civil War when Lincoln demanded full mobilization and total war after the Battle of Bull Run. The election of FDR in 1932 produced a regeneracy based upon his New Deal policies. The issues confronting our nation appear intractable. The government “solutions” to the initial phase of this Crisis have been to paper over bad debts, prop up insolvent financial institutions, defer hard entitlement choices, debase the currency in an effort to alleviate overwhelming levels of government debt, ignore the imminent implications of cheap peak oil, and waging never ending lifeblood draining wars on terror. Ben Bernanke, a self described “expert” on the Great Depression, and his Federal Reserve, which has inflated away 96% of the USD purchasing power since 1913, will be the likely culprit in the next phase of this Crisis. Countries around the world are scrambling to reduce their exposure to the USD. Ben Bernanke has proven unable to comprehend the most basic economic signals (housing collapse, derivatives, Wall Street fraud). He will be blindsided by the sudden collapse of the US currency.

It is likely that phase two of this financial Crisis will lead to the election of a dogmatic Republican Prophet Boomer in 2012. This person will take office in January, 2013, eight years into this Fourth Turning. They will be faced with the realization that peak cheap oil is a fact, as even the linearist thinkers realize that technology and green energy will not provide the bumper sticker solution for our oil dependent society. The devastating combination of a currency collapse, oil supply shortages, and the draining war on terror will either unify the country behind the Prophet leader in their effort to save the country or it could result in the country’s fabric tearing apart with the Federal government losing control of sections of the country. A World War over dwindling natural resources is easily foreseeable. The actual denouement of events remain a mystery. Much will depend on the leader we choose. Much will depend on the strength, fortitude, and sacrifice of the American people.

Strauss & Howe provide four possible outcomes to our current Crisis:

  1. This Fourth Turning could mark the end of man. It could be an omnicidal Armageddon, destroying everything, leaving nothing. If mankind ever extinguishes itself, this will probably happen when its dominant civilization triggers a Fourth Turning that ends horribly. For this Fourth Turning to put an end to all this would require an extremely unlikely blend of social disaster, human malevolence, technological perfection and bad luck.
  2. The Fourth Turning could mark the end of modernity. The Western saecular rythm – which began in the mid-fifteenth century with the Renaissance – could come to an abrupt terminus. The seventh modern saeculum would be the last. This too could come from total war, terrible but not final. There could be a complete collapse of science, culture, politics, and society. Such a dire result would probably happen only when a dominant nation (like today’s America) lets a Fourth Turning ekpyrosis engulf the planet. But this outcome is well within the reach of foreseeable technology and malevolence.
  3. The Fourth Turning could spare modernity but mark the end of our nation. It could close the book on the political constitution, popular culture, and moral standing that the word America has come to signify. The nation has endured for three saecula; Rome lasted twelve, the Soviet Union only one. Fourth Turnings are critical thresholds for national survival. Each of the last three American Crises produced moments of extreme danger: In the Revolution, the very birth of the republic hung by a thread in more than one battle. In the Civil War, the union barely survived a four-year slaughter that in its own time was regarded as the most lethal war in history. In World War II, the nation destroyed an enemy of democracy that for a time was winning; had the enemy won, America might have itself been destroyed. In all likelihood, the next Crisis will present the nation with a threat and a consequence on a similar scale.
  4. Or the Fourth Turning could simply mark the end of the Millennial Saeculum. Mankind, modernity, and America would all persevere. Afterward, there would be a new mood, a new High, and a new saeculum. America would be reborn. But, reborn, it would not be the same.

The Fourth Turning is not a prophecy of doom. It is not some sort of Nostradamus like prediction of what will happen on a certain date. The Fourth Turning is part of a cycle of history tied to a long human life that has happened before and hopefully will happen again. Our trials await. Will America respond with strength of character, wise choices, and a willingness to sacrifice for future unborn generations? It is time to find out.

 

For everything there is a season, and a time for every matter under heaven: A time to be born, and a time to die;
a time to plant, and a time to pluck up what is planted;
A time to kill, and a time to heal;
a time to break down, and a time to build up;
A time to weep, and a time to laugh;
a time to mourn, and a time to dance;
A time to throw away stones, and a time to gather stones together;
a time to embrace, and a time to refrain from embracing;
A time to seek, and a time to lose;
a time to keep, and a time to throw away;
A time to tear, and a time to sew;
a time to keep silence, and a time to speak;
A time to love, and a time to hate;
a time for war, and a time for peace.
                                                              Ecclesiastes 3: 1-8

 

 

   

 

LIES ACROSS AMERICA

“Every single empire, in its official discourse, has said that it is not like all the others, that its circumstances are special, that it has a mission to enlighten, civilize, bring order and democracy, and that it uses force only as a last resort.”Edward Said

The increasingly fragile American Empire has been built on a foundation of lies. Lies we tell ourselves and Big lies spread by our government. The shit is so deep you can stir it with a stick. As we enter another holiday season the mainstream corporate mass media will relegate you to the status of consumer. This is a disgusting term that dehumanizes all Americans. You are nothing but a blot to corporations and advertisers selling you electronic doohickeys that they convince you that you must have. Propaganda about consumer spending being essential to an economic recovery is spewed from 52 inch HDTVs across the land, 24 hours per day, by CNBC, Fox, CBS and the other corporate owned media that generate billions in profits from selling advertising to corporations schilling material goods to thoughtless American consumers.  Aldous Huxley had it figured out decades ago:

“Thanks to compulsory education and the rotary press, the propagandist has been able, for many years past, to convey his messages to virtually every adult in every civilized country.”

Americans were given the mental capacity to critically think. Sadly, a vast swath of Americans has chosen ignorance over knowledge. Make no mistake about it, ignorance is a choice. It doesn’t matter whether you are poor or rich. Books are available to everyone in this country. Sob stories about the disadvantaged poor having no access to education are nothing but liberal spin to keep the masses controlled. There are 122,500 libraries in this country. If you want to read a book, you can read a book. The internet puts knowledge at the fingertips of every citizen. Becoming educated requires hard work, sacrifice, curiosity, and a desire to learn. Aldous Huxley  describes the American choice to be ignorant:

 “Most ignorance is vincible ignorance. We don’t know because we don’t want to know.”

It is a choice to play Call of Duty on your PS3 rather than reading Shakespeare. It is a choice to stand on a street corner looking for trouble rather than reading Hemingway. It is a choice to spend Black Friday in malls fighting other robotic consumers for iSomethings, the latest innovative, advanced TVs, flashy Rolexes, and ostentatious Coach bags rather than spending the day reading Guns of August by Barbara Tuchman, a brilliant Pulitzer Prize winning history of the outset of World War I, which would provide insight into what could happen on the Korean Peninsula. It is a choice to watch 6 hours per day of Dancing With the Stars, American Idol, Brainless Housewives of Everywhere, or CSI of Anywhere rather than reading Orwell or Huxley  and discovering that their dystopian warnings have come true.

 Conspicuous Consumption Conquistadors

Americans have chosen to lie to themselves. They have persuaded themselves that buying stuff with plastic cards while paying 19% interest for eternity, driving BMWs while locked into never ending indecipherable lease schemes, and living in permanently underwater McMansions bought with 0% down on an interest only liar loan, is the new American Dream. They think watching the boob tube will make them smart. They soak in the mass media hype, misinformation and lies like lemmings walking off a cliff. Depending on their political predisposition, they watch Fox or MSNBC and unthinkingly believe the propaganda that pours from the mouths of the multi-millionaire talking heads who read Teleprompters with words written by corporate media hacks. They tell themselves that buying stuff on credit, giving them the appearance of success as measured by the media elite, is actually success. This is a bastardized, manipulated, delusional version of accomplishment. Americans have chosen to believe the lies because the truth is too hard to accept.

Becoming educated, thinking critically, working hard, saving money to buy what you need (as opposed to what you want), developing human relationships, and questioning the motivations of government, corporate and religious leaders is hard. It is easy to coast through school and never read a book for the rest of your life. It is easy to not think about the future, your retirement, or the future of unborn generations. It is easy to coast through life at a job (until you lose it) that is unchallenging, with no desire or motivation for advancement. It is easy to make your everyday troubles disappear by whipping out your piece of plastic and acquiring everything you desire today. If your brother-in-law buys a 7,000 sq ft, 7 bedroom, 4 bath, 3 car garage, monolith to decadence for his family of 3, thirty miles from civilization, with no money down and a no doc Option ARM providing the funds, why shouldn’t you get in on the fun. It’s easy. Why sit around the kitchen table and talk with your kids, when you can easily cruise the internet downloading free porn or recording every trivial detail of your shallow life on Facebook so others can waste their time reading about your life. It is easiest to believe your elected leaders, glorified mega-corporation CEOs, and millionaire pastors preaching the word of God for a “small” contribution to their mega-churches.

Americans love authority figures who act as if they have all the answers. It matters not that these egotistical monuments to folly and hubris (Bush, Obama, Paulson, Geithner, Greenspan, Bernanke) have committed the worst atrocities in the history of our Republic, leaving economic carnage and the slaughter of thousands in their wake. The most dangerous man on this earth is an Ivy League educated, arrogant ideologue who believes they are smarter than everyone else. When these men achieve power, they are capable of producing catastrophic consequences. Once they seize the reigns of authority these amoral psychopaths have no problem lying to the American public in order to achieve their objectives. They know that Americans love to be lied to, so the bigger the lie, the more likely it is to be believed.

The current lie proliferating across the land of the free financing and home of the debtor is that austerity has broken out across the land. The mainstream media and the government, aided by various “think tanks” and Federal Reserve propagandists insist that Americans have buckled down, reduced spending, increased savings, and have embraced austerity.

Austerity – Circa 1932

Austerity – Circa 2010

They now proclaim that it is time to spend again. It is the patriotic thing to do, just like defeating terrorists by buying an SUV with 0% down from GM was the patriotic thing to do after 9/11. Defeating terrorists by going further into debt was the brilliant idea of those Ivy League geniuses Bush & Greenspan. Let’s critically examine the facts to determine how austere Americans have become:

  • Consumer credit outstanding is $2.41 trillion, the same level reached in early 2007, and up from $1.5 trillion in 2000. This is a 60% increase in ten years. Personal income has risen from $8.4 trillion to $12.6 trillion over this same time frame, a 50% increase. Americans have substituted debt for income in order to keep up with the Joneses. The mass delusion lives.
  • The MSM declares that the reduction in overall consumer debt from its peak of $2.56 trillion in 2008 to $2.41 trillion today proves that consumers have been cutting back and paying off debt. This is another media lie. Non-revolving debt, which includes car loans, education loans, mobile home loans and boat loans sits at $1.6 trillion, an all-time high matched in 2008. Credit card debt has “plunged” from $957 billion to $814 billion, not because consumers paid down their balances. The mega Wall Street banks have written off $20 billion per quarter since early 2009, accounting for ALL of the reduction in credit card debt. Clueless consumers continue to charge at the same rate as the peak in 2008.
  • Average credit card debt per household with credit card debt: $15,788
  • There are 609.8 million bank credit cards held by U.S. consumers.
  • The U.S. credit card default rate is 13.01%
  • In 2006, the United States Census Bureau determined that there were nearly 1.5 billion credit cards in use in the U.S. A stack of all those credit cards would reach more than 70 miles into space — and be almost as tall as 13 Mount Everests.
  • Penalty fees from credit cards added up to about $20.5 billion in 2009.
  • The national average default rate as January 2010 stood at 27.88% and the mean default rate is 28.99%.
  • Total bankruptcy filings in 2009 reached 1.4 million, up from 1.09 million in 2008. Bankruptcies in 2010 are on pace to exceed 1.6 million.  
  • 26% of Americans, or more than 58 million adults, admit to not paying all of their bills on time. Among African-Americans, this number is at 51%.

           Does This Look Like Austerity? Really?

This data clearly proves that austerity has not broken out across the land of delusion. The billions in consumer loan write-offs by the Wall Street banks that run this country have masked the fact that Americans have not cut back on their spending habits at all. GMAC (taxpayer owned) and Ford Credit continue to dish out car loans to anyone with a pulse and a 600 credit score. The Federal Reserve and the FASB have encouraged, if not insisted, that banks fraudulently value the commercial real estate loans on their books. The Federal Reserve has bought $1.5 trillion of toxic mortgage loans from the criminal Wall Street banks at 100 cents on the dollar. The government’s corporate fascist public relations firms then spread the big lie that the economy is recovering and consumers should join the party and spend, spend, spend.

If Americans were capable or willing to do some critical thinking, they would realize that those in power have created the illusion of a recovery by handing $700 billion of your money to the banks that created the financial meltdown, spending $800 billion on worthless pork barrel projects borrowed from future generations, dropping interest rates to 0% so that the mega-Wall Street banks can earn billions risk free while your grandmother who depended on interest income from her CDs edges closer to eating cat food to get by, and lastly Ben Bernanke’s blatant attempt to enrich Wall Street by buying US Treasury bonds in an effort to make the stock market go up, while the middle and lower classes are crushed under the weight of soaring fuel and food price increases that exceed 30% on an annual basis. The illusion of recovery is not a recovery. With a true unemployment rate of 22%, a true inflation rate of 8% and a real GDP of -1.5% (Shadowstats), we are in the midst of the Greater Depression. You are being lied to, but most of you prefer it.

The Little Lies We Tell Ourselves

“Our ignorance is not so vast as our failure to use what we know.” – M King Hubbert

When Jimmy Carter gave his malaise speech in 1979, Americans were in no mood to listen. Carter’s solutions were too painful, required sacrifice, and sought to benefit future generations. The leading edge of the Baby Boom generation had reached their 30s by 1979, and the most spoiled, pampered, egocentric generation in history could care less about future generations, long term thinking, or sacrifice for the greater good. They were the ME GENERATION. The 1970s had proven to be tumultuous episode in US history. M King Hubbert’s calculation in 1956 that U.S. oil production would peak in the early 1970s proved to be 100% correct.

File:US Oil Production and Imports 1920 to 2005.png

 

The Arab oil embargo resulted in gas shortages and economic chaos in the U.S. Hubbert used the same method to determine that worldwide oil production would peak in the early 2000s. If long term planning had been initiated in the early 1980s, combining exploration of untapped reserves, greater utilization of natural gas, development of nuclear plants, more stringent fuel efficiency standards, increased taxes on gasoline, and more thoughtful development of housing communities, we would not now face a looming oil crisis within the next few years. Instead of dealing with reality, adapting our behavior and preparing for a more localized society, we put our blinders on, chose ignorance over reason and pushed the pedal to the medal by moving farther away from our jobs, building bigger energy intensive mansions, and insisting on driving tank-like SUVs, Hummers, and good ole boy pickups. Kevin Phillips in American Theocracy explained that hyper-consumerism, fear, and inability to use logic have left our suburban oasis lives in danger of implosion when the reality of peak cheap oil strikes:

Besides the innate thirst of SUVs, some of the last quarter century’s surge in U.S. oil consumption has come from Americans driving more – some twelve thousand miles per motorist per year, up almost one – third from 1980 – because they as a whole live farther from work. In consumption terms, exurbia is the physical result of the latest population redistribution enabled by car culture and the electorate that upholds it.

Family values are central – if by this we mean having families and accepting lengthy commutes to install them in reasonably safe and well churched places. In the 1970’s such households might have been fleeing school busing or central city crime; in the post – September 11 era, many sought distance from “godless” school systems or the random violence and terrorist attacks expected to occur in metropolitan areas.

We willingly believe the lies espoused by the badly informed pundits on CNBC and Fox   that if we just drill in Alaska and off our coasts, we’ll be fine. The ignorant peak cheap oil deniers insist there are billions of barrels of oil to be harvested from the Bakken Shale, even though there is absolutely no method of accessing this supply without expending more energy than we can access. Environmentalists lie about the dangers of nuclear power, while shamelessly promoting the ridiculous notion that solar, wind and ethanol can make a visible impact on our future energy needs. Ideologues on the right and left conveniently ignore the facts and the truth is lost in a blizzard of their lies. Here is an explanation so clear, even a CNBC “drill baby drill” dimwit could understand:

When oil production first began in the mid-nineteenth century, the largest oil fields recovered fifty barrels of oil for every barrel used in the extraction, transportation and refining. This ratio is often referred to as the Energy Return on Energy Investment (EROEI). Currently, between one and five barrels of oil are recovered for each barrel-equivalent of energy used in the recovery process. As the EROEI drops to one, or equivalently the Net Energy Gain falls to zero, the oil production is no longer a net energy source. This happens long before the resource is physically exhausted.

File:Hubbert peak oil plot.svg

 

After the briefest of lulls when oil reached $145 per barrel, Americans have resumed buying SUVs, pickup trucks, and gas guzzling muscle cars. They have chosen to ignore the imminence of peak cheap oil because driving a leased BMW makes your neighbors think you are a success, while driving a hybrid would make your neighbors think you are a liberal tree hugger. It boggles my mind that so many Americans are so shallow and shortsighted. According to Automotive News, at the start of 2008 leasing comprised 31.2% of luxury vehicle sales and 18.7% of non-luxury sales. This proves that hundreds of thousands of wannabes are driving leased BMWs and Mercedes to fill some void in their superficial lives.

I bought a Honda Insight Hybrid six months ago. It gets 44 mpg and will save me $1,500 per year in gasoline costs. I put 20% down and financed the remainder at 0.9% for three years. My payment is $450 per month. I will own it outright in 2 ½ years. I could have leased a 2010 BMW 328i with moonroof, bluetooth, power seats with driver seat memory, lumbar support, leather interior, iPod adapter, 17″ alloy wheels, heated seats, wood trim, 3.0 Liter 6 Cylinder engine with 230 horsepower for 3 years at $389 per month. At the end of 3 years I’d own nothing. In 2 ½ years I’ll be able to put $450 per month away for my kids’ college education and I’ll be saving more on fuel as gasoline approaches $5 per gallon. The self important egotistical BMW leaser pretending to be successful will need to hand over their sweet ride and move on to the next lease, never saving a dime for the future. I’m sure they’ll make a killing in the market or their McMansion will surely double in price, providing a fantastic retirement.

             Delusional                                   Practical

 

The delusion that cheap oil is a God given right of all Americans can be seen in the YTD data on vehicle sales. Pickups and SUVs account for 48.5% of all sales, while small fuel efficient cars account for only 16.5% of all sales. Americans will continue to lie to themselves until it is too late, again.

  Oct 2010 % Chg from
Oct’09
YTD 2010 % Chg from
YTD 2009
Cars 448,127 3.9 4,840,525 5.3
   Midsize 220,998 -0.2 2,407,457 9.9
   Small 142,983 9.7 1,616,840 -1.5
   Luxury 78,487 9.7 742,278 7.2
   Large 5,659 -31.9 73,950 -0.8
Light-duty trucks 502,038 23.5 4,730,196 16.7
   Pickup 147,207 16.9 1,334,133 13.9
   Cross-over 195,274 20.0 1,928,191 16.8
   Minivan 55,596 21.0 561,736 15.1
   Midsize SUV 51,494 86.6 443,922 37.9
   Large SUV 23,946 1.5 202,806 12.1
   Small SUV 14,861 53.6 146,000 -3.8
   Luxury SUV 13,660 22.1 113,408 26.2
Total SUV/Cross-over 299,235 27.4 2,834,327 18.3
Total SUV 103,961 44.3 906,136 21.7
Total Cross-over 195,274 20.0 1,928,191 16.8

Americans are so committed to their automobiles, hyper-consumerism, oversized McMansions, and suburban sprawl existence that they will never willingly prepare in advance for a future by scaling back, downsizing, or thinking. Our culture is built upon consumption, debt, cheap oil and illusion. Kevin Phillips in American Theocracy concludes that there are so many Americans tied to our unsustainable economic model that they will choose to lie to themselves and be lied to by their leaders rather than think and adapt:

A large number of voters work in or depend on the energy and automobile industries, and still more are invested in them, not just financially but emotionally and culturally. These secondary cadres included racing fans, hobbyists, collectors, and dedicated readers of automotive magazines, as well as the tens of millions of automobile commuters from suburbs and distant exurbs, plus the high number of drivers whose strong self-identification with vehicle types and models serve as thinly disguised political statements. In the United States more than elsewhere, a preference for conspicuous consumption over energy efficiency and conservation is a signal of a much deeper, central divide.

M King Hubbert was a geophysicist and a practical man. He observed data, made realistic assumptions, and came to logical conclusions. He didn’t deal in unrealistic hope and unwarranted optimism. He knew that our culture had become so dependent upon lies and an unsustainable growth model based on depleting oil and debt based “prosperity”. He knew decades ago that we were incapable of dealing with the truth:

“Our principal constraints are cultural. During the last two centuries we have known nothing but exponential growth and in parallel we have evolved what amounts to an exponential-growth culture, a culture so heavily dependent upon the continuance of exponential growth for its stability that it is incapable of reckoning with problems of non-growth.” M King Hubbert

Our country is at a crucial juncture. It is time for thinkers. It is time for realists. It is time to deal with facts. It is time to drive the ideologues off the stage. Are you tired of lying to yourselves? Are you tired of being lied to by the corporate fascists that run this country? It is time to wake up. Right wing and left wing ideologues will continue to spew lies and misinformation as they are power hungry and care not for the long-term survival of our nation or the unborn generations that depend upon the decisions we make today. It is time to see how we really are.

 “Most of one’s life is one prolonged effort to prevent oneself from thinking. People intoxicate themselves with work so they won’t see how they really are.” –   Aldous Huxley

AS THINGS FELL APART, NOBODY PAID MUCH ATTENTION

The American way of life – which is now virtually synonymous with suburbia – can run only on reliable supplies of dependably cheap oil and gas. Even mild to moderate deviations in either price or supply will crush our economy and make the logistics of daily life impossible. – Jim Kunstler – The Long Emergency

 

Here we stand
Like an Adam and an Eve
Waterfalls
The Garden of Eden

Two fools in love
So beautiful and strong
The birds in the trees
Are smiling upon them


From the age of the dinosaurs
Cars have run on gasoline
Where, where have they gone?
Now, it’s nothing but flowers

Talking Heads – Nothing but Flowers

America was a Garden of Eden with nothing but flowers, trees and vegetation. We bit into the forbidden fruit of oil over a century ago. It has been a deal with the Devil. Oil brought immense wealth, rapid industrialization, 2.7 million miles of paved roads, and enormous power to America. But, now the SUV is running on empty. In the not too distant future the downside of the deal with the Devil will reveal itself. America was the land of the free and home of the brave. Now it is the land of the Range Rover and home of the BMW. In a few years it could be the land of the forlorn and home of the broken down. Our entire society has been built upon a foundation of cheap oil. The discovery of oil in Titusville, PA in 1859 turbo charged the Industrial Revolution in the U.S. The development of our sprawling suburban culture was dependent upon cheap oil. Americans could not survive for a week without oil. Commerce in the U.S. depends upon long haul truckers. Food is transported thousands of miles to grocery stores. The cheap Wal-Mart crap is transported thousands of miles across the seas from China. Americans believe it is our God given right to cheap oil. We are the chosen people. Kevin Phillips, in his brilliant book American Theocracy describes our love affair with cheap oil:

Americans constitute the world’s most intensive motoring culture. For reasons of history and past abundance, no other national population has clumped so complacently around so fuelish a lifestyle. For many citizens the century of oil has brought surfeit: gas-guzzling mobile fortresses, family excursions on twenty thousand-thousand-gallons-per-hour jet aircraft, and lavishly lit McMansions in glittering, mall packed exurbs along outer beltways. Against a backdrop of declining national oil and gas output, Americans consume 25% of world energy while holding just 5% of its energy resources. As the new century began, Americans enjoyed a lifestyle roughly twice as energy intensive as those in Europe and Japan, some ten times the global average. Of the world’s 520 million automobiles, unsurprisingly, more than 200 million were driven in the United States, and the U.S. car population was increasing at five times the rate of the human population. How long that could continue was not clear.

John and Jane Q. Citizen mostly ignore these trends and details, and know nothing of geologist Hubbert’s bell-shaped charts of peak oil. Senior oil executives sometimes discuss them in industry conferences, but elected officials – many with decades of energy platitudes under their belts – typically shrink from opening what would be a Pandora’s Box of political consequences. Oil was there for our grandfathers, they insist, and it will be there for our grandchildren; it is part of the American way.

Ignoring the facts and pretending that we can count on cheap oil for eternity is delusional. It is also the American way. The age of oil is coming to an end.

  

    

There are consequences to every action. There are also consequences to every inaction. Over the next decade Americans will experience the dire consequences of inaction. The implications of peak cheap oil have been apparent for decades. The Department of Energy was created in 1977. The Department of Energy’s overarching mission was to advance the national, economic, and energy security of the United States. In 1970, the U.S. imported only 24% of its oil. There were 108 million motor vehicles in the U.S., or .53 vehicles per person in the U.S. Today, the U.S. imports 70% of its oil and there are 260 million vehicles, or .84 vehicles per person. Jim Kunstler describes our bleak future in The Long Emergency:

 “American people are sleepwalking into a future of hardship and turbulence. The Long Emergency will change everything. Globalism will wither. Life will become profoundly and intensely local. The consumer economy will be a strange memory. Suburbia – considered a birthright and a reality by millions of Americans – will become untenable. We will struggle to feed ourselves. We may exhaust and bankrupt ourselves in the effort to prop up the unsustainable. And finally, the United States may not hold together as a nation. We are entering an uncharted territory of history.”

The land of the delusional has no inkling that their lives of happy motoring are winding down. The vast majority of Americans believe that oil is abundant and limitless. Their leaders have lied to them. They will be completely blindsided by the coming age of hardship.

Factories & Shopping Malls

     

     

There was a factory
Now there are mountains and rivers
you got it, you got it
 
We caught a rattlesnake
Now we got something for dinner
we got it, we got it
 
There was a shopping mall
Now it’s all covered with flowers
you’ve got it, you’ve got it
 
If this is paradise
I wish I had a lawnmower
you’ve got it, you’ve got it

                                     Talking Heads – Nothing but Flowers

If Americans had any sense of history longer than last week’s episode of Dancing with the Stars (how about that Bristol Palin!), they may have noticed that the modern age has lasted a mere 150 years and has been completely dependent upon cheap plentiful oil. This is a mere eye blink in the history of mankind.  American exceptionalism refers to the opinion that the United States is qualitatively different from other nations. Its exceptionalism is claimed to stem from its emergence from a revolution, becoming “the first new nation” and developing “a unique American ideology, based on liberty, egalitarianism, individualism, populism and laissez-faire”. This feeling of superiority stems from the belief that we have a moral superiority and God has chosen our country to be a shining symbol for the rest of the world. It is the ultimate in hubris to think that we are the chosen ones. An enormous amount of credit for the American Century (1900 – 2000) must be given to pure and simple luck.

Everything characteristic about the condition we call modern life has been a direct result of our access to abundant supplies of cheap fossil fuels. Fossil fuels have permitted us to fly, to go where we want to go rapidly, and move things easily from place to place. Fossil fuels rescued us from the despotic darkness of the night. They have made the pharaonic scale of building commonplace everywhere. They have allowed a fractionally tiny percentage of our swollen populations to produce massive amounts of food. All of the marvels and miracles of the twentieth century were enabled by our access to abundant supplies of cheap fossil fuels. The age of fossil fuels is about to end. There is no replacement for them at hand. These facts are poorly understood by the global population preoccupied with the thrum of daily life, but tragically, too, by the educated classes in the United States, who continue to be by far the greatest squanderers of fossil fuels. – Jim Kunstler – The Long Emergency

Every accomplishment, invention, and discovery of the 20th Century was due to cheap accessible fossil fuels. The American industrial age was powered by cheap plentiful oil. One hundred and ten years after the discovery of oil in Titusville, PA an American walked on the moon. We harnessed the immense power of oil and rode it hard. An empire was born and grew to the greatest in history through the utilization of oil and oil byproducts. It is no coincidence that U.S. GDP has been dependent upon the growth in fossil fuel consumption over the last 150 years.

       

The self centered delusional myopic American citizenry see no parallel between the American Empire built on a foundation of oil and the Dutch Empire built upon wind and water or the British Empire established on the discovery of vast quantities of coal. The Dutch Empire of the 1600s had 6,000 ships and 1,000 windmills generating power. The British Empire used coal to power steam engines, pumps, locomotives and ships and forged a great empire in the 1700s and 1800s. Today, the Netherlands has a GDP lower than Mexico. The U.K. has a GDP on par with Italy. You can be sure you are no longer an empire when your GDP is on par with Mexico and Italy. The United States has grown its GDP to $14.7 trillion by exploiting fossil fuels. The American Empire is clearly waning as its dependence on foreign oil slowly bankrupts the country. We consume 140 billion gallons of gasoline every year keeping our suburban sprawl mall based lifestyle viable.

Cars, Highways & Billboards

     

Years ago
I was an angry young man
I’d pretend
That I was a billboard

Standing tall
By the side of the road

I fell in love
With a beautiful highway

This used to be real estate
Now it’s only fields and trees
Where, where is the town
Now, it’s nothing but flowers

The highways and cars
Were sacrificed for agriculture
I thought that we’d start over
But I guess I was wrong

                                    Talking Heads – Nothing but Flowers

Americans believe our ingenuity, brilliance and blessings from God have led to the elevation of our country to eminence as the greatest empire in history. But, in reality it was due to a black sticky substance that we stumbled across in 1859. Those who believe in American Exceptionalism scoff at the idea that our empire would not exist without oil. They prefer to ignore and downplay the impact of oil on our society. Too bad. Here are the facts from www.lifeaftertheoilcrash.net/.

  • Approximately 10 calories of fossil fuels are required to produce every 1 calorie of food eaten in the US. 
  • Pesticides and agro-chemicals are made from oil. 
  • Commercial fertilizers are made from ammonia, which is made from natural gas. 
  • Most farming implements such as tractors and trailers are constructed and powered using oil-derived fuels. 
  • Food storage systems such as refrigerators are manufactured in oil-powered plants, distributed using oil-powered transportation networks and usually run on electricity, which most often comes from natural gas or coal. 
  • The average piece of food is transported almost 1,500 miles before it gets to your plate. 
  • In addition to transportation, food, water, and modern medicine, mass quantities of oil are required for all plastics, all computers and all high-tech devices. 
  • The construction of an average car consumes the energy equivalent of approximately 20 barrels of oil. 
  • The construction of the average desktop computer consumes ten times its weight in fossil fuels. 
  • According to the American Chemical Society, the construction of single 32 megabyte DRAM chip requires 3.5 pounds of fossil fuels. 
  • Recent estimates indicate the infrastructure necessary to support the internet consumes 10% of all the electricity produced in the United States. 
  • The manufacturing of one ton of cement requires 4.7 million BTUs of energy, which is the amount contained in about 45 gallons of oil. 

Our entire civilization will collapse in a week without oil. Try to imagine life if the 159,000 gas stations in the country ran dry. We are running on fumes and refuse to acknowledge that fact. We sooth our psyche with delusions of green energy (solar, wind, ethanol); drill, drill, drill mantras; abiotic oil theories; and vast quantities of shale gas. The concept of energy required to extract an amount of energy completely goes over the head of media pundits and those who prefer not to think. If you expend 2 gallons of gasoline in your effort to extract 1 gallon of gasoline, you’ve hit the wall. We have sacrificed our future in order to maximize our present, as William James concluded in the late 1800s:

“The most significant characteristic of modern civilization is the sacrifice of the future for the present, and all the power of science has been prostituted to this purpose.”

Americans have a fatal character flaw of desiring others to think they are successful because they drive an expensive gas guzzling automobile and reside in an immense energy intensive McMansion in suburbs 30 miles from civilization. Delusional Americans have convinced themselves that the appearance of success is success. Leasing $50,000 BMWs for decades and borrowing $500,000 to live in a $300,000 house has already pushed millions of egotistical to the edge. Of the 250 million passenger vehicles on the road today, 100 million are SUVs or pickup trucks. The average fuel mileage is 17 mpg. Approximately 70% of Americans drive to work every day, with 85% driving alone. They spend 45 minutes on average commuting to and from work and drive 15 miles to work. The average home size increased from 1,400 sq ft in 1970 to 2,300 sq ft today, despite the fact that the average household size decreased from 3.1 to 2.6. The bigger is better fantasy will be devastating on the downward slope of peak oil.    

Pizza Huts, Dairy Queens & 7 Elevens

     

   

 
Once there were parking lots
Now it’s a peaceful oasis
you got it, you got it
 
This was a Pizza Hut
Now it’s all covered with daisies
you got it, you got it
 
I miss the honky tonks,
Dairy Queens, and 7-Elevens
you got it, you got it

And as things fell apart
Nobody paid much attention
you got it, you got it

                                     Talking Heads – Nothing but Flowers

How will Americans survive without the 7,500 Pizza Huts, 5,000 Dairy Queens, and 8,000 7-11s that dot our highways? The average Joe is so busy tweeting, texting, and face-booking on their iPads, Blackberries, and laptops, watching Dancing With the Stars on their 52 inch HDTV bought on credit, or cruising superhighways in their leased Hummers to one of the 1,100 malls or 46,000 shopping centers, that they haven’t paid much attention as peak oil crept up on them. The globalization miracle of cheap goods produced in China and shipped across the world by cargo ship and then trucked thousands of miles to your local Wal-Mart is wholly reliant upon cheap oil. Our own military has concluded that:

By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD. – Joint Operating Environment Report 

When worldwide oil demand slightly exceeded worldwide oil supply in 2008, prices surged to $145 per barrel. A 10 million barrel per day shortfall is unfathomable by the purposefully ignorant masses. The sprawling suburbia that now houses the American population will become not viable when oil prices rise above $200 per barrel. Out-of-town shopping and entertainment malls will be deserted. The prosperity borne from the advent of oil is waning. Jim Kunstler explains the end game in The Long Emergency:

The entropic mess that our economy has become is in the final blow-off of late oil-based industrialism. The destructive practices known as “free market globalism” were engendered by our run-up to and arrival at the world oil production peak. It was the logical climax of the oil “story”. It required the breakdown of all previous constraints – logistical, political, moral, cultural – to maximize the present at the expense of the future, and to do so for the benefit of the very few at the expense of the many. Even mild to moderate deviations in either price or supply [of oil and gas] will crush our economy and make the logistics of daily life impossible.

The United States is already tottering, as the oligarchy of the Wall Street banking syndicate, global mega-corporations and corrupt political hacks in Washington DC have pillaged the wealth of the country and left a middle class gasping for air. The mood of the country is already darkening as The Fourth Turning gathers steam. The recognition by the masses that peak cheap oil is a fact will contribute greatly to the next stage of this Crisis. Fourth Turning periods always lead to war. American troops are not in the Middle East to spread democracy. They are the forward vanguard in the coming clash over depleting oil resources. We are entering an era of strife, war, chaos and destruction. The facts of who controls oil supply and who needs oil (U.S. – 25%, China – 10%) are clear. Kunstler bluntly deals with the facts:

Fossil fuel reserves are not scattered equitably around the world. They tend to be concentrated in places where the native peoples don’t like the West in general or America in particular, places physically very remote, places where we realistically can exercise little control (even if we wish to). The decline of fossil fuels is certain to ignite chronic strife between nations contesting the remaining supplies. These resource wars have already begun. There will be more of them. They are very likely to grind on and on for decades. They will only aggravate a situation that, in and of itself, could bring down civilizations. The extent of suffering in our country will certainly depend on how tenaciously we attempt to cling to obsolete habits, customs, and assumptions – for instance, how fiercely Americans decide to fight to maintain suburban lifestyles that simply cannot be rationalized any longer. –  Jim Kunstler – The Long Emergency

Mr. Kunstler believes that the U.S. will be forced to downscale, localize and adapt to a new reality. I wholly support his attempt to warn the American people and would urge those who chose to think that preparing for a more agrarian lifestyle that will be forced upon us by circumstances is essential. No technological miracle will save us from our fate. Decades of inaction will have a price. I truly hope that his optimism that hardship will renew the American spirit will reveal itself:

“But I don’t doubt that the hardships of the future will draw even the most secular spirits into an emergent spiritual practice of some kind.”

As I live in the outer suburbs and commute 30 miles per day into the decrepit decaying city of Philadelphia every day, I’m less optimistic that the transition will be smooth or even possible. Kunstler’s view of the suburbs is accurate:

“The state-of-the-art mega suburbs of recent decades have produced horrendous levels of alienation, loneliness, anomie, anxiety, and depression.”

Families stay huddled in their McMansions, protected from phantoms by state of the art security systems. Their interaction with the world is through their electronic gadgets. Neighborhoods of cookie cutter 4,000 sq ft mansions appear deserted. Human interaction is rare. Happiness is in short supply. As I sit in miles of traffic every morning during my soul destroying trek to work I observe the thousands of cars, SUVs, and trucks and wonder how this can possibly work when the peak oil tsunami washes over our society in the next few years. Then I reach the bowels of the inner city and my pessimism grows. This concrete jungle is occupied by hundreds of thousands of uneducated, unmotivated, wards of the state. They live a bleak existence in bleak surroundings and depend upon subsistence payments from the depressed suburbanites to keep them alive. How will they survive in a post peak oil world? They won’t.

The Hirsch Report and Jim Kunstler’s  The Long Emergency both were published in 2005. M. King Hubbert warned U.S. leaders decades in advance about the expected timing of peak oil. The warnings have fallen on deaf ears. We were busy with our wars of choice, home price wealth, gays in the military, and the latest episode of Jersey Shore.

And as things fell apart
Nobody paid much attention
 

NOTHING BUT FLOWERS

AS GENERAL MOTORS GOES, SO GOES THE NATION (oldie but goodie)

I wrote this in February, 2009. I thought it was fitting to reprint on the day of the GM IPO.

General Motors was founded in 1908 in Flint, Michigan and grew to be the largest corporation in the world. Its market capitalization reached $50 billion in 2000. In the past week its market capitalization dropped below $1 billion to levels last seen during the 1920’s. The story of General Motors is the story of America. In 1953, at the peak of its dominance, its President Charles Wilson declared before Congress that what was good for the country was good for GM and vice versa. Its rise to power and decline towards insolvency parallel the rise and fall of the Great American Republic. Overconfidence, hubris, lack of courage, foolish decisions made, and crucial decisions deferred have been the hallmarks of GM and U.S. GM’s stock price reached at $1.77 last week, a 71 year low. It peaked at $100 during the Dot Com boom in 2000 and was still at $50 in 2007. The market has voted and it says GM is bankrupt.

Chart for General Motors Corporation (GM)

American carmakers have seen their market share drop from 85% in 1985 to 43% today. GM’s market share peaked at almost 50% in the 1960’s. It reached a historic low of 19.5% in January. Their sales plummeted 49% from a year ago. GM has too much debt, too much bureaucracy, too many plants, too many car lines, too many employees, and too many future healthcare and pension obligations. Of course, the only way a company can be in such a disastrous position is through decades of mismanagement. The only logical solution is for GM to enter a pre-packaged bankruptcy with financing provided by the U.S. government if bank financing is unavailable. Shareholders and bondholders will be wiped out. They made a bad investment. Plants will be closed, UAW contracts restructured, management replaced, employees fired, debt written off and future obligations reduced. A much smaller viable company that can compete in the 21st Century would exit bankruptcy in a year or two. A profitable, low market share is preferable to a high market share with billions in loses.

2

Source: Automotive Data Center & R.L. Polk

The decline of GM is a testament to how poor strategic decisions over the course of decades will ultimately lead to collapse. The United States has followed the GM model of failure for the last three decades. The U.S. has too much debt, too much bureaucracy, too many government supported industries, too many agencies, too many employees, and $53 trillion of unfunded future liabilities. See any similarities to GM? Can the U.S. avoid the fate of GM, or is it too late? If we can learn the important lessons of the GM decline, it may not be too late to reverse our course. Or we can continue on the current path and follow the advice of Will Rogers.

“If stupidity got us into this mess, then why can’t it get us out?”

Meteoric Rise

By the early 1920s, General Motors had surpassed Ford Motor Company as the largest car company in the U.S. under the leadership of Alfred P. Sloan. He created the concept of annual styling changes that kept consumers coming back. He also established a pricing structure for each of GM’s brands from lowest to highest (Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac). The idea was to keep a family coming back to GM over time as they become wealthier. He was a pioneer who drove GM to become the largest and most profitable industrial enterprise the world had ever known. His words reflect that spirit.

“There has to be this pioneer, the individual who has the courage, the ambition to overcome the obstacles that always develop when one tries to do something worthwhile, especially when it is new and different.”

In the midst of the Great Depression, Mr. Sloan was able to keep General Motors profitable. That is an indication of a smart, realistic businessman who didn’t make poor decisions during the Roaring 20s. GM’s results during the heart of the Depression, when one-third of all dealers went broke, according to Automotive Daily News were:

1929 Net sales – $1,504,404,472               Net income – $248,282,268

1930 Net sales – $983,375,137                  Net income – $151,098,992

1931 Net sales – $808,840,723                  Net income – $96,877,107

1932 Net sales – $432,311,868                  Net income – $164,979

By 1936, GM managed to increase car sales to 1.7 million and to 2 million by 1941, before converting operations to military requirements. Only an executive like Sloan comfortable in his own skin and tolerant of other opinions would speak the following words.

“If we are all in agreement on the decision – then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about.”

The best business decisions are made after open debate that includes dissenting opinions and arguments. Only great leaders allow this type of decision making. Alfred Sloan led GM for over 30 years, retiring in 1956. GM’s profit in 1955 had reached $1.2 billion ($8 billion in today’s dollars). It was on top of the world.

On Top of the World

During World War II General Motors produced armaments, tanks, vehicles, and aircraft to help the Allies to victory. During the 1950s, GM became the largest corporation in America and became the 1st company to pay taxes over $1 billion in a single year. In 1955, GM employed 624,000 Americans. In the copy of the 1955 GM Annual report below, it shows that only 27 cents of every dollar of revenue was paid to employees. The GM business model was very profitable. Their market share peaked at 54% in 1954, the same year they sold their 50 millionth automobile. After the retirement of Sloan, a visionary leader failed to materialize. GM began to show signs of overconfidence as the 1960s arrived. They started to believe their own press clippings. They failed to heed the advice of another well known auto man Lee Iacocca.

“The most successful businessman is the man who holds onto the old just as long as it is good, and grabs the new just as soon as it is better.”

http://www.carofthecentury.com/gm's_a8.jpg

Peter Drucker, the world renowned management guru, wrote a detailed analysis of General Motors in 1946 called Concept of the Corporation. His suggestions to management and the UAW were scoffed at by both parties. He suggested the automaker might want to reexamine a host of long-standing policies on customer relations, dealer relations, and employee relations. Among his specific recommendations was for GM’s hourly workers to assume more direct responsibility for what they did, adopting a “managerial aptitude” and operating within a “self-governing plant community.” The UAW’s powerful president, Walter Reuther, greeted that notion this way: “Managers manage and workers work, and to demand of workers that they take responsibility for what is management’s job imposes an intolerable burden on the working man.” Reuthner did not fall into the “visionary” category.

Glory Days

As the 1960s began GM began decades of reacting to competitors rather than showing the way. As the European car makers introduced smaller cars, GM introduced the Chevrolet Corvair. This car later was attacked by Ralph Nader, who wrote book Unsafe at Any Speed, which led to congressional auto safety hearings. Speed took precedence over safety. GM continued to maintain its worldwide dominance through the 1960s into the 1980s. New car controversy plagued the company during these decades. Every decade, a major new product line was launched with defects of one type or another showing up early in their life cycle. In every case improvements were eventually made to fix the problems, but the resulting improved product ended up failing in the marketplace as its negative reputation overshadowed its eventual quality. Again, Lee Iacocca’s wisdom went unheeded at GM.

“In the end, all business operations can be reduced to three words: people, product, and profits.”

Renaissance Center – GM Headquarters

http://upload.wikimedia.org/wikipedia/commons/thumb/0/04/GM_headquarters_in_Detroit.JPG/250px-GM_headquarters_in_Detroit.JPG

Source: Wikipedia

GM forgot that superior products developed by superior people lead to profits. The 1970’s were marked by more disastrous product launches. Who could forget the Vega? Quality was not job one for GM. The last major strike by the UAW also occurred in 1970. After that, management continually gave in to the union demands in all future contract negotiations. They promised tremendous pension benefits, lifetime healthcare benefits, huge pay increases, and onerous work rules that gave management no flexibility. GM evidently didn’t have any bean counters who could extrapolate past a five year horizon. If they had, they would have seen that they would eventually have an unsustainable cost structure with more retirees being paid than workers on the assembly line. The troubling facts were ignored because GM still had a 45% market share during the 1970’s. GM’s U.S. employment reached 618,365 in 1979, making it the largest private employer in the country. Worldwide employment broached 853,000. It has been downhill ever since.

In 1983, in an epilogue to 1946’s Concept of the Corporation, Peter Drucker wrote: “GM may, within a decade, develop into a true transnational company that integrates markets of the developed world and their purchasing power with the labor resources of the Third World.” And while it is much too early even to guess what GM’s labor relations will look like,” he added, “the assembly line, that symbol of industry during the first half of the century, will, by the year 1990 or the year 2000, probably have faded into history.” Mr. Drucker underestimated the lack of vision and foresight of GM management. They continued to follow the old ways until it was too late. Japanese carmakers arrived like a freight train during the 1980s and have never let up. GM has essentially been in a death spiral for the last 30 years. Throughout the 1980s, GM rolled out more duds like the Chevrolet Citation, Chevrolet Cavalier, and Pontiac Sunfire.

Bruce Springsteen touched on the future of the U.S. auto industry in his classic Glory Days.

My old man worked 20 years on the line
And they let him go
Now everywhere he goes out looking for work
They just tell him that he’s too old
I was 9 nine years old and he was working at the
Metuchen Ford plant assembly line
Now he just sits on a stool down at the legion hall
But i can tell what’s on his mind
Glory days yeah goin back
Glory days aw he ain’t never had
Glory days, glory days

Decline of an Empire

Roger Smith ran GM from 1981 until 1990. During his reign, GM’s market share dropped from 46% to 35%. His biggest claim to fame is being the subject of Michael Moore’s first documentary Roger & Me, which was extremely critical of his laying off of thousands of employees in Flint, Michigan. He took over GM in 1981 while it was losing $750 million, its 1st loss in 60 years. Poor product quality, labor unrest and lawsuits over unsafe vehicle designs affected sales volumes in the early 1980’s, which led to GM losing market share at an alarming rate to foreign automakers. In 1981, U.S. Union autoworkers responded to the Japanese threat by bashing Japanese automobiles with sledgehammers. I’m sure this made them feel better, but it was a futile and useless gesture. Smith attempted to institute Japanese manufacturing techniques, but the ingrained bureaucracy resisted change and foiled his efforts. A culture of mediocrity and poor quality led to continuous decline rather than continuous improvement. The acquisition of EDS from Ross Perot in 1984 was a failure. Perot attempted to change the culture of GM, but failed. Perot liked to say that getting GM moving again was like teaching an elephant to dance.

General Motors had a chance to take a commanding lead in the mid 1990’s. They developed the 1st electric car the EV1 in 1996. Instead of taking advantage of this opportunity to change the automotive world, GM scrapped this car and destroyed all of the models. They decided the future was in trucks, SUVs, and Hummers. They continued to roll over to the unions every time a contract came up for renegotiation. This ultimately led to an average hourly labor cost of $73.26 for GM by 2006, a 65% premium to what the Japanese pay their autoworkers.

http://www.heritage.org/research/economy/images/wm2135_chart1.gif

GM sold its soul to the devil of debt and high margin, low mileage vehicles. SUVs generated a profit of $10,000 to $15,000 per vehicle, even with GM’s bloated cost structure. Rather than improve their assembly line efficiency, product design & quality, or solidify their balance sheet, they chose to use their GMAC subsidiary to make loans to subprime borrowers at 120% of the car’s value. After 9/11, GM showed their dedication to the flag by giving cars away with 0% financing. Amazingly, when you provide 0% financing to people with 550 credit scores you can sell millions of Escalades and Hummers. While Rome was burning GM management continued to fiddle. There hundreds of Presidents, Vice-Presidents, and Directors continued to fly around in their fleet of 7 corporate jets. As Rick Wagoner and his top cronies secluded themselves in executive suites on the 14th floor of their palatial headquarters, eating steak and lobster in their executive dining room, served by minions, GM was rotting from within.

 6

Source: Autoblog.com

Giving away cars for free was so successful, GM decided to parlay their expertise into giving homes away for free. They bought Ditech in 1999, just in time to catch the greatest housing bubble of all time. Ditech was a pioneer in offering 125 percent loans, in which the borrower could get more than the property was worth. It specialized in no-documentation mortgages and stated income loans. How could lending someone 125% of a home’s value with no proof of income or assets possibly go wrong? To quote Claude Rains from Casablanca, “I’m shocked, shocked to find that gambling is going on in here!” GMAC surprisingly lost $8 billion in the last two years. Luckily, the American taxpayer has stepped in to provide GMAC with $5 billion of TARP so they can continue to allow GM to sell more cars at a $2,000 loss per car. No need to worry, they’ve hired some Wall Street wizards from Citicorp who have figured out that they can make it up on volume. Paul Kedrosky recently provided a fascinating look at how two decades of profits could be wiped out in seven months. With 260,000 remaining employees, the end is near for this fallen giant.

GM Earnings Historical

Source: Paul Kedrosky Infectious Greed

A corporate governance study at ragm.com sums up the reasons for GM’s decline.

“The history of GM is an instructive story in how success can breed failure; how being the biggest and the best can lead to arrogance and an inability to adapt. GM was the premier car company in the world for so long that it failed to see the need for change. The company was so used to being leader that it couldn’t contemplate following others. It was this mindset, this overwhelming belief that it was GM’s divine right to be the most successful automobile company on earth that condemned the company to two decades of disaster. When GM did finally see the need to adapt, it did so with wild ineptitude, spending tens of billions in the 1980s for little reward.”

General Motors has lost $72.5 billion in the last three years. Why is the American taxpayer propping up this failed entity?

Long Road to Ruin

Bill Gross, one of the wisest and deepest thinkers in the financial world, wrote a report in May 2006 that compared the plight of GM with the plight of the United States. Mr. Gross’ words almost three years ago ring even truer today.

“I think it is important to recognize that General Motors is a canary in this country’s economic coal mine; a forerunner for what’s to come for the broader economy. Their mistakes have resembled this nation’s mistakes; their problems will be our future problems. If the U.S. and General Motors have similar flaws and indeed symbiotic fates, they appear to be conjoined primarily by the un-competitiveness of their existing labor cost structures and the onerous burden of their future healthcare and pension liabilities. Perhaps the most significant comparison between GM and the U.S. economy lies in the recognition of enormous unfunded liabilities in healthcare and pensions. Reportedly $1,500 of every GM car sold in dealer showrooms goes to pay for current and future health benefits of existing and retired workers, a sum totaling nearly $60 billion. The total future healthcare liability for all U.S. citizens can be measured in the tens of trillions.”

General Motors failed to find a solution to their problems. CFO Fritz Henderson admitted in 2006 that, “I have a social security system hooked to our balance sheet.” The reason he had a social security system hooked to his balance sheet was because previous management had made commitments that could never be kept in the long run in order to keep the party going in the short run. Sounds like GM management would do extremely well in government jobs.

http://www.pimco.com/NR/rdonlyres/0EB5F766-F532-45B3-A021-D548018B2957/2176/Chart1_GMProblem1.gif

Source: PIMCO

Eroding Competitiveness

The United States peaked as a manufacturing economy in 1960, with manufacturing employees making up 26% of the workforce. They now make up less than 10% of the workforce. Total manufacturing jobs peaked at 19 million in the late 1970’s and now have plummeted  below 14 million and continue to fall. The U.S. decided to outsource manufacturing jobs because we were going to do the thinking for the world. Why get your hands dirty creating things when our brilliant MBA trained geniuses could turn loans to deadbeats and frauds into AAA rated Mortgage Backed securities? The U.S. decided to take the easy path of financial engineering rather than the hard path of creating products that other countries would buy.

mfg-worker.gif (4034 bytes)The trade deficit caused by decades of choices by government and industry reached $677 billion in 2008. These deficits were always unsustainable. Borrowing from the Chinese and Japanese to buy stuff produced by China and Japan could never go on forever. Instead of realizing this imbalance and taking actions to gradually rebalance the world financial system, our financial leaders and Federal Reserve reduced interest rates and encouraged the imbalance to grow, until it collapsed in 2008. Now their solution is to lower rates to 0%, devalue the currency, and encourage further borrowing. Sounds like choices made by GM in 2001. The Sage of Omaha, Warren Buffett explained the dilemma.

 “In effect, our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4 percent more than we producethat’s the trade deficitwe have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.”

The mortgage is now due.

Graph of International Trade Balances

Source: US Census Bureau

Uncompetitive Labor Costs

By devaluing the currency and producing never ending inflation while manipulating the CPI statistics to understate true inflation, the government and Federal Reserve attempt to keep America competitive through gimmicks rather than hard work and sacrifice. When the country produced products that the world wanted, median family income rose at an annual rate of 3.7% above inflation. Since 1970, using government manipulated inflation statistics median family income has been stagnant. If a true inflation factor was applied, the median family has lower income today than they had 30 years ago. The only way people have “achieved” a better life is through the use of debt, which has been encouraged by the government, Federal Reserve and banks. This encouragement led to the collapse of the great American Ponzi scheme in 2008.

Family Income Trends

American families will see their real household incomes plunge in the coming years to 1970 levels. The backlash against immigrants, both legal and illegal is likely to intensify over the next few years. The decades of allowing our economy to be hollowed out and shipped to China is coming home to roost. Besides weapons and movies, what does America produce that anyone wants? Our financial geniuses have essentially brought down the worldwide financial system by selling foreign countries MBSs, CDOs, etc. That has been our contribution to the world in the last eight years. Now, we have delegated the responsibility of our corporations to the U.S. government bureaucracy. Lee Iacocca explained years ago how well the government runs things.

“One of the things the government can’t do is run anything. The only things our government runs are the post office and the railroads, and both of them are bankrupt.”

Let’s See How Far We’ve Come

The lyrics to the Matchbox 20 song Let’s See How Far We’ve Come, describe the country’s $56 trillion unfunded liability dilemma.

I believe the world is burning to the ground
Oh well I guess we’re gonna find out
Let’s see how far we’ve come
Let’s see how far we’ve come
Well I, believe, it all, is coming to an end
Oh well, I guess, we’re gonna pretend,
Let’s see how far we’ve come
Let’s see how far we’ve come

Rather than address the structural problems of our healthcare and social security systems, our government politicians push off the issues until after the next election. They have been doing this for 30 years. This is why David Walker has described these cowardly politicians as displaying “laggardship” rather than leadership. Our elected leaders flounder from crisis to crisis using stopgap methods to plug holes in the ship of state while ignoring the huge iceberg on the horizon. There is one thing I am sure of. The deficits projected by the CBO over the next four years will be hundreds of billions higher. They haven’t taken into account emergency stimulus packages 2 & 3.

Projected Budget Deficit - Congressional Budget Office Baseline Plus Stimulus Bill

Source: PerotCharts.com

While the U.S. Titanic steams full speed ahead toward the iceberg of unfunded Social Security, Medicare, and Medicaid liabilities, our politicians spend our tax dollars on digging holes and then filling them up again. As these future unfunded liabilities continue to rise, the government’s solution is to print money, keep interest rates at 0%, devalue the dollar, and hope for the best. The U.S. depends on foreigners to buy more than 50% of our newly issued debt. When you owe $10.7 trillion to others, you usually don’t get to dictate the terms. Today, the U.S. is asking foreigners to lend us money for 30 years at 3.5% while telling them that we will pay them back in dollars that will be worth 30% less in the next five years. Even a Wall Street CEO could figure out this isn’t a good investment. The U.S. will default on this debt. It is just a matter of when.

Social Security, Medicare and Medicaid Will Consume Larger Percentage of GDP

Source: PerotCharts.com

Bill Gross laid out the choices for the U.S. in 2006.

“How are we to pay for this future burden of healthcare and social security expenses? Aside from contractual legislative changes to both areas (which are surely just around the corner), the way a reserve currency nation gets out from under the burden of excessive liabilities is to inflate, devalue, and tax.”

The U.S. is hard at work on inflating and devaluing, while Mr. Obama is working on the details of the taxing. The Burning Platform for GM has already collapsed. The Burning Platform for the U.S. is a ten alarm fire. Collapse is imminent, unless a leader with guts and courage is willing to lead the U.S. back to fiscal sanity.

SUICIDE IS PAINLESS (Featured Article)

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Everyone has watched one of the best TV series of all-time – M*A*S*H. You also know the tune that played during the opening credits as helicopters delivered wounded soldiers to the 4077 Mobile Army Surgical Unit. Most people have never heard the lyrics that go with the music. The song is Suicide is Painless and the lyrics were sung during the  M*A*S*H  Movie. As I watched the movie a few weeks ago, the lyrics struck home. Our country has been slowly committing suicide for the last 40 years. The movie and TV series were set during the Korean War. It is fitting that military spending is one of the major causes of our suicide as a nation. On an inflation adjusted basis, the US has doubled spending on Defense since 1962. It is on course to rise another 20% in the next four years. Dwight D. Eisenhower warned us about the military industrial complex in 1961:

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”

The fact that the US currently spends 7 times as much on Defense as the next nearest country is proof that the military industrial complex has gained unwarranted influence and a disastrous rise of misplaced power has occurred.

                           U.S. DEFENSE SPENDING

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When you critically analyze why we would need to spend 7 times as much as China on military when there is no country on earth that can challenge us, the answer can only be OIL. Our own military came to the following chilling conclusion in their Joint Operating Environment report, issued earlier this year:

By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD. 

A severe energy crunch is inevitable without a massive expansion of production and refining capacity. While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India. At best, it would lead to periods of harsh economic adjustment. To what extent conservation measures, investments in alternative energy production, and efforts to expand petroleum production from tar sands and shale would mitigate such a period of adjustment is difficult to predict. One should not forget that the Great Depression spawned a number of totalitarian regimes that sought economic prosperity for their nations by ruthless conquest.

 

The U.S. military knows we are on the verge of an oil crisis. There are no new supplies ready to come on line before 2015. The President and his advisors know that an oil crisis is in our immediate future. We have military bases in Saudi Arabia, Iraq, and Kuwait. We have active fighting forces in Afghanistan and Pakistan. We have a naval armada of aircraft carriers in the Persian Gulf. Our forces completely encircle Iran. Is this a coincidence when the countries with the largest oil reserves in the world are noted?

  1. Saudi Arabia – 262 billion barrels
  2. Iran – 133 billion barrels
  3. Iraq – 112 billion barrels
  4. Kuwait – 97 billion barrels

 The war on terror is a cover for access to the hundreds of billions of barrels of oil in the Middle East. A 10 million barrel per day shortfall by 2015 would be disastrous for a country that consumes 25% of all the oil in the world. Our hyper-consumer society is like a drug addict, dependent on its oil fix. If we are denied oil for even one day, the withdrawal symptoms would be traumatic and harrowing.

There are 255 million passenger vehicles in the U.S. Our society will collapse within weeks without a sufficient supply of oil. The average American’s only concern about oil is when they get a card in the mail from Jiffy Lube telling them it is time for their 5,000 mile oil change. They stick a hose in their gas tank and fluid pours out, allowing them to motor freely around mall dotted suburbia. Within five years they will be paying over $5 per gallon for this fluid or they will be waiting in lines for three hours to get 10 gallons of that precious fluid. Peak cheap oil has been predictable for decades. The Department of Energy was created 31 years ago. Preparing for peak cheap oil would have required some pain, sacrifice and forethought. But, suicide is painless.

Visions of Things To Be

Through early morning fog I see
visions of the things to be
the pains that are withheld for me
I realize and I can see…

That suicide is painless
It brings on many changes
and I can take or leave it if I please.

                            Suicide is Painless – M.A.S.H. Movie 

As I peer through the fog and attempt to see visions of things to be, I see nothing but pain ahead. Anyone who can look at the following chart and not conclude that there is much pain ahead for this country is either a Goldman Sachs banker, a Federal Reserve Governor, or a bought off politician in Washington DC. It is no coincidence that after Richard Nixon closed the gold window in 1971 and allowed the Federal Reserve to “manage” our economy that total debt outstanding in the US surged from $2 trillion to over $50 trillion. GDP has risen by 1,300% since 1971, while total US debt has risen by 2,600%. Now for the kicker. Real GDP has only gone up by 292% since 1971. This means that 1,000% of the increase in GDP was from Federal Reserve created inflation. Over this same time frame, real wages have declined by 6%, from $318 per week in 1971 to $299 per week today. Inflation has been the American drug of choice to commit suicide over the last 40 years. It is stealthy, seemingly painless, and deadly.

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Inflation is the “painless” method through which the Federal Reserve has decided this country will commit suicide. It is like turning on the car in the garage and letting the carbon monoxide slowly put you to sleep. The ruling elite are content that the American public is dumbed down by the government run public schools. They count on the fact that 9 out of 10 Americans do not understand inflation. It is an insidious scheme of robbing the working middle class and funneling it to the Wall Street/K Street ruling class. The Federal Reserve has gotten bolder in the last few years as they realized the public doesn’t understand or care what they do. Bernanke has relished in the mainstream media adulation that he saved the world with his printing press in 2008/2009. Even though critical thinkers know for a fact that it was Federal Reserve policies that created the worldwide financial conflagration in the first place, the corporate mainstream media and the Wall Street beneficiaries have been cheerleaders of Easy Al and Helicopter Ben. These men are traitors. They have purposefully impoverished senior citizens and the working middle class in order to enrich their ruling elite masters on Wall Street and in Washington DC.

Ben Bernanke on Wednesday afternoon will announce Quantitative Easing Part Deux. This is a fancy name for Ben printing $1 trillion out of thin air, buying US Treasuries and/or more toxic mortgage securities and artificially lowering interest rates to convince Americans to spend money they don’t have. Jeremy Grantham, in his recent quarterly letter, issues a scathing indictment of Bernanke’s methods: 

“For all of us, unfortunately, there is still a further great disadvantage attached to the Fed Manipulated Prices. When rates are artificially low, income is moved away from savers, or holders of government and other debt, toward borrowers. Today, this means less income for retirees and near-retirees with conservative portfolios, and more profit opportunities for the financial industry; hedge funds can leverage cheaply and banks can borrow from the government and lend out at higher prices or even, perish the thought, pay out higher bonuses. This is the problem: there are more retirees and near retirees now than ever before, and they tend to consume all of their investment income. With artificially low rates, their consumption really drops. The offsetting benefits, mainly shown in dramatically recovered financial profits despite low levels of economic activity, flow to a considerable degree to rich individuals with much lower propensities to consume.” 

    
 
 

The ruling elite in Washington DC and Wall Street decided that fraud, misinformation and cooking the books was preferable to the pain of honesty, orderly bankruptcy, and assets valued at their true worth. Ben Bernanke “saved the world” by putting the taxpayer on the hook for $1.5 trillion of toxic mortgage garbage he bought from his masters on Wall Street. John Hussman describes the decision to choose painless suicide over choosing painful medicine to cure our disease:

“Over the short run, two policies have been primarily responsible for successfully kicking the can down the road following the recent financial crisis. The first was the suppression of fair and accurate financial disclosure – specifically FASB suspension of mark-to-market rules – which has allowed financial companies to present balance sheets that are detached from any need to reflect the actual liquidating value of their assets. The second was the de facto grant of the government’s full faith and credit to Fannie Mae and Freddie Mac securities. Now, since standing behind insolvent debt in order to make it whole is strictly an act of fiscal policy, one would think that under the Constitution, it would have been subject to Congressional debate and democratic process. But the Bernanke Fed evidently views democracy as a clumsy extravagance, and so, the Fed accumulated $1.5 trillion in the debt obligations of these insolvent agencies, which effectively forces the public to make those obligations whole, without any actual need for public input on the matter.”

The Only Way to Win is Cheat

The only way to win is cheat
And lay it down before I’m beat
and to another give my seat
for that’s the only painless feat.

That suicide is painless
It brings on many changes
and I can take or leave it if I please.

                                             Suicide is Painless – M.A.S.H. Movie 

The Federal Reserve has incessantly created new bubbles every time one of their old bubbles has burst, since the elevation of Alan Greenspan as Fed Chairman in 1987. The bailout of LTCM convinced Wall Street that uncle Al would come to the rescue if their gambles endangered the financial system. Greenspan cheered on the internet revolution and flooded the system for the fake Y2K crisis. When the internet bubble burst in 2000 and the 9/11 attack struck in 2001, Greenspan aided and abetted the greatest bubble in history. He dropped interest rates to historic lows, encouraged the use of adjustable rate mortgages, didn’t enforce bank regulations, and pretended that he couldn’t see the bubble forming. Jeremy Grantham explained the Federal Reserve, Wall Street and K Street conspiracy to avoid the pain of dealing with our long-term structural problems in his latest letter: 

 

“House prices may often not be susceptible to manipulation. Low interest rates may not be enough: they may stimulate hedge fund managers to speculate in stocks, but most ordinary homeowners are not interested in speculating. To stir up enough speculators to move house prices, we needed a series of changes, starting with increasing the percentage of the population that could buy a house. This took ingenuity on two fronts: overstating income and reducing down payment requirements, ideally to nil. This took extremely sloppy loan standards and virtually no data verification. This, in turn, took a warped incentive program that offered great rewards for quantity rather than quality, and a corporation overeager, with aggressive accounting, to book profits immediately.  It also needed a much larger, and therefore new, market in which to place these low-grade mortgages. This took ingenious new packages and tranches that made checking the details nearly impossible, even if one wanted to. It took, critically, the Fed Manipulated Prices to drive global rates down. Even more importantly, it needed the global risk premium for everything to hit world record low levels so that suddenly formerly staid European, and even Asian, institutions were reaching for risk to get a few basis points more interest. Such an environment is possible only if there exists an institution with a truly global reach and a commitment to drive asset prices up. In the U.S. Fed, under the Greenspan-Bernanke regime, just such an institution was ready and willing.” 

 

On Wednesday Ben Bernanke will inject more poison into the veins of a once great country. This country, at one time, dealt with its problems in a realistic manner and was willing to sacrifice, cooperate, and make hard choices. QE2 will not help our economy or solve any of our problems.

 

Is It To Be Or Not To Be?

A brave man once requested me
to answer questions that are key
‘is it to be or not to be’
and I replied ‘oh why ask me?’

‘Cause suicide is painless
it brings on many changes
and I can take or leave it if I please.
…and you can do the same thing if you choose.

                                                     Suicide is Painless – M.A.S.H. Movie 

The leaders of this country, with the full support of a zombie like disinterested distracted electorate, have chosen to ignore and defer every tough decision regarding energy, spending, entitlements, deficits, and infrastructure. The Federal Reserve has allowed politicians to run the National Debt up to $13.6 Trillion by imposing no limits on the printing of fiat currency backed by nothing but promises. Based on Obama’s 10 year budget projections, adjusted for the real impact of Obamacare and extension of Bush tax cuts, the National Debt will reach $20 trillion in 2015 and $25 trillion by 2019. This is truly a suicide mission. We will never reach these levels because the sweet relief of death will overtake our economic system as the final vestiges of QE2 painlessly bring about the end. 
  
  
 
Grantham warns that Bernanke’s actions on Wednesday are a desperate last ditch attempt to fend off the pain of reality. It will fail.
 

“Thus, our current policy of QE2 is merely the last desperate step of an ineffective plan to stimulate the economy through higher asset prices regardless of any future costs. Continuing QE2 may be an original way of redoing the damage done by the old Smoot-Hawley Tariff hikes of 1930, which helped accelerate a drastic global decline in trade. We may not even need the efforts of some of our dopier Senators to recreate a more traditional tariff war. And all of this stems from the Fed and the failed idea that it can or should interfere with employment levels by interfering with asset prices.”

The only difference between Dr. Bernanke and Dr. Kevorkian is that Kevorkian helped the terminally ill commit suicide. Dr. Bernanke and his colleagues at the Federal Reserve have inflicted suicide on a patient that was healthy and capable of living many more years. The suicide concoction of fiat currency, debt, military empire, and delusion has been painless for those in power, but painful for the working middle class of this country. Dr. Bernanke fancies himself as an expert on the Great Depression. He is destined to be remembered as the man who killed America. Suicide is painless, it brings on many changes.