Category: JQ123

Original articles written by Admin

IS AMERICA ON A BURNING PLATFORM? (Featured Article)

David Walker, the former Comptroller of the United States from 1998 until 2008, has been warning politicians, the media, and the American public for over a decade that we are off course and headed for disaster. In August 2007, before the financial system meltdown of 2008, Mr. Walker declared:

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. The fiscal imbalance meant the US was on a path toward an explosion of debt. With the looming retirement of baby boomers, spiraling healthcare costs, plummeting savings rates and increasing reliance on foreign lenders, we face unprecedented fiscal risks. Current US policy on education, energy, the environment, immigration and Iraq also was on an unsustainable path. Our very prosperity is placing greater demands on our physical infrastructure. Billions of dollars will be needed to modernize everything from highways and airports to water and sewage systems.

Three years have passed since Mr. Walker sounded the alarm and issued his dire warning. The National Debt in August 2007 was $8.9 trillion. Today it stands at $13.6 trillion, a 53% increase in just over 3 years. It took 205 years as a country to accumulate $4.7 trillion of debt. We’ve added $4.7 trillion in the last 38 months. It doesn’t appear that anyone in government heeded Mr. Walker’s warnings.

The perpetually optimistic pundits that occupy the positions of influence on CNBC and the other MSM networks try to paint a rosy picture of the American state of affairs day after day. They urge citizens to spend money they don’t have. They are sure that extending unemployment benefits to 99 weeks will improve the unemployment situation. They declare that Cash for Clunkers and the Home Buyer Tax Credit were successful government programs. They are sure that invading countries in the Middle East will make America safer. Nobel Prize winners in economics declare that the government should undertake another $8 to $10 trillion of money printing because the first $5 trillion wasn’t enough.

The Federal Reserve is pulling out all the stops in attempting to invigorate the American economy. The stock market is surging. Everything is surging. The optimists are crowing that all is well. Deficits don’t matter. We can borrow our way to prosperity. Cutting taxes will not add $4 trillion to the National Debt if not paid for with spending cuts. All is well. So, the question remains. Was David Walker wrong? Are we actually on a perfectly sturdy solid platform? Or, are we on the Deepwater Horizon as it burns and crumbles into the sea? Let’s examine both storylines and decide which is true.

AMERICA ON A STURDY PLATFORM

  • The National Debt of $13.6 trillion is manageable because interest rates remain at historic low levels.
  • The addition of $1.6 trillion in debt per year is necessary because government must step in for the lack of spending in the private sector. This will jump start the economy. This is Keynesianism 101.
  • The debt to GDP ratio of 93% is not dangerous. Japan has a debt to GDP ratio of 200% and they are doing fine. This proves we have plenty of room to grow our debt.
  • The US dollar is the reserve currency for the entire world. We can systematically devalue the USD, which will reduce our foreign debt burden over time. The foreigners who leant us the money are on the hook and they have no way out.
  • A depreciating dollar will help our manufacturing industry by making American exports cheaper in foreign markets.
  • The $700 billion TARP plan saved the American financial system. The American taxpayer will end up making a profit in the long run from this program.
  • Cash for Clunkers was an astounding success. It increased demand for autos dramatically.
  • The Homebuyer Tax Credits resulted in a surge in home sales and stabilization of home prices.
  • The $800 billion Stimulus plan saved America from a 2nd Great Depression. Without it, we would have lost millions of jobs.
  • Consumer spending accounting for 70% of GDP is sustainable and desirable. If we can just get credit flowing again and encourage consumers that it is safe to use their credit cards to spend, the economy will come roaring back.
  • This is not the time to save. Nobel Prize winners in economics urge Americans to spend because of the Paradox of Thrift. It may be smart for one person to save more than they spend, but if everyone does it a consumer society will collapse. We can save later is the recommendation.
  • A QE2 of $8 to $10 trillion would surely increase the animal spirits of the dejected American people. The stock market would soar to 20,000 and everyone would feel rich. Spending would surge. All would be well again.
  • The Social Security Trust Fund is not broke. The money contributed by Americans over the decades is in a lockbox and the fund will be solvent for decades. A few tweaks and it will be solvent forever.
  • Medicare has been one of the best government programs ever conceived. It has sustained our senior citizens and delivered high quality care to all at a reasonable cost.
  • Baby Boomers are rational and realistic. The statistics that show they have not saved enough to sustain them in retirement is overblown. Social Security will suffice. If not, they’ll just work a little longer. No worries.
  • Obamacare will reduce healthcare costs, improve service, cover more people, and reduce the profits of insurance companies and drug companies.
  • We have the best educational system in the entire world. People from all over the world want to get into our best Universities. No Child Left Behind has been a huge success.
  • We are safer today than we were on September 11, 2001. We won the Iraq War and freed the Iraqis from the clutches of a madman. We are fighting them over there so we don’t have to fight them over here. The terrorists are in disarray and retreat.
  • The $1.1 trillion spent on the Middle East Wars, the trillions spent on the Dept of Homeland Security, and the expansion of government ability to protect its citizens through enhanced surveillance techniques and enhanced interrogation techniques on suspected terrorists has been beneficial to the safety and security of the American people.
  • A Defense budget of $900 billion per year is essential to our national security. We are surrounded by potential enemies.
  • It is a net positive for the US to allow illegal immigrants to stay in the country. Who else would we get to work in the fields picking lettuce and cutting our suburban lawns?
  • Gasoline is only $2.70 a gallon. We are awash in supplies of oil. Peak oil is a myth perpetuated by environmental nuts. We have centuries worth of oil in the Bakken Shale. If we would just open up Alaska to drilling, our troubles would be gone. Drill, Baby, Drill.
  • Our crumbling infrastructure is actually a fantastic opportunity. A 2nd Stimulus program to upgrade our infrastructure would create millions of high paying jobs.  

AMERICA ON A BURNING PLATFORM

  • The National Debt is $13.6 trillion today. Interest expense for fiscal 2010 totaled $414 billion. Based upon the current spending path and assuming that the Bush tax cuts are extended, the National Debt will exceed $20 trillion by 2015. A reasonable expectation of 5% interest rates would result in annual interest expense of $1 trillion. The entire budgeted outlays of the US government are $3.5 trillion today.
  • Deficits exceeding $1 trillion per year are baked into the cake for the next decade. Non-Defense discretionary spending totals only $700 billion. Defense spending totals $900 billion. The remaining $1.9 trillion is on automatic pilot for Social Security, Medicare, Medicaid, and other entitlement programs. Politicians declaring they will freeze discretionary spending are treating you like fools. It will solve nothing.
  • Debt as a percentage of GDP will exceed 125% of GDP by 2015. Rogoff & Reinhart in their book This Time is Different point out the dangers once debt surpasses 90% of GDP: The relationship between government debt and real GDP growth is weak for debt/GDP ratios below 90% of GDP. Above the threshold of 90%, median growth rates fall by 1%, and average growth falls considerably more. The chances of bad things happening to a country increase dramatically after the 90% level is surpassed.
  • Japan began their 20 years of tears with a debt to GDP ratio of 52% and a National Savings rate of 15%. The Japanese people bought 90% of the debt that the government issued. Today, the debt to GDP ratio is 200% and the National Savings rate is 2%. The US entered this crisis with a debt to GDP ratio of 80% and a National Savings rate of 1%. We depend on foreigners to buy more than 50% of our new debt. We do not control our own destiny.
  • A depreciating US dollar is already creating inflation in many assets. Gold, silver, oil, and agricultural commodities are increasing in price faster than the stock market. The policy of the US government and Federal Reserve of devaluing the currency is being matched by similar efforts in countries across the globe. The result is a flood of liquidity creating bubbles which will pop. The American middle class will be squeezed harder as their wages stagnate, while their food, energy, and costs at Wal-Mart go higher.
  • TARP, the purchase of $1.5 trillion of Mortgage Backed Securities by the Federal Reserve, 0% interest rates, and accounting rule changes by the FASB have done nothing but paper over the fact that the biggest financial institutions in the US are insolvent. The assets on their books are worth 50% less than they are reporting. They are zombie banks. Their losses on residential real estate, commercial real estate and consumer credit continue to grow. The only beneficiaries of keeping zombie banks alive are the bankers who are receiving billions in compensation while the middle class dies a slow painful death.
  • Cash For Clunkers, Home Buyer Tax Credit and energy efficiency credits did nothing but shift demand forward and cost the American taxpayer $25 billion. The estimated cost to the tax payer per incremental home sold was $100,000. Auto sales and home sales plunged as soon as the credits ran out. Home prices are falling and used car prices have soared due to less supply, hurting the poor.
  • The borrowing of $800 billion from the Chinese to dole out to unions and political hacks all over the country has been a complete disaster. Unemployment has gone up by over 4 million since the stimulus was passed. Government spending has crowded out private spending. The economy hasn’t recovered because it was never allowed to bottom. Why look for a job when the government pays you for two years to watch Oprah in a house where you haven’t made a mortgage payment in 18 months?
  • Consumers’ spending money they don’t have, saving less than 5% of their disposable income, and putting away nothing for their retirement is unsustainable. The average credit card debt per household is about $15,700. In 1968, consumers’ total credit debt was $8 billion (in current dollars). Now the total exceeds $880 billion. Americans currently owe $917 billion on revolving credit lines and $80 billion of it is past due, according to the latest Federal Reserve statistics.
  • A scaling back of consumer spending to a sustainable 64% of GDP would reduce consumer spending by $500 billion per year. This would allow Americans to save and invest in the country. This is considered crazy talk in the Keynesian economic circles.
  • The anticipation of QE2 has already made the dollar drop 10% and gold, silver and oil jump 10%. Ben Bernanke and the Federal Reserve are conducting an experiment on the American people. What they are doing today has never been attempted in human history. It boils down to whether the authorities can cure a disease brought on by too much debt by doubling and tripling the dosage of debt. If this experiment fails, the dollar collapse and possible hyperinflation would lead to anarchy. Ben is confident it might work. Are you?
  • Social Security and Medicare have an unfunded liability exceeding $100 trillion. There is no money in a lockbox. Congress opened the lockbox and spent the money. Baby boomers are turning 50 years old at a rate of 10,000 per day. There is no possibility that the promises made to Americans by politicians can be honored. No politician of either party will tell the truth to the American public. A massive reduction in benefits or a massive increase in taxes would be required to deliver on this promise.
  • The 2,000 page Obamacare bill that no one in Congress read was sold to the American people as a cost saving, care enhancing package of goodies. The reality is that it will increase the national debt by hundreds of billions, ration care, drive more doctors into retirement, strangle small business with onerous regulations and enrich the insurance companies and drug companies. The unintended consequences will be devastating.
  • Total military expenditures for the entire world are $1.9 trillion annually. The US accounts for $900 billion of this expenditure. This is 7 times as much as the next largest spender – China.
  • The wars of choice in the Middle East since 2001 have cost unborn generations of Americans $1.1 trillion so far, with a final cost likely reaching $3 trillion. Just like Donald Rumsfeld estimated.  Over 5,700 Americans have lost their lives and another 39,000 have been wounded. The casualties in the countries that have been invaded number in the hundreds of thousands. Are we better off than we were on September 10, 2001?
  • Defense spending in 2000 was $359 billion or 3.6% of GDP. Today it is $900 billion or 6.1% of GDP. Every dime of these expenditures is borrowed. Are we safer today?
  • The Department of Energy was created in 1979 in order to create an energy policy that would reduce our dependence on foreign oil. The United States, which makes up 4% of the world’s population, consumes 25% of the world’s oil on a daily basis. In 1970 we imported 24% of our oil. Today we import 70% of our oil.
  • Over 50% of our oil imports come from countries whose populations hate the US. Mexico, which accounts for 9% of our current oil supply, will become a net importer by 2015.
  • The US has not built a new nuclear power plant or oil refinery since 1980.
  • The existing energy infrastructure is rusting away. 80% to 90% of the system must be rebuilt. The cost of rebuilding the infrastructure will be $50 – $100 trillion. We have no blueprints, few supplies and fewer trained engineers and construction workers.
  • Peak oil is a fact. World liquid oil production peaked at 86 million barrels per day in 2006. It has not reached that level since, even when prices soared to $145 per barrel. Demand will move relentlessly upward as China and India and the rest of the developing world march forward.
  • The US Military has concluded in a report put out a few months ago that 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.

THE SHIP OF STATE

David Walker was in a ship well ahead of the US Titanic crossing the Atlantic. He saw the dangerous icebergs floating in the ocean. He sent a message to the Captains (Bush, Obama) and Executive Officers (Greenspan, Bernanke, Paulson, Geithner) of the US Titianic that there was danger ahead. They should have reduced speed and doubled the lookouts. Instead they listened to the Managing Director of the cruise line (Wall Street) and increased speed. The US Titanic was unsinkable. When the inevitable collision with the iceberg occurred, those in command chose to disbelieve the possibility that the mighty ship could sink. The nearest ship was four hours away. If the US Titanic had stopped immediately after striking the iceberg, it would have remained afloat until the rescue ship arrived. Instead, the masters of the ship chose to keep going as the compartments below the surface continued to fill with water. Reputation and hubris drove them to take these actions.

Those in command knew that there was only room on the lifeboats for 1,100 people. There were 2,200 people onboard. It is interesting to note that 60% of the First Class (the ruling elite) passengers survived the sinking, while less than 25% of the Third Class (working middle class) and crew survived.

David Walker has presented a case for inter-generational sacrifice. Are today’s generations willing to keep robbing future generations of Americans by being fiscally irresponsible today? Every borrowed dollar spent today is a tax on future generations. Are we selfish enough to leave our children and grandchildren with an un-payable burden so that we can live well today? Don’t the Wall Street bankers and Washington politicians have children and grandchildren? It is immoral and despicable that American leaders and its citizens aren’t willing or able to make the tough choices needed to save the ship of state. Every great empire withered away due to the accumulation of bad decisions. Ask yourself whether this country has made the right choices in the last 30 years. Are we making the right choices today? If you are honest, the answer is NO. We’ve hit the iceberg. The ending is unavoidable.

Sing us a song of the century
That’s louder than bombs and eternity
The era of static and contraband
That’s leading us into the promised land
Tell us a story that’s by candlelight
Waging a war and losing the fight

They’re playing the song of the century
of panic and promise and prosperity
Tell me a story into that goodnight

Sing us a song for me …

                            Green Day – Song of the Century

THE BASTARD CHILD OF THE MOTHER OF ALL BUBBLES

There is no doubt the home price bubble inflated by Easy Al Greenspan between 2000 and 2006 was the Mother of All Bubbles. Robert Shiller clearly showed that home prices were two standard deviations above expectations. Despite the unequivocal facts that Dr. Shiller put forth, millions of delusional unsuspecting dupes bought houses at the top of the market. These were the greater fools. They actually believed the drivel being spewed forth by the knuckleheaded anchors on CNBC. They actually believed the propaganda being preached by David Lereah from the National Association of Realtors (Always the Best Time to Buy) about home prices never dropping. They actually believed Bennie Bernanke when he said:

“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” – 7/1/2005

“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.” – 2/15/2006

Bennie actually made these statements when the chart below showed home prices at their absolute peak. You should keep this in mind whenever this rocket scientist opens his mouth about anything. And always remember that he is a self proclaimed “expert” on the Great Depression. That should come in handy in the next few years, just like his brilliant analysis of the strong housing market.

Source: Barry Ritholtz

Easy Al Greenspan created the Mother of All Bubbles by keeping interest rates at 1% for a prolonged period of time while encouraging everyone to take out adjustable rate mortgages. His unshakeable faith in the free market policing itself allowed Wall Street criminals, knaves and dirtbags to create fraudulent mortgage products which were then marketed to willing dupes and “retired” internet day traders. Al’s easy money policies and disinterest in enforcing existing banking regulations also birthed the ugly stepsister of the Mother of All Bubbles. Her name is the Consumer Debt Bubble. The chart below is hauntingly similar to the home price chart above. The consumer will be deleveraging for the next ten years. The numbskulls on CNBC and the other mainstream media have been falsely reporting for months that consumers were deleveraging when it was really just debt being written off by banks. Baby Boomers are not prepared for retirement and will be shifting dramatically from consuming to saving. As consumer expenditures decline from 70% of GDP back to 65% of GDP, consumer debt will resemble the home price chart to the downside.

 

The savings rate has soared all the way to 6% of personal income. This is up dramatically from the delusional boom years of 2004 and 2005 when it bottomed out at 1%. It ain’t even close to being enough to fund the looming retirements of the Baby Boomers. The savings rate averaged 10% from 1959 through 1989. In order for the American economy to revert to a balanced state where savings leads to investment which leads to wage increases, the savings rate will need to be 10% again. With annual personal income of $12.5 trillion, Americans will need to save an additional $500 billion per year. This means $500 billion less spending at the Mall, car dealerships, Home Depot, tanning salons, and strip joints. Don’t count on a consumer led recovery for a long long time.

Graph of Personal Saving Rate

So here we stand, two years after the worldwide financial system came within a few hours of imploding, and nothing has changed. Wall Street is still calling the shots. The political hacks that supposedly run this country have kneeled down before their insolvent Masters of the Universe. Bennie Bernanke has chosen to save his Wall Street masters and throw grandma under the bus. By keeping interest rates at zero, buying up trillions in toxic mortgages, and printing money as fast as his printing presses can operate, Bennie has birthed the bastard child of the mother of all bubbles. The chart below clearly shows the birth of this bastard. It is a distant cousin of the internet bubble bastard. Despite interest rates at or near all-time lows across the yield curve, money has poured into Treasury bonds. This makes no sense, as interest rates can’t go much lower. A small increase in rates will produce large losses for investors at these rates.

http://3.bp.blogspot.com/_1f6XU-Y3qQ0/THzvMnOOq7I/AAAAAAAAAGA/GaeGv5e4l14/s1600/inflows.bmp

Source: Barry Ritholtz

Only a fool would buy a US Ten Year Treasury bond today yielding 2.55%. Of course, only a fool would buy a 1,300 square foot rancher in Riverside, California for $800,000 with 0% down using an Option ARM in 2005 too. But that doesn’t mean there aren’t millions of fools willing to do so. Each “investment” will have the same result – huge losses. As anyone can see from the chart below, the 10 year Treasury has been in a 30 year bull market. At this point you have to ask yourself one question. Do you feel lucky? Well do you, punk? There are a number of analysts who see rates falling further as the economy sinks into Depression part 2. That may happen, but we all know that Bennie and those in power will do anything to avoid a deflationary spiral. That means looser money and more printing.

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

The Federal Reserve does not want a 20 year recession like Japan. They will not get it. They’ll get a hyperinflationary collapse instead. Japan entered their 20 years of stagnation with a population that saved 18% of their income and huge trade surpluses. The Japanese government could count on the Japanese population to buy every bond they issued to pay for worthless stimulus projects. The US has entered this Depression with a population that saved 2% of their income and a trade deficit of $500 billion. John Hussman describes the differences between the US and Japan in his recent newsletter:

The impact of massive deficit spending should not be disregarded simply because Japan, with an enormously high savings rate, was able to pull off huge fiscal imbalances without an inflationary event. We may be following many of the same policies that led to stagnation in Japan, but one feature of Japan that we do not share is our savings rate. It is one thing to expand fiscal deficits in an economy with a very elevated private savings rate. In that event, the economy, though weak, has the ability to absorb the new issuance. It is another to expand fiscal deficits in an economy that does not save enough. Certainly, the past couple of years have seen a surge in the U.S. saving rate, which has absorbed new issuance of government liabilities without pressuring their value. But it is wrong to think that the ability to absorb these fiscal deficits is some sort of happy structural feature of the U.S. economy. It is not. It relies on a soaring savings rate, and without it, our heavy deficits will ultimately lead to inflationary events.

The bastard child of the mother of all bubbles likes to live dangerously. The morons in Congress will surely extend all of the Bush tax cuts without restraining spending in any way. That is what they call compromise in the hallowed halls of the Capitol. By 2020 the National Debt would be $30 Trillion under this scenario. Annual interest on the debt would exceed $2 trillion per year. This is a death spiral scenario, but it is the path we are choosing. Again, I ask you, who in their right mind would buy a 10 Year Treasury bond yielding 2.55% when the US will either have a $30 trillion National Debt or will have already collapsed under the weight of that debt?

Foreigners own approximately 30% of our outstanding debt. But, we have been relying on them to purchase almost 40% of our new issuance. We will need to issue $3 trillion of new debt in the next two years. Foreigners can add. They see that we are on a course that isn’t sustainable. They know that the Fed will attempt to monetize our debt and weaken the USD over time. At 2.5% interest rates, foreigners will accumulate massive losses as the USD depreciates. They will not accept these low rates for much longer. It is a confidence game. As they lose confidence in our ability to confront our debt issues, rates will be forced higher.

The pollyannas that seem to proliferate on CNBC and the rest of the mainstream media declare that since interest rates haven’t spiked and our hyper-debt based financial system is still functioning, then there is nothing wrong. They also didn’t see the internet collapse, housing collapse or financial system collapse coming. They never do and never will. China has actually been selling Treasuries for over a year. Japan is still buying, but their far worse debt/demographic crisis will force them to curtail purchases of Treasuries in the coming years. The purchases being made from the UK are really purchases from Middle Eastern countries with their oil money. I wonder what would happen to these purchases if war with Iran breaks out? It seems we have foreign countries increasingly reluctant to buy our debt when we are about to issue trillions of new debt in the next few years and as far as the eye can see.

 

The only thing that could possibly keep foreigners buying our debt would be higher interest rates. Our economy is so saturated with debt from top to bottom, that an increase in interest rates of only 2% would have a devastating impact on our economy. John Hussman understates the impact of deficits on our economic future:

Continued deficits will have substantial economic consequences once the savings rate fails to increase in an adequate amount to absorb the new issuance, and particularly if foreign central banks do not pick up the slack. We’re not there for now, but it’s important not to assume that the current period of stable and even deflationary price pressures is some sort of structural feature of the economy that will allow us to run deficits indefinitely.

The Krugmans of the world are not worried about our debt. They say pile it on. We are America. We are the most powerful nation in the history of the world. We can obliterate any enemy with the push of a button. Why do we need to worry about some debt? This is the hubris that has led to the downfall of every great Empire. As Rogoff and Reinhart point out in their recent book, this time is not different:

“As for financial markets, we have come full circle to the concept of financial fragility in economies with massive indebtedness. All too often, periods of heavy borrowing can take place in a bubble and last for a surprisingly long time. But highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive forever, particularly if leverage continues to grow unchecked.

“This time may seem different, but all too often a deeper look shows it is not. Encouragingly, history does point to warning signs that policy makers can look at to assess risk – if only they do not become too drunk with their credit bubble – fueled success and say, as their predecessors have for centuries, “This time is different.”

A tipping point is reached when the government debt exceeds 90% of GDP. US government debt is currently at 93% of GDP. One year from now it will exceed 100% of GDP. The bastard child of the mother of all bubbles has jumped out a window on the hundredth floor of a NYC mega bank. As he passes the 50th floor, Paul Krugman asks him how is he doing? He says great, SO FAR. We all know what happens next. SPLAT!!!!

The Shallowest Generation – By Jim Quinn (Oldie but Goodie)

 

The Baby Boom Generation will never be mistaken for the Greatest Generation that survived the Great Depression and defeated evil in a World War that killed 72 million people. I hate to tell you Boomers, but putting a yellow ribbon on the back of your $50,000 SUV is not sacrifice.

Our claim to fame is living way beyond our means for the last three decades, to the point where we have virtually bankrupted our capitalist system. Baby Boomers have been occupying the White House for the last sixteen years. The majority of Congress is Baby Boomers. The CEOs and top executives of Wall Street firms are Baby Boomers. The media is dominated by Baby Boom executives and on-air stars. We have no one to blame but ourselves for the current predicament. Blaming Franklin Roosevelt or Lyndon Johnson for our dire situation is a cop out. Baby Boomers had the time, power, and ability to change our course. We have chosen to leave the heavy lifting to future generations in order to live the good life today.

Of course, not all Baby Boomers are shallow, greedy, and corrupt. Mostly Boomers with power and wealth fall into this category. There were 76 million Baby Boomers born between 1946 and 1963. They now make up 28% of the U.S. population. Their impact on America is undeniable. The defining events of their generation have been the Kennedy assassination, Vietnam, Kent State, Woodstock, the 1st man on the moon, and now the collapse of our Ponzi scheme financial system. They rebelled against their parents, protested the Vietnam War, and settled down in 2,300 square foot cookie cutter McMansions with perfectly manicured lawns, in mall infested suburbia. They have raised overscheduled spoiled children, moved up the corporate ladder by pushing paper rather than making things, lived above their means in order to keep up with their neighbors, bought whatever they wanted using debt, and never worried about the future. Over optimism, unrealistic assumptions, selfishness and conspicuous consumption have been their defining characteristics.

click to enlarge images

Boomers are currently in their prime earning and spending years. A Baby Boomer turns 50 years old every 7 seconds. The older Boomers had a fantastic run from 1989 through 2004. Median net worth for those between the ages of 55 and 59 rose 97% over 15 years to $249,700 in 2004. Median income rose 52%. The younger generation between the ages of 35 and 39 saw their median net worth fall 28% to $48,940. Their median income dropped 10% over the same 15 year period. It is clear that all Baby Boomers are not created equal. Based on calculations made by the Federal Reserve, at least 50% of Boomers will not have a happy retirement. The bottom 30% will reach the age of 65 with net worth of less than $100,000. They will try to subsist in poverty, dependent upon social security and part time Wal-Mart jobs until they die penniless. The top 30% will retire to lives of luxury and leisure. The middle 40% will muddle through with social security payments the only thing keeping them from an old age in poverty.

We have become a have and have not society. Our economy favors education, entrepreneurship, and creativity. Those benefitting from a good education will make dramatically more money than the uneducated laborers. The top 20% of households make 12.5 times the lowest 20% of households. This ratio was 7 to 1 in 1982. The top 1% of households make 20% of all the income in the U.S., the highest rate since 1928. Does this statistic portend a decade long depression? The difference between now and 1928 is the huge household debt burden of Americans. This usage of debt by the poor has masked the gap between haves and have nots for the last 20 years.

As I drive to work every day in my fully paid for 2002 CRV with 110,000 miles, I have plenty of time to observe my surroundings. Sitting in traffic on the Schuylkill Expressway, I have noticed that the number of luxury Mercedes, BMW, Cadillac and Lexus vehicles seems out of proportion to the number of wealthy people in the Philadelphia population.

When I see an older gentleman, wearing a suit, driving one of these automobiles, I assume that he is a wealthy executive who has put in his time and rewarded himself with a luxury vehicle. But, most of these vehicles are being driven by Joe the Plumber types. As I take a shortcut through some of the more depressed areas of West Philadelphia, I see people talking on their Apple (AAPL) iPhones, Direct TV satellite dishes attached to dilapidated row homes, and Cadillac Escalades & Mercedes parked on the mean streets. This is not exactly the world that Henry Fonda’s character, Tom Joad, described in The Grapes of Wrath:

I’ll be all around in the dark – I’ll be everywhere. Wherever you can look – wherever there’s a fight, so hungry people can eat, I’ll be there. Wherever there’s a cop beatin’ up a guy, I’ll be there. I’ll be in the way guys yell when they’re mad. I’ll be in the way kids laugh when they’re hungry and they know supper’s ready, and when the people are eatin’ the stuff they raise and livin’ in the houses they build – I’ll be there, too.

When I see “poor” people appearing to live a more luxurious life than myself, I don’t feel jealous. The thought that goes through my head is: Which banks or finance companies were foolish enough to loan these people the money to live this lifestyle? These foolish financial institutions will never get their loans repaid. What does bother me is that the Bush-Paulson-Pelosi Bailout of Stupid Banks will use my taxes to buy these bad loans from the foolish banks.

So, who is the fool in this scenario? The “poor” person got to drive a Cadillac Escalade for a period of time, the foolish banks got bailed out, the bank CEOs took home $30 million, and I lived within my means and footed the bill for the reckless actions of others. It appears that the fools are the Americans who lived their lives according to the rules. The anger is building. I don’t think the politicians running this country realize what true anger looks like. They are used to Americans being herded along like passive sheep.

I’ve heard many Republican ideologues blame the current crisis on the people who took the subprime loans for home purchases. I’ve also heard many Democratic ideologues blame the crisis on the regulators. The ideologues are wrong, as usual. If a poor person has no home, no vehicle, and no prospects; then a bank tells them that they can buy a $300,000 home, drive a $55,000 Mercedes SUV, and live like people on TV; why wouldn’t they say yes? What is their downside? If you have nothing and “The Man” offers you the American Dream, you’d actually be foolish to say no. Now that they have lost the home in foreclosure and the repo man has taken the Mercedes, they are exactly where they were a few years ago with no home, no vehicle and no prospects.

The regulators were certainly asleep at the wheel. They did not enforce existing rules, foolishly waived leverage rules for the biggest investment banks, and believed that the banks would regulate themselves. They were wrong, but they never made a single loan. The commercial banks, investment banks, auto finance companies, and credit card companies made the ridiculous loans to people who could never pay them back in the search for short term profits. Greedy Wall Street executives created an artificial market for the loans in order to generate billions in fees so they could enrich themselves through stock options and obscene bonuses. They spent their false riches on $2 million NYC penthouses, $100,000 Porsche 911s, and $5 million beachfront estates in the Hamptons. Based on the estimated $2 trillion of losses that our banks have generated, the CEOs certainly deserved annual pay 500 times as high as the average worker. There is no way an “average” worker could possibly be talented enough to lose $2 trillion. You would need to be truly extraordinary to lose that much.

CEOs’ average pay, production workers’ average pay, the S&P 500 Index, corporate profits, and the Federal minimum wage, 1990-2005 (adjusted for inflation):

Source: Executive Excess 2006, 13th annual CEO Compensation Survey

The brutal necessary lesson that should have been learned is that if you loan money to people who can’t pay you back, your bank will go bankrupt. The “poor” people who made a bad decision in buying homes and cars they couldn’t afford have lost those homes and cars. The banks made a bad business decision in making those loans. The taxpayer was not involved in these business transactions. This is where Hank Paulson, Ben Bernanke and George Bush, formerly free market capitalists, decided to commit our grandchildren’s money to bailing out the horribly run financial institutions.

Our government has chosen to allow these banks off the hook for their bad business decisions at the expense of taxpayers. Rewarding bad decisions and bad behavior will lead to more bad decisions and more bad behavior. The government has made a dreadful decision that will haunt our country for generations. Now the Federal Reserve has lowered interest rates to 1% again. This is where this horrible nightmare started. The massive printing of currency throughout the world will ultimately lead to a hyperinflationary bust. The law of unintended consequences can be devastating.

Early in the 1st Reagan administration, Americans saved 12% of their income and household debt as a percentage of GDP was 63%. In 1980, the oldest Baby Boomers turned 34. They entered their prime earnings and spending years. This is when something went haywire with our great country. Deficit spending became fashionable for government, corporations and individuals. Dick “deficits don’t matter” Cheney was probably in his glory as the country ran up deficits of money, morals, and brains. The Boomers and our government chose to try and borrow and spend their way to prosperity. As we now know, Mr. Cheney’s advice about deficits not mattering was about as good as his belief that you can fire a shotgun in any direction without implications. The Boomer generation has freely made choices over the last quarter century that has brought us to the brink of a second Great Depression.

During the current Bush administration, Americans’ savings rate actually went below zero, while household debt as a percentage of GDP soared above 130%, a doubling in 25 years. These figures prove that the apparent prosperity of the last 25 years was an illusion. Beginning in 1982, Baby Boomers chose to take the easy road. Saving, investing and living within your means were cast aside as “Old School”. Boomers were handed a better future through the blood, sweat and tears of the “Greatest Generation”. Through their hubris, they’ve squandered that better future, the future of their children and imperiled our entire capitalist system. Between 1989 and 2007, credit-card debt soared from $238 billion to $937 billion, a 300% increase. Household liabilities that are in delinquency or default totaled $775 billion at the end of June, according to CreditForecast.com data. This is equal to 7.5% of all U.S. household debt, up from 3% just two years ago.

In the last five years, our live-for-today Boomers sucked over $3 trillion of equity out of their homes to fund their selfish lifestyles. At the end of June, there were 2.72 million mortgage loans in default at an annualized rate. For all of 2008, defaults will hit 3 million, up from approximately 1.5 million in 2007, and 1 million in 2006.

What “essentials” do the Boomers invest all this borrowed money in every year? The U.S. Census bureau provides the answers:

  • $200 billion on furniture, appliances ($1,900 per household annually)
  • $400 billion on vehicle purchases ($3,800 per household annually)
  • $425 billion at restaurants ($4,000 per household annually)
  • $9 billion at Starbucks (SBUX) ($85 per household annually)
  • $250 billion on clothing ($2,400 per household annually)
  • $100 billion on electronics ($950 per household annually)
  • $60 billion on lottery tickets ($600 per household annually)
  • $100 billion at gambling casinos ($950 per household annually)
  • $60 billion on alcohol ($600 per household annually)
  • $40 billion on smoking ($400 per household annually)
  • $32 billion on spectator sports ($300 per household annually)
  • $150 billion on entertainment ($1,400 per household annually)
  • $100 billion on education ($950 per household annually)
  • $300 billion to charity ($2,900 per household annually)

The priorities of our Boomer led society are clearly born out in the above figures. We spend more eating out than we give to charity. We spend as much on big screen TVs and stereos as we do on education. This may explain why 37 million (12.5%) of all Americans live in poverty and our high school students trail the students of 25 other countries (including Latvia) in science and math knowledge. Our school system processes many more clueless morons who don’t know the candidates for President, versus intelligent, thoughtful, hard working, driven young people. The $160 billion spent on gambling is indicative of the get rich quick without hard work attitude of the Boomer generation. Even worse, households with income under $13,000 spend, on average, $645 a year on lottery tickets, about 9 percent of all their income. Our government feeds this addiction by siphoning off billions in taxes from these gambling revenues to redistribute as they see fit.

What the data proves is that Boomers love to shop and eat, whether they have the money or not. The top 100 retailers in the U.S. have 250,000 stores that generated $1.7 trillion of sales last year. How could America function without 31,000 McDonalds, 35,000 KFCs, Taco Bells, & Pizza Huts, 15,000 Starbucks, 7,000 Wal-Marts, 2,000 Home Depots, 4,000 K-Marts/Sears, and 8,000 Blockbusters? There are 91,000 shopping centers in the United States. The Advertising industry spends $275 billion per year to convince you to spend money you don’t have for things you don’t need. This generation lacks self control, morals, a work ethic, and savings ethic. Based on the recent actions of our government and corporate leaders, we seem to lack any ethics at all. It is immoral for the Boomer generation to run up $53 trillion in unfunded future liabilities in Social Security, Medicare and Medicaid to leave as our gift to future generations, while we live it up today. Optimists like to point out that Europe and Japan have much worse unfunded liability problems than the U.S. That is like taking pride in being the best looking horse at the glue factory. In the end, we’ll all still be glue.

The 25 year Boomer borrowing and spending binge is coming to an end. The hangover will be really bad. The Federal Reserve and Treasury are trying to keep the frat party going, but everyone is passed out on the floor. The Case Shiller housing data shows that the 20 largest cities have experienced an average 20% decline in price from their peaks. The futures index predicts a further 10% to 15% loss in value. There are 75 million owned homes in the U.S. One in six, or 12 million homeowners, owe more than the house is worth. With further expected losses, 20 million homeowners will eventually be underwater on their mortgage. In California, where home price declines will be 40% to 50%, half the homeowners in the State will owe more than the house is worth.

If you are one of these homeowners and can afford the mortgage payment, time will eventually bail you out. If you can’t afford the mortgage payment, you should lose the house to someone who can make the payment. This is the failure side of the creative destruction that is true capitalism. If the government steps in to subsidize and eliminate failure, the system will ultimately collapse.

Part two of the great Boomer credit contraction will be the collapse of credit card companies who have mailed out 27 billion credit card offers in the last five years. They are now reaping what they have sown. As Boomers could no longer borrow from their homes, they switched to credit cards to make mortgage payments and car payments. That well is running dry. The losses to card companies will make the losses in 2000 to 2002 seem like good times. Losses in the 1st half of 2008 soared to $21 billion. Losses are expected to total $55 billion in the next year and a half. This brings me to the latest outrage perpetrated upon the U.S. citizens by Hank Paulson and his Treasury cronies.

The credit card industry, which collects 23% interest and $12 billion in late fees from consumers, is lining up to get their piece of the $700 billion bank handout. Capital One (COF) has just received a $3.6 billion injection from the American taxpayer, one week after projecting that their write-offs will be $7.2 billion in the next twelve months. This will allow them to send another million offers to more people who shouldn’t have a credit card. Why not? The taxpayer will pay, if the losses are too high. Why aren’t the pundits on CNBC outraged at this misuse of taxpayer money? Would the bankruptcy of Capital One hurt our country in any way?

The Great American Empire has begun its long slow decline. It may take a few generations to reach its nadir, but the poor decisions already made and crucial decisions postponed in the last 25 years by our Boomer dominated leadership has put our country on a path to a declining standard of living. The U.S. is like a punch drunk ex-champion boxer who still thinks he has what it takes, but is living off his old press clippings. He lived the good life, got fat and didn’t do the hard work required of a champion. A slew of young brash fighters are itching to take him down. It is just a matter of time.

In our heyday during the 1950s, manufacturing accounted for 25% of GDP. In 1980 it was still 22% of GDP. Today it is 12% of GDP. By 2010 it will be under 10% of GDP. Our Government bureaucracy, which contributes nothing to the advancement of our society, now is a larger portion of GDP than manufacturing. Services such as banking, retail sales, transportation, and health care now account for two-thirds of the value of U.S. GDP. We have become a nation of bureaucratic paper pushers. Past U.S. generations invented the airplane; invented the automobile; discovered penicillin; and built the Interstate highway system. The Baby Boom generation has invented credit default swaps; mortgage backed securities; the fast food drive thru window; discovered the cure for erectile dysfunction; and built bridges to nowhere. No wonder we’re in so much trouble.

Now that I have laid out our bleak future, I can tell you that, like Dickens’ Christmas Carol, this is only a vision of what might be. There is time to change our course before our ship wrecks on a jagged reef. David M. Walker, former Comptroller of the United States, at a recent Fiscal Wake Up Tour at the University of Pennsylvania, described what has been happening in this country for the last 25 years in one word – laggardship. The last six months have been a perfect example of laggardship. Our leaders have floundered from crisis to crisis, overreacting and blustering rather than leading. True leaders are proactive, not reactive. After not addressing our energy policy for decades, as soon as oil reached $140 a barrel, Congress lurched into action so their constituents would think they were leading. As our financial system has imploded, government “leaders” have flailed about with one rescue package after another and Congress looks for scapegoats. Meddling, tinkering, and non-enforcement of rules by Congress and other government bureaucracies caused the crisis that they are reacting to. Government creates the problems and then assumes even more power over our lives with their ridiculous “solutions”.

No one in Washington has shown an ounce of leadership in decades. True leadership requires strength of character, clear vision to see the future as it is, the bravery to make unpopular decisions, and the honesty to tell the public the unvarnished truth based on the facts.

The facts are: we have a $10.5 trillion national debt; $53 trillion of unfunded liabilities; a military empire that has U.S. troops in 117 countries and has spent $700 billion on a pre-emptive war that has killed over 4,000 Americans; a $60 billion trade deficit; an annual budget deficit that will exceed $1 trillion in the next year; a crumbling infrastructure with 156,000 structurally deficient bridges; almost total dependence on foreign oil; and an educational system that is failing miserably. We can not fund guns, butter, banks and now car companies without collapsing our system.

I truly hope that President Obama can rise to the occasion and become a true statesman and leader. David Walker lays out our dilemma:

The regular order in Washington is broken. We must move beyond crisis management approaches and start to address some of the key fiscal and other challenges facing this country if we want our future to be better than our past. Our fiscal time bomb is ticking, and the time for action is now!

Ultimately, it is up to the Baby Boom generation to change our country’s course. The oldest Boomer is 62 years old and the youngest 45 years old. It is time for Boomers to take a hard look in the mirror and rethink their priorities. It is time to cast aside the $88,000 Range Rovers, $1,200 Jimmy Choo boots, $5,000 Rolex watches and daily double lattes at Starbucks. It is time to live within your means, distinguish between needs and wants, reduce debt, save 10% of your income, make sure your kids get a good education, not try and keep up with the Joneses, show compassion for your fellow man, and possibly pay more taxes and get less benefits, for the good of the country. We must support true leaders like [former Comptroller General] David Walker and get rid of the old time corrupted politicians who want to keep the status quo. Texas Congressman Ron Paul gives the blunt truth that a true leader is willing to give:

Our government has lived beyond its means for decades. We now face a crucial juncture, at which we determine whether to continue down the path of debt, inflation, and government intervention or choose to return to the economics of the free market, which have been ignored for almost a century. Increased debt leads to higher taxes on future generations, while increased inflation diminishes the purchasing power of American families and destroys the dollar. No society has ever been achieved prosperity through indebtedness or inflation, and the United States is no exception. We cannot afford to continue our current policies of monetary expansion and unending bailouts. Unless we return to sound monetary policy, sharply reduce government expenditures, and realize that the government cannot act as a lender of last resort, we will drive our economy to ruin.

The Baby Boom generation has one last chance to change the course of U.S. history, keep us from wrecking in a storm of debt on the approaching jagged reef and shed the title of “Shallowest Generation”.

GHOST MALLS: COMING TO YOUR TOWN (Oldie but Goodie)

I wrote this article almost two years ago before I even had a website. I think it still applies today. I got in trouble at work because General Growth had made a substantial gift to my school and didn’t take kindly to someone from the school predicting their bankruptcy. This is when I stopped saying which school I worked for. Six months later, General Growth Properties declared bankruptcy.

The illustration of Old West ghost towns is something that every American can relate to. During the great gold rush of the mid 1800’s in California, Nevada, and Wyoming towns sprung up out of nowhere to support the gold mining efforts of those looking to strike it rich. General stores, bars, hotels, brothels, and jails appeared out of nowhere based on demand from delusional prospectors hoping to hit the jackpot. Thousands of malls emerged throughout suburban America in the last twenty years as delusional shoppers thought they could spend their way to prosperity and achievement. Both delusions will end in the same manner.

When the gold rush ended as quickly as it started, the artificial demand collapsed and the towns were abandoned. These ghost towns sat vacant for decades, slowly decaying and rotting away. As you drive around today, you notice more and more For Lease signs on vacant retail buildings. Strip malls, inhabited by mom and pop stores, karate studios, pizza joints, and video stores have felt the initial onslaught of consumer deleveraging. As the pace of retailer collapse accelerates in 2009, larger malls will begin to go dark. Once bustling centers of conspicuous consumption and material decadence, built upon a foundation of consumer debt, will become ghost malls. Decaying, rotting malls inhabited by rats, wild dogs, and homeless former retail employees, will be a blight on the suburban landscape for decades.

For the last twenty years, the American consumers have carried the burden of the world on their broad shoulders. This has been a heavy yoke, but when you take steroids it doesn’t seem so heavy. The steroid of choice for American consumers was debt. They have utilized home equity loans, cash out refinancing, credit card debt, and auto loans to live far above their means. It has been a wild ride, but the journey is over. They can’t score steroids from their dealers (banks) anymore. The pseudo-wealth created in the last twenty years has begun to unwind, and will increase in speed in 2009.

Average Americans, who saw their faux paper wealth growing rapidly as their home values increased, took advantage of this by refinancing their mortgages and extracting the equity from their homes and spending it. They mined $3 trillion of equity out of their houses. This spending of seed corn led to the vast majority of GDP growth between 2000 and 2007.

Source: John Mauldin

Major banks offered credit cards using your home equity as a way to pay everyday expenses like groceries, cigarettes, beer, gas and clothes. Eating your house was never so easy. The enormous amount of excess home sales and equity extraction led to titanic demand for home furnishings, remodeling services, appliances, electronic gadgets, BMWs, and exotic vacations. This led to immense expansion plans by retail and restaurant chains based on extrapolation of this false demand.

A permanent psychological change has occurred in American consumers. They have lost $30 trillion in value from their homes and investments in the last few years. No amount of fiscal stimulation will reverse this psychological trauma. The savings rate will increase from 0% to at least 8%. Mike Shedlock recently described the state of affairs.

Peak credit has been reached. That final wave of consumer recklessness created the exact conditions required for its own destruction. The housing bubble orgy was the last hurrah. It is not coming back and there will be no bigger bubble to replace it. Consumers and banks have both been burnt, and attitudes have changed.

Now the impact of a retrenching consumer will be felt far and wide, from Des Moines to Shanghai. Consumer spending has accounted for 72% of GDP. It will revert to at least the long term mean of 65%. David Rosenberg, the brilliant economist from Merrill Lynch, describes what will happen:

This is an epic event; we’re talking about the end of a 20-year secular credit expansion that went absolutely parabolic from 2001-2007. Before the US economy can truly begin to expand again, the savings rate must rise to pre-bubble levels of 8%, that the US housing stocks must fall to below eight months’ supply, and that the household interest coverage ratio must fall from 14% to 10.5%. It’s important to note what sort of surgery that is going to require. We will probably have to eliminate $2 trillion of household debt to get there, this will happen either through debt being written off, as major financial institutions continue to do, or for consumers themselves to shrink their own balance sheets.

Source: John Mauldin

Every major retailer in the United States has built its expansion plans on an assumption that American consumers would continue to spend at an unsustainable rate. One basic truth that never changes is that an unsustainable trend will not be sustained. That crucial assumption error will lead to the bankruptcy of any retailer that financed its expansion with excessive debt. Warren Buffett’s wisdom will be borne out:

Only when the tide goes out do you discover who’s been swimming naked.

There are at least 1.1 million retail stores in the United States according to the Census Bureau. There are approximately 1,100 malls in the United States, not counting thousands of strip centers. These numbers will be considerably lower by 2011. ICSC chief economist Michael Niemira explained, “In the midst of all this doom and gloom, it’s hard to imagine it getting better… But keep in mind, what happens in strong downturns is there’s a hefty pent-up demand. It’s wrong to extrapolate these conditions for the next year or two.” Mr. Niemira will be wrong this time.

There is no pent-up demand. If the phrase unpent-up demand existed, it would apply today. Americans have bought everything they’ve desired for the last twenty years. There is no pent-up demand if you own 20 pairs of jeans and 60 pairs of shoes. The over-spending and over-leverage will take a decade to unwind.

Source: Mike Shedlock

According to the ICSC, about 150,000 stores are anticipated to shut down in 2009, which adds to the 150,000 that closed in 2008 and 135,000 in 2007. Normally, 110,000 to 125,000 new stores open per year. At least 700,000 retail jobs will be lost. The opening of new stores will grind to a halt in 2009. Some major retailers that have closed or will close include: Circuit City -728 stores; Linens N Things – 500 stores; Bombay Company- 384 stores; Sharper Image-184 stores; Foot Locker (FL) -140; Pacific Sunwear – 153. Other large retailers are closing underperforming stores and scaling back expansion plans. By 2011, at least 15% of the existing retail base will have gone to retail heaven. With the amount of vacant stores likely to reach in excess of 200,000 and vacancy rates of new malls already at 28%, there will be no need for the construction of new stores for many years.

Most of the retailers that are closing, lease their locations from mall developers like General Growth Properties (GGP), Simon Properties (SPG), Mills Corp. (MLS), Pennsylvania REIT (PEI), Vornado Realty Trust (VNO). These developers have a quadruple whammy hitting them in 2009. Many borrowed heavily to finance massive mall expansion. The terms of these loans were generally five to seven years. The Wall Street whiz kids and their CDO machine generated the vast preponderance of financing in the last five years. According to commercial real estate expert Andy Miller, the collapse will come more rapidly than the residential collapse.

By contrast, in the commercial world, the properties are fewer and much bigger. For example, you may have ten properties in a commercial pool that ultimately works its way into CDOs. Those loans are huge. You may have a shopping center loan in there for $25 million and an office building loan for $30 million dollars. As a result, if you have a default on just one of those loans, you can effectually wipe out all of the subordinate tranches. And that is why when you see the problems begin to appear on the commercial front, it’s going to be a much quicker sort of devolution than we saw on the residential side. In the commercial world, most of the financing that happened outside of the apartment business was done by conduits, and there are no more conduits left, and conduits were doing the stupidest loans you could find. They were doing an advertised 80% loan-to-value, which was usually more closely aligned to a 100% loan-to-value. They were dealing with no coverage. They were all non-recourse loans. Many of them were interest-only loans. Those loans are now gone. You can’t refinance them, and if you could, the terms would be onerous.


Source: Mike Shedlock

Billions of debt needs to be refinanced in the next two years and there is no one willing to make those loans. The major mall developers are so terrified they have made an all out press to get their fair share of the TARP. As retailers go bankrupt, vacancy rates have reached 9.4% for shopping centers, according to CoStar Group. With virtually no demand, rental income is plunging. With cap rates eroding and operating expenses going up, a perfect storm will hit mall developers in 2009.

The negative feedback loop will accelerate as the year progresses and will spiral out of control by late 2009 and early 2010. The negative feedback loop will lead to major developer bankruptcies and ultimately to Ghost Malls, particularly in the outer suburbs. The positive feedback loop that got us here, made people feel wealthy, smart, and overconfident. It was awesome! The negative feedback loop is going to suck. The collapse of developers will result in more major write-offs by regional banks that financed their expansion. This go around, many smaller regional banks will feel the major pain. The U.S. taxpayer will be required to step up to the plate again and assume financial responsibility for their own lack of spending. Talk about screwed if you do, screwed if you don’t.

Mall owners and commercial developers are on the brink of bankruptcy. Commercial developer CB Richard Ellis (CBG) didn’t sound too optimistic in a recent 10Q filing:

We are highly leveraged and have significant debt service obligations. Although our management believes that the incurrence of long-term indebtedness has been important in the development of our business, including facilitating our acquisitions of Insignia and Trammell Crow Company, the cash flow necessary to service this debt is not available for other general corporate purposes, which may limit our flexibility in planning for, or reacting to, changes in our business and in the commercial real estate services industry. Notwithstanding the actions described above, however, our level of indebtedness and the operating and financial restrictions in our debt agreements both place constraints on the operation of our business.

As Americans realize that they don’t “need” a $5 Starbucks latte, IKEA knickknacks, Jimmy Choo shoes, Rolex watches, granite counters, and stainless steel appliances, our mall centric world will end. Major mall anchor retailers Macy’s (M), JC Penney (JCP), and Sears (SHLD) are in for a heap of trouble in the next few years. As low prices become the only factor that drives retail sales, retailers will have minimal profits in the future, further restricting expansion and renovations.

Mall developer General Growth Properties, which owns or operates 200 malls, added $4 billion of debt in the last three years and is teetering on the brink of bankruptcy. Simon Properties, which owns or operates 320 malls, added $3 billion of debt in the last three years and will be greatly affected by the coming downturn. Many smaller developers will be in even more dire straits. With shrinking cash flow, looming debt refinancing, and dim prospects for a resumption of conspicuous consumption, Mall developers are destined for a bleak future. Picture Clint Eastwood from his spaghetti western days riding a horse through the middle of your local mall with tumbleweeds blowing past the vacant KB Toys and Victoria’s Secret.

THE FOURTH TURNING – SKIES DARKENING

William Strauss and Neil Howe published The Fourth Turning in 1997. This was before the internet bubble, before the housing bubble, before 9/11, before the two wars in the Middle East, and before the financial collapse of 2008. They made a strong case for their generational theory of history. Everything that has happened since 1997 supports their theory. We are currently in the early stages of the Fourth Turning. In the last two chapters of their book, they describe the possibilities during a Fourth Turning. In the last section of the book they provide guidance on how to prepare responsibly for a Fourth Turning. Without preparation, the Fourth Turning is much worse. Below is a description of Fourth Turning possibilities, the preparations that were recommended by Strauss & Howe, and my assessment of how prepared we are as a country.

“What will America be like as it exits the Fourth Turning?

History offers no guarantees. Obviously, things could go horribly wrong – the possibilities ranging from a nuclear exchange to uncurable plagues, from terrorist anarchy to high tech dictatorship. We should not assume that Providence will always exempt our nation from the irreversible tragedies that have overtaken so many others: not just temporary hardship, but debasement and total ruin. Since Vietnam, many Americans suppose they know what it means to lose a war. Losing in the next Fourth Turning, however, could mean something incomparably worse. It could mean a lasting defeat from which our national innocence – and perhaps even our nation – might never recover.

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.”

“However sober we must be about the dark possibilities of Crisis, the record of prior Fourth Turnings gives cause for optimism. With five of the past six Crises. it is hard to imagine more uplifting finales. Even after the Civil War, the American faith in progress returned with a new robustness. As a people, we have always done best when challenged. The New World still stands as a beacon of hope and virtue for the Old, and we have every reason to believe this can contine.

By the middle 2020s, the archetypal constellation will change, as each generation begins entering a new phase of life. If the Crisis ends badly, very old Boomers could be truly despised. Generation X might provide the demagogues, authoritarians, even the tribal warlords who try to pick up the pieces.

History is seasonal, but its outcomes are not foreordained. Much will depend on how tall we stand in the trials to come. But there is more to do than just wait for that time to come. The course of our national and personal destinies will depend in large measure on what we do now, as a society and as individuals, to prepare.”

Preparations Needed (1997 – 2006)

In their chapter on preparations for the Fourth Turning, Strauss and Howe essentially tell Americans to grow up. Give up the bad habits that had become part of our life during the Unraveling. We needed to prepare as if a blizzard was headed our way.

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

Their suggested preparations as a country and as individuals were:

America’s Recommended Preparations

  • 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 to building anything big.
  • Prepare politics: Define challenges bluntly and stress duties over rights, but don’t attempts 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 childrenas 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 precommit to any one response.

How America Prepared

No consensus on values was forged. The culture became more decadent and materialistic between 1997 and 2006. Get rich quick became the rallying cry. Institutions became larger and more unwieldy. Federal and state governments doubled in size between 1997 and 2006. They became addicted to tax revenue from the Internet and housing booms. They enacted thousands of new rules, regulations and laws. The debris has not been cleared. The country failed miserably in preparing politics. Blunt truthfulness about our national problems was needed from our leaders. Public purpose and collective duties should have been preached by our leaders. Instead, personal rights and entitlements were promised to every constituent. Corrupt politicians in Washington DC have fed the slide into cynicism, apathy and malaise with their false rhetoric and spineless inability to own up to the truth about the financial obligations that cannot be honored.

Society has not prepared for the Fourth Turning by stressing teamwork, civic duty, and self sacrifice for the betterment of our country. Local communities have not improved schools, housing, or transportation. People have continued to group themselves along party lines. The Millenial generation who will do the heavy lifting during this Fourth Turning have not been raised to understand how important their efforts will be needed in the next 15 years. We have not educated them properly and they have not been made to understand their importance. The elderly have not become more self sufficient. They have become more dependent. More entitlements have been passed for the elderly, making our fiscal picture much worse than it was in 1997. The elderly are prepared to wage a generational war for their goodies.

The preparation of our economy for the Fourth Turning has been a complete and utter disaster. We needed to raise the national savings rate in preparation for the difficult times ahead. Instead it went to 0%. We needed to reduce debt. We doubled it. We needed to balance the budget. The deficits are beyond comprehension. We needed to under consume. We consumed at hyper speed levels. Lastly, we needed to prepare for the inevitable major war that always accompanies a Fourth Turning. We needed to conserve our resources and build up our forces for the coming test. Instead, we wasted trillions of dollars and thousands of lives on worthless wars of choice in the Middle East. Our military is stretched to the breaking point. We are completely unprepared for a new major conflict.

Recommended Individual Preparations

  • Rectify: Return to classic virtues.
  • Converge: Heed emerging comunity 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.

How Individuals Prepared

Only you would know whether you are prepared for the Fourth Turning. Can you be counted on by your neighbors? Do you have a reputation as a person of honor and integrity? Are you a good citizen? Lone wolves will not fare well during a Fourth Turning. Team, brand and standard will be new catchwords. Appearances will matter. Society will deal justice in a brutal way. You need to know people who can help you. Personal relationships will be crucial. Face to face interaction with neighbors, fellow workers, the public, and the police will determine whether you are a good guy or bad guy.

People who work well in teams will more successfully navigate the Crisis. Children will need to be taught to excel in groups. They are likely to be indoctrinated by the government when danger rises. Your family members will be essential to your survival. Being a loner will not bode well for you during the Fourth Turning. Young and old will likely occupy the same household as other supports will disappear. Government benefits are likely to be dramatically cut. Dependence on authority should not be assumed. You will need to protect your wealth. Healthcare services could be limited. Being physically fit will be important. Being a generalist that can do many things well will make you more valuable during the Crisis. Having less debt will allow you more flexibility. The USD is likely to be devalued, so hedging your bets will be important. If the financial markets crash, will you survive?

As a country, we were completely unprepared for the onset of the current Fourth Turning. We were warned in 1997. We had time to prepare. Instead, we did the exact opposite of what needed to be done. We pressed the accelerator to the floor. Our actions have ensured that this Fourth Turning will be more deadly and brutal than it needed to be. Considering the two previous Fourth Turnings were Depression/WWII and the Civil War, the next 15 years will be grim. As Strauss & Howe point out, this test cannot be avoided:

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

The economic news worsens by the day. Worldwide tensions grow. There are fingers of instability throughout the system. All it will take is a grain of sand falling on the wrong part of the pile to initiate an avalanche of pain and suffering. Our Archduke Ferdinand moment awaits.

“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.

A Fourth Turning harnesses the seasons of life to bring about a renewal in the seasons of time. In so doing, it provides passage through the great discontinuities of history and closes the full circle of the saeculum. The Fourth Turning is when the Spirit of America reappears, rousing courage and fortitude from the people. History is seasonal, but its outcomes are not foreordained. Much will depend on how tall we stand in the trials to come.”  

THE AGE OF MAMMON (Featured Article)

“Financiers – like bank robbers – do not create wealth. They merely distribute it. While the mob may idolize holdup men in good times, in the bad times it lynches them. What they will do to the new money men when their blood is up, we wait eagerly to find out.”  – Mobs, Messiahs and Markets

  

As our economy hurtles towards its meeting with destiny, the political class seeks to assign blame on their enemies for this Greater Depression. The Republicans would like you to believe that Bill Clinton, Robert Rubin, Chris Dodd, and Barney Frank and their Community Reinvest Act caused the collapse of our financial system. Democrats want you to believe that George Bush and his band of unregulated free market capitalists created a financial disaster of epic proportions. The truth is that America has been captured by a financial class that makes no distinction between parties. These barbarians have sucked the life out of a once productive nation by raping and pillaging with impunity while enriching only them. They live in 20,000 square foot $10 million mansions in Greenwich, CT and in $3 million dollar penthouses on Central Park West.

These are the robber barons that represent the Age of Mammon. The greed, avarice, gluttony and acute materialism of these American traitors has not been seen in this country since the 1920’s. The hedge fund managers and Wall Street bank executives that occupy the mansions and penthouses evidently don’t find much time to read the bible in their downtime from raping and pillaging the wealth of the middle class. There are cocktail parties and $5,000 a plate political “fundraisers” to attend. You can’t be cheap when buying off your protection in Washington DC.

Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal: But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal: For where your treasure is, there will your heart be also. No one can serve two masters, for either he will hate the one and love the other; or else he will be devoted to one and despise the other. You cannot serve both God and Mammon. – Matthew 6:19-21,24

It seems that Lloyd Blankfein, the CEO of Goldman Sachs, may have been overstating the case in saying his firm is doing God’s work. With his $67.9 million compensation in 2007 and payment of $20.2 billion to his co-conspirators, Blankfein appears to be a proverbial camel trying to pass through the eye of a needle. This compensation was paid in the year before the financial collapse brought on by the criminal actions of Lloyd and his fellow henchmen. After having his firm bailed out by the American middle class taxpayer at the behest of  fellow Goldman alumni Hank Paulson, Lloyd practiced his version of austerity by cutting compensation for his flock to only $16.2 billion ($500,000 per employee) in 2009. I’m all for people making as much money as they can for doing a good job. But, I ask you – What benefits have Goldman Sachs, the other Wall Street banks, and hedge funds provided for America?

Never have so few, done so little, and made so much, while screwing so many.

In 2005, the top 25 hedge fund managers “earned” $9 billion, or an average of $360 million. One year after a financial collapse caused by the financial innovations peddled by Wall Street, the top 25 hedge fund managers paid themselves $25 billion, or an average of $1 billion a piece. For some perspective, there were 7 million unemployed Americans in 2006. Today there are 14.6 million unemployed Americans. While the country plunges deeper into Depression, the barbarians pick up the pace of their plundering and looting of the remaining wealth of the nation. Bill Bonner and Lila Rajiva pointed out a basic truth in 2007, before the financial collapse.

“On the Forbes list of rich people, you will find hedge fund managers in droves, but no one who made his money as a hedge fund client.” – Mobs, Messiahs and Markets

Ask the clients of Bernie Madoff how they are doing.

1920’s Redux

The parallels between the period leading up to the Great Depression and our current situation leading to a Greater Depression are revealing. When you examine the facts without looking through the prism of party politics it becomes clear that when the wealth and power of the country are overly concentrated in the clutches of the top 1% wealthiest Americans, financial collapse and depression follow. This concentration of income and wealth did not cause the Stock Market Crash of 1929 or the financial system implosion in 2008, but they were a symptom of a sick system of warped incentives. The top 1% of income earners were raking in 24% of all the income in America in 1928. After World War II until 1980, the top 1% of income earners consistently took home between 9% and 11% of all income in the country. During the 1950’s and 1960’s when average Americans made tremendous strides in their standard of living, the top 1% were earning 10% of all income. A hard working high school graduate could rise into the middle class, owning a home and a car.

From 1980 onward, the top 1% wealthiest Americans have progressively taken home a greater and greater percentage of all income. It peaked at 22% in 1999 at the height of the internet scam. Wall Street peddled IPOs of worthless companies to delusional investors and siphoned off billions in fees and profits. The rich cut back on their embezzling of our national wealth for a year and then resumed despoiling our economic system by taking advantage of the Federal Reserve created housing boom. By 2007, the top 1% again was taking home 24% of the national income, just as they did in 1928. When the wealth of the country is captured by a small group of ruling elite through fraudulent means, collapse and crisis becomes imminent. We have experienced the collapse, while the crisis deepens.

Continue reading “THE AGE OF MAMMON (Featured Article)”

THE GREAT DELEVERAGING LIE

You can’t open a newspaper or watch a business news network without seeing or hearing that consumers and businesses have been de-leveraging. The storyline as portrayed by the mainstream media is that consumers and corporations have seen the light and are paying off debts and living within their means. Austerity has broken out across the land. Bloomberg peddled this line of bull last week:

US Household Debt Shrank 1.5% in the Second Quarter

American households pared their debts last quarter, closing credit card accounts and taking out fewer mortgages as unemployment persisted near a 26-year high, a survey by the Federal Reserve Bank of New York showed.Consumer indebtedness totaled $11.7 trillion at the end of June, a decline of 1.5 percent from the previous three months and down 6.5 percent from its peak in the third quarter of 2008, according to the New York Fed’s first quarterly report on household debt and credit.The report reinforces forecasts for a slowing economy in the second half of 2010 as consumers hold back on spending and rebuild savings.

One has to wonder whether the mainstream media and the clueless pundits on CNBC actually believe the crap they are peddling or whether this is a concerted effort to convince the masses that they have done enough and should start spending. Consumer spending as a percentage of GDP is still above 70%. This is well above the 64% level that was consistent between 1950 and 1980. Consumer spending was entirely propped up by an ever increasing level of debt. The American economy will never recover until consumer spending drops back to the 64% range that indicates a balanced economic system. For the mathematically challenged on CNBC and in the White House, this means that consumers need to reduce their spending by an additional $850 billion PER YEAR. Great news for the 1.5 million retailers in America.

Below is a chart that shows total credit market debt as a % of GDP. This chart captures all of the debt in the United States carried by households, corporations, and the government. The data can be found here:

http://www.federalreserve.gov/releases/z1/current/accessible/l1.htm

Total credit market debt peaked at $52.9 trillion in the 1st quarter of 2009. It is currently at $52.1 trillion. The GREAT DE-LEVERAGING of the United States has chopped our total debt by 1.5%. Move along. No more to see here. Time to go to the mall. Can anyone in their right mind look at this chart and think this financial crisis is over?

During the Great Depression of the 1930’s Total Credit Market Debt as a % of GDP peaked at 260% of GDP. As of today, it stands at 360% of GDP. The Federal Government is adding $4 billion per day to the National Debt. GDP is stagnant and will likely not grow for the next year. The storyline about corporate America being flush with cash is another lie. Corporations have ADDED $482 billion of debt since 2007. Corporate America has the largest amount of debt on their books in history at $7.2 trillion.

Now we get to the Big Lie about frugal consumers paying off debts, cutting up those credit cards, and eating Raman noodles 5 nights per week. Household and non-profit debt, which includes mortgages, credit card debt, auto loans, home equity loans, and student loans peaked at $13.8 trillion in 2008. After two years of supposed deleveraging, frugality and mass austerity, the balance is $13.5 trillion. Consumers have buckled down and have paid off 2.2% of their debts, it seems. Not exactly going cold turkey, but it is a start.

But wait. Consumer debt outstanding is $300 billion lower. If you hadn’t noticed, the banks in the United States have been taking a few losses on their loans over the last couple years. A simple search of the Federal Reserve website reveals that banks have charged off 5.66% of all their loans in the last two years. The charge off rate in the 2nd quarter of 2010 was 6.66%. To verify for yourself go to the Federal Reserve website:

http://www.federalreserve.gov/releases/chargeoff/chgallsa.htm

So, let’s get down to the nitty gritty. If consumer debt was $13.8 trillion at the end of 2008 and the banks have since written off 5.66% of that debt, total write-offs were $800 billion. If total consumer debt now sits at $13.5 trillion, then consumers have actually taken on $500 billion of additional debt since the end of 2008. The consumer hasn’t cut back at all. They are still spending and borrowing. It is beyond my comprehension that no one on CNBC or in the other mainstream media can do simple math to figure out that the deleveraging story is just a Big Lie.

The truth is that the debt has simply been shifted from criminal Wall Street Banks to the American taxpayer. These consumer debts were created in a private transaction between individuals and these banks. When the loans went bad, the consumer should have lost their home, car, etc., and their credit rating should have been ruined, keeping them out of the credit market for a number of years. If the banks that made these bad loans made too many, they should have failed and had their assets liquidated in bankruptcy. Instead, the Federal Government has inserted the American taxpayer into the equation by using our tax dollars to prop up insolvent Wall Street banks and allowing screw-ups who took on too much debt to live in houses for over two years without making a mortgage payment.

The Big Lie will eventually lose out to the grim truth. America’s economy is built on a debt based foundation of sand and the tide of reality is relentlessly eating away at that foundation of debt. Collapse is just a matter of time. The charts below from the Federal Reserve paint a grim picture of reality.

Total Debt Balance and its Composition

Total Balance by Delinquency Status

New Seriously Delinquent Balances by Loan Type

AIN’T NO REST FOR THE WICKED (Oldie but Goodie)

I wrote this article in May 2009. I think it compliments my new article. The people who control this country don’t want their actions judged as good or evil. I think otherwise. Evil is currently in control. Good needs to fight back. Secondly, Cage the Elephant is an awesome band. Their album is great. Not a bad song on it. They are coming to the Borgota in Atlantic City on September 4 with Stone Temple Pilots. I wanted to take the family to see them, but the tickets are a ridiculous $85 a piece. Green Day charged $35 a ticket. If the lead singer of Cage the Elephant happens to be reading this blog, five free tickets would be much appreciated.

There ain’t no rest for the wicked, money don’t grow on trees, I got bills to pay, I got mouths to feed, there ain’t nothing in this world for free. I know I can’t slow down, I can’t hold back though you know I wish I could, oh no there ain’t no rest for the wicked, until we close our eyes for good. – Ain’t No Rest for the Wicked – Cage the Elephant

Money doesn’t grow on trees for most of America. We sit down at our kitchen tables and write out checks to the phone-company, electric company, credit card-company, mortgage-company, and auto finance company every month. We clip coupons and go to the grocery store every week to put food in the mouths of our children. This is what our parents did before us. We work 40 to 60 hours a week to pay these bills and feed those mouths. It’s not easy. We do it because that is what hard working American families do. We work hard, try to save some money for a rainy day and do the best we can. We had been taught that nothing in this world was free. We have been misled. If you were wicked, taking risks beyond the comprehension of average Americans and endangering the entire worldwide financial system, money does grow on trees and there is plenty for free. Money can be printed out of thin air by the wicked and doled out to the wicked. The definition of wicked is:

Evil in principle or practice; deviating from morality; contrary to the moral or divine law; addicted to vice or sin; sinful; immoral; profligate

To put it in the most basic terms, what has happened in this country in the last decade is that evil wicked people have attained positions of power in government, banking, and industry and have committed sins against humanity for their own glory and enrichment. Those who should have stood up to these evil doers are just as guilty as the engineer driving the train to Auschwitz. Albert Einstein understood this danger:

“The world is a dangerous place to live; not because of the people who are evil, but because of the people who don’t do anything about it.”

There have always been evil people. Adolf Hitler, Joseph Stalin, Bernie Madoff, Dennis Kozlowski, Charles Manson, Charles Keating Jr., Joe McCarthy, Jeff Skilling, Bernie Ebbers, Jim Jones, Michael Milken, and Ivan Boesky come to mind. Some committed horrendous atrocities, others stole billions, others destroyed reputations, and others lived lives of decadence and immorality. The reason they are all household names is because they were able to commit their crimes because other people didn’t do anything to stop them. All of these men could have been stopped if citizens, coworkers, auditors, Prime Ministers, government regulators, Boards of Directors, Congressmen, or family members had been brave enough and moral enough to make a stand against their evil deeds. The one and only poem that ever made an impression on me in high school was The Hangman by Maurice Ogden. Below are the last stanzas. Evil can only flourish in society if we allow it to flourish. A society united against wickedness, dishonesty, corruption and wantonness could stand the test of time. I’m afraid our Great American Republic has allowed evil to flourish, and the hangman’s scaffold has grown to enormous proportions.

“You tricked me Hangman.” I shouted then,
“That your scaffold was built for other men,
and I’m no henchman of yours.” I cried.
“You lied to me Hangman, foully lied.”

Then a twinkle grew in his buckshot eye,
“Lied to you…tricked you?” He said “Not I…
for I answered straight and told you true.
The scaffold was raised for none but you.”

“For who has served more faithfully?
With your coward’s hope.” said He,
“And where are the others that might have stood
side by your side, in the common good?”

“Dead!” I answered, and amiably
“Murdered,” the Hangman corrected me.
“First the alien … then the Jew.
I did no more than you let me do.”

Beneath the beam that blocked the sky
none before stood so alone as I.
The Hangman then strapped me…with no voice there
to cry “Stay!” … for me in the empty square.

THE BOTTOM LINE: “…I did no more than you let me do.”

Hell is Empty and all the Devils are Here

Bill Shakespeare sure had a way with words. He understood the battle between good and evil on earth. He also understood that evil can span generations. “The evil that men do lives after them; the good is oft interred with their bones.” The main stream liberal media scoff at the use of the terms evil, the devil, sin and wickedness. These are antiquated terms used by our grandparents. Everyone knows that we have progressed beyond such childish terms. The distinctions between evil and good have been purposely blurred by those in power. The ruling elitists prefer to operate in shades of gray, where right and wrong can be spun and parsed into legal mumbo jumbo. This is not as complicated as those in power want you to think. Our parents taught us right from wrong. Lying, cheating, stealing, swearing, and killing are wrong. It’s that simple. No gray, just black and white. As the mainstream liberal media is filled with vacuous, cheerleader ideologues, I prefer the wisdom of the greatest minds in history. Evil does exist in the words and deeds of men in government, banking, the media and corporate America today.

“When good people in any country cease their vigilance and struggle, then evil men prevail.” – Pearl S. Buck

There are many good people in our country. I would even venture to state that the overwhelming vast majority of our 306 million citizens are good people. The problem is that the good people have let their guard down and allowed evil men to prevail. By delegating their civic responsibility for their own well being to corrupt, power hungry, evil men, we have traded liberty and freedom for a false sense of security. The military industrial complex, healthcare industrial complex, media industrial complex and now the banking industrial complex and auto industrial complex are now in command of our lives. By following the false prophets of government solving all the ills of society, we have allowed the hangman’s gallows to grow and loom ever larger over our every day existence. The examples of evil infiltrating the halls of government, banking and industry are many.

Evil Words & Actions

“False words are not only evil in themselves, but they infect the soul with evil.”  – Socrates

CEO’s of banks and financial institutions going on TV and lying that their firms were strong and viable. (Angelo Mozilo, Jimmy Cayne, Ken Lewis, Robert Steele, Charles Prince, John Thain)

  • The President and Vice President of the United States lying to the American people that there were WMD in Iraq and proclaiming that Iraq was involved in the 9/11 attack.
  • The Secretary of the Treasury lying to the American people and Congress regarding the banking system in order to ram the TARP bill through Congress.
  • The Secretary of the Treasury and Federal Reserve Chairman threatening the CEO of Bank of America and forcing him to lie about the true losses of Merrill Lynch.
  • Mortgage brokers lying to their clients regarding the terms of the toxic mortgage products they were peddling.
  • Homebuyers who lied about their income and/or assets in order to qualify for a mortgage.
  • Alan Greenspan urging Americans to take out an adjustable rate mortgage when rates were at all time lows, while simultaneously saying that home prices on a national basis would never fall.
  • Treasury Secretaries and other high officials lying on their tax returns.
  • Financial advisors telling their clients to invest in a financial product because it makes the advisor more money, versus being in the best interest of the client.
  • Being politically correct in your speech rather than truthful because a constituent might be offended.
  • Politicians making promises to voters while trying to be elected which they never intend to keep.
  • When the President of the United States commits adultery in the Oval office and then lies to the American public.

Creative Evil

“Ignorance, the root and stem of all evil.Knowledge becomes evil if the aim be not virtuous.”  – Plato

  • When the highly educated use their knowledge to keep the ignorant from understanding the truth about the financial condition of the country.
  • When the Federal Reserve Chairman withholds the names of the banks that have received billions in taxpayer funds with no accountability.
  • The MBA genius or geniuses who created the stated income, no documentation mortgage loan in order to enrich themselves and their leaders.
  • The millions of Americans who accepted loans for homes, cars, and home furnishings that they knew they could never repay.
  • The bankers who made loans to people who they knew could never repay them, because they would earn all of their money upfront and would sell the loans to someone else.
  • The executives of AIG who silently allowed twenty employees in their Financial Products Group, led by Joseph Cassano, to gamble and lose $500 billion while paying Mr. Cassano $280 million in compensation.
  • Alan Greenspan for allowing moral hazard to grow to immense proportions due to the unspoken Greenspan Put. Every financial institution knew he would come to their rescue if their risky bets blew up. Therefore, they had no reason not to leverage 40 to 1.
  • The bank executives who allowed their trading desks to use derivatives to make huge bets on currencies, interest rates, default rates, and mortgages in order to generate obscene salaries, bonuses and stock option awards. The original purpose of derivatives was to hedge risks.
  • The rating agencies Moody’s and S&P who took blood money from banks and other financial institutions to rate packages of subprime mortgages, credit card debt, and car loans as AAA without ever examining the assets or real potential for default.
  • The Accounting Firms that will sell audit opinions based on the amount of fees they receive. This leads to the logical conclusion that no financial statements can be relied upon.
  • The bank executives who knowingly sold toxic worthless assets to pension funds, insurance companies, municipalities and senior citizens because of their desire for short-term profits and obscene bonuses.

Government Evil

“Society in every state is a blessing, but government, even in its best stage, is but a necessary evil; in its worst state an intolerable one.”  – Thomas Paine

  • When elected government officials secretly collude with bankers to create a non-governmental Federal Reserve Bank that controls the currency of the country and systematically generates inflation to allow government to spend at an ever increasing rate.
  • Taxing citizens to create bureaucratic government agencies and programs that fail to accomplish their mission while continuing to grow in size as politicians use them to reward the contributors to their re-election campaigns.
  • Congressmen allowing 40,000 highly paid corporate lobbyists in Washington DC to write laws and buy votes because it will keep them in power.
  • Putting thousands of earmarks into every Congressional spending bill to benefit your supporters to the detriment of the country.
  • When government employees leave government service and accept high paying jobs with the companies they previously regulated.
  • The SEC hierarchy ignoring the conclusive evidence provided by Harry Markopoulos about the Bernie Madoff Ponzi scheme because Madoff was respected, connected and had friends in high places at the SEC.
  • Low paid SEC investigators are purposely less stringent in their investigations because they want high paying jobs on Wall Street with the firms they are regulating.
  • The Federal Reserve has purposely taken worthless assets onto their balance sheet from insolvent banks in order to fraudulently portray the U.S. banking system as healthy. They have committed billions of taxpayer funds with no oversight or audit of their activities.
  • Taxing citizens to use the money to create offensive weapons of war and using them to preemptively invade a sovereign country with no Constitutionally required declaration of war.
  • Launching hundreds of cruise missiles from a thousand miles away into a city of six million people, knowing thousands of innocent people would be murdered.
  • Torturing human beings at Abu Ghraib and Guantanomo, thereby winning the fight, but losing the war. The U.S. will have no moral authority when American soldiers are captured and tortured.
  • Invading a country under false pretenses in order to enforce our world view on a sovereign nation to secure billions of barrels of oil.
  • Selling weapons of mass destruction to other nations.
  • Convincing the majority of the population through manipulative means to give up freedoms and liberties in the name of safety and security.
  • Monitoring the phone conversations, emails, and movements of American citizens without their knowledge.
  • Paying farmers to not grow food, while millions in the world starve to death every year.
  • Encouraging the poorest Americans to gamble what little they have at State sponsored casinos and in State run lotteries to pay for ever increasing State spending.
  • Politicians spend money today in order to bribe their constituents for votes, while passing the bill onto future unborn generations.
  • Politicians pass laws that reallocate wealth from producers to the takers in society and create a class of societal dependents who will continue to vote for more goodies and benefits.
  • The FASB allows financial firms to value “assets” at whatever price they choose in order to mislead investors.

Media Evil

“Young people are threatened… by the evil use of advertising techniques that stimulate the natural inclination to avoid hard work by promising the immediate satisfaction of every desire.”  – Pope John Paul II

  • Advertising by the National Association of Realtors in 2005 and 2006 after home prices had doubled in five years telling all Americans it was the best time to buy and that buying a house is always a great investment.
  • Both liberal and conservative ideologue pundits skewing every issue in order to prove their pre-ordained position.
  • Corporate titans like GE own TV networks and slanting the reporting of the news in a way that aligns with their corporate interests.
  • Paid political consultants train politicians to not answer the questions they are asked. They are trained to repeat their talking points, not answer questions truthfully.
  • The mainstream media use their power and influence to mislead the public regarding the true state of the economy and the truth about the future finances of the country.
  • Companies like GMAC/Ditech used misleading TV commercials to lure the ignorant and poor into loans which they could never repay.
  • The negative ads run during political campaigns are made up of smears, innuendo, half truths, and bold faced lies intended to destroy the character of opponents.
  • Using polls in order to slant your message in a way that appeals to the most voters.
  • Using advertising techniques to convince people to buy products they can’t afford by appealing to their emotions and biases.
  • TV shows that glorify killers, immoral lifestyles, crime, drug use, etc. in order to push their agenda on children.
  • The media exaggerating risks of pandemics, terrorism, crime, and weather events in order to increase ratings.

After slogging through this depressing list I’m sure there will be many in the status quo crowd who will argue that most of the examples I’ve listed are not illegal, therefore they are not evil. This is where the elite in control of the country and the average American part ways. The elite will make the case that we live in a modern world with modern standards, based on modern thought. They use the media to manipulate the masses into believing that evil is actually good. As the citizens of the country allow this to happen, the hangman’s scaffold grows ever larger. Our parents taught us right from wrong. It is black and white. Only those in power want the world to be bathed in shades of grey. This allows them to commit fraud, manipulate public opinion, utilize leverage to make risky bets with taxpayer funds, and use wealth and power to secure more wealth and power. The unelected bureaucrats in the back pocket of the banking cartel designed a bailout plan that attempts to keep the evil bankers in control of our economy. Nobel economist Joseph Stiglitz, whose sound advice has been ignored by government central planners, described the bailout recently:

“The designers of the bailout are either in the pocket of the banks or they’re incompetent. It’s a real redistribution and a tax on all American savers. This is a strategy trying to recreate the bubble. That’s not likely to provide a long-run solution. It’s a solution that says let’s kick the can down the road a little bit. They haven’t thought enough about the determinants of the flow of credit and lending.”

The business pundits think it is wonderful that criminally negligent banks can borrow at 0% from the Fed and lend to the public at 6%. Meanwhile, senior citizens get .50% on their money market funds and 2% for 5 year CDs. Until we bring the country back from its acceptance of immorality and evil as common place, we are destined for the tragic fate of the Roman Empire.

Money is the Root of Evil

Now a couple hours past, and I was sitting in my house, the day was winding down and coming to an end, so I turned on the TV, and flipped it over to the news, and what I saw I almost couldn’t comprehend, I saw a preacher man in cuffs taking money from the church, he stuffed his bank account with righteous dollar bills but even still I can’t say much cause I know were all the same, oh yes we all seek out to satisfy those thrills.

Ain’t No Rest for the Wicked – Cage the Elephant

Money is not inherently evil. It is useful to buy food, pay for utilities, education, and transportation. It can be used to support charities, take vacations, or be saved for a rainy day. It can be invested in capital equipment, research, or technology, which has the potential to generate more money for the investor. It can also be squandered on depreciating assets such as unnecessarily luxurious houses, luxury cars, TVs, stereo systems, Blackberries, iPods, and other baubles and trinkets. Spending money on these things is not evil or wrong. Buying these things with borrowed money that you are not capable of paying back is wrong. Lending money to people and companies that cannot pay you back in order to generate short term profits to enrich management is wrong. Creating financial leverage products whose sole purpose is to mislead investors, regulators, accountants and the public in order to enrich management is wrong. Debt which is not used for productive purposes only leads to sorrow and heartbreak.
[D.+Debt+to+GDP+from+1920s]

Total credit market debt as a percentage of GDP has risen from 130% of GDP in 1952 to 350% of GDP today. The various bailout and stimulus schemes enacted in the last year will drive this percentage above 400% in the near future. When a country allows this much debt to accumulate versus its GDP, they have done something seriously wrong. The country’s politicians, business leaders, and citizens have all contributed to this disaster. If the debt had been used for constructive fruitful purposes such as building refineries, laying pipelines, replacing decaying water pipes, building nuclear power plants, repairing the 156,000 structurally deficient bridges, or researching and developing cutting edge energy, biotech, or nanotech technologies the increase may have had some merit.

Instead, banks created new forms of debt to benefit themselves through excessive CEO pay, stock options to reliable lieutenants and stock buybacks to make EPS appear better. Government used debt to pay for useless wars of choice, tax cuts for the rich, expansion of the unfunded Medicare program, ethanol subsidies, and other payoffs to the 40,000 lobbyists scurrying around Washington DC like cockroaches. Of course, I didn’t intend to insult cockroaches. Americans used the debt buy and sell houses to each other, leasing cars they couldn’t afford, taking vacations they couldn’t afford, and buying doo-dads they didn’t need. Corporations used debt to buy and sell divisions to each other, bought back their own stock, rewarded management with $50 million compensation packages, while shipping millions of jobs to China. Reckless companies used leverage to do $3 trillion of mergers and acquisitions in 2006, at the top of the market.

The debt was wasted on non-productive assets, useless financial gimmicks and complex fraudulent products sold to investors. No one knows at what level the debt will swamp the ship of state. A rogue wave has just crashed across our bow and washed many overboard. A captain of state that cared about the remaining passengers would reverse course and take responsible evasive action. Our captain and his crew of gamblers have decided to speed up and take the ship of state headlong into a perfect storm. We all know how this will end it is only a matter of when.

We also know how it all began:

“Permit me to issue and control the money of a nation, and I care not who makes its laws.” – Mayer Amschel Rothschild

When the banking cartel succeeded in creating the Federal Reserve Bank in 1913, control of money in the United States was put into the hands of bankers whose sole purpose is to enrich themselves at the expense of the citizens of the country. Their relentless printing of money has resulted in the dollar losing 96% of its value since 1913. The printing of dollars has allowed politicians to spend money today and make unfunded commitments decades into the future. The systematic inflation created by the Federal Reserve is immoral as it impoverishes the middle class and senior citizens for the benefit of bankers, the elite rich and entrenched politicians. Much of the moral decay in our nation can be traced to the manipulation of money in the last 8 decades. During the 1950’s, 1960’s and into the 1970’s, a family of five could be supported with a father working and a mother staying at home with the children. Today, due to relentless inflation, the average family of four needs to have both parents working to maintain a similar lifestyle. Inflation adjusted median household income has been stagnant since 1970. The social pressures caused by the Federal Reserve induced inflation such as increased divorce, children raising themselves, and focus on material possessions has resulted in a society whose fabric is tearing.

FRED Graph

The Federal Reserve’s mandate to keep short term interest rates steady and conducive to long-term growth has been a farce. The interest rate policies of the Federal Reserve have caused every financial crisis since 1913. The Great Depression from 1929 to 1940 is debated endlessly regarding FDR’s social programs and whether they helped or hurt. What is rarely discussed is the fact that the Federal Reserve’s loose monetary policies in the 1920’s created the disastrous stock market crash and the depression that followed. Milton Friedman explained the decadent relationship between banks and the Federal Reserve:

“Banking is a major sector of the economy in which no enterprise ever fails, no one ever goes broke. The banking industry has been a highly protected, sheltered industry. That’s because the banks have been the constituency of the Federal Reserve.”

Alan Greenspan’s interest rate decisions and belief that financial institutions did not need to be regulated during his reign as Federal Reserve Chairman from 1987 to 2006 were by far the most significant cause for the worldwide financial system collapse. Greenie trained Wall Street to expect the Federal Reserve to bail them out whenever their horrific financial bets went south. He created the moral hazard that eventually led to the recent collapse. He did it in 1987 after the stock market crash, in 1990 when Citicorp was rescued for the 1st time, during the Reagan initiated S&L crisis, the Mexican peso rescue, the Asian currency bailout, when Myron Scholes and his models brought down Long Term Capital Management, prior to the Y2K fake crisis, after 9/11, and lastly during the 2003 false deflation scare. These bailouts encouraged the extreme risk taking and 40 to 1 leveraging that occurred between 2003 and 2008. Allowing financial institutions to not have to accept the consequences of their irresponsible actions was and is wrong. Ben Bernanke has continued this immoral policy of bailing out corrupt bankers at the expense of prudent bankers and prudent citizens.

FRED Graph

The reduction of interest rates to 1% in 2003 by Greenspan encouraged consumers, investors, banks, hedge funds, and investment banks to go on the greatest debt financed buying binge the world has ever seen. By “saving” the idiots who lost their shirts in the internet bubble, Greenspan created a debt bubble of epic proportions. Lessons about margin debt and excessive leverage that should have been learned during the 2000 – 2002 stock market crash were forgotten by 2004, with margin debt reaching $381 billion in 2007, 40% higher than the NASDAQ peak in 2000. Investment banks increased their leverage from 10 to 1 to as high as 40 to 1. Consumers used home equity and credit cards to live way above their means. All of these choices were bad decisions. Very simply, these decisions made freely by millions of people were wrong.

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The chart below is the clearest visual representation of why those proclaiming green shoots sprouting are either, liars, knaves, or fools. The green shoots are actually poison ivy. Real disposable income has only risen fourfold since 1960. Real household debt rose at virtually the same rate as disposable income from 1960 to 1980. By 2009, real household debt had increased by twelvefold. The miraculous Reagan Revolution was nothing but a debt induced fraud. All of the apparent wealth in America has been a gigantic sham. The McMansions, fancy cars, HDTVs, jewelry, and other “essential” gadgets were not bought with earned income. The Federal Reserve and their banking brotherhood leant billions to delusional Americans, convincing them to live for today and not worry about tomorrow. But now tomorrow has arrived. Housing “wealth” continues to plummet, stock “wealth” is down 40% in 18 months, and our old friend household debt remains stubbornly in place. This debt must be paid down before any green shoots can take permanent root. Any policy that encourages the expansion of consumer debt would be immoral, wrong and foolish. This is the policy that the Obama administration has chosen.

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Something Wicked This Way Comes

“No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.” – H.L. Mencken

Americans are still infatuated with President Barrack Obama. He is a dynamic speaker and shrewd manipulator of public opinion. After eight years of George Bush’s narrow minded demagoguery, Obama’s appearance of intelligence and moderate rhetoric have been refreshing to many. His words may be comforting but his policies, if fully implemented, will lead to an irreversible decline of the American Empire. The chances of reversing our current misguided course get slimmer by the day. The Keynesians who have taken control of our government pick and choose the wisdom of this renowned economist. His assessment of how aging populations act describes a major roadblock to fixing our broken society.

“Most men love money and security more, and creation and construction less, as they get older.”

The government has promised to protect us from terrorists, protect us from swine flu, protect us from Wall Street, protect us from foreign corporations, protect our car industry, protect our union jobs, protect our retirements, and protect us from having to take responsibility for our actions. We have sacrificed liberties, rights, responsibilities, and entrepreneurial spirit for a false sense of security provided by a corrupt, inefficient, morally bankrupt government. Our rapidly aging population has chosen security over creative destruction and renewal of the American Dream.

The polarized extremists that dominate the dialogue in our country make rational necessary change virtually impossible. The public relations maggots have taken the “green” agenda into elementary schools and the mainstream media has done their usual job of misinforming the masses. As the “green” guru Al Gore continues to live in his 20 room mansion with 8 bathrooms while raking in millions as a partner in a joint venture firm, his misleading agenda is directing the country down the wrong path. The average Joe now believes that solar energy, ethanol, and higher mileage cars will save the earth and make the U.S., energy self sufficient. This is a big lie and will lead to suffering and economic calamity when oil prices soar past $200 a barrel in the foreseeable future. The U.S. no longer has the moral authority to tell other countries how to manage their finances. Our fiscal deficit as a % of GDP in 2009 will exceed 12%. Countries we have scoffed at and ridiculed like Italy, Mexico and Argentina will have deficits less than 4% of GDP. This is only the beginning.

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The deficit projections from the Obama administration and CBO are dead on arrival. When tax revenues don’t materialize and the predicted V shaped recovery turns into an L shaped depression, deficits will far exceed the already horrific projections. The government continues to spend our children’s and grandchildren’s money at an ever increasing rate on bailouts, non-investment stimulus, healthcare waste and subsidies for friends of Congress. P.J. O’Rourke humorously explained government drunk with power.

“Giving money and power to government is like giving whiskey and car keys to teenage boys.”

wapoobamabudget1

The dilemma facing our country is that the elite ruling class in control of the nation wants to maintain the status quo. The 50% of Americans who pay no Federal taxes will gladly support increases in taxes on the 50% of Americans who do pay taxes. Those without health insurance will vote for anyone who promises them government healthcare at no cost. There are 306 million Americans. I often refer to the average American in my articles. Part of our problem is that by definition, half of Americans are below average. After spending Memorial Day weekend at the Jersey shore, I know where a large number of below average Americans like to vacation. They give themselves away fairly easily. If your body is more than 50% covered in tattoos, you have more than 10 body piercings, your gold chain weighs more than 5 pounds, and your idea of cuisine is a fried Oreo, you’re a below average American. These zombie-like citizens have absolutely no interest in deficits, GDP, the National Debt or shared sacrifice. The majority prefer not to be bothered.

An entitlement society will eventually wither and die. Only societies that produce something of value to other societies will prosper. Using financial hocus pocus and enormous amounts of leverage creates nothing of value to anyone except the criminals who created the financial weapons of mass destruction. Bailing these criminals out will waste essential capital and lead to our ultimate demise as a world power. Dr. John Hussman clearly lays out our future:

“The bottom line is that the attempt to save bank bondholders from losses – to provide monetary compensation without economic production – is not sound economic policy but is instead a grand monetary experiment that has never been tried in the developed world except in Germany circa 1921. This policy can only have one of two effects: either it will crowd out over $1 trillion of gross domestic investment that would otherwise have occurred if the appropriate losses had been wiped off the ledger (instead of making bank bondholders whole), or it will result in a stunning and durable increase in the quantity of base money, which will ultimately be accompanied not by a year or two of 5-6% inflation, but most probably by a near-doubling of the U.S. price level over the next decade. As I’ve noted previously, the growth rate of government spending is better correlated with subsequent inflation than even growth in money supply itself, particularly at 4-year intervals. Regardless of near-term deflation pressures from a continued mortgage crisis, our present course is consistent with double digit inflation once any incipient recovery emerges.”

The following graphs tell the story of a country in decline and a country on the rise. We proudly proclaim that we are a consumer society that creates 70% of its GDP by buying stuff and saving nothing. Instead of encouraging and rewarding saving, which leads to productive investment, our government pours an additional $7.5 billion into GMAC and demands them to lend the money to millions of subprime borrowers, because they deserve to drive a BMW just like any big time Corporate Treasurer. While America was “inventing” Twitter so Americans could waste more time on useless bullshit, China built three nuclear power plants and two refineries.

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China on the other hand is sailing an entirely different course. With gross national saving of 52% of GDP it is only a matter of time before China becomes the world economic leader. The 21st Century will be China’s century. There is much wrong with their society. Pollution, human rights abuses, and fraud are major issues, but the enormous amount of saving and investment in infrastructure, manufacturing plants, nuclear power plants and refineries will overcome those issues. As the Obama administration and the Federal Reserve double down on failed socialist policies that will bankrupt our country, the Chinese increase their productive capacity and use their depreciating dollars to buy up natural resources around the globe.

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We have been confronted with stormy seas in the last two years. Our leaders’ inept management and inane solutions caused the crisis. They have committed hundreds of billions in the last six months. This has resulted in the seas receding from the shoreline. There is an unusual calmness. An alert and dutiful government would be warning Americans to run inland by paying off debt and preparing for rough times ahead. Our government is encouraging Americans to venture out to where the violent waves were recently breaking and pick themselves up a new car or an “affordable” house. When the tsunami warning is sounded, it will be too late.

We are in our current predicament because we have allowed evil men to gain control of our government and financial institutions. These men have enriched themselves at the expense of taxpaying citizens. Trillions have been stolen from the American people and no one goes to jail, no one is punished, and no responsibility is taken by the culprits. If we stand by silently while criminal bankers are bailed out and policies are put into place that increases our crushing debt, the Hangman’s scaffold will loom ever larger. On Memorial Day, when we honor those who died heroically to protect and defend our way of life, the lesson of shared sacrifice should bear out that it is morally wrong to spend money today and pass the bill to unborn future generations. If you have ideas to share, join me at www.TheBurningPlatform.com.

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THE BOTTOM LINE: “…I did no more than you let me do.”

MASS DELUSION – AMERICAN STYLE (Featured Article)

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” – Charles Mackay – Extraordinary Popular Delusions and the Madness of Crowds

 

The American public thinks they are rugged individualists, who come to conclusions based upon sound reason and a rational thought process. The truth is that the vast majority of Americans act like a herd of cattle or a horde of lemmings. Throughout history there have been many instances of mass delusion. They include the South Sea Company bubble, Mississippi Company bubble, Dutch Tulip bubble, and Salem witch trials. It appears that mass delusion has replaced baseball as the national past-time in America. In the space of the last 15 years the American public have fallen for the three whopper delusions:

  1. Buy stocks for the long run
  2. Homes are always a great investment
  3. Globalization will benefit all Americans

Bill Bonner and Lila Rajiva ponder why people have always acted in a herd like manner in their outstanding book Mobs, Messiahs and Markets:

“Of course, we doubt if many public prescriptions are really intended to solve problems. People certainly believe they are when they propose them. But, like so much of what goes on in a public spectacle, its favorite slogans, too, are delusional – more in the nature of placebos than propositions. People repeat them like Hail Marys because it makes them feel better. Most of our beliefs about the economy – and everything else – are of this nature. They are forms of self medication, superstitious lip service we pay to the powers of the dark, like touching wood….or throwing salt over your shoulder. “Stocks for the long run,” “Globalization is good.” We repeat slogans to ourselves, because everyone else does. It is not so much bad luck we want to avoid as being on our own. Why it is that losing your life savings should be less painful if you have lost it in the company of one million other losers, we don’t know. But mankind is first of all a herd animal and fears nothing more than not being part of the herd.”

Continue reading “MASS DELUSION – AMERICAN STYLE (Featured Article)”

BRAVE NEW WORLD 2010

 One of my more popular articles from the old site. It seems more pertinent by the day.

“Most human beings have an almost infinite capacity for taking things for granted. That men do not learn very much from the lessons of history is the most important of all the lessons of history.” – Aldous Huxley

Aldous Huxley wrote the dystopian novel Brave New World in 1931 at the inauguration of the last Crisis period in America. Dystopia is the often futuristic vision of a society in which conditions of life are miserable and characterized by poverty, oppression, war, violence, disease, pollution, nuclear fallout and/or the abridgement of human rights, resulting in widespread unhappiness, suffering, and other kinds of pain. The novel was his response to the writings of H.G. Wells (Men Like Gods) and George Bernard Shaw which glorified socialism and a one World State. Orwell’s 1984, written in 1948, is the other famous dystopian novel of the era. Huxley had visited America during the Roaring 20’s and his experience provided the character for the novel. He was outraged by America’s out of control materialistic egocentric society. He witnessed youthful superficiality, commercialization, sexual promiscuity, and a self centered culture. Fellow writer G.K. Chesterton explained his view of Huxley’s novel:

 “After the Age of Utopias came what we may call the American Age, lasting as long as the Boom. Men like Ford or Mond seemed to many to have solved the social riddle and made capitalism the common good. But it was not native to us; it went with a buoyant, not to say blatant optimism, which is not our negligent or negative optimism. Much more than Victorian righteousness, or even Victorian self-righteousness, that optimism has driven people into pessimism. For the Slump brought even more disillusionment than the War. A new bitterness, and a new bewilderment, ran through all social life, and was reflected in all literature and art. It was contemptuous, not only of the old Capitalism, but of the old Socialism. Brave New World is more of a revolt against Utopia than against Victoria.”

Using Technology to Control Society

“Technological progress has merely provided us with more efficient means for going backwards.”  Aldous Huxley

Science and technology are not inherently good or bad. They can be used or misused. They offer promise or peril. Ultimately, humanity can benefit from science and technology or it can be detrimental to our planet. Huxley envisioned a horrifying future where mankind used science and technology in a self destructive manner. He was disillusioned with the decadence of society and disgusted by the behavior of his class. Huxley’s outlook is a world where the vast majority of the populace is united under one World State. The world is restricted to two billion inhabitants. The inhabitants are strictly divided into five castes.  The world is controlled by Alphas and their subordinates, Betas. Below them, in descending order of brainpower and physique, are Gammas, Deltas, and Epsilons. Each caste is further subdivided into Plus and Minus (save for Epsilons, which are regular or semi-moron). Reproductive technology, referred to as the Bokanovsky Process, is used by the government (Alphas & Betas) to manage the number of human beings and their functions. The process is applied to fertilized human eggs in-vitro, causing them to split into identical genetic copies of the original. The State has eliminated procreation by loving couples. Ovaries are surgically removed from women. The lower caste children are created in hatcheries.

At the very pinnacle of society sit Alpha Double-Pluses, who serve as the future scientists and top administrators of the world. People in different castes are conditioned to be happy in their own way – they do not feel resentment towards other castes, but rather feel a slight contempt for people not members of their own caste.  The upper castes are intelligent, and have managerial jobs, where as the lower castes do the manual labor. The Alpha’s have what we would consider the best jobs, and it continues down until the Epsilons, who have the least skilled jobs. The Alphas are tall and fair, while the Epsilons are dark skinned.

The novel takes place in the year 2540 in London. The disturbing aspect is that we are now in the year 2009 and much of Huxley’s vision has come to fruition. At the heart of the World State’s control of its population is its rigid control over sexual mores and reproductive rights. Reproductive rights are controlled through an authoritarian system that sterilizes about two-thirds of women, requires the rest to use contraceptives, and surgically removes ovaries when it needs to produce new humans. The act of sex is controlled by a system of social rewards for promiscuity and lack of commitment. The United States has restricted population growth through a number of methods. Abortion on demand was made the law of the land in 1973. Since that date 50 million abortions have been performed in the U.S. I ask myself how many Martin Luther Kings, Stephen Hawkings, and Ernest Hemingways have been among those aborted before having the chance to positively impact our world.

Source: Alan Guttmacher Institute

Over 12 million women in the U.S. use the pill (available since 1960) on a daily basis in order to avoid pregnancy. The morning after pill was introduced in 1999. Planned Parenthood, created in 1916, has 850 locations in the United States offering easy access to abortions and other forms of contraception. The net result of these government supported efforts has been to cut the birth rate in half in the last century.

Year Births1 Rate2
1910 2,777,000 30.1
1920 2,950,000 27.7
1930 2,618,000 21.3
1940 2,559,000 19.4
1950 3,632,000 24.1
19603 4,257,850 23.7
19703 3,731,386 18.4
1980 3,612,258 15.9
1990 4,179,000 16.7
2000 4,058,814 14.7
2005 4,138,349 14.0

“We are living now, not in the delicious intoxication induced by the early success of science, but in a rather grisly morning after, when it has become apparent that what triumphant science has done hitherto is to improve the means for achieving unimportant or actually deteriorated ends.”  – Aldous Huxley

The upper classes in the U.S. have persuaded the lower classes to restrict their reproduction. They promote non-consequential promiscuity among the other classes while reproducing and raising the new ruling class. American society is also segmented into castes as portrayed by Huxley. The Alpha Double-Pluses are the Harvard MBAs running Goldman Sachs and the other mega-banks. Others in the Alpha caste are the Bushes, Kennedys, Rockefellers, Clintons, Gores, Warren Buffet, Bill Gates, and Paul Krugman. The Betas include Congressmen, bank executives, government bureaucrats, military leaders, and corporate executives. The Gammas and Deltas are the working classes that do the hard work without ever advancing. The Epsilons are the morons produced by the inner city public school system. They fill the non-thinking manual labor jobs of society.

The Gammas, Deltas, and Epsilons are brought up in conditioning centers. The Alphas and the Betas use technology to mould them into their predetermined roles in society. They use operant conditioning and sleep teaching to modify the behavior of the lower castes. Hatcheries rely on machines to condition bottled embryos to heat, sudden motion, and disease, allowing the embryos to fulfill their predestined jobs in specific climates. The science exists today to produce whatever traits are desired in our children. The procedure is called pre-implantation genetic diagnosis and is being practiced in fertility clinics in the U.S.

Those in control of America also use conditioning and teaching to keep the lower classes in their place. The ruling elite send their children to exclusive private schools, grooming them for Harvard, Yale and Stanford. This guarantees they will be given the high level positions in business and government. After decades of pumping billions of tax dollars into public schools while instituting politically correct diversity programs to dumb down the curriculum, the ruling elite have conditioned a vast swath of Americans to care more about Tiger Woods’ driving and night putting skills than about the National Debt or the insidiousness of Federal Reserve induced inflation.

  Total 18 Yrs No High School High School Some Associates Bachelors Advanced
  & Over Degree Degree College Degree Degree Degree
millions        No Degree      
All Races 224,703 32,010 69,480 44,168 18,589 40,070 20,387
    14.2% 30.9% 19.7% 8.3% 17.8% 9.1%
White 154,603 14,457 48,207 31,488 13,753 30,809 15,890
    9.4% 31.2% 20.4% 8.9% 19.9% 10.3%
Asian 10,277 1,153 1,965 1,478 667 3,106 1,907
    11.2% 19.1% 14.4% 6.5% 30.2% 18.6%
Black 26,363 4,779 9,213 5,659 2,132 3,215 1,364
    18.1% 34.9% 21.5% 8.1% 12.2% 5.2%
Hispanic 30,286 11,191 9,130 4,684 1,729 2,539 1,012
    37.0% 30.1% 15.5% 5.7% 8.4% 3.3%

Source: Census Bureau

Just as in Brave New World, the ruling Alphas are White and the lowest class Epsilons are dark skinned. Blacks and Hispanics represent 50% of all the high school dropouts even though they only make up 25% of the population. This guarantees a life of blue-collar low paying jobs for these people. Whites obtain 78% of the advanced degrees, guaranteeing them the positions of leadership in society. The social welfare state implemented by the ruling elite provides enough sustenance to the lower classes to keep them anesthetized, ignorant and easily manipulated. Whites also obtain 77% of the bachelor’s degrees, assuring that they will fill the Beta administrator positions in society.

Another technological method of keeping the masses tranquilized and distracted in the Brave New World is through high tech sports and entertainment. Sport is a pillar of the World State consisting of various games and activities which use high-tech equipment. Another key aspect of entertainment is the “feelies”. Users rest their hands on metal knobs protruding from the arms of their chair, allowing them to feel the physical sensations of the actors on-screen (usually in sexually-themed films). The mass production of HDTVs, CD players, Laptop computers, Blackberries, iPhones, iPods, luxury automobiles and other electronic toys distributed to the masses through easy credit policies has successfully distracted the populace from the pillaging of the country by the Alphas at Goldman Sachs. The feelies of today are 24 hour cable TV with 600 stations, downloadable movies, an unlimited amount of free porn on the internet, strip joints, and prostitution. Sports addicts can attend baseball, football, basketball, hockey, soccer, wrestling, boxing, auto racing, and Michael Vick sponsored dog fighting events year round, or watch it on TV 24 hours per day. With mindless jobs and unlimited distractions, the preponderance of citizens are as docile as sheep.

Soma is a biological method used by the Alphas to keep the lower castes sedated. It is a drug that provides an easy escape from the hassles of daily life and is employed by the government as a method of control through pleasure. It is ubiquitous and ordinary among the culture of the novel and everyone is shown to use it at some point, in various situations: sex, relaxation, concentration, confidence. It is seemingly a single-chemical combination of many of today’s drugs’ effects, giving its users the full hedonistic spectrum depending on dosage. As a kind of “sacrament,” it also represents the use of religion to control society. Huxley’s description of soma reveals its power:

“And if ever, by some unlucky chance, anything unpleasant should somehow happen, why, there’s always soma to give you a holiday from the facts. And there’s always soma to calm your anger, to reconcile you to your enemies, to make you patient and long-suffering. In the past you could only accomplish these things by making a great effort and after years of hard moral training. Now, you swallow two or three half-gramme tablets, and there you are. Anybody can be virtuous now. You can carry at least half your morality about in a bottle. Christianity without tears—that’s what soma is.”

American leaders bluster about the dangers of drug and alcohol abuse, but their actions speak otherwise. Americans can sedate themselves legally with alcohol, over the counter prescriptions, and tobacco. Almost 10% of the entire U.S. population, or 27 million people, are taking anti-depressant pills. Over 4 million children are being drugged with Ritalin every day to make them malleable. The government looks the other way as the middle class uses marijuana, heroine, and cocaine. The Epsilons (Blacks & Hispanics) on the other hand are prosecuted, with 2.3 million of them occupying cells in the thousands of prisons in the U.S. There are thousands of churches in the U.S. preaching the good word and sedating the masses. As they preach morality and sacrifice, there have been recurring instances of sexual deviation covered up church hierarchy and the bilking of congregations out of millions in contributions for the enrichment of the church leaders.

Consumer Society

“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

Huxley formulated his dystopian world after observing the excessiveness of Americans during the Roaring 20’s. If he thought things were decadent and Americans were self consumed in the 1920’s, Huxley’s head would explode at the debauchery, ignorance materialism, and shallowness of Americans today. Our landfills contain more wealth than entire Third World countries. We throw away over 100 billion pounds of edible food per year. In his Brave New World Revisited, written in 1958, Huxley clearly laid out the dangers of consumerism:

“Consumerism re­quires the services of expert salesmen versed in all the arts (including the more insidious arts) of persuasion. Under a free enterprise system commercial propa­ganda by any and every means is absolutely indis­pensable. But the indispensable is not necessarily the desirable. What is demonstrably good in the sphere of economics may be far from good for men and women as voters or even as human beings.”

“Consider a simple example. Most cos­metics are made of lanolin, which is a mixture of purified wool fat and water beaten up into an emulsion. This emulsion has many valuable properties: it penetrates the skin, it does not become rancid, it is mildly antiseptic and so forth. But the commercial prop­agandists do not speak about the genuine virtues of the emulsion. They give it some picturesquely volup­tuous name, talk ecstatically and misleadingly about feminine beauty and show pictures of gorgeous blondes nourishing their tissues with skin food. “The cosmetic manufacturers,” one of their number has written, “are not selling lanolin, they are selling hope.” For this hope, this fraudulent implication of a promise that they will be transfigured, women will pay ten or twenty times the value of the emulsion which the propagandists have so skilfully related, by means of misleading symbols, to a deep-seated and almost universal feminine wish — the wish to be more attrac­tive to members of the opposite sex. The principles underlying this kind of propaganda are extremely sim­ple. Find some common desire, some widespread uncon­scious fear or anxiety; think out some way to relate this wish or fear to the product you have to sell; then build a bridge of verbal or pictorial symbols over which your customer can pass from fact to compensa­tory dream, and from the dream to the illusion that your product, when purchased, will make the dream come true.”

Our economic advancement has been marketed to Americans as “true happiness from consumption”. Every need can be realized through material gain. Success as a society is measured by GDP growth and the facade of prosperity. In Brave New World children are conditioned from birth to value consumption with such platitudes as “ending is better than mending,” which means buy a new one instead of fixing the old one. America has become the definitive throwaway society. Product waste has grown from 92 pounds per person per year in 1905 to 1,242 pounds per person per year in 2005. American human beings are lumped into the category of consumers by the mainstream media. Consumerism and consumer debt have been the contaminated lifeblood of the United States for the last three decades. Government actively promotes gambling by the poor, offering them false hope for riches. Americans squander $160 billion per year on lotteries and in casinos. Our society has become even more extreme than the Brave New World as we have outsourced our production to foreign countries, thereby gutting our economy. Even at the dawn of television Huxley realized the immense power for propagandists:

“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. Today, thanks to radio and television, he is in the happy position of being able to communicate even with unschooled adults and not yet literate children.”

United States advertising expenditures, 1920–2007 in constant 2007 dollars (billions)*

The mass media is owned and controlled by mega-corporations run by the Alphas of our society. Colleges graduate thousands of people with the skills to manipulate the uninformed masses through advertising and propaganda. What passes for news organizations are just propaganda machines for a particular point of view. The public is distracted by the seemingly major differences between the two main political parties. The reality is that both parties are controlled by banking and corporate interests who pay for the laws that benefit their interests. Huxley’s description of political candidates in 1958 is even truer today:

“The methods now being used to merchan­dise the political candidate as though he were a deo­dorant positively guarantee the electorate against ever hearing the truth about anything.”

News people must be beautiful and entertainment is indispensable. They provide the people what they want – 24 hour coverage of Tiger Woods’ sex life, weeks of reporting about Michael Jackson’s death, and 10 seconds about the $100 trillion of unfunded liabilities we are leaving future generations. Truth is an inconvenience in the consumer society.

Incompatibility of Happiness & Truth

“Great is truth, but still greater, from a practical point of view, is silence about truth. By simply not mentioning certain subjects… totalitarian propagandists have influenced opinion much more effectively than they could have by the most eloquent denunciations.”  Aldous Huxley

Mustapha Mond, World State Controller, believes that the population is better off with happiness than truth. In the Brave New World happiness is represented by immediate gratification of every citizen’s desire for food, sex, drugs, nice clothes, and other consumer trinkets. If the proletariats think they are happy, they won’t need to think or question reality. The World State cannot allow individuality to blossom. Free thinking individuals seek the truth. Spending time alone is considered an outrageous waste of time and money. Confession to a craving for individuality is shocking, horrifying, and embarrassing. John, the savage, grew up outside the World State and has studied Shakespeare. Everything that Shakespeare stood for: passion, love, intensity, seeking truth, relationships, and tragic endings, are at odds with the World State foundation. They cannot allow truth and true human happiness to exist in society or the Alphas will lose control.

The United States is the richest most powerful country in the history of the world. Our poorest live better than the aristocracy lived 100 years ago. We have indoor plumbing, air conditioning, heaters, clean water, automobiles, trains, jet airplanes, televisions, CD players, portable gadgets galore, free public education, fast food, gyms to work off the fast food, movies, the internet, restaurants, bars, concerts, sporting events, casinos, home improvement stores, grocery stores, discount stores, Wal-Mart, clothes stores, jewelry stores, dollar stores, churches, Disney World, Las Vegas, and Graceland. These are the “things” that are supposed to make Americans happy. Going into the woods alone, like Thoreau, to think is frowned upon. The propagandists sell the American public happiness in the form of material goods and services. If you don’t feel happy, take a pill. If you aren’t happy with your appearance have plastic surgery. If your spouse isn’t making you happy, cheat or get a divorce and try again. If your neighbor outdoes you by getting a $20,000 kitchen remodel, get yourself a $40,000 kitchen remodel. Happiness is a 6,000 sq ft McMansion with 5 bathrooms, a pool, game room, and Jacuzzi for your family of three. Having your neighbors see you driving a BMW 750Li will surely make you happy. Wearing a Rolex will definitely make you happy. If you die with the most toys, you’re still dead. Until reading a book to your three year old at bedtime is valued more than staying at the office until 10:00 pm to complete an investment offering, our society is destined for decline. Ours is not to reason why, but simply to do and die with a bare minimum of fuss.

In the Brave New World the policies of the State dehumanize the population. Stability and artificially induced happiness are more imperative than humanity and truth. Mustapha Mond explains to John that social stability has required the sacrifice of art, science, and religion. John protests that, without these things, human life is not worth living. After John eventually succumbs to the lure of the World State version of happiness, he hangs himself. An ending truly worthy of a Shakespearean tragedy. The pillars of our society are based upon the acquisition of material possessions using debt. Our society glorifies steroid taking athletes, sex crazed sports icons, drugged out entertainment personalities, vacuous TV housewives, and moronic cosmetically enhanced movie stars. Those who seek truth through questioning the status quo or digging for answers to questions the State doesn’t want asked, risk alienation and scorn. The Alphas (bankers) of our society issue the debt and convince the masses that accumulating more stuff will make them happy. The Alphas (media titans) use their mass media to persuade, manipulate, and sell their message of material happiness to the masses. The Alphas (politicians) use the taxes collected from the masses and the dollars printed by the bankers to distribute social welfare benefits to the lower classes, keeping them sedated and under control. Seeking the truth through the study of literature, the questioning of authority, and pondering of our existence on this earth are rare. Those who question and doubt the propaganda put out by those in authority are shunned and denigrated as being unpatriotic.

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

Dangers of an All-Powerful State

“Freedom is therefore a great good, tolerance a great virtue and regimentation a great misfortune. Meanwhile there is still some freedom left in the world. Many young people, it is true, do not seem to value freedom. But some of us still believe that, with­out freedom, human beings cannot become fully hu­man and that freedom is therefore supremely valuable. Perhaps the forces that now menace freedom are too strong to be resisted for very long. It is still our duty to do whatever we can to resist them.” Aldous Huxley

The all powerful State in Brave New World uses technology and mind control starting before birth until death to instruct people what they want. Power over the citizens is maintained by lulling them into a false sense of happiness and contentment to the point where personal freedom and thinking are unnecessary. Superficiality is encouraged by the World Controllers. The consequences of citizens rolling over to the rulers are a loss of dignity, morals, values, and emotions—in short, a loss of humanity. Amazingly, this book was written in 1931. Huxley’s vision, which seemed so outrageous in 1931, has come to fruition in less than 70 years, versus the 600 years in the novel. Huxley realized that technological advances which are almost universally hailed as progress are fraught with danger. Man has built higher than he can climb; man has unleashed power he is unable to control. Brave New World is Huxley’s warning to make man realize that since knowledge is power, he who manages and exploits knowledge exerts the authority. Science and technology should be the servants of man – man should not be adapted and enslaved to them.

In the novel the “Nine Years’ War” broke out in 2049 AD. It can be deduced that the conflict broke out in Europe, affected most of the planet, and caused enormous physical damage. It is repeatedly stated that chemical and biological weapons were broadly used during the war, particularly in mass air-raids against cities. Following the war the global economy collapsed and created an unprecedented worldwide economic crisis. Realizing that they could not force people to adopt the new lifestyle, the World Controllers instead united the planet into the One World State and began a nonviolent movement of change. This campaign included the closing of museums, the suppression of almost all literature published before 2059 AD, and the destruction of the few historical world monuments that had survived the Nine Years’ War. The type of war described in the novel is a very feasible scenario in our current environment. It is interesting that a worldwide economic crisis was the trigger for a One World Government. Our current worldwide economic crisis has resulted in our Federal Reserve propping up European banks with U.S. taxpayer funds and unprecedented coordination between worldwide fiscal policies.

Huxley wrote his novel in 1931 at the outset of the Great Depression. His vision did not take long to crystallize. FDR initiated social programs on a vast scale to satiate the masses with manual labor government created jobs and social services that encouraged reliance upon the state at the expense of freedom and liberty. His nightmare world became more of a reality after World War II as progressives were successful in creating the United Nations, NATO, World Bank, IMF, Bretton Woods system, and GATT. These organizations reduced the freedom of individual countries to the benefit of worldwide bureaucracies. These organizations have gained power over time, but their total incompetence and ineffectiveness has kept them from gaining total control over world populations.

We are now at a crucial juncture as the worldwide financial crisis and the sham global warming crisis are being used by the New World Order crowd to confiscate more of our freedoms and liberties. Socialist minded world leaders Gordon Brown and Barack Obama, along with the revered Henry Kissinger have referenced a New World Order while offering their Keynesian spending solutions to the worldwide financial crisis. A number of Obama advisors have written they support a one world government. The Copenhagen Conference on Global Warming has drawn thousands of one world government apostles. They want to use the scientifically unproven environmental crisis as a way to impose worldwide taxes on sovereign nations and to compel the citizens of the world to honor their green agenda. The use of propaganda in our school systems to scare children by telling them that polar bears are all dying, is part of their plan. Again, the subtle use of media and propaganda to influence the thinking of the willfully ignorant public has worked.

Dystopian Nation  

“Facts do not cease to exist because they are ignored.” Aldous Huxley

When I started this article I was unsure whether Huxley’s nightmare would resonate in our current reality. Sadly, much of his novel applies to our society. Even sadder, our society now resembles an amalgamation of the two most famous dystopian novels in history: 1984 and Brave New World. Social critic Neil Postman contrasted the two views of the future:

“What Orwell feared were those who would ban books. What Huxley feared was that there would be no reason to ban a book, for there would be no-one who wanted to read one. Orwell feared those who would deprive us of information. Huxley feared those who would give us so much that we would be reduced to passivity and egoism. Orwell feared that the truth would be concealed from us. Huxley feared the truth would be drowned in a sea of irrelevance. Orwell feared we would become a captive culture. Huxley feared we would become a trivial culture, preoccupied with some equivalent of the feelies, the orgy porgy, and the centrifugal bumblepuppy. As Huxley remarked in Brave New World Revisited, the civil libertarians and rationalists who are ever on the alert to oppose tyranny “failed to take into account man’s almost infinite appetite for distractions.” In 1984, Orwell added, people are controlled by inflicting pain. In Brave New World, they are controlled by inflicting pleasure. In short, Orwell feared that what we fear will ruin us. Huxley feared that what we desire will ruin us.”

Our civilization has fused the worst of both novels. Many people in our country aren’t capable of reading a book. Supposedly educated people have no interest in reading a book. The government withholds or manipulates information that is spoon fed to the public. Trivial meaningless information floods the airwaves, keeping the public continuously diverted from seeking truth. The truth is lost in shades of grey and purposeful misinformation. Supposed differences between the ruling parties distract the public from realizing they are being fleeced by those in power. Government has used fear to create agencies and departments that have taken away our liberties and freedoms through Orwellian surveillance techniques. Our dumbed down culture of hero worship, material pleasures, and ego enhancement is the representation of triviality. The Alphas have used our fears and desires to distract us from their plans to dominate and control every aspect of our lives. Their success is all but assured at this point.

I’m not optimistic that there are enough Americans who value freedom over presumed safety, security, and social welfare benefits. The public has been duped into believing thrilling falsehoods rather than unexciting truths. Huxley explains how the propagandists have stolen our freedom:

“In their anti-rational propaganda the enemies of freedom systematically pervert the resources of lang­uage in order to wheedle or stampede their victims into thinking, feeling and acting as they, the mind-manipulators, want them to think, feel and act. An education for freedom (and for the love and intelli­gence which are at once the conditions and the results of freedom) must be, among other things, an educa­tion in the proper uses of language.”

I do not pretend to have the answers. Intellectual curiosity, a skeptical nature, and not buying into our shallow culture are the best chance for change. Reading or re-reading Orwell’s 1984 and Huxley’s Brave New World and Brave New World Revisited will open your eyes to our plight. The current Fourth Turning will end in glory or tragedy. The choices we make as a society in the next 10 to 15 years will ultimately decide our fate. Huxley’s advice in Brave New World Revisited is wise, pertinent, and implementable today:

  • As recent history has repeatedly shown, the right to vote, by itself, is no guarantee of liberty. Therefore, if you wish to avoid dictatorship by referendum, break up modern society’s merely func­tional collectives into self-governing, voluntarily cooperating groups, capable of functioning outside the bureaucratic systems of Big Business and Big Govern­ment.
  • If you wish to avoid the spiritual impoverishment of individuals and whole societies, leave the metropolis and revive the small country community, or alternately humanize the me­tropolis by creating within its network of mechanical organization the urban equivalents of small country communities, in which individuals can meet and co­operate as complete persons, not as the mere embodi­ments of specialized functions.

As citizens of the American Republic we must answer the question posed by Huxley:

“Do we really wish to act upon our knowledge? Does a majority of the population think it worthwhile to take a good deal of trouble, in order to halt and, if possible, reverse the current drift toward totalitarian control of everything?”

“There is no darkness but ignorance. The devil can cite Scripture for his purpose.” William Shakespeare

JOHN PAULSON WILL BE WRONG THIS TIME (Featured Article)

We have arrived at critical juncture in the ongoing financial crisis. Have the government actions of the last year successfully spurred the animal spirits of Americans, resulting in a self-sustaining recovery?

The Obama administration and most of the mainstream media would answer yes. GDP has been positive for the last four quarters. Consumer spending has increased in five consecutive months. Corporate profits have been relatively strong. The country has stopped losing jobs. The missing piece has been a housing recovery.

No need to worry. Famous or infamous (depending on your point of view) $15 billion man John Paulson has assured the world that house prices will rise 8% to 10% in 2011. His basis for this forecast is that California prices have rebounded 8% to 10% in the last year, and this recovery will spread to the rest of the nation.

Maybe Paulson has teamed up with his buddies at Goldman Sachs to develop a product that guarantees a housing recovery. I tend to not believe anything that comes out of the mouth of anyone associated with Wall Street, but let’s assess the facts and see if they point to an impressive housing recovery in 2011.

The man who has been right on housing for the last ten years has been Yale Professor Robert Shiller. His analysis of U.S. housing prices from 1890 until present, which he first published in 2005, unequivocally proved that we were in the midst of the greatest housing bubble in history. At the same time, David Lereah, the chief economist (shill) for the National Association of Realtors, was pronouncing it was the best time to buy. He published his masterpiece of market tops, Are You Missing the Real Estate Boom? at the 2005 housing peak. He called a bottom in January 2007, and the NAR has continued to tell Americans it is the best time to buy for the last five years as prices have dropped 36% nationally.

Dr. Shiller continues to be the voice of reason when it comes to the housing market. He is doubtful that the recent “recovery” will continue:

    “Recent polls show that economic forecasters are largely bullish about the housing market for the next year or two. But one wonders about the basis for such a positive forecast. Momentum may be on the forecasts’ side. But until there is evidence that the fundamental thinking about housing has shifted in an optimistic direction, we cannot trust that momentum to continue.”

Whom do you believe? The paid mouthpiece for the National Association of Realtors, the Wall Street shill, or an impartial economics professor who has done rigorous analysis using 120 years of housing data?

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