Is Capitalism Doomed? The Cliche of Our Time

Whenever something significant occurs in financial markets, or even a major industrial event, people invariably start asking about whether capitalism is doomed.  I remember after the BP oil spill in the gulf, one of my old highschool buddies (who’s a great guy, but his ultra-liberal ideals give us some good debating topics) put a thread on Facebook saying “Capitalism must end” or something to that effect.  Since he lives in California and he’s one of those artsy types, there were all kinds of high-fives and people railing against America and how Cuba got it right and all this nonsense.  I weighed in with how preposterous this notion was and how ironic that he and his hippy friends were venting on none other than…FACEBOOK – a venture that exists purely because of lure of riches that has expanded to its current state by American conventions – an American student at an American university, computer programming, at-risk capital, the internet, mobile technology and all kinds of other contributing factors that exist SOLELY BECAUSE OF CAPITALISM.  The irony was lost on these people of course.  By simple virtue of being born in America, they’ve already started off life on 3rd base yet they curse the opportunistic environment they find themselves in.

Well, following the recent debt debate, the S&P downgrade leaving 4 AAA Companies with a higher credit rating than the US, the recent market slides and an imploding Euro region, Nouriel Roubini penned a piece asking whether Capitalism is Doomed.  While the headline and his mention of Marx being “partly right” drew plenty of controversy last week, his thesis remains pretty much aligned with his usual message – we need to deleverage, divert stimulus to infrastructure, enact more progressive taxation measures and regulate more effectively.

While progressives and “revolutionaries” rejoice at the spectre of crumbling capitalistic support, it’s silly to “blame” capitalism for problems in the world or their current circumstances.

Continue Reading: Is Capitalism Doomed? The Cliche of Our Time

RECESSION 2011

John Mauldin is cautious guy. He hedges his bets and his comments. He says we are in a recession or going into a recession shortly. He backs it up with unequivical facts. He is warning you to get out of the stock market. There is a long way to go on the downside. Ignore his warning at your own peril. He is not a chicken little. He is usually overly optimistic.

The Recession of 2011?

By John Mauldin

August 20, 2011

The data this week was just ugly. Even the uptick in the leading economic indicators, seized upon by so many talking heads, must have a large asterisk beside it. This week we look at the increasing probability that we are headed for recession, and the follow-on implications. Then I take a perilous and speculative journey into the realm of the political, commenting on Texas (and my) Governor Rick Perry’s rather interesting comments about the Fed and Ben Bernanke. There is a lot to cover, and lots of charts, so we will jump right in. But please read at the end about two events coming up in the next few months that you might be very interested in attending.

The Recession of 2011?

It was relatively easy for me to forecast the recessions of 2001 and late 2007 over a year in advance. We had an inverted yield curve for 90 days at levels that have ALWAYS heralded a recession in the US. Plus there were numerous other less accurate (in terms of consistency) indicators that were “flashing red.” (For new readers, an inverted yield curve is where long-term rates go below short-term rates, a [thankfully] rare condition.)

And since stocks drop on average more than 40% in a recession, suggesting that you get out of the stock market was not such a challenging call. Although, when Nouriel Roubini and I were on Larry Kudlow’s show in August of 2006, we got beaten up for our bearish views. And you know what? The stock market then proceeded to go up another 20% in the next six months. Ouch. That interview is still on YouTube at http://www.youtube.com/watch?v=9AUoB7x2mxE. Timing can be a real, um, problem. There is no exact way to time markets or recessions.

My view then was based on the inverted yield curve (as an article of faith) and, not much later in 2006, my growing alarm as I realized the extent of the folly of the subprime debt debacle and how severe a crisis it would become. I changed my assessment from a mild recession to a serious one in early 2007 as my research revealed more and more fault lines and the damning interconnection of the global banking system (which has NOT been fixed, only made worse since then). I should note that my early views were rather Pollyannaish, as I thought (originally) that losses to US banks would only be in the $400 billion range. I keep telling people that I am an optimist.

With the Fed artificially holding down rates on the short end of the curve, we are not going to get an inverted yield curve this time, so we have to look for other indicators to come up with a forecast for the US economy. We grew at less than 1% in the first half of the year. That is close to stall speed. And that was with a full dose of QE2! So now, let’s look at a series of charts that cause me to be very concerned about the near-term health of the economy. Then we turn to Europe and problems compounding there.

The Streettalk/Mauldin Economic Output Index

Last year I was having a discussion with Lance Roberts of Streettalk Advisors in Houston about how to build an indicator that might give us a clue as to the direction of the economy. Most indicators use one or two data points and thus can be suspect.

For instance, the Philly Fed Economic Index went from 3.2 in July to -30.7 in August, helping to tank the market. Almost every subcomponent (new orders, employment, etc.) was not just down but negative. This was truly a shocker. You can see the gory details at http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2011/bos0811.cfm.

The Empire Index (New York) went from -3.8 to -7.7. The Empire Index suggests that the August ISM manufacturing number will be 49, or in a state of negative growth. The Philly Index suggests a very dismal 42, which if true would suggest we are already in recession. But these are regional indexes.

Now, just for fun, let’s look at a combined index that David Rosenberg created from the Philly Index plus the Michigan Consumer Confidence Index. (Those of us old enough can remember Jack Nicholson playing the Joker in Batman back in 1989. When Batman escaped with the help of something from his tool kit, Nicholson said, “Where does he get all those wonderful toys?” When I read Rosie’s newsletter, I have the same reaction. “Where does he get all those wonderful charts?” He swears he makes them himself. I stand in awe.)

Notice that with Rosie’s combined index where it is today, we are either at the beginning of a recession or already in one. And the Philly Fed Index is consistent with a 90% chance of a recession.

And that is again consistent with the following chart from Rich Yamarone, which I used last month but that bears looking at again. Rich is chief economist at Bloomberg. (By the way, for Conversation subscribers, I just recorded a powerhouse session with Rich, which will be available as soon as we can get it transcribed.)

Is There a Recession in Our Future?

I previously wrote, in late July:

“And the last chart is one I had not seen before, and is interesting. Rich notes that if year-over-year GDP growth dips below 2%, a recession always follows. It is now at 2.3%.”

Oops. Last week David Rosenberg updated that chart. This from Rosie:

If Rich is right, then the next revisions to second-quarter GDP will be down from an already abysmal 1.3%. And the growth in the second half is not going to be all that good for jobs and consumer spending

But these are charts of single data points. You can quibble that the Philly Fed could be influenced by something local or that the 1.6% number might be different this time. So Lance Roberts of Streettalk Advisors (with me looking over his shoulder) created an index that combines a number of economic indexes in an effort to build an index that is not subject to single (or double) indicators. The Streettalk/Mauldin Economic Output Index is composed of a weighted average of the following indexes:

Chicago Fed National Activity Index
Chicago PMI
The Streettalk ISM Composite Index
Richmond Fed Manufacturing Survey
Philly Fed Survey
Dallas Fed Survey
Kansas City Fed Survey
The National Federation of Independent Business Survey
Leading economic indicators

Note that there are six regional and national indicators, plus the NFIB survey, which is national. Lance’s index is not driven by one region or index or survey. When the combined indicator falls below 30, it has always indicated either that we are in a recession or about to be in one. The chart is overlaid, below, against GDP and LEI (leading economic indicators) – both tend to have a fairly high correlation to our Economic Output Composite Index. And LEI is currently supported by the yield spread and money supply (more on that below).

A few quick notes before the chart. First, note the increases in the index with the onset of QE1 and QE2 and the sharp drops when QE ends. The red at the end of the chart is the recent drop, and it takes us into recession territory. Recessions are indicated by gray bands

Note: I will be speaking at the Streettalk conference on October 14 in Houston, and tickets are currently on sale at www.streettalklive.com. David Rosenberg will also be speaking. They put on a very good conference at a reasonable price.

Now, a comment on the uptick in the leading economic indicators this week. Even the ECRI noted that it was because two of the financial components added to the positive numbers. One was the sharp rise in M2 money supply. But a lot of that is because people are going to cash, which is not all that positive from a macro viewpoint. The other is the steepness of the yield curve, which is being manipulated at the short end. Without their positive contributions, the index would be down 0.5%, down three of the last four months, and in a pattern that led to a recession in late 2007. Coincidence?

One last chart from Batman, I mean Rosie. Here he gives us the latest data from Larry Meyer’s Macroeconomic Advisers, where they track the real GDP index (inflation-adjusted). It is also in recession territory.

Housing is terrible. Existing-home sales were bad. The inventory for homes for sale grew, even as mortgage rates are at all-time lows. A 30-year mortgage is at 4.15%. It is possible we could see a 30-year mortgage with a “3” handle if we slip into recession. I could go on and on about the negative data, and may do so in future letters, but I will resist writing another book tonight, as we have a few other topics to cover.

The Bright Side of Europe’s Dysfunctionality

To say that the government of Europe is dysfunctional is an no-brainer. The bright side is that it makes the US government look slightly better, and that’s not saying a lot. This past week Nicholas Sarkozy asked Angela Merkel out, so they could decide what to do about the euro crisis. What they said was, we need yet another eurozone governing body overseeing fiscal debt and promises by governments not to run large deficits – like that has ever worked. And they unequivocally said “non” and “nein” to the idea of eurobonds, which everyone else says is vital if the euro is to survive. Oh, and we will harmonize our tax structures within five years. As if that solves the crisis today. Note to Nick and Angela: the problem is not tax structures, it is debt that cannot be repaid.

Lars Frisell is the chief economist for the Swedish group that regulates that nation’s banking system. Yesterday he was quoted as saying:

“It won’t take much for the interbank market to collapse. It’s not that serious at the moment, but it feels like it could very easily become that way and that everything will freeze.” (hat tip, Art Cashin)

My friend Porter Stansberry wrote today:

“In Europe, the problem is a bit different … and slightly more technical. Most of the debt in Europe is held by the big banks, not the sovereigns. Look at just two French banks, for example. Credit Agricole and BNP Paribas have combined deposits of a little more than 1 trillion euro. But they hold assets of 2.5 trillion euro. Those assets equal France’s entire GDP.

“And those are only two of France’s banks. Right now, the tangible capital ratios of these banks have fallen to levels that suggest they are probably bankrupt – like UniCredit in Italy and Deutsche Bank in Germany. BNP’s tangible equity ratio is 2.85%. Credit Agricole’s tangible equity ratio is 1.41%. (UniCredit’s is 4.42%, and Deutsche Bank’s is 1.92%).

“These banks have long been instruments of state policy in Europe. They’ve funded all kinds of government projects and favored industries. Making loans is far more popular with politicians than demanding repayment for loans. As a result, these banks are left with nothing in the kitty to repay their depositors. If there’s a run on these banks (and there will be), how will they come up with money that’s owed?”

I totally agree (although Porter is wrong about US debt). If there is a sovereign debt credit crisis in Europe, it is entirely possible that 80% of Europe’s banks will be technically insolvent, depending on the level of the crisis. Frisell could be eerily prescient. We gave them subprime; they may pay us back with their own crisis and in spades, as Dad used to say.

I really need to do a whole letter on Europe again soon. The next real crisis in Europe that is not bought off with yet more debt will push the world into recession. It is that serious. That is why the ECB keeps ignoring its charter and taking on bank debt and buying sovereign debt they know will be marked down.

The entire world economy now swings on the German voters and whether they will take on all of Europe’s debt, risking their own AAA status and putting themselves at serious risk. Supposedly, Finland wants collateral from Greece if it contributes its portion of a guarantee. Think every other country will not want some of that action? I simply do not have the space to go into it tonight, but this is VERY serious. Maybe next week. And just as I was getting ready to hit the send button, economy.com sent me an email entitled “Article: Europe’s Leaders Know the Way but Lack the Will, by Tu Packard. Summary: The stability facility lacks credibility.”

That more than sums it up. Dysfunctional indeed.

We now need to turn to Governor Perry, our newest candidate for president.

The “Treasonous” Fed

I have been asked many times what I think about Governor Perry getting into the presidential race. Over six months ago he told me personally there was no way he would run, and he was serious when he said it. I believed him. But what I think happened in the interim is that he looked at the field of candidates and said, “I can play in that league.” And as long as he can keep from making any more gaffs like he did with his Fed comments, he can indeed play in the current field. He has the charm of being plainspoken and blunt, and that might just play well this year. Whether the country is ready for another Texan is a different question.

(Sidebar: my personal bet is that there are at least two and possibly three other potential candidates who would be taken seriously if they got into the race. They, too, have got to be saying, “Is this all I’m up against? I can play in this league. In fact, I might just be the MVP.” The lure of the presidency is a powerful one. My bet is we have not seen the final field of candidates. And it is not impossible that a challenger emerges on the Democratic side as well. Obama’s poll numbers, even among Democrats, are not good. This is a very interesting political year and as wide open as I can remember.)

But however injudicious Perry’s actual remarks were, he is right to call into question Fed actions. Why do I as your humble analyst get that right and politicians don’t? Let me be clear. I want a VERY independent Fed. I do not want Congress or the President dictating Fed policy. I do not like Senators holding up Fed nominations for political gain, whether it was Dodd fighting Bush over his nominees or current GOP senators fighting Obama over his. That is simply wrong in every way. But I think Fed actions are fair game for comment and disagreement. And I agree with Perry that QE2 was not helpful. It was not very wise policy – but that is a long way from “treasonous.” Let’s see if the electorate gives him a “mulligan” on that comment.

Think about this. The Fed announced this week that it would extend low rates until 2013. They are practically pushing people into higher-risk assets in a search for yield, at PRECISELY the time we may be slipping into recession, which will put those assets at their highest risk. I think this could end in tears and land those who are close to retirement in even worse shape.

Note to Governor Perry: If you want to learn how to properly criticize the Fed and the US government, go read the last ten speeches of another Texan, Dallas Fed President Richard Fisher (who should be the next Fed chair!). Let’s take a look at a few paragraphs from his latest speech, this week (again, hat tip Art Cashin).

“I have spoken to this many times in public. Those with the capacity to hire American workers―small businesses as well as large, publicly traded or private―are immobilized. Not because they lack entrepreneurial zeal or do not wish to grow; not because they can’t access cheap and available credit. Rather, they simply cannot budget or manage for the uncertainty of fiscal and regulatory policy. In an environment where they are already uncertain of potential growth in demand for their goods and services and have yet to see a significant pickup in top-line revenue, there is palpable angst surrounding the cost of doing business. According to my business contacts, the opera buffa of the debt ceiling negotiations compounded this uncertainty, leaving business decision makers frozen in their tracks.

{Mauldin note: Opera buffa (Italian; plural, opere buffe) is a genre of opera. It was first used as an informal description of Italian comic operas variously classified by their authors as ‘commedia in musica.’ Us Texans have our literary abilities.}

“I would suggest that unless you were on another planet, no consumer with access to a television, radio or the Internet could have escaped hearing their president, senators and their congressperson telling them the sky was falling. With the leadership of the nation―Republicans and Democrats alike―and every talking head in the media making clear hour after hour, day after day in the run-up to Aug. 2 that a financial disaster was lurking around the corner, it does not take much imagination to envision consumers deciding to forego or delay some discretionary expenditure they had planned.

“Instead, they might well be inclined to hunker down to weather the perfect storm they were being warned was rapidly approaching. Watching the drama as it unfolded, I could imagine consumers turning to each other in millions of households, saying: ‘Honey, we need to cancel that trip we were planning and that gizmo or service we wanted to buy. We better save more and spend less.’ Small wonder that, following the somewhat encouraging retail activity reported in July, the Michigan survey measure of consumer sentiment released just recently had a distinctly sour tone.

“Importantly, from a business operator’s perspective, nothing was clarified, except that there will be undefined change in taxes, spending and subsidies and other fiscal incentives or disincentives. The message was simply that some combination of revenue enhancement and spending growth cutbacks will take place. The particulars are left to one’s imagination and the outcome of deliberations among 12 members of the Legislature.

“Now, put yourself in the shoes of a business operator. On the revenue side, you have yet to see a robust recovery in demand; growing your top-line revenue is vexing. You have been driving profits or just maintaining your margins through cost reduction and achieving maximum operating efficiency. You have money in your pocket or a banker increasingly willing to give you credit if and when you decide to expand.

“But you have no idea where the government will be cutting back on spending, what measures will be taken on the taxation front and how all this will affect your cost structure or customer base. Your most likely reaction is to cross your arms, plant your feet and say: ‘Show me. I am not going to hire new workers or build a new plant until I have been shown what will come out of this agreement.’

“Moreover, you might now say to yourself, ‘I understand from the Federal Reserve that I don’t have to worry about the cost of borrowing for another two years. Given that I don’t know how I am going to be hit by whatever new initiatives the Congress will come up with, but I do know that credit will remain cheap through the next election, what incentive do I have to invest and expand now? Why shouldn’t I wait until the sky is clear?’”

You can read the whole speech at http://www.dallasfed.org/news/speeches/fisher/2011/fs110817.cfm. In addition to his reasoning for his latest dissent at the Fed, Fisher also goes into detail about the Texas job-growth machine, which is what Perry will be touting.

Again from Art Cashin:

Bullard, of the St. Louis Fed, said “Policy should be set by the state of the economy, not according to the calendar,” pointing to the Fed’s decision to stand pat until mid-2013.

Next came the Philly Fed’s Plosser, who said, “There is a price to be paid” for monetary policy and that the Fed’s decision was “inappropriate policy at an inappropriate time.”

Now that, Rick, is how to take the Fed to task.

Some Final Thoughts

If we are headed into recession, and I think we are, then the stock market has a long way to go to reach its next bottom, as do many risk assets. Income is going to be king, as well as cash (and cash is a position, as I often remind readers).

If we go into recession, we’ll know several things. Recessions are by definition deflationary. Yields on bonds will go down, much further than the market thinks today. And while the Fed may decide to invoke QE3 to fight a deflation scare, the problem is not one of liquidity; it is a debt problem.

It is not unusual for a recession to last a year, which means it could well take us into next summer and election season. And while the NBER (the people who are the “official” recession scorecard keepers) will tell us when the recession started, about nine months after it has, it is unlikely they will give an all-clear before the election.

There is little stomach for more fiscal stimulus. The drive is to cut spending. Fed policy is impotent. Unemployment will rise yet again and tax receipts will fall and expenses related to unemployment benefits will rise, putting further pressure on the deficit. Already, 40 million of our citizens are on food stamps. Wal-Mart notes that shoppers come into their stores late at night on the last day of the month and wait until midnight, when their new allotment of food stamps is activated.

It is hard to see at this moment what pulls us out, other than the blood, sweat, and tears of American entrepreneurs. Fisher is right; the US government should create certainty, create policies to foster new business, and get out of the way.

So, I guess I am going out on a limb, without any help from an inverted yield curve, and saying that we will be in recession within 12 months, if we are not already in one. This will be unlike any recession we have seen, as there is not much that can be done, other than to just get through it as best we can. Sit down and think about your own situation and prepare.

And frankly, for those of us who are entrepreneurs, this will offer some very interesting opportunities. I am not one for digging a hole and crawling in it. Stay aware of what can be done and create your own solutions!

Source: JohnMauldin.com (http://s.tt/134MA)

THIS BEAR MARKET IS JUST STARTING TO ROAR

Nice factual reasoned analysis from Comstock Partners on why this bear market has a long way to go. People tend to focus on the day to day fluctuations of the market rather than stepping back and looking at the big picture. The world runs in long term cycles. The stock market also operates in long term cycles going from undervaluation to overvaluation and back. The markets experience alternating secular bull and bear markets that generally last for 15 to 20 years at a time. Investors get fooled by the cyclical bear and bull markets that las one or two years within a secular trend.

We had a secular bear market that lasted from 1966 to 1982. We then had a secular bull market that lasted from 1982 to 2000. We are now 11 years into a secular bear market, with stock prices lower than they were in 1998. We have at least five years left. Valuations are still extremely high. We have just completed a cyclical bull market from the March 2009 lows. The artificial stimulus is wearing off and the economy is headed into the tank. Corporate profits will crash and the stock market will drop at least 30% from here.

Ignore CNBC and concentate on valuations and the long term cycles. 

 

Bear Market Far From Over

What is currently happening in the market and the economy was predictable and is following the sequence we have long expected.  Households accumulated enormous debts in the past decade, leading to the credit crisis and recession of 2007-2009.  The government stepped in with massive monetary ease and fiscal expansion that produced only a weak recovery and a vast increase in government debt.  The market erroneously assumed that the recovery would follow the pattern of typical post-war expansions and rallied strongly from the early 2009 bottom to the recent highs. 

A similar pattern developed in Europe where sovereign debt of the weaker EU members has become a serious problem that EU leaders have been unable to solve.  Now we are undergoing the aftershocks of the crisis.

As we have repeatedly stated, crisis recoveries are characterized by short sub-par recoveries and numerous recessions as household debt burdens dampen consumer spending for long periods.   We did see the short sub-par recovery and now it seems to be ending at a time when the Fed has already used its best weapons and fiscal policy is due to become more restrictive.  First half GDP was revised down sharply.  Housing has continued to weaken.  Consumer spending has been sluggish.  Initial jobless claims for the latest period jumped back over 400,000.  The ECRI leading index has declined to 127.9 from its April peak of 131.1.

Even more shocking was the plunge in the August Philly Fed Index to minus 30.7 from 3.2 in July.  The drop was the weakest since October 2008.  In addition, the August University of Michigan Consumer Confidence Index dropped to 54.9, lower than any level during the recession and the lowest in 31 years.  These are the types of readings seen only in recessions.  Although the Fed only recently lowered its economic outlook for the second half of this year and 2012 these projections already seem outdated.  Today the New York Fed lowered its outlook while numerous brokerage firms and banks have belatedly been scrambling to cut their forecasts as well.

If anything the situation looks even worse in Europe.  Germany reported second quarter GDP growth of 0.1% and growth in France was zero.  Moreover European banks with exposure to PIIGS debt have been turning to the ECB for emergency loans.  Today the ECB reported that one bank (not named) has borrowed 500 million Euros a day for seven days. 

The remaining areas of the world cannot stop global GDP growth from shrinking.  Japan is in a recession.  China is still tightening to dampen inflation.  China as well as the other emerging nations are export-driven economies that depend heavily on American and European consumers. 

We, therefore, believe that the market has now entered a major downtrend.  It is a mistake to dismiss the slide we’ve seen to date as mindless and devoid of fundamentals as many strategists maintain.  These are not just scary headlines—-they are scary fundamentals.  As usual, there will undoubtedly be some more sharp rallies that will be interpreted as new bull markets.  In our view, however, the bear market has only begun, and has a long way to go.

Hear all about it! Hear all about it!

Just a Saturday funny for my buds on TBP..
___________________________________________________________

A Harley Biker is riding by the zoo in Washington, DC when he sees a little girl leaning into the lion’s cage. Suddenly, the lion grabs her by the collar of her jacket and tries to pull her inside to slaughter her, under the eyes of her screaming parents.

The biker jumps off his Harley, runs to the cage and hits the lion square on the nose with a powerful punch.

Whimpering from the pain the lion jumps back letting go of the girl, and the biker brings her to her terrified parents, who thank him endlessly. A reporter has watched the whole event.

The reporter addressing the Harley rider says, ‘Sir, this was the most gallant and brave thing I’ve seen a man do in my whole life.’

The Harley rider replies, ‘Why, it was nothing, really, the lion was behind bars. I just saw this little kid in danger and acted as I felt right.’

The reporter says, ‘Well, I’ll make sure this won’t go unnoticed. I’m a journalist, you know, and tomorrow’s paper will have this story on the front page… So, what do you do for a living and what political affiliation do you have?’

The biker replies, I’m a ex-U.S. Marine and a Republican

The journalist leaves.

The following morning the biker buys the paper to see if it indeed brings news of his actions, and reads, on the front page:

U.S. MARINE ASSAULTS AFRICAN IMMIGRANT AND STEALS HIS LUNCH

…and THAT pretty much sums up the media’s approach to the news these days…

WORLDWIDE PONZI SCHEME UNRAVELLING

I guess Obama, Pelosi, Kerry, Krugman, and Reid will blame the Tea Party extremists for the 2nd stock market crash in the last two weeks. Americans want sound bites. They want simple concepts because thinking makes their heads hurt. If you are an ignorant American, than you should stop reading now and go back to watching The View. The unravelling of the worldwide financial ponzi scheme has many tentacles and many interconnected pieces, but it all goes back to DEBT and the inability to service that debt with the cash flows being generated by governments, consumers and businesses. Here are the facts:

  • Nixon closed the gold window in 1971 and unleashed a never ending torrent of fiat paper into the world.
  • Politicians throughout the world, since the late 1960s, have made promises of social welfare benefits to voters in order to get elected. They didn’t worry about demographics or using complicated  mathematical concepts like multiplication and addition to figure out that the promises could never be fulfilled.
  • The Federal Reserve enabled politicians to create as much debt as they wanted by methodically devaluing the USD by 90% since 1971.

 

  • The Federal Reserve has created bubble after bubble (internet, housing, stocks) by purposely keeping interest rates below the true market rate. They have failed to regulate the banks and allowed them to leverage 30 or 40 to 1. Their own balance sheet is leveraged 55 to 1 today.
  • The most critical error in this whole impending disaster was the decision to listen to the Goldman Sachs Treasury Secretary Paulson and the Princeton Keynesian economics professor Bernanke and bailout Wall Street on the backs of Main Street. We were lied to by the monied interests. The economy went into the tank anyway. The banks were saved and have paid themselves $70 billion in bonuses since they were saved.
  • The Too Big To Fail Banks were not too big to fail. They should have been liquidated in an orderly manner. Their stockholders and bond holders should have been wiped out. The debt would have been written off. We would have had a one or two year deep recession.
  • Instead, most of the original bad debt still sits on the books of these banks. Trillions more sit on the books of the Federal Reserve. Trillions more were added to the taxpayers’ books. The trillions of Keynesian stimulus did nothing to revive the economy.
  • Shifting private debt to public debt solved nothing. Extending terms of the debt solved nothing. Taking on more debt to pay the existing debt solved nothing.
  • The world is coming to the realization that no one can pay off the debt. Consumers aren’t going to pay those mortgages or those credit cards. The Greeks, Spaniards, Italians, Portugese, and Irish are not going to pay back Germany. The US is not going to pay you the Social Security and Medicare they promised you. The European banks are not going to pay back the Wall Street banks. The Fderal Reserve is never going to pay off the $2.8 trillion of debt on its balance sheet.

A ponzi scheme unravels when people realize that it is a scam and demand their money back. Except there is no money to give back. We have reached that point. The entire worldwide economic system is nothing but a Bernie Madoff ponzi scheme times 100 trillion.

The Federal Reserve will pretend to ride to the rescue. Politicians will hold press conferences and announce agreements. The MSM will pronounce that all is well. Don’t believe it. We are entering the Greater Depression, which will make the 1st one look like a walk in the park.

FOURTH TURNING PART 2

Renters Are Deluding Themselves – Here’s Why

It’s en vogue now to be “anti-homeownership” given the recent crash in home prices and all the shenanigans the mortgage companies, banks and Wall street firms pulled over the past several years.  People tend to use the recency effect and confirmation bias to formulate their opinions which dictate important lifestyle and financial decisions. Before you jump all over me for this thesis, let me clarify a few things:

a) Many people CAN’T own – that’s a fact of life.  If owning a home isn’t an option for you for numerous reasons ranging from finances to career, then making a choice between renting and owning isn’t something that mandates weighing the options.
b) Many people SHOULDN’T own – perhaps during the days of easy credit or even today, you have the funds to buy a home, but there might be some factors that would make this a poor choice.  Perhaps you need to relocate every couple years due to your line of work, perhaps you’re in the middle of a divorce or child custody battle or perhaps your income is quite variable.  It might make sense for you to rent until there’s more stability in your financial situation.
c) Many people COULD own, but don’t.  That’s the target audience.

Long-time renters often cite all the negatives of home ownership, and there are some to be sure.  But many of these oft-cited reasons have a valid counterargument OR these old paradigms are no longer accurate:

Continue Reading Renters Are Deluding Themselves – Here’s Why

I’m Borrowing $50,000 From My 401(k) – Here’s Why

There are tons of articles out there waring about the dire consequences of borrowing from your 401(k) – you know, not earning money on the withdrawn amount, double taxation, early withdrawal penalties and having to repay immediately if separate from the company…I’m going to lay out why my particular situation and outline why none of these “risks” matter and my transaction will work out beautifully.  So, be prepared for some unconventional wisdom!

First off, many people are either misinformed or irresponsible and would have been better off having NOT borrowed from their 401(k).  But financial pundits like to compartmentalize ALL situations into a single bucket and paint something as “good” or “bad”.  Generic cookie-cutter advice is often wrong and doesn’t apply to individual cases.  My scenario is different and as you’ll see, I’m VASTLY better off borrowing from my 401(K) than not.

Read more about Why I’m Borrowing $50,000 from My 401K(k)

LLPOH’s Short Short Story: Death by Regulation

I have just read that in early August American workers finished working for the following three things: federal taxes, state and local taxes, and for the cost of regulation. In other words, people work approximately 7.5 months this year to pay for these things, and so only work 4.5 months a year for themselves. I knew that workers cover their federal taxes sometime in April (Tax-Free Day), and the rest of their taxes a month or two later, but I had never thought of how much work goes into paying for regulation.

I have always considered that regulations were largely a business expense – i.e. it costs the business to cover EPA/safety/employment regulations, but I really never considered how that actually flows down to the individual. But of course it does, and so in the end it is the working people of the country that pay for the regulations. It is tax by stealth.

The scariest part of the story was that the author said that because money was drying up (i.e. tightening of the budget outlays at all levels – federal, state, and local) that the politicians will be turning to additional regulation in order to achieve their political and financial goals. In other words, instead of direct taxes, they will be indirectly taxing citizens via regulation and the transfer of cost onto business. The author indicated that politicians will be forcing businesses and individuals to spend money via regulation as opposed to the government collecting it and re-directing it. Laws may be changed to transfer work onto employers/individuals that were previously undertaken by government agencies. In addition, there will of course be new regulations and reporting requirements. It seems politicians believe laws and regulation directed at business do not generate the outpouring of dissent as do tax increases on the general public.

I do not know precisely how this will unfold. It may be things such as 1) mandating that business take responsibility for the upkeep of the roads in front of their businesses, 2) requiring that businesses “self-audit” their taxes, 3) requiring that they employ a certain number of safety or EPA inspectors per 100 employees who then have to send the government reports each month, 4) requiring that they employ doctors or nurses to care for their employees, 5) requiring that businesses deliver their own rubbish to dumpsites, etc. etc. etc.

This scenario seems to me not only to be plausible, but entirely likely, and I have no doubt whatsoever we will see it occur. I have not as yet seen an escalation of regulation/reporting, but it is only a matter of time before it happens.

We desperately need to not only overcome the debt burden that has encompassed the country, but to also overcome the political mindset that all of the costs and regulation are needed. Transferring cost onto business, and thence onto the public, is not a solution to the overspending problem. It is sleight of hand and does nothing to address the real issue of overspending. We must demand politicians stop looking for ways to mask the overspending, and must insist they look to eliminate the spending entirely.
The prospect of increased regulation and business expense feels me with dread. The last thing small business people need is increased regulation. It is enormously difficult to run a successful small business, and each time regulation increases it further adds to the burden. If governments do indeed continue down the regulatory path, it is only a matter of time before starting up and running a small business will become unviable.

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

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

  

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

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

“Truth is treason in the empire of lies.”

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

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

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

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

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

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

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

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

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

  

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

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

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

 

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

 

The Road to Impoverishment & Authoritarianism

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

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

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

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

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

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

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

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

 

The Day the Dollar Died – August 15, 1971

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

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

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

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

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

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

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

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

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

– Ben Franklin

 

CRISIS OF THE ELITES

Interesting that you have to go to papers like the Asian Times for solid analysis of our ongoing crisis. I wonder if Friedman has read The Fourth Turning. He details how this worldwide crisis is playing out. As with every Fourth Turning, the existing social order and the elites that have been in control will be swept away. It will be bloody, violent and unexpected for the linear thinkers of the world. They didn’t see this crisis coming and they think they can manage their way through it. They are so wrong.

 

The evolution of crisis

By George Friedman

Classical political economists like Adam Smith or David Ricardo never used the term ”economy” by itself. They always used the term ”political economy.” For classical economists, it was impossible to understand politics without economics or economics without politics. The two fields are certainly different but they are also intimately linked.

The use of the term ”economy” by itself did not begin until the late 19th century. Smith understood that while an efficient market would emerge from individual choices, those choices were framed by the political system in which they were made, just as the political system was shaped by economic realities. For classical economists, the political and economic systems were intertwined, each dependent on the other for its existence.

The current economic crisis is best understood as a crisis of political economy. Moreover, it has to be understood as a global crisis enveloping the United States, Europe and China that has different details but one overriding theme: the relationship between the political order and economic life. On a global scale, or at least for most of the world’s major economies, there is a crisis of political economy. Let’s consider how it evolved.

Origin of the crisis
As we all know, the origin of the current financial crisis was the subprime mortgage meltdown in the United States. To be more precise, it originated in a financial system generating paper assets whose value depended on the price of housing. It assumed that the price of homes would always rise and, at the very least, if the price fluctuated the value of the paper could still be determined. Neither proved to be true. The price of housing declined and, worse, the value of the paper assets became indeterminate. This placed the entire American financial system in a state of gridlock and the crisis spilled over into Europe, where many financial institutions had purchased the paper as well.

From the standpoint of economics, this was essentially a financial crisis: who made or lost money and how much. From the standpoint of political economy it raised a different question: the legitimacy of the financial elite. Think of a national system as a series of subsystems – political, economic, military and so on. Then think of the economic system as being divisible into subsystems – various corporate verticals with their own elites, with one of the verticals being the financial system. Obviously, this oversimplifies the situation, but I’m doing that to make a point.

One of the systems, the financial system, failed, and this failure was due to decisions made by the financial elite. This created a massive political problem centered not so much on confidence in any particular financial instrument but on the competence and honesty of the financial elite itself. A sense emerged that the financial elite was either stupid or dishonest or both. The idea was that the financial elite had violated all principles of fiduciary, social and moral responsibility in seeking its own personal gain at the expense of society as a whole.

Fair or not, this perception created a massive political crisis. This was the true systemic crisis, compared to which the crisis of the financial institutions was trivial. The question was whether the political system was capable not merely of fixing the crisis but also of holding the perpetrators responsible. Alternatively, if the financial crisis did not involve criminality, how could the political system not have created laws to render such actions criminal? Was the political elite in collusion with the financial elite?

There was a crisis of confidence in the financial system and a crisis of confidence in the political system. The US government’s actions in September 2008 were designed first to deal with the failures of the financial system. Many expected this would be followed by dealing with the failures of the financial elite, but this is perceived not to have happened. Indeed, the perception is that having spent large sums of money to stabilize the financial system, the political elite allowed the financial elite to manage the system to its benefit.

This generated the second crisis – the crisis of the political elite. The Tea Party movement emerged in part as critics of the political elite, focusing on the measures taken to stabilize the system and arguing that it had created a new financial crisis, this time in excessive sovereign debt.

The Tea Party’s perception was extreme, but the idea was that the political elite had solved the financial problem both by generating massive debt and by accumulating excessive state power. Its argument was that the political elite used the financial crisis to dramatically increase the power of the state (health care reform was the poster child for this) while mismanaging the financial system through excessive sovereign debt.

The crisis in Europe
The sovereign debt question also created both a financial crisis and then a political crisis in Europe. While the American financial crisis certainly affected Europe, the European political crisis was deepened by the resulting recession. There had long been a minority in Europe who felt that the European Union had been constructed either to support the financial elite at the expense of the broader population or to strengthen Northern Europe, particularly France and Germany, at the expense of the periphery – or both. What had been a minority view was strengthened by the recession.

The European crisis paralleled the American crisis in that financial institutions were bailed out. But the deeper crisis was that Europe did not act as a single unit to deal with all European banks but instead worked on a national basis, with each nation focused on its own banks and the European Central Bank seeming to favor Northern Europe in general and Germany in particular. This became the theme particularly when the recession generated disproportionate crises in peripheral countries like Greece.

There are two narratives to the story. One is the German version, which has become the common explanation. It holds that Greece wound up in a sovereign debt crisis because of the irresponsibility of the Greek government in maintaining social welfare programs in excess of what it could fund, and now the Greeks were expecting others, particularly the Germans, to bail them out.

The Greek narrative, which is less noted, was that the Germans rigged the European Union in their favor. Germany is the world’s third-largest exporter, after China and the United States (and closing rapidly on the number two spot). By forming a free trade zone, the Germans created captive markets for their goods. During the prosperity of the first 20 years or so, this was hidden beneath general growth. But once a crisis hit, the inability of Greece to devalue its money – which, as the euro, was controlled by the European Central Bank – and the ability of Germany to continue exporting without any ability of Greece to control those exports exacerbated Greece’s recession, leading to a sovereign debt crisis. Moreover, the regulations generated by Brussels so enhanced the German position that Greece was helpless.

Which narrative is true is not the point. The point is that Europe is facing two political crises generated by economics. One crisis is similar to the American one, which is the belief that Europe’s political elite protected the financial elite. The other is a distinctly European one, a regional crisis in which parts of Europe have come to distrust each other rather vocally. This could become an existential crisis for the European Union.

The crisis in China
The American and European crises struck hard at China, which, as the world’s largest export economy, is a hostage to external demand, particularly from the United States and Europe. When the United States and Europe went into recession, the Chinese government faced an unemployment crisis. If factories closed, workers would be unemployed, and unemployment in China could lead to massive social instability.

The Chinese government had two responses. The first was to keep factories going by encouraging price reductions to the point where profit margins on exports evaporated. The second was to provide unprecedented amounts of credit to enterprises facing default on debts in order to keep them in business.

The strategy worked, of course, but only at the cost of substantial inflation. This led to a second crisis, where workers faced the contraction of already small incomes. The response was to increase incomes, which in turn increased the cost of goods exported once again, making China’s wage rates less competitive, for example, than Mexico’s.

China had previously encouraged entrepreneurs. This was easy when Europe and the United States were booming. Now, the rational move by entrepreneurs was to go offshore or lay off workers, or both. The Chinese government couldn’t afford this, so it began to intrude more and more into the economy. The political elite sought to stabilize the situation – and their own positions – by increasing controls on the financial and other corporate elites.

In different ways, that is what happened in all three places – the United States, Europe and China – at least as first steps. In the United States, the first impulse was to regulate the financial sector, stimulate the economy and increase control over sectors of the economy. In Europe, where there were already substantial controls over the economy, the political elite started to parse how those controls would work and who would benefit more. In China, where the political elite always retained implicit power over the economy, that power was increased. In all three cases, the first impulse was to use political controls.

In all three, this generated resistance. In the United States, the Tea Party was simply the most active and effective manifestation of that resistance. It went beyond them. In Europe, the resistance came from anti-Europeanists (and anti-immigration forces that blamed the European Union’s open border policies for uncontrolled immigration). It also came from political elites of countries like Ireland who were confronting the political elites of other countries. In China, the resistance has come from those being hurt by inflation, both consumers and business interests whose exports are less competitive and profitable.

Not every significant economy is caught in this crisis. Russia went through this crisis years ago and had already tilted toward the political elite’s control over the economy. Brazil and India have not experienced the extremes of China, but then they haven’t had the extreme growth rates of China. But when the United States, Europe and China go into a crisis of this sort, it can reasonably be said that the center of gravity of the world’s economy and most of its military power is in crisis. It is not a trivial moment.

Crisis does not mean collapse. The United States has substantial political legitimacy to draw on. Europe has less but its constituent nations are strong. China’s Communist Party is a formidable entity but it is no longer dealing with a financial crisis. It is dealing with a political crisis over the manner in which the political elite has managed the financial crisis. It is this political crisis that is most dangerous, because as the political elite weakens it loses the ability to manage and control other elites.

It is vital to understand that this is not an ideological challenge. Left-wingers opposing globalization and right-wingers opposing immigration are engaged in the same process – challenging the legitimacy of the elites. Nor is it simply a class issue. The challenge emanates from many areas. The challengers are not yet the majority, but they are not so far away from it as to be discounted. The real problem is that, while the challenge to the elites goes on, the profound differences in the challengers make an alternative political elite difficult to imagine.

The crisis of legitimacy
This, then, is the third crisis that can emerge: that the elites become delegitimized and all that there is to replace them is a deeply divided and hostile force, united in hostility to the elites but without any coherent ideology of its own. In the United States this would lead to paralysis. In Europe it would lead to a devolution to the nation-state. In China it would lead to regional fragmentation and conflict.

These are all extreme outcomes and there are many arrestors. But we cannot understand what is going on without understanding two things. The first is that the political economic crisis, if not global, is at least widespread, and uprisings elsewhere have their own roots but are linked in some ways to this crisis. The second is that the crisis is an economic problem that has triggered a political problem, which in turn is making the economic problem worse.

The followers of Adam Smith may believe in an autonomous economic sphere disengaged from politics, but Adam Smith was far more subtle. That’s why he called his greatest book the Wealth of Nations. It was about wealth, but it was also about nations. It was a work of political economy that teaches us a great deal about the moment we are in.

HOLY SHIT!!! – JUST WHAT WE NEEDED

Really? Do we really need this shit now? For Christ sakes, can’t they wait until our 14 other crisises are semi-resolved? I’m starting to get really annoyed with these Fourth Turnings. They never let up. 

 

North, South Korea Trade Artillery Salvos

North Korea and South Korea traded artillery fire near the countries’ disputed sea border that was the scene of a deadly shelling in November.

North Korea fired a second round into the waters near Yeonpyeong Island yesterday after three South Korean shells were fired into the sea around 2 p.m. local time, Yonhap news reported. Residents of the island heard the salvos, Yonhap’s Korean language service said.

South Korea was responding to an initial salvo from the North an hour earlier, said a defense ministry official who declined to be identified, citing government policy. The defense official said the military wasn’t aware of any drills in the area.

The incident came a month after both nations said they would try to revive multilateral talks on the North’s nuclear- weapons program, signaling an easing of tension between the two rivals that has been an irritant to U.S.-China ties over the past year. The so-called Northern Limit Line dividing the two nations on their western border in the Yellow Sea has been a source of repeated conflict since the 1950-1953 civil war ended in a cease-fire.

“North Korea appears to be provoking the South in a calculated manner to highlight the need for a peace treaty to replace the armistice agreement after the war,” said Kim Yong Hyun, a professor at Dongguk University in Seoul. “I doubt the North will go so far as to risk breaking down the dialogue.”

Four South Koreans died in November when the North shelled Yeonpyeong island in retaliation for South Korea firing rounds into the disputed waters during a training exercise. Relations soured earlier in the year over the sinking of a South Korean warship in March, killing 46 sailors.

Trade, Aid

The two incidents spurred the U.S. to put pressure on China, North Korea’s main source of trade and financial aid, to rein in Kim Jong Il’s government. China accounted for 83 percent of North Korea’s $4.2 billion of international commerce in 2010, the Korea Trade-Investment Promotion Agency said in May. China made up 79 percent of trade in 2009 and 53 percent in 2005, according to the Seoul-based organization.

The cost of credit-default swaps insuring South Korean government debt from default rose four basis points after the reports of the shelling to 129.5 basis points as of 4:50 p.m. in Singapore, according to Royal Bank of Scotland Group Plc prices. One month non-deliverable won forwards touched 1,086 won per dollar from 1,082.5 after the report, before stabilizing within an hour, said Joo Hyung Park, a currency dealer at Korea Exchange Bank. (004940)

Improving Ties

The shelling “could make a small dent on sentiment,” said Chang In Whan, president of Seoul-based KTB Asset Management Co., which oversees the equivalent of $7.6 billion. “I’m not too worried because the timing wasn’t that sensitive. Tensions over North Korea have been easing recently.”

South Korea’s chief nuclear envoy, Wi Sung Lac, said on July 22 that his two-hour discussion with his North Korean counterpart, Ri Yong Ho, at a regional security forum on the Indonesian island of Bali was “very constructive.” The U.S. then invited North Korean officials to New York for further negotiations.

The six-party talks involving the two Koreas, the U.S., China, Russia and Japan have been stalled since 2008.

South Korea has been closely monitoring the North Korean military near the western border since the November attack and there was nothing to suggest that drills were being carried out, the defense official said. The South’s military alert level hasn’t been raised, he said.

Maritime Border

The maritime border between the two countries snakes around the Ongjin peninsula, creating a buffer for five island groups that South Korea kept under the armistice. That agreement doesn’t mention a sea border, which isn’t on United Nations maps drawn up at the time. North Korea says it doesn’t recognize the border, which hems in its ships and excludes it from fertile crabbing and fishing grounds.

The three-nautical-mile (3.5-statute-mile) territorial limit used to devise the line was standard then. Today almost all countries, including both Koreas, use a 12-mile rule, and the islands are within 12 miles of the North Korean mainland. The farthest is about 100 miles (160 kilometers) from the closest major South Korean port at Incheon.

The JoongAng Ilbo newspaper reported yesterday that North Korean spies with orders to assassinate South Korean Defense Minister Kim Kwan Jin have entered the country. South Korean and U.S. intelligence officials are working to find them, the report said, citing unidentified South Korean officials.

Kim said after the November artillery bombardment by the North that in the event of further attacks his country would “mobilize all combat capabilities available to severely punish the enemy,” including airstrikes.

THE BEST LOOKING HORSE IN THE GLUE FACTORY

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

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

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

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

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

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

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

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

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

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

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

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

Vested Interests

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

I feel so safe now!!

Having just listened to the mumblings of our President, listening closely as he said out of one side of his mouth that the markets have confidence in the good ole’ USA (as they collapsed even more as he spoke) and then spent about half his speech on a panegyric in tribute to those poor guys killed yesterday in the shot down chopper near Kabul, I can say one thing with assurance.

He wanted to get off the subject of the economy and debt downgrade as quickly as he could possibly do it and, even more importantly, he never – not even a single time – mentioned what the real problem is.

He did not say a single word that would indicate even to the most attentive listener, that he even knows what the unsolvable problem is both here and in Europe.

His suggestimonious speech only mentioned more spending (unemployment for the masses, lower taxes for the masses, perhaps an “adjustment” to medicare), plus “We’ll keep kicking ass all over the world!” which, of course, equals more spending too.

What word did he neglect to say? “DEBT“, that’s what. Trillions and Trillions of MBS, CDS, BULLShitPaper, dollars, pounds, euros, pesos, reals, yuan, rememberme’s (or how ever you spell it in Chinese), rubles and every other currency denominated debt you can add to the list that are hanging out there, needing to be “rolled over”, interest paid promptly and eventually – here’s the kicker – repaid or retired or otherwise cleared off the books.

He didn’t mention that Europe and the USA are so deep in debt, unfunded liabilities and swamps full of sharp toothed derivatives of a dozen sorts.

He skipped the simple fact that it is now a mathematical certainty that we are so deep in debt that more debt does not increase GDP – IT REDUCES IT! Fact: The more debt a country has, the slower it can grow because funds needed for growth must instead be paid as interest and fees to roll over the debt.  At some point (we’ve passed it in 2000), the debt is beyond the ability of the country to cope without resorting to the printing press (which we are/have).

It has taken us over 40 years to fuck this up as bad as it is (since Tricky Dick removed the last link between gold and the dollar for international settlements) but now we are to the point where there is so much debt, we cannot pay the interest on it without borrowing the money to do it. Oh I know, several non-Austrian economists say the Federal tax income is sufficient to pay the interest payments therefore we would never be in default – and that is almost true. Of course, if the Feds ever did that without borrowing, there would not be anything left to spend on more than funding breadlines for the 52% of the people who get checks from the Feds now. And if you think that’s bad, wait a while..

So our humble Chief Executive somehow “forgot” to mention the real trouble lurking just outside the unlatched door.  Debt. Or perhaps he did not forget to mention it.  He did not bring it up on purpose because of the simple reason that neither he, nor the RepuDemoTea party (nor the commies, whigs, greenback party, or any other political organization) can fix it.  If you can’t fix it, if you’re a politician, for goodness sake, don’t mention it!  And they don’t.  And except for a few like Ron Paul, you never will.

The only way it will get fixed is the old filter trick called “through the eye-of-needle” otherwise called default.  Re-structuring the debt won’t do it.  When you go through the eye-of-the-needle solution, you slough off everything except things that have value.  Debt that will never be paid has no value.  Gold and silver and farmland (unmortgaged), tools, guns, ammo, food, even houses (unmortgaged) have value.  So you pile everything up on one side of the eye-of-the-needle, push really hard and when you’re done, all the BS and worthless stuff is in a rotting, smelly pile on one side and on the other side is a much smaller and sweet smelling mound of value.

Doing that is kind of rough on who ever own all the non-valuable trash that is now in that rotting, stinking pile.  In fact, sorting out value from garbage is very rough on everyone even if you are a reader of TBP and only have valuable things in your small neat pile on the far side of the eye-of-that-damned-needle.  You’re going to get dinged by some of the fall out, fart-flares, burning bits of trash, ricocheting rubbish and other cast off pieces of junk that get flung on the wall as it is filtered by that damned-miserable-too-small-eye-of-the-needle.

Part II

This will be a short part..

You may now be assured – as you were aware of anyhow – that whatever actions our Chief Executive Officer of the USA takes to “fix” things (note! I did not say “problems”, I said “things”) his actions will be diametrically opposed to that which would be needed to fix the “problem”.

The markets of the world were just waiting for a trigger to go berserk. It wouldn’t have mattered a tiny bit if that trigger had been a bail out of a Eurobank, the Japanese yen falling out of bed unexpectedly, Grease catching on fire (forgive the pun), or whatever.  All the markets needed was a “ding!” and with last weeks havoc already having wound up the bears like a new rubber band,  that “ding” was all it took to trip the unwinding.  Of course, it helps that the USA has NEVER had a debt downgrade in the history of the Union.  But I suspect Fitch and Moody will follow along like little dummies since they look pretty stupid sitting there with their thumbs stuffed up their butt while the markets fall apart around them.

Won’t matter.

The bond markets haven’t been given a vote yet – after all, with ka-jillions of dollars in Treasury Trash, if they were all to be sold at once, where would they all go?  Right now, this minute, hour, day, ?? , the world perceives the U.S. $$ to be safer than Euros or most other currencies.  They are, of course, stupid and wrong as the dollar is only worth $0.04 of what it could buy before the Federal Reserve was created.  It will, one day, be worth nothing and something else will come along to be put in its place. But, for right now, even though the dollar is dying, it is still thought of by those people living in countries that are (and have been) in far worse condition than we are, as a safe haven in time of fear, war, famine, TEOTWAWKI and so on.

It’s not but it is still perceived so and so it is.  Sooner or later, an alternative to the dollar will pop up (gold? silver? Obviously already has! Dog food? Maybe later) and bond yields will go straight up.  Not quite yet.

To protect this temporary situation, the next step is to insure law and order is maintained throughout our fair land.   In spite of the Posse Comitatus Act, this will be mostly achieved by the military of which the President praises so well and who is honored daily in some part of the country or another.  I served in it myself.  I wonder how long that will last.

When the Free Shit Army starts going hungry or their free shit stops flowing – as it will – the local para-military police forces scattered around the country will not be able to handle it except in fits and spurts.  Things can get out of hand very rapidly when the Free Shit Army gets pissed and goes on the warpath.  Half of them serious about it and the other half along for the fun and looting.

So the military will be used.  Count on it. Whether the elite pull the military into it via the States activating National Guard units or the Feds just taking it over remains to be seen.  But it will happen.  At that point, we will see what the majority of the American people are made of and the exact point at which they may or may not stand up and be counted.

Time will tell and it will be an interesting, if unpleasant trip from here on in.  Good luck to us all because we’re going to need it.

End

MILWAUKEE CHANNELS PHILLY

Should we blame the ruling elite or should we hold the people accountable fro their actions. It’s good to see Philly isn’t the only place to find a good flash mob. Are there any similarities? Any at all?

Witnesses describe mobs, some people claim racially-charged attacks

WEST ALLIS – Witnesses tell Newsradio 620 WTMJ and TODAY’S TMJ4 of a mob of young people attacking innocent fair-goers at the end of the opening night of State Fair, with some callers claiming a racially-charged scene.

Milwaukee Police confirmed there were assaults outside the fair.

Witnesses’ accounts claim everything from dozens to hundreds of young black people beating white people as they left State Fair Thursday night.

Authorities have not given official estimates of the number of people involved in the attacks.

“It looked like they were just going after white guys, white people,” said Norb Roffers of Wind Lake in an interview with Newsradio 620 WTMJ.  He left the State Fair Entrance near the corner of South 84th Street and West Schlinger Avenue in West Allis.

“They were attacking everybody for no reason whatsoever.”

“It was 100% racial,” claimed Eric, an Iraq war veteran from St. Francis who says young people beat on his car. 

“I had a black couple on my right side, and these black kids were running in between all the cars, and they were pounding on my doors and trying to open up doors on my car, and they didn’t do one thing to this black couple that was in this car next to us.  They just kept walking right past their car.  They were looking in everybody’s windshield as they were running by, seeing who was white and who was black.  Guarantee it.”

Eric, a war veteran, said that the scene he saw Thursday outside State Fair compares to what he saw in combat.

“That rated right up there with it.  When I saw the amount of kids coming down the road, all I kept thinking was, ‘There’s not enough cops to handle this.’  There’s no way.  It would have taken the National Guard to control the number of kids that were coming off the road.  They were knocking people off their motorcycles.”

Another witness, who asked to remain anonymous, said, “it was like a scene you needed the National Guard to control.”

“To me, it looked like a scene out of a movie,” claimed the anonymous witness. 

“I have not seen anything like this in my life.  It was a huge mob, and it was a fight that maybe lasted one to two minutes.”

Roffers claimed that as he left the state fair with his wife, crowds near that entrance were large, and someone in that crowd .

“As we got closer to the street, we looked up the road, and we saw a quite a bit of commotion going on and there was a guy laying in the road, and nobody was even laying there.  He wasn’t even moving.  Finally a car pulled up.  They stopped right next to the guy, and it looked like someone was going to help him.  We were kind of stuck, because we couldn’t cross.  Traffic was going through.  Young black men running around, beating on people, and we were like ‘Let’s get the heck out of here.’  The light turned, and I got attacked from behind.  I just got hit in the back of the head real hard.  I’m like, ‘What the heck is going on here?’  I heard my bell ring.”

Roffers further described what witnesses said happened to the man who was lying in the street.

“People were saying he was on a bike.  They tore him off his bike and beat on him.  We were walking to the west on Schlinger.  I was watching behind me a lot more diligently, making sure there wasn’t anybody coming to get us anymore.”

One person claimed that someone was knocked off a motorcycle.

TODAY’S TMJ4 video shows West Allis police handcuffing at least one person, but they won’t say how many people they took into custody.

Some witnesses described attacks on the State Fair Grounds as well.

Milwaukee Police said that their officers were sent to State Fair Park for “complaints of battery, fighting and property damage due to a large, unruly crowd.”

A police sergeant told TODAY’S TMJ4’s Melissa McCrady that the number of calls describing injuries are still coming in, so they could not give an accurate number of people who were injured.

That sergeant explained that some injuries were serious, and local hospitals were attending to the injured.

As of early Friday morning, Milwaukee Police said they had no one in custody.

One woman told police that she was sitting in her car with a window down when some teenagers reached through her window and started attacking her.

“I think once we get all the info in it’ll be just like that, like what happened in Riverwest,” said the police sergeant.

West Allis Police ask you to call them at 414-302-8000 if you have any information.

Eric: “I feared for my life”

Eric, who asked Newsradio 620 WTMJ not to use his last name, talked about the incidents that happened as he, his wife and a neighbor left the fair Thursday.

“We exited at the Schlinger and 84th exit, and we walked south about a block, and then went up and got our car, came back up and around down Schlinger.  When we made a left hand turn, we were stopped in traffic. I looked toward the bridge, right before you get on the freeway, and all I saw was a road full of black kids, jumping over people’s cars, jumping on people’s hoods, running over the top of them.”

Eric then claimed that he saw hundreds of young black people coming down a sidewalk.

“I saw them grab this white kid who was probably 14 or 15 years old.  They just flung him into the road.  They just jumped on him and started beating him.  They were kicking him.  He was on the ground.  A girl picked up a construction sign and pushed it over on top of him.  They were just running by and kicking him in the face.”

Then, Eric talked about trying to get out of the car to help the victim.

“My wife pulled me back in because she didn’t want me to get hit.  Thankfully, there was surprising a lady that was in the car in front of me that jumped out of the car real quick and went over there to try to put her body around the kid so they couldn’t see he was laying there and, obviously, defenseless.  Her husband, or whoever was in the car, was screaming at her to get back into the car.  She ended up going back into the car.  These black kids grabbed this kid off the ground again, and pulled him up over the curb, onto the sidewalk and threw him into the bushes like he was a piece of garbage.”

Eric claimed that the victim in that beating was by himself, and that there was a split of white people on one sidewalk and black people on the other.

“There was nobody else around to help him.  There were no other white people, period, on that side of the street.  They were going in the opposite direction because, those people who were coming out of the fair that saw these people coming, they either went back into the fair or took off running south on 84th Street.”

Eric expressed anger at the State Fair Police for what he considered a lack of response.

“The thing that irritated me, the State Fair Police, the State Police, were down by the Pettit entrance to get in there,” said Eric. “There was probably 5 or 6 officers down there.  That’s where all these kids came from.  They came out of the Midway, across the front of the Pettit.  They were still filing out of there.  The State Fair Police, they knew this was going on.  They knew these kids were beating these guys in between that exit and Schlinger at the next gate.”

“They were stopping traffic, and I said ‘What in the hell,’ excuse my language, ‘what are you guys doing directing traffic when there are 300, 400 black kids up the road beating the hell out of everybody, pushing people off of motorcycles?’  I was livid.  I could not believe they were directing traffic.”

Fair worker: attacks not limited to outside fairgrounds

A witness told WTMJ that as he worked in a kiosk at the State Fair Midway, he saw what he described as “a Riverwest type mob. Easily between 50 – 100 kids all under 18 and all African American.  They were running around knocking people over (young kids and adults), looting the Midway games (stealing the prizes), starting fights.”

The witness, who asked not to be identified, couldn’t say for certain if only white people were being attacked.

“It was just complete chaos.  There were police on horses, lots of security guards, and EMT’s on the scene.  They never got control of the area.”

A State Fair spokeswoman said that there were arrests made involving the incidents on the grounds.

He said that as the violence happened, he was “getting ready to grab my cash register and run.”

“Not to mention this type of behavior started around 7pm and forced me to close down my stand at 9pm.  It scared the paying customers out of the midway.”

The man said hoping to bring family on Friday, but has decided not to.

“I was planning on bringing my two kids to the fair tonight.  I won’t be.  We’ll go to the zoo instead.”

Woman: Teenagers in mob didn’t attend rap concert

One woman who asked not to be identified tells us that contrary to some belief, the young people involved in the mob did not go to the rap concert that night.

“The mob of black teenagers involved in the beatings and damage outside of State Fair last night were not there for the MC Hammer concert,” said the woman.

“I attended that concert with three of my friends last night and the crowd was mostly white and adult (as are my friends and I). Any kids there seemed to be with parents.”

She described what she saw as she left the fair.

“As we came through the exit we saw a white boy lying in the street, in the fetal position right by the traffic light, and coming towards us was tons and tons and black teens – there had to have been over a hundred – in the middle of 84th Street and on the sidewalk headed south,” she said.

“Some who stopped to kick or punch him – or in the case of one girl drop kick him in the head – as they walked past. My friends and I started towards him to help him up and a black girl walked past telling us ‘ya’ll gonna get your ***** kicked’ repeatedly. As my friend stood in front of the boy trying to get him up one of the teens picked up a traffic cone, hit her in the back of the head and ran off. A car stopped, a white woman got out to try and help. Teens jumped onto the hood of the car and ran over it. She just kept saying ‘What is wrong with you!?’ ”

The witness also told us that not every African-American teenager outside the fair grounds acted violent.

“We continued to move towards the parking lot, through even more black teenagers. Thankfully this part of the crowd was not violent.”

Roffers: “What in the hell’s going on there?”

Roffers described his emotions and reactions to the attacks outside the park.

“I turned around and looked, there was this black kid standing there laughing, thinking it’s funny.  My wife’s like, ‘Let’s get out of here.’  It’s one of those things, you don’t expect it.  Your reaction to it is, first of all, quite surprised, then you get so angry, it’s like, ‘What in the hell’s going on there?  Why are these guys acting like such hoodlums?  What are they picking on anybody for?’  We were just like cattle being herded out of the park, and they were picking and choosing who they wanted to beat on.”

He said his injuries were limited to a headache.

Roffers said the attack wouldn’t stop him from attending the State Fair.

“We will be going back,” said Roffers.

“It’s a family event for us.  We get together with our family and we do stuff at the park to enjoy the fair.  My biggest concern is that the State Fair Park Police and West Allis get their heads out of their butts and figure out how to do some security over there.  This isn’t the first year State Fair has been going on.  They should know what the heck they’ve got to do and where they’ve got to have people in place by now.”

He said that the fear spread beyond those who he believed were the target.

“There were a lot of people scared,” claimed Roffers. 

“There were even some young black girls.  They were screaming.  They were running across the road.  This one girl was like, ‘I don’t know how I’m going to get out of here.  I’m all by myself.’  My wife heard her saying that.  She said, ‘Walk with us.  Stay with us and you’ll be OK.’  We told her we were going down the street.  If she needed any assistance, we were just going down to our car.  She needed to go quite a way.”

“There was this terror going on when you leave the place, you just wonder.  Luckily, all the violence that was happening stayed right close by the park entrance.  As we got a block away from the park, that’s when the cops started showing up.”

He said the lack of police and security presence will bring about his complaint up the various channels of State Fair and local police.

“They should be able to provide safety and traffic control,” said Roffers.  “I’ve never worried about it before.”

He said he would give a written complaint to the State Fair and put in a call to West Allis Police, but that’s not all.

“I will be contacting the State Fair Park Board and I’m going to chew on their butts a little bit about what happened.”

State Fair spokeswoman: “Unfortunate situation, hopefully an isolated situation.”

State Fair Director of Marketing and Communication Kathleen O’Leary told Newsradio 620 WTMJ’s  “Wisconsin’s Morning News” that the incidents should not stop people from coming to the fair.

“Certainly, don’t change your plans,” said O’Leary.  “Please understand that this is an unfortunate situation, hopefully an isolated situation.”

Though witnesses had reported incidents inside the fair, she said the problems were mainly outside the fairgrounds.

“Not so much inside,” claimed O’Leary.

“We had complete control inside of what was happening inside of our gates.  It’s what what spread into the neighborhoods.”

O’Leary also pointed out that the fair has “taken measures already with the bag checks, when you come into the fair,” but will increase authorities’ presence for the remaining days at the fair.

“We will be taking severe measures, significant measures.  We are in task force already, circling back around, doing everything that we can to make sure the experience is enjoyable and that the safety is insured,” said O’Leary.

“They see the yellow security shirts.  We have mounted police.  We have bike police.  We have our patrolling police.  We have undercover police.  That’s all because that’s exactly what we want.  We want the safety measures intact at every turn.”

BLACK MONDAY?

Germany is coming to their senses. They have run their country the right way, while the PIIGS have lived far above their means for decades. The entire European Union rests on the back of Germany. They’ve bailed out Ireland. They’ve bailed out Greece. It looks like they are going to tell Italy to fuck off. Most people don’t realize how big Italy is. They have the 8th highest GDP in the world. Their GDP is $2 trillion. Germany’s is $3.3 trillion. Germany will bankrupt itself trying to save the Italians. Plus, Germany knows that Spain is in worse shape than Italy. They have the 12th largest economy in the world.

If Germany is balking, then European stocks will crater on Monday. Asian stocks will crater in anticipation that Europe and the US markets will collapse on Monday. The earliest indication we have is Saudi Arabia, whose market is down 5.5%.

You can bet that the phone lines are buzzing between Timmy Geithner, Bennie Bernanke and their friendly puppet master CEOs – Lloyd Blankfein, Jamie Dimon, Vikrim Pandit, Ken Lewis, John Mack. These are the people trying to retain their wealth and power. They DO NOT care about you, the country, or the long term best interests of our nation. They care about their billions. This is a game to them. They are agreeing on a plan of attack to manipulate the markets on Monday.

It is highly likely that the markets will plunge at the opening as a knee jerk reaction to the S&P downgrade. The criminal Wall Street banks will then instruct their computers to buy stocks and an unbelievable rally will commence. This is supposed to pump confidence back into the investing public. CNBC will do their part and tell you to buy the fucking dip. This is all a show.

The S&P downgrade should have happened two years ago. The US is a  bad long term credit. We will default by printing money and paying interest to gullible foreigners in worthless pieces of paper. The US economy is in recession. Stocks fall 40% during recessions. The wheels are coming off this bus. It doesn’t matter whether stocks finish up or down on Monday. They will be at least 30% lower in the next year. You can Buy the Fucking Dip or you can focus on the facts and the truth. 

It Just Went From Bad To Far, Far Worse As Germany Says Italy Is Too Big For EFSF To Save, Refuses To Carry Euro Bailout Burden

Tyler Durden's picture

Submitted by Tyler Durden on 08/06/2011 12:20 -0400

Remember when we said (yesterday) that Germany will soon balk over the fact that it is pledging its entire economy to bail out an insolvent Europe? Well, that moment has come.

Dow Jones just hitting the tape referencing Spiegel

  • German Govt: Italy Too Big For EFSF To Save – Spiegel
  • German Govt: Doubts Whether Tripling EFSF Would Help It Save Italy
  • German Govt: Italy Must Make Savings, Reforms To Exit Crisis – Spiegel
  • Italy Debt Guarantee Could Raise Doubts Over Germany’s Finances – Spiegel
  • German Govt: EFSF Should Only Help Small, Mid-Size Countries – Spiegel

As a reminder, yesterday’s stopgap announcement by the ECB to expand its SMP purchases of secondary market Italian and Spanish bonds was merely as a precursor to full EFSF monetization until its comes fully online in September (or sooner) in a vastly expanded format (between €1.5 and €3.5 trillion).

If Germany is now against this, which appears to be the case, it pretty much means, well, game over.

Add the uncerainty over the unwind of the Europe rescue “gamechanger” as one of the more naive CNBC anchors said yesterday, and Monday is now guaranteed to be a bloodbath.

As for those saying China will gladly step in and fund a $5 trillion EFSF shortfall, they may want to read the following article from Reuters:

Italian Economy Minister Giulio Tremonti said on Thursday that Asian investors are reluctant to buy Italian bonds because it sees they are not being bought by the European Central Bank.

Speaking at a news conference, Tremonti also said it would be desirable for the central bank to follow the lead of the Japanese and Swiss central banks in taking expansionary steps to tackly the euro zone’s crisis.

“I note that the Bank of Japan today launched quantitative easing and the Swiss cen bank cut rates to zero, we are waiting for decisions if possible, but desirable (from the ECB),” Tremonti said.

When you talk to Asia they say: “We don’t understand what Europe is,” he continued. “The second point is that they say ‘if your central bank doesn’t buy your bonds, why should we buy them”?

P.S. Time to unwind that Bund short we suggested yesterday. In fact, if true, it is time for a big rush to safety.

BREAD, CIRCUSES, SPENDING CUTS, UNICORNS & THE APPEARANCE OF WEALTH

“Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions — everything, now restrains itself and anxiously hopes for just two things: bread and circuses” – Juvenal – 100 A.D.

 

 

Juvenal makes reference to the Roman practice of providing free wheat to Roman citizens as well as costly circus games and other forms of entertainment as a means of gaining political power through populism. Roman politicians devised a plan in 140 B.C. to win the votes of the poor: giving out cheap food and entertainment, “bread and circuses”. The Roman politicians realized this would be the most effective way to rise to power and stay in power.

With the revolting display of political theater in the last few weeks, I couldn’t help but consider the parallels between the Roman Empire and the American Empire. The entire debt ceiling farce was a circus on an epic scale – The Greatest Show on Earth. The American public was treated to high wire acts of near debt experiences, Senators putting their heads into the mouths of lions, and hundreds of clowns riding tiny bikes with squeaking horns. In the end, American politicians did what they do best – pretended to solve a spending problem without cutting spending. Only in America could politicians put the country on course to increase its national debt from $14.5 trillion to $23 trillion by 2021 and declare they are cutting spending. For those that need to visualize the lies of politicians, take a gander at this chart and try to find the cuts in spending.

You have a better chance of finding a unicorn in your backyard than finding actual cuts in spending from the corrupt clowns inhabiting the halls of Congress. If you are driving your car towards a brick wall at 120 mph and you slow down to 118 mph, the ultimate result will be the same. The only way to avoid disaster is to jam on the brakes. But, the liberal and conservative politicians are both enjoying the ride fueled by millions in corporate, union, Wall Street and a thousand other special interest payoffs.  

The Roman authorities provided free wheat to the peasants as a superficial means of appeasing the masses and distracting them from the fact that public policy and public service had failed, as corruption and decadence engulfed those in control of government. Free bread, chariot races, and feeding Christians to lions kept the small-minded peasants satiated and ignorant of their civic duty. Today, the authorities don’t hand out bread they hand out EBT cards to 45.5 million Americans, or 14.6% of the entire population.

There are almost 5 million Americans on welfare. There are 50 million Americans on Medicaid. There are 8 million Americans receiving unemployment compensation. There are 10.5 million Americans on Social Security disability. This is the symbolic bread being provided to the masses to keep them tranquilized, pliable, satisfied and ignorant of their civic duty. The government has renamed bread as “social benefits” and now distributes $2.3 trillion of bread per year to the “needy”. This constitutes 15% of the country’s GDP and will continue to grow for decades or until the American Empire collapses.

Aldous Huxley in his 1958 assessment of his 1931 novel Brave New World – Brave New World Revisited said that “any bird that has learned how to grub up a good living without being compelled to use its wings will soon renounce the privilege of flight and remain forever grounded. If the bread is supplied regularly and copiously three times a day, many of them will be perfectly content to live by bread alone – or at least by bread and circuses alone. ‘In the end,’ says the Grand Inquisitor in Dostoevsky’s parable, ‘in the end they will lay their freedom at your feet and say to us, make us your slaves, but feed us.” Bread is not the opiate of the masses, it is the cyanide. Huxley saw the Welfare state arising before it really got kick started in the late 1960s. By trying to support the less fortunate by transferring trillions to them, with no strings attached, we have insured the ultimate bankruptcy of our country. Americans have willingly sacrificed liberty, freedom and civic responsibility for safety, security and bread.

Huxley hadn’t lost all hope. He seems to have foreseen the rise of the Tea Party and the coming revolution, led by the youth of this country who are being left with the bill for the bread and circuses promised by myopic politicians over the last four decades:

“When things go badly, and the rations are reduced, the grounded do-dos will clamor again for their wings… The young people who now think so poorly of democracy may grow up to be fighters for freedom. The cry of ‘Give me television and hamburgers, but don’t bother me with the responsibilities of liberty,’ may give place, under altered circumstances to the cry of Give me liberty or give me death.”

I hope Huxley is right. The welfare state is bankrupt. The rations are going to be cut. There is no choice. The money is gone. The jobs are gone. The do-do’s that haven’t flown in years are unlikely to clamor for their wings. They are already clamoring when even the potential of cuts in their bird feed are mentioned. The Millenial generation is our last great hope to reverse our decline. They have not become addicted to “social benefits” yet. Their parents and grandparents are handing them an un-payable bill as they graduate college with no jobs. A generational war is in the offing. I for one will side with the youth against the Boomers. The future of the country depends upon the outcome of this war.

Striking Similarities to Rome

“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”. –David Walker

 

David Walker, the former head of the GAO from 1998 until 2008, compared the U.S. Empire to the Roman Empire in August 2007. He has been warning the country about our unsustainable fiscal path for over a decade.

  • Since August 2007 the National Debt has increased from $8.9 trillion to $14.6 trillion, a 64% increase in four years.
  • We’ve increased our cumulative expenditure on our wars of choice in the Middle East to $1.3 trillion since 2001.
  • Our annual military spending rose from $653 billion in 2007 to the current $966 billion, a 48% increase in four years.
  • Federal government transfers for Social Security, Medicare, Medicaid, Unemployment, Veterans, Food Stamps, and Welfare increased from $1.7 trillion in 2007 to the current level of $2.3 trillion, a 35% increase in four years.

It goes without saying that Mr. Walker’s advice was not heeded. And regarding declining moral values and political civility, I would point you to the fine examples of morality displayed by Wall Street since 2007 along with the display of civility seen in Washington DC over the last few weeks. The striking similarities that David Walker acknowledged are in full bloom for the world to see.

English historian Edward Gibbon wrote his masterpiece The Decline and Fall of the Roman Empire in 1776, ironically in the year the American Empire was born. He detailed the societal collapse encompassing both the gradual disintegration of the political, economic, military, and other social institutions of Rome and the barbarian invasions that were its final doom in Western Europe. Gibbon concluded there were five marks of the Roman decaying culture:

  1. Concern with displaying affluence instead of building wealth.
  2. Obsession with sex and perversions of sex.
  3. Art becomes freakish and sensationalistic instead of creative and original.
  4. Widening disparity between very rich and very poor.
  5. Increased demand to live off the state

Gibbon’s analysis captured the essence of what happens to all empires. It subsequently happened to the Dutch, Spanish and British empires and has been eating away at the greatest empire of all over the last several decades. Larry Elliot, writer for the UK Guardian, recently described the rot that has destroyed every empire in history:

“The experience of both Rome and Britain suggests that it is hard to stop the rot once it has set in, so here are the a few of the warning signs of trouble ahead: military overstretch, a widening gulf between rich and poor, a hollowed-out economy, citizens using debt to live beyond their means, and once-effective policies no longer working. The high levels of violent crime, epidemic of obesity, addiction to pornography and excessive use of energy may be telling us something: the US is in an advanced state of cultural decadence.

Empires decline for many different reasons but certain factors recur. There is an initial reluctance to admit that there is much to fret about, and there is the arrival of a challenger (or several challengers) to the settled international order. In Spain’s case, the rival was Britain. In Britain’s case, it was America. In America’s case, the threat comes from China.”

For the last forty years America has shifted from a society that created goods into a society that created debt. Displays of affluence like McMansions, Mercedes, BMWs, Rolexes, summer mansions in the Hamptons, designer clothes, granite and stainless steel kitchens, and 85 inch HDTVs, all purchased with debt provided like candy by the Wall Street banks and their sugar daddy – the Federal Reserve, have trumped true wealth building. The result is a nation with $52.6 trillion of debt outstanding, or 350% of GDP. The basic rule for maintaining a healthy economic system requires the population to spend less than they earn and save the difference. The savings can then be invested in domestic companies, plants and equipment which keep the country growing. Americans bought into the lie that purchasing cheap foreign goods with cheap credit was as valid as actually building wealth. The national savings rate, which exceeded 10% in the 1970s and early 1980s, dropped to less than 1% by 2005. Why save when you could whip out one of your 13 credit cards.

America’s obsession with sex and perversion of sex makes Caligula look like a Boy Scout. There are 4.2 million pornographic websites serving 72 million visitors per month and generating $5 billion of revenue for these fine capitalists. More than 40% of internet users view porn. What passes for art today is a crucifix in the artist’s urine. The true art of the American empire consists of reality TV shows like Jersey Shore and Housewives of NY, OC, NJ, Miami, and Atlanta. America has taken shallow, mindless, and superficial to an empire crushing low.

The disparity in wealth between the super rich and the working class has never been greater. The working middle class that built this country has been systematically destroyed as the super rich have used inflation and debt to lure them into servitude, while the unproductive parasites have learned it is easier to feed off their middle class host than work for a living. It is clear to anyone, except a Republican ideologue, that when the top 10% richest Americans abscond with 50% of the income in the nation through their control of politicians, Wall Street and the few mega-corporations that set the economic agenda, a convulsive change is necessary. It is not a coincidence  the heyday of the American Empire was from 1946 until 1971 when the working middle class was able to advance their station in life through education, hard work and a level playing field.

The playing field got tilted against the working middle class in the late 1960’s with LBJ’s Great Society welfare state and got turned upside down in 1971 when Nixon closed the gold window and allowed bankers and politicians unfettered access to money printing with no immediate consequences. The result has been a slow steady descent into hell as politicians have made $100 trillion of unfunded promises of bread to the masses and bankers have gorged themselves with riches from peddling debt to the same masses, so they could enjoy the circuses. We are now left with the top 1% hoarding 33.8% of the wealth and the top 10% clinging to 71.5% of the wealth in the country. The bottom feeders are thrown scraps of bread in the form of food stamps, welfare, disability payments, and unemployment compensation. They have grown dependent and no longer participate in productive society. With more than 50% of adults paying no income tax, they vote for politicians that promise to not “cut” their social benefits.  

 

When you see your leaders take actions that clearly are not in the long term best interests of the American people, you need to ask why. Since September 2008 your leaders have funneled trillions of dollars to the Wall Street bankers that nearly destroyed the worldwide economic system. They have funneled billions into the coffers of the mega-corporations that outsourced your jobs to Asia. They ramped up their wars in the Middle East to reward their friends in the military industrial complex. And lastly, they handed out a few hundred billion more to the masses to keep them from rioting in the streets.

We know for a fact QE2 was designed to prop up the stock market because Ben Bernanke told us so. And it worked. From the day he announced he was going to do it at the annual meeting of the ruling moneyed classes at Jackson Hole until it ended on July 1, 2011, the market went up 30%. The average American dealt with the 30% to 50% increases in food and energy costs, while the richest 1% partied like it was 1999. Considering they own 50.9% of all the stocks in the country, the last couple years of free money and stock appreciation created by the Federal Reserve have been a windfall for the privileged moneyed class. The bottom 50% who own 0.5% of the stocks in the country haven’t fared so well. 

When you watch the talking heads and contemptible pundits on Fox, CNBC, MSNBC, CNN and the other mainstream corporate media spinning our economic situation in a positive way, remember that every person you are listening to is a member of the top 1% richest Americans. They have large portfolios of stocks and will not let reality or truth interfere with their ambitions of further wealth and power. This country is controlled by the few for the benefit of the few at the expense of the many. Less than ten banks control more than 50% of deposits and 75% of the lending in the country. One private banking organization – the Federal Reserve – controls the currency of the country. A handful of mega-corporations control the commerce of the country. Less than ten arms dealers dictate the war spending in the country. A few media conglomerates control the message fed to the masses. A few hundred corrupt politicians pay off their corporate and banking masters with laws, tax breaks, and pork. These people make up the ruling class of America.

As their messages of “efficiency” and “job creation” have proven to be lies, the financialization of America by the ruling class is almost complete. Real earnings for real people are 10% lower than they were in 1972. They have transformed a productive society based on saving and investment into a hollowed out shell of a society based on financial manipulation and debt. The endgame approaches.

The moneyed interests have gone too far. The debts are too large. The burden placed on the middle class is too great. The Federal Reserve has proven to be the lackeys of the Wall Street fat cats and the slithering political class in Washington DC. QE2 was a miserable failure. The American middle class is angry. Their anger could lash out in many possible directions. Their benefits will be cut. Their home values will fall. Their 401ks will be cut in half. Their standard of living will fall. Will they accept this fate without a fight? I doubt it.

Democracy Never Lasts Long 

The decline of the American Empire may be a surprise to those who cling to the laughable American Exceptionalism dogma, but every previous empire in history has declined. The Dutch Empire lasted for just over a century. The Spanish Empire survived for just over two centuries. The British Empire reigned for just over three centuries. And the Great Roman Empire ruled for almost five centuries.

The American Empire has been expanding for over 220 years, but based on all indications has peaked. Were we destined to implode as all previous democracies have done, as described by Greek historian Polybius?

“Monarchy first changes into its vicious allied form, tyranny; and next, the abolishment of both gives birth to aristocracy. Aristocracy by its very nature degenerates into oligarchy; and when the commons inflamed by anger take vengeance on this government for its unjust rule, democracy comes into being; and in due course the licence and lawlessness of this form of government produces mob-rule to complete the series.” –The Histories 6.4.7-13

As a democracy this country was supposed to be governed by the people, for the people. We were supposed to have an equal say in how we were governed and participation in adopting the laws of the land. Over time civic duty was outsourced to politicians that promised the masses safety and security at the expense of liberty and responsibility. The general population has grown accustom to the bread and circuses provided by their “protectors”. The fledgling democracy has degenerated into a corporate fascist oligopoly that benefits the few in control. Recent events prove beyond a shadow of doubt the privileged few are losing control of the situation. A worldwide upheaval is brewing as the toxic debt is strangling the economic systems of the world. Confidence in this ponzi finance system is waning. The American population is beginning to realize their fatal mistake in trusting bankers and politicians to do what was right for the country.

Polybius believed that democracies always killed themselves:

“And hence when by their foolish thirst for reputation they have created among the masses an appetite for gifts and the habit of receiving them, democracy in its turn is abolished and changes into a rule of force and violence. For the people, having grown accustomed to feed at the expense of others and to depend for their livelihood on the property of others, as soon as they find a leader who is enterprising but is excluded from the houses of office by his penury, institute the rule of violence; and now uniting their forces massacre, banish, and plunder, until they degenerate again into perfect savages and find once more a master and monarch.” – The Histories 6.9.7-9

The average American does not understand what is swirling around them. They have a sense of unease, but they are still receiving their government issued bread and their 52 inch TV is providing 24 hours of circuses. The monetary system upon which that bread and those circuses are based is collapsing as we speak. Ernest Hemingway captures what is happening to the American Empire in one brief quote from his novel The Sun Also Rises:

“How did you go bankrupt?” “Two ways, gradually and then suddenly”

As the political theater of the absurd played out last week in Washington DC, it became clear to me the ruling class has no intention of changing our path. Politicians will keep spending and central bankers will keep printing more money. There are people like David Walker that will continue to sound the alarm:

“We are less than three years away from where Greece had its debt crisis as to where they were from debt to GDP. With the recent increase in the debt ceiling and continued higher budget deficits at the federal level, the US is on course for its own crisis. We are not exempt from a debt crisis. We’re never going to default, because we can print money. At the same point in time, we have serious interest rate risk, we have serious currency risk, we have serious inflation risk over time. If it happens, it will be sudden and it will be very painful.”

But, it appears we are destined to commit suicide as a nation. I doubt the American Empire will linger on for centuries. The world moves rapidly. The Vandals (Goldman Sachs) and the Huns (JP Morgan) are at the gates. The final battle is underway – the battle for the soul of America. When the existing social structure is swept away by the tsunami of un-payable debt, who and what will replace it? Will the American people turn to someone that promises them liberty and freedom with no promises of bread and circuses? Or will they turn to a strong demagogue that promises them more safety and more security?

What do you think?

“Democracy never lasts long. It soon wastes, exhausts and murders itself. There was never a democracy that did not commit suicide.”  – John Adams, Letter, April 15, 1814