Acceptance of Evolution and Wealth – Interesting Correlation…

I awoke Easter Sunday to all kinds of friends, family and neighbors updating their Facebook pages with scripture and proclamations that “he has risen“.  Once I got past the initial “seriously?” phase, it reminded me that I had to do a post on religion and money, so what better time than after Easter?

If you follow my tweets, you know I’m a pretty analytical guy that looks at the world through the eyes of science and nature (rather than “faith), the random and chaotic nature of the universe (rather than believing that there’s a God that gives a crap if Tebow wins the superbowl, decides if a cancer patient lives or dies, or that somehow he’s working in mysterious ways when he inures the world with such horrors, pain and suffering on a daily basis – the world is cruel, random and chaotic) and that while I won’t even bother trying to change your mind if you’re a believer (because you’ve obviously already refused to accept evidence to the contrary), I do find it interesting to consider the role of religion in today’s world.  Sometimes, it’s a question of what kids should be taught in school, the economic consequences of millenia of wars over religion, the positive contributions of religious charitable contributions and institutions over the years, or simply how people weave religion into their personal finances, there’s often something to think about.

With a name like Darwin, how could I not publish this?  Evidently, the more the inhabitants of a country deny the realities of evolution, the less likely that country is to have a high GDP – except – for the ole’ US of A – because as we all know, we’re just about the richest country on earth – and the most analytically backwards…

Continue Reading Acceptance of Evolution and Wealth – Interesting Correlation…

SECTION 8 DOING GREAT

I’m sure you all remember the Section 8 family that lives year round at a beach resort, 50 yards from the beach and the Atlantic Ocean. I filled you in on this fine upstanding family last summer:

http://www.theburningplatform.com/?p=18085

We visited Wildwood this weekend for the 1st time since last September. It was a delightful weekend and a well needed rest. And you’ll be happy to know that the deteriorating economic situation has not affected our Section 8 friends in the condo next door to ours. The 50 something year old patriarch still sits on the deck drinking beer. His 400 pound loudmouth wife is as loud as ever. The teenage dullard appears as slow witted as ever. And the old lady with the walker is still kicking. A myriad of other “family” members paraded in and out of the condo all weekend.

You’ll be happy to know that despite living in Section 8 housing, surely being on food stamps, and most certainly collecting multiple SSDI checks, these poor folk were able to trade in their old car for a 2007 Buick Rendezvous that looks brand new. This is in addition to the truck the old man already drives. Their new vehicle looks like this. 

 

One might wonder how a welfare family where NO ONE works can possibly purchase a $13,000 vehicle. How much do you want to bet that our old friends at Ally Financial were involved in this transaction? When you read about the fantastic auto sales from our fantastic car makers, remember how it is being done. You and I own Ally Financial (78% Federal government ownership). Ally and GM and Obama don’t care if this loan is repaid. They just want a car sale in order to prove the economy is recovering. The people in the condo next door put the SUB in subprime.

So it looks like Obama has this Section 8 household locked up for the 2012 election. No suffering in Section 8 land in Wildwood. Now it’s time for us to leave the shore in our 13 year old minivan. I must be doing something wrong.

YOU AIN’T SEEN NOTHING YET – PART THREE

This is Part Three of a three part series trying to make sense of the Crisis period we entered in 2008. Click here to read: PART ONE or PART TWO

Seeking Regeneracy

“Soon after the catalyst, a national election will produce a sweeping political realignment, as one faction or coalition capitalizes on a new public demand for decisive action. Republicans, Democrats, or perhaps a new party will decisively win the long partisan tug of war. This new regime will enthrone itself for the duration of the Crisis. Regardless of its ideology, that new leadership will assert public authority and demand private sacrifice. Regardless of its ideology, that new leadership will assert public authority and demand private sacrifice. Where leaders had once been inclined to alleviate societal pressures, they will now aggravate them to command the nation’s attention. The regeneracy will be solidly under way.” – Strauss & Howe – The Fourth Turning

   

  

 

 

 The 2008 election happened in the midst of the catalyst events. A sweeping political realignment did not occur. In fact, the 2010 mid-term elections produced a result which has essentially gridlocked the political process in Washington D.C. The reunification and reenergizing of society has yet to occur. Neil Howe in his recent article pondered the question of regeneracy:

“We may like to imagine that there is a definable day and hour when America, faced by growing danger and adversity, explicitly decides to patch over its differences, band together, and build something new. But maybe what really happens is that everyone feels so numb that they let somebody in charge just go ahead and do whatever he’s got to do. I’m thinking of how America felt during the bleak years of FDR’s first term, or during Lincoln’s assumption of vast war powers after his repeated initial defeats on the battlefield.

The regeneracy cannot always be identified with a single news event. But it does have to mark the beginning of a growth in centralized authority and decisive leadership at a time of great peril and urgency. Typically, the catalyst itself doesn’t lead directly to a regeneracy. There has to be a second or third blow, something that seems a lot more perilous than just the election of third-party candidate (Civil War catalyst) or a very bad month in the stock market (Great Power catalyst). We are still due for such a moment. We have not yet reached our regeneracy. When it happens, I strongly suspect it will be in response to an adverse financial event. It may also happen in response to a geopolitical event. It may well happen over the next year or two.” – Neil Howe – Dating the Fourth Turning

Regeneracy occurred within five years of the outset of the three previous Crisis periods in U.S. history. The historic year of 1776 saw the colonies come together and declare independence from Great Britain. Group solidarity and willingness to die for their cause launched an eight year war and ultimately the formation of a new republic. The Civil War regeneracy occurred after the Union debacle at Bull Run in 1861. The Washington aristocrats had treated the battle like a show, where they could bring a picnic lunch and be entertained by an entertaining skirmish between two armies. After the resounding bloody defeat Abraham Lincoln assumed dictatorial like powers over the North and ordered the immediate enlistment of a half a million soldiers. He assumed unprecedented powers of taxation, forced conscription, suspension of due process and showed a willingness to administer maximum destruction to his foes. This would be no picnic in the park, as 700,000 men died in the next three years. The regeneracy during the Great Depression/WWII Crisis occurred in 1933 with the election of Franklin Roosevelt. He immediately declared a bank holiday and confiscated all the gold in the country. In a flurry of executive orders and bills sent to Congress he rammed through his New Deal, assuming new and broader powers for the Federal government and Executive branch.

Based on these examples in American history it is clear we have not entered the regeneracy stage of this Crisis. Also based on history, it is likely to occur by the end of 2013. A second blow to our nation and our psyches is the only thing that could possibly bring together a deeply divided nation. The country was struck by a category 3 hurricane in 2008. We have been in the eye of the hurricane for the last two years and have grown complacent. The eye will pass over us in the next year and we will again be buffeted by hurricane force winds – except the hurricane has strengthened to a category 5 as the “solutions” to the storm will make part two far worse.  Those with a libertarian mindset are not likely to be happy with the Federal government and President taking on even greater powers in the coming years. The usurpation of more control over the citizens of this country in the last decade has been one of the major reasons for the ratcheting down of trust in our leaders. The upcoming presidential election will likely create the dynamic that propels the country into its regeneracy. If the next downward blow can be averted before the election, the country will end up with four more years of Obama. If the Crisis suddenly worsens before November, Romney assumes the mantle of Prophet Leader in January 2013.

I agree with Neil Howe that the country’s reaction to an adverse financial event will be the likely regeneracy moment. The explosive mixture of the five D’s will provide the spark for the next phase: Debt; Derivatives; Default; Devaluation; and ultimately Depression. There is no way to deny the $15.6 trillion of debt this country has accumulated, with $10 trillion of it added since 2000. The debt ceiling of $16.4 trillion will be breached in October 2012 at the current rate of extreme spending. This should set up an interesting dynamic just prior to the November elections. A replay of the August 2011 showdown could be disastrous for Obama if the stock market were to crater again.

      

 

We are accumulating debt at a rate of $3.7 billion per day, or $154 million per hour. No politician of either party, other than Ron Paul, has any plan to even moderate the spending, let alone make actual cuts. The CBO projections rolled out by these congressional weasels aren’t worth the paper they are printed on. The National Debt is on track to surpass $20 trillion in 2015 and $25 trillion by 2018. And this is before the Medicare and Social Security costs blast into orbit in 2020. Kicking the can down the road works until math catches up with you. It is insane to believe we can dig ourselves out of this debt induced mess with more debt, but empires tend to act insanely in their death throes.

“In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.” – Friedrich Nietzsche

Strauss & Howe made preparation recommendations back in 1997 that would have lessened the impact of this Crisis, but they fell on deaf ears. Their common sense suggestions included:

  •  Work to elevate moral and cultural standards. Toddlers with Tiaras and The Kardashians were not an elevation.
  • Shed and simplify the federal government by cutting back sharply on its size and scope.
  • All levels of government should prune legal, regulatory and professional thickets.
  • Politicians should define our challenges bluntly and stress duties over rights.
  • Require community teamwork to solve local problems without federal government intervention.
  • Treat children as the nation’s highest priority.
  • Tell future elders they will need to be more self-sufficient, save more, and expect fewer entitlements.
  • Shift government pension plans from defined benefit plans to defined contribution plans.
  • Begin to trim Medicare, Medicaid and Social Security benefits.
  • Raise the national savings rate, reduce consumption and work towards federal budget surpluses.
  • Expect the worst, conserve our forces, and be prepared for an epic struggle down the road.

I would reckon we went 0 for 11 on the preparation front. We took the exact opposite course in most cases. Each generation has their own crosses to bear. No one will escape the bitter gale force winds of this Crisis. Strauss and Howe must have had a crystal ball looking fifteen years into the future when they made this supposition:

 “The Boomers’ old age will loom, exposing the thinness in private savings and the unsustainability of public promises. The 13ers will reach their make or break peak earning years, realizing at last that they can’t all be lucky exceptions to their stagnating average income. Millenials will come of age facing debts, tax burdens, and two tier wage structures that older generations will now declare intolerable.”

Thus far the older generations have refused to yield. They demand promises made be promises kept. The Boomers did not save enough to sustain themselves during their retirement. Many are entirely reliant upon Social Security and Medicare as their only savings and health insurance. Generation X is caught between aging parents and indebted jobless children. The Millenials are saddled with $1 trillion of student loan debt and few decent job opportunities. In prior Fourth Turnings the Prophet generation led and the Hero generation followed, doing the heavy lifting. This dynamic is yet to be realized during this Crisis. Maybe the regeneracy event will create this dynamic.

That event will likely be triggered by another debt crisis. Rogoff and Reinhart studied 44 countries over 200 years and concluded that once government debt exceeded 90% of GDP economic growth slowed and the likelihood of disaster rose dramatically.

“Those who remain unconvinced that rising debt levels pose a risk to growth should ask themselves why, historically, levels of debt of more than 90% of GDP are relatively rare and those exceeding 120% are extremely rare. Is it because generations of politicians failed to realize that they could have kept spending without risk? Or, more likely, is it because at some point, even advanced economies hit a ceiling where the pressure of rising borrowing costs forces policy makers to increase tax rates and cut government spending, sometimes precipitously, and sometimes in conjunction with inflation and financial repression (which is also a tax)? Historical experience and early examination of new data suggest the need to be cautious about surrendering to “this-time-is-different” syndrome and decreeing that surging government debt isn’t as significant a problem in the present as it was in the past.”

 

On this date the U.S. debt to GDP ratio is 102%. Our debt accumulation is on automatic pilot and the national GDP is incapable of growing above 3%. Anyone with the most basic math skills (this excludes Wall Street economists, CNBC bimbo anchors, and Bernanke) can determine the ratio will pass 120% in 2015. This doesn’t even include the Fannie, Freddie, and Student Loan debt that are guaranteed by the Federal government, along with trillions of unfunded social program liabilities and state and local debts. In reality the true debt obligations of this country exceed 500% of GDP, as no politician plans to willingly renege on Medicare and Social Security promises made to voters who would boot them if they voted to cut these entitlements.

The linear thinking deniers of reality (Krugman) will use Japan as their example of a country whose debt ratio is above 200%, without disastrous consequences. I guess a 22 year recession is not considered disastrous. Japan has been able to fund themselves internally because their citizens had a 15% savings rate in and they have run gigantic trade surpluses for decades. That game is over and they will hit the wall in the near future. The savings rate in the U.S. is 3.7% and we run $550 billion trade deficits, or 3.7% of GDP. The United States has no advantages other than the U.S. dollar currently being regarded as the worldwide reserve currency. We are hanging our hat on being the best looking horse in the glue factory.

trade deficit as gdp

The cracks in the façade are already painfully visible. The U.S. ran a $1.4 trillion deficit in 2009; $1.3 trillion in 2010; and $1.3 trillion in 2011. In the chart below you can see foreigners’ appetite for U.S. debt since 2007 has plunged. Maybe it has something to do with getting a negative real return by investing in U.S. Treasuries paying 2%. Maybe it has something to do with Ben Bernanke attempting to inflate away our debt burden. Maybe it has something to do with Congress and the President accelerating spending and creating massive deficits for as far as the eye can see. Maybe they are losing trust and confidence in the American Empire.

In the last three years we have run $4 trillion in deficits and foreigners have only funded $1.4 trillion of that debt. That means someone else had to buy $2.6 trillion of our long term Treasuries. Some of it was funded by little old ladies and pension funds that are setting themselves up for enormous losses. The vast swath was purchased by Ben Bernanke with his QE for eternity programs. As foreigners rationally reduce their Treasury holdings and we continue to run $1.3 trillion deficits, Bernanke must keep buying the debt. This cycle will continue until we reach our Minsky Moment, then Strauss & Howe’s forecast will be realized:

“This might result in a Great Devaluation, a severe drop in the market price of most financial and real assets. This devaluation could be a short but horrific panic, a free-falling price in a market with no buyers. Or it could be a series of downward ratchets linked to political events that sequentially knock the supports out from under the residual popular trust in the system. As assets devalue, trust will further disintegrate, which will cause assets to devalue further, and so on.” – Strauss & Howe – The Fourth Turning

Who will buy our debt in the coming months and years? Europe is saturated with debt and doesn’t have the means to purchase our debt. Japan is a train wreck waiting to happen. China’s customers aren’t buying their crap, so their economic miracle is about to go in reverse. The Federal Reserve cannot buy $1 trillion of Treasury bonds per year forever without creating more speculative bubbles and raging inflation in the things people need to live. The Minsky Moment will be the point when the U.S. Treasury begins having funding problems due to the spiraling debt incurred in financing perpetual government deficits. At this point no buyer will be found to bid at 2% to 3% yields for U.S. Treasuries; consequently, a major sell-off will ensue leading to a sudden and precipitous collapse in market clearing asset prices and a sharp drop in market liquidity. In layman terms that means – the shit will hit the fan. The Federal Reserve and Treasury will be caught in their own web of lies. The only way to attract buyers will be to dramatically increase interest rates. Doing this in a country up to its eyeballs in debt will be suicide. We will abruptly know how it feels to be Greek.

Linear thinkers like Krugman and most of the mainstream media opinion leaders can’t fathom the possibility of a complete collapse of our economic system. Most of their little models and economic data points don’t even go back to the last Fourth Turning period. They make projections about a housing recovery based on historical data that starts in 1962. Housing sales linger at historical lows with mortgage rates at 4%. The entire housing market would cave in if mortgage rates reached 6%, where they were in 2008. The forty year average mortgage rate has been 9%. Everything about our economic system is abnormal. Even reversion to the mean would be disastrous. The Minsky Moment headed our way will not be a single uncorrelated event. The entire financial world is hopelessly entangled by the $700 trillion of derivatives that ensure mass destruction if one of the dominoes falls. This is the reason an otherwise inconsequential country like Greece had to be “saved”.

Everyone knows Greece, Portugal, Spain and Italy are broke. One or more will eventually default on their debt. It is highly likely that a butterfly will flap its wings in Europe and cause a hurricane in the U.S. The default will spark a worldwide contagion as trust in a system of false promises disintegrates. China’s already crumbling real estate market will implode. As interest rates soar and stock markets plunge, global tensions will intensify. Continued oil supply constraints will be the cherry on top. Based on historical precedent, this is likely to strike before 2014 arrives. The wealth destruction and pain will be so intense a regeneracy will be at hand. Our very survival will feel at stake.

“Eventually, all of America’s lesser problems will combine into one giant problem. The very survival of the society will feel at stake, as leaders lead and people follow. The emergent society may be something better, a nation that sustains its Framers’ visions with a robust new pride. Or it may be something unspeakably worse. The Fourth Turning will be a time of glory or ruin.” – Strauss & Howe – The Fourth Turning

And here is the rub for those who argue for less government intervention in our lives. Which leaders will lead and who will follow? The actual events do not matter as much as how the people react to the events. Fourth Turnings are always chaotic and tumultuous. In the frenzied period during the next leg down, people will demand order. They will call for the government to do something. Obama or Romney will use the fear and uncertainty to assume more power over our lives. Executive orders, new legislation, and another stripping of our liberties will be attempted. How the generational cohorts react to these deeds will determine what happens next. There are 97 million Millenials, 83 million Generation X and 73 million Boomers. The Boomers hold most of the positions of power, but their credibility as leaders has been damaged by their actions over the last two decades.

How the Millenials react to Boomer commands will determine the course of this Fourth Turning. The great devaluation will provide our leaders the opportunity to address the structural imbalances that haunt our nation. They could force Wall Street bankers, shareholders and bondholders assume their losses. They could rewrite the social contract with all generations, balancing the needs of elders with the futures of our youth. They could dramatically scale back the military industrial complex. They could completely scrap the ridiculous tax code and shift from taxing income to taxing consumption. They could revamp our political system and remove money from the political process. They could choose to balance budgets and reduce the size of government. They could ask for proportional sacrifice from everyone in order to keep this ship from sinking. If you believe this will happen, I have nice home near an Iranian nuclear power plant I’d like to sell you.

The regeneracy does not mean the actions taken by our leaders will be wise, well thought out, rational or beneficial to all people. Many believe the actions taken by Abraham Lincoln and Franklin Roosevelt during the previous Fourth Turning Crisis periods were detrimental, foolish, and enhanced the power of the state at the expense of liberty for the people. The leader when the regeneracy events strike is more likely to respond with more government control as the solution. He will invoke executive orders giving government control over important industries and crucial institutions. The government politician leaders will pick the winners and losers, with their cronies and contributors winning again. Dissent will not be acceptable. The NDAA will be invoked to imprison those who disagree with the mandates handed down by those in power. Congress would pass SOPA and lock down the internet and shutdown any websites they consider dangerous to their central authority. Lastly, with the biggest and baddest military machine on earth, the leader will attempt to rally the masses and distract them from our dire economic situation by seeking an external threat to confront. It just so happens that China is also in the midst of their own Fourth Turning. History has shown that armed confrontation is likely around the climax of the Crisis:

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

No one knows the exact events that will mark this Crisis period in our history. But there is no turning back. We’ve entered the Winter season and the beautiful calm days of autumn are long past. Nothing but turmoil, bitterness and sacrifice lie ahead. We entered this Winter of our discontent unprepared like the grasshopper in the fable. This has insured this Crisis will be far worse than it needed to be. The grasshoppers want solutions and easy answers to problems created over decades of ignorance, sloth, greed and stupidity. It’s too late. There are no easy answers and the solutions are all painful and bitter. This is not some theoretical exercise. This is the reality of our situation. I have three teenage sons and their futures depend on the outcome of this Crisis. I will do whatever it takes to support them. I will not allow them to be cannon fodder in some war for oil in the Middle East. If their future requires me to oppose a tyrannical government, so be it. If their future requires me to give up my Social Security and Medicare security blanket, so be it. If I have to die so they may live, so be it. There are no guarantees in this life. We get about 80 years on this planet to make a difference. The choices we make in the next few years will matter. Are you ready? I am.

   

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

Click here to read: PART ONE or PART TWO



 

THE WAR AGAINST YOUTH

OUCH!!!!

Boomers ain’t gonna like this one.

Hat tip to my Millenial friend Harry Jarin for sending me the link.

 

The War Against Youth

The recession didn’t gut the prospects of American young people. The Baby Boomers took care of that.

By Stephen Marche

 

James Victoire

Published in the April 2012 issue

Twenty-five years ago young Americans had a chance.

In 1984, American breadwinners who were sixty-five and over made ten times as much as those under thirty-five. The year Obama took office, older Americans made almost forty-seven times as much as the younger generation.

This bleeding up of the national wealth is no accounting glitch, no anomalous negative bounce from the recent unemployment and mortgage crises, but rather the predictable outcome of thirty years of economic and social policy that has been rigged to serve the comfort and largesse of the old at the expense of the young.

Since the beginning of the Industrial Revolution, human potential has been consistently growing, generating greater material wealth, more education, wider opportunities — a vast and glorious liberation of human potential. In all that time, everyone, even followers of the most corrupt or most evil of ideologies, believed they were working for a better tomorrow. Not now. The angel of progress has suddenly vanished from the scene. Or rather, the angel of progress has been sent away.

Nobody ever talks about generational conflict. Who wants to bring up that the old are eating the young at the dinner table? How are you going to mention that to your boss? If you’re a politician, how are you going to tell your donors? Even the Occupy Wall Street crowd, while rejecting the modes and rhetoric and institutional support of Boomer progressives, shied away from articulating the fundamental distinction that fills their spaces with crowds: young against old.

The gerontocracy begins at the top. The 111th Congress was the oldest since the end of the Second World War, and the average age of its members has been rising steadily since 1981. The graying of Congress has obvious political ramifications, although generalizations can be deceiving. The Republican representatives tend to be younger than the Democrats, but that doesn’t mean they represent the interests of the young. The youngest senators are Tea Party members, Mike Lee from Utah and Marco Rubio from Florida (both forty). Here’s Rubio: “Americans chose a free-enterprise system designed to provide a quality of opportunity, not compel a quality of results. And that is why this is the only place in the world where you can open up a business in the spare bedroom of your home.” He is speaking to people who own homes that have empty spare bedrooms. He will not or cannot understand that the spare bedrooms of America are filling up with returning adult children, like the estimated 85 percent of college graduates who returned to their childhood beds in 2010, toting along $25,250 of debt.

David Frum, former George W. Bush speechwriter, had the guts to acknowledge that the Tea Party’s combination of expensive entitlement programs and tax cuts is something entirely different from a traditional political program: “This isn’t conservatism: It’s a going-out-of-business sale for the Baby Boom generation.” The economic motive is growing ever more naked, and has nothing to do with any principle that could be articulated by Goldwater or Reagan, or indeed with any principle at all. The political imperative is to preserve the economic cloak of unreality that the Boomers have wrapped themselves in.

Democrats may not be actively hostile to the interests of young voters, but they are too scared and weak to speak up for them. So when the Boomers and swing voters scream for fiscal discipline and the hard decisions have to be made, youth is collateral damage. Medicare and Social Security were mostly untouched in Obama’s 2012 budget. But to show he was really serious about belt tightening, relatively cheap programs that help young people like the Adolescent Family Life Program and the Career Pathways Innovation Fund were killed.

His intentions may be good — he may want to increase support for AmeriCorps — but the program shrunk last year. Three quarters of the applicants were turned away. He resisted Republican efforts to slash Pell grants by $845 per student, but then made other changes to the program that will save the government — or cost students, depending on your perspective — a projected $100 billion over ten years.

The youth vote still supports Obama, but in a chastened, conditional way. In hindsight, Obama’s 2008 campaign looks like an indulgent fantasy in which the major conflicts in life simply don’t exist. There may be no white America and no black America, no blue-state America and no red-state America, but one thing is clear: There is a young America and there is an old America, and they don’t form a community of interest. One takes from the other. The federal government spends $480 billion on Medicare and $68 billion on education. Prescription drugs: $62 billion. Head Start: $8 billion. Across the board, the money flows not to helping the young grow up, but helping the old die comfortably. According to a 2009 Brookings Institution study, “The United States spends 2.4 times as much on the elderly as on children, measured on a per capita basis, with the ratio rising to 7 to 1 if looking just at the federal budget.”

The biggest boondoggle of all is Social Security. The management of entitlement programs, already weighted heavily in favor of the older population, has a very specific terminal point that coincides neatly with the Boomers’ deaths. The 2011 report by the Social Security trustees estimates that, under its current administration, the fund will run out in 2036, so there’s just enough to get the oldest Boomers to age ninety.

Only 58 percent of Boomers have more than $25,000 put aside for retirement, so the rest will either starve or the government will have to pay for them. But the government’s future ability to pay is decreasing rapidly precisely because the Boomers splurged so heavily during the Bush and Clinton years. Public debt per person in the United States currently stands at $33,777. George W. Bush inherited a public-debt-to-GDP ratio of 32.5 percent and brought it up to 54.1 percent during a period of economic growth. (The money borrowed from the future paid for massive tax cuts, with no serious reductions in domestic spending, two expensive wars, and a prescription-drug benefit added to Medicare.) Under Obama, the debt-to-GDP ratio has risen to 67.7 percent and is projected to rise to 74.2 percent this year.

This is no conspiracy; no nefarious backroom deal by political and corporate overlords. The impasse of the moment is, tragically, the result of the best aspects of the Boomers’ spirit. The native optimism that emerged out of the explosively creative postwar world led them to believe that growth would go on forever; that peace and prosperity were the natural state of things. Their good intentions seem like willful naivete today, but the intentions were genuine. Clinton actually believed that globalization would export the First World rather than bring the Third World home; it did both. The prescription-drug benefit was the “compassion” in compassionate conservatism. All those tax cuts were intended to liberate opportunities, not destroy them.

Cynicism rises to fill the emptied space of exaggerated and failed hope. It’s all simple math. If you follow the money rather than the blather, it’s clear that the American system is a bipartisan fusion of economic models broken down along generational lines: unaffordable Greek-style socialism for the old, virulently purified capitalism for the young. Both political parties have agreed to this arrangement: The Boomers and older will be taken care of. Everybody younger will be on their own. The German philosopher Hermann Lotze wrote in the 1870s: “One of the most remarkable characteristics of human nature is, alongside so much selfishness in specific instances, the freedom from envy which the present displays toward the future.” It is exactly that envy toward the future that is new in our own time.

And we will not talk about any of it. We will keep mum. We will hold our tongues lest we seem ageist, lest we seem bitter, lest we seem out of touch, lest we seem pessimistic, lest we seem divisive.

HOW TO DISENFRANCHISE A GENERATION:

Across the country, state branches of the Republican party are making a thinly veiled attempt to disenfranchise the young through “voting reform.” The trick is simple: Require government-issue photo ID before allowing somebody to vote. Eighteen percent of young voters don’t have current photo IDs. Scott Walker in Wisconsin has signed this “reform” into law. So has Rick Perry in Texas. Similar new rules are going forward in roughly thirty other states. Restricting out-of-state IDs is a natural next step, already under way: That way, thousands of college students won’t be able to vote. The Advancement Project, a civil-rights advocacy group, calls the move “the largest legislative effort to scale back voting rights in a century.”

Let’s say you just graduated from high school.

College, right? You have to go to college. That’s not just what your career counselor told you. That’s in the numbers. If you go to college, you’re significantly less likely to lose your job. The pay of college graduates has risen over the past twenty-five years and everybody else’s pay has declined. Which curve do you want to be on?

And yet, at the exact moment when an education has never been more necessary, education is increasingly out of reach. From 1980 on, the price of attending a four-year college has risen by 128 percent. While the price has spiked, the quality has tanked. Students at college in 2003 did two-thirds the homework that students in 1961 did. In a survey published in 2011, 45 percent of students showed no improvement in “critical thinking, complex reasoning and writing” after two years of college. You did not read that incorrectly: That’s no improvement. None. And how could the results be any different? Three decades ago, 43 percent of professors were adjuncts. Now, with colleges bloated by older, tenured professors who take up huge slices of academic budgets while teaching crumbs of courses, the vast majority of classes are taught by adjuncts. On college campuses, the supposed hotbeds of liberalism, the young are instructed primarily in the mechanics of crony capitalism.

Once you’re out of college, you’ll have to intern. Again, no choice. The practice of not paying young people for their labor has become so ingrained in the everyday practice of American business that we’ve forgotten how bizarre and recent the development is. In the early 1980s, 3 percent of college grads had had an internship. By 2006, 84 percent had done at least one. Multiple internships are common. According to a survey by the National Association of Colleges and Employers, more than 75 percent of employers prefer students who have interned or had a similar working experience.

Employers have feasted on despair — and these aren’t internships for struggling small presses or rarefied design companies. Subsidiaries of General Electric, a company worth $200 billion, employ them regularly as an “important recruiting tool.” Disney uses eight thousand of them in dismal working conditions. Jennifer Lopez Enterprises uses them. So does The Daily Show. So does the pope. And because internship programs are sheltered from the violation of labor laws by the complicity of universities that give students “credit” for them — as long as the students pay thousands of dollars for those credits — American companies can operate these programs for the most part hidden from scrutiny. The best study of intern life in America found that companies save annually around $2 billion from pseudo-employment.

But maybe you’re an overachiever — instead of interning, you want to get a master’s or a professional degree. With entry to the professions comes another opportunity to be taken advantage of, and it’s not just the inherently ridiculous price of a creative-writing M.F.A. or journalism school, where on some level, everybody understands the students are being played for suckers. The cost of medical school has spiked over the past three decades. In 1981, average medical-school debt was less than $20,000. Today it is $158,000. Law-school tuition rose 317 percent between 1989 and 2009 while American laws schools wildly increased the number of lawyers they graduate. Naturally, a glut of lawyers decreases their value. So kids pay more for a worse education that leads to lesser prospects in order for the schools to prosper temporarily. Even for doctors and lawyers, an accrual of property or any rise in net worth happens much later in life than it did twenty years ago. The standard debt-repayment plan for physicians is ten years, but twenty-five is a commonly accepted option. For the new professional class today, life begins at forty. That’s not just an expression.

And if you didn’t take your high school advisor’s advice to go to college? Well, you should have listened. What goes for the white-collar young person applies even more ferociously to the blue-collar world, or what’s left of it. The nature of the generational setback for unionized labor can be summed up in a single devastating phrase: New workers will earn a “globally competitive wage.” Manufacturing jobs, having been exported to the Third World, are now returning to America at Third World rates. Newer workers at unions across the country earn ten to fifteen dollars an hour less than established workers, and the unspoken but widely reported understanding with the AFL-CIO is that the wage of these workers will not increase. In other words, Boomer workers make almost double what their young counterparts do, and will continue to do so regardless of how long a young worker stays in the same job. As one older worker in one of these bifurcated factories told The New York Times, by the time the young reach their maximum earning, their elders “won’t be here any longer to remind them of what they are missing.”

Government, academia, the professions, corporations, unions, and both political parties — all continue to mine the vulnerability of youth in service of the needs of their aging power base. Separately, each of these cases would amount to a minor scandal, but taken together they point to a broader and more significant alteration to the way of the world. From every corner of the institutional spectrum, the whole of American society has been rearranged so that the limits of vision coincide exactly with the death of the Boomers.

Nobody wants this. The Boomers did not set out to screw over their kids. The wind just seemed to blow them that way. But no matter what their motivations, a painful truth grows truer with every passing year: Through its refusal to act, the generation in power is willing to do what other generations before them would not — sell their children’s birthright for a mess of their own pottage.

 

 

WHAT’S HAPPENING IN AMERICA IS HAPPENING EVERYWHERE ELSE:

 

A generation now means an economic cohort — a moment in the cycle of rising and (mostly) falling economic data. The UK has 21.8 percent youth unemployment, France 22.8 percent, Hungary 26.1 percent, Italy 28.2 percent, Spain 47.8 percent. Around the world, young people are beginning to be defined by their unemployment: the mileuristas of Spain, “those who earn less than a thousand euros”; the NEETs of England, “not in employment, education, or training”; the hittistes of Tunisia, “those who lean against the wall.” Revolutions or unmanageable riots have inevitably followed the rise of masses of bored, underemployed young people.

 

Many claim that the young deserve their fate: They’re entitled, they have too many choices. They don’t know what they want. They’re getting themselves into debt. They don’t know how good they have it.

These criticisms are convenient, but also demonstrably incorrect. Defining generations by cultural attributes or values, almost always done with unrepentant shallowness, is the stupidest thing that commentators do. However, a recent study from the National Center for Education Statistics comparing high school seniors in 2004 (who are in their mid-twenties today) with high school seniors in 1972 (now in their late fifties) is useful and practical.

The breakdown is rather stark: Two thirds of the Boomers thought “being able to give their children better opportunities” was important; 8 percent wanted to live close to their parents; 18 percent believed that making money mattered; 27 percent cared about social problems. The students in 2004: 83 percent claimed that the opportunities of their children were very important; 25 percent wanted to live close to their parents; 35 percent were serious about making money; and 20 percent cared about social problems.

Compared with their parents, high school kids who graduated from college into the teeth of the recession are a Republican fantasy. They want a good job in order to raise a family, and it’s exactly that arrangement that is going to be denied them. The deal they were promised, that if you work hard and make smart choices you will have a good life, is not working out. A Great Disappointment will no doubt follow.

Everyone currently emerging into the workplace will be economically scarred for life by the misfortune of their timing. The initial wage loss for a worker emerging in a bad economy is 6 to 7 percent for every 1 percentage point increase in the unemployment rate, which means a twenty-one-year-old starting a job today makes about 24 percent less than he or she would have five years ago. After fifteen years, even during the good times, the wage loss still hovers at around 2.5 percent.

A more profound shift is under way, though. Currently the average American parent spends 10 percent of his or her annual income on their adult children, regardless of income. Meanwhile, one in four young Americans recently moved back home with their parents after living apart. Calling them the Boomerang generation implies that it’s the irresponsible, feckless children who don’t have it together enough to leave the nest. But many children who live at home have jobs. So we have children living with their parents after they have income, just like they did in the early parts of the twentieth century and before. The idea of youth as a time of freedom and self-discovery will last exactly one generation, it seems.

People who want to join society will do so through an increasingly lengthy period of humiliation and struggle, and only through the help of their parents. Even before the recession, that was more or less true. It’s the dirty little secret of every middle-class person in their mid-thirties: Everybody’s parents helped them out. Who do you think is paying for all those summer internships? How many new parents do you think actually have enough money for a Bugaboo stroller, let alone a down payment on a first home? And if you don’t have a mom or dad who can help with ballet lessons for the kids or family vacations, God help you. America is becoming what it was founded to reject, what it has resisted throughout its history, a patronage society.

The situation is obviously unsustainable: At the exact moment when the United States and all other Western countries are trying to deal with aging populations, they are failing to capture the energy and potential of the people who will have to work to support those aging populations. We have arrived at a moment, just before the 2012 election, in which the hedges, the corner-cuts, the isolated decisions about young people from a host of institutions have accrued to the point of a continuous catastrophe. The question rises from the wreckage: How long can you eat the young?

Get ready for the summer. It’s going to be hot.

Youth should be the only issue of the 2012 election, because all the subsidiary issues — inequality, the rising class system in America, the specter of decline, mass unemployment, the growing debt — are all fundamentally about the war against young Americans. But the choice young Americans face is between a party that claims to represent their interests but fails to and a party that explicitly opposes their interests and actively works to disenfranchise them.

The protesters, the occupiers, the kids who screamed themselves hoarse in the parks of New York and Oakland last year have spent the winter nestled underground nurturing their strategies. Has there ever been a movement so full of people who don’t want to be there, who would rather be working?

Around the world, the response to chronic youth unemployment has been consistently traditional. The Arab world takes to the streets the way it did in the 1950s. Italy returns to its antique paterfamilias. England goes into its standard mode of underclass rioting. And what’s happening in the United States would be instantly recognizable to any progressive of the 1930s.

By bus and train and car pool, they will follow the gerontocracy to Tampa and Charlotte, the cities with the utter misfortune of hosting the presidential nominating conventions. Then we’ll see if the people inside the convention centers can find the youth anything better to do.

We’ll see then how the flowers of rage, planted and nurtured so carelessly for three decades, have sprung up and who will harvest them.

—
Sources: Pew Research Center; Urban Institute; Project on Student Debt; Eurostat; Bureau of the Public Debt; Brookings Institution; Department of Education; National Center for Education Statistics.



YOU AIN’T SEEN NOTHING YET – PART TWO

This is Part Two of a three part series trying to make sense of the Crisis period we entered in 2008. Click here to read: PART ONE

Catalyst of Change

“As late as December 1773, November 1859, and October 1929, the American people had no idea how close it was. Then sudden sparks (the Boston Tea Party, John Brown’s raid and execution, Black Tuesday) transformed the public mood, swiftly and permanently. Over the next two decades or so, society convulsed. Emergencies required massive sacrifices from a citizenry that responded by putting community ahead of self. Leaders led, and people trusted them. As a new social contract was created, people overcame challenges once thought to be insurmountable – and used the Crisis to elevate themselves and their nation to higher plane of civilization.” – Strauss & Howe – The Fourth Turning

 

 

 

Anyone who hasn’t sensed a mood change in this country since the 2008 financial meltdown is either ignorant or in denial. Millions of Americans fall into one of these categories, but many people realize something has changed – and not for the better. The sense of pure financial panic that existed during September and October of 2008 had not been seen since the dark days of 1929. Our leaders used the initial terror and fear to ram through TARP and stimulus packages that rewarded the perpetrators of the financial collapse rather than helping the middle class who lost 8 million jobs, destroyed by Wall Street criminality. The stock market plunged by 57% from its 2007 high by March 2009. What has happened since September 2008 has set the stage for the next downward leg in this Crisis. The rich and powerful have pulled out all the stops and saved themselves at the expense of the many. Despite overwhelming proof of unabashed mortgage fraud, rating agency bribery, document forgery on a grand scale and insider trading based on non-public information, the brazen audacity of Wall Street oligarchs is reminiscent of the late stages of the Roman Empire.    

“Crime, once exposed, has no refuge but in audacity.”
― Tacitus, Annals

The actions of the governing elite have provoked the darkening mood creeping across the land. The rise of the Tea Party in 2009 was fueled by anger over the bank bailouts, out of control federal spending and ever increasing taxes. The anger spilled over into town hall meetings, as Congressmen felt the wrath of public dissatisfaction. The fury propelled Tea Party Republicans to being elected in large numbers in 2010. But the movement was hijacked by the Republican establishment and defanged. As 2011 progressed, with Wall Street continuing to pillage the American middle class, the Occupy Movement spread to cities across America and around the world. The movement, led by Millenials, claims that mega-corporations and Wall Street manipulate the world in an unbalanced way that disproportionately benefits a super wealthy minority and is undermining democracy. They have shone a light upon the fact the 1% has used their wealth and power to plunder the national treasury, while impoverishing the 99%. The audacity of the 1% was on display for all to see when former Goldman Sachs CEO and former U.S. Senator Jon Corzine absconded with $1.2 billion of his customers’ money and continues to hide it in the vaults of his fellow robber baron Jamie Dimon at J.P. Morgan. To this day, no one has been jailed for this heist or any of the thousands of other crimes committed by the Wall Street titans. These psychopaths will not be satisfied until nothing remains of our country but a barren desert.

“They have plundered the world, stripping naked the land in their hunger… they are driven by greed, if their enemy be rich; by ambition, if poor… They ravage, they slaughter, they seize by false pretenses, and all of this they hail as the construction of empire. And when in their wake nothing remains but a desert, they call that peace.” – Tacitus, The Agricola and the Germania

A few weeks ago I watched The Grapes of Wrath movie for the first time in many years. The novel was written by John Steinbeck during the last Fourth Turning. It is as powerful today as it was in the 1941. It perfectly captures the mood of the country during the Great Depression. The message of the working class being exploited and manipulated by wealthy landowners resounds today. The Joads only sought an opportunity for a job, their own land, simple human dignity, and the chance for a better future. Wall Street has replaced the wealthy landowners as the exploiters of the working class. Steinbeck saw the Federal Government as a solution during the 1930s, but they are a major part of the problem today, as politicians have been captured by corporate and special interests. Their solutions do not benefit the average middle class American.

 

The feelings about our government and political system is reflected in Suzanne Collins’ Hunger Games novel, which captures the vein of government brutality, oppression of the working class, excessive wealth inequality, and the vapid shallowness of our American Idol culture. The Hunger Games was written in 2008 and the movie version has become a worldwide sensation. The immense divide between the wealthy ruling class, living an obscenely decadent lifestyle, and the exploited working class on the verge of starvation, is portrayed in a cruelly sadistic manner. The fact that it is appealing to Millenials and all generations says much about the changing of attitudes in the last four years. Hunger Games will be viewed as the modern day Grapes of Wrath by future generations.         

There is no denying the darkening disposition of the country, except by those whose job it is to deny the reality of our deteriorating situation. Those whose power and wealth are dependent upon a citizenry being kept in the dark and convinced the way out of this mess is to resume spending borrowed money, have pulled out all the stops since the initial catalyst for this Fourth Turning struck with its full fury in 2008. The frantic efforts by those in power to prop up the status quo were predictable. If our leaders had dealt with the initial crisis in a realistic manner, many wealthy powerful men would have gone broke. They have been able to temporarily fend off a full-fledged catastrophe as predicted by Strauss & Howe:

“At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where, during the Unraveling, America will have neglected, denied, or delayed needed action. Anger at “mistakes we made” will translate into calls for action, regardless of the heightened public risk. It is unlikely that the catalyst will worsen into a full-fledged catastrophe, since the nation will probably find a way to avert the initial danger and stabilize the situation for a while. Yet even if dire consequences are temporarily averted, America will have entered the Fourth Turning.”

But they have solved nothing. In fact, they have exacerbated the problem areas of debt, civic decay and global disorder with their “solutions”. Our leaders have added $5.6 trillion to the National Debt; the Federal Reserve tripled their balance sheet by taking on $2 trillion of Wall Street toxic debt; the Federal Government assumed trillions in new debt by taking over Fannie Mae, Freddie Mac and Sallie Mae; and real GDP went up by a mere $103 billion (.8%) between the 4th quarter of 2007 and the 4th quarter of 2011. Rescuing the 99% was never the focus of their solutions. It was to save the bankers and wealthy investors (1%) who took the world destroying risks and should have borne the losses of their risk taking. The oligarchs have been wildly successful in this effort. The stock market has doubled from its lows. Borrowing at 0% from the Federal Reserve has done wonders for banker bonuses.   Global disorder increases by the day, as politicians and bankers force austerity on their citizens, while continuing to harvest billions in profits and bonuses still waging wars of choice, further enriching the peddlers of debt and the peddlers of death (military industrial complex).

  

The Great Depression lasted from 1929 until 1940. The GDP of the country actually grew by 80% between 1933 and 1940. The stock market soared by 100% from the 1932 low to its 1933 high. It then soared another 100% from 1934 through 1937. Despite these fabulous economic statistics and investment riches scooped up by the 2.5% of the population that owned stocks, they still call this time period the Great Depression. With unemployment ranging from 15% to 25% during this entire time frame, the common man suffered greatly. There was no recovery for the 99%.

The net worth of the 99% is highly dependent on the value of their homes and their ability to increase their annual wages. Home prices have fallen 34% from their peak and continue to fall, recently reaching 2002 levels. Real median weekly earnings are lower than they were in 2003 and have fallen 3% since the economy supposedly entered its recovery in December 2009. Gas prices have doubled since early 2009. The 1% rejoices as they treat oil as an investment in their diversified portfolio. The 99% suffer as the average household is spending $2,500 per year more to fill up their vehicles. Food prices are up 15% to 25% in the last three years, even using the manifestly manipulated BLS figures.

It is essential for those in power to utilize their mainstream media propaganda machines, massaging of economic information and Ben Bernanke’s printing press to give the appearance of recovery to the masses. In the last three months the hyperbole and extreme spin from the corporate mainstream media has become exceedingly robust. It smells of desperation. Even as the media touts a recovery and Obama peddles drivel about millions of new jobs, Bernanke keeps the throttle of quantitative easing and zero interest rates wide open. Their actions are not consistent with their rhetoric. People who had jobs as accountants making $55,000 per year in 2007 are now stocking fertilizer in the garden center at Lowes making $20,000, with no benefits. This is the face of the jobs recovery. Only a corporate media doing the bidding of their masters could possibly rejoice at the February data showing consumers spending at a rate 450% higher than their income gains as a sign of recovery. There is a concerted effort to revive the auto market by the Federal Government (Ally Financial) and the Wall Street banks by employing exceptionally loose credit standards for auto loans and leases that are reminiscent of the subprime mortgage debacle. I’m sure it will turn out better this time. The downward spiral of trust is accelerating as predicted by Strauss & Howe:

“As the Crisis catalyzes, these fears will rush to the surface, jagged and exposed. Distrustful of some things, individuals will feel that their survival requires them to distrust more things. This behavior could cascade into a sudden downward spiral, an implosion of societal trust.”

The downward spiral of societal trust is well founded. The monied interests have captured the political process. The regulated have captured the regulators. Wall Street has always controlled the Federal Reserve. Corporations and the wealthiest among us select the politicians that will best serve their interests. The governing elite of psychopathic bankers, corrupt politicians, and powerful mega-corporations create crises, then save us from the crises they created, while accumulating more control, wealth and power. This perpetual swindle has been going on for decades and has reached its zenith as it did during the last Fourth Turning. Income inequality has reached the extreme levels last seen in the 1930s. The capitalism storyline has grown old and tired. Complete systematic capture is the reason for those at the top reaping all the benefits of our dysfunctional economic system.

The rampant mortgage fraud, the robo-signing crimes, trillions of shadowy derivatives, unfunded government pensions, unfunded Medicare and Social Security promises, and the bald-faced looting of customer accounts at MF Global have brought about a realization among those capable of critical thought that this Crisis is growing worse by the day. Strauss & Howe clearly understood the factors that would lead to this deficit of trust:

“But as the Crisis mood congeals, people will come to the jarring realization that they have grown helplessly dependent on a teetering edifice of anonymous transactions and paper guarantees. Many Americans won’t know where their savings are, who their employer is, what their pension is, or how their government works. The era will have left the financial world arbitraged and tentacled: Debtors won’t know who holds their notes, homeowners who owns their mortgages, and shareholders who runs their equities – and vice versa.”

Here we stand, three and a half years since the catalyst of this Crisis. What event or events will produce the regeneracy stage of this Fourth Turning and when can we expect its arrival? I’ll try to make some educated guesses in Part Three of this series.

Click here to read: PART ONE

 



 

YOU AIN’T SEEN NOTHING YET – PART ONE

“Human history seems logical in afterthought but a mystery in forethought. Writers of history have a way of describing interwar societies as coursing from postwar to prewar as though people alive at the time knew when that transition occurred.” – Strauss & Howe – The Fourth Turning

 

Watching pompous politicians, egotistical economists, arrogant investment geniuses, clueless media pundits, and self- proclaimed experts on the Great Depression predict an economic recovery and a return to normalcy would be amusing if it wasn’t so pathetic. Their lack of historical perspective does a huge disservice to the American people, as their failure to grasp the cyclical nature of history results in a broad misunderstanding of the Crisis the country is facing. The ruling class and opinion leaders are dominated by linear thinkers that believe the world progresses in a straight line. Despite all evidence of history clearly moving through cycles that repeat every eighty to one hundred years (a long human life), the present generations are always surprised by these turnings in history. I can guarantee you this country will not truly experience an economic recovery or progress for another fifteen to twenty years. If you think the last four years have been bad, you ain’t seen nothing yet.

Hope is not an option. There is too much debt, too little cash-flow, too many promises, too many lies, too little common sense, too much mass delusion, too much corruption, too little trust, too much hate, too many weapons in the hands of too many crazies, and too few visionary leaders to not create an epic worldwide implosion. Too bad. We’ve experienced horrific Crisis periods three times in the last 250 years and winter has arrived again exactly as forecasted by Strauss & Howe in 1997. The linear thinkers will continue to predict a recovery that never arrives. We have awful trials and tribulations, dreadful sacrifices of blood and treasure, and grim choices awaiting our country over the next fifteen years. Linear thinkers will scoff at such a statement as they irrationally view the world as a never ending forward progression towards a glorious future. History proves them wrong. We stand here in the year 2012 with no good options, only less worse options. Decades of foolishness, debt accumulation, and a materialistic feeding frenzy of delusion have left the world broke and out of options. And still our leaders accelerate the debt accumulation, while encouraging the masses to carry-on as if nothing has changed since 2008. Sadly, millions of lemmings want to believe they will not drown in the sea of un-payable commitments. Truth is a scarce resource on the planet today.

“Sometimes people don’t want to hear the truth because they don’t want their illusions destroyed.” –  Friedrich Nietzsche

 

Entire populations taking comfort in their illusions transcends centuries. This is because all humans are driven by their emotions and react to events and danger in a predictable manner depending on their stage of life. Strauss & Howe in their 1997 opus – The Fourth Turning – utilized decades of studying generational dynamics to anticipate when our next Crisis would arrive and what core elements would precipitate it:

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

The American people are mentally ensnared by their decades of indoctrination from propagandists in government and on Wall Street, spoon fed to them by the corporate mainstream media. Many are afflicted with the diseases of normalcy bias and cognitive dissonance.  Normalcy bias refers to a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring and its possible effects. The American people are mentally incapable of accepting the facts of our impending economic collapse. They somehow are able to convince themselves these facts as normal:

  • We’ve increased our national debt by $5.6 trillion in the last three and a half years. It took from 1789 until 2000, two hundred and eleven years, to accumulate the first $5.6 trillion of debt.
  • Our average annual deficit from 2000 through 2008 was $190 billion. Our average annual deficits since 2008 have been $1.3 trillion. Our deficits never exceeded 4% of GDP prior to 2008, but now they exceed 9%.
  • The national debt will reach $20 trillion by 2015 and if interest rates normalized to the same level they were in 2007 (5%), annual interest expense would be $1 trillion, or 45% of current tax revenue.
  • There are 242 million working age Americans and 100 million of them are not working. But don’t concern yourself. The Federal government reports that only 13 million of these people are actually unemployed. The other 87 million are just kicking back and living off their accumulated riches.
  • The economic recovery has been so great that the 7.5 million people added to the Food Stamp rolls since the recession officially ended in December 2009 isn’t really an indication of severe stress among the 99%. Only 46.5 million Americans (15% of the population) need food stamps to survive.
  • The unfunded liabilities of Medicare, Medicaid and Social Security exceed $100 trillion and cannot possibly be honored, leaving future generations to fend for themselves.

   

  • Our leaders have fought two undeclared wars of choice since 2001 that have resulted in 6,400 unnecessary soldier deaths, 47,500 badly wounded, $1.3 trillion of borrowed treasure, with unfunded liabilities of at least $2 trillion more, and we are itching for more of the same with our coming war with Iran. A bankrupt empire still trying to police the world is the ultimate act of hubris.
  • After causing a worldwide financial collapse in 2008 with their extreme risk taking, tangibly fraudulent mortgage schemes, and reckless pillaging of their clients and the American people, Wall Street used their complete systematic capture of our political and economic system to shift $8 trillion of toxic debt from their books onto the backs of American taxpayers. They have since become even more flagrant in their disregard for human decency by using the hundreds of billions in free money funneled to them by Ben Bernanke to take even bigger risks and pay themselves grander bonuses. Total unregulated derivatives (real WMD) outstanding now exceed $700 trillion.
  • Since 2001 the Federal government has used fear to assume unprecedented and unconstitutional powers over the citizens of this country. They can now use surveillance to monitor your phones calls, emails, and websites visited, without warrants. You can be imprisoned without charges for as long as the government decides you are a threat. TSA agents molest little old ladies and children trying to fly on airplanes. The President can take over the entire economy through presidential decree. Predator spy drones can eliminate suspected terrorists whenever a general gives the command. An order for 30,000 spy drones to be flying over U.S. cities should make you feel safe. The $2 billion NSA Utah Data Gathering Center (code name Stellar Wind) will be able to intercept and store every electronic signal on the planet by 2013. Sacrificing liberty for perceived safety and security isn’t working out too well for the American people.

Anyone with an ounce of critical thinking skill would conclude our current situation is far from normal. We’ve become a cognitive dissonant nation. We convince ourselves the best way to solve a debt problem is to create more debt. We believe we are made safer by attacking foreign countries. We have convinced ourselves it makes sense for Too Big to Fail Wall Street banks that create systematic financial risk to get even bigger, after their fraudulent frenzy of greed virtually crashed our economic system. We actually believe the two party political system offers us a choice, when both parties genuflect to Wall Street, gratify corporate special interests, fight never ending wars, and spend money they don’t have.  We choose to believe government statistics that claim inflation is running at 3%, when our everyday reality attests it to be 10%. We trust the Federal Reserve to maintain price stability even though their policies have resulted in a 97% depreciation in the U.S. dollar since 1913. We believe the future will be bright, even though 60% of workers have less than $25,000 in total savings.

In the ultimate example of cognitive dissonance the majority of Americans scorned and ridiculed the young people being beaten, maced and arrested for protesting the rampant criminality of the Wall Street 1%ers while supporting a billionaire banker bailout, 0% interest rates that punish senior citizens and savers while encouraging further debt accumulation, and not be outraged that not one criminal banker has gone to jail. They somehow are able to observe the data in the table below and still believe that America offers equal opportunity to everyone.

Americans have thus far been unable to deal with the reality of our desperate circumstances. They remind me of people who see the ocean recede from the shoreline and curiously venture out where the sea had flowed to pick up trinkets and pretty shells with no sense of what is truly happening. The deadly 20 foot high tsunami headed their way will be a complete shock when they are swept away in a torrent of bad debt and worthless currencies.  We are about to enter phase two of this Fourth Turning Crisis still in denial and terribly unprepared for the frightful trials that await our nation. It’s not as if it hasn’t happened before, just like clockwork. William Strauss and Neil Howe were able to document turnings in Anglo-American history dating back to the 15th century. The life cycles of human beings and the moods of generations at different stages of their lives are consistent across time, resulting in predictable responses to events during a particular time frame. Fourth Turnings are a time of Crisis, danger and vulnerability. The Crisis periods in modern history are as follows:

  • War of the Roses (1459 – 1487), Late Medieval Saeculum
  • Armada Crisis (1569 – 1594), Reformation Saeculum
  • Glorious Revolution (1675 – 1704), New World Saeculum
  • American Revolution (1773 – 1794), Revolutionary Saeculum
  • Civil War (1860 – 1865), Civil War Saeculum
  • Great Depression & World War II (1929 – 1946), Great Power Saeculum
  • Millenial Crisis (2008 – ????), Millenial Saeculum

Using a seasonal analogy, the Crisis is the wintry bitter dark era, where deadly blizzards rage and the citizens are pushed to the brink. In retrospect the three previous American Crisis periods seem easy to predict, but one year prior to their onset NO ONE could have predicted the epic sacrifices and horrific casualties of war to follow. In 1772 there were few people expecting America to declare independence and fight an eight year war for independence. In 1859 virtually no one expected the election of Abraham Lincoln as president and an ensuing war that would kill 700,000 American men. In 1928 no one imagined the stock market losing 89% of its value, an eleven year depression, and a world war resulting in over 60 million deaths. History is only logical in afterthought. The mystery of forethought is where we find ourselves today.

In a recent article, Neil Howe provided insight into why he believes the current Fourth Turning began in 2008, sixty-two years since the end of the Depression/WWII Crisis, which was sixty-four years after the Civil War Crisis, which was sixty-six years after the American Revolution Crisis:

“I believe the catalyst occurred in 2008. The year 2008 marked the onset of the most serious U.S. economic crisis since the Great Depression. It also marked the election of Barack Obama, which could yet turn out to be a pivotal realignment date in U.S. political history. In fact, if I had to give the catalyst a month, I would say September of 2008. The global Dow was in free fall. Banks were failing. Money markets froze shut. Business owners held their breath.” – Neil Howe – Dating the Fourth Turning

Howe uses the term catalyst to describe the trigger or event that initiates the Crisis. Strauss and Howe determined that a Crisis progresses through four stages during its life cycle, as described below:  

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

We have countless valleys to cross and mountains to ascend before reaching our ultimate destination. There are no guarantees the outcomes will be positive or that the nation as we know it will even exist. It is certain that in twenty years the social order of this country will not resemble what exists today. The transformation could be positive or negative, depending upon whether we make the right choices during this Crisis.

 

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

 



 

Money in America, Part Six

In the last episode, we followed post-World War One arrangements to return to a gold standard generally; the little-known Recession of 1920-1; the Strong-Norman dynamic duo; the Weimar collapse; the easy money that put the roar in the Roaring 20s; Black Thursday and Hoover’s seeds of the New Deal.

An overture: February, 1929, Montague Norman comes to the United States for secret meeting with Secretary of the Treasury, Andrew Mellon. Also, he confers with Federal Reserve directors, presumably to agree to a coordinated approach to the impending bubble collapse.

Let it be?

Surely it was only a coincidence that the Federal Reserve advisory to member banks was to liquidate their stock market holdings. Paul Warburg had also told stockholders of his International Acceptance Bank:

If the orgies of unrestrained speculation are permitted to spread, the ultimate collapse is certain not only to affect the speculators themselves, but to bring about a general depression involving the entire country.

After Black Thursday

The stock market crash of 1929 did not cause the Great Depression but it was a warning. Too much speculation, animal spirits, hid the underlying truth of much productivity increase since the 1920-1 correction.

A voice crying in the wilderness at the time:

I was one of the only ones to predict what was going to happen. In early 1929, when I made this forecast, I said that there would be no hope of a recovery in Europe until interest rates fell, and interest rates would not fall until the American boom collapses, which I said was likely to happen within the next few months.

What made me expect this, of course, is one of main theoretical beliefs that you cannot indefinitely maintain an inflationary boom. Such a boom creates all kinds of artificial jobs that might keep going for a fairly long time but sooner or later must collapse. Also, I was convinced that after 1927, when the Federal Reserve made an attempt to stave off a collapse by credit expansion, the boom had become a typically inflationary one.

Friedrich Hayek

Irving Fisher had a different viewpoint, thought stocks would rebound, had skin in the game and got skinned. By 1933, he had rejected equilibrium and developed his theory of debt-deflation. He reckoned that speculation and overconfidence were less important than the risk factor of debt.

I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles its victims into debt.

It took three years for the market to find a bottom. With Hoover doing his bit along the way: wage controls, assisted by the Smoot-Hawley tariff, public works like the Hoover Dam, increased corporate taxes, the increase in the top tax bracket from 25% to 63% and more.

Coolidge on political action:

When depression in business comes, we begin to be very conservative in our financial affairs. We save our money and take no changes in its investment. Yet in our political actions we go in the opposite direction …

When times are good we might take a chance on a radical government. But when we are financially weakened we need the soundest and wisest of men and measures.

Silent Cal also said that Hoover had given him nothing but advice (as Secretary of Commerce) and all of it bad. Coolidge also labelled him “Wonder Boy” back then.

Hoover’s good intention of maintaining wages ran down a rocky road: some businesses followed the ‘patriotic’ duty foisted on them by cutting staff; others simply went out of business. Oh well. To compensate, the administration by April 1930 pumped public works spending to the highest point in five years.

And then there were the farmers. Having been lured into acquiring more land through easy money, and consequent overproduction, supply outran demand. Prices were falling. Deflation! Shock, horror, but Hoover’s tariff was part of the fix. Irving Fisher and 1027 other economists signed a letter to Hoover begging him to veto the bill, because of the unintended consequences.

The irony is, getting rid of tariffs (they were regressive!) was the justification for the income tax. Also, over the preceding fifteen years, U.S. exports surpassed foreign imports – what domestic price improvement would be made would be offset by reduced or curtailed export income. And, not to mention, higher food prices tended to disadvantage the poor sap buying groceries.

And by early 1930, unemployment was up to nine percent anyway.

That was the year Paul Warburg published his The Federal Reserve System: Its Origin and Growth. (1930) From Vol. 1:

While technically and legally the Federal Reserve note is an obligation of the United States Government, in reality it is an obligation, the sole actual responsibility for which rests on the reserve banks … The government could only be called upon to take them up after the reserve banks had failed.

Hoover tried an each-way bet for his tariff: he would not veto it, contingent on his independent commission overseeing and setting prices domestically after review of local and foreign statistics. But the executive could veto the conclusions of the committee …

Inevitably, retaliation happened. First, the Swiss, upset about their watch exports, boycotted all U.S. Imports. Add Italy, France, India, Canada and dozens of others.

To make matters worse, the U.S. was owed debts from foreigners from the war years and after. Without cross-trade under the gold exchange standard such repayments easily fell into arrears. Shooting yourself in both feet is not a sound foundation to stand on.

Hoover had been dubbed “the Great Engineer” for the world-class firm he founded in 1908 and his reputation expanded for his humanitarian efforts in organizing food shipment to central Europe during WW1 and even into Russia in 1921. By the 1932 election, voters remembered he had supported Prohibition and its unintended consequences and the near-death spiral of unemployment up above 24.1% and rising, more raised income taxes across the board, the Bonus Army and other Hoovervilles.

The New Deal Era

Franklin Delano Roosevelt won 42 of the 48 states in the 1932 election.

Russians Hopeful of ‘a New Deal’

New York Times dispatch from abroad. November 10, 1932

FDR’s first national radio speech in April, 1932 on the campaign trail focused on the underdog: “the Forgotten Man”. No, hardly the one written by William Graham Sumner. The new, improved version was of the “forgotten, the unorganized but indispensable unit of economic power.”

The inauguration on March 4, 1933 was the last such transition date. The Twentieth Amendment changed inauguration date to January 4 – it was ratified on January 23, 1933 but took effect on October 15, 1933.

In his 20-minute speech, Roosevelt asserted

that the only thing we have to fear… is fear itself

along with the greed … of bankers and businessmen, unscrupulous money changers, the falsity of material wealth, to put people to work, and requesting broad Executive powers.

The following day, he asked Congress for a bank holiday and initiated one by personal edict. On March 9, the retroactive Emergency Banking Act was signed; it included the process for reopening the banks and a few other obscure matters. Ten thousand banks had failed from 1929 to 1932; the current bank panic and runs on the banks by scared depositors was the justification for the bank holiday of four days, breathing space for legislation to cope.

By the end of the month, three-fourths of the closed banks were returned to business as usual.

More or less … Fractured reserve banking had received unlimited amounts of Federal Reserve currency to restore their solvency.

On March 12, 1933 FDR inaugurated his fireside chats. He asked the public to banish fear. A day later, citizens stood in line having raided their mattresses and restored half of their currency that had been ‘hoarded’ during the crisis.

Executive Order 6102

Technically, this was signed on April 5, 1933. In reality it was already a fait accompli due to the Emergency Banking Act. This had incorporated provisions from the never repealed 1917 Trading with the Enemy Act and a subsection dealing with the Federal Reserve Act and the Secretary of the Treasury. There had also been a stopgap Executive Order 6073 on March 10.

Curse those dirty hoarders was the excuse. So 6102 demanded confiscation of gold coin, gold certificates, and bullion, on pain of fine and/or imprisonment.

Oh, there were exemptions, private citizens could keep about 5 troy ounces of gold. At this time, the official price of gold was $20.67 but millions of Americans riding the rails in search of jobs and food probably did not get to exercise that option.

Those working with gold, jewelers, artisans, and so on, could maintain some working stock. And coins of numismatic value were exempt, not likely having any relevance on Main Street, though.

All else was to be returned to the Federal Reserve or their agents.

Act in haste, repent by modification: 6102 was altered by 6111, 6260 and 6261 later in the year. Even so, there was an ‘oops’: New York attorney Frederic Barber Campbell had in 1932 deposited a total of 5000 troy ounces of gold bullion at Chase National and demanded its return in September 1933. The bank cited the various executive orders and Campbell sued.

Then a federal prosecutor indicted Campbell for failing to report and failure to surrender said gold. That prosecution failed due to the error that the Secretary of the Treasury was to have signed the order instead of the president. Like they say, though, the house always wins. The right of the government to confiscate was affirmed anyway. Bye bye, bullion.

The Gold Reserve Act of 1934 sorted out all the inconsistencies and further added that gold clauses in private contracts were unenforceable. Previously, such clauses had been used to demand payment in weight of gold, on the basis one would be protected from government debasement of the money.

But that Act was yet to come and would legitimize the answer to the 1933 problem the administration faced.

Significant other activity that year was the Banking Act of 1933, aka the Glass-Steagall Act. This created the Federal Deposit Insurance Corporation – and the Federal Open Market Committee. Second was the acceptance of the 21st Amendment to the Constitution on December 5, 1933. This added some tax revenue to the government coffers.

 

Those old Liberty Bonds …

The chickens were coming home to roost. Aside from the interventions to help the British, the U.S. Entry into World War One was partly paid for by about 70% inflation. The public bought the Liberty Bonds – with a little push – which were gold denominated. Series one, two, and three had rolled over into a fourth in 1918 at ever more favorable rates.

For many years, the Treasury had ‘bled’ gold to pay the interest on these bonds and other debts. By 1933, the outstanding debt in gold was $22 billion and the Treasury had only $4.2 billion in the kitty.

Default was FDR’s answer but it wasn’t called that. No, the justification was shored up by blaming hoarders, the failing banks and a downturn of the economy that no one could have anticipated. The role of the Federal Reserve System in pumping the money supply for World War One and its severe contraction that led to the 1920-1 depression never entered the public discourse. James Warburg, son of Paul (one of the Jekyll Island gang) served as one of FDR’s advisors. So, too, did Irving Fisher, who’d believed his own stock market theories enough to invest the family fortune in 1929 and lost.

The bank holiday and gold confiscation went hand in hand to solve the problem that the U.S. Government simply could not pay its debts in gold.

Of course, the mantra always sounded that the most important issue was to save the banks. Another belief, supported by ‘repealing the law of supply and demand’ was artificially maintaining high prices. To assist in this and ‘help’ the farmers, 10 million acres of cotton would be plowed under; 5 million hogs and 2 million cattle would be destroyed. Of course, Hoover had helped the farmers first with the artificial raising of prices and the tariff, and loans to farmers, FDR built on this foundation with the Agricultural Adjustment Administration, and other acronym soup varieties.

Various critics complained that gold confiscation was effectively taking the country off the gold standard. FDR said it was only temporary and his Treasury Secretary William Woodin said the charge was “ridiculous and misleading.” The next step of cancelling the gold clause of private contracts did not reassure the critics.

Uncertainty ruled the day, not least amongst foreigners. FDR’s bizarre official setting of the gold price did not help.

“If anybody ever knew how we really set the gold price through a combination of lucky numbers, etc., I think they would be frightened.”

Secretary of the Treasury Henry Mortenthau

While all this was happening, the ghost of Bryan raised its Populist head. Factions, particularly in the western states, were calling for a return to a bimetallic standard. FDR’s “pump and dump” began in 1933, followed by the Silver Purchase Act of 1934. The Treasury regularly bought silver at above market rates, tripling the value to one-third of its gold reserves. The metal itself had tripled in value in just two years.

“Whenever in the judgment of the President such action is necessary to effectuate the policy of this act, he may by Executive order require the delivery to the United States mints of any or all silver by whomever owned or possessed. The silver so delivered shall be coined into standard silver dollars or otherwise added to the monetary stocks of the United States as the President many determine; and there shall be returned therefor in standard silver dollars, or any other coin or currency of the United States, the monetary value of the silver so delivered less such deductions for seigniorage, brassage, coinage, and other mint charges as the Secretary of the Treasury with the approval of the President shall have determined: Provided, That in no case shall the value of the amount returned therefor be less than the fair value at the time of such order of the silver required to be delivered as such value is determined by the market price over a reasonable period terminating at the time of such order.”

excerpt from Proclamation 2092 (emphasis mine)

Unintended (?) consequences: China, traditionally on a silver-backed currency, and faced with an artificial market price for silver, did all the wrong things. Ultimately, the private banks were nationalized by the Nationalist government, unredeemable paper money to solve the problem was issued.

Fiat on. The Nationalist government debased their currency, fell eventually and the communists took charge of the country. Mexico was whacked by that 1934 Act also.

January 31, 1934 – the ‘gold letter day’ when the official price was set at $35, rather a significant devaluation of the dollar from the former $20.67 and the Treasury held its “my preciousss”. Only a few lucky individuals in the U.S. owned any gold for decades.

Earlier in January, FDR asked Congress for $10.5 billion for recovery programs. On the 31st, he signed the Farm Mortgage Refinancing Act. Several more farm relief measures were undertaken.

On June 6, FDR signed the Security Exchange Act establishing the SEC. First chairman, Joseph Kennedy.

That Silver Purchase Act which was signed on June 19 also established the National Labor Relations Board. And June 28 was very busy:

  • the start of the Federal Housing Administration
  • Taylor Grazing Act reserves 8 million acres
  • Tobacco Control Act imposes quotas
  • Federal Farm Bankruptcy Act imposes moratorium on foreclosures

 

The Second New Deal, 1935-1938

A significant style of administration change is notable in this period, as presented in FDR’s annual message to congress.

1935 gave America the Works Progress Administration, National Labor Relations Act, the Social Security Act, Resettlement Act, Rural Electrification Administration, the Wagner Act, Federal Credit Union Act, Revenue Act and more, including a Neutrality Act. The Banking Act of 1935 officialized the FDIC as a permanent agency. Keynesianism in its glory.

The next three years saw the Soil Conservation Act, United States Housing Authority, and 1936 was noteworthy for the Treasury order to build the gold repository at Fort Knox. Just as well …

So many changes, so many improvements. So much uncertainty.

Who really cared that the stock market was slowly climbing out of the abyss. Not everyone agreed with FDR’s policies, the Supreme Court overturned some of them. Meanwhile, Main Street was not singing happy days are here. Unemployment in October, 1933 was 22.9 percent, November, 23.2% and still sinking; January, 1934 at 21.2%, November, 23.2%. July, 1935, 21.3%.

By December, 1936 the rate was improved, 15.3%; a month later, 15.0%.and at 13.5 in August, 1937.

But. FDR’s tax fiddling had unintended consequences: the undistributed profits tax on companies ate into reserves and employers who had retained workers could not now afford to do so. Credit lay fallow as businesses hesitated to invest. Stock prices began falling, illuminating the inconvenient truth that companies had been losing money for years. And in the heartland, 15,000 farm families left the drought and headed west.

Also, the administration attempt to balance the budget was an unexpected U-turn. No wonder people were confused and uncertain. At any rate, the market was like Black Tuesday redux. The embezzlement by Richard Whitney, head of the NYSE, didn’t help nor even his conviction and imprisonment.

By January, 1938, unemployment was up to 17.4% in this ‘recession within a depression’. Naturally there was a decline in the stock market. Despite all the cartelization of industries under the New Deal, greedy businessmen were demonized. Yet even Keynes told FDR that the recession was more than a monetary problem:

“It is a mistake to think businessmen are more immoral than politicians.”

If there was uncertainty in business and among the general public, it was only a reflection of the dithering shifts of administration policy. Wendell Willkie made speeches on the ‘the terrifying effect of its random targeting of businesses had on the general economy.’

One sign of the times was the election of 1938. The Republican brand had lost members in both houses in 1930, with further declines in 1932, 1934, and 1936. But this time, they gained eight in the House, eight in the Senate, and eleven governors. The times they were a’changing. Meanwhile, news from Europe looked more and more grim.

In the election of 1940, Wendell Willkie had won his party’s nomination with some difficulty but offered a classical liberal platform:

“I say that we must substitute for the philosophy of distributed scarcity the philosophy of unlimited productivity. I stand for the restoration of full production and reemployment by private enterprise in America.”

Roosevelt, though, had some advantages. Massive spending on jobs across the country and 42 millions enrolled in Social Security certainly helped. FDR had also diminished the rhetoric against business. Still, he lost some Democrats over the choice of running for a third term (what would George Washington have said?)

Willkie tried the ploy of claiming FDR would secretly plunge American into a world war and though it may have cost some support, FDR’s pledge ‘he would not send ‘American boys into a foreign war saw a resounding win of 27 million against Willkie’s 22 million. Electoral College: 449-82.

The Selective Training and Service Act of 1940, enacted September 16, was the first peacetime conscription in American history. The initial term was for twelve months.

In early 1941, FDR asked for an extension which passed the House by a single vote.

The unemployment rate perforce went down considerably. After the Day of Infamy, a new, improved selective service act extended the term of duty to two years after the war. Pearl Harbor saw thousand of volunteers a day later and thousands more conscripted. In all, over 10 million were enrolled in the military.

And thus began the myth of ‘wartime prosperity’.

When we return, a look at the real wartime economy and the post-war boom.

IT’S A BIG CLUB & YOU AIN’T IN IT

 

Jamie Dimon JP Morgan Chase CEO Jamie Dimon (L) and Goldman Sachs CEO Lloyd Blankfein leave the White House after they and 13 other bank heads met with President Barack Obama March 27, 2009 in Washington, DC. Obama used the meeting to tell the bankers that they must look beyond short-term interests toward obligations each person has in order to make it through the current economic troubles. (Photo by Chip Somodevilla/Getty Images) *** Local Caption *** Jamie Dimon;Lloyd Blankfein

[ken+lay+i+els+bush]

Robert Rubin Chuck Prince (L), former chairman of the board and CEO at Citigroup Inc. and Robert Rubin, former chairman of the Executive Committee of the Board of Directors at Citigroup Inc., are sworn in before testifying before the Financial Crisis Inquiry Commission on Capitol Hill April 8, 2010 in Washington, DC. The inquiry commission is investigating the causes, including subprime lending, that lead to the global financial collapse that began in the fall of 2008.

 

There’s a reason that education sucks, and it’s the same reason it will never ever ever be fixed. It’s never going to get any better, don’t look for it. Be happy with what you’ve got. Because the owners of this country don’t want that. I’m talking about the real owners now, the big, wealthy, business interests that control all things and make the big decisions.

Forget the politicians, they’re irrelevant.

Politicians are put there to give you that idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land, they own and control the corporations, and they’ve long since bought and paid for the Senate, the Congress, the State Houses, and the City Halls. They’ve got the judges in their back pockets. And they own all the big media companies so they control just about all the news and information you get to hear.

They’ve got you by the balls.

They spend billions of dollars every year lobbying to get what they want. Well, we know what they want; they want more for themselves and less for everybody else. But I’ll tell you what they don’t want—they don’t want a population of citizens capable of critical thinking. They don’t want well informed, well educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interest. You know something, they don’t want people that are smart enough to sit around their kitchen table and figure out how badly they’re getting fucked by a system that threw them overboard 30 fucking years ago.

They don’t want that, you know what they want?

They want obedient workers, obedient workers. People who are just smart enough to run the machines and do the paperwork and just dumb enough to passively accept all these increasingly shittier jobs with the lower pay, the longer hours, the reduced benefits, the end of overtime and the vanishing pension that disappears the minute you go to collect it.

And now they’re coming for your social security money.

They want your fucking retirement money; they want it back so they can give it to their criminal friends on Wall Street. And you know something? They’ll get it. They’ll get it all from you sooner or later because they own this fucking place. It’s a big club and you ain’t in it! You and I are not in the Big Club. By the way, it’s the same big club they use to beat you in the head with all day long when they tell you what to believe. All day long beating you over the head with their media telling you what to believe, what to believe, what to think and what to buy.

The table is tilted folks, the game is rigged.

Nobody seems to notice, nobody seems to care. Good honest hard working people, white collar, blue collar, it doesn’t matter what color shirt you have on. Good honest hard working people continue, these are people of modest means, continue to elect these rich cocksuckers who don’t give a fuck about them. They don’t give a fuck about you. They don’t give a fuck about…give a fuck about you! They don’t care about you at all, at all, at all.

And nobody seems to notice, nobody seems to care.

That’s what the owners count on, the fact that Americans are and will probably remain willfully ignorant of the big red, white, and blue dick that’s being jammed up their assholes everyday. Because the owners of this country know the truth, it’s called the American Dream, because you have to be asleep to believe it.

George Carlin



QUOTES OF THE DAY – FOURTH TURNING EDITION

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

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

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

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

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

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

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

LLPOH: Follow-up to a Rant

Yesterday I ranted about how I am sick and tired of the pain I go through in order to maintain my small business. Specifically, I was screaming about how my life is made hell by a never-ending series of bad employees, that think I owe them a living and that they owe me nothing for the $85,000 per year it costs me to employ them. One dear poster advised me to “just fire them all and do all the work myself”. That is a great answer, which shows a complete lack of understanding of what running a small business is about. Not that I haven’t considered it, mind you.

In general figures, I employ approximately 100 persons, and these can be roughly categorized as follows:
– 10 employees are absolutely top-notch. I pay and treat them accordingly. I am not one who buys into the “treat everyone the same” bullshit. These folks are outstanding, and I treat them accordingly. Often, other employees come to me wanting something, and when denied, they say “But you let so-and-so do such-and-such”. I am very straightforward when that occurs – I simply respond that when they do as good a job as so-and-so they too will get special privileges. That tends to shut them up.

– About 70 employees are acceptable. They do not cause me too much headache, they generally come to work, they need not too much supervision, etc. However, the job isn’t near the top of their priority list. They are more concerned about other things. Very rarely do they ever move up to the next level – almost never, in fact. However, they do often move down.

– About 20 employees are unacceptable to the business, and I have to work continuously to weed them out. It is hard work to do so, and it requires a lot of skill and experience and dedication to accomplish. Most of the weeding out falls to me as a result. Failure to weed out these twenty on a continuing basis would see my company collapse in very short order.

These bottom twenty are the source of perhaps half the grief in my life. Customers account for perhaps 25%, and the government accounts for the balance. What makes these 20 bad employees? To me, a bad employee is one that does not do his/her job, misses a lot of work, disrupts the workforce, requires and inordinate amount of supervision, refuses or attempts to refuse work-orders, hinders training efforts, works slowly, wastes time, etc.

The reasons that people are bad employees are many, and include the following: drug addiction, alcoholism, criminal activity, gambling problems, problems with their spouses/partners, problems with their children (misbehaviour at school, crimes, attention deficit disorders, etc.), weight and health problems, smoking addictions, outside activities taking precedence over work, heavy indebtedness, problems with sick parents, car problems, general laziness, feelings of being mistreated/unfairly treated/ poorly paid, stealing from me (both goods and time), depression, aggression, false claims of injury/discrimination, attempted suicide (occasionally successful suicide, unfortunately), grandiose sense of entitlement, etc. etc. etc. I see and have to deal with all of these reasons regularly, and by regularly I mean daily. Unfortunately, many of the acceptable employees slide into the unacceptable category over time, for any one of the reasons above.

When I am hiring, in general I need to hire 4 or 5 employees to get one that makes it into the acceptable category. I never seek to hire someone that fits into the top, outstanding category. That is a fool’s errand. Of these 4 or 5, the majority self-select out pretty quickly when they realize that they will actually be required to work. That is not on their agenda. Please keep in mind that all of my employees have the opportunity to make more than the average wage, and can make upwards of $55,000 per year if they are even marginally dedicated. Of these 4 or 5, one or two will require a push out the door, which isn’t too hard to accomplish nor too painful, as it occurs before they are entrenched into the business. And so in the end I am left with one employee that that is acceptable. Hopefully that one will not eventually become an unacceptable employee, but it happens.

Once the employee is entrenched in the business, and falls prey to any of the reasons/situations that result in him/her becoming an unacceptable employee, my job becomes infinitely harder. Managing through those situations is difficult. The best result is to get them back to an acceptable level, as they are trained and able to do the job required, but simply are not doing so. To lose them means going back to that revolving door of hiring 5 to get one, and the costs associated with that are substantial. Additionally, on a human level, trying to salvage the situation is the right thing to do. Some of them I am able to move back up, but a great many I am not. This process largely falls to me, as it requires a significant skill and experience base. The additional fact is that most people simply are unable to confront this range of issues, nor are they prepared to terminate an employee. It is a difficult thing, I assure you.

So, this, in a nutshell, is what I face each day with respect to dealing with my employees. It is never-ending. I have been doing it for over 30 years now, and I am growing weary.

But compounding this are other major issues involved in running a small business.
– The government adds to the burden daily, via an endless stream of red tape, OHSA regulation, Obamacare, etc.

– My customers look continuously for me to drop prices and improve quality of product and service, and take a very short-term view of the world. I lose business to China/Thailand/India et al in a slow but steady trickle.

– I have a cost base of around $85,000 per employee, while my overseas competition has a base of perhaps $5,000 to $10,000 per employee. Just think about that – the labor I use costs almost 20 times as much as that of some of my direct competitors.

– The skill base required to run a successful small business is huge. To run a small business requires a depth and breadth of skill rarely found. A lot of the need for this skill base comes from government mandate, but customers push a lot of it onto the business as well. For instance, how many people reading this have ever set up an accredited quality system? A quality system is extremely difficult to establish and is very expensive to maintain, and generates no return whatsoever save to appease the customer. Other skills required to run a small business include production planning, purchasing, accounting and financial skills, human resource skills, marketing and sales skills, engineering skills, maintenance skills, debt collecting skills, etc.

– Further, the personal risk absorbed by small business owners is substantial. Not only do business owners, in general, risk all of their worldly possessions by establishing a business, they also assume liability for the actions (read possible stupidity) of their employees. What if a driver that works for the company gets drunk and runs over someone while out on a run? What if an employee disables a safety guard because it annoys him, and someone is injured or killed? Who is ultimately responsible for those actions? The business owner.

Although I have rambled on a bit, I want to quickly point out an industry that is suffering mightily due to the pressures of running a business. That industry is doctors in private practice. Doctors spend a large portion of their lives gaining medical skills. In order to run a small practice, they also need to possess the skills described above, and to also be able to navigate the insurance/Medicare/Medicaid/Obamacare system and still turn a profit. Just when and how are they supposed to obtain these skills, given their dedication to the medical profession? Is it any wonder that private practices are disappearing in large numbers, with large numbers of doctors going bankrupt. Spare a thought for those many doctors that visit this site, as their burden is both extreme and unfair. As is that of small business people everywhere.

But back to the question of why do I not just fire everyone and do it myself? To do so would be to eliminate the livelihoods of 100 people, plus there is the flow on effect it would have throughout the community. Perhaps several hundred families would be affected, as the jobs would flow overseas, for sure and certain. That is a decision I am loathe taking, despite being mightily dismayed and unhappy with a lot of my day-to-day work-life. Also, it has been my life’s work to create and build things, and it would be gut-wrenching to walk away.

The day is coming that my business will end, I am afraid, and we are slowly winding it down in response to various pressures. For instance, as customers take profitable goods from us to build them overseas instead, we also then choose to stop making less-profitable goods in order to keep margins in balance. We are managing our products so as to maintain profitability while slowly shrinking the business. However, each day brings a new governmental or customer-generated challenge. We will continue on, but for how long is the question. I guess things will come to a head within the next 5 years. I hope it may be different. But I do not expect it to be. I wonder who will be left to turn out the lights when all small business is gone.

WHERE’S OUR FOURTH TURNING REGENERACY?

Hat tip to Thinker for noticing Neil Howe’s 1st blog post in over a year. He’s dated the start of this Fourth Turning as September 2008. That is 82 years after the end of the last Fourth Turning. That is the length of an average human life. I would agree with his assessment, though you could argue that the series of events leading to September 2008 began with Bear Stearns in 2007. We are only four years into this Fourth Turning. Think about how bad the last four years have been and wrap your mind around the fact that things will get much worse before this Crisis ends around 2028. I’ve been trying to wrap my mind around when the regeneracy would start and what could possibly bring the country together. The country is as divided as I’ve ever seen at this point. Neil thinks another financial crisis or geopolitical event will lead to regeneracy.

I would agree that a combination of war, monetary collapse, and derivatives spreading wealth destruction across the Western world will lead to sides being chosen. At this point, I see a greater likelihood of a Civil War (ala 1860) than a country rallying behind the President to fight a foreign foe. I think it is time to take Neil’s thoughts and write a new article pondering the regeneracy possibilities and likelihoods. Now I have something to do next weekend.

Thanks to Neil for starting his blog up again.

Dating the Fourth Turning

This is called a preemptive posting.  If there’s ever a question I get asked a lot, it’s this: When did the Fourth Turning start?  So rather than wait for someone to ask again, let’s get right to it.

Readers of The Fourth Turning already know that 4Ts in history are dated and internally subdivided into stages by four critical events.  The first event, the catalyst, triggers or starts the 4T.  It is “a startling event (or sequence of events) that produces a sudden shift in mood.” The second, the regeneracy, marks the beginning of “a new counter-entropy that reunifies and re-energizes civic life.” The third, the climax, is “a crucial moment that confirms the death of the old order and triumph of the new.”  The fourth is the resolution, “a triumphant or tragic conclusion that separates winners from losers, resolves the big public questions, and establishes the new order.”

So to ask when the current 4T began is to ask, when was the catalyst?

Pending stunning new developments, I believe the catalyst occurred in 2008.  It’s a date that is looking better and better as time goes by.  The year 2008 marked the onset of the most serious U.S. economic crisis since the Great Depression.  It also marked the election of Barack Obama, which could yet turn out to be a pivotal realignment date in U.S. political history.

Let’s look at each of these separately.  First, the economy.  Yes, the U.S. recession technically started in December of 2007, but neither the public nor the market felt it until the spring and summer of the following year.  In fact, if I had to give the catalyst a month, I would say September of 2008.  The global Dow was in free fall.  Banks were failing.  Money markets froze shut.  Business owners held their breath.  Thankfully, America’s leaders succeeded in avoiding a depression by means of a massive liquidity infusion and fiscal stimulus policies whose multi-trillion-dollar magnitude has literally no precedent in history.  Today, for the time being, the U.S. economy seems safe again, though to be sure it has emerged weaker and more fragile—and certainly more leveraged—than it was before.

Yet at the time, behind closed doors, many of America’s top leaders believed that they were skirting the edge of a catastrophe that could have exceeded 1932 in its destructive potential.  And they were probably right.  Treasury Secretary Hank Paulson later recounted (in On the Brink) that in the last two weeks of September, 2008, they were only “days away” from “economic collapse, another Great Depression, and 25 percent unemployment.”  At one Thursday-evening meeting, Fed Chairman Ben Bernanke famously urged legislators to “break the glass” and pass a bailout package with the simple admonition: “If we don’t do this, we may not have an economy on Monday.”

And, to add even greater edge to this catalyst, we were at that time just six weeks away from the election of Barack Obama, who brought a new party to power and was America’s first African-American President.  Would he have won without the meltdown?  Who knows.  It would have been a much closer election.  Yet as time goes by, we may see something more important in the 2008 election—how it may mark the beginning of a new political realignment.  Admittedly, it’s still too early to say.  Obama’s approval ratings are still relatively low, and the GOP—though showing deep fissures and light turnouts in this year’s primaries—may still experience a resurgence.  This is a call that will be much easier to make a year or two from now.

People have asked me how confident I am about 2008.  All I can say is, the catalyst has to be sometime around 2008 given the generational dividing lines.  As a rule, a new turning starts a few years (typically 2 to 6) after each living generation (especially the new youth generation) enters a new phase of life.  2008 was 4 to 6 years after the oldest Millennials reached age 21 and graduated from college—and 3 years after the oldest Boomers (born in 1943) started to receive their first Social Security retirement checks.  In terms of phase of life, this is right on.

On the other hand, 2001 was too early—and Bill and I repeatedly explained this to many readers who once told us that 9/11 “must be” the catalyst.  We agreed that the mood shift was sudden and dramatic.  But we pointed out that it the living generations were simply too young: The oldest Millennials, for example, were barely college sophomores.  As time passed—and as the Greenspan bubble welled up under the U.S. economy and as public disillusionment set in over the U.S. invasion of Iraq—our initial doubt was justified.  9/11 will go down as one of the more famous crisis precursors in American history.  A crisis precursor is an event that foreshadows a crisis without being an integral part of it.  Other such precursors in American history include the Stamp Act Rebellion (1765), or Bleeding Kansas (1856), or perhaps the Red Scare (1919).  Incidentally, the media did several retrospectives on the 1919-20 bombings in the wake of 9/11—since they represented, prior to 9/11, the most destructive act of political terrorism by foreigners ever attempted on U.S. soil.

OK.  Now let’s move on to the next question: Where is the regeneracy?

I think it’s pretty obvious that the regeneracy has not yet started.  So how long do we need to wait for it?  And how will we know when it starts?  Those are good questions.  I recently went back over The Fourth Turning to recall how we dated the stages of the each of the historical 4Ts.  And I found that we were very explicit about dating the other three stages (catalyst, climax, and resolution) for each 4T.  But we were always a bit vague about dating the regeneracy, treating it more like an era than a date.  There is a reason for this.  We may like to imagine that there is a definable day and hour when America, faced by growing danger and adversity, explicitly decides to patch over its differences, band together, and build something new.  But maybe what really happens is that everyone feels so numb that they let somebody in charge just go ahead and do whatever he’s got to do.  I’m thinking of how America felt during the bleak years of FDR’s first term, or during Lincoln’s assumption of vast war powers after his repeated initial defeats on the battlefield.

The regeneracy cannot always be identified with a single news event.  But it does have to mark the beginning of a growth in centralized authority and decisive leadership at a time of great peril and urgency.  Typically, the catalyst itself doesn’t lead directly to a regeneracy.  There has to be a second or third blow, something that seems a lot more perilous than just the election of third-party candidate (Civil War catalyst) or a very bad month in the stock market (Great Power catalyst).

We are still due for such a moment.  We have not yet reached our regeneracy.  When it happens, I strongly suspect it will be in response to an adverse financial event.  It may also happen in response to a geopolitical event.  It may well happen over the next year or two.  Given the pattern of historical 4Ts, it is very likely happen before the end of the next presidential term (2016).  Which means we already know who will be President at that time: Either Obama or Romney.  (Or at least this is high probability: According to Intrade, it is now over a 96 percent bet, so if you disagree you can make 25-to-1 by betting against global future traders.)  It’s interesting that both men are temperamentally similar—cool, detatched, capable of gravitas–and that one could imagine either playing a Gray Champion role if history required it.  It’s also worth noting that Romney is the only GOP candidate who could steal a sizable share of the Millennial vote that would otherwise go to Obama.  (Romney has consistently done better in the GOP primaries with voters under 30; Santorum and Gingrich with voters over 50.)

Next question: When will the 4T climax take place?  To be honest, I have no idea.  On timing, let me toss out my guess based on the typical pattern of historical 4Ts: The climax may arrive around 2022-2025.

And when will the resolution occur and the entire 4T come to a close?  Again, there is no way to know.  If the 4T turns out to be of average length, I would say 2026-29.  At that time, an entire saeculum will draw to a close.  And the first turning of a new saeculum will commence.

Let me add one more thought.  Bill and I once explained the dynamic of seasonal turnings by applying a four-fold typology of social states invented by Talcott Parsons.  It seemed to work pretty well.  Parsons said that each state was defined by the demand and supply for social order, each of which could be high or low.  So here are how the four turnings may be defined:

Demand for Order        Supply of Order

1T     High                            High

2T     Low                             High

3T     Low                             Low

4T     High                            Low

The point here being that 4Ts are pretty chaotic.  During 4Ts, the future seems much less certain than in retrospect.  They are mostly defined not so much by how much institutions provide order, but by how much people want order.  Here’s where the Millennials will play a key role.

 

ASLEEP AT THE WHEEL

Americans have an illogical love affair with their vehicles. There are 209 million licensed drivers in the U.S. and 260 million vehicles. The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Germany has 540; Japan has 593; Britain has 525; and China has 37. The population of the United States has risen from 203 million in 1970 to 311 million today, an increase of 108 million in 42 years. Over this same time frame, the number of motor vehicles on our crumbling highways has grown by 150 million. This might explain why a country that has 4.5% of the world’s population consumes 22% of the world’s daily oil supply. This might also further explain the Iraq War, the Afghanistan occupation, the Libyan “intervention”, and the coming war with Iran.

Automobiles have been a vital component in the financial Ponzi scheme that has passed for our economic system over the last thirty years. For most of the past thirty years annual vehicle sales have ranged between 15 million and 20 million, with only occasional drops below that level during recessions. They actually surged during the 2001-2002 recession as Americans dutifully obeyed their moron President and bought millions of monster SUVs, Hummers, and Silverado pickups with 0% financing from GM to defeat terrorism. Alan Greenspan provided the fuel, with ridiculously low interest rates. The Madison Avenue media maggots provided the transmission fluid by convincing millions of willfully ignorant Americans to buy or lease vehicles they couldn’t afford. And the financially clueless dupes pushed the pedal to the metal, until everyone went off the cliff in 2008.

America is proving itself to be insane as described by Albert Einstein:

“Insanity: doing the same thing over and over again and expecting different results.”

The 2008 cataclysm was created by the voracious greed and avarice of Wall Street, sustained by corrupt politicians in Washington, non-existent regulation by banking regulators, Federal Reserve easy money policies, unspoken guarantees of Fed bailouts if Wall Street excess risk taking blew up, and millions of delusional Americans with an unlimited credit line. Excessive debt created the problem. Adding debt is the present solution to the problem. And the accumulation of debt will lead to a tipping point that destroys the U.S. dollar and topples the Great American Empire.

This spiral of government sponsored debt financed debacles has shockingly accelerated as we have supposedly been experiencing an economic recovery for the last two years. The 2008 financial meltdown was the result of too much debt peddled to too many people who never had the means or intentions to repay the debt. The Wall Street peddlers of debt didn’t care if it got repaid because they had already packaged it, bribed Moodys and S&P to rate the toxic garbage as AAA, and sold it to their “clients”. Then they made derivatives bets that it wouldn’t be repaid and raked in billions more as their Ponzi scheme unwound. There was just one problem with their master plan. The Wall Street titans made their derivate weapons of mass destruction so complicated and confusing that their own evil organizations of Harvard MBAs didn’t understand them. Enough hubristic CEOs existed at enough financial firms (AIG, Lehman, Bear Stearns, Citicorp) to bring the entire system crashing down as the toxic derivatives intertwined every major institution in the worldwide banking cabal.

What has happened since those dark days of 2008 is mind blowing in its epic proportions and epic stupidity. To quote Doug Casey, “Not only haven’t we done the right thing, we’ve done the exact opposite of the right thing.” It is absurd and ultimately suicidal to cure a debt disease by administering massive doses of more debt. But that is exactly what those in power have done. The National Debt has risen from a $9.7 trillion to $15.6 trillion, a 61% increase in three and a half years, while our real GDP has grown by $244 billion, a 1.9% increase. Not exactly a fabulous return on investment. But at least there are 7 million less people employed today than there were at the peak in 2008. Plus, senior citizens and middle class savers have seen $450 billion of annual interest income they were earning in 2008 pilfered from their savings accounts and handed to the Wall Street banking elite through Ben Bernanke’s ZIRP.

The Federal Reserve has tripled their balance sheet (actually your liability) from $950 billion to $2.9 trillion. Various other Federal government controlled bureaucracies (Fannie Mae, Freddie Mac, FHA) have stealthily subsidized hundreds of billions in losses on behalf of the criminal Wall Street banks. Other Federal government run agencies (BLS, BEA, CBO) exist solely to massage, manipulate, misuse, and malign economic data and financial projections in order to muddle, misinform and mislead the American people about the true nature of our ongoing economic calamity. Propaganda and obfuscation are the scheme of choice by the powers that be. They are counting on decades of government run public education to insure that millions of non-critical thinking dullards will be unqualified or uninterested in the truth about our grim economic prospects. The oligarchy’s master plan has centered on houses, automobiles, and the illusion of a jobs recovery.

Whenever I’m trying to understand the motivations of the sociopathic Washington politicians, Wall Street bankers and mega-corporation CEOs, I always come back to the words of master manipulator Edward Bernays:

“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. …We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of. This is a logical result of the way in which our democratic society is organized. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons…who understand the mental processes and social patterns of the masses. It is they who pull the wires which control the public mind.” – Edward Bernays, Propaganda, 1928

The relatively small number of wealthy men thinks they are smarter than the masses and can manipulate them through their control of the government, the financial system and the media. The players in this game remain the same, but they have switched positions. The debt accumulation which led to the 2008 collapse was heavily concentrated on the books of the ruthless Wall Street psychopathic banks and on the backs of a readily pliable public. Today, the Federal government and the Federal Reserve have switched positions with their banker puppet masters, essentially shifting all past and future debt onto the backs of the American middle class. The Federal Reserve Flow of Funds Report, issued two weeks ago, reveals the extent of this blatant scheme to screw the American people in order to save and further enrich the Wall Street psychopaths who won’t be satisfied until their looting and pillaging leads to complete collapse and the world erupting into a world war. The despicable facts are as follows:

  • Total U.S. credit market debt has RISEN from $50.9 trillion in 2007 to $54.1 trillion as of 12/31/11, a $3.2 trillion increase.
  • Household debt has declined from $13.8 trillion in 2007 to $13.2 trillion as of 12/31/11. The mainstream media would point to this $600 billion decline as proof that Americans have embraced austerity and have learned their lesson. Of course that would be a lie. The Wall Street banks have written off $200 billion of credit card debt and the 5 million completed foreclosures extinguished another $800 billion of mortgage debt. The truth is that consumers have continued to pile up debt.
  • Much has been made of corporate America being flush with cash. If they are so flush, why have they added $900 billion of debt since 2007, an increase of 13% to an all-time high of $7.8 trillion?
  • The revealing data shows up in the financial company data. These Wall Street national treasures have reduced their debt from $17.1 trillion in 2008 to $13.6 trillion as of 12/31/11. How were they able to do this, while writing off $1 trillion of consumer debt?
  • You guessed it. They dumped it on the American taxpayer. The Federal government increased their debt from $5.1 trillion to $10.5 trillion. And our old friends called government sponsored enterprises (Fannie, Freddie, Student loans) increased their debt from $2.9 trillion to $6.2 trillion. Wall Street banks and millions of deadbeats who chose to game the system and live the good life have effectively foisted their $4.5 trillion of debt upon the backs of middle class taxpayers who lived within their means. Another $4.2 trillion has been pissed down the toilet by Obama with his $800 billion Keynesian porkulus program, home buyer tax credits, cash for clunkers, green energy boondoggles, 47 million people on food stamps success story, 99 weeks of unemployment, doubling of SSDI membership, and his multiple wars of choice in the Middle East.

The average hard working, taxpaying American has been enslaved in debt of such proportions that they will never be able pay it off. Your share of the $15.6 trillion National Debt is now $50,000, and growing by $4,500 per year. Your share of the future unfunded liabilities, created by the people you elected, is approximately $350,000. This crushing burden is in addition to the $13.8 trillion of mortgage, credit card, student loan, and auto loan debt Americans have accumulated in the last three decades of delusion. Forty percent of all credit card users do not pay-off their credit card every month and carry an average balance of $16,000 at an average interest rate of 15%. Good to see the Wall Street banks passing along some of their 0% borrowing windfall to their “customers”.

Source: TF Metals Report     

Pedal to the Metal

You may have noticed the corporate mainstream media, crooked politicians and lying Wall Street shills attempting to pound the economic recovery storyline into the consciousness of a terminally distracted populace. This is part of the Bernays inspired master plan of a small cabal of powerful men to control the public mind and keep our mass consumer society functioning smoothly so these corporate fascists can continue to gorge upon the carcass of a once vital republic. Decades of mass media consumer indoctrination, dumbing down of children through public school education and the conscious manipulation of attitudes and opinions of the malleable masses has succeeded. The invisible government of the rich and powerful has effectively converted responsible citizens into mindless consumers of products, bought with debt, peddled by associates of the invisible government. The crowded shopping malls, automobile showrooms, and restaurants are a testament to the power of propaganda and the intellectual bankruptcy of a vast swath of the American population.

Only psychopaths would encourage and condone behavior that would financially enrich themselves while destroying the lives and personal wealth of millions. The invisible government (Wall Street bankers, D.C. political hacks, mega-corporate executives, mass media titans) exhibits all the traits of a psychopath as described in a recent Harvard Business Review article:

  • Glibness and superficial charm
  • Lack of empathy
  • Consistent decisions in their self-interest, even where it is ethically questionable
  • Chronic, sometimes transparent lies, even with regard to minor things
  • Lack of remorse
  • Failure to take responsibility for their actions, and instead blaming others
  • Shallow emotions
  • Ignoring responsibilities
  • Persistent focus on gratifying their own needs at the expense of others
  • Conning and manipulative behavior

Do you recognize any of these traits in our president (Obama), congressmen (Weiner, McCain) Wall Street bankers (Dimon, Blankfein), corporate CEOs (Immelt), and mass media titans (Murdoch)? These people and many more like them will stop at nothing to further their self-serving agenda. They are intelligent and highly skilled at lying and manipulation. They lack empathy and don’t care what others think as they relentlessly pursue riches and power no matter the damage they inflict upon the people they so casually abuse, scorn and look down on. These are the people attempting to convince you that the path to economic recovery is through increased spending by consumers, utilizing debt supplied by them.

The entire recovery theme is a sham, financed by the Federal government with your tax dollars and the tax dollars of future unborn generations. I’ve arrived at this conclusion after pondering what I’ve been seeing with my own two eyes and through the insightful analysis found in the non-mainstream media (Zero Hedge, Jesse, Mish and many others). The mantra being pounded relentlessly by the mainstream media is that retail sales are booming and the unemployment rate has declined significantly, therefore an economic recovery is at hand. The chart below reveals the dramatic surge in vehicle “sales”. The annual pace is all the way back to 15 million, from the low below 10 million in 2009. The brief surge in mid-2009 was due to Obama’s highly successful Cash for Clunkers program that cost taxpayers $2.8 billion or $24,000 per car sold. It was highly successful for Government Motors (GM) and their union workers (Obama voters).

This rapid surge in auto sales has also resulted in a boost to overall retail sales, which have reached an all-time high. Automobile “sales” make up 18% of the retail sales number, by far the largest segment. The “record” retail sales are the result of surging gasoline sales, swelling food inflation, and a somewhat confusing cascade of car sales. It’s somewhat confusing until you realize how and why the 50% rise in vehicle sales has been accomplished by our Bernaysian masters. Retail sales in the first two months of 2012 are up 8.2%, led by a 9.2% wave of motor vehicle sales. Auto sales are at levels last seen in early 2008. This seems peculiar, since there are still 7 million less employed people in the country than in early 2008 and the real median household income is 9% lower than it was in early 2008. Real average hourly earnings have fallen for the last three months and are 1.2% lower than they were in October, 2010. A critical thinking person might ask himself, how could American households with less jobs and lower wages increase their purchases of automobiles by 50% in the last two years?

The answer is just what you expected. A phenomenal amount of debt peddled to people without the means or intent to ever repay the debt by the usual suspects: Ally Financial, Capital One, Wells Fargo, JP Morgan and Bank of America. These fine upstanding institutions control 25% of the auto loan market. They doled out $24 billion of new car loans in the 4th quarter of 2011, with an outpouring of loans to those downtrodden subprime borrowers and an extension in the average loan length beyond 6 years. Subprime borrowers now account for 45% of all auto loans. As a refresher, subprime borrowers generally have little or no assets, have a history of late payments or defaulting on obligations, and have low incomes. No worries there. When has making hundreds of billions in subprime loans ever caused a problem before. Ally Financial CEO Michael Carpenter had this to say about the market:

“We have seen crazy, irrational competition in the subprime end of the marketplace, which is one reason why more banks are targeting the lower end of the market.”

Bank of America and Capital One increased their market shares of the auto loan market by 40% in the 4th quarter as they attempt to keep up with Ally Financial in reckless lending to deadbeats. If you aren’t familiar with Ally Financial, then you should be. You own 74% of this POS. Here is a brief summary:

  • GMAC, after contributing mightily to the financial crash of 2008 through their reckless subprime mortgage (Ditech) and auto lending and requiring a $16 billion bailout from American taxpayers, changed its name to Ally Financial in 2009. It’s sort of like John Dillinger using acid to try and change his fingerprints.
  • Ally Financial provides financing for all GM and Chrysler customers and dealers and is the market share leader in auto lending.
  • Ally Financial still owes the American taxpayers $12 billion.
  • Ally Financial is a ward of the Federal government and will do anything it is told to do by Obama. The recent foreclosure fraud settlement required Ally to pay $250 million to the customers it defrauded. They will only pay $110 million based on their inability to pay $250 million. Sounds like a company that should be increasing their subprime loan portfolio. Obama and his minions instead received a commitment from a lender they own and control to cut principal for delinquent borrowers and refinance underwater borrowers. And Obama didn’t even offer us a cigarette afterwards.
  • Ally Financial, along with Capital One, failed the Federal Reserve stress test last week. Ally, Capital One, Bank of America, and Citicorp are dead banks walking. Brilliant bank analyst Chris Whelan succinctly sums up their fate after analyzing the Federal Reserve stress test results:

“When you get to junior liens and HELOCs you will understand why I have been saying that Ally Financial and BAC need to be restructured. With a plus 20% loss rate on second liens, Ally has substantial capital issues to put it mildly. But look at C right behind them with a loss rate in the mid-teens followed by BAC. Yikes. This type of loss rate is typical for credit cards and both of these second lien portfolios are > $100 billion.

And the real lesson, dead friends, is that the good old USA is a subprime nation, a society of individuals whose aggregate probability of default is probably around a “B” to “CCC.” Convert the loss rates in the stress tests to bond ratings using the break points from Moody’s or S&P and tell me what you see.

Last point on Ally Financial: Yikes. Probably the weakest results of the whole group. Memo to POTUS: File Ch. 11, sell auto biz and bank to GM in 365 sale. Liquidate ResCap. Declare success. But do not be surprised if BAC follows if Ally goes into bankruptcy. The one thing that the Fed almost completely ignores is the vast financial risk facing BAC and Ally, and to a lesser degree, WFC, JPM and C.”

When you understand this background, anecdotal evidence that seems absurd starts to make sense. I spend two hours per day on the road and have plenty of time to observe my surroundings. I drive through the Mantua section of West Philadelphia every day. The average household income in this neighborhood is $16,000. The average home value is $25,000. The true unemployment rate exceeds 40%. At least 20% of the properties are vacant and the neighborhood resembles Baghdad. Last week, I counted six brand new vehicles with registration tags in their back windows in a one block radius of this neighborhood. Every block has newer model Ford Expeditions, GMC Sierras, BMWs, Acuras, Cadillacs, and Mercedes sprinkled among the squalor. Someone is loaning these people the money to buy these $40,000 vehicles or approving them for leases. This neighborhood puts the SUB in subprime. No financial firm worth spit would make a six year $35,000 auto loan to someone in this neighborhood unless they were instructed to do so by the Federal government or were guaranteed that the future loss would be borne by someone else – YOU.

The GM, Chevy and Chrysler car dealer ads in my local paper actually have the following headline in bold:

Have credit problems? NO PROBLEM

Most of the ads don’t even list the prices of the vehicles. They either tout the 72 month 0% financing or they list the monthly lease cost. It seems that virtually any vehicle can be leased for $300 per month or less these days. This might explain why 25% of all vehicles are leased today. In reality, 25% of the cars being “sold” today are really just being rented for three years. Both the lessors and lessees are basing these transactions upon delusions and assumptions which will likely blow up in their faces and again cost – YOU.

An auto lease payment is based upon interest rates, the cost of the car, subsidies from the auto makers, and the expected residual value of the vehicle at the end of the three year lease. When have financial companies ever miscalculated any of these assumptions? How about 2001-2002 and 2008-2009? The reason auto leases are ridiculously low is because Ben Bernanke’s zero interest rate policy is providing free money to Ally Financial and the rest of the Wall Street zombie banks and creating huge mal-investment – Again. The auto makers see no risks, as the used car market has been extremely strong for the last year and they anticipate continued strong demand for cars as they come off their three year leases. Therefore, they have estimated the residual values three years out at a very high level. The strong used car market may have been slightly impacted by the destruction of 700,000 vehicles under Obama’s Cash for Clunkers debacle. The combination of excessively low interest rates and excessively high residual value estimates leads to ridiculously low lease rates. The sales statistics for the first two months of 2012 reveal why this will blow up in the faces of lessors and the predictably incompetent financial drug dealers.

Feb-12

 % Chg Feb’11 YTD 2012
Cars

612,145

23.9

1,080,466
Midsize

304,601

25.6

532,818
Small

225,061

26.5

397,838
Luxury

81,476

22.7

147,647
Large

1,007

-85.8

2,163
Light-duty trucks

537,251

7.6

982,217
Pickup

148,956

13.8

273,430
Cross-over

225,621

0.4

412,974
Minivan

64,849

15.3

111,764
Midsize SUV

54,827

15.3

101,813
Large SUV

16,783

-5.4

31,566
Small SUV

13,926

24

25,951
Luxury SUV

12,289

12.4

24,719

 

It seems the delusional American public and their love affair with big SUVs, pickups, and their 8 cylinder luxury wheels will continue until they are hit over the head with the baseball bat of $5 a gallon gas. The Madison Avenue Bernays disciples have molded the minds and formed the opinions of millions of easily influenced, financially ignorant superficial Americans into believing the vehicle they drive is a true measurement of success. These people choose being up to their eyeballs in auto debt or perennial renters of luxury vehicles to appear prosperous to their neighbors and coworkers rather than actually achieving real success through the time honored tradition of earning more than you spend and saving the difference. The fact is that 80% of all the vehicles being sold in the U.S. are SUVs, pickups, crossovers, minivans, and larger cars that get 25 mpg or less.

As gas prices continue to rise towards $5 per gallon, a war with Iran looming in the near future, interest rates beginning to rise, and the country headed back into recession (MSM is wrong about the recovery), the car makers are poised to again experience enormous losses. Auto makers will have a sense of déjà vu as they have committed an epic blunder by overestimating the future value of the gas guzzlers they have been leasing. As a result, when the leases expire and auto makers take back the SUVs and pickups that get 15 mpg and attempt to resell them, the losses will run into the billions of dollars. There will be no one buying used gas guzzlers, with gas costing $5 per gallon. As the millions of subprime borrowers realize they can’t afford car payments, paying 40% more for gas, and trying to put food on the table, auto loan delinquencies will soar. This is as predictable as the housing market collapse in 2005. None of this matters to the psychotic governing elite who only care about the illusion of recovery today. These vampire squids will not be satisfied until every drop of blood is sucked out of the national carcass.

Ally Financial is part of the Federal Government and is being used to promote the agenda of the governing elite. They join Fannie Mae, Freddie Mac, and the Federal student loan peddlers as the primary tools of the corporate fascist powers that control this country. The nominal private ownership of these companies is a sham, as the state dictates how they will be run and who they will benefit. This corporate fascist empire is built upon an unholy alliance between big banks, big business, big media and big government, with each protecting and enriching each other. The psychopaths who are drawn to these organizations want to control people. They desire power, wealth, and the ability to manipulate public opinion. Their tactics include spreading fear and an atmosphere of paranoia in order to convince the populace that more government action will improve their lives. We are headed towards economic and financial collapse as these psychopaths will never willingly reverse course and the majority of our population has become so degraded (have you been to a Wal-Mart lately) that they are incapable or unwilling to confront the psychopaths.

Doug Casey in the latest Casey Report explains how evil and stupidity are a deadly combination:

“I would like to suggest that what really distinguishes political elites from normal people is not just a predilection for stupidity but a real capacity for evil. Evil might best be defined as the intentional and usually gratuitous commission of acts that are cruel or unjust. A person who commits many evil acts is a sociopath. The sociopaths who are naturally drawn to government eventually come to dominate it. They’re very dangerous people. They reset the social mores of the country they control. After a certain point, a critical mass is reached, and it’s GAME OVER. I suspect we’re approaching that point.”

The next time you hear a government drone, Wall Street shyster, or corporate mainstream media whore declare we are experiencing an economic recovery try not to laugh out loud. Their agenda doesn’t include making your life better. You are not in the club. Prepare accordingly.  



 

The Upside to a Natural Gas Downturn

By Marin Katusa, Casey Research

The energy market is a complex beast, its many parts interconnected through a multitude of linkages. When one part fails, the entire system reacts: certain linkages are burdened with extra stress, while other components sit idle. Only by studying the entire machine can one understand the rippling effects that stem from one change.

With the energy market, the system is made up of various sectors – oil, natural gas, uranium, coal, and alternative energies – and the countries that have each of those energy resources. The components are then linked through a long line of forces, including the geographic distributions of supply and demand, international allegiances and trade deals, global markets and commodity prices, and the ever-evolving field of international relations. A change in any country, sector, or linkage resonates through the entire system.

From this perspective, North America’s shale gas revolution truly earns its accolade as a “game changer.” As many people now understand, the boom in natural gas reserves and production in the United States and Canada is changing the way North America will power itself in the future.

What a lot of people do not understand is how to profit from this shift.

Natural gas prices are depressed and expected to remain so for the short to medium term, so investing in natural gas options or a natural gas exchange-traded fund is not likely to bring home the big bucks anytime soon. Domestic natural gas equities are an even riskier idea – most producers are scaling back production and selling assets as they hunker down in preparation for a tough few years.

In this case, the way to profit is by understanding how natural gas’ changing role is impacting North America’s energy machine as a whole. Cheap natural gas is prompting utilities to switch from coal to gas where possible. The confluence of cheap natural gas and a risky global economy has droves of investors turning their backs on green energy, the sector that was such a market darling only a few years ago. Farther down the road, North Americans are debating – and in places implementing – a range of strategies to take advantage of the continent’s newfound abundance of natural gas, from natural-gas-powered transport trucks to exportation of liquefied natural gas (LNG).

Isaac Newton showed us that for every action there is an equal and opposite reaction. That is why every downside force in the energy sector creates upside opportunities elsewhere. The challenge is finding them. It takes an understanding of the entire global energy machine to figure out what areas are benefitting from the changing landscape.

For Every Down, There’s an Up

Natural gas seems to know that it is heading for several years in the doldrums and, in fighting spirit, it is trying to take a couple of other energy sectors down with it.

With coal, it is succeeding, but there are still lots of coal opportunities outside of the United States. With uranium, the global supply-demand scenario and America’s position within it is in such flux right now that cheap natural gas is doing little to reduce America’s need for U3O8. Then there’s the well-field services sector, where the successes born from horizontal drilling and fracturing created the gas supply glut that is forcing production cuts. Far from slowing down, however, well-field service companies are busier than ever as the oil industry adopts fracking to access shale oil, and the deepwater Gulf of Mexico continues to test the limits of drilling technology.

Coal

The sector feeling the worst impact from gas’ downturn is thermal coal. Demand for the coal burned to generate power in the US is plummeting as utilities take advantage of the cheapest natural gas in ten years. Consumption of coal to produce electricity is expected to fall 2% this year to its lowest level since 1992, while gas-fired consumption rises 5.6%. Making matters worse, winter heating demand is falling in the face of mild weather: through January, this has been the warmest winter since 2006 and the fourth-warmest on record. With natural gas and warm weather conspiring against it, coal demand is decidedly down – in the second week of February, coal consumption was 4.3% lower than it was a year ago.

Exports are not going to provide any help. Last year, Europe bought 50% of America’s thermal coal exports, but demand from the EU is shrinking as the region struggles to stave off a recession. The economies of the EU shrank 0.3% in the fourth quarter of 2011 compared to the previous quarter, the first contraction since mid-2009.

In response, US thermal coal prices are deteriorating. Appalachian coal, the US thermal-coal benchmark, fell 15% in January alone to sit near US$60 per tonne and has moved little since (by comparison, Australian thermal coal is currently fetching almost US$120 per tonne). Mining costs to dig thermal coal out of the ground range from $60 to $75 per tonne for Central Appalachian producers, which means margins are already razor thin or nonexistent. Several major US thermal coal producers are reducing output and in some cases closing mines, including Arch Coal (NYSE.ACI), Patriot Coal (NYSE.PCX), and Alpha Natural Resources (NYSE.ANR).

Now for some good news. Thermal coal prices in the United States may be faltering, but that doesn’t mean that coal is in the doldrums across the globe. In fact, quite the contrary: global thermal-coal demand is expected to increase by 50% from 2008 to 2035, with the vast majority of increased demand coming from the developing world. That equates to a demand increase of 1.5% each year, and production is not quite expected to keep up to that pace. Rising demand plus not-quite-enough supply equals investment opportunities – maybe not in the US, but elsewhere.

That’s just thermal coal. There’s another component to the coal world: metallurgical coal, the higher-carbon coal used to make steel. Supplies are even tighter with metallurgical coal, which is why Casey Research recommends that energy investors have exposure to “met coal” through either equities or a fund.

Uranium

The abundance of cheap gas has utilities looking to build more gas-fired power plants. Some observers have suggested that this will be to the detriment of the nuclear sector in the US. But that perspective is pretty shortsighted.

It is true that some utilities have delayed plans for new nuclear plants by a few years, primarily in response to the Fukushima nuclear disaster in Japan and the ensuing public backlash against uranium. But that backlash is already fading; and those delays will have only a minimal impact on the nuclear sector in the US. Five new generators are on track for completion this decade, including two reactors approved just a few weeks ago (the first new reactor approvals in the US in over 30 years). Those will add to the 104 reactors that are already in operation around the country and already produce 20% of the nation’s power.

Those reactors will eat up 19,724 tonnes of U3O8 this year, which represents 29% of global uranium demand. If that seems like a large amount, it is! The US produces more nuclear power than any other country on earth, which means it consumes more uranium that any other nation. However, decades of declining domestic production have left the US producing only 4% of the world’s uranium.

With so little homegrown uranium, the United States has to import more than 80% of the uranium it needs to fuel its reactors. Thankfully, for 18 years a deal with Russia has filled that gap. The “Megatons to Megawatts” agreement, whereby Russia downblends highly enriched uranium from nuclear warheads to create reactor fuel, has provided the US with a steady, inexpensive source of uranium since 1993. The problem is that the program is coming to an end next year.

At present the world is producing just enough uranium to meet global demand, but this precarious balance is already tipping. There are dozens of new reactors under construction in China, India, South Korea, and Russia that will need fuel. Production increases from new mines and mine expansions are not expected to keep pace. The race to secure uranium resources is on, and for the first time the US has to compete.

The answer is domestic production. The rocks underneath the United States hold lots of uranium, enough to make a significant contribution to the country’s uranium needs. The biggest impediment to mining this resource is public opposition to the nebulous dangers of uranium mining, but as the Megatons program ends Americans will start to see that the alternatives to domestic production are decidedly worse: competing against China, India, and the like for uranium is an expensive and unstable way to acquire a desperately needed energy resource. In fact, at Casey Research we have been vocal in predicting a demand-driven boom in US uranium production. We even expect to see “Made in America” uranium garnering a premium over imported yellowcake, in the same way that in-demand Brent crude oil earns a premium above oversupplied West Texas Intermediate crude.

Well-Field Services

The techniques used to unlock natural gas from shale reservoirs – horizontal drilling and well fracturing – worked so well that they created a supply glut that is altering the global energy scene. That supply glut is now prompting natural gas producers to cut back on output, which you might think would be bad news for the well-field service companies that complete those tasks.

Not to worry: North America is also in the midst of a crude-oil production boom, and the common theme linking most of the continent’s new wells is highly technical drilling and production methods. The purveyors of those techniques are the continent’s well-field service companies, and their services are very much in demand.

Well-field service companies have been able to compensate for lost gas fracking business by shifting to oil, as the oil industry has adopted fracking to unlock its shale deposits. If you’ve read about the oil production boom that is keeping North Dakota’s economy hopping, you read about the Bakken shale formation. In the Bakken, wells are drilled horizontally to follow along the oil-bearing layer, and then high-pressure fluids are forced down the well to fracture the shale and release the oil.

Meanwhile, the challenges of producing oil in the deepwater Gulf of Mexico continue to test the limits of drilling technology. Pushing through kilometers of water before drilling through just as much rock and then extracting and transporting oil from a platform rocked by waves and threatened by hurricanes demands a wealth of specialized equipment and operators.

Most oil and gas companies do not own drill rigs, nor do they actually drill or fracture their own wells. They contract those jobs out to companies that drill and frac for a living, known as well-field service companies. And with wells in America’s booming oil and gas fields requiring more complicated and more technical services with each passing year, the services these companies provide are essential to North America’s oil and gas producers.

The Take-Home

When a machine is as interconnected as the global energy trade, no part can change without impacting the rest. The dramatic debut of shale gas in North America has done far more than just depress domestic natural-gas prices – a shift of this magnitude has impacts that reach far beyond one commodity or one country. Some of those impacts are negative, but hidden in the doom and gloom lie opportunities to profit. The key is to open your horizons and embrace the complexity and interconnectedness of the global energy machine… either that, or find a good mechanic who can do the job for you.

[For more information on how to profit in energy this year, download and read this free report: The 2012 Energy Forecast.]



AIN’T NO REST FOR THE WICKED



 

iDUMBASSES

Just when you think Americans can’t act like bigger dumbasses, they top themselves. Not only do these non-thinking dregs believe that Iran is a threat to the United States, but they are willing to wait hours and in some cases days to be the first to get a new iPad. As if they won’t be available tomorrow or next week or for the rest of their freaking lives. How meaningless and pathetic must their lives be that they will worship at the altar of Apple for a lousy touch screen gadget. Such a vast swath of humanity has become so degraded, ignorant, and driven by nothing other than an insatiable appetite for material possessions, that only a collapse of the current economic system will bring people back to their senses. Or they will riot, loot, burn shit and kill each other. It will be a fitting conclusion when these zombies are killing each other with their igadgets.

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