Bernanke – Page 6 – The Burning Platform

A FISTFUL OF DOLLARS – PART TWO

It is not easy to destroy the greatest empire in the history of mankind. The 20^th Century was the American Century, but as with all empires, the combination of hubris, monetary debasement, imperial overreach and delusional overconfidence have set in motion the inevitable downfall of the American Empire. The policies, decisions, beliefs, and institutions implemented over decades have led the country to the threshold of financial disaster. Based on my observations, a catastrophic combination of demographics, fiat currency debasement, titanic levels of debt, smothering taxation, power in the hands of the few and Wall Street greed have led us to peak Empire. It will be downhill from here as we experience collapse, revolution and ultimately, retribution for the guilty and presumed guilty. I have already addressed the Baby Boomer generation’s contribution to our current plight, to the delight and accolades of Boomers across the land in For a Few Dollars More – Part One. The Boomers were a victim of their size and the timing of their arrival on the scene of empire collapse. Their delusions of debt based wealth and me first attitude could not have been satiated without the creation of the Federal Reserve and the institution of the personal income tax in 1913.

“When a man’s got money in his pocket he begins to appreciate peace.” – Joe – Fistful of Dollars

“Every town has a boss.” – Joe – Fistful of Dollars

In the Old West of the 1800’s, before the creation of the Federal Reserve, money in your pocket meant gold or silver. If Joe were to repeat that line today, he would change it slightly:

“When a man thinks he’s got money in his pocket he begins to appreciate the good things in life like McMansions, BMWs, government provided retirement, government provided healthcare, and delusions of ever increasing wealth.”

Man made inflation is a glorious invention for the men who invented it. For the people who deal with it every day, not so much. Joe knew that every town had a boss. If you didn’t know who the boss was in the United States of America before 2008, you know now. Ben Bernanke and the Federal Reserve Bank of the United States is the boss of this town.

Crony Capitalism Pays for the Cronies

Without Federal Reserve intervention in the financial markets since September 2008, the biggest banks in the world would have entered bankruptcy liquidation. The U.S. economy would have experienced a 10% to 20% fall in GDP. The unemployment rate would have soared above 15%. The stock market would have fallen 70%. Wealthy bondholders and stockholders would have seen their wealth cut in half. Incumbent politicians would have all been thrown out of office. The richest Americans, constituting the ruling class, would have borne the brunt of the pain.

In a true capitalist system, organizations and people who assumed too much risk and made poor decisions would have failed. But the United States does not have a capitalist system. We have a corporate fascist economic system where a small cartel of bankers, military weapons suppliers, and mega-corporations set the agenda for the country through their complete capture of politicians and the mainstream corporate media. At the height of the crisis in 2008, President George Bush revealed whose side he chose:

“I’ve abandoned free-market principles to save the free-market system, to make sure the economy doesn’t collapse. I feel a sense of obligation to my successor to make sure there is not a, you know, a huge economic crisis. Look, we’re in a crisis now. I mean, this is — we’re in a huge recession, but I don’t want to make it even worse.”

George Bush was born with a silver spoon in his mouth. He was not trying to save the free-market system, because we didn’t have a free market system. He was saving his fellow billionaires under the cover of saving the average American. Bush knew as much about saving our economic system as he knew about when to declare mission accomplished in Iraq. He turned the task of saving the free market system over to his multi-billionaire Goldman Sachs Secretary of Treasury Hank Paulson and the real boss of Washington DC, Ben Bernanke. These noble American patriots proceeded to save the top 1% richest Americans on the backs of the American middle class. They did it under the guise of keeping the country out of a Depression. Those who committed the crimes and destroyed the worldwide financial system not only didn’t get punished, they were enriched by the actions of Paulson and Bernanke. This entire sordid chapter in the history of the American empire from 2008 until the imminent collapse, sometime before 2015, will leave future historians dumbfounded at the utter insanity and foolishness of the decisions that were made during the death throes of the empire. Not only did George Bush not save the free-market system, but he drove a stake thru its heart.

To boil the entire 2008 financial collapse down to one word, it would be: DEBT.

Three decades of ever increasing levels of consumer, corporate, and government debt eventually led to an unprecedented implosion. It was as predictable in 2008, to those who understand the fiat monetary system, as it was to Ludwig von Mises decades ago:

“There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

Federal Reserve – Destroyer of Worlds

The 2008 crash and the 1929 crash were manmade disasters. Alan Greenspan and Ben Bernanke created the atmosphere and conditions that led to the risk taking by bankers, home buyers and consumers. Monetary expansion, excessively low interest rates, the Greenspan/Bernanke Put, disinterest in regulation, and pandering to politicians allowed the party to get out of control. Taking away the punch bowl never crossed their mind. The Federal Reserve is controlled by the major Wall Street banks. These banks were partnerships until the 1980s, with partners personally liable for the actions of their banks. Excessive risk taking meant possible personal bankruptcy. Once they became corporations, excessive risk meant excessive compensation for the executives, with the downside being borne by the shareholders.

But that wasn’t enough. The executives were large shareholders, so they convinced the Federal Reserve to bail their corporations out whenever they made bad bets. It was a sweet deal if you were a banker. Knowing their lackeys at the Fed had their back, the goliath Wall Street banks used their power and wealth to convince the SEC to waive the 12 to 1 leverage rules so they could leverage their balance sheets 40 to 1. This meant that a 5% loss in their capital and they would be insolvent. The Harvard MBA CEO titans of the financial world created the housing bubble through their creation of fraud inducing mortgage products, a bewildering array of derivative products that even their MBA geniuses didn’t understand, and betting against the derivatives they were selling to their clients. When this toxic brew of fraud and debt exploded in their faces, the value of the assets on their books plunged by 30% to 40% in 2008 and 2009. The 10 biggest financial institutions in the country were effectively bankrupt. An orderly bankruptcy liquidation that wiped out the bondholders, stockholders and top executives was the solution to excessive risk taking and failure.

This was an unacceptable solution to the billionaire class that owns half the financial wealth in the country. The President was a multi-millionaire. The Treasury Secretary was a billionaire. There were 250 millionaires in Congress. The top executives of the banks that own and control the Federal Reserve are multi-millionaires. The owners and talking head pundits of the mainstream media are all in the billionaire/millionaire class. The cover story used to bilk $700 billion from middle class taxpayers into the coffers of Wall Street mega-banks was that if we didn’t hand over the loot, the financial system would collapse and a Great Depression would ensue. Every program, policy, and rule change that has been rolled out since September 2008 by the Federal Reserve, Treasury, and Congress has benefitted billionaires, bankers, and politically connected corporations. The Federal Reserve has printed over $2 trillion out of thin air to save the billionaires that have been pillaging the middle class for decades.

The Federal Reserve bought $1.25 trillion of toxic mortgages from Wall Street, allowed these banks to borrow at 0%, threatened the FASB into suspending mark to market accounting so banks could fake the value of their loans, instructed banks to rollover commercial real estate loans as if they weren’t really worth 40% less than the value on their books, and rolled out $600 billion of QE2 in order to create a stock market rally, benefitting their billionaire constituents. The $800 billion stimulus program was shoveled to the corporate friends (contributors) of Congressmen across the land. Cash for Clunkers benefitted government owned car companies. The home buyer tax credit and changing loss carry back rules benefitted mega home builders. Every one of these deeds enriched bankers and billionaires while further impoverishing the working middle class. Real middle class wages continue to fall, unemployment remains near record levels, real inflation in food and energy is running above 10%, senior citizens haven’t gotten a Social Security increase in two years, savers are getting .25% on their savings, home prices continue to fall, and future generations will be stuck with the bill for the billionaire bailout.

The standard of living for the average American continues to fall. Real household income is lower than it was in 1999. The only reason it increased in the 1980s and 1990s was the huge influx of women into the workforce. Two earners were needed to try and maintain a constant standard of living. Real average weekly earnings are lower today than they were in 1970, even using the government bastardized CPI calculation that has been so massaged since 1982 that it has only resulted in a happy ending for government bureaucrats at the BLS. Calculating the CPI exactly as it was calculated in 1980 reveals the truth of what the Federal Reserve has wrought on working class America, a drastic decrease in their standard of living. The insidiousness of Federal Reserve created inflation has sucked the life out of the middle class and enriched the cocktail party class.

The stealth transfer of wealth from the working middle class to the richest in our society was done through convincing the middle class that buying things with debt made you richer. This delusion was sold by the billionaire owned corporate mainstream media and peddled by billionaire bankers to the masses through credit cards, “creative” mortgage products, easy access to home “equity”, auto leases, and easy financing products. Only in a society where a fiat currency could be printed by a central bank with no requirement that it be pegged to an anchor such as gold, could such a staggering amount of debt be accumulated.

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Delusions of Debt

The bill that has been rung up is in the form of a national debt that has increased by $4.6 trillion since September 2008, a 48% increase in two and a half years. Over this same time frame real GDP has increased by $200 billion, a 1.6% increase in two and a half years. Over this same period, the Federal Reserve has tripled their balance sheet by adding $2 trillion of debt. Think about this for one second. The leaders of the great American empire have burdened future generations with $6.6 trillion of new debt and increased the Gross Domestic Product by $200 billion. Is this a good return on investment? Did the 30 million unemployed and underemployed Americans benefit? Did the 45 million people on food stamps benefit? Did the 11 million households who are underwater in their mortgage benefit? Did the 3 million people who lost their homes in foreclosure since 2008 benefit? Are Americans paying twice as much for groceries and gasoline benefitting? Did the Tunisians, Egyptians, and other poor people around the world benefit?

The answer to all these questions is NO. The only beneficiaries have been bankers, billionaires, mega-corporations and the politicians who were bought off by these greedy traitors to the Republic. Anyone with an ounce of sense knows the country got into this mess due to the issuance of mountains of debt that was un-payable based upon any reasonable assessment of future cash flows to service the debt. Consumers could never have increased their wages enough to pay off the credit card, mortgage, home equity, student loan, and auto debt they accumulated since 1980. The government could never collect the amount of taxes needed to pay for the $100 trillion of entitlement promises they have made over the last four decades. By 2008 we had reached peak debt delusion.

The only questions that remained were how would the debt be defaulted on and who would bear the brunt of the default. The Federal Reserve Chairman and the U.S. Treasury Secretary rolled out a master plan that revolved around convincing the masses they were being saved, while actually enriching their masters on Wall Street. Their PR machine and captured mouthpieces throughout the mainstream media and in Congress spun the fear mongering message of Depression if the mega-banks were not handed trillions of taxpayer funds.

The proof of what did not happen is borne out in the chart below, showing the total credit market debt in the U.S.at $52.6 trillion, $200 billion higher than it was in 2008. If those who had collected billions in fraudulent profits while using unprecedented levels of debt were rightfully required to take responsibility for the catastrophe they caused, the debt levels would have dropped dramatically. The losses would have been borne by those responsible. The economy would have taken a body blow, all Americans would have been hurt, and many billionaires would have become millionaires or even paupers. The debt would have been written off and lessons would have been learned. The remaining banks (there are 8,000 others besides the 10 who control 50% of the deposits) would have followed traditional risk mitigation methods and the economy would have recovered.

But, as you can see, debt was not written off. No bankers were harmed during the making of this fake recovery. No criminal bankers were prosecuted. No government drones took responsibility for their failure. While the masses were distracted by stimulus packages, mortgage moratoriums, Obamacare and reality TV, the debt was shifted from the criminally negligent banks to you. The proof is right on the Federal Reserve website for all to see:

Financial institutions reduced their debt from $17.1 trillion in 2008 to $14.2 trillion today.
The Federal & state governments increased their debt from $8.7 trillion in 2008 to $11.9 trillion today.
The GSEs (Fannie, Freddie, Sallie) increased their debt from $3.2 trillion in 2008 to $6.4 trillion today.
Corporations increased their debt from $7.0 trillion in 2008 to $7.4 trillion today.
Household debt declined from $13.8 trillion in 2008 to $13.4 trillion as the Federal Reserve backstopped the write-off of $600 billion of bad debt by the banks.

Over $6 trillion of toxic debt was shifted from the insolvent financial industries to the middle class taxpayers under the guise of “Saving the System”. Bad debt does not become good by shifting it to taxpayers. The story line about Americans embracing austerity is false. Household debt rose from $8 trillion in 2000 to $13.8 trillion in 2008, a 72% increase, and has declined by 3% due to write-offs, not austerity.

Champion of the Middle Class

By extending the debt, shifting it to the taxpayer and pretending it is payable, the Federal Reserve and your government have chosen, to use its weapon of choice since inception in 1913 – INFLATION, to default on the debt. It is not a new tactic, it is their only tactic.

The Federal Reserve has slowly and methodically destroyed the American middle class through relentlessly printing more money and purposefully creating inflation, since its reprehensible creation in 1913. For the last three decades only one voice in the wilderness of Washington DC has fought this banking cabal.

“Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve’s inflationary policies. This represents a real, if hidden, tax imposed on the American people.

From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial “boom” followed by a recession or depression when the Fed-created bubble bursts. In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans’ standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.” – Ron Paul – Sept 10, 2002

His colleagues in Congress did not stand up to the Federal Reserve in 2002. Instead, they cheered them on as Greenspan’s ultra loose monetary policy led to the greatest housing bubble in history and a financial collapse unparalleled in human history. As the collapse was hurdling down the track in 2006, Representative Paul once again rose in protest against an organization that is rapidly destroying the American dream.

“The coming dollar crisis is not likely to be “fixed” by politicians who are unwilling to make hard choices, admit mistakes, and spend less money. Demographic trends will place even greater demands on Congress to maintain benefits for millions of older Americans who are dependent on the federal government.

Faced with uncomfortable financial realities, Congress will seek to avoid the day of reckoning by the most expedient means available – and the Federal Reserve undoubtedly will accommodate Washington by printing more dollars to pay the bills. The Fed is the enabler for the spending addicts in Congress, who would rather spend new fiat money than face the political consequences of raising taxes or borrowing more abroad.

The irony is that many of the Fed’s biggest cheerleaders are the same supposed capitalists who denounced centralized economic planning when practiced by the former Soviet Union. Large banks and Wall Street firms love the Fed’s easy money policy, because they profit at the front end from the resulting loan boom and artificially high equity prices. It’s the little guy who loses when the inflated dollars finally trickle down to him and erode his buying power. Someday Americans will understand that Federal Reserve bankers have no magic ability – and certainly no legal or moral right – to decide how much money should exist and what the cost of borrowing money should be.” – Ron Paul – July 11, 2006

The dollar crisis is upon us. Congress and President Obama are avoiding the day of reckoning. The Federal Reserve is enabling profligate spending by politicians, while at the same time enriching their masters on Wall Street. Everything being done in Washington DC seems to be the exact opposite of what should be done. I think the fable of the scorpion and the frog describes our situation best. The scorpion asks a frog to carry him across a river. The frog is afraid of being stung, but the scorpion argues that if it stung, the frog would sink and the scorpion would drown. The frog agrees and the scorpion stings the frog during the crossing, dooming them both. When asked why, the scorpion points out that this is its nature. The Federal Reserve is printing money, creating inflation, enriching billionaire bankers, and dooming the country to certain collapse because that is its nature.

My intentions have been foiled again. I realize that my attempt to put our current economic predicament into perspective will now need to be a five part series. . For a Few Dollars More addressed the Baby Boomer impact on America’s decline. A Fistful of Dollars examined how the Federal Reserve’s actions over the last few decades have impoverished the middle class and has placed the country at the brink of collapse, The Good, the Bad, and the Ugly will address the nefarious creation of a central bank and the implementation of a personal income tax in the dreadful year 1913. Outlaw Josey Wales will scrutinize the looting of America by a small group of powerful, connected, super rich men lurking in the shadows, but pulling the strings on our puppet politicians. Lastly, Unforgiven will detail the impending collapse of our economic system and the retribution that will be handed out to the guilty.

I can’t wait to see how it ends.

UNFORGIVEN – PART FIVE

“You’d be William Munny out of Missouri, killer of women and children”. – Little Bill Daggett – Unforgiven

“That’s right, I’ve killed women and children, I’ve killed just about everything that walked or crawled at one time or another, and I’m here to kill you Little Bill, for what you did to Ned” – Willam Munny – Unforgiven

Funny thing, killin’ a man. You take away everything he’s got and everything he’s gonna have. – William Munny – Unforgiven

Clint Eastwood’s final western was one of the darkest, most violent, vicious westerns ever made. Much of the film takes place in darkness. The tone of the film is depressing, with a drained wintery look reminiscent of High Plains Drifter. The script had been written in 1976 during our last Awakening, but Eastwood held off making the movie until 1991 when he was old enough to play the lead role. Age, stages of life, and mood are key elements in the movie, as they are in the plot playing out in the world today. Unforgiven is a story of atonement, justice and retribution. The cold forbidding atmosphere reflects a Fourth Turning mood. We’ve entered our hibernal Crisis, with its violent struggles and compulsory sacrifices in an era of maximum danger and ultimately a fight for survival. This decisive test of human strength and fortitude was as predictable as the change in seasons. Strauss and Howe understood the generational dynamics of the country would align to create the mood change which would usher in the third Fourth Turning in American history:

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

Unforgiven follows the journey of William Munny, a cold blooded vicious bandit in his youth, turned peaceful farmer in his old age. As a widower with two kids and a failing farm, he agrees to kill two cowboys who had disfigured a prostitute in the town of Big Whiskey, in return for a reward of $1,000. In his youth he drank heavily and murdered for fun, now he was killing for money. The town is run with an iron fist by an aging gunfighter, turned sheriff, named Little Bill Daggett, who doesn’t allow guns in his town. Munny and his two companions arrive amidst a driving rain storm in the middle of the night. They proceed to execute the two cowboys, but both of Munny’s companions reveal they don’t have a stomach for killing anymore. After collecting the reward, Munny finds out that his friend Ned was captured, tortured, and murdered by Little Bill Daggett. He takes a drink of whiskey and the tale turns into a story of retribution and atonement. He arrives back in town in the pitch black of night and enters the saloon where Little Bill and his men are gathered. He guns down six men, including Little Bill. As he lies on the floor wounded, Bill laments that he doesn’t deserve to die this way. Munny declares:

“deserves got nothin’ to do with it.”

Bill tells Munny he will “see him in hell”, a sentiment which Munny agrees with. Munny then kills him. There is no rousing ending. No cheers from the audience. The ugliness of violence is portrayed realistically and myths of the Old West are demolished. You are left to meditate about the concepts of age, repute, courage, heroism and the fine line between good and evil.

The themes, atmosphere, violence, brutality and finale of this eulogy to the western genre are a perfect representation of our current dire circumstances. The town of Big Whiskey represents the United States. The sheriff rules with an iron fist over the population, but his cronies can get away with murder. Hypocrisy abounds across the U.S. as politicians use the rule of law to keep the masses controlled while rewarding their corporate and banker cronies with government handouts, tax breaks, and free money. I see Munny, his companions and the prostitutes as symbols of the flawed citizens of the United States. They’ve made mistakes, committed crimes, made poor life choices, but they ultimately tried to make an honest living as upstanding citizens. When the authorities pushed them to the brink with their overbearing regulations, brazen criminal actions and blatant institutional corruption, each constituent reacted differently. Some responded with defiance, most rolled over, some ran away, and Munny responded with viciousness and retribution.

This is how it will play out over the next ten to fifteen years. Cynicism about solutions put forth by corrupt politicians, distrust of government bureaucrats and crooked bankers, and a society wide demoralization, as widespread unemployment and declining living standards for middle class Americans has darkened the landscape like an approaching winter storm. The disillusionment of average Americans is reflected in poll after poll, with only 20% of the population satisfied with the direction of the country versus 70% just prior to 9/11. The mood change in the country since 2005 is palpable. The gap between the Haves and the Have Nots has never been greater and continues to widen. The middle class has floundered for decades, while bankers, politicians and corporate titans have reaped vast riches through peddling debt and gaming a system rigged in their favor.

Recent data from the Pew Foundation finds that Americans are sick of being the world’s policeman. Even conservative Republicans are becoming more isolationist in their views. This was also the case during the 1930’s in the last Fourth Turning. The vast majority of Americans want to keep our noses out of other countries’ affairs because they realize the trillions spent are bankrupting the country.

Even though Americans, by a large majority, favor slashing foreign aid, ending our three foreign wars of aggression, and no longer allowing the super rich and mega-corporations to use the 60,000 page tax code as their means to avoid taxes, our leaders increase war spending, continue to meddle in the affairs of foreign countries, and seek further tax benefits for the super rich and mega-conglomerates. The will of the people is ignored because the government has been bought by the financial and military industrial complex, with funding by the Federal Reserve and the banking cartel that pulls the strings on their puppet – Ben Bernanke.

I’ve previously detailed how the baby boom generation contributed to our financial quandary in Part One – For a Few Dollars More, how the traitorous deeds of the Federal Reserve over the last few decades have ruined the middle class and placed the country on the precipice of disintegration in Part Two – Fistful of Dollars, addressed the nefarious conception of a central bank in Part Three – The Good, the Bad, and the Ugly and revealed how the super rich have used the tax code and their control of politicians to pillage the nation in Part Four – Outlaw Josey Wales. Now I will detail the likely result of years of frivolous consumerism, creation of a debt tsunami, corrupt myopic leadership, crooked bankers, and a angry despondent populace. The lack of preparation by government and individuals ensures this Crisis will be far worse than it had to be. The violent clash between competing forces will be extreme, bloody and result in retribution dished out to the guilty. Ultimately, the country will need to atone for its sins.

Preparation

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

This Fourth Turning was as predictable as the seasons. The American Revolution Crisis ended in 1794. The Civil War Crisis arrived 66 years later in 1860. That abbreviated vicious Crisis ended in 1865. The Depression/World War II Crisis arrived 64 years later in 1929. Our current Crisis arrived in the 2008/2009 time frame, exactly 64 years after the end of the last Crisis. Strauss and Howe wrote their book in 1996. They knew we had about a decade to prepare for the looming winter ahead. We had time to fortify, prepare, save, not waste our seed corn on foreign adventures, and reduce all non-essential spending. Not only did we not do what needed to be done, we did the exact opposite of what needed to be done.

The reason is the country has been run by ideologue linear thinkers. Believers in linear history are constantly blindsided by the fact that history is cyclical and periods of progress are counterbalanced by periods of regression. As neo-con Republicans continue to push their lowering taxes on the rich, Christian fundamentalism, drill drill drill energy plan, bowing down to Wall Street bankers and wars on Muslims, drugs, and immigrant agenda, the mood of the country has shifted away from their falsehoods and fabrications. As ultra-liberal Democrats continue to push their agenda of ever increasing entitlements, ridiculous Keynesian stimulus, disengenuous green energy plans, blind support of corrupt unions, wars to prove they’re as tough as Republicans, pushing for gay marriage and rolling over for Wall Street bankers the people of the country have tired of their lies and deceit.

Our country had a decade to prepare for the coming tempest. All generations should have worked to elevate the moral and cultural standards of the country. Instead the decadence, selfishness, materialism and profligacy of the nation were taken to new heights. The complete lack of self control exercised by the media and the public has allowed government bureaucrats to impose despotic laws and regulations to protect us from ourselves and phantom terrorists. The Federal government needed to cut back its size and scope so that it would be nimble in the face of the Crisis. Politicians needed to prevent further civic decay by speaking bluntly and honestly to the American people about the future challenges, while stressing collective duties over personal rights. We needed a revival of citizenship over individualism, with a focus on future generations who would be left with the fallout of thirty years of debt induced societal degradation. The government should have shifted its budgetary focus away from the non-needy old to the young people of our once great Republic. The future of the country depends on the young, not the old. The preparation scorecard on all these accounts is a miserable failure:

Since 9/11 the American public has willingly allowed the government to strip liberties and freedoms away in the name of safety and security through passage of the Patriot Act, spying on US citizens, and wars of aggression in Iraq, Afghanistan and Libya.
The government wolves control the sheep through the use of fear and misinformation. The War on Terrorism is used at every opportunity to keep the sheep-like populace under control in their holding pens.
The corporate owned mainstream media glorifies wealth, celebrity, and sensationalism while infecting the culture with a vapid mind numbing array of TV shows and spewing toxic levels of filth and porn across the airwaves and internet.
The Federal government cut back its scope by increasing its annual spending to $3.8 trillion in 2011 versus the $1.6 trillion it spent in 1996, a 138% increase in fifteen years. Meanwhile, GDP only increased by 92% over this same time frame.

Our leaders prepared for the tough times ahead by increasing the National Debt from $5.2 trillion to $14.3 trillion in fifteen years, a 175% increase, or almost twice the rate of GDP growth. Rational leaders always triple their debt level when knowing harsh times are coming.
The blunt talk coming from politicians since 1996 included: buy an SUV with 0% financing to defeat terrorism; sure we can pay for your drug costs with Medicare Part D; home prices never fall and everyone deserves a house; free market capitalism always works; cutting taxes on the rich will increase tax revenue; they have weapons of mass destruction; debt doesn’t matter; giving bankers $700 billion will save our economy; spending $800 billion will generate 3.5 million jobs; and QE2 will reduce mortgage rates and jump start the economy.
Our leaders have thrown the Millenial generation under the bus, while promising to never cut Medicare, Medicaid, or Social Security for the 76 million Boomers that make up the largest voting bloc in the country. The collective long-term survival of the country has been cast aside in the name of the selfish desires of the generations in power.

The lack of cultural and civic preparation has been far outdone by the extraordinarily deficient amount of preparation in the economic and military areas. Everyone knows that when you discern tumultuous times are on the horizon, you conserve, save, and marshal your forces for the coming storm. Our leaders needed to level with Americans and tell them the entitlements they were promised could never be honored. Americans needed to ramp up their savings and become more self reliant in preparing for their old age. Federal, state and local governments needed to shift their employees from defined benefit plans to defined contribution plans. Americans needed to pare back their debt and stop over-consuming. The government needed to balance budgets, reform the tax code shifting toward consumption, and reduce entitlement promises. America needed to gird for a possible war whose scale, cost, manpower and casualties would seem impossible in 1996 (every prior Fourth Turning led to all encompassing war). The preparation scorecard for these areas was dreadful:

The most damning data in proving how delusional the government, consumers, businesses and banks has approached the future is the rise in total credit market debt from $18 trillion in 1996 to an all-time high of $52.6 trillion today, or 350% of GDP.

Rather than level with people and explain that entitlement promises could not be fulfilled, a supposedly fiscal conservative Republican President added another $15 trillion unfunded liability to our $100 trillion obligation.

Our current socialist president rammed through a national healthcare bill that will filter 30 million people into the system and will add in excess of $1 trillion of unpaid for costs, further burying the hopes and dreams of our youth under a mountain of un-payable obligations.
Americans, who used to save 10% of their disposable income, were only saving 5.5% in 1996. Rather than prepare for the future by saving more, they put their faith in housing values growing 10% per year for infinity, and let their savings rate drop below 1% by 2005. The current level of 4.9% is not sufficient and is reflected in the fact that two-thirds of all workers have less than $50,000 in total savings.

States have unfunded pension liabilities approaching $3 trillion, with the Federal government carrying a $1 trillion pension liability. Unfunded liabilities are really future tax increases on unborn generations.
The one area that seemed under control in the late 1990s was budget deficits. Budget surpluses in the late 1990s turned into $1.5 trillion annual deficits today and as far as the eye can see. The national debt at 95% of GDP has past the point of no return.
The price for a barrel of oil was $12 in 1998. Rather than take advantage of this Indian summer and creating a plan to transition from depleting oil to other energy sources, our leaders did nothing. The American people bought massive SUVs, minivans and pickups and moved further into the suburban countryside, miles from civilization. The bumpy plateau of peak oil has arrived and oil prices have ranged between $70 and $140 a barrel for the last few years. We will long for these prices in a few short years.

Rather than conserving our military forces and preparing for a future major confrontation we have overextended our limited forces, spent $1.2 trillion on wars of choice, killed 7,300 American soldiers, and wounded another 43,000 soldiers.

The complete lack of preparation, indeed the choice to actively do the opposite of prepare, has insured this Fourth Turning Crisis will be that much more destructive.

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

Retribution

“The refusal of the political class to imposes losses on large bank creditors since the collapse of Lehman Brothers and Washington Mutual in 2008 illustrates the extent to which the financialization of the western industrial economies has turned into a gradual coup d’état by the banks and the global speculators who dominate their client base.” – Chris Whalen

“We’re not moving toward Hitler-type fascism, but we’re moving toward a softer fascism: Loss of civil liberties, corporations running the show, big government in bed with big business. So you have the military-industrial complex, you have the medical-industrial complex, you have the financial industry, you have the communications industry. They go to Washington and spend hundreds of millions of dollars. That’s where the control is. I call that a soft form of fascism — something that’s very dangerous.” – Ron Paul

As the average American continues their epic struggle to stay afloat in these turbulent times it is clear to those with critical thinking skills, like Chris Whalen and Ron Paul, that the game is rigged in favor of those with enormous wealth and power. There is no doubt the levers of government and finance have been seized by a super rich minority of men, willing to use all means necessary to increase their wealth and power at the expense of those they consider lowly expendable peasants. The myth perpetuated by those in control of the system is that everyone in America has ample opportunity to move up the ladder, even as they push the ladders away from the parapet surrounding their castle.

The talking points of the super rich, which are pounded into the brains of slumbering Americans, are they pay all the taxes, create all the jobs, create all the wealth, and drive innovation. The facts say otherwise. The super rich aren’t creators, they are destroyers. The top 0.1% richest Americans didn’t get rich by creating new companies and letting their entrepreneurial talents shine. These 152,000 people, with an average income of $5.6 million per year are overwhelmingly executives at large corporations, banks, law firms, and real estate firms. These people account for 68% of the richest of the rich. Entrepreneurial creators and producers account for less than 10% of the richest Americans. The executives that make up the 68% are masters of creating debt, wealth for themselves by peddling debt to the middle class, and creating jobs in China and India by outsourcing U.S. jobs.

The average income of the 137 million people that sit at the bottom of the income pyramid has declined by 1% since 1970. The people at the top of the pyramid saw their average income rise by 385%. Was this because they worked harder? No. It was because they used their existing wealth to buy politicians and pay lobbyists to write laws, create loopholes, reduce regulations, and alter the tax code in their favor. This was not a conspiracy. It was human nature. Humans are driven by greed and fear. Lusting for power and wealth is a common human frailty. Those who are able to acquire wealth and power through their superior abilities and intellect are usually driven individuals. It is built into their DNA to seek more wealth and power. There are 310 million Americans and based on the chart below, only 1.5 million would be classified as very rich or extremely rich. Many of these people associate in the same circles. This incestuous relationship is what breeds the growing inequality in our country. The game is rigged in favor of these 1.5 million people because they run the corporations, occupy the halls of Congress, peddle the debt products to the bottom 90%, and use their mass media to control the message to the under-educated, over-medicated, gadget distracted masses.

The problem with humans is they always push the envelope too far. The rich and powerful have methodically accumulated more wealth and more power since their glorious coup in 1913 with the creation of the Federal Reserve and the personal income tax. They have used inflation and the tax code to further their agenda. The rate of their pillaging has waxed and waned over the last century as the mood of the country has oscillated during the five turnings between crisis and triumph. The rate of looting has accelerated in the last thirty years as their false message of free market capitalism, lower tax rates for the rich, and the issuance of unparalleled amounts of debt was bought hook line and sinker by the American public. Their plundering of the national wealth reached a sickening crescendo in the last ten years, as their internet bubble was replaced by their housing bubble, which has been replaced by their debt bubble of immense proportions. As the middle class has been impoverished, 30 million people are unemployed or underemployed, senior citizens have been sacrificed at the altar of Wall Street and 45 million people are forced to use food stamps, the top 1% has done fabulously. They continue to rake in a greater proportion of the national income every year. In 2009, in the midst of an epic financial crisis, the number of millionaires in the United States soared by 16% to 7.8 million as despair and hopelessness spread across the land and fearful Americans were railroaded into bailing out the bankers that initiated the crisis and believing the Obama’s Keynesian solutions would actually trickle down to them.

As the game approaches its inevitable termination those in control have become increasingly audacious and frantic in their attempts to embezzle what remains of middle class wealth. The anger and disillusionment grows by the day. The mood of the country darkens like the sky before an approaching blizzard. The intensity and violence during a Fourth Turning hastens as events spiral toward a climax. The extreme actions taken by those in power since September 2008 have set in motion a chain of events that will lead to civil war. The powerful elite in government (Bush, Paulson, Bernanke, Congress) chose to bail out the powerful elite on Wall Street (Blankfein, Dimon, Pandit, Lewis) on the backs of the American middle class. TARP, QE1, QE2, and the $800 billion stimulus package were all created by the ruling elite to benefit the ruling elite, who control the vast amount of financial wealth in the country. Savers and seniors have been thrown under the wheels of a Lamborghini driven by the profligate Wall Street gamblers.

Average Americans feel betrayed by politicians, bankers and corporate America. The Tea party movement is a reflection of that anger. Fourth Turnings always sweep away the old order and replace it with a new order. The old order isn’t ready to be swept away, but their time is coming. The U.S. economic model is unsustainable and is guaranteed to collapse in the near future. Those in power are trying to engineer a controlled collapse, but they will lose control just as they did in 2008. Panic and depression will ensue. Vast amounts of wealth will be destroyed. When the middle class realizes they have been screwed again by Wall Street and K Street, and they no longer have anything left to lose, they will lose it.

The welfare class will only riot if their EBT cards stop working and the monthly welfare direct deposit ceases. It’s the critical thinkers in the middle class that will lead a revolution. There are 250 million guns owned by Americans. With this amount of firepower and millions of Americans with nothing left to lose, those attempting to retain power will be at a distinct disadvantage. I believe armed vigilantes will hunt down those responsible for the destruction of the American economy and invoke their own justice. Their gated communities and penthouse suite doormen will not protect them. No politician, banker, or corporate executive will be safe. Some will escape in their Lear jets to foreign lands, but the rest of the world will be equally chaotic and unsafe for those who committed crimes against humanity. Innocent people will die. Deserve will have nothing to do with it. The very existence of our country will hang in the balance.

Atonement

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

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

No one can predict the exact events (debt ceiling, Euro collapse, Middle East war) that will propel this Fourth Turning. But, the underlying drivers are clear: public debt, private debt, banker coup, military overreach, corporate fascism, Federal Reserve created inflation, an oil dependent society with depleting oil and rampant corruption across all levels of government. The fingers of instability grow longer as we add $4 billion per day to the national debt. A grain of sand will fall on the wrong part of the sand pile triggering a collapse of our currency. The event is unknown, the timing unclear, but the destination is certain. A dollar collapse will trigger a surge in interest rates, which will be fatal to our debt bloated society. Every previous Fourth Turning involved revolutionary aspects. The American Revolution and Civil War were wars of revolution. The stirrings of revolution were rampant in the early 1930s, with a plot foiled by General Smedley Butler. The New Deal was a response designed to quell discontent among the masses. Enough people are becoming aware of who to blame for the ills in our society that Henry Ford’s prediction is ever closer to being realized:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before morning.”

An uprising against the super rich and their banking cartel partners in crime is in the cards over the next ten years. Our society has degenerated and has been ransacked by sociopaths in suits as Jesse from Jesse’s Café Americain so eloquently states:

“Not all sociopaths wield knives and knotted cords. Some wear suits, and are exceptionally intelligent and articulate, obsessively driven, and are able to use and undermine the law and the rules for their advantage, like weapons. It is never about the win, never about the money. It is about the kill, the expression of their hatred, about elevating themselves with the suffering of others. Bind, torture, kill. Not only with ropes and knives, but also with power and money, and the subversion of law. Lawlessness is their addiction, their will to power.

When societies become lax and complacent, these sociopaths can possess great political power through great amounts of unprincipled money. And over time they become almost anti-human, destroyers of all that is good, all that is life, all that offends their insatiable sickness with its goodness. They twist the public against itself, and turn a broad sweep of society into their killing grounds. This is the undeniable lesson of the last century. There are monsters, and they walk among us.”

Human beings are a flawed species. We are often driven by emotion rather than reason. We are easily convinced of things we want to be convinced about. Those with superior intelligence often take advantage of those with inferior intelligence. We are prone to mass hysteria and believing things that, in retrospect, were utterly ridiculous. We can be swayed by fear and greed in alternating degrees of delusion. History teaches us that this time isn’t different. We’ve experienced depression, war and social upheaval on an epic scale three times since the founding of this country. With only three data points it is tough to discern patterns that would reveal exactly how this Fourth Turning will play out. But it is apparent to me that each Fourth Turning alternates between a mostly external struggle and a mostly internal struggle. The American Revolution was a struggle against an external oppressor – Great Britain. The Civil War was an internal struggle between the industrial North and the agrarian South. The Depression/World War II struggle was mainly against an external threat – Germany, Japan, and Italy.

The Fourth Turnings that centered upon an external threat ended with a glorious High. The Civil War Fourth Turning resolution felt more like defeat, with the country exhausted, bitter and angry. All indications are this Fourth Turning will be mainly an internal struggle between the ruling class of bankers, business elites, and politicians and the downtrodden middle class. The lying, cheating, fraud, theft and other wrongs committed by those in power will need to be atoned for. The generational dynamics in place will drive the reactions of the country moving forward. We have been badly led. A vast swath of the populace has lived beyond their means. The existing system is unsustainable. The Boomer generation does not want to yield on their perceived entitlements. The Millenial generation will be saddled with un-payable debts. Generation X is caught in the middle of this generational struggle. The huge imbalances in our society have built up over decades like flood waters behind a weakening levee. When the levee breaks the existing order will be swept away in the raging torrent that will follow.

The ruling class will be stripped of their unseemly acquired wealth; the Boomer generation will be scorned for their reckless disregard for future generations and stripped of their entitlements; Generation X will resign themselves to a lower standard of living, knowing full well by doing so, their children will not be saddled with crushing levels of debt; Millenials will have borne the burden of the revolution and violence which will be inevitable as the ruling class fights to retain their dominating position in society. Darkness descends upon our land. Storm clouds gather on the horizon. We’ve all played a part in the catastrophe that lies before us. Everyone in our crumbling society will need to atone for its sins, whether they deserve to or not. Will Munney was not an innocent man, but he ultimately atoned for his sins by digging deep into his soul and finding the strength and fortitude to fight the evil establishment. Each generation’s rendezvous with destiny awaits. There are no guarantees. The myth of American Exceptionalism will not protect us from the choices we’ve made. God will not shield us from the consequences of our actions. The American Empire hangs in the balance. As the ghosts of Roman emperors whisper – Glory is fleeting.

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

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

SUBPRIME AUTO NATION

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

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

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

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

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

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

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

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

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

Year & Quarter	Dollar Amount
2012Q1	$8,772,385,443

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

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

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

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

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

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

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

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

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

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

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

EPIC FAIL – PART ONE

“Facts are to the mind what food is to the body.” – Edmund Burke

No wonder one third of Americans are obese. The crap we are shoveling into our bodies is on par with the misinformation, propaganda and lies that are being programmed into our minds by government bureaucrats, corrupt politicians, corporate media gurus, and central banker puppets. Chief Clinton propaganda mouthpiece, James Carville, famously remarked during the 1992 presidential campaign that, “It’s the economy, stupid”. Clinton was able to successfully convince the American voters that George Bush’s handling of the economy caused the 1991 recession. In retrospect, it was revealed the economy had been recovering for months prior to the election. No one could ever accuse the American people of being perceptive, realistic or critical thinking when it comes to economics, math, history or distinguishing between truth or lies. Our government controlled public school system has successfully dumbed down the populace to a level where they enjoy their slavery and prefer conscious ignorance to critical thought.

The next six months leading up to the November elections will surely provide a shining example of the degraded society we’ve become. Both parties and their propaganda machines, SuperPacs, and corporate media sponsors will treat the igadget distracted masses to hundreds of hours of lies, spin, and vitriol, designed to divert the public from the fact that both parties act on behalf of the same masters and have no intention of changing course of the U.S. Titanic to avert the iceberg dead ahead. We will be treated to storylines about race, gun control, the war on women, energy independence, global warming, the war on terror, the imminent threat of Iran and North Korea, Obamacare, Romneycare, and of course the economy, stupid.

There are 240 million voting age Americans. About 130 million will likely vote in the 2012 election based upon recent voter participation results. This means that 110 million Americans don’t give a crap about who runs this country or they’ve come to their senses and realize our votes don’t matter. Between 1840 and 1900 voter participation ranged between 70% and 82% as Americans took their civic duty seriously and believed their vote counted. Since 1913, when the politicians relinquished control of our currency to a private bank controlled by a small group of powerful men, voter participation for President has ranged between 49% and 62%. It hasn’t surpassed 57% since 1968. Now that corporations are people and our candidates are selected by a few rich men, the transformation from a republic to a corporate fascist state is almost complete. During the coming interminable political campaign you will hear about jobs until your ears bleed. I can guarantee that 98% of the rhetoric will be false. Neither party wants the American people to understand the truth about what happened to our economy and jobs over the last 100 years. It has been a bipartisan screw job and ignoring the facts doesn’t change them.

The first fact that can’t be ignored is how many Americans are actually unemployed today. Here is some truth you won’t get from a politician or media talking head:

There are 243 million working age Americans.
There are 142 million employed Americans.
Only 101 million of the employed Americans are working more than 35 hours per week. This means that only 41.6% of all working age Americans have a full-time job.
According to the government drones at the BLS, 88 million Americans have “chosen” to not be in the labor force – the highest level in U.S. history.
The percentage of Americans in the workforce at 63.8% is the lowest since 1980 and down from a peak of 67.1% in 2000. The difference between these two percentages is 8 million Americans.
The BLS reports there are only 12.7 million unemployed Americans in the country, down from 15.3 million in 2009.
The BLS reports the unemployment rate has dropped from 10% in late 2009 to 8.3% today. Over this time frame the working age population grew by 5.7 million, while the number of employed Americans grew by 3.6 million. Only a government drone could interpret this data and report a dramatic decline in the unemployment rate.

Any critical thinking human being would examine the data being reported as fact by our government and regurgitated without question by the corporate mainstream media and conclude it is false, misleading and manipulated. The economy was booming in 2000 and 67.1% of the working age population were in the labor force. Today the economy is in much worse shape. More people NEED to work in order to just make ends meet, but according to the government, 8 million Americans have chosen to not work. Only an Ivy League economist or CNBC bimbo pundit would believe such a blatant distortion of reality. A comparison to prior decades provides all the evidence you need:

In 1980 the working age population was 168 million and the labor force totaled 107 million.
By 1990 the working age population grew by 21 million and the labor force grew by 19 million.
By 2000 the working age population grew by another 23 million and the labor force advanced by 17 million.
Since 2000 the working age population has grown by 30 million, but shockingly the labor force has supposedly grown by only 12 million.

This data is so twisted that there is absolutely no doubt the Federal Government is purposely manipulating the numbers to make the economic situation appear better than the reality. During the Great Depression propaganda and spin had not been perfected. There weren’t multiple definitions of unemployment designed to confuse and mislead the public. The peak level of unemployment in the 1930s was 25%. The current reported level is 8.3%. On a comparable basis to the 1930s, including short-term discouraged workers, those forced to work part-time, and the long-term discouraged workers which were defined out of existence in 1994 by the BLS, the real unemployment rate is 22% today. It feels like a depression for millions of Americans because it is a depression.

The rhetoric from the Obama administration about a jobs recovery is laughable. Full time employment peaked in July 2007 at 122.4 million. Today there are 113.9 million people classified as full-time, with only 101.3 million working more than 35 hours. There are 8.5 million fewer people with full time jobs today than there were in 2007. That fact is even more disheartening considering the working age population has grown by 10.5 million over the same time span. Taking an even longer term view provides the perspective needed to assess our true economic state. Total nonfarm employment hasn’t grown in twelve years, while the working age population has grown by 30 million people.

Obama will tout the fact that we’ve added 3.6 million jobs since the bottom of this recession. What he won’t tout is that hiring of temporary workers surged by 37% and accounted for 25% of all the jobs added since 2009. I’m sure these temporary workers, with no health or retirement benefits, are confident about their future. The facts about jobs and employment are consistent with the 47 million Americans on food stamps (up from 35 million when the recession supposedly ended). It’s a sure sign of recovery when spending on food stamps doubles in the last two years. No depression here, just move along.

Record numbers of Americans being added to the SSDI rolls for depression and other illusory disabilities is surely a positive development pointing to a strong economic recovery. In just the first four months of this year, 539,000 joined the disability rolls and more than 725,000 put in applications. “We see a lot of people applying for disability once their unemployment insurance expires,” said Matthew Rutledge, a research economist at Boston College’s Center for Retirement Research. The number of applications last year was up 24% compared with 2008, Social Security Administration data show. Why participate in the labor market when you can collect a government check for life because you are obese or depressed. These are the people no longer in the labor force. Once they go on SSDI, they rarely go back to work again.

The government reported figure of 12.7 million unemployed Americans is an utter falsehood. There are in excess of 30 million Americans that are either unemployed or working part-time that want full-time jobs. Government propaganda doesn’t change the facts.

“Facts don’t cease to exist because they are ignored.” – Aldous Huxley

Would You Like a Side Order of Facts with That Propaganda?

When you watch the Wall Street scam artists paraded on CNBC declaring the number of people not in the labor force is going up due to Baby Boomers retiring, you should understand they are propagating a falsehood. They are either intellectually dishonest or too lazy to do the most basic of research. They are paid millions to impart false storylines to anyone dumb enough to watch CNBC expecting facts or a smattering of truth. If you want some truth, turn to John Mauldin and John Hussman. CNBC doesn’t invite these outstanding honest analysts on their station when they can roll out a shill like Abbey Joseph Cohen or James Paulson. They wouldn’t want some factual analysis when they can have Becky Quick do one of her frequent handjob interviews with that doddering old status quo fool Warren Buffet.

A critical thinker might wonder how could real disposable income be dropping over the last three months and only have risen by 0.3% in the last year if we’ve had the strong job growth touted by Obama. Could it be the jobs being created are extraordinarily low-paying? There are signs of desperation everywhere you look. The two charts below, from one of John Mauldin’s recent articles, reveal the truth about the Baby Boomers retiring storyline. The first chart shows the employment level for those over the age of 55 since 2007. There were 25.3 million people over the age of 55 working in 2007 and there are 30.1 million working today. People over 55 have seen their total employment level rise by 4.8 million jobs since the beginning of the recession, and over 3 million jobs since the 3^rd quarter of 2009. Total employment is down by 4 million since 2007, while employment among those over 55 is up 19%. John Hussman described the reality about employment in his recent weekly article:

“If you dig into the payroll data, the picture that emerges is breathtaking. Since the recession “ended” in June 2009, total non-farm payrolls in the U.S. have grown by 2.32 million jobs. However, if we look at workers 55 years of age and over, we find that employment in that group has increased by 3.04 million jobs. In contrast, employment among workers under age 55 has actually contracted by nearly one million jobs, regardless of which survey you use. Even over the past year, the vast majority of job creation has been in the 55-and-over group, while employment has been sluggish for all other workers, and has already turned down.”

I wonder how Larry Kudlow will spin this.

Now for the really eye opening facts. While the labor participation rate has been plunging, the Boomer participation rate has been skyrocketing. The participation rate for the over 65 age group is now at an all-time high. Do you think this has anything to do with home values dropping 36% since 2005, gasoline prices doubling since early 2009, food prices surging by 25%, the 1.4% annual return of stocks since 1999, or the .15% senior citizens can earn on their money today versus the 5% they could earn in 2007?

Intellectually dishonest ultra-liberal Ivy League defender of the Federal Reserve – Paul Krugman had this to say about Ben Bernanke’s zero interest rate policy on senior citizens:

“Finally, how is expansionary monetary policy supposed to hurt the 99 percent? Think of all the people living on fixed incomes, we’re told. But who are these people? I know the picture: retirees living on the interest on their bank account and their fixed pension check — and there are no doubt some people fitting that description. But there aren’t many of them.”

It must be comforting living in an ivory tower or penthouse suite and looking down upon the ignorant masses while caressing your Nobel Prize. The millions of senior citizens with $100,000 of savings could earn $5,000 of interest income in 2007 to supplement their $18,000 of Social Security income. Today, they can earn $150 while the Wall Street banks receive the benefits of ZIRP by borrowing for free from the Federal Reserve and earning billions risk free. Paulie doesn’t think the $4,850 reduction in income and the 15% increase in inflation since 2007 had a negative impact on senior citizens. They must be pouring into the work force because they are just bored, after working for the last 45 years. John Hussman has a slightly different viewpoint, based upon facts rather than a false disproven ideology:

“Beginning first with Alan Greenspan, and then with Ben Bernanke, the Fed has increasingly pursued policies of suppressing interest rates, even driving real interest rates to negative levels after inflation. Combine this with the bursting of two Fed-enabled (if not Fed-induced) bubbles – one in stocks and one in housing, and the over-55 cohort has suffered an assault on its financial security: a difficult trifecta that includes the loss of interest income, the loss of portfolio value, and the loss of home equity. All of these have combined to provoke a delay in retirement plans and a need for these individuals to re-enter the labor force.

In short, what we’ve observed in the employment figures is not recovery, but desperation. Having starved savers of interest income, and having repeatedly subjected investors to Fed-induced financial bubbles that create volatility without durable returns, the Fed has successfully provoked job growth of the obligatory, low-wage variety. Over the past year, the majority of this growth has been in the 55-and-over cohort, while growth has turned down among other workers. Meanwhile, broad labor force participation continues to fall as discouraged workers leave the labor force entirely, which is the primary reason the unemployment rate has declined. All of this reflects not health, but despair, and helps to explain why real disposable income has grown by only 0.3% over the past year.”

Do you believe Krugman or Hussman? The key takeaway from the data is the desperation exhibited by average Americans, while the political governing elite and Wall Street pigs continue to gorge themselves at the trough of free money provided by the Federal Reserve, while paying themselves obscene bonuses for a job well done buying the corrupt Washington politicians.

Over the next six months we will hear unceasing rhetoric from Obama and Romney about how they are going to create jobs. Neither of these government apparatchiks have a clue about jobs or desire to change the course that was set one hundred years ago with the creation of the Federal Reserve. Obama never worked at a real job in his entire life, while Romney has spent his life firing people and spinning off heavily indebted companies to unsuspecting investors. The current deteriorating jobs picture has been decades in the making and a truly bipartisan effort. The rhetoric about America being an engine of growth and the world leader in innovation and entrepreneurship is laughable when examined with a critical eye. We are an aging empire living in the past as the facts portray an entirely different reality. Our fastest growing industries include:

Solar panel manufacturing (subsidized by your tax dollars)
For-profit universities (diploma mills subsidized by your tax dollars)
Pilates and yoga studios
Self-tanning product manufacturing
Social network game development
Hot sauce production

The “surge” in jobs in the last three months is being driven by these industries:

Food services and drinking places
Administrative and support services
Ambulatory health care services
Credit intermediation
Hospitals

Is this the picture of a world leading jobs machine or a delusional, paper pushing, self-involved, obese, sickly, overly indebted crumbling empire? The job openings in industries that actually produce something are barely identifiable on the chart below. Maybe the University of Phoenix can successfully retrain construction and manufacturing workers to be waiters, waitresses, and Wal-Mart greeters if the Federal government can funnel more of our tax dollars into student loans.

If you thought low wage work was only for Chinese, Indians, and Vietnamese, you haven’t been paying attention. The United States is a world leader. We are by far the world leader among developed countries in percentage of low wage workers at 24.8%. I find it hysterical that the dysfunctional insolvent countries of Greece, Spain, Portugal, and Italy have a much smaller percentage of low wage workers than the great American empire. We have 142 million employed Americans and 35 million are slaving away in low paying thankless jobs. This explains why the half the workers in the country make less than $25,000 per year.

The top three employment occupations in the country are:

Office and administrative support work
Sales & Related
Food preparation and serving related

There are high paying good jobs in America, but there aren’t many and on-line college graduates from the University of Phoenix aren’t going to get them. The highest paying jobs today require a high level of specialization and education, especially in the healthcare and technology industries. This disqualifies the vast majority of government run public school graduates. High paying manufacturing jobs which were the backbone of the country during the 1950s and 1960s are gone forever. The reasons for this transformation are multifaceted and will be addressed in Part Two of this article. It didn’t happen by accident and there are culprits to blame. The conversion of our country from making high quality things other countries needed to a debt driven service economy of paper pushers, hash slingers, and retail “specialists” has slowly but surely destroyed the middle class. The masses are distracted by the latest technological marvel that allows them to waste another two hours per day posting how they feel about the latest episode of America’s Got Something or America’s Top Whatever. We have become a country that glories in our materialism and shallow culture while acting like a thug around the world with our unparalleled military machine.

This result is not an accident. It was set in motion by the actions of a handful of rapacious, wealthy powerful men that have been calling the shots in this country for the last hundred years. It wasn’t a planned conspiracy but the logical result of man-made inflation, a fiat currency not backed by gold, the craving of rich men to become richer, a willfully ignorant populace, and a slow devolution of our society into a corporate fascist state. We praise and honor psychopathic criminals while scorning and ridiculing the middle class workers that built this country. The American dream has become a nightmare for the millions of unemployed and underemployed. The acceleration of debt accumulation and money printing guarantees this rotting carcass of a country will go belly up in the foreseeable future.

“Thus did a handful of rapacious citizens come to control all that was worth controlling in America. Thus was the savage and stupid and entirely inappropriate and unnecessary and humorless American class system created. Honest, industrious, peaceful citizens were classed as bloodsuckers, if they asked to be paid a living wage. And they saw that praise was reserved henceforth for those who devised means of getting paid enormously for committing crimes against which no laws had been passed. Thus the American dream turned belly up, turned green, bobbed to the scummy surface of cupidity unlimited, filled with gas, went bang in the noonday sun.” – Kurt Vonnegut

In Part Two of this article I will examine how we got to this point and what is likely to happen next.

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KRUGMAN – THE STAND UP COMIC

This elitist douchebag Ivy League asshole actually declares that there is no inflation and that Bernanke’s zero interest rate policy does not benefit the Wall Street banks while destroying the finances of senior citizens across the land. This is proof that ultra-liberals like Krugman and neo-con scum like Romney believe exactly the same thing. There are no differences among the ruling elite. They are circling the wagons as a small faction of critical thinking Americans reveal their cabal.

Krugman Rebutts (sic) Spitznagel, Says Bankers Are “The True Victims Of QE”, Princeton-Grade Hilarity Ensues

Submitted by Tyler Durden on 04/21/2012 15:54 -0400

At first we were going to comment on this “response” by the high priest of Keynesian shamanic tautology to Mark Spitznagel’s latest WSJ opinion piece, but then we just started laughing, and kept on laughing, and kept on laughing…

As a reminder, on Thursday Universa’s Mark Spitznagel, best known recently for explaining in very vivid ways just how central planning has sown the seeds of its own destruction, wrote the following in the WSJ:

How the Fed Favors The 1%

The Fed doesn’t expand the money supply by dropping cash from helicopters. It does so through capital transfers to the largest banks.

A major issue in this year’s presidential campaign is the growing disparity between rich and poor, the 1% versus the 99%. While the president’s solutions differ from those of his likely Republican opponent, they both ignore a principal source of this growing disparity.

The source is not runaway entrepreneurial capitalism, which rewards those who best serve the consumer in product and price (Would we really want it any other way?) There is another force that has turned a natural divide into a chasm: the Federal Reserve. The relentless expansion of credit by the Fed creates artificial disparities based on political privilege and economic power.

David Hume, the 18th-century Scottish philosopher, pointed out that when money is inserted into the economy (from a government printing press or, as in Hume’s time, the importation of gold and silver), it is not distributed evenly but “confined to the coffers of a few persons, who immediately seek to employ it to advantage.”

In the 20th century, the economists of the Austrian school built upon this fact as their central monetary tenet. Ludwig von Mises and his students demonstrated how an increase in money supply is beneficial to those who get it first and is detrimental to those who get it last. Monetary inflation is a process, not a static effect. To think of it only in terms of aggregate price levels (which is all Fed Chairman Ben Bernanke seems capable of) is to ignore this pernicious process and the imbalance and economic dislocation that it creates.

As Mises protégé Murray Rothbard explained, monetary inflation is akin to counterfeiting, which necessitates that some benefit and others don’t. After all, if everyone counterfeited in proportion to their wealth, there would be no real economic benefit to anyone. Similarly, the expansion of credit is uneven in the economy, which results in wealth redistribution. To borrow a visual from another Mises student, Friedrich von Hayek, the Fed’s money creation does not flow evenly like water into a tank, but rather oozes like honey into a saucer, dolloping one area first and only then very slowly dribbling to the rest.

The Fed doesn’t expand the money supply by uniformly dropping cash from helicopters over the hapless masses. Rather, it directs capital transfers to the largest banks (whether by overpaying them for their financial assets or by lending to them on the cheap), minimizes their borrowing costs, and lowers their reserve requirements. All of these actions result in immediate handouts to the financial elite first, with the hope that they will subsequently unleash this fresh capital onto the unsuspecting markets, raising demand and prices wherever they do.

The Fed, having gone on an unprecedented credit expansion spree, has benefited the recipients who were first in line at the trough: banks (imagine borrowing for free and then buying up assets that you know the Fed is aggressively buying with you) and those favored entities and individuals deemed most creditworthy. Flush with capital, these recipients have proceeded to bid up the prices of assets and resources, while everyone else has watched their purchasing power decline.

At some point, of course, the honey flow stops—but not before much malinvestment. Such malinvestment is precisely what we saw in the historic 1990s equity and subsequent real-estate bubbles (and what we’re likely seeing again today in overheated credit and equity markets), culminating in painful liquidation.

The Fed is transferring immense wealth from the middle class to the most affluent, from the least privileged to the most privileged. This coercive redistribution has been a far more egregious source of disparity than the president’s presumption of tax unfairness (if there is anything unfair about approximately half of a population paying zero income taxes) or deregulation.

Pitting economic classes against each other is a divisive tactic that benefits no one. Yet if there is any upside, it is perhaps a closer examination of the true causes of the problem. Before we start down the path of arguing about the merits of redistributing wealth to benefit the many, why not first stop redistributing it to the most privileged?

And here is how Krugman, who among other pearls of insight references … Joe Wisenthal, responds. This is seriously Princeton-grade humor. We leave it up to readers to enjoy it for themselves unobstructed by our cynical interjections. Fom the NYT (highlights ours)

Plutocrats and Printing Presses

These past few years have been lean times in many respects — but they’ve been boom years for agonizingly dumb, pound-your-head-on-the-table economic fallacies. The latest fad — illustrated by this piece in today’s WSJ — is that expansionary monetary policy is a giveaway to banks and plutocrats generally. Indeed, that WSJ screed actually claims that the whole 1 versus 99 thing should really be about reining in or maybe abolishing the Fed. And unfortunately, some good people, like Daron Agemoglu and Simon Johnson, have bought into at least some version of this story.

What’s wrong with the idea that running the printing presses is a giveaway to plutocrats? Let me count the ways.

First, as Joe Wiesenthal and Mike Konczal both point out, the actual politics is utterly the reverse of what’s being claimed. Quantitative easing isn’t being imposed on an unwitting populace by financiers and rentiers; it’s being undertaken, to the extent that it is, over howls of protest from the financial industry. I mean, where are the editorials in the WSJ demanding that the Fed raise its inflation target?

Beyond that, let’s talk about the economics.

The naive (or deliberately misleading) version of Fed policy is the claim that Ben Bernanke is “giving money” to the banks. What it actually does, of course, is buy stuff, usually short-term government debt but nowadays sometimes other stuff. It’s not a gift.

To claim that it’s effectively a gift you have to claim that the prices the Fed is paying are artificially high, or equivalently that interest rates are being pushed artificially low. And you do in fact see assertions to that effect all the time. But if you think about it for even a minute, that claim is truly bizarre.

I mean, what is the un-artificial, or if you prefer, “natural” rate of interest? As it turns out, there is actually a standard definition of the natural rate of interest, coming from Wicksell, and it’s basically defined on a PPE basis (that’s for proof of the pudding is in the eating). Roughly, the natural rate of interest is the rate that would lead to stable inflation at more or less full employment.

And we have low inflation with high unemployment, strongly suggesting that the natural rate of interest is below current levels, and that the key problem is the zero lower bound which keeps us from getting there. Under these circumstances, expansionary Fed policy isn’t some kind of giveway to the banks, it’s just an effort to give the economy what it needs.

Furthermore, Fed efforts to do this probably tend on average to hurt, not help, bankers. Banks are largely in the business of borrowing short and lending long; anything that compresses the spread between short rates and long rates is likely to be bad for their profits. And the things the Fed is trying to do are in fact largely about compressing that spread, either by persuading investors that it will keep short rates at zero for a longer time or by going out and buying long-term assets. These are actions you would expect to make bankers angry, not happy — and that’s what has actually happened.

Finally, how is expansionary monetary policy supposed to hurt the 99 percent? Think of all the people living on fixed incomes, we’re told. But who are these people? I know the picture: retirees living on the interest on their bank account and their fixed pension check — and there are no doubt some people fitting that description. But there aren’t many of them.

The typical retired American these days relies largely on Social Security — which is indexed against inflation. He or she may get some interest income from bank deposits, but not much: ordinary Americans have fewer financial assets than the elite can easily imagine. And as for pensions: yes, some people have defined-benefit pension plans that aren’t indexed for inflation. But that’s a dwindling minority — and the effect of, say, 1 or 2 percent higher inflation isn’t going to be enormous even for this minority.

No, the real victims of expansionary monetary policies are the very people who the current mythology says are pushing these policies. And that, I guess, explains why we’re hearing the opposite. It’s George Orwell’s world, and we’re just living in it.

It… just… does…. not…. compute…. is this the type of thinking of needs to exhibit to get a Nobel?

Does Krugman seriously still not understand that NIM as a business model for banks died about the time banks stopped making loans and relying exclusively on prop, pardon flow, trading and using infinite rehypothecation leverage to juice their returns into the stratosphere, using the offbalance accounting permitted by shadow banking (really read this Paul – you may finally understand how finance DOES work these days), while doing all their best to limit origination and mortgage lending exposure, thank you Bank of Countrywide Lynch (i.e. the opposite of the NIM business model)?

Well at least Krugman is right about thing: there sure aren’t many people living on fixed income anymore. Most of them have already died. And he is most certainly not referring to the $5 billion on average in capital that is weekly rotated out of stocks and into bonds.

Whatever anyone does, do not point out our previous post that it was none other than the Fed warning that monetization and excess reserves could lead to hyperinflation. Or, that none other than JPMorgan pointed out a month ago that his beloved central planning has destroyed Okun’s Law which makes all Krugman Op-Eds in the past 4 years about the same intellectual quality as one-ply Cottonelle.

We may get a scene straight out of Scanners. And we don’t want that – we just want more Krugman humor and more LSAP, aka Large Scale Asshat Publications. In fact, it is time for the Fed to stop printing money and just print Krugman Op-Eds. Following the laughter-induced genocide, unemployment will indeed finally drop for once naturally, instead of as a result of millions of people dropping out of the labor force on a monthly basis.

PONDERING THOSE “GREAT” AUTO SALES

You gotta love these stories. The lady in this article sums it up perfectly:

“Even I wouldn’t make a loan to me at this point.”

But that isn’t stopping Ally Financial and the rest of the Wall Street slimeball banks from dishing out car loans and credit cards to anyone with a pulse. There is no doubt in my mind that these banks are doing this because Bernanke and Obama have told them to do so. The Fed has let them know they have their back. When these loans go bad the Federal Reserve will step in and buy up the bad debt and hide it on their balance sheet. This is the plan stan. It will not work. The brand new cars all over West Philly will be repossesed in the next 24 months and the bad debt will skyrocket. And you will be picking up the tab. Again.

Lenders Again Dealing Credit to Risky Clients

By JESSICA SILVER-GREENBERG and TARA SIEGEL BERNARD

Published: April 10, 2012

Annette Alejandro just emerged from bankruptcy and doesn’t have a job, and her car was repossessed last year. Still, after spending her days job hunting, she returns to her apartment in Brooklyn where, in disbelief, she sorts through the piles of credit card and auto loan offers that have come in the mail.

“Even I wouldn’t make a loan to me at this point,” Ms. Alejandro said.

In the depths of the financial crisis, borrowers with tarnished credit like Ms. Alejandro were almost entirely shut out by traditional lenders. It was hard enough for people with stellar credit to get loans.

But as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.

Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said.

Consumer advocates and lawyers worry that the financial institutions are again preying on the most vulnerable and least financially sophisticated borrowers, who are often willing to take out credit at any cost.

“These people are addicted to credit, and banks are pushing it,” said Charles Juntikka, a bankruptcy lawyer in Manhattan.

The banks, for their part, are looking to make up the billions in fee income wiped out by regulations enacted after the financial crisis by focusing on two parts of their business — the high and the low ends — industry consultants say. Subprime borrowers typically pay high interest rates, up to 29 percent, and often rack up fees for late payments.

Some former banking regulators said they worried that this kind of lending, even in its early stages, signaled a potentially dangerous return to the same risky lending that helped fuel the credit crisis.

“It’s clear that we are returning to business as usual,” said Mark T. Williams, a former Federal Reserve bank examiner.

The lenders argue that they have learned their lesson and are distinguishing between chronic deadbeats and what some in the industry call “fallen angels,” those who had good payment histories before falling behind as the economy foundered.

A spokesman for Chase, Steve O’Halloran, said the bank “seeks to be a careful, responsible lender,” adding that it “is constantly evaluating the risks and costs of funding loans.”

Regulators with the Office of the Comptroller of the Currency, which oversees the nation’s largest banks, said that as long as lenders adhered to strict underwriting standards and monitored risk, there was nothing inherently dangerous about extending credit to a wider swath of people.

In fact, an increase in lending is a sign that the economy is improving, economists say. While unemployment remains high, consumers have been reducing their debts. Delinquencies on credit card accounts and auto loans are down sharply from their heights in the crisis. “This is a natural loosening of credit standards because the banks feel they can expand again,” said Michael Binz, a managing director at Standard & Poor’s.

And lenders miss many potential customers if they focus just on people with perfect credit.

“You can’t simply ignore this segment anymore,” said Deron Weston, a principal in Deloitte’s banking practice.

The definition of subprime borrowers varies, but is generally considered those with credit scores of 660 and below.

The push for subprime borrowers has not extended to the mortgage market, which remains closed to all but the most creditworthy.

Capital One is one lender that has been courting borrowers with damaged credit, even those who have just emerged from bankruptcy, with pitches like, “We want to win you back as a customer.”

Pam Girardo, a spokeswoman for Capital One, said, “Our strategy is to provide reasonable access to credit with appropriate guardrails in place to ensure consumers stay on track as they rebuild their credit.”

Ms. Alejandro, 46, was one of the borrowers fresh out of bankruptcy courted by Capital One. So far, she has turned it down.

David W. Nelms, chief executive of Discover Financial Services, the sixth-largest credit card lender in the United States, told investors this month that the company planned to extend credit to a broader group of borrowers. But, he added, Discover is not “suddenly going to go into the subprime business.”

Credit card lenders extended $12.5 billion in loans to subprime borrowers last year, up 54.7 percent from 2010, according to Equifax and Moody’s, but still below the $41.6 billion in 2007.

Lenders are ramping up their advertising, according to Synovate, a market research firm. Others are developing credit cards specifically aimed at borrowers with damaged credit. Capital One, for instance, introduced a credit card last year that allows these borrowers to lower their interest rate after making timely payments for a year.

Auto loans are particularly attractive for lenders since they were largely untouched by many of the new regulations. The new Consumer Financial Protection Bureau said it had not yet decided whether it would oversee the largest nonbank auto lenders.

At the same time, the market for securities made up of bundles of auto loans is heating up. Last year, investors scooped up $11.7 billion in auto loan securities, up from $2.17 billion in 2008. The pace of securitization in credit cards is slower, with lenders selling roughly 30 percent of their card portfolios to investors, down from 60 percent before the financial crisis, according to S&P.

Steve Bowman, the chief credit and risk officer for GM Financial, an auto lender, said he expected subprime auto loans to continue to grow. Unlike mortgage lenders, Mr. Bowman argued, auto lenders understand how to manage risk while still making loans to borrowers with poor credit.

But Moody’s was already sounding the alarm last year that some very risky borrowers were getting auto loans. The market, Moody’s wrote in a report in March 2011, could be growing “too much too fast.”

Ms. Alejandro is not the only borrower with bad credit to question why anyone would offer a loan. The offer, of course, does not necessarily translate into the issuing of a card.

Shauna Ames, 41, an office manager from St. Paul, said she got a credit card offer from Capital One even though the company had won a lawsuit against her for $5,485 in overdue credit card debt last September. Ms. Ames, who had filed for bankruptcy, said she was surprised at the offer. “I still can’t believe it,” she said.

Ms. Girardo, the Capital One spokeswoman, said the bank doesn’t solicit customers that it has previously sued. “We believe we can establish long-term relationships with products that are predicated on consumer success,” she said.

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 4^th quarter of 2007 and the 4^th 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

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IT’S A BIG CLUB & YOU AIN’T IN IT

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

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AIN’T NO REST FOR THE WICKED

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PAYCHECKS, PERCEPTION, PROPAGANDA & POWER

“It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” – Upton Sinclair

I began to write this article in early December. I had just written a piece that attempted to scrutinize how the American public could stand idly by while heavily armed mercenary thugs viciously crushed the Occupy encampments across the country in a Department of Homeland Security coordinated attack at the behest of the ruling oligarchy. Comfortably Numb made a case that the political and economic systems of the United States have been captured by a few evil men and they use their wealth and power to control the message hammered into the psyches of an apathetic, distracted, vincibly ignorant public. I started to tackle the question of why Americans could stand by as the new Greatest Generation was being abandoned, derided, scorned, beaten, tear gassed, and arrested for having the courage and audacity to stand up to a powerful corrupt unholy alliance between Wall Street psychopaths, corporate fascist barbarians, and Washington DC power hungry jackals. But I became overwhelmed with a feeling of disillusionment and hopelessness and was unable to write anything for about a month. I found myself questioning whether it was worth fighting such a powerful foe after seeing how easily they crushed the opposition put forth by OWS. After a month I decided I am not one to love my servitude.

“Most men and women will grow up to love their servitude and will never dream of revolution.” – Huxley’s Brave New World

I owe it to my three sons to keep fighting the good fight. They deserve a future. Day by day we draw ever closer to a showdown with the traitors who have sold this country into debt slavery. I don’t dream of revolution, but my eyes are wide open and I see it coming. I had been trying to wrap my head around what happened with the Occupy Movement since the Department of Homeland Security coordinated destruction of most of the encampments around the country in November. The corporate mainstream media immediately moved onto more pressing issues like the Kim Kardashian divorce and Jessica Simpson’s weight gain. The American public has been instructed by the media the Occupy story is history, just like the BP oil spill, the Fukushima nuclear meltdown, and the Egyptian revolution. In a society consumed by reality TV Occupy Wall Street was just another show. The credulous American populace dutifully turned their attention to Black Friday and whipping out one of their 15 credit cards to purchase remote control pillows, 3D 72 inch HDTVs, a see through tank top from the Snooki line of slutware, or thousands of other ludicrous Chinese crap churned out by slave labor in factories built to support the “efficiency” efforts of U.S. conglomerates.

Without a constant irritating presence in the heart of NYC and other large cities, the Occupy Movement appears to have lost steam. I’ve been trying to figure out how and why this happened. The issues that motivated the protests have not gone away. The despicable MF Global crime, committed by a hall of shame member of the .01% – Jon Corzine – has proven beyond a shadow of a doubt the Wall Street/Washington DC criminal conspiracy is alive and well. Unless you have been sitting in line at a Wal-Mart for the last two months to get a $3 waffle-maker, you saw young people across the country tear gassed, shot with rubber bullets, maced, bludgeoned, and brutalized by the paid thugs of the ruling oligarchy on a daily basis. The outrage at the continued looting by the psychopathic Wall Street aristocracy and the horrific police brutality against young people exercising their Constitutional right to free speech and assembly should have ignited widespread anger and mass protest. Instead the reaction has been silence, scorn and smug satisfaction with the government response.

Paychecks & Perceptions

There are a plethora of rationales for the apathy and lack of critical thinking overwhelming our society as we plunge into the depths of a looming economic calamity. They include economic self interest, the power of propaganda to condition the masses, fear of opposing authority, and the perception of a reality that allows you to sleep at night. The Upton Sinclair quote above hit home for me a few weeks ago and explains much of the disdain for the Occupy movement. I was in a high level meeting at my University and during the course of the meeting the Occupy Movement was brought up. A senior executive made a derogatory comment about Occupy and then laughed. I smiled and bit my tongue. In retrospect it shouldn’t have surprised me. I work at one of the top business schools in the world. The person who made the comment has spent his entire life educating students who end up with jobs at Wall Street financial institutions and with America’s largest corporations. It is a natural response for someone whose whole life is reliant upon the existing financial system to psychologically overlook the obvious criminality of the Wall Street fat cats and corporate executives who validate his entire existence and life’s work. He chooses to not understand the message of these protestors because to truthfully comprehend their message would nullify his thirty years of academic efforts. My non-response to the comment about the Occupy Movement was also based upon self-interest and reliance on a paycheck to make a living. I had learned my lesson the hard way during a previous career stop.

It appears older generations have a considerably more negative view of young people protesting the capture of our political and economic system than younger generations. This also makes sense because they have the most to lose and cannot visualize a society other than the one they have created. To acknowledge the validity of the Occupy Movement and the justice of their positions would be to admit their own guilt in the creation of a society that has allowed a chosen few to enrich themselves at the expense of the many. The Baby Boom Generation has been living a lie their entire adulthood. It is true that prior generations created the welfare/warfare state we have today, but the Boomers have had the reins of power for the last two decades in Congress and chose to not only ignore the fact the entitlement promises made by previous administrations could not be fulfilled. They even made further promises in the trillions to their fellow Boomers. Instead of making a budgetary choice between guns and butter, the Boomers chose guns, butter, education, universal healthcare, the right to own a home, the right to a 72 inch HDTV, and zero percent financing on their Cadillac Escalade from government motors. The consequences of these choices are a $15.2 trillion National Debt growing at a rate of $3.7 billion per day and unfunded entitlement liabilities totaling in excess of $100 trillion.

I had the pleasure of meeting Neil Howe, co-author of The Fourth Turning and fourteen other books, in early December. His ground breaking work with William Strauss on generational theory has proven to be uncannily accurate, as their 1997 assessment of what dynamics would drive the course of history over the coming decades have materialized exactly as they presumed. We had a fascinating two hour discussion about various topics impacting the world today and I found that we were in agreement on just about everything, except for the Occupy protests. Neil Howe is an expert on interpreting how generations react to events. I expected him to be impressed by the courage and fortitude of the Millenials leading this protest against Wall Street gluttony and audacious criminality. This is the new GI Generation and I anticipated him perceiving these protests as a prelude to greater feats ahead by this generation. Instead he described them as naive adolescents being led down a phony path by anarchist Boomers. As an example he referenced the fact that many of the protestors were wearing Guy Fawkes masks, the most famous anarchist in history. He found this distasteful and dangerous. My interpretation of the Guy Fawkes masks was more in line with the movie V For Vendetta and the theme of a corrupt evil government keeping the public living in perpetual fear.

“Because while the truncheon may be used in lieu of conversation, words will always retain their power. Words offer the means to meaning, and for those who will listen, the enunciation of truth. And the truth is, there is something terribly wrong with this country, isn’t there? Cruelty and injustice, intolerance and oppression. And where once you had the freedom to object, to think and speak as you saw fit, you now have censors and systems of surveillance coercing your conformity and soliciting your submission. How did this happen? Who’s to blame? Well certainly there are those more responsible than others, and they will be held accountable, but again truth be told, if you’re looking for the guilty, you need only look into a mirror. I know why you did it. I know you were afraid. Who wouldn’t be? War, terror, disease. There were a myriad of problems which conspired to corrupt your reason and rob you of your common sense. Fear got the best of you, and in your panic you turned to the now high chancellor, Adam Sutler. He promised you order, he promised you peace, and all he demanded in return was your silent, obedient consent.” – V For Vendetta

Neil Howe’s impression of the movie centered on the terroristic aspects of blowing up Parliament, not on the symbolism of citizens rising up and casting off the yoke of a malevolent oligarchy that has used propaganda, fear and intimidation to manipulate and control the population. Howe is a Baby Boomer and I’m Generation X. We are each viewing the Occupy Movement through the prism of our life experiences and perceptions about the intentions of these protestors. The existing social, economic, and political structure is dominated by Boomers. Neil Howe views the Occupy Movement as a threat to the system he believes in and supports. As a cynical Xer with no allegiance to a corrupt government, a crony capitalist economic system or a greedy self centered society, I see these young revolutionaries as our last great hope.

Neil Howe runs a very successful consulting firm whose clients include Fortune 500 corporations, including Wall Street financial firms. His annual income and net worth is dependent upon the existing corporate dynamic. When your living depends upon not understanding the real reason young people are protesting corporate malfeasance, fraud and corruption, your mind can ignore observable facts and visible truths. Anything can be rationalized when putting food on the table requires you to ignore obvious truths and understandable facts.

Propaganda & Power

“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

I was shocked when I came across the above quote a few months ago. Bernays had it figured out 84 years ago before mass media, television, or spin doctors. His vision of a society manipulated by a small number of governing elite who believe they know better than the masses has come to fruition. True republican equality as defined by the founders in the Constitution is considered quaint and a belief of the trusting and naïve masses by the wealthy elite. Manipulation of the masses through a relentless never ending barrage of propaganda disguised as news and unremitting false advertising is designed to control and herd the cattle into the slaughterhouse. We are given the illusion of free choice, when in reality the choices are being made for us by a chosen few who think they know what is best. These puppeteers controlling the strings inhabit the financial, government and corporate halls of power. Their purpose is not to benefit society and its citizens but to protect their wealth and influence, using any means at their disposal. Propaganda to control the minds of a willfully uninformed public has been their most potent weapon.

Source: Mike Kreiger

Most people have never heard the name Edward Bernays. That is the way public relations specialists (manipulators of the truth) like it. They operate in the shadows, subtly influencing public opinion through what Bernays arrogantly referred to as the sinister method of “engineering of consent”. The Governing Elite have no time for messy processes like true capitalism or non-manipulated free elections. The objective for Bernays and his ilk has always been to provide corrupt government power brokers, shadowy bankers and corporate media kingpins with potent psychological instruments of social persuasion and mind control. Edward Bernays is considered the “father of public relations”, and he was the nephew of Sigmund Freud. He pioneered media manipulation techniques.

He understood the weaknesses of the human mind and developed methods and processes for taking advantage of that weakness.

“The average citizen is the world’s most efficient censor. His own mind is the greatest barrier between him and the facts. His own ‘logic proof compartments,’ his own absolutism are the obstacles which prevent him from seeing in terms of experience and thought rather than in terms of group reaction.” – Bernays, Crystallizing Public Opinion

Bernays got his big break during the administration of Woodrow Wilson, the outset of the American interventionist empire bankrolled by an inflation creating Federal Reserve and a tax and spend Congress. During WWI, Edward began work for the Committee on Public Information, the immense propaganda machine ordered by Woodrow Wilson to sway the American public towards a war he campaigned to keep us out of. He became so instrumental he was invited to accompany Wilson to the Paris peace conference. His claims to fame afterward included:

Creating a false storyline of communists in Guatemala on behalf of his client United Fruit Company, resulting in a CIA led military coup which ushered in a brutal dictatorship resulting in the dislocation, torture and death of thousands.
He was responsible for breaking the taboo of women smoking in public while working for American Tobacco Company.

His biggest claim to fame was inspiring the most reviled propagandist in history. Bernays’ techniques were so effective that Joseph Goebbels, the Nazi propaganda minister, made copious use of Bernays’ book, “Propaganda” throughout the Holocaust, often crediting Bernays. That was quite a feather in Bernays’ cap. The German people were gradually indoctrinated by their government through propaganda into consenting and supporting the most horrific crimes in history as described by Milton Mayer in his book, They Thought They Were Free – The Germans, 1933-45:

“This separation of government from people, this widening of the gap, took place so gradually and so insensibly, each step disguised (perhaps not even intentionally) as a temporary emergency measure or associated with true patriotic allegiance or with real social purposes. And all the crises and reforms (real reforms, too) so occupied the people that they did not see the slow motion underneath, of the whole process of government growing remoter and remoter.

“To live in this process is absolutely not to be able to notice it—please try to believe me—unless one has a much greater degree of political awareness, acuity, than most of us had ever had occasion to develop. Each step was so small, so inconsequential, so well explained or, on occasion, ‘regretted,’ that, unless one were detached from the whole process from the beginning, unless one understood what the whole thing was in principle, what all these ‘little measures’ that no ‘patriotic German’ could resent must someday lead to, one no more saw it developing from day to day than a farmer in his field sees the corn growing. One day it is over his head.”

Bernays was a master of using psychological techniques to mask the motives of his clients, as part of a calculated strategy aimed at keeping the public unaware of the forces that were working to mold their psyches. Bernays died in 1995, but his techniques have been taken to a new level as our government, media and financial elite use any means at their disposal to keep the masses sedated and content while they are fleeced and herded towards the slaughterhouse. The Big Lie perpetrated upon the masses is the fallacy of America being a democratic society. The anti-democratic and treacherous corporate public relations Madison Avenue maggots manage and manipulate the opinions of the many in order to make sure a true democratic system doesn’t threaten the privileges and supremacy of the governing elite.

I wonder if it was coincidental the creation of the Federal Reserve, implementation of the personal income tax, and virtually non-stop war coincided with the rise of an industry designed to manipulate and control the thoughts and opinions of an easily influenced and willfully unaware populace. Most people want to be led and told what to believe. Critical thinking and taking personal responsibility for your life and your society requires hard work, sacrifice, honesty, and self restraint. Simply believing storylines supplied by authority figures and media pundits allow the masses to continue living lives of debt delusion and hope, occasionally stirred into a frenzy of fear and loathing towards the foreign bogeyman of the moment, chosen by the governing elite. Bernays and his disciples understood this dynamic and have been able to utilize corporate mass media and the human weakness of trusting in the judgments of authority figures to control and manage the vast swath of America without them knowing it.

“If we understand the mechanism and motives of the group mind, it is now possible to control and regiment the masses according to our will without them knowing it.” – Edward Bernays

The propaganda techniques employed to manipulate the masses seemed less abhorrent when they centered upon just consumer products. Convincing women they would look like a gorgeous model if they used a company’s cosmetics or convincing a man he’d be admired by his neighbors if he drove a certain car was small potatoes. In the last few decades the misinformation and outright lies fed to the American public by oligarchy of governing elite has become more manifest and repugnant. The list of abuses is virtually endless.

The American public has been lured into debt by the incessant unrelenting lifestyle marketing messages spewed from our TVs 24/7. From the introduction of the show Lifestyles of the Rich & Famous in the early 1980s, wealth, materialism, and consumerism became the motivating force in America. Consumption accounted for only 63% of GDP in 1980, with capital investment accounting for 17%. Today, consumption accounts for 71% of GDP and capital investment only 12%. Keeping up with the Kardashians is the mantra of our times.
The utter failure of our government controlled educational system in teaching our children how to think critically or question the validity of government created data has allowed the elite to paper over the fact the average American worker has not had any real income gains in at least four decades. The insidious nature of Federal Reserve created inflation (up 600% since 1970) is incomprehensible to a public that finds math boring and not essential in their lives.

Once the manipulators convinced the masses they needed a 4,000 sq ft McMansion, two brand new stylish cars, four big screen HDTVs, three computers, stainless steel appliances, granite countertops, a Rolex, Armani suits, an in-ground pool, an ATV, and house at the shore, there was only one thing left to do – loan them the money to live the faux American dream. GDP has grown 525% since 1980. Personal consumption expenditures have grown 600% since 1980. Consumer debt outstanding has grown 700% since 1980. And total household debt outstanding has grown 800% since 1980. It seems the purveyors of debt on Wall Street have been the only beneficiaries of the apparition of an American dream sold to a willingly duped American populace.

The dream of home ownership was used by politicians of both parties to further their agendas, egged on by the Wall Street elite and the National Association of Realtors – two of the largest contributors to politicians. As politicians tried to outdo themselves creating programs to get poor people into homes, Federal Reserve Chairman Greenspan urged the masses to use creative new adjustable rate mortgage products. With a wink and nod from Greenspan and no fear of any regulation whatsoever, the Wall Street elite created liar loans, negative amortization loans, subprime loans, Alt-A loans and a myriad of other products to induce fraud in the housing market. Appraisers did their part by overstating the values of homes and Wall Street colluded with the rating agencies to package the toxic mortgages and sell them to clueless dupes around the globe with a AAA rating stamped on them. At the absolute peak in 2005, with prices two standard deviations above the long term average, Ben Bernanke declared the housing market strong and the NAR proclaimed it the best time to buy. As the coup de grace, Wall Street urged home owners to unlock that equity in their homes and borrow $3 trillion to spend on gadgets, home upgrades, automobiles, facelifts, new boobs, and exotic vacations. The greatest mass fraud in history was complete. And not one person has gone to jail.
Not only have the governing elite lured the masses into debt slavery, but they’ve convinced them to love their slavery. The governing elite have done a fantastic job of using their media mouthpieces to deflect criticism away from their pillaging and looting of the national wealth. They’ve successfully persuaded the slaves the extreme income inequality is beneficial to the country because the 1% are the job creators and have earned their way to the top through our free market capitalism system. Convincing the middle class to blame the poor for their three decade decline is a tribute to the effectiveness of their propaganda crusade. Jesse gives accolades to the father of propaganda as the moneyed interests have won:

“The moneyed interests have done quite a successful PR job in refocusing the national discussion on priorities involving social issues, and the reform of the support systems for the weak, the unfortunate, and the elderly. Turning one group against another, and objectifying your intended victims through slogans and stereotypes, has always been an effective method of bending the herd to your will. Score one for Edward Bernays.”

The Social Security System is an example of propaganda and misinformation on a grand scale. A modest (1% tax) insurance program designed to help widows and orphans during the Great Depression, which should have been treated much like term life insurance, morphed into a massive retirement plan at the behest of politicians over the last eight decades. The voters shockingly voted for more benefits. Millions are now totally dependent upon the monthly pittance they receive, as the promise of a Social Security pension deterred them from saving for their old age. Politicians perpetuated lies about the funds being protected in a lockbox. The truth is the politicians raided the lockbox and took every dime to spend on wars of choice, aid to dictators, paying off their corporate masters, and leaving only IOUs. They have promised $17.5 trillion more than they can payout. It could be made viable with a gradual rise in the retirement age and a simple means test that would eliminate payouts to those who do not need it. Instead politicians use it as a means to control their constituents and obscure the simple truths. Americans choose to remain ignorant of the facts based on their perceptions of a false reality.

Another storyline propagated by politicians of a liberal bent is that Medicare is a successful Federal government program. Only someone from the governing elite would declare a program that is $90 trillion underfunded, racked by fraud and abuse totaling almost $100 billion per year, despised by doctors across the land for its insane bureaucracy, and allows corporate insurance, drug and hospital conglomerates to dictate the costs, a success. The entire government run sickcare industry is a scam designed to enrich the corporations that contribute to the campaigns of the politicians writing the rules and regulations. The pricing mechanism between doctor and patient is broken, with neither having any say in the decisions.
With the unleashing of a torrent of inflation during the 1970s the governing elite needed to resort to obfuscation and manipulation of inflation figures to create the illusion of price stability and positive GDP, while screwing seniors citizens out of their Social Security benefits and convincing the middle class their annual 3% wage increases were getting them ahead in life. Inflation has been systematically understated by 5% to 7% annually since 1980.

The government drones at the BLS do the dirty work for their masters by reporting unemployment of 8.6% when the real level exceeds 20%, Great Depression levels. The corporate media just does the bidding of the corporate fascist state by unflinchingly reporting the bogus figures. Reporting the truth would be detrimental to the political and financial elites, so propaganda is rationalized as being beneficial to the country. The sheep just keep grazing as their shepherds herd them toward the slaughterhouse.

By conducting focus groups and testing words, master manipulators like Frank Lutz have been able to convince the masses to support repeal of the estate tax even though it does not affect 99.7% of American taxpayers. By renaming it a Death Tax, the public was convinced that this horrible abuse of the tax code should be repealed. The 0.3% with the ability and means to manipulate public opinion, won again.
The tax code and the propaganda campaign being waged by the richest .01% to obscure the truth and misinform the masses is the most barefaced attempt of the elite to retain their wealth and power. Their corporate media legions pound home the storyline of 50% of Americans not paying their fair share because they pay no Federal income tax. It sure sounds like these weasels must be doing something dishonest to avoid paying Federal taxes. What is not mentioned by the media mouthpieces is 50% of Americans make less than $25,000 per year. What is also conveniently forgotten is these people pay payroll taxes, local income taxes, state income taxes, real estate taxes, sales taxes, tolls and a multitude of other taxes, fees and charges to their utility, cable, and phone providers. In the real world, the total effective tax rate for someone making $50,000 per year exceeds the total effective tax rates of Mitt Romney, Lloyd Blankfein and Warren Buffett.

The IRS tax code did not grow to 75,000 pages because the middle class and the poor used their undue influence to convince politicians in Washington DC to insert credits, loopholes and deductions for mega-corporations and the wealthy elite into the code. Only those with wealth, power and influence are allowed to “sway” legislation in Congress. This is called crony capitalist democracy. The current propaganda coming from the GOP candidates is our poor mega-corporations that outsourced millions of American jobs to Asia are overburdened by the 35% corporate tax rate, despite the fact they actually pay an effective rate of 18% and many multi-billion dollar conglomerates pay nothing. The truth is not important or relevant to those running the show in this country.

The most damaging and far reaching use of propaganda, misinformation and outright scare tactics by the financial and political elites was during the financial meltdown during September and October of 2008. The American public was whipped into a frenzy of fear by the protectors of Wall Street – Hank Paulson and Ben Bernanke – in order to funnel trillions of taxpayer funds to the Wall Street cartel that created the crisis in the first place. The governing elite declared the economic system would fail unless Wall Street was bailed out. When some courageous Congress members balked at passing TARP, the masters of the universe crashed the stock market with their super computer trading machines. The hysterical pundits on CNBC and the other corporate media outlets shrieked that our way of life would surely die if the banks were not saved. TARP was passed and Wall Street bankers rejoiced by paying themselves billions in bonuses. The truth not revealed to the masses was that the failure of a few reckless ravenously greedy Wall Street banks would not have destroyed our economic system. It would have destroyed the wealth of psychotic bankers like Blankfiein, Dimon, Pandit and a slew of other criminals on Wall Street. Wealthy stockholders and bondholders would have been wiped out. Bank depositors would not have lost a dime. The irresponsible risk junky bankers would have seen their banks liquidated. Bad debts would have been written off. The remaining good assets would have been sold to prudent banks. But instead, the ethically and financially bankrupt were saved by their corporate fascist partners in crime at the expense of the confused and disoriented American citizens. Saving bankers had been successfully marketed to the sheep as being on par with saving the nation. Chalk another one up for Bernays and his brethren.
After Bush and his banker cronies successfully fleeced trillions from taxpayers and handed it to bankrupt bankers, Obama and his minions continued the con on the middle class. With the help of Pelosi and Reid he was able to dispense $800 billion of payoffs to various contributors, constituents and special interests while calling it a job creating stimulus plan. When it became clear to even the ignorant masses that no jobs were being created, the governing elite channeled their best Edward Bernays and invented the term “jobs saved”. The beauty of this concept was the impossibility of ever verifying the figures spouted by the paid shills disguised as expert economists. Billions more were funneled to the housing industry and auto industry as paybacks for their contributions in the form of homebuyer tax schemes and Cash for Clunker scams. The bill for these complete failures was passed onto future generations as the National Debt soared from $10.6 trillion to $15.2 trillion in just three years of Obama rule.
The latest fraud being perpetrated on the American public is the lie about energy independence touted by GOP candidates for president. Rather than leveling with the people and explaining the facts of peak cheap oil to them honestly, the governing elite prefer slogans, half-truths and fantasy projections. The left touts solar, ethanol and other green energy fantasies, while the right peddles drilling, fracking, and fake estimates of supplies. Both are lying. All the cheap easy to access oil in the world has been found. The oil being discovered and accessed today is harder to reach, more expensive to produce and requires producers to expend almost one barrel of oil to produce a new barrel of oil. The easy to access oil is being depleted at the same rate that new hard to access oil is being brought on line. Meanwhile, demand grows across the globe. Our far flung suburban sprawl society teeters on the edge of an abyss and the governing elite pretend all is well.

The above list of abuses committed by the ruling oligarchy pales in comparison to the totalitarian like measures that have been executed since September 11,2001. With the country cowering in fear, the governing elite passed an Orwellian like 350 page bill that changed this country forever. The USA PATRIOT Act, which changed the relationship between our government and its citizens forever, was supposedly written, introduced, debated and passed in the space of 30 days in October 2001. I wonder which public relations firm came up with the Orwellian acronym? Uniting (and) Strengthening America (by) Providing Appropriate Tools Required (to) Intercept (and) Obstruct Terrorism Act of 2001. The purpose of naming this bill was to imply that anyone who was against allowing our government to spy, monitor or place under surveillance anyone our government chooses would make you unpatriotic. The American people chose implied safety and security over true freedom and liberty by their deafening silence. The governing elite used fear and propaganda to achieve their goal of more domination over our lives.

Drunk with their new found power, the political elite decided to change the world by using their spin machine to create visions of mushroom clouds over U.S. cities in the minds of a gullible public to craft a believable storyline for the invasion of Iraq. A willingly pliant press corp. spread the misinformation about weapons of mass destruction and Al Qaeda connections to fashion a convincing plot for pre-emptive war on a sovereign country that did not threaten our country. Who benefitted from war with Iraq? The military industrial complex reaped billions in profits and the Wall Street banks bankrolled the invasion with more debt. It only destroyed the lives of thousands of low income American soldiers, killed 100,000 Iraqi peasants, drove the price of oil from $25 a barrel to $100 a barrel, and will ultimately cost American taxpayers $4 trillion. And the great thing about passage of the Patriot Act and invasion of Iraq was the bipartisan cooperation pushing us ever closer to an authoritarian state.

The erroneous notion that Americans have a choice between two political parties that offer distinct and clear opposing policies addressing the major issues facing our country is still perpetuated by politicians and the corporate media. It is untrue, as we have seen the Obama administration employ the same repressive methods instituted by the Bush administration. Military spending rises. Wars of choice proliferate and grow. Obamacare is virtually identical to a plan created by the leading GOP presidential nominee. Further restrictions, regulations and laws are put forth to keep the masses controlled, sedated and fearful. The governing elite and their propagators of misinformation are again formulating a false storyline to convince the easily fooled ignorant public that a sovereign country 7,500 miles from our shores is actually a threat to their lives. While our government has already committed acts of war against Iran (sanctions, assassinations, cyber warfare, and using drones to spy), the public is being worked into a bloodthirsty frenzy of nationalism. Bipartisanship worked so well with Iraq. How could it possibly go wrong with Iran?

In the last six months cracks have begun appearing in the fascist façade masquerading as a democratic republic. The rise of the Occupy Movement, increasing pain and discontent among the middle class, a small but vocal irate minority utilizing the internet to organize, inform and spread knowledge, and the growing support among the liberty minded for Ron Paul’s candidacy are the opening salvos in a coming revolution. The volleys being traded between the forces of the American aristocratic elite and the leading forces of this revolution are only the opening shots on par with Bunker Hill. The oligarchs have won the initial skirmishes with the Occupy Movement through their control of superior mercenary fire power and ability to falsify the message and nature of the protestors. The corporate mass media propaganda machine convinced an apathetic, non critical thinking public the protestors were nothing but dirty, lazy, college students looking for government handouts organized and led by George Soros. Journalist Robert Fisk reveals the true nature of the protests and rage:

“And that is the true parallel in the West. The protest movements are indeed against Big Business – a perfectly justified cause – and against “governments”. What they have really divined, however, albeit a bit late in the day, is that they have for decades bought into a fraudulent democracy: they dutifully vote for political parties – which then hand their democratic mandate and people’s power to the banks and the derivative traders and the rating agencies, all three backed up by the slovenly and dishonest coterie of “experts” from America’s top universities and “think tanks”, who maintain the fiction that this is a crisis of globalization rather than a massive financial con trick foisted on the voters.

The banks and the rating agencies have become the dictators of the West. Like the Mubaraks and Ben Alis, the banks believed – and still believe – they are owners of their countries. The elections which give them power have – through the gutlessness and collusion of governments – become as false as the polls to which the Arabs were forced to troop decade after decade to anoint their own national property owners. Goldman Sachs and the Royal Bank of Scotland became the Mubaraks and Ben Alis of the US and the UK, each gobbling up the people’s wealth in bogus rewards and bonuses for their vicious bosses on a scale infinitely more rapacious than their greedy Arab dictator-brothers could imagine.” – Robert Fisk, Bankers are the Dictators of the West

The mounting desperation of the oligarchs is palpable. They have circled the wagons as one of their leaders – Jon Corzine – was caught stealing $1.2 billion directly from the accounts of his customers after making reckless bets that went wrong and bankrupted his firm. The Department of Homeland Security coordinated brutality unleashed upon peaceful protestors in cities across America opened the eyes of more people to the approach of an increasingly oppressive state. The media lapdogs have come out in force with an organized smear campaign designed to derail the presidential campaign of Ron Paul, the only candidate talking about real change and a real downsizing of the American empire. Ron Paul’s platform of liberty, freedom, non-interventionism, sound money, and a government not controlled by bankers and corporate interests is anathema to the ruling elite of both parties. A vote for one of the hand selected candidates offered by the moneyed interests is simply a vote for the special interest status quo. As our economic system becomes more saturated with debt by the day a tipping point approaches.

Obama’s signing of the NDAA, overwhelmingly supported by politicians of both parties, now gives the ruling class the ability to track down and imprison indefinitely any American citizen they consider a threat to their power, without charges. The only remaining thorn in their side is the internet. The internet has allowed critical thinkers to share information, organize resistance to the oligarchs, create communities of like-minded citizens, and allow individuals the opportunity to turn the tables and perform surveillance on the state. The state does not like an unfettered internet because it allows citizens to find the non-manipulated truth and undermines their mainstream media propaganda machine. Young people are less able to be manipulated. The introduction of abominable legislation like SOPA and PIPA are a blatant attempt by the governing elite to crush dissent by locking down the internet and eliminating sites that question their version of reality.

Humans are a flawed species. Our minds are easily manipulated. We don’t like pain. We prefer instant gratification. We are susceptible to mass delusion. We will often choose hope over critical thought. Those with higher IQs will regularly attempt to take advantage of those with lower IQs. Fear and greed are the two motivations used by the minority in power to control and manipulate the majority. The American people have been led astray by a small group of powerful men. We were herded through a door in the wall of perception that promised an American dream of material goods, entitlements and pleasure with no obligations or responsibility to future generations. There is only one choice that can save this country from ruin. Each individual must make a choice to either to continue supporting the manipulative, corrupt status quo or coming back through the Door in the Wall.

“The man who comes back through the Door in the Wall will never be quite the same as the man who went out. He will be wiser but less sure, happier but less self-satisfied, humbler in acknowledging his ignorance yet better equipped to understand the relationship of words to things, of systematic reasoning to the unfathomable mystery which it tries, forever vainly, to comprehend” – Aldous Huxley

BAD MOON RISING

I see the bad moon arising.
I see trouble on the way.
I see earthquakes and lightnin’.
I see bad times today.

Creedence Clearwater Revival – Bad Moon Rising

“Human history seems logical in afterthought but a mystery in forethought.” – The Fourth Turning – Strauss & Howe

The above statement by historians William Strauss and Neil Howe is very significant as we try to make sense of the events unfolding before our very eyes in today’s world. On September 17, a mere six weeks ago, a few hundred young people showed up in Zucatti Park in Lower Manhattan to protest our corrupt, broken and Wall Street manipulated economic and political system. That first night, approximately 100 protestors occupied the park and were outnumbered by the NYPD in full riot gear. The idea to Occupy Wall Street began circulating on the internet in late August. The Millennial Generation used their social networks and put their tech savvy talents to work. Before long, thousands of protestors showed up in cities across the U.S. The model for this movement was the successful demonstrations in Egypt and Tunisia, earlier in the year.

The initial reaction among mainstream media and politicians across the land was bemusement. A bunch of young hippy throwbacks were going to make a meaningless statement and then fade away. The attention span of Americans is as long as the commercial break between contestants on Dancing With the Stars. Everyone knows the Millennials aren’t to be taken seriously. They are a bunch of spoiled, coddled, lazy college kids who need to get a job. But a funny thing happened during the commercial break. The kids held their ground. They didn’t leave. More young people arrived. More young people began protesting in cities across the country. Middle aged people began to get involved. Even some older people joined the cause. Before long there were thousands of people getting involved. It spread to Europe, with young people occupying London and Rome. Donations and supplies began to pour in from around the world. There’s something happening here, but what it is ain’t exactly clear.

The six weeks since September 17 have been chaotic, venomous, confusing, and verging on deadly. Wall Street gyrated wildly with stocks falling 8% by October 3 and rebounding by 15% by October 28 and plunging again this week. The Economic Cycle Research Institute (ECRI) declared the country was headed back into recession on September 30:

“It’s important to understand that recession doesn’t mean a bad economy – we’ve had that for years now. It means an economy that keeps worsening, because it’s locked into a vicious cycle. It means that the jobless rate, already above 9%, will go much higher, and the federal budget deficit, already above a trillion dollars, will soar. Here’s what ECRI’s recession call really says: if you think this is a bad economy, you haven’t seen anything yet. And that has profound implications for both Main Street and Wall Street.”

The ECRI has called the last three recessions with no instances of false alarms. Last week, the Conference Board announced the Consumer Confidence Index plummeted to two and a half year low of 39.8, last seen in March of 2009. The Dow Jones was trading at 6,500 in March 2009, some 47% below today’s level. It is an interesting dichotomy between how the average American feels about the world and how the Wall Street elite feel about their Ben Bernanke sheltered world. The Consumer Confidence Index was 110 in 2007 and 140 in early 2001. We’ve come a long way baby.

During these past six weeks the European Union has teetered on the verge of disintegration. Non-stop negotiations, agreements, plans, declarations, special purpose vehicles, bailout funds, and lies have poured forth on a daily basis. Greece still lives – on a ventilator – as it has been brain dead for months. The sole purpose of all the public relations efforts, press conferences, summit meetings and lies has been to keep European banks, their stockholders and bondholders from accepting the consequences of their irresponsible lending to the PIIGS. Essentially, the German people have been put on the hook for losses that should have been born by the stockholders and bondholders of the biggest French, German, Belgian and English banks. The EU has put a tourniquet over a cancerous tumor. The entire world is awash in bad debt and until this debt is liquidated, we will stagger from crisis to crisis like a drunken sailor. John Hussman describes the master plan:

In effect, European leaders have announced “We have agreed to solve our debt problem, leveraging money we do not have, to create a fund, which will then borrow several times that amount, in order to buy enormous amounts of new debt that we will need to issue.”

As politicians and central bankers around the world desperately try to keep their debt drenched ponzi scheme going for awhile longer, the mood darkens among the populations of developed countries around the world. I came across a quote from, of all people, Vladimir Lenin that describes how the last six weeks seemed to me:

“There are decades where nothing happens; and there are weeks where decades happen.”

It seems like history is accelerating. Momentous events have been occurring regularly since 2007. Our political and financial leaders are blindsided on a daily basis by each new crisis. The majority of the American public continues to be apathetic, willfully ignorant, and constantly absorbed by their array of electronic gadgets and mindless drivel spewed at them by media conglomerates. Rather than think critically, most Americans allow left wing and right wing mainstream media to formulate their opinions for them through their propaganda and misinformation operations. Linear thinkers, who make up the majority of the political, social, media and financial elite in this country, believe the world progresses and moves ever forward. In reality, the world operates in a cyclical fashion, with generations throughout history reacting to events in a predictable manner based upon their stage in life. The reason the world has turned so chaotic, angry and fraught with danger since 2007 is because we have entered another Fourth Turning. Strauss & Howe have been able to document a fourfold cycle of generational types and recurring mood eras in American history back 500 years. They have also documented the same phenomenon in other countries.

The housing collapse, near meltdown of our financial system, revolutions in the Middle East, economic turmoil in Europe, poisoned political atmosphere in Washington DC, and most recently the Occupy Wall Street movement are part of a larger cycle. The four living generations have each entered the phases of their lives that will lead to a convulsive upheaval and destruction of the existing social order. We’ve entered a twenty year period of Crisis as described by Strauss & Howe:

“A CRISIS arises in response to sudden threats that previously would have been ignored or deferred, but which are now perceived as dire. Great worldly perils boil off the clutter and complexity of life, leaving behind one simple imperative: The society must prevail. This requires a solid public consensus, aggressive institutions, and personal sacrifice. People support new efforts to wield public authority, whose perceived successes soon justify more of the same. Government governs, community obstacles are removed, and laws and customs that resisted change for decades are swiftly shunted aside. A grim preoccupation with civic peril causes spiritual curiosity to decline. Public order tightens, private risk-taking abates, and crime and substance abuse decline. Families strengthen, gender distinctions widen, and child-rearing reaches a smothering degree of protection and structure. The young focus their energy on worldly achievements, leaving values in the hands of the old. Wars are fought with fury and for maximum result.” – Strauss & Howe

History is Cyclical, not Linear

“There is a mysterious cycle in human events. To some generations much is given. Of other generations much is expected. This generation of Americans has a rendezvous with destiny.” – Franklin Delano Roosevelt

I’ve been trying to decipher which direction this Fourth Turning will lead, and the last six weeks has started to crystallize my thinking. I’ve been fascinated by the intense reactions, opinions and arguments that have taken place across the airwaves and internet regarding the true nature of the Occupy movement. Some of the reaction is based upon pure ideological grounds, with media outlets like Fox News, the Wall Street Journal, NY Post and CNBC, disparaging, ridiculing and demeaning the movement. The anti-rich tone of the protests may not sit well with the multi-billionaire owners (Rupert Murdoch, Mort Zuckerman, Roberts Family) of these mega-media corporations. The liberal media such as MSNBC, Huffington Post, and CNN have sometimes been fawning over the movement in an effort to co-opt it into liberal Tea Party for the benefit of Obama and the Democratic Party. The propaganda and misinformation coming from both these ideological camps is easy to discern for a critical thinking person. Sadly, the nation is filled with people that don’t want to think. Therefore, they let their opinions be formed by talking heads on a TV screen.

These reactions were predictable. What caught my attention was the generational reaction to Occupy Wall Street. I know all the rugged individualists out there chafe at being lumped into a generational cohort, but the fact remains that groups of people born during the same time frame encounter key historical events and social trends while occupying the same phase of life. Because members of a generation are molded in lasting ways by the eras they encounter as children and young adults, they also tend to share certain common beliefs and behaviors. Aware of the experiences and traits that they share with their peers, members of a generation also tend to share a sense of common perceived membership in that generation. To deny the reality that large clusters of human beings tend to act with a herd mentality is contrary to all visible evidence. The herd mentality can be observed in the Dot-com bubble, Americans unquestioningly allowing passage of the Patriot Act, the housing bubble, the mass hysteria over the latest iSomething, Black Friday riots at retail stores to obtain the “hottest” toy or gadget, and the slaves to the latest fashions and trends as directed by the corporate media machine. The masses don’t realize they are being manipulated by the few who understand the power of propaganda:

The Occupy movement is being driven by the Millennial Generation. They have used their superior technological and social networking skills to organize, educate, and inspire people to their cause while befuddling and confusing the authorities. They continue to rally more young people to their fight against Wall Street and K Street tyranny. The generational lines of battle are being drawn. The Baby Boom Generation, who is at the point of maximum power in society, fears this movement. They control Wall Street, corporate America, Congress, the courts, academia and the media. They have reached their peak of influence and power, which will rapidly wane over the next fifteen years. They see the Occupy movement as a threat to their supremacy and control of the system. The cynical, alienated, pragmatic Generation X is caught between the Boomers and the Millennials in this escalating conflict. It is likely the majority of this generation will side with the Millennials, realizing the future of the country depends on them and not the elderly Boomers. To clarify, not every Boomer, Gen Xer, or Millennial will act in concert with their generational cohort. But it doesn’t matter if a few cattle stray from the herd, when the herd is stampeding in one direction.

The chart below details the Strauss & Howe configuration of generations and turnings for the last two Saeculums in American history. They describe their generational theory in the following terms:

“Turnings last about 20 years and always arrive in the same order. Four of them make up the cycle of history, which is about the length of a long human life. The first turning is a High, a period of confident expansion as a new order becomes established after the old has been dismantled. Next comes an Awakening, a time of rebellion against the now-established order, when spiritual exploration becomes the norm. Then comes an Unraveling, an increasingly troubled era of strong individualism that surmounts increasingly fragmented institutions. Last comes the Fourth Turning, an era of upheaval, a Crisis in which society redefines its very nature and purpose.” – Strauss & Howe

Each new generation is born approximately three years prior to the next turning. This results in Strauss & Howe having a slightly different generational grouping than government demographers.

Great Power Saeculum (82)
Missionary Generation	Prophet (Idealist)	1860–1882 (22)	High: Reconstruction/Gilded Age
Lost Generation	Nomad (Reactive)	1883–1900 (17)	Awakening: Missionary Awakening
G.I. Generation	Hero (Civic)	1901–1924 (23)	Unraveling: World War I/Prohibition
Silent Generation	Artist (Adaptive)	1925–1942 (17)	Crisis: Great Depression/World War II
Millennial Saeculum (67+)
(Baby) Boom Generation	Prophet (Idealist)	1943–1960 (17)	High: Superpower America
13th Generation	Nomad (Reactive)	1961–1981 (20)	Awakening: Consciousness Revolution
(a.k.a Generation X)	Nomad (Reactive)	1961–1981 (20)	Awakening: Consciousness Revolution
Millennial Generation(Generation Y)	Hero (Civic)	1982–2004 (22)	Unraveling: Culture Wars, Postmodernism, Digital Technology
New Silent Generation (Generation Z)	Artist (Adaptive)	2004–present (6+)	Crisis: Great Recession, War on Terror, Declining Superpower, and Globalization

There is nothing mystical about their theory. Strauss & Howe are historians who have created a framework for understanding why people act a certain way to events differently, depending on which stage of life they occupy. The theory is so logical because it is based upon the average 80 year life cycle of a human being. A human being goes through four stages during their life: childhood, young adulthood, midlife, and elderhood. During each of these stages, you will react to the same event in a very different manner. During an 80 year cycle, there will be four generations at different stages of their life. The interaction between the generations at each 20 year turning determines how history is steered through the events of that cycle. The life cycle stages can be seen in this chart:


	Prophet	Nomad	Hero	Artist
High	Childhood	Elderhood	Midlife	Young Adult
Awakening	Young Adult	Childhood	Elderhood	Midlife
Unraveling	Midlife	Young Adult	Childhood	Elderhood
Crisis	Elderhood	Midlife	Young Adult	Childhood

Strauss and Howe compare the saecular rhythm to the seasons of the year, which inevitably occur in the same order, but with slightly varying timing. Just as winter may come sooner or later, and be more or less severe in any given year, the same is true of a Fourth Turning in any given Saeculum. The theory does not predict the events which drive history, but it does predict the generational reaction to events depending upon their age. We entered the Fourth Turning Crisis in 2007 with the housing collapse and the implosion of our financial system. The configuration of elder self righteous Boomers at 60 years old, midlife pessimistic Gen Xers at 40 years old, and coming of age Millennials at 20 years old is an explosive mixture that will provide the impetus and fury to this period of catharsis and pain. Winter has arrived. There is no way to avoid it. The bitter winds have begun to blow. The first harsh front arrived in 2008 with the near meltdown of the worldwide economic system. There has been a lull in the biting gale force winds of this Crisis through the shoveling of massive amounts of newly created debt into a system already drowning in debt. The Occupy movement and the impending collapse of the European Union charade will usher in the next blizzard of pain and suffering. We hurdle towards are rendezvous with destiny.

“The ‘spirit of America’ comes once a saeculum, only through what the ancients called ekpyrosis, nature’s fiery moment of death and discontinuity. History’s periodic eras of Crisis combust the old social order and give birth to a new. A Fourth Turning is a solstice era of maximum darkness, in which the supply of social order is still falling—but the demand for order is now rising. It is the saeculum’s hibernal, its time of trial. Nature exacts its fatal payment and pitilessly sorts out the survivors and the doomed. Pleasures recede, tempests hurt, pretense is exposed, and toughness rewarded—all in a season.” – Strauss & Howe

Millennials Rising

Over the last six weeks I’ve watched as the young protestors around the country have been called: filthy hippies, losers, lazy, coddled, socialists, communists, spoiled college kids, parasites, useful idiots, and tools of the left. Most of the wrath being heaped upon these young people for exercising their Constitutional right to free speech and freedom of assembly has been from the Baby Boom Generation, who are at the peak of their power in our society. Sixty percent of the Senate is made up of Baby Boomers, with the next closest generation being the Silent Generation with twenty five percent. Over 58% of the House of Representatives is made up of Baby Boomers, with the next closest generation being Gen Xers at 27%. They occupy the executive suites of the Wall Street banks (Blankfein, Dimon, Pandit, Monihan) and the Federal Reserve (Bernanke). They make up the majority of judges, local politicians and school boards. They run the Federal government agencies. And they dominate the airwaves as the high priced mouthpieces for their corporate bosses. This Prophet generation will lead the country through the trials and tribulations of this Fourth Turning.

The disdain and contempt for these Millennial protestors flies in the face of the facts about this generation. They use drugs at a lower rate than their parents did at the same age. Teen crime rates and teen pregnancies have declined. They will have the highest level of college education in U.S. history. They were protected during their youth as organized sports taught them teamwork. They are the most technologically savvy generation in history. They volunteer at a higher level than previous generations. They have been more upbeat and engaged than their predecessors (Gen X). And they are much closer to their parents than Boomers were at the same age. They reject the negativism and cynicism of their parents and believe positive change is possible in our society. They have shown respect for authority up until the last six weeks. They were primed to be led by Boomers that could articulate a positive vision of the future based on reality and a better tomorrow. They were ready to make sacrifices in order to create a brighter future. But a funny thing happened. The Boomer generation failed to deliver on their part of the bargain.

Prior Hero Generation Americans had braved the winter at Valley Forge and stormed the beaches of Normandy as Prophet leaders like Ben Franklin and Franklin Roosevelt provided inspirational guidance and the vision of a better tomorrow. Strauss & Howe accurately assessed the Millennial Generation in their book Millennials Rising: The Next Great Generation, published in 2000 when the 1^stMillennials were graduating high school:

“As a group, Millennials are unlike any other youth generation in living memory. They are more numerous, more affluent, better educated, and more ethnically diverse. More important, they are beginning to manifest a wide array of positive social habits that older Americans no longer associate with youth, including a new focus on teamwork, achievement, modesty and good conduct. Only a few years from now, this can-do youth revolution will overwhelm the cynics and pessimists … will entirely recast the image of youth from downbeat and alienated to upbeat and engaged — with potentially seismic consequences for America.” – Strauss & Howe

The youth of America listened to their parents and stayed in school. They’ve racked up over $1 trillion in student loan debt getting college educations. Meanwhile, our Baby Boomer leadership had an opportunity to address the country’s unsustainable fiscal path by accepting the consequences of a thirty year debt binge and liquidating the banks that took extreme risks with extreme leverage. An orderly liquidation (aka Washington Mutual) would have punished the stockholders, bondholders and management of the Wall Street banks, while leaving the depositors whole and purging the system of debt that can never be paid off. Our politicians could have ended our wars of choice in the Middle East and cut our war spending by hundreds of billions without sacrificing one iota of safety for the American people. The political leadership could have put the country on a deficit reduction path that would have insured the long-term viability of our republic.

Instead of doing the right thing, our Baby Boomer leaders did the exact opposite of the right thing. They held the American taxpayer hostage and absconded with trillions of their tax dollars and handed it over to the same Wall Street banks that had run the largest fraud scheme in world history and blew up the worldwide financial system. The Boomer Chairman of the Federal Reserve decided to not only save the Wall Street banks but to purposefully try to pump up the stock market, while destroying the lives of savers and senior citizens with his zero interest rate policy. His policies have led to a surge in energy and food prices and contributed to revolutions in the Middle East. The Wall Street banks have used the accounting gimmick of relieving loan loss reserves to create fake profits over the last two years. Wall Street celebrated by paying themselves $60 billion in bonuses between 2008 and 2010. The poster boys for the .1% Jamie Dimon and Lloyd Blankfein “earned” $23 million and $19 million respectively in 2010.

The politicians borrowed trillions from future unborn generations to inflict a Keynesian nightmare of solutions on the American economy that included: an $800 billion porkulus program, $22 billion pissed down the toilet on a homebuyer tax credit as home prices are now lower, $3 billion for Cash for Clunkers that cost $24,000 per car sold, loan modification schemes, tax credits for windows, doors and appliances, and payroll tax cuts. The result of all the Federal Reserve and politician “solutions” has been to increase the National Debt by $5.3 trillion in three years, a 55% increase. It took the country over 200 years to accumulate the first $5.3 trillion in debt. Everything done thus far has benefitted only the top 1%. The real unemployment rate is 23%. The real inflation rate is between 5% and 10%. The economy is headed back into recession. But at least the top 1% are doing well, as the stock market has risen 84% from its 2009 lows. Somehow, the oligarchy that runs this country is taken aback by the protests growing increasingly contentious across the country. It is not a surprise to those who understand the cyclical nature of history and the darkening mood in this country, which has been deepening since the Tea Party protests of 2009.

Hope You Are Quite Prepared To Die

Hope you got your things together.
Hope you are quite prepared to die.
Looks like we’re in for nasty weather.
One eye is taken for an eye.

Creedence Clearwater Revival – Bad Moon Rising

It seems the young people in this country have realized they have no future when the system is run for the benefit of an oligarchy consisting of Wall Street banks, mega-corporations, media conglomerates, and puppet politicians in Washington D.C. These people will stop at nothing to retain their wealth and power. Not only do they want to retain it, they are actively trying to increase it. They have achieved their goal beyond all expectations, and are still able to convince a large portion of the population through their propaganda machine they deserve every penny. The chasm between the “Haves” and “Have Nots” has never been greater in U.S. history. The truth is that Americans have always admired entrepreneurs like Steve Jobs and Bill Gates who created businesses, created jobs, and ended up with vast wealth. But, that is not the wealth protestors on Wall Street and across the country are angry about. They are angry at the hyper-concentration of wealth in the hands of men that have rigged the system in their favor through bribery (lobbying & contributions), fraud (no-doc loans & AAA rated toxic derivatives), accounting schemes (special purpose vehicles & suspending mark to market) and holding the American middle class hostage (TARP & zero interest rates). When the 400 wealthiest Americans own more than the “lower” 150 million Americans put together, you have a system that is badly broken.

Do the Millennials have a right to be angry? The table below shows how the economic solutions of the oligarchy have worked out for the youth of our country. There are 19 million young people between the ages of 18 and 29 that are not working. Some are still in college, but most are not. That is a lot of potential Occupiers.


Age Group	% not employed
18 to 19	65%
20 to 24	40%
25 to 29	27%

After observing the reactions to the OWS movement over the last few weeks, I’m more convinced than ever that different generations view the same event through the prism of their own life experiences, beliefs, prejudices, and biases. I’ve found the Baby Boomers have generally been doubtful of the protestors’ motives, condescending towards their intelligence, scornful about their appearance, and derogatory regarding their flaunting of authority. This is fascinating considering that Boomers love to reminisce about their glory days protesting the Vietnam War. The Boomer generation was at this same age configuration in 1970. Their GI Generation parents probably had the same opinions about the long haired, drug using, sex crazed youthful Boomers in 1970. Now the Boomers are the establishment and they don’t like seeing their authority challenged by these naïve troublemakers. Strauss & Howe saw the likelihood of this conflict back in 1997 when the oldest Millennials were only 15 years old:

“When young adults encounter leaders who cling to the old regime (and who keep propping up senior benefit programs that will by then be busting the budget), they will not tune out, 13er-style. Instead they will get busy working to defeat or overcome their adversaries. Their success will lead some older critics to perceive real danger in a rising generation perceived as capable but naïve.” – Strauss & Howe

The Millennials spearheading these protests are most certainly capable. In a matter of six weeks they have created a worldwide movement occupying every major city in the world. The biggest complaints coming from the Boomers is they are naïve, misguided, immature, and don’t understand the real problem. The bitter condemnation of the protestors for breaking a myriad of minor administrative laws, regulations, ordinances, and curfews is beyond laughable. Fox News, CNBC, the Wall Street Journal, NY Post and the other mouthpieces of the ruling oligarchy are apoplectic about the young protestors camping out in public parks, but they were not too concerned by the Wall Street banks systematically defrauding millions of people by creating mortgage products designed to deceive.

They weren’t irate when Wall Street held Congress hostage for a $700 billion ransom. They weren’t enraged when Ben Bernanke bought a trillion dollars of toxic mortgage debt from the Wall Street banks at 100 cents on the dollar. They weren’t furious when the government officials forced the FASB to abandon mark to market rules, allowing the Wall Street banks to falsely report their financial statements. But, they are outraged by young people exercising their right to free speech and right to assembly. When their paid armies of thugs attack the protestors with tear gas and billy clubs, they declare the protestors had it coming. It seems the 150 year old American tradition of civil disobedience to protest unjust laws, defined by Henry David Thoreau, is not too popular among Boomers or the corporate mainstream media.

“Unjust laws exist: shall we be content to obey them, or shall we endeavor to amend them, and obey them until we have succeeded, or shall we transgress them at once?” – Henry David Thoreau

Many of the protestors are naïve, misinformed about the true causes of the financial crisis, impulsive, and seeking solutions that would result in more government control. Their critics say they should be in Washington DC, not on Wall Street. The Boomers don’t like their flaunting of rules and regulations imposed by local authorities. Again, the older generations have conveniently forgotten how naïve, impulsive and rebellious they were at the age of 20. The amazing thing to me is this generation never showed this side during their younger years. Their slogans like “Tax the Rich” are misguided. They need assistance from older generations, but instead they are getting beaten and arrested by the older generation. Some Boomers, like William Black, have opened a dialogue with the protestors, but the majority of Boomers are resistant to the movement. In prior Fourth Turnings, the Hero archetype followed the orders of the Prophet archetype. I fear the Boomer Generation, through their intransigence and refusal to proactively address our structural problems, have set in motion a revolutionary chain of events that will lead to class warfare and possibly civil war in this country. The real danger, as experienced in other countries (France, Russia, China), is that a demagogue could gain control. Strauss & Howe envisioned that possibility in 1997:

“This youthful hunger for social discipline and centralized authority could lead Millenial youth brigades to lend mass to dangerous demagogues. The risk of class warfare will be especially grave if the 20% of Millenials who were poor as children (50% in the inner cities) come of age seeing their peer-bonded paths to generational progress blocked by elder inertia. Unraveling era adults who are today chilled by school uniforms will be truly frightened by the Millennials’ Crisis-era collectivism.” – Strauss & Howe

The most outrageous accusation made against the protestors is they are somehow responsible for their current plight. The Boomers declare they are spoiled kids who need to get a job. A critical thinking analysis of the Millennial Generation demographics reveals how ridiculous it is for Boomers to blame Millennials in any way for our current economic debacle. There are 97 million Millennials and 54 million of them are under the age of 20. Another 21 million are between the ages of 20 and 24, barely getting started in the real world. Only 39 million of them were eligible to even vote in the last Presidential election. It should be clear to even the most dense CNBC anchor that the young people protesting in the streets are not to blame for the raping and pillaging of the U.S. economic system by the barbarians on Wall Street over the last thirty years, with the consent and encouragement of the bought off politicians in Washington D.C.

Generation	Age	Total Pop.(mil)
G.I.	86–109	6
Silent	69–85	22
Boomer	51–68	73
Gen-X	30–50	83
Millennial	7–29	97
Homeland	– 6	29

After placing the living generations in their assigned age buckets, I was shocked to see the Millennials being, by far, the largest generation. I had assumed it was the Baby Boom Generation. At their peak in 1970 they totaled 76 million and made up 37% of the U.S. population. But, time has not treated them well. Approximately 3 million have left this earth and they only make up 24% of the population. Both Gen X and the Millennials now outnumber the Baby Boomers. They will continue to see their power wane as the years roll by. The Millennial power will grow as the Fourth Turning progresses, since they make up 31% of the population today and will see that ratio grow as the G.I. and Silent generations die off. There are very few people remaining that lived through the last Fourth Turning. The initial phase of this Crisis has revolved around the Wall Street induced housing collapse with the consequences of not enforcing the rule of law by liquidating insolvent banks and prosecuting the white collar criminals that reaped ungodly profits by committing fraud on an epic scale. This has left the country with an unsustainable level of debt, a hollowed out economy, and unemployment at Great Depression era levels, while Wall Street bankers, media titans, and career politicians reap compensation packages fit for kings. Jesse from Jesse’s Café Americain describes our political system perfectly:

Kleptocracy:“rule by thieves” is a form of political and government corruption where the government exists to increase the personal wealth and political power of its officials and the ruling class at the expense of the wider population, often without pretense of honest service.No outside oversight is possible, due to the ability of the kleptocrats to personally control both the supply of public funds and the means of determining their disbursal.

The Millennials were raised by parents who believed government could solve all our problems. The welfare-warfare state became monolithic during the Boomer reign of error. Therefore, it is understandable these young naïve revolutionaries still cling to the belief the government can solve our problems through more taxes or new programs. The point being missed by all the doubters and detractors of the OWS movement is these young people have zeroed in on the right culprits. They are not stupid. They understand these basic facts:

The $15 trillion National Debt, headed to $20 trillion by 2015, is the gift we are leaving to the Millennials.
The $100 trillion of unfunded entitlement liabilities will never be honored by the time the Millennials retire.
The Millennials know the $1 trillion per year spent maintaining our military empire is more than the next 18 countries’ spending combined, and it benefits only the corporations peddling armaments, while making us less safe.
The soldiers getting killed and wounded in our wars of choice in the Middle East are predominantly Millennials.
There are 14,000 professional lobbyists in Washington D.C. representing mega-corporations, unions, trade groups and other special interests, which have doled out $30 billion over the last decade influencing (bribing) politicians to write the laws in their favor, and not one lobbyist was working for the Millennials.
Millennials know Wall Street has spent $154 million on political contributions and $383 million on lobbying in the last decade. The buying of political influence by our bastions of crony capitalism was as follows: Goldman Sachs – $46 million; Merrill Lynch – $68 million; Citigroup – $108 million; J.P. Morgan Chase – $65 million; Bank of America – $39 million.
The Millennials know the 71,000 page Federal tax code and 140,000 pages of Federal regulations are written to protect the interests of the few, not the many.
Millennials know the financial industry consciously created products designed to induce mortgage fraud, knowingly packaged toxic mortgages into derivatives, bribed the rating agencies to rate them AAA, sold these worthless instruments to their customers, shorted these same derivatives, and pocketed billions in fees and ill gotten gains. After blowing up the financial system and costing taxpayers trillions, not one person has gone to jail.
Millennials know how to read a chart:

Millennials know that Barack Obama and Mitt Romney are the same face of a never changing oligarchy. Change brought about through opposing political parties and elections has been rendered obsolete as the oligarchy chooses the candidates, uses their wealth to create policies and programs, and is able to control the masses with their propaganda message machines.

So here we stand, about five years into this Fourth Turning, with protests in the U.S. growing increasingly violent and intense. The calls for civility after the Gabrielle Giffords assassination attempt in January of this year went unheeded as the political vitriol has grown increasingly nasty. January seems like a lifetime ago. Revolutions have overthrown rulers in Tunisia, Egypt, and Libya. Unrest and bloodshed continues in Syria, Gaza, Yemen, Bahrain and Saudi Arabia. The European Union is disintegrating before our very eyes and violent protests against austerity measures flare up on a daily basis in Greece, Italy and Spain. There is no doubt we have entered the 2^nd stage of this Crisis – the more violent and dangerous stage. I can sense fear and uneasiness among the more connected members of society. The drones, which constitute a large portion of America, are highly focused on Kim Kardashian’s divorce after 72 days and a $10 million wedding. The Millennials leading the protest movement are connected. They understand what is at stake. Strauss and Howe had it figured out 14 years ago:

“Of all today’s generations, the Millenials probably have the most at stake in the coming Crisis. If it ends badly, they would bear the full burden of its consequences throughout their adult lives. Yet if the Crisis ends well, Millenials will gain a triumphant reputation for virtue, valor and competence.” – Strauss & Howe

So what happens next? The truth is that no one knows what will happen next. We can only try to connect the dots and peer into a foggy future. We know that our leaders have not solved any of the financial imbalances that existed in 2007. They have made them worse, as have leaders across the world from China to Japan to Europe. We await the next Lehman moment, except this time it will be a sovereign nation and the contagion will be ten times greater than the 2008 meltdown. Our already fragile economy will be brought to its knees in a replay of the 1930s. As nations plunge into economic chaos, civil strife will likely lead to authoritarian figures rising from the ashes of the turmoil. Could Russia and China take advantage of this turmoil to acquire new resources through military means? Possibly. When the American middle class sees their remaining wealth dwindle to nothing, will they take to the streets? Revolution seems too remote to fathom, but it seemed remote in 1764 and 1855 too. When people have nothing left to lose, anything is possible. The collapse of our economic system is baked in the cake. Our current fiscal path is destined to end in fatality. Strauss & Howe knew the outcome of this Fourth Turning would depend upon the wisdom, strength and fortitude of the American people:

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

Winter has arrived. There will be difficult hurdles with many trials and tribulations in front of us. You may have to choose sides in a generational war. No one wants to face bitter choices. No one wants bloodshed and war. But it really doesn’t matter what we want. There is no real justice in a country that attacks and incarcerates young people for exercising their right to free speech and dissent, while allowing a psychopathic Wall Street banking cartel to wreak havoc upon our nation. The generational alignment is such that the existing social order will be swept away in a violent manner. What replaces the existing order will be up to the American people. You may lose your wealth, security, freedom, or life during the coming struggle. The years ahead will require steely determination and courage like our forefathers exhibited on the frigid barren fields at Valley Forge, the undulating wheat fields at Gettysburg, and the bloody beaches of Normandy. I have three teenage sons at home. My choices will be dictated by what I feel will be best for their futures. I will do WHATEVER it takes to secure a better tomorrow for my boys. If that means standing beside them in battle, so be it. Lines are being drawn. You will not be able to avoid choosing sides, just as you cannot avoid Winter if you ever want to see the dawn of another Spring.

“History offers no guarantees. We should not assume that Providence will always exempt our nation from the irreversible tragedies that have overtaken so many others: not just temporary hardship, but debasement and total ruin. Since Vietnam, many Americans suppose they know what it means to lose a war. Losing in the next Fourth Turning, however, could mean something incomparably worse. It could mean a lasting defeat from which our national innocence – perhaps even our nation – might never recover.” – Strauss & Howe

BERNANKE IS A CRIMINAL

John Hussman relentlessly tells the truth, week after week. He details why we are in the current situation. He also proves that Ben Bernanke and the Federal Reserve have broken the law. Criminals need to be incarcerated, whether they have robbed a liquor store at gunpoint in West Philly or whether they have robbed the American citizens with a computer in Washington DC. By the time this Fourth Turning is finished I hope to see Bernanke in cuffs or better yet being led to the gallows.

Hussman is supportive of the Occupy Wall Street movement and provides them with real talking points and real solutions. There is no one more sober and analytical than John Hussman. He’s not a socialist hippie, as the MSM likes to portray the protestors. He knows that Wall Street has screwed the American middle class. He has proved that Wall Street has screwed the middle class. His solutions are reasonable and implementable. They are just unacceptable to the super rich ruling elite and their puppets in Washington DC.

The result will be class war.

Talking Points for the “Occupy Wall Street” Protesters

John P. Hussman, Ph.D.
Just a note – by the end of last week, Greek 1-year yields had surged to 144%. European leaders have shifted from promising to prevent a Greek default to promising instead to ensure that European banks are well capitalized. Here, I would repeat that it is essential for policy makers to make a distinction between liquidity and solvency. Banks that are solvent, and countries that are solvent, should be within the ring-fence, in the sense that it is sensible for policy makers to follow Bagehot’s Rule – freely provide liquidity, but only at high rates of interest, and only to the solvent and well-collateralized. Those institutions and countries that are not solvent should not be “saved” by using public funds to make private bondholders whole. The proper policy is to restructure, not bail out, the debt of banks and countries that have no reasonable prospect of paying off those obligations.

It remains in the best interest of Greece to default, and to leave the euro so it can depreciate its currency, but if it is going to default, it would be well-advised to default big. The only way to get new international capital after a default is for Greece to clear out enough of its legacy obligations that investors reasonably expect it to make good on any new funding they might (eventually) provide.

Talking Points for the “Occupy Wall Street” Protesters

We’re all for a good peaceful protest. As long-time readers know, I’ve been an adamant critic of the bailouts of mismanaged financial institutions, as well as various illegal policy actions that have been pursued by the Fed since the financial crisis began in 2008. Undoubtedly, there is good and bad on Wall Street, and we know a lot of smart, well-meaning financial advisors who go to work every day with the goal of improving the financial security of their clients, who do careful research, avoid speculation, and provide a service to others through their profession. A functioning economy needs to allocate capital effectively, and there Wall Street can be essential.

Unfortunately, over the past 15 years or so, the basic function of the financial markets has been corrupted into what I’ve grown to view as a self-serving carnival of speculation, where many participants are interested in nothing except getting the next rally going at public expense, regardless of how badly market signals are distorted, how recklessly capital is misallocated, or even whether what they do has any positive effect on the economy or the country (some of the sleazier ones even have their own shows on basic cable).

There is no single source of this transformation. Part of it is a remnant of the dot-com and technology bubbles, when market valuations moved to nearly triple the historical norm, and investors began to view perpetual market advances and high returns as a birthright. The subsequent decade of zero overall returns for the stock market largely reflects a reversion to more normal (but still cyclically elevated) valuations.

Another part of this transformation is due to the activist policies of Federal Reserve, which has continually attempted to short-circuit every instance of short-term economic discomfort by distorting the menu of investment returns (e.g. zero interest rate policies) in an effort to provoke investors to accept fresh speculative risk. Ironically, the long-term effect of distorting market signals has been to drive good, potentially productive capital into wholly unproductive uses – the housing bubble being a prime example. As a result, real U.S. gross domestic investment has not grown at all since 1998, and the portion financed by domestic U.S. savings has collapsed, so much of the new capital we’ve accumulated is owned by foreigners.

Undoubtedly, one of the greatest rhetorical victories of Wall Street has been to successfully plant in the minds of the public the idea that some financial institutions are simply “too big to fail,” and that the “failure” of “systemically important” institutions will result in global financial meltdown and Depression. The reality is much different.

So, with the hope of providing the Occupy Wall Street protesters with some talking points, what follows are some perspectives that might be useful in framing the issues that we are facing as an economy.

1) “Failure” only means that corporate bondholders don’t get every penny

Background: When Wall Street talks about the “failure” of a bank or other financial institution it means the failure of the company to pay off its own bondholders. It does not mean that depositors, counterparties or other bank customers lose money (See Recession, Recovery, and the Ring-Fence ). A bank is essentially a big portfolio of assets, about 70% which are typically financed by depositors, customers and other liabilities, about 20% by the bank’s own bondholders, and about 10% with the capital of the bank’s stockholders. In a typical bank “failure,” the bank is taken into receivership by regulators, the liabilities to stockholders and bondholders are cut away, the remaining package of assets and liabilities is sold as a single entity to some other firm (or can be reissued to investors as a new company), the old bondholders get the proceeds of that sale, and the stockholders are wiped out. When investors willingly take a risk, and buy the stocks and bonds issued by an institution that goes on to mismanage its business, this is the appropriate outcome. Depositors and customers typically don’t lose a penny (See the section on “How to Restructure A Major Bank” in Not Over By A Longshot ).

If public funds are provided during a financial crisis, and it cannot be clearly demonstrated that the institution is solvent, the funds should be provided post-failure, as senior loans to a restructured institution where shareholders and existing bondholders have already been subject to losses. The interest rate should be relatively high, to encourage replacement of public funds with private ones. With few exceptions, when public funds are used to avoid major restructuring and shield private investors from losses, the result is almost inevitably a larger, less transparent, and more recklessly managed institution.

The same is true for government or “sovereign” debt. When Wall Street talks about “failure” of Greece, for example, it means failure of Greece to pay off its own bondholders. In trying to avoid this failure, Greece is instead forced to impose extreme austerity and depression on its citizens. From the standpoint of those citizens, Greece has already failed them painfully. Those are the choices – let bad debt “fail” or force depression on innocent citizens.

Of course, there is a cost to any financial crisis, which is “contagion” where the failure of one institution or government calls others into question. The main way to contain this is to follow the century-old “Bagehot’s Rule” – lend freely, at high rates of interest, but only to institutions that are solvent and able to provide collateral for the loans. When policy makers behave as if every institution, solvent or not, is within the ring-fence, or that some institutions are simply “too big to fail,” saving these institutions comes at enormous costs, because true economic losses that should properly be taken by private investors are instead forced upon the public.

Keep in mind that money is fungible – not all losses are taken directly by the institution that created them. Many of the losses that should have been borne by banks were instead assumed by Fannie Mae and Freddie Mac. This allowed TARP to seem largely successful even while hundreds of billions of public funds are still being spent to bail out Fannie and Freddie. Recent efforts by government overseers of Fannie Mae to claw back these losses from the banking system are appropriate, but they also demonstrate how easy it is for private institutions to transfer their mistakes onto the public balance sheet.

2) The Federal Reserve’s purchases of Fannie Mae’s and Freddie Mac’s debt obligations were illegal

Background: Beginning in 2009, the Federal Reserve began buying nearly $1.5 trillion in obligations of Fannie Mae and Freddie Mac, both which were insolvent and in government receivership. The Fed justified these purchases by appealing to Section 14.2 of the Federal Reserve Act, which allows the Fed to purchase securities which are a “direct obligation of, or fully guaranteed as to principal and interest by, any agency of the United States.” Now, Ginnie Mae, the financing arm of the Federal Housing Administration (FHA) is a bona-fide government agency. So there would have been no legal problem if the Fed had purchased Ginnie Maes. In contrast, however, Fannie Mae and Freddie Mac were not, and are not, U.S. government agencies. Nor are the obligations held by the Fed “fully guaranteed as to principal and interest” by the U.S. government. At best, the obligations of these GSEs have implicit and informal backing, as any member of Congres will tell you, and simply taking a failing institution into conservatorship doesn’t confer government backing to its debt. In fact, the stop-gap measure enacted by Congress during the crisis only provides temporary backing for the obligations of Fannie and Freddie maturing by the end of 2012. Very simply, the Fed broke the law by buying Fannie and Freddie’s debt.

3) Creating shell companies to buy Wall Street’s bad assets is not “discounting,” and was therefore also illegal

Background: In 2008, the Federal Reserve created a set of off-balance sheet shell companies called “Maiden Lane” to buy undesirable long-term assets of Bear Stearns and other financial companies, justifying the purchases by appealing to Section 13.3 of the Federal Reserve Act. But if you actually read Section 13, it is clear that under the law, “discounting” means (as it has always meant) providing short-term liquidity by essentially providing a check-cashing service for obligations that are short-dated, well-collateralized, and promptly collectible (See also Outside the Oval / The Case Against the Fed ). The Fed’s creation of the Maiden Lane companies to purchase bad assets was, and remains, illegal under the language and intent of the Federal Reserve Act.

Keep in mind that we have only three branches of government: the executive, the legislative, and the judicial. The Federal Reserve is not an independent fourth branch of government, but operates under the legislation of Congress and therefore cannot be “independent” of Congressional control. While nobody wants monetary policy to be “politicized” in the sense of Congress telling the Fed what policy actions should be taken and before which election, it is quite a different matter to require the Fed to operate within the law. Here, Congress could use some encouragement.

4) The skewed distribution of wealth in the U.S. is worsened by policies that misallocate capital and divert public funds to bail out investments that have already gone bad.

Background: If you think about the “standard of living” in a country, you can roughly define it as the amount of goods and services that individuals are able to consume in return for their work. If you think about the “productivity” of a country, you can roughly define it as the amount of goods and services that individuals are able to produce for their work. Clearly, over the long-term, the productivity and the standard-of-living of a country go hand in hand. The best way to create both, over the long-term, is for an economy to build a stock of productive capital (inventions, new technologies, plants, equipment, public infrastructure, etc), and human capital (labor skills, education).

Still, even a generally productive economy can produce a skewed distribution in the standard of living enjoyed by its citizens. In a competitive and undistorted economy, the distribution of wealth is determined by the ability of each individual to a) provide a useful service, b) distribute the services they provide over a large number of “units”, and c) maintain the scarcity of what they provide.

So for example, professional football players earn more than teachers not because playing football has more virtue, but because professional football players are among a very small group, and distribute their “services” over millions and millions of spectators, each which implicitly pays a few cents to each player per game. Mark Zuckerberg at Facebook is able to distribute his services across hundreds of millions of users, each which implicitly pays him a tiny amount by viewing advertising. Bill Gates distributed his services over every computer that ran Windows, while the factory workers who built those computers were each able to distribute their skills over a smaller number of units. Teachers represent a large professional group, but are typically able to distribute their services over a limited number of students, each which implicitly pays a portion of their family’s income to the teacher. One-on-one aides tend to earn less, despite often being extremely skilled, because in order for them to earn a high income, their earnings would have to capture much of the income of their single student’s family.

The distribution of wealth has become increasingly skewed as trade has become more globalized and technology has allowed the innovations of a single person to be spread across millions of consuming “units.” At the same time, the economic emergence of China and India has brought forth literally billions of new workers who dilute the scarcity of the existing labor force. An economy where capital is scarce, protectable, and can easily be distributed over numerous units, while labor is plentiful, homogeneous and can only be applied to a smaller number of units, is an economy that is prone to an enormously skewed distrbution of wealth.

This process takes on a grotesque character when it becomes possible for a company to distribute its impact over a very large number of units, and government policy protects that ability even when the impact of the company reflects not skill but ineptitude. This is essentially what has happened with the “too big to fail” institutions. Despite inflicting massive damage on the economy, they are afforded a protected status that allows them to extract “rents” that don’t reflect the cost they have imposed. From that standpoint, the Occupy Wall Street protests are a welcome reflection of public frustration over Washington’s slavish coddling of reckless financial institutions.

Policy Responses

The proper way to address the present economic imbalances is pursue policies that encourage the restructuring of bad debt, the allocation of public funds and private savings to productive investment and new research, the accumulation of education and labor skills (“human capital”) to allow workers to capture a greater share of their own productivity, and the continuation of social safety nets to ease the economic adjustments that are necessary in a deleveraging economy. In my view (which not everyone will like), this requires:

Monetary policies that abandon the constant pursuit of new financial bubbles, which distort investment opportunities and misallocate capital;

Housing policies to coordinate the restructuring of mortgage debt for homeowners capable of servicing a restructured mortgage (we’ve advocated breaking the mortgage into a lower principal loan plus a right of the lender to a portion of future appreciation), and unfortunately, foreclosure for homeowners unable to service even a restructured mortgage, with associated losses being taken by lenders;

A return to a reasonably smoothed form of mark-to-market accounting (say, 3-year averaging) so that financial institutions cannot let a bad loan book deteriorate while still reporting those loans at amortized cost.

A requirement that banks hold a significant amount of their capital in the form of mandatorily convertible debt, so if the assets deteriorate, the debt converts to equity immediately and provides a capital cushion against losses without risking default to senior bondholders. Yes, this will result in a slightly higher cost of capital to the banks, but it is a reasonable alternative to more intrusive forms of regulation.

A major increase in government-sponsored research in basic sciences (as opposed to huge pick-the-winner bureaucratically-awarded grants to companies like Solyndra). Recall that research and innovations coordinated through government initiatives such as the Advanced Research Projects Agency (which largely originated the internet), the National Science Foundation, and the National Institutes of Health have been the basis for much of the industry that has built upon that foundation;

Continuous investment in public infrastructure – although the long lead times simply to obtain permits for major projects largely rules out much near-term stimulative effect from the Administration’s proposed Jobs Bill even if it were enacted immediately;

Efforts among workers to increase their own protectable level of scarcity, ideally through increased education and labor skills, but if necessary through collective bargaining in industries that are reliant on locally-sourced employees (understanding, however, that this alternative also has the effect of reducing employment);

Incentives for capital investment and R&D such as tax credits and immediate expensing of new investment;

Tax policies that reduce distortions by applying a sufficient but relatively constant tax rate to every dollar of income regardless of the source (wages, profits, financial gains), with large exclusions at initial income levels – essentially taxing all dollars and all people according to the same rules, broadening the tax base by including all forms of income and avoiding the need for class warfare;

Broadening the tax base but substantially reducing the tax rate on Social Security and Medicaid (which are a larger tax burden than the income tax for 75% of American families) and applying that lower rate to all forms of income – not just wage income. This would stop the regressive treatment of payroll workers, which exists only to perpetuate what economist Alvin Rabushka has called “the fiction that Social Security is a retirement insurance program in which contributions are linked to benefits, rather than what it is — a transfer of income from workers and the self-employed to retired people.”

Again, long-term improvements in living standards require improvements in productivity, through the accumulation of capital, inventions, education and labor skills. The reason that wages are lower in developing countries is primarily because Americans are blessed to have an economy that has a legacy of accumulating productive investment and educating its workers. If we allow those advantages to slide, by misallocating investments, and diverting public funds from research, development, education and infrastructure in order to bail out reckless speculations gone bad, there is no inherent reason why other countries cannot rise to economic dominance. It’s our choice. We have far too great a need for productive investment than to use our scarce resources to bail out poor stewards of capital who gambled the nation’s savings and look to the government to make them whole.

Market Climate

As of last week, the Market Climate in stocks remained negative, with our economic measures still solidly anticipating an oncoming recession. Strategic Growth and Strategic International remain tightly hedged. Strategic Total Return continues to hold about 18% of assets in precious metals shares, accounting for the majority of day-to-day fluctuations in the Fund, with an average duration of about 1.5 years in Treasury securities, and less than 5% of assets in utility shares and foreign currencies.

As a final note, the chart below updates one of our composite measures of U.S. economic activity, reflecting a broad set of ISM and regional Fed surveys. While the slight uptick in a few of these survey measures has been the basis of a strikingly premature “all clear” attitude taken on by Wall Street analysts, the fluctuation has been entirely negligible, and represents a tiny fraction of typical random month-to-month noise. It is equally important to recognize that the ISM indices tend to lag our Recession Warning Composite and our broader ensemble models (and also lag ECRI’s measures) by nearly 13 weeks, while payroll employment demonstrates a slightly greater lag. Given that the earliest signal – the Recession Warning Composite – deteriorated at the beginning of August, the October ISM, and even more likely the November reading, is really the window of concern. Suffice it to say that the recent evidence is generally more confirming than contradictory of recession concerns.

WHAT THIS COUNTRY NEEDS NOW IS HOPE

Finch: Why are you doing this?
Evey Hammond: Because he was right.
Finch: About what?
Evey Hammond: That the world needs more than just a building right now. It needs hope.

The dialogue above occurred at the end of the dystopian movie V for Vendetta. It is a tale of revenge and restoring hope among citizens who had chosen safety and security over freedom and liberty. Even though this movie was fictional and adapted from a comic strip, its message and warnings should be heeded. Millions of middle class citizens in the U.S. sink deeper into despair every day. Day by day hope is being lost that the future for our children will be better than our past. The political, financial, and corporate leaders of our country are intellectually and morally bankrupt. The major Wall Street banks are bankrupt. Social Security is bankrupt. Medicare is bankrupt. The whole damned world is bankrupt. Anyone with an unbiased view of our planet would conclude that we are in unfathomable danger. The list of impending catastrophic issues that will blow up the world for millions in the U.S. and across the globe is virtually endless:

U.S. Debt

The national debt is currently $14.6 trillion, up from $5.7 trillion in 2000. It took over 200 years to accumulate the first $5.7 trillion of debt and only 11 years to tack on another $8.9 trillion.
With the new $450 billion jobs package proposed by President Obama, the deficit in FY12 will likely exceed $1.8 trillion, or 12% of GDP. Greece’s 2010 deficit was 10.5% of GDP.
Kenneth Rogoff and Carmen Reinhart in their book This Time is Different: Eight Centuries of Financial Folly, using data from 44 countries over 200 years, concluded that once a country’s national debt exceeds 90% of GDP, the economy stagnates and ultimately makes that country vulnerable to a debt crisis. The U.S. national debt as a percentage of GDP is currently 97% and will reach 107% in 2012. This does not count state and local debt, Fannie Mae and Freddie Mac debt, and the unfunded liabilities for Social Security and Medicare. We are at the same place Greece was in 2007. But we’re no Greece, right? This time is different.

Total credit market debt of $52.5 trillion is 3.5 times GDP, versus a long-term leverage ratio of 1.6. This is called living well above your means on borrowed money. We have a long way down before we reach the bottom of this mountain of debt.

Despite the rhetoric out of Washington D.C. by the thieves and knaves about cutting deficits, the National Debt is on course to increase by $9 trillion in the next 10 years. It will reach $20 trillion by 2015.

Entitlements

The commitments made by politicians over decades in order to get elected have resulted in unfunded liabilities for Social Security and Medicare exceeding $100 trillion.

In 1980, just 11.7% of all personal income came from government transfer payments. Today, 18.0% of all personal income comes from government transfer payments. Wages and salaries paid by private industries totals $5.5 trillion per year, while wages paid by government total $1.2 trillion and social welfare payments from the government total $2.3 trillion. Only ten years ago wages and salaries from private industries totaled $4.1 trillion, while government wages were only $800 billion and welfare payments totaled $1.1 trillion. In ten years the percentage increases paint the true picture:
- Private wages & salaries increased 34%
- Government wages & salaries increased 50%
- Government social welfare transfer payments increased 109%
Despite the rhetoric from politicians, there is no lock box and there is no cash in the Social Security fund. John Mauldin summed it up nicely: “Social Security funds are an entry into a government accounting book that don’t really exist except as an IOU. Politicians of all stripes have used the Social Security money to pay for other government expenses. Those funds were even counted to offset the deficit, although now that Social Security is no longer in a surplus that has gone away.”
This year, about 3.3 million people are expected to apply for federal Social Security Disability benefits. That’s 700,000 more than in 2008 and 1 million more than a decade ago. Today, about 13.6 million people receive disability benefits through Social Security or Supplemental Security Income. Last year, Social Security detected $1.4 billion in overpayments to disability beneficiaries, mostly to people who got jobs and no longer qualified, according to a recent report by the Government Accountability Office, the investigative arm of Congress.

Employment

The official unemployment rate in the U.S. is 9.1% with 14 million people unemployed. The true unemployment rate, taking into account discouraged workers, part time workers who want a full time job, and people who have dropped out of the work force, is above 20%, or 31 million people.
It now takes the average unemployed worker in America about 40 weeks to find a new job.

Even after a supposed recovery, there are approximately 7 million less people employed today than there were in 2007.
The employment to population ratio of 58.2% is at the same level as 1969, before women entered the workforce in record numbers. As wages stagnated and inflation drove costs higher, families were forced to send two parents into the workforce, with predictable consequences to their latchkey children. The ratio peaked in 2001 at 64.4% and has declined precipitously since 2008.

Poverty

The number of people on food stamps has gone from 27 million people receiving $30 billion of aid in 2007 to 45 million people (14.5% of U.S. population) receiving $72 billion in aid today.

The number of uninsured Americans totals 49.9 million.
Those covered by employer-based insurance continued to decline in 2010, to about 55%, while those with government-provided coverage continued to increase, up slightly to 31%. Employer-based coverage was down from 65% in 2000.
One out of every six elderly Americans now lives below the federal poverty line.
Another 2.6 million people slipped into poverty in the United States last year and the number of Americans living below the official poverty line, 46.2 million people, was the highest number in the 52 years the Census Bureau has been publishing figures on it.
The percentage of Americans living below the poverty line last year, 15.1%, was the highest level since 1993. (The poverty line in 2010 for a family of four was $22,314)
Blacks experienced the highest poverty rate, at 27%, up from 25% in 2009, and Hispanics rose to 26% from 25%. For whites, 9.9% lived in poverty, up from 9.4% in 2009. Asians were unchanged at 12.1%.

Income

Median household income fell 2.3% to $49,445 last year and has dropped 7% from the peak of $53,252 reached in 1999.
Median household income for the bottom tenth of the income spectrum fell by 12% from a peak in 1999, while the top 90th percentile dropped by just 1.5%.
Between 1969 and 2009, the median wages earned by American men between the ages of 30 and 50 dropped by 27% after you account for inflation.
Median income fell across all working-age categories, but the sharpest drop was among young working Americans, ages 15 to 24, which experienced a decline of 9%.
When you adjust wages for inflation, middle class workers in the United States make less money today than they did back in 1971.

Wealth Inequality

The wealthiest 1% of all Americans now controls 43% of all the financial wealth in this country.
According to the Federal Reserve, the richest 1% of all Americans has a greater net worth than the bottom 90% combined.

The fact is that many people in the bottom half of the top 1% wealthiest Americans usually achieved their success after decades of education, hard work, saving and investing as a professional or small business person. A recent article by William Domhoff quotes an investment manager who works with very wealthy clients regarding the top 0.1%:

Unlike those in the lower half of the top 1%, those in the top half and, particularly, top 0.1%, can often borrow for almost nothing, keep profits and production overseas, hold personal assets in tax havens, ride out down markets and economies, and influence legislation in the U.S. They have access to the very best in accounting firms, tax and other attorneys, numerous consultants, private wealth managers, a network of other wealthy and powerful friends, lucrative business opportunities, and many other benefits. Membership in this elite group is likely to come from being involved in some aspect of the financial services or banking industry, real estate development involved with those industries, or government contracting.

Until 1980, the U.S. economic system was reasonably balanced, with manufacturing still the driving force in creating wealth for the middle class. In the three decades since, our political, banking and corporate elite have gutted our industrial base, shipped millions of jobs overseas and have used financial schemes and scams to suck the vast majority of middle class wealth into their grubby little hands. Wall Street has slowly and methodically pillaged the nation’s wealth, hollowing out a once vibrant nation, and their insatiable greed driven appetite drives them to want more.

Consumer Debt

Total consumer debt in the United States at $2.45 trillion is now more than 8 times larger than it was just 30 years ago. The recent leveling off is completely due to hundreds of billions in write-offs by the Wall Street banks. The chart below is a Keynesian dream of government borrowing to create prosperity. The fallacy of Keynesianism is evident for all to see.

According to the Federal Reserve, between 2007 and 2009 household net worth in the United States fell by 25%, or $16.4 trillion.
The Federal Reserve says that median household debt in the United States has risen to $75,600.
Of U.S. households that have credit card debt, the average amount owed on credit cards is $15,800.
The top 10 credit card issuing banks control 80% of the credit card market, with Bank of America, Citicorp, JP Morgan Chase and Wells Fargo accounting for almost 60% of the market.

The average APR on credit card with a balance on it is 13.1%. These same banks are borrowing at 0% from the Federal Reserve.
Penalty fees from credit cards added up to over $21 billion in 2010.
There are 610 million credit cards held by U.S. consumers, with 3.5 credit cards per cardholder.
Americans now owe more than $887 billion on student loans, which is even more than they owe on credit cards.

Real Estate

U.S. home values have fallen an astounding $6.6 trillion since the peak of the real estate market.
National home prices have fallen 31% from their peak in 2005.
Approximately 11 million households, or 23% of all households with a mortgage, are underwater on their mortgage.
Household percent of equity is at 38.6% today, down from 60% in 2006. There are 87 million households in the U.S. Approximately 25 million of these houses have no mortgage, so the 52 million have significantly less than 38.6% equity.

Americans were so sure their houses would appreciate to infinity during boom years of 2005 through 2008 they withdrew over $3 trillion of equity from their homes and spent it like drunken sailors. The hangover will last for decades.

Savings & Retirement

The S&P 500 Index reached 1,100 on March 24, 1998. The S&P 500 Index on October 4, 2011 is 1,100. Wall Street convinced millions of dupes that they needed to buy stocks for the long run. Thirteen years later, the average investor has nothing, while the shysters on Wall Street have reaped hundreds of billions in fees.
The stock market is priced to return 5% over the next decade, while bonds are priced to deliver no more than 2%.
1 out of 3 Americans has no savings at all.
Workers estimate their retirement savings needs at $600,000 (median), but in comparison, less than one-third (30%) have currently saved more than $100,000 in all household retirement accounts.
The average 401k balance at the end of 2010 was $71,500. Aon Hewitt estimates that it will take retirement savings of 15 times your final salary to maintain your current lifestyle. Someone making $50,000 per year would need $750,000.
50% of all the households in the U.S. (57 million households) have a total net worth less than $70,000.
Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern’s Kellogg School of Management recently calculated the combined pension liability for all 50 U.S. states. What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds.
Every single day more than 10,000 Baby Boomers will reach the age of 65. That is going to keep happening every single day for the next 19 years.
Approximately 3 out of 4 Americans start claiming Social Security benefits the moment they are eligible at age 62. Most are doing this out of necessity.
35% of Americans already over the age of 65 rely almost entirely on Social Security payments alone.

Foreign Trade

The U.S. trade deficit is now running at approximately $600 billion per year. It is clear that with the shift from a manufacturing based saving society in the 1960s and 1970s to a Wall Street finance based, debt driven consumption society from 1980 onward has led to massive trade deficits.

The gutting of the American middle class can again be traced back to 1980 when manufacturing employment peaked at 19.5 million. Once corporate CEOs embraced “globalization” in the late 1990s and realized they could reap obscene profits and compensation packages by utilizing slave labor in China to do American manufacturing jobs at 10% of the cost, the jobs disappeared. There are less than 12 million manufacturing jobs in the U.S. today, replaced by jobs at Wal-Mart and McDonalds.

The U.S. imports 9.5 million barrels per day of oil, more than 50% of our daily consumption. At an average price of $90 for 2011, we are sending $300 billion per year to countries that hate us and despise our way of life.

Energy

The U.S consumes 22% of the world’s oil output despite having only 4.5% of the world’s population.
The U.S. has less than 3% of the world’s proven oil reserves.
The Department of Energy was created in 1977 with the mission to reduce our dependence on foreign oil. The country has not built a new oil refinery or nuclear power plant since 1980.
In 1980 the U.S. imported 37% of our oil consumption. We now import 51% of our oil consumption.
In 1980 the price of a gallon was $0.58 per gallon ($1.90 adjusted for inflation). Today, the price of a gallon of gasoline is $3.40.
The DOE employs 16,000 workers & 100,000 contract workers, and operates on a mere $27 billion per year. Ironically, the DOE spends $300 million per year for energy in its 9,000 buildings around the country.
Despite being created to create a comprehensive energy policy, the DOE has no plan or strategy to address peak cheap oil. The impact on U.S. society from declining world oil supply will be devastating to the U.S. economy within the next five years.

Foreign Interventionism

America’s two wars of choice in the Middle East have cost $1.3 trillion in direct costs, thus far. The long-term costs will total over $3 trillion.
The United States annual military spending is 8 times as large as China and Russia. We spend 73 times as much as the supposed dire threat of Iran. The U.S. accounts for over 44% of worldwide military spending.

In the year 2000, the U.S. spent $359 billion on Defense, including veterans and foreign aid ($17 billion). The 2011 expenditure is $965 billion, with $45 billion in foreign aid. Do the politicians in Washington D.C. recognize the irony of borrowing $45 billion from foreigners and then giving the $45 billion to other foreigners?
The U.S. operates 11 large carriers, all nuclear powered. In terms of size and striking power, no other country has even one comparable ship. The displacement of the U.S. battle fleet – a proxy for overall fleet capabilities – exceeds, by one recent estimate, at least the next 13 navies combined, of which 11 are our allies or partners.
The U.S. military empire is vast. Officially, more than 190,000 troops and 115,000 civilian employees are massed in approximately 900 military facilities in 46 countries and territories (the unofficial figure is far greater). The US military owns or rents 795,000 acres of land, with 26,000 buildings and structures, valued at $146 billion.
With the collapse of the Soviet Union in the early 1990s, the military industrial complex needed to create a new enemy in order to keep the billions in profits flowing to the arms manufacturers. The War on Terror has been a windfall for the military industrial complex. The American people did not heed President Eisenhower’s warning.

Monetary Policy

The Federal Reserve was created in 1913 with the purpose of stabilizing the country’s financial system, eliminating financial panics, keeping prices steady, and insuring maximum employment. The result has been more instability, depressions, recessions, market crashes, unemployment as high as 25%, and inflation that has reduced the purchasing power of the U.S. dollar by 96% since 1913.

The Consumer Price Index was 10.0 in December 1913 when the Federal Reserve was created. Today, the index stands at 227. Prices have risen 2,270% in the almost 100 years since the Federal Reserve’s inception, or inversely the dollar can buy what it took $.04 to buy in 1913. Somehow, the banking syndicate that has “achieved” this result has convinced the public that inflation is good for them.
When Richard Nixon closed the gold window in 1971, the last check and balance on politicians and bankers was scrapped. The result has been predictable. The National Debt swelled from $400 billion in 1971 to $14.6 trillion today, a 3,650% increase in 40 years. The GDP grew from $1.13 trillion to $15.0 trillion today, a 1,332% increase in 40 years. Politicians have bought the votes of their constituents by making promises and financial commitments that have made debt slaves out of future unborn generations. Without a restraint on money printing, politicians will always choose to not worry about tomorrow.
The Federal Reserve policies of Alan Greenspan and Ben Bernanke were the single biggest cause of the 2008 financial catastrophe and their current policies have set the country up for the final cataclysmic disintegration of our economic system. By bailing out Wall Street every time they made a high risk bet and lost (1987 Crash, Latin America, S&L Crisis, Asian Crisis, LTCM, Dot Com, 9/11, Housing collapse, Lehman) the Federal Reserve has proven to be a tool for the super rich power elite. By keeping interest rates below where they would be in a free market, the Federal Reserve created the climate for gambling on Wall Street, the home price 3 standard deviation bubble, and the current screwing of senior citizens and savers to boost the profits of Wall Street bankers.
In August 2008 the Federal Reserve balance sheet consisted of $940 billion of mostly U.S. Treasury securities. Today, the Federal Reserve balance sheet totals $2.9 trillion and is filled with toxic mortgage debt shoveled from the insolvent Wall Street banks onto the plate of the American taxpayer. The Federal Reserve balance sheet is leveraged 55 to 1, meaning a 2% loss would wipe out their capital. Lehman Brothers and Bear Stearns were leveraged 30 to 1 when they went belly up.

During the recent financial crisis the Federal Reserve secretly loaned $16 trillion to the biggest banks in the world, including $4 trillion to foreign banks. This goes far beyond the mandate they were given by Congress in 1913. The Fed had no regulatory authority or ability to judge the credit worthiness of these foreign banks, but risked $4 trillion of U.S. taxpayer funds propping them up. With European banks on the verge of bankruptcy, the Federal Reserve risks losing even more money if they become the lender of last resort.

In the 3^rd Quarter of 2008 American savers were able to generate $1.4 trillion of interest income on their savings. Much of this interest went to risk adverse senior citizens who depended on this income to make ends meet after two years of no increases in their Social Security payments. Three years later savers are only generating $1 trillion of interest income or 30% less, while their costs for food and energy have risen 5% to 10%. The Federal Reserve instituted a zero interest rate policy in order to enrich their Wall Street masters, while further impoverishing the middle class and senior citizen savers that are the true backbone of the nation. Ben Bernanke has purposely transferred $400 billion from the prudent to the profligate.

When I started to detail the issues facing our country today, I expected to come up with 10 to 20 bullet points of key concerns. As I methodically worked through the categories of challenges facing the American Empire, the total reached 76 bullet points. The facts as presented above paint a picture of impending doom for America. The slogans and vapid “solutions” proposed by political candidates and entrenched Washington politicians do not even scratch the surface of what would need to be done to save this country from economic collapse. Many of these problems took decades to create and are not solvable in a reasonable time frame. With the country still delusional, overleveraged, and underemployed, it seems like the existing economic and social structure will need to be blown up to restore hope in this country.

“A building is a symbol, as is the act of destroying it. Symbols are given power by people. A symbol, in and of itself is powerless, but with enough people behind it, blowing up a building can change the world.” – V in V for Vendetta

Look In the Mirror

After accepting the fact that the economic situation as presented above is beyond repair, two questions come to mind:

How did we get in this predicament?
How do we get out of this predicament?

The difficulty with trying to explain how we got here is that people want simple answers and a bad guy to blame. People want to blame the rich or blame the poor or blame the phantom ruling elite or blame the other political party. They prefer to blame someone else, rather than looking in the mirror. It took a century of bad decisions, delusional thinking, unparalleled hubris, greed, sloth and willful ignorance to place the country on the precipice of ruin. The American people are responsible for the situation they find themselves in today. We elected the politicians that passed the laws, created the agencies, borrowed the money, and spent the country into oblivion. The truth is human beings are flawed creatures. We are prone to greed, laziness, seeking power, worrying about what others think about us, delusional thinking, herd mentality, shallowness, and cognitive dissonance. All of these human weaknesses have contributed to our current dilemma.

Until the twentieth century the United States generally kept their nose out of foreign conflicts, only getting involved in small regional conflicts. The country experienced tremendous growth during the 1800s and early 1900s with virtually no inflation and no central bank. The country experienced this remarkable expansion with no personal or corporate income tax. The nation also benefitted tremendously from the discovery of oil in Titusville, PA in 1859, as oil fueled the industrial revolution in the U.S. The election of Woodrow Wilson in 1912 marked a dramatic turning point in U.S. history. Within one year the country had a personal income tax and a central bank. As with most things created by politicians, they seemed harmless at first. The tax rate for 99% of Americans was 1%. The central bank was given a limited mandate to keep our banking system stable. Within a century we have a 60,000 page Federal tax code and a myriad of taxes at the Federal, State and local level. The Federal Reserve has more power and control over our lives than any entity on earth.

Giving politicians the ability to tax its citizens and print money allowed them to do things and make commitments that would have been impossible prior to 1913. After being re-elected in 1916 on a platform of keeping the country out of World War I, Wilson committed the country to that war. By 1919 the tax rate was already at 4% for most Americans and the Federal Reserve was printing money to finance the war, generating inflation of 16% per year between 1917 and 1920. Thus began a century of foreign interventionism and debt financed social welfare programs. The Federal Reserve created the easy monetary conditions of the 1920s which brought about the boom and bust of the 1929 stock market collapse. This precipitated the Great Depression and the conditions that led to the rise of fascism and World War II. The tinkering by politicians with our monetary system created more problems, which politicians attempted to solve by passing new laws and creating new programs and agencies. Without an unlimited supply of taxes and money printed by the Federal Reserve, politicians would have been constrained.

The somewhat logical reaction to the Great Depression by Franklin Delano Roosevelt was to create make work programs, housing agencies and social welfare programs to keep the citizens from revolting. He did this through the creation of debt, doubling the National Debt from $22 billion in 1932 to $44 billion by 1940. This is when the entitlement mindset took root. The creation of OASDI (Old Age, Survivors, and Disability Insurance) in 1935 was not supposed to be a retirement plan. People didn’t retire in 1935. It was created to make sure widows and orphans did not starve to death during the Great Depression. Again, the rate was only 1% at the outset. The age at which you were eligible to receive assistance was 65, four years greater than the average life expectancy of 61 years old. It was created as an insurance program and has morphed into a glorified retirement plan that convinced millions of Americans they didn’t need to save for their own retirement. It is $17.5 trillion in the hole because life expectancy is now 79 years old, politicians expanded coverage and refused to level with the American public for fear of losing elections.

The psychology of entitlement has grown over the decades as politicians made promises with borrowed money. They created Social Security, Medicaid, and Medicare to provide pension and healthcare to all senior citizens. They created Fannie Mae, Freddie Mac and Section 8 housing because everyone deserved to own a home. They created unemployment compensation, SNAP, and SSDI to sustain the disabled and down on their luck. Veterans are entitled to benefits as a result of their military service. These entitlements have become ingrained in our society. Charles Hugh Smith captured the essence of our entitlement mindset in a recent article:

“The entitlement mindset is thus firmly established in the American psyche. If we experience bad luck and/or the negative consequences of poor choices, we have been trained to expect the government at some level to alleviate our suffering, cut us a check or otherwise address our difficulties. The poisonous problem with the entitlement mindset is intrinsic to human nature: once we “deserve” something, then our minds fill with resentment and greed, and we focus obsessively on creating multiple rationalizations for why we deserve our fair share.”

The ability to tax and print trillions of dollars has enabled politicians to convince Americans they don’t need to save for their own retirement, they don’t need to worry about the cost of their healthcare, they don’t need to educate themselves, and they don’t need to help their neighbors because the government will do it for them. Once the entitlement mindset became ingrained in our society, self reliance, the ability to adapt to adverse circumstances, charitable acts, and taking responsibility for your own health and welfare rapidly declined among the populace. Government programs have been sold to the American people as acts of compassion for the less fortunate. Instead they have become a bureaucratic nightmare, creating dependence and a permanent underclass with no incentive, ability or desire to raise themselves up.

Human weakness and failings have also led to an over-class that have done far more damage to the country than those in society dependent on the state for their subsistence. The best description of this country at this point in history is a Warfare-Welfare-Corporatocracy. Since World War II the undue influence of the military industrial complex has led to almost constant conflict and foreign interventionism on a grand scale never matched in world history. President Eisenhower’s warning went unheeded:

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”

The people of this country have traded liberty and freedom for the appearance of safety and security by allowing the corporate military establishment and their bought political cronies to use fear and phantom threats to convince the non-critical thinking masses to beg for protection. The Cold War was replaced by the War on Terror, while the truth is that we keep our troops in the Middle East to protect “our” oil under “their” sand. Attempting to maintain an empire through troops garrisoned in countries across the globe, patrolling the seas with our navies, buying the “friendship” of dictators, and saber rattling or invading countries we don’t like is a folly that has brought down many empires before ours.

The most decisive factor in the disastrous financial predicament we are experiencing today is the tsunami of Wall Street greed and avarice that was unleashed upon the nation starting in 1971 with Nixon closing the gold window and allowing the Federal Reserve to “manage” the currency with no hindrances like gold to keep them from going too far. Prior to the 1980’s Wall Street investment banks were partnerships. If a partner took an extreme risk he would endanger the personal assets of all the partners. This insured prudent lending practices. Once they became corporations the risk was passed to shareholders and as we’ve recently found out – taxpayers, while bank executives could reap obscene compensation by taking world shattering risks. The repeal of the Glass Steagall Act in 1999 and the obstruction in regulating the derivatives market by Alan Greenspan and Larry Summers created the playing field that allowed Wall Street go on a drunken rampage, pushing the worldwide financial system to the point of collapse in 2008.

What Happens Next?

“I felt like I could see everything that happened, and everything that is going to happen. It was like a perfect pattern, laid out in front of me. And I realized we’re all part of it, and all trapped by it. With so much chaos, someone will do something stupid. And when they do, things will turn nasty.” – Inspector Finch – V for Vendetta

The chart above explains why anger and rage are beginning to bubble to the surface in cities across the country. It is clear there are no simple explanations or one answer to why the country is facing such calamitous circumstances. Essentially, human failings that have existed for all eternity have conspired to drain the vitality, risk taking, self reliance, personal responsibility and common sense from a once great nation. We know the uneducated, unmotivated lower classes, after decades of being kept down through our entitlement system, are unable and unwilling to do anything about their situation, as long as the entitlements keep flowing. It is the richest .01% that has accumulated the wealth, power and undue influence over the management of country. Either through inheritance, intelligence, connections, hard work, or luck, a few hundred thousand individuals out of 310 million people control the system. Immense wealth in the hands of the few has created a system where the few control the media, politicians, banking system, and mega-corporations that dominate our economy. Their human weaknesses include being egomaniacal power hungry materialistic greedy men who will stop at nothing to retain and increase their vast wealth. They have succeeded beyond their wildest dreams in pillaging the wealth of the middle class. But, they’ve gone too far.

They’ve manipulated the tax code in their favor. They make up most of the Senate, House and Judiciary. They own the mainstream media outlets. They are the masters of the universe on Wall Street. They run the mega-corporations that have shipped American jobs overseas. They pay millions to have the laws and regulations written for their benefit. They created the social welfare system, the public education system, and the healthcare system that keeps a vast swath of the population impoverished, ignorant and dependent upon the mutant organism that enriches the few. They’ve convinced the bulk of non-critical thinking Americans that the government can create jobs and make their lives safe and secure. This is the point where critical thinking Americans need to honestly answer a few questions to decide what happens next.

Did Social Security make our retirements more secure? Did the Department of Education make our children smarter? Did the Department of Energy reduce our dependence on foreign oil? Would there be more or less than 160,000 structurally deficient bridges in the U.S. without the Department of Transportation? Does paying unemployment compensation for 99 weeks increase employment or create jobs? Did Medicare and Medicaid make people healthier and reduce healthcare costs? Has putting our faith in mega-corporations for health insurance, drugs and job creation benefitted middle class workers? Has the War on Terror made the average American safer? Did the War on Drugs reduce the usage and availability of illegal drugs? Did passing more laws lead to a more law abiding society? Does incarcerating more criminals in more prisons reduce crime? Does a 60,000 page IRS tax code result in more taxes being collected? Has issuing more debt to solve a debt induced crisis resulted in a stronger financial system? Does the Republican or Democratic parties have your best interests at heart? Does it matter who is elected President in 2012?

There are solutions to the issues facing our country but they all would result in painful choices, tremendous sacrifice, a willingness to rebalance our economy and lives, and the loss of vast stores of wealth by the top .01% richest Americans. The steps needed would be:

A nationalization of the Too Big To Fail banks with the required losses inflicted upon shareholders, bondholders and executives.
Re-institution of mark to market accounting rules requiring companies to truthfully report the losses on their loan portfolios.
The re-institution of Glass-Steagall to insure that no bank could become too big to fail.
Instituting a transparent regulated derivatives market that would insure that no single entity could threaten to crash the worldwide financial system.
Scrapping the existing individual personal income tax and replacing it with a flat, fair and/or consumption tax would take away the power of politicians.
The elimination of all corporate tax breaks so that multi-billion dollar conglomerates could not get away with paying no corporate taxes (GE).
The withdrawal of thousands of U.S. troops from across the globe and a dramatic decrease in military spending would be a voluntary reduction in our empire.
A renegotiation of the social contract with changes in eligibility based on age and financial means is the only way to retain a semblance of a social net to protect those who are truly needy. Otherwise the social welfare system will crash.
The population would need to accept a dramatic decrease in their standard of living as interest rates would need to be raised and saving would need to replace borrowing as our economic mantra.
Acceptance of the impact from peak oil would require a complete restructuring of our suburban sprawl existence with communities forced to become more locally self sufficient.
The political system would need to be overhauled with term limits and the elimination of corporate and special interest control over the election process.
The Federal Reserve would need to be constrained through the re-introduction of gold and/or a basket of hard currencies as a check on their ability to print money.

Sadly, we all know that none of these solutions would ever be willingly implemented by the existing ruling class. Anyone with an ounce of common sense can see the system is crumbling. The .01% went too far and stole too much. An unsustainable system will not be sustained. The debt load is too burdensome. The peasants are growing restless. Young people have occupied Wall Street. They are beginning to occupy other cities. 700 were arrested on the Brooklyn Bridge. Older people are joining the protests. There isn’t a cohesive message coming from the protestors other than the system is rigged in favor of the top .01%. Those who think they are in control are losing their grip. They see their power and wealth slipping away. They’ve had their way for decades and will not willingly submit to a change in the existing social order. Last night Jim Cramer voiced the concerns of the .01% by saying the Occupy Wall Street protests were worrisome. They are worrisome to the moneyed interests. They are a reason for hope to the 99.9%. We are approaching our moment of truth. There is something terribly wrong with this country. A new American Revolution has begun. It is time to stop being afraid and take this country back. What happens next? The choice is ours.

While the truncheon may be used in lieu of conversation, words will always retain their power. Words offer the means to meaning, and for those who will listen, the enunciation of truth. And the truth is, there is something terribly wrong with this country, isn’t there? Cruelty and injustice, intolerance and oppression. And where once you had the freedom to object, to think and speak as you saw fit, you now have censors and systems of surveillance coercing your conformity and soliciting your submission. How did this happen? Who’s to blame? Well certainly there are those more responsible than others, and they will be held accountable, but again truth be told, if you’re looking for the guilty, you need only look into a mirror. I know why you did it. I know you were afraid. Who wouldn’t be? War, terror, disease. There were a myriad of problems which conspired to corrupt your reason and rob you of your common sense. Fear got the best of you, and in your panic you turned to….. – V’s speech to the British people in V for Vendetta

DO YOU BELIEVE? (Oldie but Goodie)

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

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

Man on the Moon – REM

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

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

Nothing Up Their Sleeve

Man on the Moon – REM

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

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

Click to enlarge

Source: Tyler Durden – Zero Hedge

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

Bank of America reported profits of $4.2 billion.

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

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

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

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

Click to Enlarge

Source: Tyler Durden – Zero Hedge

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

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

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

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

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

Stress Test Sham

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

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

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

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

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

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

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

Fraudulent Fed

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

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

To supervise and regulate banking institutions

To protect the credit rights of consumers

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

maximum employment

stable prices, including prevention of either inflation or deflation

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

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

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

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

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

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

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

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

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

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

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

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

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

Goofing on Elvis, Are We Losing Touch?

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

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

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

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

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

WHERE’S OUR OIL PRICE COLLAPSE?

Make no mistake about it, without plentiful, cheap, and easy to access oil, the United States of America would descend into chaos and collapse. The fantasies painted by “green” energy dreamers only serve to divert the attention of the non critical thinking masses from the fact our sprawling suburban hyper technological society would come to a grinding halt in a matter of days without the 18 to 19 million barrels per day needed to run this ridiculous reality show. Delusional Americans think the steaks, hot dogs and pomegranates in their grocery stores magically appear on the shelves, the thirty electronic gadgets that rule their lives are created out of thin air by elves and the gasoline they pump into their mammoth SUVs is their God given right. The situation was already critical in 2005 when the Hirsch Report concluded:

“The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.”

In the six years since this report there has been unprecedented oil price volatility as the world has reached the undulating plateau of peak cheap oil. The viable mitigation options on the demand and supply side were not pursued. The head in the sand hope for the best option was chosen. The government mandated options, ethanol and solar, have been absolute and utter disasters as billions of taxpayer dollars have been squandered and company after company goes bankrupt. The added benefit has been sky high corn prices, dwindling supplies and revolutions around the world due to soaring food prices. The last time the country went into recession in 2008, the price of oil plunged from $140 a barrel to $30 a barrel in the space of six months. I’d classify that as volatility. We’ve clearly entered a second recession in the last six months. So we should be getting the benefit of collapsing oil prices.

But, a funny thing happened on the way to another oil price collapse. It didn’t happen. WTI Crude is trading for $87 a barrel, up 23% since January 1. Unleaded gas prices are up 54% in the last year and 43% since January 1. Worldwide oil pricing is not based on WTI crude but Brent crude, selling for $113 per barrel, only down 10% from its April high of $125. The U.S. and Europe consume 40% of all the oil in the world on a daily basis. Multiple European countries have been in recession for the last nine months. The U.S. economy has been in free fall for six months.

Some short term factors will continue to support higher oil prices. The Chinese continue to fill their strategic petroleum reserve, Japan is still relying on diesel generators for electricity post-tsunami, and the Middle East is developing a love affair with the air conditioner. But, it’s the long term factors that will lead to much higher oil prices for myopic oblivious Americans.

John Hussman describes the situation on the ground today based upon six economic conditions presently in effect:

There are certainly a great number of opinions about the prospect of recession, but the evidence we observe at present has 100% sensitivity (these conditions have always been observed during or just prior to each U.S. recession) and 100% specificity (the only time we observe the full set of these conditions is during or just prior to U.S. recessions).

With 40% of the world in or near recession, how come oil prices are still so high and much higher than last year, when the economies in Europe and the U.S. were expanding? The number of vehicle miles driven in the U.S. is still below the level reached 43 months ago and at the same level as early 2005. The price of a barrel of oil in early 2005 was $42. The U.S. is using the same amount of oil, but the price is up 112%. It seems the U.S. isn’t calling the shots when it comes to the worldwide supply/demand equation.

It would probably be a surprise to most people that U.S. oil consumption today is at the same level it was in 1997 and is 10% lower than the peak reached in 2005. This is not a reflection of increased efficiency or Americans gravitating towards smaller vehicles with better mileage. Americans are still addicted to their SUVs and gas guzzling luxury automobiles. It’s a reflection of a U.S. economy that has been in a downward spiral since 2005.

1996	18,476.15	3.89 %
1997	18,774.07	1.61 %
1998	18,946.01	0.92 %
1999	19,603.83	3.47 %
2000	19,717.92	0.58 %
2001	19,772.60	0.28 %
2002	19,834.31	0.31 %
2003	20,144.82	1.57 %
2004	20,833.01	3.42 %
2005	20,924.36	0.44 %
2006	20,803.93	-0.58 %
2007	20,818.37	0.07 %
2008	19,563.33	-6.03 %
2009	18,810.01	-3.85 %

If the U.S. isn’t driving oil demand in the world, then why are prices going up? There are three main factors:

Dramatic increase in demand from China and other developing countries.
A plunging U.S. Dollar
Peak oil has arrived

Surging Developing World Demand

The Energy Information Administration issued their latest forecast and it does not bode well for lower prices:

Despite continued concerns over the pace of the global economic recovery, particularly in developed countries, the US Energy Information Administration expects worldwide oil consumption to increase this year and next spurred by demand in developing countries. US oil consumption, however, is forecast to contract from a year ago. Worldwide oil demand, led by China, will increase by 1.4 million b/d in 2011 to average 88.19 million b/d and by 1.6 million b/d in 2012, outpacing average global demand growth of 1.3 million b/d from 1998-2007, before the onset of the global economic downturn.

China is now consuming over 9 million barrels per day. This is up from an average of 7 million barrels per day in 2006. Platts, a global energy analyst, put China’s 2010 figures at 8.5 million barrels per day, up 11.43% from the previous year. The forecast for China’s crude throughput in 2011 is an average of 9.24 million barrels per day up 8.5% from 2010. In the first seven months of this year, total crude throughput stood at average of 8.95 million barrels per day.

Standard Chartered Bank predicts that, by the year 2020, China will overtake all of Europe as the second largest consumer of oil in the world, and should catch up to the U.S. by the year 2030 as China’s demand continues to rise while U.S. demand is expected to be flat. Chinese crude imports grew 17.5% in 2010 to 4.79 million barrels per day. China is importing 55% of its oil today versus 40% in 2004.

China’s oil consumption per capita has increased over 350% since the early 1980s to an estimated 2.7 barrels per year in 2011. Consumption per capita has risen nearly 100% in just the past decade. Oil consumption per capita in the U.S. currently ranks among the top industrialized nations in the world at 25 barrels per year. However, today’s consumption levels are approximately 20% lower than they were in 1979. The chart below paints a picture of woe for the United States and the world. China overtook the United States in auto sales in 2009. They now sell approximately 15 million new vehicles per year. India sells approximately 2 million new vehicles per year. The U.S. sells just over 12 million new vehicles per year. In China and India there are approximately 6 car owners per 100 people. In the U.S. there are 85 car owners per 100 people.

They call China, India and the rest of the developing world – Developing – because they will be rapidly expanding their consumption of goods, services and food. There will certainly be bumps along the way, as China is experiencing now, but the consumption of oil by the developing world will plow relentlessly higher. China isn’t the only emerging country to show big increases in per capita consumption. The growth in consumption for several other countries far outpaces China. Consumption per capita in Malaysia has nearly quadrupled since the mid-1960s. Consumption in Thailand and Brazil has more than doubled to roughly 5.7 barrels and 4.8 barrels per year, respectively.

Developed countries, especially those in Western Europe, have experienced substantial declines in oil consumption. Today’s per capita consumption in Sweden is roughly 12 barrels per year, down from 25 barrels per year in the mid-1970s. France, Japan, Norway and U.K. all use less oil on a per capita basis than they did in the 1970s. These countries have been able to drive down the consumption of oil by taxing gasoline at an excessive level.

Americans pay 43 cents in taxes out of the $3.70 they pay at the pump for a gallon of gasoline. A driver in the UK is paying $4 per gallon in taxes out of the $9 per gallon cost. Gasoline costs between $8 and $9 per gallon across Europe today. The extreme level of gas taxes certainly reduces car sizes, consumption and traffic. Too bad the mad socialists across Europe spent the taxes on expanding their welfare states and promising even more to their populations. Maybe a $6 per gallon tax will do the trick. Forcing Americans to drive less by doubling the gas tax is a quaint idea, but it is too late in the game. Europe is still made up of small towns and cities with the populations still fairly consolidated. Biking, walking and small rail travel is easy and feasible. The sprawling suburban enclaves that proliferate across the American countryside, dotted by thousands of malls and McMansion communities, accessible only by automobiles, make it impossible to implement a rational energy efficient model for moving forward. We cannot reverse 60 years of irrationality. Even without higher gas taxes, the price of gasoline will move relentlessly higher due to the stealth tax of currency debasement.

A Plunging US Dollar

The US dollar has fallen 15% versus a basket of worldwide currencies (DXY) since February 2009. This is amazing considering that 57% of the index weighting is the Euro. If you haven’t noticed, Europe is a basket case on the verge of economic disintegration. The US imports a net 9.4 million barrels of oil per day, or 49% of our daily consumption. Our largest suppliers are:

Canada – 2.6 million barrels per day
Mexico – 1.3 million barrels per day
Saudi Arabia – 1.1 million barrels per day
Nigeria – 1.0 million barrels per day
Venezuela – 1.0 million barrels per day
Russia – 600,000 barrels per day
Algeria – 500,000 barrels per day
Iraq – 400,000 barrels per day

These eight countries account for over 70% of our daily oil imports. You hear the “experts” on CNBC declare that our oil supply situation is secure because close to 60% of our daily usage is sourced from North America. The presumption is that Canada and Mexico are somehow under our control. There is one problem with this storyline. US oil production peaked in 1971 and relentlessly declines as M. King Hubbert predicted it would. Mexico will cease to be a supplier to the U.S. by 2015 as their Cantarell oil field is in collapse. Most of the oil supplied from Canada is from their tar sands. Expansion of these fields is difficult as it takes tremendous amounts of natural gas and water to extract the oil.

The rest of the countries on the list dislike us, hate us, or are in constant danger of implosion. When the Neo-Cons on Fox News try to convince you that Iraq has been a huge success and certainly worth the $3 trillion of national wealth expended, along with 4,500 dead and 32,000 wounded soldiers, you might want to keep in mind that Iraq was exporting 795,000 barrels of oil per day to the U.S. in 2001 when the evil dictator was in charge. Today, we are getting 415,000 barrels per day. Dick Cheney was never good at long term strategic planning.

We better plant more corn, as our supply situation is far from stable. Maybe we can install solar panels from Obama’s Solyndra factory on the roofs of the 65 Chevy Volts that were sold in the U.S. this year, to alleviate our oil supply problem. The reliability and stability of our oil supply takes second place to the price increases caused by Ben Bernanke and his printing press. The average American housewife driving her 1.5 children in her enormous two and a half ton Chevy Tahoe or gigantic Toyota Sequoia two miles to baseball practice doesn’t comprehend why it is costing her $100 to fill the 26 gallon tank. If she listens to the brain dead mainstream media pundits, she’ll conclude that Big Oil is to blame. The real reason is Big Finance in conspiracy with Big Government.

Ben Bernanke is responsible for Americans paying $4 a gallon for gasoline. Zero interest rates, printing money out of thin air to buy $2 trillion of mortgage and Treasury bonds, and propping up insolvent criminal banks across the globe have one purpose – to deflate the value of the U.S. dollar. The rulers of the American Empire realize they can never repay the debts they have accumulated. They have chosen to default through debasement. It’s an insidious and immoral method of defaulting on your obligations. Let’s look at from the perspective of our two biggest oil suppliers.

A barrel of oil cost $40 a barrel in early 2009. The U.S. dollar has declined 30% versus the Canadian dollar since early 2009. The U.S. dollar has shockingly declined 20% versus the Mexican Peso since early 2009. How could the mighty USD decline 20% against the currency of a 3rd world country on the verge of being a failed state? Ask Ben Bernanke. Our lenders can’t do much about the continuing debasement of our currency, but our oil suppliers can. They will raise the price of oil in proportion to our currency devaluation. Since Bernanke’s only solution is continuous debasement, the price of oil will relentlessly rise.

Peak Oil Has Arrived

“By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD. At present, investment in oil production is only beginning to pick up, with the result that production could reach a prolonged plateau. By 2030, the world will require production of 118 MBD, but energy producers may only be producing 100 MBD unless there are major changes in current investment and drilling capacity.” – 2010 Joint Operating Environment Report

We’ve arrived at the point where demand has begun to outpace supply and even the onset of another worldwide recession will not assuage this fact. World oil supply has peaked just below 89 million barrels per day. Supply has since fallen to 87.5 million barrels per day, as Libyan supply was completely removed from world markets. The International Energy Agency is already forecasting worldwide demand to reach 90 million barrels per day in the second half of 2011 and reach 92 million barrels per day in 2012. The IEA warns that “just at the time when demand is expected to recover, physical limits on production capacity could lead to another wave of price increases, in a cyclical pattern that is not new to the world oil market.”

The world is trapped in an inescapable conundrum. As supply dwindles, prices increase, causing global economies to contract, and temporarily causing a drop in prices, except the lows are higher each time. The drill, drill, drill ideologues do nothing but confuse and mislead the easily led masses. We have 2% of the world’s oil reserves and consume more than 20% of the daily output. We consume 7 billion barrels of oil per year.

Drilling for oil in the Arctic National Wildlife Refuge in Alaska and areas formerly off limits in the Outer Continental Shelf will not close the supply gap. The amount of recoverable oil in the Arctic coastal plain is estimated to be between 5.7 billion and 16 billion barrels. This could supply as little as a year’s worth of oil. And it will take 10 years to produce any oil from this supply. The OCS has only slightly more recoverable oil at an estimated 18 billion barrels and the BP Gulf Oil disaster showed how easy this oil is to access safely. The new over hyped energy savior is shale gas. The cheerleaders in the natural gas industry claim that we have four Saudi Arabias worth of natural gas in the U.S. This is nothing but PR talking points to convince the masses that we can easily adapt. The amount of shale gas that can be economically produced is far less than the amounts being touted by the industry. The wells deplete rapidly and the environmental damage has been well documented. And last but certainly not least, we have the abiotic oil believers that convince themselves the wells will refill despite the fact that there is not one instance of an oil well refilling once it is depleted.

I wrote an article called Peak Denial About Peak Oil exactly one year ago when gas was selling for $2.60 a gallon. I railed at the short sightedness of politicians and citizens alike for ignoring a calamitous crisis that was directly before their eyes. Just like our accumulation of $4 billion per day in debt, peak oil is simply a matter of math. We cannot take on ever increasing amounts of debt in order to live above our means without collapsing our economic system. We cannot expect to run our energy intensive world with a depleting energy source. There is no amount of spin and PR that can change the math. Un-payable levels of debt and dwindling supplies of oil will merge into a perfect storm over the next ten years to permanently change our world. The change will be traumatic, horrible, bloody and a complete surprise to the non-critical thinking public.

“In the longer run, unless we take serious steps to prepare for the day that we can no longer increase production of conventional oil, we are faced with the possibility of a major economic shock—and the political unrest that would ensue.” – Dr. James Schlesinger – former US Energy Secretary, 16th November 2005

We were warned. We failed to heed the warnings. If we had begun making the dramatic changes to our society 5 to 10 years ago, we may have been able to partially alleviate the pain and suffering ahead. Instead we spent our national treasure fighting Wars on Terror and bailing out criminal bankers. Converting truck and bus fleets to natural gas; expanding the use of safe nuclear power; utilizing wind, geothermal, and solar where economically feasible; buying more fuel efficient vehicles; and creating more localized communities supported by light rail with easy access to bike and walking options, would have allowed a more gradual shift to a less energy intensive society.

We’ve done nothing to prepare for the onset of peak oil. Until this foreseeable crisis hits with its full force like a Category 5 hurricane, Americans will continue to fill up their M1 tank sized, leased SUVs, tweet about Lady Gaga’s latest stunt, and tune in to this week’s episode of Jersey Shore. Meanwhile, economic stagnation, catastrophe and wars for oil are darkening the skies on our horizon.

“Dependence on imported oil, particularly from the Middle East, has become the elephant in the foreign policy living room, an overriding strategic consideration composed of a multitude of issues. …. Taken in whole, the National Energy Policy does not offer a compelling solution to the growing danger of foreign oil dependence. … Future military efforts to secure the oil supply pose tremendous challenges due to the number of potential crisis areas. ….. Economic stagnation or catastrophe lurk close at hand, to be triggered by another embargo, collapse of the Saudi monarchy, or civil disorder in any of a dozen nations.”– America’s Strategic Imperative A “Manhattan Project” for Energy