Ludwig von Mises – Page 3 – The Burning Platform

WHAT THE FED HAS WROUGHT

The chart below might be the most powerful indictment of the Federal Reserve and our corporate fascist empire of debt ever created. Some people don’t get charts. Charts tell a story. This chart tells the story of elitist bankers supporting the agenda of a corporate fascist state, resulting in the gutting of the middle class. Anyone who views this chart in a positive manner is either a Federal Reserve banker or their paycheck is dependent upon the continuation of the pillaging of the working class. Corporate profits are at all-time highs. Profit margins have always reverted to the mean throughout modern history. If they remain at all-time highs then something is terribly wrong.

“Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system and it is not functioning properly.” – Jeremy Grantham, Barron’s

Here is the story I see in that chart. Corporate profits as a percentage of GNP have averaged 6.5% over the last 67 years. As you can see, it is a volatile figure. Corporate profits rise during expansions and fall during recessions. That has been a given over time. The reason corporate profits have always reverted to the mean was due to the basic tenets of free market capitalism. When a company is generating outsized profits, that industry will then attract new competitors, resulting in price competition and lower profits. From 1950 through 1971, corporate profits as a percentage of GNP fluctuated in a narrow range between 5% and 7%. This was a reflection of a market driven by competition, a non-interventionist Federal Reserve, and a government not captured by corporate interests.

It is no coincidence since Nixon closed the gold window in 1971 and unleashed greedy bankers, feckless politicians, and self serving corporate executives to utilize easy money and prodigious amounts of debt to financialize our economic system and deform capitalism, corporate profits have boomed and busted. The Fed created booms and busts are clearly evident on the chart. Nixon toady Arthur Burns created an inflationary boom in corporate profits to 8% of GNP in the late 70’s followed by the collapse to 3% caused by Volcker having to raise rates to extreme levels to crush the Burns created runaway inflation.

You can see exactly when the Maestro assumed command at the Fed and proceeded to introduce the Greenspan Put, encouraging speculation, borrowing and mal-investment. His easy money boom led to the dot com bubble that doubled corporate profits from their 1987 low. Of course the profits vaporized in an instant and plunged to 4% of GNP in 2001. Greenspan and then Bernanke proceeded to drive interest rates to record lows creating a prodigious housing bubble resulting in the greatest level of mal-investment and financial fraud in world history. Corporate profits as a percentage of GNP skyrocketed from 4% to 10% in the space of six years. The banking cabal had captured the system.

The Fed orchestra kept the music playing and Wall Street kept dancing the rumba with their corporate CEO dates. The Keynesian acolytes were ecstatic. The Austrians warned of the impending bust. No one listened. The collapse of the worldwide financial system was portrayed by the corporate mainstream media, bankers like Dimon, corporate CEOs like Immelt, billionaires like Buffet, captured government bureaucrats like Paulson, and politicians like McCain and Obama, as a systematic risk that required a taxpayer rescue of criminals.

The $800 billion gift to bankers and mega-corporations by the Washington DC Party of captured politicians was chicken feed compared to the $3.5 trillion of newly printed fiat handed to Wall Street and corporate America by Bernanke and Yellen. Five years of 0% interest rates have impoverished senior citizens and savers, but they have done wonders for Wall Street and mega-corporation profits, along with executive bonuses. Corporate profits soared from 4.5% of GNP to an all-time high of 10.5% in the space of three years and have remained at this elevated level.

Who Needs Wage Earners Anyway?

Is it a coincidence that corporate profits as a percentage of GNP are at record highs while employee compensation as a percentage of GNP is at record lows? Is it a coincidence that employee compensation as a percentage of GNP peaked at 51% in 1971? That year certainly seems to be a turning point in U.S. economic history. Gold’s purpose as a check on statists, Keynesians, politicians, bankers, and the military industrial complex couldn’t be any clearer. The decline has multiple causes, but the storyline about technology being the major cause is patently false. My observations are as follows:

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From the end of World War II until the mid-1970s employee compensation as a percentage of GNP was consistently between 49% and 51%. The middle class saw their standard of living rise as wages outpaced inflation, savings rates were high and led to capital investment, debt was used for long term purchases like a home or automobile, and bankers accepted deposits and made safe loans. Technological progress over the thirty years was constant, but did not result in declining wages.
From the moment Nixon closed the gold window, employee compensation as percentage of GNP relentlessly declined for the next quarter of a century from 51% to 44%. Over this time frame our economy deformed from a goods producing system driven by savings and capital investment into a service/financial economy built upon consumer debt, conspicuous consumption and market gambling. Our iconic mega-corporations fired Americans and hired Chinese slave laborers, lobbied for tax breaks, invested in their own stock, kept wage increases below the level of true inflation, and paid extravagant compensation packages to their Harvard MBA executives.
The brief upturn created by Greenspan’s irrational exuberance 90’s boom was short lived. The relentless decline resumed after the dot com collapse, even as Greenspan and Bernanke blew their epic bubble. Their financial engineering machinations on behalf of Wall Street did nothing for the average worker on Main Street. Employee compensation as a percentage of GNP declined from 47% to 44% BEFORE the financial collapse.
Unequivocal proof that Bernanke’s sole purpose of QE and ZIRP was to benefit his Wall Street owners can be seen in the continued decline from 44% to 42% since 2008. There has been no recovery for the average American. Wall Street is rolling in dough. Corporate America is rolling in dough. Politicians are rolling in dough. The average American worker is rolling in dog shit.

The mouthpieces for the Deep State insist corporate profits have reached a permanently high plateau. It’s another new paradigm. Just like 1929, 1999, and 2007. Jeremy Grantham is right. The system is broken. The inmates are running the asylum. But financial engineering will not work permanently. Baijnath Ramraika and Prashant Trivedi in their outstanding article Why Jeremy Grantham is Right about Corporate Profit Margins prove that corporate gross margins have not grown, technological advancement has not been a major factor, innovation and capital investment are non-existent, and corporate CEOs have utilized one time schemes to boost profits.

There are a few major reasons for record corporate profits. The Fed’s gift to banks and mega-corporations of zero interest rates have allowed S&P 500 corporations to refinance their existing debt and take on new debt at below market interest rates. The average interest rate paid by S&P 500 companies is now at all-time lows. Any normalization of interest rates would crush corporate profits.

Even though you hear constant propaganda from the corporate MSM, corporate CEOs, and captured politicians about the dreadful level of corporate taxes, the truth is that mega-corporations are paying record low levels of actual taxes. When profits are at record highs and tax payments at record lows you know they have captured the system. “Creative” tax avoidance and the FASB allowing banks to mark their assets to fantasy have played an enormous role in record profits.

The short term oriented casino mentality of corporate CEOs can be plainly seen in the fact depreciation expense as a percentage of revenue is at 25 year lows, resulting in short term profits but long-term decline. Instead of investing in capital to increase efficiency or expand their business, greedy myopic CEOs have chosen to buy back their own stock at all-time high prices. They did the same thing in 2005 – 2007. Driving up quarterly earnings per share to boost their own stock option compensation is how it rolls in corporate America today. Investing in their workers through higher wages isn’t even a consideration. They don’t teach that in Ivy League MBA programs. SG&A expenses as a percentage of revenue have been driven to all time lows, as outsourcing, downsizing, and working people to death have done wonders for corporate profits.

Ramraika and Trivedi reach damning conclusions of corporate America, based on their detailed unbiased research:

As the world moved increasingly towards the idea of shareholder-value maximization, time horizons for management and the shareholders have shortened. As Montier shows, the average lifespan of a company in the S&P 500 in the 1970s was about 27 years and is down to about 15 years now. In tandem, the average tenure of CEOs is down from about 10 years in the 1970s to about 6 years now. Combine this with the incentive systems prevalent today (think stock options), and it is only logical that a CEO who is going to be around for as few as six years and is going to get a large chunk of her rewards in stock options will want to see higher stock prices.

Cutting SGA expenses and postponing capital investments — actions that carry positive short-term earnings impact at the expense of a business’ competitiveness in the long-term — look promising to managers whose payoffs depend on stock prices in the short-term. Not surprisingly, the renters (there are hardly any owners any more) clamor for just such actions. The problem with this thinking is that the long-term eventually shows up. And when it does, profit margins will have no choice but to remember their long forgotten tendency to revert to mean.

Are interest rates going to be driven lower for corporations? Are taxes going to be driven lower? How many more people can corporations fire? Have economic downturns been eliminated by the Federal Reserve? Will record profits not result in increased competition and price wars? Can wages be driven even lower?

The financial, economic and political system has been captured by corporate fascist psychopaths. The Federal Reserve has aided and abetted this takeover. Their monetary manipulations have resulted in this deformity. Psychopaths always go too far. The American middle class has been murdered. Decades of declining real wages have left them virtually penniless, in debt up to their eyeballs, angry, frustrated, and unable to jump start our moribund economy by buying more Chinese produced crap. Yellen, her Wall Street puppeteers, and the corporate titans should enjoy those record profits and record stock market highs. It won’t last. Short-term profits will be wiped out, as long-term consequences always arrive when you least expect it. The artificial boom will lead to a real depression. Luckily for the oligarchs, most middle class Americans are already experiencing a depression and won’t notice the difference.

“True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression.” – Ludwig von Mises

RX For Modern Monetary Madness: Mises Explained Sound Money 80 Years Ago

Via David Stockman’s Contra Corner

by Richard M. Ebeling • November 8, 2014

Eighty years ago, in the autumn of 1934, Ludwig von Mises’s The Theory of Money and Credit first appeared in English. It remains one of the most important books on money and inflation penned in the twentieth century, and even eight decades later, it still offers the clearest analysis and understanding of booms and busts, inflations, and depressions.

Mises insisted that the economic rollercoaster of the business cycle was not caused by any inherent weaknesses or contradictions within the free market capitalist system. Rather, inflationary booms followed by the bust of economic depression or recession had its origin in the control and mismanagement by governments of the monetary and banking system.

Money Emerges from Markets, Not Government

Building on Carl Menger’s earlier work, Mises demonstrated that money is not the creature or the creation of the State. Money is a market-based and market-generated social institution that spontaneously emerges out of the interactions of people attempting to overcome the hindrances and difficulties of direct barter exchange.

People discover that certain commodities possess combinations of useful qualities and characteristics that make them more marketable than others, and therefore more easily traded away for various goods that someone might wish to acquire in exchange with potential trading partners.

Historically, gold and silver were found through time to have those attributes most desirable for use as a medium of exchange to facilitate the ever-growing network of complex market transactions that enabled the development of an ever-more productive system of division of labor.

Money and the Savings-Investment Process

Money not only facilitates the exchange of goods and services in the present — currently-available apples for currently-available bananas — but also makes easier and possible the exchange and transfer of goods and their uses over and across time.

Willing investors can borrow from willing savers sums of money set aside out of earned income to then use to purchase and hire various quantities of productive resources — including capital equipment, workers for hire, and useful resources and raw materials — to employ them in production activities that will finally result in potentially marketable and profitable finished consumer goods at some point in the future.

Out of earned revenues from such sales, the investor pays back the borrowed savings with any agreed-upon interest payment, which reflects the time preference of the savers for having been willing to defer the use of a part of their own income for the period of time covered by the loan.

Under a commodity monetary system such as a market-based gold standard, there is a fairly close and closed connection between income earned and consumer spending, and savings set aside and savings borrowed for investment purposes.

Suppose that $1,000 represents the money income earned by people during a given period of time. And suppose that these income earners decide to spend $750 on desired consumer goods and to save the remaining $250 of their earned income.

That $250 of saved income can be lent out at interest to those wishing to undertake future-oriented investment projects. The real resources — capital, labor services, raw materials — that the $250 of purchasing power represents are transferred from the savers to the investors. The remaining real resources of the society represented by the $750 of buying power that income earners choose to spend in the present are directed to the manufacture and marketing of more immediately available consumer goods.

Thus, the scarce and valuable resources of the society are effectively coordinated between their two general uses — producing goods closer to the present (such as a currently existing oven being combined with labor and raw materials to bake the daily bread that people wish to consume), or being used to manufacture goods that will be available and of use at some point later in time (such as the production of new ovens to replace the existing ones that eventually wear out or to add to the number of existing ovens so bread production can be increased in the future).

Like all other prices on the market, the rates of interest on loans coordinate the choices of savers with the decisions of borrowers so to keep supplies in balance with demands for either consumer goods or future-oriented investment goods.

In principle, there is nothing to suggest that within the free market economy itself, there are forces likely to bring about imbalance or discoordination between the choices and decisions of those trading in the marketplace. This remains true either for consumer goods in the present, or for savings in the present in exchange for more and better goods in the future through informed and successful investment by profit-oriented entrepreneurs.

Central Banks as the Cause of the Business Cycle

But what Ludwig von Mises showed in The Theory of Money and Credit and then in even greater detail in his master work, Human Action, was how the harmony and coordination of the competitive, free market can be thrown out of balance through the monetary central planning of governments and central banks.

First under a weakened gold standard and then under systems of purely government-controlled paper monies, central banks have the ability to create the illusion that there is more savings available in the economy to sustain investment-oriented uses of scarce resources in the society than is actually the case.

For example, in the United States, the Federal Reserve has the authority and power to buy up government securities and other “assets” such as mortgaged-backed securities, and pay for them by creating money “out of thin air” that then adds to the loanable funds available to the banking system for lending purposes.

People may be still consuming and saving in the same proportions out of their earned income as they have in the past, but now financial institutions have artificially created bank credit to offer to potential borrowers, and at below what would otherwise be market-generated rates of interest to make investment borrowing more attractive to undertake.

To use our previous example, suppose that people are still spending $750 of their $1,000 of earn income on desired consumer goods and saving the remaining $250. But suppose that the central bank has increased available loanable funds in the banking system by an additional $250.

Investment borrowers, attracted by the lower rates of interest, borrow a total of $500 from banks — $250 of “real savings” and $250 of artificially created credit. They attempt to draw $500 worth of the society’s scarce and real resources into future-oriented investment activities that would not increase output in the economy until sometime later.

But income earners are still spending $750 of their originally earned income on desired consumer goods. This results in the limited and scarce capital, labor and raw materials in the society being “pulled” in two incompatible directions at once — into the manufacture of $750 worth of consumer goods and $500 worth of investment goods, when to begin with there were only $1,000 worth of such real and scarce means of production.

Price Inflation and Misdirection of Resources

This will inevitably tend to push up prices in general in the economy above where they would otherwise have been if not for the central bank’s expansion of the money supply in the initial form of new bank credit, as consumers and investors bid against each other to attract into their direction the goods and services they, respectively, are attempting to buy. Thus, such monetary manipulation always carries the seed of future price inflation within it.

At the same time, Mises argued, the fact that the newly created money first enters the economy through the banking system through investment loans brings about a malinvestment of capital and misallocation of labor and other resources as investment borrowers attempt to employ (as in our example) the equivalent of 50 percent of the society’s resources into future-oriented investment activities ($500), while income earners wish only to save the equivalent of 25 percent of their income ($250).

Even though price inflation will push up the dollar amount of money income earned, the unsustainable imbalance between savings and investment brought about by central bank monetary policy will be reflected in any discoordination between the percentage amount of income (and the real resources they represent) that people wish to set aside for purposes of savings and the amount of money investment borrowers attempt to undertake as a percentage of the real resources available in the society, due to central bank money creation.

Recession Correction Follows the Inflationary Misdirection

This misdirection of capital, labor and raw materials away from that allocation and use consistent with people’s actual decisions to consume and to save, means that every monetary-induced inflationary boom carries within it the seeds of an eventual and inescapable economic downturn.

Why? Because once the monetary expansion either slows down or is ended, interest rates will begin to more correctly reflect real available savings to sustain investments in the economy. At which point, it will start to be discovered that capital and labor have been drawn into investment uses and employments that cannot be completed or maintained in a, now, non-monetary inflationary environment.

An economic recession, therefore, is the discovery period of misallocations of scarce resources in the economy that requires a rebalancing and a recoordination of supplies and demands for a return to market- and competitively-determined harmony in the society’s economic activities for long-run growth, employment, and improved standards of living.

The current boom-bust cycle through which the U.S. and the world economy has been passing for over a decade now, has shown the real world application and logic of what Mises demonstrated in The Theory of Money and Credit decades ago, and why reading and learning from this true classic of monetary theory and policy still offers an invaluable guide for ending the business cycles of our own time.

This is a syndicated repost courtesy of Mises Daily : Mises Institute on Austrian Economics and Libertarianism. To view original, click here.

CRACK UP BOOM

Guest Post by Bill Bonner

The Return of the Worldwide Crack Up Boom

[A Daily Reckoning classique, originally broadcast on June 27, 2007…]

A kiss is still a kiss. A sigh is still a sigh…

And a bubble is still a bubble.

When a kiss is over, it’s over. When a bubble pops…well…that’s all she wrote! All kisses end – even the wettest “French” kisses. And so do all bubbles – even sloppy mega-bubbles of liquidity. This one will be no exception. But of course, it’s not the certainties that make life interesting… it’s the uncertainties – the known unknowns and the unknown unknowns, as Mr. Rumsfeld says. We are all born of woman and end up where all men born of women end up – dead. But that doesn’t mean we can’t have some fun between baptism and last rites.

You’ll remember we said that this worldwide financial bubble is both worldlier, and more financial than any in history.

…if you could really get rich by printing more currency, Zimbabweans would all be as rich as Midas…

And, for the moment, it is very much alive. So much alive that the media can hardly keep up with it. Forbes magazine, for example, tries to estimate the wealth of the world’s richest people. But the rich don’t typically give out their balance sheets, telephone numbers and home addresses. So, there’s a fair amount of guesswork in the calculations.

But when it came to guesstimating the net worth of Stephen Schwarzman, founder of Blackstone, the Forbes crew wandered off into fiction. They put his wealth at about $2 billion. Recent filings in connection with the new Blackstone IPO show he earned that much in a single year!

In this phase of the bubble, it is as if your neighbors were throwing a wild party – and you weren’t invited. You detest them…envy them…and want to join them, all at once. A very small part of the population is having a ball; everyone else is getting restless and wondering when the noise will stop.

We wish we knew. And we’ve given up guessing.

Meanwhile, the experts, commentarists, kibitzers and analysts are saying that there is a whole new phase of the giant bubble about to unfold; things could get a whole lot crazier. Even many of our respected colleagues are pointing to a text by the great Austrian economist, Ludwig von Mises, for a clue. What we have here, they say, is what Mises described as a “Crack-Up Boom.”

Before we go on, readers should be aware that the “Austrian school” of economics is probably the best theory about the way the world works. Like The Daily Reckoning, it is suspicious of efforts to control the natural workings of an economy, in general…and suspicious of central banking, in particular. The fact that it was a one-time “Austrian,” Alan Greenspan, who became the most celebrated central banker in history, only increases our suspicions. He was able to master central banking, we imagine, because he understood what it really is – a swindle.

What is a “Crack-Up Boom?” Von Mises explains:

“‘This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.’

“But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

“It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last.”

Mises is describing the lunatic phases of a classic inflationary cycle.

At first, no one can tell the difference between a real dollar – one that is earned, saved, invested or spent – and one that just came off the printing presses. They figure that the new dollar is as good as the old one. And then, prices rise…and people don’t know what to make of it. Later, they begin to catch on…and all Hell breaks loose.

You see, if you could really get rich by printing more currency, Zimbabweans would all be as rich as Midas, since the Mugabe government runs the presses night and day.

Von Mises died in 1973 – long before this boom really got going – let alone cracked up. He may have never heard of a hedge fund… or even a derivative, for that matter. A world money system without gold? He probably couldn’t have imagined it. People spending millions of dollars for a Warhol? Twenty million for a house in Mayfair? Chinese stocks at 40 times earnings? He would have chuckled in disbelief. He understood how national currency bubbles expand and how they pop, but he probably never would have imagined how insane things could get when you have a whole world monetary system in bubble mode.

He’d have recognized the beginning of this bubble…and he’d have recognized the end, but the middle…or the beginning of the end – that would have dumbfounded him. During his lifetime he saw a Crack Up Boom in Germany in the ’20s…and a few more here…but he never saw a worldwide Crack Up Boom.

No, dear reader, no one, anywhere, has ever seen a worldwide Crack Up Boom. We’re the first, ever. Pretty exciting, huh?

Bill Bonner
for The Daily Reckoning

WITHERING ON THE VINE

Whenever I see stories like the one below, I find myself focusing on the cultural and societal aspects, rather than what the writer was attempting to convey. The story captures the facts, but not the big picture of why this happened. It’s another sad story that has its roots in the delusion that debt financed spending equals wealth. The reason 30% of all the nurseries in the country have closed in the last five years is because they shouldn’t have been in existence in the first place. The demand for landscaping services in this country was falsely created by Ben Bernanke, Alan Greenspan and their printing presses. Greenspan’s interest rate policies created a false boom in housing. The false boom in housing led to a false boom in landscaping, renovations, decks, patios, appliances, and autos. Delusional Americans by the millions sucked the vaporous equity out of their houses and spent it on shit that made them feel richer. The took over $1.8 trillion out of their houses over 3 years and poured it into the economy, creating the illusion of true demand.

When the housing market crashed, the equity was vaporized, and homeowners were left with billions of debt and no cash. After the greatest housing boom in history, Americans are now left with near the lowest amount of equity in their homes in history. The boom started with Americans having in excess of 60% equity in their homes and today have less than 45% equity in their homes.

The demise of nurseries, Circuit City, Best Buy, millions of contractor jobs, and thousands of other small businesses can be directly blamed on the policies of the Federal Reserve. And now they are attempting the exact same medicine that created the misery in the first place. Their solution to a problem caused by excessively low interest rates and money printing has been to lower interest rates to zero and print money at hyper-speed. I just know it’ll work this time.

The story below glosses over the fact that the owners of this nursery made a choice to give their two daughters the weddings of a lifetime. It says this blew a hole in their budget. What is doesn’t say is that these people borrowed against their business to provide one day of extravagance for their daughters. How American of them. This is where the criminal actions of central bankers meets the stupidity, materialism and shallowness of the average American. If you can’t afford something, you don’t buy it. If you can’t afford an extravagant wedding without risking your livelihood, have a small affordable wedding. These people can blame their business failure on a struggling economy or circumstances beyond their control, but they made choices and are paying the price.

Until the people in this country come to their senses and realize that a debt financed lifestyle does not represent true wealth, we are destined to experience a depression for the ages. There will be thousands more small businesses that go under as the fake boom reaches its final bust stage.

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

Chesco nursery is among many that are withering

After 25 years, Dilworth Nursery has closed. Nationwide, so have up to 30% in the last five years, an expert said.

By Anthony R. Wood

Inquirer Staff Writer

The Dilworth Nursery in Oxford, PA is being auctioned off. (Photo by Tony Wood)

The landscape of the nursery business began changing – and most definitely not for the better – about five years ago, but Jackie and Rick Dilworth didn’t expect theirs to end like this.

On Saturday, they circulated among thousands of their possessions – patio furniture, wood cabinets, kitchen items, the inventory of plants – while the practiced voice of an auctioneer spoke faster than the speed of the typical human’s comprehension.

As the result of a conspiracy of circumstances – most notably the struggling economy – after 25 years, the 13-acre Dilworth Nursery in East Nottingham Township, deep in Chester County near downtown Oxford, is closed for good.

The property is for sale, and the Dilworths aren’t sure where they’ll wind up.

“We never anticipated we’d go out this way,” Jackie Dilworth, 51, said. But they also knew, she said, that given the state of the industry, they could not continue to operate their wholesale-retail nursery, which specialized in unusual plantings for public gardens, arboretums, and landscape contractors.

“The business is not going to come back in our lifetime,” she said.

It certainly won’t happen soon, said Charlie Hall, a horticulture professor at Texas A&M University and an expert on industry trends.

Although hard data aren’t yet available, Hall estimated up to 30 percent of nurseries nationwide had closed in the last five years.

In the 1970s, he said, the nursery business was growing at a 14 percent annual rate, but that had slipped precipitously by the end of the 1990s.

He said that today’s twentysomethings could help revive the nursery trade eventually, but that it could take 15 years.

“It’s been a tough stretch for the nursery businesses and landscaping in general,” said Emelie Swackhamer, horticulturist at the Penn State agricultural extension in Lehigh County. For example, Waterloo Gardens retail shop recently shuttered its landmark Main Line store in Devon.

“People were using the equity they paid into their homes to pay for landscaping,” said Gregg E. Robertson, president of the Pennsylvania Nursery and Landscape Association. “That equity isn’t available anymore.

“The nurseries have been particularly hard-hit.”

Still, Bucks, Chester, Delaware, and Montgomery Counties have about 1,000 remaining nurseries, he said, adding, “Horticulturally, it’s one of the richest areas of the country.”

Along with a housing slump that has weakened demand for nursery stock, the industry’s troubles are deeply rooted in demographics, the experts said.

More baby boomers are moving into condos and letting the condo associations do the work. And many of the boomers staying in their homes are losing their appetite for the larger plantings nurseries sell.

In some ways, Swackhamer said, this literally has become a harder business: People are putting more money into “hardscape” – patios, decks, even outdoor additions.

“I think people want that comfort,” she said.

The Dilworths evidently were in the vortex of the industry storm. “That’s the type of nursery that’s been going out of business because of the recession,” said Susan Barton, a University of Delaware horticulturist.

The Dilworths also confronted a problem common among family-run nurseries: a lack of successors. “There’s always issues with transferring the business,” Swackhamer said.

Three years ago, the Dilworths encountered a not-so-common financial issue. Their two daughters got married, and the weddings ripped a huge hole in the Dilworths’ budget. Eschewing a modern trend, they had picked up the entire tabs.

“We did it the old-fashioned way,” Jackie Dilworth said.

Neither their daughters nor sons-in-laws wanted to continue the business.

Thus, on Friday and Saturday, the possessions accumulated over a generation – from spreaders to Adirondack chairs to Barbie dolls – were offered by Petersheim & Longenecker Auction & Appraisal Co. A pair of snowshoes went for $40; a metal patio set, $115.

About 100 people showed up to pick over plantings that included dwarf pine, blue plume cypress, and forest pansy redbud.

One of those attending, John Wallace, said that although he was sorry to see the nursery go, he would be sorrier to lose his neighbors.

“They’re very good people,” he said, “hardworking people. We’ll miss them.”

ILLUSION OF RECOVERY – FEELINGS VERSUS FACTS

“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 the result of voluntary abandonment of further credit expansion, or later as the final and total catastrophe of the currency involved.” – Ludwig von Mises

The last week has offered an amusing display of the difference between the cheerleading corporate mainstream media, lying Wall Street shills and the critical thinking analysts like Zero Hedge, Mike Shedlock, Jesse, and John Hussman. What passes for journalism at CNBC and the rest of the mainstream print and TV media is beyond laughable. Their America is all about feelings. Are we confident? Are we bullish? Are we optimistic about the future? America has turned into a giant confidence game. The governing elite spend their time spinning stories about recovery and manipulating public opinion so people will feel good and spend money. Facts are inconvenient to their storyline. The truth is for suckers. They know what is best for us and will tell us what to do and when to do it.

The false storyline last week was the dramatic surge in new jobs. This fantastic news was utilized by the six banks that account for 80% of the stock market trading to propel the NASDAQ to an eleven year high and the Dow Jones to a four year high. The compliant corporate press did their part with blaring headlines of good cheer. The entire sham was designed to make Joe the Plumber pull out one of his 15 credit cards and buy a new 72 inch 3D HDTV for this weekend’s Super Bowl. When you watch a CNBC talking head interviewing a Wall Street shyster realize you have the 1% interviewing the .01% about how great things are.

What you most certainly did not hear from the MSM is that the NASDAQ is still down 42% from its 2000 high of 5,048. None of the brain dead twits on CNBC pointed out the S&P 500 is trading at the exact same level it reached on April 8, 1999. Twelve or thirteen years of zero or negative returns are meaningless when a story needs to be sold. On Friday the hyperbole utilized by the media mouthpieces was off the charts, leading to an all-out brawl between the critical thinking blogosphere and the non-thinking “professionals” spouting the government sanctioned propaganda. Accusations flew back and forth about who was misinterpreting the data. I found it hysterical that anyone would debate the accuracy of BLS (Bureau of Lies & Swindles) data.

The drones at this government propaganda agency relentlessly massage the data until they achieve a happy ending. They use a birth/death model to create jobs out of thin air, later adjusting those phantom jobs away in a press release on a Friday night. They create new categories of Americans to pretend they aren’t really unemployed. They use more models to make adjustments for seasonality. Then they make massive one-time adjustments for the Census. Essentially, you can conclude that anything the BLS reports on a monthly basis is a wild ass guess, massaged to present the most optimistic view of the world. The government preferred unemployment rate of 8.3% is a terrible joke and the MSM dutifully spouts this drivel to a zombie-like public. If the governing elite were to report the truth, the public would realize we are in the midst of a 2nd Great Depression.

The unemployment rate during the Great Depression reached 25%. Without the BLS “adjustments” the real unemployment rate in this country is 23%. Cheerleading and packaging the data in a way to mislead the public does not change the facts:

There are 242 million working age Americans. Only 142 million Americans are working. For the math challenged, such as CNBC analysts, that means 100 million working age Americans (41.5%) are not working. But don’t worry, the BLS says the unemployment rate is only 8.3%. Things are going so swimmingly well in this country the other 33.2% are kicking back enjoying the good life.
The labor force participation rate and employment to population ratio are at 30 year lows. The number of Americans supposedly not in the labor force is at an all-time record of 87.9 million. A corporate MSM pundit like Steve Liesman would explain this away as the Baby Boomers beginning to retire. Great storyline, but the facts prove that old timers are so desperate for cash they have dramatically increased their participation in the labor market.

The data being dished out by the government on a daily basis does not pass the smell test. The working age population since 2000 has grown by 30 million people. The number of people working has grown by only 4.7 million. A critical thinker would conclude the unemployment rate should be dramatically higher than the reported 8.3%. But the government falsely reports the labor force has only increased by 11.8 million in the last eleven years. They have the gall to report that 17.9 million Americans just decided to leave the workforce. The economy was booming in 2000. It sucks today. Don’t more people need jobs when times are tougher? The Boomers retiring storyline has already proven to be false. The fact that 46 million (15% of total population) people are on food stamps is a testament to the BLS lie. A look at history proves how badly the current figures reek to high heaven:

2000 to 2011 – Not in Labor Force increased by 17.9 million.
1990’s – Not in Labor Force increased by 5 million.
1980’s – Not in Labor Force increased by 1.7 million.

The Not in the Labor Force category is utilized to hide how bad the employment situation in this country really is. They conclude that 17 million out of 38 million Americans between the ages of 16 and 24 are not in the labor force. That is complete bullshit. From the time I turned 16, I worked. Everyone I knew worked. I worked through high school and college. It is a lie that 45% of these people don’t want a job. If you dig into their data, you realize the horrific state of employment in this country:

74% of 16 to 19 year olds are not employed
85% of black 16 to 19 year olds are not employed
31% of black 25 to 54 year old men are not employed
40% of 20 to 24 year olds are not employed
22% of 25 to 29 year old males are not employed
22% of 50 to 54 year old males are not employed
According to the BLS, 11% of men between 25 and 54 are not in the labor force

Not only is real unemployment at Depressionary levels, but those that do have jobs are falling further and further behind. Wages have gone up less than 2% in the last year and have been rising at an annual rate below 3% for the last four years. According to our friends at the BLS, inflation has risen 3% in the last year. This is almost as ludicrous as their unemployment rate. Anyone living in the real world, as opposed to the BLS model world, knows that inflation on the things we need to live has been rising in excess of 10%. It is a fact that if you measure CPI exactly as it was measured in 1980, at the outset of our great debt inflation, it exceeds 10% versus the fake 3% reported without question by the MSM to a non-thinking public. A poor schmuck making the median salary of $25,000 who gets a 2% raise thinks he has $500 more to spend when in reality he has lost $2,000 of purchasing power. Federal Reserve created inflation is an insidious hidden tax that destroys the 99%, while enriching the 1%.

Until Debt Do Us Part

“Insanity is doing the same thing, over and over again, but expecting different results.” – Albert Einstein

The recovery storyline being touted by the oligarchy of politicians, bankers and media is designed to make consumers feel better. This is a key part of their master plan. Any honest assessment of the financial disaster that struck in 2008 would conclude it was caused by too much debt peddled to too many people incapable of paying it back, too few banks having too much power, the Federal Reserve keeping interest rates too low for too long, and that same Federal Reserve doing too little regulating of the Too Big To Fail Wall Street mega-banks. I wonder what Albert Einstein would think about the “solutions” rolled out to fix our debt problem. Would he find it insane that total credit market debt has actually risen to an all-time high of $53.8 trillion, up $533 billion from the previous 2008 peak? Our leaders have added $6.1 trillion to our National Debt in the last four years, a mere 66% increase. This unprecedented level of borrowing certainly did not benefit the American people, as real GDP has risen by $96 billion, or 0.7%, over the last four years.

Would Einstein find it insane that the governing elite would encourage the 4 biggest banks, that were the main culprits in creating a worldwide financial collapse, to actually get bigger? The largest banks in the U.S. now control 72% of all the deposits in the country versus 68.5% in 2008. The Too Big To Fail are now Too Bigger To Fail. Rather than liquidating the bad debts, breaking up the insolvent banks, selling off the good assets to well run banks, firing the executives, and wiping out the shareholders & bondholders foolish enough to invest in these badly run casinos, the powers that be chose to protect their fellow .01% brethren and throw the 99% under the bus.

Ben Bernanke, in conjunction with Tim Geithner and his masters on Wall Street, implemented a zero interest rate policy designed to enrich the Wall Street banks, force investors into the stock market, and encourage Americans to borrow and spend like it was 2005 again. Rather than accepting that our economy has been warped for decades, with over-consumption utilizing debt as the driving force, and allowing a reset, the Federal Reserve insanely encouraging banks and consumers to do the same thing again. We do know Bernanke has stolen $450 billion of interest income going to savers and senior citizens and handed it to Jamie Dimon, Vikrim Pandit, Lloyd Blankfein and the rest of the Wall Street cabal. The “austerity is bad” storyline is pounded home on a daily basis by the politicians, corporate chieftains, Wall Street billionaires, and MSM pundits. The definition of austere is “practicing great self-denial”. Did you see the mob scenes on Black Friday? Americans are incapable of any self-denial, let alone great self-denial, and the masters of our country will not allow it to happen. One look at our GDP figures confirms the non-austerity occurring in this country. In 2007, prior to the collapse, consumer spending accounted for 69.7% of GDP. Today, consumer spending accounts for 71% of GDP, with investment accounting for 12.7% of GDP. In the good old days of 1979 prior to the epic debt bubble, when the financial industry do not run this country, consumer spending accounted for 62% of GDP and investment accounted for 19% of GDP. What an insane concept. You spend less than you make and save the difference. You then invest that money where you can get a reasonable return (.15% in a money market account is not exactly reasonable).

As Ludwig von Mises pointed out, a false boom created by credit expansion will ultimately collapse. We had the chance in 2008 – 2009 to voluntarily abandon the Wall Street induced credit expansion and allow our country to reset. The pain and misery would have been great, especially for the 1% who own most of the stocks, bonds and peddle the debt to the ignorant masses. As you can see in the chart below, the powers that be need debt per employed American to grow at an ever increasing rate to maintain their power and wealth. The miniscule reduction in debt from 2009 to 2011 was unacceptable. The governing powers will not be satisfied until von Mises’ final currency catastrophe is achieved.

Bernanke and his Wall Street puppet masters’ plan is actually quite simple. It’s essentially a confidence game. A confidence game (also known as a con, flim flam, gaffle, grift, hustle, scam, scheme, or swindle) is an attempt to defraud a group by gaining their confidence. The people who commit such tricks are often known as con men, con artists, or grifters. The con man often works with one or more accomplices called shills, who help manipulate the mark into accepting the con man’s plan. In a traditional confidence game, the mark is led to believe that he will be able to win money or some other prize by doing some task. The accomplices may pretend to be random strangers who have benefited from successfully performing the task. Bernanke and the 1% are the con men. They are attempting to defraud the 99% by convincing them their “solutions” will benefit them. The shills acting as accomplices are Wall Street bankers, bought off economists, politicians, journalists, and mainstream media pundits. You are the mark. The game has multiple facets but is based on more freely flowing low interest easy debt. The con man has reduced interest rates to zero at the behest of his puppet masters. The Wall Street accomplices offer enticing financing to the marks for big ticket items like automobiles, furniture and electronics. As the marks go further into debt, the Wall Street shills report record earnings ($26 billion from loan loss reserve accounting entries), consumer spending rises and GDP goes higher. The mainstream media accomplices dutifully report an improving economy. The government accomplices massage the employment and inflation data and declare a jobs recovery with no inflation. The marks are supposed to feel better about the future and spend even more borrowed money. This is what is considered a self-sustaining recovery by the psychopaths running this country.

All you have to do is open your daily paper to see the confidence game in full display. Last week the MSM reported another surge in automobile sales. Our beloved American automobile manufacturers are back baby!!! Automobile sales are now pacing above 14 million on an annual basis. This is up from the depths of the recession in 2009 when the annual rate was below 10 million. We’ve breached the Cash For Clunkers level and there is nowhere to go but up. The storyline is that Obama was right to save GM and Chrysler with your tax dollars. They are now making splendid vehicles (except for the exploding Chevy Volts) and employing millions of Americans. This is a true American comeback success story. Clint Eastwood should do a commercial about it.

There is one little problem with this storyline. It’s bullshit. Remember GMAC? You bailed them out when all their subprime auto and mortgage loans went bad in 2009. They have a brand new business plan. Change your name to Ally Bank and start making as many subprime auto loans as possible. You will be happy to know that according to Experian, 45% of all auto loans being made today are to subprime borrowers. What could possibly go wrong? In addition, the average loan term has grown to almost 6 years. Executives at Ally Financial said that subprime car lending had become “very attractive” because profit margins on the loans more than cover the cost of expected losses from borrowers who fail to repay what they owe. I’m sure they have everything completely under control. Gina Proia, a company spokeswoman, said the company places “greater emphasis on the higher end of the nonprime spectrum” and only lends to people who show they can pay. I can’t believe they are restricting their loans to only people who they think can pay. I’m surprised Obama isn’t condemning them for such restrictive loan terms. If you open your paper to the auto section you will see financing offers of $0 down-payment, and 0% interest for 7 years across the board on most models. But why buy, when you can lease a luxury automobile for $300 per month? It is simply amazing how many vehicles you can “sell” when “credit challenged” Americans can rent them for seven years. I wonder if this explains why I see dozens of $40,000 luxury autos parked in front of $25,000 dilapidated hovels during my daily commute through West Philadelphia. It also seems the Big Three are “selling” a few extra vehicles to their dealers in January as pointed out by Zero Hedge. No need to let a few facts get in the way of a feel good story.

Ford month-end inventory 86-day supply at end of Jan. (492k vehicles) vs 60-day supply (466k) as of Dec. 31
Chrysler had 83-day supply (349k units) end of Jan. vs 64-day (326k units) as of Dec. 31
GM month-end inventory 89-day supply (619k units) vs 67-day supply (583k) Dec. 31

The facts prove the issuance of billions in easy credit is creating the illusion of recovery. Non- revolving (auto & student loans) consumer credit outstanding is now at an all-time high of $1.7 trillion. Even with billions in bad debt write-offs since 2009 the amount outstanding has risen by $100 billion. Does this sound like austerity is gripping the nation? The Federal government is dishing out student loans like candy, as hundreds of thousands of students get worthless degrees from for-profit diploma mills like the University of Phoenix and its ilk. By keeping them occupied in school, the government is able to keep them in the Not in the Labor Force category. Not to be outdone, our friends at GE Capital, Wells Fargo and the other too big to fail entities have been doing their part on the revolving credit side of the scam. I’ve recently been seeing an ad by the largest U.S. furniture retailer, Ashley Furniture, offering 0% interest with no payments for 7 years. I don’t know about you, but my kids destroy a couch in less than 7 years. Wells Fargo Credit doesn’t seem too worried. A critical thinker might ask, how can Wells Fargo possibly make money offering these terms? But there is the rub. Ben Bernanke is loaning Wells Fargo money at 0% so they can perpetuate the confidence game. These insane bankers truly believe they can kick start this moribund debt saturated economy by issuing billions more in debt to people incapable of repaying them. Einstein would be amused.

The McKinsey Group put out a report a couple weeks ago analyzing the amount of American household debt and optimistically concluding that it could be back on a sustainable path by 2013. Mike Shedlock pointed out that sustainable is in the eye of the beholder. It seems the bright fellows at McKinsey haven’t grasped the concept of regression to the mean. First of all their analysis is flawed because real disposable personal income is actually declining and Ben Bernanke’s master scam is working and Americans are now adding to their household debt. The little blue line has turned upwards since they gathered their data. Secondly, as Mish so accurately points out, the sustainable level of household debt is really at the levels prior to the debt bubble that began in the early 1980s. That is a debt level of approximately 70% of disposable personal income, as opposed to the current level of 110%.

The implications of household debt levels regressing to their long-term mean would be catastrophic to the 1%. Their kingdom of debt would come crashing down. Their power and wealth would be swept away. This is why it is so vital for them to create the illusion of recovery. Their confidence game is built upon an ever increasing flow of credit expansion. It will not work. There is no avoiding the final collapse of a boom created solely by credit expansion. Those in power will never voluntarily relinquish their grand game of pillaging the wealth of the nation, so economic collapse will be the ultimate result. They will continue to use propaganda, printing presses, and half-truths to further their agenda. But those who examine the facts will come to a logical conclusion that we are being sold a great lie.

“Half the truth is often a great lie.” – Benjamin Franklin

KEYNESIAN SOLUTIONS – AFTER TOTAL FAILURE – TRY, TRY AGAIN

“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” – John Maynard Keynes – The Economic Consequences of the Peace

While Barack Obama vacations on Martha’s Vineyard this week he’ll be thinking about his grand vision to save America – again. There is one thing you can say about Obama – he’s predictable. He promises to unveil his “new” plan for America in early September. The White House said Obama will give a speech after the September 5 Labor Day holiday to outline measures to boost hiring and find budget savings that surpass the $1.5 trillion goal of a new congressional deficit-cutting committee. It is heartening to see that Barack has turned into a cost cutter extraordinaire. He should be an inspiration to the Tea Party, except for one little problem. The plan he unveils in a few weeks will increase spending now and fret about spending cuts at some future unspecified date.

I can reveal his plan today because the White House has already leaked the major aspects of his plan. He will call for an extension of the Social Security payroll tax cut of 2% for all working Americans. This was supposed to give a dramatic boost to GDP in 2011. Maybe it will work next time. He will demand that extended unemployment benefits be renewed. Somehow providing 99 weeks of unemployment benefits is supposed to create jobs. It’s done wonders thus far. He will propose some semblance of an infrastructure bank or tax cuts to spur infrastructure spending. It will include a proposal for training and education to help unemployed people switch careers. He will attempt to steal the thunder from the SUPER COMMITTEE of 12 by coming up with $2 trillion of budget savings by insisting the Lear jet flying rich fork over an extra $500 billion.

You may have noticed that followers of Keynesian dogma like Paul Krugman, Larry Summers, Brad Delong, Richard Koo, John Galbraith, every Democrat in Congress, and every liberal pundit and columnist have been shrieking about the Tea Party terrorists and their ghastly budget cuts that are destroying our economy. They contend the stock market is tanking and the economy is heading into recession due to the brutal austerity measures being imposed by the extremists in the Republican Party. There is just one small issue with their argument. It is completely false. It is a bold faced lie. This is 2011. The economy has been in freefall since January 1. No spending cuts have occurred. Nada!!! As the CBO chart below reveals, the horrendous slashing of government will amount to $21 billion in 2012 and $42 billion in 2013. Of course, those aren’t even cuts in spending. They are reductions in the projected increases in spending. Politicians must be very secure in the knowledge that Americans are completely ignorant when it comes to anything other than the details of Kim Kardashian’s wedding and who Snooki is banging on Jersey Shore.

I’d like to remind the Harvard educated Keynesian economists that Federal government spending is currently chiming in at $3.8 trillion per year. Federal spending was $2.7 trillion in 2007 and $3.0 trillion in 2008. Keynesians believe government spending fills the gap when private companies are contracting. Obama has taken Keynesianism to a new level. Federal spending will total $10.8 trillion in Obama’s 1^st three years, versus $8.4 trillion in the previous three years. Even a Harvard economist can figure out this is a 29% increase in Federal spending. What has it accomplished? We are back in recession, unemployment is rising, forty six million Americans are on food stamps, food and energy prices are soaring, and the middle class is being annihilated. The standard Keynesian response is we would have lost 3 million more jobs, we were saved from a 2^nd Great Depression and the stimulus was too little. It would have worked if it had just been twice as large.

The 2^nd Great Depression was not avoided, it was delayed. Our two decade long delusional credit boom could have been voluntarily abandoned in 2008. The banks at fault could have been liquidated in an orderly bankruptcy with stockholders and bondholders accepting the consequences of their foolishness. Unemployment would have soared to 12%, GDP would have collapsed, and the stock market would have fallen to 5,000. The bad debt would have been flushed from the system. Instead our Wall Street beholden leaders chose to save their banker friends, cover-up the bad debt, shift private debt to taxpayer debt, print trillions of new dollars in an effort to inflate away the debt, and implemented every wacky Keynesian stimulus idea Larry Summers could dream up. These strokes of genius have failed miserably. Bernanke, Paulson, Geithner and Obama have set in motion a series of events that will ultimately lead to a catastrophic currency collapse. We have entered the 2^nd phase of the Greater Depression and there are no monetary or fiscal bullets left in the gun. Further expansion of debt will lead to a hyperinflationary collapse as the remaining confidence in the U.S. dollar is exhausted. We are one failed Treasury auction away from a currency crisis.

John Maynard Keynes argued the solution to the Great Depression was to stimulate the economy through some combination of two approaches: a reduction in interest rates and government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.

It sounds so good in theory, but it didn’t work in the Depression and it hasn’t worked today. It is a doctrine taught in every business school in America with no actual results to support it. Who needs facts and actual results when a good story believed and perpetuated by non-thinking pundits will do? Every Keynesian play in the playbook has been used since 2008. The American people were told by Obama and his Keynesian trained advisors that if we implemented his $862 billion shovel ready stimulus package, unemployment would peak at 7.9% and would decline to 6.5% by today. The cascade of recovery was going to be jump started by a stimulus package that equaled 27% of the previous year’s entire spending. Obama’s complete package was implemented. The outcome was an eye opener. If you show a Keynesian this chart, their response would be: “Imagine how bad it would have been if we didn’t spend the $862 billion.”

John Maynard Obama got everything he asked for in January 2009. He had both houses in Congress and did not need to consult Republicans to pass his Keynesian $862 billion porkulus bill. It seems that $252 billion, or 29% of the package was nothing more than transfer payments. Of course, according to Keynesians, the $252 billion should have had a multiplier effect when it was handed out. I think they were right. Obama was able to multiply the number of people on food stamps in January 2009 from 32 million to the current tally of 45.8 million. The monthly food stamp transfer payment has gone from $3.6 billion to $6.1 billion. Keynesians should be thrilled by this success story.

Obama’s Keynesian dream bill included:

$1 billion for Amtrak, the federal railroad that hasn’t turned a profit in 40 years.
$2 billion for child-care subsidies.
$50 million for that great engine of job creation, the National Endowment for the Arts.
$400 million for global-warming research.
$2.4 billion for carbon-capture demonstration projects.
$650 million on top of the billions already doled out to pay for digital TV conversion coupons.
$8 billion for renewable energy funding.
$6 billion for mass transit that had a low or negative return on investment.
$600 million more for the federal government to buy new cars. Uncle Sam already spends $3 billion a year on its fleet of 600,000 vehicles.
Congress earmarked $7 billion for modernizing federal buildings and facilities.
The Smithsonian received $150 million.
The Department of Education got $66 billion, more than the entire Education Department spent a just 10 years ago. $6 billion of this subsidized university building projects.

Obama declared in December 2008 there were shovel ready projects across the land that would create immediate jobs. Too bad he didn’t tell the American public only $30 billion of the $862 billion mountain of pork was earmarked for highways and bridges. Obama declared his stimulus would create 3.5 million jobs, later changed to “create or save”. There were 144 million Americans employed in January 2009. Today, there are 139 million Americans employed. Obama gives the term “success story” a new meaning. The Keynesians had their chance and now they want a do-over. Sorry, that isn’t how it works in the real world. As Speaker Nancy Pelosi put it, “We won the election. We wrote the bill.” No truer words have ever been spoken.

As we know, that was only the beginning of our Keynesian debt nightmare. Let’s do some critical thinking and assess the results of Obama’s other Keynesian solutions:

The Homebuyer Tax Credit cost taxpayers $27 billion or $43,000 per additional house sold. The Keynesians handed 3.9 million people $7,000 to do something they were going to do anyway. They lured first time home buyers into the market. Since the credit expired, median home prices have fallen $15,000 and continue to fall. This wonderful government program has created more underwater homeowners and did nothing to stabilize the housing market or home prices.
Cash for Clunkers cost taxpayers $3 billion. An incremental 125,000 cars were sold at a cost of $24,000 per car. This Keynesian dream program lured more people into debt and warped the used car market by destroying used cars and driving up prices for poor people who couldn’t afford a new car. There were no carryover benefits except for government controlled union car makers.
Obama’s HAMP program allocated $11 billion to supposedly allow 4 million homeowners to modify their mortgages, reduce their monthly mortgage payments and avoid foreclosure. HAMP has proven a colossal failure that has done more to harm than help debt-laden homeowners. It has achieved slightly more than 500,000 permanent modifications, 40% of which the Treasury expects to default. Far more borrowers have dropped out of the program than successfully achieved permanent loan modification. These borrowers, along with those who later default, will often be left with larger outstanding debt, worse credit scores, and less home equity.
Obama even handed $30 billion to the largest homebuilder corporations in the country, run by billionaires like Bob Toll, by allowing them to carry back their losses and wipe out tax liabilities in prior years. This did wonders for the housing market. It did stimulate bonus payments for the CEOs of these companies.
Billions of tax revenue was lost by handing out $1,500 tax credits for people to buy new windows, doors, and appliances they were going to buy anyway. We are still waiting for that multiplier effect.

The usual suspects are now declaring that we can’t make the same mistakes FDR made in 1937 resulting in a dramatic downturn in 1938. As usual, the Keynesian storyline about the Great Depression is false.

Depression Keynesian Fallacy

One thing to remember is that while the depression that started in 1929 may have come to a bottom in 1933, it took a long time to recover. There was a cyclical recovery in 1937, and why was that? Roosevelt had the good luck to have been elected dead flat at the bottom. So it wasn’t his policies that cured the last depression, it was luck and good timing, combined with the fact that they were creating a lot of money after Roosevelt took the dollar off the gold standard. That resulted in a false recovery, from 1933 to 1937, and it went downhill again. – Doug Casey

Keynes′ theory suggested that active government policy could be effective in managing the economy. Rather than seeing unbalanced government budgets as wrong, Keynes advocated what has been called countercyclical fiscal policies, that is, policies that acted against the tide of the business cycle: deficit spending when a nation’s economy suffers from recession or when recovery is long-delayed and unemployment is persistently high—and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays. He argued that governments should solve problems in the short run rather than waiting for market forces to do it in the long run. Keynes had too much faith in the wisdom of politicians and Federal Reserve bankers. They mastered the art of deficit spending, but fell a little short on paying off the debts during boom times. About $14.6 trillion short so far.

The Great Depression had the same origins as our current Greater Depression. The three Republican administrations of the 1920s practiced laissez-faire economics, starting by cutting top tax rates from 77% to 25% by 1925. Non-intervention into business and banking became government policy. These policies led to overconfidence on the part of investors and a classic credit-induced speculative boom. Gambling in the markets by the wealthy increased. While the haves got richer, millions of have-nots lived below the household poverty line of $2,000 per year. The rip roaring party came to an abrupt end in October 1929, with the Great Stock Market Crash.

Between 1929 and 1932, the market fell 89% from its high. The Keynesian storyline is that Herbert Hoover’s administration did nothing to try and revive the economy. It took Franklin Delano Roosevelt and his New Deal Keynesian policies to save the country. It’s a nice story, but entirely phony. Between 1929 and 1933 the Hoover administration increased real per-capita federal expenditures by 88%, not exactly the austerity measures described in fantasy stories concocted by the mainstream media.

Bureau of Economic Analysis National Income and Product Accounts Table

Table 1.1.6A. Real Gross Domestic Product, Chained (1937) Dollars [Billions of chained (1937) dollars]
	1929	1930	1931	1932	1933	1934	1935	1936	1937	1938	1939
Gross domestic product	87.3	79.8	74.6	64.9	64.0	71.0	77.3	87.4	91.9	88.7	95.9
Personal consumption expenditures	63.1	59.7	57.8	52.6	51.5	55.1	58.5	64.5	66.8	65.8	69.4
Gross private domestic investment	12.2	8.1	5.1	1.5	2.3	4.1	7.6	9.7	12.2	8.0	10.3
Net exports of goods and services	0.8	0.4	0.2	0.0	-0.1	0.2	-0.5	-0.3	0.1	0.9	1.0
Government consumption expenditures and gross investment	9.2	10.2	10.6	10.2	9.9	11.1	11.5	13.4	12.8	13.8	15.0

The Great Depression officially lasted from 1929 until 1940. What is not well known is that real GDP was at the same level in 1936 as it had been in 1929. In no small part because real GDP soared by 37% between 1933 and 1936. The unemployment rate in 1929 was 5%. In 1936, even after real GDP had recovered to pre-depression levels, the unemployment rate was still 15%. It spiked back to 18% in 1938 and stayed above 15% until World War II. Tellingly, in 1936, private domestic investment was 21% below the level of 1929.

By contrast, government expenditures surged by 46% between 1929 and 1936. With the government creating new agencies and employing people in make-work projects, private industry was crowded out. The extensive governmental economic planning and intervention that began during the Hoover administration swelled drastically under Roosevelt. The bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending on public works prolonged the Great Depression.

The facts powerfully contradict the notion endorsed by Krugman and other Keynesian devotees that the supposed 1937-38 Depression within the Great Depression was caused by Roosevelt slashing spending. In fact, real GDP only dropped by 3.5% in 1938 and rebounded by 8.1% in 1939. What actually collapsed in 1938 was private investment, which fell 34%. By contrast, government spending declined by only 4.5% in 1938, proving that Roosevelt did not drastically cut spending. To the extent that he eased up on the accelerator, it was by cutting back on useless jobs programs like those provided by the Works Progress Administration and the Public Works Administration. Austerity did not derail the recovery.

The reason private investment collapsed in 1938 was Roosevelt’s anti-business crusade. He denounced big business as the cause of the Depression. In March 1938, FDR appointed Yale University law professor Thurman Arnold to head the antitrust division of the Justice Department. Arnold soon hired some 300 lawyers to file antitrust lawsuits against businesses. Arnold launched cases against entire industries, with lawsuits against the milk, oil, tobacco, shoe machinery, tires, fertilizer, railroad, pharmaceuticals, school supplies, billboards, fire insurance, liquor, typewriter, and movie industries.

Paul Krugman’s recent veiled yearning for a war or staged crisis to revive the economy through spending to fight the war is another Keynesian fallacy perpetuated by the mainstream media. These mindless non-critical thinking talking heads actually believe World War II ended the Great Depression. Doug Casey obliterates their fantasy:

“People say that World War II cured the Depression, but in fact, it made it worse. As bad as things were in the ‘30s, they were worse during the war in the ‘40s. You couldn’t get shoes. You couldn’t get gasoline. You couldn’t get tires. You couldn’t get just about anything that was being used for the war. The war prolonged and deepened the Depression. The thing that ended the Depression was not the war but the fact that since people could not consume, they were forced to save. That delayed consumption resulted in a huge amount of savings, and that’s what caused the recovery in the late 1940s.”

The fact that the entire world was left in smoldering ruins after World War II, except for the United States, may have contributed slightly to our recovery from the Great Depression.

According to Murray Rothbard, in his book America’s Great Depression, the artificial meddling in the economy was a disaster prior to the Great Depression, and government efforts to prop up the economy after the crash of 1929 only made things far worse. Government intrusion delayed the market’s correction and made the road to complete recovery more difficult. Today’s myopic politicians, captured monetary authorities and Harvard trained Keynesian economists have learned the wrong lessons from the Great Depression. The upshot will be a second Greater Depression and further impoverishment of the dwindling middle class. The implications of more wasteful government stimulus programs, more quantitative easing and more debt are: further debasement of the currency and ultimately a hyperinflationary collapse. The great economist John Maynard Keynes understood currency debasement:

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

How to Cut Spending While Actually Increasing Spending

“Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.” – John Maynard Keynes – The Economic Consequences of the Peace

Obama’s plan to revive America will be announced with great fanfare in two weeks. We know for sure he will propose these two brilliant ideas:

Extending unemployment compensation again at a total 2012 cost of $65 billion. Because we know that paying people to not work creates millions of jobs. The multiplier effect is off the charts. Why work when you can watch The View and chow down on cheese doodles purchased with your SNAP card for 99 weeks?
Extending the payroll tax cut at a total 2012 cost of $100 billion. This was supposed to give a dramatic boost to the economy in FY11. Have you noticed any boost? A Keynesian will argue, “Imagine if we hadn’t done it.” A critical thinker might ask: Is it prudent to increase the unfunded Social Security liability by another $100 billion and hand the bill to future unborn generations, so we can buy a new IPod 2 today?

It is a certainty that Obama will announce an infrastructure bank or some variation to spur investment in our national infrastructure that is crumbling by the day. Top Keynesian, and architect of the Obama stimulus plan, Larry Summers has been blathering about this for months. Even though the first stimulus plan was sold as an infrastructure plan, they mean it this time. As usual, the storyline is false. You can’t drive anywhere in this country and not be inconvenienced by road widening, bridge building, and repaving projects. The Keynesians act like infrastructure projects are highly unusual and need new Federal dollars to jump start the engine. The fact is that every Federal, State and municipal government has a capital fund that is budgeted every year. Most of the projects have multiple year lead times. They require planning and coordination. The reason we have 160,000 structurally deficient or obsolete bridges and thousands of miles of crumbling underground pipes is because politicians decided to spend their budgets on something more useful like train museums, murals, turtle crossings, and studies on the mating habits of ferrets.

The country has lost approximately seven million jobs since 2007. Five million of the jobs were lost in sales industries and manufacturing industries. There are 139 million jobs in America today and only seven million, or 5% of all jobs, in the construction industry. How do Keynesians expect to revive the job market with an infrastructure bank that will benefit, at most, 5% of the U.S. workforce? Let me guess. They will propose billions of new spending on education so they can retrain sales clerks from Wal-Mart into architects for designing 160,000 new bridges.

Barack Obama will stand in front of the American people and lie. He is a born again cost cutter, who will propose new spending. As anyone with a calculator can figure out, the two guaranteed proposals from his upcoming speech will increase spending by $165 billion in 2012. If you go back to the handy dandy chart from the CBO showing the “horrific spending cuts” from the recent debt ceiling deal you will see these “cuts” total $122 billion between 2012 and 2014. Barack will wipe out all of the supposed savings through mid 2015 with his new Keynesian plan. But don’t worry. His plan will have huge spending cuts in 2017 after his hoped for 2^nd term is finished. Keynesians always promise to cut spending once their current emergency ends.

The Keynesians had their chance. They controlled the Presidency and both houses of Congress. A Keynesian runs the Federal Reserve. They implemented everything they proposed. The $862 billion porkulus program, the $700 billion TARP program, home buyer tax credits, energy efficiency credits, loan modification programs, zero interest rates, QE1 and QE2. They increased social welfare transfers for Social Security, Unemployment Compensation, food stamps, Medicare, Medicaid, and Veterans by $600 billion since 2007, a 35% increase in four years. No one has foiled their plans. The Tea Party didn’t really exist until 2010. They didn’t lose the House until November 2010. They cannot blame the Tea Party extremists, but they do.

The Keynesians have successfully increased Federal spending by $1.1 trillion, or 41% since 2007, and are running deficits exceeding 10% of GDP, but they call the Tea Party extremists. Domestic investment is still 9% below 2008 levels as the Federal government has crowded out the small businesses that create the jobs in this country. And now the Keynesians declare we need more stimulus, more programs, more debt, more quantitative easing and lower interest rates. It just wasn’t enough the first time. You have to give the Keynesians credit. Despite the utter absolute failure of every scheme they have implemented, they will worship their models and theories until they successfully collapse our economic system. Then they’ll blame the Tea Party terrorists who foiled their plans.

None of the Keynesian solutions worked during this crisis, just as they didn’t work during the Great Depression. The solution was simple, yet painful. The banking system needed to be saved, not the banks. The bad debt needed to be purged from the system. Wall Street criminals needed to be prosecuted. Bondholders and stockholders needed bear the losses from their foolish investments. Saving and investment in the country needed to be encouraged, while borrowing and consuming needed to be discouraged. Our leaders have failed to lead. The American people have failed to accept the consequences of their actions. And now we are going to pay a heavy price as Ludwig von Mises predicted:

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

THIS COUNTRY DEFAULTED LONG 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.” – Ludwig von Mises

The final collapse of our credit expansion boom approaches. We have a choice over the next week. We could voluntarily abandon further credit expansion by voting for a Balanced Budget Amendment to the Constitution or we can raise the debt ceiling, pretend to cut spending far in the future, and allow our currency system to experience a catastrophic final collapse.

We’ll take what’s behind door #2 Johnny. The vested interests in Washington DC and Wall Street only care about power and wealth. They will never abandon credit expansion. It’s their drug. They must have it. They are addicted to it. They will keep injecting it into our system until they overdose America.

The mainstream media acts as if not raising the debt ceiling by next Tuesday will result in America defaulting. This is a crock. America chose to proceed on a path to default decades ago. We are just finally reaching our destination. Below are the choices we made as a people and a country to default on our obligations and eventually destroy our country:

The enactment of the 16th Amendment to the Constitution in 1913 allowing the government to impose a tax on your income, thereby opening Pandora’s Box to a 60,000 page tax code and allowing politicians to sell their votes to the highest bidder.
The signing into law of the Federal Reserve Act by Woodrow Wilson in 1913, transferring control of our currency system to Wall Street banks. The man made inflation created by the Federal Reserve has reduced the purchasing power of the USD by 97% since 1913 and has allowed politicians to promise $100 trillion of benefits to Americans, that can never be delivered.
The Social Security Act signed into law by Franklin Delano Roosevelt in 1935, supposedly to help widows and orphans, morphed into a giant ponzi scheme used by politicians to make Americans think it was a retirement plan and the money was in a lockbox. The scam continues, but ponzi schemes always collapse.
Fannie Mae was created in 1938 as a government agency and Freddie Mac was created in 1970 as a quasi-government agency. By promoting home ownership and subsidizing loans to people who should have never gotten loans these agencies caused hundreds of billions in mal-investment. As tools of politicians, they were used to push social agendas. The result will be in excess of $300 billion in losses to the American taxpayer.
The Korean War set a precedent where the President did not need to seek Congress to declare war as required under the Constitution. This has allowed the President the freedom to fight undeclared wars around the world for decades, while spending trillions, with no approval from Congress.
LBJ’s Great Society programs such as Medicare and Medicaid were sold to Americans as cost saving programs that would improve healthcare for all Americans. We now spend 17% of our GDP on healthcare and these two programs have an unfunded liability of almost $100 trillion.

Nixon closing the gold window in 1971 removed all restraint on the Federal Reserve, banks and politicians. With a fiat currency backed by nothing but promises, it was only a matter of time before the greed and corruption of bankers and politicians overcame any self imposed fiscal responsibility. The result has been the National Debt going from $400 billion in 1971 to $14.4 trillion today, a 3,600% increase in 40 years. Meanwhile, GDP only increased 1,350% over this same time frame.
The embrace of consumer debt by the Baby Boom generation beginning in 1980 created an atmosphere of living for today and not worrying about the future. This attitude has left 50% of all the households in the country with a net worth of $70,000 or below.
The repeal of the Glass Steagall Act in 1999 unleashed the hounds of hell upon America, as the soulless blood sucking vampires on Wall Street proceeded to rape and pillage the American economy with their financial derivatives of mass destruction and marketing of debt to the clueless masses. The housing bust and impoverishment of the middle class can be laid at the feet of these evil greedy bastards.
Bush’s unpaid for wars of choice, his reckless tax cuts, and his foolish expansion of a bankrupt Medicare program in the midst of two wars turbo charged the country on its path to default.
By bailing out Wall Street on the backs of the middle class in 2008/2009, the politicians in this country showed their hand. They will protect their fellow power brokers and contributors and throw the American people under the bus. Wall Street controls Congress.
The Keynesian schemes rolled out by Obama and his minions have just added trillions of debt while depressing the economic system and doing nothing to help the average person. The Fed created inflation has inflamed revolution through out the world and further impoverished the middle class who need to eat and fill up their cars.
In the midst of a Depression Obama chose to create a brand new healthcare bureaucracy, add 30 million people into the government controlled system, and commit the US taxpayer to trillions of future healthcare costs.

As you can see, next Tuesday means nothing. The debt ceiling means nothing. We chose to default as a nation many years ago. The destination was certain, only the timing was in question. Time to step on the gas.

“Credit expansion is not a nostrum to make people happy. The boom it engenders must inevitably lead to a debacle and unhappiness.” – Ludwig von Mises