Tag: Obama

EXTEND & PRETEND IS WALL STREET’S FRIEND

“We now have an economy in which five banks control over 50 percent of the entire banking industry, four or five corporations own most of the mainstream media, and the top one percent of families hold a greater share of the nation’s wealth than any time since 1930.   This sort of concentration of wealth and power is a classic setup for the failure of a democratic republic and the stifling of organic economic growth.” – Jesse – http://jessescrossroadscafe.blogspot.com/

Source: Barry Ritholtz

“All of the old-timers knew that subprime mortgages were what we called neutron loans — they killed the people and left the houses.” – Louis S. Barnes, 58, a partner at Boulder West, a mortgage banking firm in Lafayette, Colo

The storyline that has been sold to the public by the Federal government, Wall Street, and the corporate mainstream media over the last two years is the economy is recovering and the banking system has recovered from its near death experience in 2008. Wall Street profits in 2009 & 2010 totaled approximately $80 billion. The stock market has risen almost 100% since the March 2009 lows. Wall Street CEOs were so impressed by this fantastic performance they dished out $43 billion in bonuses over the two year period to their thousands of Harvard MBA paper pushers. It is amazing that an industry that was effectively insolvent in October 2008 has made such a spectacular miraculous recovery. The truth is recovery is simple when you control the politicians and regulators, and own the organization that prints the money.

A systematic plan to create the illusion of stability and provide no-risk profits to the mega-Wall Street banks was implemented in early 2009 and continues today. The plan was developed by Ben Bernanke, Hank Paulson, Tim Geithner and the CEOs of the criminal Wall Street banking syndicate. The plan has been enabled by the FASB, SEC, IRS, FDIC and corrupt politicians in Washington D.C. This master plan has funneled hundreds of billions from taxpayers to the banks that created the greatest financial collapse in world history. The authorities had a choice. This country has bankruptcy laws. The criminally negligent Wall Street banks could have been liquidated in an orderly bankruptcy. Their good assets could have been sold off to banks that did not take their extreme greed based risks. Bond holders and stockholders would have been wiped out. Today, we would have a balanced banking system, with no Too Big To Fail institutions. Instead, the years of placing their cronies within governmental agencies and buying off politicians paid big dividends for Wall Street. Their return on investment has been fantastic.

The plan has been as follows:

  • In April 2009 the FASB caved in to pressure from the Federal Reserve, Treasury, and Wall Street to suspend mark to market rules, allowing the Wall Street banks to value their loans and derivatives as if they were worth 100% of their book value.
  • The Federal Reserve balance sheet consistently totaled about $900 billion until September 2008. By December 2008, the balance sheet had swollen to $2.2 trillion as the Federal Reserve bought $1.3 trillion of toxic assets from the Wall Street banks, paying 100 cents on the dollar for assets worth 50% of that value.

  • In November 2009 the Federal Reserve and IRS loosened the rules for restructuring commercial loans without triggering tax consequences. Banks were urged to extend loans on properties that had fallen 40% in value as if they were still worth 100% of the loan value.
  • By December 2008 the Federal Reserve had moved their discount rate to 0%. For the last two years, the Wall Street banks have been able to borrow from the Federal Reserve for free and earn a risk free return of 2%. The Federal Reserve has essentially handed billions of dollars to Wall Street.
  • When it became clear in October 2010 that after almost two years of unlimited liquidity being injected into the veins of zombie banks was failing, Ben Bernanke announced QE2. He has expanded the Fed balance sheet to $2.6 trillion by injecting $3.5 billion per day into the stock market by buying US Treasury bonds. Bernanke’s stated goal has been to pump up the stock market. While taking credit for driving stock prices higher, he denies any responsibility for the energy and food inflation that is spurring unrest around the world.
  • The Federal Reserve has increased the monetary base by $500 billion in the last three months in a desperate attempt to give the appearance of recovery to a floundering economy.

FRED Graph

  • Beginning on December 31, 2010, through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions.  The unlimited insurance coverage is available to all depositors, including consumers, businesses, and government entities. This unlimited insurance coverage is separate from, and in addition to, the insurance coverage provided to a depositor’s other deposit accounts held at an FDIC-insured institution.

When You’re Losing – Change the Rules

Wall Street banks had absolutely no problem with mark to market rules from 2000 through 2007, as the value of all their investments soared. These banks created products (subprime, no-doc, Alt-A mortgages) whose sole purpose was to encourage fraud. Their MBA geniuses created models that showed that if you packaged enough fraudulent loans together and paid Moody’s or S&P a big enough bribe, they magically became AAA products that could be sold to pension plans, municipalities, and insurance companies. These magnets of high finance were so consumed with greed they believed their own lies and loaded their balance sheets with the very toxic derivatives they were peddling to the clueless Europeans. They didn’t follow a basic rule. Don’t crap where you sleep. When the world came to its senses and realized that home prices weren’t really worth twice as much as they were in 2000, investment houses began to collapse like a house of cards. The AAA paper behind the plunging real estate wasn’t worth spit. After Lehman Brothers collapsed and AIG’s bets came up craps for the American people, the financial system rightly froze up.

After using fear and misinformation to ram through a $700 billion payoff to Goldman Sachs and their fellow Wall Street co-conspirators through Congress, it was time begin the game of extend and pretend. Market prices for the “assets” on the Wall Street banks’ books were only worth 30% of their original value. Obscuring the truth was now an absolute necessity for Wall Street. The Financial Accounting Standards Board already allowed banks to use models to value assets which did not have market data to base a valuation upon. The Federal Reserve and Treasury “convinced” the limp wristed accountants at the FASB to fold like a cheap suit. The FASB changed the rules so that when the market prices were not orderly, or where the bank was forced to sell the asset for regulatory purposes, or where the seller was close to bankruptcy, the bank could ignore the market price and make up one of its own. Essentially the banking syndicate got to have it both ways. It drew all the benefits of mark to market pricing when the markets were heading higher, and it was able to abandon mark to market pricing when markets went in the toilet. 

“Suspending mark-to-market accounting, in essence, suspends reality.” – Beth Brooke, global vice chair, at Ernst & Young

Wall Street desired all the billions of upside from creating new markets for new products. Their creativity knew no bounds as they crafted MBOs, MBSs, CDOs, CDSs, and then chopped them into tranches, selling them around the world with AAA stamps of approval from the soulless whore rating agencies. When the net result of a flawed system of toxic garbage paper was revealed, there was no room at the exits for the stampede of investment bankers. The toxic paper was on the banks’ books and no one wanted to admit the greed induced decision to purchase these highly risky, volatile “assets”. The trade had not gone bad, the ponzi scheme had unraveled. Suspending FASB 157 has been an attempt to hide this fraudulent business model from investors, regulators and the public. By hiding the true value of these assets, the financial system has never cleared. The banks remain in a zombie vegetative state, with the Federal Reserve providing the IV and the life support system.

Let’s Play Hide the Losses

Part two of the master cover-up plan has been the extending of commercial real estate loans and pretending that they will eventually be repaid. In late 2009 it was clear to the Federal Reserve and the Treasury that the $1.2 trillion in commercial loans maturing between 2010 and 2013 would cause thousands of bank failures if the existing regulations were enforced. The Treasury stepped to the plate first. New rules at the IRS weren’t directly related to banking, but allowed commercial loans that were part of investment pools known as Real Estate Mortgage Investment Conduits, or REMICs, to be refinanced without triggering tax penalties for investors.

 

The Federal Reserve, which is tasked with making sure banks loans are properly valued, instructed banks throughout the country to “extend and pretend” or “amend and pretend,” in which the bank gives a borrower more time to repay a loan. Banks were “encouraged” to modify loans to help cash strapped borrowers. The hope was that by amending the terms to enable the borrower to avoid a refinancing that would have been impossible, the lender would ultimately be able to collect the balance due on the loan. Ben and his boys also pushed banks to do “troubled debt restructurings.” Such restructurings involved modifying an existing loan by changing the terms or breaking the loan into pieces. Bank, thrift and credit-union regulators very quietly gave lenders flexibility in how they classified distressed commercial mortgages. Banks were able to slice distressed loans into performing and non-performing loans, and institutions were able to magically reduce the total reserves set aside for non-performing loans.

If a mall developer has 40% of their mall vacant and the cash flow from the mall is insufficient to service the loan, the bank would normally need to set aside reserves for the entire loan. Under the new guidelines they could carve the loan into two pieces, with 60% that is covered by cash flow as a good loan and the 40% without sufficient cash flow would be classified as non-performing. The truth is that billions in commercial loans are in distress right now because tenants are dropping like flies. Rather than writing down the loans, banks are extending the terms of the debt with more interest reserves included so they can continue to classify the loans as “performing.” The reality is that the values of the property behind these loans have fallen 43%. Banks are extending loans that they would never make now, because borrowers are already grossly upside-down.

Extending the length of a loan, changing the terms, and pretending that it will be repaid won’t generate real cash flow or keep the value of the property from declining. U.S. banks hold an estimated $156 billion of souring commercial real-estate loans, according to research firm Trepp LLC. About two-thirds of commercial real-estate loans maturing at banks from now through 2015 are underwater. Media shills proclaiming that the market is improving, doesn’t make it so. The chart below details the delinquency rates from 2007 through 2010 as reported by the Federal Reserve:

  Real estate loans Consumer loans
All Booked in domestic offices All Credit cards Other
Residential Commercial
2010 4th Qtr 9.01  9.94  7.97  3.71  4.17  3.10 
2010 3rd Qtr 9.77  10.90  8.69  4.03  4.60  3.39 
2010 2nd Qtr 10.02  11.32  8.74  4.25  5.07  3.37 
2010 1st Qtr 9.78  10.97  8.66  4.63  5.76  3.48 
2009 4th Qtr 9.48  10.29  8.74  4.64  6.36  3.48 
2009 3d Qtr 9.00  9.67  8.57  4.72  6.51  3.61 
2009 2nd Qtr 8.19  8.69  7.84  4.85  6.75  3.69 
2009 1st Qtr 7.19  7.89  6.55  4.62  6.50  3.52 
2008 4th Qtr 5.99  6.57  5.49  4.29  5.65  3.37 
2008 3rd Qtr 4.88  5.26  4.66  3.73  4.80  3.05 
2008 2nd Qtr 4.21  4.39  4.15  3.55  4.89  2.80 
2008 1st Qtr 3.56  3.70  3.50  3.48  4.76  2.76 
2007 4th Qtr 2.89  3.06  2.75  3.41  4.60  2.66 
2007 3rd Qtr 2.40  2.78  1.98  3.20  4.41  2.48 
2007 2nd Qtr 2.01  2.30  1.63  2.99  4.02  2.37 
2007 1st Qtr 1.77  2.03  1.43  2.93  3.97  2.29 

 

Delinquency rates on residential and commercial loans in early 2007 were in the range of 1.5% to 2.0%. Now the MSM pundits get excited over a decline from 8.7% to 8.0%. These figures show that even after trillions of Federal Reserve and Federal Government intervention, delinquencies remain four times higher than normal. In the real world, cash flow matters. Payment of interest and principal on a loan matters. Actual market values matter. According to Trepp, LLC, a data firm specializing in commercial data, non-performing commercial real estate loans makes up 72% of the $320 million in non-performing loans reported by banks in February. These figures are after the “extremely” relaxed definition of non-performing allowed by the Federal Reserve. The game is ongoing. Misinformation abounds. The SEC now issues press releases saying they are worried that banks are covering up losses, when they were involved in encouraging the banks to cover-up their losses. Last week the SEC announced they have become concerned that extend and pretend, along with another practice known as “troubled debt restructuring” that allows banks to break loans into pieces, may have been abused in order to diminish the volume of reserves banks are holding. What a shocking revelation. Who could have known?

Are You Smarter than a Wall Street CEO?

The Federal Reserve paid shills and Wall Street front men are out in droves declaring that TARP was a success and the banking system is recovering strongly. Columnists like Robert Samuelson declare  TARP was a great investment and will profit the taxpayer. Samuelson says that the Treasury has recouped $244 billion of the $245 billion it invested in banks and that, when it winds down its last investments, it likely will show a $20 billion profit from the banks. This type of propaganda is ludicrous, as Barry Ritholtz succinctly points out:

“No, we are not profitable on the bailouts. TARP has $123B to go before breakeven, and the GSEs are $133B in the hole. All told, the Taxpayers have a long way to go before we are breakeven. That’s before we count lost income from savings, bonds, etc., the increased costs of food stuff and energy due to inflation (the Fed’s has done this on purpose as part of their rescue plan), the higher fees the reduced competition of megabanks has created, and the future costs our Moral Hazard will have wrought in increased risks and disasters.” – Barry Ritholtz

Source: Barry Ritholtz

Fannie Mae and Freddie Mac have hundreds of billions in bad loans sitting on their balance sheets. Their total cost to taxpayers will reach $400 billion, and never be repaid. The Federal Reserve has over $1 trillion in toxic assets on its balance sheet, off loaded by the TARP recipient banks in 2009. The taxpayer will never be repaid for this toxic waste. The government is implementing the Big Lie theory. If you tell a big lie often and loud enough, the non-thinking masses will believe it. That leaves us with today’s fantasy world.

The reality on the ground does not match the rhetoric coming from the government, Wall Street and the corporate mainstream media. The truth is as follows:

  • The vacancy rate for office space in the U.S. is currently 16.5%.
  • The vacancy rate for industrial space in the U.S. is currently 14.2%.
  • The vacancy rate for retail space in the U.S. is currently 13%.
  • Delinquencies within collateralized debt obligations in commercial real estate loans rose to 14.6% in February. The increase signals a trend of higher delinquencies in the segment. Signs of pressure surfaced as early as January when the delinquency rate on CDOs within commercial real estate loans hovered well above 13%.
  • According to Moody’s, CRE prices are down 4.3% from a year ago and down about 43% from the peak in 2007.
  • The delinquency rate on loans packaged and sold in commercial mortgage-backed securities rose to a record 9.2% in February, according to a March 15 report by Moody’s.
  • Regional and local community banks have as much as 80% of their balance sheets tied up in commercial real estate, and very few other sources of significant fee income to offset CRE losses.
  • CRE once had an estimated national value of $6.5 trillion.  Today it stands at an optimistic $3.5 trillion.
  • There are 1.8 million homes seriously delinquent, in the foreclosure process or REO that are not currently listed for sale.
  • There are about 2 million current negative equity loans that are more than 50% “upside down”.
  • Home prices are off 31.3% from the peak. The Composite 20 is only 0.7% above the May 2009 post-bubble bottom and will probably be at a new post-bubble low soon.

In the face of this data, mouthpieces for the Federal Reserve go before Congress and try to paint an optimistic picture. “While we expect significant ongoing CRE-related problems, it appears that worst-case scenarios are becoming increasingly unlikely,” Patrick Parkinson, the Federal Reserve’s director of banking supervision and regulation, told Congress. Parkinson said that since the beginning of 2008 through the third quarter of 2010, commercial banks had incurred almost $80 billion of losses from commercial real estate exposures. Banks are estimated to have taken roughly 40% to 50% of losses they will incur over this business cycle, he said.

The Federal Reserve will be forced by the Federal Courts to reveal the banks they have saved from failure since 2008 by funneling billions of practically interest free tax payer dollars into their hands. The Fed is expected to release this week documents related to discount window lending from August 2007 to March 2010, including the peak month of October 2008, when loans hit $111 billion. It will be revealed they kept alive hundreds of banks that should have died. Shockingly, the supposedly taxpayer protecting Dodd-Frank law exempts past discount window lending from an audit by the Government Accountability Office, that’s examining much of the central bank’s other crisis-era programs. That champion of the little people, Barney Frank, said such disclosures might have “a negative market effect. If people saw the data the next day, they come to the conclusion that the bank must be in trouble.” Openness and transparency are evidently grey areas for Mr. Frank. Despite the non-disclosures, free Fed bucks, accounting fraud and uninterested regulators, over 300 banks managed to go out of business in the last two years, essentially bankrupting the FDIC. Have no fear. The Treasury gave the FDIC an unlimited line of credit with your money.

 

It is fascinating that every Friday afternoon the FDIC announces approximately three bank failures. Steady as she goes. No panic. Just a slow trickle of failure. But the reality is much worse than the show. Despite the gimmicks of extending and pretending, there are 900 banks essentially insolvent sitting on the FDIC “Problem” list. This is after closing the 300 banks. There are at least a couple hundred billion of losses in the pipeline, to be funded by the American people/Chinese lenders. A critical thinking American might ask, if things are getting better, why does the number of troubled banks continue to rise week after week, month after month?

One year ago the website www.businessinsider.com listed the 10 major regional banks with the highest risk from commercial real estate loans. These 10 banks had $133 billion of commercial real estate loans on their books. Most, if not all, are still in business today. The fact is those real estate loans are worth 30% to 50% less than they are being carried on the books. A true valuation of these loans would put all 10 of these banks out of business. They are dead banks walking. In a world where transparency, honesty, and true free markets reigned supreme, these banks would pay for their poor risk taking choices. They would be liquidated and their assets would be sold off to banks that did not make horrific lending decisions. Failures would fail.  

Bank CRE Loans (bil.) % of Tier 1 Capital
NY Community Bank $22.0 915%
Wintrust Financial Corp. $3.4 419%
M&T Bank $20.8 378%
Synovus $11.2 376%
Wilmington Trust $4.0 369%
Marshall & Iisley $13.8 283%
Zions Bancorporation $13.4 253%
Regions Financial $28.3 218%
UMB Bank $1.3 156%
Comerica $14.3 97%

 

How could anyone deny the world is back on track after examining the following chart?

 

It should warm your heart to know that Financial Profits have amazingly reached their pre-crash highs. All it took was the Federal Reserve taking $1.3 trillion of bad loans off their books, overstating the value of their remaining loans by 40%, borrowing money from the Fed at 0%, relying on the Bernanke Put so their trading operations could gamble without fear of losses, and lastly by pretending their future losses will be lower and relieving their loan loss reserves. The banking industry didn’t need to do any of that stodgy old school stuff like make loans to small businesses. Extending and pretending is much more profitable. 

The big four of JP Morgan, Citigroup, Bank of America, and Wells Fargo should have undergone orderly bankruptcy liquidation in 2008. They took on a vast amount of leverage and a vast amount of risk. Their greedy bets went bad. In a true capitalist system, they would have failed. Instead, in our crony capitalist system, they were bailed out by taxpayers and continue to function as zombie banks pretending to be healthy. They reported profits of $34.4 billion in 2010. Every dime of these profits was generated through accounting entries that relieved their provisions for loan losses. These “brilliant” CEOs who virtually destroyed the worldwide financial system in 2008, looked into their crystal balls and decided their loan losses in the future would be dramatically lower. I’ll take the other side of that bet. I dug into their SEC filings to get the information in the chart below. Just the fact that Citicorp and Bank of America have still not filed their 10K reports after 3 months tells a story.

Bank   Source CRE Mortgages Credit Card Total Loans Loss Reserve % of Loans
JP Morgan 12/31 10K $53,635 $174,211 $137,676 $692,927 $32,266 4.7%
Citicorp 9/30 10Q $79,281 $209,678 $216,759 $654,311 $43,674 6.7%
Bank of America 9/30 10Q $77,062 $394,007 $142,298 $933,910 $43,581 4.7%
Wells Fargo 12/31 10K $129,783 $337,105 $22,375 $757,267 $23,022 3.0%

 

These four “Too Big To Fail” bastions of crony capitalism have $340 billion of commercial real estate loans on their books. That’s a lot of extending and pretending. Just properly valuing those loans at their true market value would wipe out most of their loan loss reserves. I wonder if Vikrim and his buddies have noticed that home prices have begun to plunge again. Deciding to not foreclose on home occupiers that haven’t made a mortgage payment in two years is not a long term strategy. These four banks have $1.1 billion of outstanding mortgage debt on their books. I wonder what a 20% further decline in home prices will do to these loans. Throw in another half a billion of credit card loans to Americans being hammered by soaring energy and food prices and you have a toxic mix of future losses. These banks are gonna need a bigger boat.

The game of extend and pretend at the expense of the American working middle class is growing old. When this game is over, Wall Street will be looking for another bailout. The American people will not fall for the lies again. Wall Street’s oppression reeks of greed and disgrace. They are liars and thieves. They have pillaged and stolen all that was left to steal. I will be surprised if they get out alive.

Well you are my accuser, now look in my face
Your opression reeks of your greed and disgrace
So one man has and another has not
How can you love what it is you have got
When you took it all from the weak hands of the poor?
Liars and thieves you know not what is in store

There will come a time I will look in your eye
You will pray to the God that you always denied
The I’ll go out back and I’ll get my gun
I’ll say, “You haven’t met me, I am the only son”

Dust Bowl Dance – Mumford & Sons

THERE ARE NO GOOD OUTCOMES

The political class and their mouthpieces in the corporate controlled mainstream media are desperately trying to spin the oil price surge as a temporary inconvenience that will not derail their phony recovery story. Brent crude closed at $116 per barrel yesterday. West Texas crude closed at $104 per barrel. Unleaded gas has risen by 22% in the last month and 60% since September 1, 2010. I’m sure this slight increase hasn’t impacted Ben Bernanke or Lloyd Blankfein. Their limo drivers just charge it to their unlimited expense accounts. Joe Sixpack, driving his 15 mpg Dodge RAM pickup, is now forking over an extra $1,200 per year in gas expenditures, not to mention more for everything impacted by oil such as food, utilities, and anything transported to their local Wal-Mart by truck (everything). Luckily, the Federal Reserve and crooked politicians only care about their comrades in the top 1% elitist society, for whom oil is an investment, not an expense.

               UNLEADED GAS

The “experts” speak as if they know what will happen, even though they never saw the rebellions coming in Tunisia, Egypt or Libya. They assure the masses that Libya doesn’t really have an impact on U.S. oil supply. It’s as if these shills never took Econ 101 in college. World oil demand is 88 million barrels per day. Oil supply is 88 million barrels per day. If 1 million barrels of oil supply are taken off-line, it doesn’t matter that the U.S. doesn’t get their oil from Libya. The Italians need their oil. Do the talking heads understand that oil is fungible? The supplier will ship the oil to the highest bidder. Presto!!! – $116 a barrel oil.

With Friends Like This, Who Needs Enemies

Let’s assess the probability of things getting better in the near, medium, long term or ever term. Take a gander at the chart below. These countries account for 29% of the daily world oil supply. Does it strike you as a list of stable countries with happy populations of employed young men?  Egypt, Libya, Yemen, Syria and Iran have already experienced revolution or are on the verge of revolution. Algeria is dead man walking. The Saudi royal family is trying to buy off the masses to stay in power. The revolution genie is out of the bottle. It can’t be put back. Mix 40% unemployment, with millions of young men, no hope, and some Muslim fundamentalism and you’ve got yourself an out of control situation. No amount of public relations spin will create a positive outcome for the United States. The existing world order of despots, kings, and military juntas was just fine for Washington DC. They poured hundreds of billions of “aid”, tanks, helicopters and missiles to these “freedom fighter” despots who diverted the billions to their Swiss bank accounts and fell into line with U.S. policy. No matter who takes power when these revolutions succeed in toppling our puppets, the new regimes will not be friendlier toward America. And they still have the oil.

Proven Oil Oil
Country Reserves (bil barrels) Production Per Day
Saudi Arabia 265 8,400,000
Iran 137 3,700,000
Iraq 115 2,700,000
UAE 98 2,300,000
Kuwait 102 2,300,000
Libya 46 1,600,000
Algeria 12 1,300,000
Qatar 25 820,000
Oman 6 810,000
Egypt 4 742,000
Syria 3 376,000
Yemen 3 298,000

One look at the chart of self reported world oil reserves paints a picture of woe for the United States. Countries in the tinderbox of the Middle East and Africa control 65% of the world’s oil reserves. Saudi Arabia controls 20%, Iran and Iraq control 11% each, Venezuela controls 7%, Russia 5%, and Libya 3%. So, countries that can barely stomach our existence, hate us, or just despise us, control 57% of the world’s remaining oil. Sounds like a recipe for lower oil prices in the future. The two countries on our border are the only dependable suppliers for the U.S. Canada controls 13% of the world oil reserves, mostly in its tar sands. Mexico controls just over 1% of the world’s oil reserves, but supplies 13% of the U.S. daily oil supply.

File:World Oil Reserves by Region.PNG

Drill, Baby, Drill

Now for a reality check on the “Drill Baby Drill” propagandists like Larry Kudlow and the other dishonest Republican shills. The United States controls a full 1.58% of the remaining oil reserves in the world. We have 21.3 billion barrels of reserves versus 264 billion barrels in Saudi Arabia. We are currently producing 9 million barrels per day. At that production rate, the U.S. will deplete its proven reserves in the next 6 to 10 years. New discoveries will not be able to keep up with depletion of existing wells. The good news just keeps coming. Mexico’s oil production has been dependent upon one giant oil field since 1976. The Cantarell oil field produced 2.1 million barrels per day in 2003 at its peak. It is currently producing 464,000 barrels per day. Peak oil has arrived in Mexico. By 2015, the country that currently supplies 13% of our daily oil supply will become a net importer of oil. Drill Baby Drill.

File:Mexican Petroleum Production.PNG

Based upon the monthly import data below from the IEA, it would appear that, to paraphrase Chief Brody in Jaws, we’re going to need more corn. As the Obama administration operates in denial of these simple facts, they will continue to push ethanol and Chevy Volts to save us from dirty oil. We are already diverting 40% of our corn crop to the ethanol boondoggle. I’m sure that has nothing to do with the 98% increase in corn prices in the last year. Maybe tax credits for solar panels on SUVs and rubber band propeller cars will save the day.

We know for a fact that Mexico’s 1.2 million barrels per day will evaporate in the next few years. But, at least we have that solid dependable 2.7 million barrels per day (30% of our daily imports) from those stable bastions of democracy Nigeria, Venezuela, Iraq, Angola, and Algeria. Makes you want to go out and buy a Hummer. The storyline being sold to the American people is that there is no need to worry. Saudi Arabia will step to the plate and make up for any shortfalls throughout the world. Just one problem. Saudi Arabia is lying about their reserves and their ability to increase production. They’d fit in very well in Congress and on Wall Street.

Crude Oil Imports (Top 15 Countries)
(Thousand Barrels per Day)
Country Dec-10 Nov-10 YTD 2010 Dec-09 YTD 2009
CANADA 2,064 1,975 1,972 2,104 1,943
MEXICO 1,223 1,229 1,140 1,063 1,092
SAUDI ARABIA 1,076 1,119 1,080 870 980
NIGERIA 1,024 806 986 1,020 776
VENEZUELA 825 884 912 772 951
IRAQ 336 340 414 325 449
ANGOLA 307 263 380 266 448
BRAZIL 271 188 254 181 295
ALGERIA 262 379 325 336 281
COLOMBIA 220 489 338 179 251
ECUADOR 192 188 195 86 181
RUSSIA 158 85 252 168 230
KUWAIT 125 170 195 160 180
UNITED KINGDOM 124 80 120 67 103
ARGENTINA 85 35 29 33 53

Lies, Obfuscation, Misinformation & Denial

The late Matt Simmons made the strong case In his book Twilight in the Desert that Saudi Arabia has been lying about their reserves for years. Documents released by Wikileaks give support to this contention. Cables from the U.S. Embassy in Riyadh , released by WikiLeaks, urge Washington to take seriously a warning from senior Saudi government oil executive Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, that the kingdom’s crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.
The UK Guardian reported:

According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as “peak oil”.

Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.

One cable said: “According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray.”

The US consul then told Washington: “While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered.”

A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabia may further constrain Saudi oil exports. “Demand [for electricity] is expected to grow 10% a year over the next decade as a result of population and economic growth. As a result it will need to double its generation capacity to 68,000MW in 2018,” it said.

It also reported major project delays and accidents as “evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production.” While fears of premature “peak oil” and Saudi production problems had been expressed before, no US official has come close to saying this in public.

The overstatement of reserves by Saudi Arabia and most of the OPEC countries should be abundantly clear to anyone with a smattering of critical thinking skills. This eliminates just about everyone on CNBC or Fox News. Essentially, the self reported, unaudited declared oil reserves from OPEC members are a fraud. Production quotas for each member of OPEC are dependent upon their oil reserve amount. When this was instituted in the early 1980s, shockingly OPEC countries miraculously added nearly 300 billion barrels to proven reserves in a six year period with NO NEW DISCOVERIES of oil. The chart below shows the unexplained jumps in reserves in red. Do you honestly believe any self reported number from Iran or Venezuela? Dr. Ali Samsam Bakhtiari, a former senior expert of the National Iranian Oil Company, has estimated that Iran, Iraq, Kuwait, Saudi Arabia and the United Arab Emirates have overstated reserves by a combined 320–390 billion barrels and has said, “As for Iran, the usually accepted official 132 billion barrels is almost one hundred billion over any realistic estimate.”

Using some common sense, someone might ask, “How could Saudi Arabia’s oil reserves remain above 260 million for the last 22 years despite pumping over 60 billion barrels during this time frame, and not making any major new discoveries?” Maybe their statisticians did their training at Goldman Sachs or the Federal Reserve. The monster Saudi oil fields are over 40 years old. They will deplete. Oil is finite. They will not refill abiotically like some crackpots contend. Saudi Arabia’s production peaked in 2005 and it has been unable to reach that level since. The spin sheiks in Riyadh and spin doctors in Washington DC cannot spin oil out of sand. Peak oil is about to choke the American way of life.

Declared reserves of major Opec Producers (billion of barrels)
BP Statistical Review – June 2009
Year Iran Iraq Kuwait Saudi Arabia UAE Venezuela Libya Nigeria
1980 58.3 30.0 67.9 168.0 30.4 19.5 20.3 16.7
1981 57.0 32.0 67.7 167.9 32.2 19.9 22.6 16.5
1982 56.1 59.0 67.2 165.5 32.4 24.9 22.2 16.8
1983 55.3 65.0 67.0 168.8 32.3 25.9 21.8 16.6
1984 58.9 65.0 92.7 171.7 32.5 28.0 21.4 16.7
1985 59.0 65.0 92.5 171.5 33.0 54.5 21.3 16.6
1986 92.9 72.0 94.5 169.7 97.2 55.5 22.8 16.1
1987 92.9 100.0 94.5 169.6 98.1 58.1 22.8 16.0
1988 92.9 100.0 94.5 255.0 98.1 58.5 22.8 16.0
1989 92.9 100.0 97.1 260.1 98.1 59.0 22.8 16.0
1990 92.9 100.0 97.0 260.3 98.1 60.1 22.8 17.1
1991 92.9 100.0 96.5 260.9 98.1 62.6 22.8 20.0
1992 92.9 100.0 96.5 261.2 98.1 63.3 22.8 21.0
1993 92.9 100.0 96.5 261.4 98.1 64.4 22.8 21.0
1994 94.3 100.0 96.5 261.4 98.1 64.9 22.8 21.0
1995 93.7 100.0 96.5 261.5 98.1 66.3 29.5 20.8
1996 92.6 112.0 96.5 261.4 97.8 72.7 29.5 20.8
1997 92.6 112.5 96.5 261.5 97.8 74.9 29.5 20.8
1998 93.7 112.5 96.5 261.5 97.8 76.1 29.5 22.5
1999 93.1 112.5 96.5 262.8 97.8 76.8 29.5 29.0
2000 99.5 112.5 96.5 262.8 97.8 76.8 36.0 29.0
2001 99.1 115.0 96.5 262.7 97.8 77.7 36.0 31.5
2002 130.7 115.0 96.5 262.8 97.8 77.3 36.0 34.3
2003 133.3 115.0 99.0 262.7 97.8 77.2 39.1 35.3
2004 132.7 115.0 101.5 264.3 97.8 79.7 39.1 35.9
2005 137.5 115.0 101.5 264.2 97.8 80.0 41.5 36.2
2006 138.4 115.0 101.5 264.3 97.8 87.3 41.5 36.2
2007 138.2 115.0 101.5 264.2 97.8 99.4 43.7 36.2
2008 137.6 115.0 101.5 264.1 97.8 99.4 43.7 36.2

The denial, accusations and misinformation have already begun. Congressional hearings will be called to blame Big Oil and the dreaded speculators. Americans always need a bogeyman to blame for their mindless decisions and willingness to be led to slaughter by corrupt politicians. Big oil companies do benefit from higher oil prices. Big oil companies spend millions buying off Congressmen. Big oil companies cut corners, ignore safety procedures, and seek profits by any means possible. But, they do not control the oil. Nations control the oil. Many of these nations are led by lying, corrupt, evil despots. That is a fact. Blustering moronic Congressmen going after oil executives and phantom speculators is just a sideshow. It will divert the non-thinking masses from the truth that our leaders haven’t allowed a refinery or nuclear power plant to be built since 1977. These leaders have promoted and subsidized corn based ethanol that requires more energy to produce than it creates and has driven the cost of our food sky high. We are more dependent on foreign oil than any time in our history.

The real speculators are the Americans who clog our highways every morning driving monster SUVs, turbocharged sports cars, gas guzzling minivans, and pickup trucks that make them feel like salt of the earth tough guys despite living in their 6,000 square foot energy sucking McMansions in suburban tracts 30 miles from their jobs, if they have one. The ignorance of the average American car buyer knows no bounds. The recent bounce back in auto sales was led by SUVs and pickups. The green clean cars are nothing but hype and bullshit. GM expects to sell about 10,000 Volts this year, and Nissan expects to sell about 25,000 Leafs in the United States, a piss in the ocean compared with the millions of sport wagons and SUVs purchased by Americans annually. Americans have the attention span of a gnat and are already dazed and confused by the surge in gas prices to $3.50 per gallon.

When oil prices spiked to $147 barrel in 2008, Americans were spending $467 billion per year for fuel. By early 2009, the collapse in energy prices due to the worldwide recession reduced the annual expenditure to $265 billion, freeing up over $200 billion for consumers to spend on other items, pay down debt, or save. Expenditures for fuel had already surged back to $400 billion before the recent spike in oil prices. Next stop $500 billion. That should do wonders for the faux economic recovery that has been touted by Obama and the MSM for the last year. The years of denial, lies, indecision, bad decisions, and inertia have left the country vulnerable and at the mercy of countries in far off lands that despise our way of life.

There are no good outcomes, only bad, really bad, and catastrophic. Take your pick. Could gas prices drop below $3.00 per gallon if the world sinks back into recession? Yes. But it would only be momentary. The easy to access supply is dwindling. The medium and long term direction of gas at the pump is up. There is nothing that can be done in the next five years to prevent significantly higher oil prices. A full court press of realistic ideas like converting our truck fleets to natural gas, a major effort to build nuclear power plants, more drilling, greater use of wind, geothermal, and solar would take at least a decade to have an impact. There is no consensus or resolve to undertake such an effort. Therefore, Americans will suffer the consequences. Be a good American and take advantage of GM’s no interest for 7 years deal on their biggest baddest SUVs and buy two. What could go wrong?

PUMP IT UP

Down in the pleasure centre,
hell bent or heaven sent,
listen to the propaganda,
listen to the latest slander.
There’s nothing underhand
that she wouldn’t understand.
Pump it up until you can feel it.
Pump it up when you don’t really need it.

Elvis Costello – Pump It Up

I had been planning an article based on the Green Day song – Static Age – about the propaganda, lies and misinformation that are endlessly directed at the American people by the government, the mainstream corporate media, and the wealthy elite that control the levers of our society. Then Barack Obama presented his 2012 Budget proposal, including his 10 year projection for our country. I know you’ve heard the term Peak Oil, but the term that came to my mind when I saw Obama’s budget was Peak Bullshit. I thought that would be a great article name, but some sites wouldn’t like the foul language. I was in a quandary until the Elvis Costello song Pump It Up came on the radio while I was driving to work. Down in the pleasure center of Washington DC, the propaganda, slander and most blatant lies are spoken without a hint of guilt or even the faintest whiff of shame. The politicians in Washington DC on both sides of the aisle believe the American people are stupid, gullible, apathetic and easily manipulated. They may be right, but there are a few people out there who can cut through their bullshit and find the truth.

Obama, Wall Street, and the corporate mouthpieces in the mainstream media have been pumping up the American people for months with false data, unwarranted optimism, bank profits created out of thin air by accounting fraud, and attempting to create an economic recovery built on a foundation of sand, supported only by lies. The Obama budget is worse than a joke. It is a tragic joke. It amazes me that he can stand in front of the American people and present such a lie. The liberal media then unquestioningly presents the budget as a frugal cost cutting proposal that will reduce deficits and inflict painful cuts upon the poor American people. It would be laughable, if it wasn’t so sad. One look at Obama’s deficit projections for FY11 and FY12, presented one year ago, should be enough to convince you that no one in Washington DC has a clue what they are doing.

Federal (Deficit)
Year Spending Surplus
2011 $3,834 -$1,267
2012 $3,755 -$828

Obama projected a two year deficit of $2.1 trillion. His current projection, just one year later, is $2.75 trillion. He missed it by this much.

The rocket scientists running our country underestimated the deficit by 31% in the space of one year. I suppose that is considered highly accurate for a government drone. Now let’s get some perspective on Obama’s projected FY11 deficit of $1.65 trillion. This is the projected DEFICIT. Do you remember back to the Clinton administration? Did you feel like your Federal government wasn’t spending enough? In 1998 the TOTAL SPENDING of the Federal government was $1.65 trillion. We now run deficits that equal the entire budget of the United States in 1998, without blinking an eye or questioning how we got here. The politicians have scared the populace into thinking that the country will collapse without the Federal Government spending $3.8 trillion of your money, every year.

Static Age

Can you hear the sound of the static noise?
Blasting out in stereo
Cater to the class and the paranoid
Music to my nervous system
Advertising love and religion
Murder on the airwaves
Slogans on the brink of corruption
Vision of blasphemy, war and peace
Screaming at you

I can’t see a thing in the video
I can’t hear a sound on the radio
In stereo in the static age  – Green Day – Static Age

The politicians prefer their actions be bathed in shades of grey. The corporate payoffs, backroom deals, union arm twisting and selling of votes to the highest bidder are how business is done in Washington DC. They believe that if there is enough static noise being generated by the mainstream media, then the American public will be distracted and not notice they have destroyed the country. When analyzing Obama’s budget we need some perspective. Below is a chart showing actual Federal spending and deficits from 1999 through 2010 and projections from 2011 through 2021. My assessment is that the Great American Empire peaked in 1999-2000. The unemployment rate was 4% and 64.4% of the working age population, or 137 million Americans, were employed. Corporate profits were surging, along with the stock market. The Federal government was spending $1.8 trillion and generating budget surpluses of $236 billion. The National Debt of $5.7 trillion was only 57% of GDP.

The decline of the American Empire can be seen in the chart of woe. The unemployment rate today is 9%. Only 58.4% of the working age population is employed. Eleven years after peak empire, the working age population has grown by 26 million people and the number of employed Americans has grown by 2.4 million. At least 64.4% of the population would like to be working. This means that there are 14.4 million people who would work if the jobs were available. The Federal government is spending $3.8 trillion and generating deficits of $1.6 trillion. The National Debt is $14.2 trillion, or 94% of GDP. Except for Wall Street banks and mega-corporations, small business profits are weak and the stock market is at the same levels reached in 1999. These are the truths you won’t hear from politicians or the mainstream media.

Federal   (Deficit)
Year Spending % Change Surplus
1999 $1,702 $125
2000 $1,789 5.1% $236
2001 $1,863 4.1% $128
2002 $2,011 7.9% -$158
2003 $2,160 7.4% -$378
2004 $2,293 6.2% -$413
2005 $2,472 7.8% -$319
2006 $2,655 7.4% -$249
2007 $2,729 2.8% -$161
2008 $2,983 9.3% -$459
2009 $3,518 17.9% -$1,413
2010 $3,456 -1.8% -$1,293
2011F $3,819 10.5% -$1,645
2012B $3,729 -2.4% -$1,101
2013B $3,771 1.1% -$768
2014B $3,977 5.5% -$645
2015B $4,190 5.4% -$607
2016B $4,468 6.6% -$649
2017B $4,669 4.5% -$627
2018B $4,876 4.4% -$619
2019B $5,154 5.7% -$681
2020B $5,422 5.2% -$735
2021B $5,697 5.1% -$774

So now let’s assess the reality of Obama’s ten year budget. If you were to believe the reports in the media, you would think that Obama is cutting deficits and making hard choices. Amazingly, deficits plummet all the way down to “only” $600 billion to $800 billion after 2012. In the chart above, I ignore the revenue side of the equation, because Obama’s assumptions are beyond ridiculous. His assumption of the GDP growing from $15 trillion in 2011 to $24.6 trillion in 2021, a 64% increase, is a fantasy. During the last 10 years, GDP grew by only 51%. So, despite mind numbing debt levels, structurally high unemployment, peak oil, and a rapidly aging population, GDP is going to surge over the next ten years? I certainly believe that. Under the Obama budget, tax revenues will grow from 14.4% of GDP in 2011 to 20% of GDP in 2021. By comparison, the historical average is only 18% of GDP. Some of Obama’s tax revenue assumptions are as follows:

  • Raising the top marginal income tax rate from 35% to 39.6%. This is a $709 billion/10 year tax hike
  • Raising the capital gains and dividends rate from 15% to 20%
  • Raising the estate tax rate from 35% to 45% and lowering the estate tax exemption amount from $5 million ($10 million for couples) to $3.5 million. This is a $98 billion/ten year tax hike
  • Capping the value of itemized deductions at the 28% bracket rate. This will effectively cut tax deductions for mortgage interest, charitable contributions, property taxes, state and local income or sales taxes, out-of-pocket medical expenses, and unreimbursed employee business expenses. A new means-tested phase-out of itemized deductions limits them even more. This is a $321 billion/ten year tax hike
  • Massive new taxes on energy, including LIFO repeal, Superfund, domestic energy manufacturing, and many others totaling $120 billion over ten years
  • Increasing unemployment payroll taxes by $15 billion over ten years
  • Increasing tax penalties, information reporting, and IRS information sharing. This is a ten-year tax hike of $20 billion.

It is an absolute certainty that the Democrats will lose control of the Senate in 2012. Obama will never get any of his tax increases through a Republican controlled Congress. They are DOA. Therefore, his revenue assumptions are overstated by hundreds of billions every year. Even using his optimistic assumptions, the National Debt would reach $18 trillion in 2015. Using real world numbers, the National Debt will exceed $20 trillion in 2015. In what must be a gag, Obama says that interest on the debt will “only” be $500 billion in 2015. Hysterically, this would mean our debt holders will only require a crumbling empire to pay 2.5% on our debt. How about 5% as a minimum and 10% as a more likely rate? This would put interest on the debt between $1 trillion and $2 trillion per year. The collapse of America is a certainty if Obama’s budgeted spending and deficits play out. Somehow, the majority of Americans are overwhelmed with indifference.

Overwhelmed By Indifference

Some of my friends sit around every evening
and they worry about the times ahead
But everybody else is overwhelmed by indifference
and the promise of an early bed
You either shut up or get cut up;
they don’t wanna hear about it. – Elvis Costello – Radio, Radio 

Do you remember when the politicians of both parties were making dire predictions of Great Depressions, economic collapse and 10% unemployment if we didn’t pass their “save an investment banker” rescue package and the $800 billion “jobs creation” stimulus package? They assured the American people that these expenditures were temporary and were only being made to save the country. Before the crisis, Federal spending was $2.7 trillion. The talking heads at the Fed and in the White House assure us they saved the world. GDP is growing and Obama told me we’ve added over 1 million jobs in the last year. Sounds like the emergency is over. The $400 billion per year of emergency spending should now be rolled back, since it was temporary. Therefore, Obama’s budget surely must going from $3.8 trillion back down to a pre-emergency level of $3.0 trillion in 2012. Not quite. You see, government spending never goes down. His proposal shows $3.7 trillion of spending in FY12. Emergencies never end for a politician in Washington DC. Spending equals power and control over our lives. There will always be another emergency that requires more spending.

You are now hearing the spin from the ideologues on both sides of the aisle about their cost consciousness and desire to restrain spending. It’s all a load of bull. Bush and the Republicans added $4.3 trillion to the National Debt during their reign of error. Obama has matched Bush in the space of 2 1/2 years by adding another $4.3 trillion. There is no effort to cut spending. Obama’s budget shows spending rising from $3.7 trillion in FY12 to $5.7 trillion in FY21. The propaganda and misinformation being spewed from these corrupt politicians is mind numbing.

Again, some perspective is needed to realize how out of control our Federal Government has become. According to the BLS, inflation has risen by 33% since 1999. Real GDP has grown by 23%. The population of the U.S. has grown by 10%. The number of employed Americans has risen by 1.8%. The average pay for a Federal drone (aka worker) has risen by 58%, while the average pay for real workers has risen by only 30%. Therefore, the average non-government employee has seen a decrease in their standard of living as inflation has risen faster than wages. As you can calculate yourself, Federal government spending surged by 124% between 1999 and today. Have you noticed a doubling in service level, competence, educational scores, new energy solutions, or safety and security? What did we get for an extra $2.1 trillion of spending?

What we got was exhausting wars of choice, less freedom, less liberties, less safety, more rules, more regulations, more bureaucrats, more corruption, a financial collapse, and a government that has put us on a path to fiscal ruin. We’ve almost tripled spending on Defense. Are we safer? We’ve more than doubled spending on healthcare. Are we healthier? We’ve more than doubled spending on welfare. Are the poor less impoverished? We’ve more than doubled spending on education. Are our children smarter? The Federal government is out of control. When you hear a politician or pundit detailing the horrors of “spending cuts”, please keep in mind they are lying. There will be no cuts until they are forced upon the government by the looming collapse of our economic system.

Year Defense Pensions Health Care Welfare Education
1999 $333 $431 $332 $165 $56
2000 $359 $454 $352 $171 $60
2001 $366 $481 $390 $183 $64
2002 $422 $503 $427 $224 $78
2003 $483 $518 $469 $242 $91
2004 $543 $537 $509 $238 $96
2005 $600 $565 $549 $246 $106
2006 $621 $591 $583 $250 $128
2007 $653 $636 $642 $254 $102
2008 $730 $669 $671 $313 $102
2009 $794 $739 $764 $407 $91
2010 $847 $756 $821 $496 $140
2011F $965 $801 $882 $488 $130
2012B $925 $813 $866 $424 $121
% Increase 177.8% 88.6% 160.8% 157.0% 116.1%

Now the question is what do we do about it? I know my first inclination would be to do what that Iraqi reporter did a few years ago during a Bush press conference in Iraq. I’d love to throw my shoes at Obama and every lying corrupt politician in America, but the momentary feeling of pleasure would be snuffed out in seconds by a hail of bullets from the Department of Homeland Security thugs guarding these traitors to the American republic.

 

 

Below is my CHART OF DOOM. Using real world assumptions, the National Debt will reach $25 trillion by 2019. That level of debt would be 130% of a realistic GDP figure. The interest on this level of debt would likely exceed $2 trillion per year, more than the entire Federal spending budget in 2002. This chart will not come to pass. Our economic system will collapse well before we reach a $25 trillion debt level. This is already baked in the cake. There are not enough politicians willing to tell the truth and not enough citizens that want to hear the truth. The result will be default, insolvency, currency collapse, vaporization of wealth, chaos, and pain.

The only way to avert the coming financial catastrophe is to go Egyptian on their asses. Maybe mobs of Americans surrounding the White House, Federal Reserve building and Wall Street bank headquarters would get their attention. It wouldn’t take a majority, but a minority of angry Americans willing to fight for the future of the country. The anger is building. More people are becoming aware. The internet is working its magic, just as it is doing in the Middle East. Those in control can keep pumping out their lies and propaganda, but the truth is plain to see, if you open your eyes.
 
“It does not take the majority to prevail, but rather an irate, tireless minority, keen on setting brush fire freedom in the minds of men.” – Samuel Adams 
 
 
 
 
 

 

 

 

SMOOT-HAWLEY REDUX (Featured Article)

This article originally appeared in the November 2010 edition of the Casey Report.

As the Greater Depression continues along a parallel pathway with the Great Depression of the 1930s, Congress is about to commit the same blunder it made in 1930. The rocket scientists in the House of Representatives in September passed the Currency Reform for Fair Trade Act, which aims to crack down on Chinese currency manipulation by targeting imports from China and other countries with currencies that are perceived to be undervalued.

The vote was 348 to 79, with more than 100 Republicans voting in favor of the bill. It died in the Senate before the mid-term elections, but Representative Sander Levin, Representative Tim Ryan and Representative Tim Murphy are expected to reintroduce the bill when the House returns in February from a congressional district work break. Senators Shumer and Casey are also planning legislation to punish the Chinese for unfair trade practices.

The head rocket scientist, Nancy Pelosi, declared:

“For so many years, we have watched the China-U.S. trade deficit grow and grow and grow. Today, we are finally doing something about it by recognizing that China’s manipulation of the currency represents a subsidy for Chinese exports coming to the United States and elsewhere. We owe that to American workers.”

This legislation is part of the Democrats’ “Make It in America” initiative that endeavors to increase domestic manufacturing and creating new American jobs. In classic congressional fashion, they are attempting to pass a bill that will make them look good in the eyes of their constituents, but will exacerbate already dangerous world trade imbalances.

You can count on Congress to pander to unions, protectionists, and America Firsters with hollow legislation, when 40 years of bad decisions, bad policies, and bad choices placed us in this situation. When you have made legislative choices that will require the U.S. government to borrow another $6 trillion in the next four years and you already owe someone $868 billion, it is not a good idea to punch them in the nose.

The U.S. is running an annual trade deficit exceeding $500 billion per year. It has not run an annual trade surplus since 1975. The trade deficit peaked at $769 billion in 2006, subtracting 5.7% from GDP. The enormous trade deficits are a result of government spending policies, Federal Reserve monetary policies, and corporate outsourcing that have gutted the industrial base of the U.S. These policies resulted in personal consumption expenditures surging from 62% of GDP in 1970, to 71% of GDP in 2009.

The trade deficits are not the fault of the countries selling goods to American consumers. Trade subtracted 3.5% from growth in April through June, the most since 1947, as imports surged at the fastest pace since 1984.

The trade deficit with China reached a record level in August of $28 billion, as imports skyrocketed. The U.S. is on track to exceed the 2008 record trade deficit with China of $268 billion. The facts that you don’t hear from the protectionist crowd is that exports to China are on track to reach $84 billion in 2010, 20% higher than the previous peak in 2008. Exports to China have increased by 525% since 2000, while imports from China have increased by 340%. The storyline about China not allowing U.S. imports into their country is false. Putting tariffs or quotas on goods coming from China will not create jobs in America and will only deepen and lengthen the current depression, just as it did in the 1930s.

Protectionism During the Great Depression

The complete collapse of worldwide trade during the 1930s, with its root in trade protectionism, did not cause the Great Depression, but it certainly didn’t help. In 1929, exports totaled $5.9 billion and accounted for 5.7% of GDP. By 1933, exports had plunged to $2.0 billion and accounted for only 3.5% of GDP. Imports plummeted by an equal amount. Global trade declined by 60% as tariffs were imposed and retaliation created a downward spiral. The U.S. provoked the trade war with the passage of the Smoot-Hawley Tariff Act.

Senators Reed Smoot and Willis C. Hawley sponsored the bill, and it was signed into law on June 17, 1930, by Herbert Hoover. It raised U.S. tariffs on over 20,000 imported goods to the highest levels since 1828. The new tariff imposed an effective tax rate of 60% on more than 3,200 products and materials imported into the United States, quadrupling previous tariff rates. According to the U.S. Statistical Abstract, the overall effective tariff rate was 13.5% in 1929 and 19.8% by 1933.

It seems politicians never change. During the 1928 presidential campaign, Herbert Hoover promised to help beleaguered farmers by increasing tariffs on agricultural products. After getting elected, Hoover asked Congress for an increase of tariff rates for agricultural goods and a decrease of rates for industrial goods. The Republican-dominated House and Senate did him one better and increased tariffs across the board.

In May 1930, a petition was signed by 1,028 economists asking President Hoover to veto the legislation. Henry Ford begged him to veto the legislation. Hoover opposed the bill and called it “vicious, extortionate, and obnoxious” because he felt it would undercut his pledge to international cooperation. Then he proved that he was a standard-issue weak-kneed politician by signing the bill. Hoover’s initial instinct proved correct. The international community levied their own tariffs in retaliation after the bill became law. Canada, Britain, and other European countries immediately imposed their own tariffs. World trade came to a grinding halt.

Germany, with its war reparations, was particularly vulnerable to this contraction. Ironically, the U.S. was the lender to the world during the 1920s. American lending propped up the entire world economy. Former allies paid war-debt installments to the U.S. chiefly with funds obtained from German reparations payments, and Germany was able to make those payments only because of large private loans from the U.S. and Britain. Similarly, U.S. investments abroad provided the dollars, which alone made it possible for foreign nations to buy U.S. exports.

By killing world trade with the Smoot-Hawley tariffs, the U.S. shot itself in the foot and contributed to worsening the Depression in Germany. This inadvertently led to the rise of Hitler. Talk about unintended consequences.

Decades of Bad Choices

Blustering politicians like Nancy Pelosi and Chuck Schumer are attempting to ram through populist legislation in order to appear to be on the side of the American people. The Treasury secretary of the United States has declared China a currency manipulator. Chinese Premier Wen Jiabao responded in kind:

“If we increase the Yuan by 20% to 40%, as some people are calling for, many of our factories will shut down and society will be in turmoil. If China saw social and economic turbulence, then it would be a disaster for the world.”

They are playing a high-stakes game of chicken, and the ante is much higher than it was in 1930. Exports account for 12.5% of our GDP today, versus 5.7% prior to the Great Depression.

The United States was a net exporter when the 1970s started. Our enormous trade deficits, which subtract from GDP, were not imposed on us by foreign countries. We are in this predicament because we made appalling choices.

We chose to allow the Federal Reserve to inflate away 95% of the purchasing power of the USD since 1971. We chose to elect politicians that have driven the national debt from $371 billion in 1970 to $13.6 trillion today. We chose to support “free trade” legislation that allowed corporate CEOs to gut our industrial base and ship good-paying jobs to China, while filling the pockets of these executives with millions. We chose to spend rather than save and invest in our country. We chose to become a consumer debt-centered society, relishing in the cheap goods we could buy from China on credit. We chose low prices at Walmart over small-business owners and sustainable domestic production of goods. Decades of bad choices cannot be reversed through taxation, tariffs, and quotas.

The Chinese have pegged their currency to the USD since 1995. For a decade, the U.S. was just fine with the peg, as American consumers got cheap goods, American corporations reaped huge profits from outsourcing, and banks raked in billions by lending money to everyone. Now that we have entered the Greater Depression, the finger pointing and accusations have begun.

Politicians and the people who elected them want someone to blame for their bad choices. The Chinese are the bogeyman that forced Americans to buy on credit. They forced American corporations to offshore millions of U.S. jobs. If the U.S. had a strong dollar policy, ran surpluses, and lived within its means, the Chinese peg would be meaningless.

U.S. GDP has grown by 335% since 1985. Over this same time frame, exports to China have grown by 1,800%, and imports from China have grown by 7,700%. Do politicians actually believe that imposing 30% tariffs on all Chinese products will magically create new manufacturing jobs in America? The 42,400 factories that have closed since 2001 and the 5.4 million manufacturing jobs lost are not coming back. A 30% upward revaluation of the yuan or 30% tariffs on Chinese products would devastate an economy that is still 70% dependent upon consumer spending. Just as in 1930, protectionist measures would boomerang and smack America in the back of the head.

If the pandering politicians in Washington D.C. are myopic enough to ignore the lessons of the past and start a trade war with China and/or the rest of the world, the possible implications would be:

  • An immediate increase in the prices of goods from China, which would proportionately hurt the lower and middle classes who shop at Walmart.
  • Retaliatory tariffs and protectionist policies by other countries, resulting in a decline in U.S. exports.
  • A net loss of U.S. jobs as the decline in consumer spending-related jobs will far outweigh any benefits to exporting businesses.
  • A decrease in world trade, resulting in a deepening of the current worldwide depression.
  • Possible unintended consequences similar to what happened in Germany after the hyperinflationary collapse of their currency (dictators, war, chaos).

The investment implications of trade barriers, tariffs, quantitative easing, and currency debasement are clear. Gold, silver, and virtually all commodities are likely to soar in this environment. To find out how to profit from this certain trend, check out Casey Research’s BIG GOLD REPORT.

AMERICAN EULOGY (Featured Article)

The Founding Fathers described the kind of country they were shaping on July 4, 1776 with the most well known sentence in the English language:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. – Declaration of Independence

In 1776, America was an idea born of noble intentions. An idea that every citizen had the opportunity to succeed, prosper and achieve based upon their hard work and abilities. The government did not provide advantages or a safety net for its citizens. People were free to succeed or fail based upon their own merits. America had a frontier spirit because it was still a frontier. Individual effort, intellect and willingness to sweat allowed you to move up the socio-economic ladder. The government provided a National Defense, and very little else. In 1794, the country had a population of 4.4 million and a GDP of $310 million. Government spending totaled $7.1 million, or 2.3% of GDP, and was split between Defense and interest on the Revolutionary War debt. Today, Federal Government spending totals $3.7 trillion, or 25% of GDP.

James Truslow Adams in his 1931 Epic of America described the America that once existed in reality, but only exists as a phantom today: 

“The American Dream is that dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, also too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

“The American Dream that has lured tens of millions of all nations to our shores in the past century has not been a dream of material plenty, though that has doubtlessly counted heavily. It has been a dream of being able to grow to fullest development as a man and woman, unhampered by the barriers which had slowly been erected in the older civilizations, unrepressed by social orders which had developed for the benefit of classes rather than for the simple human being of any and every class.” – James Truslow Adams – Epic of America

His assessment of the American Dream was made in 1931. He saw signs that the American Dream had begun to die. He was right. The American Dream began to develop a terminal illness in 1913 with the creation of the Federal Reserve and the passage of the 16th Amendment to the Constitution, creating a permanent income tax.

Song of the Century

Sing us a song of the century
It sings like American Eulogy
The dawn of my love and conspiracy
Forgotten hope and the class of 13
Tell me a story into that goodnight
Sing us a song for me – American Eulogy – Green Day

 

At the outset of the last century America was still a vital, free, growing country on the rise. The song of the century began as a joyous ballad and ended as a funeral dirge. The creation of a Central Bank, which could create inflation on demand, and allowing politicians the ability to buy votes through pork spending, paid for with ever increasing taxation, have sucked the life out of the American Dream. According to the Federal Reserve’s own website, their mandates were clear. Below are those mandates and an assessment of their success.

Conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.

  •  Due to loose monetary policy in the 1920’s, the Federal Reserve created a stock bubble, a stock market crash of 89%, a decade long Great Depression, and unemployment of 25% in the 1930’s.
  • Due to loose monetary policies in the 1970’s, the Federal Reserve created raging inflation that reached 14% in the early 1980’s and needed to raise interest rates to 18% in order to break the back of inflation, resulting in unemployment surging to 9.7% in 1982.
  • Due to loose monetary policies in the early 2000’s, the Federal Reserve created the largest housing bubble in history, with the subsequent collapse bringing the financial system to within hours of collapse, and driving unemployment to 9.9% in 2009.
  • Due to the loosest monetary policy in history, today, inflation has begun to rage across the globe, leading to riots, protests and bloody revolutions, with more on the way.
  • The Federal Reserve has achieved their stable prices mandate by inflating away 96% of the purchasing power of the US dollar in less than 100 years. The price of gold continues to soar, as faith in the US dollar diminishes by the minute. I guess stability is in the eye of the beholder. 

Supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers.

Historical US Bank Failures thru 2010

  •  The Federal Reserve’s supervisory and regulatory expertise can be observed in the graph above. This graph doesn’t do the Fed justice, as it begins in 1934. Sixteen years after its origination, the Fed managed to let 10,000 out of 25,000 banks in the country fail between 1929 and 1932.
  • Their glorious history also includes residing over the failure of 2,800 banks during the 1980’s S&L crisis.
  • While protecting their mega-bank Wall Street masters, the Fed has allowed over 300 small banks to go under so far. There are 900 banks on the troubled list that will eventually meet their maker.  

Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets.

  • Generally, maintaining the stability of the financial system and containing systematic risk doesn’t include allowing the worldwide financial system to come within hours of collapse as described by Rep. Paul Kanjorski:

    • “On Thursday [the 18th], at about 11 o’clock in the morning, the Federal Reserve noticed a tremendous drawdown of money market accounts in the United States to a tune of $550 billion being drawn out in a matter of an hour or two. The Treasury opened up its window to help. They pumped $105 billion into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks.

    They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn’t be further panic and there. And that’s what actually happened. If they had not done that their estimation was that by two o’clock that afternoon, $5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.

    Now we talked at that time about what would have happened if that happened. It would have been the end of our economic system and our political system as we know it.”

Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system.

  • It seems this is the only mandate the Federal Reserve has taken seriously is providing services to its owners, the banks. Did the bankers and politicians that met on Jekyll Island to mastermind this Central Bank envision that those services would include: buying $1.5 trillion of toxic mortgages from the banks; allowing the mega-banks to borrow from the Fed at 0% and reinvest those funds at 2.5% risk free; pumping $600 billion directly into the stock market through their QE2 scam; allowing banks to falsely overstate the value of their mortgage and commercial loans; and never ever enforcing basic risk management regulations.
  • While providing Wall Street banks with billions of unearned risk free profits, 0% interest rates further impoverish the savers and senior citizens of the country. The Federal Reserve has fulfilled their unstated mandate of enriching bankers at the expense of middle class Americans.  

To strengthen U.S. standing in the world economy.

  • The Federal Reserve’s affect on the world economy is best revealed in a pictorial tribute to their policies:

                                    TUNISIA

                                     ALGERIA

                                         EGYPT

The Federal Reserve has not been alone in killing the American Dream. Politicians since 1913 have done their part in suffocating the dream. The tax code consisted of 400 pages in 1913 and tax rates ranged from 1% to 7%. In less than a century politicians of both parties have carved out 70,000 pages of payoffs, entitlements, and bribes for their contributors and constituents. Tax rates now range from 10% to 35%. Those 70,000 pages of rules, regulations and tax breaks do not benefit the average middle class American. They benefit those who had the money and power to buy off a Congressman.

The Federal Reserve and the US Tax Code bastardized the American Dream, created barriers to economic advancement, and supported the accumulation of wealth and power by a select few. The ruling elite have used their power and control over the media to convince the majority of Americans that the American Dream is about accumulating material possessions with debt. The American Dream no longer meant attaining the fullest measure of your capabilities, but living in the biggest McMansion, driving the nicest BMW, watching the biggest TV and wearing the latest fashions, all acquired with debt. America is dying. 

Mass Hysteria

Red alert is the color of panic
Elevated to the point of static
Beating into the hearts of the fanatics
And the neighborhood’s a loaded gun
Idle thought lead to full-throttle screaming
And the welfare is asphyxiating
Mass confusion is all the new age and it’s creating a feeding ground for the bottom feeders of hysteria

Hysteria, mass hysteria!
Mass hysteria!
Mass hysteria!
Mass hysteria! –  American Eulogy – Green Day

 

Green Day captures the essence of America since the turn of the century. The country has been in the throes of mass hysteria since 9/11. The once independent, self sufficient individualists that populated this country have become dependent, government reliant, quivering shadows of the frontiersmen that created this country. In the name of safety and security, the American people have allowed their government to accumulate complete control over every aspect of our lives. Only a country in the grip of mass hysteria would allow their leaders to run the National Debt from $5.8 trillion to $14.1 trillion in less than 10 years. Only a country in the clutches of mass hysteria could believe they could get rich by trading internet stocks and houses to a greater fool. Only a country seized by mass hysteria would allow its leaders to promote democracy at the point of a cruise missile as we continue to fight $3 trillion wars in the Middle East, while nearly tripling the amount spent on Defense to more than $1 trillion per year.

 Defense Budget Breakdown for 2011

Defense-related expenditure 2011 Budget request & Mandatory spending Calculation
DOD spending $721.3 billion Base budget + “Overseas Contingency Operations”
FBI counter-terrorism $2.7 billion At least one-third FBI budget.
International Affairs $10.1–$54.2 billion At minimum, foreign arms sales. At most, entire State budget
Energy Department, defense-related $20.9 billion  
Veterans Affairs $66.2 billion  
Homeland Security $54.7 billion  
NASA, satellites $3.4–$8.5 billion Between 20% and 50% of NASA’s total budget
Veterans pensions $58.4 billion  
Other defense-related mandatory spending $7.5 billion  
Interest on debt incurred in past wars $114.8–$454.2 billion Between 23% and 91% of total interest
Total Spending $1.060–$1.449 trillion  

 

If you had told someone on September 10, 2001 that ten years later America would be running $1.5 trillion annual deficits, fighting two wars of choice in countries that despise our presence, and had not only not addressed the $100 billion of unfunded welfare liabilities but added billions more with Medicare D and Obamacare, they would have thought you were a crazy doomster predicting the end of the world. They would have put you away in a padded cell if you had further predicted that politicians would cut taxes three separate times, that the Wall Street banks that leveraged themselves 40 to 1 and destroyed the financial system were handed $2 trillion of taxpayer funds so they could pay themselves multi-million dollar bonuses, and that the Federal Reserve would triple its balance sheet to $2.45 trillion by running its printing presses at hyper-speed and handing the money to those same Wall Street Mega-Banks. 

What caused the mass hysteria that has destroyed the soul of America? Was it just the madness of crowds? Or was it something more sinister? 

True sounds of maniacal laughter
And the deaf-mute is misleading the choir
The punch-line is a natural disaster
And it’s sung by the unemployed
Fight fire with a riot
The class war is hanging on a wire because the martyr is a compulsive liar
When he said “it’s just a bunch of niggers throwing gas into the ….” – American Eulogy – Green Day

Whenever an act doesn’t make sense and seems irrational, you need to ask yourself, “who benefits?” Who has benefitted from the hysteria? The answer is in plain sight. The moneyed interests benefitted. The military industrial complex benefitted. The Federal Government bureaucracy benefitted. Wall Street bankers benefitted. Mega-corporations and their CEOs benefitted. The top 1% ruling elite gained more wealth and more power. They created the mass hysteria with the assistance of their corporate owned mainstream media and completed their pillaging of the middle class with the cooperation of regulators, rating agencies and their ultimate weapon, the privately owned Federal Reserve bank, that has enriched its owners while impoverishing those whose only aspiration was to do an honest day’s work, raise their families, and live in relative comfort, safety, and happiness.

I Don’t Wanna Live In The Modern World

I don’t wanna live in the modern world!
I don’t wanna live in the modern world!
I don’t wanna live in the modern world!
I don’t wanna live in the modern world!

I am a nation without bureaucratic lies
Deny the allegation as it’s written (fucking lies!)

I want to take a ride to the great divide
Beyond the “up to date” and the neo-gentrified
The high definition for the low resident
Where the value of your mind is not held in contempt
I can hear the sound of a beating heart
That bleeds beyond a system that’s falling apart
With money to burn on a minimum wage
I don’t give a shit about the modern age – American Eulogy – Green Day

 

The modern world in no way resembles the world  James Truslow Adams wrote so passionately about in 1931. Green Day’s version of bureaucratic lies, high definition TVs for the poor, contempt for those who use their minds, and a debt flooded system that is falling apart is an accurate assessment of America today. The modern world is ruled by the few with wealth and power, sustained by government. The misinformation and propaganda dished out by the mainstream media creates a smokescreen that obscures who wields the true power in this country. The corporate mainstream media has done such a good job spreading the Big Lie that a vast number of Americans actually admire and worship the ultra-rich.

Most Americans still believe the fairy tale of the American Dream, that no matter how humble your beginnings, everyone has a fair chance to become rich in America. The truth is that the wealthy ruling class owns the country. The top 1% control 43% of the financial wealth of the nation. The top 10% control 83% of the financial wealth of the nation. There is a  misperception that the ultra-rich earn their wealth. The facts show otherwise. In 2008, only 19% of the income reported by the 13,480 individuals or families making over $10 million came from wages and salaries. Remember the financial crisis of 2008-2009 that wiped out 7 million jobs, cut the value of many homes in half, and required a taxpayer bailout of Wall Street? According to research done by economist Edward Wolff, “there has been an “astounding” 36.1% drop in the wealth (marketable assets) of the median household since the peak of the housing bubble in 2007. By contrast, the wealth of the top 1% of households dropped by far less: just 11.1%. So as of April 2010, it looks like the wealth distribution is even more unequal than it was in 2007.”

Source: William Domhoff

The bottom 90% own less than 19% of stocks and mutual funds in the country. Reality is that the 10% richest Americans own the country. The top 1% control 50% of the investment assets and only 5% of the total debt in the country. The bottom 90% control 12% of the investment assets and are burdened with 73% of the total debt. You can clearly see that the Wall Street bailout and the current Federal Reserve QE2 plan to boost stock prices have only benefitted the top 10% richest Americans. What is good for Wall Street is  not good for Main Street. The American middle class has been lured into debt by the purveyors of debt, the ultra-rich elite who control the financial industry. The further into debt the bottom 90% descend, the greater the enrichment of the ruling class. This is why Wall Street shysters, political hacks and the corporate mainstream media have urged Americans to whip out those credit cards and “Save America” by spending money they don’t have, again. It is reminiscent of President Bush’s heartfelt plea to the American public to defeat terrorism by buying a GM car with 0% down.

The propaganda that is constantly pounded into the brains of Americans about “death taxes” and the rich paying more than their fair share of taxes is part of the Big Lie perpetrated by the powerful ruling class. The “huge” issue of estate tax impacts only the few thousand richest Americans.  According to a study published by the Federal Reserve Bank of Cleveland, only 1.6% of Americans receive $100,000 or more in inheritance. Another 1.1% receive $50,000 to $100,000. On the other hand, 91.9% receive nothing (Kotlikoff & Gokhale, 2000). The richest families in the country provide the funding for the mainstream media propaganda needed to eliminate estate taxes.

 The lies about the ultra-rich paying more than their fair share of taxes are refuted in the graph above. The top 1% actually pays a lower percentage of their income than the next 9%. The tax code isn’t 70,000 pages for nothing. The ultra-rich have used their wealth to great advantage by having loopholes and tax dodges inserted into the tax code by their bought off congressmen. The average American can’t afford high powered tax specialists and lawyers to help them stash their wealth in off-shore tax havens in the Caribbean and Switzerland. The consistent theme in America today is that the middle class gets screwed and the ultra-rich ruling class accumulates more wealth and power.

The Death of America

“Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.” – John Adams

Two hundred and thirty five years ago, our Founding Fathers declared that we all had the unalienable rights of life, liberty and the pursuit of happiness. These rights have been restricted and bastardized over two centuries. Liberties have been severely restricted as your government tracks you through your social security number, is able to monitor your phone and internet communications, and regulates your education, healthcare, business, and a thousand other daily activities. The right to happiness was based upon James Treslow Adams’ view that we were free to attain “the fullest stature of which they are innately capable”. The happiness of becoming a success through your individual exertion, intelligence and efforts has been subverted by the happiness of material goods acquired through the use of debt, peddled by the ruling class.

The American Dream where every person had the opportunity to live a richer and fuller life began to die in 1913. Every generation born in this country had an excellent chance to live a better life than their parents. Relentless progress was the American way. I have three teenage sons. Based on the actions of this country’s ruling oligarchy, I doubt that my sons will live a richer and fuller life than myself. The debts are too extreme, the military overreach too excessive, the looting by the financial class too great, the political corruption too extensive, and the opportunities too few. The dream of a social order where everyone could rise to the highest level of their capabilities regardless of their birth has been systematically squashed. With 66% of households making less than $65,000 and college costs out of reach for 80% of Americans without incurring crushing levels of debt, the chances for most Americans to climb the social ladder through educational advancement are nil. Even if they do graduate from college, the CEOs in corporate America, who “earn” 300 times the average worker, have outsourced their jobs to China and India.

 The ruling class provides their children with private schooling and necessary preparation to keep their place in the social order. Wealth begets wealth. The elite send their kids to the elite Ivy League schools and use their connections with their fellow ruling elite to get them jobs on Wall Street, the prestigious connected corporations or government jobs in Washington DC. The wealth of the few has erected barriers to advancement of the many. America has progressively become a stratified class oriented society that has begun to spiral downward as the ruling class has gone too far. The revolutions flaring across the globe are occurring because the ruling class went too far and took too much. The ruling class in America should take note. They have shattered the American Dream and the retribution from those who have been swindled will be unexpected and violent.

http://www.youtube.com/watch?v=bunhVPAXcJA

OBAMA THE PROSTITUTE

Gotta love Marc Faber. Anyone who calls Obama a prostitute is OK in my book. Smokey should note Faber’s opinion about China.

Marc Faber’s Most Provocative Interview Ever: Compares Obama To A Prostitute, Goes Long Treasurys

Tyler Durden's picture

Submitted by Tyler Durden on 01/25/2011 19:58 -0500

Earlier, Marc Faber appeared on Bloomberg TV, in what may go down in history as his most scandalous interview ever. When asked, in advance of the SOTU address, what he thinks of the president, Faber, who appears to have had enough with all the bullshit, propaganda, and lies, replies: “I think he’s done a horrible job and I think that will continue, I think he is a dishonest person, and nothing has changed… Some politicians are more honest than others. I don’t think that I have a very high regard for politicians, I have a high regard for businessmen and for people who work, and not for people who abuse the system continuously. And in comparison to other politicians, I think he came in on a platform as a president that would want to change the government in Washington, and actually he’s made it worse… We foreigners, we just laugh at someone like Mr. Obama. I was very critical of Mr. Bush, but at least he had one line and he stuck to that line, and at least he set out to do a thing and he was relatively straight on the thing that he did. He may have been wrong, but at least he didn’t change his mind continuously, and didn’t prostitute himself.” If nothing else, how many other people do you know who will compare, in front of a live Bloomberg audience, the president of the formerly greatest country in the world to a whore?

As for what Faber thinks the real state of the union address should be, he says:

“I think what should happen in the US is for the president to tell the US, you have to tighten your belts. ‘We have to go through hard times for 5 years to repair the damage that was committed over 20-25 years by the Federal Reserve, by the Treasury, by the politicians, and somebody has to tell the truth. But the politicians keep on fueling the illusion that you can spend yourself out of the misery, and that by printing money you will improve the economy, which is not the case.”

On the topic of the Fed and relative performance:

You don’t know. Maybe [Bernanke] will resign. After he sees the disaster he has created he may resign. Or he may be disposed, who knows. But all i want to say is in terms of investments we have a very interesting situation, because from the March lows, the EM universe has performed fantastically well, and industrial commodities have done fantastically well, and the US has underperformed everything. And now we have a change: the US may outperform, it may not go up, but may go down less than emerging markets.

On his latest opinion on Treasurys

In the long-run, for sure US Treasurys and most government bonds are a suicidal investment. But as a shorter-term timeframe, and I think for the next three months or so, I think we have a situation where stock markets have become very overbought, and emerging markets in January, most of them failed to make new highs above the November, December highs, and recently some of them have sold off very considerably, plus the Chinese market is giving you a signal that something is not right in the Chinese economy, because it is going down. For the next three months you have to shift out of the Emerging Markets, they may correct 20-30%, out of industrial commodities, on a relative basis. And I think the sentiment, just recently, was overly optimistic on the reflation trade, and overly negative about treasury bonds, so treasury bonds right now are oversold, and as of tonight I got the buy signal on US Treasurys. I think Treasury are the best place for the next 3 months, as is the US dollar. I think a correction is coming in the range of 10% in the S&P and 20-30% in the emerging markets.

On all the current batch of Davos participants:

I dont think the ‘thinkers’ are in Davos. I think it’s a group of liars, and people that go along with the system, and perpetuate fraud and abuse, and dubious practices in the financial system.

As for what he thinks of Keynesianism, and gold, well, we’ll just let you hear that for yourselves.

THE FOURTH AMERICAN REVOLUTION (Featured Article)

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. – The Fourth Turning – Strauss & Howe -1997

  

        Harpers Ferry – 1859                         Tucson – 2011

The mass murder in Tucson is another brick in the wall of this Fourth Turning Crisis. The importance of this tragic event is not what happened in that Safeway parking lot, but the reaction in the aftermath of the shooting. Turnings are not about specific events, but how generations react to the events based on their stages of life. A turning is an era with a characteristic social mood, a new twist on how people feel about themselves and their nation.  It results from the aging of the generational constellation.  A society enters a turning once every twenty years or so, when all living generations begin to enter their next phases of life. We entered this Fourth Turning between 2005 and 2008, with the collapse of the housing market and subsequent financial system implosion.

We have crossed the threshold into a decisive era of secular upheaval, when the values regime will propel the replacement of the old civic order with a new one.  The Silent Generation (1925-1942) is dying off, Baby Boomers (1943-1960) are entering elder hood, Generation X is entering midlife, Millenials are entering young adulthood—and a new generation of child Artists are being born. Strauss & Howe have documented that a long human life of 80 to 100 years makes up a social cycle of growth, maturation, entropy, and death (and rebirth) known as a Saeculum. Within each cycle, four generations proceed through their four stages of life. Every 15 to 25 years a new Turning surprises those who only think of history in a linear way. Strauss & Howe are historians who have been able to document this generational cycle going back to the 1400s.

The Anglo-American saeculum dates back to the waning of the Middle Ages in the middle of the fifteenth century.  In this lineage, there have been seven saecula:

  • Late Medieval (1435-1487)
  • Reformation (1487-1594)
  • New World (1594-1704)
  • Revolutionary (1704-1794)
  • Civil War (1794-1865)
  • Great Power (1866-1946)
  • Millennial (1946-2026?)

The Turnings of history are like the seasons of nature. Seasons cannot be rearranged, seasons cannot be avoided, but humans and nations can prepare for the challenges presented by each season. Winter has descended upon our nation.

We are still in the early stages of this Fourth Turning and the mood of the country continues to darken like the sky before an approaching blizzard. Generational theory does not predict the specific events that will happen during a Turning. The events, personalities, and policies that become the chapters in history books are not what drive a Turning, it is how each generation reacts to the events, personalities and policies. Someone who is 60 years old will react differently to an event than they would have reacted at 20 years old. The issues that are driving this Fourth Turning (un-payable entitlement obligations, Wall Street greed & power, globalization gutting the middle class, increasing government control, wealth distribution) were all known and understood in 1997. It took the spark of a housing market collapse and the generations being in proper alignment to catalyze the mood of the country.

Chapter one of this Fourth Turning is approaching its end. Chapter two guarantees to be more intense, with more violence, and periods of great danger. Strauss & Howe envisioned this chapter based upon their analysis of the issues looming back in 1997:

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. 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. – The Fourth Turning – Strauss & Howe -1997

American Revolutions

“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. As the community instinct regenerates, people resolve to do more than just relieve the symptoms of pending traumas. Intent on addressing root causes, they rediscover the value of unity, teamwork, and social discipline. Far more than before, people comply with authority, accept the need for public sacrifice, and shed anything extraneous to the survival needs of their community. This is a critical threshold: People either coalesce as a nation and culture – or rip hopelessly and permanently apart.” – The Fourth Turning – Strauss & Howe -1997

 

  

“Photo credit: ComfortBetrays.com”

There have been three prior Fourth Turnings in U.S. history: the American Revolution, Civil War and Great Depression/World War II. The American Revolution preceded the Civil War by 87 years. The Great Depression followed the Civil War by 69 years and this Millenial Crisis arrived 76 years after the Great Stock Market Crash of 1929. Essentially, each prior Fourth Turning has represented a Revolution in American history.

The First American Revolution began in 1773 when Parliament’s response to the Boston Tea Party ignited a colonial tinderbox—leading directly to the first Continental Congress, the battle of Concord, and the Declaration of Independence. History always seems easy to predict in retrospect. This is another of the many faults in human thinking. There was very little talk or thought of the colonies breaking away from the mother country during the 1760s. Up until the Boston Tea Party catalyst event, no one could have predicted the events which would occur in a chain reaction over the next 21 years. There were dark cold bitter days during this Crisis winter. In the end, George Washington’s honor, courage and fortitude symbolized the character of a new nation.

Historians Charles and Mary Beard described the Civil War as the Second American Revolution.  The Civil War Crisis began with a presidential election that southerners interpreted as an invitation to secede. The attack on Fort Sumter triggered the most violent conflict ever fought on New World soil. The war reached its climax with the Emancipation Proclamation and Battle of Gettysburg (in 1863). The epic conflagration redefined America. The slavery issue was settled for good, signed in the blood of 600,000 men. The industrial might of the North was rechanneled toward progress as a world industrial powerhouse. In retrospect many will say the Civil War was entirely predictable, but that is completely untrue.

The great compromise generation (Henry Clay, John C. Calhoun, Daniel Webster) of the 1850s passed from the scene, leaving the country in the hands of firebrands on both sides. John Brown’s raid on Harper’s Ferry and subsequent execution served to increase the brooding mood of the country. The bloodiest war in the history of mankind was not predictable even one year before it began. The aristocracy of Washington DC actually took carriages in their Sunday best to watch the First Battle of Bull Run. Shortly thereafter Lincoln mobilized 500,000 men and unleashed a catastrophic spiral of butchery over the next four years that exhausted itself with the assassination of Lincoln and the surrender at Appomattox in the same week. The resolution of this Crisis felt more like defeat than victory.

Renowned American historian Carl Degler called FDR’s New Deal the “Third American Revolution”. The Crisis began suddenly with the Black Tuesday stock-market crash in 1929.  After a three-year economic free fall, the Great Depression triggered the New Deal Revolution, a vast expansion of government, and hopes for a renewal of national community.  After Pearl Harbor, America planned, mobilized, and produced for world war on a scale never seen in the history of  mankind, making possible complete victory over the Nazis and Fascists. In 1928 did anyone foresee an 89% stock market crash, worldwide depression, vast expansion of government power, a world war more devastating than the prior war, and the usage of an atomic weapon of mass destruction? Not a chance. Only in retrospect do people convince themselves that it was predictable.

Black Tuesday, October 29, 1929 marked the abrupt unforeseen end of the Roaring Twenties. The bewilderingly rapid collapse of the worldwide financial system in the space of three years left the American people shaken and desperate. With their wealth destroyed and unemployment exceeding 20%, the American public turned to Franklin Delano Roosevelt and his New Deal promises of government social and work programs. He declared “nationwide thinking, nationwide planning, and nationwide action, the three essentials of public life”. This was truly a Third American Revolution. FDR’s policies changed the course of American history. The renewed spirit of American youth during the 1930s was essential in preparing them for the trials that awaited from 1941 through 1945. It is somewhat ironic that FDR’s revolutionary social programs, begun during the last Crisis, will be a major factor in the current Crisis – the Fourth American Revolution.

Fourth American Revolution

“The US government is on a “burning platform” of unsustainable policies and practices with fiscal deficits, chronic healthcare underfunding, immigration and overseas military commitments threatening a crisis if action is not taken soon.” – David M. Walker

 

 

No one knows exactly what events will transpire over the next 15 to 20 years as this Fourth Turning morphs from regeneracy to climax and finally to resolution. The mainstream media, most politicians, and self proclaimed progressives are blind to the cyclicality of history. They believe history proceeds in a linear upwards path. These are the people you see on TV talking about toning down the rhetoric, false gestures of bipartisanship, and soothing words about the financial crisis being a thing of the past. They fail to understand that once the mood of the country is catalyzed by a trigger event or events, there is no turning back the clock. Winter must be dealt with head on. Very few, if any, “financial experts” anticipated a housing collapse, followed by a deep recession, a 50% stock market crash, and a financial system which came within hours of total implosion on September 18, 2008 (as detailed in the documentary Generation Zero). Absolutely no one anticipated the extreme measures taken by the U.S. government and Federal Reserve to “Save” the country from a 2nd Great Depression. These measures have added $5 trillion to the National Debt in the last 40 months. It took 205 years to accumulate the 1st $5 trillion of debt.

While it is impossible to predict the exact trials and tribulations that will confront America over the next decade, the issues that will drive this Fourth Turning were clearly visible to anyone with their eyes open, many years in advance of the Crisis.  Strauss & Howe clearly detailed the easily observable issues that led to the current Crisis back in 1997. Their book is not prophecy, but historically provable interactions between generations based upon the circumstances confronting society at the time.

“Sometime around the year 2005, perhaps a few years before or after, America will enter the Fourth Turning. A spark will ignite a new mood. It will catalyze a Crisis. In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. It could be a rapid succession of small events in which the ominous, the ordinary, and the trivial are commingled.” – The Fourth Turning – Strauss & Howe -1997

The authors use their common sense, based upon known trends, to posit potential catalyst scenarios such as:

  • A global terrorist group blows up an aircraft and announces it possesses nuclear weapons.
  • Beset by a fiscal crisis, states begin to balk at Federal mandates leading to secession actions, militia violence, cyber attacks on the IRS, and demands for a new Constitutional Convention.
  • An impasse over the federal budget reaches a stalemate. The government shuts down. The President declares emergency powers. Congress rescinds his authority. Financial markets spiral out of control. Default looms.

These “theoretical” scenarios were put forth in 1997. The authors concluded that these were unlikely, but that no matter what the catalyst, the response by the generations would be predictable. It seems this Fourth Turning is being driven by a succession of smaller triggers, rather than one large trigger. The housing collapse, which began in 2005, ultimately led to the world financial system collapse in 2008. The overreach by government in attempting to repair the damage done by Wall Street and K Street led to the Rick Santelli Tea Party Rant heard round the world in February 2009. The Tea Party movement has since taken the country by storm, surprising the linear thinkers and stunning the ruling elite. Last week a congresswoman and a dozen bystanders were gunned down, further darkening the mood of the country and inflaming passions among competing political ideologies. So what happens next?

Strauss & Howe postulated on the possible path of this Crisis and I see nothing to doubt their analysis:

“An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. 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.” – The Fourth Turning – Strauss & Howe -1997

The CNBC talking heads, mainstream media pundits, clueless Washington politicians, corrupt Wall Street shysters, and non-thinking robotic masses have been convinced that the actions taken by Ben Bernanke, Barack Obama, Tim Geithner and Congress have averted a financial disaster and saved the world. One hundred years from now when Chinese historians look back on the period from 2000 until 2025 they will ask themselves, “what the hell were they thinking?” The causes of this Crisis are as clear as day to anyone willing to see. A small group of Wall Street bankers and corporate interests through their proxy, the Federal Reserve, created the largest housing bubble in the history of the world generating hundreds of billions in obscene undeserved profits, while destroying the wealth and futures of millions of middle class Americans. Once the fraudulent nature of the bankers’ pillaging of the nation’s wealth came to light, the entire ponzi scheme collapsed, as they always do. On a parallel track, the Federal government, knowing full well that its un-payable social welfare commitments could never be fulfilled, decided to engage in two wars of choice, made additional un-payable social welfare commitments, and created new bloated bureaucratic agencies in the name of security and safety.

What will truly amaze future historians is the “solutions” that our leaders chose to save the country. Despite already being the largest debtor the planet has ever seen, with a National Debt of $8 trillion in 2005, the President and Congress have added an additional $6 trillion of debt, with plans to increase that debt at a rate of $1.5 trillion per year for the foreseeable future. Despite the fact that the housing boom was created by loose monetary policy and non-enforcement of existing laws and regulations by the Federal Reserve, our leaders have allowed this bank owned entity to reduce interest rates to 0%, buy $1.5 trillion of toxic mortgages from the Wall Street banks that caused the crisis, suspend requirements for banks to report their assets at their FMV, monetize the debt spending by the Federal Government, and create inflation through the printing of money out of this air. The Federal government’s response to the crisis was to create a mandated healthcare benefit for 35 million more Americans with no means to pay the untold trillions in future costs. Our leaders’ solution to a crisis caused by excessive debt has been to create twice as much debt. A passage from the Book of Matthew which Abraham Lincoln utilized during a prior Fourth Turning Crisis is a fitting description of where we stand today:

“Every kingdom divided against itself is brought to desolation; and every city or house divided against itself shall not stand.” – Matthew 12:25

The country is deeply divided. There is a vast swath of America that has chosen ignorance over knowledge. With 50% of Americans paying no income taxes, they will vote for anyone who promises them more. The rest of America is split between those who believe the answer lies in increased Federal government coordination and control and those who want a return to liberty, individual responsibility and a vastly reduced Federal government footprint. As I have tried to figure out the most likely path of this Fourth Turning I was focused on an external conflict in the Middle East or an incident on the Korean Peninsula providing the next spark. After the shooting in Tucson, this Fourth Turning is beginning to crystallize.

What I realized was that the three previous American Revolutions all occurred on U.S. soil. The First American Revolution was fought on American soil by a loose confederation of autonomous states against the overbearing control of a great European empire. The Second American Revolution was fought by Americans against Americans and resulted in a vast expansion of Federal government power and diminishment of state power. The Third American Revolution took place under the auspices of saving America from the depths of Depression with government social programs and the birth of the Nanny State. Each Revolution has further expanded the power and control of the Federal government. I believe the Fourth American Revolution will ultimately come down to a battle between the Liberty movement and the ruling oligarchy of Wall Street, Mega-corporations and supporters of the Military Nanny State.

I trust that Strauss & Howe correctly assessed the main factor that will drive the next phase of this Crisis – the Great Devaluation:

“It could be a series of downward ratchets linked to political events that sequentially knock the supports out from under the residual popular trust in the system. As assets devalue, trust will further disintegrate, which will cause assets to devalue further, and so on. Every slide in asset prices, employment, and production will give every generation cause to grow more alarmed. With savings worth less, the new elders will become more dependent on government, just as government becomes less able to pay benefits to them. Before long, America’s old civic order will seem ruined beyond repair.” –  The Fourth Turning – Strauss & Howe -1997

There is no doubt in my mind that the next downward ratchet in this Crisis will be caused by Ben Bernanke and his attempt to generate just enough inflation to make our un-payable debt load less burdensome. His track record regarding economic forecasting, assessment of housing prices and anticipation of economic distress is flawless. He hasn’t been right once. With the top 1% richest Americans controlling 42% of the financial wealth in the country, an all-time high, the next leg down will boil over into class warfare. The middle class has been devastated thus far. Another stock market collapse and more job losses would push them over the edge. The evident failure of government solutions will invigorate the Liberty Movement to become even more strident in their anti-government message. The subsequent battle between the Haves and Have Nots is likely to flair into protests, riots and increasing violence. There will be no compromises. The 2012 Presidential election could incite reactions on par with the election of Lincoln in 1860. While the country convulsively flails about, foreign adversaries will take advantage of our weakness. Peak oil will throw a further wrench into the downward spiral. Out of this tempest, the country will either turn to a strong leader and more government control or move back toward a smaller Federal government footprint and a return to rule by the people and for the people. The outcome is unknown, but the path is foreseeable. Let’s hope that Ben Franklin was right.

All of us who were engaged in the struggle must have observed frequent instances of superintending providence in our favor. To that kind providence we owe this happy opportunity of consulting in peace on the means of establishing our future national felicity. And have we now forgotten that powerful friend? Or do we imagine that we no longer need his assistance? I have lived, Sir, a long time, and the longer I live, the more convincing proofs I see of this truth-that God governs in the affairs of men. And if a sparrow cannot fall to the Ground without his Notice, is it probable that an Empire can rise without his Aid?” – Benjamin Franklin, To Colleagues at the Constitutional Convention

 

“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.”  – The Fourth Turning – Strauss & Howe -1997

WILL 2012 BE AS CRITICAL AS 1860? (Featured Article)

“We are not enemies, but friends. We must not be enemies. Though passion may have strained, it must not break our bonds of affection. The mystic chords of memory will swell when again touched, as surely they will be, by the better angels of our nature.”  – Abraham Lincoln

We are approximately five years into The Fourth Turning Crisis. Every previous Fourth Turning had an economic dimension that eventually led to a do or die all out war. The mainstream linear thinkers see a recovery and a return to their concept of normality. They will be shocked and flabbergasted when they realize that this is only the beginning of a 20 year period of turmoil, chaos and war. It seems that some study of history would benefit the mainstream talking media heads pretending to know what is happening and political hacks in Washington D.C. who pretend to administer the affairs of state. The cycles of history are not identical, but the alignment of generations is always the same. The cycles are consistent because a long human life is always between 80 and 100 years. The previous Fourth Turnings in U.S. history were the American Revolution, the Civil War and the Great Depression/World War II. The descriptions are as follows:

American Revolution (Fourth Turning, 1773-1794) began when Parliament’s response to the Boston Tea Party ignited a colonial tinderbox—leading directly to the first Continental Congress, the battle of Concord, and the Declaration of Independence.  The war climaxed with the colonial triumph at Yorktown (in 1781).  Seven years later, the new “states” ratified a nation-forging Constitution.  The crisis mood eased once President Washington weathered the Jacobins, put down the Whiskey Rebels, and settled on a final treaty with England.

The Civil War (Fourth Turning, 1860-1865) began with a presidential election that many southerners interpreted as an invitation to secede. The attack on Fort Sumter triggered the most violent conflict ever fought on New World soil. The war reached its climax in the Emancipation Proclamation and Battle of Gettysburg (in 1863). Two years later, the Confederacy was beaten into bloody submission and Lincoln was assassinated–a grim end to a crusade many had hoped would “trample out the vintage where the grapes of wrath are stored.”

The Great Depression & World War II (Fourth Turning, 1929-1946) began suddenly with the Black Tuesday stock-market crash.  After a three-year economic free fall, the Great Depression triggered the New Deal revolution, a vast expansion of government, and hopes for a renewal of national community.  After Pearl Harbor, America planned, mobilized, and produced for war on a scale that made possible the massive D-Day invasion (in 1944).  Two years later, the crisis mood eased with America’s surprisingly trouble-free demobilization.

There is a consistent tempo to all Fourth Turnings. An event or series of events leads to the initial Crisis. As the Fourth Turning progresses it becomes more intense, chaotic, dire and bloody. It eventually exhausts itself as a victor is left in control of the battlefield. Picture George Washington at Yorktown, Ulysses S. Grant at Appomattox, and Douglass McArthur on the Battleship Missouri. The events during a Fourth Turning will always be different. The consistent aspect of all Fourth Turnings is the mood of the country, the same generational dynamics, and the reactions of the generations to events. Strauss & Howe describe this Crisis period as follows:

“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.”

The turnings of history are like the seasons. It is impossible to go directly from Fall to Spring. You must withstand the bitter harshness of Winter in order to get to the revitalizing warmth of Spring. The intensity and depth of Winters will vary. Those who prepare for a potentially harsh Winter in advance will be more likely to survive.  The morphology of Fourth Turnings as described by Strauss & Howe is:

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

An honest assessment of where we sit in this cycle shows that we are still in stage one. The housing collapse brought about the near destruction of the worldwide financial system. The sudden shift in mood has been borne out by the angry rise of the Tea Party and the startling result from the recent election. Society is on the verge of stage two. There has yet to be the reunification and reenergizing of society. It still feels like things are falling apart. The sun is slowly setting on this stage and a dark brutal Winter night beckons.

1860 Election – Spark that Ignited an Epic Conflagration

 

Turnings throughout history have consistently lasted between 15 and 25 years, except one. The Civil War Crisis Turning lasted only 5 years and seems to not fit the standard definition of a Turning. Strauss & Howe reflected that:

“By the usual pattern of history, the Civil War Crisis catalyst occurred four or five years ahead of schedule and its resolution nearly a generation too soon.”

The truth is that instead of a drawn out Crisis over 15 to 20 years that would have had undulations of pain and suffering, the U.S. experienced the most savage 5 years in our history, with 620,000 Americans killed and 400,000 wounded. Ten percent of all Northern males 20–45 years of age died, as did 30 percent of all Southern white males aged 18–40. Strauss and Howe conclude that there are two lessons from the Civil War Crisis:

  1. The Fourth Turning morphology admits to acceleration.
  2. That acceleration can add to the tragedy of the outcome.

The catalyst for the Crisis was the election of Abraham Lincoln as President of the United States. After the Compromise of 1850, who would have envisioned the election of an unknown Congressman from an abolitionist party that didn’t even exist in 1850. Beyond that, could anyone have predicted the carnage from the bloodiest war in the history of mankind being the result of that election? Many people do not know that there were four candidates for President in 1860 and that Lincoln won the election with only 39.8% of the popular vote. Lincoln won the Presidency and he wasn’t even on the ballot in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Tennessee, or Texas.

The Republican Party realized they had a tremendous opportunity to win the Presidency as the Democrats were in disarray. Since it was essential to carry the West, and because Lincoln had a national reputation from his debates and speeches as the most articulate moderate, he won the party’s nomination on the third ballot on May 18, 1860. The Republican platform stated that slavery would not be allowed to spread any further, and it also promised that tariffs protecting industry would be imposed, a Homestead Act granting free farmland in the West to settlers, and the funding of a transcontinental railroad.  All of these provisions were highly unpopular in the South.

The Democratic Party split into two factions due to the issue of slavery. Stephen A. Douglass became the Northern Democrat candidate. He was a moderate on the slavery issue. John C. Breckinridge was selected by the Fireaters from the Deep South. Breckinridge supported extending slavery into territories whose voters did not want it. A fourth party called the Constitutional Union Party made up of die-hard former Southern Whigs and Know Nothings who felt they could support neither the Democratic Party nor the Republican Party was formed. They nominated John Bell of Tennessee for President. The party platform advocated compromise to save the Union, with the slogan “the Union as it is, and the Constitution as it is.”

The voter turnout rate in 1860 was the second-highest on record (81.2%, second only to 1876, with 81.8%). The voter turnout in 2008 of 56.8% was the highest for a Presidential election since 1968.

File:Abraham Lincoln by Alexander Helser, 1860-crop.jpg  File:John C Breckinridge-04775-restored.jpg

Nominee: Abraham Lincoln                        Nominee: John C. Breckinridge

Party: Republican                                          Party: Southern Democrat

% of Vote: 39.8%                                              % of Vote: 18.1%

Electoral Votes: 180                                      Electoral Votes: 72

  File:StephenADouglas.png

Nominee: John Bell                                        Nominee: Stephen A. Douglass

Party: Constitutional Union                          Party: Northern Democrat

% of Vote: 12.6%                                                % of Vote: 29.5%

Electoral Votes: 39                                         Electoral Votes: 12

As the 1850s progressed the firebrands in the North and South became more entrenched in their dogmatic positions. The Transcendental Generation Prophets came to power and compromise was no longer an option. Both Lincoln and Jefferson Davis were from this Prophet generation. Aging Prophets are always the moralistic drivers of Fourth Turnings. Strauss & Howe stress the importance of the Prophet Generation during a Fourth Turning:

A Crisis catalyst occurs shortly after the old Prophet archetype reaches its apex of societal leadership, when its inclinations are least checked by others. A regeneracy comes as the Prophet abandons any idea of deferral or retreat and binds the society to a Crisis course. A climax occurs when the Prophet expends its last burst of passion, just before descending rapidly from power.

The election of Abraham Lincoln proved to be the catalyst for the Crisis. Seven southern states seceded from the Union before Lincoln took office. The attack on Fort Sumter started a spiral of carnage and butchery that could not be reversed. The Crisis reached regeneracy after the Union debacle during the First Battle of Bull Run. Lincoln realized winning this war would require full mobilization and all out war. He ordered the enlistment of 500,000 soldiers, suspension of habeas corpus, taxation, and expansion of government power. The next four years were a swirl of savagery and unprecedented tragedy. It convulsed to a chaotic conclusion with the surrender at Appomattox and assassination of Lincoln in the same week. The Crisis exhausted itself with the climax seeming more like a defeat than a victory.

Are the actions of politicians 150 years ago worth understanding in order to determine how our current Crisis will develop? Since every Crisis period has the exact same generational configuration and generations react to events in similar manner, I believe it is worthwhile to examine the Civil War dynamics. Historian Gordon Leidner’s conclusions about the Civil War period are revealing:

  • Although the majority of the American people– including many moderate politicians like Abraham Lincoln–wanted to avoid Civil War and were content to allow slavery to die a slow, inevitable death, the most influential political leaders of the day were not.
  • On the southern side, “fire-eaters” like Robert Rhett and William Yancey were willing to make war to guarantee the propagation of their “right” to own slaves.
  • On the northern side, abolitionists like John Brown and Henry Ward Beecher of Connecticut were willing to make war in order to put an immediate end to the institution of slavery.
  • Southern politicians convinced their majority that the North was threatening their way of life and their culture. Northern politicians convinced their majority that the South, if allowed to secede, was really striking a serious blow at democratic government. In these arguments, both southern and northern politicians were speaking the truth–but not “the whole truth.”
  • It was also about the constitutional argument over whether or not a state had a right to leave the Union, and–of primary concern to most southern soldiers–the continuation of antebellum southern culture. Although the majority of Southerners had little interest in slaves, slavery was a primary interest of Southern politicians–and consequently the underlying cause of the South’s desire to seek independence and state rights.

The insights gained from the Civil War Crisis are that compromise and moderation are discarded. The firebrands control the field. The Prophets push for an all out war to settle the pressing issues of the day. They are willing to sacrifice the young in their moralistic fervor to satisfy their vision of the future. The final verdict will depend on the strength, judgment, and wisdom of the Prophet leaders during a Crisis.

2012 Election – Crisis Leader Sets Stage for Dark Days Ahead

  

     Nomad (Gen X)                         Prophet (Boomer)              Prophet (Boomer)

  

  Prophet (Boomer)                        Nomad (Gen X)                         Prophet (Boomer)

        Artist (Silent)

By 2012 we will have reached the 7th year of this Crisis. The linear thinking media and supposed “thought leaders” are convinced that the worst days of this Crisis have passed. They believe that the Federal Reserve and Government leaders have taken the proper actions to avert a Great Depression. They will be shocked when the Crisis deepens and gets far worse than today. Every action taken by our leaders since 2005 has  worsened the Crisis. Rather than letting the culprits of the financial crisis fail, they have propped up these criminal institutions with taxpayer funds. By not accepting the pain early in this Crisis, these leaders have ensured that this Crisis will be more tragic, brutal and wrenching. The mood of the country continues to darken, even as the mainstream media and government cheerleaders falsely insist that things are getting better.

By year 7 of the American Revolution Crisis, George Washington was on the verge of defeating the British at Yorktown and bringing that Crisis to a positive conclusion. The Civil War Crisis had concluded with Union victory by year 5. The Great Depression/WWII Crisis was in a lull period, with GDP growing by 13% in 1936 as government spending and personal consumption surged. The economy gave the appearance of recovery because FDR’s New Deal programs created make work schemes using government funds. Americans know the 1930s as the Great Depression. As proof of how meaningless GDP calculations are versus how real Americans are affected, the GDP increased by 63% in the four year period between 1934 and 1937. Despite this phenomenal growth, the unemployment rate remained at 17%. In comparison, GDP has advanced by only 5.1% from the bottom in the 2nd quarter of 2009 until today and the unemployment rate on a comparable basis is 23%. Franklin Delano Roosevelt won the 1936 election over Alfred Landon in one of the greatest landslides in history, with 523 electoral votes to Landon’s 8.

The current Crisis appears to be in a lull similar to the 1930s. Government actions can mask deeper problems for awhile, but pressure continue to build. The problems did not go away. The bad debts did not disappear. The Wall Street criminals are still free to loot the American middle class. No one has been prosecuted for the greatest financial fraud in history. The National Debt continues to balloon by $4 billion per day. The USD is slowly being replaced as the worldwide reserve currency. Political ideologues have taken control of both parties. Worldwide trade tensions and social contract broken promises are leading to riots and chaos across the Europe. The onset of peak cheap oil is raising prices for fuel and food and setting the stage for coming resource wars. Fundamentalist religious leaders are pushing for a religious war between Christianity and Islam. The extremists are gaining control of the agenda.

The sudden shift in mood has occurred. The hard working middle class of this country are frustrated, angry and feel betrayed by their leaders. The American people are fed up with all politicians. The liberal ideologues and conservative ideologues have staked out immovable positions on social, financial, and foreign trade issues. Compromise is as likely as it was in 1860. The Tea Party will not compromise. Their agenda is to change politics in Washington DC. They will be a thorn in both party’s side. The possibility of the Tea Party becoming a 3rd party is quite possible. This brings us to the 2012 Presidential election. The current configuration of Congress guarantees that absolutely nothing will get done in the next two years. Both parties will ignore the looming disaster of debt, devaluation, and depression as they position themselves for the 2012 election. The Crisis has not yet entered the regeneracy stage. This is the stage where the country unifies behind a leader and deals with the sudden threats that previously have been ignored or deferred, but which are now perceived as dire. The likely threats are the National Debt, a currency collapse, the Christian/Muslim conflict, Peak Oil, the rise of China, or more likely a combination of some of these issues.

Strauss & Howe‘s words regarding the approaching Crisis, written in 1997, are eerie and haunting:

“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability –  problem areas where America will have neglected, denied, or delayed needed action.”

As I try to assess the next phase of this Crisis, I have been seeking guidance from previous Fourth Turnings. At this juncture, the Crisis seems to have aspects of the Great Depression/World War II and Civil War Fourth Turnings. A financial crisis morphed into recession, much like the 1929 Crash and subsequent recession. Like the Great Depression, government borrowing and spending has given the false hope of recovery. The difference is that  government actions have failed to generate a strong rebound in GDP and unemployment continues to ratchet higher. A landslide election victory by Barack Obama in 2012 is not only impossible; he may not even be the Democratic nominee. The 2012 Presidential election is already destined to be a defining moment in our country’s history. The future path, intensity and pain of this Crisis will be greatly impacted by the outcome of this election. The darkening skies of Crisis are likely to become more threatening by 2012.

A recent Gallup poll gives an early indication of the likely Republican nominee in 2012. The front runners (Mitt Romney, Sarah Palin) have remained static, while the firebrands (Newt Gingrich, Mike Huckabee) have gained ground. The move towards a moralistic Prophet summoner of human sacrifice is not a surprise. The financial and world events that lead up to the 2012 election will determine which candidate is selected from the Republican field. The firebrands are likely to push to resolve ever-deepening moral choices through military force.

November 2010: Which of These Candidates Would You Be Most Likely to Support for the Republican Nomination for President in 2012? Based on Republicans and Republican-Leaning Independents

Usually an incumbent President can be sure of re-nomination as the Democratic candidate, but Obama’s popularity is so low and his effectiveness as President has been so wanting that a challenge from Hillary Clinton is a distinct possibility. Clinton has the Prophet persona and would command the respect of Americans looking for foreign relations expertise. A failed challenge to Obama’s nomination would likely weaken Obama and allow the Republican candidate an easy victory. A potential wildcard would be an insurgent independent campaign by billionaire Michael Bloomberg. His financial background and moderate positions on social issues could attract moderate Republican and Democratic voters. Another possibility is that the Tea Party is unable to assimilate within the Republican Party and decides to nominate its own candidate. This could lead to an 1860 like situation, with four candidates vying for the Presidency. The victor in this scenario might need to be selected by the Electoral College. The next President could be elected with less than 40% of the popular vote. Could this election result lead to secession movement? Will large segments of the population not accept the election verdict?

Will America Survive this Fourth Turning?

 

 

We are poised on the brink of the regeneracy phase of this Fourth Turning. The open question is what incident or events will lead to Americans rallying around a Prophet leader. Regeneracy during the American Revolution occurred in 1776 with the Declaration of Independence. It occurred during the Civil War when Lincoln demanded full mobilization and total war after the Battle of Bull Run. The election of FDR in 1932 produced a regeneracy based upon his New Deal policies. The issues confronting our nation appear intractable. The government “solutions” to the initial phase of this Crisis have been to paper over bad debts, prop up insolvent financial institutions, defer hard entitlement choices, debase the currency in an effort to alleviate overwhelming levels of government debt, ignore the imminent implications of cheap peak oil, and waging never ending lifeblood draining wars on terror. Ben Bernanke, a self described “expert” on the Great Depression, and his Federal Reserve, which has inflated away 96% of the USD purchasing power since 1913, will be the likely culprit in the next phase of this Crisis. Countries around the world are scrambling to reduce their exposure to the USD. Ben Bernanke has proven unable to comprehend the most basic economic signals (housing collapse, derivatives, Wall Street fraud). He will be blindsided by the sudden collapse of the US currency.

It is likely that phase two of this financial Crisis will lead to the election of a dogmatic Republican Prophet Boomer in 2012. This person will take office in January, 2013, eight years into this Fourth Turning. They will be faced with the realization that peak cheap oil is a fact, as even the linearist thinkers realize that technology and green energy will not provide the bumper sticker solution for our oil dependent society. The devastating combination of a currency collapse, oil supply shortages, and the draining war on terror will either unify the country behind the Prophet leader in their effort to save the country or it could result in the country’s fabric tearing apart with the Federal government losing control of sections of the country. A World War over dwindling natural resources is easily foreseeable. The actual denouement of events remain a mystery. Much will depend on the leader we choose. Much will depend on the strength, fortitude, and sacrifice of the American people.

Strauss & Howe provide four possible outcomes to our current Crisis:

  1. This Fourth Turning could mark the end of man. It could be an omnicidal Armageddon, destroying everything, leaving nothing. If mankind ever extinguishes itself, this will probably happen when its dominant civilization triggers a Fourth Turning that ends horribly. For this Fourth Turning to put an end to all this would require an extremely unlikely blend of social disaster, human malevolence, technological perfection and bad luck.
  2. The Fourth Turning could mark the end of modernity. The Western saecular rythm – which began in the mid-fifteenth century with the Renaissance – could come to an abrupt terminus. The seventh modern saeculum would be the last. This too could come from total war, terrible but not final. There could be a complete collapse of science, culture, politics, and society. Such a dire result would probably happen only when a dominant nation (like today’s America) lets a Fourth Turning ekpyrosis engulf the planet. But this outcome is well within the reach of foreseeable technology and malevolence.
  3. The Fourth Turning could spare modernity but mark the end of our nation. It could close the book on the political constitution, popular culture, and moral standing that the word America has come to signify. The nation has endured for three saecula; Rome lasted twelve, the Soviet Union only one. Fourth Turnings are critical thresholds for national survival. Each of the last three American Crises produced moments of extreme danger: In the Revolution, the very birth of the republic hung by a thread in more than one battle. In the Civil War, the union barely survived a four-year slaughter that in its own time was regarded as the most lethal war in history. In World War II, the nation destroyed an enemy of democracy that for a time was winning; had the enemy won, America might have itself been destroyed. In all likelihood, the next Crisis will present the nation with a threat and a consequence on a similar scale.
  4. Or the Fourth Turning could simply mark the end of the Millennial Saeculum. Mankind, modernity, and America would all persevere. Afterward, there would be a new mood, a new High, and a new saeculum. America would be reborn. But, reborn, it would not be the same.

The Fourth Turning is not a prophecy of doom. It is not some sort of Nostradamus like prediction of what will happen on a certain date. The Fourth Turning is part of a cycle of history tied to a long human life that has happened before and hopefully will happen again. Our trials await. Will America respond with strength of character, wise choices, and a willingness to sacrifice for future unborn generations? It is time to find out.

 

For everything there is a season, and a time for every matter under heaven: A time to be born, and a time to die;
a time to plant, and a time to pluck up what is planted;
A time to kill, and a time to heal;
a time to break down, and a time to build up;
A time to weep, and a time to laugh;
a time to mourn, and a time to dance;
A time to throw away stones, and a time to gather stones together;
a time to embrace, and a time to refrain from embracing;
A time to seek, and a time to lose;
a time to keep, and a time to throw away;
A time to tear, and a time to sew;
a time to keep silence, and a time to speak;
A time to love, and a time to hate;
a time for war, and a time for peace.
                                                              Ecclesiastes 3: 1-8

 

 

   

 

AFTER THE ELECTIONS

I’ve said this before. The gridlock that will occur in Washington DC after the Republican sweep next week is not positive for this country. It was fine in 1994 when deficits were manageable, there were no wars, baby boomers were in their late 30s and early 40s, and the light at the end of the tunnel wasn’t a train. Nothing will get done in the next two years. This sets up the 2012 presidential election as the most important event in the history of this country. Who will lead us through the most perilous part of the Fourth Turning? Obama? Palin? Romney? Gingrich? Christie?

George Friedman writes an excellent commentary on what Obama might do in the next two years.  

U.S. Midterm Elections, Obama and Iran

October 26, 2010 | 0851 GMT   

By George Friedman

 

We are a week away from the 2010 U.S. midterm elections. The outcome is already locked in. Whether the Republicans take the House or the Senate is close to immaterial. It is almost certain that the dynamics of American domestic politics will change. The Democrats will lose their ability to impose cloture in the Senate and thereby shut off debate. Whether they lose the House or not, the Democrats will lose the ability to pass legislation at the will of the House Democratic leadership. The large majority held by the Democrats will be gone, and party discipline will not be strong enough (it never is) to prevent some defections.

Should the Republicans win an overwhelming victory in both houses next week, they will still not have the votes to override presidential vetoes. Therefore they will not be able to legislate unilaterally, and if any legislation is to be passed it will have to be the result of negotiations between the president and the Republican Congressional leadership. Thus, whether the Democrats do better than expected or the Republicans win a massive victory, the practical result will be the same. 

When we consider the difficulties President Barack Obama had passing his health care legislation, even with powerful majorities in both houses, it is clear that he will not be able to push through any significant legislation without Republican agreement. The result will either be gridlock or a very different legislative agenda than we have seen in the first two years. 

These are not unique circumstances. Reversals in the first midterm election after a presidential election happened to Ronald Reagan and Bill Clinton. It does not mean that Obama is guaranteed to lose a re-election bid, although it does mean that, in order to win that election, he will have to operate in a very different way. It also means that the 2012 presidential campaign will begin next Wednesday on Nov. 3. Given his low approval ratings, Obama appears vulnerable and the Republican nomination has become extremely valuable. For his part, Obama does not have much time to lose in reshaping his presidency. With the Iowa caucuses about 15 months away and the Republicans holding momentum, the president will have to begin his campaign. 

Obama now has two options in terms of domestic strategy. The first is to continue to press his agenda, knowing that it will be voted down. If the domestic situation improves, he takes credit for it. If it doesn’t, he runs against Republican partisanship. The second option is to abandon his agenda, cooperate with the Republicans and re-establish his image as a centrist. Both have political advantages and disadvantages and present an important strategic decision for Obama to make. 

The Foreign Policy Option

 

Obama also has a third option, which is to shift his focus from domestic policy to foreign policy. The founders created a system in which the president is inherently weak in domestic policy and able to take action only when his position in Congress is extremely strong. This was how the founders sought to avoid the tyranny of narrow majorities. At the same time, they made the president quite powerful in foreign policy regardless of Congress, and the evolution of the presidency over the centuries has further strengthened this power. Historically, when the president has been weak domestically, one option he has had is to appear powerful by focusing on foreign policy. 

For presidents like Clinton, this was not a particularly viable option in 1994-1996. The international system was quiet, and it was difficult to act meaningfully and decisively. It was easier for Reagan in 1982-1984. The Soviet Union was strong and threatening, and an aggressive anti-Soviet stance was popular and flowed from his 1980 campaign. Deploying the ground-launched cruise missile and the Pershing II medium-range ballistic missile in Western Europe alienated his opponents, strengthened his position with his political base and allowed him to take the center (and ultimately pressured the Soviets into agreeing to the Intermediate-Range Nuclear Forces Treaty). By 1984, with the recession over, Reagan’s anti-Soviet stance helped him defeat Walter Mondale. 

Obama does not have Clinton’s problem. The international environment allows him to take a much more assertive stance than he has over the past two years. The war in Afghanistan is reaching a delicate negotiating state as reports of ongoing talks circulate. The Iraq war is far from stable, with 50,000 U.S. troops still there, and the Iranian issue is wide open. Israeli-Palestinian talks are also faltering, and there are a host of other foreign issues, ranging from China’s increasing assertiveness to Russia’s resurgent power to the ongoing decline in military power of America’s European allies. There are a range of issues that need to be addressed at the presidential level, many of which would resonate with at least some voters and allow Obama to be presidential in spite of weak political support. 

There are two problems with Obama becoming a foreign policy president. The first is that the country is focused on the economy and on domestic issues. If he focuses on foreign policy and the U.S. economy does not improve by 2012, it will cost him the election. His hope will be foreign policy successes, or at least the perception of being strong on national security, coupled with economic recovery or a plausible reason to blame the Republicans. This is a tricky maneuver, but his presidency no longer offers simple solutions. 

The second problem is that his presidency and campaign have been based on the general principle of accommodation rather than confrontation in foreign affairs, with the sole exception of Afghanistan, where he chose to be substantially more aggressive than his predecessor had been. The place where he was assertive is unlikely to yield a major foreign policy success, unless that success is a negotiated settlement with the Taliban. A negotiated settlement will be portrayed by the Republicans as capitulation rather than triumph. If he continues on the current course in Afghanistan, he will seem to be plodding down an old path and not pioneering a new one. 

Interestingly, if Obama’s goal is to appear strong on national security while regaining the center, Afghanistan offers the least attractive venue. His choices are negotiation, which would reinforce his image as an accommodationist in foreign policy, or continued war, which is not particularly new territory. He could deploy even more forces into Afghanistan, but then would risk looking like Lyndon Johnson in 1967, hurling troops at the enemy without a clear plan. He could, of course, create a massive crisis with Pakistan, but it would be extremely unlikely that such an effort would end well, given the situation in Afghanistan. Foreign policy presidents need to be successful. 

There is little to be done in Iraq at the moment except delay the withdrawal of forces, which adds little to his political position. Moreover, the core problem in Iraq at the moment is Iran and its support of disruptive forces. Obama could attempt to force an Israeli-Palestinian settlement, but that would require Hamas to change its position, which is unlikely, or that Israel make massive concessions, which it doesn’t think it has to do. The problem with Israel and the Palestinians is that peace talks, such as those under Clinton at Camp David, have a nasty tendency to end in chaos. 

The European, Russian and Chinese situations are of great importance, but they are not conducive to dramatic acts. The United States is not going to blockade China over the yuan or hold a stunning set of meetings with the Europeans to get them to increase their defense budgets and commit to more support for U.S. wars. And the situation regarding North Korea does not have the pressing urgency to justify U.S. action. There are many actions that would satisfy Obama’s accomodationist inclinations, but those would not serve well in portraying him as decisive in foreign policy. 

The Iranian Option

 

This leaves the obvious choice: Iran. Iran is the one issue on which the president could galvanize public opinion. The Republicans have portrayed Obama as weak on combating militant Islamism. Many of the Democrats see Iran as a repressive violator of human rights, particularly after the crackdown on the Green Movement. The Arabian Peninsula, particularly Saudi Arabia, is afraid of Iran and wants the United States to do something more than provide $60 billion-worth of weapons over the next 10 years. The Israelis, obviously, are hostile. The Europeans are hostile to Iran but want to avoid escalation, unless it ends quickly and successfully and without a disruption of oil supplies. The Russians — like the Iranians — are a thorn in the American side, as are the Chinese, but neither would have much choice should the United States deal with Iran quickly and effectively. Moreover, the situation in Iraq would improve if Iran were to be neutralized, and the psychology in Afghanistan could also shift. 

If Obama were to use foreign policy to enhance his political standing through decisive action, and achieve some positive results in relations with foreign governments, the one place he could do it would be Iran. The issue is what he might have to do and what the risks would be. Nothing could, after all, hurt him more than an aggressive stance against Iran that failed to achieve its goals or turned into a military disaster for the United States. 

So far, Obama’s policy toward Iran has been to incrementally increase sanctions by building a weak coalition and allow the sanctions to create shifts in Iran’s domestic political situation. The idea is to weaken President Mahmoud Ahmadinejad and strengthen his enemies, who are assumed to be more moderate and less inclined to pursue nuclear weapons. Obama has avoided overt military action against Iran, so a confrontation with Iran would require a deliberate shift in the U.S. stance, which would require a justification. 

The most obvious justification would be to claim that Iran is about to construct a nuclear device. Whether or not this is true would be immaterial. First, no one would be in a position to challenge the claim, and, second, Obama’s credibility in making the assertion would be much greater than George W. Bush’s, given that Obama does not have the 2003 weapons-of-mass-destruction debacle to deal with and has the advantage of not having made such a claim before. Coming from Obama, the claim would confirm the views of the Republicans, while the Democrats would be hard-pressed to challenge him. In the face of this assertion, Obama would be forced to take action. He could appear reluctant to his base, decisive to the rest. The Republicans could not easily attack him. Nor would the claim be a lie. Defining what it means to almost possess nuclear weapons is nearly a metaphysical discussion. It requires merely a shift in definitions and assumptions. This is a cynical scenario, but it can be aligned with reasonable concerns. 

As STRATFOR has argued in the past, destroying Iran’s nuclear capability does not involve a one-day raid, nor is Iran without the ability to retaliate. Its nuclear facilities are in a number of places and Iran has had years to harden those facilities. Destroying the facilities might take an extended air campaign and might even require the use of special operations units to verify battle damage and complete the mission. In addition, military action against Iran’s naval forces would be needed to protect the oil routes through the Persian Gulf from small boat swarms and mines, anti-ship missile launchers would have to be attacked and Iranian air force and air defenses taken out. This would not solve the problem of the rest of Iran’s conventional forces, which would represent a threat to the region, so these forces would have to be attacked and reduced as well. 

An attack on Iran would not be an invasion, nor would it be a short war. Like Yugoslavia in 1999, it would be an extended air war lasting an unknown number of months. There would be American POWs from aircraft that were shot down or suffered mechanical failure over Iranian territory. There would be many civilian casualties, which the international media would focus on. It would not be an antiseptic campaign, but it would likely (though it is important to reiterate not certainly) destroy Iran’s nuclear capability and profoundly weaken its conventional forces. It would be a war based on American strengths in aerial warfare and technology, not on American weaknesses in counterinsurgency. It would strengthen the Iranian regime (as aerial bombing usually does) by rallying the Iranian public to its side against the aggression. If the campaign were successful, the Iranian regime would be stronger politically, at least for a while, but eviscerated militarily. A successful campaign would ease the U.S. withdrawal from Iraq, calm the Saudis and demonstrate to the Europeans American capability and will. It would also cause the Russians and Chinese to become very thoughtful. 

A campaign against Iran would have its risks. Iran could launch a terrorist campaign and attempt to close the Strait of Hormuz, sending the global economy into a deep recession on soaring oil prices. It could also create a civil war in Iraq. U.S. intelligence could have missed the fact that the Iranians already have a deliverable nuclear weapon. All of these are possible risks, and, according to STRATFOR’s thinking, the risks outweigh the rewards. After all, the best laid military plan can end in a fiasco. 

We have argued that a negotiation with Iran in the order of President Richard Nixon’s reversal on China would be a lower-risk solution to the nuclear problem than the military option. But for Obama, this is politically difficult to do. Had Bush done this, he would have had the ideological credentials to deal with Iran, as Nixon had the ideological credentials to deal with China. But Obama does not. Negotiating an agreement with Iran in the wake of an electoral rout would open the floodgates to condemnation of Obama as an appeaser. In losing power, he loses the option for negotiation unless he is content to be a one-term president. 

I am arguing the following. First, Obama will be paralyzed on domestic policies by this election. He can craft a re-election campaign blaming the Republicans for gridlock. This has its advantages and disadvantages; the Republicans, charging that he refused to adjust to the electorate’s wishes, can blame him for the gridlock. It can go either way. The other option for Obama is to look for triumph in foreign policy where he has a weak hand. The only obvious way to achieve success that would have a positive effect on the U.S. strategic position is to attack Iran. Such an attack would have substantial advantages and very real dangers. It could change the dynamics of the Middle East and it could be a military failure. 

I am not claiming that Obama will decide to do this based on politics, although no U.S. president has ever engaged in foreign involvement without political considerations, nor should he. I am saying that, at this moment in history, given the domestic gridlock that appears to be in the offing, a shift to a foreign policy emphasis makes sense, Obama needs to be seen as an effective commander in chief and Iran is the logical target. 

This is not a prediction. Obama does not share his thoughts with me. It is merely speculation on the options Obama will have after the midterm elections, not what he will choose to do. 

Read more: U.S. Midterm Elections, Obama and Iran | STRATFOR

U.S. Midterm Elections, Obama and Iran

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hell is Empty and all the Devils are Here

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

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

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

Evil Words & Actions

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

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

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

Creative Evil

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

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

Government Evil

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

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

Media Evil

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

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

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

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

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

Money is the Root of Evil

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

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

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

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

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

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

We also know how it all began:

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

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

FRED Graph

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

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

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

FRED Graph

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

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

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Something Wicked This Way Comes

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

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

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

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

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

6

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

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

wapoobamabudget1

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

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

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

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

8

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

9

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

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

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

MASS DELUSION – AMERICAN STYLE (Featured Article)

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

 

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

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

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

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

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

JOHN PAULSON WILL BE WRONG THIS TIME (Featured Article)

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

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

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

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

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

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

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

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

Continue reading “JOHN PAULSON WILL BE WRONG THIS TIME (Featured Article)”