Terrorism by Economic Collapse, debt bondage, money as debt on interest, etc

<> Terrorism by Economic Collapse, debt bondage, etc <>

Terrorism by Economic Collapse, debt bondage,

deficient spending against future taxes, job loss, inflation/deflation, audit threats, etc

Super Rich Bankers and Corporate Elites, with Government Collusion, leading us into Massive Global economic and Financial Crisis, to further their super elite class agenda for their wealth creation& preservation

In my doctorate thesis in the 1990’s I had researched and wrote about how usury-interest based debt, the major aspect of the modern economic system with its fraudulent “National Bank” fractional banking system of “creating” and printing so called “money” and perpetuating the system by mortgages and personal and commercial  lending, etc,  essentially by debt bondage, and those usury-interest based “financial instruments” like bonds, junk bonds, etc,  [latter adding along the way the role of  Brent Woods institutions IMF WB etc], was leading the global economic system into massive financial collapse, all for the benefit of a super rich elite class  of bankers and government collaborators  (read fascism by definition), at the expense of the poor, working poor, and the middle class. Indeed it was a monumental claim, but backed by solid research and numerous economic and financial indicators.

I clearly predicted (by many of these indicators) that the massive deception and fraud built into the interest-usury based debt system, the backbone of this global economic and financial system, is all a HUGE Anglo-USA financial asset bubble of debt instruments, and that, by all definitions, mathematics, logic and historical reality, the system will eventually collapse since it was not sustainable, like house  of cards, and line of dominoes, and a huge ponzi scheme.   The boom-bust debt and commercial cycle had to end in huge collapse when the inherent contradictions and inevitable unsustainable reaches the tipping point.

This has been prophetically foretold by the Prophet Muhammad, peace and blessings be upon him and his family and followers, in many texts of scriptures of Islam, but we will here indicate one like when he said:

مَا أَحَدٌ أَكْثَرَ مِنْ الرِّبَا إِلَّا كَانَ عَاقِبَةُ أَمْرِهِ إِلَى قِلَّةٍ

There is no one that does a lot of “Riba” (usury and interest transactions, fraudulent borrowing and debt schemes etc) except that their final affair will be ruin and utter loss (i.e. including total collapse. bankruptcy, insolvency, etc).

Reported by Ibn Majah (6/53) and authenticated by the scholars of Hadeeth sciences scholars (Historical Prophetic Narrations) like Sheikh al-Albani.

This Muslim Ummah’s has a special trial, and one of the many forms of the trial of these times is in wealth, and following  behind this fraudulent global interest based debt structures, and in this also the Prophet Muhammad prophesized  in a specific warning, may the peace and blessing of Allah be upon him:

إِنَّ لِكُلِّ أُمَّةٍ فِتْنَةً وَفِتْنَةُ أُمَّتِي الْمَالُ

“For every Ummah (nation and community) there is a trial, and the trial of my Ummah is wealth.”

[Reported by Tirmidhi, and authenticated by Sheikh al-Albani]

Now it is really happening, with all the ugly global consequences.

See some interesting news items below, for further investigation, reflection and repentance: a return to truth and justice.

In the book This Time Is Different Eight Centuries of Financial Folly authors Carmen M. Reinhart and Kenneth Rogoff, meticulously looked at Eight Centuries of Financial Data, and proved conclusively that debt fueled expansions, based on usury (interest based) loans almost always end in financial ruin.

As one review astutely observed: “… The common theme is that excessive debt accumulation by government, banks, corporations, or consumers often brings great risk. It makes government look like it is providing greater growth than it is, inflates housing and stock prices beyond sustainable levels, and makes banks seem more stable and profitable than they really are. Large-scale debt buildups make an economy vulnerable to crises of confidence … What did the authors learn from their data digging? Severe financial crises share three characteristics: 1) Declines in real housing prices … 2) The unemployment rate rises … 3) Government debt tends to explode … the biggest driver of this debt explosion is the collapse in tax revenues…”

Sounds familiar?

It should, because that’s the exact description of today’s debt crisis. Of course we know that it has its roots in the greed of the elite Bankers and Corporate leaders in collusion with the government, and that they have engineered the economy since WWII as a Brentwood’s (IMF –WB) Anglo-American petro-dollar driven economy, sustained by the great Ponzi scheme called the Federal Reserve System, and other factors.

Now the roosters are coming home to roost.  As they say what goes around comes around. Just as the racism of imperial Europe came back to haunt Europe with the racism of “Aryanism” and the Nazis which imploded upon Europe with devastating results, the “Washington Consensus” and “Bilderberg ” and  “Davos” elites have set debt traps all over the third world for decades, which the elites of those counties have happily gotten themselves entrapped into by their own greed at the treacherous expense of their counties’ sovereignty and real local development for the working masses of citizens.  But now this debt trap is returning upon these elites of WC and B and D with the Greek Debt fiasco of the European Union, and with the Debt Crisis of the USA, all with devastating results upon the working masses and poor, so much devastation of the middle and working classes that the whole system is unsustainable.

Is there a reason that this 30 year periods is the largest historical transfer of wealth from the middle classes and workers to the super rich, as documents and proven by many studies, starting roughly with Reagan and Thatcher trickle down thesis’s (help to make richer richer and it will trickle down to the others) and culminating in Bush tax breaks for the rich, and so many other aspects of this systemic fraud and theft made legal by the plutocracy (rule of rich) some people call democracy.        

Sort of like the environment disaster: eventually there is a tipping point of pollution, over which, when tipped, the self cleaning mechanisms of the natural system begin to fail, and massive chemical changes begin to take place, and the system is eventually devastated from within. Who are the massive polluters in the system?  Sort of like the massive fish decline and who to blame: the fisherman on subsistence levels, or the corporate fishing fleets with gigantic fleets of ships and huge nets and tracking systems overfishing some species, for simple greed and disregard for the consequences on us all.     

See also > HERE


Above a real picture of 207 million dollars horded

and here below an idea about a billion and trillion dollars on stacked $100 bills

1 Billion US Dollars
Now we’re getting serious! You’ll need some serious help if you think you can rob a bank for this much.

US one trillion dollars debt

One Trillion Dollars
Not a single person in the world that has this much money for themselves, and if they cashed out there probably isn’t even a bank that could. Besides, where would you keep it, it’s the size of a grid iron field!

US 15 trillion dollar debt

What is true wealth?


Raising the ceiling

In 30 years, the national debt has gone from just under $1 trillion to $14.3 trillion, and is projected to reach just under $21 trillion by 2016. Congress has passed new debt limits over the years that allow the government to keep running, and is currently preparing to debate whether to raise the ceiling this year.

A look at the national debt and the debt ceiling for the past 30 years.
SOURCE: Office of Management and Budget, White House. GRAPHIC: Tobey/The Washington Post. Published on April 18, 2011, 10:59 p.m.

What’s the debt ceiling, and why is everyone in Washington talking about it?

By Ariana Eunjung Cha, Monday, April 18, 7:18 PM

What’s the debt ceiling?

The legal limit on borrowing by the federal government. Before 1917, Congress had to approve borrowing each time it came up. In order to allow for more flexibility as the nation entered World War I, lawmakers agreed to give the federal government blanket approval for most types of borrowing — as long as the total was less than an established limit.


A look at the national debt and the debt ceiling for the past 30 years.

A look at the national debt and the debt ceiling for the past 30 years.

Debate the budgetDebate the budgetWhich cuts, if any, go too far? Join the discussion

Why is this an issue now?

The nation’s debt is inching closer to the legal limit of $14.3 trillion. According to

Treasury Secretary Timothy F. Geithner, the ceiling could be breached as soon as May 16, though the government could take unconventional measures such as halting contributions to pension funds to delay that point until July 8.

What happens if the debt ceiling is breached?

If Congress does not increase the limit, borrowed funds would not be available to pay bills and the United States may be forced to default on its debt obligations. There’s no precedent for this situation. Treasury has never been unable to make payments as a result of reaching the debt limit. With a fragile global recovery counting on U.S. economic stability, the debt limit issue could roil international financial markets. Democrats and Republicans agree that if the debt limit is not raised we would be inviting economic catastrophe.

So if both parties agree, why not just raise the limit? What is everyone arguing about?

In the past, raising the debt ceiling has mostly been a perfunctory matter. The ceiling has been raised almost 100 times since it was established and has gone from less than $1 trillion in the 1980s to $6 trillion in the 1990s. The most recent time the ceiling was boosted was in February 2010. Legislation to raise the debt limit usually prompts partisan posturing about fiscal responsibility, but little real drama. This time is different.

With the national debt at its highest point in 50 years compared with the size of the U.S. economy, the debate about the ceiling has become entwined in the larger issue about slashing the budget. The budget debate is shaping up around trying to balance two perhaps equally unpopular remedies: sharp cuts to popular government-funded programs and major tax increases. Republican lawmakers say that if they raise the limit they need a commitment from the White House for more spending cuts. The Obama administration has resisted the idea of including spending caps or other budget-process reforms in legislation to raise the debit ceiling, arguing that ensuring the government’s solvency is too important to be held hostage to other issues.

How much money are we talking about?

Under the spending plan President Obama submitted to Congress in February, lawmakers would have to raise the limit by nearly $2.2 trillion just to see the nation through next year. Under the more austere blueprint that House Republicans approved last week, the government would require about $1.9 trillion in fresh debt by October 2012 — a month before the next presidential election.

Why does the United States have so much debt anyway?

There are numerous reasons. Here are some major ones: Under President George W. Bush, the national debt soared to $4.36 trillion because of the cost of wars in Iraq and Afghanistan and new tax cuts, and again under Obama, an additional $3.9 trillion, because of the economic stimulus and decreased tax revenue during the recession.


The Chart That Should Accompany All Discussions of the Debt Ceiling

By James Fallows

Jul 25 2011, 10:58 AM ET

It’s this one, from yesterday’s New York Times. Click for a more detailed view, though it’s pretty clear as is.


It’s based on data from the Congressional Budget Office and the Center on Budget and Policy Priorities. Its significance is not partisan (who’s “to blame” for the deficit) but intellectual. It demonstrates the utter incoherence of being very concerned about a structural federal deficit but ruling out of consideration the policy that was largest single contributor to that deficit, namely the Bush-era tax cuts.

An additional significance of the chart: it identifies policy changes, the things over which Congress and Administration have some control, as opposed to largely external shocks — like the repercussions of the 9/11 attacks or the deep worldwide recession following the 2008 financial crisis. Those external events make a big difference in the deficit, and they are the major reason why deficits have increased faster in absolute terms during Obama’s first two years than during the last two under Bush. (In a recession, tax revenues plunge, and government spending goes up – partly because of automatic programs like unemployment insurance, and partly in a deliberate attempt to keep the recession from getting worse.) If you want, you could even put the spending for wars in Iraq and Afghanistan in this category: those were policy choices, but right or wrong they came in response to an external shock.

The point is that governments can respond to but not control external shocks. That’s why we call them “shocks.” Governments can control their policies. And the policy that did the most to magnify future deficits is the Bush-era tax cuts. You could argue that the stimulative effect of those cuts is worth it (“deficits don’t matter” etc). But you cannot logically argue that we absolutely must reduce deficits, but that we absolutely must also preserve every penny of those tax cuts. Which I believe precisely describes the House Republican position.

After the jump, from a previous “The Chart That Should…” positing, an illustration of the respective roles of external shock and deliberate policy change in creating the deficit.

UPDATE: Many people have written to ask how the impact of the “Bush-era tax cuts,” enacted under George W. Bush and extended under Barack Obama (with the help, as you will recall, of huge pressure from Senate Republicans), is divided between the two presidents. I don’t know and have written the creators of the chart to ask. (They have responded to say: it indicates the legacy effects of the changes made by each Administration. For instance, neither Bush nor Obama is credited with the entire cost of Pentagon spending or entitlements, but only the changes his Administration made, up or down. By this logic the long-run effect of tax cuts initiated by Bush is assigned to him, as any long-run effect of savings he initiated would be too.)

But to me it doesn’t matter. As I said above, the point of the chart really isn’t partisan responsibility. It is the central role of those tax cuts in creating the deficit that is now the focus of such political attention. Call them the “Obama-Extended Tax Cuts” if you’d like: either way, a deficit plan that ignores them fails a basic logic, math, and coherence test.


10 Myths That Politicians Want You to Believe

NEW YORK (TheStreet) — The financial system is on the brink of collapse after trillions in bad loans were issued by greedy bankers. If you were a U.S. political figure, would you:

A.) Tell everyone to suck a lemon, and (maybe) let the economy implode.

B.) Fire the bankers who made the bad loans, prosecute the guys who broke the law and guarantee a portion of the loans in a grin-and-bear-it show of good faith.

C.) Reward the bankers who made the bad loans with billions of dollars in bonuses and guarantee every loan with U.S. taxpayer money (with interest, because we borrowed the money from China).

If you answered C, then maybe you should run for office, support laws that funnel billions to insolvent companies, retire from politics and start working for one of the companies you helped bail out. Heck, that’s what former Republican-senator Judd Gregg did (newly hired by Goldman Sachs).

But don’t worry, the revolving door between Wall Street and government is just a “myth”, and here are 10 actual myths that politicians want you to believe:

Yes, quantitative easing is “printing” money. No, it won’t help the economy.

10. Quantitative Easing Helps the Economy

Make no mistake, quantitative easing is a gift to bankers and nothing else. Let’s take a deeper look:

Quantitative easing is when the United States’ central bank, the Federal Reserve, buys U.S. Treasury bonds.

  • Treasury bonds are a future obligation of the United States, paid out with Federal Reserve notes (dollars).
  • Federal Reserve notes are a current obligation of the United States, redeemable for goods and services.

If the Federal Reserve purchases bonds directly from the United States Treasury, they are electronically creating dollars (current obligations) in exchange for future obligations. This is inflationary if the amount of obligations (money) is increasing faster that the amount of capital (goods, services, products and ideas). But the Federal Reserve doesn’t buy bonds from the Treasury, it buys them from “primary dealers.”

Primary dealers are a network of banks (including Goldman Sachs(GS_), JPMorgan Chase(JPM_) and Citigroup(C_)) that are obligated to buy bonds from the U.S. and serve as a trading partner with the Federal Reserve. So Goldman Sachs can buy a bond from the Treasury on Monday and sell it to the Federal Reserve on Tuesday (at a profit) — the blog ZeroHedge has named this game “Flip That Bond.”

Bottom Line: If Americans weren’t already saddled in debt, quantitative easing might work. But as things stand, the Federal Reserve is giving bankers risk-free trading profits and causing food and gas prices to surge (making it even harder for Americans to get out of debt).

9. Republicans Are Fiscal Conservatives

Since 1968, the U.S. national debt accelerated fastest under President Ronald Reagan until President Obama claimed this distinction. The national debt does not take inflation into account, so perhaps we should look at inflation-adjusted deficits instead. According to research by Dave Manuel,

From 1946-2010:

Democratic President

  • Total Years: 29
  • Average Inflation Adjusted Deficit: $150.73 billion

Republican President

  • Total Years: 36
  • Average Inflation Adjusted Deficit: $202.28 billion

A president is not solely responsible for the nation’s deficit, but he does sign the budget into law. And Republicans have put their John Hancock on some really short-sighted budgets while preaching conservatism.

8. President Obama Is an Enemy of Wall Street

When he was on the campaign trail, then-candidate Obama had some tough words for those who repealed Glass-Steagall (the law that prevented banks from acting like hedge funds), calling the process of deregulating banks a “legal but corrupt bargain.” But get a load of this:

President Obama is the best friend Wall Street could have.

7. The Financial System Is Safer Today Than in 2008

The Federal Reserve, which neglected to use regulatory powers to rein in the last crisis, has been awarded more regulatory powers. The majority of “too big to fail” banks are even bigger. And while the government is guaranteeing fewer mortgages through Fannie Mae(FNMA_) and Freddie Mac(FMCC_), it’s made up the difference by guaranteeing mortgages through the Federal Housing Authority. “Good as cash” money market funds are full of mortgage-backed securities backed by the government (who needs to borrow money to back them up).

Meanwhile, high-frequency trading is alive and well and the causes of the Flash Crash have not been addressed. In fact, the solution of stock-specific “circuit breakers” (the percentage a stock can plummet before it stops trading) will guarantee future crashes. Here’s why:

Having a defined breaking point provides high-frequency traders with an arbitrage window: If they can create an event that causes a stock to temporarily plummet, they can use “sweep to fill” orders (a special type of order used to buy stock rapidly, in small increments) to buy the stock back up to fair value. The size of the circuit breaker limits the size of the profit, but this removes the uncertainty of what trades will be honored or killed.

6. The ‘Bush Tax Cuts’ Increased Tax Revenue

Washington has always had a spending problem, but since the “Bush Tax Cuts,” we have a revenue problem as well. From 1990 to 2000, U.S. tax revenue had a period of exceptional growth. Following the 2001 tax cuts, revenue plummeted — then recovered — then plummeted again. You can attribute the sustained revenue growth of the 1990s to the fact that the decade didn’t have a recession, but if you expand the timeline to 1965, we’ve had numerous recessions without substantial drops in revenue.

5. ‘No One’ Could Have Seen the Financial Crisis Coming

No one — except for everyone who did. TheStreet has interviewed numerous economists and money managers who have been pounding the table for years.

4. If You Support Capitalism, You Support Big Business

Does capitalism ensure meritocracy? Well, let’s analyze an unnamed company:

A small, centrally located corporate management of fewer than 50 people plans the operations of hundreds of thousands of “associates.” Corporate managers can make more money in one hour than an associate makes in one year. The majority of corporate managers have never worked as an associate. The benefits of corporate managers and associates are very, very different. Corporate managers are trained to respond to dissent by using propaganda to turn one associate against another.

Corporations and governments are very similar entities — if a politician praises a centrally-planned business while chastising a centrally-planned government, or the other way around, be skeptical.

Author’s Note: I have edited point #4 to remove references to “socialism,” instead, using the phrases: “meritocracy” and “central planning.” As originally written, I confused concepts found within a political system with the system itself.

3. Republicans Are a Bunch of Fat-Cat Millionaires

Well, this is true — but a “half-truth” in the context it is usually told: Both Republicans and Democrats are a bunch of fat cats. The average congressperson is a millionaire, and if you break down the 50 richest members of Congress by political party, here’s the split:

Republican: 22

Democrat: 28

When it comes to political contributions, Wall Street gives both parties lots of love (recently favoring the Democratic party).

2. The U.S. Has the Highest Standard of Living in the World

According to the United Nations’ most recent Human Poverty Index (from 2008), the U.S. standard of living ranks 17 of 19 among developed countries. The ranking is a composite of life expectancy, literacy, long-term unemployment and income equality — while this data is over three years old, it’s not unthinkable that our situation has worsened in the aftermath of the Great Recession.

1. U.S. GDP Is Growing

U.S. GDP has increased by 4.26% from 2007 to 2010, according to data compiled by the U.S. Bureau of Economic Analysis. In the same period of time, the U.S. national debt has increased by 61.6%, according to the U.S. Treasury. Looking at these numbers, you don’t need to be an economist to see that something is very, very wrong.

Charles Hugh Smith makes an excellent case that questions the viability of a debt-fueled U.S. recovery, you can read his article here.

How You Can Fight for the Truth

America is still a great place to live — we’ve just lost our way, misled by Republicans and Democrats alike. If you’re fed up with the way things are and you want to make a real change, don’t buy into the hype around political parties. Political parties are like unions: They do the absolute minimum to keep constituents happy while doing everything they can to raise money and hold on to power.

In the days of the Internet and free-flowing information, there is never a good reason to vote along party lines. Vote for the best man or woman — he or she might be a Democrat, Republican or independent. When people say things that make you uncomfortable, they might be onto something and are at least worth listening to.

Bill Bernbach, one of America’s most innovative businessmen, used to carry a slip of paper in his pocket. It read: “Maybe he’s right.”

— Written by John DeFeo in New York City


Posted at 12:44 PM ET, 04/18/2011

Lawmakers seize on Standard & Poor’s outlook in debt-ceiling debate

By Felicia Sonmez

A stock trader works on the floor of the New York Stock Exchange on March 18, 2011. (Anonymous – AP) Democrats and Republicans reacted swiftly on Monday to the news that Standard & Poor’s had downgraded its outlook on America’s long-term credit rating from “stable” to “negative,” with each party seizing on the warning to back up its position in the escalating debt-ceiling debate.

Republicans argued that the news illustrates the gravity of the country’s debt crisis and the need for any debt ceiling vote to be accompanied by a plan to tackle the country’s longer-term fiscal problems.

“Serious reforms are needed to ensure America’s fiscal health, and today S&P sent a wake-up call to those in Washington asking Congress to blindly increase the debt limit,” House Majority Leader Eric Cantor (R-Va.) said in a statement. “Today’s announcement makes clear that the debt limit increase proposed by the Obama administration must be accompanied by meaningful fiscal reforms that immediately reduce federal spending and stop our nation from digging itself further into debt.”

Sen. Mark Kirk (R-Ill.), a former five-term House member who won election last fall to Obama’s former Senate seat, argued that the coming debt-limit vote “offers the chance to save the dollar and our economy.”

“If we miss this chance or if congress sends the president a blank check, then the following quote from S&P is a stark warning for our future: ‘We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns,’” Kirk said in a statement.

Meanwhile, a group of more than 100 House Democrats led by Rep. Peter Welch (D-Vt.) on Monday reiterated its call for a “clean” debt limit vote, or a vote with no conditions attached.

In a statement, Welch contended that the New York Stock Exchange’s sharp drop in reaction to the Standard & Poor’s ratings change Monday morning could be a harbinger of worse things to come if a political showdown on the debt limit raises doubts about whether the country will fulfill its financial obligations.

“America pays its bills,” Welch said. “I hope Majority Leader Cantor and those in Congress seizing upon debt ceiling pressure as a ‘leverage opportunity’ are listening to the markets today and thinking twice about their risky strategy. … By playing brinksmanship with the debt ceiling, he is willfully risking the full faith and credit of the United States of America. The markets have doubts about America’s ability to get its fiscal house in order. And they are right. If Mr. Cantor persists in playing politics with the debt limit he will be held accountable for unleashing the financial hounds of hell.”

The group of 114 House Democrats, comprised of mostly liberal members, sent a letter Monday to House Democratic leaders urging them to convene a party caucus to establish a Democratic position in favor of a clean debt limit extension.

Even if House Democrats stake out a firm position on a clean debt limit vote, it’s not certain Obama would join them. House Speaker John Boehner (R-Ohio) told reporters last week after a meeting at the White House that Obama said he’d be open to proposals that would not include a clean vote.

The Treasury Department estimates that the country will reach its debt ceiling by mid-May, although the government could take measures to extend to early July the drop-dead date for a vote.

By Felicia Sonmez  |  12:44 PM ET, 04/18/2011




Deutsche Bank: The Global Sovereign Debt Crisis Will Last The Entire Decade, And The US Will Cap It Off

Joe Weisenthal | Apr. 19, 2011, 10:43 AM | 2,511 | 8

Image: David Blackwell via Flickr

The reactions to S&P’s downgrade continue to be interesting and varied.

Deutsche Bank’s Jim Reid speaks in particularly dramatic terms about it:

Yesterday may never quite make it as a “where were you when you heard the news ….” type of day but in economic history it may eventually prove to be an important landmark. April 18th 2011 was the day that a super cycle of 30 years of private and then public sector leverage across the Developed World finally reached arguably the highest quality part of its capital structure as the US saw its AAA rating put on negative outlook by S&P. For the record S&P have rated the US at AAA since 1941 with the outlook stable since such a system was introduced in the early 1990s. Yesterday’s action now leaves us with 18 AAA rated Sovereigns with a Stable outlook. Technically speaking, the US’s AAA rating has been here before but very briefly when the Clinton-Gingrich shutdown incident back in 1995/1996 saw Moody’s place some US government bonds on review for downgrade. Fitch’s AAA rating on the US was also on Negative Watch in November 1995 until Spring 1996. This was largely due to a budget impasse rather than a structural bigger picture problems such as the one today.

The reality is that this story is more about headlines, in our view, than a story with particularly great immediate consequences. However we believe the pressure will increasingly build on the US until a convincing fiscal plan is laid out and acted upon. As we discussed in yesterday’s EMR, the Global Sovereign crisis in probably still in the early stages and is likely to run through most of this decade, and we will be looking at the US for a possible denouement to the unfolding Sovereign issues still to play out globally.

Pretty good, though we still like UBS’ take better
Read more: http://www.businessinsider.com/deutsche-bank-on-the-sovereign-debt-crisis-cycle-2011-4#ixzz1K6x7rwAE




Global Insiders Warned:
U.S. Debt Crisis Could Explode at Anytime

Economic Policy Journal ^ | 1/25/2011 | Robert Wenzel

Posted on Tuesday, January 25, 2011 8:26:31 PM by FromLori

Global insiders are starting to gather in Davos, Switzerland for this week’s World Economic Forum. JPMorgan Chase’s Jamie “Obama’s Favorite Banker” Dimon will be there, as will be Treasury Secretary Geithner.

When attendees arrive and check in, they will be given their badges and a copy of a special Davos magazine, prepared especially for the event. In the magazine will be an article by Robert Rubin. He is an insider’s insider. Participants will read the article. Rubin is so wired in that when insiders think of the people who are operating behind a president, it is names like Rubin’s that come to mind. Jacob Lew the new director of the Office of Management and Budget is connected to Rubin. The old director of OMB, Peter Orszag, was connected to Rubin. The new head of the National Economic Council, Gene Sperling, is connected to Rubin, as was the previous NEC head, Larry Summers. It goes on. Rubin served as Treasury Secretary under Bill Clinton. He was former co-CEO of Goldman Sachs. He is co-Chairman of the Council on Foreign Relations. Got the idea? Insiders will read what he has written.

The first part of the article is about what the United States needs to do to get the economy going. It is a desperate shot taken at the buzzer from beyond half court. Rubin knows this. He is also a Keynesian, so his recommendations call for more spending that he hopes can be reversed in two or three years, once the economy “gets going”. It won’t work. The shot will fall short of the rim.

The second part of the article is much more significant. It is the breakdown of what is going wrong in the United States. An abbreviated version of the “Davos Warning” has been printed in FT.

Rubin wrote (my emphasis): The risks of our fiscal position are serious and multiple. And while these risks become more severe over time as our debt position worsens, all of these either have begun to materialise or could do so in the near term, so we should act now.

What multiple shapes could the crisis take? Rubin writes to the Davos insiders (My emphasis):

To be specific about the risks, deficits could crowd out private investment, which could choke off a private investment recovery. Moreover, the capacity for public investment is already diminishing, and could be exacerbated by growing entitlement costs and mounting interest payments…

Most dangerously, there is a risk of disruption to our bond and currency markets from the fear of much higher interest rates due to future imbalances or from fear of inflation because of efforts to monetise our debt. The result could be significant deficit premiums on bond market interest rates, seriously impeding private investment and growth or, worse, acute bond market declines that cause an economic crisis. This could also start in the currency markets.

While the likelihood of major market disruptions is greater in the intermediate and longer term, the shorter-term risks are also real. Market psychology can change unexpectedly and dramatically – either on its own or because of some catalyst – when underlying conditions are unsound. Possible catalysts are a debt ceiling confrontation, currency market problems, and state deficits…

For emphasis, I remind you this is a former Treasury Secretary of the United States writing. One of President Obama’s top outside advisers. So does Rubin think there is an easy solution to the debt problem? He writes: Growing out of our fiscal morass over time without policy action would require inconceivable rates of growth. Muddling through with unexpectedly favourable developments is extremely unlikely. The strong probability is that either we make the hard decisions so vital to our future, or we will be forced at some point to act more harshly and with less time to thoughtfully set priorities. Our long history of political and economic resilience should augur well. But these decisions are extremely difficult, and the question is whether we have the political will to face up to what we must do.

There you have it, from a man as inside as you can get: …our structural fiscal trajectory is unsustainable with multiple, serious risks (while at the same time, our large cyclical deficits are exacerbating debt levels and interest costs)…

Bottom line: The United States is in serious financial and economic trouble. It is only a matter of time before the crisis explodes. Don’t take my word for it, just re-read what the former Treasury Secretary has to say. It’s all there.

TOPICS: Business/Economy; Government
KEYWORDS: davos; debt; deficit; economy; rubin



Is Compounding Debt Mankind’s Kryptonite?

Economics / Global Debt CrisisApr 10, 2011 – 10:28 AM

By: Submissions


Best Financial Markets Analysis ArticleSilverDoctors writes: Throughout history, mankind has struggled to end the boom/bust economic cycle, and usher in a new age of economic prosperity.  The middle ages saw monarchy/ feudal/ serf systems.  Marx and Lenin believed economic prosperity could be achieved through socialism or communism- complete sharing of economic wealth and resources.  The modern Western world-influenced by the likes of Adam Smith, Keynes, and Friedman, has tried to achieve this through capitalism- the private ownership of goods with the incentive for personal profit.   The Chinese have developed a modern hybrid of capitalism and communism.  Hard money advocates believe fiat currency is the issue, and a return to sound money such as gold and silver will finally usher in the era of economic prosperity.

Each of these economic systems has been used numerous times, and all have miserably failed at creating uninterrupted growth and prosperity.   The end result is always a concentration of wealth and capital among a small percentage of elite at the expense of the rest of the population.   This wealth and capital inequality fueled by debt continues to build until a tipping point is reached, and the economy collapses.  This endgame always develops in one of two scenarios.

  1. Deflationary collapse- the debtors reach a point where they can no longer service their debt payments, and they default on their obligations.
  2. Hyper-inflationary collapse- the debtors lose confidence in the value of their currency, and rush to dump their currency holdings.  A positive-feedback loop is initiated, and the panic continuously intensifies until a complete collapse is reached.The system then resets and the process begins again.The reason no economic system ever developed by mankind has been able to eliminate these cycles can be summed up in two words: Debt, and Interest.
    Let’s look at a simple example of why debt and compounding interest result in an unsustainable increase in debt, which must eventually default or be inflated away.Suppose you lived 4600 years ago when the pyramids at Giza were being built, and you loaned Pharaoh  $1 at 1% interest to complete his tomb (for simplicity’s sake we’ll think in terms of dollars instead of the ancient Egyptian currency unit).  By 2011, the compounded debt would have reached 128,092,932,174,404,630,000.00. So after 4600 years, $1 at 1% interest compounds to a debt of 128 quintillion, 92 quadrillion, 932 trillion, 174 billion, 404 million, 6 hundred 30 thousand dollars.  The total value of every asset in the world is roughly $140 Trillion.
    In other words, in only 4600 years, $1 at 1% interest compounds to 91,500x the value of the entire earth.
    Clearly, even at only 1%, compounding interest is unsustainable.  It does not matter if the currency is fiat, gold/silver, floating, or any other devisable currency. It does not matter if the economic model is capitalism, socialism, communism, fascism, or any other.  Compounding interest makes every currency and system unsustainable over the long term.Is debt and interest mankind’s kryptonite? Are we cursed to forever continue the wealth disparity, boom/bust credit cycles due to compounding interest? Is there no solution to prevent the inevitable collapse that compounding interest ensures?There is only one solution to the boom/ bust credit cycle: the economic system developed by our Creator.The Creator’s system? Gold and silver based money to be lent without interest, with a debt jubilee every 50 years.In Leviticus (Old Testament), our Creator describes the only stable and prosperous economic system ever known to mankind.Silver (money) was not to be lent at interest

Every 50th year was commanded to be a Jubilee year, in which:

-All debts were to be forgiven
-All slaves were to be freed
-All farmland was to revert back to its original owner (or family)
-The land was to rest, no crops were to be planted or harvested

This marvelous economic model is the only system known to man in which debt and overconsumption will not build to the point of an unsustainable collapse.  The expectation of the coming Jubilee year forces constraint by lenders.  The Jubilee freedom and debt forgiveness prevents an unsustainable rise of debt.  It prevents an elite class of citizens from continually increasing their wealth, power, and influence over the rest of the population through the tool of debt and interest.  It automatically eliminates the “Vampire Squid” bankster class’ ability to control the economy through debt.   The Creator’s economic model achieves the goal of communism with the freedom of a laissez-faire system.

While a return to a gold and silver standard would be a vast improvement from our current fiat monetary system, a pure hard money currency alone cannot end the boom/bust credit cycle and the associated debt collapse.  A return to our Creator’s perfect monetary system of hard money, no interest, and Jubilee debt forgiveness every 50th year could usher in a true golden era, and provide sustainable prosperity for the entire nation.

Compounding debt does not have to be mankind’s kryptonite.


SilverDoctors specializes in precious metals commentary and trading, found at

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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The Great Global Debt Shift

Interest-Rates / Global Debt CrisisJan 24, 2011 – 03:56 PM

By: John_Browne


If one were asked to describe the major global economic changes that have unfolded since the financial crisis began, a good starting place would be the massive shift of debt from the private to the public sector. Attempting to arrest a deepening crisis, governments all around the world have bailed out businesses and companies by transferring bad debts to the public books. Although these moves have provided some current stability (after all, governments are much less likely to default), the long-term consequences may be dire.

Two of the world’s largest economies, the EU ($16 trillion) and the US ($14 trillion), have become the leading practitioners of private-to-public debt shifting. The US has assumed the debts of banks, insurers, mortgage holders, and even entire industrial sectors. The European Union has done the same for entire states. The resulting public debt levels are, predictably, placing strains on both the dollar and the euro.

Worse still, the bailouts have created a spirit of apathy toward debt accumulation. Western governments have embarked on a debt binge for the ages. Already, the credit ratings of the United States and some of the EU’s core countries, such as France and the UK, are being questioned.

While this socialization of private debt has created deep citizen resentment, it remains to be seen whether political pressure is enough to hold back the tide. In the US, the forces of fiscal restraint appear to have the upper hand at present; but, this late in the game, it is far from certain that the newly elected fiscal hawks will be able to avert civil unrest and debt default.

It is worth noting that the debt shift has offered some near-term benefits. Relieved of repayment anxiety, many companies have posted very promising earnings reports in recent months (one needs to only glance at Detroit). Despite continued demand weakness, these companies have worked hard to improve their balance sheets and raise operating margins. The resulting rally in share prices has given rise to a belief that recovery is at hand.

However, despite buoyant share prices, unemployment continues at dangerously high levels, depressing tax revenues and leading to much greater entitlement spending. This has made public debt levels rise even faster.

Total world direct sovereign debt, excluding guarantees and unfunded medical and pension obligations, is some $41.6 trillion dollars. When the $2.9 trillion owed by global municipalities is included, total direct public sector debt is over $50 trillion. Against this total, even the wealth of cash-rich nations such as China ($2.85 trillion in foreign-exchange reserves) and Japan ($1.1 trillion in reserves) pale into insignificance.

With so little credit to soak up the future financing needs of the US and the EU, it is no wonder that both their currencies are coming under pressure. It should be no surprise that Chinese President Hu began his state visit to the US by warning that the debased dollar was causing much of the world’s monetary problems – and was thus no longer credible as the world’s reserve. Once unshielded by that great privilege, I forecast that the US dollar will plummet.

In many ways, the euro may fare little better. The EU has organized a $1 trillion rescue package for its smaller members, but, in practice, there is not enough money for all the troubled peripherals, let alone a core state like France or Spain. Last week, the EU suggested that Greece should be allowed to default and restructure much of its debt. The Irish Times reported that the EU has allowed Ireland to print its own euros to settle the debts of its banks. Will it allow Portugal, Spain, Belgium, Italy and France to do the same? If so, what credibility will remain for the euro?

Possible because a major currency collapse is unprecedented in living memory, investors have been slow to react. While the markets are calm at present, we mustn’t forget that the nature of panic is that it is sudden. It can erupt quickly and overwhelm the unprepared. When it does, even supposedly rock-solid assets like Treasury bonds may be discounted severely.

In such a climate, gold and silver are as faithful as Old Yeller.

For a more in depth analysis of the inherent dangers facing the U.S. economy and the implications for U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

By John Browne

Euro Pacific Capital

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain’s Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher’s government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown’s advocacy, Thatcher famously pronounced that Gorbachev was a man the West “could do business with.”  A graduate of the Royal Military Academy Sandhurst, Britain’s version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

More importantly make sure to protect your wealth and preserve your purchasing power before it’s too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp



“Deficit Terrorism” and Economic Warfare

All the Perks are going to Wall Street, while Main Street slips into Debt Slavery

by Ellen Brown

Global Research, June 30, 2010

Web of Debt

Wall Street banks have been saved from bankruptcy by governments that are now going bankrupt themselves; but the banks are not returning the favor.  Instead, they are engaged in a class war, insisting that the squeezed middle class be even further squeezed to balance over-stressed government budgets.  All the perks are going to Wall Street, while Main Street slips into debt slavery.  Wall Street needs to be made to pay its fair share, but how?

The financial reform bill agreed to on June 25 may have carved out some protections for consumers, but for Goldman Sachs and the derivatives lobby, the bill was a clear win, leaving the Wall Street gambling business intact.  In a June 25 Newsweek article titled “Financial Reform Makes Biggest Banks Stronger,” Michael Hirsh wrote that the bill “effectively anoints the existing banking elite. The bill makes it likely that they will be the future giants of banking as well.”

The federal government and Federal Reserve have advanced literally trillions of dollars to save the big Wall Street players, to the point where the government’s own credit rating is in jeopardy; but Wall Street has not had to pay for the cleanup.  Instead, the states and the citizens have been left to pick up the tab.  On June 17, Time featured an article by David von Drehle titled “Inside the Dire Financial State of the States,” reporting that most states are now facing persistent budget shortfalls of a sort not seen since the 1930s.  Unlike the Wall Street banks, which can borrow at the phenomenally low fed funds rate of .2% and plow that money back into speculation, states don’t have ready access to credit lines.  They have to borrow through bond issues, and many states are so close to bankruptcy that their municipal bond ratings are collapsing.  Worse, states are not legally allowed to default.  Unlike the federal government, which can go into debt indefinitely, states must balance their budgets; and they cannot issue their own currencies.  That puts them in the same position as Greece and other debt-strapped European Union countries, which are forbidden under EU rules either to issue their own currencies or to borrow from their own central banks.

States, of course, don’t even have their own state-owned banks, with one exception — North Dakota .  North Dakota is also the only state now sporting a budget surplus, and it has the lowest unemployment and mortgage delinquency rates in the country.  As von Drehle observes, “It’s a swell time to be North Dakota .”

But most states are dealing with serious, chronic defaults, putting them in the same debt trap as Greece : they are being forced to lay off workers, sell public assets, and look for ways to squeeze more taxes out of an already over-taxed populace.  And their situation is slated to get worse, since the federal government’s stimulus package will soon be cut, along with assistance to the states.

The federal government is not only leaving the states high and dry but is threatening to impose even more taxes on their beleaguered citizens.  Paul Volcker, former Federal Reserve Chairman and current White House economic adviser, said in April that Congress needs to consider a Value Added Tax (VAT) – a tax on various stages of production of consumer goods.  A VAT of 17.5% is now imposed in Britain , and 20% is being proposed; while some EU countries already have a VAT as high as 25%.  In Europe, at least the citizens get something for their money, including federally-funded health care; but that is not likely to happen in the U.S., where even a “public option” in health care is no longer on the agenda.  The VAT hits the lower and middle classes particularly hard, since they spend most of their incomes on consumables.  The rich, on the other hand, put much of their money into speculative trades, and those sales are not currently taxed.

Business Cycle or Class War?

Ismael Hossein-Zadehi, who teaches economics at Drake University in Iowa , calls the whole economic crisis a class war.  What is being billed as public debt began as the private debt of financial speculators who offloaded it onto the public.  The governments that bailed out these insolvent speculators then became insolvent themselves; but the bailed-out banks, rather than lending a helping hand in return, have demanded their pound of flesh, with payment in full.  The perpetrators are blaming the victims and insisting on “fiscal responsibility.”  Wall Street bankers are dictating the terms of repayment for debts they themselves incurred.

“Fiscal responsibility” means cutting spending, something that is inherently deflationary during a recession, as seen in the disastrous Depression-era policies of President Herbert Hoover.  Not that it was solely a Republican error.  In 1937, President Franklin Roosevelt also cut public spending, tipping the economy back into recession.  Spending cuts cause tax revenues to shrink, which results in more spending cuts.  Contrary to what we have been told, national governments are not like households.  They do not have to balance their budgets and “live within their means,” because they have the means to increase the money supply.  They not only have the means, but they must engage in public spending when the private economy is shrinking, in order to keep the wheels of the economy turning.  Virtually all money now originates as bank-created credit or debt; and today the money supply has been shrinking at a rate not seen since the 1930s, because the banking crisis has made credit harder and harder to get.

Instead of “reflating” the collapsed economy, however, national governments are insisting on “fiscal responsibility;” and the responsibility is all being put on the states and the laboring and producing classes.  The financial speculators who caused the debacle are largely getting off scot free.  They not only pay no tax on the purchase and sale of their “financial products,” but they pay very little in the way of income taxes.  Goldman Sachs paid an effective income tax rate of only 1% in 2008.  Prof. Hossein-Zadehi writes:

“It is increasingly becoming clear that the working majority around the world face a common enemy: an unproductive financial oligarchy that, like parasites, sucks the economic blood out of the working people, simply by trading and/or betting on claims of ownership. . . . The real question is when the working people and other victims of the unjust debt burden will grasp the gravity of this challenge, and rise to the critical task of breaking free from the shackles of debt and depression.”

Working people don’t rise to the task because they have been propagandized into believing that “fiscal austerity” is something that needs to be done in order to save their children from an even worse fate.  What actually needs to happen in a deflationary collapse is to spend more money into the system, not pull it back out by paying off the federal debt; but the money needs to go into the real economy – into factories, farms, businesses, housing, transportation, sustainable energy systems, health care, education.  Instead, the stimulus money has been hijacked, diverted into cleaning up the toxic balance sheets of the financial gamblers who propelled the economy into its perilous dive.

Evening Up the Score

While Congress caters to the banks, the states have been left to fend for themselves.  Where is the money to come from to pull off the impossible feat of balancing their budgets?  Bleeding a VAT tax out of an already-anemic working class is more likely to kill the patient than to alleviate the disease.  “Unlike EU countries, where the VAT is the largest single source of tax revenue,” notes Professor Randall G. Holcombe in a recent study, “the states of the United States already tax the VAT tax base with their sales taxes.”  This doubling down on the same base would not only reduce the amount of money states are able to raise, but it would seriously hinder VAT’s role as a money generator.  By 2030, says Prof. Holcombe, this effect would have offset any increase in government revenue from the VAT.

A more viable and more equitable solution would be to tap into the only major market left on the planet that is not now subject to a sales tax – the “financial products” that are the stock in trade of the robust financial sector itself.  A financial transaction tax on speculative trading is sometimes called a “Tobin tax,” after the man who first proposed it, Nobel laureate economist James Tobin.  The revenue potential of a Tobin tax is huge.  The Bank for International Settlements reported in 2008 that total annual derivatives trades were $1.14 quadrillion (a quadrillion is a thousand trillion).  That figure was probably low, since over-the-counter trades are unreported and their magnitude is unknown.  A mere 1% tax on $1 quadrillion in trades would generate $10 trillion annually in public funds.  That is only for derivatives.  There are also stocks, bonds and other financial trades to throw in the mix; and more than half of this trading occurs in the United States .

A Tobin tax would not generate these huge sums year after year, because it would largely kill the computerized high-frequency program trades that now compose 70% of stock market purchases.  But that is a worthy end in itself.  The sudden, thousand-point drop in the Dow Industrial Average on May 6 showed the world how vulnerable the stock market is to manipulation by these sophisticated market gamblers.  The whole high-frequency trading business needs to be stopped, in order to protect legitimate investors using the stock market for the purposes for which it was designed: to raise capital for businesses.  As Mark Cuban observed in a May 9 article titled “What Business Is Wall Street In?”:

“Creating capital for business has to be less than 1pct of the volume on Wall Street in any given period. . . . My 2 cents is that it is important for this country to push Wall Street back to the business of creating capital for business. Whether it’s through a use of taxes on trades, or changing the capital gains tax structure so that there is no capital gains tax on any shares of stock (private or public company) held for 5 years or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years. However we need to do it, we need to get the smart money on Wall Street back to thinking about ways to use their capital to help start and grow companies. That is what will create jobs. That is where we will find the next big thing that will accelerate the world economy. It won’t come from traders trying to hack the financial system for a few pennies per trade.”

Besides protecting legitimate savers and investors by exempting stock held five years or more, they could be exempted from a Tobin tax on total stock purchases of under $1 million per year.  That would make the tax literally a millionaire’s tax — and a small one at that, at only 1% per trade.

At the G20 summit in Toronto last weekend, a financial transaction tax was discussed and supported by France and Germany but was opposed by the U.S. and Canada , although nothing binding was resolved.   However, the states do not have to wait for the federal government or the G20 to act.  They could levy a Tobin tax themselves.  Objection might be made that the Wall Street speculators would take their revenues and go elsewhere, but big banks and brokerages have branches in every major city in every state.  They are hardly likely to pack up their tents and leave lucrative centers of business.  Nor can it be argued that we should cater to the pirates who are looting our stock markets because they are paying us a nice bribe, because they aren’t even paying a bribe.  Financial trades do not currently generate tax revenues.

Two Green Party candidates for governor, Laura Wells in California and Rich Whitney in Illinois, have included a state-imposed Tobin tax in their platforms.  Both are also campaigning for state-owned banks in their states, on the model of the Bank of North Dakota.  People around the world look to the United States for boldness and innovation, and California and Illinois are two of the hardest hit states in the nation.  If those states manage to turn their economies around, they could establish a model for economic sovereignty globally.

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles . In Web of Debt, her latest of eleven books, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are www.webofdebt.com , www.ellenbrown.com , and www.public-banking.com .

Ellen Brown is a frequent contributor to Global Research.  Global Research Articles by Ellen Brown



The US Economy is Stuck in Misery

by Joel S. Hirschhorn

Global Research, July 2, 2010

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The middle class is dead.  The US has produced a self-sustaining two-class society.  Most Lower Class Americans are in bad or uncertain economic shape but the rich and powerful Upper Class crowd keeps making and spending money as if there has been no recession.

Talk about a possible double-dip recession misses the larger reality: For many millions of Americans the first recession is still here; there has been no recovery for them.  Too bad President Obama cannot comprehend that.  Nice that only 23 percent of people believe that his policies have made economic conditions better.  Maybe they got the change they were waiting for.

A new survey by the Pew Research Center provides disturbing data that no amount of lies from politicians can refute.  Without a lot more consumer spending, remember, the US economy will not regain lasting health.  The scope of the economic shock is shown by the 60 percent of Americans that have cut down on borrowing and spending.  And nearly 50 percent are in worse financial shape because of the economic downturn.  Forty percent of adults have tapped savings and retirement accounts to make ends meet.  Nearly 25 percent have had to borrow money from someone.  Ten percent have moved back with their parents to survive the economic tsunami, and that rises to 24 percent for workers between 18 and 29 years old.

More and more Americans now recognize that retirement will have to wait.  For those 62 and older and still working, 35 percent have postponed retirement.  That jumps to 60 percent as a likely action for working adults between ages 50 and 61.  Replace the golden years with the disappointment years, especially when inevitable reduced Social Security and Medicare benefits hit hard.

For those still lucky enough to have jobs, the Commerce Department reports that the personal savings rate in May — the part of wage income that goes unspent — rose to 4 percent, the highest amount in nearly a year, as anxious consumers faced continued economic woes, such as fears about losing jobs or homes, affording food and health care, and a tumbling stock market.

And always remember that the official jobless rate of just under 10 percent is pure bunk; it really is close to 20 percent nationally, and a lot worse in many places and for African-Americans and Hispanics.  The average time for being without a job is now six months, with many more people jobless for a whole lot more, often several years.  All this means suppressed consumer spending and continued high home foreclosure rates.  No big surprise that consumer confidence crashed almost 10 points between May and June.  Welcome to high anxiety.

Also keep in mind that even as the general consumer spending shows little life, the Upper Class keeps on living it up.  Gallup reported “Upper-income Americans’ self-reported spending rose 33% to an average of $145 per day in May — up from $109 per day in April 2010 and May 2009, and the highest monthly average since November 2008.”  The rest of the population’s self-reported spending averaged $59 per day in May.  So, rich Americans are spending nearly twice as much as the vast majority of Americans every day.  Indeed, Tiffany reports sales up 17 percent in the jeweler’s most recent quarter.  Overall US luxury sales, says MasterCard SpendingPulse, jumped 22.7 percent in March, over the previous year.  The increase in luxury buying appears to be coming almost totally from the “ultra-affluents,” those households making over $250,000 a year.  Their first-quarter spending increased 22.6 percent, meaning that they have returned to spending at pre-recession levels.

And here is a gem of a new statistic.  In 2009, the Economic Policy Institute reports that the typical working American with a four-year college degree took home $1,025 per week, $5 a week less than Americans with a four-year degree took home, after adjusting for inflation, in the year 2000.  How’s that for progress?

Meanwhile, almost half of U.S. companies that reduced or suspended their contributions to employee retirement plans during the recession haven’t restored them

The ultra ugly truth is that there is very little hope for the US economy providing true prosperity for the vast majority of people in the foreseeable future.  Unemployment will remain high and consumer spending will remain low except for the wealthy.  Economic inequality is terrible and punishing most Americans who should forget about that fabled American dream.  To visualize America ‘s staggeringly unequal distribution of wealth, suggests University of Tennessee at Martin historian David Barber, envision a 100-seat auditorium filled with 100 people.  If seating in that auditorium reflected our current wealth distribution, the single richest person in the hall “would be able to spread out smartly” over nearly 43 seats.  The poorest 60 would have to squeeze into just one.

As government deficits continue at historic high levels there will be even more pain as local and state governments cut employment and services.  All the economic impacts of the BP oil spill in the Gulf region will continue to expand and reverberate and it is doubtful that enough money will come from BP to those in pain soon enough to prevent catastrophes for millions of people.

Some impacted people may turn to religion as if God has not already shown total disdain for humanity.  Some will delude themselves that voting for certain candidates in the coming midterm elections will help.  Others will bury themselves in various distractions or choose to believe the political lies of President Obama and other politicians.  [How did all that federal stimulus spending work for you?]  Perhaps far more Lower Class people [Are you in denial about your Lower Class status?] should consider the advice of the deeply cynical: Kill Yourself.  If only politicians would take that advice.

Happy Fourth of July.  Time to try and remember the good old days.

Contact Joel S. Hirschhorn at delusionaldemocracy.com.

Joel S. Hirschhorn is a frequent contributor to Global Research.  Global Research Articles by Joel S. Hirschhorn


Gerald Celente Predicts Economic Armageddon by 2012 trends forecaster



Coming Economic Collapse – Greater than Great Depression


just printing money

government suck way to top … fail way to top

Gov’t hijacked by Wall Street

Too big to fail – Like titanic – rich given lifeboats while poor left to die

Criminal at the highest level politicians new kings and queens of commerce

Gerald Celente: US Economic Collapse by 2012

Posted by admin in Uncategorized on Mar 30th, 2009 | View Comments

UPDATE: Make sure you see my new post: Gerald Celente Predicts Greatest Depression

Gerald Celente is apparently the guy who is always right, and is telling us that by 2012 the U.S. will be in full economic collapse.  Celente is the CEO and trend forecaster of The Trends Research Institute.  He has, according to the video, accurately forecasted everything from the stock market crash in the 80’s to the ‘08 mortgage bubble burst.  ABC gives this guy alot of credence.

One of my favorite lines from the video:  ”You can’t print money based on nothing. It’s not even Economics 101, it’s Economics for dummies.”  Hear that Pres. Obama?  Spending/printing a trillion that you don’t have isn’t that great. Just ask Zo.

If you think Celente seems just a little too apocalyptic for your tastes, then you should also bear in mind the oh so competent government we have running the show right now.  They are so good at wasting money.  Just imagine how well they are spending those stimulus dollars.

Also, Celente was also on the Glenn Beck Show in February during Beck’s War Room Scarathon.


The problem is that the wealth was not created due to an increase in products and services that benefit society but thru speculation and a fake money system supported by govt intervention and cooperation between wall street and Washington. I would support a tax on the rich to bring back balance, but the whole big govt – big business monopoly has to be broken

America will Collapse Jim Rogers,Gerald Celente,Max Wolf,David Walker,David Vickers,Jack Cafferty


‘ Worst economic collapse ever’



Gerald Celente Obamageddon



Gerald Celente, Fascism In The USA in 2010 Through Terror Event (NWO SERIES/ The State Of The State)


corporate and government = fascism


‘America lives in a fascist state’ – Gerald Celente



‘America lives in a fascist state’ – Gerald Celente


Gerald Celente: Youre Seeing a Global Meltdown. Theres No Way Out of This


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Trend Researcher Gerald Celente joins Russia Today on July 1, 2010 to discuss the US dollar and the IMF’s proposed solution to replace the world’s sole reserve currency:

You’re seeing a global meltdown. There’s no way out of this. Everyone knows that Greece isn’t going to be able to pay of its debt. And we just saw today Spain’s bonds being downgraded once again. No, there’s a global financial currency crisis. They’re coming up with another scheme. Just as the Euro didn’t work, now the IMF is going to come to the rescue, put together a basket of currencies for everyone to draw from, and that going to work?

We can see a devaluation of the dollar. That’s what we’re looking for, rather than a high inflation. And we believe it is going to happen whether they call a bank holiday or not. In some way or another we’re going to see a dollar devaluation down the line.

Why replace one printing press with ten?

All fiat currencies are eventually doomed to fail, as they have always done throughout history. The Dollar, the Euro and any proposed IMF currency basket will end the same way, because the person and/or people in charge of the printing presses always lose control.

The dollar is not yet ready to completely fall apart. There is a strong indication currently that as assets around the globe are liquidated, capital is flowing back to the US dollar for, ironically, safety.

That capital, upon realizing the US is rapidly moving towards autocratic policies that restrict free trade (i.e. taxes and government regulation) and that US debt has become unserviceable, will just as quickly depart the dollar. It will be around this time that we may very well see a blanket dollar devaluation, essentially wiping out the purchasing power of anyone left holding Federal Reserve Notes.

Watch the video:




Can We End the American Empire Before It Ends Us?

Brilliant historian and essayist Chalmers Johnson argues that unless we face up to the tremendous strain our empire is having on America, we will lose our democracy, and then it will not matter much what else we lose.

May 17, 2007 |

In politics, as in medicine, a cure based on a false diagnosis is almost always worthless, often worsening the condition that is supposed to be healed. The United States, today, suffers from a plethora of public ills. Most of them can be traced to the militarism and imperialism that have led to the near-collapse of our Constitutional system of checks and balances. Unfortunately, none of the remedies proposed so far by American politicians or analysts addresses the root causes of the problem.

According to an NBC News/Wall Street Journal poll, released on April 26, 2007, some 78% of Americans believe their country to be headed in the wrong direction. Only 22% think the Bush administration’s policies make sense, the lowest number on this question since October 1992, when George H. W. Bush was running for a second term — and lost. What people don’t agree on are the reasons for their doubts and, above all, what the remedy — or remedies — ought to be.

The range of opinions on this is immense. Even though large numbers of voters vaguely suspect that the failings of the political system itself led the country into its current crisis, most evidently expect the system to perform a course correction more or less automatically. As Adam Nagourney of the New York Times reported, by the end of March 2007, at least 280,000 American citizens had already contributed some $113.6 million to the presidential campaigns of Hillary Rodham Clinton, Barack Obama, John Edwards, Mitt Romney, Rudolph Giuliani, or John McCain.

If these people actually believe a presidential election a year-and-a-half from now will significantly alter how the country is run, they have almost surely wasted their money. As Andrew Bacevich, author of The New American Militarism, puts it: “None of the Democrats vying to replace President Bush is doing so with the promise of reviving the system of check and balances…. The aim of the party out of power is not to cut the presidency down to size but to seize it, not to reduce the prerogatives of the executive branch but to regain them.”

George W. Bush has, of course, flagrantly violated his oath of office, which requires him “to protect and defend the constitution,” and the opposition party has been remarkably reluctant to hold him to account. Among the “high crimes and misdemeanors” that, under other political circumstances, would surely constitute the Constitutional grounds for impeachment are these: the President and his top officials pressured the Central Intelligence Agency to put together a National Intelligence Estimate (NIE) on Iraq’s nuclear weapons that both the administration and the Agency knew to be patently dishonest. They then used this false NIE to justify an American war of aggression. After launching an invasion of Iraq, the administration unilaterally reinterpreted international and domestic law to permit the torture of prisoners held at Abu Ghraib prison in Baghdad, at Guant·namo Bay, Cuba, and at other secret locations around the world.

Nothing in the Constitution, least of all the commander-in-chief clause, allows the president to commit felonies. Nonetheless, within days after the 9/11 attacks, President Bush had signed a secret executive order authorizing a new policy of “extraordinary rendition,” in which the CIA is allowed to kidnap terrorist suspects anywhere on Earth and transfer them to prisons in countries like Egypt, Syria, or Uzbekistan, where torture is a normal practice, or to secret CIA prisons outside the United States where Agency operatives themselves do the torturing.

On the home front, despite the post-9/11 congressional authorization of new surveillance powers to the administration, its officials chose to ignore these and, on its own initiative, undertook extensive spying on American citizens without obtaining the necessary judicial warrants and without reporting to Congress on this program. These actions are prima-facie violations of the Foreign Intelligence Surveillance Act of 1978 (and subsequent revisions) and of Amendment IV of the Constitution.

These alone constitute more than adequate grounds for impeachment, while hardly scratching the surface. And yet, on the eve of the national elections of November 2006, then House Minority Leader, now Speaker, Nancy Pelosi (D-Calif.), pledged on the CBS News program “60 Minutes” that “impeachment is off the table.” She called it “a waste of time.” And six months after the Democratic Party took control of both houses of Congress, the prison at Guant·namo Bay was still open and conducting drumhead courts martial of the prisoners held there; the CIA was still using “enhanced interrogation techniques” on prisoners in foreign jails; illegal intrusions into the privacy of American citizens continued unabated; and, more than fifty years after the CIA was founded, it continues to operate under, at best, the most perfunctory congressional oversight.

Promoting Lies, Demoting Democracy

Without question, the administration’s catastrophic war in Iraq is the single overarching issue that has convinced a large majority of Americans that the country is “heading in the wrong direction.” But the war itself is the outcome of an imperial presidency and the abject failure of Congress to perform its Constitutional duty of oversight. Had the government been working as the authors of the Constitution intended, the war could not have occurred. Even now, the Democratic majority remains reluctant to use its power of the purse to cut off funding for the war, thereby ending the American occupation of Iraq and starting to curtail the ever-growing power of the military-industrial complex.

One major problem of the American social and political system is the failure of the press, especially television news, to inform the public about the true breadth of the unconstitutional activities of the executive branch. As Frederick A. O. Schwarz and Aziz Z. Huq, the authors of Unchecked and Unbalanced: Presidential Power in a Time of Terror, observe, “For the public to play its proper checking role at the ballot box, citizens must know what is done by the government in their names.”

Instead of uncovering administration lies and manipulations, the media actively promoted them. Yet the first amendment to the Constitution protects the press precisely so it can penetrate the secrecy that is the bureaucrat’s most powerful, self-protective weapon. As a result of this failure, democratic oversight of the government by an actively engaged citizenry did not — and could not — occur. The people of the United States became mere spectators as an array of ideological extremists, vested interests, and foreign operatives — including domestic neoconservatives, Ahmed Chalabi and his Iraqi exiles, the Israeli Lobby, the petroleum and automobile industries, warmongers and profiteers allied with the military-industrial complex, and the entrenched interests of the professional military establishment — essentially hijacked the government.

Some respected professional journalists do not see these failings as the mere result of personal turpitude but rather as deep structural and cultural problems within the American system as it exists today. In an interview with Matt Taibbi, Seymour Hersh, for forty years one of America’s leading investigative reporters, put the matter this way:

“All of the institutions we thought would protect us — particularly the press, but also the military, the bureaucracy, the Congress — they have failedÖ So all the things that we expect would normally carry us through didn’t. The biggest failure, I would argue, is the press, because that’s the most glaringÖ. What can be done to fix the situation? [long pause] You’d have to fire or execute ninety percent of the editors and executives.”

Veteran analyst of the press (and former presidential press secretary), Bill Moyers, considering a classic moment of media failure, concluded: “The disgraceful press reaction to Colin Powell’s presentation at the United Nations [on February 5, 2003] seems like something out of Monty Python, with one key British report cited by Powell being nothing more than a student’s thesis, downloaded from the Web — with the student later threatening to charge U.S. officials with ‘plagiarism.'”

As a result of such multiple failures (still ongoing), the executive branch easily misled the American public.

A Made-in-America Human Catastrophe

Of the failings mentioned by Hersh, that of the military is particularly striking, resembling as it does the failures of the Vietnam era, thirty-plus years earlier. One would have thought the high command had learned some lessons from the defeat of 1975. Instead, it once again went to war pumped up on our own propaganda — especially the conjoined beliefs that the United States was the “indispensable nation,” the “lone superpower,” and the “victor” in the Cold War; and that it was a new Rome the likes of which the world had never seen, possessing as it did — from the heavens to the remotest spot on the planet — “full spectrum dominance.” The idea that the U.S. was an unquestioned military colossus athwart the world, which no power or people could effectively oppose, was hubristic nonsense certain to get the country into deep trouble — as it did — and bring the U.S. Army to the point of collapse, as happened in Vietnam and may well happen again in Iraq (and Afghanistan).

Instead of behaving in a professional manner, our military invaded Iraq with far too small a force; failed to respond adequately when parts of the Iraqi Army (and Baathist Party) went underground; tolerated an orgy of looting and lawlessness throughout the country; disobeyed orders and ignored international obligations (including the obligation of an occupying power to protect the facilities and treasures of the occupied country — especially, in this case, Baghdad’s National Museum and other archaeological sites of untold historic value); and incompetently fanned the flames of an insurgency against our occupation, committing numerous atrocities against unarmed Iraqi civilians.

According to Andrew Bacevich, “Next to nothing can be done to salvage Iraq. It no longer lies within the capacity of the United States to determine the outcome of events there.” Our former ambassador to Saudi Arabia, Chas W. Freeman, says of President Bush’s recent “surge” strategy in Baghdad and al-Anbar Province: “The reinforcement of failure is a poor substitute for its correction.”

Symbolically, a certain sign of the disaster to come in Iraq arrived via an April 26th posting from the courageous but anonymous Sunni woman who has, since August 2003, published the indispensable blog Baghdad Burning. Her family, she reported, was finally giving up and going into exile — joining up to two million of her compatriots who have left the country. In her final dispatch, she wrote:

“There are moments when the injustice of having to leave your country simply because an imbecile got it into his head to invade it, is overwhelming. It is unfair that in order to survive and live normally, we have to leave our home and what remains of family and friends…. And to what?”

Retired General Barry McCaffrey, commander of the 24th Infantry Division in the first Iraq war and a consistent cheerleader for Bush strategies in the second, recently radically changed his tune. He now says, “No Iraqi government official, coalition soldier, diplomat, reporter, foreign NGO, nor contractor can walk the streets of Baghdad, nor Mosul, nor Kirkuk, nor Basra, nor Tikrit, nor Najaf, nor Ramadi, without heavily armed protection.” In a different context, Gen. McCaffrey has concluded: “The U.S. Army is rapidly unraveling.”

Even military failure in Iraq is still being spun into an endless web of lies and distortions by the White House, the Pentagon, military pundits, and the now-routine reporting of propagandists disguised as journalists. For example, in the first months of 2007, rising car-bomb attacks in Baghdad were making a mockery of Bush administration and Pentagon claims that the U.S. troop escalation in the capital had brought about “a dramatic drop in sectarian violence.” The official response to this problem: the Pentagon simply quit including deaths from car bombings in its count of sectarian casualties. (It has never attempted to report civilian casualties publicly or accurately.) Since August 2003, there have been over 1,050 car bombings in Iraq. One study estimates that through June 2006 the death toll from these alone has been a staggering 78,000 Iraqis.

The war and occupation George W. Bush unleashed in Iraq has proved unimaginably lethal for unarmed civilians, but reporting the true levels of lethality in Iraq, or the nature of the direct American role in it was, for a long time, virtually taboo in the U.S. media. As late as October 2006, the journal of the British Medical Association, The Lancet, published a study conducted by researchers from Johns Hopkins University in Baltimore and al-Mustansiriya University in Baghdad estimating that, since March 2003, there were some 601,027 more Iraqi deaths from violence than would have been expected without a war. The British and American governments at first dismissed the findings, claiming the research was based on faulty statistical methods — and the American media ignored the study, played down its importance, or dismissed its figures.

On March 27, 2007, however, it was revealed that the chief scientific adviser to the British Ministry of Defense, Roy Anderson, had offered a more honest response. The methods used in the study were, he wrote, “close to best practice.” Another British official described them as “a tried and tested way of measuring mortality in conflict zones.” Over 600,000 violent deaths in a population estimated in 2006 at 26.8 million — that is, one in every 45 individuals — amounts to a made-in-America human catastrophe.

One subject that the government, the military, and the news media try to avoid like the plague is the racist and murderous culture of rank-and-file American troops when operating abroad. Partly as a result of the background racism that is embedded in many Americans’ mental make-up and the propaganda of American imperialism that is drummed into recruits during military training, they do not see assaults on unarmed “rag heads” or “hajis” as murder. The cult of silence on this subject began to slip only slightly in May 2007 when a report prepared by the Army’s Mental Health Advisory Team was leaked to the San Diego Union-Tribune. Based on anonymous surveys and focus groups involving 1,320 soldiers and 447 Marines, the study revealed that only 56% of soldiers would report a unit member for injuring or killing an innocent noncombatant, while a mere 40% of Marines would do so. Some militarists will reply that such inhumanity to the defenseless is always inculcated into the properly trained soldier. If so, then the answer to this problem is to ensure that, in the future, there are many fewer imperialist wars of choice sponsored by the United States.

The Military-Industrial-Congressional Complex

Many other aspects of imperialism and militarism are undermining America’s Constitutional system. By now, for example, the privatization of military and intelligence functions is totally out of control, beyond the law, and beyond any form of Congressional oversight. It is also incredibly lucrative for the owners and operators of so-called private military companies — and the money to pay for their activities ultimately comes from taxpayers through government contracts. Any accounting of these funds, largely distributed to crony companies with insider connections, is chaotic at best. Jeremy Scahill, author of Blackwater: The Rise of the World’s Most Powerful Mercenary Army, estimates that there are 126,000 private military contractors in Iraq, more than enough to keep the war going, even if most official U.S. troops were withdrawn. “From the beginning,” Scahill writes, “these contractors have been a major hidden story of the war, almost uncovered in the mainstream media and absolutely central to maintaining the U.S. occupation of Iraq.”

America’s massive “military” budgets, still on the rise, are beginning to threaten the U.S. with bankruptcy, given that its trade and fiscal deficits already easily make it the world’s largest net debtor nation. Spending on the military establishment — sometimes mislabeled “defense spending” — has soared to the highest levels since World War II, exceeding the budgets of the Korean and Vietnam War eras as well as President Ronald Reagan’s weapons-buying binge in the 1980s. According to calculations by the National Priorities Project, a non-profit research organization that examines the local impact of federal spending policies, military spending today consumes 40% of every tax dollar.

Equally alarming, it is virtually impossible for a member of Congress or an ordinary citizen to obtain even a modest handle on the actual size of military spending or its impact on the structure and functioning of our economic system. Some $30 billion of the official Defense Department (DoD) appropriation in the current fiscal year is “black,” meaning that it is allegedly going for highly classified projects. Even the open DoD budget receives only perfunctory scrutiny because members of Congress, seeking lucrative defense contracts for their districts, have mutually beneficial relationships with defense contractors and the Pentagon. President Dwight D. Eisenhower identified this phenomenon, in the draft version of his 1961 farewell address, as the “military-industrial-congressional complex.” Forty-six years later, in a way even Eisenhower probably couldn’t have imagined, the defense budget is beyond serious congressional oversight or control.

The DoD always tries to minimize the size of its budget by representing it as a declining percentage of the gross national product. What it never reveals is that total military spending is actually many times larger than the official appropriation for the Defense Department. For fiscal year 2006, Robert Higgs of the Independent Institute calculated national security outlays at almost a trillion dollars — $934.9 billion to be exact — broken down as follows (in billions of dollars):

Department of Defense: $499.4

Department of Energy (atomic weapons): $16.6
Department of State (foreign military aid): $25.3
Department of Veterans Affairs (treatment of wounded soldiers): $69.8
Department of Homeland Security (actual defense): $69.1
Department of Justice (1/3rd for the FBI): $1.9
Department of the Treasury (military retirements): $38.5
NASA (satellite launches): $7.6

Interest on war debts, 1916-present: $206.7

Totaled, the sum is larger than the combined sum spent by all other nations on military security.

This spending helps sustain the national economy and represents, essentially, a major jobs program. However, it is beginning to crowd out the civilian economy, causing stagnation in income levels. It also contributes to the hemorrhaging of manufacturing jobs to other countries. On May 1, 2007, the Center for Economic and Policy Research released a series of estimates on “the economic impact of the Iraq war and higher military spending.” Its figures show, among other things, that, after an initial demand stimulus, the effect of a significant rise in military spending (as we’ve experienced in recent years) turns negative around the sixth year.

Sooner or later, higher military spending forces inflation and interest rates up, reducing demand in interest-sensitive sectors of the economy, notably in annual car and truck sales. Job losses follow. The non-military construction and manufacturing sectors experience the largest share of these losses. The report concludes, “Most economic models show that military spending diverts resources from productive uses, such as consumption and investment, and ultimately slows economic growth and reduces employment.”

Imperial Liquidation?

Imperialism and militarism have thus begun to imperil both the financial and social well-being of our republic. What the country desperately needs is a popular movement to rebuild the Constitutional system and subject the government once again to the discipline of checks and balances. Neither the replacement of one political party by the other, nor protectionist economic policies aimed at rescuing what’s left of our manufacturing economy will correct what has gone wrong. Both of these solutions fail to address the root cause of our national decline.

I believe that there is only one solution to the crisis we face. The American people must make the decision to dismantle both the empire that has been created in their name and the huge (still growing) military establishment that undergirds it. It is a task at least comparable to that undertaken by the British government when, after World War II, it liquidated the British Empire. By doing so, Britain avoided the fate of the Roman Republic — becoming a domestic tyranny and losing its democracy, as would have been required if it had continued to try to dominate much of the world by force.

For the U.S., the decision to mount such a campaign of imperial liquidation may already come too late, given the vast and deeply entrenched interests of the military-industrial complex. To succeed, such an endeavor might virtually require a revolutionary mobilization of the American citizenry, one at least comparable to the civil rights movement of the 1960s.

Even to contemplate a drawing back from empire — something so inconceivable to our pundits and newspaper editorial writers that it is simply never considered — we must specify as clearly as possible precisely what the elected leaders and citizens of the United States would have to do. Two cardinal decisions would have to be made. First, in Iraq, we would have to initiate a firm timetable for withdrawing all our military forces and turning over the permanent military bases we have built to the Iraqis. Second, domestically, we would have to reverse federal budget priorities.

In the words of Noam Chomsky, a venerable critic of American imperialism: “Where spending is rising, as in military supplemental bills to conduct the wars in Iraq and Afghanistan, it would sharply decline. Where spending is steady or declining (health, education, job training, the promotion of energy conservation and renewable energy sources, veterans benefits, funding for the UN and UN peacekeeping operations, and so on), it would sharply increase. Bush’s tax cuts for people with incomes over $200,000 a year would be immediately rescinded.”

Such reforms would begin at once to reduce the malevolent influence of the military-industrial complex, but many other areas would require attention as well. As part of the process of de-garrisoning the planet and liquidating our empire, we would have to launch an orderly closing-up process for at least 700 of the 737 military bases we maintain (by official Pentagon count) in over 130 foreign countries on every continent except Antarctica. We should ultimately aim at closing all our imperialist enclaves, but in order to avoid isolationism and maintain a capacity to assist the United Nations in global peacekeeping operations, we should, for the time being, probably retain some 37 of them, mostly naval and air bases.

Equally important, we should rewrite all our Status of Forces Agreements — those American-dictated “agreements” that exempt our troops based in foreign countries from local criminal laws, taxes, immigration controls, anti-pollution legislation, and anything else the American military can think of. It must be established as a matter of principle and law that American forces stationed outside the U.S. will deal with their host nations on a basis of equality, not of extraterritorial privilege.

The American approach to diplomatic relations with the rest of the world would also require a major overhaul. We would have to end our belligerent unilateralism toward other countries as well as our scofflaw behavior regarding international law. Our objective should be to strengthen the United Nations, including our respect for its majority, by working to end the Security Council veto system (and by stopping using our present right to veto). The United States needs to cease being the world’s largest supplier of arms and munitions — a lethal trade whose management should be placed under UN supervision. We should encourage the UN to begin outlawing weapons like land mines, cluster bombs, and depleted-uranium ammunition that play particularly long-term havoc with civilian populations. As part of an attempt to right the diplomatic balance, we should take some obvious steps like recognizing Cuba and ending our blockade of that island and, in the Middle East, working to equalize aid to Israel and Palestine, while attempting to broker a real solution to that disastrous situation. Our goal should be a return to leading by example — and by sound arguments — rather than by continual resort to unilateral armed force and repeated foreign military interventions.

In terms of the organization of the executive branch, we need to rewrite the National Security Act of 1947, taking away from the CIA all functions that involve sabotage, torture, subversion, overseas election rigging, rendition, and other forms of clandestine activity. The president should be deprived of his power to order these types of operations except with the explicit advice and consent of the Senate. The CIA should basically devote itself to the collection and analysis of foreign intelligence. We should eliminate as much secrecy as possible so that neither the CIA, nor any other comparable organization ever again becomes the president’s private army.

In order to halt our economic decline and lessen our dependence on our trading partners, the U.S. must cap its trade deficits through the perfectly legal use of tariffs in accordance with World Trade Organization rules, and it must begin to guide its domestic market in accordance with a national industrial policy, just as the leading economies of the world (particularly the Japanese and Chinese ones) do as a matter of routine. Even though it may involve trampling on the vested interests of American university economics departments, there is simply no excuse for a continued reliance on an outdated doctrine of “free trade.”

Normally, a proposed list of reforms like this would simply be rejected as utopian. I understand this reaction. I do want to stress, however, that failure to undertake such reforms would mean condemning the United States to the fate that befell the Roman Republic and all other empires since then. That is why I gave my book Nemesis the subtitle “The Last Days of the American Republic.”

When Ronald Reagan coined the phrase “evil empire,” he was referring to the Soviet Union, and I basically agreed with him that the USSR needed to be contained and checkmated. But today it is the U.S. that is widely perceived as an evil empire and world forces are gathering to stop us. The Bush administration insists that if we leave Iraq our enemies will “win” or — even more improbably — “follow us home.” I believe that, if we leave Iraq and our other imperial enclaves, we can regain the moral high ground and disavow the need for a foreign policy based on preventive war. I also believe that unless we follow this path, we will lose our democracy and then it will not matter much what else we lose. In the immortal words of Pogo, “We have met the enemy and he is us.”

Chalmers Johnson is the author of Nemesis: The Last Days of the American Republic (New York: Metropolitan Books, 2007). It is the final volume of his Blowback Trilogy.



Accepting the End of the US Empire

By Ivan Eland
February 3, 2009

Editor’s Note: While President Barack Obama searches for a path out of the Bush administration’s economic catastrophe, another painful reality is drawing less attention: America’s imperial over-extension and the unsustainable financial burden it has placed on U.S. taxpayers.

In this guest essay, the Independent Institute’s Ivan Eland warns that America’s economic mess is part of the price being paid for the hubris of America’s imperial elite, which — like similar elites in other fading imperial powers – won’t accept that a global empire has its limits:

When you stop to think about it, people measure how well their lives are going not by their absolute state of being but by their situation relative to their expectations.

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For example, a poor person in a developing country may be ecstatic about getting a pair of shoes for the first time; in contrast, a billionaire may commit suicide after he loses $100 million in a down market.

The same is true for nations. The American elite has enjoyed the United States’ dominant status in the world since World War II and became thoroughly drunk with U.S. superiority in the last two decades after the demise of the Soviet Union left the country as the only superpower.

This elite is resistant to accepting the reality that a multi-polar world will soon be at hand.

This reality will arrive much sooner if the U.S. does not retract its informal overseas empire, reduce the bloated defense budget, and act with more humility overseas.

Even before the U.S.-led global financial meltdown, the far-flung U.S. empire of overseas military bases, U.S.-dominated alliances, and profligate military meddling in other nations’ affairs was terribly overextended. The U.S. accounted for 20 percent of the world’s GDP but 43 percent of its defense spending.

Yet like the elites of the British and French Empires, which became exhausted by being on the winning side of two world wars, the U.S. elite refuses to realize that the country needs to retract its cost-ineffective empire if it wants to avoid demise as a great power.

After being occupied by the Nazis through much of World War II, the French ignored their post-war financial precariousness and tried to rekindle their imperial glory by retaking Indochina.

When the spent French were not up to the task in the mid-1950s, Harry Truman and his successors made the foolish commitments for the United States to finance them, assist them, and later take over for them. Reluctant even then to give up their colonial mindset, the French then tried and failed to militarily suppress Algerian independence in the 1950s and 1960s.

Similarly, the British attempted to keep their Middle East dominance long after the sun had set on the British Empire. Even after their ill-fated invasion of Egypt in 1956 — with the help of Israel and the irrepressible France — the British didn’t pull back from the Middle East until the early 1970s.

Currently, the United States has its finger in the dike in two pointless nation-building quagmires in Iraq and Afghanistan, while Osama bin Laden is most likely in Pakistan and the U.S. is being severely debilitated by an economic meltdown at home.

Of course, Barack Obama was not responsible for any of this mess but may become captive of the interventionist U.S. elite in trying to deal with these calamities.

Economically, the Bush/Obama period ominously resembles the Hoover/FDR period, when a common recession was converted into a Great Depression by interventionist government policies that refused to let natural market mechanisms bring the country out of the economic slump.

Let’s hope the current economic calamity doesn’t get this bad; but that we can no longer afford to maintain an extensive overseas empire hasn’t yet seemed to sink into the minds of the U.S. elite.

Another historical parallel is the Vietnam period, when Lyndon Johnson tried to run a guns-and-butter policy — funding the Vietnam War and expanding the government’s reach domestically by funding Great Society programs.

Now, the Bush/Obama governments are trying to fund two wars while also spending at least $1.5 trillion to trick American consumers into thinking the government can save them from an inevitable recession — all the while making that downturn worse. On top of that, the bulge of baby boomers will soon begin retiring, thus putting pressure on collapsing Social Security and Medicare systems.

During Vietnam and the Great Society, LBJ honestly — if irresponsibly — funded the ballooning government with a 10-percent surtax on corporate and income taxes.

No such honesty has come from the Bush administration, as it cut taxes while raising federal spending dramatically. Now that an economic meltdown has occurred, Obama is understandably reluctant to increase taxes — and has proposed lowering them further — while continuing Bush’s spending spree to try to fool the country out of its economic collapse.

So we are staring trillion-dollar budget deficits in the face. The federal budget is $3.1 trillion dollars a year but two-thirds of that is on autopilot — that is, guaranteed payments to people regardless of economic conditions under Social Security, Medicare, Medicaid, Food Stamps, and unemployment compensation or interest payments on the already staggering national debt.

Of the $1.1 trillion that can be more easily altered (discretionary spending), more than half of that is the monstrous defense budget. Thus, defense spending should and will eventually become a big target for Obama’s promised future fiscal restraint.

Obama has good instincts on withdrawing from Iraq but is slowly being co-opted by the foreign policy elites and military bureaucracy. His instincts on Afghanistan are likely to be “unhelpful.” He wants to double down on a nation-building conflict that is stoking Islamist fundamentalism and will be much harder to “win” than Iraq (although the U.S. hasn’t won Iraq by a long shot).

Obama needs to wise up, totally withdraw from both Iraq and Afghanistan, focus on finding bin Laden in Pakistan, withdraw from the U.S. Empire, and dramatically slash the U.S. defense budget.

The U.S needs to take this revolutionary tack as one step toward renewing what is still the world’s largest economy — that on which all indices of U.S. national power ultimately depend.

The U.S. can still be an economic superpower and have much influence in the world, but the days of being a globe-girdling military power are over. The U.S. foreign policy elite just hasn’t accepted it yet.

Ivan Eland is Director of the Center on Peace & Liberty at The Independent Institute. Dr. Eland has spent 15 years working for Congress on national security issues, including stints as an investigator for the House Foreign Affairs Committee and Principal Defense Analyst at the Congressional Budget Office. His books include The Empire Has No Clothes: U.S. Foreign Policy Exposed, and Putting “Defense” Back into U.S. Defense Policy.

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Store: An Independent Institute Book

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© 2004

U.S. Foreign Policy Exposed
By Ivan Eland

Most Americans don’t think of their government as an empire, but in fact the United States has been steadily expanding its control of overseas territories since the turn of the twentieth century. Now, through political intimidation and over 700 military bases worldwide, the U.S. holds sway over an area that dwarfs the great empires of world history.

In The Empire Has No Clothes, Ivan Eland, a leading expert on U.S. defense policy and national security, examines American military interventions around the world from the Spanish-American War to the invasion of Iraq.

Eland shows that the concept of empire is wholly contrary to the principles of both liberals and conservatives and that it makes a mockery of the Founding Fathers’ vision for a free republic. Eland also warns that in recent years, “blowback” and the enormous expansion of domestic federal power resulting from this overextended empire have begun to threaten the American homeland itself and curtail the very liberties these interventions were supposed to protect.

Public debate of the United States’ role in the world has finally begun in earnest, and Ivan Eland delivers a penetrating argument in this landmark book, exposing the imperial motives behind interventionist U.S. policy, questioning the historical assumptions on which it is based and advocating a return to the Founding Fathers’ vision of military restraint overseas.

Detailed Summary

Table of Contents

  • Introduction: History of the U.S. Empire
  • Does the United States Really Have an Empire?
  • Why Conservatives Should Be Against Empire
  • Why Liberals Should Be Against Empire
  • Why All Americans Should Be Against Empire
  • An Appropriate Foreign Policy for the Modern Age
  • Conclusion
  • Notes
  • Index
  • About the Author

Praise for The Empire Has No Clothes

“I can honestly say I found The Empire Has No Clothes to be factually well grounded and extremely well thought out. The logic is sound as is the scholarship from my perspective. The Independent Institute should be commended for its role is supporting neutral research which is driven neither by the politics of the left or the right.”
RINALDO S. BRUTOCO, President, The World Business Academy

“In The Empire Has No Clothes, Dr. Eland shows that the concept of empire is wholly contrary to the principles of liberals and conservatives alike and makes a mockery of the Founding Fathers’ vision for a free republic.”
RON PAUL, U.S. Congressman

“In a sound-bite age, few people have the time or inclination to ponder the sweep of history. What is needed then is a primer on the subject, a sort of ‘Empire for Dummies,’ laying out in detail the follies of America’s current course of action, which is taking it steadily further away from its historical roots as a republic. The Empire Has No Clothes is a worthy tome written by Ivan Eland. He has observed imperialistic interventions by both right- and left-wing administrations—from George H. W. Bush through Bill Clinton to George W. Bush himself. His jaundice about their rhetoric and actions is both well documented and well deserved. He is obviously familiar with all the current proponents of American empire—from imports such as British historian Niall Ferguson to home grown pith-helmet and jodhpur-wearing wannabes Robert Kagan and Wall Street Journal essaying Max Boot—and their arguments and smoothly picks them apart. Observations like these are fairly frequent and quite entertaining and it’s worth buying the book for these alone.”

The Empire Has No Clothes is a very important book. There are a lot of books out now about empire, but this is probably the most searching and the most provocative. I do hope you will read it and spread the word, and have all your friends and parents and whatever children you have read it too. The debate extends far beyond just the current situation. This book could have been written even if we had not gone to war two years ago in Iraq. We have had an empire by anyone’s definition. This book will pinpoint some of these issues for all of you.”
C. BOYDEN GRAY, former Chief Counsel to the President of the United States

“Is the United States an empire? Yes, writes Ivan Eland of the Independent Institute. Washington dominates the affairs of many allied and client states without occupying them. This wasn’t the vision of America’s Founders. But World Wars I and II and the Cold War transformed Washington’s international role. As Mr. Eland argues in The Empire Has No Clothes, a book bound to irritate and even enrage, today’s expansive foreign policy is not just unnecessarily expensive—think of hundreds of thousands of troops stationed overseas to protect wealthy allies—but dangerous. Unfortunately, argues Mr. Eland, Americans have become the targets of terrorists less because others are jealous of their freedoms, as contended by President George W. Bush, among others, and more because of the U.S. government’s actions. His most important argument is that an interventionist stance makes Americans less secure. The issue has generated heated debate at home. But Mr. Eland is persuasive. Mr. Eland’s argument is not a prescription for putting one’s head in the sand. Rather, he recommends that America look before it leaps. There may be no more important lesson for policymakers in today’s often bloody and uncertain world.”

“Transcending partisan biases and trivialities and modern misconceptions, Eland puts current international crises in historical, economic and philosophical context. The Empire Has No Clothes is a must read, accessible and useful to readers across the ideological spectrum, and its lasting importance will be equally compelling regardless of which interventionist candidate of whichever faction of the War Party wins the election this Nov. 2.”

“This book is the sobering antidote for the imperial wine that has impaired the judgment of American politicians, Republican and Democrats alike, since the end of the Cold War. In it, Ivan Eland catalogs the costs of the existing American Empire that include free riding allies, the growth of government, the erosion of liberties, and the blind hatred of tens of millions across the globe while outlining an alternative foreign policy that is both saner and safer than the foolishly interventionist one that has been the politicians’ consistent preference.”
HARVEY M. SAPOLSKY, Professor of Political Science and Director of the Security Studies Program, Massachusetts Institute of Technology

The Empire Has No Clothes is an extremely sensible book. I agree with Ivan Eland’s argument, though I doubt if it will be much appreciated by Rumsfeld, Wolfowitz and Perle.”
PAUL M. KENNEDY, Dilworth Professor of History and Director of the International Security Studies, Yale University; author of The Rise and Fall of the Great Powers

“Those concerned that the Bush administration has unnecessarily overextended this nation’s militarily should read Ivan Eland’s latest book. In The Empire Has No Clothes, Dr. Eland makes a persuasive case that current U.S. national security policy is contrary to the principles of both liberals and conservatives and is actually undermining our security and civil liberties. This book is an excellent contribution to the debate on the Bush Doctrine of waging preventive wars, maintaining hegemony, and spreading democracy by force.”
LAWRENCE J. KORB, former Assistant Secretary, U.S. Department of Defense

“Ivan Eland’s book, The Empire Has No Clothes, is a comprehensive history of American imperialism, including a balanced treatment of various schools and definitions of imperialism as used by scholars, politicians, and pundits. More important it contains three long normative chapters on ‘Why Conservatives Should Be Against Empire,’ ‘Why Liberals Should Be Against Empire,’ and ‘Why All Americans Should Be Against Empire.’ These are tours de force and should greatly influence the debate in this country about how to restore a Constitutional foreign policy, one shorn of our rampant militarism. Eland concludes that ‘The Founders’ foreign policy is more relevant than ever,’ a direct challenge to those who would lead the country further into the deadly trap of imperialism. Read this book.”
CHALMERS JOHNSON, author of Blowback and The Sorrows of Empire; President, Japan Policy Research Institute

“Ivan Eland said that Iraq would be a debacle before the war began. In his terrific new book, The Empire Has No Clothes, he explains in detail why Iraq and the pursuit of empire will make the United States less safe in the years ahead. Hopefully, more Americans will listen to him now—before we get ourselves into even more trouble at home and abroad”
JOHN MEARSHEIMER, R. Wendell Harrison Distinguished Service Professor of Political Science, University of Chicago

The Empire Has No Clothes: U.S. Foreign Policy Exposed has an engaging title, but Ivan Eland’s new book is a scholarly, compelling and provocative study of where we are, how we got here, and the dangers inherent in the aggressive, imperialist policies we are implementing. It is impressively lucid, filled with careful research, rational analysis and highly insightful commentary, certain to satisfy concerned readers across the political spectrum.”
EDWARD L. PECK, former Chief of U.S. Mission in Iraq, former U.S. Ambassador to Mauritania

“The book, The Empire Has No Clothes, is an eloquent and well-researched argument that very much needs to be heard, contending that Americans, conservative as well as liberal, have become ensnared in an imperialism of which they are largely unaware, and of which they should disapprove. The book will play an important role in structuring a major debate about American foreign policy.”
GEORGE H. QUESTER, Professor of Government and Politics, University of Maryland

The Empire Has No Clothes offers a powerful and persuasive critique of recent U. S. foreign policy. It deserves the thoughtful attention of conservatives and liberals alike—indeed, of all Americans disturbed by the imperial pretensions evident in Washington since the end of the Cold War.”
ANDREW J. BACEVICH, Professor of International Relations, Boston University

“Think a U.S. empire is desirable and viable? Read Ivan Eland‘s highly insightful, essential book, The Empire Has No Clothes, and you will change your mind.”
EDWARD A. OLSEN, Professor of National Security Affairs, Naval Postgraduate School

“Ivan Eland’s provocative and well-researched critique of America’s interventionist foreign policy, The Empire Has No Clothes, makes a powerful case for returning to the practical principles of the Founding Fathers. With convincing examples that range across history to address the concerns of liberals and conservatives alike, he clearly demonstrates that our current democratic empire is a dangerous oxymoron.”
MELVIN SMALL, Distinguished Professor of History, Wayne State University

“Victory in the Cold War eliminated the danger that another superpower or ideology could take over the rest of the world. Yet the United States still tries to run the world as much as it ever did. Eland’s book, The Empire Has No Clothes, is a sober, hard-hitting critique of this anomaly and a cogent brief for why liberals and conservatives together should reject an imperial role for America.”
RICHARD K. BETTS, Director, Institute of War and Peace Studies, Columbia University

The Empire Has No Clothes is a powerful critique of American interventionism, focusing on the post-Cold War period. Eland brings together the American actions in Kosovo and Gulf War I & II, in a discussion of the ways in which our ‘nation-building’ has become a new form of empire. And what was disastrous for other ambitious world powers going back to Rome, he suggests, will fall upon us-sooner than we think. The heart of the book, moreover, are the chapters showing how both liberals and conservatives need to rethink their positions, and join in an effort to challenge the empire on grounds of self-interest. It is a great book!”
LLOYD C. GARDNER, Charles and Mary Beard Professor of History, Rutgers University

About the Author

IVAN ELAND is recognized as one of the leading experts in U.S. defense and foreign policy. He is Senior Fellow and Director of the Center on Peace & Liberty at The Independent Institute.

He received his M.B.A. in applied economics and Ph.D. in national security policy from George Washington University. He has been Director of Defense Policy Studies at the Cato Institute, Principal Defense Analyst at the Congressional Budget Office, and Investigator for the House Foreign Affairs Committee.

Eland is the author of Putting “Defense” Back into U.S. Defense Policy and The Efficacy of Economic Sanctions as a Foreign Policy Tool, a contributor to numerous volumes, and the author of forty-five in-depth studies on national security issues. His articles have appeared in Arms Control Today, Bulletin of the Atomic Scientists, Mediterranean Quarterly, and Middle East and International Review, and his popular writings have appeared in such publications as the Los Angeles Times, USA Today, Philadelphia Inquirer, Washington Post, Newsday, Chicago Sun-Times, and Defense News. He has appeared on ABC, NPR, PBS, Fox News, CNBC, CNN, C-SPAN, MSNBC, Radio Free Europe, and BBC.


Huge Crash Coming

Subprime > altay > Option arms


What do you know about Option Arms and Altay loans, this is what’s next to fail?

First wave of sub-prime mortgage defaults over.

Second wave of mortgage defaults coming now to higher quality credit risks. These are people who have bought homes in the last five years and who have taken out home equity loans. Mortgages now going under water owe more than house is worth. This wave of defaults will take upwards of 10 to 12 months to clear.

Third wave of mortgage defaults due to begin this year and continue through 2011 are Option Arms and Altay; as payments are automatically resetting to higher rates. We saw some fail last month because of a 3% rate hike, next month is the beginning of the end as rates start to climb even higher.
Estimated – 8 million defaults in next four years.

As if this is not enough we have the next huge failure to come in the commercial real estate market, that will make the sub-prime fiasco look like kids play!

Then comes credit cards and auto loans in the end.

Post Published: 30 June 2010
Author: admin
Found in section: Commercial Real Estate Financing Questions

Tags: 12 months, altay, auto loans, beginning of the end, commercial real estate, credit cards, failure, fiasco, first wave, home equity loans, mortgage defaults, mortgages, option arms, quality credit, rate hike, real estate market, second wave, sub prime mortgage, third wave

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Is This the End of the American Empire?

President George W. Bush’s trips to Europe during the month of June attracted significant anti-American demonstrations. At the same time, the United States announced troop withdrawals from Europe and Korea as the handover in Iraq took place. Analysts speculate what would happen if America withdrew from its international role.

by Melvin Rhodes

British historian Niall Ferguson is one of the most prolific historians writing today. He is Herzog professor of history at New York University’s Stern School of Business and senior fellow at the Hoover Institute at Stanford University


In addition to these responsibilities, he has been writing more than one book a year and countless articles for different magazines. He is also refreshingly perceptive about the world in which we live. As an atheist he does not see things through biblical eyes, but, without realizing it, much of what he writes confirms Bible prophecy.

In an article in the latest issue of Foreign Policy (July-August, 2004), Mr. Ferguson writes of “A World Without Power.” His introductory paragraph says this: “Critics of U.S. global dominance should pause and consider the alternative. Who would replace America if it retreated from its current role? Not Europe, not China, not the Muslim world—and certainly not the United Nations. Unfortunately, the alternative to a single superpower is not a multilateral utopia, but the anarchic nightmare of a new Dark Age.”

Mr. Ferguson gives three reasons for the imminent fall of the American superpower. As he puts it: “The United States suffers from at least three structural deficits that will limit the effectiveness and duration of its quasi-imperial role in the world.

“The first factor is the nation’s growing dependence on foreign capital to finance excessive private and public consumption. It is difficult to recall any past empire that long endured after becoming so dependent on lending from abroad.”

America is overdrawn

As if to emphasize this point, the same issue of Foreign Policy carried an article by Lawrence H. Summers, president of Harvard University and former secretary of the Treasury during the Clinton administration. In the article, titled “America Overdrawn,” Mr. Summers highlights a simple fact: “There is something odd about the world’s greatest power being the world’s greatest debtor…Much has been made of U.S. dependence on foreign energy, but the country’s dependence on foreign cash is even more distressing. In a real sense, the countries that hold U.S. currency and securities in their banks also hold U.S. prosperity in their hands. That prospect should make Americans uncomfortable.”

Whereas Mr. Summers looks at the economic consequences of American profligacy, Mr. Ferguson looks at the geopolitical consequences.

Mr. Ferguson continues with his second and third reasons for the end of American supremacy. “The second deficit relates to troop levels: The United States is a net importer of people and cannot, therefore, underpin its hegemonic aspirations with true colonization. At the same time, its relatively small volunteer army is already spread very thin as a result of major and ongoing military interventions in Afghanistan and Iraq.”

Emphasizing this fact, the Pentagon in June announced troop withdrawals from Europe and Korea, significantly reducing its presence in both areas.

“Finally, and most critically,” writes Mr. Ferguson in explaining his third point, “the United States suffers from what is best called an attention deficit. Its republican institutions and political traditions make it difficult to establish a consensus for long-term nation-building projects. With a few exceptions, most U.S. interventions in the past century have been relatively short lived. U.S. troops have stayed in West Germany, Japan and South Korea for more than 50 years; they did not linger so long in the Philippines, the Dominican Republic, Haiti or Vietnam, to say nothing of Lebanon and Somalia. Recent trends in public opinion suggest that the U.S. electorate is even less ready to sacrifice blood and treasure in foreign fields than it was during the Vietnam War.”

So who then will replace the United States?

Mr. Ferguson’s conclusions about the decline of American power are not new. Professor Paul Kennedy, another British historian who is now lecturing at Yale University, wrote his monumental bestseller The Rise and Fall of the Great Powers in 1987. In his book, Professor Kennedy studied “Economic Change and Military Conflict from 1500 to 2000” and concluded that the same trends that brought down the British, French and Spanish empires, would inevitably also bring down the Soviet and American superpowers. The Soviet Union was to prove him correct very quickly, leaving the United States as the world’s only remaining superpower.

If history shows that America’s decline is unavoidable, then the question all should contemplate is, who will replace the United States as the world’s dominant power?

Mr. Ferguson, having already stated, “certainly not the United Nations,” in his introductory remarks, looks at three possible contenders. Each is dismissed for various reasons. The three are: Europe (“too old”), China (about to go through a “coming economic crisis”) and Islam (“the Muslim world is as divided as ever”).

He then presents a credible alternative—the idea of a power vacuum around the world. In effect, that nobody will replace the United States as a superpower.

Nobody alive today can remember such a time. We have to go back a long way in history to see a time when there was such a vacuum, where no single power was dominant. In fact, we have to go back over 1,000 years to the ninth and 10th centuries, part of the so-called Dark Ages, when there was universal anarchy.

However, Mr. Ferguson makes the case that there was a more recent time when the world was in a transition period from one superpower epoch to another. That was the period between the two world wars.

At the end of World War I, the great continental European empires that had lasted for centuries had all collapsed, as had the Ottoman Empire in the Middle East. The British and French Empires remained intact but had been greatly weakened by over four years of intensive conflict. The United States at this time could have taken over as world leader, but the mood of the American people was to withdraw from the world stage. The British Empire was left to manage the world as best it could. The result of this relative power vacuum two decades later was the rise of national socialism and a second major conflict that finally finished off the British Empire and left the United States sharing global leadership with Moscow.

American empire not the same as the British

In his latest book, Colossus: The Price of America’s Empire (2004), Mr. Ferguson shows that the American empire suffers from limitations with which its predecessor, the British Empire, did not have to contend, mainly because of the third reason highlighted earlier in this article: “Most U.S. interventions in the past century have been relatively short lived.”

Whereas the British would conquer a country and then rule it indefinitely, imposing upon it a variation of the British political system, Americans prefer to go into a country with an “exit strategy” already in mind. This does not put down roots of democracy nor does it ensure long-term American interests.

On Britain’s empire going before the American empire, consider the prophetic statement of Genesis 48:20, “He set Ephraim before Manasseh.” (This biblical connection is explored in detail in our free booklet, The United States and Britain in Bible Prophecy.) The American empire took over Britain’s international role at the end of World War II. Instead of directly ruling other nations as the British did, the Americans have military bases all over the world and try to enforce the Pax Americana through its military might. This has effectively delayed the total chaos that would have engulfed the world if the U.S. Congress in 1945 had taken the same approach as at the end of World War I, turning its back on international responsibilities and commitments.

Writing in 1940, America’s preeminent historian James Truslow Adams said this of the consequences of the fall of the British Empire, at that time fighting for its life against Hitler’s Third Reich: “Different peoples may have different ideals of government but for those who have been accustomed to freedom of person and of spirit, the possible overthrow of the British Empire would be a catastrophe scarcely thinkable. Not only would it leave a vacuum over a quarter of the globe into which all the wild winds of anarchy, despotism and spiritual oppression could rush, but the strongest bulwark outside ourselves for our own safety and freedom would have been destroyed” (The British Empire, 1784-1939, p. 358).

What Mr. Adams did not foresee was that the United States would take over from Great Britain, not the role of international caretaker, but rather that of international policeman. Consequently, the full repercussions of the fall of the British and other European empires have not yet become apparent. However, into many parts of the world where the British once ruled, “the wild winds of anarchy, despotism and spiritual oppression” have definitely rushed, including large swaths of the Middle East, which the British once dominated. An American withdrawal from the rest of the world would likely lead to universal chaos and confusion, a return to the Dark Ages not seen in over a thousand years.

Another superpower in the wings

The picture Mr. Ferguson paints fits in well with the overall picture presented in Bible prophecy. Scripture shows us that at the time of the end there will be a union of 10 kings, which is a final resurrection of the Roman Empire. No mention is made of the United States at this point in time, but the Beast power prophesied to come clearly does not have the characteristics of the United States or Britain. It would appear that by this time the United States is no longer a major player on the world scene. Perhaps following the demise of American power we will see anarchy and despotism spread around the world, leading in a short period of time to the rise of the Beast power, purportedly to save the world from itself.

Mr. Ferguson rules out Europe as the next superpower because it’s “too old.” He is referring to demographics: The white population of Europe is aging rapidly. There is a very low birthrate and there is a corresponding influx of immigrants from Third World countries to make up the deficit. This is all very true, but even experts cannot see the unexpected twists and turns of history.

The June 19 issue of The Economist carried a three-page article comparing the economies of Europe and the United States. Comments have often been made of how moribund the euro-area economies are and how much better the American economic system works. But The Economist article looked more deeply into the two areas and concluded that they are on a par. This means that the EU economies could sustain a military on a par with that of the United States, if they really wanted to—or needed to.

We believe a colossal crisis or crises are coming that will impel Europe to coalesce into that superpower form. For more information, see our booklets, Are We Living in the Time of the End? and The Book of Revelation Unveiled. WNP



This the End of the American Empire?

President George W. Bush’s trips to Europe during the month of June attracted significant anti-American demonstrations. At the same time, the United States announced troop withdrawals from Europe and Korea as the handover in Iraq took place. Analysts speculate what would happen if America withdrew from its international role.

by Melvin Rhodes

British historian Niall Ferguson is one of the most prolific historians writing today. He is Herzog professor of history at New York University’s Stern School of Business and senior fellow at the Hoover Institute at Stanford University


In addition to these responsibilities, he has been writing more than one book a year and countless articles for different magazines. He is also refreshingly perceptive about the world in which we live. As an atheist he does not see things through biblical eyes, but, without realizing it, much of what he writes confirms Bible prophecy.

In an article in the latest issue of Foreign Policy (July-August, 2004), Mr. Ferguson writes of “A World Without Power.” His introductory paragraph says this: “Critics of U.S. global dominance should pause and consider the alternative. Who would replace America if it retreated from its current role? Not Europe, not China, not the Muslim world—and certainly not the United Nations. Unfortunately, the alternative to a single superpower is not a multilateral utopia, but the anarchic nightmare of a new Dark Age.”

Mr. Ferguson gives three reasons for the imminent fall of the American superpower. As he puts it: “The United States suffers from at least three structural deficits that will limit the effectiveness and duration of its quasi-imperial role in the world.

“The first factor is the nation’s growing dependence on foreign capital to finance excessive private and public consumption. It is difficult to recall any past empire that long endured after becoming so dependent on lending from abroad.”

America is overdrawn

As if to emphasize this point, the same issue of Foreign Policy carried an article by Lawrence H. Summers, president of Harvard University and former secretary of the Treasury during the Clinton administration. In the article, titled “America Overdrawn,” Mr. Summers highlights a simple fact: “There is something odd about the world’s greatest power being the world’s greatest debtor…Much has been made of U.S. dependence on foreign energy, but the country’s dependence on foreign cash is even more distressing. In a real sense, the countries that hold U.S. currency and securities in their banks also hold U.S. prosperity in their hands. That prospect should make Americans uncomfortable.”

Read the full article at www.wnponline.org/wnp/wnp0407/americanempire.htm


American fascism:

by political definition the US is now fascist, not a constitutional republic

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December 14, 10:55 AMLA County Nonpartisan ExaminerCarl Herman

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We hold these Truths to be self-evident…

Look in any textbook or encyclopedia and compare US policy (not rhetoric) to the definitions of fascism and constitutional republic. I’ll explain it here, but check my work. If at the end of your consideration, you agree that the United States of America is now a fascist state, please speak-up about it. Also, consider the policy requests at the end of the article.

Please read this article like a prima facie legal argument; that means unless you can refute the facts, they stand as our best understanding of the issue. Here, if you can’t refute the evidence that the US is now a fascist state, then accept this as your best understanding. As time passes, if evidence is brought forward to further the case for fascism or refute it, your comprehensive understanding improves. Here we go:


The definition of “fascism” has some academic variance, but is essentially collusion among corporatocracy, authoritarian government, and controlled media and education. This “leadership” is only possible with a nationalistic public accepting policies of war, empire, and limited civil and political rights.

“Constitutional republic” is a political philosophy of limited government, separated powers with checks and balances to ensure the federal government’s power stays limited within the Constitution, protected civil liberties, and elected representatives responsible to the people who retain the most political power. In the US we also embrace inalienable rights of the Declaration of Independence, and creative independence to cooperatively compete for our nation’s best ideas to move forward and be rewarded.


The United States was structured as a constitutional republic. Before we consider the US present condition, let us contextualize our concern from the nation’s Founders’ grave admonishments and doubts as to Americans’ ability to retain it. If you honor America at all, give their most serious warnings your full attention for the next 1,000 words spanning from Ben Franklin to Abraham Lincoln.

On September 18, 1787, just after signing the US Constitution, Benjamin Franklin met with members of the press. He was asked what kind of government America would have. Franklin: “A republic, if you can keep it.” In his speech to the Constitutional Convention, Franklin admonished: “This [U.S. Constitution] is likely to be administered for a course of years and then end in despotism… when the people shall become so corrupted as to need despotic government, being incapable of any other.” The Quotable Founding Fathers, pg. 39

“The right of a nation to kill a tyrant, in cases of necessity, can no more be doubted, than to hang a robber, or kill a flea. But killing one tyrant only makes way for worse, unless the people have sense, spirit and honesty enough to establish and support a constitution guarded at all points against the tyranny of the one, the few, and the many. Let it be the study, therefore, of lawgivers and philosophers, to enlighten the people’s understandings and improve their morals, by good and general education; to enable them to comprehend the scheme of government, and to know upon what points their liberties depend; to dissipate those vulgar prejudices and popular superstitions that oppose themselves to good government; and to teach them that obedience to the laws is as indispensable in them as in lords and kings.” – John Adams, A Defence of the Constitutions of Government (1787), Ch. 18.

“A mere demarcation on parchment of the constitutional limits (of government) is not a sufficient guard against those encroachments which lead to a tyrannical concentration of all the powers of government in the same hands.” – James Madison, Federalist Paper #48, 1788.

“Of all the enemies to public liberty war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few. In war, too, the discretionary power of the Executive is extended; its influence in dealing out offices, honors, and emoluments is multiplied; and all the means of seducing the minds, are added to those of subduing the force, of the people. The same malignant aspect in republicanism may be traced in the inequality of fortunes, and the opportunities of fraud, growing out of a state of war, and in the degeneracy of manners and of morals engendered by both. No nation could preserve its freedom in the midst of continual warfare.” – James Madison, “Political Observations” (179504-20); also in Letters and Other Writings of James Madison (1865), Vol. IV, p. 491.

“It is jealousy and not confidence which prescribes limited constitutions, to bind down those whom we are obliged to trust with power… Our Constitution has accordingly fixed the limits to which, and no further, our confidence may go… In questions of power, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution.”

– Thomas Jefferson, Draft Kentucky Resolution (1798. ME 17:388)

“A popular Government without popular information, or the means of acquiring, it is but a Prologue to a Farce or a Tragedy, or perhaps both. Knowledge will forever govern ignorance: And a people who mean to be their own Governors, must arm themselves with the power which knowledge gives.” – James Madison, Letter to W.T. Barry (182208-04)

Washington made the topic of the Farewell Address he had printed and distributed as the culmination of his advice to Americans to “guard against the impostures of pretended patriotism.

“All obstructions to the execution of the laws, all combinations and associations, under whatever plausible character, with the real design to direct, control, counteract, or awe the regular deliberation and action of the constituted authorities, are destructive of this fundamental principle, and of fatal tendency. They serve to organize faction, to give it an artificial and extraordinary force; to put, in the place of the delegated will of the nation the will of a party, often a small but artful and enterprising minority of the community; and, according to the alternate triumphs of different parties, to make the public administration the mirror of the ill-concerted and incongruous projects of faction, rather than the organ of consistent and wholesome plans digested by common counsels and modified by mutual interests.

However combinations or associations of the above description may now and then answer popular ends, they are likely, in the course of time and things, to become potent engines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people and to usurp for themselves the reins of government, destroying afterwards the very engines which have lifted them to unjust dominion…

Lincoln spoke in honor of the few still-living veterans of the Revolutionary War in the concise power we ascribe as one of history’s most powerful.

The following six paragraphs are from Abraham Lincoln in his Lyceum Address, January 27 1838.

“At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide…

I know the American People are much attached to their Government;–I know they would suffer much for its sake;–I know they would endure evils long and patiently, before they would ever think of exchanging it for another. Yet, notwithstanding all this, if the laws be continually despised and disregarded, if their rights to be secure in their persons and property, are held by no better tenure than the caprice of a mob, the alienation of their affections from the Government is the natural consequence; and to that, sooner or later, it must come.

Here then, is one point at which danger may be expected.

The question recurs, “how shall we fortify against it?” The answer is simple. Let every American, every lover of liberty, every well wisher to his posterity, swear by the blood of the Revolution, never to violate in the least particular, the laws of the country; and never to tolerate their violation by others. As the patriots of seventy-six did to the support of the Declaration of Independence, so to the support of the Constitution and Laws, let every American pledge his life, his property, and his sacred honor;–let every man remember that to violate the law, is to trample on the blood of his father, and to tear the character of his own, and his children’s liberty. Let reverence for the laws, be breathed by every American mother, to the lisping babe, that prattles on her lap–let it be taught in schools, in seminaries, and in colleges; let it be written in Primers, spelling books, and in Almanacs;–let it be preached from the pulpit, proclaimed in legislative halls, and enforced in courts of justice. And, in short, let it become the political religion of the nation; and let the old and the young, the rich and the poor, the grave and the gay, of all sexes and tongues, and colors and conditions, sacrifice unceasingly upon its altars.

While ever a state of feeling, such as this, shall universally, or even, very generally prevail throughout the nation, vain will be every effort, and fruitless every attempt, to subvert our national freedom.

…Passion has helped us; but can do so no more. It will in future be our enemy. Reason, cold, calculating, unimpassioned reason, must furnish all the materials for our future support and defence.–Let those materials be moulded into general intelligence, sound morality, and in particular, a reverence for the constitution and laws.”

What is the evidence for American fascism in the present?

The US brazenly violates our laws of war, both demanded by the Constitution and the UN Charter, with open invasion of Afghanistan in abject violation of UN Security Council Resolution 1373 and their government’s agreement to help extradite Osama bin Laden upon US presentment of evidence that he was involved in any crime of UN and/or international law. The US refused both the Afghan standard legal requirement of extradition and the UN resolution for cooperation under law and attacked. The new administration of Obama does not acknowledge this illegal history, but expands the invasion and attacks Pakistan. This policy is fascist, not limited by US law.

The US openly lied about reasons to justify an attack upon Iraq, destroying any semblance of argument of “self-defense.” The Obama administration won’t acknowledge the disclosed history from our own House and Senate investigations, and violates his oath of office to prosecute clear crimes. This policy is authoritarian, fascist, and does not hold equality under just laws. It is an un-American policy by definition.

The US tortured, with Obama refusing to prosecute and giving empty rhetoric to end it. The destruction of civil liberties to enforce authoritarian government is fascist, not American.

The US lies for more war with Iran, rejecting inalienable and legal rights for Iranians. Obama continues this policy of unlawful aggression, including official policy for first-strike nuclear weapons upon conclusion that Iran poses a possible future threat to the US and/or our allies. Political leaders and corporate media ignore the ignoble history of US vicious domination of Iranian government through coup and backed invasion. Fascist policy; un-American.

The US violates numerous treaty law with WMD, and hypocritically asserts our war targets’ alleged violations justify US armed attack. This rejection of limited government under the law is a fascist empire on the loose, not a law-abiding neighbor. Added hypocrisy is the psychopathic front of American political leaders as Christians.

American corporatocracy is dominated by Enron-like cartels, headed by banks receiving the transfer of TRILLIONS of our tax dollars to pay-off their gambling debts in exotic derivative markets the federal government regulates only in more empty rhetoric. This socialization of corporate-insiders’ losses is fascist, and fundamentally in opposition of the American ideal of cooperative competition on a level playing field. Obvious financial solutions for the public good are ignored in their corporate and not public policy commitment.

While our government’s official line is respect for Islam, their wars betray this analysis. If extremists were the small minority, why not peacefully cooperate to marginalize and arrest those in violation of just laws? Muslims as a group are often demonized in US media, and often the entire group is branded as terrorists. For example, consider this segment from the radio talk show of Michael Savage.

The corporate media will not present such disturbing facts and analysis. Their outright lies of commission and omission are prima facie evidence of a controlled media, supported by revealed documentation from whistle-blowers. American freedom of the press is left to independent websites and those few media outlets who tolerate reporting such as you read now.

Yeah, but we’re not totally fascist! Saying the US is fascist is just not right!!!

Yes, I’ve made the case for fascism only in the area of tens of trillions of our tax dollars in the economy, Wars of Aggression based on objective lies, authoritarian disregard for crucial laws and treaties of war and moral conduct, expansion of new unlawful war into Pakistan with rhetoric leading to more war with Iran, and a corporate press who won’t communicate these “emperor has no clothes” facts until the public breaks free of their cognitive blindness to clearly embrace our new American political reality.

We still vote for Republicans and Democrats in elections, yes, in a monied system with a virtual lock against 3rd party candidates given the costs of advertising and breaking the inertia of a two-party system.

We still have Internet press where authors such as I can point to the obvious, but with documented government-organized opposition in PSYOPS to ridicule challenging voices while counting of public cognitive blindness to keep the fascism unconcealed.

Policy response: Gandhi and Martin Luther King advocated public understanding of the facts and non-cooperation with evil. I’m among hundreds who advocate:

  1. Understand the laws of war. These were legislated after WW2 and are crystal-clear that only self-defense, in a narrow legal meaning, can justify war. This investment of your time takes less than an hour and empowers you to legally stand for ending these Wars of Aggression.
  2. Communicate. Trust your unique, beautiful, and powerful self-expression to share powerful information as you feel appropriate. Understand that while many people are ready to embrace difficult facts, many are not. Anticipate your virtuous response to being attacked and give it in the spirit of competition, just as you do in other fields.
  3. Refuse and end all orders and acts associated with these unlawful wars and constant violation of treaties. Those involved with US military, government, and law enforcement have an oath to protect and defend the US Constitution. Unlawful acts only move forward with sufficient cooperation and public tolerance. Stop cooperating with the most vicious crime a nation can commit: war.
  4. Prosecute the war leaders for obvious violation of the letter and spirit of US war laws. You can only understand how these wars are specifically unlawful by investing the time to do so. Because the crimes are so broad and deep, I recommend Truth and Reconciliation (T&R) to exchange full truth and return of stolen US assets for non-prosecution. This is the most expeditious way to understand and end all unlawful and harmful acts. Those who reject T&R either by volunteering their name and/or responding when named are subject to prosecution after the window of T&R closes.

I conclude with the 5-minute powerful video from PuppetGov: Had enough?

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“America lives in a fascist state” – Gerald Celente

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Published 19 April, 2009, 09:47

Edited 30 April, 2010, 12:21

The merger of corporate and government powers in modern America is plain and simple fascism, believes Gerald Celente, the founder of the Trends Research Institute and publisher of Trends Journal.

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Gerald Celente

Celente takes an in-depth look at what AIG and Goldman Sachs really are and the people behind them; explains the policies of the Obama’s administration, and the moral basis for a forthcoming new American Revolution.

RT: I’d like to begin by talking about the Treasury department. They’ve decided to extend bailout funds to a number of struggling life insurance policies. This is in addition to the auto industry and the banks. Do you think Americans are aware of what’s going on?

G.C.: They know about it, it’s a new trend. America is going from what used to be the major capitalistic country in the world of free market – a crusader – into what Mussolini would have called fascism: the merger of state and corporate powers. So it is not socialism as people believe, it is socialism’s egalitarianism. It’s not communism where the state controls monopolies – it’s fascism, plain and simple. The merger of corporate and government powers. State-controlled capitalism is called fascism, and fascism has come to America in broad daylight. But they’re feeding them it in little bits and pieces. First AIG was too big to fail. Mortgage companies Fannie Mae and Freddie Mac were too big to fail. Banks too big to fail and auto companies. And now we give money to the people that make the auto parts. And now there’s talk about the technology companies, wanting their piece of the action. The merger of state and government is called fascism. Take it from Mussolini; he knew a thing or two about it.

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RT: What can Americans do if they are opposed to the road that government officials are bringing them down?

G.C.: The people don’t really have a choice, there is no ballot box. I’m of Italian descent and I’ve heard enough of mafia stories for the rest of my life. If you want to look at a mafia, you can call it a republican and democratic party. And if you want to look at the two families, the heads of the mafia, all you have to do is to look at the Bushes and the Clintons. They’ve been running the show now for some 24 years. We heard about Obama who is going to bring in ‘change’. A change you could believe in if he is dumb, stupid and blind. Look who he’s brought in as his chief policy makers. Retreads from the old Clinton administration. It’s a two-headed one-party system. So it’s very difficult for the people to vote in a new administration that isn’t part of the old one.

RT: Can you tell me one thing that you like about President Obama?

G.C.: In the Trends Journal, the top trends of 2009, one of our trends was that people are going to be putting out ‘recession gardens’. And now as we see the Obamas, they are planting their own garden, and that trend is taking hold. So he is doing that in positive ways, he’s bringing an element of dignity back to society. Those are positives. But now let me look at whether it’s true or the hypocrisy. So, they are talking about planting their own gardens. And they are talking about buying local. Oh, all that is wonderful, but on the other side of the coin they are pushing genetically modified foods while they’re eating organic. So it’s like ‘let them eat Frankenfoods’ – this is the message. So I see hypocrisy at every level. When they show me truth and justice, and the real American way – then I’ll believe.

RT: If I revert to our previous interview, I asked you – “what kind of revolution do you think would happen and when, and why would it happen?” and you said there would be a tax revolt. And now we are hearing more and more about these ‘tea parties’. What do you make of that? Do you think that that’s just the first action and many actions to follow from the American public?

G.C.: There is going to be a lot more. This is just a beginning. As a Bronx boy, my saying is: ‘when people lose everything and they have nothing left to lose – they lose it’.

You’re gonna start see people taking to the streets, like they do in other countries. People have had it, they are fed up. They can’t afford it anymore. Look at what is going on. Ten major states are raising taxes again as people are losing their jobs, income is going down, they are losing their pensions, they are losing their investments – and the government is saying: more taxes, more taxes, more taxes…

At the same time, what’s happening is, on the top, they are changing the regulations so the thieves could steal more, just as they did with the new banking act. They call it mark-to-market. So it is now allowing them to do rather than putting the real loss of their assets – the toxic assets that they are holding – they are letting them make up what they want! Come up with fictitious numbers and you are going to start seeing ‘bank stocks going up again’.

It is fake, and what they are doing is they’re changing the regulations on the top so the big thieves could steal more, while they clamping down on the little people – and the little people have had it.

RT: These stimulus plans, both with former President Bush and with President Obama, were rushed through so quickly and you make a comparison to the way that the US launched the War on Iraq with the same urgency of the plans.

G.C.: They push it through so that people are kept off guard – they put fear into the people’s hearts. Remember the mushroom cloud that was going to explode if we did not do it very quickly with Iraq? And remember the financial system was going to collapse if we didn’t save AIG? And who ever knew the AIG was, to begin with?! “What’s an AIG?! I’ve never heard of one before!” most people would say.

When the AIG plan was rushed through, the only person outside of the Federal Reserve and Washington to sit on that AIG bailout was Lloyd Blankfein, the CEO of Goldman Sachs. Goldman Sachs got $13 billion of taxpayer money so that they wouldn’t take the loss of the AIG bailout because they bet bad with AIG.

And who was the Treasury Secretary at the time? Former CEO of Goldman Sachs Henry Paulson. Oh, and who did Obama bring in to run AIG now for the government? Ed Liddy. And where is Ed Liddy from? Goldman Sachs. The fix is in, the game is rigged. Forget about calling this ‘government’, Wall Street has hijacked Washington.

RT: So now what?

G.C.: We need a revolution. And we’re going to talk about that more in the future. And we’re going to be announcing our plans for the revolution in the coming weeks. And it is going to be much greater than the tea parties or the tax revolts.

My morality, the way I was raised, there are two things in the moral code that are against everything that I was taught. The first is that you don’t kill innocent people, and the US is involved in killing innocent people both in Iraq and Afghanistan. The facts speak for themselves. It has been proven that Saddam Hussein did not have weapons of mass destruction, nor ties to Al-Qaeda. Yet the US is still waging war in Iraq. Number two, this whole thing about Afghanistan, taking over the country for whatever reasons, and the Russians know it even better than the Americans, and the English knew it before the Russians – this has been going on and on. The Afghani people have done nothing to the Americans. And now President Obama has sent another 21,000 troops into Afghanistan. So, killing innocent people is against my morality.

The second part of the revolution, why we are calling for revolution is that we are getting robbed in broad daylight. The numbers and facts we have discussed speak for themselves. They’re pick-pocketing the little people to pay off the big guys. This is against everything that has ever been taught to us in this country growing up as a free market society. It’s fascism.

RT: When somebody calls you a gloom-and-doomer, somebody that’s scaring the public… what is your response to that?

G.C.: My response is suppose you go to a doctor as if you feel that something is really wrong with you and the doctor gives you a diagnosis and this diagnosis is maybe cancer. Do you call the doctor a gloom-and-doomer? It’s the fact, people better grow up. The ship has hit the iceberg and it’s sinking.

We are telling people, just as the doctor would tell a patient, “Look, there are ways out of it but first we have to recognize what the disease is. And then we are going to have to be very inventive about trying to attack it in a number of different ways. We could go through complementary medicine, we could go through traditional… we could even go through a combination of things.” But you respect what the doctor is saying, and you don’t call him a gloom-and-doomer. It is a childish response that people have that want to believe that they have a new leader, and that the new leader would lead them down the yellow brick road of happiness. Rather than understanding that there is nobody behind the curtain. It’s the Wizard of Oz. They’d better grow up; nobody is going to save them.

So, we put out the information, we’re saying: “This is the direction things are going in. This is where we believe they are going to end up. Here are some strategies to consider so you don’t go down with the ship.”


America Turning Into a Fascist State? It Already Has!

This is not the America that anyone over the age of 30 grew up with. The Military Industrial Complex that Eisenhower warned us about in 1954 http://www.yale.edu/lawweb/avalon/presiden/speeches/eisenhower001.htm is already running this country. The democratic rule of the people that has been the lynchpin of our nation is controlled no longer by the people, but by business interests that control our elective officials through campaign funding and lobbyist connections. The American voter has been disenfranchised by a media that has usurped the discourse of normal campaigning by ignoring certain candidates and not allowing them on debates. The system is rigged people. The question is what are we going to do about it?

The electronic voting machines that tabulate the votes have no paper trail. The truth is that it doesn’t matter what the vote by the people is, it’s who counts there votes. We have seen many times that voting “irregularities” have popped up in Florida, Michigan, and many other States. Some have been taken to court and by the grace of God, some of these irregularities have been overturned. The Presidential irregularities in the 2000 Presidential contest were decided by the Supreme Court. That was a travesty. This gave us eight years of a man that never once won the popular vote.

We are involved in two wars in the middle east, we have our fingers in Columbia, propping up the only far right government in Latin America, we have decided to enter the internal affairs of Bolivia, a poor country that has a secessionist movement that is being fomented by the rich landowners in the east of the country that want no part of President Evo Morales and his populist government. The US in its wisdom has donated over $125 Million Dollars to help this succession. http://therealnews.com/web/index.php Is this in our national interests? The United States of America is re-forming it’s Fourth Fleet that was disbanded in 1950 and reinstituting it to face “new” challenges in the Western Hemisphere. What are those “challenges”? Is it because the governments of Latin America are cutting their ties to the US and refusing to send its soldiers to the “School of the Americas” at Ft.Benning, Georgia because they are abandoning the US and it’s imperialistic policies that have been raping the Southern Hemisphere for over a century?

The US has devalued its money and continues to borrow fro anyone that will lend it to us. We are a debtor nation. We seem not to take that into account when we rattle our sabers to Iran. Iran is no threat to mainland America. It may be a threat to Israel, but Israel is the recipient of Billions of US Aid that we can scarcely afford and has an estimated 300 Nuclear weapons and the means to deliver them. http://www.fas.org/nuke/guide/israel/nuke/farr.htm Of what possible help could we give to a megalith of power that has become the State of Israel that has been taken over by the Likud Party of Olmert who preaches the same rhetoric as Bush and his neo-cons that have constantly pushed for war and more war since taking power?

The American people for the large part have been stuck on “Stupid” for the last ten years. Our press is censored, we know nothing about what is happening in the world at large, and instead we listen to stories about “celebrities” and events that happen inside our country. http://www.serendipity.li/cda.html We have been dumbed down by the media and the majority of Americans don’t know the difference! We are eating food that is genetically altered without our knowledge. http://www.globalissues.org/EnvIssues/GEFood.asp We are building internment camps by the hundreds inside almost every state in the Union! http://www.informationclearinghouse.info/article12078.htm The Constitution has been trashed by The Patriot Act, The Military Commissions Act of 2006, The Warner Defense Bill and countless other bills that had provisions put in them that Congress knew nothing about until they became law. www.huffingtonpost.com/users/profile/Shaddup

This Congress and The Executive Branch represent business, not the American people. We have precious little liberty left in this country, and in that definition, we are already at the definition of a fascist state, rum by business and not the people. http://en.wikipedia.org/wiki/Fascism What I’m trying do in this article is wake some of you people up that think Barak Obama or John McCain are going to change things! They are both owned and operated by the business sectors of this government. WWW.opensecrets.org The North American Union and the SPP are no longer “ideas” that are being contemplated. There are rail hubs being built in Kansas City that will tie all three Nations together. This is pretty much happening as we speak. http://www.opednews.com/maxwrite/diarypage.php?did=5208 Why are detention camps being built in “The Land of the Free and the Home of The Brave”? That’s what I want to know. How does Presidential Directive (PDD51) fit into all of this?

For all you doubting Thomas’s, I will painstakingly link everything I have mentioned in this article. It will take time, but it’s my job as a Patriot.

Labels: America, fascism, NWO


Fascist America, in 10 easy steps

From Hitler to Pinochet and beyond, history shows there are certain steps that any would-be dictator must take to destroy constitutional freedoms. And, argues Naomi Wolf, George Bush and his administration seem to be taking them all

Last autumn, there was a military coup in Thailand. The leaders of the coup took a number of steps, rather systematically, as if they had a shopping list. In a sense, they did. Within a matter of days, democracy had been closed down: the coup leaders declared martial law, sent armed soldiers into residential areas, took over radio and TV stations, issued restrictions on the press, tightened some limits on travel, and took certain activists into custody.

They were not figuring these things out as they went along. If you look at history, you can see that there is essentially a blueprint for turning an open society into a dictatorship. That blueprint has been used again and again in more and less bloody, more and less terrifying ways. But it is always effective. It is very difficult and arduous to create and sustain a democracy – but history shows that closing one down is much simpler. You simply have to be willing to take the 10 steps.

As difficult as this is to contemplate, it is clear, if you are willing to look, that each of these 10 steps has already been initiated today in the United States by the Bush administration.

Because Americans like me were born in freedom, we have a hard time even considering that it is possible for us to become as unfree – domestically – as many other nations. Because we no longer learn much about our rights or our system of government – the task of being aware of the constitution has been outsourced from citizens’ ownership to being the domain of professionals such as lawyers and professors – we scarcely recognise the checks and balances that the founders put in place, even as they are being systematically dismantled. Because we don’t learn much about European history, the setting up of a department of “homeland” security – remember who else was keen on the word “homeland” – didn’t raise the alarm bells it might have.

It is my argument that, beneath our very noses, George Bush and his administration are using time-tested tactics to close down an open society. It is time for us to be willing to think the unthinkable – as the author and political journalist Joe Conason, has put it, that it can happen here. And that we are further along than we realise.

Conason eloquently warned of the danger of American authoritarianism. I am arguing that we need also to look at the lessons of European and other kinds of fascism to understand the potential seriousness of the events we see unfolding in the US.

1. Invoke a terrifying internal and external enemy

After we were hit on September 11 2001, we were in a state of national shock. Less than six weeks later, on October 26 2001, the USA Patriot Act was passed by a Congress that had little chance to debate it; many said that they scarcely had time to read it. We were told we were now on a “war footing”; we were in a “global war” against a “global caliphate” intending to “wipe out civilisation”. There have been other times of crisis in which the US accepted limits on civil liberties, such as during the civil war, when Lincoln declared martial law, and the second world war, when thousands of Japanese-American citizens were interned. But this situation, as Bruce Fein of the American Freedom Agenda notes, is unprecedented: all our other wars had an endpoint, so the pendulum was able to swing back toward freedom; this war is defined as open-ended in time and without national boundaries in space – the globe itself is the battlefield. “This time,” Fein says, “there will be no defined end.”

Creating a terrifying threat – hydra-like, secretive, evil – is an old trick. It can, like Hitler’s invocation of a communist threat to the nation’s security, be based on actual events (one Wisconsin academic has faced calls for his dismissal because he noted, among other things, that the alleged communist arson, the Reichstag fire of February 1933, was swiftly followed in Nazi Germany by passage of the Enabling Act, which replaced constitutional law with an open-ended state of emergency). Or the terrifying threat can be based, like the National Socialist evocation of the “global conspiracy of world Jewry”, on myth.

It is not that global Islamist terrorism is not a severe danger; of course it is. I am arguing rather that the language used to convey the nature of the threat is different in a country such as Spain – which has also suffered violent terrorist attacks – than it is in America. Spanish citizens know that they face a grave security threat; what we as American citizens believe is that we are potentially threatened with the end of civilisation as we know it. Of course, this makes us more willing to accept restrictions on our freedoms.

2. Create a gulag

Once you have got everyone scared, the next step is to create a prison system outside the rule of law (as Bush put it, he wanted the American detention centre at Guantánamo Bay to be situated in legal “outer space”) – where torture takes place.

At first, the people who are sent there are seen by citizens as outsiders: troublemakers, spies, “enemies of the people” or “criminals”. Initially, citizens tend to support the secret prison system; it makes them feel safer and they do not identify with the prisoners. But soon enough, civil society leaders – opposition members, labour activists, clergy and journalists – are arrested and sent there as well.

This process took place in fascist shifts or anti-democracy crackdowns ranging from Italy and Germany in the 1920s and 1930s to the Latin American coups of the 1970s and beyond. It is standard practice for closing down an open society or crushing a pro-democracy uprising.

With its jails in Iraq and Afghanistan, and, of course, Guantánamo in Cuba, where detainees are abused, and kept indefinitely without trial and without access to the due process of the law, America certainly has its gulag now. Bush and his allies in Congress recently announced they would issue no information about the secret CIA “black site” prisons throughout the world, which are used to incarcerate people who have been seized off the street.

Gulags in history tend to metastasise, becoming ever larger and more secretive, ever more deadly and formalised. We know from first-hand accounts, photographs, videos and government documents that people, innocent and guilty, have been tortured in the US-run prisons we are aware of and those we can’t investigate adequately.

But Americans still assume this system and detainee abuses involve only scary brown people with whom they don’t generally identify. It was brave of the conservative pundit William Safire to quote the anti-Nazi pastor Martin Niemöller, who had been seized as a political prisoner: “First they came for the Jews.” Most Americans don’t understand yet that the destruction of the rule of law at Guantánamo set a dangerous precedent for them, too.

By the way, the establishment of military tribunals that deny prisoners due process tends to come early on in a fascist shift. Mussolini and Stalin set up such tribunals. On April 24 1934, the Nazis, too, set up the People’s Court, which also bypassed the judicial system: prisoners were held indefinitely, often in isolation, and tortured, without being charged with offences, and were subjected to show trials. Eventually, the Special Courts became a parallel system that put pressure on the regular courts to abandon the rule of law in favour of Nazi ideology when making decisions.

3. Develop a thug caste

When leaders who seek what I call a “fascist shift” want to close down an open society, they send paramilitary groups of scary young men out to terrorise citizens. The Blackshirts roamed the Italian countryside beating up communists; the Brownshirts staged violent rallies throughout Germany. This paramilitary force is especially important in a democracy: you need citizens to fear thug violence and so you need thugs who are free from prosecution.

The years following 9/11 have proved a bonanza for America’s security contractors, with the Bush administration outsourcing areas of work that traditionally fell to the US military. In the process, contracts worth hundreds of millions of dollars have been issued for security work by mercenaries at home and abroad. In Iraq, some of these contract operatives have been accused of involvement in torturing prisoners, harassing journalists and firing on Iraqi civilians. Under Order 17, issued to regulate contractors in Iraq by the one-time US administrator in Baghdad, Paul Bremer, these contractors are immune from prosecution

Yes, but that is in Iraq, you could argue; however, after Hurricane Katrina, the Department of Homeland Security hired and deployed hundreds of armed private security guards in New Orleans. The investigative journalist Jeremy Scahill interviewed one unnamed guard who reported having fired on unarmed civilians in the city. It was a natural disaster that underlay that episode – but the administration’s endless war on terror means ongoing scope for what are in effect privately contracted armies to take on crisis and emergency management at home in US cities.

Thugs in America? Groups of angry young Republican men, dressed in identical shirts and trousers, menaced poll workers counting the votes in Florida in 2000. If you are reading history, you can imagine that there can be a need for “public order” on the next election day. Say there are protests, or a threat, on the day of an election; history would not rule out the presence of a private security firm at a polling station “to restore public order”.

4. Set up an internal surveillance system

In Mussolini’s Italy, in Nazi Germany, in communist East Germany, in communist China – in every closed society – secret police spy on ordinary people and encourage neighbours to spy on neighbours. The Stasi needed to keep only a minority of East Germans under surveillance to convince a majority that they themselves were being watched.

In 2005 and 2006, when James Risen and Eric Lichtblau wrote in the New York Times about a secret state programme to wiretap citizens’ phones, read their emails and follow international financial transactions, it became clear to ordinary Americans that they, too, could be under state scrutiny.

In closed societies, this surveillance is cast as being about “national security”; the true function is to keep citizens docile and inhibit their activism and dissent.

5. Harass citizens’ groups

The fifth thing you do is related to step four – you infiltrate and harass citizens’ groups. It can be trivial: a church in Pasadena, whose minister preached that Jesus was in favour of peace, found itself being investigated by the Internal Revenue Service, while churches that got Republicans out to vote, which is equally illegal under US tax law, have been left alone.

Other harassment is more serious: the American Civil Liberties Union reports that thousands of ordinary American anti-war, environmental and other groups have been infiltrated by agents: a secret Pentagon database includes more than four dozen peaceful anti-war meetings, rallies or marches by American citizens in its category of 1,500 “suspicious incidents”. The equally secret Counterintelligence Field Activity (Cifa) agency of the Department of Defense has been gathering information about domestic organisations engaged in peaceful political activities: Cifa is supposed to track “potential terrorist threats” as it watches ordinary US citizen activists. A little-noticed new law has redefined activism such as animal rights protests as “terrorism”. So the definition of “terrorist” slowly expands to include the opposition.

6. Engage in arbitrary detention and release

This scares people. It is a kind of cat-and-mouse game. Nicholas D Kristof and Sheryl WuDunn, the investigative reporters who wrote China Wakes: the Struggle for the Soul of a Rising Power, describe pro-democracy activists in China, such as Wei Jingsheng, being arrested and released many times. In a closing or closed society there is a “list” of dissidents and opposition leaders: you are targeted in this way once you are on the list, and it is hard to get off the list.

In 2004, America’s Transportation Security Administration confirmed that it had a list of passengers who were targeted for security searches or worse if they tried to fly. People who have found themselves on the list? Two middle-aged women peace activists in San Francisco; liberal Senator Edward Kennedy; a member of Venezuela’s government – after Venezuela’s president had criticised Bush; and thousands of ordinary US citizens.

Professor Walter F Murphy is emeritus of Princeton University; he is one of the foremost constitutional scholars in the nation and author of the classic Constitutional Democracy. Murphy is also a decorated former marine, and he is not even especially politically liberal. But on March 1 this year, he was denied a boarding pass at Newark, “because I was on the Terrorist Watch list”.

“Have you been in any peace marches? We ban a lot of people from flying because of that,” asked the airline employee.

“I explained,” said Murphy, “that I had not so marched but had, in September 2006, given a lecture at Princeton, televised and put on the web, highly critical of George Bush for his many violations of the constitution.”

“That’ll do it,” the man said.

Anti-war marcher? Potential terrorist. Support the constitution? Potential terrorist. History shows that the categories of “enemy of the people” tend to expand ever deeper into civil life.

James Yee, a US citizen, was the Muslim chaplain at Guantánamo who was accused of mishandling classified documents. He was harassed by the US military before the charges against him were dropped. Yee has been detained and released several times. He is still of interest.

Brandon Mayfield, a US citizen and lawyer in Oregon, was mistakenly identified as a possible terrorist. His house was secretly broken into and his computer seized. Though he is innocent of the accusation against him, he is still on the list.

It is a standard practice of fascist societies that once you are on the list, you can’t get off.

7. Target key individuals

Threaten civil servants, artists and academics with job loss if they don’t toe the line. Mussolini went after the rectors of state universities who did not conform to the fascist line; so did Joseph Goebbels, who purged academics who were not pro-Nazi; so did Chile’s Augusto Pinochet; so does the Chinese communist Politburo in punishing pro-democracy students and professors.

Academe is a tinderbox of activism, so those seeking a fascist shift punish academics and students with professional loss if they do not “coordinate”, in Goebbels’ term, ideologically. Since civil servants are the sector of society most vulnerable to being fired by a given regime, they are also a group that fascists typically “coordinate” early on: the Reich Law for the Re-establishment of a Professional Civil Service was passed on April 7 1933.

Bush supporters in state legislatures in several states put pressure on regents at state universities to penalise or fire academics who have been critical of the administration. As for civil servants, the Bush administration has derailed the career of one military lawyer who spoke up for fair trials for detainees, while an administration official publicly intimidated the law firms that represent detainees pro bono by threatening to call for their major corporate clients to boycott them.

Elsewhere, a CIA contract worker who said in a closed blog that “waterboarding is torture” was stripped of the security clearance she needed in order to do her job.

Most recently, the administration purged eight US attorneys for what looks like insufficient political loyalty. When Goebbels purged the civil service in April 1933, attorneys were “coordinated” too, a step that eased the way of the increasingly brutal laws to follow.

8. Control the press

Italy in the 1920s, Germany in the 30s, East Germany in the 50s, Czechoslovakia in the 60s, the Latin American dictatorships in the 70s, China in the 80s and 90s – all dictatorships and would-be dictators target newspapers and journalists. They threaten and harass them in more open societies that they are seeking to close, and they arrest them and worse in societies that have been closed already.

The Committee to Protect Journalists says arrests of US journalists are at an all-time high: Josh Wolf (no relation), a blogger in San Francisco, has been put in jail for a year for refusing to turn over video of an anti-war demonstration; Homeland Security brought a criminal complaint against reporter Greg Palast, claiming he threatened “critical infrastructure” when he and a TV producer were filming victims of Hurricane Katrina in Louisiana. Palast had written a bestseller critical of the Bush administration.

Other reporters and writers have been punished in other ways. Joseph C Wilson accused Bush, in a New York Times op-ed, of leading the country to war on the basis of a false charge that Saddam Hussein had acquired yellowcake uranium in Niger. His wife, Valerie Plame, was outed as a CIA spy – a form of retaliation that ended her career.

Prosecution and job loss are nothing, though, compared with how the US is treating journalists seeking to cover the conflict in Iraq in an unbiased way. The Committee to Protect Journalists has documented multiple accounts of the US military in Iraq firing upon or threatening to fire upon unembedded (meaning independent) reporters and camera operators from organisations ranging from al-Jazeera to the BBC. While westerners may question the accounts by al-Jazeera, they should pay attention to the accounts of reporters such as the BBC’s Kate Adie. In some cases reporters have been wounded or killed, including ITN’s Terry Lloyd in 2003. Both CBS and the Associated Press in Iraq had staff members seized by the US military and taken to violent prisons; the news organisations were unable to see the evidence against their staffers.

Over time in closing societies, real news is supplanted by fake news and false documents. Pinochet showed Chilean citizens falsified documents to back up his claim that terrorists had been about to attack the nation. The yellowcake charge, too, was based on forged papers.

You won’t have a shutdown of news in modern America – it is not possible. But you can have, as Frank Rich and Sidney Blumenthal have pointed out, a steady stream of lies polluting the news well. What you already have is a White House directing a stream of false information that is so relentless that it is increasingly hard to sort out truth from untruth. In a fascist system, it’s not the lies that count but the muddying. When citizens can’t tell real news from fake, they give up their demands for accountability bit by bit.

9. Dissent equals treason

Cast dissent as “treason” and criticism as “espionage’. Every closing society does this, just as it elaborates laws that increasingly criminalise certain kinds of speech and expand the definition of “spy” and “traitor”. When Bill Keller, the publisher of the New York Times, ran the Lichtblau/Risen stories, Bush called the Times’ leaking of classified information “disgraceful”, while Republicans in Congress called for Keller to be charged with treason, and rightwing commentators and news outlets kept up the “treason” drumbeat. Some commentators, as Conason noted, reminded readers smugly that one penalty for violating the Espionage Act is execution.

Conason is right to note how serious a threat that attack represented. It is also important to recall that the 1938 Moscow show trial accused the editor of Izvestia, Nikolai Bukharin, of treason; Bukharin was, in fact, executed. And it is important to remind Americans that when the 1917 Espionage Act was last widely invoked, during the infamous 1919 Palmer Raids, leftist activists were arrested without warrants in sweeping roundups, kept in jail for up to five months, and “beaten, starved, suffocated, tortured and threatened with death”, according to the historian Myra MacPherson. After that, dissent was muted in America for a decade.

In Stalin’s Soviet Union, dissidents were “enemies of the people”. National Socialists called those who supported Weimar democracy “November traitors”.

And here is where the circle closes: most Americans do not realise that since September of last year – when Congress wrongly, foolishly, passed the Military Commissions Act of 2006 – the president has the power to call any US citizen an “enemy combatant”. He has the power to define what “enemy combatant” means. The president can also delegate to anyone he chooses in the executive branch the right to define “enemy combatant” any way he or she wants and then seize Americans accordingly.

Even if you or I are American citizens, even if we turn out to be completely innocent of what he has accused us of doing, he has the power to have us seized as we are changing planes at Newark tomorrow, or have us taken with a knock on the door; ship you or me to a navy brig; and keep you or me in isolation, possibly for months, while awaiting trial. (Prolonged isolation, as psychiatrists know, triggers psychosis in otherwise mentally healthy prisoners. That is why Stalin’s gulag had an isolation cell, like Guantánamo’s, in every satellite prison. Camp 6, the newest, most brutal facility at Guantánamo, is all isolation cells.)

We US citizens will get a trial eventually – for now. But legal rights activists at the Center for Constitutional Rights say that the Bush administration is trying increasingly aggressively to find ways to get around giving even US citizens fair trials. “Enemy combatant” is a status offence – it is not even something you have to have done. “We have absolutely moved over into a preventive detention model – you look like you could do something bad, you might do something bad, so we’re going to hold you,” says a spokeswoman of the CCR.

Most Americans surely do not get this yet. No wonder: it is hard to believe, even though it is true. In every closing society, at a certain point there are some high-profile arrests – usually of opposition leaders, clergy and journalists. Then everything goes quiet. After those arrests, there are still newspapers, courts, TV and radio, and the facades of a civil society. There just isn’t real dissent. There just isn’t freedom. If you look at history, just before those arrests is where we are now.

10. Suspend the rule of law

The John Warner Defense Authorization Act of 2007 gave the president new powers over the national guard. This means that in a national emergency – which the president now has enhanced powers to declare – he can send Michigan’s militia to enforce a state of emergency that he has declared in Oregon, over the objections of the state’s governor and its citizens.

Even as Americans were focused on Britney Spears’s meltdown and the question of who fathered Anna Nicole’s baby, the New York Times editorialised about this shift: “A disturbing recent phenomenon in Washington is that laws that strike to the heart of American democracy have been passed in the dead of night … Beyond actual insurrection, the president may now use military troops as a domestic police force in response to a natural disaster, a disease outbreak, terrorist attack or any ‘other condition’.”

Critics see this as a clear violation of the Posse Comitatus Act – which was meant to restrain the federal government from using the military for domestic law enforcement. The Democratic senator Patrick Leahy says the bill encourages a president to declare federal martial law. It also violates the very reason the founders set up our system of government as they did: having seen citizens bullied by a monarch’s soldiers, the founders were terrified of exactly this kind of concentration of militias’ power over American people in the hands of an oppressive executive or faction.

Of course, the United States is not vulnerable to the violent, total closing-down of the system that followed Mussolini’s march on Rome or Hitler’s roundup of political prisoners. Our democratic habits are too resilient, and our military and judiciary too independent, for any kind of scenario like that.

Rather, as other critics are noting, our experiment in democracy could be closed down by a process of erosion.

It is a mistake to think that early in a fascist shift you see the profile of barbed wire against the sky. In the early days, things look normal on the surface; peasants were celebrating harvest festivals in Calabria in 1922; people were shopping and going to the movies in Berlin in 1931. Early on, as WH Auden put it, the horror is always elsewhere – while someone is being tortured, children are skating, ships are sailing: “dogs go on with their doggy life … How everything turns away/ Quite leisurely from the disaster.”

As Americans turn away quite leisurely, keeping tuned to internet shopping and American Idol, the foundations of democracy are being fatally corroded. Something has changed profoundly that weakens us unprecedentedly: our democratic traditions, independent judiciary and free press do their work today in a context in which we are “at war” in a “long war” – a war without end, on a battlefield described as the globe, in a context that gives the president – without US citizens realising it yet – the power over US citizens of freedom or long solitary incarceration, on his say-so alone.

That means a hollowness has been expanding under the foundation of all these still- free-looking institutions – and this foundation can give way under certain kinds of pressure. To prevent such an outcome, we have to think about the “what ifs”.

What if, in a year and a half, there is another attack – say, God forbid, a dirty bomb? The executive can declare a state of emergency. History shows that any leader, of any party, will be tempted to maintain emergency powers after the crisis has passed. With the gutting of traditional checks and balances, we are no less endangered by a President Hillary than by a President Giuliani – because any executive will be tempted to enforce his or her will through edict rather than the arduous, uncertain process of democratic negotiation and compromise.

What if the publisher of a major US newspaper were charged with treason or espionage, as a rightwing effort seemed to threaten Keller with last year? What if he or she got 10 years in jail? What would the newspapers look like the next day? Judging from history, they would not cease publishing; but they would suddenly be very polite.

Right now, only a handful of patriots are trying to hold back the tide of tyranny for the rest of us – staff at the Center for Constitutional Rights, who faced death threats for representing the detainees yet persisted all the way to the Supreme Court; activists at the American Civil Liberties Union; and prominent conservatives trying to roll back the corrosive new laws, under the banner of a new group called the American Freedom Agenda. This small, disparate collection of people needs everybody’s help, including that of Europeans and others internationally who are willing to put pressure on the administration because they can see what a US unrestrained by real democracy at home can mean for the rest of the world.

We need to look at history and face the “what ifs”. For if we keep going down this road, the “end of America” could come for each of us in a different way, at a different moment; each of us might have a different moment when we feel forced to look back and think: that is how it was before – and this is the way it is now.

“The accumulation of all powers, legislative, executive, and judiciary, in the same hands … is the definition of tyranny,” wrote James Madison. We still have the choice to stop going down this road; we can stand our ground and fight for our nation, and take up the banner the founders asked us to carry.

· Naomi Wolf’s The End of America: A Letter of Warning to a Young Patriot will be published by Chelsea Green in September.

Harper’s Magazine: We Now Live in a Fascist State

Date: Tue, 11 Oct 2005 13:34:38 -0700

The article below appears in the current issue of Harpers and was written
by Lewis H. Lapham


Knowing the source of this piece makes it all the more disturbing. It is not every day that the editor of a respected national magazine publishes an essay claiming that America is not on the road to becoming, but ALREADY IS, a fascist state…. or words to that affect.

To help prepare you for what follows, here are the final sentence from this piece…. [I think we can look forward with confidence to character-building bankruptcies, picturesque bread riots, thrilling cavalcades of splendidly costumed motorcycle police.]

On message By Lewis H. Lapham Harper’s Magazine, October 2005, pps. 7-9 “But I venture the challenging statement that if American democracy ceases to move forward as a living force, seeking day and night by peaceful means to better the lot of our citizens, then Fascism and Communism, aided, unconsciously perhaps, by old-line Tory Republicanism, will grow in strength in our land.” -Franklin D. Roosevelt, November 4, 1938

In 1938 the word “fascism” hadn’t yet been transferred into an abridged metaphor for all the world’s unspeakable evil and monstrous crime, and on coming across President Roosevelt’s prescient remark in one of Umberto Eco’s essays, I could read it as prose instead of poetry — a reference not to the Four Horsemen of the Apocalypse or the pit of Hell but to the political theories that regard individual citizens as the property of the government, happy villagers glad to wave the flags and wage the wars, grateful for the good fortune that placed them in the care of a sublime leader. Or, more emphatically, as Benito Mussolini liked to say, “Everything in the state. Nothing outside the state. Nothing against the state.”

The theories were popular in Europe in the 1930s (cheering crowds, rousing band music, splendid military uniforms), and in the United States they numbered among their admirers a good many important people who believed that a somewhat modified form of fascism (power vested in the banks and business corporations instead of with the army) would lead the country out of the wilderness of the Great Depression — put an end to the Pennsylvania labor troubles, silence the voices of socialist heresy and democratic dissent. Roosevelt appreciated the extent of fascism’s popularity at the political box office; so does Eco, who takes pains in the essay “Ur-Fascism,” published in The New York Review of Books in 1995, to suggest that it’s a mistake to translate fascism into a figure of literary speech. By retrieving from our historical memory only the vivid and familiar images of fascist tyranny (Gestapo firing squads, Soviet labor camps, the chimneys at Treblinka), we lose sight of the faith-based initiatives that sustained the tyrant’s rise to glory. The several experiments with fascist government, in Russia and Spain as well as in Italy and Germany, didn’t depend on a single portfolio of dogma, and so Eco, in search of their common ground, doesn’t look for a unifying principle or a standard text. He attempts to describe a way of thinking and a habit of mind, and on sifting through the assortment of fantastic and often contradictory notions — Nazi paganism, Franco’s National Catholicism, Mussolini’s corporatism, etc. — he finds a set of axioms on which all the fascisms agree. Among the most notable:

The truth is revealed once and only once.

Parliamentary democracy is by definition rotten because it doesn’t represent the voice of the people, which is that of the sublime leader.

Doctrine outpoints reason, and science is always suspect.

Critical thought is the province of degenerate intellectuals, who betray the culture and subvert traditional values.

The national identity is provided by the nation’s enemies.

Argument is tantamount to treason.

Perpetually at war, the state must govern with the instruments of fear. Citizens do not act; they play the supporting role of “the people” in the grand opera that is the state.

Eco published his essay ten years ago, when it wasn’t as easy as it has since become to see the hallmarks of fascist sentiment in the character of an American government. Roosevelt probably wouldn’t have been surprised.

He’d encountered enough opposition to both the New Deal and to his belief in such a thing as a United Nations to judge the force of America’s racist passions and the ferocity of its anti-intellectual prejudice. As he may have guessed, so it happened. The American democracy won the battles for Normandy and Iwo Jima, but the victories abroad didn’t stem the retreat of democracy at home, after 1968 no longer moving “forward as a living force, seeking day and night to better the lot” of its own citizens, and now that sixty years have passed since the bomb fell on Hiroshima, it doesn’t take much talent for reading a cashier’s scale at Wal-Mart to know that it is fascism, not democracy, that won the heart and mind of America’s “Greatest Generation,” added to its weight and strength on America’s shining seas and fruited plains.

A few sorehead liberal intellectuals continue to bemoan the fact, write books about the good old days when everybody was in charge of reading his or her own mail. I hear their message and feel their pain, share their feelings of regret, also wish that Cole Porter was still writing songs, that Jean Harlow and Robert Mitchum hadn’t quit making movies. But what’s gone is gone, and it serves nobody’s purpose to deplore the fact that we’re not still riding in a coach to Philadelphia with Thomas Jefferson. The attitude is cowardly and French, symptomatic of effete aesthetes who refuse to change with the times.

As set forth in Eco’s list, the fascist terms of political endearment are refreshingly straightforward and mercifully simple, many of them already accepted and understood by a gratifyingly large number of our most forward-thinking fellow citizens, multitasking and safe with Jesus. It does no good to ask the weakling’s pointless question, “Is America a fascist state?” We must ask instead, in a major rather than a minor key, “Can we make America the best damned fascist state the world has ever seen,” an authoritarian paradise deserving the admiration of the international capital markets, worthy of “a decent respect to the opinions of mankind”? I wish to be the first to say we can. We’re Americans; we have the money and the know-how to succeed where Hitler failed, and history has favored us with advantages not given to the early pioneers.

We don’t have to burn any books.

The Nazis in the 1930s were forced to waste precious time and money on the inoculation of the German citizenry, too well-educated for its own good, against the infections of impermissible thought. We can count it as a blessing that we don’t bear the burden of an educated citizenry. The systematic destruction of the public-school and library systems over the last thirty years, a program wisely carried out under administrations both Republican and Democratic, protects the market for the sale and distribution of the government’s propaganda posters. The publishing companies can print as many books as will guarantee their profit (books on any and all subjects, some of them even truthful), but to people who don’t know how to read or think, they do as little harm as snowflakes falling on a frozen pond.

We don’t have to disturb, terrorize, or plunder the bourgeoisie.

In Communist Russia as well as in Fascist Italy and Nazi Germany, the codes of social hygiene occasionally put the regime to the trouble of smashing department-store windows, beating bank managers to death, inviting opinionated merchants on complimentary tours (all expenses paid, breathtaking scenery) of Siberia. The resorts to violence served as study guides for free, thinking businessmen reluctant to give up on the democratic notion that the individual citizen is entitled to an owner’s interest in his or her own mind.

The difficulty doesn’t arise among people accustomed to regarding themselves as functions of a corporation. Thanks to the diligence of out news media and the structure of our tax laws, our affluent and suburban classes have taken to heart the lesson taught to the aspiring serial killers rising through the ranks at West Point and the Harvard Business School — think what you’re told to think, and not only do you get to keep the house in Florida or command of the Pentagon press office but on some sunny prize day not far over the horizon, the compensation committee will hand you a check for $40 million, or President George W. Bush will bestow on you the favor of a nickname as witty as the ones that on good days elevate Karl Rove to the honorific “Boy Genius,” on bad days to the disappointed but no less affectionate “Turd Blossom.” Who doesn’t now know that the corporation is immortal, that it is the corporation that grants the privilege of an identity, confers meaning on one’s life, gives the pension, a decent credit rating, and the priority standing in the community? Of course the corporation reserves the right to open one’s email, test one’s blood, listen to the phone calls, examine one’s urine, hold the patent on the copyright to any idea generated on its premises. Why ever should it not? As surely as the loyal fascist knew that it was his duty to serve the state, the true American knows that it is his duty to protect the brand.

Having met many fine people who come up to the corporate mark — on golf courses and commuter trains, tending to their gardens in Fairfield County while cutting back the payrolls in Michigan and Mexico — I’m proud to say (and I think I speak for all of us here this evening with Senator Clinton and her lovely husband) that we’re blessed with a bourgeoisie that will welcome fascism as gladly as it welcomes the rain in April and the sun in June. No need to send for the Gestapo or the NKVD; it will not be necessary to set examples.

We don’t have to gag the press or seize the radio stations.

People trained to the corporate style of thought and movement have no further use for free speech, which is corrupting, overly emotional, reckless, and ill-informed, not calibrated to the time available for television talk or to the performance standards of a Super Bowl halftime show. It is to our advantage that free speech doesn’t meet the criteria of the free market. We don’t require the inspirational genius of a Joseph Goebbels; we can rely instead on the dictates of the Nielsen ratings and the camera angles, secure in the knowledge that the major media syndicates run the business on strictly corporatist principles — afraid of anything disruptive or inappropriate, committed to the promulgation of what is responsible, rational, and approved by experts. Their willingness to stay on message is a credit to their professionalism.

The early twentieth-century fascists had to contend with individuals who regarded their freedom of expression as a necessity — the bone and marrow of their existence, how they recognized themselves as human beings. Which was why, if sometimes they refused appointments to the state-run radio stations, they sometimes were found dead on the Italian autostrada or drowned in the Kiel Canal. The authorities looked upon their deaths as forms of self-indulgence. The same attitude governs the agreement reached between labor and management at our leading news organizations. No question that the freedom of speech is extended to every American — it says so in the Constitution — but the privilege is one that musn’t be abused. Understood in a proper and financially rewarding light, freedom of speech is more trouble than it’s worth — a luxury comparable to owning a racehorse and likely to bring with it little else except the risk of being made to look ridiculous. People who learn to conduct themselves in a manner respectful of the telephone tap and the surveillance camera have no reason to fear the fist of censorship. By removing the chore of having to think for oneself, one frees up more leisure time to enjoy the convenience of the Internet services that know exactly what one likes to hear and see and wear and eat. We don’t have to murder the intelligentsia.

Here again, we find ourselves in luck. The society is so glutted with easy entertainment that no writer or company of writers is troublesome enough to warrant the compliment of an arrest, or even the courtesy of a sharp blow to the head. What passes for the American school of dissent talks exclusively to itself in the pages of obscure journals, across the coffee cups in Berkeley and Park Slope, in half-deserted lecture halls in small Midwestern
colleges. The author on the platform or the beach towel can be relied upon to direct his angriest invective at the other members of the academy who failed to drape around the title of his latest book the garland of a rave review.

The blessings bestowed by Providence place America in the front rank of nations addressing the problems of a twenty-first century, certain to require bold geopolitical initiatives and strong ideological solutions. How can it be otherwise? More pressing demands for always scarcer resources; ever larger numbers of people who cannot be controlled except with an increasingly heavy hand of authoritarian guidance. Who better than the Americans to lead the fascist renaissance, set the paradigm, order the preemptive strikes? The existence of mankind hangs in the balance; failure is not an option. Where else but in America can the world find the visionary intelligence to lead it bravely into the future — Donald Rumsfeld our Dante, Turd Blossom our Michelangelo?

I don’t say that over the last thirty years we haven’t made brave strides forward. By matching Eco’s list of fascist commandments against our record of achievement, we can see how well we’ve begun the new project for the next millennium — the notion of absolute and eternal truth embraced by the evangelical Christians and embodied in the strict constructions of the Constitution; our national identity provided by anonymous Arabs; Darwin’s theory of evolution rescinded by the fiat of “intelligent design”; a state of perpetual war and a government administering, in generous and daily doses, the drug of fear; two presidential elections stolen with little or no objection on the part of a complacent populace; the nation’s congressional districts gerrymandered to defend the White House for the next fifty years against the intrusion of a liberal-minded president; the news media devoted to the arts of iconography, busily minting images of corporate executives like those of the emperor heroes on the coins of ancient Rome.

An impressive beginning, in line with what the world has come to expect from the innovative Americans, but we can do better. The early twentieth-century fascisms didn’t enter their golden age until the proletariat in the countries that gave them birth had been reduced to abject poverty. The music and the marching songs rose with the cry of eagles from the wreckage of the domestic economy. On the evidence of the wonderful work currently being done by the Bush Administration with respect to the trade deficit and the national debt — to say nothing of expanding the markets for global terrorism — I think we can look forward with confidence to character-building bankruptcies, picturesque bread riots, thrilling cavalcades of splendidly costumed motorcycle police.


Rampant Fraud and Financial Collapse

Posted by Zach Carter

April 14, 2010


There are two types of financial outrages: acts that are outrageously illegal, and acts that are, outrageously, legal. Yesterday’s Senate hearing on the rise and fall of Washington Mutual was a rare examination of the former outrage, documenting the pervasive practice of fraud at every level of the now-defunct bank’s business.

All of Washington Mutual’s sketchy practices can be traced back to rampant fraud in its mortgage lending offices. The company repeatedly performed internal audits of its lending practices, and discovered multiple times that enormous proportions of the loans it was issuing were based on fraudulent documents. At some offices, the fraud rate was on new mortgages over 70%, and at yesterday’s hearing, the company’s former Chief Risk Officer James Vanasek described its mortgage fraud as “systemic.”

When most people think of mortgage fraud, they think of a clever borrower conning an unwitting banker into extending him a loan he cannot afford. But this isn’t really how fraud usually works in the mortgage business. According to the FBI, 80% of mortgage fraud is committed by the lender, so it shouldn’t be surprising that WaMu’s internal audits concluded that its widespread fraud was being “willfully” perpetrated by its own employees. The company also engaged in textbook predatory lending across all of its mortgage lending activities–issuing loans based on the value of the property, while ignoring the borrower’s ability to repay the loan.

These findings alone are pretty bad stuff in the world of white-collar crime. For several years, WaMu was engaged in fraudulent lending, WaMu managers knew it was engaged in fraudulent lending, and didn’t stop it. The company was setting up thousands, if not millions of borrowers for foreclosure, while booking illusory short-term profits and paying out giant bonuses for its employees and executives. During the housing boom, WaMu Chairman and CEO Kerry Killinger took home between $11 million and $20 million every single year, much of it “earned” on outright fraud.

But the WaMu scandal gets much worse. WaMu is routinely referred to as a pure mortgage lender, one whose simple business model can be contrasted with the complex wheelings and dealings of Wall Street titans like Lehman Brothers and Bear Stearns. That characterization is grossly inaccurate. WaMu was very heavily engaged in the business of packaging mortgages into securities and marketing them to investors. This is a core investment banking function, something ordinary mortgage banks like WaMu were legally barred from engaging in until 1999, when Congress repealed the Glass-Steagall Act, a critical Depression-era reform.

Securitization is immensely profitable, and under the right circumstances, it allows banks to dump risky mortgages off their books at a profit. That’s exactly what WaMu did. Even after internal audits flagged specific loans as fraudulent, WaMu’s securitization shop still went ahead and packaged those exact same loans into securities, and sold them to investors. Knowingly peddling fraudulent securities is a straightforward act of securities fraud, one made all the more severe by the fact that WaMu never told its investors it had sold them securities full of fraudulent loans. The only question now is whether anyone will be personally held accountable for the act.

So far, we’ve got fraud on fraud– but wait! The WaMu saga actually gets worse still. When the mortgage market started falling apart, WaMu ordered a study on the likelihood that one if its riskiest mortgage products, the option-ARM loan, would begin defaulting en masse. The report concluded that, indeed, option-ARMs were about to default like crazy, within a matter of months. Option-ARMs feature a low introductory monthly payment for a few years, often so low that borrowers actually end up going deeper into debt, despite making their regular payments. After a few years, the monthly payment increases dramatically–sometimes by as much as 400 percent. Suddenly this cheap loan is outrageously unaffordable, and if home prices decline, borrowers are immediately headed for foreclosure.

Now, most would-be homeowners are not very interested in this kind of loan. It seems dangerous, because it is dangerous. So WaMu actively coached its loan officers to persuade skeptical borrowers into accepting this predatory garbage instead of an ordinary mortgage.

This assault on its own borrowers is only half of WaMu’s option-ARM hustle. For a while, Wall Street investors really liked option-ARMs. They were inherently risky, which meant they were much more profitable, if you ignored the risk that they might someday default, and Wall Street was all too happy to engage in this kind of creative accounting.

But when WaMu conducted its study on looming option-ARM defaults, the prospect of heavy, imminent losses did not convince the company to abandon the business. Instead, WaMu began issuing as many option-ARMs as it could. The idea was to jam as many of these loans into its securitization machine as it could before investors decided to stop buying option-ARM securities altogether.

That means WaMu was knowingly setting up both borrowers and investors for a fall. The company was actually trying to extend loans that it knew would be disastrous for its borrowers–and then selling them to investors that it knew would end up taking heavy losses. Whether or not this constitutes illegal fraud will depend on some technicalities, but it is clearly an act of outrageous deception.

When the securitization markets finally froze up, WaMu got stuck with billions in terrible, terrible loans it had issued, and the company failed spectacularly. One of the few good calls the U.S. government made during the financial crisis was the decision not to extend bailout funds to WaMu, not to save the jobs of its executives, and allow the company to fail. It was seized by the FDIC in late September 2008, and immediately sold to J.P. Morgan Chase, at no cost to taxpayers.

But WaMu’s story is nevertheless rife with implications here for Wall Street reform. First, regulation matters. Everything WaMu did could have been stopped not only by an engaged regulator who worried about the company’s bottom line, but by a regulator who cared about consumer protection in any degree whatsoever. WaMu’s regulator, the Office of Thrift Supervision, didn’t care about either, but it was particularly uninterested in consumer protection rules, because those often conflict with bank profitability. If we establish a new regulator that is charged only with writing and enforcing consumer protection rules, it won’t worry about how profitable consumer predation might be, it will simply crack down on it. In the process, it could actually protect the company’s bottom line (Salon’s Andrew Leonard has been emphasizing this point for some time).

Second, at yesterday’s hearing, former WaMu Chief Risk Officer James Vanasek acknowledged that his bank would not have been able to wreak so much economic destruction without the repeal of Glass-Steagall, which barred any mixing between complex Wall Street securities dealings and ordinary, plain-vanilla banking. He even went so far as to offer a tepid endorsement for reinstating the law.

A lot of predatory mortgage firms didn’t run their own securitization shops–they sold their loans directly to Wall Street firms, which handled the securitization on their own. So proponents of the Glass-Steagall repeal (most of them employed at one point or another by a major banking conglomerate) argue that the crisis would have occurred with our without the repeal. That argument is basically a distraction, as the WaMu case reveals. Over the course of just a few years, WaMu’s entire mortgage banking operation transformed from a boring, profitable, plain-vanilla enterprise, into a feeding trough for its risky securitization activities. There is simply no way that transformation could have occurred without the lure of easy in-house securitization profits. It is possible to conceive of a mortgage crisis taking place without the repeal of Glass-Steagall, but it is utterly impossible to imagine a mortgage crisis as severe as the one we are still living through.

It will be very surprising if criminal charges are not soon filed against some of WaMu’s former executives. But WaMu isn’t the only bad actor from the financial crisis. This is basically how the entire U.S. mortgage market operated for at least five years. Dozens of lenders who are still active, many of them saved by generous taxpayer bailouts, were engaged in similar activities. There’s only one way to churn out billions of dollars worth of lousy mortgages for several years, and it involves a prolonged campaign of fraud and deception.

Zach Carter is AlterNet’s economics editor. His work has appeared in The Nation, Mother Jones, The American Prospect and Salon.


Reinventing Collapse The Soviet Example and American Prospects

by Dmitry Orlov

Dmitry Orlov was born in Leningrad and immigrated to the United States at the age of 12. He was an eyewitness to the Soviet collapse over several extended visits to his Russian homeland between the late eighties and mid-nineties. He is an engineer who has contributed to fields as diverse as high-energy Physics and Internet security, as well as a leading Peak Oil theorist whose writing is featured on such sites as http://www.lifeaftertheoilcrash.net and www.powerswitch.org.uk

Reinventing Collapse

The Soviet Example and American Prospects

By Dmitry Orlov

In the waning days of the American Empire the US administration finds itself mired in political crisis; foreign policy has come under sharp criticism; and the economy is in steep decline. These trends mirror the experience of the Soviet Union in the early 1980’s. Reinventing Collapse examines the circumstances of the demise of the Soviet superpower and offers clear insights into how we might prepare for coming events.

Rather than focusing on doom and gloom, Reinventing Collapse suggests that there is room for optimism if we focus our efforts on personal and cultural transformation. With characteristic dry humor, Orlov identifies three progressive stages of response to the looming crisis:

  • Mitigation – alleviating the impact of the coming upheaval
  • Adaptation – adjusting to the reality of changed conditions
  • Opportunity – flourishing after the collapse

He argues that by examining maladaptive parts of our common cultural baggage we can survive and thrive and discover more meaningful and fulfilling lives, in spite of steadily deteriorating circumstances.

This challenging yet inspiring work is a must-read for anyone concerned about energy, geopolitics, international relations and life in a post-Peak Oil world.About the Contributor(s)Dmitry Orlovwas born in Leningrad and immigrated to the United States at the age of 12. He was an eyewitness to the Soviet collapse over several extended visits to his Russian homeland between the late eighties and mid-nineties. He is an engineer who has contributed to fields as diverse as high-energy Physics and Internet security, as well as a leading Peak Oil theorist whose writing is featured on such sites as http://www.lifeaftertheoilcrash.net and http://www.powerswitch.org.uk.

By Matthew I. Stein “Practical Realist” (Truckee, CA) – See all my reviews

This review is from: Reinventing Collapse: The Soviet Example and American Prospects (Paperback)

As an MIT engineer (BSME MIT, 1978) and Author of When Technology Fails, I have read over a hundred books over the past two years, but Dimitri Orlov’s “Reinventing Collapse” is the one that haunts me. Like many Americans, I felt quite smug when the Soviet Union collapsed. At the time, it appeared to be proof that the western world’s way of running its businesses and governments was indeed superior to communism, and that the “free market” would soon deliver oppressed peoples all over the world from the clutches of the remaining totalitarian regimes.

Orlov’s analysis, gained through personally experiencing the Soviet collapse, shows us that this collapse was more a factor of economic problems caused by a crash in oil revenues than by the Regan/Breshnev arms race that was credited by so many westerners for fomenting this collapse. When the oil-glut of the 1980’s caused the price of oil to fall radically, the Soviet income from their inefficient state run petroleum industries crashed (it basically cost them about as much to pump and refine their oil as the export price per barrel), and the result was a cash flow crunch that could not sustain the rest of their state-run economy.

Now that oil prices have shot past the $100 a barrel mark, the tables have turned. Russia has surpassed Saudi Arabia as the world’s number one oil producer, and the same oil exports that caused the Soviet regime’s cash flow problem when prices were extremely low, is now making the new Russian economy cash-rich. America is seeing the devaluation of our dollar, brought on primarily due to a negative cash flow of billions of dollars a day for petroleum product imports and military ventures to protect our access to the supply of oil in foreign countries (Iraq, etc.), contributing to a large portion of our skyrocketing national debt, bringing the threat of economic collapse ever closer to our shores. Orlov points out a few of the differences between the former Soviet situation and the current US situation that makes our predicament even scarier.

When the Soviet Union collapsed, many of its state run systems continued to function. For example, most Soviets lived in public housing, fueled by public utilities, and they got around using public transportation. When their economic system went down, even though few people had much or any usable cash, their homes were still heated and not boarded up, the lights stayed on, and they could still get around using buses and trains. Here in America, the free market and privatization makes ours a very different story. When we stop paying our bills, the lights go out and the banks take our homes. If you don’t have money for gas, or happen to live where trains and buses don’t go where you need to go, your only recourse is to walk or hitch hike. When cash stops flowing, paychecks halt immediately and services screech to a halt (remember Enron and MCI?). When the Soviet Union collapsed, their country still had vast untapped resources to help rebuild after the collapse. America, on the other hand, has already used up most of our steel, natural gas, oil, timber, and so on. What untapped resources do we have to draw upon to pull ourselves out of this predicament? If the American dollar plunges, how will we continue to buy the resources and products from other countries that we no longer make ourselves?

So, if you are worried about the future and what you may do to prepare your friends, family, and country for what may lie ahead, I suggest you pick up a copy of “Reinventing Collapse”, and learn from Orlov’s experience. He gives us a clear vision of what to expect, including which strategies worked best for individuals, and what items proved most valuable to stock up for barter use when cash has no value because the economy crashed. What you learn from the past can help you to navigate a course through the future. Highly recommended!

51 of 55 people found the following review helpful:

5.0 out of 5 stars Preparing for Collapse, May 23, 2008

By Anthony Reiner “Anthony” (Annapolis, MD) – See all my reviews

This review is from: Reinventing Collapse: The Soviet Example and American Prospects (Paperback)

Dmitry Orlov observed the collapse of the Soviet Union first hand during the early 1990s and based on his experience there believes America will be following down the same, sad path sooner rather than later. In this book, he details the many surprising ways that the current United States mirrors many aspects of Soviet life. Orlov believes that one of the main reasons that the Soviet system eventually collpased was because average people couldn’t maintain their standard of living. Sound familiar? Frighteningly, Orlov found the Soviet Union to be much better prepared for collpase than America will be. At least, Russians owned their own homes and had public transportation. They weren’t stuck far away in suburbia with no stores or services nearby.

Throughout this book Orlov uses scientific precision to knock down one myth after another about American life. He is very funny in mocking many of the silliest and stupidest aspects of American life. This book doesn’t lay out a blueprint for how to survive the collpase, because Orlov himself makes plain that he doesn’t pretend to know exatly how it will happen, but it does give some useful tips for how to prepare mentally and physically. The book is only 160 pages and I think you’ll be so drawn in by it that you’ll finish it in one evening just like I did. I guarantee it will be an evening well spent.

37 of 42 people found the following review helpful:

4.0 out of 5 stars thought-provoking, insightful, but missed a bit, June 28, 2008

By Charles Hugh Smith (Berkeley, CA United States) – See all my reviews

This review is from: Reinventing Collapse: The Soviet Example and American Prospects (Paperback)

Dmitri Orlov has written an entertaining and thought-provoking comparison of the collapse of the Soviet Union and the post-oil end-game here in the U.S. By his own account, “entertaining and thought-provoking” were his goals for the book, and he has succeeded very admirably. I can recommend the book wholeheartedly, even as I respectfully disagree with some of his conclusions.

1. The collapse of the USSR was a political act; the USA is facing a resource-depletion-financial crisis. Now a financial collapse (K-Wave “winter,” or the repudiation of all debts, public and private) certainly could lead to political collapse, but that is by no means set in stone.

The cultural and structural differences between the USSR and the USA are significant, and if Orlov had been an anthropologist his book might have drawn somewhat different distinctions. His primary thesis is that the Soviet Union was actually better prepared to weather collapse than the U.S., but I think he missed this critical difference: Russia and the other constituent states of the former USSR were resource-rich. Once they got their politcal house in order, they had immense resources to aid their financial recovery.

2. The Soviet Union was not a nation of immigrants; the U.S. is and has been since its inception. Even the Native Americans came from somewhere else, albeit a long time ago (though 12,000 years is merely a blink in geological time). Now on the surface immigration is driven by a number of things: hunger, poverty, desire for religious freedom, etc. But fundamentally it is a form of natural selection. Among any group of people, there wil be some who look around at the poverty, corruption, hopelessness and lack of opportunity for non-elite people and decide the best way to change their lives is to leave.

3. Religion plays a unique and powerful role in the U.S. in ways which it did not in the USSR. A quick glance at Russian art suggests the central role of the Church in Russian culture. But if Orlov were African-American, I believe his dismissal of religion might not have been so quick and assured.

Rather than the non-factor Orlov expects, I would reckon religious institutions will play critical roles in organizing people for their own betterment. People didn’t come here to ignore their religion, they came here to practice it, and that goes for every religion. It’s been said that the black church is the only institution owned lock, stock and barrel by the African-American community, and it will not be a non-factor in that community but a central institution of stability, hope and communal services.

4. Wandering around as a homeless migrant is not a good survival strategy. Orlov suggests at the end of his book that wandering between two or three sources of resources would be a good strategy. My own view is that freeloading is frowned upon in the U.S. and your best bet to is either stay put (yes, even in ghettos and urban neighborhoods) or move to a place where you have some roots (where you grew up is always a good place to start) or where there is some commonality: a church you belong to, an ecosystem you love and will nurture, etc.

5. The U.S. is on par with Sadr City, Iraq in terms of firepower in the hands of citizens. As the most heavily armed society in the developed world, the U.S. can easily go the way of well-armed criminal gangs controlling urban zones or well-armed militia sprouting up to take out the criminals. There is historical precedents for either scenario. A third scenario (common in the 3rd World) is for wealthy enclaves to hire private forces to protect the enclave.

While I can’t predict which will play out in various circumstances, we should be aware that the U.S. has millions of military veterans and millions of weapons. The USSR had the vets but not the weapons in private hands. People will eventually choose to support an alternative to anarchy or criminal/mob rule, unless the criminal gang is the only alternative to something worse (i.e. the Sadr City scenario). Or people will pay extra to maintain a top-notch police force and let go of the other city services, performing them communally via volunteer labor.

My point is simply that a heavily armed culture with tens of millions of firearm-trained vets is not going to follow the route of a society without those two elements.

6. Orlov underestimates the power of the Web/Internet. Orlov is extending his experience in a pre-Internet Russia, in which you had to stand outside in the cold in order to hitch a ride. Assuming the Internet backbone will be maintained–and why wouldn’t it be placed ahead of every other use except hospitals and the public safety centers?–then virtually everyone will be able to arrange barters of almost unimaginable range via the Web.

Despite these points (which are all debatable, of course), it’s a very worthy exercise to read his work and make your own analysis.


Huge real estate Crash Coming Subprime

i.e. through crash of Alt A and Option arms mortgages

Subprime > Altay > Option arms = CRASH


What do you know about Option Arms and Altay loans, this is what’s next to fail?

First wave of sub-prime mortgage defaults over.

Second wave of mortgage defaults coming now to higher quality credit risks. These are people who have bought homes in the last five years and who have taken out home equity loans. Mortgages now going under water owe more than house is worth. This wave of defaults will take upwards of 10 to 12 months to clear.

Third wave of mortgage defaults due to begin this year and continue through 2011 are Option Arms and Altay; as payments are automatically resetting to higher rates. We saw some fail last month because of a 3% rate hike, next month is the beginning of the end as rates start to climb even higher.
Estimated – 8 million defaults in next four years.

As if this is not enough we have the next huge failure to come in the commercial real estate market, that will make the sub-prime fiasco look like kids play!

Then comes credit cards and auto loans in the end.

Post Published: 30 June 2010
Author: admin

Found in section: Commercial Real Estate Financing Questions



Fraud: The Western Banking Industry’s Fastest Growing Export

|  by: J. S. Kim March 08, 2010  | about: XLF

By this author:

an article to

Despite the fact that nearly all of the macroeconomic trends I have predicted since 2006 on my blog, the Underground Investor, have come true, the percent of people that disagree with my predictions for 2010 and 2011 still outnumber those that agree by a factor of ten to one. There is a rational explanation why the public still grants a great deal of validity to the opinions of people I like to call the “men who cried wolf” – Ben Bernanke, Timothy Geitner, Gordon Brown, Alan Greenspan, et al.

The explanation is that the fastest growing export of the Western banking industry is fraud. This is not to say that the eastern banking industry is not guilty of this same fraud. Off the top of my head and from what I have see in my travels through Asia, I can think of at least three real estate markets in the Pacific Rim region that are bubbles waiting to burst – New Zealand, Thailand, and Hong Kong. If you study the Central Banking monetary policies in these countries in recent years, their present real estate bubbles are undoubtedly the architectural accomplishment of their respective Central Banks as well. However, the roots of this global monetary crisis lie with the most influential Central Banks in the world that include the ECB, the Bank of England and the US Federal Reserve.

More than a year ago, I penned an article titled “The Line that Separates Real Money from Counterfeit Money Has Become Nearly Indistinguishable”. In this article, I discussed the enormous irony of a viral story back then about the harm inflicted upon society from an inordinate amount of counterfeit £1 coins that were discovered to be in circulation in the UK. In that article, I stated the following:

“The Bank of England is not the only Central Bank to conclude that running the printing presses overtime to pull their domestic economies out of trouble is the preferred solution even though this “solution” will have some serious blowback consequences in the future. The Bank of Japan, the European Central Bank and the US Federal Reserve have all demonstrated a proclivity towards massive expansions of the monetary base, an action that will eventually lead to massive expansions in monetary supply and an ultimate race to the bottom in currency debasement. So with Central Banks literally taking actions that will eventually destroy the purchasing power of all major currencies, it is no stretch of the imagination to conclude that the “real money” they are currently printing will soon have far more deleterious effects on the purchasing power of said money than the comparatively small percentages of “counterfeit money” that leak into the system.”

A couple of weeks ago, the UK Financial Times reported an article titled, “Our World Balances on a Sea of Debt”. The byline of this article reads, “The banks that control the world’s supply of money are no better than counterfeiters – and their system of juggling debt has left the global economy teetering on the brink of ruin. Convicted fraudster Darius Guppy offers a provocative personal view.” In this article, a must read in my opinion, Mr. Guppy argues:

“These ‘experts’ will tell you that the present difficulties are simply the result of abuses and excesses in a system that is basically sound. All that is required is for some faults to be corrected. Do not believe them. The reality is that the problem is systemic and a little tinkering here or there will achieve nothing in the long term. What is needed is a root-and-branch re‑evaluation of that most curious of cultural inventions, money: how it is created, how it circulates, and how it can best be used to serve the interests of the community.”

This is a powerful statement that should lead the majority of the world’s citizens to engage in some serious introspection. There is more truth in that statement than any statement I’ve heard in the last decade issued by any global banker, politician, or the latest Nobel-prize winning economist with whom the media is enamored. If you take the time to understand how money is created, how it circulates, and how it can best be used to serve the interests of the community, I guarantee you will immediately question the integrity of every derivative of our monetary system from carbon credits and taxes to mortgages to credit cards. If a convicted felon understands more about how our monetary system operates than 99% of all Congressman and even Nobel laureates in economics, let alone the common citizen, then we need to not only question why this is, but we also need to ask the following question:

“Who controls [aka manufactures] the flow of information so expertly that we now have a grotesque imbalance between the understanding of reality and the acceptance of fantasy?”

Consider the immediate dire consequences of what would happen in America if the US government increased the capital requirements of the top 10 US banks tomorrow. Since all of these banking stocks have been manipulated higher over the last 9 months and are severely overvalued, raising new capital through secondary offerings would largely be an unviable pursuit. Thus, many of these banks would have to resort to selling portions of their commercial real estate portfolio to raise the capital to meet increased capital requirements. If so, then true discovery of the real values, not the marked-to-fantasy values, of commercial real estate in the United States would occur. And there is no doubt that true discovery of commercial real estate portfolios held by US banks would have massive negative consequences upon financial stocks, then US stock market indexes, and then global stock markets. But why should true discovery of asset values cause such massive disruption worldwide? Could it be because fraud is upholding many asset valuations today?

What is occurring in the US commercial real estate industry would be akin to the following example. In 2008, when the S&P 500 plummeted by nearly 40%, imagine if you knew that every single commercial investment house that was a competitor of the one that managed your money lost roughly 40% in all of their managed stock portfolios that year as well. Now, imagine your surprise when you received a statement at the end of 2008 from your commercial investment firm in which your portfolio, valued at $2 million at the beginning of the year, was still valued at $1.95 million. Wondering how your firm managed to outperform all their rivals when you know full well that they all employ the exact same diversification strategies, you phone your advisor to acquire about this anomaly.

Not a minute into your conversation, your advisor stops you mid-sentence and states, “We achieved such exceptional performance because our internal valuation models have determined that the true valuation of your portfolio should be $1.95 million. Furthermore, January 2008 was a really bad month so we excluded that month in our internal valuation models and amended our year to run from February 2008 to February 2009.” Confused by this response, you respond: “Your internal valuation models? Does that mean if I wanted to cash our my portfolio right now, I would not receive $1.95 million less your commission fees?” Your advisor responds, “That is correct. Were you to cash out today, you may only receive $1.2 million, maybe even $1 million, not $1.95 million. But don’t worry, our internal valuation models have determined that the vast majority of stocks you hold are severely undervalued and that the market is not setting a fair price for your stocks were you to sell today. Our internal stock market valuation experts have told us that the true value of your is actually $1.95 million. That is why your statement values your portfolio at $1.95 million.”

How would you react to this conversation? Most likely, you would scream fraud and pull your account immediately, right? But this is the scenario that is occurring with the commercial real estate sector in the US today, and this is precisely why banks that are insolvent are declaring themselves solvent. However, this example only illustrates one of a plethora of fraudulent reporting practices of governments and banks today. Changing reporting periods, definitions of bad expense, and altering calculations of Tier 1 capital (as exposed here by Zero Hedge in this article) is now so commonplace that indeed, fraud is, without doubt, the number one export of Western banks today.

Politicians and bankers would do well to head the more than 200-year old words of Patrick Henry in his infamous “Give me liberty of give me death” speech:

“Mr. President, it is natural to man to indulge in the illusions of hope. We are apt to shut our eyes against a painful truth, and listen to the song of that siren till she transforms us into beasts. Is this the part of wise men, engaged in a great and arduous struggle for liberty? Are we disposed to be of the number of those who, having eyes, see not, and, having ears, hear not, the things which so nearly concern their temporal salvation? For my part, whatever anguish of spirit it may cost, I am willing to know the whole truth; to know the worst, and to provide for it.”

Today, if politicians and bankers merely channeled the same amount of energy that they expend in deceiving the people into fixing the monetary system, then perhaps they would have already come up with a viable solution by now. But fraud, and perpetuation of an illusion seems to be their only concern today. And with good reason. As illustrated by a recent Center on Budget and Policy Priorities study, they are the only ones benefiting from this fraud. From 2002 to 2007, the top 1% of Americans captured nearly 70% of the income gains in America.

Today, in my opinion, today, the number one reason why the vast majority of people still cannot except the possibility that we will soon enter into a second phase of this global economic crisis that will prove to be far worse than the financial disruptions we experienced in 2008 is the following: Most people alive today have no memory of the Great Depression. For those that do, certainly they are able to identify with much greater clarity, the similarities in the patterns of fraud back then and the patterns of fraud occurring today.

There was a reason why Pol Pot, the tyrannical Cambodian despot that murdered more than 1 out of every 5 adults in Cambodia, began his cleansing process by murdering the elderly and the literate. He literally wanted to wipe out his country’s memory of the past so he could create a new history that started with his tyrannical reign. The greatest advantage bankers and politicians have in continuing to perpetuate fraud today in America is the fact that there are very few people still alive that recall the Great Depression. If you have a grandmother or grandfather still alive that lived through the Great Depression, ask them about what happened back then and the similarities to what is happening today. I guarantee you that your eyes will be opened to a much greater extent than they are today. If this is not feasible, then find someone that lived through the economic collapse in Argentina, Poland or Russia and that now lives in your country and ask him or her for their perspective on what is going on today. I assure you that the response you hear will be truly enlightening.

In conclusion, even though grassroots movements such as Move Your Money and Sound Money Now! have admirable goals, true change cannot be achieved unless we restore our monetary system to a sound, honest system.

Disclosure: No positions

About the author: J. S. Kim

Since the launch of the SmartKnowledgeU Crisis Investment Opportunities newsletter on June 15, 2007, as of May 12, 2010, it has respectively outperformed the Australian ASX 200, the UK FTSE 100 & the US S&P 500 by 304.41%, 300.89%, and 296.87%.* After earning an undergraduate degree from… More



Top 1 Percent of Americans

Reaped Two-Thirds of Income Gains in Last Economic Expansion

Income Concentration in 2007

Was at Highest Level Since 1928, New Analysis Shows

PDF of this report (3pp.)

By Avi Feller and Chad Stone

September 9, 2009

Related Areas of Research

Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.[1]

During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent of households grew more than ten times faster than the income of the bottom 90 percent of households.

The last economic expansion began in November 2001 and ended in December 2007, according to the National Bureau of Economic Research, which means the Piketty-Saez data essentially cover that expansion. The last time such a large share of the income gain during an expansion went to the top 1 percent of households — and such a small share went to the bottom 90 percent of households — was in the 1920s (see Figure 1). [2]

Piketty and Saez’s unique data series on income inequality, based on IRS files, is particularly valuable because it provides detailed information on income gains at the top of the income scale and extends back to 1913.

The new data show:

  • 2007 marked the fifth straight year in which income gains at the top outpaced those among the rest of the population. From 2002 to 2007, the average inflation-adjusted income of the top 1 percent of households rose 62 percent, compared to 4 percent for the bottom 90 percent of households (see Table 1).
Table 1:
Average Income Gains, Adjusted for Inflation, 2002-2007
Dollar Increase Percent Increase Average Annual Increase
Bottom 90 Percent $1,206 3.9% 0.8%
Next 9 Percent $19,476 13.0% 2.5%
Top 1 Percent $521,127 61.8% 10.1%
Top 0.1 Percent $3,455,384 94.1% 14.2%
Note : In 2007, the bottom 90 percent of households were those with incomes below about $110,000. The next 9 percent were those with incomes between $110,000 and about $400,000, and the top 0.1 percent were those with incomes above about $2,000,000. Calculations are in current 2007 dollars.
  • The share of the nation’s income flowing to the top 1 percent of households increased sharply, from 16.9 percent in 2002 to 23.5 percent in 2007 — a larger share than at any point since 1928 (see Figure 2). In 2000, at the peak of the 1990s boom, the top 1 percent received 21.5 percent of total income.[3]
  • Income gains have been even more pronounced among those at the very top of the income scale. The incomes of the top one-tenth of 1 percent (0.1 percent) of U.S. households have grown more rapidly than the incomes of the top 1 percent of households as a whole, rising by 94 percent — or $3.5 million per household — since 2002. The share of the nation’s income flowing to the top one-tenth of 1 percent of households increased from 7.3 percent of the total income in the nation in 2002 to 12.3 percent in 2007. This is the highest level in the Piketty-Saez data going back to 1913, surpassing even the previous peak in 1928.

The uneven distribution of economic gains in recent years continues a longer-term trend that began in the late 1970s. In the three decades following World War II (1946-1976), robust economic gains were shared widely, with the incomes of the bottom 90 percent actually increasing more rapidly in percentage terms, on average, than the incomes of the top 1 percent. But in the three decades since 1976, the incomes of the bottom 90 percent of households have risen only slightly, on average, while the incomes of the top 1 percent have soared. [4] (See Figure 3.)

With the latest IRS data, we now have a complete picture of income concentration during the recent economic expansion, which ended in December 2007, although we do not yet have data on the recession’s effects on income concentration. Based on National Account statistics and other indicators, Professor Saez predicts that income concentration will likely fall in 2008 and 2009 as it did following the dot.com collapse at the start of this decade. Whether the highest income households will once more capture a highly disproportionate share of income gains as the economy begins to recover is uncertain, but Saez, along with Harvard economist Lawrence Katz, points to previous recessions and notes that only major policy shifts like the New Deal have prevented income concentration from “bouncing back” after a decline. In the absence of significant policy changes, income concentration levels could well return to their previous highs after the current recession ends and resume their 30-year climb. [5]

End Notes:

[1] Piketty and Saez rely on detailed Internal Revenue Service micro-files for available years, extending the full series to 1913 using aggregate data and statistical techniques. Their August 2009 revision incorporates the detailed micro-files for 2007 that just became available. For details on their methods, see Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States: 1913-1998,” Quarterly Journal of Economics, February 2003, or, for a less technical summary, see http://elsa.berkeley.edu/~saez/saez-UStopincomes-2007.pdf. Their most recent estimates are available at http://elsa.berkeley.edu/~saez/TabFig2007.xls.

[2] According to the National Bureau of Economic Research, the last economic expansion began in November 2001 and ended in December 2007. However, the real income of the top 1 percent of households did not reach a trough until 2002 and that of the bottom 90 percent until 2003. For the purposes of this paper we measure income growth between 2002 and 2007. If we had chosen 2001 as the base year, the share of income gains accruing to the top 1 percent would have been 76 percent and that of the bottom 90 percent would have been 2 percent. If we had chosen 2003, those respective shares would have been 59 percent and 20 percent.

[3] Piketty and Saez present three different data series, each of which uses a different income concept and therefore yields somewhat different estimates of the share of income going to each group. (For example, estimates of the share of income going to the top 1 percent in 2007 range from 18.29 percent in one series to 23.50 percent in the series we rely on here to 20.33 percent in the third series.) We follow the income concept in Saez’s most recent report and focus on the series that includes capital gains income both in ranking households and in measuring the income that households receive. This definition of income corresponds most closely to adjusted gross income (AGI), although it has the disadvantage of fluctuating with the stock market.

Piketty and Saez also present a data series that includes capital gains income but ranks households without capital gains, as well as a series that excludes capital gains altogether. All three data series yield similar results. For example, in 2007, under both income concepts that include capital gains income, the share of income flowing to the top 1 percent was at its highest level since 1928. Under the income concept that excludes capital gains, the income share going to the top 1 percent was at the highest level since 1929.

[4] Different data series show modestly larger or smaller gains for the bottom 90 percent, but all series show a similar discrepancy between the bottom 90 percent and the top 1 percent.

[5] Saez details his prediction for trends in income concentration in the public summary of his work (supra note 1). Katz is quoted in David Leonhardt and Geraldine Fabrikant, “Rise of the Super-Rich Hits a Sobering Wall,” New York Times, Aug. 20, 2009.



Inside the Dire Financial State of the States

Thursday, Jun. 17, 2010

By David von Drehle

In New Jersey, taxes are high, the budget’s a mess, government is inefficiently organized, and the public pension fund is blown to kingdom come. Which makes New Jersey a lot like most other states in 2010. What makes the state unusual is its rookie governor, a human bulldozer named Chris Christie, who vowed to lead like a one-termer and is keeping his promise with brio. He has proposed chopping $11 billion from the state’s budget — more than a quarter of the total — for fiscal year 2011 (which starts July 1). He’s backing a constitutional cap on property taxes in hopes of pushing the state’s myriad villages and townships to merge into more efficient units. He’s locked in an ultimate cage match with the New Jersey teachers’ union. It may be the bitterest political fight in the country — and that’s saying something this year. A union official recently circulated a humorous prayer with a punch line asking God to kill Christie. You know, New Jersey humor. And in an interview with the Wall Street Journal, Christie didn’t talk about the possibility that his fiscal initiatives might be compromised or defeated; he pictured himself “lying dead on State Street in Trenton,” the state capital. Presumably that was a figure of speech.

The tone of the New Jersey budget battle may be distinctive, but many of the same notes can be heard in state capitals across the country. From Hartford to Honolulu, once sturdy state governments are approaching the brink of fiscal calamity, as the crash of 2008 and its persistent aftermath have led to the reckoning of 2010. Squeezed by the end of federal stimulus money on one hand and desperate local governments on the other, states are facing the third straight year of staggering budget deficits, and the necessary cuts will cost jobs, limit services and touch the lives of millions of Americans. Government workers have been laid off in half the states plus Puerto Rico. Twenty-two states have instituted unpaid furloughs. At least 28 states have ordered across-the-board budget cuts, with many of them adding deeper cuts in targeted agencies. And massive shortfalls in public pension plans loom as well. (See a stimulus report card.)

Almost no one — and no place — is exempt. Nearly everywhere, tax revenue plummeted as property values tanked, incomes dwindled and consumers stopped shopping. Falling prices for stocks and real estate have made mincemeat of often underfunded public pension plans. Unemployed workers have swelled the demand for welfare and Medicaid services. Governments that were frugal in the past are just squeaking by. Governments that were lavish in the good times, building their budgets on optimism and best-case scenarios, now risk being wrecked like a shantytown in an earthquake.

How the Money Ran Out

For the first time in four decades of collecting data, the National Governors Association (NGA) reports that total state spending has dropped for two years in a row. In hard-hit Arizona, for example, the state budget has sagged to 2004 levels, despite blistering growth in population and demand for government services. Starting with the 2008 fiscal year, state governments have closed more than $300 billion in cumulative budget gaps, with another $125 billion already projected for the coming years, says Corina Eckl, fiscal-program director at the National Conference of State Legislatures (NCSL). Similar figures aren’t collected for the nation’s counties, villages and towns, but when the National League of Cities surveyed mayors recently, three-fourths of them described worsening economic conditions. (See 10 big recession surprises.)

Accustomed to the ups and downs of the ordinary economic cycle, elected officials and budget planners are facing something none of them have experienced before: year after year of shortfalls, steadily compounding. Ordinarily, deficits are resolved mostly through budgetary hocus-pocus. But the length and depth of the recession are forcing governments to go beyond sleight of hand to genuine cuts. And that makes lawmakers gloomy in all but a handful of states. (It’s a swell time to be North Dakota.) According to an NCSL survey, worry or outright pessimism is the reigning mood in the vast majority of capitals.

Many taxpayers might say that it’s about time spending dropped. But then they start hearing the specifics. Government budgets contain a lot of fixed costs and herds of sacred cows. K-12 education absorbs nearly a third of all spending from state general funds. Add medical expenses, primarily Medicaid, and it’s over half. Prisons must be maintained, colleges and universities kept open, interest on bonds and other loans paid. Real cuts provoke loud howls, and you can hear them rising in every corner of the country. College students have marched in California, firefighters have protested in Florida, and on June 10, Minnesota saw the largest one-day strike of nurses — some 12,000 — in U.S. history. (Read “Municipal Bonds: The Next Financial Land Mine?”)

And don’t count on the shaky economic recovery for relief. After plunging in 2009, tax receipts are stabilizing in many places — but the next big shoe is fixing to drop. Having poured billions of dollars into state coffers through the stimulus act of 2009, the federal government is poised to close the tap. President Obama made an unusual Saturday night request to Congress last week for $50 billion in emergency aid to the states to stave off layoffs of teachers, firefighters and police. But it’s an election year, and there is scant appetite among vulnerable Democrats in Washington for more zeros at the end of the federal deficit. (Only the federal government is allowed to run deficits; states and cities must balance their budgets or face default.) Already, 11 states are projecting major budget gaps — greater than 10% of general-fund spending — well into 2013. Such persistent budget woes are unprecedented in the era of modern American government. You’d have to go back to the 1930s to find a parallel.

Crisis in the Statehouses

On the grand scale, this fiscal fiasco is playing out in California and New York. Both states boast economies far larger than that of Greece, which so disturbed the world economy this spring. And both are paralyzed by structural deficits far larger than their politicians seem able to grasp. The impasse in California between Republican governor Arnold Schwarzenegger and the Democrats controlling the legislature appears set in concrete. Last year, the Golden State was reduced to issuing IOUs; this year’s budget, some $19 billion in the hole, is once again a shambles. In New York, Democrats control all the levers, but they can’t find a cost-cutting deal acceptable to the public-employee unions that helped elect them. The deficit in Albany is $9.2 billion.

Read “How California’s Fiscal Woes Began: A Crisis 30 Years in the Making.”

See which businesses are bucking the recession.

Or you can picture the crisis through the other end of the telescope, through the eyes of one young lover of books. Not long ago, 9-year-old Campbell Jenkins of Charlotte, N.C., heard from his mom that two-thirds of the library branches in Mecklenburg County might be closed for lack of funds. “We were completely freaked out,” says Campbell’s mother Jessica. So the next day, young Campbell organized a letter-writing protest among his third-grade classmates. Not content with words, the kids also sold lemonade and donated the proceeds — $595 in an empty pretzel jar — to their branch-library manager. “It was really heartwarming,” says Heather Gwaltney, whose son Gavin, also 9, joined the effort.

This all comes as a shock to the folks of Charlotte, who long ago grew accustomed to seemingly endless prosperity. The seeds of Bank of America, among other empires, were sown there. “People are asking, ‘We’re Charlotte, North Carolina. We’re big banks. How did we get like this?’ ” says county budget director Hyong Yi. The answer is rooted in that once booming economy. As Charlotte burgeoned, the county approved $1.5 billion in bonds to build a new courthouse and new schools, expand its jails, improve its parks and — irony alert — open state-of-the-art libraries. Then the recession hit. Local unemployment rose to 11.7% in January — twice what it was two years earlier. Homes and commercial real estate lost value, which dried up the county’s chief revenue source, property taxes. The result: a 5% reduction in the upcoming budget, $71 million in cuts on top of $76 million in cuts the year before. Losing nearly $150 million in two years — an eternity of lemonade stands won’t fill that hole. (See how some Americans are facing the prospect of long-term unemployment.)

At the last minute, county commissioners allocated an additional $3.5 million for libraries, sparing at least some of those facing closure. Campbell Jenkins’ branch is safe — for now — but budget woes in the Tar Heel State look like an ongoing problem. A spokesperson for North Carolina governor Bev Perdue said the outlook remains grim: “Next year will not be pretty.”

When Main Street Acted Like Wall Street

The collapse of a Wall Street institution like Lehman Brothers looks nothing like the threatened closing of a branch library in the Charlotte suburbs. But whether the characters are mighty or meek, this unfolding economic disaster story is in fact a series of variations on a single theme. When times were good and the future seemed bulletproof, all sorts of grand ventures were floated on waves of debt. No one cared, because everyone planned to be richer when the bills came due. The arbitrageurs of leveraged derivatives, the cash-strapped subprime home buyers, the government grandees issuing bonds and boosting pensions — all were versions of the same doom-shadowed figure. Only if the bubble burst would the bills become unpayable. How did so many people forget all at once that the bubble always bursts? (See Wall Street’s worst days.)

Strapped for cash, state and local governments so far have taken mostly predictable steps. They’ve depleted their rainy-day funds; of all the cash expected to be on hand in state treasuries by the end of the 2010 fiscal year, two-thirds of it will be held by just two states, Alaska and Texas, which enjoy income from vast energy deposits. By comparison, 14 states are expected to have reserves of less than 1% of their annual spending — basically they’re living hand to mouth, hoping their checks don’t bounce. And a majority of states will have reserves well below safe levels recommended by the National Association of State Budget Officers. Leery of broad tax hikes in a bad economy, governments have instead chosen to shake the sofa cushions and punish the naughty, closing loopholes, cracking down on tax evaders and raising levies on tobacco, alcohol, gambling, soda pop and candy — even bottled water in Washington State. Nearly half the states have hiked fees for higher education, court services, park access, business licenses — or all of the above.

These are the tried-and-true responses to dips in the business cycle, but as the woes drag on from year to year, the job of closing budget gaps grows more difficult. Now larger issues and harder choices are being laid bare, beginning with the sprawling mess that is Medicaid. Created by Congress, administered by the states and paid for by a patchwork of federal, state and local governments, the health care system for America’s poor is a jumble in the best of times. With enrollments growing rapidly, that jumble is becoming a train wreck.

According to the NGA, the number of people covered by Medicaid will grow again next year by an estimated 5.4% on average. Meanwhile, anticipated funding is expected to grow hardly at all. That might not spell disaster for a state like Nebraska, which anticipates just 2% enrollment growth. But in foreclosure-racked Arizona, officials are planning for a jump of more than 17%, and the budgetary pressure is enormous. As Governor Jan Brewer put it in her state-of-the-state address this year, government revenues have sagged to 2004 levels, and “some people … say we should just adopt the 2004 budget.” But Arizona’s Medicaid rolls have grown by 475,000 patients since then. (See pictures of Cleveland’s smarter approach to health care.)

What’s going to give? Prepare for a free-for-all. The states are pressing Washington to maintain the emergency Medicaid supplement that was part of the stimulus package. So far, congressional moderates are blanching at the price tag. If the Beltway budget hawks win that battle, states plan to squeeze the patients, who are currently protected by strings attached to the stimulus money. No federal supplement means no more strings. Already various states are contemplating tighter eligibility rules, lower benefits, higher co-pays and other restrictions. And then there’s the ongoing fight between the states and the medical system. Governments are wringing money from doctors and hospitals coming and going: first they are cutting payments for Medicaid services, and then they are raising fees on Medicaid providers.

Just as ugly is the issue of public-employee pay and benefits. The mess in New Jersey is just an extreme example of a widespread problem: many state and local governments have made the mistake of courting the votes of public employees by fattening salaries and benefits, all the time imagining that pension-fund investments could only go up. Tales of lavish retirements for relatively youthful public servants have been making a lot of headlines lately. The New York Times reported that some 3,700 retired New York State public employees earn more than $100,000 a year in pension payments, including a former policeman in Yonkers at the ripe old age of 47. California’s pension poster boy is a Bay Area fire chief who, at 51, was collecting more than $241,000 a year in retirement pay. The Pew Center on the States, a nonpartisan research group, estimates that states are at least $1 trillion short of what it will take to keep their retirement promises to public workers. Two Chicago-area professors recently calculated the shortfall at $3 trillion. According to Pew, half the states ran fully funded pension plans in 2000, but by 2008 that number had dwindled to four.

See the five big questions about retirement.

See 10 perfect jobs for the recession — and after.

It’s tough to cut the benefits of police officers, firefighters and schoolteachers. But the long recession has cast a glaring light on the fact that public and private workers increasingly live in separate economies. Private-sector employees face frequent job turnover, relentless downsizing, stagnant wages and rising health-insurance premiums. They fund their own retirement through 401(k)s and similar plans, which rise and fall with the tides of the economy. Many public-sector workers, by contrast, enjoy relative job security, and the number of government jobs rose even as the overall unemployment rate shot just past 10%.

B Is for Bankruptcy

The crash of 2008 has also left some civic leaders with eggy faces — and possibly worse. In Georgia, at least a dozen Atlanta-area municipalities and agencies embraced the “exotic, high-risk derivative securities” called swaps in hopes of lowering the cost of bond issues, according to an investigation by the Atlanta Journal-Constitution. They paid nearly $300 million in fees for the privilege to such investment banks as Goldman Sachs, JPMorgan and UBS. Then, when the deals went sour, the same governments paid another $100 million to cancel them. (See the top 10 financial collapses of 2008.)

Busted swaps led to even more dire consequences in Birmingham, Ala. Former mayor Larry Langford was sentenced in March to 15 years in federal prison for bribery in a pay-for-play scheme involving sewer-bond swaps in 2002 and 2003. That debt was only a part of a municipal spending spree for a domed stadium, transit improvements and a scholarship program — worthy causes, perhaps, but now unaffordable in a city where a sky-high sales tax of 10%, even on food, has failed to produce the anticipated revenue. New mayor William Bell is trying to mop up, proposing a 10% wage cut for city workers, closing libraries and recreation centers and canceling a city program to provide laptops for grade-school students. As for sewer rates: they have quadrupled, and there’s speculation that Birmingham is headed for bankruptcy.

In sun-drenched San Diego, meanwhile, a grand jury probing that city’s troubled finances found a recurring practice of skipping required payments to the city’s pension fund while simultaneously awarding ever more generous pensions to public employees. Legal? Apparently. Prudent? Nope. A once solvent system is now billions of dollars in the red. The grand jury raised a scarier question: Is San Diego still a “viable” financial entity?

Indeed, the B word has crept into so many conversations in communities around the country that a number of investors are worried that municipal bonds have become the latest debt-fueled bubble ready to burst. California’s public-employee unions are lobbying for a bill to ban government bankruptcies entirely, so worried are they about the possibility of widespread defaults to escape pension obligations. Perhaps more worrisome, though, is the risk that all this calamity will ultimately produce little in the way of lessons learned. States are already barred from formal bankruptcy, so although many of them are broke, somehow — given enough time — they will make ends meet. But will they do it only by tweaking taxes and killing innovative programs like Kentucky’s juvenile drug courts, which spend money up front on aggressive intervention and rehabilitation programs in hopes of saving the long-run expense of ruined lives in costly prisons? “It always will cost us more to remove [addicted criminals] from their communities and incarcerate them for years,” says District Judge Brandy Oliver Brown of Clark and Madison Counties, whose program of intensive drug testing and counseling will be shuttered by budget cuts. In Harrisburg, Pa., the city council needs to make $68 million in debt payments, mostly related to a mismanaged deal to modernize a trash-burning power plant, when the total city budget is about $60 million. A consulting firm has some ideas: freeze pay, furlough workers, double the property tax, sell city landmarks, artifacts and museums. In one Ohio county, a local judge urged citizens to carry a gun because the sheriff’s department was laying off half its deputies. (See the top 10 bankruptcies.)

A few leaders have their sights set higher, trying to shape this crisis into a moment for significant government reform. Governor Jennifer Granholm of Michigan, a state devastated by the shrinking of the American auto industry, has called for an efficiency revolution. She has cut unneeded departments, sold excess state property and killed hundreds of obsolete boards and commissions. Having risen to power in 2002 on the shoulders of the state teachers’ union, Democrat Granholm this year successfully pushed a plan to coax thousands of senior teachers into retirement, to be replaced by a smaller number of younger teachers earning less generous but more sustainable benefits. “The 21st century economy is all about speed, access, intelligence and efficiency,” Granholm said in announcing her latest round of restructuring. “A 21st century government needs to be about the same things.”

Indiana Governor Mitch Daniels, a budget czar in the free-spending Bush Administration, has proved an efficiency fiend at the state level, privatizing bureaucracies, selling a poorly managed toll road, even harvesting the paper clips from state tax returns for reuse in government offices. Daniels took the controversial step of decertifying Indiana’s public-employee unions, a move that may endear him to Republican voters should he decide to run for President in 2012.

Modernizing government is no less painful than globalizing industry has been. Consider the proposal by Nebraska state senator Rich Pahls to merge many of the state’s 93 counties. The idea could mean boarding up stately old courthouses while forcing consolidation of such services as road maintenance, vehicle registration, even sheriffs’ offices — and many of the jobs that go with them. The bill died, in part because it seemed too frank an acknowledgment of the passing of small-town America. Yet surely its time will come: only 16 of the counties have more than 20,000 residents, and two are home to fewer than 500 people each. “I tell these people, You don’t ranch or farm the way they did 100 years ago,” says Pahls. “A ranch might have had 20 hands, and now they have four. They didn’t stay behind the technology.” (See 10 ways your job will change.)

The great reckoning of 2010 took us years to create and will be years in the fixing. It’s not as if the economic crisis isn’t plenty painful already. In government, as in life, there are cuts that injure and cuts that heal. As they continue to slog through the wreckage of the Great Recession, state and local leaders have a challenge to be surgeons rather than hacks and make this era of crisis into a season of fresh starts.

With reporting by Hilary Hylton / Austin, Texas; Bonnie Rochman / Charlotte, N.C.; Christopher Maag / Cleveland; Karen Ball / Kansas City, Mo.; and Elizabeth Dias and Katy Steinmetz / Washington

See pictures of the recession of 1958.

See pictures of the global financial crisis.



46 Of 50 States Could File Bankruptcy In 2009-2010

January 30, 2009 John Paul Mitchell Leave a comment Go to comments

There is a high chance a majority of the States within the United States of America could file for Chapter 9 bankruptcy. There are currently 46 states with high budget deficits, Arizona being one of them.

In fact, Jan Brewer, the newly appointed Governor of Arizona has a major crisis on her hands, one that Arizona and national media isn’t covering. The alarming news is the State of Arizona has 90 to 120 days before they completely run out of money. After that, all bills and tax refunds owed to the citizens will go unpaid.

Before Janet Napolitano left for her new Homeland secretary position, she had a stand-off with Arizona Treasurer Dean Martin. The AZ Treasurer forewarned Napolitano about Arizona’s financial crisis, but she refused to heed his words.

With neighboring California on the verge of bankruptcy this year, many States will follow in their steps.

Many States are already scurrying to cut unwanted costs, cut State-funded programs, raise taxes, not issue tax refunds to their citizens, and borrow money just to survive in 2009. Unfortunately, many banks — the same banks the Fed bailed out — are refusing to loan money to the States and their Treasury agencies.

The article, State Budget Troubles Worsen, at the Center on Budget and Policy Priorities website is an excellent piece to read. It shows where each State currently stands in these challenging economic times, and you see 46 of the 50 States are clearly in the financial red.

It’s very possible you’ll see the end of the United States as we know it. If the Fed doesn’t bailout the States when their cash dries up and the banks don’t loan them money, then our States will be left in financial ruin. This would be a tragic and unprecedented event never experienced in the United States.

No State has ever filed bankruptcy, but it could be coming to a State near you this year.

We are on the brink of something far worse than the Great Depression.

UPDATE: Check out the newly published article, Survivalism: How to Prepare for the Economic Collapse. There’s also a printable 4-page newsletter you can download and share with your friends, family, and co-workers. Take action and help spread the awareness of this life-threatening issue.


Gerald Celente The entire system is collapsing



I.O.U.S.A. Movie

I.O.U.S.A. – One Nation. Under Debt. In Stress.

1:21:29 – 1 year ago

Wake up, America! We’re on the brink of a financial meltdown. I.O.U.S.A. boldly examines the rapidly growing national debt and its consequences for the United States and its citizens. Burdened with an ever-expanding government and military, increased international competition, overextended entitlement programs, and debts to foreign countries that are becoming impossible to honor, America must mend its spendthrift ways or face an economic disaster of epic proportions


Wake up, America! We’re on the brink of a financial meltdown. I.O.U.S.A. boldly examines the rapidly growing national debt and its consequences for the United States and its citizens. Burdened with an ever-expanding government and military, increased international competition, overextended entitlement programs, and debts to foreign countries that are becoming impossible to honor, America must mend its spendthrift ways or face an economic disaster of epic proportions.

Throughout history, the American government has found it nearly impossible to spend only what has been raised through taxes. Wielding candid interviews with both average American taxpayers and government officials, Sundance veteran Patrick Creadon (Wordplay) helps demystify the nation’s financial practices and policies. The film follows former U.S. Comptroller General David Walker as he crisscrosses the country explaining America’s unsustainable fiscal policies to its citizens.

With surgical precision, Creadon interweaves archival footage and economic data to paint a vivid and alarming profile of America’s current economic situation. The ultimate power of I.O.U.S.A. is that the film moves beyond doomsday rhetoric to proffer potential financial scenarios and propose solutions about how we can recreate a fiscally sound nation for future generations.

Creadon uses candid interviews and his featured subjects include Warren Buffett, Alan Greenspan, Paul O’Neill, Robert Rubin, and Paul Volcker, along with the Peter G. Peterson Foundation’s own David Walker and Bob Bixby of the Concord Coalition, a Foundation grantee.

Pointedly topical and consummately nonpartisan, I.O.U.S.A. drives home the message that the only time for America’s financial future is now.

8.7 trillion <> GDP = 13.5 trillion

Projected to get worst

This only fraction of fiscal challenge

David walker controller general = Fiscal cancer

David Walker: America Faces Fiscal Cancer

U.S. Comptroller General David Walker says the retirement of the baby boomers combined with the huge entitlements promised to them are a demographic tsunami and fiscal cancer that could lead to economic disaster for the United States.

WASHINGTON — The comptroller general of the United States is explaining over eggs how the nation’s finances are going to hell.

“We face a demographic tsunami” that “will never recede,” David Walker tells a group of reporters. He runs through a long list of fiscal challenges, led by the imminent retirement of the baby boomers, whose promised Medicare and Social Security benefits will swamp the federal budget in coming decades.

Walker is right of course. I expect this problem to go unaddressed until the boomers start retiring and the budget deficit becomes huge.

Walker is touring the United States with a bipartisan group of economists policy specialists in a “Fiscal Wake-Up Tour” to try to alert the American public to the scale of the problem. One of the members of this tour, Alison Fraser, director of economic policy studies at the Heritage Foundation, points out that eliminating the Department of Defense would not save enough money to pay for the entitlements.

Project out 75 years, and the magnitude of the problem is stunning. In those projections, “we have gone from $20 trillion to $50 trillion in total liabilities and unfunded commitments in six years, primarily because of unfunded entitlements,” says Walker, the nation’s chief public accountant. That translates to $440,000 per current US household.

“If we eliminated the entire Department of Defense, it would not solve this problem,” notes Fraser.

The relative power of the United States has peaked and will decline for years to come. The demographic trends due to aging and immigration both will cut into per capita GDP and economic growth.

Walker says the Medicare prescription drug bill which George W. Bush signed into law is fiscally irresponsible.

Walker talks to 60 Minutes correspondent Steve Kroft this Sunday, March 4, at 7 p.m. ET/PT.

“The prescription drug bill is probably the most fiscally irresponsible piece of legislation since the 1960s,” says Walker, “because we promise way more than we can afford to keep.”

Expect slower economic growth as the older skilled workers retire and taxes rise to pay for their retirements.

A wave of retiring workers will weigh down economic growth in the coming years unless Americans save more and employers take steps to hang on to more of their older employees, experts said.

How the nation responds is a “critical question,” said Donald L. Kohn, vice chairman of the Federal Reserve, warning that the costs could “fall entirely on future generations.”

A study by Fed economists projected that economic growth would slip toward the 2% range after 2010, about a point lower than the rate of the last decade, largely the result of meager growth in the future labor force, Kohn testified.

The slower economic growth could feed a vicious cycle. Increases in taxes could slow growth. That would reduce tax revenue which could lead to higher taxes to make up for the lost revenue.

Among the experts there’s bipartisan agreement that the problem is huge.

Touring with Mr. Walker are: Alice Rivlin, budget director under President Clinton and now a fellow at the moderate-to-liberal Brookings Institution; Alison Fraser, an economic policy specialist at the conservative Heritage Foundation; and Harry Zeeve, a director of the bipartisan Concord Coalition that advocates fiscal reform and balanced budgets. While the foursome, which spans the political spectrum, doesn’t agree on solutions, its members acknowledge that nothing can be done politically if Americans remain ignorant of the problem.

The Clinton and Bush Administrations have been years of tremendous wasted opportunity to deal with America’s demographic problems. The dumbing down and the aging problems are obvious to anyone who doesn’t mind thinking taboo thoughts (i.e. most of the upper half of the IQ Bell Curve when they choose schools and places to live).

What should we do about the demographic problems? I have several suggestions:

  • Provide smarter kids with filmed lectures and online tests so they can learn more quickly, start accumulating college credits sooner, and enter the workforce at younger ages. The sooner smart people start working the more total years they’ll work and pay taxes and create goods and services.
  • Start raising retirement ages. Get people to work more years and pay taxes for more years.
  • Put limits on medical spending for those who have few months left to live. Heroic and expensive treatments for people who gain few days of extra life cost the rest of us huge sums of money.
  • End all lower IQ immigration. Set a very high IQ requirement for prospective immigrants. We need workers who have higher productivity and less tendency to commit crimes or cause other problems.
  • Accelerate research into rejuvenation therapies. If we can keep people younger longer they can work more years before they have to retire.
  • Provide big cash prizes for the development of cheaper ways to treat diseases.

We need practical solutions to our huge demographic problems. Do you have any suggestions?

By Randall Parker at 2007 March 01 10:59 PM  Economics Demographic


Market Forecast That Says ‘Take Cover’


WITH the stock market lurching again, plenty of investors are nervous, and some are downright bearish. Then there’s Robert Prechter, the market forecaster and social theorist, who is in another league entirely.

Mr. Prechter is convinced that we have entered a market decline of staggering proportions — perhaps the biggest of the last 300 years.

In a series of phone conversations and e-mail exchanges last week, he said that no other forecaster was likely to accept his reasoning, which is based on his version of the Elliott Wave theory — a technical approach to market analysis that he embraces with evangelical fervor.

Originating in the writings of Ralph Nelson Elliott, an obscure accountant who found repetitive patterns, or “fractals,” in the stock market of the 1930s and ’40s, the theory suggests that an epic downswing is under way, Mr. Prechter said. But he argued that even skeptical investors should take his advice seriously.

“I’m saying: ‘Winter is coming. Buy a coat,’ ” he said. “Other people are advising people to stay naked. If I’m wrong, you’re not hurt. If they’re wrong, you’re dead. It’s pretty benign advice to opt for safety for a while.”

His advice: individual investors should move completely out of the market and hold cash and cash equivalents, like Treasury bills, for years to come. (For traders with a fair amount of skill and willingness to embrace risk, he suggests other alternatives, like shorting the market or making bets on volatility.) But ultimately, “the decline will lead to one of the best investment opportunities ever,” he said.

Buy-and-hold stock investors will be devastated in a crash much worse than the declines of 2008 and early 2009 or the worst years of the Great Depression or the Panic of 1873, he predicted.

For a rough parallel, he said, go all the way back to England and the collapse of the South Sea Bubble in 1720, a crash that deterred people “from buying stocks for 100 years,” he said. This time, he said, “If I’m right, it will be such a shock that people will be telling their grandkids many years from now, ‘Don’t touch stocks.’ ”

The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. That unraveling, combined with a depression and deflation, will make anyone holding cash “extremely grateful for their prudence.”

Mr. Prechter is hardly the only market hand to advocate prudence now, but nearly everyone else foresees a much rosier future, once current difficulties are past.

For example, Ralph J. Acampora, a market analyst with more than 40 years of experience, said he moved entirely out of stocks and into cash late last month. Now a partner at Alverita, a wealth management firm in New York, he said recent setbacks suggested that the market would drop another 10 or 15 percent, probably until September or October, before resuming another “meaningful rally.”

Over the next several years Mr. Acampora expects an “old normal market,” characterized by relatively short-lived swings that will provide many opportunities for smart investors — one that resembles the markets of the 1960s and 70s. “I’ve lived through it,” he said.

Like Mr. Prechter, he is a past president of the Market Technicians Association, the leading organization of technical market analysts, and he said that his colleague has done “some very good work.” But Mr. Acampora doesn’t agree with Mr. Prechter’s long-term theories, either intellectually or emotionally.

The “mathematics don’t work,” Mr. Acampora said, because such a big decline would imply that individual stocks would need to trade at unrealistically low levels. Furthermore, he said, “I don’t want to agree with him, because if he’s right, we’ve basically got to go to the mountains with a gun and some soup cans, because it’s all over.”

Still, on a “near-term” basis, he said, “We’re probably saying the same thing.”

Similarly, Larry Berman, who co-founded ETF Capital Management in Toronto and recently ended his term as the president of the technicians association, says he sees a “classic” short-term negative market trend developing now. But he doesn’t use the Elliott Wave theory, saying Mr. Prechter is trying to “measure the market in decades, which is too long a time frame for practical trading purposes or for risk management.”

Mr. Prechter, 61, lives in Gainesville, Ga., where he runs Elliott Wave International, a forecasting and publishing firm. He graduated from Yale as a psychology major in 1971, dabbled as a singer, drummer and songwriter in a rock band and became a technical analyst for Merrill Lynch.

He became fascinated by Mr. Elliott’s writings, which suggest that the market moves in predictable if complex patterns. Along with A. J. Frost, Mr. Prechter wrote “Elliott Wave Principle,” a 1978 book that predicted the emergence of a great bull market — a forecast that was largely fulfilled. By 1987, he was widely regarded as an expert in technical analysis. Articles in The New York Times said he was known as “the market’s leading technical guru” — and more. An article in October that year said he had “emerged as both prophet and deity, an adviser whose advice reaches so many investors that he tends to pull the market the way he has predicted it will move.”

He has far less day-to-day influence now, after years spent developing a theory he calls “socionomics,” which holds “social moods” as the cause not only of market cycles but also of economic and political events. A grand cycle is ending, he says, and the time for reckoning is near.

In 2002, he published “Conquer the Crash,” which predicted misery ahead. Even so, he said in 2008 that the market would soon rally sharply — then said late last year that stocks were about to fall and that the great decline would resume.

Since 1980, the advice in his investing newsletters, when converted into a portfolio, has slightly underperformed the overall stock market but has been much less risky, losing money in only one calendar year, according to calculations by The Hulbert Financial Digest. Mr. Prechter said he disagreed with the methodology used in these measurements, but offered none of his own.

For his part, Mr. Acampora says that the Elliott Wave has some validity as an indicator but that “it’s only part of the story” of technical market analysis, which also needs to be buttressed by economic and fundamental research.

Mr. Prechter says his unifying theory, socionomics, is a “young science.”

“We’re quantifying it,” he said. “We’re working on it.” In the meantime, he contends, it has enabled him to “look around the corner” and prepare for a dangerous future.

Here’s an update on the troubles at AXA Rosenberg, the quant unit of the French financial services giant AXA, which were reported in this column two weeks ago. A computer programmer made a “coding error” in AXA Rosenberg’s risk management software, but the company didn’t reveal or fix it for many months.

In a letter to clients last week, AXA Rosenberg said a management shakeup had accelerated. Its co-founder, Barr Rosenberg, and its director of research, Tom Mead, resigned from the board of directors and will be leaving the company. A review found that they had violated the firm’s ethics policy and had withheld information about the mistake, the letter said. The executives did not respond to requests for comment.

Separately, Agustin Sevilla, global chief investment officer, stepped down from that post and will move to a “senior research” role, the letter said. He didn’t return phone messages last week.

The company said it’s bringing in a consultant to help improve risk management controls and reinforce “independent oversight.” It said it is still reviewing the coding error’s effect on investment portfolios.



Our world balances on a sea of debt

The banks that control the world’s supply of money are no better than counterfeiters – and their system of juggling debt has left the global economy teetering on the brink of ruin. Convicted fraudster Darius Guppy offers a provocative personal view

By Darius Guppy
Published: 7:14PM GMT 20 Feb 2010

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Darius Guppy: Since serving his prison sentence he has slipped, quite deliberately, off the radar Photo: PA

In 1994, there resided in the cell next to mine a certain “Tommy”. He had been imprisoned for counterfeiting Dutch Guilders to such a high standard that he had fooled the banks themselves.

As was customary among prisoners who became friends, Tommy allowed me to read his legal papers and I became fascinated by the judge’s sentencing speech, the gist of which was that his activities had been parasitical. By creating money out of thin air he had reduced the purchasing power of more deserving members of society. What would happen if everyone behaved like him?

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I thought of arguments used, in a different context, regarding inflation. Like counterfeiting, it dilutes the value of the community’s wealth and constitutes a social evil. Creating too much money – “real” or “fake” – can wreck an economy. Such was the Nazis’ reasoning when they planned to ruin Britain’s economy by flooding the country with near-perfect counterfeit bills.

A lot of nonsense has been written about the world’s current economic woes – about how the crash is the fault solely of the banks and, by implication, governments are blameless; and how it could all have been avoided, and can be put right, by greater financial regulation.

It is a classic example of what the philosopher Alasdair MacIntyre terms “the fallacy of managerial expertise”: an attempt by “experts” to blind us with science to justify their overpaid existences and mask their confusion. After all, not one of them was able to predict the current debacle.

These “experts” will tell you that the present difficulties are simply the result of abuses and excesses in a system that is basically sound. All that is required is for some faults to be corrected. Do not believe them. The reality is that the problem is systemic and a little tinkering here or there will achieve nothing in the long term.

What is needed is a root-and-branch re?evaluation of that most curious of cultural inventions, money: how it is created, how it circulates, and how it can best be used to serve the interests of the community.

To begin, the experts must explain in the simplest terms how money actually works. Were one to ask the man on the street – or, indeed, most politicians and bankers – who creates the money that rules our lives they would reply “the State”. They would be wrong. It is true that governments create legal tender – the physical notes and coins that circulate in an economy – but that represents, at its highest, only 3 per cent of the total money in circulation in the global economy. It is the commercial banks, largely unaccountable and privately owned, that create the world’s money.

Indeed, even if Tommy were responsible for printing every note in circulation throughout the world his power to dilute the rest of our wealth would amount to only a tiny fraction of that of the real manufacturers of money. His activities and the activities of the bankers are, in essence, identical: the creation of money out of nothing.

Without knowing it, therefore, Tommy’s judge punished him for usurping not so much the role of the State as the role of the banks. The same mistake – the mis-identification of where money truly originates – has been made by virtually all of our politicians, economists and financial commentators.

Consider the contradiction at the heart of neo-liberal, monetarist economics that has constituted the Western orthodoxy for the past few decades: to emphasise on the one hand that the money supply should be brought under control while simultaneously allowing banking – where the money is actually manufactured – to run riot.

To grasp how the global fraud works we need to step back in time and imagine ourselves next to the original goldsmith?banker.

In his vault, 10 of his customers each deposits a bar of gold weighing 1 kilogram – for safekeeping and in the hope of a return. Our banker lends the 10 gold bars to other customers, who embark on profitable ventures that generate a surplus. The vault now contains 11 gold bars, out of which our banker can pay his depositors and himself a reasonable return.

Our banker soon questions the wisdom of keeping all the gold bars in his vault. He creates a token that will represent a given quantity of the gold either in his own vault or held to his account at some giant, more secure vault. Such a token can then be exchanged within the economy. Historians credit one of the first examples of such an instrument – the cheque – to the Knights Templar, allowing a pilgrim to cash a cheque drawn on a European preceptory at a Templar branch in the Holy Land.

So far, so good – as long as, for the face value of each of the pieces of paper in circulation, there exists a corresponding amount of gold sitting in a vault somewhere in the real world.

However, it is at this point that something wondrous and diabolical occurs. For experience has taught our banker that the bearers of the pieces of paper that they have created rarely attempt en masse to claim the gold their paper represents.

Our banker reasons: “So long as the pieces of paper that my friends and I have put into circulation are not encashed simultaneously then it is academic how many we create.”

The crucial part of the scheme is to create a culture of confidence. The bearers of our pieces of paper must feel secure about our ability to convert their paper back into gold, or real wealth.

The beauty of the scheme is that instead of earning interest on a single piece of paper our banker can earn interest on 10 such pieces of paper. Moreover, while charging interest on these 10 pieces of paper, he has only to pay out a reduced rate of interest on the single gold bar that has been deposited with him.

And this is exactly what happens.

Currently, the average fractional reserve requirements for banks amount to under 10 per cent, which means that for every dollar the banks have on deposit they can lend out at least 10 such dollars – virtual dollars summoned from nowhere – on which they charge interest.

Yet this fact – the key to understanding how the international financial system operates and why the world is in such a mess – is discussed virtually nowhere in mainstream circles.

Governments do not control the single most important mechanism when it comes to their economies: the production and distribution of money. That role has been diverted to the banks, which manufacture money out of nothing and charge interest on that conjured-up money. Beyond an interest rate cut or a token change in VAT rates our politicians have no real power to direct their country’s economy.

The picture has become a great deal more complicated. Soon pieces of paper are no longer required and instead entries on a bank’s ledger will suffice. Eventually, a further layer of virtuality is added when computers emerge and with them credits in cyberspace. Likewise all sorts of financial instruments and “products” are devised by the experts – collateralised mortgage obligations, put and call options, floating rate notes, preference shares, convertible bonds, semi-convertible bonds and endless other “derivatives” – but in essence they are mere variations of the same basic three?card trick.

Moreover, the illusion becomes self-reinforcing. Those involved in the process, sitting behind their computer screens, no longer control the beast they have created.

Now, it may be argued that while it is true that money is manufactured in the manner I have described – in other words by creating loans to the banks’ clients – surely just as much money is destroyed every time a loan is repaid? This is true to an extent. However, the point to be grasped is that while money is indeed created and destroyed in vast amounts every second of the day, the interest on that money remains un-destroyed and accumulates within the system – and at a compounded rate, moreover.

The process is far more inflationary and parasitical than the activities of all the Tommys in the world put together. For while that money, which by now has mutated into a vast monster of mutual indebtedness, grows exponentially, the wealth it is supposed to represent cannot grow at the same pace for very long. While there is no limit to the number of zeros we can create on a computer, there is a limit to the amount of oil in the ground, the wheat in the fields and the livestock in our farms.

Capitalism, banking and growth become inseparable, but logic dictates that the virtual economy must eventually peel away from the real one and sooner or later the day of reckoning arrives – when the gulf separating these two economies is too large to be sustained – for no power on earth can match the power of compound interest in the ether.

Consider the tale of the Chinese emperor and his chess opponent. The emperor asks what reward would satisfy him if he wins; the opponent replies that a single grain of wheat, doubled for each of the 64 squares on the chess board, would suffice. The emperor, imagining that he has a good deal, loses, only to learn that he now owes his adversary the equivalent of 2,000 times the current annual worldwide production of wheat.

Such are the miracles of compound growth; and the reason why financiers have been able to award themselves astronomical sums. For their virtual printing presses are calibrated to an exponential production while no such calibration applies to Mother Earth.

Frederick Soddy, the 1921 winner of a Nobel Prize for chemistry (not economics), was among the first to articulate the mechanism by which money is created by the banks and how it mutates into debt. His arguments have been developed by thinkers such as Herman Daly and Richard Douthwaite.

The reasoning can be extended to cover the financial sector as a whole. A company makes a certain profit; a multiple of many times can be applied to that figure to arrive at a “value” for the company – based on the assumption of future growth. That value can then be leveraged yet further for it to raise debt against its share price and so on. Such super-ovulation can mean that a single company with nothing more than an idea to be applied to the internet can create yet more tokens – share certificates – worth several times the entire annual production of diamonds for the continent of Africa, a process known, retrospectively, as the dotcom bubble.

It constitutes a redistribution mechanism from the poor to the rich – which is precisely why the banks and Western governments are so desperate to ensure its survival.

Money breeds more money. Indeed, the banks never really want their loans to be repaid. So long as the interest is funded it is to their benefit for the capital to remain outstanding on their books as “assets” and for the debts to be rolled over. Every time the IMF or World Bank extends a line of credit to some impoverished nation, are they being “charitable” or simply perpetuating the enslavement?

But the system relies entirely, as do all Ponzi schemes, on the assumption of continued growth, hence its inherent instability. Once that growth is threatened the edifice collapses. Householders in Britain will appreciate such a phenomenon only too well: put up 10 per cent for a property and borrow the rest from the bank. That property’s value need rise by only 10 per cent and you have doubled your equity; if it falls by only 10 per cent you are wiped out.

This explains why a contraction of a mere 2 or 3 per cent in the global economy leads not to a correspondingly minute fall on international stock markets, but to financial Armageddon.

Likewise with the banks – lend 10 times more money than you possess and when the economy grows, or at least pretends to grow, it’s Porsches galore, but when the lack of growth is exposed it requires only 11 per cent of the loans on your books (in value terms) to be bad and you are bust. The truth is not that these institutions have suddenly become insolvent but that they were never really solvent in the first place. By rolling over their debts they have been able to keep them on their books as “assets” rather than losses and forestall the evil hour.

There is a name for this – “usury” – and our predecessors from the ancient and medieval worlds appear to have appreciated much better than us its ultimate destination: ruin.

It is a simple and devastatingly effective swindle, but largely invisible because it has become so deeply embedded in our culture. The consequences of that swindle – the desperate need for economic growth; the environmental and cultural despoliation it engenders – require some radical thinking one encounters nowhere in any of today’s political parties.



Is the United States Bankrupt?

Laurence J. Kotlikoff


the financial markets have a long and impressive

record of mispricing securities; and that financial

implosion is just around the corner.

This paper explores these views from both

partial and general equilibrium perspectives. The

second section begins with a simple two-period

life-cycle model to explicate the economic meaning

of national bankruptcy and to clarify why

government debt per se bears no connection to a

country’s fiscal condition. The third section turns

to economic measures of national insolvency,

namely, measures of the fiscal gap and generational

imbalance. This partial-equilibrium analysis

strongly suggests that the U.S. government is,

indeed, bankrupt, insofar as it will be unable to

pay its creditors, who, in this context, are current

and future generations to whom it has explicitly

or implicitly promised future net payments of

various kinds.

The world, of course, is full of uncertainty.

The fourth section considers how uncertainty

changes one’s perspective on national insolvency

and methods of measuring a country’s long-term

fiscal condition. The fifth section asks whether

immigration or productivity improvements arising

either from technological progress or capital


America will Collapse

Jim Rogers,

Gerald Celente,

Max Wolf,

David Walker,

David Vickers,

Jack Cafferty




New Book from Global Research

The Great Depression of the XXI Century

By Michel Chossudovsky and Andrew Gavin Marshall

URL of this article: www.globalresearch.ca/index.php?context=va&aid=18851

Global Research, July 30, 2010

Global Research is pleased to announce the publication of a new book entitled The Global Economic Crisis, The Great Depression of the XXI Century, Michel Chossudovsky and Andrew Gavin Marshall, Editors.

“This important collection offers the reader a most comprehensive analysis of the various facets – especially the financial, social and military ramifications – from an outstanding list of world-class social thinkers.”


Preface Michel Chossudovsky and Andrew Gavin Marshall


Chapter 1 The Global Economic Crisis: An Overview Michel Chossudovsky

Chapter 2 Death of the American Empire Tanya Cariina Hsu

Chapter 3 Financial Implosion and Economic Stagnation John Bellamy Foster and Fred Magdoff

Chapter 4 Depression: The Crisis of Capitalism James Petras

Chapter 5 Globalization and Neoliberalism: Is there an Alternative to Plundering the Earth? Claudia von Werlhof

Chapter 6 The Economy’s Search for a “New Normal” Shamus Cooke


Chapter 7 Global Poverty and the Economic Crisis Michel Chossudovsky

Chapter 8 Poverty and Social Inequality Peter Phillips


Chapter 9 War and the Economic Crisis Michel Chossudovsky

Chapter 10 The “Dollar Glut” Finances America’s Global Military Build-Up Michael Hudson

Chapter 11 Martial Law, the Financial Bailout and War Peter Dale Scott

Chapter 12 Pentagon and Intelligence Black Budget Operations Tom Burghardt

Chapter 13 The Economic Crisis “Threatens National Security” in America Bill Van Auken

Chapter 14 The Political Economy of World Government Andrew Gavin Marshall


Chapter 15 Central Banking: Managing the Global Political Economy Andrew Gavin Marshall

Chapter 16 The Towers of Basel: Secretive Plan to Create a Global Central Bank Ellen Brown

Chapter 17 The Financial New World Order: Towards A Global Currency Andrew Gavin Marshall

Chapter 18 Democratizing the Monetary System Richard C. Cook


Chapter 19 Wall Street’s Ponzi Scheme Ellen Brown,

Chapter 20 Securitization: The Biggest Rip-off Ever Mike Whitney



See both films in the links,

and read the transcripts below of




These animated films  expose the fraud of the interest based economy of

fractional banking by which the banksters to create immense wealth for themselves,

extracting that wealth by debt money on the goods and services and labor of the masses,

masses fooled into accepting this frauduant system and counterfeit money supply,

and the manufactured cycles of

inflation and deflation,

boom and bust,

too small to save and too big to fail,

etc etc, ad nausium, which onnly bring more money to the banksters.

But after a good analysis, do not be fooled by the films so called “solution”

on part 7 and part 8 out of 8 sections which is another kind of trickery since the “digital money”

can be manipulated, and what about the billions of people living on a dolar or two a day…

and so on with other obvious criticism.


we need total absolute interest free money, and system of honesty and justice.



Seek it on search engines

See the 47 minute animated (carton) film: very good, simple, to the point and informative


Money as Debt is a clear and insightful 47min about money,debt and our quite ludicrous  For more information about the film including a full transcript, references,  (Mayer Amschel Rothschild, International Banker…. “We shall have world government whether or not we like it. 


Here is the Transcript below:

“‘Since I entered politics, I have chiefly had men’s views confided to me privately. Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of something. They know that there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they had better not speak above their breath when they speak in condemnation of it.” ~ Woodrow Wilson, former President of the United States.

“Each and every time a bank makes a loan, new bank credit is created – new deposits – brand new money.” ~ Graham F. Towers, Governor, Bank of Canada, 1934-54.

“The process by which banks create money is so simple that the mind is repelled.” ~ John Kenneth Galbraith, economist.

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

Money As Debt

Two great mysteries dominant our lives. Love and money. What is love is a question that has been endlessly explored in stories, songs, books, and television. But the same cannot be said about the question what is money. It is not surprising that monetary theory has not inspired any blockbuster movies. But it was not even mentioned in the schools most of us attended.

For most of us, the question of where money comes from brings to mind pictures of the Mint printing bills and stamping coins. Money, most of us believe, is created by the government. This is true, but only to a point. Those metal and paper symbols of value we usually think of as money are indeed produced by an agency of the federal government called the Mint. But the vast majority of money is not created by the Mint. It is created in huge amounts everyday by private corporations known as banks.

Most of us believe that banks lend out money that has been entrusted to them by depositors. Easy to picture, but not the truth. In fact, banks create the loan, not from the banks own earnings, not from the money deposited, but directly from the borrower’s promise to repay. The borrower’s signature on the loan papers is an obligation to pay the bank the amount of the loan plus interest, or lose the house, the car, or whatever asset was pledged as collateral. That’s a big commitment from the borrower. What does the same signature require of the bank? The bank gets to conjure into existent the amount of the loan and just write it into the borrower’s account. Sound far-fetched? Surely, that can’t be true! But it is.

A Brief & Broadly Allegorical History of Banking

To demonstrate how this miracle of modern banking came about, consider this simple story, The Goldsmith’s Tale.

Once upon various times, pretty much anything was used as money. It just had to be portable and enough people had to have faith that it could later be exchanged for things of real value, like food clothing and shelter. Shells, cocoa beans, pretty stones, and even feathers have been used as money. Gold and silver were, attracted, soft, and easy to work with so some cultures became expert with these metals. Goldsmiths made trade much easier by casting coins, standardised units of these metals whose weight and purity was certified.

To protect his gold, the Goldsmith needed a vault and soon fellow townsmen were knocking on his door wanting to rent space to safeguard their own coins and valuables. Before long the Goldsmith was renting every shelf in the vault and earning a small income from his vault rental business. Years went by and the Goldsmith made an astute observation. Depositors rarely came in to remove their actual, physical gold. And they never all came in at once. That was because the claim checks the Goldsmith had written as receipts for the gold were being traded in the marketplace as if they were the gold itself. This paper money was far more convenient than heavy coins and amounts could simply be written instead of laboriously counted one by one for each transaction.

Meanwhile, the Goldsmith had another business: he lent out his gold, charging interest. When his convenient claim check money come into acceptance, borrowers began asking for their loans in the form of these claim checks instead of the actual metal. As industry expanded, more and more people asked the Goldsmith for loans. This gave the Goldsmith an even better idea. He knew that very few of his depositors ever actually removed their gold. So the Goldsmith figured he could easily get away with writing claim checks against his depositor’s gold, in addition to his own. As long as the loans would be repaid, his depositors would be none the wiser and no worse off. And the Goldsmith, now more banker than artisan, would make a far greater profit than he could by lending his own gold.

For years, the Goldsmith secretly enjoyed a good income from the income earned on everybody else’s deposits. Now a prominent lender, he grew steadily richer than his fellow townsmen. And he flaunted it. Suspicions grew that he was spending his depositors’ money. His depositors got together and threatened the withdrawal of their gold if the Goldsmith didn’t come clean about his new found wealth. Contrary to what one might expect, this did not turn out to be a disaster for the Goldsmith. Despite the duplicity inherent in his scheme, his idea did work: the depositors had not lost anything. Their gold was all still safe in the Goldsmith’s vault. But rather than taking back their gold the depositors demanded that the Goldsmith, now their banker, cut them in by paying them a share of the interest. And that was the beginning of banking. The banker paid a low interest rate on the deposits of other people’s money that he then loaned out at a higher interest, the difference covered the banks cost of operation and its profit. The logic of this system was simple and it seemed like a reasonable way to satisfy the demand for credit. However, this is not the way that banking works today.

Our Goldsmith-Banker was not content with the income remaining after sharing the interest earnings with his depositors. And the demand for credit was growing fast as Europeans spread out across the world. His loans were limited by the amount of gold his depositors had in his vault. That’s when he got an even bolder idea. Since no one but himself knew exactly what was in this vault, he could lend out claim checks on gold that wasn’t even there. As long as all the claim check holders did not come to the vault at the same time and demand real gold no one would find out. This new scheme worked very well and the banker became enormously wealthy on the interest paid on gold that did not exist.

The idea that the banker would just create money out of was too outrageous to believe. So for a long time the thought did not occur to people. But the power to invent money went to the banker’s head as you can all imagine. In time, the magnitude of the banker’s loan and his ostentatious wealth did trigger suspicions once again. Some borrowers started to demand real gold instead of paper representation. Rumours spread. Suddenly several wealthy depositors showed up to remove their gold. The game was up. A sea of claim check holders flooded the streets outside the closed doors of the bank. Alas, the banker did not have enough gold and silver to redeem all the paper he had put into their hand. This is called a run on the bank and it is what every banker dreads. This phenomenon of a run on the bank ruined individual banks and not surprisingly damaged public confidence in all bankers.

It would have been straightforward to outlaw the practice of creating money from nothing. But the large volumes of credit the bankers were offering had become essential to the success of European commercial expansion. So instead the practice was legalised and regulated. Bankers agreed to abide by limits on the amounts of fictional loan money that could be lent out. The limit would still be a number much larger than the actual amount of gold and silver in the vault. Quite often the ratio was nine fictional dollars to one actual dollar in gold. These regulations were enforced by surprise inspections. It was also arranged that in the event of a run, central banks would support local banks with emergency infusions of gold. Only if there were runs on a lot of banks simultaneously would the banker’s credit bubble burst and the system come crashing down.

The Money System Today

Over the years, the fractional reserve system and its integrated network of banks backed by a central bank has become the dominant money system of the world. At the same time, the fraction of gold backing the debt money has steadily shrunk to nothing.

The basic nature of money has changed. In the past the paper dollar was actually a receipt that could be redeemed for a fixed weight of gold or silver. In the present, a paper or digital dollar can only be redeemed for another paper or digital dollar. In the past, privately created bank credit existed only in the form of private bank notes, which people had the choice to refuse, just as we have the choice to refuse someone’s private check today. In the present, privately created bank credit is legally convertible to government issued fiat currency, or the dollars, loonies, and pounds we habitually think of as money.

Fiat currency is money created by government fiat, or decree. Legal tender laws declare that citizens must accept this fiat money as payment for debt or else the courts will not enforce the obligation. So now the question is if governments and banks can both just create money than how much money exists? In the past, the total amount of money in existence was limited to the actual, physical quantity of whatever commodity was in use as money. For example, in order for new gold or silver money to be created more gold or silver had to be found and dug out of the ground. In the present, money is literally created as debt. New money is created whenever anyone takes a loan from the bank. As a result the total amount of money that can be created has only one real limit: the total level of debt.

Governments place an additional statutory limit on the creation of new money by enforcing rules known as fractional reserve requirements. Essentially arbitrary fractional reserve requirements vary from country to country and from time to time. In the past, it was common to require that banks have at least one dollar worth of real gold in the vault to back ten dollars of debt money created. Today reserve requirement ratios no longer apply to the ratio of new money to gold on deposit but merely to the ratio of new debt money to the ratio of existing debt money on deposit in the bank.

Today, a bank’s reserves consist of two things. The amount of government issued cash or equivalent that the bank has deposited with the central bank plus the amount of already existing debt money that the bank has on deposit. To illustrate this in a simple way, let’s imagine that a new bank has just started up and has no depositors yet. However, the bank’s investors have made a reserve deposit of $1,111.12 of existing cash money at the central bank. Your required reserve ratio is nine to one.

Step one: the doors open and the bank welcomes its first loan customer. He needs ten thousand dollars to buy a car. At the nine to one reserve ratio the new bank’s reserve at the central bank, also known as high powered money, allows it to legally conjure into existence nine times that amount or ten thousand dollars on the basis of the borrower’s pledge of debt. This ten thousand dollars is not taken from anywhere. It is brand new money simply typed into the borrower’s account as bank credit. The borrower then writes a check on that bank credit to buy the new car.

Step two: the seller then deposits this newly created ten thousand dollars at her bank. Unlike the high powered government money deposited at the central bank this newly created credit money cannot be multiplied by the reserve ratio. Instead it’s divided by the reserve ratio. At a ratio of nine to one a new loan of $9,000 can be created on the basis of the ten thousand dollar deposit.

Step three: if that $9,000 is then deposited by a third party at the same bank that created it or at a different one it becomes the legal basis for a third issue of bank credit, this time for the amount of $8,100. Like one of those Russian dolls, where each layer contains a slightly smaller doll inside, each new deposit contains the potential for a slightly smaller loan in an infinitely decreasing series.

Now, if the loan money created is not deposited at the bank the process stops. That is the unpredictable part of the money creation mechanism. But more likely at every step the new money will be deposited at a bank and the reserve ratio process can repeat itself over and over until almost one hundred thousand dollars has been created within the banking system. All of this new money has been created entirely from debt and the whole process has been legally authorised by the initial reserve deposit of just $1,111.12, which is still sitting untouched at the central bank. What’s more, under this ingenious system the books of each bank in the chain must show that the bank has ten percent more on deposit than it has out on loans. This gives the bank a very real incentive to seek deposits in order to be able to make loans supporting the general but misleading impression that loans come out of deposits.

Now unless all the successive loans are deposited at the same bank it cannot be said that any one bank got to multiply its initial high powered money reserve almost ninety times by issuing bank credit out of nothing. However, the banking system is a closed loop. Bank credit created at one bank becomes a deposit at another and vice-versa. In a theoretical world of perfectly equal exchanges the ultimate effect would be exactly the same as if the whole process took place within one bank. That is, the bank’s initial central reserve of a little over eleven hundred dollars allowed it to ultimately collect interest on up to one hundred thousand dollars the bank never had.

If that sounds ridiculous, try this. In recent decades, as a result of steady lobbying by the banks, the requirements to make a deposit at the nation’s central bank have all but disappeared in some countries and actual reserve ratios can be much higher than nine to one. For some types of accounts twenty to one or thirty to one reserve ratios are common. And even more recently, by using loan fees to raise the required reserve from the borrower, banks have now found a way to circumvent fractional reserve requirements entirely. So, while the rules are complex, the common sense reality is actually quite simple. Banks can create as much money as we can borrow.

“Everyone sub-consciously knows banks do not lend money. When you draw on your savings account, the bank doesn’t tell you you can’t do this because it has lent the money to somebody else.” ~ Mark Mansfield, economist and author.

Despite the endlessly presented mint footage, government created money typically accounts for less than five percent of the money in circulation. More than 95% of all the money in existence today was created by someone signing a pledge of indebtedness to a bank. What’s more, this bank credit money is being created and destroyed in huge amounts everyday. New loans are made and old ones are repaid.

“I am afraid that the ordinary citizen will not like to be told that banks can and do create money…And they who control the credit of the nation direct the policy of Governments and hold in the hollows of their hands the destiny of the people.” ~ Reginald McKenna, past Chairman of the Board, Midlands Bank of England.

Banks can only practice this money system with the active participation of government. First, governments pass legal tender laws to make us use the national fiat currency. Secondly, governments allow private bank credit to be paid out as government currency. Thirdly, government courts enforce debts. And lastly, governments pass regulations to protect the money system’s functionality and credibility with the public while doing nothing to inform the public about where money really comes from.

The simple truth is that when we sign on the dotted line for a so-called loan or mortgage our sign pledge of payment backed by the assets we pledge to forfeit should we fail to pay is the only thing of real value involved in the transaction. To anyone who believes we will honour our pledge that loan agreement or mortgage is now a portable, exchangeable, and saleable piece of paper. It’s an IOU. It represents value and is therefore a form of money. This money the borrower exchanges for the bank’s so-called loan. Now, a loan in the real world means that the lender must have something to lend. If you need a hammer my loaning you a promise to provide a hammer I don’t have won’t be of much help. But in the artificial world of money, a bank’s promise to pay money it doesn’t have is allowed to be passed off as money. And we accept it as such.

“Thus our national circulating medium is now at the mercy of loan transactions of banks, which lend, not money, but promises to supply money they do not possess.” ~ Irving Fisher, economist and author.

Once the borrower signs the pledge of debt, the bank then balances the transaction, by creating with a few key strokes on a computer, a matching debt of the bank to the borrower. From the borrower’s point of view this becomes loan money in his or her account. And because the government allows this debt of the bank to the borrower to be converted to government fiat currency everyone has to accept it as money. Again, the basic truth is very simple. Without the document the borrower signed the banker would have nothing to lend.

Have you ever wondered how everyone, governments, corporations, small businesses, and families can all be in debt at the same time and for such astronomical amounts? Have you ever question how there could be that much money out their to lend? Now you know – there isn’t! Banks do not lend money; they simply create it from debt. And as debt is potentially unlimited so is the supply of money. And as it turns out the opposite situation is also true.

Isn’t it astounding that despite the incredible wealth of resources, innovation, productivity that surrounds us almost all of us, from governments, to companies, to individuals are heavily in debt to bankers? If only people would stop and think, how can that be? How can it be that the people who actually produce all the real wealth in the world are in debt to those who merely lend out the money that represents the wealth? Even more amazing is that once we realize that money really is debt we realize that if there is no debt there is no money.

“That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.” ~ Marrine S. Eccles, Chairman and Governor of the Federal Reserve Board.

If this is news to you, you are not alone. Most people imagine that if most debts were paid off the state of the economy would improve. It is certainly true on an individual level. Just as we have more money to spend when our loan payments are finished we think that if everyone were out of debt there would be more money to spend in general. But the truth is the exact opposite: there would be no money at all. There it is – we are totally dependent on continually renewed bank credit for their to be any money in existence. No loans mean no money, which is what happened during the great depression. The money supply shrank drastically, as there was a 27% reduction in the supply of loans from 1929-33.

“This is a staggering thought. We are completely dependent on the Commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money, we are prosperous; if not, we starve. We are, absolutely, without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is.” ~ Robert H. Hemphill, Credit Manager, Federal Reserve Bank, Atlanta, Georgia.

Perpetual Debt

That’s not all, banks create only the amount of the principal. They don’t create the money to pay the interest. Where is that suppose to come from? The only place that borrowers can go to obtain the money to pay the interest is the general economy’s overall money supply. But almost all that overall money supply has been created exactly the same way as bank credit that has to be paid back with more than what was created. So everywhere there are other borrowers in the same situation. Frantically trying to obtain the money they need to pay back both principal and interest from a total money pool which contains only principal. It is clearly impossible for everyone to pay back the principal plus interest because the interest money doesn’t exist.

The big problem here is that for long term loans such as mortgages and government debt the total interest far exceeds the principal. So unless a lot of extra money is created to pay the interest it means a very high proportion of foreclosure and a non functioning economy. To maintain a functioning society the rate of foreclosure needs to be low and so to accomplish this more and more new debt money has to be created to satisfy today’s demand for money to service the previous debt. But of course this just makes the total debt bigger and that means more interest must be repaid resulting in an ever escalating and inescapable spiral of mounting indebtedness.

It is only the time lag between money’s creation as new loans and its repayment that keeps the overall shortage of money from catching up and bankrupting the entire system. However, as the banks insatiable credit monster gets bigger and bigger the need to create more and more debt money to feed it becomes increasingly urgent. Why are interest rates so low? Why do we get unsolicited credit cards in the mail? Why is the U.S. government spending faster than ever? Could it be to stave off collapse of the entire monetary system? A rational person has to ask can this really go on forever. Isn’t a collapse inevitable?

“One thing to realize about our fractional reserve banking system is that, like a child’s game of musical chairs, as long as the music is playing, there are no losers.” ~ Andrew Gause, monetary historian.

Money facilitates production and trade. As the money supply increases money just becomes increasingly worthless unless the volume of production and trade in the real world grows by the same amount. Add to this the realization that when we here that the economy is growing at 3% per year it sounds like a constant rate. But its not. This year’s 3% represents more real goods and services than last years 3% because it is 3% of the new total. Instead of a straight line as is naturally visualised from the words, it is really an exponential curve getting steeper and steeper.

“The greatest shortcoming of the human race is our inability to understand the exponential function.” ~ Albert A. Bartlett, physicist (http://www.youtube.com/watch?v=F-QA2rkpBSY&feature=related).

The problem of course is that perpetual growth of the real economy requires perpetually escalating new use of real world resources and energy. More and more stuff has to go from natural resource to garbage every year, forever, just to keep the system from collapsing.

“Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.” ~ Kenneth Boulding, economist.

What can we do about this downright scary situation? For one thing we need a very different concept of money. Its time more people ask themselves and their governments four simple questions. Around the world governments borrow money at interest from private banks. Government debt is a major component of the total debt and servicing that debt takes a big chunk of our taxes.

Now we know that banks simply create the money they lend and the government has given them permission to do this.  So the first question is: Why do governments choose to borrow money from private banks at interest when government could create all the interest free money it needs itself? And the second big question is: why create money as debt at all? Why not create money that circulates permanently and doesn’t have to be perpetually re-borrowed at interest in order to exist. The third question: how can a money system dependent on perpetually accelerating growth be used to build a sustainable economy? Isn’t it logical that perpetually accelerating growth and sustainability are incompatible? And finally: what is it about our current system that makes it totally dependent on perpetual growth? What specifically needs to change to allow the creation of a sustainable economy?


At one time charging any interest on a loan was called usury. It was subject to severe penalties including death. Every major religion forbade usury. Most of the arguments made against the practice were moral. It was held that money’s only legitimate purpose was to facilitate the exchange of goods and services. Any form of making money simply by having money was regarded as the act of a parasite or of a thief. However, as the credit means of commerce increased the moral arguments eventually gave way to the arguments that lending involves risk and loss of opportunity to the lender and therefore attempting to make a profit from lending is justified.

Today these notions seem quaint. Today the notion of making money from money is held as an ideal to strive for (i.e. loans, mortgages, bonds, stock market trading, currency speculation, real estate flipping, etc). Why work when you can get your money to work for you? However, in trying to envision a sustainable future it is very clear that the charging of interest is both a moral and a practical problem. Imagine a society and an economy that can endure for centuries because instead of plundering its capital stores of energy it restricts itself to present day income. No more wood is harvested than grows in the same period. All energy is renewable (i.e. solar, wind, tidal, hyrdo, biomass, geothermal, etc). This society lives within the limits of its non renewable resources by reusing and recycling everything and the population just replaces itself.

Such a society could never function using a money system utterly dependent on perpetually accelerating growth. A stable economy would need a money supply at least capable of remaining stable without collapsing. Let’s say we fix the total volume of this stable money supply to a given amount. Let’s also imagine that money lenders must actually have existing money to lend (i.e. no creating money as debt). If some people within this money supply begin systematically lending money supply at interest their share of the money supply will grow. If they continually re-loan at interest all the money that get’s paid back, what’s the inevitable result? Whether it’s gold, fiat, or debt money it doesn’t matter. The money lenders will end up with all the money. And after the foreclosures and bankruptcies are all filed they will get all the real property too.

Only if the proceeds of lending at interest were evenly distributed amongst the population would this central problem be solved. Heavy taxation of bank profits might accomplish this goal. But then why would banks want to be in business. If we are ever able to free ourselves of the current situation we could imagine banking run as a non-profit service to society dispersing its interest earnings as a universal citizen dividend for lending without charging interest at all.

“I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money…I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with the Congress for sitting idly by and permitting such an idiotic system to continue.” ~ Wright Patman, Democratic Congressman 1928-1976, Chairman, Committee on Banking & Currency 1963-1975.

Changing the System

If it is the fundamental nature of the system that causes the problem tinkering with the system cannot ever solve those problems. The system itself must be replaced. Many monetary critics call for a return to gold based money claiming that gold has a long history of reliability. They ignore the many scams that can be played with gold: shaving coins, debasing the metals, cornering the all of which were practiced in ancient Rome and contributed to its fall.

Some advocate silver as being more abundant than gold and therefore more difficult to corner. Many question the need to bring back precious metals at all since commodity money distorts the value of the commodity, is easily stolen, and the supply cannot be controlled beneficially. It is a certainty that paper, digital, plastic, or more likely bio-metric ID money would be the real medium of trade with the same potential for creating unlimited debt money we have now. Beyond that if gold again became the sole legal basis of money those who had no gold would suddenly have no money.

Other monetary reform advocates have concluded that greed and dishonesty are the main problems and that there may be better ways to create an honest and equitable money system than returning to silver or gold. Inventive minds have proposed a variety of alternate ways to create money. Many private barter systems create money as debt much as banks do, but it is done openly and without charging interest (i.e. Local Exchange Trading System – LETS). An example is a barter system in which debt is expressed as pledges of hours of work. All work being valued equally at a dollar figure that then allows hours to be equated with a dollar price of goods. This kind of money system can be set up by anyone who and devise a way to do the accounting and find willing and trustworthy participants. Setting up a local barter money system even if it were little used now would be prudent emergency planning for any community.

Monetary reform, like electoral reform, is a big topic and one that requires a willingness to change and think outside the box. Monetary reform again like electoral reform will not come easily because of the enormously powerful interests benefiting from the existing system will do their utmost to maintain their advantage.

Now that we have seen that money is just an idea (i.e. symbolic, commodity, receipt for commodity, bogus receipt, fiat (gov’t cash), debt (bank credit), debt (pledge)) and in reality money can be whatever we make it here’s one very simple alternative monetary concept to consider. This model is based on systems that have worked in the past in England and America. Systems that were undermined and destroyed by the goldsmith bankers and their fractional reserve system. To create an economy based on permanent interest free money, money could simply be created and spent into the economy by the government, preferably on long lasting infrastructure that facilitates the economy, such as roads, railroads, bridges, harbours, and public markets. This money would not be created in debt but would be created as value that value being in the form of whatever it was spent on. If this new money facilitated a proportional increase in trade requiring its use it would cause no inflation whatsoever.

If government spending did cause inflation there would be two courses of action available. Inflation is equivalent in effect to a flat tax on money. Whether the money goes down in value by 20% or the government takes 20% of the money away from us the effect on our buying power is the same. Viewed this way inflation in the place of taxation might be politically acceptable if well spent and kept within limits. Or, government could choose to counter inflation by collecting tax money that it then takes out of use, thus reducing the money supply and restoring its value.

To control deflation which is the phenomenon of falling wages and prices the government would simply spend more money into existence. With no competing private debt money creation, governments would have more effective control of the nation’s money supply. The public would know who to blame if things went wrong. Governments would rise and fall on their ability to preserve the value of money. Governments would operate primarily on tax money as it does now but tax money would go much further as none of it would be required to provide interest to private bankers. There could be no national debt if the federal government simply created the money it needed. Our perpetual collective servitude to the banks through interest payments on government debt would be impossible.

“Money is a new form of slavery, and distinguishable from the old simply by the fact that it is impersonal, there is no human relation between master and slave.” ~ Leo Tolstoy.

The Invisible Power

“None are more enslaved than those who falsely believe they are free.” ~ Goethe.

What we have been taught to believe is democracy and freedom has become in reality an ingenious and invisible form of economic dictatorship. As long as our entire society remains utterly dependent on bank credit for its supply of money, bankers will be in the position to make the decisions on whom or what industry gets the money they need and who doesn’t.

“The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in iniquity and born in sin. Bankers own the Earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough money to buy it back again…Take this great power away from them and all great fortunes like mine will disappear, and they ought to disappear, for then this world would be a better and happier place to live in. But if you want to continue to be slaves of the banks and pay the cost of your own slavery, then let bankers continue to create money and control credit.” ~ Sir Josiah Stamp, Director, Bank of England 1928-1941 (reputed to be the 2nd richest man in England at the time).

“The inability of the Colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the PRIME reason for the revolutionary war.” ~ Benjamin Franklin.

Few people are aware today the history of the United States since the Revolution in 1776 has been in large part the story of an epic struggle (i.e. depressions, inflations, bank panics, war, infiltration, media ownership, mass deception, assassination, “education”) to get free and stay free of control by the European international banks. This struggle was finally lost in 1913 when President Woodrow Wilson signed into effect the Federal Reserve Act putting the international banking cartel in charge of creating America’s money.

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world, no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.” ~ Woodrow Wilson, President of the United States 1913-1921.

The power of this system is deeply ingrained and so is the educational and media silence on the subject. Years ago, Canadian Deputy Prime Minister, Paul Hellyer, surveyed scores of non-economists both highly educated professionals and common sense people on the street and found that not one of them had an accurate understanding of how money is created. In fact it’s probably safe to say that most people, including the front line employees of banks have never given the matter a moment’s thought. Have you?

“All of the perplexities, confusion, and distress in America arises, not from the defects of the Constitution or Confederation, not from want of honour or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation.” ~ John Adams, Founding Father of the American Constitution.

The modern money as debt system was born a little over three hundred years ago when the first Bank of England was set up in 1694 with a Royal Charter for fractional lending of gold receipts at a modest ratio of two to one. That modest ratio was just the proverbial foot in the door. The system is now world wide and creates virtually unlimited amounts of money out of thin air and has almost everyone on the planet chained to a perpetually growing debt that can never be paid off. Could it have all happened by accident? Or is it a conspiracy? Obviously something very big is at stake here.

“Whoever controls the volume of money in our country is absolute master of all industry and commerce…and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.” ~ James A. Garfield, assassinated President of the United States.

“The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government’s greatest creative opportunity.” ~ Abraham Lincoln, assassinated President of the United States.

“Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of sovereignty of Parliament and of democracy is idle and futile…Once a nation parts with control of its credit, it matters not who makes the nation’s laws…Usury once in control will wreck any nation.” ~ William Lyon Mackenzie King, former Prime Minister of Canada (who nationalized the Bank of Canada).

“We are grateful to the Washington Post, the New York Times, Time magazine and other great publications whose directors have attended our meetings and respected the promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years. But, the world is now more sophisticated and prepared to march towards a world-government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the National auto-determination practiced in past centuries.” ~ David Rockefeller in an address to Trilateral Commission meeting, 1991.

“Only the small secrets need to be protected. The big ones are kept secret by public incredulity.” ~ Marshall McLuhan, media ‘guru’.

“Money as Debt” was created & produced as a video documentary by Paul Grignon. “Money as Debt” owes its origin to the work of many dedicated educators and advocates of monetary reform. It is intended as a general introduction to the conceptual basis of money.  To learn more, visit: moneyasdebt.net.





Money As Debt II – How Modern Banking Has Enslaved Us All – The Money Conspiracy Exposed

Money As Debt II – How Modern Banking Has Enslaved Us All – The Money Conspiracy Exposed



“If two parties, instead of being a bank and an individual, were an individual and an individual, they could not inflate the circulating medium by a loan transaction, for the simple reason that the lender could not lend what he didn’t have, as banks can do….. Only commercial banks and trust companies can lend money that they manufacture by lending it.” – Professor Irving Fisher, economist in his book 100% Money (1935)

“The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.” – John Kenneth Galbraith economist, author

“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” – Lord Acton (1834-1902) English historian

Maybe your first experience of putting money in the bank wasn’t quite as heartwarming as this. But odds are, years later, you still refer to the balance showing on your bank account as being your money in the bank. But it isn’t.

If we have a deposit box at the bank, the valuables we put in it are still ours. We’re just renting secure space to store them. In common usage, the word “deposit” means to set something down. But the use of the word deposit to refer to a bank account is misleading. A bank deposit is in reality… a loan. What the amount in our bank account really indicates is how much money the bank owes us. It is a record of the bank’s promise to pay us money, not the money we deposited itself. The difference is important. The truth is, when we hand the contents of our piggy bank to the bank teller, our money becomes the bank’s money to do with as it pleases. All of the money in the bank is the bank’s money. None of it is ours. That’s why the bank pays us interest. We have loaned the bank our money.

This may seem to be a semantic distinction. We know we can go to the bank at any time and take our money out in cash if we want to. But the distinction is not semantic. Nor is it trivial. The distinction is crucial. What happens in banking affects everyone and yet few of us know anything at all about how banking really works. The entire world economy now runs on a system of credit provided by banks. And when that credit system breaks down, everyone suffers.

To make things worse, the explanations for these breakdowns offered by the experts never look at the root cause… namely that, other than cash and coins, which make up just 1-5% of money in circulation, all the money in existence today was created as the principal of a bank loan, with the banks requiring principal plus interest as so-called “repayment”. Not only does this make the existence of money entirely dependent on the existence of bank credit, it makes the system as a whole bankrupt by design, as total debits, principal plus interest exceed total assets, from the moment the first loan document is signed.

As the global banking system staggers towards worldwide collapse, more and more people are realizing they can no longer ignore the realities behind banking as it is practiced today. Many have lost their homes and jobs due entirely to the unsustainable practices of moneylenders. It is time people understood money and the pressing need to fundamentally change the way it works. Clarifying what the words used in banking really mean is the first step. Now that we know that a deposit is, in truth, a loan to a bank, the next question is … what is a loan that we take out from a bank?

When we sign for a loan, we give the bank a pledge to pay the amount of the loan plus interest. In return, the bank credits our account in the same amount as this so-called loan. While we speak of the bank as having put the loan money into our account, in reality, the only thing the bank puts into our account is its promise to pay the money.

What has actually happened is an exchange of promises. Neither party has delivered anything to the other, except matching pledges of debt. So, who is the borrower and who is the lender? The terms loan, lender and borrower are all misleading. The truth is that the two parties have traded promises to pay, and in the process created something called “bank credit” or “checkbook money” that can be legally spent as money.

Bank credit can be spent because we, in our innocence, notice that, each time we deposit into our account, it increases our balance by the same amount. In fact, unless we put something in, our account will be empty. Thus it’s a natural assumption that money in an account is money someone put in. Uh-uh. The account is a promise to pay, not the money itself. In fact, a promise always indicates the absence of the item promised. Otherwise why does it need to be promised? Now, because all bank accounts are just promises to pay, the bank and the borrower can simply exchange promises and, in the flash of a few keystrokes, a positive balance appears in the borrower’s bank account without anyone putting existing money in.

Now you know the real source of what we call a “bank loan”.

“Commercial banks create checkbook money whenever they grant a loan, simply by adding new

deposit dollars in accounts on their books in exchange for a borrower’s IOU.” – Federal Reserve Bank of New York, I Bet You Thought, p.19

How different would it be if two parties just got together in a basement with a printing press and created new money that way? We intuitively understand the act of fraud called counterfeiting. In printing fake $100 dollar bills, the counterfeiters also create new money out of thin air.

Money gives us the ability to purchase the real goods & services of the world. It’s clear that the counterfeiters have created new ability to purchase real goods & services without giving anything in exchange… except a fancy piece of paper. Counterfeiters get something for nothing, directly at the expense of whoever gets caught with their counterfeit money. And if the counterfeit money is not discovered, it dilutes the money supply, stealing from everyone. Counterfeiting is a serious crime and it is easy to understand why. It’s cheating on a basic social agreement… Thou shalt not steal.

But, taking a loan from a bank also creates new purchasing power. However, instead of being considered a form of theft, it is the very basis of our monetary system. How did one form of creating money out of thin air become a crime, and the other become standard business practice and the source of almost all our money? For this is what has happened.

To understand how, we need to look at the history of the laws governing commerce, but before that, we need to understand the logic of the loan process itself.

The borrower wants to purchase an item but doesn’t have the funds to do so at the present time. However the borrower does have confidence in having sufficient funds over time to pay both the original price of the item and the interest on a loan. So he goes to a bank to arrange a loan. The borrower is capable of making a credible promise of money in the future, but otherwise, at this moment, he comes with empty pockets. That’s why he needs the loan.

We’re probably all familiar with what happens next. The bank gets the borrower to sign an agreement in which the borrower promising to pay the bank the amount of the loan plus interest or, in default, surrender to the bank the object that is to be purchased with the loan. This is done countless times every day all over the world, but there’s a problem. How can the borrower pledge as collateral something that the borrower does not yet own? If I wanted to borrow $10,000 from you to go on a luxury cruise to Europe, would you accept my

neighbour’s car as collateral?

Of course not, because you know very well that I have no legal right to give you my neighbour’s car no matter how much I owe you. But, if instead, I promise to buy my neighbour’s car with the $10,000 you lend me, the situation is different. You might agree to lend me the $10,000 believing I will buy the car and will pledge it as collateral for the loan once I obtain legal title to it. However, until the transaction is completed, your $10,000 loan cannot be secured by title to the car. This sequence of events problem could be very simply avoided. You could buy the car and then sell it to me.

The bank could do it this way too. If the borrower commits to the bank to buy the item, why doesn’t the bank just buy it with its own money and then sell it to the borrower on time payments at interest? Well… the answer to that question is also very simple. It’s because the bank, like the borrower, has come to the transaction with empty pockets. The bank fulfills its part of the so-called loan transaction by creating an “account” for the borrower. The truth is… the so-called borrower has funded his own account by fraudulently pledging a car he does not yet own, as collateral. And the bank, the so-called lender, hasn’t put up any existing money at all…and, if all goes well, it never will.

The borrower believes the new numbers in his account now represent his money in the bank. He, like the rest of us, doesn’t understand the difference between existing money and a promise

of money. If you can spend it, what does it matter? So now the question is will the seller of the item accept the bank’s promise to pay? While some people may hold out for cash, most will say yes to a check or an electronic funds transfer from the buyer’s bank. Why? Because the seller knows from experience that she can “deposit” the check at her bank, and it will increase her account accordingly. So what happens next?

Well, obviously the buyer’s bank now owes the seller’s bank the amount of the loan. So you might be thinking, isn’t this where the money comes out of deposits? The bank’s promise to pay the borrower has just been transformed by a transaction into a promise to pay the seller’s bank instead. So now the buyer’s bank has to transfer some of its existing money to the seller’s bank, correct? Yes, but probably only a small proportion. And, over the long term, as long as the bank gets its fair share of deposits, the net amount of existing money the bank needs to cover its loans can theoretically be zero.


Well, imagine first that the seller has her account at the same bank as the buyer. She deposits the buyer’s check into her account. All the bank has to do to complete the transaction is reduce the buyer’s account by the same amount it increases the seller’s account. As both accounts are just promises, no existing money is involved in doing this. What is the end result?

The bank has created bank credit for the borrower to the sum of $10,000. The borrower has bought the car that existed in the world of real things, and the seller now has that bank credit of $10,000. Thus a brand new claim upon $10,000 worth of real goods of value was accomplished with absolutely zero dollars of the bank’s or anybody else’s money! On top of that, the bank gets to have all this so-called money paid back by the borrower’s honest toil, PLUS interest, or the bank gets the car!

Magic like this is usually seen on stage.

So now let’s examine what happens if the seller deposits her check in a different bank. Won’t that require a transfer of existing bank funds from the buyer’s bank to the seller’s bank? Perhaps. But it will almost certainly never be anywhere near the whole amount because, in effect, the banking system functions as one bank. To illustrate, let’s add another transaction to this scenario. That same day, the seller’s bank made a similar loan to a little old lady who bought a mega home theatre system. The electronics store deposited her check at their bank. The electronics store’s bank made a similar loan that was deposited at the original borrower’s bank. And when all the various balances were settled, the banks didn’t owe each other anything, and even if there were differences, they would have been just a small portion of the total credit created.

So, at this point, we can say that, although banks don’t actually lend out their depositors’ money, as most of us imagine, they still need deposits to make loans. This is because banks need incoming credit from other banks to offset their own credit being deposited at those banks. As long as banks keep their outgoing credit balanced with incoming credit, they are free to make new loans and thereby keep creating brand new credit money. None of it will ever have to come out of the bank’s pockets. The bank is free to invest its own funds in corporate and government bonds, and whatever other instruments their charter allows. If one draws a diagram of it all, it looks like this.

The interest governments and corporations pay the banks on their bonds, is paid by us. We pay it as a portion of our taxes. And we pay it in the price of all the goods and services that we buy. And there‘s another thing passed onto us as well. And that’s the risk that the bank will go broke and NOT be able to honor its promises to pay.

Now, you may wonder ‘how can a bank go broke if it doesn’t put up any money up in the first

place’? What have they got to lose? The answer to that question is that banks differ from counterfeiters in that the banks are legally allowed to create new money, but only by certain rules of accounting. Banks can only create money by entering a borrower’s payments and collateral as an asset on the positive side of the ledger, balanced on the negative side by the loan, or what the banks call, the “deposit liability” created by the bank.

When the borrower defaults on the payments, the asset pledged as collateral is seized by the bank and sold. In a declining market, when repossession is most common, the new lower value of the asset doesn’t cover the bank’s liabilities, which were based on the previous higher value. This shows up as a loss on the bank’s books. When foreclosures are rampant as in a collapsing real estate market, much of the value of the bank’s collateral simply evaporates as home prices drop, exposing the bank to huge losses.

In truth, it’s all just numbers, created out of thin air. But banks must adhere to the dictates of these numbers, and the consequences of bank arithmetic gone wrong can include economic standstill, social disintegration, total financial chaos, lawlessness, starvation and war.

“Those who live by numbers can also perish by them and it is a terrifying thing to have an adding

machine write an epitaph.” – George J.W. Goodman, The Money Game

However, for the purposes of understanding the anatomy of a loan, we shall assume that the system is still functional and all three of the loans we were looking at will get paid. The end result is that not one dollar of existing money has changed hands, but $30,000 of new bank credit has been created and spent into the money supply…and each of the three banks gets to collect interest on $10,000 of it. Is creation of this brand new $30,000 really an act of fraud, like counterfeiting? The obvious difference is that the banking system is legal, regulated by government and disciplined by the courts to follow the rules of accounting.

Another difference is that there is no obvious victim, like the person getting caught with a counterfeit bill. Banks argue that the buyer and seller both got what they wanted and agreed to, so where is the fraud? And if there was a fraud, who lost out? Well, to determine that, let us list who got what out of the deal.

The borrower did get the item he desired on terms he willingly agreed to. He may curse his decision later as he struggles to make the interest payments, or… he may live happily ever after, thankful he got the loan. the seller got an increase in bank credit, which she’s been conditioned since childhood to think of as her “money in the bank”. She is confident that she‘ll be able to spend it in turn, and she will… so as far as the seller is concerned, she has been paid in full. She’s happy. So who, if anyone, suffered as a result of the deal? Is there another party to this transaction we’ve overlooked?

Well, there’s also the bank that gets to collect interest on a promise to pay money. That’s the business they are in and usually do very well by. And anyone else? Well, where did the car come from? It came from the world of real things. Natural resources, energy and labour were expended to produce it. What if we consider the hidden party to be Society at large, and the natural world from which all things ultimately come?

Because the brand new bank credit money didn’t just sit there. It got spent into the general circulation in the real world. It’s the real world that ultimately gets the new money in exchange for its car.

This new money might stimulate new production, temporarily enlarging the economy, making lots of people happy. In fact it often does, as most bank credit comes into being as a home mortgage, stimulus for the residential construction industry, a big provider of good-paying jobs. However, after its initial productive use, this newly created money will basically just dilute the money supply reducing money’s purchasing power by a very small amount.

So, in contrast to counterfeiting where the loss occurs to a specific victim, here the loss is borne by us all, because the real substance of the loan, the car, was extracted from the economy at large by a slight loss in the value of everyone’s money.

“The decrease in purchasing power incurred by holders of money due to inflation imparts gains to

the issuers of money.” – St. Louis Federal Reserve Bank, Review, Nov. 1975, p.22

To continue our comparison of bank credit with counterfeiting, counterfeit cash eventually gets detected and removed from circulation, causing a direct loss to whoever accepted it. There is, of course, no guarantee of how much will be detected nor any prescribed schedule for its removal. Bank credit is also removed from circulation over time because, as bank credit is paid back, the principal part of every payment is extinguished. Now, remember that almost all the money in existence today is bank credit. Therefore, almost every dollar that passes through our bank

accounts has a scheduled appointment to one day be paid as a principal payment on a bank loan and cease to exist.

On top of the Principal are the interest payments, which will become bank income, much of which will be recycled into the economy as interest to depositors and other bank expenses. So it’s not immediately apparent that there’s a loss to someone as a result of bank credit being withdrawn from circulation, the way there is with counterfeit cash. But if we look closer we find an interesting situation. We don’t need anything more than fundamental arithmetic to understand the power that lies in controlling the money supply and why, as currently designed, total debt must constantly expand or the system collapses.

Whenever the rate of debt money creation falls behind the rate of debt money destruction, the total amount of money in use will shrink.

This is called deflation because the money supply is shrinking like a deflating balloon. The result is less money relative to the goods and services available. With less money around to pay for them, the price of goods and services go down. At first this sounds like a good thing and it could be… if money were NOT created as debt at interest. For anyone not in debt, deflation would be like a general dividend on money – paid in goods & services of our choice.

It would be as if money were the people’s stock in their own prosperous company, their nation. People wouldn’t have to demand a pay raise. If a nation were more productive as a whole, thus deserving of a raise, everyone would benefit automatically by having their money buy more. However, this is definitely not the effect deflation has in a system where money comes in the form of interest-bearing debt.

More than 95% of all money currently in existence is in the form of debt to banks, promises to pay

with interest added. As we have seen, the Principal is created, but not the Interest.

Due to the time delay between money’s creation and its repayment, and the recycling of interest earnings as bank operating expenses, most of us can keep up our payments while the money supply is increasing. However, if the money supply or total debt is decreasing, money becomes harder to earn due to its scarcity, and fixed payments become harder to meet. For those heavily in debt, the money shortage can become catastrophic.

“The entire world economy rests on the consumer; if he ever stops spending money he doesn’t

have on things he doesn’t need — we’re done for”. – Bill Bonner, author, publisher and columnist on economics and money

Unfortunately, the psychological effects of falling wages and prices rapidly accelerate the process, as borrowers, including large businesses, lose confidence in being able to repay loans. So they don’t sign up for any and, without new loans to replace old loans, the money shortage rapidly gets worse, resulting in a decrease in jobs and purchasing power, even in the midst of abundant resources and productive capacity.

This dismal spiraling math makes mass foreclosure inevitable. Prices plummet as no one wants to spend their money. Shrinking values destroy the value of loan collateral, causing banks to write off huge losses. Some even close their doors. Consumer and business confidence is lost. Rampant economic and social dysfunction follows.

“With the monetary system we have now, the careful saving of a lifetime can be wiped out in an

eyeblink.” – Larry Parks, Executive Director, The Foundation for the Advancement of Monetary Education (FAME)

This disastrous spiral cannot be turned around unless someone, usually government, either creates new money itself or goes deeply in debt to private banks in order to create enough new money to re-organize and rejuvenate the economy.

The most familiar example of this is the stock market crash of 1929. The psychological fallout of the stock market collapse resulted in less borrowing and thus less new money. The Federal Reserve did nothing to correct the resultant deflation, and by 1932 the money supply had been reduced by a third. Countless people were evicted from their homes because the money to make their mortgage payments simply ceased to exist.

Then, in 1932 Franklin Roosevelt became the US President. Roosevelt’s New Deal set out to restore the economy by restoring the money supply. To counter the money shortage, Roosevelt borrowed from the private banking system. Factories started hiring again. But only when the war arrived, was there suddenly no shortage of jobs or funds available to do what was necessary for the war effort.

It was the money expanded on World War 2 that ended the Great Depression. The War also resulted in 50 million deaths worldwide and led to a new hostile international balance of power, with its attendant arms races, mounting debts and sweeping social and technological transformations.

“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.” – Napoleon Bonaparte

“I wouldn’t go to war again as I have done to protect some lousy investment of the bankers. There are only two things we should fight for. One is the defense of our homes and the other is the Bill of Rights. War for any other reason is simply a racket.” – Major General Smedley Darlington Butler USA(1881-1940)

“There is nothing left now for us but to get ever deeper and deeper into debt to the banking system in order to provide the increasing amounts of money the nation requires for its expansion and growth. Our money system is nothing better than a confidence trick… The “money power” which has been able to overshadow ostensibly responsible government is not the power of the merely ultra-rich but is nothing more or less than a new technique to destroy money by adding and withdrawing figures in bank ledgers, without the slightest concern for the interests of the community or the real role money ought to perform therein… to allow it to become a source of revenue to private issuer’s is to create, first, a secret and illicit arm of government and, last, a rival power strong enough to ultimately overthrow all other forms of government. …An honest money system is the only alternative.” – Dr. Frederick Soddy, Nobelist author of Wealth, Virtual Wealth & Debt

The cycle of economic boom and bust is commonly called the business cycle, as if it were a natural occurrence like the hydrological or carbon cycle. These natural cycles are ultimately driven by the Sun. But what is it that drives the business cycle? One answer is the supply of money. And, as we have seen, the supply of money is dependent on loans. So let’s look at what happens during the lifetime of an individual loan.

We’ve seen how bank credit is nothing more than the bank’s promise to pay which the bank has created on its books to balance the borrower’s promise to pay that it has received. The bank’s promise to pay is usually spent on some real good or service and allowed to circulate making the efficient exchange of goods and services easier to accomplish. As a medium of exchange, today’s promise-to-pay money is unsurpassed in its usefulness and flexibility. However, because no money is created to pay the Interest, a seemingly impossible situation is created.

On the face of it, if borrowers had to pay the interest they owe all at once, they would have to fight it out for a limited sum of existing money that was very much less than the total owed. The percentage that would be unable to pay off their loans would be simple to calculate. However, interest is usually paid over time, not all at once. If this interest income is recycled into the general economy as spending, it can be available to be earned repeatedly. Once we understand this, the question of whether interest is actually unpayable becomes more perplexing.

Is there such a thing as a sustainable system of lending that does not produce mathematically inevitable defaults?

In the Middle Ages, USURY, meaning charging interest or any form of making gains solely from having money was condemned as a sin. While the justification was moral, the reason was practical. In a fixed money supply like gold, anyone systematically rolling over all of their loan money at interest will soon end up with all the money.

This problem was a big factor in the ruin of Rome. Private accumulations of gold forced the government to make coins made of base metals instead of the real thing. Debased currency led to failing confidence and ultimate decline. The lesson was well learned. For the next thousand years, the Roman Catholic Church declared collecting interest on a loan to be a sin punishable by excommunication. In some countries, the penalty for practicing usury was death.

Is charging interest really a sin? While today it seems very reasonable to charge for the use of money, there’s a simple and unavoidable problem with doing so. Unless moneylenders spend every penny of interest they receive in such a way that the borrowers can earn it again, the borrowers are going to come up short, regardless of their hard work and personal virtues. Someone will default, simply as a result of the arithmetic.

This is easy to picture where there’s a fixed money supply like gold coin. As long as all of the coins taken in as interest are spent so that the borrowers can earn them, the same coins can be used to pay the interest over and over. The lender can profit by buying real things with this coin, but the coin itself must be spent not lent nor removed from circulation. Leaving aside any moral considerations, this arrangement would be sustainable. However, if the interest coins are re-lent at interest, or removed from circulation by hoarding, there will be an inherent shortage of coins with which to pay off the aggregate debt.

The situation is essentially no different in our current debt-based system. As we have seen, nowadays virtually every dollar comes into existence as debt, with a scheduled appointment to be extinguished as a Principal payment on the loan that created it. Thus, for all borrowers to be able to make their payments of principal plus interest, two things must be true. The dollar created as the principal of the loan must be available to be earned by the borrower in order to make the principal payment that extinguishes that dollar. And… every dollar the borrower pays to the bank as interest must also be available to be repeatedly earned by the borrower so that it can be paid as interest again and again.

There is a common theory undoubtedly popular with lenders, that because the banks spend their interest earnings as operating expenses, interest to depositors and shareholder’s dividends, there is, in fact, enough money released back into the community to make all payments. However, like the idea of absolute shortage, this is an oversimplification.

Picture what happens if someone else, such as you or I or an institutional non-bank lender obtains this dollar and then lends it out at interest? Well… now that same dollar is simultaneously owed to two lenders and has two simultaneous interest charges attached to it. In addition, if this dollar is loaned, repaid and re-loaned by the secondary lender, it is not available to pay off the principal of the loan that created it, except as another loan.

So… can we borrow from Peter to pay Paul and borrow from Paul to pay Peter? This gets inter1sting. We can… however, each time money is borrowed there’s an interest charge added that also must be paid. If all added interest charges can be earned, all payments can be made. On this basis, many economists and defenders of the current system claim there can never be a shortage of money and all payments can be made. But this seems to be a false assurance. For instance, if secondary lenders capture some of the money needed to retire the loan that created that money, the original loan can never be retired. The deficiency will have to be borrowed over and over forever, each time at interest. Each deficiency will be cumulative, adding to an ever-building total of debt that can never be paid off.

And, it stands to reason that for each added interest charge in the system as a whole, something extra is demanded of the system as a whole to pay for it.

This affects everyone, producers, governments and consumers. For producers that something extra must be raised through higher prices or more sales. However, competition for more sales usually requires lowering prices, necessitating even more sales and leads to overproduction and saturation of the market. The end result can mean job losses, plant closures and bankruptcies. For governments, that something extra is raised by increasing taxes. But increasing taxes drains money from the productive economy, resulting in a reduction in the collective ability to pay taxes, which then necessitates increased government borrowing and additional interest charges.

For consumers, something extra can mean getting an additional job, or borrowing to pay past debts, or paying off debt over longer periods of time. However, competition for jobs tends to lower wages and paying over longer periods of time adds enormously to the amount of interest owed. And, of course, borrowing to pay off past debts is like trying to fill a hole with more hole. And that is the situation we find ourselves in today. Producers can’t sell more because consumers can’t afford to buy. Governments are cutting taxes not raising them hoping to stimulate consumer demand. And consumers’ real incomes are limited or even falling due to competition for a limited number of jobs.

Therefore, any increase in the total amount of interest charges within the monetary system as a whole, will result in a genuine shortage of money.

This is because the real productive economy is limited by the availability of nature’s resources.The productive economy exists to serve actual needs. It simply cannot keep pace with the demands of the artificial financial economy which has an unlimited appetite for profit and which operates with no regard for the natural limitations of the real world.

The theory that there’s always enough money to pay the interest has a certain elegant simplicity. However, by the very nature of the assertion, to be true, it has to be 100% true. This is impossible.

For one thing, secondary lenders, who are not banks do comprise a significant proportion of lenders. And they add their interest charges to money that already bears an interest burden. Beyond that, we have a cultural expectation. Everyone who has money expects it to generate more. Money that needs to be spent and made available to be earned by its original borrower is, instead, lent at interest or invested for gain.

Therefore, we can conclude that the two conditions that must be true for all borrowers to be able to make their payments of principal plus interest, and thus permanently discharge their debt, those conditions are not met by the current system. Nowhere in the current system is there any restriction on re-lending money that was created as a loan. Nor, is there any obligation upon banks to make their profits from interest available to be earned by borrowers, enabling them to extinguish their debts.

Quite the opposite, banks invest these profits to make further profits. And it’s not just the banks that cause the problem, anyone who takes their ball of money and starts rolling it like a snowball to make it bigger, does so at the expense of borrowers who will not find that money available to pay their debts, except as more debt.

And of course, those rolling the biggest snowballs pick up the most snow. As the saying goes the rich get richer and the poor get poorer. Money needed by borrowers in the lower realms of workaday productive economics moves upstairs to play in the casino world of abstract financial profit. And that’s a world where transactions are little more than gambling on numbers in an effort to achieve higher numbers. They have little or nothing to do with providing the necessities of life.

Today the largest volume of money by far is changing hands in what is best described as the gambling economy, the foreign exchange market, the derivatives market and the rest of the financial instruments being played by banks and investment funds for as much profit as possible.

For example, the volume of trade on the world’s foreign exchange markets, in just one week, exceeds the total volume of world trade in real goods and services during an entire year. This money is in continuous play by speculators looking to make windfall profits on currency fluctuations. It exists, but only in the gambling economy.

So how “unpayable” is the ubiquitous interest burden in actual fact? That could only be determined with certainty, by tracking all the money in the world. With over 6 billion people earning, spending, borrowing and lending, the worldʼs money flows are at least as complex as the flows of the ocean, they are impossible to know.

But the direction is pretty clear and simple… and itʼs the “same old story”. The rich are taking increasingly more money into the gambling economy, where ordinary borrowers have almost no chance to obtain it. And, the only way the system can stay solvent is to create more money. And as money is created as debt, the only way to create more money is to create more debt in every way possible, including ridiculously easy credit for unqualified borrowers, massive government expenditures on security and war and bailouts of insolvent banks.

How does the individual loan cycle relate to the boom and bust phenomenon known as the business cycle? The individual loan cycle can be described like this: first, there is economic Stimulation because of its initial spending. This is followed by inflation because new money basically just dilutes the money supply. And eventually, inflation is followed by deflation as loan repayments gradually extinguish the Principal, removing that money from circulation.

As long as the individual loan cycles don’t match up, these cycles can smooth each other out. This creates a fairly stable money supply that leads to fairly stable prices, although continuous growth of the money supply is required, at least in part, because as you will recall, the money to cover the interest was never created. This is the model on which our economy is currently based. Avoiding deflationary spirals and keeping inflation at a level that doesn’t upset people’s apple carts, constitutes the art of managing the economy, which is rather narrowly defined as achieving so called “price stability”.

However a look at the purchasing power of the US dollar in real goods over the last century instantly reveals what this so-called “price stability” has really meant. The dollar has clearly lost almost ALL of its value, 96%, and is continuing to do so at a rapid pace. So price stability is NOT being achieved.

And, one hardly needs a degree in psychology to understand how human nature itself would turn the individual loan cycle into the collective phenomenon of the business cycle.

The simple reason being, that if one person sees great prospects and is doing well borrowing and expanding, others would have the confidence to do the same.

Beyond the merely psychological effects, if one business is expanding on the basis of credit, its suppliers and distributors will find it necessary to do so as well, or lose that business to someone who will.

The same herd effect would occur for a gloomy outlook and accompanying credit contraction. Thus, it is entirely predictable that individual loan cycles would have a built-in propensity to line themselves up rather than be randomly distributed. And when they do, we see the larger scale called the business cycle emerging directly from the cumulative effects of individual loan cycles.

So, to sum up, one could say that, out of the exchange of promises made by the bank and the borrower, society gets chronic inflation and a dependency on banks for increasing infusions of money to pay ultimately impossible interest payments. This results in an inescapable treadmill of accelerating debt and depreciating money. The only alternative being a deflationary collapse of the economy, followed by social chaos or war. This eminently unhealthy situation filters down through society, wreaking harm on every level.

We are like addicts, but the fix is not more and more heroin, it’s more and more credit money, and, eventually our collective ability to borrow and repay so much credit becomes exhausted. This then creates the need for constant expansion of credit into new markets, in essence creating a fiscal imperative to drive everyone in the world further and further into debt forever.

In the United States, this constant debt expansion has led to a Total Credit Market Debt in 2008 of more than $53 trillion dollars, which is about five times the total annual income of the entire country. So is the world at large happy about its end of the loan transaction? Probably not. But the world at large has very little awareness of where these problems originate. The elusive system of counterfeiting and hidden control that is modern banking.

And how about the banks? How have the banks fared as a result of this system? Well first, by putting up only a small fraction of the money they ostensibly lend, the banks have obtained a river of income from interest payments on consumer loans and mortgages. Second, by using their credit powers to acquire large portfolios of corporate and government bonds, banks collectively appropriate control over government and industry. And, thirdly due to the inevitable defaults and foreclosures, the banks gain legal title to a lot of real property the world over.

And finally, if the worst happens, if borrowers default en masse causing the banks large losses, the government is forced to rescue the banks with multi billion dollar bailouts to save the financial system. And what are these bailouts financed with? You guessed it. More taxpayer debt. It is really quite an achievement to pull this off, and without most of the victims even being aware of it.

If you’re now thinking “there ought to be a law”, well, there is. There’s a whole body of law that makes all of this legal. So how did a system like this ever become the law? To answer that, we go back to England in the mid-17th century.

“When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.” -Frederic Bastiat, 1801-1850, political economist

With the development of better ships, and the new explorations they allowed, trade was expanding rapidly. In order to carry out commerce, especially over great distances and lengths of time, written contracts were becoming more and more important, and more sophisticated.

Under English Common Law it had long been established that a contract could only be enforced if something of real substance had changed hands. A transfer of goods or rights in property was the real stuff of the exchange and that was what the court would evaluate for fairness, not just the words on the document.

A contract under which there had been no exchange of consideration, meaning real goods or rights in property was deemed to be empty and was therefore not enforceable by the court. So a contract in which a borrower say… pledged a car he does not own in exchange for a bank’s promise of payment would not even qualify as a contract. No Common Law court would enforce it. As well, in the event of a dispute over a contract, under Common Law, only someone who had actually provided consideration to the transaction, in other words, only someone who “delivered the goods”, had the right to sue in court for fulfillment of the contract by the other party. This right was not transferable to a third party.

When early traders went off personally on expeditions with trade goods, they bought those goods at home with their local currency and would sell them for foreign currency in the distant destination. They would then buy foreign goods with the foreign money, bring those goods home and sell them for their local currency. Pretty simple.

But, as trade became more sophisticated, traders became more inclined to stay home and just hire ships to carry out deliveries. This gave traders the freedom to import cargoes of foreign goods from different sources than the destination to which their home goods had been exported.

Thus a problem was created. The exported goods had been paid for with foreign coin, the value of which needed to be spent somewhere else. Moving money as coins entailed a high risk of theft, as well as the near certainty of partial loss by currency conversion in a different land.

This problem of payments from a distance was overcome by the use of Bills of Exchange. A Bill of Exchange was a signed order from the payer to an addressee demanding that the addressee pay a certain specified sum of money to the person identified as the payee.

These were secured by signature, and they could not be acted upon in court by anyone other than the original parties. Thus, they were of no use to a thief or any other third party.

You probably recognize that these were the precursors of cheques. I the payer, instruct the bank, the addressee, to pay the payee, a person named on the cheque, a certain sum of money.

This was all well and good for transactions among parties who were known to each other. The bill of exchange was used merely as a way to order payment in coin at a distant location.

But merchants soon wanted more flexibility. They wanted to be able to use Bills of Exchange to reconcile payments amongst many merchants in many locations, using Bills of Exchange like money itself. For this to work, bills of exchange had to be assignable to, and enforceable by, third parties. As we shall see, this was the moment in legal history that gave sanction to the banking system we have today.

A third party who might have honestly purchased a bill of exchange several steps removed from the original exchange, could not be expected, nor would he have the right, to show up in a Common Law court and defend the validity of the contract and collect on it.

This made third party Bills of Exchange an unacceptable risk. So, in order to be able to use bills of exchange as a convenient and guaranteed third party payment system, essentially equivalent to money, the Common Law practice had to be set aside regarding bills of exchange.

In England, by a series of legal decisions from 1664 to 1699, this problem for commerce was remedied by making bills of exchange enforceable by third parties. If a third party had purchased a bill for valuable consideration and in good faith, having no apparent reason to suspect fraud or some deficiency in the right of the seller to sell it, then the bill automatically became good and enforceable by the court against the signer.

What did this change mean? It meant, essentially, that any Bill of Exchange would be considered legitimate once it was sold.

Bills of Exchange and all other subsequent types of signed promises to pay, with the notable exception of cheques, became transferable and enforceable in court, just what the merchants wanted. Now debts contracts could be sold like things and transacting business would be a whole lot easier.

Not only that, it opened up a whole new market for profit-seekers, trading in bills of exchange

themselves. The marketing of debt was born.

The change in the law had another effect as well. It made it possible to trick or even force a person into signing a legally binding promise to pay, and then, if that promise were purchased by a third party for real consideration and in good faith, it would be enforceable against the signer in court.

Ultimately, this became one of the foundational principles of the Uniform Commercial Code, which governs the conduct of business in the United States, and by extension, in most of the world.

The entire taxing and monetary systems are hereby placed under the U.C.C. (Uniform Commercial Code)” – US Federal Tax Lien Act of 1966

Think about it. If we buy a stolen laptop from a guy on the street, we’re guilty of receiving stolen goods, a criminal offense. It doesn’t matter if we paid honest money and were unaware the goods were stolen. The court will restore the goods to the rightful owner. We as purchasers, innocent or not, lose our money and may even be charged with a crime.

But if we buy a loan contract from a banker and give him real value for it “in good faith”, it doesn’t matter that the loan contract may have come into existence under false pretenses. Whoever signed it is required by commercial contract law to pay up, and the courts will enforce the obligation.

Today debt contracts come in a myriad of forms, including and especially loans and mortgages. It’s significant to note that, just as these Common Law restrictions were being removed, the brand new Bank of England was being established, the first bank state-authorized to create money out of thin air. The new laws fit in perfectly, making the new bank’s “empty” contracts enforceable against the so-called “borrower”.

“The bank hath benefit of interest on all moneys which it creates out of nothing.” – William Paterson, founder of the Bank of England, c1694.

Those who have discovered the true nature of their own bank loans and have attempted to challenge the validity of their debt contracts in modern courts have discovered to their dismay that this commercial contract law is still the bedrock defense of money as debt. The bank will have sold the original loan agreement to a third party for value, and even though that third party is often just a sister company of the bank, all that matters to the judge is who possesses the document, what it says, and whose signature is on it. The bank’s failure to inform the borrower about the true nature of the loan contract, and the absence of any actual money loaned on the bank’s part, is not relevant.

So, to conclude our investigation, it appears that modern banking practice rests on several distinct violations of Common Law, common sense, and natural justice.

The first violation is the fraud the borrower commits by pledging as collateral, property the borrower does not yet own. And the bank is complicit, as it knowingly accepts the fraudulent pledge as backing for the credit it creates.

The second violation is the failure of the bank to disclose the true nature of the contract. The bank calls it a loan, leading the borrower to believe that he or she is receiving a loan of existing money. But the bank knows full well it has provided only a brand new promise to pay simply typed in on a computer screen. A promise that the bank knows it will probably never have to fulfill.

Thirdly, the loan agreement should be invalid. Because impossible contracts are legally invalid.The bank is creating an impossible contract because the conditions required to guarantee that the borrowers have the opportunity to pay off the Principal plus Interest are not met. Unless the system enforces 100% recycling of both Principal and Interest, which it emphatically does not, some borrowers are going to default and lose their collateral, simply due to the systemic shortage of money.

The fourth violation is the violation of natural law by the law of contracts, which confers automatic legitimacy of title on any contract if the contract is sold to a third party for valuable consideration. This violates the principle that one cannot give better title to something than one has.

But perhaps the biggest fraud of all is that most of the people who produce the real wealth of the world are in debt, and at risk of losing everything they have worked for, to bankers who fabricate money out of mere promises to pay.

And where does this leave us? We are hostages in an economy that must grow faster and faster to keep up with an ever-growing money supply or the entire system collapses in ruin.

The money system as currently structured, refuses to recognize that the real economy is limited by the capacity of the planet to provide the raw materials and waste disposal services the economy needs. The planet is finite. And therefore, it should be obvious that the economy cannot grow at an accelerating pace forever.

Our current money system runs like the bus in the movie Speed. It could not slow down or the bomb planted on the bus would go off. And, our situation is even worse because the rate of debt creation must forever accelerate or the entire economy crashes.

The notion that infinite perpetually accelerating growth is possible is the great fallacy of modern economics. It is a fatal delusion born of greed. An economic, social and environmental crash of unprecedented proportion is surely inevitable, and this monetary system is utterly and hopelessly incapable of adapting to it. No wonder monetary reformers around the world insist that the entire monetary system needs to be rebuilt, from the ground up.

“Banking doesn’t involve fraud, banking IS fraud.” -Tim Madden, monetary historian & consumer advocate

So… what is the solution?

One idea many people suggest is to return to the days when money was backed by gold. Gold, they argue, is the true money because it’s inherently valuable. The underlying principle here, is that money should be a commodity that is valuable due to its scarcity – as gold is scarce. As a general rule, those who hold this view of money also believe that money should exist independent of government.

Another school of thought, diametrically opposite, is that the creation of money should be the exclusive prerogative of Government, which represents all the people, should spend money into existence in the public interest, thus backing the currency with what it was spent on. Having taken back the power to simply spend money into existence, government would never need to go into debt or pay interest.

Of course, government spending without limit would result in a worthless currency. To prevent inflation, money would also have to be extinguished. This could be accomplished using a wide variety of taxes, resource royalties and user fees. Government spending and government taxes would, therefore, be interdependent and would equal each other in a perfect equilibrium. However, the goal of taxation would be to achieve price stability, as the government would have no need of tax revenues in order to operate.

Over the centuries, both the gold-based system and various government credit money systems have been used, with the gold-based system prevailing well into the 20th century. This wasn’t because government credit money didn’t work. It did, within the country itself, where it was accepted in payment of taxes. But until the invention of modern currency exchanges, international trade had to be carried out in gold.

In addition, gold has had an almost supernatural fascination for humans for a very long time. We’ve been conditioned for millennia to think of money in terms of portable inherent wealth, as in gold coins.

However, this is not the only way to think of money. Nor, in the era of runaway debt-money, is it any longer accurate. Money is, at its root, an idea… an idea that humans invented in order to turn simple subsistence into complex civilization. It’s the development of money that made possible specialization of labor, and the indirect exchange of goods and services.

Throughout money’s evolution, from direct barter to standard trade goods, and on to standard coins, to paper promises of precious metal, to digital promises of paper cash, and now to digital promises to pay digital promises – throughout this long evolution, the prevailing idea has always been to achieve greater flexibility by using convenient and secure promises to pay instead of money itself.

The problem with promise-to-pay money has always been that it provides a golden opportunity to cheat, to create more promises than there is real stuff to back those promises up.

But is there a way to make the exchange of actual money just as convenient and secure as the promise-to-pay system? Now there is. Digital money convenient and secure, is now a possibility because of new encryption technologies.

It works like this. Imagine taking the serial number off a dollar bill and dispensing with the paper. What do you have? a digital dollar, a digital dollar that can now be electronically transferred around the world just as easily and securely as a promise-to-pay dollar. However, and this is the big however, the digital money while being entirely electronic, is also like a metal coin: It can never be in two places at once. Thus, the multiplication of promises can be prevented by insisting on actual payment in cash, paper or digital. We don’t even need to keep this digital cash in a bank as it provides its own safekeeping and can be transferred by Internet.

And instantly transferable digital money could perform intelligent functions far beyond anything money has been capable of before. For instance, with simple math programmed in, money could be made to calculate its own value, eliminating human speculation, manipulation and error. Wouldn’t that be something?

In the meantime, efforts are already underway to reform the monetary system through legislation. Initiatives like the Monetary Reform Act and the American Monetary Institute’s Monetary Act have already been written, prescribing in detail how to return the power to create money exclusively to government, and thus limit banks to lending existing money, just the way most people imagine it works now.

While differing in detail, all such reform proposals, in whatever country they originate, always advance the same simple idea. The benefits of money creation belong to the public.

At present, money is created not for the benefit of society, but for the profit of private banks. Banks like to create enormous amounts of money from our debt, because the more we borrow into existence, the more interest the bank gets to collect, and the richer the bank becomes. In the process, the banks gain more control over everyone, individuals, industry and government alike.

Abundant money too often leads to speculative asset bubbles that make insiders rich. But, as we have witnessed, these bubbles inevitably burst, under the unbearable weight of ever-increasing interest demands. The losers are many, including governments. Already burdened with huge debt and shrinking revenues, governments are forced to add trillions to that debt in order to rescue the banks that are the cause of the problem… Otherwise we would have no money system!

It’s an absurd situation, and a tragic one, considering that government could instead, create the money itself, and spend it interest-free on infrastructure, education, or universal health care. And most of that debt-free money would enter the economy as wages, circulating through all levels of society for everyone’s benefit. This kind of abundant money would fund a re-invigorated productive economy, in which the savings of the people could fund honest loans of real, existing money.

At its root, money is a means by which we exchange real value. Without real value in the world, money is nothing. As we have seen, it’s the real world that makes the loan, not the bank. We the people, in conjunction with the material blessings of the natural world are the source of all real wealth. Therefore money creation and its benefits belong to the public, not to private bankers.

And what about interest? As we have seen, interest poses an arithmetic problem and it’s a problem that can only be solved in three ways. One, defaults and foreclosures, two perpetual growth of the money supply, or the preferable, and only other solution, 100% recycling of interest as spending. But such full recycling could only be accomplished by nationalizing the banking industry in the public interest.

For example, interest earnings from public service banking could be paid to all as a citizen’s dividend, or it could be used to fund government in place of taxes, as was done successfully in colonial Pennsylvania. And that’s just one instance of a society that organized its monetary system differently. There have always been alternatives. And there are alternatives now.

What the evolution of money really teaches us, is that the real measure of money’s value is, very simple, its usefulness as money. And there are several different ways to create useful money.

For instance, money can simply be an individual’s private promise to pay. A pledge of one’s own product or service as in such community currencies as the LETS systems or Time Dollars. Thousands of these community currencies already exist in circles of trust where members can be counted on to honor the credit they issue for themselves.

And such community currencies can be a lifesaver in the event of a catastrophic collapse of the conventional banking system. When money shortages or hyperinflation disrupt trade and bring economic standstill, a working community currency can sustain a local economy.

Are such proposals radical? You bet. But there are unprecedented challenges before us. No longer can exponential growth allow us to sustain a monumental debt that must ever increase to prevent the house-of-cards collapse of the whole system. Increasing wealth disparity, crushing debt, failing banks and social and environmental catastrophes are what we face unless we radically change course.

We must transform our monetary system to one that can adapt to a future we can now clearly foresee. To begin, we must examine monetary system designs that can deal with widespread economic shrinkage, without inducing mass foreclosures and bankruptcies.

But, what can you do right now? Well right now, there are people and organizations around the world that understand the problems and the injustice of today’s monetary system and you can join them in their effort to bring about the fundamental changes we need.

It’s time to talk to our friends. A financial crisis is the ultimate teachable moment. When bankrupt banks have to be bailed out by the governments the banks were formerly lending to, the contradictions, the fraud, and the fatal flaws of the current system are laid bare for all to see. But the solutions are there to see too, if we look.

We cannot afford business as usual. Making adjustments to the current system will not save us. The changes we need to make are radical and dedicated to the good of all, not the profit and control of a few. To make these changes, we must leave behind our outmoded assumptions and misplaced faith. We must face the challenge of a complete transformation. Reality calls.

“Money does not pay for anything, never has, never will. It is an economic axiom as old as the hills that goods and services can be paid for only with goods and services.” – Albert Jay Nock, Memoirs of a Superfluous Man, 1943

“Only when the last tree has died and the last river has been poisoned and the last fish been caught will we realize we cannot eat money.” – Cree Indian Proverb

Money as Debt II, Promises Unleashed

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Related conspiracies: 1929 US Depression, capitalism, central bank, corporations, depression, economic slavery, education, Federal Reserve, globalism, hyperinflation, income tax, international banking, IRS, monetary reform, Monetary Reform Act, money creation, money supply, Napoleon Bonaparte, national debt, nationalized banks, population control, scarcity, stimulus theft, stock market, US Constitution, US Dollar, USD collapse

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The “Disaster Stage” of U.S. Financialization

By Kevin Phillips – April 7, 2009, 3:34PM

Thirty to forty years ago, the early fruits of financialization in this country – the first credit cards, retirement accounts , money market funds and ATM machines – struck most Americans as a convenience and boon. The savings and loan implosion and junk bonds of the 1980s switched on some yellow warning lights, and the tech bubble and market mania of the nineties flashed some red ones. But neither Wall Street nor Washington stopped or even slowed down.

In August, 2007, the housing-linked crisis of the credit markets predicted the arriving disaster-stage, the Crash of September-November 2008 confirmed the debacle, and now an angry, fearful citizenry awaits a further unfolding. There is probably no need to fear a second coming of nineteen-thirties Depression economics. This is not the same thing; the day-to-day pain shouldn’t be as severe.

Indeed, for all that the 1930s evoke national trauma, that decade was in fact a waiting room for national glory and wellbeing. World War Two ushered in American global ascendancy, the “Happy Days” of the 1950s and an unprecedented middle-class prosperity.

Today’s disaster stage of American financialization – the bursting of the huge 25-year, almost $50 trillion debt bubble that helped underwrite the hijacking of the U.S. economy by a rabid financial sector — won’t be nearly so kind. It is already ushering in the reverse: a global realignment in which the United States loses the global economic leadership won in World War Two. The ignominy deserved by Wall Street after 1929-1933 is peanuts compared with the opprobrium the U.S. financial sector and its political and regulatory allies deserve this time.

My 2002 book, Wealth and Democracy, in its section on the “Financialization of America” noted that the “finance, insurance and real estate (FIRE) sector overtook manufacturing during the 1990s, moving ahead in the national income and GDP charts by 1995. By the first years of the next decade, it had taken a clear lead in actual profits. Back in 1960, parenthetically, manufacturing profits had been four times as big, and in 1980, twice as big.” Hardly anyone was paying attention. By 2006, the FIRE sector, its components mixed together like linguine by the 1999 repeal of the old New Deal restraints against mergers of commercial banks, investment firms and insurance, had ballooned to 20.6% of U.S. GDP versus just 12% for manufacturing. The FIRE Sector, now calling itself the Financial Services Sector, lopsidedly dominated the private economy. A detailed chart appears on page 31 of Bad Money. Some New York publications and politicians try to insist that finance per se is only 8%, but the post-1999 commingling makes that absurd.

This represented a staggering transformation of the U.S. economy – doubly staggering now because of the crushing burden of its collapse. You would think that that opinion molders and the national media would have been probing its every aperture and orifice. Not at all.

Thus, it was pleasing to read MIT economics professor Simon Johnson’s piece in the April Atlantic fingering financial “elites” who captured the government for the latterday financial debacle. This is broadly true, and judging from my e.mail, even some conservatives accept Johnson’s analysis and indictment. After the furor over the AIG bonuses, the public and some politicians may be ready to start identifying and blaming culprits. This would be useful. Having an elite to blame is a often prerequisite of serious reform.

Nevertheless, the extremes of financialization, together with the havoc we now know it to have wrought, represent a much more complicated historical and economic genesis, one which U.S. leaders must be obliged to confront if not fully acknowledge. Elite avarice and culpability has multiple and longstanding dimensions. It has been fifteen years since Graef Crystal, a wellknown employment compensation expert, brought out his incendiary In Search of Excess: the Overcompensation of American Executives. The data was blistering. Over the last decade, New York Times reporter David Cay Johnston has published two books – Perfectly Legal and Free Lunch – describing how the U.S. tax code, in particular, has been turned into a feeding trough for the richest one percent of Americans (especially the richest one tenth of one percent).

The backstop to avarice provided by a wealth culture and market mania from the late 1980s through the Clinton years to the George W. Bush administration, prompted another set of indictments that still resonate: William Greider’s Secrets of the Temple: How the Federal Reserve Runs The Country (1987), Robert Kuttner’s Everything For Sale (1997), Thomas Frank’s One Market Under God(2000) and John Gray’s False Dawn (1998). More recently, Paul Krugman’s books have been equalled or exceeded in timeliness by his New York Times columns blasting the perversity of the Obama-Geithner financial bail-out and the malfeasance of the financial sector. James K. Galbraith, in his 2008 book The Predator State, has elaborated the valid point that too many conservatives over last few decades betrayed their free market rhetoric by supporting a relentless use of state power and government financial bail-outs to advance upper-income and corporate causes. On the other hand, some conservative economists of the Austrian school make related indictments of liberal bail-out penchants.

This could be a powerful framework. All of these critiques have merit, and ideally they might converge as earlier indictments of elite and governmental abuse did during the Progressive and New Deal eras. But I have to return to whether the public will ever be given full information on the fatal magnitude of financialization, who was responsible, and how it failed and crashed in 2007-2009. So far, political and media discussion has been so minimal that the early 21st century American electorate has much less readily available information on what took place than did the electorates of those earlier reform eras.

Towards this end, my initial emphasis in the new material included in the 2009 edition of Bad Money is on what techniques, practices and leverage the financial sector used between the mid-1980s and 2007 to metastasize early-stage financialization into an economic and governmental coup and, ultimately, a national disaster. Perhaps not surprisingly, I found that the principal building blocks that the sector used to enlarge itself from 10-12% of Gross National Product around 1980 to a mind-boggling 20.6% of Gross Domestic Product in 2004 involved essentially the same combination of credit-mongering, massive sector borrowing, highly leveraged speculation, reckless, greedy pioneering of new experimental vehicles and securities (derivatives and securitization) and mega-trillion-dollar abuse of the mortgage and housing markets that became infamous as hallmarks of the 2007-2009 disaster. During Alan Greenspan’s 1987-2006 tenure as Federal Reserve Chairman, financial bubble-blowing became a Washington art and total credit market debt in the U.S. quadrupled from $11 trillion to $46 trillion.

To try to put 20-30 pages into a nutshell, the financial sector hyped consumer demand – from teen-ager credit cards to mortgages for the unqualified – to make credit into one of the nation’s biggest industries; nearly $15 trillion was borrowed over two decades to leverage de facto gambling at 20:1 and 30:1 ratios; banks, investment firms, mortgage lenders, insurers et al were all merged together to do almost anything they wanted; exotic securities and instruments that even investment chiefs couldn’t understand were marketed by the trillions. To achieve fat financial-sector profits, the housing and mortgage markets might as well have been merged with Las Vegas.

The principal inventors, hustlers , borrowers and culprits were the nation’s 15-20 largest and best known financial institutions – including the ones that keep making headlines by demanding more bail-out money from Washington and giving huge bonuses. These same institutions got much of the early bail-out money and as of December 2008 they accounted for over half of the bad assets written off. The reason these needed so much money is that they government had let them merge, speculate, expand and experiment on dimensions beyond all logic. That is why the complicit politicians and regulators have to talk about $100 billion here and $1 trillion there even while they pretend that it’s all under control and that the run-amok financial sector remains sound.

This is a much grander-scale disaster than anything that happened in 1929-33. Worse, it dwarfs the abuses of debt, finance and financialization that brought down previous leading world economic powers like Britain and Holland (back when New York was New Amsterdam). I will return to these little-mentioned precedents in another post this week.

But for the moment, let me underscore: the average American knows little of the dimensions of the financial sector aggrandizement and misbehavior involved. Until this is remedied, there probably will not be enough informed, focused indignation to achieve far-reaching reform in the teeth of financial sector money and influence. Equivocation will triumph. This will not displease politicians and regulators leery of offending their contributors and backers.

Kevin Phillips’s 2008 book Bad Money: Reckless Finance. Failed Politics and the Global Crisis of American Capitalism has just been published in a new post-election edition by Viking Penguin.


The Great Transformationby Karl Polanyi

read the complete BOOK

Foreword by Robert M. MacIver

Beacon Press -Boston





A Brief History of Neoliberalism by David Harvey

Sun, 12/13/2009 – 12:07 — Emily

David Harvey

A Brief History of Neoliberalism

Oxford University Press, 2005

247 pages


Reviewed by Kristine Kotecki

The catch-term “globalization” appears across social science and humanities discourses, as well as in popular media. In A Brief History of Neoliberalism, David Harvey takes on globalization’s less referenced counterpart, “neoliberalism.” Based on an economic school of thought that prioritizes government non-intervention in the market, in trade and in private property, neoliberal policies involve government deregulation and the privatization of state sectors. While Harvey shows that neoliberal theories do not always line up with the economic and political practices instituted under its name, he nonetheless argues that the neoliberal ideol ogy that arises from these practices has become hegemonic and thus considered to be common sense. He then chal lenges assumptions that neoliberalism and democratic ideals complement each other by showing how the former’s poli cies are often actually at odds with concepts like “freedom” and “democracy.” To expand on his thesis that neoliberal ism and exploitative practices go hand in hand, Harvey invokes a Marxian critical tradition. Essentially “a politi cal project to re-establish the conditions for capital accu mulation and to restore the power of the economic elites,” neoliberalism widens class and social inequality. Harvey’s elite class—the CEOs and the largely successful commer cial entrepreneurs like Wal-Mart’s Walton family—benefit from the redistribution of wealth that occurs via neoliber alism, but little new wealth is created and economic gaps are thus widened. Harvey then challenges neoliberalism’s common-sense-ness by revealing its roots, historicizing its development and analyzing its various manifestations.

A Brief History of Neoliberalism begins by demystifying neo liberalism, presenting it as being a constructed ideology that benefits the upper class. The middle chapters include analyses of specific instances of neoliberal policies and then instances of dissent against these policies. In the final chap ter, Harvey calls for alternative economic approaches. In the early chapters, Harvey investigates the connection between “freedom” and neoliberal economic policies. He draws on press releases to demonstrate a popular political assump tion that individual freedoms result from free market and trade policies. He then establishes the Mont Pelerin Society’s 1947 treatise as being a foundational neoliberal theoretical text, whereby beliefs in individual freedom were aligned with beliefs in Adam Smith’s anti-interventionist economics. Neoliberal theories began garnering more attention with the 1970s financial crisis, when rising unemployment and infla tion threatened both political and economic elites. During this time, US governmental and elite Chilean interests in fluenced a “test run” of neoliberal practices in Chile, which then led the way for the US and England to institute modi fied neoliberalisms in their own countries. This shift towards neoliberalism marked a move away from “embedded liberal” economic practices, the regulations that Harvey refers to as “Keynesian” practices instituted by Franklin D. Roosevelt’s New Deal. Harvey also compares US intervention in Chile to their contemporary presence in Iraq, pointing to the former as a foundational neoliberal experiment and the latter as an example of neoliberalism’s current hegemony.

Harvey quotes Karl Polanyi, who warns that “freedom” can also mean the freedom to exploit or to abuse. He then moves into an investigation of how “freedom” developed into a common-sense value, although one not necessarily implying social justice. Basing his analysis on Antonio Gramsci’s work on consent-building, Harvey traces the development in the US of valuations of freedom. He critiques the student move ments at Berkeley and elsewhere in 1968 for prioritizing in dividual freedom over the social justice concerns of the tra ditional “Left” and argues that the ensuing identity politics and diversity rhetoric obscure the dangers of an idealized “freedom” that Polanyi warns about. Harvey also describes how the Republican Party built consent for its neoliberal practices with members of the evangelical Christian com munity by showing how Republican religious leader Jerry Falwell equated neoliberalism with moral righteousness.

Harvey follows these foundational chapters with case stud ies showing the varying ways that neoliberal theories and neoliberal practices differ. His primary conclusion for each instance he describes is that financial gain for the economic elite ultimately takes priority over any ideologically ground ed economic policies. He also devotes an entire chapter to a case study on neoliberalism’s rise and fall in China, and points to this as an example of the other neoliberalisms’ po tential falls. Harvey draws comparisons between its fall in China and its impending fall in the US, and warns against the neoconservative nationalism that replaced neoliberalism in China. Yet Harvey finds the neoconservative alternative no more salient. He ultimately points to the necessity of building alternative social networks to fill in the gap left by the hegemony of neoliberal structuring and of the poten tial power of expanding the discourse of “freedom” and “in dividual rights” beyond its currently limited signification.

A Brief History of Neoliberalism provides an easy to follow and well-supported introduction to a history that might other wise seem intimidating to non-economists. It also reinforces a more specifically economic reading of globalization, while maintaining this reading’s relevance for humanities schol ars by incorporating the consent-building role of cultural texts. Figures and graphs throughout the monograph clarify Harvey’s evidence, although their relevance would be dif ficult to understand without Harvey’s accompanying com mentary. In general, the argument is accessible, although Harvey sometimes assumes an audience familiar with eco nomics and international politics—he tosses around terms like “Keynesian” and names like “Deng Xiaoping” without immediately explaining them. Harvey’s introduction also proves somewhat misleading by detracting from the care ful historicization that he provides in the rest of the text. By equating neoliberalism with the powerful politicians involved in establishing its ideological hegemony—Ronald Reagan and Margaret Thatcher, especially—he oversimpli fies the many factors besides these figures that led to neolib eralism’s rise. His discussion of US imperialism also might have been more clearly historicized. He describes neoliberal ism as being the US’s version of imperialism, but does not follow up by historicizing either “imperialism” or how this US version compares and contrasts with other models, again covering over the complex histories behind these terms.

Overall, A Brief History of Neoliberalism provides an impor tant introductory overview of “neoliberalism” for scholars interested in economic globalization, and especially in eco nomic interventions and the structural adjustment policies associated with financial institutions like the World Bank and IMF—adjustments whereby lenders can profit with out risk. In light of the recent “1968” conference at The University of Texas at Austin, Harvey’s critique of the in dividual freedom ideology underlying the 1968 student movements also invites further discussion. Finally, Harvey’s predictions about the fall of neoliberalism via a future fi nancial crisis and his emphasis on the importance of de veloping new models for “freedom” as an alternative to the rise of neoconservatism appear especially relevant in light of the current economic problems in much of the world. While the recent outcry against the US government’s inter vention in failing businesses reflects neoliberal ideology, the concurrent distrust of these businesses’ CEOs also points to a reaction against the social inequalities of this system.






Global economy; behind deadlock in US, a nervous world is on the edge

The IMF has three conditions for a mega recession – and with the American debt crisis, they are all close to being met

Map of economic danger zone countries Photograph: guardian.co.uk

Four years after the start of the credit crunch that prompted the first truly global slump since the 1930s, financial markets were in a state of high anxiety last week that the deadlock in Washington over US debt threatened a second, and even more serious, leg to the crisis.

With warnings from the head of the International Monetary Fund (IMF) ringing in their ears, Democrats and Republicans spent last week in a game of chicken with the highest possible stakes. The issue was whether the Obama administration would succeed in raising the US debt ceiling from its current $14.3 trillion, a common and relatively uncontroversial matter in the past that has taken on a hard political edge with the rise of the Tea Party movement.

Democrats said the ceiling had to be raised to allow the government to function. Republicans said it was time for the world’s biggest economy (and biggest debtor) to live within its means. In the wings were the three biggest rating agencies, Standard & Poor’s (S&P), Moody’s and Fitch. Although most analysts remained optimistic that the politicians would step back from the brink, markets were convulsed by fears that America might lose its coveted triple-A rating and, in the worst case, even start to default on its debts.

Christine Lagarde, newly appointed managing director of the IMF, said a default or downgrade “would be a very, very, very serious event, not just for the United States but for the global economy at large”. Until recently the French finance minister, she is acutely aware that Europe’s sovereign debt crisis is far from over and last week the euphoria that followed the new bailout for Greece proved short-lived. China, the third global economic powerhouse, is slowing as a result of an attempt by Beijing to combat rising inflation. This will have knock-on implications for commodity-rich countries that have provided the raw materials for China’s spectacular growth.

The IMF believes there are three conditions for a mega recession: it should affect the core of the global economy, have its genesis in the financial sector and should involve a large number of countries. A budgetary crisis in the US would, according to analysts, fulfil all those criteria, rippling out to the rest of the world and producing a wave of fresh losses for banks. Although the IMF believes the global economy will grow this year, it thinks the risks are skewed to the downside and that potential problems lurk in every continent.

World’s financial health


A slow-moving economy. Unemployment above 9%. A shattered housing market. Political gridlock. America is beset by problems and is rapidly running out of policy options should things become worse. With short-term interest rates at zero and a high budget deficit, the only means available to stimulate demand would be a third dose of quantitative easing. The one upside for the world’s biggest economy is that its blue-chip corporations – such as Amazon and Ford – are posting healthy profits. But the US remains the hub of the global economy and a crisis there would have far-reaching and immediate effects on both the developed and developing world.


Europe’s pivotal economy has seen a remarkable turnaround since plunging into recession in late 2008. Lost output has been recouped, with a pick-up in investment reinforcing strong growth in exports. Germany’s capital goods have powered China’s industrial revolution, while capital flows that in the bubble years were financing property speculation in Greece and Spain are now funding projects at home. But Germany is highly vulnerable to events beyond its borders, such as a euro crisis or a marked slowdown in China .


Industrial production was devastated by the tsunami in March, but the signs are of a classic V-shaped recession, with a plunge in output followed by a swift recovery. Retail sales have bounced back and are now higher than they were before the earthquake, but employment growth looks weak. While unlikely to be the source of global instability itself, Japan’s export dependency means it would be an early victim of contagion.


As a much more self-contained economy than Germany, France saw a much smaller fall in output during the crisis and has had a slower recovery. The focus on the southern European members of monetary union has meant little attention has been paid to France’s modest performance since the single currency was created. An overvalued property market is the most immediate cause for concern.


Rising oil prices have underpinned growth in Latin America’s second-biggest economy, which has taken a decade and a half to shrug off the impact of the mid-1990s currency crisis . With inflation low and its current account only just in deficit, Mexico is nNot currently high on the list of concerns for the financial markets.


There is little Argentina could not tell the rest of the world about sovereign debt crises. Since the banks closed their doors after the country defaulted and abandoned its IMF austerity programme in late 2001, Argentina has since enjoyed healthy growth, helped by its natural resources, but inflation is around 10%. Vulnerable to a collapse in commodity prices and a flight of investors out of countries perceived to be high risk.


Policymakers have announced measures to prevent the Real appreciating against the dollar, fearful that an overvalued exchange rate will put paid to the country’s strong export-led growth. The equation is simple: if China does well, Brazil does well.


The economy is booming and, social tensions aside, the government is optimistic. But interest rates have risen to 8% to choke off inflation that has jumped to 9.4%. Still largely an enclosed economy, shut off from the world, its stance restricts growth but means it poses few risks for other countries.


An important commodities exporter, especially oil and gas, its collapse would only hurt the outside world if it restricted energy supplies. Seen as a big buyer of western goods, but in the future. Not a key global player yet.


President Jacob Zuma has grand plans for Africa’s largest economy, but, like Russia, internal problems would only pose a risk to the rest of the world if it harmed mineral exports, which is unlikely.


With inflation at 38% in June from a year earlier and millions of its people affected by drought, the country is already in financial trouble. Climate change is a bigger immediate problem than another recession in the west, though restrictions in food aid would be devastating. Poses no wider threat if it goes bust.


Supplies much of the world with mobile phone handsets and flat screen TVs. A recession is unlikely and if it happened, from a spike in the price of oil or food, most of which it imports, would affect local Asian economies more than the wider world. Not yet a Japan.


Rumours earlier this year that Egypt was about to default on its debts sent the World Bank scurrying to Cairo with sufficient bailout funds. A democratic crisis or a sharp rise in food costs, with most wheat imported from Russia, could spark a recession or default, but the sums are small enough for global agencies to handle.


Less plugged into the world financial eco-system than the US, but serious problems in the world’s second-largest economy would nonetheless trigger global recession, such is the importance of its exports and its purchasing of western debt. It is not immune to problems in the west either. Beijing suffered a sharp fall in exports in 2009 and was forced to pump billions of yuan into the economy to keep it from falling over.


Many economists believe Athens could come back to haunt the eurozone, and it will, with GDP contracting by 5.5% over the past year and industrial production down 10%. But for the moment its €109bn of extra loans and €20bn of debt forgiveness reduces the threat of default.


Nominally independent of Greece but inextricably linked through its banks. Suffered a downgrade last week, heaping more pain on the eurozone. However, too small to affect deliberations in Brussels.


Has stayed under the radar since an €80bn bailout earlier this year. But a creaking property market and heavy private sector debts could see it cause more headaches. Government debts are small but local businesses and households have amassed loans worth around 240% of GDP.


The scale of its private debts – equal to 320% of GDP according to research by Morgan Stanley – combines with large government debts to create a timebomb. Only its flexible labour markets and a willingness to suffer painful pay cuts is keeping investors onsideand saving it from further crisis.


Prime minister José Zapatero is playing the austerity game to stall a bailout, but high public sector and private sector debts make Brussels nervous. Protests could escalate as people rebel against a 40% youth unemployment rate. Only the potential for higher growth next year and beyond is keeping investors at bay.


Lack of growth and falling competitiveness have undermined finance minister Giulio Tremonti’s efforts to keep Rome out of the spotlight. Government debts of 119% of GDP don’t help.


National Government Debt Clocks & Savings Clocks

Who Did It, and Why?

See for yourself. Based on data from Bush’s White House. Why is the debt so huge? What really happened in the Reagan “revolution.” Fully documented, this is the only place you’ll find this story. Also see how American paid down an even greater debt—with both Republicans and Democrats helping out. New YouTube debt video of graph.

We Are in Danger! … but Not from the Debt
September 12, 2010.  The danger is from self-styled radical “conservatives” who ran up the debt during good times and want to pay if off in bad times. (Even more dangerous—a lot of Democrats are buying this too.) Of course, they all mean well. But the road to hell is still paved with good intentions. Close to 10 million Americans are out of work, and tea-party “patriots” want to cut spending—that means cutting jobs. ZFacts was warning about the deficit back when the economy was booming. That was the time to cut, … more


Accumulated Debt/Savings
In the last
85 secs.
Borrowed by the General Fund – $ 14,438,297,762,873* $ 3,080,812
   Income: Income taxes.            Outgo: Defense 30%, Interest 19%, …
Saved by the Social Security Trust + $ 2,558,351,201,664 $ 270
   Income: FICA Payroll taxes.    Outgo: Benefits and disability
Saved by all Gov. Trust Funds + $ 4,175,031,152,107 $ -956,673
   Income: FICA & gas taxes.      Outgo: Medicare, highways, etc.

Debt Held by the Public (net debt) – $ 10,263,266,610,766 $ 4,037,485
* Gross National Debt        † Debt Held by the Public        Debt Clock Source Data

Notes on the Debt/Saving Clocks:  $4.5 trillion of the debt is owed to trust funds like the Social Security trust fund. Employees and Employers have have contributed $2.5 trillion and loaned it to the federal government’s general fund, because our income taxes cannot cover the cost of general government services — mostly the military.
Right now Social Security has $2.5 trillion in the “bank” — the most it’s ever had. It has been adjusted to keep in balance many times. The last time in 1983, it was almost completely out of money. There’s no reason it cannot be adjusted again, but it would be better not to let it run so low this time.
Most of the debt held by the public is owed to Americans, getting near half is owed to other countries. By far the largest part of the debt is due to Reagan and the Bushes (based on the treasury and pro-Reagan data).


US National Debt Graph:  What They Never Tell You

Black-out Proof the Pro-Democracy Protesters

Reagan got elected by telling the country the debt was “out of control.” Compared to national income, it was the lowest in 50 years. He probably didn’t know. But his supply-side economists did. They lied to America.
In 1981 Reagan’s supply siders wrote the tax cuts for the rich and his budgets. The Senate was Republican, and Reagan got the Southern Dems in the House to vote for him. All Republicans and a few Dems voted for the budget. The national debt had its worst year since 1945. The next year it got worse, and for 20 out of 20 years, the supply siders raised the debt relative to our ability to pay.
Is this just Republicans vs. Democrats? Not quite, see: voodoo economics.
It’s a terrible thing to scare America about its debt when we’re doing great and then send the debt through the roof for no reason. So the supply siders invented another lie — Congress did. As this graph shows, Congress changed the presidents’ budgets only a tiny bit and more down than up — by $16 billion over Reagan’s eight years. And over those eight years Reagan increased the debt by $1,860 billion. Blaming that on the tiny budget reduction by Congress is just political nonsense.More+Documentation.

This graph shows what happened since Oct. 1, 1981, the day Reagan started his first budget. First Reagan increased the debt by $1.9 Trillion (see for yourself). Then Bush brought that to $3.4 Trillion. Then all that started collected interest for the next 17 years, and with compounding that grew to $8.2 Trillion by Sept. 30, 2010. Clinton, Bush II and Obama are not to blame for that interest, and without it, Clinton would have paid off most of the $1 Trillion WWII debt that Reagan scared us with to get elected. And Bush II (and his supply siders) would have run up only $3.8 Trillion — not $6.1T, which is what actually happened under Bush II. (A clear proof of this with document links.)
Before the supply siders, Dems and Repubs brought the debt down relative to our income in 27 out of 35 years. The supply siders (with Reagan and the Bushes) raised it 20 out of 20 years. That’s no accident.
The Supply-Sider’s Hoax: Bush-I called it voodoo economics (but he got stuck with it). Their “theory” is that cutting taxes for the super rich will encourage them to work so much harder and make so much more money that they will pay more taxes, even though their tax rate went down. Well the voodoo didn’t work in 20 out of 20 years. And now they want to try it again. And they’ve scared America again about the debt. It’s easier now that they’ve run it through the roof.

E-Mail a short version of the (3 graphs) to your freinds. It’s easy. Check it out. This is the time your email will go furthest and have the most effect.

The Present Danger

The Great Depression lasted about 12 years with business conservatives scaring people about inflation (there was none) and about government borrowing (negligible until WWII). Now the supply siders are keeping us in the Great Recession the same way.
So What Worked? World War II. Uncle Sam (the U.S. government) borrowed the equivalent of 10.5 Trillion (see top graph) and bought war goods from private industry. Supply siders say this creates no jobs. But industry hired Rosey the Riveter and millions more. Unemployment ended with over-employment. The U.S. had its greatest economic boom ever — by far. It doubled output in six years.
Back then we had real Patriots. They loved Uncle Sam and they bought war bonds to help him borrow to hire people and win the war. Now people, who hate Uncle Sam almost as much as Al Qaeda, call themselves Patriots. They should call themselves Hateriots. But they have just been duped by the Wall Streeters who invented supply-side economics — and who have been telling us lies for 30 years.
America is about to vote the supply siders and hateriots into Congress.
They will give tax cuts to the rich, which is what got us into debt. And though the rich will spend a bit more on gardeners, nannies, and yachts, the country will have nothing to show for this extra debt.
It’s simply immoral to give more tax cuts to today’s rich so the next generation can pay for them. $12 trillion of this voodoo taxing of the future is enough.
But the real patriots of WWII, who borrowed and spent and gave 400,000 lives for their country, showed us the way.
Another lie: Spending now won’t work because it’s not for war. That’s what the Wall Streeters tell us so we’ll give them tax breaks instead. But does it help future generations more to build battle ships or to fix our bridges and dams? Does it help the economy more to put our men to work at home or send them to die in France? It’s hard to imagine a more ridiculous claim than the one that spending for war is more productive than spending on infrastructure and education for our future.
Supply-side “voodoo” economics is an immoral trick of thievery, designed for today’s rich at the expense of the future. It hoodwinks many by offering the middle class some of the booty — the rich get the big tax cuts, but hey, the middle class can have some too, also at the expense of the future. The result of falling for this, is an out-of-control debt that scares us into staying in recession and will soon be used to kill social security and Medicare — which the rich don’t need.
It’s time to put America back to work.
Let’s say thanks to our real patriots who showed us how.


U.S. Debt Ponzi Scheme, Years of the Modern

Politics / US PoliticsApr 18, 2011 – 02:23 AM

By: James_Quinn


Diamond Rated - Best Financial Markets Analysis ArticleIs humanity forming


……The Federal Reserve, under the “wise” supervision of former Ayn Rand disciple Alan Greenspan, progressively blew one bubble after another through its easy money policies. The Greenspan Put allowed the Wall Street vampire squids to suck the life out of the American economic system without fear of being harpooned for taking financial system endangering leveraged bets. The financial oligarchs used their influence, power and vast wealth to repeal Glass-Steagall, capture and buy off the rating agencies, neuter the SEC and other regulatory agencies and place their executives in high level government positions. The ruling wealthy elite again matched their peak take of the national income, just as they did in 1928.


The debt, fraud and lack of financial regulation that catalyzed the near collapse of the worldwide financial system in 2008, 63 years after the end of the last Fourth Turning, have not been purged from the system. In fact, those in power have decided more debt, accounting fraud and financial ignorance is the path to recovery for America. The issues which will be the driving forces during this Crisis are clear to anyone with their eyes open:

  • A National Debt the will approach $20 trillion by 2015 and has already surpassed 90% of GDP, the point of no return.
  • Annual deficits exceeding $1.5 trillion and equal to over 10% of GDP.
  • The unfunded promises made by slimy politicians over decades for Medicare, Medicaid and Social Security exceeds $100 trillion and can never be paid.
  • A military industrial complex that controls Congress, is fighting three wars, occupies hundreds of bases throughout the world and spends $1 trillion per year, seven times more than any other country in the world.
  • A financial industry debt peddling complex that has gained control over the government and media to such an extent they have been able to rape and pillage the American people for three decades, convincing regulatory agencies to allow them 40 to 1 leverage, crashing the financial system through a massive mortgage/derivatives fraudulent ponzi scheme, threatening the American people into giving them $4 trillion of taxpayer money, paying themselves hundreds of billions in bonuses for a job well done, and then insisting on lower taxes for their corporations and the rich oligarchs who inhabit these towers of evil in downtown Manhattan.
  • Wealthy elite who use their existing wealth to control Congress, the media and the financial debt peddling industry, abscond with 25% of the national income and control 43% of the financial wealth in the country. At the same time real wages of middle class Americans have been stagnant for 4 decades, real unemployment exceeds 20%, 45 million people need food stamps to make ends meet, and real inflation on the things middle class Americans need hovers around 10%. The gap between the Haves and Have Nots has never been greater.


  • The Federal Reserve has boxed itself into a corner and will be unable to extricate itself with its only weapon – the printing press. It has tripled the size of its balance sheet to $2.7 trillion, with at least half of the “assets” consisting of toxic worthless mortgages bought from their Wall Street masters. 0% interest rates for two and a half years, QE1 and QE2, and allowing banks to fraudulently report the value of their loans have failed to jumpstart the economy. Come June of 2011 they will be faced with a dilemma – PRINT or DIE. If they stop buying U.S. Treasury debt, interest rates will go up dramatically. If they keep printing to buy U.S. Treasury debt, the dollar will continue to fall and inflation will accelerate from its already high level.
  • The biggest wildcard among the Fourth Turning catalysts is Peak Oil. The modern industrial world is completely dependent upon cheap accessible oil. Globalization, consumerism, suburban sprawl, food production and distribution, and all means of transportation are dependent upon cheap abundant oil. Peak world oil production has occurred. Demand will outstrip supply going forward at an ever increasing rate. Various levels of chaos will ensue as the realization of this fact becomes evident to everyone.
  • The peak oil scenario will mix with the toxic brew of religion. The centuries old war between Christianity and Islam has been gaining strength over the last three decades. The revolutions spreading across the Middle East will not die down. They will intensify and create havoc for the existing despotic regimes. The new regimes will not be friendly towards the U.S. The combination of peak oil, with the fact that 56% of the world’s oil reserves are controlled by Muslim countries in the Middle East provides an unsettling backdrop for the U.S., which controls less than 2% of the world’s oil reserves.


  • The technological complexity and interconnectedness of people across the world is a danger and a possible boon to civilization. Our entire world is dependent upon computers and networks to run our infrastructure, defense, commerce, and everyday lives. Armies, naval ships, and massed confrontation will be made obsolete by cyber warfare. Computer hackers will be able to do more damage to a country in minutes than armies could do in years of traditional warfare. The trillions the US spends on aircraft carriers, fighter jets and tanks will be wasted. The positive side of technology has been realized in its ability to organize people to fight oppression and government propaganda. Likeminded people have been able to use technology to seek and reveal the truth.

The initial stage of this Fourth Turning has run its course. The catalyst was easy to recognize. The issues that confront the nation over the next twenty years are clear. What is completely unclear to me is how our fractured society achieves a regeneracy – a new counter entropy that reunifies and reenergizes civic life. The regeneracy usually occurs one to five years after the Crisis era begins. This means that the country would need to reunify and begin to confront our challenges by 2013. Regeneracy began with the Declaration of Independence during the American Revolution. Regeneracy began with Abraham Lincoln demanding the enlistment of 500,000 men after the Battle of Bull Run. Regeneracy began with FDR’s New Deal programs in 1933 during the Great Depression. What will begin the Regeneracy this time?

Something Wicked This Way Comes 

“Decisive events will occur – events so vast, powerful, and unique that they lie beyond today’s wildest hypothesis. These events will inspire great documents and speeches, visions of a new political order being framed. People will discover a hitherto unimagined capacity to fight and die, and to let their children fight and die, for a communal cause. The Spirit of America will return, because there will be no other choice. Thus will Americans reenact the great ancient myth of the ekpyrosis. Thus will we achieve our next rendezvous with destiny.” – Strauss & Howe – The Fourth Turning


The storyline promulgated by the mainstream linear thinking opinion leaders is the economy is recovering, the banking system is sound, the stock market is booming, buying a house is a great investment, inflation is below 2%,  jobs are being created, and consumers have regained their confidence and spending power. This message is hammered home on a daily basis by the corporate run mainstream media. It is patently false and the thinking members of the American public know it. The economic condition of the country is rapidly deteriorating. While politicians posture and lie to the citizens, the fissures in our financial system grow wider. As of today, regeneracy and unification behind one common national purpose seems light years away. Strauss & Howe speculated in 1997 about potential events that could spur events during the next Fourth Turning. One of their possible scenarios looms in the near future:

  • An impasse over the federal budget reaches a stalemate. The president and Congress both refuse to back down, triggering a near-total government shutdown. The president declares emergency powers. Congress rescinds his authority. Dollar and bond prices plummet. The president threatens to stop Social Security checks. Congress refuses to raise the debt ceiling. Default looms. Wall Street panics. 

The event necessary to cause a regeneracy in this country will need to be on an epic scale. Based upon a review of the foreseeable issues confronting our society it is clear to me that a worse financial implosion will strike before the 2012 presidential election. It may be triggered by a debt ceiling confrontation, the ending of QE2, a panic out of the USD, hyperinflation, a surge in oil prices, or some combination of these possibilities. The ensuing collapse of the stock and bond markets will remove the last vestiges of trust in the existing financial system and the government bureaucrats who have taken taxpayer dollars and funneled them to these Wall Street oligarchs.

The economic chaos will likely lead to a Republican landslide in the 2012 election. A Boomer Prophet with a reputation for fixing financial disasters (aka Mitt Romney) would be given a mandate to fix the economic system. All generations will realize that generational promises made cannot be fulfilled. People of a libertarian mindset, like me, will not be happy with the turn of events. In a chaotic scenario, the Federal government is likely to assume even more power than they have today. The American people will be fearful and angry. If the financial criminals on Wall Street are brought to justice, the chances of a unified populace will increase. A drop in everyone’s standard of living would be acceptable, as long as the rich shared equally in the burden. If the super wealthy oligarchs retain their power, a fracturing along class lines would become a distinct possibility. Social unrest, riots, and violent protests along the lines of the current situation in the Middle East could develop. Then a question of military use against the civilian population becomes paramount to what would happen next.

Amidst the financial chaos will be the ever present peak oil issue. The increasingly high prices and imminent shortages of supply will exacerbate the pain for the American people. The current War on Terror is really a cover for keeping American troops in the Middle East as a forward vanguard to keep the oil flowing. The U.S. consumes 7 billion barrels of oil per year and will use all means necessary to keep it flowing. With a Boomer Prophet leader invoking American manifest destiny, it is likely we will intervene to protect Saudi Arabia, Iraq, and Kuwait in the name of democracy. A terrorist incident in the U.S. would provide convenient cover for further intervention in the Middle East. As with most wars the unintended consequences will overwhelm the best laid plans of politicians and generals. Further U.S. intervention into an already exploding Middle East will likely spur a larger conflict between Islam and Christianity. Ground zero could shift to Europe as millions of Muslims have settled there and will not react positively to western powers siphoning oil from Islamic countries in the name of Christianity. History has taught us that Fourth Turnings end in all out war. The outcome of wars is always in doubt. 

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


“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 reagrded 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.” – Strauss and Howe – The Fourth Turning

It may be 150 years since Walt Whitman foresaw the imminent march of armies, visions of unborn deeds, and a sweeping away of the old order, but history has brought us right back to where we started. Immense challenges and threats await our nation. Will we face them with the courage and fortitude of our forefathers? Or will we shrink from our responsibility to future unborn generations? The drumbeat of history grows louder. Our rendezvous with destiny beckons.

Join me at www.TheBurningPlatform.com to discuss truth and the future of our country.

By James Quinn


James Quinn is a senior director of strategic planning for a major university. James has held financial positions with a retailer, homebuilder and university in his 22-year career. Those positions included treasurer, controller, and head of strategic planning. He is married with three boys and is writing these articles because he cares about their future. He earned a BS in accounting from Drexel University and an MBA from Villanova University. He is a certified public accountant and a certified cash manager.

These articles reflect the personal views of James Quinn. They do not necessarily represent the views of his employer, and are not sponsored or endorsed by his employer.

© 2011 Copyright James Quinn – All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

James Quinn Archive


Ponzi Scheme: The Federal Reserve Bought Approximately 80 Percent Of U.S. Treasury Securities Issued In 2009

The Federal Reserve Bought Approximately 80 Percent Of U.S. Treasury Securities Issued In 2009No, the headline is not a misprint. According to CNBC, the Federal Reserve bought approximately 80 percent of the U.S. Treasury securities issued in 2009.  In other words, the Federal Reserve has been gobbling up the massive tsunami of U.S. government debt that has been created over the past year.  This is absolutely unprecedented, and it is yet another clear indication that the U.S. financial system is on the verge of a major economic collapse.

You see, the Federal Reserve is not part of the federal government.  In fact, the Federal Reserve is about as “federal” as Federal Express is.

The Federal Reserve is a private bank owned and operated for profit by a very powerful group of elite international bankers.

It is this private central bank that controls the money supply and the issuance of currency in the United States.

When the U.S. government needs to borrow more money (which happens a lot) they go over to the Federal Reserve and they ask them for some more green pieces of paper called Federal Reserve Notes.

The Federal Reserve swaps these green pieces of paper for pink pieces of paper called U.S. Treasury bonds.

Now normally the Federal Reserve takes these U.S. Treasury bonds and they sell them all to other buyers.

But in 2009 there were not nearly enough buyers.

So in 2009 the Federal Reserve sold itself about 80 percent of this debt.

This is even being admitted on CNBC.  The video below is from January 8th, and at the 1:45 mark CNBC anchor Erin Burnett drops this bombshell along with a comment about how it is a Ponzi scheme….

So why is it a Ponzi scheme?

Well, basically the Federal Reserve is creating money out of nothing, loaning it to the U.S. government and then collecting interest on the loan.

That is nice work if you can get it.

But also, this intervention by the Federal Reserve is keeping interest rates on U.S. Treasury bonds artificially low.

In a true “free market” situation, the interest rates on U.S. treasuries would rise to reflect the rapidly declining economic situation in this nation.

Due to the massive explosion in the size of the U.S. government debt and due to the very weak U.S. economy, interest rates on U.S. treasuries should have shot through the roof by now.  Rational investors would normally require an increased return for the increased risk that U.S. treasuries now represent.

But that is not happening.

Instead when there are no buyers for U.S. treasuries at current interest rates, the Federal Reserve just steps in and buys up all the excess bonds that need to be purchased.

But in a normal free market situation, interest rates would rise on U.S. treasuries until they would be attractive enough for investors to buy them all.

However, that would create some huge problems.

If the U.S. government was not able to borrow all of the money it wanted to at artificially low interest rates, the results would be absolutely disastrous.

Much higher interest rates on U.S. government debt would cause the U.S. federal budget deficit to absolutely explode.  Interest rates on everything else throughout the economy would also skyrocket.  As mortgage rates climbed dramatically, the housing market would completely collapse.  The U.S. economy would be totally in flames.

But for now (and this situation cannot last forever) the Federal Reserve is keeping interest rates artificially low by lending the U.S. government as much money as it wants at extremely low interest rates.  Of course the Federal Reserve is making an insane amount of money out of the arrangement, so it is working out quite nicely for them as well.

But by essentially “printing” a flood of cheap money for the U.S. government to borrow, the Federal Reserve is ultimately going to end up destroying the value of the U.S. dollar.

Every fiat currency throughout history has always ended up losing its value, and that is exactly what is going to happen this time too.  The only way to protect the buying power of your money is to put it into something that will hold value (like gold or silver).  Your dollars are never going to be worth more than they are today.

The actions taken by the U.S. government and the Federal Reserve have guaranteed the demise of the U.S. dollar.  At this point it is unavoidable.  It is only a matter of how soon it will happen and how bad it will be as things play out.

You better get ready.

> to get an idea of size of issue >


Graphic: Size of the financial industry


Graphic: The US financial industry


Graphic: The US financial industry

08/22/2011 05:27 PM

Out of Control

The Destructive Power of the Financial Markets

Speculators are betting against the euro, banks are taking incalculable risks and the markets are in turmoil. Three years after the Lehman Brothers bankruptcy, the financial industry has become a threat to the global economy again. Governments missed the chance to regulate the industry, and another crash is just a matter of time. By SPIEGEL Staff.

The enemy looks friendly and unpretentious. With his scuffed shoes and thinning gray hair, John Taylor resembles an elderly sociology professor. Books line the dark, floor-to-ceiling wooden shelves in his office in Manhattan, alongside a bust of Theodore Roosevelt and an antique telescope.

Taylor is the chairman and CEO of FX Concepts, a hedge fund that specializes in currency speculation. It’s the largest hedge fund of its kind worldwide, which is why Taylor is held partly responsible for the crash of the euro. Critics accuse Taylor and others like him of having exacerbated the government crisis in Greece and accelerated the collapse in Ireland.

People like Taylor are “like a pack of wolves” that seeks to tear entire countries to pieces, said Swedish Finance Minister Anders Borg. For that reason, they should be fought “without mercy,” French President Nicolas Sarkozy raged. Andrew Cuomo, the former attorney general and current governor of New York, once likened short-sellers to “looters after a hurricane.”

The German tabloid newspaper Bild sharply criticized Taylor on its website, writing: “This man is betting against the euro.” If that is what he is doing, he is certainly successful. While Greece is threatened with bankruptcy, Taylor is listed among the world’s 25 highest-paid hedge fund managers.

A well-read man, Taylor likes to philosophize about the Congress of Vienna and the Treaties of Rome. But is this man really out to speculate the euro to death? And does he have Greece on his conscience?

Taylor grimaces and sighs. He was expecting these questions. “The big problem is that in some cases these politicians are looking for the easy way out and want to blame somebody else and say speculators are taking Europe apart, taking the euro down and ruining the prosperity of our country,” he says, characterizing such charges against hedge fund managers as “nonsense.” “My capital isn’t the capital of the Rothschilds,” he says, insisting that he is working with the “capital of the people,” and that his goal is to protect and increase this capital. Taylor points out that no one from any of the German pension funds that invest their money with him has ever called him on the phone to tell him not to bet against the euro.

Markets Control Politicians

Taylor’s arguments echo those of everyone in the financial industry — the executives, the bankers and the big fund managers. They all insist that they are not responsible for the crisis in the euro zone and the turbulence in the financial markets, and that their actions are purely rational and in the interest of their investors.

The truth is that the financial markets are controlling the politicians. If Sarkozy interrupts his vacation, the markets interpret his sudden return as a sign that the situation there is worse than they thought — and promptly set their sights on the country. And if there is an argument between Italian Prime Minister Silvio Berlusconi and Finance Minister Giulio Tremonti, then the markets target Italy, because they doubt that the Italian government is serious about introducing austerity measures. The markets take advantage of every weakness and every rumor to speculate against one country after the next.

In doing so, they aggravate the crisis. Once a country has become the subject of rumors and speculation, other investors become nervous. Fearing further price declines, pension funds and insurance companies also start selling stocks and bonds. In the end, fear nurtures fear and a panic ensues.

Stock markets are currently in turmoil. Even the most experienced equity traders cannot remember a time when prices fluctuated as widely from day to day — and often even within a single day — as they have in recent weeks. The German stock index, the DAX, fell by 5.8 percent last Thursday and lost another 2.2 percent the next day.

There is no calm in sight for the global economy. Sharp declines on the stock market and crises have become an everyday reality. This raises the question of why the financial markets are so erratic. They have developed into a permanent threat to the global economy. But what can be done to avert this risk?

It cannot be a coincidence that the number and scope of disruptions have increased with the expansion of the financial industry. The Asian financial crisis in the 1990s was followed by the bursting of the Internet bubble at the turn of the millennium. When Lehman Brothers went bankrupt in 2008, the financial world suddenly found itself on the brink of collapse. Now that the euro is at risk, and millions of people are afraid of their currency collapsing. A number of countries, including the United States, are groaning under debt burdens that run into the trillions.

Incalculable Risk

Naturally the financial industry — all those who trade in securities, currencies, money and the products derived from them, known as derivatives — is not responsible for all the crises in the global economy. Politicians also share some of the blame, for having accumulated too much debt and given the banks too much leeway. But without the destructive power of the banks, hedge funds and other investment companies, the world would not be where it is today — at the edge of an abyss.

The financial industry grew rapidly, as did the sums of money with which its players speculated on the prices of stocks, commodities and government bonds. The products they developed to turn money into even more money became more and more complex. At the same time, the risks they were willing to accept became incalculable.

The sector’s high salaries tend to attract the best and brightest university graduates. The members of this youthful elite don’t devise new products that make people’s lives better, nor do they found new companies that further progress. Instead, these young financial wizards invest a great deal of money and effort to develop sophisticated financial products, the sole purpose of which is to generate more profit for both their employers and, ultimately, for themselves — sometimes at the expense of other market players or even their customers.

Many things that happen on Wall Street and in London’s financial district are “socially useless,” says Lord Adair Turner, chairman of Britain’s Financial Services Authority (FSA). The values that are created there are often not real or of any use to society, Turner adds. Paul Volcker, the former chairman of the US Federal Reserve, once remarked that the only truly useful financial innovation in the past 20 years is the cash machine.

Once upon a time, the sole purpose of banks was to supply the economy with money. They were service providers, sources of energy for the economy, so to speak, but nothing more. But now the financial industry has largely disconnected itself from the manufacturing economy, transforming its role from subservient to dominant in the process.

The potential upshot of this shift became evident less than three years ago. The banks had excessively foisted mortgages on Americans without paying much attention to their customers’ ability to repay these loans. They packaged the risks into new financial products and sold them on. But apparently very few people understood how these products actually worked. When the subprime bubble finally burst, it dragged down the entire financial industry with it. The major financial firms found themselves on the brink of bankruptcy and were forced to appeal to the government for help.

Lost Opportunity

The assistance was provided, but a historic opportunity was squandered in the process. None of the powerful banks was broken up, and only a few of the dangerous financial products were banned. With the central banks lending money at low rates, speculation could continue.

The financial industry recovered quickly as a result, and now it is just as powerful as it was before the crisis — and just as dangerous, for both the economy and society as a whole.

Even passionate advocates of the market economy are now questioning how an economic system that functioned so well for so long could spin dangerously out of control. In a hard-hitting opinion piece in the Daily Telegraph on July 30, British journalist Charles Moore sharply criticized the banks for keeping profits while passing on losses to taxpayers. “The banks only ‘come home’ when they have run out of our money,” he wrote. “Then our governments give them more.”

Moore asks himself whether the left, with its criticism of the capitalist system, might actually be right. The prominent German journalist Frank Schirrmacher, expounding on Moore’s commentary in the Sunday edition of the conservative Frankfurter Allgemeine Zeitung, wrote that a decade of economic policies based on loosely regulated financial markets is proving to be the “most successful” way to make the left-wing critique of free-market capitalism, which had fallen out of favor, popular again.

Western societies have seldom been more divided, and never have income disparities been as great as they are today. In no other industry can someone get rich as quickly as in the financial industry, where investment bankers divide up a large share of the profits among themselves and hedge-fund managers earn annual incomes in the millions — and sometimes even in the billions.

At the same time, the markets are constantly demanding higher returns. Those who do not meet their expectations are punished with declines in the price of their stock and higher borrowing costs. Companies, forced to adjust to these requirements, keep wages down and their workforces at a minimum.

These differences are especially glaring in London, Europe’s most important financial center. Bankers live in the lap of luxury in the city’s exclusive neighborhoods, while poor neighborhoods are home to people who have abandoned all hope. Many observers see this disparity and loss of hope as one of the causes of the recent unrest.

‘The Inability of Economists to Correctly Interpret the World’

And still, says Heiner Flassbeck, chief economist at the United Nations Conference on Trade and Development, “the time doesn’t seem ripe, and the crisis wasn’t severe enough, to grant — in defiance of the neoliberal zeitgeist — economic policy clear primacy over speculation-prone markets and to systematically restrict the financial industry to its function as a service provider to the real economy.”

Flassbeck believes that the crises in the globalized economy have “a common root, namely the inability of economists to correctly interpret the world.” Because financial markets function in a completely different way from markets for goods, Flassbeck argues, they should never be left to their own devices.

Of all people, it was an academic specializing in literary studies who managed to most accurately analyze the insanity of the financial markets and the impotence of economists. With his short 2010 book “Das Gespenst des Kapitals” (“The Specter of Capital”), Joseph Vogl wrote a closet bestseller that, despite being a tough read, attracted attention far beyond the arts section of newspapers — including among economists.

His theory is that crises are not some kind of occupational hazard in the financial system. Instead, Vogl argues, it is the system itself that inevitably leads to new crises.

Vogl is sitting in his office at Berlin’s Humboldt University, where he has a view of the Berlin Cathedral. He is dressed completely in black and is chain-smoking. Black-and-white photos on the wall depict his role models from Paris in the late 1960s: the philosophers Jean-Paul Sartre, Simone de Beauvoir and, holding a megaphone, Michel Foucault.

Vogl was teaching at Princeton University when Lehman Brothers collapsed. He knew nothing about financial markets, and yet he was fascinated by the “confusing empiricism,” which had so little to do with theory.

According to economic theory, the invisible hand of the market always leads to equilibrium, as Adam Smith wrote in his classic 1776 work “The Wealth of Nations,” which Vogl refers to as the “Bible of economists.” The same theory is still taught in universities today.

Tendency Toward Excess

But the theory also tells us that today’s excesses in the financial markets should never have occurred. This leads Vogl to conjecture that “by no means does the capitalist economy behave the way it’s supposed to.”

While the theory tends to be based on the economics of a village market, completely different circumstances apply in the financial markets, where both goods and expectations are being traded, and where speculative transactions are used to hedge against other speculative transactions. Vogl describes the principle as follows: “Someone who doesn’t have a product, and neither expects to have it nor will have it, sells this product to someone who also neither expects nor wants to have it, and in reality does not receive it.”

This type of market will always have a tendency toward excess — in either direction.

Paul Woolley holds the same view, but from a different perspective. He is intimately familiar with the financial markets, after having made millions working in the London financial district. He spent four years with the deeply traditional Barings Bank, which was eventually destroyed by a minor English trader in Singapore. He later worked for the American fund manager GSO, which specializes in making very rich people even richer.

In Woolley’s experience, the idea that financial markets are efficient is erroneous. “All players in the financial markets behave rationally from their own perspective, but the outcome of this process can be disastrous for mankind,” he says.

Woolley, 71, still wears a pinstriped suit, tie and white shirt, but now he works in a small office stuffed to the gills with academic studies at the renowned London School of Economics. Woolley donated 4 million pounds (€3.5 million) to the elite university and funded its Paul Woolley Centre for the Study of Capital Market Dysfunctionality.

His goal is to prove how dangerous the financial markets are. “It’s like a tumor that keeps growing,” he says. According to Woolley, there is no justification for the fact that this industry brings in more than 40 percent of all US corporate profits and pays the highest salaries in good years, while in bad years it is bailed out by taxpayers.

‘Destroying Society’

In recent months, Woolley has spoken before the investment committee of the International Monetary Fund (IMF) and to major US fund managers at Harvard Law School. He is able to present his academic theories in the language of the market. And the turmoil on the markets is now so great that people are listening to this revolutionary in a pinstriped suit.

The former fund manager had his light-bulb moment when, in 2000, the dot-com bubble burst. Woolley had repeatedly told his clients, which included many of the world’s major asset managers, that small, money-losing tech stocks would not always be valued in the billions on the market.

But his warnings fell on deaf ears, and GMO’s clients withdrew 40 percent of their money when the company stopped investing in technology securities.

Woolley has observed the same phenomenon again and again. “The herd runs behind a trend until a crash occurs.” Society, he says, also pays a high price for this behavior. “The financial industry is doing a pretty good job of destroying society,” says Woolley. Many of his former colleagues, he adds, have a guilty conscience because “they can’t believe that the financial industry is still getting away with it.”

He feels that bankers have a strong incentive to design products to be as complex and non-transparent as possible. These products enable them to earn returns upwards of 25 percent, because customers simply do not understand the extent to which they are being had. Structured mortgage-backed securities, the risks of which even their creators no longer understood in the end, as well as credit default swaps, which allow investors to bet on the bankruptcies of entire countries, are only the best-known examples.

The more activity there is in the markets, the higher the fluctuations and the greater the potential profits. There is little that the traders at investment banks and hedge funds fear more than a boring market, one in which the economy is humming along nicely and the prices show little movement. The conditions that are reassuring to managers and employees in the real economy often lead to depression in the financial sector.

Two weeks ago, the share price of Société Générale, a major French bank, fell by 14 percent, after the British newspaper Daily Mail had reported the previous day on alleged problems at the bank. Even though the bank promptly denied the veracity of the report, the rumor had been set in motion. Apparently no one cared whether or not it was true. It was later rumored that journalists at the British paper had taken a piece of summer fiction printed in the French newspaper Le Monde, about a breakup of the euro zone and troubles at Société Générale in 2012, to be the truth — which the Daily Mail promptly denied.

Too Complex For Humans

This story seems almost antiquated, because share prices are usually set by computers nowadays. When Deutsche Börse decided to move from Frankfurt to the nearby town of Eschborn, the town saw a rapid increase in the demand for air-conditioned basement space, where so-called high-frequency traders, as well as banks, set up their state-of-the-art supercomputers. These computers are programmed to independently buy or sell stocks at intervals down to the millisecond, which enables them to react to the latest trends in the market.

Whoever has the fastest connection to the market stands the best chance of taking advantage of a critical millisecond and thus reacting to a price signal ahead of the competition. The computers are far more efficient than any human trader, because they can process hundreds of pieces of information per second. At the same time, such programs can also amplify — or even trigger — a crash.

On May 6, 2010, prices on Wall Street plunged by almost 10 percent within a few minutes. To this day, no one knows exactly what caused the so-called Flash Crash. Because this sort of thing happens with growing frequency, the US Securities and Exchange Commission (SEC) has imposed a waiting period on computers in emergency situations. If the price of a stock has dropped by 10 percent within five minutes, trading is temporarily halted, allowing the human players to consider whether there is in fact a real reason for the sharp decline.

Woolley believes that this regulation is insufficient. He is calling for a strict ban on high-frequency trading, which, in his view, has no social value whatsoever.

Computers have long set the tone in foreign currency trading. The currency markets are now too complex for humans to manage alone. We realized that you couldn’t really manage this with the human thought process, it was too difficult, there were too many variables,” says New York hedge fund manager Taylor. Many of his roughly 60 employees are IT experts, mathematicians and engineers. They feed massive volumes of data into the computers, including figures on the gross domestic product of countries, interest rates, commodities prices and inflation rates. “The only thing the computers can’t handle are political developments, that is why we have me as Chief Investment Officer,” says Taylor, although he points out that the money ultimately follows the instructions that are spat out by the computers.

But even Taylor isn’t entirely convinced of the myth of purely rational markets that obey nothing but the logic of numbers.

For example, says Taylor, he is “sure” that legendary speculator George Soros is “plotting against the euro.” Although Soros denied such accusations in an interview with SPIEGEL last week, he also said: “Financial markets have a very safe way of predicting the future. They cause it.”

The 81-year-old is one of the founders of the hedge fund industry. In the early 1990s, he suddenly became the quintessential unscrupulous speculator, one who takes advantage of even the tiniest weakness in the system without regard to the consequences. He borrowed 10 billion British pounds, then sold them on, triggering a wave of speculation that meant the Bank of England could no longer maintain the pound’s fixed exchange rates against the other currencies in the European Exchange Rate Mechanism (ERM). The pound had to be devalued and withdraw from the ERM. Soros was able to buy back the sum of money he had borrowed from the bank at a lower exchange rate. It was a bet that earned him more than $1 billion (€700 million).

Rushing Like Lemmings Toward the Abyss

Normally individual speculators like Soros and Taylor cannot move the market to such a significant degree on their own. But they can establish a trend that others then follow. Investors adhere to a herd mentality and, like lemmings, they are prepared to rush headlong toward an abyss, provided a few individuals are heading in that direction with sufficient determination.

As a result of the crisis, some of these speculation funds have become even larger and more powerful, with a number of smaller competitors being forced out of the business. Customers tend to prefer investing their money with bigger players, believing this to be the safer choice.

For example, the hedge fund headed by John Paulson, currently the world’s most successful speculator, has grown to roughly $30 billion in assets in the last two years. This enables Paulson to place bets of ever-increasing size.

Paulson was largely unknown only a few years ago, until he bet a large sum of money on the collapse of the American mortgage market. Investment banks like Goldman Sachs created customized securities specially for Paulson that were based on subprime mortgages. They then sold the securities to investors who believed that their value was stable — and lost billions as a result. Paulson, on the other hand, profited. He earned close to $4 billion in 2007.

Hedge funds often work hand-in-hand with investment banks, and banks often behave like hedge funds. The boundaries between the two kinds of institutions are fluid. Some critics already see Deutsche Bank, for example, as an enormous hedge fund rather than a normal bank.

Deutsche Bank is the top global player in foreign currency trading, with a market share of 16 percent of the global trade in dollars, francs, yen and euros. This is a high-volume business that generates little in the way of profits. But the bank uses its knowledge of demand for the currencies to design complex and therefore lucrative hedging strategies for its customers, which also usually puts Deutsche Bank on the winning side of the equation.

Italy Investigates Deutsche Bank

Between April and June, Deutsche Bank’s investment banking profits declined by half, probably because it was simply too quiet in the market. During this time, Deutsche Bank reduced its holdings of government bonds from the ailing euro-zone countries of Portugal, Italy, Ireland, Greece and Spain by 70 percent.

Because the bank is also the global leader in bond trading, its risk managers apparently heard the right signals. At the beginning of the year, Deutsche Bank still had €8 billion invested in Italian government bonds. Six months later — shortly before the crisis intensified dramatically — it only had €1 billion worth of Italian bonds.

Italian politicians apparently did not see this as a coincidence, and the country’s financial regulator CONSOB is now investigating the matter. Deutsche Bank also managed to get out of Greek government bonds before the crash in that country.

Now the bank is helping the Greeks restructure their government debt, in what is the ultimate capitulation of the state in the face of powerful investment banks. The traders at Deutsche Bank are apparently more clued into who holds Greece’s government bonds than the Greeks themselves.

Investment banker Anshu Jain, the designated co-CEO of Deutsche Bank, is proud of the fact that he and his traders were responsible for 70 percent of the bank’s total profits in good years, and he remains optimistic for the future. As a consequence of the crisis, the bank is now required to maintain a larger capital reserve for its investment banking division. Nevertheless, Jain said at an analysts’ conference that he expects regulation will lead to a substantial concentration in the business.

In the US at least, regulators have more or less prohibited banks from speculating on a large scale for their own accounts since the financial crisis. This so-called proprietary trading was potentially the biggest profit maker for banks, but it also came with the greatest amount of risk.

Nevertheless, the business continues to thrive. The proprietary traders became free agents, sometimes with the banks’ investment capital. Now they work as hedge fund managers and, as a result, can now evade all supervision.

Investment banks discovered the commodities markets some time ago, hiring traders to specifically focus on the once mundane business of trading in copper, wheat or pork bellies. Deutsche Bank expects a return on equity of 40 percent, which is higher than in any of its other divisions, for its growing trade in such products.

Woolley, the former asset manager, is calling for a ban on such transactions. He argues that the financial markets are destroying the relationship between supply and demand, giving producers the wrong price signals and potentially triggering famines.

‘Market of All Markets’

Speculation has always existed in economic history, but never to such an extent as today.

The deregulation of the markets and the rise of the financial industry began with the end of Bretton Woods. In 1944, a new system of fixed exchange rates was established at an international conference in the New Hampshire resort town, with the US government agreeing to exchange dollars for gold at any time.

Some 40 years ago, on Aug. 15, 1971, then US President Richard Nixon ended the Bretton Woods monetary system. He needed more money that he could cover with gold to finance the Vietnam War. The global economy lost its anchor as a result.

In 1972, foreign currency futures were established on the Chicago Board Options Exchange, making it possible for the first time to hedge against the risks associated with foreign currency transactions. This innovation paved the way for all manner of speculation. The financial market, as Berlin-based author Joseph Vogl writes, became “the market of all markets.”

There were still many hurdles to be overcome, including legal regulations that prevented the market from unleashing its unrestrained forces. With generous donations to politicians and parties, as well as active lobbying by Wall Street executives, the financial industry was able to make its voice heard in Washington.

Over time, the industry was able to rid itself of overly obstructive regulations. In fact, financial supervision was virtually eliminated. Politicians failed to control precisely that sector that is capable of unleashing more destructive force than almost any other industry.

The kiss of death came in 1999, under then President Bill Clinton, when the Glass-Steagall Act was repealed. The law dictated a strict separation between commercial and investment banks. Eliminating this separation removed a major barrier and enabled institutions like Citigroup and Bank of America to grow into financial giants. Indeed, many banks became so large and powerful that they are now — to use the famous phrase — too big to fail, meaning that in a crisis they have to be bailed out to prevent their collapse. Many small banks and brokerage firms were swallowed up in the process. From then on, the biggest players set the tone.

Wall Street to Washington

The investment banks made a brilliant move in 2004. The European Union had threatened to limit the foreign transactions of major US investment banks if the United States did not tighten its own regulations. This prompted five investment bankers to travel to Washington to exert their influence on the SEC. They proposed that the SEC be given the power to take a closer look at their high-risk positions in the future, but only if, in return, the banks would be required to keep less of their own capital in reserve to offset the risks of their transactions. From then on, the banks were able to expand their business unchecked. The second part of the deal — the SEC’s supervision — was pursued far less energetically.

The financial industry had managed to create a belief system which held that what’s good for Wall Street is good for society as a whole. As a result, the sector’s influence on the US economy continued to grow. Between 1973 and 1985, before deregulation began, profits in the US financial sector made up no more than 16 percent of the total profits of all US companies. This industry’s share of total profits increased to 30 percent in the 1990s, and in the last decade it even reached 41 percent.

It was no surprise that the myth of efficient financial markets was accepted so uncritically in Washington, given the large number of political players who went there directly from Wall Street. One was the former Goldman Sachs CEO Henry Paulson, who became treasury secretary under then President George W. Bush in 2006. In 2008, he was called upon to manage the financial crisis, which he had played a hand in triggering in the first place. Simon Johnson, the former chief economist at the IMF, characterizes the direct involvement of financial players in the inner workings of the government as a “quiet coup.” The Nobel Prize-winning economist Joseph Stiglitz is also critical of the revolving door between Washington and Wall Street, saying that it leads to a shared worldview that, even despite the crisis, hinders effective reform of the financial system.

Such an amalgamation of players is unthinkable in Germany, and yet even there was growing confidence in the power of free financial markets to increase prosperity. In 2004, the Social Democratic Party (SPD) and Green Party coalition government under then Chancellor Gerhard Schröder opened the German market to hedge funds and the expanded trade in speculative derivatives. Jörg Asmussen, who would later become a state secretary in the Finance Ministry, personally lobbied to permit trading in credit derivatives in Germany — the very securities that ultimately triggered the crisis.

Then came the crash. Since then, the government has tried to rein in the forces it was partially responsible for unleashing. Asmussen was a member of a group of experts tasked to draft proposals for new regulations.

German Chancellor Angela Merkel knows that there is more at stake than the stability of the economy and overcoming a temporary weakness. “This type of crisis cannot be allowed to repeat itself in the foreseeable future,” Merkel said, “otherwise it will be extremely difficult to guarantee political stability, and not only in Germany.” This, she added, is the real challenge, “that anyone who wants to do business in a stable country must be aware of.”

Following the near-collapse of the markets, then-German President Horst Köhler characterized the financial markets as a “monster.” And there were plenty of good intentions when it came to taming this monster. “History cannot be allowed to repeat itself,” US President Barack Obama promised after the Lehman bankruptcy, while French President Sarkozy spoke of a historic opportunity to create a new world.

Nothing More than Piecemeal Regulations

In fact, the United States and Europe did attempt to constrain the monster that was the financial market. Governments can hardly be accused of not having made a serious effort in this direction, but the project they face is exceedingly difficult.

Solo efforts by individual countries are pointless, because the industry is globally interconnected. On the other hand, internationally coordinated solutions are difficult. As a result, the regulations remain nothing more than piecemeal.

For the financial industry, new regulations are often little more than a sportsmanlike challenge to search for new tricks with which to circumvent the rules. In their conflict with politicians and regulatory agencies, banks and hedge funds have a clear competitive advantage: They hire the brightest minds in the financial world and pay them millions. The public-sector regulators can hardly compete.

Not surprisingly, politicians haven’t done much more than push around a lot of paper until now. The law with which President Obama intends to regulate the financial markets encompasses more than 800 pages. But the US government is only at the beginning of a long process, in which concrete regulations will be derived from the provisions of the new law. Both the Republicans and the banks’ lobbyists can exert their influence on this process to make sure that many of the new regulations are watered down.

For instance, the law was intended to completely prohibit banks from engaging in proprietary trading, with which they speculate in the foreign currency, stock and commodities markets. But the legislation contains so many exceptions that business will continue to flourish, in some cases by simply outsourcing trading activities.

The United States also wants to force hedge funds to disclose more information about their business. But even though the law doesn’t go into effect until next March, speculator Soros is already demonstrating how it can be circumvented. After buying out the outside investors in his hedge fund, he now intends to conduct business in the future as a so-called family-owned company. Funds that manage the assets of a family are not subject to the new disclosure rules.

In Europe, the European Commission has developed a draft of new capital market rules, which includes 165 pages of guidelines and another 500 pages of regulations. Under the proposed rules, banks would be required to keep more capital resources in reserve to protect against risk, and they would only be allowed to borrow up to a certain ratio.

These proposals make sense, but the financial industry is already two steps ahead. It has created a world in which the usual rules for exchanges and banks do not apply: the realm of the “shadow banks.”

For bankers, this is by no means a world of illegal or semi-legal institutions, despite what the term implies. Hedge funds and private equity firms are known as shadow banks. In the United States, shadow banks have already incurred debts of more than $16 trillion, as compared with $13 trillion among commercial banks.

Regulating ‘Shadow Banks’ Unlikely

This poses a huge risk for the financial market. Jochen Sanio, head of Germany’s banking regulatory agency, believes it is highly likely that the next crisis will emanate from this largely unregulated realm of hedge funds and other financial players. Jens Weidmann, the president of the German central bank, the Bundesbank, also cautions against the dangers of shadow banks. But why are they not subject to the same rules as commercial banks?

In this case, national egos are what stand in the way of comprehensive financial market reform. Britain, in particular, isn’t keen on keeping too close an eye on hedge funds, because the financial industry is one of the few remaining sectors in which the British are still competitive worldwide.

An effective financial market reform would have to treat shadow banks the same way all other banks are treated. This would mean completely banning so-called short selling, which is essentially betting on falling prices. It would also have to improve licensing requirements on new financial instruments and ban some that already exist, because they are designed solely for speculative purposes. It would also involve establishing a number of other rules that would make doing business significantly more difficult for banks, hedge funds and private equity firms.

All of these measures would rein in the financial market and put its importance for the economy into perspective. Banks would have to concentrate once again on the role they played prior to the great deregulation of the financial market, namely to organize payment transactions, manage the investments of private customers and companies and finance their business deals with loans.

But that seems unlikely. There are too many contradictions and conflicts of interest between the countries involved and governments to allow such a massive change to occur. But the monster cannot be tamed with half-hearted reforms, which is why people who have been involved in the financial world for decades assume that it will strike again soon.

When asked whether it is possible to make future crises unlikely, Hilmar Kopper, the former CEO of Deutsche Bank and current chairman of the supervisory board of HSH Nordbank, replies with a simple “no.” According to Kopper, more huge financial bubbles could happen in the future.

“I’m frustrated,” says Kopper. “I don’t know how a government is supposed to regulate this.”


Translated from the German by Christopher Sultan


All Rights Reserved
Reproduction only allowed with the permission of SPIEGELnet GmbH


Hmm,,, some graphic proportions of “money”

the “National Debt” in perspective

What the US debt stacked in 100 USD dollar bills really looks like

The US National debt is out of control. In the following images of US 100 dollar bills stacked in different amounts, you’ll see exactly what the US debt actually looks like if you were to stack the 100 dollar bills upon one another. The images are frightening, you’ve been warned.

US 100 dollar bill debt

100 US Dollars
The most counterfeited bank note in the world!

US ten 10000 dollarsTen Thousand Dollars
Enough money for a really good vacation to Thailand! If you budget correctly it’s enough money to live in Thailand for an entire year!
US 1000000 one million dollars debt1 Million US dollars
Everyone dreams of getting a million dollars. One million USD can change someones life. Still it is not within reach for most, most people have to work 92 years to even earn that much money.
US 100000000 one hundred million dollar debt

100 Million Dollars
Plenty of money for everyone! Still there are over a million people in the world with this much money.

US 10000000000 one billion dollar debt

1 Billion US Dollars
Now we’re getting serious! You’ll need some serious help if you think you can rob a bank for this much.

US one trillion dollars debt

One Trillion Dollars
Not a single person in the world that has this much money for themselves, and if they cashed out there probably isn’t even a bank that could. Besides, where would you keep it, it’s the size of a grid iron field!

US 15 trillion dollar debt

15 Trillion Dollars
Unless the US government can do something about it’s budget, this is the amount the US will be in debt by Christmas 2011. Statue of Liberty seems rather worried as United States national debt passes 20% of the entire world’s combined GDP (Gross Domestic Product).
In 2011 the National Debt will exceed 100% of GDP, and venture into the 100%+ debt-to-GDP ratio that the European PIIGS have (bankrupting nations).

US 115 trillion dollar national debt

115 Trillion Dollars
$114,500,000,000,000. – US unfunded liabilities
To the right you can see the pillar of cold hard $100 bills that dwarfs the
WTC & Empire State Building – both at one point world’s tallest buildings.
If you look carefully you can see the Statue of Liberty.

The 114.5 Trillion dollar super-skyscraper is the amount of money the U.S. Government
knows it does not have to fully fund the Medicare, Medicare Prescription Drug Program,
Social Security, Military and civil servant pensions. It is the money USA knows it will not
have to pay all its bills.
If you live in USA this is also your personal credit card bill; you are responsible along with
everyone else to pay this back. The citizens of USA created the U.S. Government to serve
them, this is what the U.S. Government has done while serving The People.

The unfunded liability is calculated on current tax and funding inputs, and future demographic shifts in US Population.

Note: On the above 115T image the size of the base of the money pile is half a trillion, not 1T as on 15T image.
The height is double. This was done to reflect the base of Empire State and WTC more closely.

Source: Federal Reserve & www.USdebtclock.org

visit it to see the debt in real time and get a better grasp of this amazing number





Obama and Geithner Government Enron Style

POSTED: December 20, 10:06 AM ET

Comment 30

Obama and Geithner: Government, Lehman-style


Strongly recommend this piece at the Huffington Post by Jeff Connaughton, a former aide to Senator Ted Kaufman. Jeff is one of the smartest guys on the Hill and is particularly strong on issues surrounding Wall Street and the regulatory system. In this piece, he takes apart the oft-stated mantra that what Wall Street firms did during and after the crisis was maybe unethical, but not illegal.

He takes particular aim at Barack Obama, who recently tossed that line out on 60 Minutes in what I thought was one of the real low moments of his presidency. Here’s Jeff’s take:

Speaking in Kansas on December 6, [Obama] said, “Too often, we’ve seen Wall Street firms violating major anti-fraud laws because the penalties are too weak and there’s no price for being a repeat offender.” Just five days later on 60 Minutes, he said, “Some of the least ethical behavior on Wall Street wasn’t illegal.” Which is it? Have there been no prosecutions because Wall Street acted legally (albeit unethically)? Or did Wall Street repeatedly violate major anti-fraud laws (and should thus find itself in the dock)?

The President is confusing “legal” with “difficult to prosecute successfully.”

The notion that what Wall Street firms did was merely unethical and not illegal is not just mistaken but preposterous: most everyone who works in the financial services industry understands that fraud right now is not just pervasive but epidemic, with many of the biggest banks committing entire departments to the routine commission of fraud and perjury – every single one of the major banks, for instance, devotes significant manpower to robosigning affidavits for foreclosures and credit card judgments, acts which are openly and inarguably criminal.

Banks and hedge funds routinely withhold derogatory information about the instruments they sell, they routinely trade on insider information or ahead of their own clients’ orders, and corrupt accounting is so rampant now that industry analysts have begun to figure in estimated levels of fraud in their examinations of the public disclosures of major financial companies.

Beyond that, as Jeff points out, Obama is simply not telling the truth about the supposedly insufficient penalties available to regulators. Employing the famous “mistakes were made” use of the passive tense, Obama copped out in his December 6 speech by saying that “penalties are too weak.” As Jeff points out, what Obama should have said is that “the penalties my own regulators chose to dish out were too weak”:

Moreover, the President is misleading us when he says that Wall Street firms violate anti-fraud law because the penalties are too weak. Repeat financial fraudsters don’t pay relatively paltry — and therefore painless — penalties because of statutory caps on such penalties. Rather, regulatory officials, appointed by Obama, negotiated these comparatively trifling fines. This week, the F.D.I.C. settled a suit against Washington Mutual officials for just $64 million, an amount that will be covered mostly by insurance policies WaMu took out on behalf of executives, who themselves will pay just $400,000. And recently a federal judge rejected the S.E.C.’s latest settlement with Citigroup, an action even the Wall Street Journal called “a rebuke of the cozy relationship between regulators and the regulated that too often leaves justice as an orphan.”

What makes Obama’s statements so dangerous is that they suggest an ongoing strategy of covering up the Wall Street crimewave. There is ample evidence out there that the Obama administration has eased up on prosecutions of Wall Street as part of a conscious strategy to prevent a collapse of confidence in our financial system, with the expected 50-state foreclosure settlement being the landmark effort in the cover-up, intended mainly to bury a generation of fraud. Here’s how Jeff puts it:

In Ron Suskind’s book, Confidence Men, he quotes Treasury Secretary Timothy Geithner as saying, “The confidence in the system is so fragile still… a disclosure of a fraud… could result in a run, just like Lehman.” The Obama Administration is pushing hard for a 50-state settlement with the major banks for their fraudulent foreclosure practices, even though several state attorneys general have rejected this approach because, in their view, it would shield too much wrongdoing. Regrettably, Obama’s top officials and lawyers seem more eager to restore the financial sector to health than establish criminal accountability among the executives who were in charge.

In other words, Geithner and Obama are behaving like Lehman executives before the crash of Lehman, not disclosing the full extent of the internal problem in order to keep investors from fleeing and creditors from calling in their chits. It’s worth noting that this kind of behavior – knowingly hiding the derogatory truth from the outside world in order to prevent a run on the bank – is, itself, fraud!

This is exactly the mindset that led Lehman to the abuses of the “Repo 105” accounting trick, in which loans were disguised as revenues in order to prevent the outside world from knowing the dire state of the bank’s balance sheet.

Now Obama and Geithner are engaged in the same sort of activity, only they’re trying to prevent a run not on an individual bank, but the entire American financial services sector. Geithner seems really to believe that if fraud were aggressively policed, and the world made aware of the incredible extent of the illegality in our markets, that international confidence in the American financial sector would plummet and our economy would suffer – and suffer, incidentally, on Barack Obama’s watch.

Better, apparently, the Band-Aid the problem now, and let the real mess happen later on, on someone else’s watch, or at least in a second term, when there’s no need to worry about re-election.

Of course, this is exactly the wrong way to go about things. If Geithner and Obama really wanted to convince the world that America’s markets weren’t broken, they would effectively police fraud, and by extension prove to everybody that at the very least, our regulatory system is not broken.

But by taking a dive on fraud, and orchestrating mass cover-ups like the coming foreclosure settlement fiasco, what they’re doing instead is signaling to the world that not only are our financial markets corrupt, but our government is broken as well.

The problem with companies like Lehman and Enron is that their executives always think they can paper over illegalities by committing more crimes, when in fact all they’re usually doing is snowballing the problem so completely out of control that there’s no longer any chance of fixing things, thereby killing the only chance for survival they ever had.

This is exactly what Obama and Geithner are doing now. By continually lying about the extent of the country’s corruption problems, they’re adding fraud to fraud and raising such a great bonfire of lies that they probably won’t ever be able to fix the underlying mess.

If they looked at the world like public servants, and not like corporate executives, they’d understand that the only way out is to come clean. That they don’t look at things that way should tell people quite a lot.
Read more: http://www.rollingstone.com/politics/blogs/taibblog/obama-and-geithner-government-enron-style-20111220#ixzz1hDJsG3D8

Jeff Connaughton

Chief of Staff to Sen. Ted Kaufman, 111th Congress

GET UPDATES FROM Jeff Connaughton

Obama and the Rule of Law

Posted: 12/19/11 01:55 PM ET



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Senator Ted Kaufman , Wall Street Crime , Kaufman Wall Street , Obama SEC Laws , Obama Kansas Speech , Wall Street Illegal , Wall Street Laws , Wall Street Obama , Politics News

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Long silent and now contradictory, President Obama needs to deliver a clarifying speech about our financial markets and the rule of law. Speaking in Kansas on December 6, he said, “Too often, we’ve seen Wall Street firms violating major anti-fraud laws because the penalties are too weak and there’s no price for being a repeat offender.” Just five days later on 60 Minutes, he said, “Some of the least ethical behavior on Wall Street wasn’t illegal.” Which is it? Have there been no prosecutions because Wall Street acted legally (albeit unethically)? Or did Wall Street repeatedly violate major anti-fraud laws (and should thus find itself in the dock)?

The President is confusing “legal” with “difficult to prosecute successfully.” The Justice Department’s repeated decisions not to risk losing at trial against Wall Street executives don’t make these person’s actions legal. (If a district attorney can’t prove the actual thief stole your wallet, that doesn’t make stealing legal. It simply means that, regrettably, a malefactor goes unpunished.) As Securities and Exchange Commission Enforcement Director Robert Khuzami said in Senate testimony in 2009, Wall Street perpetrators “are smart people who understand that they are crossing the line” and “are plotting their defense at the same time they’re committing their crime.”

Moreover, the President is misleading us when he says that Wall Street firms violate anti-fraud law because the penalties are too weak. Repeat financial fraudsters don’t pay relatively paltry — and therefore painless — penalties because of statutory caps on such penalties. Rather, regulatory officials, appointed by Obama, negotiated these comparatively trifling fines. This week, the F.D.I.C. settled a suit against Washington Mutual officials for just $64 million, an amount that will be covered mostly by insurance policies WaMu took out on behalf of executives, who themselves will pay just $400,000. And recently a federal judge rejected the S.E.C.’s latest settlement with Citigroup, an action even the Wall Street Journal called “a rebuke of the cozy relationship between regulators and the regulated that too often leaves justice as an orphan.”

The Obama Justice Department hasn’t tried a single Wall Street executive in a criminal court. Against a handful, it decided to let the S.E.C. bring civil charges of fraud, which are easier to prove. So if defendants’ wrists are merely being slapped by the S.E.C. instead of cuffed by the Justice Department, Obama has only his appointees to blame.

For three important reasons, the President needs to explain why the Justice Department has filed away its investigations of big banks and Wall Street firms without indicting anyone. First, American confidence in the system is deeply shaken. Second, it strains credulity for millions of Americans — and has impelled thousands of them to occupy public places in protest — that no banking or insurance executive deserves criminal prosecution for the actions that brought on the financial crisis. Third, by failing to prosecute a single high-profile Wall Street actor today, the Administration is failing to deter financial fraud tomorrow.

The jury is out (alas, only metaphorically) on whether Wall Street practices that accompanied the financial crisis amounted to criminal fraud. Some legal commentators have concluded that the causes of the crisis were systemic and not the result of malfeasance or conspiracy. The debate about whether practices were illegal or simply unethical will never be resolved because only a jury can render a verdict after weighing the evidence, presented by opposing counsel, for each element of an alleged crime. That said, independent fact-finders like the Financial Crisis Inquiry Commission, the Senate Permanent Committee on Investigations, and the bankruptcy examiner for Lehman Brothers have compiled compelling evidence of what, to many, certainly looks like fraud.

But did the Justice Department’s senior leadership even make targeting high-level fraud a top priority? Did it plan, staff, fund, and direct a thorough, probing investigation of each of the primary potential defendants? While I was working in the Senate, conversations I had with Justice Department officials led me to believe that it didn’t. As the New York Times and New Yorker have reported, the Department’s leadership never organized or supported strike-force teams of bank regulators, F.B.I. agents, and federal prosecutors for each of the potential primary defendants and ignored past lessons about how to crack financial fraud. When Senator Ted Kaufman (D-DE) and I met privately with Department officials in September 2009, one of them explained they were dependent on investigators to bring them cases (which typified, I believed, their passive approach). And, for their part, the investigators were receiving no help from bank regulatory agencies (in the 1990s, successful prosecutions after the savings-and-loan scandal hinged on referrals from the responsible supervising agencies, which provided key roadmaps for F.B.I. investigations).

The Justice Department, F.B.I., and bank regulatory agencies failed to design a prosecutorial strategy that would’ve indicted and perhaps convicted many top executives who knew that their banks were selling fraudulent securities that bundled together thousands of largely bad loans. These loans, known in the industry as stated-income loans and (more glibly and more accurately) as liar loans, were issued without verifying the borrowers’ income. A former executive in charge of fraud investigations at mortgage lender Countrywide Financial told 60 Minutes that mortgage fraud at her firm was “systemic,” but federal investigators never contacted her. The U.S. attorney in Los Angeles has already declined to prosecute Countrywide executives. The Senate’s Permanent Subcommittee on Investigations found that approximately 90 percent of WaMu’s home-equity loans were stated-income loans, creating, in the words of Treasury Department Inspector General Eric Thorson, a “target rich environment for fraud.” Yet the U.S. Attorney in Seattle decided not to indict anyone at WaMu.

Failure to disclose material information is another form of potential fraud. Merrill Lynch, for example, understated its risky mortgage holdings by hundreds of billions of dollars. Executives at Lehman Brothers assured investors in the summer of 2008 that the company was sound, even though the bankruptcy examiner later concluded that Lehman had engaged in “actionable balance-sheet manipulation.”

Yes, with financial fraud, criminal intent is difficult to prove, especially when a defendant relied on professional advice from accountants and lawyers (and in some cases may even have been acting with the knowledge of the bank’s regulator, who was apparently more concerned about the bank’s financial soundness than about full disclosure to investors). But we shouldn’t outsource the interpretation of fraud laws to a potential defendant’s accountant and lawyers. And why haven’t prosecutors used provisions in the Sarbanes-Oxley Act, which put in place tough criminal sanctions in the wake of Enron and other cases of massive corporate frauds? In the absence of an aggressive, targeted effort by the Justice Department, we’ll never know whether crimes may have been proved beyond a reasonable doubt.

Why didn’t this happen? I wish I knew. At the Senate oversight hearings, Justice Department officials assured the Judiciary Committee that every lead was being pursued and every rock turned over. Doubtless they’ll continue to claim this. Yet in Ron Suskind’s book, Confidence Men, he quotes Treasury Secretary Timothy Geithner as saying, “The confidence in the system is so fragile still… a disclosure of a fraud… could result in a run, just like Lehman.” The Obama Administration is pushing hard for a 50-state settlement with the major banks for their fraudulent foreclosure practices, even though several state attorneys general have rejected this approach because, in their view, it would shield too much wrongdoing. Regrettably, Obama’s top officials and lawyers seem more eager to restore the financial sector to health than establish criminal accountability among the executives who were in charge.

In 1986, speaking about the failure of another president’s Justice Department to vigorously prosecute white-collar crime, former Chairman of the Senate Judiciary Committee and current Vice President Joseph Biden said that “people believe that our system of law and those who manage it have failed, and may not even have tried, to deal effectively with unethical and possibly illegal misconduct in high places.” Until this president stops calling Wall Street’s deleterious actions “not illegal,” he’s failing to deter — and therefore effectively encouraging — future financial fraud. And until he gives a clear and full explanation of the inadequate response of his Justice Department and S.E.C., he and his appointees are helping to undermine the public’s faith in equal justice under the law.

Jeff Connaughton is the former chief of staff to former U.S. Senator Ted Kaufman (D-DE), who chaired two Senate Judiciary Committee oversight hearings on financial fraud prosecutions in 2009 and 2010.


oh, and talk about corruption

And what did OBAMA say in his recent Kansas speech:

“breathtaking greed of a few”

“a deficit of trust between Main Street and Wall Street.”

“huge bets, and huge bonuses, made with other people’s money on the line.”

“Fewer and fewer of the folks who contributed to the success of our economy actually benefited from that success,” he said. “Those at the very top grew wealthier from their incomes and investments than ever before. But everyone else struggled with costs that were growing and paychecks that weren’t — and too many families found themselves racking up more and more debt just to keep up.”

Etc etc blah blah ,,, rhetoric to get elected ,,, then back to elitist business


Crony capitalism, at work in USA


The secret meeting between Henry Paulson and hedge fund chiefs

November 29, 2011


You Won’t Believe What Hank Paulson Revealed To Hedge Funders Right Before The Height Of The Financial Crisis

Read more: http://www.businessinsider.com/bloomberg-hank-paulson-revealed-insider-information-to-hedge-funds-2011-11#ixzz1fJM12ivB  

oh, by the way, real cost of taxpayers for crisis and bailing out mega banks (too BIG to fail and jail), and QE1+2+3+,

$7.7 trillion  —-Yep, Bloomberg reports,

NOVEMBER 28, 2011 .. details trillions of dollars in secret federal loans made to the big banks during the 2008 financial crisis, a process that helped them rake in billions of dollars in undisclosed profits. .. Federal Reserve’s “breathtaking”$7.7 trillion bank bailout:


oh, by the way, real cost of taxpayers for crisis and bailing out mega banks (too BIG to fail and jail), and QE1+2+3+,

$7.7 trillion

Yep, Bloomberg reports,

The Federal Reserve’s ‘breathtaking’ $7.7 trillion bank bailout

A new report on the 2008 financial crisis reveals some shocking numbers that dramatically exceed the $700 billion TARP bailout


A new report by Bloomberg Markets Magazine details trillions of dollars in secret federal loans made to the big banks during the 2008 financial crisis, a process that helped them rake in billions of dollars in undisclosed profits. Here, some key numbers that illuminate the Federal Reserve’s “breathtaking”$7.7 trillion bank bailout:


And See

Destructive Power of the Financial Markets


The Dumbest Idea In The World Maximizing Shareholder Value



Hedge Hogs; Gold Man’s Sacks; “financial terrorist attacks;” and the Obama sellout:


SUPER COMMITTEE BIG BANK ROBBERY and “this sucker” going down


Terrorism by Economic Collapse, debt bondage, money as debt on interest, etc


Derivatives ‘Mother of All Bubbles’ exploding


Super rich 1% vs 99 %; Terrorism Cycle: Guillotines: Occupy “ALL” streets 



Oh … By the way ever wonder about… money “laundering”

well here is one example that shows how corporate money enters their BIG MONY into politics, of course for a BIG PAYBACK, like the trillions to the BANKSTERS as a return for the generous contributions to the political party funding Reaganomics and tax cuts for the corporations and super wealthy etc etc… heh… we make the laws (and the money) don’t we …..


This show is at its best when they find entertaining ways to draw attention to important issues that might otherwise be ignored. Who else could do comedy segments on the legal minutia of political action committees?

Last Thursday, Colbert devoted an entire show to his discovery that 501(c4)s are an “untraceable cash tsunami that will infect every corner of the next election” and he’s kicking himself for not having one:

Colbert Super PAC – Ham Rove’s Comeback

Stephen thanks some of the more diverse heroes and turns to Ham Rove for the scoop on American Crossroads’ drastically improved fundraising strategy.

Colbert Super PAC – Trevor Potter & Stephen’s Shell Corporation

Trevor Potter helps Stephen create his own shell corporation so that he can obtain secret donations for his Super PAC.

Colbert Super PAC SHH! – The Donating Game

One of the reasons Stephen needs a billionaire is that he’s blown a lot of Colbert Nation’s cash hiring Oscar winner Kevin Kline to host this game.

And yesterday, Colbert apologized to Karl Rove for implying that he’s involved in money laundering. Turns out, Rove has the integrity to keep his dirty money dirty:

Colbert Super PAC SHH! – Apology to Ham Rove

A glimpse inside the Republican Party’s little known Red Map Project: “Last fall, we worked together and achieved unprecedented success with the RedMap Project—an effort to capture legislative majorities across the country in preparation for the decennial redistricting process that will redraw districts for 2012 and beyond. The result was the pick up of an unprecedented 20 legislative chambers and over 700 seats.”

Meanwhile, despite the overwhelming adoption at the ballot of a constitutional amendment requiring a fairer, non-partisan redistricting process in Florida (one of the US states successfully targeted by the Red Map project) and despite court rulings upholding the will of Florida voters, the state legislature continues to spend large amounts of public funds on fighting the new redistricting rules.


Comedy Central’s Stephen Colbert created his own shell corporation Thursday to demonstrate how Karl Rove launders money to his American Crossroads SuperPAC.

Because Rove only appears on Fox News, a ham loaf with classes substituted for the purposes of Colbert’s interview. With just a few bites out of “Ham Rove,” Colbert gained all of the Republican strategist’s memories and came to understand exactly how the SuperPAC hides its donors.

Unlike American Crossroads, Rove’s Crossroads GPS is a 501c4 organization that does not have to disclose its donors. Crossroads GPS can then transfer donations to the Americans Crossroads SuperPAC and the original donors remain secret.

“Clearly, these c4s have created an unprecedented, unaccountable, untraceable cash tsunami that will infect every corner of the next election,” Colbert noted. “And I feel like an idiot for not having one.”

With the help of former McCain campaign attorney Trevor Potter, Colbert created an anonymous shell corporation and a 501c4 organization.

“So I can get money for my c4, use that for political purposes, and nobody know anything about it until six months after the election?” Colbert asked.

“Yes,” Potter agreed. “And even then they won’t know who your donors are.”

“That’s my kind of campaign finance restrictions,” Colbert joked. “Can I take this c4 money and donate it to my SuperPAC?”

“You can,” Potter replied.

“But wait, SuperPACs are transparent,” Colbert observed. “And the c4 is secret. So I can take secret donations to my c4 and give it to my supposedly transparent SuperPAC. What is the difference between that and money laundering?”

“It’s hard to say,” Potter said.

Watch this video from Comedy Central’s The Colbert Report, broadcast Sept. 29, 2011.

Part 2

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Two weeks ago, Comedy Central’s Stephen Colbert announced that he was forming his own ColbertPAC for the 2012 elections. This Thursday, he raised the subject again, explaining that he had hoped to “run political ads which — and this is true — legally must be produced without the candidates’ participation or their permission.”

As the audience laughed, Colbert hurried to assure them that “the ads will be fair — and the bodies I photoshop candidates’ heads onto will always be human … humanoid.”

He then announced sadly, however, that a lawyer at Comedy Central’s parent company, Viacom, had emailed him to caution that “the FEC would likely see an in-kind donation from Viacom in the event the PAC is ever actually formed. That means you can’t form it.”

“Well, folks, it’s over,” he said mournfully. “For the first time ever, someone’s dream was ruined by a giant corporation.”

But that was not to be the end of ColbertPAC. Former FEC Chairman Trevor Potter then came on to suggest that “there is another approach you could try.” He explained that last year’s Citizen’s United decision allows corporations to spend unlimited amounts on federal elections. All Corbert needs to do is form a SuperPAC instead of a regular PAC.

And so, by the magic of an appropriate cover letter, ColbertPAC was transformed into Colbert SuperPAC and is once again open for business.


Colbert Super PAC – Trevor Potter & Stephen’s Shell Corporation

Trevor Potter helps Stephen create his own shell corporation so that he can obtain secret donations for his Super PAC.


Wednesday May 11, 2011

Corp Constituency – Trevor Potter

Trevor Potter drafts a letter for a media exemption so Stephen can talk about his super PAC.


reveal ad



Colbert Super PAC Forms Anonymous Shell Corporation to Shield Donor Identities, with Help from Trevor Potter

Very illuminating.

This entry was posted in campaign finance. Bookmark the permalink.

Colbert and the Super PACs.

Posted by ⋅ November 11, 2011 ⋅ Leave a Comment

This whole thing that Colbert is doing on his show with Super PACs and the “issue ads” is in some ways a huge effort to limit corruption and expose the open fraud that has become of campaign financing, after the Supreme Court’s Citizen United ruling last year.

That the old chairman of FEC Trevor Potter is a jolly companion in all of this only adds humor and severity to what is happening.

To roll back to where it started, watch this clip from April. Informative and on point.

The big voilà moment reached at 3:50

And now it’s getting even more aggressive, publicly filing amendments and comments to official records and applications committed by Karl Rove’s American Crossroads


The Colbert Report | Colbert Super PAC – Trevor Potter Video

Jay the Intern’s pony is rested, watered and ready to take Stephen’s super PAC forms to Washington, D.C.

SuperPACs, Explained (By Stephen Colbert’s Lawyer)

by NPR Staff

Comedian Stephen Colbert (left) confers with his attorney Trevor Potter (center) as Matthew Sanderson looks on at right, as they appeared before the Federal Election Commission in Washington.  Potter says Colbert's superPAC — Americans For A Better Tomorrow, Tomorrow — is no joke.

EnlargeCliff Owen/APComedian Stephen Colbert (left) confers with his attorney Trevor Potter (center) as Matthew Sanderson looks on at right, as they appeared before the Federal Election Commission in Washington. Potter says Colbert’s superPAC — Americans For A Better Tomorrow, Tomorrow — is no joke.
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September 3, 2011

Trevor Potter is a Washington lawyer with the firm Caplin and Drysdale. He also served as chair of the Federal Election Commission.

And he says Stephen Colbert is not joking.

At least when it comes to the comedian’s superPAC, a political action committee authorized by the FEC to make “unlimited independent expenditures.” Colbert’s is called Americans For A Better Tomorrow, Tomorrow.

Colbert didn’t get it without help. He hired Potter to submit the paperwork and coach him on his FEC hearing.

“It’s not a joke,” Potter tells NPR’s Laura Sullivan, guest host of weekends on All Things Considered. “Because, as he has put it, he wanted to bring people in behind the curtain so they could see [superPACs] actually worked and what they actually did.”

What They Actually Do

The primary purpose of superPACs and other independent groups, Potter explains, is to spend a lot of money. Mostly on TV ads.

Why they can do that has to do with last year’s Supreme Court decision, Citizens United vs. Federal Election Commission.

That decision, Potter says, went something like this:

“If an individual has a constitutional right to make an independent expenditure” — meaning one not directly associated with a particular candidate or campaign — “then a group of individuals has the same right acting as a group.”

This election cycle, two specific types of groups have been doing just that.

The first type, your basic superPAC, is registered with the FEC and required to disclose its donors.

“That sounds good,” Potter says, “except its donors can include the X, Y, Z Corporation. Well, who is the X, Y, Z Corporation? Who knows?”

The other type includes groups that are registered as non-profits with the IRS. They aren’t required to disclose any information about where their money comes from.

“It could be the car industry,” Potter says. “It could be the coal industry. It could be all sorts of groups that have an ax to grind — but you won’t know it.”

I Want One, Too

Texas Gov. Rick Perry stands out in the Republican presidential field as perhaps the biggest superPAC magnet. At last count, he had at least three clamoring to support his bid.

But most everyone in the race has at least one superPAC in his or her corner, says Sheila Krumholz, executive director of the Center for Responsive Politics.

“Mitt Romney has Restore Our Future supporting his race,” she says.

Ron Paul? Revolution PAC.

Jon Hunstman? Our Destiny PAC.

Michele Bachmann has two: Keep Conservatives United and Citizens For a Working America.

A superPAC supporting President Obama is no less-vaguely named. His is Priorities USA Action.

All these groups can spend unlimited amounts of money on television ads in support of their candidate — as long as they don’t consult with the candidates or the campaign staff directly.

That’s were things get tricky.

Revolving Door

The problem with so many of these new superPACs? Sheila Krumholz says they’re not run ‘”independently.”

“So many of these organizations are actually directed by the former top lieutenants of the candidates,” she says. “While they’re technically unaffiliated, there’s very clearly a close connection for many of these superPACs running to support a specific candidate.”

Trevor Potter points to a pro-Romney superPAC that recently accepted $1 million from a corporation few had ever heard of that had existed for about six weeks.

“It turned out to be somebody in Boston who was an old friend of Romney’s, and for reasons of his own — hiding his name,” Potter says.

Former FEC Chair Brad Smith says that could be a gray area, legally speaking, but it’s increasingly a fact of life when it comes to running big political operations.

“There’s a relatively small number of people who know how to do it, and interested in the partisan elements,” he says.

Smith also says allowing more money to be spent in a campaign could make things more competitive, not less.

“I think we saw that in the 2010 election,” he says. “As the playing field kept expanding, as it would become apparent that somebody was vulnerable, money could get into that race and make it competitive.”

More money could be the new norm, Trevor Potter says. The FEC’s commissioners — three Republicans and three Democrats — are deadlocked over how to regulate campaign finance in the post-Citizens United world.

“They, at the moment, can’t even have an agreement on opening a rule-making to decide what the Supreme Court did in Citizens United and decide what that decision allows and doesn’t allow.”

Related NPR Stories


Trevor Potter: The Man Behind Stephen Colbert’s Super PAC

Comedy Central star Stephen Colbert has been busy forming a super PAC to poke fun at election regulations—or perhaps the lack of them. Here’s more on the man who’s helping him do it.

By Marisa M. Kashino

Photograph by Scott Gries (PictureGroup)

In our July issue—on stands now—we told you about Washington lawyer Trevor Potter, who has been shepherding Comedy Central star Stephen Colbert through the process of forming a super PAC. Check out our piece below on how Potter, a longtime counsel to clients such as Sen. John McCain, became Colbert’s lawyer.

Potter has earned those legal fees. As of Thursday, he, along with the help of Matthew Sanderson, an associate at his law firm, achieved success when the Federal Election Commission approved Colbert’s Super PAC. For the second time, Colbert visited the FEC, bringing throngs of screaming fans and reporters to the typically quiet agency.

During remarks to the crowd, Colbert thanked his legal team: “We owe a debt to my lawyers Trevor Potter and Matt Sanderson of the heroic law firm Caplin & Drysdale. Two names that will go down with the great American duos—Lewis and Clark, Sacco and Vanzetti, Harold and Kumar.”

It’s a safe bet that two DC lawyers have never before been compared to Harold and Kumar.


What do Republican senator John McCain and Comedy Central’s faux pundit Stephen Colbert have in common? Their lawyer, Trevor Potter.

Fans of The Colbert Report have seen Potter—head of Caplin & Drysdale’s political-law practice and a lawyer in its Washington office—make four appearances on the show as he counsels Colbert on how to set up his super PAC, a new type of political-fundraising apparatus that can raise and spend unlimited amounts of money.

Though the legal work is playing out before a TV audience and, in usual Colbert fashion, is meant to highlight the absurdities of campaign-finance rules, it’s not just entertainment. Colbert is a real client; Potter says he got the legal work the same way lawyers get much of their work—by referral. When Colbert decided to tackle federal-election-law issues, the show asked a New York attorney and former guest for recommendations. The attorney suggested Potter.

After conversations with Colbert and the program’s producers, Potter was invited on. Though he admits he doesn’t usually stay up late enough to watch the show, he had seen a few episodes. At the end of the taping, Colbert asked him to be his lawyer. “I essentially had the interview with the client on the air,” says Potter, whose prior TV experience was limited mostly to PBS and C-SPAN.

Potter is one of the nation’s top election-and-campaign-law experts, and he served as a commissioner and chair of the Federal Election Commission during the George H.W. Bush and Bill Clinton administrations. So he was on familiar territory when he went with Colbert on a trip to the FEC to file paperwork for the Colbert Super PAC. The hundreds of waiting fans and reporters weren’t so typical. Potter notes that “five minutes of legal work” on The Colbert Report has become the most noticed thing he’s ever done.

Aside from the fact that one is a TV star and the other a DC lawyer, Colbert and Potter make an unusual duo for another reason. Colbert plays a staunchly conservative commentator on his show, but it’s an act meant to poke fun at the right. Potter, on the other hand, is a Republican and was general counsel to McCain’s 2000 and 2008 presidential campaigns.

But Potter says he and Colbert don’t talk personal politics. He says the comic is a good client and “has the mind” to be a good lawyer himself.

This article appears in the July 2011 issue of The Washingtonian.  

Colbert Super PAC – Trevor Potter & Stephen’s Shell CorporationTrevor Potter helps Stephen create his own shell corporation so that he can obtain secret donations for his Super PAC. (04:43)Tags:  Colbert Super PACTrevor Potterfundraising,

the consequences


American Pie:
Wealth and Income Inequality in America

No matter how you slice it, when it comes to income and wealth in America the rich get most of the pie and the rest get the leftovers. The numbers are shocking. Today the top 1 percent of Americans control 43 percent of the financial wealth (see the pie chart below) while the bottom 80 percent control only 7 percent of the wealth. Incredibly, the wealthiest 400 Americans have the same combined wealth as the poorest half of Americans — over 150 million people.

According to the Center for Budget and Policy Priorities:American Pie

In 2007, the share of after-tax income going to the top 1 percent hit its highest level (17.1 percent) since 1979, while the share going to the middle one-fifth of Americans shrank to its lowest level during this period (14.1 percent).

Between 1979 and 2007, average after-tax incomes for the top 1 percent rose by 281 percent after adjusting for inflation — an increase in income of $973,100 per household — compared to increases of 25 percent ($11,200 per household) for the middle fifth of households and 16 percent ($2,400 per household) for the bottom fifth.

If all groups’ after-tax incomes had grown at the same percentage rate over the 1979-2007 period, middle-income households would have received an additional $13,042 in 2007 and families in the bottom fifth would have received an additional $6,010.

In 2007, the average household in the top 1 percent had an income of $1.3 million, up $88,800 just from the prior year; this $88,800 gain is well above the total 2007 income of the average middle-income household ($55,300).

Slate.com collects more data in an article titled “The Great Divergence In Pictures: A Visual Guide to Income Inequality.”:

Income for the top 20 percent has increased since the 1970s while income for the bottom 80 percent declined. In the 1970s the top 1 percent received 8 percent of total income while today they receive 18 percent. During the same period income for the bottom 20 percent had decreased 30 percent.

In the 1970s the top 0.1 percent of Americans received 2 percent of total income. Today they get  8 percent.

In 1980 the average CEO made 50 time more money than the average worker while today the average CEO makes almost 300 time more than the average worker.

Over the past 30 years the rich in America have become a lot richer, while many millions of Americans have seen their income stagnate or decline. As Warren Buffett, the second richest man in America, famously said, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

Wealth and income inequality today is by far the worst in the industrialized world and has fallen in line with many Third World countries. Nobel Prize winning economist Joseph E. Stiglitz explains why this is bad news:

Some people look at income inequality and shrug their shoulders. So what if this person gains and that person loses? What matters, they argue, is not how the pie is divided but the size of the pie. That argument is fundamentally wrong. An economy in which most citizens are doing worse year after year—an economy like America’s—is not likely to do well over the long haul.

The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.

Where Has All the Money Gone?

This may be the one of the most important graphs you will ever see. It show the reason for the decline of the American middle class — how the rich have become so much richer in the last 30 years and why the rest of us have been left behind:

Productivity and Family Income

In the post World War II period through the mid 1970s the productivity of the American worker increased at a steady rate. During this period workers were rewarded for their increased productivity with a commensurate increase in wages. Then something happened. Productivity continued to increase, but workers’ wages stagnated.

Trickle Up Economics

As Nobel Prize winning economist Paul Krugman points out, since 1973 national Gross Domestic Product (GDP) has increased 46 percent in real terms, but median income has only increased 15 percent. Where did the other 31 percent go? It went to the wealthy.

… the gap between economic growth and median incomes has a lot to do with rising inequality.

… it remains striking how little of growth has trickled down to the typical family.

Supply Side economics is the cornerstone of Republican economic theory and has driven U.S. economic policy since the Ronald Reagan presidency. This is how Investorpedia describes it:

Supply-side economics is better known to some as “Reaganomics“, or the “trickle-down” policy espoused by former U.S. president Ronald Reagan. He popularized the controversial idea that greater tax cuts for investors and entrepreneurs provide incentives to save and invest and produce economic benefits that trickle down into the overall economy.

In other words, if government economic policy focuses on making the rich richer, the benefits will “trickle down” to everyone else. As supply siders are fond of saying, “A rising tide lifts all boats.” Since Supply Side economics came to dominate American economic policy during the Reagan administration, the rising economic tide has certainly lifted a lot of yachts, but at the same time it has left most of the row boats stuck in the mud.

The past quarter century of Republican economics has proven that the trickle down theory is just a convenient excuse to justify an economic policy favoring the rich, with the benefits trickling up to make the very wealthy even wealthier.

Read More About Wealth and Income Inequality in America

Plutocracy Now
Mother Jones, Dave Gilson and Carolyn Perot

A huge share of the nation’s economic growth over the past 30 years has gone to the top one-hundredth of one percent, who now make an average of $27 million per household. The average income for the bottom 90 percent of us? $31,244.

The superrich have grabbed the bulk of the past three decades’ gains.

Average Income and Change In Share of Income

Read More

The Great Divergence in Pictures: A Visual Guide to Income Inequality

During the 20th century, the United States experienced two major trends in income distribution. The first, termed the “Great Compression” by economists Claudia Goldin of Harvard and Robert Margo of Boston University, was egalitarian. From 1940 to 1973, incomes became more equal. The share taken by the very richest Americans (i.e., the top 1 percent and the top 0.1 percent) shrank. The second trend, termed the “Great Divergence” by economist Paul Krugman of Princeton (and the New York Times op-ed page), was inegalitarian. From 1979 to the present, incomes have become less equal. The share taken by the very richest Americans increased.

Read More

Redistribution from the Feds? Not Really
Outside the Beltway, Alex Kanpp


Contrary to my colleague Doug’s description of the Federal government as existing primarily to redistribute wealth, there is actually very little wealth re-distribution in the United States. The chart above uses numbers I pulled from the latest CBO report showing shares of taxes, pre-tax income, and after-tax income by quintile in 2007 (last year available).

Read More

The sad but true story of wages in America
Economic Policy Institute, Lawrence Mishel and Heidi Shierholz

Recent debates about whether public- or private-sector workers earn more have obscured a larger truth: all workers have suffered from decades of stagnating wages despite large gains in productivity. The current public discussion illogically pits state and local government employees against private workers, when both groups have failed to sufficiently benefit from the economic fruits of their labors. This paper examines trends in the compensation of public (state and local government) and private-sector employees relative to the growth of productivity over the past two decades.

Read More

Wealth Inequality Destroys US Ideals
Global Balance Research, Don Monkerud

Since the national rise of Ronald Reagan three decades ago, the United States has been on a deadly course for a Republic, with wealth rapidly concentrating at the top and average Americans sinking or struggling to stay afloat.

Read More

There Was a Class War. The Rich Won It.
firedoglake.com, Ian Welsh

What happens if there’s a class war and only one side bothers to show up and fight it? That’s what happened over the last thirty years. There was a class war, and the rich won. Period. It’s over, they kicked our knees out from under us, put on their steel toed boots and spent the last thirty years telling us that they were going to trickle on us and we’re going to like it and beg for more.

So, if you’re an ordinary slob, you haven’t had a raise in over 30 years. In fact, your real wage peaked over 30 years ago and it’s never recovered.

Productivity and WagesThis would be ok if the US hadn’t been getting richer, getting more productive, ever since then, but I’m sure you won’t be surprised to hear that, well, actually, productivity and whatnot has kept going up. Yet somehow wages didn’t.

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Beggar Thy Neighbor, Beggar Thyself
Daily Kos, Avenging Angel

Having won one class war, Republicans are starting a second.  To perpetuate record levels of income inequality not seen since before the Great Depression, conservatives are agitating for middle class Americans to wage a civil war on each other.  Their latest divide-and-conquer tactic is to portray government workers as “takers” and “parasites” somehow responsible for the decline of manufacturing and other sectors of the U.S. economy.  Of course, like so much Republican mythmaking, the claim not only is untrue, but a cynical diversion to deflect attention from the real winners in the class war.

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Income Gaps Between Very Rich and Everyone Else More Than Tripled In Last Three Decades, New Data Show
Center for Budget and Policy Priorities, Arloc Sherman and Chad Stone

The gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007 (the period for which these data are available), according to data the Congressional Budget Office (CBO) issued last week. Taken together with prior research, the new data suggest greater income concentration at the top of the income scale than at any time since 1928.

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Of the 1%, by the 1%, for the 1%
Vanity Fair, Joseph E. Stiglitz

It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent.

Watch Joseph Stiglitz on Democracy Now HERE and HERE.

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Widening income-productivity growth gap and inequality
Urbanomics, Gulzar

It now emerges, from the latest figures released by the BLS in the US, that changes in workers real hourly compensation has been lagging labor productivity growth. This effectively means that in relative terms, workers are getting squeezed from both side. On the one side, incomes of those at the top are exploding. On the other hand, their own incomes are not even keeping pace with productivity growth.

Compensation and Procuctivity

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Economic Growth and Household Income
New Yrok Times, Paul Krugman

So the question is, what does account for the divergence between economic growth and median family income?

Let’s look at GDP per household versus median and mean income per household since 1973. I use households because there’s some slippage between “families” and “households”, and I didn’t want to get into all that. I end at 2007 to leave the Great Recession out of the picture. Anyway, here’s what you get:

GDP Groty Per Household vs. Meadian and Mean Income

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Why we must raise taxes on the rich
Salon.com, Robert Reich

Despite an economy that’s twice as large as it was thirty years ago, the bottom 90 percent are still stuck in the mud. If they’re employed they’re earning on average only about $280 more a year than thirty years ago, adjusted for inflation. That’s less than a 1 percent gain over more than a third of a century. (Families are doing somewhat better but that’s only because so many families now have to rely on two incomes.)

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Record U.S. Income Gap Widening Again

In June, an analysis from the Center on Budget and Policy Priorities confirmed that gap between rich and poor in the United States reached levels not seen since 1929. Between 1979 and 2007, the yawning chasm separating the after-tax income of the richest 1 percent of Americans from the middle and poorest fifths of the country more than tripled. But while the Bush recession which began in December 2007 temporarily halted the stratospheric advance of the wealthy, the rich – and the rich alone – have largely recovered their losses. Which means that the record level of income inequality in America is growing once again.

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The One-Percenters
Chicago Sun-Times, Roger Ebert

I have no objection to financial success. I’ve had a lot of it myself. All of my income came from paychecks from jobs I held and books I published. I have the quaint idea that wealth should be obtained by legal and conventional means — by working, in other words — and not through the manipulation of financial scams.

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Warning! Inequality May Be Hazardous to Your Growth
IMFdirect (The International Monetary Fund’s global monetary forum), Andrew G. Berg and Jonathan D. Ostry

Some dismiss inequality and focus instead on overall growth—arguing, in effect, that a rising tide lifts all boats. But assume we have a thousand boats representing all the households in the United States, with boat length proportional to family income. In the late 1970s, the average boat was a 12 foot canoe and the biggest yacht was 250 feet long. Thirty years later, the average boat is a slightly roomier 15 footer, while the biggest yacht, at over 1100 feet, would dwarf the Titanic! When a handful of yachts become ocean liners while the rest remain lowly canoes, something is seriously amiss.

A rising tide is still critical to lifting all boats. The implication of our analysis is that helping to raise the lowest boats may actually help to keep the tide rising!

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Taxes on the wealthy have gone down dramatically
Economic Policy Institute

Tax Rates from the EPIWith Tax Day fast approaching and deficit reduction all the rage, one fact deserves significant attention: the wealthy are enjoying some of the lowest taxes in generations. The Figure shows the average tax rate in 1979, 1992, and 2007, as well as the tax rate for the top 1% of households, and the top 400 households (who have an average annual income of nearly $350 million).  Since 1979, the country’s overall average tax rate—the share of income paid in taxes—has fallen slightly, but for those at the top of the earnings ladder this share has fallen dramatically.

This diminished tax burden on the wealthiest has contributed to the historically low federal revenue levels we are seeing today, and in turn, to higher deficits.

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Off-the-charts income gains for super-rich
Yahoo News, Zachary Roth

Income InequalityPut together by the Center on Budget and Policy Priorities, a liberal Washington think tank, the chart is pretty self-explanatory. It shows that the 30 years following the Second World War were a time of broadly shared prosperity: Income for the bottom 90 percent of American households roughly kept pace with economic growth.

But despite the best efforts of some commentators, there’s really no serious debate about the overall realignment of income in our age: The already super-rich have vastly increased their share of the pie–at the expense of everyone else.

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Inequality Data & Statistics

Data from tax returns show that the top 1 percent of households in the United States received 8.9 percent of all pre-tax income in 1976. In 2008, the top 1 percent share had more than doubled to 21.0 percent.

Top 1% Share of Total Pre-Tax Income

The total inflation-adjusted net worth of the Forbes 400, an annual listing of America’s richest individuals, rose from $507 billion in 1995 to $1.62 trillion in 2007, before dropping back to $1.37 trillion in 2010.

Estimates from the Credit Suisse Research Institute, released in October 2010, show that the richest 0.5 percent of global adults hold well over a third of the world’s wealth.

Approximately one third of annual deaths in the United States, epidemiological researchers believe, can be credited to the nation’s excessive inequality.

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Top Ten Tax Charts
Center for Budget and Policy Priorities

Taxes for the Wealthy have Fallen Dramatically

Taxes for the Wealthy Have Fallen Dramatically

Income Gains at the Top Dwarfed Those of Everyone Else

Income Gains

Also on Top Ten Tax Charts:

● The United States is a Low Tax Country

● Federal Income Taxes on Average Families Are Historically Low

● Corporate Tax Revenues Are Historically Low

● Bush Tax Cuts Heavily Tilted to the Top

● Rise in Debt Could Be Halted Over the Next Decade By Letting Bush Tax Cuts Expire

● Tax Expenditures are Substantial

● Top 1 Percent’s Share of Total After-Tax Income Has More than Doubled Over the Past Thirty Years

● Most of the Budget Goes Toward Defense, Social Security, and Major Health Programs

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Income Gap Between Rich, Poor the Widest Ever
CBS News

The top-earning 20 percent of Americans – those making more than $100,000 each year – received 49.4 percent of all income generated in the U.S., compared with the 3.4 percent earned by those below the poverty line, according to newly released census figures. That ratio of 14.5-to-1 was an increase from 13.6 in 2008 and nearly double a low of 7.69 in 1968.

A different measure, the international Gini index, found U.S. income inequality at its highest level since the Census Bureau began tracking household income in 1967. The U.S. also has the greatest disparity among Western industrialized nations.

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The Top 10 Tax Breaks — And How They Help The Wealthy The Most
Huffington Post, Dan Froomkin and Jake Bialer

The government spends money through appropriations and writing checks, but it also showers individuals and companies with a astonishing array of special exemptions, credits and deductions that amount to a $1.1 trillion giveaway each year. (For comparison: the big budget fight that concluded last week cut spending by about $38 billion.)

Tax Enpenditures

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Supply-Side Failure from Theory, to Outcomes, to Danger of Citizens United Decision
Art on Issues, Dr. Art Kamm

Republican tax cut/deregulation (supply-side) policy assumes the United States to be a closed economic system where the benefit remains in America when in fact we invest in a global economy.  A critical break occurred in supply-side theory when enhanced savings from tax cuts was not followed by increased US capital investment.  The failure of this policy to stimulate US business investment contributes to its underperformance in jobs creation, job recovery following recession, GDP growth, real annual median household income growth and wage levels.  Without economic stimulative effects from this policy, the loss of tax revenue from tax cuts was not offset by increased tax receipts from economic growth and our national debt has substantially increased as a fraction of our economy under all five complete 4-year periods where this policy has been in effect since 1981. With no control over where the wealthy and corporations deploy their capital, the money we borrowed to support tax cuts largely favoring the wealthy has supported job creation and business growth abroad while our job creation has lagged at home.

[Emphasis added]

Median U.S. household income fell 5% between 1999 and 2009. Globalization remains the core problem
Daily Kos, Meteor Bladesd

Median Household IncomeTechnologically induced productivity whose benefits are only partially (if at all) passed along to workers. Union busting. Squeezing workers to do more with less (which was something some hotshot facilitator at a management seminar once called “work smarter, not harder” before that insulting slogan went viral). Erosion of the buying power of the minimum wage. A deteriorating manufacturing base abetted by “free trade” agreements that pit Americans against workers in China, India and elsewhere who earn 10 percent at companies which can compete without bothering with safety and environmental regulations. The sum? One of the plagues of the U.S. economy during the past few decades: stagnant wages.

In the view of multitudes of corporate CEOs and the folks at the American Enterprise Institute and its ideological compatriots, the market is working just fine. As traditionally measured, that’s true. A multinational operation that maintains efficiency and manages, for instance, to sell plenty of cars at a good profit around the planet is doing what such enterprises are supposed to do. It’s no skin off a shareholder’s nose if new employees are hired at half the rate their predecessors were and the benefits they receive are trimmed. If they can no longer afford, as they could working for Henry Ford, to buy one of the cars they make, so what? And it doesn’t matter to shareholders if jobs are exported where workers paid 20 percent of what Americans receive can build cars just as efficiently. Or computers. Or televisions. Or software. You name it. If it doesn’t matter to those own the stock, it certainly doesn’t matter to the CEOs.

[Emphasis added]

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Income Inequality: Too Big to Ignore
New Youk Times, Robert H. Frank

People often remember the past with exaggerated fondness. Sometimes, however, important aspects of life really were better in the old days.

During the three decades after World War II, for example, incomes in the United States rose rapidly and at about the same rate — almost 3 percent a year — for people at all income levels. America had an economically vibrant middle class. Roads and bridges were well maintained, and impressive new infrastructure was being built. People were optimistic.

By contrast, during the last three decades the economy has grown much more slowly, and our infrastructure has fallen into grave disrepair. Most troubling, all significant income growth has been concentrated at the top of the scale. The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent.

[Emphasis added]

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America Is Not a Third World Country – Yet
The National Ledger, Froma Harrop

If low taxes are the key to economic growth, as Republicans claim, why aren’t we doing better? What explains the phenomenal growth of the 1950s, when the top marginal rate hit 91 percent? Or the years following the Democrats’ 1993 tax hike on high incomes, when the economy boomed, the budget ran a surplus and the rich did better than ever?

The Republican House budget offers a Third World vision for America. More tax cuts for the jet-setters. Fewer government guarantees for those below them. The plan would curtail health care programs for the elderly and poor, law enforcement, environmental regulation, and nutrition programs for women and children. And they would repeal the Democrats’ health care reforms guaranteeing coverage to all, even though they would reduce deficits over time.

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The Very Rich Really Are Different
Tax Policy Center, Roberton Williams

“Let me tell you about the very rich. They are different from you and me,” wrote F. Scott Fitzgerald. He wasn’t talking about taxes (the laws were very different back in 1926) but his assertion certainly applies to the way the wealthy fare under today’s tax law.

Taxing the Top 400

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Middle-Class Americans More Productive, But Earning Less: Report 
Huffington Post, Janell Ross

American workers’ productivity has soared over the last 30 years, but that extra output hasn’t translating into higher earnings for the American middle class, according to a report released this week.

As middle-class Americans have lost out economically over that 30 year period, productivity, corporate profits and the incomes of America’s rich have all soared, the report said. By 2009, 1 percent of the population lived on 21 percent of the nation’s total annual earnings.

the Divergence of Income and Productivity

[Chart by he Employment Policy Research Network]

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The big debt lie: After three decades of failed experiments, you’d think we might finally give up on supply-side economics
Salon, Gene Lyons

The betting system the GOP’s been playing for the past 30 years is called supply-side economics. “The theory goes like this,” explains David Cay Johnston. “Lower tax rates will encourage more investment, which in turn will mean more jobs and greater prosperity — so much so that tax revenues will go up, despite lower rates.”

To anybody with a passing interest in the material world, it’s clear that this has never happened. Over the same period, the national debt has risen to more than $14 trillion — almost 90 percent of it under Republican presidents.

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Why More Equality?
The Equality Tust

Our thirty years research shows that:

1) In rich countries, a smaller gap between rich and poor means a happier, healthier, and more successful population. Just look at the US, the UK, Portugal, and New Zealand in the top right of this graph, doing much worse than Japan, Sweden or Norway in the bottom left.

Inequality Graph

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Warren Buffett: ‘Trickle Down’ Theory Hasn’t Worked (VIDEO)
Talking Points Memo

“The rich are always going to say that, you know, just give us more money and we’ll go out and spend more and then it will all trickle down to the rest of you. But that has not worked the last 10 years, and I hope the American public is catching on,” Buffett said in the clip from ABC News’ “This Week with Christiane Amanpour.”

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With executive pay, rich pull away from rest of America
Washington Post with Bloomburg Business , Special Report: Breakaway Wealth

Whatever people think of it, the gap between the very highest earners and everyone else has been widening significantly.

Income inequality has been on the rise for decades in several nations, including the United Kingdom, China and India, but it has been most pronounced in the United States, economists say.

In 1975, for example, the top 0.1 percent of earners garnered about 2.5 percent of the nation’s income, including capital gains, according to data collected by University of California economist Emmanuel Saez. By 2008, that share had quadrupled and stood at 10.4 percent.

The phenomenon is even more pronounced at even higher levels of income. The share of the income commanded by the top 0.01 percent rose from 0.85 percent to 5.03 percent over that period. For the 15,000 families in that group, average income now stands at $27 million.

In world rankings of income inequality, the United States now falls among some of the world’s less-developed economies.

[Emphasis added]

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(Not) spreading the wealth
Washington Post with Bloomburg Business , Special Report: Breakaway Wealth

The income gap between the wealthy and the rest of the country has grown along with dramatic increases in CEO pay.

Inequality in the U.S. has has grown steadily since the 1970s, following a flat period after World War II. In 2008, the wealthiest 10 percent earned almost the same amount of income as the rest of the country combined.

Income Change 1970 - 2008

Plus three more charts.

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The world’s richest are richer than before the crisis
Salon, Natasha Lennard

The wealth report highlights the uneven way that the economic recovery is playing out: the net worth of the wealthy has not trickled down to prop up global economies, as the U.S. fiscal deficit and sovereign debt crisis in Europe shows. However, the rich getting richer has funneled into the luxuries industry.

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World’s wealthiest people now richer than before the credit crunch

The globe’s richest have now recouped the losses they suffered after the 2008 banking crisis. They are richer than ever, and there are more of them – nearly 11 million – than before the recession struck.

According to the annual world wealth report by Merrill Lynch and Capgemini, the wealth of HNWIs around the world reached $42.7tn (£26.5tn) in 2010, rising nearly 10% in a year and surpassing the peak of $40.7tn reached in 2007, even as austerity budgets were implemented by many governments in the developed world.

Hige New Worth Individuals

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The final nail in the supply side coffin
Salon, Andrew Leonard

In the first quarter of 2011, aggregate U.S. GDP — the total value of all the goods and services produced in the United States — was higher than the peak reached before the recession began in 2007. During the six quarters since the recession technically ended in the second quarter of 2009, real national income in the U.S. increased by $528 billion. But the vast majority of that income was captured as profit by corporations that failed to pass on their happy fortunes to their workers.

Wages are moribund, unemployment is stuck at 9 percent, and the corporate bottom line is doing just fine. You could be excused for thinking that if ever there was time to put the stake through supply-side economics, it would be now. Wall Street and big corporations are doing just fine, but absolutely nothing is trickling down. And yet Republicans are still pushing the same old song and dance, passionately holding the entire creditworthiness of the United States hostage in return for even lower taxes on corporations, adamantly refusing to countenance even the slightest revenue increase to help cushion the hard times for the Americans who are getting a raw deal out of the current recovery.

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Who Has Benefitted from the Post-Great Recession Recovery? A New Look at the Growth Performance of Jobs, Wages, Corporate Profits, and Stock Price Indices During the First Two Years of Recovery
Center for Labor Market Studies; Andrew Sum,Joseph McLaughlin

Not one of these five groups of full-time wage and salary workers received a real earnings boost over this two year period. Each group experienced a modest weekly wage decline of 1 to 2 per cent over this period with the top two wage groups actually faring slightly worse. Over the entire decade (2001 I – 2011 I), those workers at the top (90th percentile) obtained a real weekly wage increase of $92 or 6% while those at the bottom (10th percentile) experienced a wage loss of 1%. The lost decade did not generate any substantive improvement in the real weekly earnings of the vast majority of U.S. workers.

In contrast to the absence of any growth in aggregate wages and salaries or in the mean or median hourly and weekly wages of individual workers, corporate profits have experienced very strong growth over the recovery (Table 4). Annualized corporate profits exploded from the second quarter of 2009 to the second quarter of 2010, growing by more than $410 billion, and increased further to $1.694 billion in the first quarter of 2011. During the first seven quarters of recovery, corporate profits rose by $491 billion or 41%. A substantial jump in labor productivity (of 9%) from the last quarter of 2008 to 2011 I with no increase in real wages provided the major portion of the boost in corporate profits. The link between productivity growth and real wage growth was completely separate.

Curprate Profist and Wages

The recovery from the Great Recession has been highly uneven in its effects on workers, wages, profits, stock prices, and savers (bank savings accounts, money market accounts, CDs). Many U.S. adults, especially from low income and middle income households, have reported to poll takers that the U.S. is still in a recession or depression.11 From their vantage point, it still is. The same cannot be said for corporate profits, the CEOs of large corporations, or for those with large stock holdings. The disparities in economic rewards are the largest ever seen in a post World War II recovery.

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REPORT: In 12 Years, Income For Richest 400 Americans Quadruples, Tax Rate Nearly Halved
Think Progress; Scott Keyes

New data released by the IRS reveals that, over a period of 12 years, tax rates for the richest 400 Americans were effectively cut in half. In 1995, the richest 400 Americans paid, on average, 29.93% of their income in federal taxes. In 2007, the last year for which the IRS has released data, the richest 400 Americans paid just 16.63%.

Top 400 Taxes

Top 400 Income

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Inequality Is Most Extreme in Wealth, Not Income
New York Times; Catherin Rampell

Here’s a chart I put together showing what percentage of all of America’s income (including capital gains) is going to each of several income classes, today versus previous years:

Share of Income Over Time

Pretty striking, right? As of 2008, about 21 percent of income was received by just 1 percent of earners.

But economic inequality isn’t just about how much you make — it’s about how much you have.

To that end, the Economic Policy Institute, a liberal research organization, has published a new report looking at disparities in wealth in the United States.

It includes this chart, showing estimates of what share of wealth each class claims:

Share of Wealth Over Time

Remember that wealth accumulates over time. The highest earners are able to save much of their incomes, whereas lower earners can’t. That means high earners can accumulate more and more wealth as time goes on (assuming they don’t blow it all, of course).

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Graphing Rising Income Inequality, the Trademark of Neoliberalism
Daily Kos; tote

There are three ways to measure global income inequality. The first measures inequality of incomes between states as a whole, regardless of their population size. The second adjusts the first to take account of states populations, hence a slightly more personal measure of actual Global inequality; the third and best measure is total global inequality, treating every person as individual across the globe. The most widely accepted measure of inequality is the Gini Coefficient, which simply measures statistical dispersion. The higher the gini coefficient, the higher the inequality within a system. Here is the Global Gini Coefficient from 1950 to 1998 using the third measure in inequality, that between each individual person on the planet:

World GINI Coeficient Over Time

What this remarkable graph shows is a spike in global inequality that began in 1984 and rose to an unprecedented level. Between 1964 and 1984, there were global workers struggles, there was civil rights legislation, there were regulatory apparatuses in place to prevent major economic crises. Since 1984, that relative level of equity has rapidly vanished, and today we are living in a more unequal world than ever before.

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Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States
Politics & Society, Jacob S. Hacker and Paul Pierson

That income inequality has grown substantially over the past thirty years is no longer in dispute. Yet persistent confusion remains about the exact nature of this change and its main causes. Indeed, these two sources of confusion are linked, since properly identifying the character of American inequality is essential to offering convincing explanations of its rise.

As we show in this section, the three crucial features of growing U.S. inequality are that (1) economic gains have been highly concentrated at the very top; (2) these lopsided gains have been sustained, growing virtually without interruption since around 1980; and (3) these gains have resulted in few “trickle-down” benefits for most of the population. Together, these three features call into question standard economic accounts of rising inequality that focus on gaps between broad groups based on rising returns to education and skills. They also call into question the leading political science accounts of rising inequality taken up in the next section, which also tend to focus on the growing distance between the top and bottom thirds of the population rather than the pulling away of the very affluent.

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Wealth and Income Inequality: America’s Moral Crisis
Art on Issues, Dr. Art Kamm

As more income has been pushed to the top over the past 30 years, the income growth of the middle class, and thus its purchasing power, has not kept pace with the growth of the economy.  Quintile by quintile, the lower 80 percent of America is down almost $10,000/yr in income distribution since 1979 while the upper 1% is up over $740,000 in average income during that same timeframe.  And with an economy that is 70% personal consumption, this has resulted in weaker demand for goods and services and thus slow recovery and higher unemployment (ref).


But graphs and charts do a disservice in showing what is really happening with wealth and income inequality in America. The actual dollar increases in income and wealth in recent years within the top 0.1% of income earners, as well as the rapidly growing sums of money held within that group, are mind-staggering; perhaps obscene is a better word during these economically troubled times.  And that will be thrust of this article.  It will compare and contrast increases in wealth and income at the top versus the extent and effects of growing poverty (including death) and unemployment in the rest of America.  The failure to share sacrifice at the top while pursuing cuts in programs benefitting the victims of the recession, represents nothing less than a moral crisis for our country.

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15 Mind-Blowing Facts About Wealth And Inequality In America
Business Insider

The gap between the top 1% and everyone else hasn’t been this bad since the Roaring Twenties

Income Gap

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Reagan Revolution Home To Roost — In Charts
Campaign for America’s Future

It seems that you can look at a chart of almost anything and right around 1981 or soon after you’ll see the chart make a sharp change in direction, and probably not in a good way. And I really do mean almost anything, from economics to trade to infrastructure to … well almost anything. I spent some time looking for charts of things, and here are just a few examples. In each of the charts below look for the year 1981, when Reagan took office.

Conservative policies transformed the United States from the largest creditor nation to the largest debtor nation in just a few years, and it has only gotten worse since then:


Working people’s share of the benefits from increased productivity took a sudden turn down:


[Emphasis in original]

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Surprise! Census Data Contains Good News… For The Rich
Political Correction, Jamison Foster

Today’s Census Bureau release of household income data contains some awfully gloomy numbers: The nation’s poverty rate is 15.1 percent, the highest since 1993, and median household income in 2010 was only $369 higher than in 1989.

But, as usual, the new data contains some good news… for the rich. Here’s a chart showing mean household income from 1978 to 2010 for the bottom, middle, and top quintiles:

Mean Household Income

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Huge disparity in share of total wealth gain since 1983
Political Correction, Jamison Foster

… wealth is now lower for the typical household than it was a generation ago in 1983, while the wealth at the upper end expanded a great deal.

In other words, the richest 5 percent of households obtained roughly 82 percent of all the nation’s gains in wealth between 1983 and 2009. The bottom 60 percent of households actually had less wealth in 2009 than in 1983, meaning they did not participate at all in the growth of wealth over this period.

Share of Total Wealth Gain Siince 1983

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Equality and Efficiency
International Monitary Fund, Andrew G. Berg and Jonathan D. Ostry

Do societies inevitably face an invidious choice between efficient production and equitable wealth and income distribution? Are social justice and social product at war with one another?

In a word, no.

It may seem counterintuitive that inequality is strongly associated with less sustained growth. After all, some inequality is essential to the effective functioning of a market economy and the incentives needed for investment and growth (Chaudhuri and Ravallion, 2007). But too much inequality might be destructive to growth. Beyond the risk that inequality may amplify the potential for financial crisis, it may also bring political instability, which can discourage investment. Inequality may make it harder for governments to make difficult but necessary choices in the face of shocks, such as raising taxes or cutting public spending to avoid a debt crisis. Or inequality may reflect poor people’s lack of access to financial services, which gives them fewer opportunities to invest in education and entrepreneurial activity.

Growth and Inequality

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The Lost Decade for the Middle Class
On the Economy, Jared Bernstein

Real Income for Working Age Households

It is a mantra among economists that the growth of productivity translates into the an increase in society’s living standards. But what if that growth eludes the middle class and the poor? The productivity mantra is an average mantra—it does not account for the growth of income inequality.

Today’s Census data show that since median HH inc peaked in 1999, the amount of income loss you suffered was very much a function of where you were in the income scale…the higher the better, or the least worst, I should say.  Here’s a little table of household income changes at various percentiles (not that these Census data leave out realized capital gains, which play a large and important role in the increase in inequality.

Real Income by Percectile

These Census results should force us to be very clear eyed in recognizing that markets sometimes fail and when they do so, the federal gov’t must fill two very important roles.

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CHARTS: Here’s What The Wall Street Protesters Are So Angry About…
Business Insider, Henry Blodget

The problem in a nutshell is this: Inequality in this country has hit a level that has been seen only once in the nation’s history, and unemployment has reached a level that has been seen only once since the Great Depression. And, at the same time, corporate profits are at a record high. In other words, in the never-ending tug-of-war between “labor” and “capital,” there has rarely—if ever—been a time when “capital” was so clearly winning.

Let’s start with the obvious: Unemployment. Three years after the financial crisis, the unemployment rate is still at the highest level since the Great Depression (except for a brief blip in the early 1980s)

Unimployment Highest Since Great Depression

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Income Distribution: Poor, Rich, And Richest [GRAPHIC]
Huffington Post

In 2008, the top 0.01 percent of earners controlled 5 percent of the nation’s wealth, as depicted by Catherine Mulbrandon at Visualizing Economics. At the same time the bottom 90 percent of earners’ share of income was slightly over half.

But the gap between the super-rich and everyone else wasn’t always so wide. Indeed, the share of income belonging to the top 1 percent of earners in the U.S. more than doubled between 1982 and 2008, according to the Wall Street Journal.

Income Distribution

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The Shocking, Graphic Data That Shows Exactly What Motivates the Occupy Movement

Alternet, Les Leopold

What are the Occupy Wall Street protesters angry about? The same things we’re all angry about. The only difference is the protestors turned their anger into public action. Occupy Wall Street lit the embers and the sparks are flying. Whether it turns into a genuine populist prairie fire depends on all of us.

Now is not the time for wonky policy solutions, as the media meatheads are calling for. Rather, it’s time to air our grievances as loudly as possible, which is precisely what Wall Street and its minions fear the most. Here’s a brief list of why we should be angry and the charts to back it up.

1. The American Dream is imploding…

Actual Wages vs. Productivity-Enhanced Wages

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Income Inequality Reaches Gilded Age Levels, Congressional Report Finds

Huffington Post, Alexander Eichler and Michael McAuliff

America’s 99 percent are not just imagining it. The gap between the incomes of the rich and poor in this new Gilded Age is strikingly broad and deep, according to an October report from Congress’ data crunchers.

Income Inequality

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Why inequality in America is even worse than you thought

Salon, Justin Elliott

There has been no shortage of headlines this week about the growing income and wealth inequality in the United States. A new study from the Congressional Budget Office, for example, found that income of the top 1 percent of households increased by 275 percent in the 30-year period ending in 2007. American households at the bottom and in the middle, meanwhile, saw income growth of just 18 to 40 percent over the same period

But less attention has been paid to the fact that not only are the numbers bad in America, they’re particularly bad when compared to other developed nations.

A new report (.pdf) by the Bertelsmann Foundation drives this point home. The German think tank used a set of policy analyses to create a Social Justice Index of 31 developed nations in the Organisation for Economic Co-operation and Development (OECD). The United States came in a dismal 27th in the rankings. Here, for example, is a graph of one of the metrics, child poverty, in which the U.S. ranked fourth-to-last (click for larger size):

Child Poverty by Nation

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Why income inequality suddenly matters

Salon, David Sirota

For most of the post-World War II era, we tolerated relatively high inequality because we envisioned it as a necessary side effect of an exceptional economy that (supposedly) guaranteed opportunities for advancement. As the Wall Street Journal put it, we believed that “it is OK to have ever-greater differences between rich and poor … as long as (our) children have a good chance of grasping the brass ring.”

However, the last three decades have invalidated our standing hypothesis. After the conservatives’ successful assault on the New Deal, America has lived a different reality — one perfectly summarized by a new Federal Reserve study revealing that today’s increasing inequality accompanies comparatively low social mobility.

“U.S. family income mobility has decreased over the 1969-2006 time span, and especially since the 1980s,” notes the Fed paper, adding that “a family’s position at (the) end of (the) 2000s was … more correlated with its start position than was the case 20 years earlier.”

Of course, some class mobility still exists. The trouble is that it’s primarily of the downward kind. As the Pew Charitable Trusts reports, roughly a third of those who grew up in the middle class have now fallen below that station in adulthood.

This is why, for all the right-wing mythology about “Eurosocialism” snuffing out upward mobility, data from the Organization for Economic Cooperation and Development show that social mobility in uber-capitalist America is actually lower than in most industrialized countries.

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Debunking the conservative argument about the rich and taxes, in three easy charts

Washington Post, Greg Sargent

But here’s the rub: The overall income of the top 1 percent has risen significanly faster than that over the same time period. The second chart shows that the percentage change of the overall average income of the top one percent has risen by 119 percent. That’s more than twice the amount of the change in their income tax, which grew by 54 percent in that time:

Change in Income Compared to Change in Income Tax

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For Business, Golden Days; For Workers, the Dross

New York Times, Floyd Norris

In the eight decades before the recent recession, there was never a period when as much as 9 percent of American gross domestic product went to companies in the form of after-tax profits. Now the figure is over 10 percent.

During the same period, there never was a quarter when wage and salary income amounted to less than 45 percent of the economy. Now the figure is below 44 percent.

For companies, these are boom times. For workers, the opposite is true.

Corporate and Personal Income and Taxes Compared
Note: Personal taxes includes state and local income taxes, taxes on personal property and employee share of payroll taxes
Source: Bureau of Economic Analysis, via Haver Analytics

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Recession’s Brief Dip in Income Inequality is Already Over

With the rise of the Occupy movement and confirmation from the nonpartisan CBO that the U.S. income gap is at its highest level since 1929, defensive conservatives by necessity spawned a thriving if laughable cottage industry in income inequality denialism. Now with word from the New York Times that the share of income for the top 1 percent dropped from 23 to 17 percent between 2007 and 2009, you can expect more cries of “so get a time machine, Occupy Wall Street!”

But the right-wing echo chamber need not worry about the plight of the tragically rich. While working Americans continue to struggle as the economy slowly recovers from the Bush recession, the rebound of Wall Street has ensured that the upper crust has already recouped its losses. As the data show, millionaires are not only making a rapid comeback. For the gilded class, the economic downturn is already over.

Seizing on federal tax data showing that the average income for the top 1 percent fell to $957,000 in 2009 from $1.4 million in 2007, conservatives have complained that income inequality is so over:

Analysts say the drop largely reflects the stock market plunge, and most think top incomes recovered somewhat in 2010, as Wall Street rebounded and corporate profits grew. Still, the drop alters a figure often emphasized by inequality critics, and it has gone largely unnoticed outside the blogosphere.

By focusing on the top 1 percent, the Occupy Wall Street movement has made economic fairness a subject of street protest and political debate.

“It’s very interesting that this has become such a big topic now when the numbers are back to where they were in the 1990s,” said Steven Kaplan, an economist at the University of Chicago’s business school. “People didn’t seem to be complaining about it then.”

That might have been because during the 8-year Clinton boom that generated 23 million new jobs, the rising tide for once did lift all (or at least most) boats. But after the Bush recession that started in December 2007, many Americans’ dinghies were capsized by yachts once again cruising at full speed. As it turns out, the recession that has proved so devastating for most Americans for the wealthy has been merely a hiccup.

Share of Income by Percentile

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Changes in the Distribution of Income Among Tax Filers Between 1996 and 2006: The Role of Labor Income, Capital Income, and Tax Policy
Congressional Research Service


This report examines changes in income inequality among tax filers between 1996 and 2006. In particular, the role of changes in wages, capital income, and tax policy is investigated.

Inflation-adjusted average after-tax income grew by 25% between 1996 and 2006 (the last year for which individual income tax data is publicly available). This average increase, however, obscures a great deal of variation. The poorest 20% of tax filers experienced a 6% reduction in income while the top 0.1% of tax filers saw their income almost double. Tax filers in the middle of the income distribution experienced about a 10% increase in income. Also during this period, the proportion of income from capital increased for the top 0.1% from 64% to 70%.

Income inequality, as measured by the Gini coefficient, increased between 1996 and 2006; this is true for both before-tax and after-tax income. Before-tax income inequality increased from 0.532 to 0.582 between 1996 and 2006—a 9% increase. After-tax income inequality increased by 11% between 1996 and 2006. Total taxes (the individual income tax, the payroll tax, and the corporate income tax) reduced income inequality in both 1996 and 2006. In 1996, taxes reduced income inequality by 5%. In 2006, however, taxes reduced income inequality by less than 4%. Taxes were more progressive and had a greater equalizing effect in 1996 than in 2006.

Three potential causes of the increase in after-tax income inequality between 1996 and 2006 are changes in labor income (wages and salaries), changes in capital income (capital gains, dividends, and business income), and changes in taxes. To evaluate these potential reasons for increasing income inequality, a technique to decompose income inequality by income source is used. While earnings inequality increased between 1996 and 2006, this was not the major source of increasing income inequality over this period. Capital gains and dividends were a larger share of total income in 2006 than in 1996 (especially for high-income taxpayers) and were more unequally distributed in 2006 than in 1996. Changes in capital gains and dividends were the largest contributor to the increase in the overall income inequality. Taxes were less progressive in 2006 than in 1996, and consequently, tax policy also contributed to the increase in income inequality between 1996 and 2006. But overall income inequality would likely have increased even in the absence of tax policy changes.

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Economic Collapse Mathematical Certainty –Text-

From New America Productions 2011

“There is no greater disaster that to underestimate danger. Underestimation can be fatal.

The Dollar Collapse will be the single largest event in human history. This will be the first event that will touch every single living person in the world. All human activity is controlled by money. Our wealth, our work, our food, our government even our relationships are affected by money.

No money in human history has had as much reach, in both breadth and depth as the dollar. It is the defacto world currency. All other currency collapses will pale in comparison to this “big one.” All other currency crises have been regional and there have always been other currencies for people to grasp onto. This collapse will be global and it will bring down not only the dollar but all other fiat currencies as they are fundamentally; no different.

The collapse of currencies will lead to the collapse of all paper assets. The repercussions to this will have incredible results worldwide. The dollar is the world’s currency. It supports the global economy in setting foreign trade; most importantly the petro-dollar trade. This fuels our corporate vampires and acquires and harvests’ the wealth of the world.

The corporate powers suppress real assets like natural resources and labor to provide themselves with massive profits. The fascist statists, collectivist’s model provides the money to the economy to fun an ever-increasing federal government. That government then grows larger and larger, enriching its minions, with jobs to control their fellow citizens. Finally to come full circle; the government then controls other nations through the military-industrial complex.

This cycle will be cut when the mathematical and inevitable collapse of the dollar occurs. In order for our debt-based money to function we must increase the DEBT every year in excess of the debt and interest accrued the year before, or we will enter a deflationary death spiral. When Debt is created, money is created. When the debt is paid-off money is destroyed. There is never enough to pay off the debt because there would be not one dollar in existence,

We are at a point where we either default on the debt, willingly or unwillingly or create more money or debt: To keep the cycle moving. The problem is if you understand anything about compounding interest is that we are reaching the hockey-stick-moment (on the graph that is the moment when everything goes vertical); where the more debt that is incurred the more debt that is incurred the less effective it is: And this leads us to hyper-inflation. There are only two actors needed for this hyper-inflation: The lender of last resort, or the FED, and the spender of last resort the government. These two can and will blow up the system.

I believe they will wait until the next crises and the whiff of deflationary depression before they fire up the printing presses. That crisis is coming very soon, at the end of the summer or fall. The money and emergency measures are worn-out. The fact that none of the underlying problems that caused the 2008 crises have been resolved: The only thing that has happened is that instead of corporate problems we now have national problems.

In this movie Greece will play the role of Leman Brothers and the United States will play the role of AIG. The problem is there is no where (left) to kick the can down the road: And there is no world-government to absorb the DEBT- yet. So this leads me to the top five places NOT to be when the dollar collapses.

Number one, Israel. This Anglo-American beachhead in the Middle-East was first conceived by the most powerful family in the world; the Rothschilds in 1917. The Balfour Declaration said that there will be a Zionist Israel , years before WWII, and the eventual establishment of Israel. Israel has not been a very good neighbor to the Muslim nations: And has always had the world’s two biggest bullies on the block at its back. When the dollar collapses the United States will have much too much on its plate, both domestically and internationally to worry about such a non-strategic piece of land. This will leave Israel very weak at a time when tensions will be high. This very thin strip of desert land will not be able to withstand the economic realities of needing to import its food and fuel or the political reality of being surrounded by Muslims.

Number two, Southern California, the land of fruits and nuts turns into Battlefield Los Angeles . Twenty-million people packed into an area that has no water and thus food is not good to say the least. Throw on top of the huge wealth disparities, and the proximity to a narco-state and this does not bode well. We have seen riots from Rodney King. What will happen when the dollar is destroyed and food and fuel stop coming into this area? People will get desperate and do crazy things especially when a huge proportion of its citizens are on anti-depressants. If food and fuel cannot get in, what about Prozac? At a time when people’s worlds are falling apart they lack the ability to deal with this new paradigm. If people come off these drugs too fast they will suffer psychotic breaks and you will thousands of shootings or suicides.

Number three, England the land of the former Big Brother and the Empire of the worldwide slave and drug trade; will suffer heavily.

The “Stiff upper lip” that the British Elite ingrained in to the sheeple will not work anymore, as the British population explodes. The humans character will sacrifice for a foreign enemy, but not if the enemy has always been the elite. The Anglo-American Empire may pull off another false flag to distract its population but I feel this collapse will happen before they pull it off. This will make all eyes point at the British Elite as being solely responsible for this catastrophe. We have seen massive riots for soccer-matches with Hooligans. What will happen when this island with very little food and fuel gets cut off?

Number 4, New York City ; another large urban area living too high on the dollar-hog. There is little doubt that all of the wealth in New York City , New Jersey , and Connecticut is derived off of Wall Street Wealth. The savings and investments of the whole nation and much of the world flows through this financial capital. As the world wakes up to the massive financial fraud; this will lead to the destruction of capital like we have never seen before (the picture is of NYC in ruins just as Berlin looked after the West bombed it into Oblivion at the end of WWII).This will have tremendous effects upon the regional economy, as people driving in Mercedes suddenly wonder where their next meal is coming from.

Number five, Washington D.C. The political collapse of the Federal Government will reek havoc on the hugely inflated local economy as more and more states find it necessary to assert their natural control the federal government will suddenly lose power and importance, as the whole world suffers from a global Hurricane Katrina (the city in flames).

The money that they create and spend will become worthless and government minion’s pensions will evaporate. Millions that once relied upon the ability to force others to send their money to them, will learn that the real power has always been at the most local level. Massive decentralization will be the answer to ‘Globalization Gone Mad. ‘ Local families and communities will forego spending money and power out of their communities as they will care about their next meal and keeping warm. As Ayn Rand once said: “You can ignore reality, but you cannot ignore the consequences of ignoring reality.”

To sum those areas that have lived highest on the hog on the dollar-paradigm will most-likely be the worst places to live, when the dollar collapses. Many of you will see this video with passing interest; but rest

assured this dollar collapse is coming!

It is a mathematical inevitability. We will not be as fortunate to muddle through this collapse, like we did in 2008, when it was a corporate problem.” This time around it is a national and a global problem. The global Ponzi-Scheme has run out of gas: As the demographics decline; as cheap abundant oil declines, as hegemonic power declines: This comes at a time when we reach the exponential or collapse-phase of our money.

The irresistible force paradox says; “what happens when an unstoppable force meets an immovable object: We are about to find out, when infinite money hits a very-finite world!”


The video was read and occasionally paraphrased from an article Written By: Silver Shield Titled: Top 5 Places NOT To Be When The Dollar Collapses; transcribed by Jim Kirwan





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