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RE: The Global Financial Meltdown - Admin - 09-19-2009


Okay, we are now nearing the expected D-day - where the house of cards will come crashing down. People will find what they thought was built with mortar and brick was actually nothing but paper (worthless) and a house built by it perilously stacked one on top of another, without a real base or foundation. This house has been shaking for a year, one quake after another hitting it, but those who built it were able to move one card to another place to keep the house- though hurt, but in tack - able to still hide there was no foundation built. Well, we are now at the time, where the general public (those who have only believed MSM and have not paid attention)are going to be shocked and dismayed when they find out the house of cards has tumbled down around them,when a wind blows - as they were unaware it was about to happen.

What am I talking about D-day = Derivatives!! Yep, that elusive word, that confuses people, as it is a very complicated Wall Street Creation and very few understand what it really is, as MSM does not explain it in detail.

Even the Wikipedia definition of Derivative - is as confusing as it can be:

style="color: rgb(51, 51, 255);">In calculus, a branch of mathematics, the derivative is a measure of how a function changes as its input changes. Loosely speaking, a derivative can be thought of as how much a quantity is changing at a given point; for example, the derivative of the position (or distance) of a vehicle with respect to time is the instantaneous velocity (respectively, instantaneous speed) at which the vehicle is traveling. Conversely, the integral of the velocity over time is the vehicle's position.

The derivative of a function at a chosen input value describes the best linear approximation of the function near that input value. For a real-valued function of a single real variable, the derivative at a point equals the slope of the tangent line to the graph of the function at that point. In higher dimensions, the derivative of a function at a point is a linear transformation called the linearization.[1] A closely related notion is the differential of a function.

The process of finding a derivative is called differentiation. The fundamental theorem of calculus states that differentiation is the reverse process to integration.

Yeah, Ok, whatever all that means... hhmmm - I am not exactly a math expert.
So now lets look at what another meaning, specifically for the Markets is:

The Derivatives Market is meant as the market where exchange of derivatives takes place. Derivatives are one type of securities whose price is derived from the underlying assets. And value of these derivatives is determined by the fluctuations in the underlying assets. These underlying assets are most commonly stocks, bonds, currencies, interest rates, commodities and market indices. As Derivatives are merely contracts between two or more parties, anything like weather data or amount of rain can be used as underlying assets. The Derivatives can be classified as Future Contracts, Forward Contracts, Options, Swaps and Credit Derivatives.
The Types of Derivative MarketThe Derivative Market can be classified as Exchange Traded Derivatives Market and Over the Counter Derivative Market.
Exchange Traded Derivatives are those derivatives which are traded through specialized derivative exchanges whereas Over the Counter Derivatives are those which are privately traded between two parties and involves no exchange or intermediary. Swaps, Options and Forward Contracts are traded in Over the Counter Derivatives Market or OTC market.
The main participants of OTC market are the Investment Banks, Commercial Banks, Govt. Sponsored Enterprises and Hedge Funds. The investment banks markets the derivatives through traders to the clients like hedge funds and the rest.
In the Exchange Traded Derivatives Market or Future Market, exchange acts as the main party and by trading of derivatives actually risk is traded between two parties. One party who purchases future contract is said to go “long” and the person who sells the future contract is said to go “short”. The holder of the “long” position owns the future contract and earns profit from it if the price of the underlying security goes up in the future. On the contrary, holder of the “short” position is in a profitable position if the price of the underlying security goes down, as he has already sold the future contract. So, when a new future contract is introduced, the total position in the contract is zero as no one is holding that for short or long.
The trading of foreign exchange traded derivatives or the future contracts has emerged as very important financial activity all over the world just like trading of equity-linked contracts or commodity contracts. The derivatives whose underlying assets are credit, energy or metal, have shown a steady growth rate over the years around the world. Interest rate is the parameter which influences the global trading of derivatives, the most.
Derivative Market and Financial RiskDerivatives play a vital role in risk management of both financial and non-financial institutions. But, in the present world, it has become a rising concern that derivative market operations may destabilize the efficiency of financial markets. In today’s’ world the companies the financial and non-financial firms are using forward contracts, future contracts, options, swaps and other various combinations of derivatives to manage risk and to increase returns. It is true that growth of derivatives market reveal the increasing market demand for risk managing instruments in the economy. But, the major concern is that, the main components of Over the Counter (OTC) derivatives are interest rates and currency swaps. So, the economy will suffer surely if the derivative instruments are misused and if a major fault takes place in derivatives market.

Okay, above was an explanation of the Market Derivatives. Still a little confused - about what it really is?

I will now give you explanations in the most simple manner possibly - as I understand it - in words, we in everyday life use - and then why - the house of cards was built on derivatives and it will be the downfall of the U.S. currency and "Bank Holidays" will be in the future - Very Soon.

Here is some real information in more simple terms

link to below info:

Banks Create the Money They Lend

Bankers will tell you that they do not create money. At a 10% reserve requirement, they simply lend out 90% of their deposits. The catch is that their “deposits” include the money they have written into their customers’ accounts as loans. That is how loans are made: numbers are simply written into the accounts of borrowers, as many reputable authorities have attested. Here are two of them, dating back to when officials were either more aware of what was going on or more open about it:

“[W]hen a bank makes a loan, it simply adds to the borrower’s deposit account in the bank by the amount of the loan. The money is not taken from anyone else’s deposit; it was not previously paid in to the bank by anyone. It’s new money, created by the bank for the use of the borrower.”
– Robert B. Anderson, Treasury Secretary under Eisenhower, in an interview reported in the August 31, 1959 issue of U.S. News and World Report

“Do private banks issue money today? Yes. Although banks no longer have the right to issue bank notes, they can create money in the form of bank deposits when they lend money to businesses, or buy securities. . . . The important thing to remember is that when banks lend money they don’t necessarily take it from anyone else to lend. Thus they ‘create’ it.”
– Congressman Wright Patman, Money Facts (House Committee on Banking and Currency, 1964)

Okay, now let me explain it - in my own words - as I have understood it, through my research.

Derivatives Meaning = Lets say: A bank has a deposit of $1000 - they are suppose to only lend up to 90% of that deposit out. So they then lend $900 out to someone, now they add that $900 loan to "deposits" - because it is seen as money in the bank. So, now they took that $1000 and made it to $1900 as deposits. So now they are able to loan 90% of $1900 - so they loan $1710 to someone else. Once that happens, again they can add that $1710 as money in the bank. The cycles goes on and on - until the reality is quadtrillion - some say quintrillions is loaned out - in money that is not actually there. Thus we have a house of cards that has no base and that is WHY the banks - don't actually have all the money that are in deposits in the banks. So that means - what you think you have in the bank in the form of money - is NOT THERE!

Are you with me? Do you understand how Derivatives work now - in the most simple terms?
Do you now understand, banks have not put those derivatives on their books - but come Sept. 30th 2009 - due to new banking standards - derivatives need to be put on the books and when that happens - the banking industry will most likely come crashing down.

Here is one example of Banks worrying about the changes,
This is from Georgia's Bankers Association - they released this information last week

Some information from article:

Key Regulatory Issues Facing Georgia’s Banks

• Regulatory interpretations of accounting guidelines/FASB 114/5; fair value of real estate
• Downward pressure on asset prices caused by market forces and unintended consequences of
government stability programs
• Difficulty of obtaining reasonable and consistent property appraisals continues to put downward pressure on property and collateral values
• Deposit rate caps: New FDIC nationally set price to determine rate caps to further stress struggling Georgia banks that are required to raise local deposits to replace brokered deposits
• Brokered deposits: Requirements prohibiting banks that are considered to be less than “well capitalized” from renewing brokered deposits or seeking new brokered deposits creates immediate funding and liquidity problems for banks that can least afford them. There are reasonable ways to lessen the impact without increasing risk to the deposit insurance fund or artificially distorting the local deposit market.
• FDIC special assessment: will cost Georgia banks more than $133 million -- more than combined 2008 profits. More special assessments are likely, according to FDIC.
• Loan-Loss Reserve effect on regulatory capital: Artificial disallowance of more than $1.8 billion of capital in Georgia banks
• Loan renewals for commercial borrowers that are current on their loans are becoming difficult for some banks facing declining capital levels because of regulatory legal lending limits
• Access to capital and sources of liquidity continue to be limited by the market and regulatory issues.

But here is more from article - an explanation - regarding Deposits

Brokered deposits
Requirements prohibiting banks that are considered to be less than “well capitalized” from renewing brokered deposits or seeking new brokered deposits creates immediate funding and liquidity problems for banks that can least afford them. There are reasonable ways to lessen the impact without increasing risk to the deposit insurance fund or artificially distorting the local deposit market. One possible helpful easing of the regulation would allow “adequately capitalized” banks to renew maturing brokered deposits but continue to prohibit them from acquiring new brokered deposits. This would allow some funding stability for the bank without increasing the potential cost to the deposit insurance fund. If the statute cannot be changed regarding brokered deposits, banks having to shed those deposits should be allowed to reduce their reliance over a longer period of time than simply upon renewal. If the FDIC could
require an orderly reduction of brokered deposits of perhaps 10% per quarter or some other reasonable number, the impact would less.

Are you catching the above? Do you see, how the banking industry admitted in the above that there are artificial deposits?

The link is 24 pages long in PDF form, it is all bankers type info.

Now, we are coming to another link from a person who predicted the fall of the markets etc last year. Besides of course the Peter Schiff's, Gerald Celente's and others who speak the truth of the world. There have been many people sounding the siren of what is coming, the problem is the MSM has not broad casted their sirens, they only have broad casted what the governments want people to hear (which is not the truths of what is really going on). In fact, if you have only been paying attention to the MSM then you think "Everything is turning up roses and there is nothing but Champagne and Caviar in our futures". They have been hiding from the people the real information.

Question: Have you heard on MSM the following:

China is defaulting on their derivatives contracts - they say it was done illegally and a scam from the banks?

China is pushing gold and silver to it's citizens to buy - the Chinese government are running commercials like it is soap on their T.V. constantly?

Hong Kong, Dubai, and Germany have called their gold in from storage from the U.K. and the U.S. - for the first time ever?

The U.S. State Dept. informed all of the Embassies to have local currencies on hand, that will last them a year by Sept. 30th?

The U.S. bond market has been missing China and other countries - they have stopped purchasing our debt? Besides how our bond buyers are now "indirect" buyers? ( in other words the Fed is printing the money as no tomorrow and buying the U.S. debt themselves through "friends")

The amount of money that has been printed up since Sept. 08, that is now new paper of Trillions and Trillions of dollars, created out of thin air?

There is so much more real information on the internet, that the MSM fails to report. They like to keep people distracted with news that ultimately doesn't matter. They are not reporting what is going to have a huge impact on all of our lives in the very near future!

An interesting article out, yesterday:

Dr. Van de Meer predicts monetary collapse of US starting on September 30th

A private but extremely influential silent individual, Dr. Michael Van de Meer is the person predicting a financial collapse of the United States starting on September 30th. That is the end of the fiscal year and the final date for payments the Federal Reserve Board wants to act, but cannot, because it is in a catatonic state, as the leaders of every state in the world is.

There will also be indications on September the 16th, he informed me some ten months ago, “Although September 30th will be the tipping point at which the tree’s fate is determined, the branches will not hit the ground until October 7 and 27th and going on into November,” he says.

Dr. Van de Meer correctly predicted the financial panic that started in September of 2008 (also 10 months in advance) and has made many other accurate predictions.

In a separate confirmation the Chinese Government is no longer entertaining and investing in derivatives, and have declared a Nova-to, meaning they will not be paying the trillions “due” on these these illegal instruments. In fact the Chinese are using stronger language saying these criminally foisted instruments are a declaration of a financial war.

Meanwhile, in a significant break in corporate media censorship, the CBS TV program 60 minutes reported that Alan Greenspan, in concert with Bill Clinton and George Bush Senior facilitated in the year 2000, during the middle of the night, the passage of a criminal, highly illegal unconstitutional Bill that created the mortgage and property bubble. The bill allowed unscrupulous individuals in the major Banks and Insurance Corporations such as A.I.G. to hedge bets at a cent to the dollar. This allowed them to create derivatives contracts whose supposed face value runs into the quintillions of dollars (In either the British or American systems that is the next number after a quadrillion!) . On September 30th all these fiat numbers created out of nothing will no longer be accepted. Both China and Japan have not said they will only accept gold from America but they have none. Bernanke and Geithner are desperately calling the people who own the gold and asking for some but they have been told they will not get even one ounce.

The bundling of the worthless inflated dollars created a devaluation in the banking system and major banks went down in a domino spiral, the affects of which will be felt for many years around the world. The destruction of the world’s accounting system is so extreme that the tax base of every state and municipal government is strained, some house values have fallen 80%, farmers cannot get credit for parts, seed, fertilizers and water meaning many innocent people will pay, maybe even with their lives.

The Wall street banksters that own the Fed are being forced to put all their derivatives garbage on the books by September 30th. If they do that, they will be exposed as totally bankrupt.
The new financial system has been embraced by the Vatican, the British Empire and the Dragon family as well as the new Japanese government so it is hard to see how the Fed will be able meet the demands. Also people are now on to them and without secrecy their entire fiat con-job ceases to function.

The new financial system will not allow any off ledger transactions nor any hedge funds or derivatives. Wall Street will not be allowed to as Dr. Van de Meer puts it to “do all their contrivances selling worthless air and paper and contrived named instruments that by their very names are comic to the ear. They have been gerrymandered to fool the millions who buy worthless stocks just like little old ladies in sneakers working slot machines”.

The American people who are 4% of the world’s population but consume 40% of the world’s resources have been paying for it all with illusory money. The illusion has burst and there will be a 90 degree fall in the value of money, followed by a lot of hard work as the country rebuilds itself back into greatness. Fortunately, by developing all the new technology that was suppressed by the Feds, the end result of the rebuilding will be a golden age for all. But remember, there will be no gain without pain. However, the Americans are resilient people and will pull together and be a more informed and strong nation once again. First though, they need to seek out this Wall Street crowd; tar and feather them, and run them out of the country on a rail.

What is the above article ultimately saying? We are about to go through the toughest time ever in history - BUT - we ARE Resilient - We ARE Strong. We will be able to come together to make it through this coming time!

People need to STOP listening to all the hate and discord being broadcasted at one another through the MSM - we need to come together when things start going downhill! We need to take each other's hands and Help each other out! We don't need to be fighting over "who is on the left and who is on the right"!

The right and left, ultimately DOES NOT MATTER - we are all People - We ALL matter - not one side or another!

I want to add one other thing - I realized the other day - as I was reading a time line at this link:
of the past year and the economic crisis that has been unfolding... I kept seeing over and over - at every spot and segment the word "Billions". That word has been thrown around by the media and the CONgress all year. Now, it seems if we hear "One Billion" needed for something we don't think it is that much anymore, right?

Well, let me ask you something - What the Hell has happened to the amounts that have MEANING to You and I? You know, like the words "One Thousand, Ten Thousand". What happened to those amounts that would make a difference in people's lives, in whether they live or die, or they have a home or are homeless? Those numbers that actually Make a Difference in people's lives? The ones that all of us regular people need to hear, that would help us out?

In other words, we are getting to where we think One Billion or a few Hundred Million etc, isn't much, right? B.S.!! If those numbers are not much anymore, than why is a debt collector calling people just for a few hundred, why are people having to lose their houses over a few thousand, why are people having to go bankrupt over a couple of thousand of owing those corporations and banks that have gotten those "Billions" from the government?!

Stop and think about it, when the media is throwing those billion numbers around - think about how all those banks are still foreclosing on people for a few thousand!

Personally, I am sick of hearing Billions as if, it was a simple cup of coffee! I want to start hearing truth - I want to start hearing how those billions given to banks, are actually letting people keep their homes. How come those banks have stayed so ruthless against the the people and not refinancing their mortages as they are suppose to.

Yeah, regarding that government deal - of people being able to rework their mortgages from the banks that received bailouts... How many people do you know - actually got help?

I can tell you there may be some - but the statistics of people actually being helped is under 5% to the people that have applied under the government deal.

The Obama administration’s $75 billion mortgage bailout program to help some 9 million struggling home owners is off to a slow start. So far 55,000 people have had their loans modified according to this CNN Money report.

There certainly had to be a ramp up period for loan servicers to get their systems and people in place to be able to accommodate the crushing requests from homeowners. But at this pace, it will take the full second term of the Obama administration to get the 9 million complete – if that.
It’s really an unbelievable time in the mortgage business right now. The people I talk with are extremely busy working with people to refinance and with new purchases. The people running the backend systems must be running full tilt because not only do that have all the new loan requests and refi’s, but they have to deal with all the people falling behind on their payments, foreclosure filings and now the massive under taking to try to modify some 9 million loans…many of which, by the way, will not likely be able to be modified.

I tried to get a mortgage change - "Nope" not going to happen, was told - Oh yeah, I also found out that the mortgage servicing company that I owe my mortgage to, they are owned by Goldman Sachs!! I also researched that they have turned down almost everyone - and people who thought they were getting their mortgage reset with them, were foreclosed on in the middle of it! BTW: Goldman Sachs was one of the biggest beneficiaries of the bailout - yeah - here comes that word.. they got "hundreds of Billions" from all of us, through the government!

So, as I wind down this post with various information - look at what is honestly going on - Please - look for the truths of what is about to occur - don't just listen to CNN, FOX, MSNBC. With the information above, did some of that seem true to you? Can you discern what feels true or not true. Think about it and then take steps to take precautions - opportunities will likely be coming up very soon to purchase the best hedge against inflation and you can see what I believe it is, due to most of my postings in this blog. But I will say it one more time - METALS!!

A question - if you doubt any of the information, then why is CNN running this article:

Title: Insiders Selling Like NO Tomorrow

"It's not a very complicated story," said Charles Biderman, who runs market research firm Trim Tabs. "Insiders know better than you and me. If prices are too high, they sell."
Biderman, who says there were $31 worth of insider stock sales in August for every $1 of insider buys, isn't the only one who has taken note. Ben Silverman, director of research at the web site that tracks trading action, said insiders are selling at their most aggressive clip since the summer of 2007.

One other thing, I read some information this morning - it is the Swiss banks - that have no branches in the U.S., therefore are not affected by having to give up the names of U.S. accounts - have sent out notices to their account holders - on Friday - telling them, they have to get their money out of the banks immediately and by Sept. 30th. Those people are questioning "Why" the Swiss banks, don't want U.S. money on their books?

The Global Financial Meltdown - Admin - 09-23-2009


Bloomberg interview with Marc Faber of the Doom, Boom, Gloom Report

The Global Financial Meltdown - Admin - 10-01-2009


Mike Whitney

We keep hearing that "The worst is behind us", but the spin doesn't square with the facts. Sure the stock market has done well, but scratch the surface and you'll find that things are not as what they seem. Zero hedge--which is quickly becoming the "go-to" market-update spot on the Internet--recently posted an eye-popping chart which traces the Fed's monetization programs (Quantitative Easing) with the 6-month surge in the S&P 500. The $917 billion increase in securities held outright equals the Fed's $1 trillion increase to its balance sheet. In other words, the liquidity from the Fed is following the exact same trajectory as stocks, a sure sign that the market is being manipulated. Surprisingly, traders seem to know that the Fed is goosing the market and have just shrugged it off as "business as usual". Go figure? Perhaps it pays to take a philosophical approach to market rigging. Who needs the gray hair anyway? The result, however, has been that short-sellers (traders betting the market will go down) who have placed their bets according to (weak) fundamentals, have gotten clobbered. They appear to be the last holdouts who still place their faith in the unimpaired operation of the free market. (Right)

Here's how former hedge fund manager Andy Kessler sums it up in a recent Wall Street Journal article, "The Bernanke Market". Here's a clip:
"By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market."

So, the Fed has given a boost to stocks while keeping the bond market priced for deflation. That's quite a trick. One market is flashing "recovery" while the other is signaling "contraction". Bernanke has worked this miracle, by simply changing the definition of "indirect bidders" (which used to mean "foreign buyers" of US Treasuries) to mean just about anyone-anywhere. Here's an explanation of this latest bit of chicanery from the Wall Street Journal in June:
"The sudden increase in demand by foreign buyers for Treasurys, hailed as proof that the world's central banks are still willing to help absorb the avalanche of supply, mightn't be all that it seems.

“When the government sells bonds, traders typically look at a group of buyers called indirect bidders, which includes foreign central banks, to divine overseas demand for U.S. debt. That demand has been rising recently, giving comfort to investors that foreign buyers will continue to finance the U.S.'s budget deficit.

“But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners." ("Is foreign Demand as Solid as it Looks, Min zeng)
Pretty clever, eh? So, if the Treasury doesn't want dupes like us to know when foreign demand drops off a cliff, they just twist the definitions to meet their needs. My guess is that the Fed is building excess bank reserves (nearly $1 trillion in the last year alone) with the tacit understanding that the banks will return the favor by purchasing Uncle Sam's sovereign debt. It's all very confusing and circular, in keeping with Bernanke's stated commitment to "transparency". What a laugh. The good news is that the trillions in government paper probably won't increase inflation until the economy begins to improve and the slack in capacity is reduced. Then we can expect to get walloped with hyperinflation. But that could be years off. For the foreseeable future, it's all about deflation.

No matter how you look at it, the economy is on the ropes. Yes, there should be a rebound in the next few quarters, but once the stimulus wears off, its back to the doldrums. According to David Rosenberg of Gluskin Sheff, "All the growth we are seeing globally this year is due to fiscal stimulus.... For 2010, the government’s share of global growth, by our estimates, will be 80%. In other words, there are still very few signs that organic private sector activity is stirring."

The question is, how long can the Obama administration write checks on an account that's overdrawn by $11 trillion (The National debt) before the foreign appetite for US Treasuries wanes and we have a sovereign debt crisis? If the Fed is faking sales of Treasuries to conceal the damage--as I expect it is--we could see the dollar plunge to $2 per euro by the middle of 2010. Imagine pulling up to the gas pump and paying $6.50 per gallon. Ouch! That should be revive the economy.

For the next year or so, the demon we face is deflation; a severe contraction exacerbated by household deleveraging and massive financial sector defaults. The Fed's money-printing operations just can't keep pace with capital-hole that continues to expand from delinquencies, foreclosures, and failed loans. Workers have seen their credit lines cut and their hours reduced, households are $3 trillion above trend in their debt-to-equity ratio, and unemployment is soaring. Industry analysts expect a $1.5 trillion cut-back in credit card spending. That's why Bernanke is firehosing the whole financial system with low interest liquidity, to stimulate speculation and reverse the effects of a slumping economy.
Here's a clip from an article in the UK Telegraph's:

"Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation...

Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an "epic" 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.

"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said. (Ambrose Evans-Pritchard, "US credit shrinks at Great Depression rate prompting fears of double-dip recession", UK Telegraph)

The Fed has pumped up bank reserves, but the velocity of money has sputtered to a standstill. There won't be an uptick in economic activity until consumers reduce their debt-load, rebalance their personal accounts and find jobs. That's a long way off, which is why San Francisco Fed chief Janet Yellen sounded more like Nouriel Roubini in this week's presentation "The Outlook for Recovery in the U.S. Economy" in S.F.:

"With slack likely to persist for years, it seems likely that core inflation will move even lower, departing yet farther from our price stability objective. From a monetary policy point of view, the landscape will continue to present challenges. We face an economy with substantial slack, prospects for only moderate growth, and low and declining inflation. With our policy rate already as low as it can go, it’s no wonder that the FOMC’s last statement indicated that “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” I can assure you that we will be ready, willing, and able to tighten policy when it’s necessary to maintain price stability. But, until that time comes, we need to defend our price stability goal on the low side and promote full employment."

That's from the horse's mouth. Recovery? What recovery?

The consumer is maxed out, private sector activity is in the tank, and government stimulus is the only thing keeping the economy off the meat-wagon. Bernanke might not admit it, but the economy is sinking into post-bubble malaise.

see zero hedge chart

RE: The Global Financial Meltdown - Admin - 10-15-2009


Finance's Five Fatal Flaws

By William K. Black
Assoc. Professor, Univ. of Missouri, Kansas City

October 14, 2009 "New Deal 2.0 " -- What exactly is the function of the financial sector in our society? Simply this: Its sole function is supplying capital efficiently to aid the real economy. The financial sector is a tool to help those that make real tools, not an end in itself. But five fatal flaws in the financial sector's current structure have created a monster that drains the real economy, promotes fraud and corruption, threatens democracy, and causes recurrent, intensifying crises.

1. The financial sector harms the real economy.

Even when not in crisis, the financial sector harms the real economy. First, it is vastly too large. The finance sector is an intermediary -- essentially a "middleman". Like all middlemen, it should be as small as possible, while still being capable of accomplishing its mission. Otherwise it is inherently parasitical. Unfortunately, it is now vastly larger than necessary, dwarfing the real economy it is supposed to serve. Forty years ago, our real economy grew better with a financial sector that received one-twentieth as large a percentage of total profits (2%) than does the current financial sector (40%). The minimum measure of how much damage the bloated, grossly over-compensated finance sector causes to the real economy is this massive increase in the share of total national income wasted through the finance sector's parasitism.

Second, the finance sector is worse than parasitic. In the title of his recent book, The Predator State, James Galbraith aptly names the problem. The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy in order to reward already-rich financial elites harming the nation. The facts are alarming:

• Corporate stock repurchases and grants of stock to officers have exceeded new capital raised by the U.S. capital markets this decade. That means that the capital markets decapitalize the real economy. Too often, they do so in order to enrich corrupt corporate insiders through accounting fraud or backdated stock options.

• The U.S. real economy suffers from critical shortages of employees with strong mathematical, engineering, and scientific backgrounds. Graduates in these three fields all too frequently choose careers in finance rather than the real economy because the financial sector provides far greater executive compensation. Individuals with these quantitative backgrounds work overwhelmingly in devising the kinds of financial models that were important contributors to the financial crisis. We take people that could be conducting the research & development work essential to the success of our real economy (including its success in becoming sustainable) and put them instead in financial sector activities where, because of that sector's perverse incentives, they further damage both the financial sector and the real economy. Michael Moore makes this point in his latest film, Capitalism: A Love Story.

• The financial sector's fixation on accounting earnings leads it to pressure U.S manufacturing and service firms to export jobs abroad, to deny capital to firms that are unionized, and to encourage firms to use foreign tax havens to evade paying U.S. taxes.

• It misallocates capital by creating recurrent financial bubbles. Instead of flowing to the places where it will be most useful to the real economy, capital gets directed to the investments that create the greatest fraudulent accounting gains. The financial sector is particularly prone to providing exceptional amounts of funds to what I call accounting "control frauds". Control frauds are seemingly-legitimate entities used by the people that control them as a fraud "weapons." In the financial sector, accounting frauds are the weapons of choice. Accounting control frauds are so attractive to lenders and investors because they produce record, guaranteed short-term accounting "profits." They optimize by growing rapidly like other Ponzi schemes, making loans to borrowers unlikely to be able to repay them (once the bubble bursts), and engaging in extreme leverage. Unless there is effective regulation and prosecution, this misallocation creates an epidemic of accounting control fraud that hyper-inflates financial bubbles. The FBI began warning of an "epidemic" of mortgage fraud in its congressional testimony in September 2004. It also reports that 80% of mortgage fraud losses come when lender personnel are involved in the fraud. (The other 20% of the fraud would have been impossible had these fraudulent lenders not suborned their underwriting systems and their internal and external controls in order to maximize their growth of bad loans.)

• Because the financial sector cares almost exclusively about high accounting yields and "profits", it misallocates capital away from firms and entrepreneurs that could best improve the real economy (e.g., by reducing short-term profits through funding the expensive research & development that can produce innovative goods and superior sustainability) and could best reduce poverty and inequality (e.g., through microcredit finance that would put the "Payday lenders" and predatory mortgage lenders out of business).

• It misallocates capital by securing enormous governmental subsidies for financial firms, particularly those that have the greatest political power and would otherwise fail due to incompetence and fraud.

2. The financial sector produces recurrent, intensifying economic crises here and abroad.

The current crisis is only the latest in a long list of economic crises caused by the financial sector. When it is not regulated and policed effectively, the financial sector produces and hyper-inflates bubbles that cause severe economic crises. The current crisis, absent massive, global governmental bailouts, would have caused the catastrophic failure of the global economy. The financial sector has become far more unstable since this crisis began and its members used their lobbying power to convince Congress to gimmick the accounting rules to hide their massive losses. Secretary Geithner has exacerbated the problem by declaring that the largest financial institutions are exempt from receivership regardless of their insolvency. These factors greatly increase the likelihood that these systemically dangerous institutions (SDIs) will cause a global financial crisis.

3. The financial sector's predation is so extraordinary that it now drives the upper one percent of our nation's income distribution and has driven much of the increase in our grotesque income inequality.

4. The financial sector's predation and its leading role in committing and aiding and abetting accounting control fraud combine to:

• Corrupt financial elites and professionals, and

• Spur a rise in Social Darwinism in an attempt to justify the elites' power and wealth. Accounting control frauds suborn accountants, attorneys, and appraisers and create what is known as a "Gresham's dynamic" -- a system in which bad money drives out good. When this dynamic occurs, honest professionals are pushed out and cheaters are allowed to prosper. Executive compensation has become so massive, so divorced from performance, and so perverse that it, too, creates a Gresham's dynamic that encourages widespread accounting fraud by both financial firms and firms in the real economy.

As financial sector elites became obscenely wealthy through predation and fraud, their psychological incentives to embrace unhealthy, anti-democratic Social Darwinism surged. While they were, by any objective measure, the worst elements of the public, their sycophants in the media and the recipients of their political and charitable contributions worshiped them as heroic. Finance CEOs adopted and spread the myth that they were smarter, harder working, and more innovative than the rest of us. They repeated the story of how they rose to the top entirely through their own brilliance and willingness to embrace risk. All of their employees weren't simply above average, they told us, but exceptional. They hated collectivism and adored Ayn Rand.

5. The CEOs of the largest financial firms are so powerful that they pose a critical risk to the financial sector, the real economy, and our democracy.

The CEOs can directly, through the firm, and by "bundling" contributions of its officers and employees, easily make enormous political contributions and use their PR firms and lobbyists to manipulate the media and public officials. The ability of the financial sector to block meaningful reform after bringing the world to the brink of a second great depression proves how exceptional its powers are to corrupt nearly every critical sector of American public and economic life. The five largest U.S. banks control roughly half of all bank assets. They use their political and financial power to provide themselves with competitive advantages that allow them to dominate smaller banks.

This excessive power was a major contributor to the ongoing crisis. Effective financial and securities regulation was anathema to the CEOs' ideology (and the greatest danger to their frauds, wealth, and power) and they successfully set out to destroy it. That produced what criminologists refer to as a "criminogenic environment" (an atmosphere that breeds criminal activity) that prompted the epidemic of accounting control fraud that hyper-inflated the housing bubble.

The financial industry's power and progressive corruption combined to produce the perfect white-collar crimes. They successfully lobbied politicians, for example, to legalize the obscenity of "dead peasants' insurance" (in which an employer secretly takes out insurance on an employee and receives a windfall in the event of that person's untimely death) that Michael Moore exposes in chilling detail. State legislatures changed the law to allow a pure tax scam to subsidize large corporations at the expense of their taxpayers.

Caution: Never Forget the Need to Fix the Real Economy

Economic reform efforts are focused almost entirely on fixing finance because the finance sector is so badly broken that it produces recurrent, intensifying crises. The latest crisis brought us to the point of global catastrophe, so the focus on finance is obviously rational. But the focus on finance carries a grave risk. Remember, the sole purpose of finance is to aid the real economy. Our ultimate focus needs to be on the real economy, which creates goods and services, our jobs, and our incomes. The real economy came off the rails at least three decades ago for the great majority of Americans.

We need to commit to fixing the real economy by guaranteeing that everyone willing to work can work and making the real economy sustainable rather than recurrently causing global environmental crises. We must not spend virtually all of our reform efforts on the finance sector and assume that if we solve its defects we will have solved the other fundamental reasons why the real economy has remained so dysfunctional for decades. We need to be work simultaneously to fix finance and the real economy.

Roosevelt Institute Braintruster William K. Black is an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist and was a senior financial regulator. He is the author of The Best Way to Rob a Bank is to Own One

The Global Financial Meltdown - Admin - 11-03-2009

Paul B. Farrell, MarketWatch

Jack Bogle published "The Battle for the Soul of Capitalism" four years ago. The battle's over. The sequel should be titled: "Capitalism Died a Lost Soul." Worse, we've lost "America's Soul." And, worldwide, the consequences will be catastrophic.

That's why a man like Hong Kong contrarian economist Marc Faber warns in his Doom, Boom & Gloom Report: "The future will be a total disaster, with a collapse of our capitalistic system as we know it today."
Insuring against economic calamity

No, not just another meltdown, another bear-market recession like the one recently triggered by Wall Street's too-greedy-to-fail banks. Faber is warning that the entire system of capitalism will collapse. Get it? The engine driving the great "American Economic Empire" for 233 years will collapse, a total disaster, a destiny we created.

OK, deny it. But I'll bet you have a nagging feeling that maybe he's right, that the end may be near. I have for a long time: I wrote a column back in 1997: "Battling for the Soul of Wall Street." My interest in "The Soul" -- what Jung called the "collective unconscious" -- dates back to my Ph.D. dissertation, "Modern Man in Search of His Soul," a title borrowed from Jung's 1933 book, "Modern Man in Search of a Soul." This battle has been on my mind since my days at Morgan Stanley 30 years ago, witnessing the decline.

Has capitalism lost its soul? Guys like Bogle and Faber sense it. Read more about the soul in physicist Gary Zukav's "The Seat of the Soul," Thomas Moore's "Care of the Soul" and sacred texts.

But for Wall Street and American capitalism, use your gut. You know something's very wrong: A year ago, too-greedy-to-fail banks were insolvent, in a near-death experience. Now, magically, they're back to business as usual, arrogant, pocketing outrageous bonuses while Main Street sacrifices, and unemployment and foreclosures continue rising as tight credit, inflation and skyrocketing federal debt are killing taxpayers.

Yes, Wall Street has lost its moral compass. It created the mess, but now, like vultures, Wall Streeters are capitalizing on the carcass. They have lost all sense of fiduciary duty, ethical responsibility and public obligation.

Here are the Top 20 reasons American capitalism has lost its soul:

1. Collapse is now inevitable

Capitalism has been the engine driving America and the global economies for over two centuries. Faber predicts its collapse will trigger global "wars, massive government-debt defaults, and the impoverishment of large segments of Western society." Faber knows that capitalism is not working, capitalism has peaked, and the collapse of capitalism is "inevitable."

When? He hesitates: "But what I don't know is whether this final collapse, which is inevitable, will occur tomorrow, or in five or 10 years, and whether it will occur with the Dow at 100,000 and gold at $50,000 per ounce or even confiscated, or with the Dow at 3,000 and gold at $1,000." But the end is inevitable, a historical imperative.

2. Nobody's planning for a 'Black Swan'

While the timing may be uncertain, the trigger is certain. Societies collapse because they fail to plan ahead, cannot act fast enough when a catastrophic crisis hits. Think "Black Swan" and read evolutionary biologist Jared Diamond's "Collapse: How Societies Choose to Fail or Succeed."

A crisis hits. We act surprised. Shouldn't. But it's too late: "Civilizations share a sharp curve of decline. Indeed, a society's demise may begin only a decade or two after it reaches its peak population, wealth and power."

Warnings are everywhere. Why not prepare? Why sabotage our power, our future? Why set up an entire nation to fail? Diamond says: Unfortunately "one of the choices has depended on the courage to practice long-term thinking, and to make bold, courageous, anticipatory decisions at a time when problems have become perceptible but before they reach crisis proportions."

Sound familiar? "This type of decision-making is the opposite of the short-term reactive decision-making that too often characterizes our elected politicians," thus setting up the "inevitable" collapse. Remember, Greenspan, Bernanke, Bush, Paulson all missed the 2007-8 meltdown: It will happen again, in a bigger crisis.

3. Wall Street sacked Washington

Bogle warned of a growing three-part threat -- a "happy conspiracy" -- in "The Battle for the Soul of Capitalism:" "The business and ethical standards of corporate America, of investment America, and of mutual fund America have been gravely compromised."

But since his book, "Wall Street America" went over to the dark side, got mega-greedy and took control of "Washington America." Their spoils of war included bailouts, bankruptcies, stimulus, nationalizations and $23.7 trillion new debt off-loaded to the Treasury, Fed and American people.

Who's in power? Irrelevant. The "happy conspiracy" controls both parties, writes the laws to suit its needs, with absolute control of America's fiscal and monetary policies. Sorry Jack, but the "Battle for the Soul of Capitalism" really was lost.

4. When greed was legalized

Go see Michael Moore's documentary, "Capitalism: A Love Story." "Disaster Capitalism" author Naomi Klein recently interviewed Moore in The Nation magazine: "Capitalism is the legalization of this greed. Greed has been with human beings forever. We have a number of things in our species that you would call the dark side, and greed is one of them. If you don't put certain structures in place or restrictions on those parts of our being that come from that dark place, then it gets out of control."

Greed's OK, within limits, like the 10 Commandments. Yes, the soul can thrive around greed, if there are structures and restrictions to keep it from going out of control. But Moore warns: "Capitalism does the opposite of that. It not only doesn't really put any structure or restrictions on it. It encourages it, it rewards" greed, creating bigger, more frequent bubble/bust cycles.

It happens because capitalism is now in "the hands of people whose only concern is their fiduciary responsibility to their shareholders or to their own pockets." Yes, greed was legalized in America, with Wall Street running Washington.

5. Triggering the end of our 'life cycle'

Like Diamond, Faber also sees the historical imperative: "Every successful society" grows "out of some kind of challenge." Today, the "life cycle" of capitalism is on the decline.

He asks himself: "How are you so sure about this final collapse?" The answer: "Of all the questions I have about the future, this is the easiest one to answer. Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline." Success makes us our own worst enemy.

Quoting 18th century Scottish historian Alexander Fraser Tytler: "The average life span of the world's greatest civilizations has been 200 years" progressing from "bondage to spiritual faith ... to great courage ... to liberty ... to abundance ... to selfishness ... to complacency ... to apathy ... to dependence and ... back into bondage!"

Where is America in the cycle? "It is most unlikely that Western societies, and especially the U.S., will be an exception to this typical 'society cycle.' ... The U.S. is somewhere between the phase where it moves 'from complacency to apathy' and 'from apathy to dependence.'"

In short, America is a grumpy old man with hardening of the arteries. Our capitalism is near the tipping point, unprepared for a catastrophe, set up for collapse and rapid decline.
15 more clues capitalism lost its soul ... is a disaster waiting to happen

Much more evidence litters the battlefield:

Wall Street wealth now calls the shots in Congress, the White House

America's top 1% own more than 90% of America's wealth

The average worker's income has declined in three decades while CEO compensation exploded over ten times

The Fed is now the 'fourth branch of government' operating autonomously, secretly printing money at will

Since Goldman and Morgan became bank holding companies, all banks are back gambling with taxpayer bailout money plus retail customer deposits

Bill Gross warns of a "new normal" with slow growth, low earnings and stock prices

While the White House's chief economist retorts with hype of a recovery unimpeded by the "new normal"

Wall Street's high-frequency junkies make billions trading zombie stocks like AIG, FNMA, FMAC that have no fundamental value beyond a Treasury guarantee

401(k)s have lost 26.7% of their value in the past decade

Oil and energy costs will skyrocket

Foreign nations and sovereign funds have started dumping dollars, signaling the end of the dollar as the world's reserve currency

In two years federal debt exploded from $11.2 to $23.7 trillion

New financial reforms will do little to prevent the next meltdown

The "forever war" between Western and Islamic fundamentalists will widen

As will environmental threats and unfunded entitlements

"America Capitalism" is a "Lost Soul" ... we've lost our moral compass ... the coming collapse is the end of an "inevitable" historical cycle stalking all great empires to their graves. Downsize your lifestyle expectations, trust no one, not even media.

Faber is uncertain about timing, we are not. There is a high probability of a crisis and collapse by 2012. The "Great Depression 2" is dead ahead. Unfortunately, there's absolutely nothing you can do to hide from this unfolding reality or prevent the rush of the historical imperative.

The Global Financial Meltdown - Admin - 11-03-2009

Ron Paul

The large-scale government intervention in the economy is going to end badly. Any number of pundits claim that we have now passed the worst of the recession. Green shoots of recovery are supposedly popping up all around the country, and the economy is expected to resume growing soon at an annual rate of 3% to 4%. Many of these are the same people who insisted that the economy would continue growing last year, even while it was clear that we were already in the beginning stages of a recession.

A false recovery is under way. I am reminded of the outlook in 1930, when the experts were certain that the worst of the Depression was over and that recovery was just around the corner. The economy and stock market seemed to be recovering, and there was optimism that the recession, like many of those before it, would be over in a year or less. Instead, the interventionist policies of Hoover and Roosevelt caused the Depression to worsen, and the Dow Jones industrial average did not recover to 1929 levels until 1954. I fear that our stimulus and bailout programs have already done too much to prevent the economy from recovering in a natural manner and will result in yet another asset bubble.

Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate. We have seen the results of Alan Greenspan's excessively low interest rates: the housing bubble, the explosion of subprime loans and the subsequent collapse of the bubble, which took down numerous financial institutions. Rather than allow the market to correct itself and clear away the worst excesses of the boom period, the Federal Reserve and the U.S. Treasury colluded to put taxpayers on the hook for trillions of dollars. Those banks and financial institutions that took on the largest risks and performed worst were rewarded with billions in taxpayer dollars, allowing them to survive and compete with their better-managed peers.

This is nothing less than the creation of another bubble. By attempting to cushion the economy from the worst shocks of the housing bubble's collapse, the Federal Reserve has ensured that the ultimate correction of its flawed economic policies will be more severe than it otherwise would have been. Even with the massive interventions, unemployment is near 10% and likely to increase, foreigners are cutting back on purchases of Treasury debt and the Federal Reserve's balance sheet remains bloated at an unprecedented $2 trillion. Can anyone realistically argue that a few small upticks in a handful of economic indicators are a sign that the recession is over?

What is more likely happening is a repeat of the Great Depression. We might have up to a year or so of an economy growing just slightly above stagnation, followed by a drop in growth worse than anything we have seen in the past two years. As the housing market fails to return to any sense of normalcy, commercial real estate begins to collapse and manufacturers produce goods that cannot be purchased by debt-strapped consumers, the economy will falter. That will go on until we come to our senses and end this wasteful government spending.

Government intervention cannot lead to economic growth. Where does the money come from for Tarp (Treasury's program to buy bad bank paper), the stimulus handouts and the cash for clunkers? It can come only from taxpayers, from sales of Treasury debt or through the printing of new money. Paying for these programs out of tax revenues is pure redistribution; it takes money out of one person's pocket and gives it to someone else without creating any new wealth. Besides, tax revenues have fallen drastically as unemployment has risen, yet government spending continues to increase. As for Treasury debt, the Chinese and other foreign investors are more and more reluctant to buy it, denominated as it is in depreciating dollars.

The only remaining option is to have the Fed create new money out of thin air. This is inflation. Higher prices lead to a devalued dollar and a lower standard of living for Americans. The Fed has already overseen a 95% loss in the dollar's purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing a 95% devaluation every year.

RE: The Global Financial Meltdown - Admin - 11-22-2009


Mike Whitney
Global Research, November 19, 2009

Things could get ugly fast. With the Democrats backing-off on a second round of stimulus, the Fed signaling an end to quantitative easing, and Obama moaning about rising deficits; there's a good chance that the stumbling recovery could turn into another sharp plunge. Bank lending is shrinking, consumers spending is off, housing prices are falling, unemployment is soaring and the wholesale credit markets are in a shambles. This isn't the time to slash government support in the name of "fiscal responsibility". Obama needs to ignore the gloomsters and alarmists and pay attention to the Nobel laureates like Joe Stiglitz and Paul Krugman. They're the guys who know how to steer the ship to safe water.

But there are troubling signs that Obama has joined the ranks of the deficit hawks and is planning a policy-reversal that will pitch the economy into a nosedive. Here's what he said on his tour through Asia:

"I think it is important to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession."

So it's true. Obama has aligned himself with the faux-prophets and dollar demagogues who think that the end is nigh. But trimming the deficits now (when they should be expanding) will lead to a viscous cycle of debt deflation that will push-down asset prices, increase defaults, force more layoffs, slow consumer spending, lower earnings and send the economy into a downward spiral. The president is paving the way to a double-dip recession, a slump that could be worse than the first.

Has Obama perused the jobless figures lately? Has he noticed the Fed shoving more than a $1 trillion under the collapsing housing market with no sign of improvement? Has anyone told our blinkered accountant-in-chief that the entire financial system is propped-up with $11.4 trillion of dodgy scaffolding that could buckle in the first big gust?

Obama has either taken leave of his senses or he's spending too much time listening to the cheerless Jeremiahs on the Internet. He needs break their spell and seek the counsel of the experts who get paid to crunch the numbers---real economists. Cutting government spending and raising taxes--the two ways that deficits are paid off--is the fast-track to disaster. Don't go there.

If Obama needs more proof that the economy is still flatlining, he should thumb through Fed chair Ben Bernanke's speech to the Economic Club of New York which was delivered on Tuesday. The presentation was a sobering snapshot of lingering depression with precious few glimmers of light. Here's an excerpt:

"The flow of credit remains constrained, economic activity weak, and unemployment much too high. Future setbacks are possible....How the economy will evolve in 2010 and beyond is less certain....

Access to credit remains strained for borrowers who are particularly dependent on banks, such as households and small businesses. Bank lending has contracted sharply this year, and the Federal Reserve's Senior Loan Officers Opinion Survey shows that banks continue to tighten the terms on which they extend credit for most kinds of loans...

Household debt has declined in recent quarters for the first time since 1951. For their part, many small businesses have seen their bank credit lines reduced or eliminated, or they have been able to obtain credit only on significantly more restrictive terms. The fraction of small businesses reporting difficulty in obtaining credit is near a record high, and many of these businesses expect credit conditions to tighten further.

The demand for credit also has fallen significantly....Because of weakened balance sheets, fewer potential borrowers are creditworthy, even if they are willing to take on more debt. Also, write-downs of bad debt show up on bank balance sheets as reductions in credit outstanding. Nevertheless, it appears that, since the outbreak of the financial crisis, banks have tightened lending standards by more than would have been predicted by the decline in economic activity alone.

Many securitization markets remain impaired, reducing an important source of funding for bank loans. In addition, changes to accounting rules at the beginning of next year will require banks to move a large volume of securitized assets back onto their balance sheets. Unfortunately, reduced bank lending may well slow the recovery by damping consumer spending, especially on durable goods, and by restricting the ability of some firms to finance their operations.  

The best thing we can say about the labor market right now is that it may be getting worse more slowly. (Fed Chairman Ben Bernanke Speech Before Economic Club of New York)

Is this really Bernanke speaking, or is the Fed chief channeling Roubini?

Okay, so credit is tight. Consumers aren't borrowing and banks aren't lending. Unemployment is rising and deflation is pushing down asset prices while the burden of personal debt is rising in real terms. Bleak, bleak, bleak. The only sign of improvement is that "things are getting worse more slowly". Now that's encouraging.

What the economy needs is a hefty dose of stimulus aimed at job creation and strengthening demand. Only the government can provide sufficient resources to rev up economic activity and put people back to work. Unfortunately, the TARP bailout soured the public on deficit spending due to the shabby (and possibly criminal) way it was handled. That will make it harder to do what is necessary. The political support for more stimulus on Capital Hill has vanished. But, without it, another hard landing is certain.

Despite rumors in the media, stimulus works. It speeds up recovery, minimizes unemployment and stops asset prices from overshooting on the downside. Here's an excerpt from "The effectiveness of fiscal and monetary stimulus in depressions" a scholarly analysis of stimulus by economist-authors Miguel Almunia, Agustin S. Benetrix, Barry eichengreen, Kevin O' Rourke, and Gisela Rua:  

"Where tried, fiscal policy was effective in the 1930s....The details of the results differ, but the overall conclusions do not. They show that where fiscal policy was tried, it was effective.

Our estimates of its short-run effects are at the upper end of those estimated recently with modern data....This is, in fact, what one should expect if one believes that the effectiveness of fiscal policy is greatest when interest rates are at the zero bound, leading to little crowding out of private spending. It is what one should expect when households are credit constrained by a dysfunctional banking system. Given similar circumstances in 2008, this underscores the advantages of using 1930s data as a source of evidence on the effects of current policy." (The effectiveness of fiscal and monetary stimulus in depressions" by Miguel Almunia, Agustin S. Benetrix, Barry eEchengreen, Kevin O' Rourke, and Gisela Rua, 18 November 2009 vox)

Stimulus works in multiple ways. It also helps increase inflation expectations which is necessary to get people spending again. In a deflationary environment, consumers shut-down and stop spending. The Fed tries to spur economic activity by convincing people that the dollars they hold will be worth less tomorrow. That's why Bernanke keeps pointing out that the Fed will keep rates at zero indefinitely. Regrettably, only the goldbugs take him seriously, which is why gold prices have zoomed to the stratosphere. Personal savings rates are still rising. There's been a sharp drop-off in consumption. Bernanke's psychological experiment has flopped. The masses still believe we're in recession. Without a gigantic fiscal expansion to jolt the economy out of its lethargy, the severe contraction could drag on for a decade or more. We're becoming Japan.  

Obama's deficit cutting plan is madness. It offers no hope at all. It draws from the half-baked theories of amateur economists on the Net who think that massive liquidation and years of bitter retrenchment and high-unemployment are the path to recovery. They're wrong.

The Global Financial Meltdown - Admin - 11-22-2009


John Perkins

Whenever I hold my two-year old grandson, Grant, in my arms I wonder what this world will look like six decades from now, when he is my age. I know that if we "stay the course" it will be ugly. The current economic meltdown is a harbinger.

Panama's chief of government, Omar Torrijos, foresaw this meltdown and understood its implications back in 1978, when I was an economic hit man (EHM). He and I were standing on the deck of a sailing yacht docked at Contadora Island, a safe haven where U.S. politicians and corporate executives enjoyed sex and drugs away from the prying eyes of the international press. Omar told me that he was not about to be corrupted by me. He said that his goal was to set his people free from "Yankee shackles," to make sure his country controlled the canal, and to help Latin America liberate itself from the very thing I represented and he referred to as "predatory capitalism."

"You know," he added, "what I'm suggesting will ultimately benefit your children too." He explained that the system I was promoting where a few exploited the many was doomed. "The same as the old Spanish Empire -- it will implode." He took a drag off his Cuban cigar and exhaled the smoke slowly, like a man blowing a kiss. "Unless you and I and all our friends fight the predatory capitalists," he warned, "the global economy will go into shock." He glanced across the water and then back at me. "No permitas que te engañen," he said ("Don't allow yourself to be hoodwinked.")

Three decades later, Omar is dead, likely assassinated because he refused to succumb to our attempts to bring him around, but his words ring true. For that reason I chose one of them as the title of my latest book, Hoodwinked.

We have been hoodwinked into believing that a mutant form of capitalism espoused by Milton Friedman and promoted by President Reagan and every president since - one that has resulted in a world where less than 5% of us (in the United States) consume more than 25% of the resources and nearly half the rest live in poverty - is acceptable.

In fact, it is an abject failure. The only way China, India, Africa and Latin America can adopt this model is if they find five more planets just like ours, except without people.

Most of us understand what my grandson does not--that his life is threatened by the crises generated during our watch. The question is not about prevention. It is not about retuning to "normal." Nor is it about getting rid of capitalism.

The solution lies in replacing Milton Friedman's mantra that "the goal of business is to maximize profits, regardless of the social and environmental costs" with a more viable one: "Make profits only within the context of creating a sustainable, just, and peaceful world," and to create an economy based on producing things the world truly needs.

There is nothing radical or new about such a goal. For more than a century after the founding of this country, states granted charters only to companies that proved they were serving the public interest and shut down any that reneged. That changed after an1886 Supreme Court decision that bestowed on corporations the rights granted to individuals--without the responsibilities required of individuals.

As an EHM, I participated in many of the events that propelled us into this dangerous territory. As a writer and lecturer, I spent the past few years touring the United States and visiting China, Iceland, Bolivia, India, and many other countries, speaking to political and business leaders, students, teachers, laborers, and all manner of people. I read books about Obama's economic plans, current schemes for reforming Wall Street, and other policies. It struck me that most of the discussions dealt with triage and that while we need to stop the hemorrhaging, we must also ferret out the virus that caused these symptoms.

Hoodwinked presents a plan for a long-term cure. During the days following its November 10, 2009 publication, I spoke about this plan at the United Nations, on radio and TV programs, and at a conference attended by 2400 MBA students at Cornell University.

I come away feeling hopeful that we are finally ready to take Omar's warning to heart and to implement the transformation that will be the salvation for my grandson's generation.

The Global Financial Meltdown - Admin - 11-24-2009


The Wave Is Gathering Force and Is Most Likely to Hit the Global Economy Between the First and Second Quarter of 2010. Count On It! -
Matthias Chang
Sunday, 22 November 2009

Many of my friends who have been receiving my e-mail alerts over the last two years have lamented that in recent weeks I have not commented on the state of the global economy. I appreciate their anxiety but they forget that I am not a stock market analyst who is paid to write articles to lure investors back into the market. My website is free and I do not sell a financial newsletter so there is no need for me to churn out daily forecasts or analysis.

However, when the data is compelling and supports an inevitable trend, it is time for another review. This Red Alert is to enable visitors to my website to take appropriate actions to safeguard their wealth and welfare of their families in the coming months.

Since the last quarter of 2008, unrelenting currency warfare has been waged by the key global economies and while this competition thus far has been non-antagonistic, it will soon be antagonistic because the inherent differences are irreconcilable. The consequences to the global economy will be devastating and for the ordinary people, massive unemployment and social unrest are assured.

The policy-makers of these countries faced with the total collapse of the international financial architecture have concluded that the solution, the only solution is quantitative easing (i.e. massive injection of liquidity) to salvage the “too big to fail” banks and reflate their depressed economies. This is best reflected in Bernanke’s candid remark that, “the US government has a technology, called the printing press (or today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost”.

This is the crux of the problem!

The Irreconcilable Differences

Some two decades ago, it was decided by the global financial elites that the framework for the global economy shall consist of:

1)    A global derivative-based financial system, controlled by the US Federal Reserve Bank and its associate global banks in the developed countries.

2)    The re-location from the West to the East in the production of goods, principally to China and India to “feed” the developed economies.

The entire system was built on a simple principle, that of a FED-controlled global reserve currency which will be the engine for growth for the global economy. It is essentially an imperialist economic principle.

Once we grasp this fundamental truth, Bernanke’s boast that the “US can produce as many US dollars as it wishes at no cost” takes on a different dimension.

I have talked to so many economists and when asked what is the crux of the present financial problem, they all respond in unison, “it is the global imbalances… the West consumes too much while the East saves too much and consumes not enough”. This is exemplified by the huge US trade deficits on the one part and China’s massive surpluses on the other.  

Incredible wisdom and almost everyone echoes this mantra. The recent concluded APEC Summit was no different. This mantra was repeated as well as the call for freer trade between trading nations.

This is a grand hoax. All the current leaders on the world’s stage are corrupted to the rotten core and as such have no interest to call a spade a spade and expose the inherent contradictions within the existing financial system.

The call for a multi-polar world is meaningless when the entire global financial system is based on the unipolar US dollar reserve currency. This is the inherent contradiction within the present system and the problems associated with it cannot be resolved by another global reserve currency based on the IMF’s Special Drawing Rights as advocated by some countries. It was stillborn, the very moment it was conceived!

The leaders of China, Japan and the oil producing countries of the Middle East are all cursing and pissing about the current situation, but they don’t have the courage of their convictions to spell it out to their countrymen that they have been conned by the financial spin masters from the Fed acting on the instructions from Goldman Sachs.

Tell me which leader would dare admit that they have exchanged the nation’s wealth for toilet papers?

The toilet paper currency pantomime continues.

We have now reached a stalemate in the current currency war, not unlike the situation of the Cold War between the NATO pact countries and the Warsaw pact countries. Both sides were deterred by the MAD (Mutually Assured Destruction) doctrine of nuclear wars. The costs to both sides were horrendous and it was only when the Soviet Union could not continue with the pace and cost of maintaining a nuclear deterrent and was forced into bankruptcy that the balance tilted in favour of the NATO alliance.

But it was a pyrrhic victory for the US and it allies. What kept the ability of the US to maintain its military might and outspend the Soviet Union was the right to print toilet paper currency and the acceptance of the US dollar by her allies as the world’s reserve currency.

But why did the countries allied to the US during the Cold War accepted the status quo?

Simple! They were all conned into believing that without the protection of Big Brother and its military outreach, they would be swallowed up by the communist menace. They agreed to march to the tune of the US Pied-Piper.

The next big question – why did the so-called “liberated” former communist allies of the Soviet bloc jump on the bandwagon?

Simple! They all believed in the illusion that was fostered by the global banks, led by Goldman Sachs that trading and selling their goods and services for the toilet paper US reserve currency would ensure untold wealth and prosperity.

But the biggest game in town was the Asia gambit. Japan, after a decade of recession following the burst of her property bubble did not have the means and the capacity to bring the game to the next level as envisaged by the financial architects in Goldman Sachs.  

And China was the biggest beneficiary. The senior management of Goldman Sachs brokered a secret pact with China’s leaders that in exchange for orchestrating the most massive injection of US dollar capital and wholesale re-location of manufacturing capacity in the history of the global economy, China would recycle their hard-earned US toilet paper reserve currency wealth into US treasuries and other US debt instruments.

This was the necessary condition precedent for the global financial casino to rise to the next level of play.


The New Game

The financial architects at Goldman Sachs had a master plan – to dominate the global financial system. The means to achieve this financial power was the Shadow Banking System, the lynchpin being the derivative market and the securitization of assets, real and synthetic. The stakes would be huge, in the hundreds of US$ trillions and the way to transform the market was through massive leverage at all levels of the financial game.

But there was an inherent weakness in the overall scheme – the threat of inflation, more precisely hyperinflation. Such huge amount of liquidity in the system would invariably trigger the depreciation of the reserve currency and the confidence in the system.

Hence the need for a system to keep in check price inflation and the illusion that the purchasing power of the toilet paper reserve currency could be maintained.

This is where China came in. Once China became the world’s factory, the problem would be resolved.  When a suit which previously cost US$600 could be had for less than US$100, and a pair of shoes for less than US$5, the scam masterminds concluded that there would be no foreseeable threat to the largest casino operation in history.

China agreed to the exchange as it has over a billion mouths to feed and jobs for hundreds of millions needed to be secured, without which the system could not be maintained. But China was pragmatic enough to have two “economic systems” – a Yuan based domestic economy and a US$ based export economy, in the hope that the profits and benefits of the export economy would enable China to transform and establish a viable and dynamic domestic market which in time would replace the export dependent economy. It was a deal made with the devil, but there were no viable alternative options at the material time, more so after the collapse of the Soviet Union.

The Next Level of the Game

The next level of the game was reached when the toilet paper reserve currency literally went virtual – through the simple operation of a click of the mouse in the computers of the global banks.

The big boys at Goldman Sachs and other global banks were more than content to leave Las Vegas for the mafia and their miserable billions in turnover. The profits were considered dimes when compared to the hundreds of trillions generated by the virtual casino. It was a financial conquest beyond their wildest dreams. They even called themselves, “Master of the Universe”. Creating massive debts was the new game, and the big boys could even leverage more than 40 times capital! Asset values soared with so much liquidity chasing so few good assets.

However, the financial wizards failed to appreciate and or underestimate the amount of financial products that were needed to keep the game in play. They resorted to financial engineering – the securitization of assets. And when real assets were insufficient for securitization, synthetic assets were created. Soon enough, toxic waste was even considered as legitimate instruments for the game so long as it could be unloaded to greedy suckers with no recourse to the originators of these so-called investments.

For a time, it looked as if the financial wizards have solved the problem of how to feed the global casino monster.

Unfortunately, the music stopped and the bubble burst! And as they say the rest is history.

The Goldman Sach’s Remedy

When losses are in the US$ trillions and whatever assets / capital remaining are in the US$ billions, we have a huge problem – a financial black-hole.

The preferred remedy by the financial masterminds at Goldman Sachs was to create another hoax – that if the big global banks were to fail triggering a systemic collapse, there would be Armageddon. These “too big to fail” banks must be injected with massive amount of virtual monies to recapitalize and get rid of the toxic assets on their balance sheet. The major central banks in the developed countries in cahoots with Goldman Sachs sang the same tune. All sorts of schemes were conjured to legitimize this bailout.

In essence, what transpired was the mere transfer of monies from the left pocket to the right pocket, with the twist that the banks were in fact helping the Government to overcome the financial crisis.

The Fed and key central banks agreed to lend “virtual monies” to the “too big to fail” global banks at zero or near zero interest rate and these banks in turn would “deposit” these monies with the Fed and other central banks at agreed interest rates. These transactions are all mere book entries.  Other “loans” from the Fed and central banks (again at zero or near zero interest rates) are used to purchase government debts, these debts being the stimulus monies needed to revive the real economy and create jobs for the growing unemployed. So in essence, these banks are given “free money” to lend to the government at prior agreed interest rates with no risks at all.  It is a hoax!

These “monies” are not even the dollar bills, but mere book entries created out of thin air.

So when the Fed injects US$ trillions into the banking system, it merely credits the amount in the accounts of the “too big to fail” banks at the Fed.

When the system is applied to international trade, the same modus operandi is used to pay for the goods imported from China, Japan etc.

For the rest of the world, when buying goods denominated in US$, these countries must produce goods and services, sell them for dollars in order to purchase goods needed in their country. Simply put, they have to earn an income to purchase whatever goods and services needed. In contrast, all that the US needs to do is to create monies out of thin air and use them to pay for their imports!

The US can get away with this scam because it has the military muscle to compel and enforce this hoax. As stated earlier, this status quo was accepted especially during the Cold War and with some reluctance post the collapse of the Soviet Union, but with a proviso – that the US agrees to be the consumer of last resort. This arrangement provided some comfort because countries which have sold their goods to the US, can now use the dollars to buy goods from other countries as more than 80 per cent of world trade is denominated in dollars especially crude oil, the lifeline of the global economy.

But with the US in full bankruptcy and its citizens (the largest consumers in the world) being unable to borrow further monies to buy fancy goods from China, Japan and the rest of the world, the demand for dollar has evaporated. The dollar status as a reserve currency and its usefulness is being questioned more vocally.

The End Game

The present fallout can be summarized in simple terms:    

Should a bankrupt (the US) be allowed to use money created out of thin air to pay for goods produced with the sweat and tears of hardworking citizens of exporting countries? Adding insult to injury, the same dollars are now purchasing a lot less than before. So what is the use of being paid in a currency that is losing rapidly its value?

On the other hand, the US is telling the whole world, especially the Chinese that if they are not happy with the status quo, there is nothing to stop them from selling to the other countries and accepting their currencies. But if they want to sell to the mighty USA, they must accept US toilet paper reserve currency and its right to create monies out of thin air!

This is the ultimate poker game and whosoever blinks first loses and will suffer irreparable financial consequences. But who has the winning hand?

The US does not have the winning hand. Neither has China the winning hand.

This state of affairs cannot continue for long, for whatever cards the US or China may be contemplating to throw at the table to gain strategic advantage, any short term gains will be pyrrhic, for it will not be able to address the underlying antagonistic contradictions.

When the survival of the system is dependent on the availability of credit (i.e. accumulating more debts) it is only a matter of time before both the debtor and creditor come to the inevitable conclusion that the debt will never be paid. And unless the creditor is willing to write off the debt, resorting to drastic means to collect the outstanding debt is inevitable.

It would be naïve to think that the US would quietly allow itself to be foreclosed! When we reach that stage, war will be inevitable. It will be the US-UK-Israel Axis against the rest of the world.

The Prelude to the End Game

The US economy will be spiraling out of control in the coming months and will reach critical point by the end of the 1st quarter 2010 and implode by the 2nd quarter.

The massive US$ trillions of dollars stimulus has failed to turn the economy around. The massive blood transfusion may have kept the patient alive, but there are numerous signs of multi-organ failure.

There will be another wave of foreclosures of residential and more importantly commercial properties by end December and early 2010. And the foreclosed properties in 2009 will lead to depressed prices once they come through the pipeline. Home and commercial property values will plunge. Banks’ balance sheets will turn ugly and whatever “record profits” in the last two quarters of 2009 will not cover the additional red ink.

Given the above situation, will the Fed continue to buy mortgage-backed securities to prop up the markets? The Fed has already spent trillions buying Fannie Mae and Freddie Mac mortgages with no potential substitute buyer in sight. Therefore, the Fed’s balance sheet is as toxic as the “too big to fail” banks that it rescued.

In the circumstances, it makes no sense for anyone to assert that the worst is over and that the global economy is on the road to recovery.

And the surest sign that all is not well with the big banks is the recent speech by the President of the Federal Reserve Bank of New York, William Dudley at Princeton, New Jersey when he said that the Fed would curtail the risk of future liquidity crisis by providing a “backstop” to solvent firms with sufficient collateral.

This warning and assurance deserves further consideration. Firstly, it is a contradiction to state that a solvent firm with sufficient collateral would in fact encounter a liquidity crisis to warrant the need for a fall back on the Fed. It is in fact an admission that banks are not sufficiently capitalized and when the second wave of the tsunami hits them again, confidence will be sorely lacking.

Dudley actually said that, “the central bank could commit to being the lender of last resort… [and this would reduce] the risk of panics sparked by uncertainty among lenders about what other creditors think”.

To put it bluntly what he is saying is that the Fed will endeavour to avoid the repeat of the collapse of Bear Stearns, Lehman Bros and AIG. It is also an indication that the remaining big banks are in trouble.

It is interesting to note that a Bloomberg report in early November revealed that Citigroup Inc and JP Morgan Chase have been hoarding cash. The former has almost doubled its cash holdings to US$244.2 billion. In the case of the latter, the cash hoard amounted to US$453.6 billion. Yet, given this hoarding by the leading banks, the New York Federal Reserve Bank had to reassure the financial community that it is ready to inject massive liquidity to prop up the system.

It should come as no surprise that the value of the dollar is heading south.      

When currencies are being debased, volatility in the stock market increases. But the gains are not worth the risks and if anyone is still in the market, they will be wiped out by the 1st quarter of 2010. The S&P may have shot up since the beginning of the year by over 25 per cent but it has been out-performed by gold. The gains have also lagged behind the official US inflation rate. It has in fact delivered a total return after inflation of approximately minus 25 per cent. When Meredith Whitney remarked that, “I don’t know what’s going on in the market right now, because it makes no sense to me”, it is time to get out of the market fast.

In a report to its clients, Sociétté Général warned that public debt would be massive in the next two years – 105 per cent of GDP in the UK, 125 per cent in the US and in Europe and 270 per cent in Japan. Global debt would reach US$45 trillion.

At some point in time, all these debts must be repaid. How will these debts be repaid?

If we go by what Bernanke has been preaching and practising, it means more toilet paper currency will be created to repay the debts.

As a result, debasement of currencies will continue and this will further aggravate existing tensions between the competing economies. And when creditors have enough of this toilet paper scam, expect violent reactions!

Richard C. Cook

The United States does not control its own destiny. Rather it is controlled by an international financial elite, of which the American branch works out of big New York banks like J.P. Morgan Chase, Wall Street investment firms such as Goldman Sachs, and the Federal Reserve System. They in turn control the White House, Congress, the military, the mass media, the intelligence agencies, both political parties, the universities, etc. No one can rise to the top in any of these institutions without the elite’s stamp of approval.

This elite has been around since the nation began, becoming increasingly dominant as the 19thcentury progressed. A key date was passage of the National Banking Act of 1863, when the system was put into place whereby federal government debt was used to collateralize bank lending. Since then we’ve paid the freight through our taxes for bank control of the economy. The final nails in the coffin came with the passage of the Federal Reserve Act of 1913.

In 1929 the bankers plunged the nation into the Great Depression by constricting the money supply. With Franklin D. Roosevelt as president, the nation struggled through the decade of the 1930s but did not pull out of the Depression until the industrial explosion during World War II.

After the war came the Golden Age of the U.S. economy, when the working man, protected by strong labor unions, became a true partner in the prosperity of the industrial age. That era lasted a full generation. The bankers were largely spectators as Americans led the world in exports, standard of living, science and space exploration, and every measure of health, longevity, and culture.

Roosevelt had kept the bankers subservient to the interests of the economy at large. The Federal Reserve was part of the New Deal team, and interest rates were held at historic lows despite a large federal deficit. One main impact was the huge increase in home ownership. After World War II, the G.I. Bill allowed home ownership to grow further and millions of veterans to attend college. The influx of educated graduates led to productivity growth and the emergence of new high-tech industries.

But the bankers were laying their plans. In the early 1950s they got the government to agree to allow the Federal Reserve to escape its subservience to the U.S. Treasury Department and set interest rates on its own. Rates rose throughout the 1950s and 1960s. By the time of the interest rate hikes of 1968, the economy was slowing down. Both federal budget and trade deficits were beginning to replace the post-war surpluses. High interest rates were the likely cause.

In 1971, President Richard Nixon removed the dollar’s gold peg, allowing the huge inflation resulting from oil price increases that the international bankers engineered through control of U.S. foreign policy when Henry Kissinger was national security adviser and secretary of state. Nixon’s opening to China resulted in early agreements, also overseen by banking interests, to begin to transfer U.S. industry to overseas producers like China which had cheap labor costs.

By the mid-1970s, the U.S. had been taken over by a behind the scenes coup-d’etat that included events in 1963 when President John F. Kennedy was assassinated by a conspiracy that could only have been instigated by the highest levels of world financial control. In the election of 1976, David Rockefeller succeeded in placing fellow Trilateral Commission member Jimmy Carter in the White House, but Carter upset the banking community, thoroughly Zionist in orientation, by working toward peace in the Middle East and elsewhere.

I was working in the Carter White House in 1979-80. Unbeknownst to the president, Federal Reserve Chairman Paul Volcker, another Rockefeller protégé, suddenly raised interest rates to fight the inflation the bankers had caused by the OPEC oil price deals, and plunged the nation into recession. Carter was made to look weak and uninformed and was defeated in the election of 1980 by Republican candidate Ronald Reagan. It was through the “Reagan Revolution” that the regulatory controls over the banking industry were lifted, mainly in allowing the banks to use their fractional reserve privileges in making mortgage loans.

Volcker’s recession shattered American manufacturing and hastened the flight of jobs abroad. Under the “Reagan Doctrine,” the U.S. military embarked on an unprecedented mission of world conquest by attacking one small nation at a time, starting with Nicaragua. Global capitalism was also on the march, with the U.S. armed forces its own private police force. With the invasion of Iraq under George H.W. Bush in 1991, mainland Asia was revealed as the principle target.

The economy was floated by productivity gains through computer automation and a huge sell-off of assets through the merger-acquisition bubble of the late 1980s which ended in a recession. This resulted in the defeat of Bush by Bill Clinton in the election of 1992. Clinton was able to create another bubble through a strong dollar policy that attracted foreign capital.

The dot-com bubble that resulted lasted all the way through to the crash of December 2000. Meanwhile, the U.S. Air Force led the way in the destruction of the sovereign state of Yugoslavia, whereby the international bankers took over the resource wealth of the entire Balkan region, and the U.S. military gained forward bases for further incursions into Asia.

Do we need to say that none of this was ever voted on by the American electorate? But they bought into it nevertheless, both with their silence and through participation in a generally favorable job market in the emerging service occupations, particularly finance.

By the time George W. Bush was inaugurated president in January 2001, the U.S. was facing a disaster. $4 trillion in wealth had vanished when the bubble collapsed. NAFTA caused even more American manufacturing jobs to disappear abroad. The Neocons who were moving into key jobs in the Pentagon knew they would soon have new wars to fight in the Middle East, with invasion plans for Afghanistan and Iraq ready to be pulled off the shelf.

But the U.S. had no economic engine available to generate the tax revenues Bush would need for the planned wars. At this moment Chairman Alan Greenspan of the Federal Reserve stepped in. Over a two year period from 2001-2003 the Fed lowered interest rates by over 500 basis points. Meanwhile, the federal government removed all regulatory controls on mortgage lending, and the housing bubble was on. $4 trillion in new home loans were pumped into the economy, much of it through subprime loans borrowers could not afford.

The Fed began to put on the brakes in 2003, but the mighty work of re-floating a moribund economy had been accomplished. By late 2006 another recession loomed, but it would take two more years before the crisis of October 2008 brought the entire system down.

The impact on the job market was immediate and profound. By the time Barack Obama was elected president in November 2008, the U.S. was mired in seemingly endless wars in Afghanistan and Iraq, and the worst recession since the Great Depression was picking up speed. In order to prevent total disaster, the Bush administration ended its eight years of catastrophic misrule with a flourish, by allocating over $700 billion in financial system bailouts to cover the bad loans the banks had been making since Greenspan gave the housing bubble the green light.

It is now November 2009. Since Barack Obama was inaugurated in January, unemployment has soared from 7.9 percent to 10.2 percent. A few hundred billion dollars were allocated for “stimulus” purposes, but most of that went to pay unemployment benefits and to keep state and local governments from laying off more employees.

A fraction has been distributed for highway improvements, but largely through the bank bailouts the federal deficit has been running at an annual rate of $1.5 trillion, by far the largest in history, with the national debt now topping $12 trillion. Ironically, those Americans who still have productive jobs continue to grow in efficiency, with productivity up over five percent in the last year.

So much federal money has been spent that the Obama administration has been struggling to make its health care proposals budget-neutral through a raft of new taxes, fees, and penalties, and by announcing in recent days that the government’ first priority must now shift to deficit reduction. The word “austerity” has been mentioned for the first time since the Carter administration. Yet Congress voted $655 billion in military expenditures to continue fighting in the Middle East. A U.S. military attack on Iran, possibly in conjunction with Israel, would surprise no one.

So where do we now stand?

At present, the Federal Reserve is trying to prevent a total economic collapse. Interest rates are near-zero, to the chagrin of foreign investors in U.S. Treasury securities, and close to half of new Treasury debt instruments have been bought by the Federal Reserve itself as a way of providing free money for federal government expenditures.

But the U.S. economy shows no signs of coming back, with no economic driver emerging that could bring it back. For all the talk about alternative energy, there has been no significant growth of any home-grown industry that could possibly make up so much lost ground in either the short or the long-term.

The industries in the U.S. that are holding up are the military, including arms exports, universities that are attracting large numbers of students from abroad, especially China, and health care, especially for the aging baby boomer population. But the war industry produces nothing with a long-term economic benefit, and health care exists mainly to treat sick people, not produce anything new.

None of this provides a foundation that can bring about a restoration of prosperity to 300 million people when the jobs of making articles of consumption are increasingly scarce. On top of everything else, since government inevitably looks to its own requirements first, the total tax burden continues to increase to the point where the average employee now pays close to 50 percent of his or her income on taxes of all types, including federal and state income taxes, real estate taxes, payroll taxes, excise taxes, government fees, etc. Plus the cost of utilities continues to rise steadily and threatens to skyrocket if cap-and-trade legislation is passed.

The Obama administration has no plans to deal with any of this. They have projected a budget for 15 years hence that shows the budget deficit decreasing and tax revenues going way up, but it is all lies. They have no roadmap for getting us there and no plans for following the roadmap if it portrayed a realistic goal. And yet the U.S. military is still trying to conquer Asia. It is madness.

And it is madness because the big decisions are not made by the U.S., by Congress, or by the Obama administration. The U.S. has, for half-a-century, been marching to the tune played by the international financial elite, and this fact did not change with the election of 2008. The financiers have put the people of this nation $57 trillion in debt, according to the latest reports, counting debt at the federal, state, business, and household levels. Interest alone on this debt is over $3 trillion of a GDP of $14 trillion. Failure of our political leadership to deal with this tragedy over the past three decades is nothing less than treason.

But then again, at some point the decision was made that the U.S. and its population would be discarded by history, the economic status of the nation reduced to a shadow of what it once was, but that its military machine would be used for the financial elite’s takeover of the world until it is replaced by that of some other nation. All indications are that the next country up to bat as military enforcer for the financiers is China.

There you have it. That, in my opinion, is the past, present, and future of this nation in a nutshell. Great evils have been done in the world in the last century, and there is nothing anyone can do about it.

Except…. and that’s what each person caught up in these travesties must decide. What are you going to do about it?

In mulling over this question, it would be wise to recognize that the dominance of the financial elite has largely been exercised through their control of the international monetary system based on bank lending and government debt. Therefore it’s through the monetary system that change can and must be made.

The progressives are wrong to think the government should go deeper in debt to create more jobs. This will just create an even deeper hole of debt future generations will have to crawl out of.

Rather the key is monetary reform, whether at the local or national levels. People have lost control of their ability to earn a living. But change could be accomplished through sovereign control by people and nations of the monetary means of exchange.

This control has been stolen. It is time to take it back. One way would be for the federal government to make a relief payment to each adult of $1,000 a month until the crisis lifted. This money could be earmarked for goods and services produced within the U.S. and used to capitalize a new series of community development banks. I have called this the “Cook Plan.”

The plan could be funded through direct payment from a Treasury relief account without new taxes or government borrowing. The payments would be balanced on the credit side by GDP growth or be used by individuals to pay off debt. It would be direct government spending as was done with Greenbacks before and after the Civil War without significant inflation.

Another method increasingly being used within the U.S. today is local and regional credit clearing exchanges and the use of local currencies or “scrip.” Use of such currencies could be enhanced by legislation at the state and federal levels allowing these currencies to be used for payment of taxes and government fees as well as payment of mortgages and other forms of bank debt. The credit clearing exchanges could be organized as private non-profit regional currency co-operatives similar to credit unions.

These would be immediate emergency measures. In the longer run, sovereign control of money and credit must be returned to the public commons and treated as public utilities. This does not mean exclusive government control to replace bank control. As stated previously, it would be done in partnership between government and private trade exchanges. Nor does it mean government takeover of business, industry, or the banking system, though all should be regulated for the common good and fairly taxed.

This program would lead to a new monetary paradigm where money and credit would be available by, as, when, and where needed, to facilitate trade between and among legitimate producers of goods and services. In this way trade and commerce will come to serve human freedom, not diminish it as is done with today’s dysfunctional partnership between big government trillions of dollars in debt and big finance with the entire world in hock.

Such a change would be a true populist revolution.

Richard C. Cook is a former federal analyst who writes on public policy issues. He is an advisor to the American Monetary Institute on its model monetary reform legislation soon to be introduced in Congress. His latest book is We Hold These Truths: The Hope of Monetary Reform. His website

RE: The Global Financial Meltdown - Admin - 11-25-2009

Timothy V. Gatto

The truth that most people realize but can’t openly talk about is that America has seen better days and that the system of capitalism has long outlived its usefulness. The last part of that sentence, that capitalism has outlived its usefulness, is thoroughly the fault of the capitalists themselves.

For many years now, transnational corporations have sent much of America’s manufacturing overseas in order to take advantage of low cost workers. About the only manufacturing this country does on a large scale is earth moving equipment (Caterpillar) and military equipment. Boeing, Northrop-Grumman, Raytheon, General Electric and firms like that are the major remnants of a once thriving industrial base that made America. Detroit is still trying to hang in there, but shortfalls in sales have left it up to the workers in these plants to take it on the chin as their pay and benefits get cut.

The Dow is trying to make a comeback but the way I see it, much of the rise of “blue-chip” stocks is really more wishful thinking than serious thought. The stocks being sold on the backs of some of these companies are being bought on speculation that the market will go higher based on the rise of the GDP. The question that I would like to ask, is how far can the GDP go when 70% of the GDP is based on consumer spending? Where is consumer spending going to come from when realistically over 16% of the people in America aren’t working?

In an essay, written by Richard Heinberg entitled “Should We Prop-up a Dying Economy” (19 October 2009), he argues that the economists and the people who follow physical science disagree sharply about where this economy is going. Peak Oil, whether it is present now or just years away, will mean that the economy will contract. The economists state that growth can happen in any environment, yet it is apparent that when oil prices spiked in 2008, the auto industry and the airline industry almost went belly-up. Shrinkage of energy means shrinkage in the economy, we have all been under the notion that we can borrow against a growing economy. The facts are that if the economy does not grow, there will be very little in the growth of capital to repay debts that are leveraged at an average of an average of 350% of debt to GDP ratio. Where will new capital come from?

As the price of petroleum becomes higher, imported goods will become more expensive. When our government fails to repay our foreign creditors, or pays them back in hyper-inflated dollars, there will be no credit issued to this country. This can be a significant problem because we currently use 25% of the world’s oil supply and we buy that oil on credit. He says;

“We have entered a new economic era in which the former rules no longer
apply. Low interest rates and government spending no longer translate to
incentives for borrowing and job production. Cheap energy won't appear
just because there is demand for it. Substitutes for essential resources
will in most cases not be found. Over all, the economy will continue to
shrink in fits and starts until it can be maintained by the energy and
material resources that Earth can supply on ongoing basis.”

That is frightening to say the least. I believe that what our government should be doing is to listen to the scientists and stop listening to the economists. We have already borrowed almost 24 BILLION dollars, that is $80,000 for every man, woman and child in the U.S. We are robbing our future to pay for an economy that is unsustainable. Without economic growth, the banks, the investment houses and the insurance companies are bound to fail anyway. We might as well let them fail and get on with the business of restoring a sustainable economy.

In a talk called “The Five Stages of Collapse”, by Dmitry Orlov, a former Russian that watched the collapse of the Soviet Union, they are;

The Five Stages of Collapse

1. Stage one: Financial Collapse

2. Commercial Collapse

3. Political Collapse

4. Social Collapse

5. Cultural Collapse

This isn’t the warning of a horror show, but unless we start to prepare for a full or partial collapse, it could be worse than it has to be. He envisions a breakdown of society gradually replaced by stronger knit communities that must depend on each other for basic needs or it could be a complete breakdown of utter anarchy.

Meanwhile the Eagle sits on its perch, fighting wars in foreign lands while spending billions of American dollars doing it. The average American will see no benefit or harm whether we win or lose against the Taliban in Afghanistan. What we will have done however, is strap Americans with more debt and more use of precious resources. The American eagle is getting a little bit wobbly on its perch and it wouldn’t surprise me to see all American soldiers taken from all overseas assignments and brought back to this country just to deal with the economic collapse, and because we can no longer afford to keep them overseas.

We need to start thinking about where we live and how we will survive an economic collapse. When the federal government can no longer function, what will we do to replace it? How are individuals to survive when essential goods and services become extinct? This isn’t a future scenario that will happen twenty or thirty years from now, no! We are already experiencing it.

We can continue to live our daily lives watching TV and the advertisements that lull us into a false sense of security that everything is well, or we can start making provisions to deal with the calamity that lies ahead. We can provision staples, use alternative energy sources to heat our homes or assist us in heating them, and we can start talking with each other and get to know the neighbor that lives across the street that you have never talked to.

I’m really not an alarmist, but I see the merit of what so many scientists are predicting. Not only will Peak Oil stop economic growth, but climate change according to a UN report will bring desertification to 70% of the planet by 2025. Maybe petroleum peaking out is in reality what may save our planet. Maybe a return to simpler ways to live and work will stop the CO2 emissions, but I don’t think so. Third world countries are surpassing the industrialized countries in carbon emissions by burning coal. What I would like to know is who is really minding this nation’s business? What is the Federal government doing when scientific fact is thrown in their face? While Obama listens to Timothy Geitner and Ben Bernanke and other Goldman Sacks alumni, a company that produces nothing and makes money by buying low and selling high with government funds, where are the people that see what’s happening? If I can understand the ramifications of what is happening in front of my face, what about the President of the United States? Is he really ignorant or does he just not wish to deal with it? I’m curious; maybe someone in the executive branch can give us answers. It would be in everyone’s best interest to have people starting to deal with reality instead of putting their head in the sand. Maybe the American eagle should be replaced with the ostrich.