"In a time of universal deceit telling the truth is a revolutionary act." -George Orwell

Posts Tagged ‘Global Debt Crisis’

Syrian “Intervention”: Making The World Safe For Banksters

In Uncategorized on September 10, 2013 at 1:20 pm

Oldspeak: “D’oh! U.S. Secretary of State John Kerry may have royally screwed the pooch on the war plan by saying”that Bashar al-Assad, the Syrian president, could avoid strikes by agreeing to give up his chemical weapons. “He could turn over every single bit of his chemical weapons to the international community in the next week — turn it over, all of it, without delay and allow the full and total accounting,” . He inadvertently gave the Syrians an out! The Russians, eager to protect one of their last remaining client states in the middle east, jumped on the opportunity to avoid regime change, by making the Syrians agree to give up their chemical weapons ASAP and the Syrians have “welcomed it”. So now the warmongers have to pump their brakes and possibly halt the escalation of their proxy war with the Russians. One has to wonder why the Nobel Peace Prize winner has been soooo hot to go to war on flimsy intelligence and amidst reports that both sides are guilty of war crimes? All for bombing, with detailed, documented, technically compliant & publicly available reports of atrocities committed by Syrian rebels, including releases of chemical weapons?! Why is bombing Syria an option after an alleged, unconfirmed and still being investigated Syrian government chemical weapons release, but not after a confirmed report of rebel chemical weapons release, known of since APRIL!? Greg Palast and Ellen Hodges Brown may have uncovered the answer:

Greg Palast posted evidence of a secret late-1990s plan devised by Wall Street and U.S. Treasury officials to open banking to the lucrative derivatives business. To pull this off required the relaxation of banking regulations not just in the US but globally. The vehicle to be used was the Financial Services Agreement of the World Trade Organization. The “end-game” would require not just coercing support among WTO members but taking down those countries refusing to join. Some key countries remained holdouts from the WTO, including Iraq, Libya, Iran and Syria. In these Islamic countries, banks are largely state-owned; and “usury” – charging rent for the “use” of money – is viewed as a sin, if not a crime. That puts them at odds with the Western model of rent extraction by private middlemen. Publicly-owned banks are also a threat to the mushrooming derivatives business, since governments with their own banks don’t need interest rate swaps, credit default swaps, or investment-grade ratings by private rating agencies in order to finance their operations….

Countries laboring under the yoke of an extractive private banking system are being forced into “structural adjustment” and austerity by their unrepayable debt. But some countries have managed to escape. In the Middle East, these are the targeted “rogue nations.” Their state-owned banks can issue the credit of the state on behalf of the state, leveraging public funds for public use without paying a massive tribute to private middlemen. Generous state funding allows them to provide generously for their people.

Like Libya and Iraq before they were embroiled in war, Syria provides free education at all levels and free medical care. It also provides subsidized housing for everyone (although some of this has been compromised by adoption of an IMF structural adjustment program in 2006 and the presence of about 2 million Iraqi and Palestinian refugees). Iran too provides nearly free higher education and primary health care.

Like Libya and Iraq before takedown, Syria and Iran have state-owned central banks that issue the national currency and are under government control. Whether these countries will succeed in maintaining their financial sovereignty in the face of enormous economic, political and military pressure remains to be seen.” -Ellen Hodges Brown

So no, this war is not about preventing the use of chemical weapons by the Syrian government. It’s about money. Specifically unregulated  and private gambling with other people’s money, then forcing them to pay when the gamble goes bad. It’s about aggressively continuing the relentless march of  Really Existing Capitalist Democracy around the world. Everything privatized. All under corprocratic control and surveillance. A globally controlled debt creation & extraction system, that no one can avoid paying tribute to; religion be damned. Oh, and securing Syria’s oil and routes for gas pipelines. -OSJ

By Ellen Hodges Brown @ Web Of Debt:

The powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.

— Prof. Caroll Quigley, Georgetown University, Tragedy and Hope (1966)

Iraq and Libya have been taken out, and Iran has been heavily boycotted. Syria is now in the cross-hairs. Why? Here is one overlooked scenario. 

In an August 2013 article titled “Larry Summers and the Secret ‘End-game’ Memo,” Greg Palast posted evidence of a secret late-1990s plan devised by Wall Street and U.S. Treasury officials to open banking to the lucrative derivatives business. To pull this off required the relaxation of banking regulations not just in the US but globally. The vehicle to be used was the Financial Services Agreement of the World Trade Organization.

The “end-game” would require not just coercing support among WTO members but taking down those countries refusing to join. Some key countries remained holdouts from the WTO, including Iraq, Libya, Iran and Syria. In these Islamic countries, banks are largely state-owned; and “usury” – charging rent for the “use” of money – is viewed as a sin, if not a crime. That puts them at odds with the Western model of rent extraction by private middlemen. Publicly-owned banks are also a threat to the mushrooming derivatives business, since governments with their own banks don’t need interest rate swaps, credit default swaps, or investment-grade ratings by private rating agencies in order to finance their operations.

Bank deregulation proceeded according to plan, and the government-sanctioned and -nurtured derivatives business mushroomed into a $700-plus trillion pyramid scheme. Highly leveraged, completely unregulated, and dangerously unsustainable, it collapsed in 2008 when investment bank Lehman Brothers went bankrupt, taking a large segment of the global economy with it. The countries that managed to escape were those sustained by public banking models outside the international banking net.

These countries were not all Islamic. Forty percent of banks globally are publicly-owned. They are largely in the BRIC countries—Brazil, Russia, India and China—which house forty percent of the global population. They also escaped the 2008 credit crisis, but they at least made a show of conforming to Western banking rules. This was not true of the “rogue” Islamic nations, where usury was forbidden by Islamic teaching. To make the world safe for usury, these rogue states had to be silenced by other means. Having failed to succumb to economic coercion, they wound up in the crosshairs of the powerful US military.

Here is some data in support of that thesis.

The End-game Memo

In his August 22nd article, Greg Palast posted a screenshot of a 1997 memo from Timothy Geithner, then Assistant Secretary of International Affairs under Robert Rubin, to Larry Summers, then Deputy Secretary of the Treasury. Geithner referred in the memo to the “end-game of WTO financial services negotiations” and urged Summers to touch base with the CEOs of Goldman Sachs, Merrill Lynch, Bank of America, Citibank, and Chase Manhattan Bank, for whom private phone numbers were provided.

The game then in play was the deregulation of banks so that they could gamble in the lucrative new field of derivatives. To pull this off required, first, the repeal of Glass-Steagall, the 1933 Act that imposed a firewall between investment banking and depository banking in order to protect depositors’ funds from bank gambling. But the plan required more than just deregulating US banks. Banking controls had to be eliminated globally so that money would not flee to nations with safer banking laws. The “endgame” was to achieve this global deregulation through an obscure addendum to the international trade agreements policed by the World Trade Organization, called the Financial Services Agreement. Palast wrote:

Until the bankers began their play, the WTO agreements dealt simply with trade in goods–that is, my cars for your bananas.  The new rules ginned-up by Summers and the banks would force all nations to accept trade in “bads” – toxic assets like financial derivatives.

Until the bankers’ re-draft of the FSA, each nation controlled and chartered the banks within their own borders.  The new rules of the game would force every nation to open their markets to Citibank, JP Morgan and their derivatives “products.”

And all 156 nations in the WTO would have to smash down their own Glass-Steagall divisions between commercial savings banks and the investment banks that gamble with derivatives.

The job of turning the FSA into the bankers’ battering ram was given to Geithner, who was named Ambassador to the World Trade Organization.

WTO members were induced to sign the agreement by threatening their access to global markets if they refused; and they all did sign, except Brazil. Brazil was then threatened with an embargo; but its resistance paid off, since it alone among Western nations survived and thrived during the 2007-2009 crisis. As for the others:

The new FSA pulled the lid off the Pandora’s box of worldwide derivatives trade.  Among the notorious transactions legalized: Goldman Sachs (where Treasury Secretary Rubin had been Co-Chairman) worked a secret euro-derivatives swap with Greece which, ultimately, destroyed that nation.  Ecuador, its own banking sector de-regulated and demolished, exploded into riots.  Argentina had to sell off its oil companies (to the Spanish) and water systems (to Enron) while its teachers hunted for food in garbage cans.  Then, Bankers Gone Wild in the Eurozone dove head-first into derivatives pools without knowing how to swim–and the continent is now being sold off in tiny, cheap pieces to Germany.

The Holdouts

That was the fate of countries in the WTO, but Palast did not discuss those that were not in that organization at all, including Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and Iran. These seven countries were named by U.S. General Wesley Clark (Ret.) in a 2007 “Democracy Now” interview as the new “rogue states” being targeted for take down after September 11, 2001. He said that about 10 days after 9-11, he was told by a general that the decision had been made to go to war with Iraq. Later, the same general said they planned to take out seven countries in five years: Iraq, Syria, Lebanon, Libya, Somalia, Sudan, and Iran.

What did these countries have in common? Besides being Islamic, they were not members either of the WTO or of the Bank for International Settlements (BIS). That left them outside the long regulatory arm of the central bankers’ central bank in Switzerland. Other countries later identified as “rogue states” that were also not members of the BIS included North Korea, Cuba, and Afghanistan.

The body regulating banks today is called the Financial Stability Board (FSB), and it is housed in the BIS in Switzerland. In 2009, the heads of the G20 nations agreed to be bound by rules imposed by the FSB, ostensibly to prevent another global banking crisis. Its regulations are not merely advisory but are binding, and they can make or break not just banks but whole nations. This was first demonstrated in 1989, when the Basel I Accord raised capital requirements a mere 2%, from 6% to 8%. The result was to force a drastic reduction in lending by major Japanese banks, which were then the world’s largest and most powerful creditors. They were undercapitalized, however, relative to other banks. The Japanese economy sank along with its banks and has yet to fully recover.

Among other game-changing regulations in play under the FSB are Basel III and the new bail-in rules. Basel III is slated to impose crippling capital requirements on public, cooperative and community banks, coercing their sale to large multinational banks.

The “bail-in” template was first tested in Cyprus and follows regulations imposed by the FSB in 2011. Too-big-to-fail banks are required to draft “living wills” setting forth how they will avoid insolvency in the absence of government bailouts. The FSB solution is to “bail in” creditors – including depositors – turning deposits into bank stock, effectively confiscating them.

The Public Bank Alternative

Countries laboring under the yoke of an extractive private banking system are being forced into “structural adjustment” and austerity by their unrepayable debt. But some countries have managed to escape. In the Middle East, these are the targeted “rogue nations.” Their state-owned banks can issue the credit of the state on behalf of the state, leveraging public funds for public use without paying a massive tribute to private middlemen. Generous state funding allows them to provide generously for their people.

Like Libya and Iraq before they were embroiled in war, Syria provides free education at all levels and free medical care. It also provides subsidized housing for everyone (although some of this has been compromised by adoption of an IMF structural adjustment program in 2006 and the presence of about 2 million Iraqi and Palestinian refugees). Iran too provides nearly free higher education and primary health care.

Like Libya and Iraq before takedown, Syria and Iran have state-owned central banks that issue the national currency and are under government control. Whether these countries will succeed in maintaining their financial sovereignty in the face of enormous economic, political and military pressure remains to be seen.

As for Larry Summers, after proceeding through the revolving door to head Citigroup, he became State Senator Barack Obama’s key campaign benefactor. He played a key role in the banking deregulation that brought on the current crisis, causing millions of US citizens to lose their jobs and their homes. Yet Summers is President Obama’s first choice to replace Ben Bernanke as Federal Reserve Chairman. Why? He has proven he can manipulate the system to make the world safe for Wall Street; and in an upside-down world in which bankers rule, that seems to be the name of the game.

Ellen Brown is an attorney in Los Angeles and the author of 11 books. In Web of Debt: The Shocking Truth about Our Money System and How We Can Break Free, she shows how a private banking cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Read other articles by Ellen, or visit Ellen’s website.

 

 

 

A Very Very Mad World: Trying To Stay Sane In An Insane World

In Uncategorized on July 31, 2013 at 4:10 pm

Oldspeak: “Facts are treasonous and dangerous in an empire of lies, fraud and propaganda. It is maddening to watch the country spiral downward, driven to ruin by a psychotic predator class, while the plebs choose to remain willfully ignorant of reality and distracted by their lust for cheap Chinese crap and addicted to the cult of techno-narcissism. We are a country running on heaping doses of cognitive dissonance and normalcy bias, an irrational belief in our national exceptionalism, an absurd trust in the same banking class that destroyed the finances of the country, and a delusionary belief that with just another trillion dollars of debt we’ll be back on the exponential growth track. The American empire has been built on a foundation of cheap easily accessible oil, cheap easily accessible credit, the most powerful military machine in human history, and the purposeful transformation of citizens into consumers through the use of relentless media propaganda and a persistent decades long dumbing down of the masses through the government education system… The examples of our national insanity are almost too vast to document, but any critical assessment of what we’ve done over the last one hundred years reveals the idiocracy that has engulfed our collapsing empire.” -Jim Quinn

“One only need witness the near secret trial and conviction of  U.S. Army whistleblower Bradley Manning for espionage after he courageously exposed the criminality, fraud, corruption and malfeasance rampant in the U.S. Army, to see how treasonous and dangerous exposing facts are in an empire of lies, fraud and propaganda. A couple of key facts Mr Quinn left out in the above 99% spot on quote – the American empire was definitely built on all the things he mentioned, but the building material perhaps most crucial to the success of the American empire project: 1 – hundreds of years free African slave labor. And 2 – the virtual extermination of and forcible appropriation of  the bountiful lands of Native Americans.  Kinda a huge deal. :-D  Anywho, keep trying to stay sane in this insane world. Question everything, reject propaganda, resist censorship, disobey civilly, think critically, think freely and seek truth wherever you find it.” -OSJ

By Jim Quinn @ The Burning Platform:

“I mean—hell, I been surprised how sane you guys all are. As near as I can tell you’re not any crazier than the average asshole on the street.”R.P. McMurphy – One Flew Over the Cuckoo’s Nest

“Years ago, it meant something to be crazy. Now everyone’s crazy.”Charles Manson

 

“In America, the criminally insane rule and the rest of us, or the vast majority of the rest of us, either do not care, do not know, or are distracted and properly brainwashed into acquiescence.”Kurt Nimmo

I have to admit to being baffled by the aptitude of the Wall Street and K Street financial elite to keep their Ponzi scheme growing. I consider myself to be a rational, sane human being who understands math and bases his assessments upon facts and a sensible appraisal of the relevant information obtained from trustworthy sources. Of course, finding trustworthy sources is difficult when you live in a corrupt, crony-capitalist, fascist state, controlled by banking, corporate and military interests who retain absolute control over the mainstream media and governmental propaganda agencies. Those seeking truth must pursue it through the alternative media and seeking out unbiased critical thinkers who relentlessly abide by what the facts expose. This is no time for wishful thinking, delusions and fantasies. In the end, the facts are all that matter. As Heinlein noted decades ago, the future is uncertain so facts are essential in navigating a course that doesn’t lead you to ruin upon the shoals of ignorance.

“What are the facts? Again and again and again – what are the facts? Shun wishful thinking, ignore divine revelation, forget what “the stars foretell,” avoid opinion, care not what the neighbors think, never mind the un-guessable “verdict of history” – what are the facts, and to how many decimal places? You pilot always into an unknown future; facts are your single clue. Get the facts!” ― Robert A. Heinlein

Facts are treasonous and dangerous in an empire of lies, fraud and propaganda. It is maddening to watch the country spiral downward, driven to ruin by a psychotic predator class, while the plebs choose to remain willfully ignorant of reality and distracted by their lust for cheap Chinese crap and addicted to the cult of techno-narcissism. We are a country running on heaping doses of cognitive dissonance and normalcy bias, an irrational belief in our national exceptionalism, an absurd trust in the same banking class that destroyed the finances of the country, and a delusionary belief that with just another trillion dollars of debt we’ll be back on the exponential growth track. The American empire has been built on a foundation of cheap easily accessible oil, cheap easily accessible credit, the most powerful military machine in human history, and the purposeful transformation of citizens into consumers through the use of relentless media propaganda and a persistent decades long dumbing down of the masses through the government education system.

This national insanity is not a new phenomenon. Friedrich Nietzsche observed the same spectacle in the 19th century.

“In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.”

The “solutions” imposed by the supposed brightest financial Ivy League educated minds and corrupt bought off political class upon people of the United States since the Wall Street created 2008 worldwide financial collapse are insane and designed to only further enrich the crony capitalists and their banker brethren. The maniacs are ruling the asylum. John Lennon saw the writing on the wall forty five years ago.

“Our society is run by insane people for insane objectives…. I think we’re being run by maniacs for maniacal ends … and I think I’m liable to be put away as insane for expressing that. That’s what’s insane about it.”John Lennon, Interview BBC-TV (June 22, 1968)

The world is most certainly ruled by a small group of extremely wealthy evil men who desire ever more treasure, supremacy and control, but the vast majority of Americans have stood idly by mesmerized by their iGadgets and believing buying shit they don’t need with money they don’t have is the path to happiness and prosperity, while their wealth, liberty and self-respect were stolen by the financial elite. Our idiot culture, that celebrates reality TV morons, low IQ millionaires playing children’s sports, egomaniacal Hollywood hacks, self-promoting Wall Street financers, and self-serving corrupt ideologue politicians, has been degenerating for decades.

“We are in the process of creating what deserves to be called the idiot culture. Not an idiot sub-culture, which every society has bubbling beneath the surface and which can provide harmless fun; but the culture itself. For the first time, the weird and the stupid and the coarse are becoming our cultural norm, even our cultural ideal.” - Carl Bernstein -1992

The examples of our national insanity are almost too vast to document, but any critical assessment of what we’ve done over the last one hundred years reveals the idiocracy that has engulfed our collapsing empire.

The Madness of Crowds

In reading The History of Nations, we find that, like individuals, they have their whims and their peculiarities, their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”Charles MacKay – Extraordinary Popular Delusions and the Madness of Crowds

We have become a nation that seamlessly goes mad every five years in pursuit of some new delusionary fantasy sold to us by the ruling class, only to see those dreams shattered like a wooden ship on the reef of reality. You can never underestimate the power of human stupidity. Ben Bernanke and his Federal Reserve cronies have printed $2.6 trillion of new money out of thin air since September 2008 in order to prop up their Wall Street owners, who had engineered the largest control fraud (mortgage debt/housing bubble) in world history, recklessly gambled in their ravenous appetite for sordid profits, and drove their firms into insolvency. It took the Federal Reserve 95 years to accumulate a balance sheet of $900 billion of safe U.S. Treasuries.

fed balance sheet

They have insanely quadrupled their balance sheet in the last 5 years by accumulating toxic mortgage debt from Wall Street banks and purchasing the majority of new Treasury debt being issued to fund the Federal government’s insane trillion dollar annual deficits. Bernanke, the corporate media, government apparatchiks, and captured political class act as if this is normal, when it is clearly the act of a desperate ruling class in its final death throes. Bernanke has leveraged his balance sheet 60 to 1. Lehman and Bear Stearns were leveraged 30 to 1 when they collapsed. The 100 basis point move in rates over the space of two months has resulted in Bernanke losing $200 billion and effectively wiping out his $55 billion of capital.

fed 10 year

Of course, in a corrupt regime accounting fraud is encouraged and applauded by the status quo. Just as the spineless accountants on the FASB buckled to threats from Bernanke and Paulson in early 2009 and reversed the requirement that assets be marked to market so the felonious Wall Street banks could fraudulently hide their insolvency, the Federal Reserve has decided their losses don’t matter. The Federal Reserve classifies their losses as an asset. Don’t you wish you could classify your 401k losses and your home value losses as an asset? The tapering bullshit storyline is just another attempt to distract the masses from focusing on the fact that Bernanke will never stop expanding his balance sheet because if he stops the financial system will collapse in a catastrophic implosion. The Ponzi scheme will continue until loss of faith leads to a scramble away from the U.S. dollar.

fed balance sheet

Since the infamous creation of the Federal Reserve by a secretive cabal of bankers and politicians in 1913, the ultimate destination of the American empire was set. Every fiat currency in world history has collapsed. Our entire system has been based on infinite exponential growth. The fallacy of American exceptionalism has been built on an underpinning of pure stupid luck and the issuance of more and more debt. The American empire grew to epic proportions due to the discovery of cheap easily accessible oil in the late 19th century and the physical and economic destruction of Europe, Russia and Japan during World War II. The accumulation of debt was fairly moderate during the glory years after World War II, but began to accelerate after the fateful year of 1971 when U.S. oil production peaked and Tricky Dick Nixon removed the last vestiges of restraint from central bankers and politicians by closing the gold window. With the shackles removed from the wrists of corruptible knaves and shysters, America’s future depended upon the wisdom, honesty and financial acumen of Washington politicians and Wall Street financers. Once the citizens realized they could vote for more bread and circuses, our ultimate demise was set in motion. A nation that had produced real annual growth of 4% during the 1950’s and 1960’s has seen a steady decline for the last four decades.

The term pushing on a string describes the Quantitative Easing (literally money printing) and Keynesian debt financed pork spending efforts of our increasingly frantic owners. The insanity of what we’ve done since 1971 is almost too crazy to comprehend. In the first 182 years of our existence the leaders we elected to steward the nation accumulated $400 billion of national debt. By 1981, unleashed from any semblance of spending control, the politicians and bankers had added another $600 billion of debt, a 150% increase in 10 years. By 1991 our beloved leaders had added another $2.6 trillion of debt, another 160% increase in 10 years. By 2001 another $2.2 trillion had been accumulated, only a 60% increase due to the end of the Cold War and a one-time tax surge from the Dot.com stock bubble. Bush’s worldwide War on Terror, expansion of the police state, tax rebate stimulus idiocy, and expansion of the welfare state (Medicare Part D) drove the national debt up by another $2.2 trillion in just eight years, a 40% increase.

The insane amassing of debt since 2008 has put a final nail in the coffin of the ridiculous Keynesian theory, as the Federal government has increased annual spending by 35% over the last five years and the economy is still moribund. Our fearless leaders have driven the national debt from $7.8 trillion to $16.7 trillion in less than five years, a 110% increase. The country continues to add $2 to $3 billion of debt per day. Consider how insane it is that we now accumulate more debt in half a year than we did cumulatively over the first 182 years of our existence as a country. And our elected, or should I say selected, leaders, cheer on the intellectually bankrupt academics like Bernanke whose only solution to every crisis is to print moar and then lie to the American people about his true purpose, act as if annually spending $1 trillion more than we collect while knowing there are over $200 trillion of unfunded promises to fulfill is a reasonable and realistic way to manage the national finances. Any sane person knows our current path will lead to ruin. When you need to issue new debt in order to honor old debt, the end is in sight.

The multitude of insane responses to a financial crisis created by a few greedy psychopathic bankers will be looked upon by historians with contempt and scorn. Future generations will wonder “What were they thinking?” Trillions in wealth were vaporized due to the actions of a small secretive league of highly educated, egocentric psychopaths whose warped sense of morality led them to pillage the wealth of the nation through fraudulent financial products, bribing regulatory agencies, stabbing clients and competitors in the back, and peddling lies, propaganda and misinformation to the public through their captured media mouthpieces. Not only haven’t any predator bankers been thrown in jail, but these villains have grown their parasitic entities to enormous proportions while paying themselves obscene billion dollar bonuses. Jon Corzine stole $1.2 billion directly from the accounts of his customers to cover his gambling losses and he remains free to laze about in one of his five gated mansions. The largest banks on earth have been caught red handed forging mortgage documents, rigging LIBOR, front running the muppets with non-public economic information, insider dealing, and using their HFT supercomputers to manipulate the markets at their whim. Government spy agencies regularly use the U.S. Constitution like toilet paper while accumulating electronic dossiers on every citizen in the country. The rule of law does not exist for the ruling class.

Only in a world gone insane would we be celebrating Wall Street generating all-time high profits through the use of accounting fraud and Bernanke filling their coffers with trillions of interest free money while bilking senior citizens out of $400 billion per year of interest income through his dastardly ZIRP “save a Wall Street banker” scheme. Bernanke has stolen close to $2 trillion from the bank accounts of little old ladies since 2008 and given it to Jamie Dimon, Lloyd Blankfien and the rest of the Wall Street scumbags. While Wall Street and the crony capitalist mega-corporations report record profits, Main Street is left with 5 million less full-time jobs than they had in 2007 and a real unemployment rate exceeding 20%. While the government has insanely reported a recovering economy since mid-2009, the food stamp rolls have grown from 33 million to 47 million. The ruling class cheers the record highs in the stock market that overwhelmingly benefit the top .1% because they are the .1%. Meanwhile, the average schmuck out in the hinterlands is paying double the price they were paying for gas in 2009 and their everyday living costs are rising by greater than 5% annually. Luckily for the financial elite, the average American would rather watch Honey Boo Boo than try to understand the evilness of Federal Reserve created inflation. The economic recovery storyline is obliterated by the fact that real household income is still 9% below its 2008 peak and amazingly 8% below its 2000 level.

Since the 2009 low, the household net worth of the wealthiest 7% has grown by 28%, while the other 93% have seen their net worth decline by a further 4%. The profits accrue to those who run the show, buy the politicians, write the laws, command the media propaganda machine and control the currency. As a sane person in this insane world I’m flabbergasted that there is virtually no outrage at the perpetrators of these crimes against humanity. Americans have earned the moniker – ignorant masses. Bread and circuses have won the day in our declining empire. The oligarchs thank you.

The blame doesn’t rest solely on the shoulders of the evil men running the show. They have only done what we allowed them to do. From top to bottom our society has hopped on the crazy train. The lack of national morality, sense of civic duty, inter-generational responsibility, and willful ignorance regarding sensible financial policies has led us to a tipping point. Decades of feckless self-serving political leadership making entitlement promises they could never honor to win votes, combined with a parasitic financial class peddling debt to millions of witless, narcissistic, math challenged, materialistic morons, has left the country in debt up to its eyeballs with no escape other than cataclysmic default. Michael Lewis documents the bleeding out of our society in his recent book:

“The people who had the power in the society, and were charged with saving it from itself, had instead bled the society to death. The problem with police officers and firefighters isn’t a public sector problem; it isn’t a problem with government; it’s a problem with the entire society. It’s what happened on Wall Street in the run-up to the subprime crisis. It’s a problem of taking what they can, just because they can, without regard to the larger social consequences. It’s not just a coincidence that the debts of cities and states spun out of control at the same time as the debts of individual Americans. Alone in a dark room with a pile of money, Americans knew exactly what they wanted to do, from the top of the society to the bottom. They’d been conditioned to grab as much as they could, without thinking about the long-term consequences. Afterward, the people on Wall Street would privately bemoan the low morals of the American people who walked away from their subprime loans, and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans.”Michael Lewis – Boomerang

The insanity of our debt accumulation in relation to our pathetic economic growth is clearly evident to even an Ivy League educated economist or a bubble headed CNBC anchorwoman. Since 1971 nominal GDP has grown by a factor of 14. Over this same time frame total credit market debt (household, corporate, government) has grown by a factor of 32. Real GDP (even using the fraudulent BLS manipulated CPI) has only expanded by a factor of 3.5 since 1971. The exponential growth model is clearly failing, with debt going hyperbolic, while GDP has stagnated.

us-debt-and-gdp

Since 2007 real GDP has gone up $500 billion while total credit market debt has gone up by $6 trillion. Only an insane society would allow itself to be convinced by the perpetrators of the financial crimes that collapsed our economic system that accelerating the level of debt in our system will resolve the dilemma of Too Big to Trust banker insolvency. Transferring the immense losses of greedy sham capitalist gambling addicts from their insolvent balance sheets onto the balance sheets of the taxpayer has allowed the criminals to retain and expand their wealth, while sovereign states shift the pain and suffering onto the backs of the sinking middle class. This is a worldwide phenomenon perpetuated by central bankers at the behest of their crony capitalist co-conspirators. They call it capitalism when the scams, dodges and swindles work and the profits accrue to the schemers. When the gamblers and extreme risk addicts roll craps they use their crony capitalist connections, bought with blood money, to socialize their losses. The game is rigged and your owners don’t care about your hopes and dreams or your children’s future. They care about their own wealth and lifestyles of luxury. When the richest 300 people in the world have a greater net worth than the poorest 3 billion people on earth, a sane person realizes a chaotic end of the existing social order beckons.

“All over the world people borrowed vast sums of money they could never repay. The honest toting up, and taking, of the losses is being delayed. There’s a reason for this. The bad debts are owed, largely, to big banks. The big banks (even bigger than they were at the start of this crisis) and the people who own them enjoy a wildly disproportionate amount of political influence. And so, even now, five years into this mess, we remain at the mercy of the failed financial institutions that sit at the center of our capitalism. Geithner & Bernanke, along with their European counterparts, are doing everything in their power to prevent banks from failing. But the effect of this new financial order is bizarre: capitalism for everyone but the capitalists. Ordinary workers remain fully exposed to the increasingly harsh collisions in the marketplace while the highest paid financial elites ride protected by a passenger airbag.” Michael Lewis – Boomerang

Clearly we’ve entered the final phase of our debt financed orgy of narcissistic materialism and self-absorbed avarice. The unsustainability of our course is a fact. Our society has gone mad en-masse but we are only recovering our sanity one by one. The global financial system is insolvent. A fractional reserve fiat money based system requires continuous growth or it collapses. The global banking system is overleveraged and real global growth is stagnant. Central bankers are not smart men. They have one response to every crisis – print!!! Bernanke and his fellow banker cronies are printing at hyper-speed in order to prop up the terminally ill mega-banks. Bernanke feigns confusion at the fact that his QE to infinity and ZIRP have only benefitted his banker puppet masters and the richest .1%, while further impoverishing senior citizen savers and the working middle class.

The anger at the true Wall Street malefactors manifested itself in the Tea Party movement and Occupy Wall Street movement, but both efforts were quickly hijacked by neo-con right wingers and socialist left wingers for their own ideological purposes. The existing social order continues to hold the reins of power, but their grip is growing precarious. The anger, dismay and resentment in the country simmer beneath the surface. The average person senses that all is not well, but most absurdly continue to believe the lies and propaganda spewed at them on a daily basis by the ruling class and their corporate media pawns. When the next shoe drops and billions of stock market and housing wealth are wiped out again, the national anger will sweep away the corrupt social order in a torrent of blood and retribution. Innocent and guilty alike will suffer the consequences. Michael Lewis is somewhat perplexed by the lack of outrage and violence so far.

“A lot has happened. And yet, given the provocation, it’s amazing how little has happened. No one on Wall Street has been shot, or even jailed – and the existing social order has not been seriously challenged. There’s a reason for this, too. The anger arising from the financial crisis finds no natural channel. In another era – an era before catastrophic experiments with radical socialism and nationalism – we would be watching market capitalism being displaced by something far uglier. But today there is no natural place for anger to flow, and so the anger flows haphazardly, like raindrops down a windowpane. The only political ideology that anger benefits these days is anarchy. From the point of view of those who enjoy political stability, it’s a stroke of luck that anarchists have no natural talent for organizing themselves. But how long will it take them to learn?”  Michael Lewis – Boomerang

Staying sane in a society gone mad is not easy. Millions of people believe themselves to be sane, but they have really just adapted to an insane society, so they appear sane within the warped paradigm of that insane society. The truly sane people appear to be insane in an insane society. It’s enough to drive a man crazy. The immense forces of normalcy bias and social inertia have led millions to refuse to understand the mathematical certainty of the coming collapse. The worldwide banking system is like a great white shark that needs to keep moving or it dies. Exponential growth and continuous credit expansion have been the essential ingredients to expanding the American empire, but the growth has stopped, while the debt keeps growing. Infinite growth on a finite planet is impossible. As natural resources deplete and become more expensive to obtain, while the planet’s population continues to grow, the fractional reserve banking system and the nation states who continue to pile up trillions in debt will suddenly suffer a catastrophic collapse. We are in the end stages of a confidence game. Your government will not give you warning. We need to come to our senses one by one, until there are enough sane people to tip the scales in our favor. I’ve concluded that I live in a dishonest, insane, intolerable world and consider it my duty to spread discontent among those I can reach. I’m a dangerous man in the eyes of our corporate fascist surveillance state. So be it.

“The most dangerous man, to any government, is the man who is able to think things out for himself without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane and intolerable, and so, if he is romantic, he tries to change it. And even if he is not romantic personally he is apt to spread discontent among those who are.”H.L. Mencken

In Part 2 of this article I will attempt to figure out why mass insanity has gripped the world and ponder what might happen when sanity returns.

Betray Your Bank Before Your Bank Betrays You

In Uncategorized on April 1, 2013 at 3:06 pm

Oldspeak: “It seems a lot of customers were oblivious to the banks’ deteriorating health, or were confident they would be cared for by somebody else.” -Jonathan WeilHmmm… Sounds familiar. With U.S. megabanks engaging in the same rampant illegality, fraud, & reckless bad bets that triggered the last global economic collapse and holding more derivatives (the same toxic synthetic derivatives that crashed the global economic system last time) than that the entire global GDP, it’s not a matter of if your bank will betray you, but when. Yet, most, are oblivious.  Since the 2008, the United States economy has been like a ticking time bomb with the unregulated activities of the banks the fuse that is slowly burning. The U.S. banking system is basically insolvent.  The U.S. treasury is printing billions upon billions in increasingly devalued funny money while the Fed (a privately owned bank controlled by U.S. megabanks) is buying billions in toxic assets and securities from the insolvent megabanks to keep them in business and give the appearance of solvency. The accrued power of these giant criminal enterprises is threatening the globe again. The theft of depositors money in Cyprus is the tip of the iceberg. This will be replicated in other countries, including the U.S. and U.K.   Don’t remain oblivious to your banks deteriorating health. You would be wise to move your money to a locally oriented bank or credit union. Before it is confiscated to enrich well-appointed thieves.

Move Your Money Project

By Johnathan Weil @ Bloomberg News:

What’s a Slovenian with several hundred thousand euros in the bank supposed to do? Spread it out among at least a few different banks, that’s what. Or move the money out of the country, while it’s still possible.

Imagine what must be on the minds of any savvy depositors still left at Nova Kreditna Banka Maribor d.d., now 79 percent- owned by Slovenia’s government. It was one of only four lenders in October that failed the European Banking Authority’s latest capital-adequacy test, a ritual best known for how lax its standards are. One that flunked was Bank of Cyprus Pcl, where uninsured depositors face 40 percent losses as part of the country’s bailout terms. Another was Cyprus Popular Bank Pcl, also known as Laiki Bank, where uninsured deposits will fare far worse and the bank is being shut.

Cypriot banks’ customers were complacent after uninsured deposits went unscathed in Ireland, Greece, Spain and Portugal, the first euro-area countries to seek international rescues. Slovenians won’t have that excuse should their country be next.

The former Yugoslav republic needs about 3 billion euros ($3.8 billion) of funding this year, while its struggling banks need 1 billion euros of fresh capital, the International Monetary Fund said last week. Slovenia’s central bank this week urged the country’s new government to quickly carry out a plan to recapitalize ailing lenders. It’s a familiar pattern.

Oblivious Customers

The Central Bank of Cyprus warned months ago that the country’s banks needed an infusion of 10 billion euros — which is more than half the size of the nation’s economy — largely because of heavy losses on Greek sovereign debt held by Laiki and Bank of Cyprus. It seems a lot of customers were oblivious to the banks’ deteriorating health, or were confident they would be cared for by somebody else. The country is getting a 10 billion-euro bailout, nine months after it first asked for aid, except none of the money will go to the banks.

Suddenly it should be dawning on a lot of Europeans that deposit-guarantee limits matter. In Slovenia, the maximum is 100,000 euros per depositor, the same as in Cyprus. (Deposit- insurance programs vary among the 17 countries that use the euro.) For a few days last week, it looked as if customers at Laiki and Bank of Cyprus would lose even some of their insured deposits, which would have been a sacrilege.

That plan was scrapped, but could resurface elsewhere for all we know should some genius at the German Finance Ministry insist upon it. The one constant among bailouts of euro-area countries is that there is no rhyme or reason, much less fairness, in the way many details get worked out.

Cypriots may bemoan the inequities of their rough treatment, as might a bunch of wealthy Russians who mistook the island for a reliable financial center and failed to yank their money when they could. For the rest of Europe, the implications should be obvious. Anyone who leaves uninsured deposits in a euro-area bank is on notice that their money can and will be taken from them, if that is what’s demanded by the troika of the IMF, the European Commission and the European Central Bank.

Uninsured deposits aren’t riskless. Nor should they be. Still, it’s unclear why the euro area’s central planners sought to create a precedent that encourages capital flight from weak countries. This could lead to more instability, not less.

So far, there have been no signs of a mass exodus in countries such as Italy or Spain. But deposit migrations can happen slowly, with lots of time passing before they appear in official statistics. Or maybe little will change and most bank customers will go on believing “it can’t happen here,” until one day it does.

Restoring Normalcy

Much good might come from restoring some semblance of normalcy to the hierarchy of creditors in banking. Even better would be to see Germany try it for a change with its own zombie lenders, such as Commerzbank AG (CBK), which is still partly government-owned after its bailout in 2009.

The way it’s supposed to work at failing banks is that shareholders get wiped out first. Next the losses go up the ladder from junior debt holders to senior bondholders, and then all the way to uninsured depositors, if need be. Taxpayers and insured depositors shouldn’t have to absorb others’ losses or put money at risk to spare them. Troubled banks should have to fend for themselves.

This was the approach imposed on Cyprus. In ordinary circumstances, it would be considered fair. The best argument for why it wasn’t is that Cyprus had been lulled into believing it would be treated just as well as Europe’s other bailout recipients. The entire country got hooked on moral hazard.

Now Cyprus may be the template for the future, regardless of European governments’ recent statements to the contrary. If a bankrupt euro-area country can’t afford to recapitalize its own insolvent banks, it will have to “bail in” their owners and creditors first as a condition of receiving outside aid. Or at least that’s what Dutch Finance Minister Jeroen Dijsselbloem said this week in an outburst of candor, before later retracting the statement after it triggered declines in European markets.

Wealthy depositors in Spain, Italy, Greece and elsewhere should assume he was speaking the truth the first time and take measures to protect their money, rather than trusting governments to do it for them.

(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)

To contact the writer of this article: Jonathan Weil in New York at jweil6@bloomberg.net

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net

Toward A Creditor State: 1 in 7 Americans Pursued By Debt Collectors

In Uncategorized on March 5, 2012 at 12:42 pm

Oldspeak:“Money As Debt” “One of the characteristics of the new social contract ushered in by both George W. Bush and Barack Obama is the increasing power of creditors to govern outright, from tax farming by banks to the use of credit checks to access employment opportunities. There are now thousands of people legally jailed because they aren’t paying their bills, ie. debtor’s prisons have returned.  Occasionally elites let it slip that this is not an accident, but is their goal – former Comptroller General David Walker has wistfully pined for debtor’s prisons” -Matt Stoller. “A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men who, even if their action be honest and intended for the public interest, are necessarily concentrated upon the great undertakings in which their own money is involved and who necessarily, by very reason of their own limitations, chill and check and destroy genuine economic freedom. This is the greatest question of all, and to this statesmen must address themselves with an earnest determination to serve the long future and the true liberties of men -U.S. President Woodrow Wilson

Related Video:

Money As Debt

By Matt Stoller @ Naked Capitalism:

I went through the Federal Reserve’s Quarterly Release on Household Debt and Credit released today, and there were two notable trends.  One is that the amount of consumer debt is declining, but that delinquency rates are stabilizing above what they were before the crisis.  And the second is in this graph below, which is that the number of people subject to third party collections has doubled since 2000, from a little less than 7% to a little over 14% of consumers.  Ten years ago, one in fourteen American consumers were pursued by debt collectors.  Today it’s one in seven.

The experience of debt collection can be chilling, as this 2007 ABC News report suggests.

Consumers around the country have taped threatening phone calls from collectors who have called in the middle of the night, used abusive language and have threatened to have people fired from work or thrown in jail.  All of these tactics are illegal under federal law.

One of the characteristics of the new social contract ushered in by both George W. Bush and Barack Obama is the increasing power of creditors to govern outright, from tax farming by banks to the use of credit checks to access employment opportunities.

There are now thousands of people legally jailed because they aren’t paying their bills, ie. debtor’s prisons have returned.  Occasionally elites let it slip that this is not an accident, but is their goal – former Comptroller General David Walker has wistfully pined for debtor’s prisons overtly (on CNBC, no less).

This may be somewhat mediated by government action, as the CFPB is beginning to make noise around debt collection and credit ratings, and Illinois Attorney General Lisa Madigan is working to stop debt-related arrest warrants.  But only somewhat, only where the government can protect you and only when there is the political will to do so.  Increasingly, creditors are coming to set up the institutional structures for financial surveillance, state-sponsored enforcement of their claims through tightened bankruptcy laws and the selective use of jail, and the denial of economic opportunity based on one’s interaction with the financial system.

This is part of the new social contract.  The sheer percentage of consumers with third party collections in pursuit is striking.  Additionally, the uptrend through both Bush boom and Obama bust years of the percentage of people being tracked down by third party collection agencies suggests we live in a different country than we did just ten years ago.

Again, ten years ago, one in fourteen Americans were pursued by debt collectors.  Today it’s one in seven.  I suspect this number will keep going up.  And though debt collection is a highly competitive field, it’s also a growth industry.

Matt Stoller is the former senior policy adviser to Rep. Alan Grayson and a fellow at the Roosevelt Institute. He blogs frequently for Naked Capitalism. Follow him on Twitter at @matthewstoller.

 

 

Using Debt To Crush Democracy: How Financiers Are Waging Economic Warfare Against Nations

In Uncategorized on December 16, 2011 at 10:23 am

Oldspeak:”Everything is version of something else”. The eternal transition of oligarchies making themselves into hereditary aristocracies – which end up being overthrown by tyrants or develop internal rivalries as some families decide to “take the multitude into their camp” and usher in democracy, within which an oligarchy emerges once again, followed by aristocracy, democracy, and so on throughout history. Financial oligarchy has happened before. Many times throughout history. This recent debt protests from Iceland to Greece and Spain suggest that creditors are shifting their support away from democracies and crushing national self-determination” As they have in the past.  It will be interesting to see if an aristocracy is coming in our future. Highly recommend reading John Perkins’ “Confessions Of An Economic Hit Man” to understand what is going on.

By Michael Hudson @ Michael Hudson’s Blog:

Book V of Aristotle’s Politics describes the eternal transition of oligarchies making themselves into hereditary aristocracies – which end up being overthrown by tyrants or develop internal rivalries as some families decide to “take the multitude into their camp” and usher in democracy, within which an oligarchy emerges once again, followed by aristocracy, democracy, and so on throughout history.

Debt has been the main dynamic driving these shifts – always with new twists and turns. It polarizes wealth to create a creditor class, whose oligarchic rule is ended as new leaders (“tyrants” to Aristotle) win popular support by canceling the debts and redistributing property or taking its usufruct for the state.

Since the Renaissance, however, bankers have shifted their political support to democracies. This did not reflect egalitarian or liberal political convictions as such, but rather a desire for better security for their loans. As James Steuart explained in 1767, royal borrowings remained private affairs rather than truly public debts [1]. For a sovereign’s debts to become binding upon the entire nation, elected representatives had to enact the taxes to pay their interest charges.

By giving taxpayers this voice in government, the Dutch and British democracies provided creditors with much safer claims for payment than did kings and princes whose debts died with them. But the recent debt protests from Iceland to Greece and Spain suggest that creditors are shifting their support away from democracies. They are demanding fiscal austerity and even privatization sell-offs.

This is turning international finance into a new mode of warfare. Its objective is the same as military conquest in times past: to appropriate land and mineral resources, communal infrastructure and extract tribute. In response, democracies are demanding referendums over whether to pay creditors by selling off the public domain and raising taxes to impose unemployment, falling wages and economic depression. The alternative is to write down debts or even annul them, and to re-assert regulatory control over the financial sector.

Near Eastern rulers proclaimed Clean Slates to preserve economic balance
Charging interest on advances of goods or money was not originally intended to polarize economies. First administered early in the third millennium BC as a contractual arrangement by Sumer’s temples and palaces with merchants and entrepreneurs who typically worked in the royal bureaucracy, interest at 20% (doubling the principal in five years) was supposed to approximate a fair share of the returns from long-distance trade or leasing land and other public assets such as workshops, boats and ale houses.

As the practice was privatized by royal collectors of user fees and rents, “divine kingship” protected agrarian debtors. Hammurabi’s laws (c. 1750 BC) cancelled their debts in times of flood or drought. All the rulers of his Babylonian dynasty began their first full year on the throne by cancelling agrarian debts so as to clear out payment arrears by proclaiming a clean slate. Bondservants, land or crop rights and other pledges were returned to the debtors to “restore order” in an idealized “original” condition of balance. This practice survived in the Jubilee Year of Mosaic Law in Leviticus 25.

The logic was clear enough. Ancient societies needed to field armies to defend their land, and this required liberating indebted citizens from bondage. Hammurabi’s laws protected charioteers and other fighters from being reduced to debt bondage, and blocked creditors from taking the crops of tenants on royal and other public lands and on communal land that owed manpower and military service to the palace.

In Egypt, the pharaoh Bakenranef (c. 720-715 BC, “Bocchoris” in Greek) proclaimed a debt amnesty and abolished debt-servitude when faced with a military threat from Ethiopia. According to Diodorus of Sicily (I, 79, writing in 40-30 BC), he ruled that if a debtor contested the claim, the debt was nullified if the creditor could not back up his claim by producing a written contract. (It seems that creditors always have been prone to exaggerate the balances due.) The pharaoh reasoned that “the bodies of citizens should belong to the state, to the end that it might avail itself of the services which its citizens owed it, in times of both war and peace. For he felt that it would be absurd for a soldier … to be haled to prison by his creditor for an unpaid loan, and that the greed of private citizens should in this way endanger the safety of all.”

The fact that the main Near Eastern creditors were the palace, temples and their collectors made it politically easy to cancel the debts. It always is easy to annul debts owed to oneself. Even Roman emperors burned the tax records to prevent a crisis. But it was much harder to cancel debts owed to private creditors as the practice of charging interest spread westward to Mediterranean chiefdoms after about 750 BC. Instead of enabling families to bridge gaps between income and outgo, debt became the major lever of land expropriation, polarizing communities between creditor oligarchies and indebted clients. In Judah, the prophet Isaiah (5:8-9) decried foreclosing creditors who “add house to house and join field to field till no space is left and you live alone in the land.”

Creditor power and stable growth rarely have gone together. Most personal debts in this classical period were the product of small amounts of money lent to individuals living on the edge of subsistence and who could not make ends meet. Forfeiture of land and assets – and personal liberty – forced debtors into bondage that became irreversible. By the 7th century BC, “tyrants” (popular leaders) emerged to overthrow the aristocracies in Corinth and other wealthy Greek cities, gaining support by canceling the debts. In a less tyrannical manner, Solon founded the Athenian democracy in 594 BC by banning debt bondage.

But oligarchies re-emerged and called in Rome when Sparta’s kings Agis, Cleomenes and their successor Nabis sought to cancel debts late in the third century BC. They were killed and their supporters driven out. It has been a political constant of history since antiquity that creditor interests opposed both popular democracy and royal power able to limit the financial conquest of society – a conquest aimed at attaching interest-bearing debt claims for payment on as much of the economic surplus as possible.

When the Gracchi brothers and their followers tried to reform the credit laws in 133 BC, the dominant Senatorial class acted with violence, killing them and inaugurating a century of Social War, resolved by the ascension of Augustus as emperor in 29 BC.

Rome’s creditor oligarchy wins the Social War, enserfs the population and brings on a Dark Age
Matters were more bloody abroad. Aristotle did not mention empire building as part of his political schema, but foreign conquest always has been a major factor in imposing debts, and war debts have been the major cause of public debt in modern times. Antiquity’s harshest debt levy was by Rome, whose creditors spread out to plague Asia Minor, its most prosperous province. The rule of law all but disappeared when the publican creditor “knights” arrived. Mithridates of Pontus led three popular revolts, and local populations in Ephesus and other cities rose up and killed a reported 80,000 Romans in 88 BC. The Roman army retaliated, and Sulla imposed war tribute of 20,000 talents in 84 BC. Charges for back interest multiplied this sum six-fold by 70 BC.

Among Rome’s leading historians, Livy, Plutarch and Diodorus blamed the fall of the Republic on creditor intransigence in waging the century-long Social War marked by political murder from 133 to 29 BC. Populist leaders sought to gain a following by advocating debt cancellations (e.g., the Catiline conspiracy in 63-62 BC). They were killed. By the second century AD about a quarter of the population was reduced to bondage. By the fifth century Rome’s economy collapsed, stripped of money. Subsistence life reverted to the countryside as a Dark Age descended.

Creditors find a legalistic reason to support parliamentary democracy
When banking recovered after the Crusades looted Byzantium and infused silver and gold to review Western European commerce, Christian opposition to charging interest was overcome by the combination of prestigious lenders (the Knights Templars and Hospitallers providing credit during the Crusades) and their major clients – kings, at first to pay the Church and increasingly to wage war. But royal debts went bad when kings died. The Bardi and Peruzzi went bankrupt in 1345 when Edward III repudiated his war debts. Banking families lost more on loans to the Habsburg and Bourbon despots on the thrones of Spain, Austria and France.
  
Matters changed with the Dutch democracy, seeking to win and secure its liberty from Habsburg Spain. The fact that their parliament was to contract permanent public debts on behalf of the state enabled the Low Countries to raise loans to employ mercenaries in an epoch when money and credit were the sinews of war. Access to credit “was accordingly their most powerful weapon in the struggle for their freedom,” notes Ehrenberg: “Anyone who gave credit to a prince knew that the repayment of the debt depended only on his debtor’s capacity and will to pay. The case was very different for the cities, which had power as overlords, but were also corporations, associations of individuals held in common bond. According to the generally accepted law each individual burgher was liable for the debts of the city both with his person and his property.”[2]

The financial achievement of parliamentary government was thus to establish debts that were not merely the personal obligations of princes, but were truly public and binding regardless of who occupied the throne. This is why the first two democratic nations, the Netherlands and Britain after its 1688 revolution, developed the most active capital markets and proceeded to become leading military powers. What is ironic is that it was the need for war financing that promoted democracy, forming a symbiotic trinity between war making, credit and parliamentary democracy in an epoch when money was still the sinews of war.

At this time “the legal position of the King qua borrower was obscure, and it was still doubtful whether his creditors had any remedy against him in case of default.”[3] The more despotic Spain, Austria and France became, the greater the difficulty they found in financing their military adventures. By the end of the eighteenth century Austria was left “without credit, and consequently without much debt” the least credit-worthy and worst armed country in Europe (as Steuart 1767:373 noted), fully dependent on British subsidies and loan guarantees by the time of the Napoleonic Wars.

Finance accommodates itself to democracy, but then pushes for oligarchy
While the nineteenth century’s democratic reforms reduced the power of landed aristocracies to control parliaments, bankers moved flexibly to achieve a symbiotic relationship with nearly every form of government. In France, followers of Saint-Simon promoted the idea of banks acting like mutual funds, extending credit against equity shares in profit. The German state made an alliance with large banking and heavy industry. Marx wrote optimistically about how socialism would make finance productive rather than parasitic. In the United States, regulation of public utilities went hand in hand with guaranteed returns. In China, Sun-Yat-Sen wrote in 1922: “I intend to make all the national industries of China into a Great Trust owned by the Chinese people, and financed with international capital for mutual benefit.”[4]

World War I saw the United States replace Britain as the major creditor nation, and by the end of World War II it had cornered some 80 percent of the world’s monetary gold. Its diplomats shaped the IMF and World Bank along creditor-oriented lines that financed trade dependency, mainly on the United States. Loans to finance trade and payments deficits were subject to “conditionalities” that shifted economic planning to client oligarchies and military dictatorships. The democratic response to resulting austerity plans squeezing out debt service was unable to go much beyond “IMF riots,” until Argentina rejected its foreign debt.

A similar creditor-oriented austerity is now being imposed on Europe by the European Central Bank (ECB) and EU bureaucracy. Ostensibly social democratic governments have been directed to save the banks rather than reviving economic growth and employment. Losses on bad bank loans and speculations are taken onto the public balance sheet while scaling back public spending and even selling off infrastructure. The response of taxpayers stuck with the resulting debt has been to mount popular protests starting in Iceland and Latvia in January 2009, and more widespread demonstrations in Greece and Spain this autumn to protest their governments’ refusal to hold referendums on these fateful bailouts of foreign bondholders.

Shifting planning away from elected public representatives to bankers
Every economy is planned. This traditionally has been the function of government. Relinquishing this role under the slogan of “free markets” leaves it in the hands of banks. Yet the planning privilege of credit creation and allocation turns out to be even more centralized than that of elected public officials. And to make matters worse, the financial time frame is short-term hit-and-run, ending up as asset stripping. By seeking their own gains, the banks tend to destroy the economy. The surplus ends up being consumed by interest and other financial charges, leaving no revenue for new capital investment or basic social spending.

This is why relinquishing policy control to a creditor class rarely has gone together with economic growth and rising living standards. The tendency for debts to grow faster than the population’s ability to pay has been a basic constant throughout all recorded history. Debts mount up exponentially, absorbing the surplus and reducing much of the population to the equivalent of debt peonage. To restore economic balance, antiquity’s cry for debt cancellation sought what the Bronze Age Near East achieved by royal fiat: to cancel the overgrowth of debts.

In more modern times, democracies have urged a strong state to tax rentier income and wealth, and when called for, to write down debts. This is done most readily when the state itself creates money and credit. It is done least easily when banks translate their gains into political power. When banks are permitted to be self-regulating and given veto power over government regulators, the economy is distorted to permit creditors to indulge in the speculative gambles and outright fraud that have marked the past decade. The fall of the Roman Empire demonstrates what happens when creditor demands are unchecked. Under these conditions the alternative to government planning and regulation of the financial sector becomes a road to debt peonage.

Finance vs. government; oligarchy vs. democracy
Democracy involves subordinating financial dynamics to serve economic balance and growth – and taxing rentier income or keeping basic monopolies in the public domain. Untaxing or privatizing property income “frees” it to be pledged to the banks, to be capitalized into larger loans. Financed by debt leveraging, asset-price inflation increases rentier wealth while indebting the economy at large. The economy shrinks, falling into negative equity.

The financial sector has gained sufficient influence to use such emergencies as an opportunity to convince governments that that the economy will collapse they it do not “save the banks.” In practice this means consolidating their control over policy, which they use in ways that further polarize economies. The basic model is what occurred in ancient Rome, moving from democracy to oligarchy. In fact, giving priority to bankers and leaving economic planning to be dictated by the EU, ECB and IMF threatens to strip the nation-state of the power to coin or print money and levy taxes.

The resulting conflict is pitting financial interests against national self-determination. The idea of an independent central bank being “the hallmark of democracy” is a euphemism for relinquishing the most important policy decision – the ability to create money and credit – to the financial sector. Rather than leaving the policy choice to popular referendums, the rescue of banks organized by the EU and ECB now represents the largest category of rising national debt. The private bank debts taken onto government balance sheets in Ireland and Greece have been turned into taxpayer obligations. The same is true for America’s $13 trillion added since September 2008 (including $5.3 trillion in Fannie Mae and Freddie Mac bad mortgages taken onto the government’s balance sheet, and $2 trillion of Federal Reserve “cash-for-trash” swaps).

This is being dictated by financial proxies euphemized as technocrats. Designated by creditor lobbyists, their role is to calculate just how much unemployment and depression is needed to squeeze out a surplus to pay creditors for debts now on the books. What makes this calculation self-defeating is the fact that economic shrinkage – debt deflation – makes the debt burden even more unpayable.

Neither banks nor public authorities (or mainstream academics, for that matter) calculated the economy’s realistic ability to pay – that is, to pay without shrinking the economy. Through their media and think tanks, they have convinced populations that the way to get rich most rapidly is to borrow money to buy real estate, stocks and bonds rising in price – being inflated by bank credit – and to reverse the past century’s progressive taxation of wealth.

To put matters bluntly, the result has been junk economics. Its aim is to disable public checks and balances, shifting planning power into the hands of high finance on the claim that this is more efficient than public regulation. Government planning and taxation is accused of being “the road to serfdom,” as if “free markets” controlled by bankers given leeway to act recklessly is not planned by special interests in ways that are oligarchic, not democratic. Governments are told to pay bailout debts taken on not to defend countries in military warfare as in times past, but to benefit the wealthiest layer of the population by shifting its losses onto taxpayers.

The failure to take the wishes of voters into consideration leaves the resulting national debts on shaky ground politically and even legally. Debts imposed by fiat, by governments or foreign financial agencies in the face of strong popular opposition may be as tenuous as those of the Habsburgs and other despots in past epochs. Lacking popular validation, they may die with the regime that contracted them. New governments may act democratically to subordinate the banking and financial sector to serve the economy, not the other way around.

At the very least, they may seek to pay by re-introducing progressive taxation of wealth and income, shifting the fiscal burden onto rentier wealth and property. Re-regulation of banking and providing a public option for credit and banking services would renew the social democratic program that seemed well underway a century ago.

Iceland and Argentina are most recent examples, but one may look back to the moratorium on Inter-Ally arms debts and German reparations in 1931.A basic mathematical as well as political principle is at work: Debts that can’t be paid, won’t be.

Footnotes:

[1] James Steuart, Principles of Political Oeconomy (1767), p. 353.

[2] Richard Ehrenberg, Capital and Finance in the Age of the Renaissance (1928):44f., 33.

[3] Charles Wilson, England’s Apprenticeship: 1603-1763 (London: 1965):89.

[4] Sun Yat-Sen, The International Development of China (1922):231ff.

 

Michael Hudson, a former Wall Street Journal reporter, is a staff writer at the Center for Public Integrity (http://www.publicintegrity.org), a nonprofit journalist organization. He is the author of “THE MONSTER: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America – And Spawned a Global Crisis” (2010, Times Books)

© 2011 Michael Hudson’s blog All rights reserved.
View this story online at: http://www.alternet.org/story/153338/

 

A Failed Social Model: Providing Basic Goods Via Crushing Consumer Debt

In Uncategorized on November 22, 2011 at 4:15 pm

Oldspeak:” Something to think about days before the annual hedonistic consumption orgy that is “Black Friday” when crushing consumer debt will likely increase. “We have been living in a society where debts, rather than rights, have been the major means for accessing basic social goods like housing, education, and health care. That social model was built around the assumption that while real incomes stagnated and the state did not directly provide many basic goods through universal entitlements, cheap credit would do the trick instead. High finance was inextricably intertwined with the privileges of citizenship.” -Alex Gourevitch When High finance is linked to a system, you can pretty much guarantee it will be accompanied by exploitation, corruption, fraud, greed and disenfranchisement. We are beginning to see the devastating effects of attaching debt commitments to basic needs combined with decades long wage stagnation for most workers and concentration of wealth among owners. A collapsed housing market and unprecedented rates of foreclosure. 1 in 5 Americans on food stamps. 1 in 3 children living in poverty. Widespread medical bankruptcies and less and less access to preventative health care.  Exploding student loan debt and creation of artificially constricted choice of profession and shortages of manpower in vital and low-paid ‘public interest’ jobs. All while the banksters have grown richer and more brazen in their casino capitalistic practices. Providing basic social goods for all has very few negative consequences. However it doesn’t adhere to basic corporcratic ethos “Internalize profits, externalize costs”, thus universal rights and freedoms will continue to be at worst denied, and at best a monetarily  based privilege. “Profit Is Paramount”

By Alex Gourevitch @ New Deal 2.0:

Some things — education, health, housing — should be rights, not financed through taking on more and more debt.

Occupiers have joined anti-foreclosure advocates to occupy home auctions and abandoned buildings and block foreclosures. A few state attorneys general have begun resisting the Obama administration’s awful mortgage fraud settlement and started investigating banks and servicers. Even shareholders are in revolt, filing class action suits against their companies. By one measure, student loans are one of the biggest concerns amongst supporters of Occupy Wall Street. There is now an OccupyStudentDebt. A petition to forgive student loans has gathered 300,000 signatures and was included as part of a general debt forgiveness bill on the floor of the House of Representatives. Congress has even begun to touch on medical debt issues.

Taken together, we can say that these and other actions are the sign of growing resistance to key aspects of the social model of the past 30 to 40 years. We have been living in a society where debts, rather than rights, have been the major means for accessing basic social goods like housing, education, and health care. That social model was built around the assumption that while real incomes stagnated and the state did not directly provide many basic goods through universal entitlements, cheap credit would do the trick instead. High finance was inextricably intertwined with the privileges of citizenship. This was not a very good social model. With any luck, and a serious amount of political action, current resistance could lead to alternative ways of thinking about how we make these goods available to all.

After all, while the previous decade has been represented as a debt-financed spending binge when consumers lived well beyond their means, it turns a complex story into a morality play. A major part of the credit ‘binge’ was about necessities, not luxuries. Sub-prime mortgages (especially with the decline of affordable housing) were the only way for many to become homeowners. Similarly, student loans were the only way for many to gain access to higher education and thus participate as equals in the radically unequal distribution of opportunity in the United States. The total value of student loans has surpassed total credit card debt, and is projected to top $1 trillion later this year. Mike Konczal posted the following graph at Rortybomb showing the dramatic rise of student debt. In a decade, student loans have gone from a third of consumer loans to far more than half.

alex1

We find a similar story in health care. Two major national studies of medical indebtedness by a group of scholars, including Elizabeth Warren, have shown that illness and medical costs are a major cause of household bankruptcy. They noted that by 2001 “illness or medical bills contributed to about half of bankruptcies.” Notably, in their 2001 study, they found that 75.7 percent of medical debtorshad insurance at the onset of illness. Underinsurance, as much as lack of insurance, was a major financial burden. So too was loss of income due to illness (by their estimate, income loss is 40 percent of medical-related indebtedness). Worse yet, their follow up 2007 study of medical indebtedness notes that the “number of un- and underinsured Americans has grown; health costs have increased; and Congress tightened the bankruptcy laws.” That has led to a 50 percent increase in the proportion of bankruptcies attributable to medical problems. These bankruptcies, moreover, occurred in families only marginally worse than the median income and occupational class of American citizens. Once again, indebtedness is the product of the 99% trying to meet the costs of a basic good — health care.

If there is a reasonable expectation that debtors can meet their interest payments then in theory debt is not a particularly bad way to finance access to certain goods. It is on the individual borrower to make a judgment about what constitutes a reasonable debt burden.

There are, however, two problems with this theoretical view. First, there might be very good social reasons to not want to yoke access to certain social goods to debt. Education is a prime example. Taking on debt means accepting a kind of discipline. One must make all future calculations about, say, educational and career choices with the need to meet future interest payments in mind. In conscious and unconscious ways this narrows horizons and produces a more instrumental relationship to education. In college I saw concerns about debt shape decisions about which classes to take and what to major in. I also saw many of my college classmates make more conservative professional choices (corporate law, consulting, finance, medical specialist) than they might otherwise have made (public service, teaching, science, public interest law) in order to ensure their ability to pay back loans. This appears to have been a pattern. A study of educational and career choices in the early 2000s by Princeton economists has found that “debt causes graduates to choose substantially higher-salary jobs and reduces the probability that students choose low-paid ‘public interest’ jobs.”

It is frequently observed that the growth of finance sucked up the math and physics geniuses, who might have contributed something lasting to society, into hedge funds and investment banks to ruinous effect. But the alteration of professional choices is much wider than that. The number crunchers at the top were, one suspects, lured away by lucrative pay. The much more widespread, and difficult to measure, shift in career choices due to the discipline of debt burdens is probably the more important, and still ongoing, consequence of high student loans.

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If access to higher education were on the order of something like a right — a publicly financed good, provided at little or no cost, to ensure real equality of opportunity — then one can imagine a much different set of results. While conservatives like to talk about ‘freedom,’ this is a place where the left ought to have the upper hand in connecting economic practices to real freedoms. Providing necessary social goods, especially education, as a right rather than through debt not only reduces the disciplining effects of the latter. It also is a way of publicly recognizing and democratically defending the real freedoms of all citizens.

To be clear, this is not a moralistic criticism of debt as evil or irresponsible. But there are very good reasons why society would not want to impose certain kinds of discipline on (most of) its citizens. Firstly, from a social point of view, people’s talents might be much more productively used in some other area than those that promise the most immediate monetary returns. There is no shortage of aspiring bankers and traders, but there is a primary care doctor shortage. Primary care doctors can graduate medical school with as much as $200,000 in debt.

A second reason is that practice does not resemble theory. Again, the theory is that so long as each individual makes a reasonable calculation about his or her ability to meet debt payments, there is nothing wrong with financing access to basic social goods through credit. Putting systematic fraud aside (but remembering it is unlikely that credit can sink that far into housing and educational markets without it), there is a deep historical reason for thinking that practice was the opposite of theory. The rise of debt-financed household consumption generally was the product of stagnating wages. Consider, for instance, this research by the Federal Reserve Bank of San Francisco comparing the growth of debt, wealth, and income:

alex2

Or compare the above growth of household debt with the stagnation of wages and benefits during that same period (from State of Working America):

alex3

Debt-financed consumption was, in other words, a response to the declining ability of most households to afford existing rates of consumption, not an increasing ability or trust in future ability to pay back that debt.

The entire social model, then, was built on a lie. The separation of consumption (financed by future promises to pay) from production (based on limiting present ability to earn) was a mirage. The problem has been that the underlying right to maintain a certain standard of living, or even to access to certain basic social goods like housing, health, and education, was just that: implicit. Every so often, of course, it was made somewhat public — for instance when Clinton or Bush would say something about providing housing to the poor and minorities who could not otherwise afford it (mainly by changing market incentives and promoting sub-prime borrowing, as it turned out). But this promise was always implicit and had to stay that way because it was mediated through the credit system. Access to these basic social goods was never a fully publicclaim each individual had against society. Instead, access to these social goods was a matter of a complex series of private, individualized claims against other private institutions like banks and employers, with the public role submerged in the form of altered market incentives. That is the difference between debt and right, and it is clear that the debt-based social model has failed.

There are certainly some situations where debt-financed consumption is a perfectly good option. For instance, the current call for more fiscal austerity at the federal level is ideological claptrap. Moreover, any economy always has to take a bet on the future if it is going to innovate, especially since innovation always comes with the risk of failure. But there are certain kinds of basic goods that are better provided as a matter of universal right, both for the sake of the freedom of the persons who need those goods and as a matter of economic efficiency and productivity. We can have risk-averse graduates and a chronically ill workforce chained to underwater mortgages, or we can have healthy, well-educated citizens with enough security, and thus freedom, to take real risks in their lives.

Alex Gourevitch a Post-Doctoral Research Associate at the Political Theory Project at Brown University. He also runs a blog calledThe Current Moment.

Report: Wall Street To Slash 10,000 Jobs By End Of 2012 As Thousands Continue To Protest Against Corporate Greed

In Uncategorized on October 12, 2011 at 1:00 pm

Oldspeak: “Wall Street is the 99%. In a case of chickens coming home to roost, a pothole was reported on Wall Street today with the prediction that 10,000 people working in the city’s securities industry will lose their jobs. In a report released Tuesday, Comptroller Thomas P. DiNapoli also said bonuses are likely to shrink this year, reflecting lower profits on Wall Street. But it is not all bad news. The report revealed the average salary in the industry jumped by 16.1 per cent last year to $361,330. This is in comparison to an average salary of $66,120 in the private sector.”

Related Story:

Wall Street Job Losses Are Seen Hitting 10,000

By Lee Moran @ The U.K. Daily Mail:

New York’s financial sector has been hit by a further setback – with the prediction that 10,000 people working in the city’s securities industry will lose their jobs.

The announcement, forecast for 2012, will mean a staggering 32,000 people in the city’s industry would have lost their jobs since January 2008.

But it may come as good news for the Occupy Wall Street movement – which has taken over the city’s Zuccotti Park to protest against corporate greed.

Set back: Another 10,000 jobs are set to be lost in New York's securities industrySet back: Another 10,000 jobs are set to be lost in New York’s securities industry (file picture)

The news will pile even further pressure on New York’s battered economy, which is struggling to cope with the fall out from the European debt debacle and turbulence in the financial markets.

New York State Comptroller Thomas DiNapoli said in his 2011 statement: ‘The securities industry had a strong start to 2011.

‘But its prospects have cooled considerably for the second half of this year. It now seems likely that profits will fall sharply, job losses will continue, and bonuses will be smaller than last year.

‘These developments will have a rippling effect through the economy and adversely impact State and City tax collections.’

He said the securities industry had lost 4,100 jobs in August, wiping out many of the 9,900 job gains between January 2010 and April 2011.

According to the report, by the Office of the State Comptroller, securities-related activities accounted for one in eight jobs in the city.

Solidarity: Singer Kanye West joined with demonstrators at the Occupy Wall Street movement - which is drawing attention to corporate greed and corruptionSolidarity: Singer Kanye West joined with demonstrators at the Occupy Wall Street movement – which is drawing attention to corporate greed and corruption 

It also represented 14 per cent of New York State’s tax revenues and nearly 7 per cent of New York City’s.

The report also said that each job gained or lost in the industry leads to the creation or loss of almost two additional jobs in other industries in New York City.

Mr DiNapoli added: ‘As we know, when Wall Street slows, New York City and New York State’s budgets feel the impact and that is a concern.’

A slew of financial services companies have disclosed plans to cut jobs in recent months, including Goldman Sachs, Bank of America, HSBC and Barclays.

Investment banks are forecasted to report big declines in third-quarter earnings in the coming weeks due to big trading losses in the financial markets.

Profits for member firms of the New York Stock Exchange are seen tumbling to $18 billion in 2011, marking a one-third decline from the year before.

 

Timing: The Occupy Wall Street movement may take comfort in news of the job lossesTiming: The Occupy Wall Street movement may take comfort in news of the job losses

The OSC said the expected new job cuts are due to the current debt crisis in Europe, the ‘sluggish’ domestic economy, turbulence in the stock markets and regulatory changes aimed at forcing banks to be less risky.

Like many analysts, the OSC said cash bonuses are expected to shrink this year, marking the second-straight year of declines.

But it is not all bad news. The report revealed the average salary in the industry jumped by 16.1 per cent last year to $361,330.

This is in comparison to an average salary of $66,120 in the private sector.

The protests against the state of the U.S. political and economic systems, which started with a handful of people, have now spread to more than 25 cities – from Sacramento to Seattle, Anchorage to Atlanta and Mobile to Minneapolis.

New York City Mayor Michael Bloomberg said he will allow Occupy Wall Street protesters to stay indefinitely at their Manhattan village – but suggested some have only camped out there because of the warm weather.

He also said demonstrators will only be allowed to stay in Zuccotti Park as long as they obey the laws.

IMF Advisor: Global Financial Meltdown in 2 – 3 Weeks Without Bank “Recapitalizaton”; Sovereign Debt “Stabilization”

In Uncategorized on October 10, 2011 at 1:28 pm

Oldspeak:”A little over a week after their explosive interview with trader Alessio Rastani predicting global economic collapse, BBC interviewed IMF advisor Dr. Robert Shapiro. The bailout expert said “If they can not address [the financial crisis] in a credible way, I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system…All those banks are counterparties to every significant bank in the United States, and in Britain, and in Japan, and around the world. This would be a crisis that would be in my view more serious than the crisis in 2008″ - UNLESS the International Banking Cartels are “recapitalized” with hundreds of billions of Euros. Sounds eerily similar to what was said in the lead up and during the last great crash of the global financial system in 08. Only this time there’s even less money for bailouts. I’m sure they’ll get it anyway. All these gloom and doom predictions belie the basic fundamental problem, that no one wants to address. The monetary system is failing, and will keep failing if people insist on making changes around the edges. You can’t have made miniscule changes to regulations to reign in the casino capitalism and expect different results. You can’t keep throwing fiat money at the problem. This economic system is about the furthest thing from true ‘economy’, (thrifty and efficient use of material resources : frugality in expenditures; also : an instance or a means of economizing : saving) there is. It’s driven by a base & immoral concept: Greed. We would do well to implement an economy like that articulated by Dr. Manfred Max-Neef:based in five postulates and one fundamental value principle. 

One, the economy is to serve the people and not the people to serve the economy. 

Two, development is about people and not about objects. 

Three, growth is not the same as development, and development does not necessarily require growth. 

Four, no economy is possible in the absence of ecosystem services. 

Five, the economy is a subsystem of a larger finite system, the biosphere, hence permanent growth is impossible. 

And the fundamental value to sustain a new economy should be that no economic interest, under no circumstance, can be above the reverence of life.”

If we forgave all debt, reset to zero, retired greed as the dominant value in the world, re-worked the global economy to adhere to these postulates and values, we could focus on collectively preserving and distributing the earth’s finite resources in an equitable way. We’d all be a lot better off.

Related Video:

IMF Adviser Says We Face A Worldwide Banking Meltdown

By Tyler Durden @ Zero Hedge:

In an interview with IMF advisor Robert Shapiro, the bailout expert has pretty much said what, once again, is on everyone’s mind: “If they can not address [the financial crisis] in a credible way I believe within perhaps 2 to 3 weeks we will have a meltdown in sovereign debt which will produce a meltdown across the European banking system. We are not just talking about a relatively small Belgian bank, we are talking about the largest banks in the world, the largest banks in Germany, the largest banks in France, that will spread to the United Kingdom, it will spread everywhere because the global financial system is so interconnected. All those banks are counterparties to every significant bank in the United States, and in Britain, and in Japan, and around the world. This would be a crisis that would be in my view more serrious than the crisis in 2008…. What we don’t know the state of credit default swaps held by banks against sovereign debt and against European banks, nor do we know the state of CDS held by British banks, nor are we certain of how certain the exposure of British banks is to the Ireland sovereign debt problems.”

But no, Morgan Stanley does, or so they swear an unlimited number of times each day. And they say not to worry about anything because, you see, it is not like they have any upside in telling anyone the truth. Which is why for everyone hung up on the latest rumor of a plan about a plan about a plan spread by a newspaper whose very viability is tied in with that of the banks that pay for its advertising revenue, we have one thing to ask: “show us the actual plan please.” Because it is easy to say “recapitalize” this, and “bad bank” that. In practice, it is next to impossible. So yes, ladies and gentlemen, enjoy this brief relief rally driven by the fact that China is offline for the week and that the persistent source of overnight selling on Chinese “hard/crash landing” concerns has been gone simply due to an extended national holiday. Well, that holiday is coming to an end.

International Monatary Fund Report: Inequality Increases National Debt

In Uncategorized on September 28, 2011 at 1:49 pm

Oldspeak: “WOW. You know it’s real when the financial arm of the Corporatocracy puts out a report that runs counter to the very corprocratic policies which have created the rampant inequality and crushing debt contagion that has gripped the planet. “This month, International Monetary Fund economists demonstrated that higher income inequality in developed countries is associated with higher domestic and foreign indebtedness. Leading economists agree that rampant inequality leads to unstable economies and depressions, and makes the middle and lower classes poorer.” Shocker. Turns out, it’s not entitlement programs, public employees’ pensions, and non-military spending that drives debt. It’s inequality, poverty, and debt creation. Could this report signal dissention in the ranks? Very little discussion of this corportate media.”

By Washington’s Blog:

 

Inequality Creates Economic Instability and Widespread Poverty

Leading economists agree that rampant inequality leads to unstable economies and depressions, and makes the middle and lower classes poorer.

Inequality Increases National Debt

This month, International Monetary Fund economists demonstrated that “higher income inequality in developed countries is associated with higher domestic and foreign indebtedness”:

kumhof1 IMF: Inequality Increases National DebtWe find (see Chart 1) thatwhat unites the experiences of the main deficit countries is a steep increase in income inequality over recent decades, as measured by the share of income going to the richest 5 percent of the country’s income distribution.

This increase in inequality has contributed to a deterioration in the richest countries’ aggregate savings-investment balances, as the poor and middle class borrowed from the rich and from foreign lenders. This, along with the other factors mentioned above, can fuel current account deficits.

***

The increase in debt happens over the decades of below-trend incomes that result from the persistent shock. In an open economy, the task of financing the bottom group’s borrowing demand following a negative income shock is shared between the domestic top group and foreigners. This enables the top group to deploy more of its higher income in domestic plant and machinery investment and consumption than would be possible in a closed economy. But externally the result is a deterioration of the current account, which peaks at more than 1 percent of GDP.

In reality, increases in income inequality are often followed by political interventions to prop up the living standards of the bottom group, whose real income is stagnating. This is generally done not by directly confronting the sources of inequality, such as declines in the collective bargaining power of the bottom group or shifts in the tax burden from the top group to the bottom group, but rather by promoting policies that cut the cost of borrowing for both individuals and financial institutions (Rajan, 2010). These policies include domestic and international financial liberalization, and they put additional downward pressure on current accounts.

kumhof2 IMF: Inequality Increases National DebtAs shown in the simulations in Chart 2 (solid line), a reduction in financial intermediation spreads leads to much lower lending rates, which draw more of the top group’s resources into financial rather than real assets. Initially this allows the bottom group to maintain a much higher consumption level. But in the long run it means the top group underinvests in real assets such as plants and machinery, and so the bottom group sees lower real wages over time. At the same time, debt-to-income ratios rise more strongly, as do current account deficits.

***

If lending is liberalized without addressing the underlying income inequalities, the result would simply be an increase in indebtedness within surplus countries (between the rich and the rest of the population), rather than vis-à-vis the rest of the world. In other words, there would be a globalized rather than a regional increase in domestic indebtedness of the poor and middle class. While this would reduce cross-border financial imbalances, it would exacerbate domestic debt-to-income ratios and thus vulnerability to crises. In the long run, there is therefore simply no way to avoid addressing the income inequality problem head-on. Financial liberalization in surplus countries buys time, but at the expense of an eventually much larger debt problem.

Conservatives and Liberals Agree: Government Should Not Worsen Inequality

Conservatives tend to be much more worried about debt than liberals. Given the fact that – as shown above – runaway inequality fuels debt, conservatives should be against policies that make inequality even worse. As I noted in July:

Inequality in the United States is at insane levels. Inequality among Americas is worse than in Egypt, Tunisia or Yemen. As NPR notes, inequality is higher in the U.S. than in many banana republics in Latin America. And social mobility is lower in America than in most European countries (and see thisthis and this).

In fact, most conservatives already are against insane levels of inequality.

Why The Wealthiest Americans Are the Real ‘Job-Killers’

In Uncategorized on July 20, 2011 at 9:00 pm

Train Chartering & Private Rail Cars

OLDSPEAK: ‘”It’s a beautiful thing, the destruction of words.’ -Syme (1984). Doublethink par excellence. ‘That the wealthy are “job creators,” and therefore have interests that must be defended by the public at large, is a talking-point that, however facile, is so popular it slips effortlessly from the lips of conservatives every day…It’s also complete nonsense; the opposite of the truth. Sure, the wealthy create a few jobs – people who offer exclusive services or sell them high-end goods. But the overwhelming majority of jobs in this country are “created” by ordinary Americans when they spend their paychecks.” -Joshua Holand. What a sad society it is where truth has so little sway in the course of its affairs. In this backward economic system, less consumption is seen as undesirable , even if it’s been established that perpetual ‘growth’ and ever-increasing consumption is unsustainable and life threatening our planet and everything on it. In this reality controlled society America’s bought and paid for ‘public servants’ are allowed to so brazenly propagate their overseer’s baseless propaganda and pass laws that benefit the few, with no challenge from its corporate consolidated and controlled journalists and news outlets. “Freedom is Slavery”

By Joshua Holand @ AlterNet:

That the wealthy are “job creators,” and therefore have interests that must be defended by the public at large, is a talking-point that, however facile, is so popular it slips effortlessly from the lips of conservatives every day.

It can be deployed for any purpose – not only in calling for more tax breaks for the rich, but also when opposing public interest regulation, consumer litigation and worker protections. Rep. Michele Bachmann, R-Minnesota, even used it to deflect attention from the “gay rehabilitation” services her clinic allegedly offers. When asked about it by ABC News, Bachmann merely acknowledged, “we do have a business that deals with job creation.” When pressed, she stuck with it: “As I said, again, we’re very proud of our business and we’re proud of all job creators in the United States.”

It’s also complete nonsense; the opposite of the truth. Sure, the wealthy create a few jobs – people who offer exclusive services or sell them high-end goods. But the overwhelming majority of jobs in this country are “created” by ordinary Americans when they spend their paychecks.

Consumer demand accounts for around 70 percent of our economic output. And with so much wealth having been redistributed upward through a 40-year class-war from above, American consumers are too tapped out to spend as they once did. This remains the core issue in this sluggish, largely jobless recovery. The wealthy, in their voracious appetite for a bigger piece of the national pie, are the real job-killers in this economic climate.

Don’t take my word for it. The Wall Street Journal reported this week that “the main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists” the paper surveyed. That jibes with what business owners themselves are saying. Last week, the National Federation of Independent Businesses released a survey of small businessmen and women that found widespread “pessimism about future business conditions and expected real sales gains.”

New York Times reporter David Leonhardt wrote this week that “We are living through a tremendous bust. It isn’t simply a housing bust. It’s a fizzling of the great consumer bubble that was decades in the making.”

The auto industry is on pace to sell 28 percent fewer new vehicles this year than it did 10 years ago — and 10 years ago was 2001, when the country was in recession. Sales of ovens and stoves are on pace to be at their lowest level since 1992. Home sales over the past year have fallen back to their lowest point since the crisis began. And big-ticket items are hardly the only problem.

Leonhardt cites worse-than-expected retail sales and a study conducted by the New York Federal Reserve Bank that found “discretionary service spending” – which excludes housing, food and health care – to have dropped 7 percent, more than twice the decline we saw during previous recessions.

“If you’re looking for one overarching explanation for the still-terrible job market,” Leonhardt concludes, “it is this great consumer bust. Business executives are only rational to hold back on hiring if they do not know when their customers will fully return. Consumers, for their part, are coping with a sharp loss of wealth and an uncertain future (and many have discovered that they don’t need to buy a new car or stove every few years).”

Average American households’ economic malaise started long before the current downturn, as those at the top started grabbing an ever-increasing share of the pie in the 1970s. These graphs, courtesy of Mother Jones, tell the tale:

(click for larger version)Discounting those in the top 20 percent of the pile – according to economists Emanuel Saez and Thomas Picketty it’s actually the top 10 percent – Americans haven’t seen their real incomes rise in the past 30 years.

Paul Buchheit, a professor with City Colleges of Chicago, crunched some numbers using IRS data and found that “if middle- and upper-middle-class families had maintained the same share of American productivity that they held in 1980, they would be making an average of $12,500 more per year.” In other words, because the share of income going to the top has increased so dramatically, ordinary people have $12,500 less in their wallets today. Studies have shown that when wealthy people grab more post-tax income they’re more likely to bank it than to spend it, so much of that $12,500 also represents lost demand, and hence less jobs. Wealthy Americans’ avarice is a job-killer.

American households compensated for their flat incomes first by sending millions of women into the workforce – the single-earner household is largely a relic of the past – and then by running up lots of debt. In the 1970s, Americans socked away between 8-12 percent in case hard times hit, but the national savings rate declined precipitously as the top earners started grabbing an outsized share of the nation’s income.

As a result, we were among the least prepared citizens in the developed world to handle the crash – we didn’t have a rainy-day fund put away.

 

 

(click for larger version)

Then came the Great Recession. The federal Reserve did a study in 2009 in which it went back and surveyed the same households that had been examined in a 2007 snapshot of consumer finances to see how they were faring during the recession. The study found that between 2007 and 2009, median family net worth fell 23 percent, from $125,400 to only $96,000.

Like income, that continued a longer trend that began as those at the top of the pile began grabbing an ever-greater share of the nation’s wealth. As Edward Wolff, an economist at NYU, noted, between 1983 and 2007, only those in the top 5 percent of the income distribution added to their households’ net worth (PDF). The rest of us tread water. Economists talk about a “wealth effect,” which simply means that when you have more wealth you tend to spend more freely. So, this concentration of wealth has also impacted demand.

None of this is particularly complex. In 1978, the top 1 percent of the ladder took in just under 9 percent of the nation’s income, leaving a bit more than 91 percent for the rest of us. In 2007, the year before the crash, they took in 23.5 percent, leaving just 76.5 percent for the rest of the population to split up.

They banked most of that income, whereas we would have spent it. The fact that we’re broke means that businesses are facing less demand for their goods and services than they otherwise would, and have less need to hire a bunch of employees. And that dynamic explains why it’s the wealthiest Americans who are the real “job killers.”


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