FedUpUSA

Archive for April 30th, 2010

America’s Impending Master Class Dictatorship

By Stewart Dougherty 

 At certain times, focusing on the big picture is important not just for investment success, but for personal welfare, and even survival. We believe such times are here. It is estimated that 98% of Americans have never held a gold coin in their hands. Yet 100% of Americans regularly handle Federal Reserve Notes. From a contrarian standpoint, the financial message from those two statistics is clear. Even so, gold is much more than money or an investment medium; it stands for liberty and throughout history has facilitated escape and ensured freedom. Never having touched a gold coin is the monetary equivalent to never having breathed fresh air, felt the warmth of sunshine, looked up at the stars or risen from the gutter. Fiat Federal Reserve Notes are becoming nothing more than sewage decomposing in the vast, toxic septic tank of predatory Washington politics, epic Federal Reserve arrogance and error, blatant Wall Street fraud and outright Master Class plunder. Below, we outline America’s troubling and compounding predicament, and urge you to think about how to protect yourself from its consequences, both financially and personally.

Thanks to the endless barrage of feel-good propaganda that daily assaults the American mind, best epitomized a few months ago by the “green shoots,” everything’s-coming-up-roses propaganda touted by Federal Reserve Chairman Bernanke, the citizens have no idea how disastrous the country’s fiscal, monetary and economic problems truly are. Nor do they perceive the rapidly increasing risk of a totalitarian nightmare descending upon the American Republic. 

One stark and sobering way to frame the crisis is this: if the United States government were to nationalize (in other words, steal) every penny of private wealth accumulated by America’s citizens since the nation’s founding 235 years ago, the government would remain totally bankrupt. 

According to the Federal Reserve’s most recent report on wealth, America’s private net worth was $53.4 trillion as of September, 2009. But at the same time, America’s debt and unfunded liabilities totaled at least $120,000,000,000,000.00 ($120 trillion), or 225% of the citizens’ net worth. Even if the government expropriated every dollar of private wealth in the nation, it would still have a deficit of $66,600,000,000,000.00 ($66.6 trillion), equal to $214,286.00 for every man, woman and child in America and roughly 500% of GDP. If the government does not directly seize the nation’s private wealth, then it will require $389,610 from each and every citizen to balance the country’s books. State, county and municipal debts and deficits are additional, already elephantine in many states (e.g., California, Illinois, New Jersey and New York) and growing at an alarming rate nationwide. In addition to the federal government, dozens of states are already bankrupt and sinking deeper into the morass every day. 

The government continues to dig a deeper and deeper fiscal grave in which to bury its citizens. This year, the federal deficit will total at least $1,600,000,000,000.00 ($1.6 trillion), which represents overspending of $4,383,561,600.00 ($4.38 billion) per day. (The deficit during October and November, 2009, the first two months of Fiscal Year 2010, totaled $296,700,000,000.00 ($297 billion), or $4,863,934,000.00 ($4.9 billion) per day, a record.) Using the GAAP accounting method (which is what corporations are required to use because it presents a far more accurate and honest picture of a company’s finances than the cash accounting method primarily and misleadingly used by the U.S. government), the nation’s fiscal year 2009 deficit was roughly $9,000,000,000,000.00 ($9 trillion), or $24,700,000,000.00 ($24.7 billion) per day, as calculated by brilliant and well-respected economist John Williams. (www.shadowstats.com) Fiscal Year 2010’s cash- and GAAP-accounting deficits will likely be worse than 2009’s, given government bailout and new program spending that is on steroids and psychotic. 

Putting Fiscal Year 2009’s $9,000,000,000,000.00 ($9 trillion) deficit another way, 17% of America’s private wealth, accumulated over a period of 235 years, was wiped out by just one year’s worth of government deficit spending insanity. 

Given this, is it any surprise that Treasury Secretary Geithner has announced that the release of the nation’s FY 2009 supplemental GAAP financial statements has been delayed? Remember, this is the same Secretary Geithner who bullied people to cover up the sordid details of the AIG, or more accurately, the taxpayer-funded, multi-billion dollar, Santa Claus bailout and bonus bonanza for Goldman Sachs. Do you really think this government, characterized as it is by fiscal and monetary secrecy, lies, chicanery, cronyism and stonewalling, wants the people to know what is actually happening? Obviously, it does not, so it hides from the public the inexcusable facts. 

It is estimated that the top 1% of Americans control roughly 40% of the nation’s wealth. In other words, 3 million people own $21,400,000,000,000.00 ($21.4 trillion) in net private assets, while the other 305 million own the remaining $32,000,000,000,000.00 ($32 trillion). 77,000,000 (77 million) Americans (the lowest 25%) have mean net assets of minus $2,300 ($-2,300.00) per person; they live from paycheck to paycheck, or on public assistance. The lower 50% of Americans own mean net assets of $27,800 each, about enough to purchase a modest car. Obviously, it would be impossible to retire on such an amount without significant government or other assistance. Meanwhile, the richest 10% of Americans possess mean net assets of $3,976,000.00 each, or 143 times those of the bottom 50%; the top 2% control assets worth more than 1,500 times those in the bottom 50%. When you combine these facts with Wall Street’s typical multi-million dollar annual bonuses, you get an idea of wealth inequality in America. Historically, such extreme inequality has been a well-documented breeding ground for totalitarianism. 

If the government decides to expropriate (steal) or commandeer (e.g., force into Treasuries) America’s private wealth in order to buy survival time, such a measure will be designed to destroy the common citizens, not the elite. Insiders will be given advance warning about any such plan, and will be able to transfer their money offshore or into financial vehicles immune from harm. Assuming that the elite moves its money to safety, there would then be $120,000,000,000,000.00 ($120 trillion) in American debt and liabilities supported by only $32,000,000,000,000.00 ($32 trillion) in private net worth, for a deficit of $88,000,000,000,000.00 ($88 trillion). In that case, each American would owe $285,714.29 to balance the country’s books.  (Remember to multiply this amount by every person in your household, including any infant children.) 

If the common people suspect that something diabolical was in the works, a portion of the $32 trillion in non-elite wealth could be evacuated as well prior to a government expropriation and/or currency devaluation, resulting in less money for the government to steal. What these statistics mean is that it is absolutely impossible for the government to fund its debt and deficits, even if it steals all of the nation’s private wealth. Therefore, the government’s only solutions are either formal bankruptcy (outright debt repudiation and the dismantling of bankrupt government programs) or unprecedented American monetary inflation and debt monetization. If the government chooses to inflate its way out of this fiscal catastrophe, the United States dollar will essentially become worthless. You can be absolutely certain that a PhD. in economics, such as Dr. Bernanke, is well aware of these realities, despite what he might say in speeches. For that matter, so are Chinese schoolchildren, who, when patronized by Treasury Secretary Geithner about America’s “strong dollar,” laughed in his face. One day, perhaps America’s school children will receive a real education so that they, too, will know when to laugh at absurd propaganda. 

The government has announced that during the fiscal years from 2010 through 2019, it will create an additional $9,000,000,000,000.00 ($9 trillion) in deficits, an amount that is almost certain to be understated by trillions given the country’s current economic trajectory. The government assumes that this vast additional deficit will be funded by others, such as the Chinese, as it is a statistical fact that the United States will be incapable of funding it. 

Furthermore, with the budgetary equivalent of a straight face, the Office of Management and Budget reports in its long-term, inter-generational budget projection that the United States government will experience massive, non-stop deficits for the next 70 (SEVENTY) years, requiring the issuance of tens of trillions of dollars of additional debt. The OMB does not project even one year of surplus during the entire seventy year budget period. 

These deficits and debts are now so gargantuan that they have become surreal abstractions impossible even for sophisticated financiers to begin to comprehend. The common citizen has absolutely no idea what these numbers mean, or imply for his or her future. The people have been deluded into thinking that America’s arrogant, egomaniacal, always-wrong-but-never-in-doubt fiscal witch doctors and charlatans, including Greenspan, Rubin, Summers, Geithner and Ponce de Bernanke, have discovered a Monetary Fountain of Youth that endlessly spits up free money from the center of earth, in a geyser of good will toward the United States. Unfortunately, this delusion is false: there is no Monetary Fountain of Youth, and contrary to the apparent beliefs of the self-deified man-gods in Washington, D.C., the debt and deficits are real, completely out of control, and 100% guaranteed to create catastrophic consequences for the nation and its people. 

When government “representatives” deliberately sell into slavery the citizens of a so-called free Republic, they have committed treason against those people. This is exactly what has happened in the United States: the citizens have been sold into debt slavery that they and their descendants can never escape, because the debts piled onto their backs can never, ever be paid. Despite expensive and sophisticated brainwashing campaigns emanating from Washington, claiming that America can “grow” out of its deficits and debt, it is arithmetically impossible for the country to do so. The government’s statements that it can dig the nation out of its fiscal hole by digging an even deeper chasm have become parodies and perversions of even totally discredited and morally disgusting Keynesianism. 

The people no longer have elected representatives; they have elected traitors. 

The enslavement of the American people has been orchestrated by a pernicious Master Class that has taken the United States by the throat. This Master Class is now choking the nation to death as it accelerates its master plan to plunder the people’s dwindling remaining assets. The Master Class comprises politicians, the Wall Street money elite, the Federal Reserve, high-end government (including military) officials, government lobbyists and their paymasters, military suppliers and media oligarchs. The interests and mindset of the Master Class are so totally divorced from those of the average American citizen that it is utterly tone deaf and blind to the justifiable rage sweeping the nation. Its guiding ethics of greed, plunder, power, control and violence are so alien to mainstream American culture and thought that the Master Class might as well be an enemy invader from Mars. But the Master Class here, it is real and it is laying waste to America. To the members of the Master Class, the people are not fellow-citizens; they are instruments of labor, servitude and profit. At first, the Master Class viewed the citizens as serfs; now that they have raped and destroyed the national economy, while in the process amassing unprecedented wealth and power for themselves, they see the people as nothing more than slaves. 

America’s public finances are now so completely dysfunctional and chaotic that something far worse than debt enslavement and monetary implosion, terrible curses unto themselves, looms on the horizon: namely, a Master Class-sponsored American dictatorship. 

Throughout history, the type of situation in which America now finds itself has been a fertility factory for tyranny. The odds of an outright overthrow of the people by the Washington and Wall Street Axis, or more broadly, the Master Class are increasing dramatically. The fact that so few people believe an American dictatorship is possible is exactly why it is becoming likely. 

Dictatorships have blighted history and ruined lives since the beginning of civilization. In recent times alone, tyrants such as Hitler, Stalin, Lenin, Ceausescu, Amin, Hussein, Mussolini, Tojo, Kim, Pinochet, Milosevic, Tito, Batista, Peron, Pol Pot, Mugabe, Marcos, Somoza, Mengistu, Bokassa, Sese Seko, Franco, Ho Chi Minh, Mao, and Castro have power-sprayed blood onto the screen of time and ravaged mankind with murder, torture and human oppression. A full catalog of history’s tyrants would require a book of hundreds of pages. In the past 100 years alone, over 200 million human beings have been annihilated by wars, ethnic cleansings and government assassinations. Just when we think that civilization has been able to rise above tyranny’s inhumanity and disgrace, a new dictator appears on the scene to start the process all over again. Every time this happens, fear and submission paralyze the vast majority of the affected masses, leading them to “follow orders” and lick autocracy’s blood-stained boots. 

History has proven to tyrants that oppression works. In fact, it is easy to control a populace, once you control the money, markets, military (including police), media and minions (the recipients of welfare, social security, free health care, government jobs and the like, who are dependent upon the state and likely to be compliant). This is exactly where the United States is today. 

Recent American events paint an ominous picture of a Master Class that is now in total control. 

When 90% of the American people vehemently rejected the $700,000,000,000.00 ($700 billion) TARP bailout plan, the Master Class put it on a fast track and approved it anyway. 

When a clear majority of the American people said no to a government takeover of Chrysler and GM, the Master Class poured billions of taxpayer dollars into those corporate sinkholes and took them over anyway. 

When the people said no to multi-trillion dollar crony bailouts for the bankers and insurers whose corruption had caused global financial mayhem, the government pledged to those elite insiders more than $13,000,000,000,000.00 ($13 trillion) of the people’s money anyway. 

When the people expressed astonishment and anger that Wall Street planned to pay itself record 2009 bonuses, in the midst of America’s worst-ever fiscal and financial crisis caused by them, Wall Street stuffed its pockets with taxpayer-supported bonus money anyway. 

When the people said no to a proposed $40,000,000,000.00 ($40 billion) bailout of AIG and its elite trading partners such as Goldman Sachs (an amount that subsequently exploded to $180,000,000,000.00+ ($180+ billion)), the Master Class went underground, covertly misappropriated taxpayer money and made the payoffs anyway. 

When Fannie Mae and Freddie Mac were nationalized at enormous taxpayer expense, the government approved $6,000,000.00 individual pay packages in 2009 (150 times the average American wage) for the CEOs of both failed companies anyway. 

When a clear majority of the people said no to nationalized health care, even after being bombarded by a multi-million dollar, lie-drenched propaganda campaign designed to bamboozle them, the House and Senate passed nationalized health care bills anyway. 

When more than seven million American workers lost their jobs and were subsisting on unemployment benefits and food stamps, federal government employees, who now earn DOUBLE what private sector workers earn, were given another round of pay and benefits increases anyway. 

When private sector workers’ 401Ks and IRA retirement plans plummeted in value due to economic collapse and endemic Wall Street-orchestrated market corruption (including systemic front running, flash trading, naked short selling and other manipulations), government “defined benefit,” lifetime-cost-of-living-adjusted pension plans, despite already being underfunded by $2,000,000,000,000.00 ($2 trillion), were made richer than ever anyway. 

The long, shameful litany of events signaling the total divorce between the Master Class and the people of the United States doesn’t stop there. It goes on and on.  

The message from the American Master Class to the American people is simple and clear: 

We Defy You. 

Governments that openly defy the people are either already totalitarian or in the process of becoming so. Monetarily, the United States clearly functions as a totalitarian dictatorship already, with a Federal Reserve that operates in secrecy, creates limitless amounts of debt and currency at will, and showers trillions of dollars upon favored Master Class insiders with zero transparency or accountability whatsoever. The Federal Reserve is so shameless about its dictatorial powers that it flatly refuses to provide details about multi-trillion dollar bailouts and rescues of privileged elites, in open defiance of Congress and the people. The fact that they get away with these blatant acts of defiance demonstrates the true extent of the Master Class chokehold on America. 

If the Master Class were a benign despot and if its policies and programs actually worked, that would be one thing. But that is not the case. Rather, its programs are in a complete shambles. 

Every single government entitlement program in the United States is bankrupt. This includes Social Security ($17,500,000,000,000.00 underfunded; $17.5 trillion); Medicare Part A ($36,700,000,000,000.00 underfunded; $36.7 trillion); Medicare Part B ($37,000,000,000,000.00 underfunded; $37 trillion); Medicare Part D ($15,600,000,000,000 underfunded; $15.6 trillion), Government and military pensions ($2,000,000,000,000 underfunded; $2 trillion), Food Stamps (current underfunding difficult to measure because the number of recipients is exploding; hundreds of billions underfunded versus original projections, minimum); and the list goes on. The above underfunding amounts are NET of projected tax receipts over the next 50 years. But the current recession has invalidated virtually all long-term budget and tax receipt assumptions, meaning that the true underfunded amounts are now greater than current, already mind-boggling estimates. 

While the above statistics are terrifying enough to any citizen with a functioning brain, what is Twilight Zone-eerie and a far more serious cause for alarm is the casual indifference with which the Master Class is now making the country’s dire and irreparable fiscal circumstances even worse. 

The nationalized health care program will cost at least $1 trillion over the next ten years, and most likely multiples of that. It is being crammed down America’s throat by a bankrupt government that does not have the money today and will not have the money tomorrow to pay for it. Worse is the fact that the same government that has bankrupted each and every existing social program now intends to directly or indirectly control the health care of all citizens. Based on the government’s existing track record and the health care program’s enormous complexity, invasiveness and cost, the probability that it will become a national fiscal and humanitarian catastrophe is roughly 100%. 

“Cap and Trade” is a multi-trillion dollar tax scam being foisted onto the American public without a legitimate debate or popular referendum. You might be surprised to learn that “Climate Revenues” are already included in the federal budget, starting with $79,000,000,000.00 ($79 billion) in fiscal year 2012, which begins only 20 months from now. During fiscal years 2012 through 2019, the government expects to collect $646,000,000,000.00 ($646 billion) in “Climate Revenues,” a completely new tax category. Have any of your elected traitors told you that they have enacted $646,000,000,000.00 ($646 billion) in “Climate” taxes beginning twenty months from now and continuing forever? These “Climate Revenues” are based on junk science, lies and hysteria, and have been pimped by greed-diseased parasites who seek to make billions from operating and manipulating the Cap and Trade “marketplace.” Favored elitists such as Hank Paulson, Al Gore, General Electric and Goldman Sachs, among others, have positioned themselves to profit from the nation’s upcoming Cap and Trade tax misery and economic debilitation. 

The reality is that the giant Ponzi scheme called the United States of America is running out of money. In any Ponzi scheme, money must constantly be poured into the top of the funnel in order to pay the redeemers at the bottom. As the number of redeemers has grown, tax receipts have fallen far short of covering their withdrawals, a problem that has now become an outright government funding emergency further aggravated by the fiscal, financial and economic crises. 

If the Washington and Wall Street Axis were not legally able to create and distribute counterfeit American money, the Ponzi scheme would have collapsed already. Trillions of new, out-of-thin-air, printing-press and electronic “dollars” have bought the Axis additional time, but new sources of revenue must immediately be found to keep the scam alive. Congress is fully aware of this reality. Outright tax increases would be bad politics during a recession that is morphing into a depression, and also bad for 2010 re-election campaigns, so they cannot be implemented. Therefore, Congress continues to advance the health care and Cap and Trade agendas, which are nothing but taxation Trojan Horses festooned in righteousness and sanctimony, despite overwhelming popular opposition. 

If the nationalized health care program is passed, revenues and fees will kick in immediately in 2010, whereas costs will not begin to accrue until 2012 and later. The government plans to spend the revenues immediately to forestall a total fiscal collapse. Nationalized health care has absolutely nothing to do with health care; it has to do with creating an immediate revenue stream to help fix the current government funding crisis. Similarly, Cap and Trade has nothing to do with fixing the environment. It, too, is nothing more than a massive tax increase similarly designed to address the government’s epic funding shortfall, with thick slices of pork thrown  in for privileged insiders and deceitful propagandists like bloated “Father of the Internet” and now “Savior of the World” Al Gore. 

The last thing the Master Class wants is for the people to understand the disastrous state of the nation’s finances. Master Class brainwashing tells the people that it is “negative” and “pessimistic” to look at the facts, despite the fact that psychological health is characterized by the ability to identify and deal with reality. The Master Class wants the people to put on Bozo the Clown happy faces and let sugar plums and green shoots dance in their brains as they write one check after another to pay for Cap and Trade, nationalized health care, and a mind-numbing assortment of other taxes and fees. 

On Sunday night, November 30, 2009, North Korea’s dictator Kim Jong Il (a name that says it all, even better than Made-off’s), an international poster child of Master Class psychological illness, devalued his country’s currency by 99%. This vicious tyrant, who has given birth to a national hell on earth, is chauffeured in Mercedes Benz limousines, drinks the finest imported whiskies and dines in imperial dignity on foods prepared by personal chefs while his citizens starve to death on the streets or, at best, eke out a subsistence living. Kim became paranoid that the people were actually figuring out how to improve their pitiful, impoverished lives in tiny ways, so he decided to wipe them out. The people were given one week to exchange their money at a rate of 100 old Won for 1 new Won. Any lifetime family savings in excess of roughly $700.00 were simply confiscated by the North Korean government. To keep the people in line, the military and police were put on high alert, fully prepared to kill or arrest any protesters. 

On January 9, 2010, Venezuela’s strong man Hugo Chavez devalued his country’s currency by 50%, overnight and without warning, causing immediate inflation, shortages of food and supplies, and general financial chaos throughout the nation. 

While you might be shaking your head in pity over the plight of the citizens of North Korea and Venezuela, ask yourself this: could this not happen in the United States? On April 5, 1933, President Franklin D. Roosevelt, an Obama hero, outlawed gold ownership overnight by signing Executive Order 6102, which gave the people three and one-half weeks to surrender all privately-owned bullion to the government for a price of $20.67 per ounce. On January 30, 1934, nine months after collecting the people’s gold, Roosevelt devalued the dollar 69% overnight, by raising the gold price from $20.67 to $35.00 per ounce.

 Since its founding in 1913, the Federal Reserve has devalued the dollar by 98+% thanks to endless money printing and debt creation, a corrosive and impoverishing process that is now accelerating. In the past year, the Fed has engineered $20+ trillion in bailouts, subsidies and guarantees for well-connected and lucky scavengers and opportunists, an amount equal to roughly 40% of the total private wealth created in this country since its inception. All because a few elitist government man-gods with an almost perfect record of error and failure have deemed in their imperial wisdom that it shall be so. The citizens, whose hard-earned wealth is being systematically destroyed by this continual, government-decreed monetary debasement were never invited to the debate or given a say, which is par for the course for dictatorships. This massive de facto devaluation now hangs over the people’s wealth like a great monetary sword of Damocles.

 Conceptually, whether it is a 50% overnight devaluation in Venezuela, a 69% overnight devaluation in the United States, a 98% devaluation in America over time, or a 99% overnight devaluation in North Korea, what is the difference? The fact is: there is no difference; monetary debasements are all the same. In each and every case, the people’s wealth is stolen via government edict, while the people stand by helplessly and in shock.

 So one must ask: For whom does the bell toll? A foreign “them,” or a domestic us? Who is to say that you will not be told tomorrow morning that, effective immediately, in accordance with some perversely named mandate such as the “American Monetary Security, Wealth Preservation and Terrorism Prevention Act,” enacted by emergency for “the safety of the nation and the financial well being of the citizens,” all existing currency and bank balances will be redenominated in “New Dollars,” at a conversion rate of 1 new for every 100 old currency units? Would this not simply be another, almost predictable act of defiance toward the American people by the Master Class? And if that happened, do you honestly believe that the Master Class would not have been alerted in advance and allowed to make special preparations for itself ahead of the devaluation? Do you think they intend to go down in the same ship as the people they defy? If such a currency devaluation were announced, what could you do about it? March on Washington? But how would you get there if your money had been wiped out?

 Despite what you may hear from State Media, which includes virtually all establishment news organizations, particularly financial ones (e.g., CNBC), America is on the precipice. No bankrupt nation in history has ever defended or preserved the freedoms of its citizens. In fact, it has been the exact opposite: in desperation, bankrupt governments have routinely plundered their citizens’ wealth and imposed totalitarian controls. What will make things different for the United States, the largest debtor nation in all of recorded civilization?

The United States government cannot ever, possibly pay its debts, is pathologically incapable of controlling its spending or curbing its hunger for both domestic and international empire and persistently refuses to tell the American people the truth. If America’s citizens were told the truth and given the benefit of true leadership, as opposed to the guile and dishonesty of an endless array of political liars and hacks, perhaps they could rally and defeat the problems that afflict them. But instead, they are fed by the Master Class a steady diet of narcotic propaganda that deludes, confuses and enervates them. The truth cannot set people free if it is never told, and that is the essence of America’s gathering tragedy. 

In a future article, we will detail specific developments you should watch for to chart the course of America’s ominous and potentially deadly national storm. The current, grave situation is already a clear call to action. When the signals become even more urgent, it will be late in the game to take protective action, and possibly too late. Citizens should begin to prepare now not just for financial survival, but for the personal security of themselves and their loved ones should a Category 5 economic and political hurricane rip into the nation, something that becomes more likely every day. With respect to personal finances, in virtually every national currency devaluation and major political upheaval in the past, gold has represented sanctuary for the affected people. Gold has not just preserved wealth, but personal freedom as well. While governments can devalue fiat currencies, they cannot, by edict, devalue gold. Yes, they can try to manipulate its price, but unless all governments join in the collusion, ultimately the price will return to market. The market for gold is global, and demand exists in all nations and among all peoples. Should the government attempt to confiscate gold, it will be an outright admission that the financial system is collapsing, and the people will know better than to hand over to a corrupt government their only means of survival. The most important point is this: devalued currencies never rise again. Once they are destroyed, they are gone forever, and those whose wealth had once been denominated in them are wiped out. As you have no doubt heard before, not one fiat currency has survived over time, and that is an indisputable fact. More significantly, no fiat currency has ever suffered the abuse that has been inflicted upon the United States dollar, meaning that it is at extreme risk. Gold has been money for 5,000 years. It has not merely survived, it has prevailed over each and every fiat currency collapse throughout history. Given this, the most important financial question a person can ask him- or herself today is: How is my wealth denominated at this time? And given its denomination, is my wealth likely to be safe in current and evolving circumstances?

 One thing is certain: as the epic David and Goliath monetary battle unfolds, between the people fighting to defend their hard-earned wealth on one side, and a Master Class that greedily and pathologically wants to plunder them on the other, the price of gold will become extremely volatile for a period of time. Volatility will, in fact, tell you that the War on Wealth has officially been declared, and will be your signal to do whatever you must to protect what is yours. As the government Goliath and its Master Class allies short tonnes of bullion into rigged futures markets in a desperate attempt to make gold look dangerous and risky, the Davids will be coming forth not just in the United States but from all corners of the globe, buying 10 grams here and one ounce there. There are 6.8 billion Davids, versus one diseased Master Class that numbers in the small millions. There is no way the Master Class can defeat the people, if the people finally rise up and say “No More of Your Plunder. No More of Your Cold and Soulless Financial Oppression. No More of Your Cynical and Godless Exploitation.”

If you find the above argument compelling, you should consider how to protect yourself from Executive Orders that could be issued at any time, under any pretext, and that could be extremely hostile to your financial and/or personal health and well being. One simple way to start is to purchase one ounce of gold for yourself and each member of your household, and much more if you can afford it. That is not financial advice; it is merely the common sense generously communicated to you by history. 

Stewart Dougherty  

*****

 Stewart Dougherty is a specialist in inferential analysis, the practice of identifying historic and contemporary patterns and then extrapolating their likely effects upon the future. Dougherty was educated at Tufts University (B.A., magna cum laude), and Harvard Business School (M.B.A. and an academic Fellow). He can be reached at stewartdougherty@cs.com. He is not affiliated with or compensated by those he references or recommends. He does not offer investment or trading advice, and nothing in this article should be construed as such. This article represents the author’s personal opinions, and nothing more. 

http://thestockmasters.com/files/u1/southpark-bank.jpg

Apologies for the liberties taken on South Park, but this is in essence, the situation regarding the banks, our banking system and YOUR money.  For those that might not recognize him, the banker depicted is Dirk Scheringa, manager of DSB Bank in Holland.  Of course, one could alternatively superimpose Lloyd Blankfein of Goldman Sacks, or  former Lehman CEO Dick Fuld or any host of financial criminals – the possibilities are endless.

The Greek Tragedy of My 20-Year Love Affair That’s Turning Into a Nightmare

By Christopher Humphrys

A dream job? I thought so. I had left the grey skies of London and the big black hole in my bank account for the sunny skies of Greece. My salary as a cellist playing in a small Greek orchestra was relatively modest, but I could still afford to eat out every night, rent a nice apartment and spend long summer holidays on the Greek islands.

By the time I met my beautiful future wife, Penelope, my mind was made up. I could see no reason for ever wanting to live anywhere else but Greece.

That was 20 years ago. This week, as Greece woke up to the reality that it was effectively a bankrupt nation, I could see many reasons.

Civil unrest: Protesters clash with riot police over Greek ‘austerity measures’

Here’s a snapshot of everyday life in a nation on the brink of civil catastrophe.

Before I set out for work on my motorbike yesterday morning, I first had to plan a route that would avoid the latest demonstration and the inevitable tear-gas that would accompany it.

As I passed the debris of the previous night’s riots, I heard the police helicopters buzzing overhead and tried to avoid eye contact with the nervous policemen on almost every street corner, fingering their carbines.

The vibrant but essentially law-abiding city of Athens has become a tense and slightly threatening place to live. It’s all happening because of the Greek economy, which this week collapsed even further as global credit agencies downgraded the rating of Greek government bonds to ‘junk’ status.

But in truth, the rot set in long ago. For decades, Greece has been living a lie. To say the nation has been living beyond its means is the understatement of the century. We have been indulging in an orgy of over- spending and over-borrowing beyond the wildest imagination.

Let me introduce you to my oldest friend, John, the man I went to school with in Britain and the man who first persuaded me to try for a job in Athens. He was already living here. In the years since then, he has become as Greek as the Elgin Marbles. He has a Greek wife, Greek children and a deep love of the country he thinks of as his own.

But today he is desperately looking for a job back in Britain. And that’s because five years ago he managed to do something we all hankered after: he got a job with the state orchestra.

The important part of that sentence is the word ‘state’. It’s not a very good orchestra, but when you work for it you are on the state’s payroll, and that’s the gravy train that just about everyone in Greece wanted to board. It meant a job for life. The pension was eye-watering by British standards and so were the benefits.

Try this for size: a full year’s maternity leave; a year’s sabbatical if it took your fancy; and no matter how badly you played your music, you were utterly secure in the knowledge that you would never be sacked. These rules applied to every single state job in the land.

Now, in the spending cuts that are surely going to have to be made, John is terrified that his gold-star state job could vanish overnight — a bleak prospect with unemployment spiralling, but one that looks increasingly likely.

Unrealistic: Greeks may protest, but for too long they have relied on EU cash

Take another friend of mine, whose father died when she was only 25 years old. She inherited his state pension even though she was a well-to-do lawyer in her own right.

I have plenty of other friends who work for the state. I use the word ‘work’ loosely. Some of them are conscientious and do their nine-tofive hours with a degree of enthusiasm. But the fact is that some didn’t even bother turning up for work at all; they do other jobs instead, but still collect their state salaries.

I think of them as ‘ghost workers’ — and every Greek knows at least one of them. These ghosts have been milking the taxpayer for every penny they could take.

Now, let’s look at that word ‘ taxpayer’. In Greece, tax has long been something regarded by most people as entirely optional. You may choose to pay it, or you may not. There are a hundred ways of finding loopholes — some of them legal, many of them not.

The state has always acknowledged as much. And so, rather than pursuing the tax cheats with all the might of the law, they offered an amnesty: instead of being investigated for tax evasion, people were able to volunteer a one-off payment to make the problem go away.

How much? Just e2,000. And that’s it. No questions asked, even if you had been avoiding a tax liability of tens of thousands.

But then, why on earth would the politicians seek to end this blatant corruption when they have been at

One government minister was found to have built an enormous villa on the side of a mountain in a highly desirable location just outside Athens. Not only did he have no planning permission, but he built it with cheap labour supplied by illegal immigrants. His penalty, when the papers made a big fuss about it, was to be demoted — but his house still stands.

It’s impossible to calculate how many houses in Athens have been built illegally. What is certain is that somebody, somewhere, has been making a huge amount of money in bribes from the owners.

The standard way of doing business in this country is to resort to a ‘little brown envelope’. It’s not only corruption, such dishonesty

denies the state income that should be paying for the schools, the hospitals and every other public service.

And here’s the strange thing. Those public services are, by most standards, very good. I have always found the health service here to be at least as good as Britain’s, probably better. And it’s entirely free.

So how can they afford it when people don’t pay their taxes? The answer, of course, is: Greece can’t. It’s bankrupt.

Nor can the country afford those staggeringly generous state pensions (my father-in-law’s pension is rather higher than my salary), nor the ghost jobs nor — God forbid — the Olympics that they staged with such fanfare in 2004. They cost more than e10 billion, and the long-term benefits from them have been effectively zero.

Yes, there’s a shiny new Metro underground train system and whole areas of the city have been tarted up — but it was done with borrowed money that has yet to be paid back. And those magnificent new stadiums are decaying before our eyes — a sad reminder of why hubris is a Greek word.

Perhaps the greatest corruption of all was the way Greece managed to join the euro. There was no way in the world the government could have met the strict financial criteria, so they took another route: they lied.

Symbol of failure: The euro sculpture at the European Central Bank in Frankfurt. Greece lied to gain entry to the single currency and it has caused prices to double

With the help of foreign bankers they simply misled Brussels and everyone else as to the true degree to which the state was in hock to the lenders.

They imagined that being members of the euro would cement Greece’s position as a modern, successful European country. Now, as we know all too well, the opposite has been the case.

Certainly, Greece has benefited enormously from being a member of the European Union. This is a fiercely patriotic country and you will see the Greek flag flying everywhere you go.

But here’s a sobering thought: almost every significant building, road, even park has been financed at least in part by you, dear reader. It’s your taxes — routed through payments to the EU — that have helped Greece look the way it does today. But now, of course, the gravy train has careered off the track and is causing carnage.

Yes, the Greek government is now embarking on what is called an austerity programme. But it still doesn’t look anything like austere enough.

Here’s an example. It decided that if you own a swimming pool, you must, by definition, be pretty well-off and therefore you should be paying a certain amount in tax. If not, you’re in trouble.

And, of course, it’s easy for officialdom to spot the pool owners: they just look at the pictures conveniently provided on the website Google Earth. So what do the owners do? They cover their pools with green covers so that it looks as though they have nice, big lawns. Old habits die hard.

My own fear is that corruption and tax evasion and borrowing are so deeply ingrained in the Greek culture that even the austerity measures taken, and the combined bail-outs from other EU nations and the International Monetary Fund, will simply not work. Too little, and much too late.

And what then? Well, maybe we will be forced out of the euro — and maybe that will be good for us.

Many of us who live here will not be sorry to see the back of the euro, because one catastrophic sideeffect of joining the single market has been that the cost of living has pretty much doubled.

Meanwhile, the country must learn to live within its means. It must recognise that the state is not some sort of Santa Claus who can always pull another surprise goodie out of his bottomless sack.

For the past couple of years the Greek tourist authority has been selling the delights of this glorious country with the slogan ‘Live your myth in Greece’.

How appropriate that sounds today. We have been living a myth in Greece for far too long. It is now disintegrating, and all of us are deeply worried about what will take its place.

First Quarter 2010 GDP Advance

Posted by Karl Denninger

So the data is out….

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.2 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 5.6 percent.

Well, that’s not what the previous quarter was, but it’s also no surprise.

The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE and a deceleration in imports.

The inventory cycle is about done, residential fixed investment hasn’t turned around at all and in fact is still declining, and state and local government spending is down – they’re out of money!

There are some interesting data points inside the release.  Of note:

• Durables were up big – 11.3%.  Most of this is probably improvement in vehicles, if the reports from the first quarter automakers are to be believed.  Considering that they were in all-on crash mode last year and into the end of 2009, this is good for them – not so good for anything else.

• In domestic private investment the only place we saw gains was in “equipment and software.”  Residential and non-residential structures were both down big, seasonally adjusted (10.9% and 14%, respectively.)  But the CapEx cycle that everyone is counting on for continued expansion is slowing q/o/q; it was up 19% last quarter, and is now up 13.4%.  While that’s a significant positive print if this was a short spurt and is now tapering off we got trouble in the back half of the year.  The jury remains out on this one.

• Net exports were up nicely.  Hint-hint: Policies that strengthen or stabilize the dollar will help this continue – like, for example, abandoning ZIRP!
• Government spending is very interesting.  The Federal government, of course, continues to spend.  But most of the government’s deficit spending isn’t going into direct expenditures – it is instead going into transfer payments and handouts of various sorts, as the total federal spending was up only 1.4%.  State and local spending were down big, as they’re simply out of money.

• Finally, disposable personal income was up just 1.5%.  Where is all the federal borrowing going? 

I’m concerned with these numbers – quite concerned in fact.  The Federal Government borrowed (and presumably spent) $462 billion in excess of tax receipts over the first three months of 2010. 

But PCE – personal consumption expenditures – was up $83 billion and federal spending was up only 3.5 billion. 

Where did the other $375 billion go?

Into a black hole of covering existing obligations, it appears, and the final private demand GDP deficit covered by this is almost exactly 10% (GDP for the quarter is ~3.650 trillion, so $375 billion is roughly 10% of that.)

What does this mean?  It means we’ve not turned the corner on this graph, which was current as of 12/31/2009 (and which I can’t get an accurate read on until the end of this year):

I don’t like it folks.  All the claims of “economic recovery” are in fact claims of “government is propping up 10% of final demand, and that propping up is disappearing into a black hole.”

There’s no evidence in this report that the economy is recovering – that is, that the artificial “borrowed and spent” support the government has been providing for the last two years is being replaced with actual final demand.

The positives in the GDP report are automobiles (strong this quarter) and a positive, but weakening CapEx cycle in business spending. 

But the key item for me in this series, which is evidence that the federal government’s replacement of final private demand is moderating and being picked up by private economic activity, is utterly absent. In fact the influence of those dollars, as shown by the final print compared to last quarter, is waning.

One-sentence summary: The rocket is running out of fuel.

We need this to continue – if it reverses, we’re cooked and fast.  Bernanke needs to raise rates to above that of the ECB.  He may get some help if a few European nations collapse, of course – but if they wind up at zero, we need to be at 1%, and that divergence needs to be established right now.  We do NOT want a skyrocketing dollar, but because we import too much of our raw materials and it is the “value added” that we get to keep, we want cheaper imports of those materials – and we get that by being able to buy them with a stronger buck.  The specific issue here is energy (oil prices); we can’t have oil going back over $100, and the best way to prevent it is to get rid of ZIRP.

Greece’s Alleged “Bailout” And Things To Come Here

Posted by Karl Denninger