Archive for February 19th, 2012
This is the mechanics of your destruction. This is why you have seen the shift from one person working households, to two and now beyond, with it currently being almost mandatory to take on debt to afford even the most basic of necessities because the prices of those things are now well beyond average incomes. This is the mechanics of why health care, automobiles, insurance of all kinds, food, energy and everything else we need has become out of the reach of the average American without taking on more debt. You see, it was designed this way….our monetary system. Because without someone somewhere taking on more debt, there can be no creation of money: our money IS debt. This is the mechanics of your enslavement.
As this is Buffoon’s Day Weekend (otherwise known as “President’s Day”) and tomorrow the markets are closed, it is time for something that will require contemplation.
Pull up a chair or turn on the hottub and take this in; it may require more than one sitting.
We shall start with what I call the “3% Solution.” This is the premise that Ben Bernanke loves to run. He of course argues that it’s a 2% solution, but it rarely is. I am speaking of the intentional inflation that he fosters through the monetary system, an inflation that under the black-letter law of The Federal Reserve Act is a violation, albeit one without a penalty clause. As such he can do as he will, since this “law” has the same import as does a “law” against bank robbery with no penalty attached (the line for robbery stretches out the door and down the block in such an instance, of course.)
I’m going to pick on 110 years as my time frame. This is not an accident, of course; 100 years is approximately the age of the Federal Reserve, and the next 10 are the ones in which we will either stop this or perish as a nation.
We shall start with the following graph:
This is a two-axis graph showing the purchasing power of a dollar, starting at 100% in 1913 and declining to where it will be in 2023. The right axis is the price index. 100% is, of course, what you start with. By 2023 the price index will reach 2,500%, or 25 times what it was in 1913.
Of note is where we are now. At 100 years we have 5.4% of our original purchasing power per unit of currency left, and the price index is 1,870%, or 18.7 times the 1913 value. This means that over the next ten years we will suffer a combined inflation of 34%, which is of course reflected in the decline of the value of the currency.
It is rather instructive to look back just 10 years to see how badly you have been screwed. 10 years previous (2002) the price index stood at 13.9 times. Going to 25 times is nearly a clean double, while the currency value will go from 7.2% of it’s 1913 valuation to 4.0%, nearly a clean halving.
If you wonder how 3% can “possibly hurt you”, it should now be apparent.
But the real scam is not found here. It is found in the moneysmith game of lending against nothing. This is how bubbles occur — every single bubble throughout history, in fact, has come about through this mechanism. The common screed, promulgated by politicians, is that this is an “accident” or “foolish gambling.”
Nothing could be further from the truth. These are, and always have been, acts of intention and thus criminal fraud.
Let’s do an exercise and you should understand how the game is played.
First, let’s assume that an economy produces 10,000 units of output. We can denominate them in dollars, quatloos, zotlys, tally sticks, man-hours of labor or odd stones of yap. It doesn’t matter what the denomination is, only that we have some means to measure it.
Now let’s assume that you have a grand idea for a new business. But you were not frugal, and never laid back any sort of economic surplus (savings, that is) to fund this new venture. Instead, you wish to borrow someone else’s capital.
They agree to lend it at a rate of interest.
But wait a second…. unless your new innovation causes the total economy to expand, such that there are more units of output than there were before sufficient to pay the interest, you must eventually go bankrupt! The reason should be obvious — there is no output to cover your borrowing expense and you had no surplus to start with. In other words, unless your new innovation expands economic opportunity as a whole it cannot succeed.
The moneysmiths know this, of course, as do you if you think about it.
Now here’s the problem in stark relief — over the last 30 years we have never produced enough to pay down the debt in the system as a whole.
See that nice red line? It is always over the blue line since 1980, with one exception — the crash we’re in now. That’s the annualized rate of change in both GDP and the outstanding total debt in the system. It is the cause of the bubbles. And it is a massive, pernicious and outrageous fraud.
Private banks do not have the right to emit United States Dollars with the intent of creating debts they know will not be paid, but they have. For 30 years they have in fact done this on an unbroken basis. On balance, with the exception of a short period in the early 1970s when credit and GDP tracked almost-perfectly, they have done so continually since 1953, which is as far back as we have accurate information.
You can look at the imbalance a different way if you want, on a quarterly basis. I’ve presented this chart many times in the past.
This is the gross addition of both GDP and Debt in the economy on a per-quarter basis. You’ll note that the alleged “recessions” from 1980 forward never actually happened — that is, not once was there an actual drop below zero in net GDP change until 2008!
An updated copy including the last couple of quarters is here:
Notice that we are again putting on more debt than we are GDP.
In 2007 for every dollar of economic expansion we added six dollars of new debt. This debt — credit to someone, who then went out and spent it — was exactly fungible with actual money.
A “mistake” or “exuberance”? No. This is criminal fraud and counterfeiting. This “lending” was not taking place predicated on actual value of collateral (that is, against assets) it was predicated on literally nothing — a promise to produce six times as much tomorrow as what was produced today!
If we assume that this was on ordinary commercial terms and over a 10 year span at a zero interest rate then the only way this bet could pay was if the actual GDP growth in the economy was 20% per year, compounded over the entire ten year period without any recessions.
The highest rate of GDP annualized growth ever posted since 1953 is approximately 12% in the early 1970s, when debt increases were running almost identical to that value. Inflation in 1974 was 11%, in 1975 9.1%, and then from 1979-1981 around 11-12% again, which incidentally was the other time we had similar “GDP Growth.”
Why would any financial institution engage in a practice that they knew had to lead to ruinous losses?
They wouldn’t, and they didn’t.
Instead they put together these hinky “securities” so that all the banks would have to do is skim off a piece of the action and someone else would take the loss. But that doesn’t work either if you’re honest — if you actually tell people that what they’re buying is crap because it cannot possibly be paid as agreed predicated on 100 years of history then they won’t buy at all!
There only way you can get people to buy into these schemes, whether they be the Internet Bubble or the Housing Bubble, is to lie.
When you lie about a financial matter for the express purpose of inducing someone to enter into a transaction they would not otherwise it is not a mistake, it is a criminal fraud.
It gets better, of course. All this credit didn’t exist! That is, there simply wasn’t enough money in the world to pledge against these loans. The banks literally created it out of thin air, a right that is supposed to be reserved to Congress under Article 1, Section 8. This creation of “credit money” out of nothing, backed by nothing, is the essence of counterfeiting exactly as it is if I put blank linen paper in my printer and run off a wad of Benjamins.
Do we need “100% Reserve” banking? Technically, no. But we do need one dollar of capital. That is, there’s nothing particularly wrong with lending against an asset that is fairly value at the market price, even though it “creates credit”, because if payment is not forthcoming there is no loss; the collateral is seized and sold, resulting in the borrower’s bankruptcy (which is what should happen, since he borrowed imprudently.) Without this ability ordinary self-liquidating trade credit such as a letter of credit in international trade, a common commercial transaction that presents no counterfeiting risk, would be impossible.
But lending in the general sense on a fractional basis is an invitation to fraud and theft. Glass-Steagall attempted to prevent this by separating the securities function from depository institutions. The reason Glass-Steagall was undertaken was that in the 1920s the very same thing that happened this time — fraudulent misrepresentation of credit quality and underwriting — happened then. The consequence when the frauds were uncovered was mass bank failures and, since the government did not “bail out” the banks who committed these frauds and there was no FDIC depositors lost money they had not intended to put at risk, nor did they believe was at risk.
There is no way to “restore” the housing “values” that were present in the 2006 time frame as that “value” never actually existed. It was a lie and in fact the economic “progress” from 1980 forward never really happened — it was all bought with credit money putting forward the illusion of demand that did not actually exist.
All of the politicians in the current election cycle at the Presidential level except one (Bill Still) are invested heavily in you not coming to realize this fact. If you do understand it, and a short period of time with the data and Excel will inevitably lead you to this conclusion unless you are either drunk or worse, you then will understand that none of their policy prescriptions can possibly work, as all of them are predicated on the continuation of a mathematical impossibility.
All — literally all — of the economic imbalances stem from this underlying and basic fraud. Trade imbalances. The Internet and Housing Bubbles. The offshoring of millions of American jobs and destruction of the middle class. Medical cost inflation. Higher education cost inflation. All of it is caused, at its root, by one thing — deficit spending by governments and, via fraudulent credit creation, by people.
I wish there was a clean way out of this without acceptance of the very significant and immediate economic pain that our nation — and indeed the world — has to undergo.
And if you support a candidate for Federal Office who doesn’t “get” this, and who refuses to deal with this singular issue, the rest of what you are basing your support upon simply does not matter, as our nation is fiscally doomed.
The Empire of Debt has only one end-point: a death spiral. It is evil and must be dismantled.
Ethics has no place in the Empire of Debt.The financialized Status Quo is careful to limit the language used to describe the situation in Greece to the subtexts of “obligations” and “avoiding chaos.”
The reality being masked is that debt is now more important than people. The suffering of the people of Greece is presented as a footnote to the financial play being staged; when the suffering is noted, it is presented with a peculiar set of unspoken subtexts:
1. Looky-loo detachment of the “gosh, look at that wrecked car, are there any bodies?” sort. People slow down to look at car crashes, and they revel in videos of riots with the same detached fascination with mayhem that doesn’t involve them. Tsk tsk, how awful, etc.
2. They’re reaping what they sowed, “they made their bed, now they have to sleep in it,” i.e. the suffering of Greek non-Elites is the richly deserved consequences of their government overborrowing.
This begs further investigation. In the normal course of affairs in corrupt kleptocracies, various Elites siphon off most of the swag and the commoners get just enough shreds to buy their complicity. In other words, it may well be that the entire populace of Greece benefitted handsomely from the massive State borrowing, but it also may well be that the private-sector Greeks received little of the swag. In this case, they don’t “deserve” to be forced into debt-serfdom by their Euroland overlords.
The ethics of debt, at least in the officially sanctioned media, boils down to: nobody made them borrow all those euros, and so their suffering is just desserts.
What’s lost in this subtext is the responsibility of the lender.Yes, nobody forced Greece to borrow 200 billion euros (or whatever the true total may be), but then nobody forced the lenders to extend the credit in the first place.
Consider an individual who is a visibly poor credit risk.He would like to borrow money to blow on consumption and then stiff the lender, but since he cannot create credit, he has to live within his means.
Now a lender comes along who can create credit out of thin air (via fractional reserve banking) and offers this poor credit risk $100,000 in collateral-free debt at low rates of interest.Who is responsible for the creation and extension of credit? The borrower or the lender? Answer: the lender.
In other words, if the lender is foolish enough to extend huge quantities of credit to a poor credit risk, then it’s the lender who should suffer the losses when the borrower defaults.
This is the basis of bankruptcy laws–or used to be the basis. When an over-extended borrower defaults, the debt is cleared, the lender takes the loss/writedown, and the borrower loses whatever collateral was pledged. He is left with the basics to carry on: his auto, clothing, his job, and so on. His credit rating is impaired, and it is now his responsibility to earn back a credible credit rating.
The debt is discharged and the borrower must live within his means without relying on credit. But he is also free of the burdens of servicing the debt.
If the lender is forced into insolvency due to the losses, then so be it: lenders that cannot differentiate between good and bad credit risks should go under and disappear: that’s what happens in a competitive, transparent capitalist economy. Fools who create credit and extend it to poor credit risks must be eliminated from the system as quickly as possible lest they destroy more capital in the future.
The potential for loss and actually bearing the consequences from irresponsible extensions of credit was unacceptable to the banking cartel, so they rewrote the laws.Now student loans in America cannot be discharged in bankruptcy court; they are permanent and must be carried and serviced until death. This is the acme of debt-serfdom.
The global banking cartel has declared Greece’s debts to be permanent and its people debt-serfs.More precisely, some privately held debt will be written down, but certainly not all of it, and the debt owed to the European Central Bank cannot be written down a single euro: Greece must pay the interest on the full debt, whatever the costs to its people.
We might ask why the fully-financialized Status Quo of financial and political Elites so carefully insures no shadow of ethics passes over the Greek debt crisis: If they did, it would become obvious that when debt becomes more important than people, the system is evil and should be dismantled.
Yes, evil, as in evil empire: the Empire of Debt that now dominates the global economy is intrinsically evil and cannot be salvaged; the only way to rid the planet of its parasitic, pervasive evil is to dismantle it, all of it, everywhere.
Europe is a good place to start.The only way to dismantle the evil Empire of Debt is to stop obeying its commands: Greece should not pay a single euro on any of its debts, starting with debt owed to the Evil Empire of Debt’s favorite tool, the Troika of the EU (European Union), the ECB and the IMF.
We are constantly told default and exit from the debtors’ prison of the euro would lead to chaos. Unfortunately for the Evil Empire of Debt and its Eurozone army of lackeys, toadies and apparatchiks, this claim is demonstrably false. Thanks to Pater Tenebrarum of the always excellentActing Manfinancial blog, we have access to a 53-page report from Variant Perception that completely dismantles the fear-mongering claims of Apocalypse for the Greeks should their government default on its debts.
A Primer on the Euro Breakup: Default, Exit and Devaluation as the Optimal Solution. The only way forward is default and exit from the debtors’ prison of the euro.
Once the debt has been renounced, Greece will have to live within its means, i.e. the goods and services produced by their economy. I think a critically important point has been lost in all the fear-mongering:the value of the goods and services produced by an economy remain the same whether they are valued in euros, gold, dollars, bat guano or any other open-market measure of value.
What will impoverish Greece is paying interest on the mountain of debt.If we value total Greek output of goods and services at 100 quatloos, and this economic activity generates a surplus of 10 quatloos, the Greek people can decide to consume that 10 quatloos, invest it or some mix of the two.
If they have to pay 10 quatloos in interest, then there is no capital left to invest in productive assets. As the existing productive assets degrade, wear out and become obsolete, then the goods and services produced will decline, along with the surplus generated. This sets up a positive feedback loop, i.e. a death spiral: as production of value declines, so too does the surplus available to invest in productive assets.
This is why the only way forward is default and exit from the debtors’ prison of the euro. The only way forward is to value people more than debt, and to dismantle the evil Empire of Debt.
Charles Hugh Smith – Of Two Minds
Janet Tavakoli has written a new book, The New Robber Barons, available in all the usual places.
Janet’s release information says:
With Trillions On the Table Nobody Plays Fair, and Everyone Plays for Keeps.
The New Robber Barons continues financial expert Janet Tavakoli’s on-going chronicle of the global financial crisis captured in her articles from the September 2008 meltdown through February 2012. Picking up where her previous book, Dear Mr. Buffett, ended, she exposes the criminogenic environment that enabled international oligarchs to solidify power.
In January 2009, Warren Buffett, CEO of Berkshire Hathaway, told Tom Brokaw: “the idea that people that move money around are some favored class…strikes me as getting pretty far away from where we should be.” Two years later he publicly excused apparent insider trading by one of his successor candidates, David Sokol.
Berkshire Hathaway officer Charlie Munger admonished law students that Americans shouldn’t be “bitching about a little bailout.”
Shortly before Congress confronted him with Goldman Sachs’s profiteering during the financial crisis, Goldman CEO Lloyd Blankfein quipped he was doing “God’s work.”
CEO Jamie Dimon told shareholders that he didn’t think JPMorgan made a mistake when it came to potential foreclosure fraud: “maybe we’ll have to pay penalties eventually to some of the attorneys general but we really think we should just continue.” Meanwhile the bank scoured 115,000 mortgage affidavits and reserved $1.3 billion for legal costs.
After MF Global’s October 31, 2011, bankruptcy a U.S. Congressman told former CEO Jon Corzine: “You’ve got thousands of hard working people around this country that feel cheated.”
Tavakoli serves up example after stunning international example of no-strings-attached socialization of losses and privatization of gains. In the words of Congresswoman Marcy Kaptur: “I believe most of us would call that theft.”
The New Robber Barons is a prequel to Tavakoli’s The Money Book coming via traditional mainstream publishing later this year. Janet Tavakoli’s fiction book, Archangels: Rise of the Jesuits, a financial thriller wherein the Jesuits usurp the Vatican’s financial power structure and take control of the church leadership, will be released in March 2012. It is a prequel to Vatican Gold, the Jesuit takeover of the global banking system.
Now here’s the thing — it’s free today on the Kindle.
That’s right, $0.00.
Just go to the Kindle Store and search for it, then “buy” it for $0.00.
If you miss it today, then buy it for real tomorrow. I’ve not yet read it, but there’s nothing Janet has written that, in my experience, hasn’t been worth reading.