FedUpUSA

Archive for June 7th, 2012

I’m about to throw up listening to some of these clowns on The Hill this morning, particular Maurice Hinchey (D-NY-22) who is emitting nonsense from his pie hole as I write this.

Let’s make this simple so everyone can understand.

We hear that “austerity” is bad — and unacceptable.

It is, as it has been implemented in places like Greece, as I have repeatedly noted.

In Greece and many other cases “Austerity” is defined as pulling back government spending in the public realm but retaining the spending in the form of transferring money to the banksters who foolishly lent against nothing and, absent that support, would collapse.

What this means is that all these policies are doing is in fact stealing the production of the common man and woman and giving it to the banksters.

There is no means to avoid the contraction in the economy that must come from the removal of unsupportable debt.  When that model fails — and it always does and must, as mathematically it is impossible to grow debt faster than production and not have it blow up in your face, all you will be faced with is the same contraction, plus more, but in the meantime your wealth and production will have been stolen to pay off the banksters!

The choices are not between “austerity” and “stimulus” or anything of the sort.

Again, there is no avoiding the contraction in both debt and GDP that must take place.  The only question is whether you’d like to allow the banksters to steal, using the power of government, more and more of your wealth and income before the contraction takes place, effectively paying off their bad bets and forcing you to cover them twice!

That’s all folks.  We’re not arguing over whether we should take path #1 which will result in economic contraction or path #2 which will not.

We are arguing over two paths which will both lead to severe economic contraction but in one case you will stop handing over your wealth and income to the banksters who knowingly made bad loans and accept the contraction now and in the other you will be bankrupted by these transfers under the false claim that contraction can be avoided and then take the contraction, materially increasing your pain!

The “no pain” path is what Greece was sold and now, after two years, the truth has become evident: the (intended) outcome was “no pain for banksters, everyone else starves.”

This was not an accident — it was in fact by design and was a fraud sold to the Greek people just as it has been sold to America!

The reason to take the contraction now is that it shuts off the theft of your wealth and income that is then given to the banksters.  Either way the contraction will come because it mathematically must.  But only through the jackboot of government and Fed intervention can you be forced to cover the banksters’ bad bets by having your purchasing power stolen.

The issue before us is simply whether those who intentionally made bad loans and bad bets will be forced to eat them through removing the intentional excess liquidity (which is stealing your wealth and income every single day) or whether you will be forced to cover them as well as suffering the inevitable consequences of the contraction.

Approximately $3,000 has been stolen every year for the last four years from every man, woman and child in this country through intentional deficit spending and debasement for the benefit of these banksters, yet the economy has not recovered.  We cannot recover that which was stolen but we must stop the stealing now as this theft has and continues to damage the common American every single day it continues.

Jim DeMint gets the gold star for the day. [Ben Bernanke's Congressional hearing today.]

It probably just went over the head of everyone in the room on the Joint Economic Committee, but Bernanke didn’t miss it.

Paraphrased, Jim DeMint said: If you stop the deficit spending the economy craters (~10% of GDP) and if you continue doing it the economy will crater (since you will eventually hit the wall and be forced to stop, and it will be even worse.)

In other words, the policies being promulgated are not and cannot be effective.

Anyone who claims that nobody in Congress “gets it” is wrong.  There are a few people who do, Jim DeMint being one of them.

But notice that nobody is talking about taking our medicine and ceasing the lies — the puerile and false claim that we can “recover” from a debt addiction through yet more debt.

That’s mathematically impossible, DeMint knows it, and he’s said it in public.

Now let’s see if anyone — such as the Libertarian Presidential Candidate — will get out in front of this issue and start talking about both what needs to be done and what we can, and cannot, do to mitigate that which must come.

Failure and losses are the essential feedback in capitalism which clears the way for success and innovation. Eliminate losses and failure by changing the rules to protect either an Elite or the majority and you doom the system to collapse.

Is the marriage of capitalism and democracy doomed to discord?The question has been pawed over many times, but longtime correspondent M.M. recently summarized the core issue very neatly:

Isn’t capitalism actually incompatible with democracy?Some wise person said “Capitalism without failure is like Christianity  without hell.”

I agree. Failures are an essential part of the workings of capitalism. But what  happens if a very large group invests in a false or foolish enterprise, for  example 70% of the citizens become involved in that undertaking. Democracy allows those 70% to change the rules instead of accepting  their failure…

Capitalism can be subverted by either an Elite or the majority.Marx traced out how Capital (wealth) naturally consolidates into monopolies or cartels (shared monopolies). These concentrations of wealth then buy political influence via campaign contributions, armies of lobbyists and the full spectrum of cronyism: sweetheart deals, envelopes of cash, revolving doors between the cartels and their regulators, plum jobs for lazy nephews and so on.

This base corruption of the Central State, which is now the dominant force in the economy, allows Elites to change the rules rather than accept failure (also known as losses). Thus we have Crony Capitalism: profits are private and yours to keep, losses are transferred to the taxpaying public.

This mechanism is well known and catches most of the attention. But M.M. highlighted the way the democratic majority can subvert capitalism.This is generally ignored for the simple reason that most commentators are part of the majority subverting capitalism to benefit their own self-interest.

This leads to a terminal state of self-delusion and self-justification:Half of US social program recipients believe they “have not used a government social program”(via Patrick.net)

Two examples that come to mind are the housing bubble and Medicare.Slightly more than two-thirds (65%) of U.S. households “own” a home. (The quotes denote the paucity of  actual ownership if the mortgage exceeds the value of the home.  In that case, it’s more like a lease with a balloon payment.)  This super-majority is keenly interested in maintaining housing subsidies and any policies aimed at re-inflating the housing bubble: zero-rate interest policy (ZIRP), government-guaranteed mortgages to marginally qualified buyers, and so on.

The fact that this “changes the rules” so failure (the accepting of losses, bankruptcy, etc.) is voided or transferred to the public ledger is perfectly acceptable to the majority of homeowners pining for a return to bubblicious prices.

Their self-interest is misplaced, of course, because when you change the rules to protect yourself from losses, the market can never clear itself of rot and deadwood, and so the system becomes a zombie market dependent on a steady transfer of losses to the taxpaying public. This transfer of risk to the system eventually leads to systemic collapse.

I have reported on Medicare’s fundamental unsustainability in depth:That Which is Unsustainable Will Go Away: Medicare   (May 16, 2012). Though nobody knows because only a tiny sliver of transactions are audited, it seems about 40% of Medicare’s expenses are fraud–phantom patients, phantom clinics, phantom tests, and so on. Another chunk is squandered on unproductive or even counterproductive tests, procedures and medications.

Recall that Medicare and Social  Security are “pay as you go” entitlements: the “trust funds” are pure propaganda illusions, as any shortfalls are funded just like any other government agency, by the Treasury selling bonds.

The typical recipient pays in perhaps 10% ($30,000) of the average payout ($300,000-$500,000) in a lifetime of working.  The system only functions in the long-term if the worker-beneficiary ratio is close to 10-to-1. It is now roughly 1-to-1, with 100 million Medicare/Medicaid benficiaries and 115 million full-time private-sector workers.

Once a  majority of the voters believe they are entitled to something that is “too good to  be true” (housing market bubbles, entitlements that pay 10X what is paid in, etc.) then they  will refuse to accept its demise. But that which is unsustainable will go away, one way or another; keep changing the rules to avoid failure and what happens is the “too good to be true” system brings down the entire State, economy and nation.

This leads to a fundamental conclusion:In a sustainable system of democracy and capitalism, the Central State’s sole role is to protect the commons and enforce and enable competition, transparency, accountability, open markets and dissent. It cannot redistribute funds, as those disbursement streams will quickly fall under the control of wealthy Elites, nor can it distribute entitlements, as those will soon attract super-majorities that demand the rules be changed to protect their share of the unsustainable swag.

The Central State cannot be in the “business” of “managing” the economy, as the mechanisms of this management will quickly fall under the control of wealthy Elites or demagogue politicians promising “too good to be true” riches to a super-majority.

Those in the super-majority are delighted to blame the Elites for everything rotten while holding themselves blameless in the subversion of capitalism’s key mechanisms (transparency, accountability, failure, loss and clearing the market) to protect their share of the  “too good to be true” swag.

I cover these topics more in depth in my latest book Resistance, Revolution, Liberation: A Model for Positive Change.

Charles Hugh Smith – Of Two Minds