Posts Tagged ‘Great Depression’
by Robert Denner
of Daily Economic Update
Posted December 1, 2011
BEEN LOTS OF TALK AROUND LATELY REGARDING THE COLLAPSE OF THE U.S. DOLLAR AND WHAT THAT WOULD MEAN FOR THE UNITED STATES OF AMERICA AND THE WORLD. There has also been a lot of talk about the Federal Reserve Bank of the United States of America and how unhappy the people of the US are getting with this largely unknown organization.
These two forces are converging together in what could be a very serious and detrimental way as it relates to the average US citizen. This article will rely heavily on flawed analogies to help the lay person understand the inner workings of both the IMF and the Federal Reserve Bank. This is not to be taken as an academic piece and I would ask that it not be judged as such. This is meant to help those people that have recently woken up to the reality that their country has been hi-jacked and those that are desperate to get up to speed as quickly as possible. So let’s jump right into the thick of it shall we? First we need to start with what I hope are simple lessons so that you can take what I am about to teach you and apply it to the real world.
There is one thing that bankers and computer people love to do and that is to use big scary acronyms to scare off the simple folk. So here is your first lesson.
IMF and the SDR
So right off the bat we are using acronyms that mean absolutely NOTHING to the lay person and yet that is an actual sentence believe it or not… IMF stands for the International Monetary Fund. The SDR is short for Special Drawing Rights and is the currency of the IMF. The International Monetary Fund is a private bank that is used to help sovereign nations engage in international commerce. Just like if you owned a company and you used bank A, and your supplier used Bank B, the IMF would be the bank that both banks A and B used to transfer payments and credits back and forth to each other. To Company A and B (using Bank A and B) it would be seamless.
But the IMF does a whole lot more for the global economy. They are the creditor of last resort for a lot of countries. For if you want to engage in international commerce in the free world (meaning the world now) you must be a part of the IMF system. Should a country that is part of this system become over leveraged because of mismanagement and debt accumulation, the IMF stands ready to come to the rescue. To understand how this relationship has worked in the past (and the present); I MUST go into some history. I will keep it brief I promise.
To understand how the global monetary/commercial world works you have to go back to the end of World War II. Following the war the United States was alone as a major industrial power. The rest of the industrial countries were in shambles. The United States was also nearly alone as a producer of oil. It is this later point that needs to be highlighted.
The United States used its vast oil reserves and coupled it with a highly trained industrial labor force and put it to work in its vast expanse of industrial capacity to re-build the rest of the world. It is this fact that is at the very center of our current monetary system some 60 years later. So I will start with my first analogy…
The US Corp could be seen as a huge company like General Motors. Following WWII US Corp was the only company left with the capacity to make things and it had the working capital and energy to do what it wanted. US Corp went out into the world and started to acquire other businesses. First was Japan Corp which US Corp had beaten into a pulp during the war. US Corp decided that it was in its own best interest to build Japan Corp back up but it needed to make sure that it never again could threaten US Corp the way it did in WWII. Japan Corp used its own currency called the YEN and US Corp obviously used the Dollar. So to make this all work, US Corp had to make sure that the workers at Japan Corp didn’t feel like the last of their country was being taken from them. To keep them vested in the viability of their own country it was very important to let them keep their own currency and their own political structure, albeit greatly modified under the surface. We allowed Japan Corp to keep their figurehead CEO (the Emperor) and we installed a new board of directors (Democratic institutions). We linked the Bank of Japan to US Corp’s bank the Federal Reserve Bank through a new institution called the International Monetary Fund and the World Bank.
If we were to compare this to General Motors this would be like GM buying another company and bringing it under the umbrella of the GM brand. So in this case Japan is like Pontiac and they are given free rein to run their subsidiary the way they see fit, SO LONG as they abide by the parent companies rules.
This setup worked wonderfully and within a decade Japan Corp was back on its feet and was supplying cheap labor and products for US Corp and with every single barrel of oil Japan Corp bought on the international market it further linked them with our monetary system. To keep the Japanese citizens from feeling that it was the US Corp in charge of everything we came up with the International Monetary Fund and the World Bank. Of course these institutions were funded initially by the United States and Great Britain and as such they were just pseudo US institutions. But it worked and the Japanese subsidiary of US Corp gladly bought oil and products from the United States in its own currency (the Yen) but it was linked via the IMF to the US Dollar. For you see US Corp linked everything that the industrial world needed to the US Dollar. All gold/oil/silver/food/etc were priced first in US Dollars and depending upon the relative “strength” of your currency to the US Dollar, this would dictate how much of your currency it would take to purchase a barrel of oil or an ounce of gold. This gave US Corp a huge advantage in the world as we produced almost everything anyways. We had most of the world’s oil supply and a very large portion of the food supply. We were the largest producer of the big complex things the world needed to rebuild. We allowed the smaller subsidiaries to produce the little stuff we needed or wanted. Japan Corp was great at the later, supplying us with small radios and other cool electronic gadgets.
US Corp built a company with dozens and dozens of subsidiaries, each one of them bringing something to the table either large or small. And as the world re-built, other countries wanted to get in on the good times and they voluntarily sold themselves to US Corp. Other countries were very reluctant to join our big happy company. Those countries fell into two groups. Either they were affiliated with Russia Corp or they wanted to stay neutral. But in a world that was moving fast towards globalization it became apparent that each country would have to choose a side lest they be shut out of the global market. For remember that the only way to gain access to US Corp’s vast array of markets and supplies is to be a part of the IMF/World Bank. It was the only way to convert your currency to other currencies (like the US Dollar to buy OIL!!).
I will end this history lesson there as I could get sucked in for hours explaining how US Corp and Russia Corp went to economic(and sometimes real) war with each other and how Russia Corp tried to have it both ways by linking themselves partially to the IMF to gain access to US Corps vast supplies and labor.
I will leave that to YOU to go out and study on your own as it is a story to rival any fictional book you have ever read. The important thing to take away here is that the International Monetary Fund and the World Bank are institutions that were created by the United States and Great Britain. It is a global system that allows countries using different currencies to exchange their goods and services with each other almost seamlessly. Remember also that the system was setup INITIALLY to allow US Corp to control the world’s most important supplies. Things like FOOD, OIL, COMMODITIES (gold,silver,etc) and the rest. At the time this system was created it was the United States that was supplying the lion’s share of these items. But as the decades have come and gone, these items have increasingly come from other parts of the world. And a good portion of these countries are ones that were FORCED into our system either out of necessity or by direct manipulation of their country by forces outside their borders(meaning the US and the IMF).
CONFESSIONS OF AN ECONOMIC HITMAN
This next part of our story is centered on how the US has maintained its spot at the top of the economic order even in the face of massive budget deficits and seemingly unending debt loads. The title of this section is called Confessions of an Economic Hit Man, as I give a nod to a book of the same name written by a man named John Perkins. Mr. Perkins is a trained economists and his specialty was international finance. His job was to go out into the world and sell foreign leaders on US Corp and to convince them to get on board with our system. Or more importantly, it was his job to make sure that they were forever caught up in our system and that they did not attempt to leave our company.
by Gary North
Posted November 24, 2011
CONCLUSION: EUROPE IS IN BAD SHAPE. This is hedge fund manager Kyle Bass’s assessment of the situation in Europe. He stated this in a rousing interview on the BBC’s TV network. Here is the segment:
He made two crucial points – points that stock market investors are ignoring. First, over the last nine years, there has been an increase of world debt from $80 trillion to $210 trillion. These numbers are staggering. Global debt over the last nine years has grown at 12% per year, while GDP has grown at 4% per year.
While he did not verbally spell out the conclusion for the interviewer, it is this: when credit must grow by 12% per year in order to produce 4% GDP growth, at some point there will not be enough GDP to supply sufficient credit. It is time once again to quote economist Herb Stein: “When something cannot go on forever, it has a tendency to stop.”
Bass had a great metaphor: the PIIGS have “sailed into a zone of insolvency.” Second, he explained, the sovereign debts in Europe will be written down. There is no other solution. The airhead interviewer with the Oxbridge accent seemed to be doing a college-skit imitation of Emma Thompson. She challenged him. What about Germany? Can’t Germany continue to fund Europe’s “southern neighbors”? Germany has “the earning power.” (Note: this means German taxpayers.)
Bass responded instantly. First, the German court has determined that any further bailouts are unconstitutional. Second, Greece – and, by implication, the other “southern neighbors” – will spend every euro it borrows from Germany and then come back for more, threatening a default if its demands are not met – exactly what it has done so far. This goes on until the write-down takes place, which it will.
There are two ways of looking at this: the Bass way and the Bass-ackwards way. The airhead chose the latter.
He draws conclusions from the numbers. No one in the mainstream media and mainstream investment fund world seems to be willing to do this. They talk and invest as if the process can go on forever. Debts need not be repaid. This is ancient Keynesian dogma that goes back to the New Deal. “We owe it to ourselves.” On the contrary, specific borrowers owe it to specific creditors. At some point, the specific borrowers are going to default, leaving specific creditors with huge losses. How huge?
THREE TRILLION EUROS!
Charles Hugh Smith agrees with Bass. He says that there will have to be a write-down. By “write-down” he means write-off. He estimates the losses at three trillion euros. Someone will have to take the hit. The great political debate in Europe today is over who will take this hit, and how soon.
It will be investors. But, to forestall the day of reckoning, Europe’s politicians pretend that taxpayers’ credit lines can be used by superficially solvent Northern European governments in order to borrow more money from creditors in order to lend to the PIIGS’s governments, so that the PIIGS’s governments can continue to (1) delay real austerity measures, i.e., massive layoffs of government workers and massive cuts in welfare payments, and (2) make payments on what they owe to investors, mainly banks.
Smith admits that three trillion euros is a guess. Nobody knows how much bad sovereign debt there is, so we must start somewhere. In a world of $210 trillion worth of debt, his estimate seems reasonable to me.
Let’s start with the most basic fact about all this uncollectible, impaired, bad debt: every euro of debt is somebody else’s asset. Wipe out the debt and you wipe out the asset. That’s why there’s no willingness to accept the writedown of debt: somebody somewhere has to suck up 3 trillion euros of loss.
This is the source of Europe’s present policy of “kick the can,” or more accurately, “kick the can with press releases and summits.” If there were a pain-free solution, it would have been implemented long ago. There is no way Europe is going to “grow its way out of this debt.” How much of the eurozone’s “growth” was the result of rampant malinvestment and risky borrowing? More than anyone dares admit. It won’t take austerity to crash the euroland economy, all it will take is turning off the debt spigot.
Europe is facing the problem that Bass raised when he spoke of 12% per year increases of credit and 4% increases per year of GDP. There is no way to grow your way out of this. This is not just Europe’s problem. It is the world’s problem. But Europe is facing it now because the debts are coming due now. They must be rolled over. Creditors must agree to re-lend. But why should they?
The Establishment world of crony capitalism speaks of “re-structuring” the debt. What does this mean? Smith does not pull any punches.
“Restructuring” is a code word for writeoffs. Here, let me “restructure” the euro bond you bought at a 4% coupon yield. Now you’re going to get 2%, and you’re going to like it. Bang, your bond just lost half its market value, but everyone gets to keep it on the books at full value. Nice, until you have to sell it to raise cash. Oops, the euro has slipped in value so you lost more than 50%.
The banks keep the assets on the books at face value. The underlying value is down by at least 50% for Greek bonds. The European experts admit this. (Why the debt is worth that high a percentage is beyond me.) The Greeks are going to default, one way or another.
Who will take the hit? Smith writes: “There’s a fundamental truth that everyone has to understand: what the government spends, the public will pay for sooner or later, whether in taxes or inflation or having their debt defaulted on.” This is reality. But it’s not precise enough.
WHO IS THE PUBLIC?
If there is hyperinflation – price inflation above 30% per year for a decade or more – the public that takes the hit will be almost everyone inside the eurocurrency zone. There will be almost universal hardship.
On the other hand, if monetary inflation ceases for more than a few months, there will be a depression. Big banks will fail. Their depositors will lose everything. The money supply will shrink. It will be 1930-38 all over again.
Central bankers do not allow such things. The European Central Bank will try to walk the tightrope, just as the national central banks in Europe did after World War II. The ECB will pursue boom-bust policies, refusing to capitulate either to a Great Depression or hyperinflation.
But how can it walk this tightrope? The losses will be huge for large banks. The politicians will try to transfer the cost of bailing out Europe’s banks to Germany. But the debts are too large.
by Brandon Smith
of Alt Market
Posted November 04, 2011
This article has been contributed by Brandon Smith of Alt Market, an organization that facilitates networking, local community action, and the exchange of knowledge and ideas and promotes decentralization, localism, and the de-globalization of human economic systems.
Dr. William Stockton celebrates yet another birthday surrounded by family and friends in the midst of a grand suburban paradise. The party is warm, and the evening is filled with joy and merriment. These people singing his praises, laughing and imbibing generous amounts of spirits, are neighbors he’s known for over 20 years. He understands them well, or at least, he thinks he does…
The good doctor, as his neighbors often point out with a jabbing chuckle, is a prepper; a brand of survivalist who participates in the day to day routine of mundane American life while using his spare time to safeguard against unforeseen disaster. His friends view this behavior as an amusing curiosity, an eccentric hobby, but none take it nearly as seriously as William does. It’s not that he is paranoid; far from it. In fact, William Stockton is a professional, a man of sense, and a man of family. He merely lives in an era of great potential danger, where nuclear war and societal collapse are anything but fantasy. Stockton takes these issues into account as an individual, and acts according to the severity of his environment. Much more than his neighbors, he represents legitimate rationality.
Unfortunately for the doctor, and for those who live around him, the days of wine and frosted cake are about to abruptly end as a Civil Defense emergency bulletin blares over the wire. The reality that today’s comforts could disappear in the blink of an eye sets into the minds of the frightened listeners. And soon, we begin to witness the TRUE character of those William once held dear.
This scenario might sound like a familiar consideration to many of us, but for now it remains the stuff of nighttime TV. So begins a rather prophetic and ingenious episode of The Twilight Zone entitled “The Shelter”…
The fascinating thing about “The Shelter” is that it is one of the few short stories showcased in The Twilight Zone (a science fiction program) which hasn’t a single element of science fiction within it. “The Shelter” is terrifying exactly because it is NOT a product of wild imagination, but a representation of social fact that cuts to the calcium rich bone of our culture, even 50 years after it aired on television.
The cold hard truth is, much of our country is completely unprepared for a crisis of any considerable proportion. While the 1950’s and 1960’s held the specter of immediate full scale nuclear war, and thus a highly persuasive incentive for preparedness, the new millennium has hardly been anything to sneeze at. Economic collapse is just as destructive to a nation as an atomic bomb, if not more so. The likelihood of social unrest and the long term implosion of our financial system is greater today than it has been in any other era of American history. So much so that even our currency may evaporate along with our standard of living. Those who prep today are acting in as much a logical fashion as those who built shelters during the height of the Cuban Missile Crisis.
The knee jerk conclusion here by skeptics of the prepper lifestyle will be that the bunker owning citizens of the “red scare” days wasted their time. That obviously, there was no nuclear holocaust, and all their careful planning was for naught. Or why not bring up the media generated hysteria of Y2K, which played on the public’s utter lack of general knowledge concerning computers and U.S. infrastructure to inspire a widespread prepping panic? Did that farce not prove the absurdity of the survivalist mentality?
The answer is no, not really…
The eventuality of collapse is not the issue. Though America today has zero room to maneuver as far as inflationary printing and debt based spending are concerned, and economic instability is inevitable according to the fundamentals regardless of any practical or impractical political measures that could be introduced, the crisis is not our focus. Our focus is, and always has been, independence and self reliance regardless of the circumstances. Through national prosperity, or national pain, the key to survival is to never make assumptions. To never count on your environment to remain hospitable. To keep catastrophe in mind, even if others around you do not.
One vital aspect of survival that often goes unaccounted for by even the most astute preppers, however, is the issue of community. When the last vestiges of normal society crumble, will you be surrounded by friends, or foes? The difference is not always apparent, as Rod Serling noted in the brilliant episode of the Twilight Zone above. The question then arises; how do we know who to work with, who to trust, and when to keep our mouths shut? When the going gets brutal, who will have the guts to stand firm, who will run, and who will stab us right in the back if they get the chance?
Being a prepper for some years myself, and working with a myriad of character types, I have found that certain personality signals and quirks should be addressed in those who live around you, or those you plan to associate with. Certain kinds of people can be pure poison for any survivalist or any organization striving for practical solutions to collapse. Look at your neighbors and your associates carefully and with some objectivity. Do they fit any of the below profiles a little too well…?
This person lives life to the fullest, which by their definition essentially means working 9 to 5 in a job they despise with co-employees they hate, going home to watch reruns of The Apprentice while drinking away the pain of inadequacy, and bathing in the warm oily coconut butter glow of mainstream news before sinking into their soft feather bed of political ineptitude and dreaming sensible dreams of cult-like consumerist mayhem.
This kind of neighbor will likely freak at even the most non-invasive philosophies. Mention of voting for third party candidates (or Ron Paul) draws googly eyed expressions of disbelief, as if you just broke wind at their dinner table. Conversations of possible economic collapse inspire in them reactions of either complete dismissal along with skeptical cackling, or shrugged shoulders and passive solutions. They buy into anyone who happens to be in a position of petty authority, and would jump into a septic tank filled with rusty nails if someone in an expensive suit or a white coat told them to.
by David Galland
from Casey Research
Posted September 9, 2011
Our video host Stefan Molyneux speaks with Casey Research Managing Director David Galland about the debt situation in the US and whether the federal government can do anything about it… assuming they’d even want to.
Stefan: Hi everybody, it’s Stefan Molyneux, host of Conversations with Casey. I have on the line David Galland. Thank you so much, David, for taking the time to chat today.
David: Nice to be here.
Stefan: So, we are seven-tenths of the way towards fascism in the United States. I wonder if you could expand upon that. I sort of get a sense that that’s probably true, but you have a little bit more than my gut instinct – you actually have some pretty professional opinions to work with on that.
David: Well, all the elements for fascism are in place. We have a monetary system that is accountable to no one and that’s a very good start. If you think about it, the way that the monetary system is structured, the government at this point can literally spend money on anything. They talk about capping the federal deficits and all that, but they’ll get past that in no time at all. Probably by the time the viewers are watching this they will have announced a big deal, you know, that they have raised the debt cap. And you know, once you have – if you pin your money to nothing, if you have a monetary system that is based on nothing, then you can afford anything. You can afford all the wars you want, you can afford all the bureaucracy you want; and so they have. That’s a first step.
I mean, we’ve – just as an example, here in the little town in New England where Casey Research is located, they have a – they’ve just finished building a massive new Homeland Security center. This is a town of roughly 4,000 permanent residents; it’s a tourist town. It’s the kind of place where the worst crime you’ll ever see is somebody stealing skis from a ski slope, and yet we have something like 36 policemen. We’ve got this huge, brand-new Homeland Security center. Why? Well, because after 9/11 and the overreaction of 9/11 the government made this money available because it could make the money available, because there is nothing stopping it from doing that. And there’s all these local police departments, which should have an “Andy of Mayberry” type police force, took the money and they spent it, and now we’ve got a semi-militarized local operation. So this has gone on and this is multiplied right across the country… and the world.
Stefan: And of course, the decisions that people make in expanding the public sector have immediate implications in payroll, but I think what America is really facing are the long term implications of unfunded pensions that just run into the hundreds of billions of dollars. It’s a lot of the stuff that is not really counted in the public calculation of the debt, which is more immediate obligations, but the unfunded liabilities run $75 to $100 trillion according to many estimates. That’s not something that you see, which makes the whole conversation about should we have two trillion here or there ridiculous to anybody in the know.
David: Oh, absolutely. Again, on the point about whether we’re sort of on the way to a fascist state – and I – this isn’t just the US – it’s important that, you know, people understand this is all over the world. At this point, none of these governments is operating on anything that remotely resembles sound principles. They’re operating on a number of different priorities and a number of different interests – self-interests, because politicians after all are just people. So whatever it takes to kick the can down the road, they’re going to do. You mentioned $75 trillion in unfunded liabilities, absolutely. Because at this point, this is essentially sort of a rising tide of bureaucracy over the last hundred years that is cresting at this point. And they have done this because there are no real operating principles other than buying the votes that they need to get re-elected and to stay in office for as long as they can, and then they pass the baton to the next bureaucrat and the system continues. But it’s reaching the point where, I think, within a relatively short period of time it’s got to come to an end.
Stefan: Now you’ve written an article recently which I found very interesting – I just shared it through my Facebook as well – it’s called The Greater Depression. So you have the Great Depression and now we’re looking at the Greater Depression. I wonder if you could talk about the mechanics and the future as you see it as we go into this abyss.
David: Ultimately, what we’re faced with right now and this is, I think, just some fundamental principles – because there are so many aspects of what’s going on in the economy today that it makes it for most people – for virtually all people – it makes it very hard to really understand what’s going on. So sometimes you just have to sort of step back and ask a few questions to try to get some sort of a compass, if you will. And first and foremost the crisis we’re in right now is caused by debt, too much debt. As you mentioned before $75 trillion in government obligations – everybody knows that money is never going to get paid. So we’ve been brought to this point of extreme government borrowing. Who would have thought we’d see $1.5-trillion deficits? I mean, nobody – five, six years ago if you would have asked anybody on this planet if the US government could run a $1.5-trillion deficit they would have said no way. Well, here we are. So all of the conditions of what this – you can call it a debt-induced depression, all of the conditions that sort of brought us to this place have not improved since the beginning of this crisis; they’ve only gotten worse.
So what’s the ultimate outcome of this? Well, what’s the one thing that a heavily indebted person or an entity like the government can’t handle? And it’s rising interest rates. You can’t afford for the bank to bump your payments up to, you know, 20% because you’ve missed a payment. Well, the same thing’s true of the government and we are now – we are still – the US interest rates are still bouncing around, you know, all-time lows. It’s completely – it’s a complete aberration. And it can’t last. So why things are going to get worse is because interest rates have to go up. Even if they return to sort of a more normal five to six percent range, from a historical standpoint it would be devastating to the US economy. So the government is doing everything it can to try to get out of this trouble but there really is no way. They have very limited impact on long-term interest rates and if it wasn’t for the fact that Europe was such a basket case and that Japan was such a basket case right now, interest rates in the US would already be taking off but I don’t think we’re going to have to wait long for that and then things are going to get interesting.
by Jim Quinn
The Burning Platform
Posted August 23, 2011
“LENIN IS SAID TO HAVE DECLARED THAT THE BEST WAY TO DESTROY THE CAPITALIST SYSTEM was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” – John Maynard Keynes – The Economic Consequences of the Peace
While Barack Obama vacations on Martha’s Vineyard this week he’ll be thinking about his grand vision to save America – again. There is one thing you can say about Obama – he’s predictable. He promises to unveil his “new” plan for America in early September. The White House said Obama will give a speech after the September 5 Labor Day holiday to outline measures to boost hiring and find budget savings that surpass the $1.5 trillion goal of a new congressional deficit-cutting committee. It is heartening to see that Barack has turned into a cost cutter extraordinaire. He should be an inspiration to the Tea Party, except for one little problem. The plan he unveils in a few weeks will increase spending now and fret about spending cuts at some future unspecified date.
I can reveal his plan today because the White House has already leaked the major aspects of his plan. He will call for an extension of the Social Security payroll tax cut of 2% for all working Americans. This was supposed to give a dramatic boost to GDP in 2011. Maybe it will work next time. He will demand that extended unemployment benefits be renewed. Somehow providing 99 weeks of unemployment benefits is supposed to create jobs. It’s done wonders thus far. He will propose some semblance of an infrastructure bank or tax cuts to spur infrastructure spending. It will include a proposal for training and education to help unemployed people switch careers. He will attempt to steal the thunder from the SUPER COMMITTEE of twelve by coming up with $2 trillion of budget savings by insisting the Lear jet flying rich fork over an extra $500 billion.
You may have noticed that followers of Keynesian dogma like Paul Krugman, Larry Summers, Brad Delong, Richard Koo, John Galbraith, every Democrat in Congress, and every liberal pundit and columnist have been shrieking about the Tea Party terrorists and their ghastly budget cuts that are destroying our economy. They contend the stock market is tanking and the economy is heading into recession due to the brutal austerity measures being imposed by the extremists in the Republican Party. There is just one small issue with their argument. It is completely false. It is a bold faced lie. This is 2011. The economy has been in freefall since January 1. No spending cuts have occurred. Nada!!! As the CBO chart below reveals, the horrendous slashing of government will amount to $21 billion in 2012 and $42 billion in 2013. Of course, those aren’t even cuts in spending. They are reductions in the projected increases in spending. Politicians must be very secure in the knowledge that Americans are completely ignorant when it comes to anything other than the details of Kim Kardashian’s wedding and who Snooki is banging on Jersey Shore.
I’d like to remind the Harvard educated Keynesian economists that Federal government spending is currently chiming in at $3.8 trillion per year. Federal spending was $2.7 trillion in 2007 and $3.0 trillion in 2008. Keynesians believe government spending fills the gap when private companies are contracting. Obama has taken Keynesianism to a new level. Federal spending will total $10.8 trillion in Obama’s first three years, versus $8.4 trillion in the previous three years. Even a Harvard economist can figure out this is a 29% increase in Federal spending. What has it accomplished? We are back in recession, unemployment is rising, forty six million Americans are on food stamps, food and energy prices are soaring, and the middle class is being annihilated. The standard Keynesian response is we would have lost 3 million more jobs, we were saved from a 2nd Great Depression and the stimulus was too little. It would have worked if it had just been twice as large.
The 2nd Great Depression was not avoided, it was delayed. Our two decade long delusional credit boom could have been voluntarily abandoned in 2008. The banks at fault could have been liquidated in an orderly bankruptcy with stockholders and bondholders accepting the consequences of their foolishness. Unemployment would have soared to 12%, GDP would have collapsed, and the stock market would have fallen to 5,000. The bad debt would have been flushed from the system. Instead our Wall Street beholden leaders chose to save their banker friends, cover-up the bad debt, shift private debt to taxpayer debt, print trillions of new dollars in an effort to inflate away the debt, and implemented every wacky Keynesian stimulus idea Larry Summers could dream up. These strokes of genius have failed miserably. Bernanke, Paulson, Geithner and Obama have set in motion a series of events that will ultimately lead to a catastrophic currency collapse. We have entered the second phase of the Greater Depression and there are no monetary or fiscal bullets left in the gun. Further expansion of debt will lead to a hyperinflationary collapse as the remaining confidence in the U.S. dollar is exhausted. We are one failed Treasury auction away from a currency crisis.
John Maynard Keynes argued the solution to the Great Depression was to stimulate the economy through some combination of two approaches: a reduction in interest rates and government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.
It sounds so good in theory, but it didn’t work in the Depression and it hasn’t worked today. It is a doctrine taught in every business school in America with no actual results to support it. Who needs facts and actual results when a good story believed and perpetuated by non-thinking pundits will do? Every Keynesian play in the playbook has been used since 2008. The American people were told by Obama and his Keynesian trained advisors that if we implemented his $862 billion shovel ready stimulus package, unemployment would peak at 7.9% and would decline to 6.5% by today. The cascade of recovery was going to be jump started by a stimulus package that equaled 27% of the previous year’s entire spending. Obama’s complete package was implemented. The outcome was an eye opener.
from The Economic Collapse Blog
Posted August 18th, 2011
IF YOU THOUGHT THAT 2011 WAS A BAD YEAR FOR THE WORLD ECONOMY, just wait until you see what happens in 2012. The U.S. and Europe are both dealing with unprecedented debt problems, the financial markets are flailing about wildly, austerity programs are being implemented all over the globe, prices on basics such as food are soaring and a lot of consumers are flat out scared right now. Many analysts now fear that a “perfect storm” could be brewing and that we could actually be headed for an economic apocalypse in 2012.
Hopefully that will not happen. Hopefully our leaders can keep the global economy from completely falling apart. But right now, things don’t look good. After a period of relative stability, things are starting to become unglued once again. The next major financial panic could literally happen at any time. Sadly, if we do see an economic apocalypse in 2012, it won’t be the wealthy that suffer the most. It will be the poor, the unemployed, the homeless and the hungry that feel the most pain.
The following are 20 signs that we could be headed for an economic apocalypse in 2012….
#1 Back in 2008 we saw major rioting around the world due to soaring food prices, and now global food prices are on the rise again. Global food prices in July were 33 percent higher than they were one year ago. Price increases for staples such as maize (up 84 percent), sugar (up 62 percent) and wheat (up 55 percent) are absolutely devastating poverty-stricken communities all over the planet. For example, one expert is warning that 800,000 children living in the Horn of Africa could die during this current famine.
#2 The producer price index in the U.S. has increased at an annual rate of at least 7.0% for the last three months in a row. We are starting to see huge price increases all over the place. For example, Starbucks recently jacked up the price of a bag of coffee by 17 percent. If inflation keeps accelerating like this we could be facing some very serious problems by the time 2012 rolls around.
#3 The U.S. “Misery Index” (unemployment plus inflation) recently hit a 28 year high and many believe that it is going to go much, much higher.
#4 Jared Bernstein, the former chief economist for Vice President Joe Biden, says that the unemployment rate in this country will not go below 8% before the 2012 election. In fact, Bernstein says that “the most optimistic forecast would be for about eight-and-a-half percent.”
#5 Working class jobs in the United States continue to disappear at an alarming rate. Back in 1967, 97 percent of men with a high school degree between the ages of 30 and 50 had jobs. Today, that figure is 76 percent.
#6 There are all kinds of indications that U.S. economic growth is about to slow down even further. For example, pre-orders for Christmas toys from China are way down this year.
#7 One recent survey found that 9 out of 10 U.S. workers do not expect their wages to keep up with the rising cost of basics such as food and gasoline over the next year.
#8 U.S. consumer confidence is now at its lowest level in 30 years.
#9 Today, an all-time record 45.8 million Americans are on food stamps. It is almost inconceivable that the largest economy on earth could have so many people dependent on the government for food.
#10 As the economy crumbles, we are also witnessing the fabric of society beginning to come apart. The recent flash mob crimes that we are starting to see all over America are just one example of this.
#11 Some desperate Americans are already stealing anything that they can get their hands on. For example, according to the American Kennel Club, dog thefts are up 32 percent this year.
#12 Small businesses all over the United States are having a really difficult time getting loans right now. Perhaps if the Federal Reserve was not paying banks not to make loans things would be different.
#13 The U.S. national debt is like a giant boulder that our economy must constantly carry around on its back, and it is growing by billions of dollars every single day. Right now the debt of the federal government is $14,592,242,215,641.90. It has gone up by nearly 4 trillion dollars since Barack Obama took office. S&P has already stripped the U.S. of its AAA credit rating, and more downgrades are certain to come if the U.S. does not get its act together.
#14 Tensions between the United States and China are rising again. A new opinion piece on chinadaily.com is calling for the Chinese government to use its holdings of U.S. debt as a “financial weapon” against the United States if the U.S. follows through with a plan to sell more arms to Taiwan. The U.S. and China are the two biggest economies in the world, so any trouble between them would mean economic trouble for the rest of the globe as well.
#15 Most state and local governments in the U.S. are deep in debt and flat broke. Many of them are slashing jobs at a feverish pace. According to the Center on Budget and Policy Priorities, state and local governments have eliminated more than half a million jobs since August 2008. UBS Investment Research is projecting that state and local governments in the U.S. will cut 450,000 more jobs by the end of 2012. How those jobs will be replaced is anyone’s guess.
#16 The U.S. dollar continues to get weaker and weaker. This is renewing calls for a new global currency to be created to replace the U.S. dollar as the reserve currency of the world.
#17 The European sovereign debt crisis continues to get worse. Countries like Portugal, Italy and Greece are on the verge of an economic apocalypse. All of the financial problems in Europe are even beginning to affect the core European nations. For example, German industrial production declined by 1.1% in June. There are all kinds of signs that the economy of Europe is slowing down and is heading for a recession. French President Nicolas Sarkozy and German Chancellor Angela Merkel are proposing that a new “economic government” for Europe be set up to oversee this debt crisis, but nothing that the Europeans have tried so far has done much to solve things.
#18 The Federal Reserve is so desperate to bring some sort of stability to financial markets that it has stated that it will likely keep interest rates near zero all the way until mid-2013. The Federal Reserve is operating in “panic mode” almost constantly now and they are almost out of ammunition. So what is going to happen when the real trouble starts?
#19 Central banks around the world certainly seem to be preparing for something. According to the World Gold Council, central banks around the globe purchased more gold during the first half of 2011 than they did all of last year.
#20 Often perception very much influences reality. One recent survey found that 48 percent of Americans believe that it is likely that another great Depression will begin within the next 12 months. If people expect that a depression is coming and they quit spending money that actually increases the chance that an economic downturn will occur.
There is already a tremendous amount of economic pain on the streets of America, but unfortunately it looks like things may get even worse in 2012. The once great economic machine that was handed down to us by our forefathers is falling to pieces all around us and we are in debt up to our eyeballs. The consequences of our bad economic decisions are hurting some of the most vulnerable members of our society the most. As the following video shows, large numbers of formerly middle class Americans are now living in their cars or sleeping in the streets….
It is a crying shame what is happening out there on the streets of America today. Please say a prayer for all of those that are sleeping in cars or tents or under bridges tonight. Soon even more Americans will be joining them.
by Andy Hoffman (Ranting Andy)
Posted August 8th, 2011
LAST NIGHT I CAME ACROSS AN ARTICLE DEPIECTING SUCH A LEVEL OF STUPIDITY, MORAL HAZARD, and chutzpah, that I had to reread it several times to make sure it wasn’t satire. I figured there is no way such “luminaries” in the eyes of the doting public could possibly give such moronic, and destructive soundbytes, particularly during the most significant sovereign threat the U.S. has faced since Pearl Harbor. But they DID anyway, and weren’t even challenged by the press.
I initially sent a brief email stating my loss of words, but as any of my readers know, that condition rarely lasts long, particularly when pertaining to an opportunity to castigate two of the people I hate most on EARTH, Alan Greenspan and Warren Buffett. I had also gone essentially a whole day of sleep, but now that I’m refreshed the creative juices are again flowing. No need to list the Hall of Shame accomplishments of these clowns, particularly Greenspan who, unlike Buffett never earned a dime in the “legitimate business world” (sorry, I had to steal that phrase from Dr. Phillip Bombay in “Back to School”, my all-time favorite comedy).
Given the ongoing, and now accelerating, COLLAPSE of the U.S. financial system, sometimes one really needs to EMPHASIZE how far down the rabbit hole we have gone to realize that the odds of escape are no better than a ray of light in a black hole.
This weekend, amongst perhaps the most intense GLOBAL episode of “Sunday Night Special” ever, in an attempt to assuage investor fears, the puppet media trotted out their two biggest shills, Greenspan and Buffett, to give worldwide investors their sage advice. But rather than to even hedge their comments, they straight out stated ‘all is well, nothing to see here.
Greenspan, in my mind THE NUMBER ONE PERSON RESPONSIBLE FOR THIS MESS, whom in his retirement years has been subtlely hinting that he remembers his roots as advocate of REAL MONEY (i.e. gold), decided to do a 180 and return to the Greenspan of old, fearless of “irrational exuberance” and ever-willing to implement the “Greenspan put” with a few strokes of his money-printing keyboard.
In response to a Meet the Press question regarding the validity of S&P’s decision to downgrade U.S. Treasury debt, he vociferously defended his former employers by stating “The United States can pay any debt because we can always print money to do that. So there is zero probability of default.” Yes readers, he actually said that, in front of a GLOBAL audience, fully believing this would be a comfort to bondholders, creditors, and rating agencies alike.
Even better, everyone’s favorite government sell-out and insider trading expert, Warren Buffet, had the gall to not only attack S&P, but add that a new rating of AAAA should be instituted so the U.S. could be UPGRADED!
Readers, we are entering a VERY, VERY DANGEROUS TIME, unprecedented in human history. The largest, most destructive fiat Ponzi scheme of all time is on the verge of certain collapse, and frankly at the pace things are going such a cataclysm could occur at any moment. Bill H., also of GATA fame, penned a great missive this morning comparing the time frames of a mania versus a panic, driving home the conclusion about how fast things can plummet when CONFIDENCE is lost and FEAR takes over, as opposed to the slow-motion inflation of a GREED-based bubble. That loss of confidence is picking up steam as we speak, and comments like this are the type that could potentially start an avalanche at any time.
Yes, Greenspan is an old, senile coot, but he has had more influence over world monetary policy than any man in history. And more importantly, we now have the past TWO Fed Chairmen, Greenspan and Bernanke, who have cumulatively destroyed the dollar for 24 of the 40 years it has reigned as “reserve currency”, giving similar statements about ‘helicopter drops’ in terms of the arsenal available to them. With protests and in some cases riots going on all over the world in response to rising inflationary pressures (Egypt, Libya, Tunisia, Algeria, Bahrain, Greece, and now more civilized nations such as Israel and the UK), such massively hyperinflationary statements from the reserve currency’s LEADERS can only bode for potentially horrific near-term outcomes, in my view.
Sorry for the light humor about Back to School, as frankly this is no time for humor of any kind. At the GATA conference, Jim Rickards spoke about the psychology of complex systems such as financial markets, noting that every system has its own threshold of pain, and that at any time we could witness the “straw that breaks the market’s back.” Once the hyperinflationary genie is out of the bottle (and it’s pushing FULL FORCE at the cork right now), the 1971-2011 worldwide status quo will be GONE FOREVER, replaced by a MUCH SCARIER reality, the type that has inspired insidious fictions such as 1984, V for Vendetta, and Atlas Shrugged, as well as more diabolical realities such as Stalinist Russia, Fascist Italy, and Nazi Germany.
Holding any material portion of your “wealth” in DOLLARS, POUNDS, or EUROS appears SUICIDAL, particularly if held in insolvent BANKS in the U.S., UK, or Europe. All one needs to do is look at the chart of Bank of America, THE LARGEST AMERICAN BANK, (http://www.ffiec.gov/nicpubweb/nicweb/top50form.aspx), which has been bailed out perhaps a half dozen times (on its own and via Merrill Lynch and Countrywide Credit), to realize that NO AMOUNT OF PAPER, ACCOUNTING CHICANERY, OR PPT SUPPORT, will ultimately be able to save the system.
NOW IS OFFICIALLY NOT SOON ENOUGH to PROTECT YOURSELF from the tsunami which is about to wipe out the Western financial system once and for all. The receding of the waters is long past, and now the wave is within spitting distance of the shore