The Anti-Federalist Nightmare

Our cheery economic news for the day ....

2010-08-30T04:30:00.000-06:00

http://www.marketoracle.co.uk/Article22011.html

http://www.thedailybell.com/1328/Steve-Forbes-on-Overseas-Wars-the-Coming-Gold-Standard-and-the-Rise-of-Citizen-Agitation.html

http://www.financialsense.com/contributors/d-sherman-okst/why-we-are-totally-finished

http://www.bloomberg.com/news/2010-08-25/roubini-sees-u-s-growth-below-1-chance-of-double-dip-recession-at-40-.html

http://www.wnd.com/index.php?pageId=195493

http://www.nationalreview.com/battle10/244695/bennet-bombshell-trillions-debt-nothing-show-it-michael-sandoval

http://www.thenewamerican.com/index.php/usnews/congress/4413-obama-needs-your-401k-to-balance-his-budget

http://www.newswithviews.com/Kincaid/cliff446.htm

Title says it all ...

2010-08-21T20:53:00.001-06:00

Obamanomics is why there is no recovery
Examiner Editorial
August 13, 2010

How many more months must Americans endure near-double-digit unemployment, little or no new-job creation, economic stagnation, a topsy-turvy stock market, and sagging consumer confidence before Washington politicians concede the "summer of recovery" is mostly a mirage?

They've spent nearly $8 trillion since 2007, including nearly $2 trillion on economic stimulus programs and an equal amount for the Troubled Asset Relief Program and similar bailouts. They've effectively nationalized Fortune 500 corporations, taken over the health care sector, and set the regulatory stage for more bailouts and takeovers, but the needle is still stuck. Worse, recovery isn't likely for many months ahead because those same politicians are planning more of the same failing policies.

Consider that entrepreneurial small businesses are the job-creation machine of a free-enterprise economy. But these firms are about to get smacked with significant tax rate increases that will keep most of them struggling just to survive. President Obama, Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi will let the Bush tax cuts of 2001 and 2003 expire as scheduled Jan. 1, 2011. The current 33 percent tax rate on individuals will go to 36 percent, and the current 35 percent rate will increase to 39.5 percent. Those are individual rates, but the majority of small-business profits are taxed as income to individuals.

According to Internal Revenue Service data,30 million tax returns reporting small-business income were filed in 2008, showing net business profits of $631 billion. Americans for Tax Reform pointed out Friday that "large chunk of this net profit -$457 billion - faced taxation in households making more than $200,000 per year. A majority of small business profits will face a tax rate hike under the Obama-Pelosi-Reid plan." So, those millions of small-businesses will soon have even less money to invest in expanding existing product lines or services, as well as job-creating new ventures.

As for the big corporations that are hoarding billions of dollars that would otherwise be flowing into new investments and fueling renewed economic growth, there is no mystery why they are putting off making such decisions. Who can blame them after seeing the nationalization of General Motors and Chrysler, or the moratoria under which hundreds of large and small energy firms were forced to stop drilling in the Gulf of Mexico and on land in places like Wyoming?

Also, an explosion of new anti-business regulations to further hobble the economy is coming soon, thanks to Obama-Reid-Pelosi policies. As ATR's Grover Norquist told The Examiner, "You don't know what the law will be next month, or if you will even be allowed to own your business. The only thing you can be sure of is they will raise your taxes. You would be a fool now to go out and hire somebody new."

Good news, finally people are waking up to the fact that a lot of the practices in the real estate finance industry were, well illegal.

2010-08-21T20:52:00.001-06:00

Homeowners' Rebellion - Could 62 Million
Homes Be Foreclosure-Proof?
A committed movement to tear off the predatory mask called
MERS could yet turn the tide for struggling homeowners
By Ellen Brown
From Yes! Magazine
8-18-10

Mortgages bundled into securities were a favorite investment of speculators at the height of the financial bubble leading up to the crash of 2008. The securities changed hands frequently, and the companies profiting from mortgage payments were often not the same parties that negotiated the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS, a company that serves as the mortgagee of record for lenders, allowing properties to change hands without the necessity of recording each transfer.

Over 62 million mortgages are now held in the name of MERS, an electronic recording system devised by and for the convenience of the mortgage industry. A California bankruptcy court, following landmark cases in other jurisdictions, recently held that this electronic shortcut makes it impossible for banks to establish their ownership of property titles-and therefore to foreclose on mortgaged properties. The logical result could be 62 million homes that are foreclosure-proof.MERS was convenient for the mortgage industry, but courts are now questioning the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the plaintiff must be able to establish the chain of title entitling it to relief. But MERS has acknowledged, and recent cases have held, that MERS is a mere "nominee"-an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions. Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff's legal ability to foreclose.

That means hordes of victims of predatory lending could end up owning their homes free and clear-while the financial industry could end up skewered on its own sword.

California Precedent

The latest of these court decisions came down in California on May 20, 2010, in a bankruptcy case called In re Walker, Case no. 10-21656-E-11. The court held thatMERS could not foreclose because it was a mere nominee; and that as a result, plaintiff Citibank could not collect on its claim. The judge opined:

Since no evidence of MERS' ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another.Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.

In support, the judge cited In Re Vargas (California Bankruptcy Court); Landmark v. Kesler (Kansas Supreme Court); LaSalle Bank v. Lamy (a New York case); and In Re Foreclosure Cases (the "Boyko" decision from Ohio Federal Court). (For more on these earlier cases, see here, here and here.) The court concluded:

Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.

The broad impact the case could have on California foreclosures is suggested by attorney Jeff Barnes, who writes:

This opinion . . . serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO [temporary restraining order] against a Trustee's Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.

While not binding on courts in other jurisdictions, the ruling could serve as persuasive precedent there as well, because the court cited non-bankruptcy cases related to the lack of authority of MERS, and because the opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts on the same issue.

What Could This Mean for Homeowners?

Earlier cases focused on the inability of MERS to produce a promissory note or assignment establishing that it was entitled to relief, but most courts have considered this a mere procedural defect and continue to look the other way on MERS' technical lack of standing to sue. The more recent cases, however, are looking at something more serious. If MERS is not the title holder of properties held in its name, the chain of title has been broken, and no one may have standing to sue. In MERS v. Nebraska Department of Banking and Finance, MERS insisted that it had no actionable interest in title, and the court agreed.

An August 2010 article in Mother Jones titled "Fannie and Freddie's Foreclosure Barons" exposes a widespread practice of "foreclosure mills" in backdating assignments after foreclosures have been filed. Not only is this perjury, a prosecutable offense, but if MERS was never the title holder, there is nothing to assign. The defaulting homeowners could wind up with free and clear title.

In Jacksonville, Florida, legal aid attorney April Charney has been using the missing-note argument ever since she first identified that weakness in the lenders' case in 2004. Five years later, she says, some of the homeowners she's helped are still in their homes. According to a Huffington Post article titled "'Produce the Note' Movement Helps Stall Foreclosures":

Because of the missing ownership documentation, Charney is now starting to file quiet title actions, hoping to get her homeowner clients full title to their homes (a quiet title action 'quiets' all other claims). Charney says she's helped thousands of homeowners delay or prevent foreclosure, and trained thousands of lawyers across the country on how to protect homeowners and battle in court.

Criminal Charges?

Other suits go beyond merely challenging title to alleging criminal activity. On July 26, 2010, a class action was filed in Florida seeking relief against MERS and an associated legal firm for racketeering and mail fraud. It alleges that the defendants used "the artifice of MERS to sabotage the judicial process to the detriment of borrowers;" that "to perpetuate the scheme, MERS was and is used in a way so that the average consumer, or even legal professional, can never determine who or what was or is ultimately receiving the benefits of any mortgage payments;" that the scheme depended on "the MERS artifice and the ability to generate any necessary 'assignment' which flowed from it;" and that "by engaging in a pattern of racketeering activity, specifically 'mail or wire fraud,' the Defendants . . . participated in a criminal enterprise affecting interstate commerce."

Local governments deprived of filing fees may also be getting into the act, at least through representatives suing on their behalf. Qui tam actions allow for a private party or "whistle blower" to bring suit on behalf of the government for a past or present fraud on it. In State of California ex rel. Barrett R. Bates, filed May 10, 2010, the plaintiff qui tam sued on behalf of a long list of local governments in California against MERS and a number of lenders, including Bank of America, JPMorgan Chase and Wells Fargo, for "wrongfully bypass[ing] the counties' recording requirements; divest[ing] the borrowers of the right to know who owned the promissory note . . .; and record[ing] false documents to initiate and pursue non-judicial foreclosures, and to otherwise decrease or avoid payment of fees to the Counties and the Cities where the real estate is located." The complaint notes that "MERS claims to have 'saved' at least $2.4 billion dollars in recording costs," meaning it has helped avoid billions of dollars in fees otherwise accruing to local governments. The plaintiff sues for treble damages for all recording fees not paid during the past ten years, and for civil penalties of between $5,000 and $10,000 for each unpaid or underpaid recording fee and each false document recorded during that period, potentially a hefty sum. Similar suits have been filed by the same plaintiff qui tam in Nevada and Tennessee.

By Their Own Sword: MERS' Role in the Financial Crisis

MERS is, according to its website, "an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans." Or as Karl Denninger puts it, "MERS' own website claims that it exists for the purpose of circumventing assignments and documenting ownership!"

MERS was developed in the early 1990s by a number of financial entities, including Bank of America, Countrywide, Fannie Mae, and Freddie Mac, allegedly to allow consumers to pay less for mortgage loans. That did not actually happen, but what MERS did allow was the securitization and shuffling around of mortgages behind a veil of anonymity. The result was not only to cheat local governments out of their recording fees but to defeat the purpose of the recording laws, which was to guarantee purchasers clean title. Worse, MERS facilitated an explosion of predatory lending in which lenders could not be held to account because they could not be identified, either by the preyed-upon borrowers or by the investors seduced into buying bundles of worthless mortgages. As alleged in a Nevada class action called Lopez vs. Executive Trustee Services, et al.:

Before MERS, it would not have been possible for mortgages with no market value . . . to be sold at a profit or collateralized and sold as mortgage-backed securities. Before MERS, it would not have been possible for the Defendant banks and AIG to conceal from government regulators the extent of risk of financial losses those entities faced from the predatory origination of residential loans and the fraudulent re-sale and securitization of those otherwise non-marketable loans. Before MERS, the actual beneficiary of every Deed of Trust on every parcel in the United States and the State of Nevada could be readily ascertained by merely reviewing the public records at the local recorder's office where documents reflecting any ownership interest in real property are kept....

After MERS, . . . the servicing rights were transferred after the origination of the loan to an entity so large that communication with the servicer became difficult if not impossible .... The servicer was interested in only one thing - making a profit from the foreclosure of the borrower's residence - so that the entire predatory cycle of fraudulent origination, resale, and securitization of yet another predatory loan could occur again. This is the legacy of MERS, and the entire scheme was predicated upon the fraudulent designation of MERS as the 'beneficiary' under millions of deeds of trust in Nevada and other states.

Axing the Bankers' Money Tree

If courts overwhelmed with foreclosures decide to take up the cause, the result could be millions of struggling homeowners with the banks off their backs, and millions of homes no longer on the books of some too-big-to-fail banks. Without those assets, the banks could again be looking at bankruptcy. As was pointed out in a San Francisco Chroniclearticle by attorney Sean Olender following the October 2007 Boyko [pdf] decision:

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

. . . The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail . . . .

Nationalization of these giant banks might be the next logical step-a step that some commentators said should have been taken in the first place. When the banking system of Sweden collapsed following a housing bubble in the 1990s, nationalization of the banks worked out very well for that country.

The Swedish banks were largely privatized again when they got back on their feet, but it might be a good idea to keep some banks as publicly-owned entities, on the model of the Commonwealth Bank of Australia. For most of the 20th century it served as a "people's bank," making low interest loans to consumers and businesses through branches all over the country.

With the strengthened position of Wall Street following the 2008 bailout and the tepid 2010 banking reform bill, the U.S. is far from nationalizing its mega-banks now. But a committed homeowner movement to tear off the predatory mask called MERS could yet turn the tide. While courts are not likely to let 62 million homeowners off scot free, the defect in title created by MERS could give them significant new leverage at the bargaining table.

I keep saying the Republican party has left me, not the other way around.

2010-08-20T08:55:00.002-06:00

The GOP's Lost Brand
By Randall Hoven

This is not your father's America, nor is it your father's Republican Party. You have been betrayed. But if you call it betrayal, you won't be called ungrateful; you'll be called nuts -- as in wingnuts.

Conservatives and liberals alike assume the U.S. is, or was before Obama, leader of the free world and a bastion of free-market economics. Conservatives griped that ObamaCare would be socialism, nationalizing one-seventh of the economy. Liberals griped that laissez-faire capitalism in the U.S. is what drove us, and then Europe, into the Great Recession.

Here is the truth. Health care in the U.S. was already socialist back when Obama was voting "present" in the Illinois State Senate. Government in the U.S. was already spending one-fourteenth of the economy on health, about the same as, or even more than, Canada and the U.K., countries known for not only universal health care, but single-payer health care.

And what did a Republican president do when he had a Republican-majority House and Senate? He saddled Medicare, a system about to go bankrupt, with a new entitlement, prescription drugs, adding another 1% to 2% of GDP to the federal government burden. In round numbers, that is about $1 trillion over a decade in the very years the Medicare trust fund will be empty. (Like most other entitlement programs, the additional spending would happen after the president signing the legislation would leave office.)

And how was this generosity rewarded? President Obama said, when defending himself against charges of socialism, "And it wasn't on my watch that we passed a massive new entitlement, the prescription drug plan, without a source of funding."

He then went on to get his own new $1-trillion health entitlement passed. (Apparently, you are not a socialist if the guy before you was.)

Health care is not the only thing. When all government spending is tallied up, government in the U.S. spent 38.6% of GDP in 2008. That was before Obama was sworn in. Australia spent less (33.7%). South Korea spent less (30.9%). Slovakia spent less (33.9%). Switzerland spent less (32.6%). Canada, that liberal country to our north with single-payer health care, spent only a little more (39.6%). At the moment, in 2010, government in the U.S. is spending about 45% of GDP, or just about the European average.

Spending doesn't capture everything, you say? OK. The Heritage Foundation tallied up ten broad measures of economic freedom across 183 countries. The result? The U.S. is no longer a "free country." It is now "mostly free," along with Macau, Cyprus, Georgia, Botswana, and eighteen other countries. We are behind the "free" countries of Australia, New Zealand, Ireland, Switzerland, and even Canada (as well as the perennial Hong Kong and Singapore in the top two spots). We are one notch above Denmark (78.0 to 77.9). And those rankings were tallied before ObamaCare was law.

Waiting for the cavalry, the Republican Party, to save you? That party had everything, the presidency, House, and Senate, from 2003 through 2006. It gave us the new trillion-dollar prescription drug entitlement, Campaign Finance Reform, No Child Left Behind and whopping new ethanol mandates. It outlawed normal light bulbs (again, to take effect after the signing president leaves office).

And when this confederacy of dunces fought ObamaCare, on what grounds did it fight it? That ObamaCare would cut Medicare. Medicare spending is what is bankrupting our government and our country! It has to be cut (over time). We can do that Obama's way, government rationing, or we can do that a responsible way.

Did Republicans offer a responsible way to tame Medicare? Well, a Republican did: Paul Ryan, with his Roadmap. And in February 2010, after a year of Obama's high-pressure sales and years after Republicans lost Congress, Ryan's Roadmap had all of nine co-sponsors. Nine. Out of 178 Republicans in the House. As for the rest, it was "Don't cut my Medicare!"

As far as individual "Republicans," let me just drop the names of Jim Jeffords, Arlen Specter, Lincoln Chafee, and Charlie Crist. I don't think those traitors are the only ones ready to defect. The Republican Party seems to have a gift for losing critical members at the very moments their votes count most (see Jeffords, Jumpin' Jim). They will rail against gay marriage and flag-burning with gusto when talking to the folks back home. But when it comes to bailouts, stimuli, or new government programs and regulations, there always seem to be just enough Republican votes to get the job done. Sometimes, Republicans even do it themselves (prescription coverage, TARP, etc.).

I can't say it any better than Governor Chris Christie: "Republicans have to rebrand themselves credibly with the candidates they run, and what they espouse, as the person who will keep an eye on the cash register, who will rein in the spending and the debt."

Republicans used to have the brand of fiscal conservatism. That brand of Republican won the most electoral votes in history just 26 years ago. It took over the House of Representatives, for the first time in forty years, just sixteen years ago. With majorities in Congress, it cut capital gains tax rates, ended welfare, ended the byzantine farm program, cut federal spending to its lowest level since 1966, and ran surpluses -- just ten years ago.

We want that brand of Republicans back.

We are not nuts to want that. It is not nuts to think government can and should spend less than 40% of everything. It is not nuts to want our country to be "free" and not just "mostly free" with France and Botswana. It is not nuts to think that the way "a bill becomes a law" should be the way a bill becomes a law. It is not nuts to think the U.S. Constitution puts some restraints on the federal government. It is not nuts to agree with our founders.

"If we can prevent the government from wasting the labors of the people, under the pretence of taking care of them, they must become happy."
- Thomas Jefferson, 1802

"I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it."
- Ben Franklin, 1766

"Towards the preservation of your government, and the permanency of your present happy state, it is requisite, not only that you steadily discountenance irregular oppositions to its acknowledged authority, but also that you resist with care the spirit of innovation upon its principles, however specious the pretexts."
- George Washington, 1796

"However specious the pretexts." Specious: showy, having deceptive attraction or allure, having a false look of truth or genuineness. Sound like any teleprompter reader you know?

Here's how it works: If we want expanded entitlements, more government programs, macro-economic tinkering, more federal government intrusion into education, agriculture, energy, etc., we will vote Democrat. We don't need Republicans for that. That is the Democrats' brand; let them have it. What we need is someone to oppose all that.

"Tell Americans the truth, offer them a choice, and count on them to do what's right."
- Rep. Paul Ryan.

Our fathers' Republican said, "Government is not a solution to our problem; government is the problem." If you find that too distasteful to swallow, a bit too Tea-Party for you, please don't run for office as a Republican. Because Democrats are already a dime a dozen, and a cheap imitation of one is on nobody's November shopping list.

This is why GAAP rules need to be applied to the Federal budget.

2010-08-20T08:40:00.001-06:00

U.S. deficit forecast masks true scope of problem
Aug 19, 2010 16:59 EDT

If America ran its books more like a business, the real state of its finances would be clearer. U.S. budget scorekeepers now predict a $1.34 trillion deficit for 2010, a tad less than forecast in March. Still, it’s an enormous gap. And the headline number lowballs the shortfall.

To be fair, the Congressional Budget Office does its best. The unit is the closest thing associated with Congress to an independent and impartial fiscal judge. As the debate over the costs of healthcare reform showed, the CBO’s analysis affects not only public perception of policy but also its substance.

Yet the CBO still operates under rules set by Congress. And those constraints, whether by design or chance, result in an undeservedly rosy U.S. budget picture. For instance, the CBO calculates that the federal government will run up an additional $6.2 trillion in debt by 2020, raising the U.S. debt-to-GDP ratio to about 69 percent — a high but perhaps tolerable level.

But assuming various tax breaks are extended rather than expiring — an increasingly likely-looking scenario — debt would actually balloon to $11 trillion, or 90 percent of GDP. And if discretionary government spending rises in line with nominal GDP rather than the consumer price inflation used by the CBO, that would tack on another $2 trillion of borrowing. Throw in a few other more realistic assumptions, and the debt-to-GDP ratio ends up in scary territory north of 100 percent by 2020.

Then consider that America’s numbers are reported on a cash-in, cash-out basis. They make no provision for future liabilities such as Medicare and social security. As with companies’ financial figures, it pays to read the footnotes. In a little-noticed report, the U.S. Treasury does annually put out the data needed to calculate America’s liabilities according to business accounting principles. If the government were setting aside the money today needed to fund those liabilities fully, the 2010 deficit would be more like $4.3 trillion, according to the Shadow Government Statistics website.

These are the sorts of numbers CBO budgeteers should ideally be highlighting. If they of all people can’t tell it how it is, politicians will never get real with taxing and spending.

I like his turn of the phrase here

2010-08-20T08:39:00.000-06:00

Appeasing the Bond Gods
By PAUL KRUGMAN
Published: August 19, 2010

As I look at what passes for responsible economic policy these days, there’s an analogy that keeps passing through my mind. I know it’s over the top, but here it is anyway: the policy elite — central bankers, finance ministers, politicians who pose as defenders of fiscal virtue — are acting like the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods.

Hey, I told you it was over the top. But bear with me for a minute.

Late last year the conventional wisdom on economic policy took a hard right turn. Even though the world’s major economies had barely begun to recover, even though unemployment remained disastrously high across much of America and Europe, creating jobs was no longer on the agenda. Instead, we were told, governments had to turn all their attention to reducing budget deficits.

Skeptics pointed out that slashing spending in a depressed economy does little to improve long-run budget prospects, and may actually make them worse by depressing economic growth. But the apostles of austerity — sometimes referred to as “austerians” — brushed aside all attempts to do the math. Never mind the numbers, they declared: immediate spending cuts were needed to ward off the “bond vigilantes,” investors who would pull the plug on spendthrift governments, driving up their borrowing costs and precipitating a crisis. Look at Greece, they said.

The skeptics countered that Greece is a special case, trapped by its use of the euro, which condemns it to years of deflation and stagnation whatever it does. The interest rates paid by major nations with their own currencies — not just the United States, but also Britain and Japan — showed no sign that the bond vigilantes were about to attack, or even that they existed.

Just you wait, said the austerians: the bond vigilantes may be invisible, but they must be feared all the same.

This was a strange argument even a few months ago, when the U.S. government could borrow for 10 years at less than 4 percent interest. We were being told that it was necessary to give up on job creation, to inflict suffering on millions of workers, in order to satisfy demands that investors were not, in fact, actually making, but which austerians claimed they would make in the future.

But the argument has become even stranger recently, as it has become clear that investors aren’t worried about deficits; they’re worried about stagnation and deflation. And they’ve been signaling that concern by driving interest rates on the debt of major economies lower, not higher. On Thursday, the rate on 10-year U.S. bonds was only 2.58 percent.

So how do austerians deal with the reality of interest rates that are plunging, not soaring? The latest fashion is to declare that there’s a bubble in the bond market: investors aren’t really concerned about economic weakness; they’re just getting carried away. It’s hard to convey the sheer audacity of this argument: first we were told that we must ignore economic fundamentals and instead obey the dictates of financial markets; now we’re being told to ignore what those markets are actually saying because they’re confused.

You see, then, why I find myself thinking in terms of strange and savage cults, demanding human sacrifices to appease unseen forces.

And, yes, we are talking about sacrifices. Anyone who doubts the suffering caused by slashing spending in a weak economy should look at the catastrophic effects of austerity programs in Greece and Ireland.

Maybe those countries had no choice in the matter — although it’s worth noting that all the suffering being imposed on their populations doesn’t seem to have done anything to improve investor confidence in their governments.

But, in America, we do have a choice. The markets aren’t demanding that we give up on job creation. On the contrary, they seem worried about the lack of action — about the fact that, as Bill Gross of the giant bond fund Pimco put it earlier this week, we’re “approaching a cul-de-sac of stimulus,” which he warns “will slow to a snail’s pace, incapable of providing sufficient job growth going forward.”

It seems almost superfluous, given all that, to mention the final insult: many of the most vocal austerians are, of course, hypocrites. Notice, in particular, how suddenly Republicans lost interest in the budget deficit when they were challenged about the cost of retaining tax cuts for the wealthy. But that won’t stop them from continuing to pose as deficit hawks whenever anyone proposes doing something to help the unemployed.

So here’s the question I find myself asking: What will it take to break the hold of this cruel cult on the minds of the policy elite? When, if ever, will we get back to the job of rebuilding the economy?

So are they smoking dope on Wall Street?

2010-08-20T08:37:00.002-06:00

WASHINGTON (MarketWatch) -- Three disappointing, forward-looking reports on the U.S. economy drove investors away from stocks and back into bonds on Thursday, fearful that the economy could stagnate or fall back into recession.

Thursday's releases -- initial jobless claims, leading economic indicators and the Philly Fed index -- were only the latest in a series of reports showing the economic momentum flagging. Of this week's indicators, only one -- industrial production -- showed any growth, and that was due to special factors unlikely to be repeated.

Here's what we learned on Thursday:

Jobless claims ticked higher to the psychological threshold of 500,000, a nine-month high. See full story on jobless claims.

The leading economic indicators increased 0.1% in July, but have been essentially flat since March. See full story on the leading indicators.

And, worst of all, the Philadelphia Fed's survey manufacturing firms indicated that more firms say their business is worsening than say it's improving. See full story on the drop in the Philly Fed index.

Manufacturing has been the backbone of the recovery so far, so if the weakness in the Philly region expands nationally, the economy could stumble.

The headwinds holding back the economy are strengthening just as impact of the inventory cycle and the stimulus are fading. Unless the economy can find its second wind soon, a self-reinforcing downturn could be inevitable.

With Congress paralyzed, the burden of supporting the economy further -- or not -- will fall to the Federal Reserve. Odds are mounting that the Fed will redouble its efforts to pump money into the economy via quantitative easing.

While I disagree with parts of this article, I do see some good points being made.

2010-08-16T15:15:00.000-06:00

The Ecstasy of Empire

Paul Craig Roberts
August 16, 2010

The United States is running out of time to get its budget and trade deficits under control. Despite the urgency of the situation, 2010 has been wasted in hype about a non-existent recovery. As recently as August 2 Treasury Secretary Timothy F. Geithner penned a New York Times column, “Welcome to the Recovery.”

Without a revolution, Americans are history.

As John Williams (shadowstats.com) has made clear on many occasions, an appearance of recovery was created by over-counting employment and undercounting inflation. Warnings by Williams, Gerald Celente, and myself have gone unheeded, but our warnings recently had echoes from Boston University professor Laurence Kotlikoff and from David Stockman, who excoriated the Republican Party for becoming big-spending Democrats.

It is encouraging to see some realization that, this time, Washington cannot spend the economy out of recession. The deficits are already too large for the dollar to survive as reserve currency, and deficit spending cannot put Americans back to work in jobs that have been moved offshore.

However, the solutions offered by those who are beginning to recognize that there is a problem are discouraging. Kotlikoff thinks the solution is savage Social Security and Medicare cuts or equally savage tax increases or hyperinflation to destroy the vast debts.

Perhaps economists lack imagination, or perhaps they don’t want to be cut off from Wall Street and corporate subsidies, but Social Security and Medicare are insufficient at their present levels, especially considering the erosion of private pensions by the dot com, derivative and real estate bubbles. Cuts in Social Security and Medicare, for which people have paid 15 per cent of their earnings all their lives, would result in starvation and deaths from curable diseases.

Tax increases make even less sense. It is widely acknowledged that the majority of households cannot survive on one job. Both husband and wife work and often one of the partners has two jobs in order to make ends meet. Raising taxes makes it harder to make ends meet–thus more foreclosures, more food stamps, more homelessness. What kind of economist or humane person thinks this is a solution?

Ah, but we will tax the rich. The rich have enough money. They will simply stop earning.

Let’s get real. Here is what the government is likely to do. Once Washington realize that the dollar is at risk and that they can no longer finance their wars by borrowing abroad, the government will either levy a tax on private pensions on the grounds that the pensions have accumulated tax-deferred, or the government will require pension fund managers to purchase Treasury debt with our pensions. This will buy the government a bit more time while pension accounts are loaded up with worthless paper.

The last Bush budget deficit (2008) was in the $400-500 billion range, about the size of the Chinese, Japanese, and OPEC trade surpluses with the US. Traditionally, these trade surpluses have been recycled to the US and finance the federal budget deficit. In 2009 and 2010 the federal deficit jumped to $1,400 billion, a back-to-back trillion dollar increase. There are not sufficient trade surpluses to finance a deficit this large. From where comes the money?

The answer is from individuals fleeing the stock market into “safe” Treasury bonds and from the bankster bailout, not so much the TARP money as the Federal Reserve’s exchange of bank reserves for questionable financial paper such as subprime derivatives. The banks used their excess reserves to purchase Treasury debt.

These financing maneuvers are one-time tricks. Once people have fled stocks, that movement into Treasuries is over. The opposition to the bankster bailout likely precludes another. So where does the money come from the next time?

The Treasury was able to unload a lot of debt thanks to “the Greek crisis,” which the New York banksters and hedge funds multiplied into “the euro crisis.” The financial press served as a financing arm for the US Treasury by creating panic about European debt and the euro. Central banks and individuals who had taken refuge from the dollar in euros were panicked out of their euros, and they rushed into dollars by purchasing US Treasury debt.

This movement from euros to dollars weakened the alternative reserve currency to the dollar, halted the dollar’s decline, and financed the US budget deficit a while longer.

Possibly the game can be replayed with Spanish debt, Irish debt, and whatever unlucky country is eswept in by the thoughtless expansion of the European Union.

But when no countries remain that can be destabilized by Wall Street investment banksters and hedge funds, what then finances the US budget deficit?

The only remaining financier is the Federal Reserve. When Treasury bonds brought to auction do not sell, the Federal Reserve must purchase them. The Federal Reserve purchases the bonds by creating new demand deposits, or checking accounts, for the Treasury. As the Treasury spends the proceeds of the new debt sales, the US money supply expands by the amount of the Federal Reserve’s purchase of Treasury debt.

Do goods and services expand by the same amount? Imports will increase as US jobs have been offshored and given to foreigners, thus worsening the trade deficit. When the Federal Reserve purchases the Treasury’s new debt issues, the money supply will increase by more than the supply of domestically produced goods and services. Prices are likely to rise.

How high will they rise? The longer money is created in order that government can pay its bills, the more likely hyperinflation will be the result.

The economy has not recovered. By the end of this year it will be obvious that the collapsing economy means a larger than $1.4 trillion budget deficit to finance. Will it be $2 trillion? Higher?

Whatever the size, the rest of the world will see that the dollar is being printed in such quantities that it cannot serve as reserve currency. At that point wholesale dumping of dollars will result as foreign central banks try to unload a worthless currency.

The collapse of the dollar will drive up the prices of imports and offshored goods on which Americans are dependent. Wal-Mart shoppers will think they have mistakenly gone into Neiman Marcus.

Domestic prices will also explode as a growing money supply chases the supply of goods and services still made in America by Americans.

The dollar as reserve currency cannot survive the conflagration. When the dollar goes the US cannot finance its trade deficit. Therefore, imports will fall sharply, thus adding to domestic inflation and, as the US is energy import-dependent, there will be transportation disruptions that will disrupt work and grocery store deliveries.

Panic will be the order of the day.

Will farms will be raided? Will those trapped in cities resort to riots and looting?

Is this the likely future that “our” government and “our patriotic” corporations have created for us?

To borrow from Lenin, “What can be done?”

Here is what can be done. The wars, which benefit no one but the military-security complex and Israel’s territorial expansion, can be immediately ended. This would reduce the US budget deficit by hundreds of billions of dollars per year. More hundreds of billions of dollars could be saved by cutting the rest of the military budget which, in its present size, exceeds the budgets of all the serious military powers on earth combined.

US military spending reflects the unaffordable and unattainable crazed neoconservative goal of US Empire and world hegemony. What fool in Washington thinks that China is going to finance US hegemony over China?

The only way that the US will again have an economy is by bringing back the offshored jobs. The loss of these jobs impoverished Americans while producing oversized gains for Wall Street, shareholders, and corporate executives. These jobs can be brought home where they belong by taxing corporations according to where value is added to their product. If value is added to their goods and services in China, corporations would have a high tax rate. If value is added to their goods and services in the US, corporations would have a low tax rate.

This change in corporate taxation would offset the cheap foreign labor that has sucked jobs out of America, and it would rebuild the ladders of upward mobility that made America an opportunity society.

If the wars are not immediately stopped and the jobs brought back to America, the US is relegated to the trash bin of history.

Obviously, the corporations and Wall Street would use their financial power and campaign contributions to block any legislation that would reduce short-term earnings and bonuses by bringing jobs back to America. Americans have no greater enemies than Wall Street and the corporations and their prostitutes in Congress and the White House.

The neocons allied with Israel, who control both parties and much of the media, are strung out on the ecstasy of Empire.

The United States and the welfare of its 300 million people cannot be restored unless the neocons, Wall Street, the corporations, and their servile slaves in Congress and the White House can be defeated.

Without a revolution, Americans are history.

--------------------------------------------------------------------------------

Article printed from Infowars: http://www.infowars.com

URL to article: http://www.infowars.com/the-ecstasy-of-empire/

Even T-Bills are not a safe bet anymore. Got gold, guns, and grub?

2010-08-15T12:08:00.001-06:00

Taleb Says Government Bonds to Collapse, Avoid Stocks
By Renee Bonorchis and Miles Weiss - Aug 11, 2010 Nassim Nicholas Taleb, who warned that unforeseen events can roil markets in "The Black Swan," said he is "betting on the collapse of government bonds" and that investors should avoid stocks.

“I’m very pessimistic,” he said at the Discovery Invest Leadership Summit in Johannesburg today. “By staying in cash or hedging against inflation, you won’t regret it in two years.”

Treasuries have rallied amid speculation the global economic recovery is faltering, driving yields on two-year notes to a record low of 0.4892 percent today. The Federal Reserve yesterday reversed plans to exit from monetary stimulus and decided to keep its bond holdings level to support an economic recovery it described as weaker than anticipated. The Standard & Poor’s 500 Index retreated 16 percent between April 23 and July 2, the biggest slump during the bull market.

The financial system is riskier than it was before the 2008 crisis that led the U.S. economy to the worst contraction since the Great Depression, Taleb said.

Prior to the collapse of Lehman Brothers Holdings Inc. in September 2008, Taleb warned that bankers were relying too much on probability models and were disregarding the potential for unexpected catastrophes. His book labeled these events black swans, referring to the widely held belief that only white swans existed until black ones were discovered in Australia in 1697, and said that they were becoming more severe.

Taleb helped pioneer the concept of hedging against these tail-risk events while trading options in the 1980s for banks such as First Boston Inc., now part of Credit Suisse Group AG. Now a professor at New York University’s Polytechnic Institute, Taleb set up the tail-risk hedge fund Empirica LLC in 1999 and ran it for six years.

In February, he told a conference in Moscow that “every single human being” should bet Treasury bonds will decline. It’s a “no-brainer” to sell short the debt, he added. Since then, 2- and 10-year notes have rallied.

You've got alternative means to pay for things right?

2010-08-15T12:07:00.001-06:00

U.S. Dollar Now Ripe For Catastrophic Devaluation
By Giordano Bruno

Neithercorp Press – 08/09/2010

Normally when I cover subjects in the economy, I try to take a “macro” approach, giving an overall view of various financial elements around the world and how they are clearly connected to one another in a greater synchronous social force. That is to say, in Chinese domestic consumption, or European debt obligations, or Russian gold reserves, and in many other factors, is encoded the very future of our own American economy. Showing others how to decipher that code is my primary mission.

In this instance, however, I would like to focus chiefly on the U.S. Dollar, the private Federal Reserve currency which is now the basis for our entire financial system, not to mention a substantial basis for trade around the globe. For decades, the dollar (and by extension U.S. Treasury bonds) has been the standard by which foreign nations safeguard capital reserves, denominate debt, and in some cases have even pegged their own currency to maintain advantageous trade deficits. In the past, the Greenback has been treated as good as gold. Though many see this as a windfall for Americans, it is actually a very unfortunate circumstance.

The “world reserve” status of our currency created a demand for dollars, but through this, it also created a glut of Treasury bond holdings in foreign central banks, and an unserviceable national debt here at home. The combination of removing the dollar from the gold standard in tandem with gaining world reserve advantage allowed our government along with central bankers to create the most precarious illusory fiat currency in history. Could this process continue indefinitely? Its possible, but only if the demand for dollars continues to rise annually. As long as people want dollars in greater and greater amounts, we could continue to expand our debt into infinity. But what happens if demand for the dollar falls, or disappears entirely? The massive liabilities we have already accrued will no longer have the crutch of perpetual Treasury investment. We no longer would receive the busloads of foreign capital we need to continue functioning. The system we have staked the future of our culture on would disintegrate.

Anyone who uses common sense would easily conclude that it is highly unreasonable if not outlandish to expect that other countries will continue to pump more and more money every year into our very unstable system. Even if Treasury bond investment simply plateaued, remaining steady for years, we would still be crushed under the weight of our debt obligations. As our government expands, and our wars expand, so do our costs, and our interest payments. Eventually, every undisciplined debtor hits a state of critical mass; a point at which he runs out of options in extending his ability to outrun bankruptcy. We are seeing this right now in the U.S., most prominently in municipal debt in states such as California and Illinois. These are not just “local problems”. The growing insolvency in states is a direct reflection of the growing insolvency in the Federal Government.

Many people have at one time or another been caught up in their own debt race, trying to dodge bills and pay off one credit card with another credit card. They understand well that this terrible circle ends in ruin. This is the situation we are in as a nation.

Strangely though, some mainstream economists and analysts still contend that America will never face consequences for its fiscal debauchery. Why do they believe this despite all the evidence to the contrary? Because of a magical machine called a “printing press”.

“If foreign investment in our debt ceases”, they say, “The Federal Reserve can just PRINT the money our government needs to function out of thin air.” That is to say, these economists (which include men like Ben Bernanke) either truly believe that capital can be created out of nothing with no sacrifice attached, or, they KNOW there is a serious sacrifice attached, but intend to keep this fact from the American public. Regardless, the end result is the same; massive liquidity injections which continually monetize debt as it defaults, and Federal Reserve purchases of our own T-bonds. We are buying stock in our own dollar just to prop up its value and keep our country afloat!

The inflation vs. deflation debate has been raging for nearly three years, but I suspect that when all is said and done, we will find that both sides in a sense were correct. The people who consistently miss the mark on what is truly going on in the economy are those who blindly insist that this is an either/or situation. The fact is, we are seeing symptoms of BOTH deflation and inflation simultaneously. Deflation in jobs, stocks, real estate, and wages. Inflation in energy, food, and commodities. At bottom, we are seeing the worst of both worlds colliding to make a financial mutation, an aberration of the natural processes of supply and demand. Our economy has become a frothing rampaging Frankenstein’s monster bent on the destruction of its former benefactors; the American citizenry. Anyone who alleges otherwise is either a liar, or a fool.

At the very heart of this nightmare, we find the U.S. Greenback; perhaps the number one reason the economic meltdown was engineered by global banks in the first place (yes, I said ‘engineered’). The sovereign ideology of the U.S. is the only thing left standing in the way of complete centralized economic control, and by extension, political control, by the top 2% wealthiest people in the world, who now hold around 50% of all the world’s assets. The dollar, though a fraudulent fiat currency, is still a representation of that sovereign drive, at least in terms of finance. Its position as the foremost traded currency on the planet affords us great leeway in our ability to spend without fear. It is the glue holding absolutely everything together. With most of our industry shipped overseas, and our communities completely reliant on a 70% service based system, the Dollar is the only homemade “product” America has left to lean on.

Unfortunately, the strength of our currency is waning, and nearing outright collapse. It is something we have been talking about for the past two years at least, which has drawn some into a false sense of security. The signs have been muddled in the MSM fog, but now the picture is becoming clear. Will the dollar crash tomorrow? That’s hard to say. What I do know, is that all the elements necessary for a catastrophic dollar devaluation have moved into place, especially in the past month. That is to say, there is now nothing preventing a steady and precipitous fall in the Greenback over the next six months or more. Below are many signals which indicate such an event is near:

Dollar Index Plummeting: Interestingly, there has been very little coverage in the mainstream news of the dollar’s continuous 9 week decline, the longest straight weekly decline since 2004. One would think this is something that might concern the general public, and not just investors:

http://www.marketwatch.com/story/dollar-consolidates-as-markets-await-payrolls-2010-08-06

http://www.bloomberg.com/news/2010-08-07/dollar-index-falls-a-ninth-week-longest-since-2004-as-fed-meeting-looms.html

The dollar is also nearing a 15 year low versus the Japanese Yen:

http://www.reuters.com/article/idUSTRE6713HB20100806

Only in the past few days have some MSM analysts ventured a response to this issue. So far, their primary excuse is that the dollar decline is due to the coming Federal Reserve meeting on August 10th, in which many suspect that the Fed will announce further stimulus measures and further inflation of the dollar. Of course, most Fed stimulus has remained undisclosed to the public, so there is really no way of knowing if they ever actually stopped their injections at all. Also, this excuse does not explain the 9 week duration of the dollar slide, especially since two months ago very few people even considered the possibility that the Fed would openly announce more liquidity measures.

Some economists might argue that the dollar has declined severely in the past, but has always come back. That is true, however, in those instances the dollar was not falling at the same time as stocks! Yes, the traditional inverse relationship between the DOW and the dollar seems to be ending, and this is a dour sign for the Greenback. In the past, the dollar has benefited as a safe haven investment. When stocks went south, investors would throw their money into dollar backed securities like Treasuries in order to protect their savings. This caused the dollar to go up in value. In the past few months, though, the dollar has begun to fall in tandem with stocks, meaning, people no longer trust the dollar as a safe haven investment as they used to. If this trend continues over the next few months, it may be a sign of nearing dollar collapse.

For those who want to keep tabs on the dollar index, go here:

http://www.bloomberg.com/apps/quote?ticker=DXY:IND

China In Position: We have been warning at Neithercorp Press for years that China was positioning itself to dump its vast holdings of U.S. Treasury bonds and allow its currency, the Yuan or RMB, to appreciate in value. China has aspirations of world reserve status, and they have openly stated their goal of replacing the dollar as the premier internationally traded currency. I received a lot of ridicule back in 2008 and 2009 for suggesting that China was morphing its financial system away from exports and becoming a consumer based hub for the East in preparation to dump the dollar. Needless to say, China has indeed done this, all while MSM talking heads and their parroting followers continued to deny it was occurring. Now, members of China’s financial community, including former central bank advisers, are openly calling for the Chinese government to end its investment in American debt:

http://www.bloomberg.com/news/2010-08-03/treasuries-lack-safety-liquidity-for-china-yu-yongding-says.html

This news is compounded by an announcement from the Chinese Central Bank which set the gold investment community ablaze; China’s government is now fully opening markets to support gold investment and is even helping its banks to begin diversifying into gold:

http://www.reuters.com/article/idUSTRE6743ZF20100805

In China’s strictly controlled economy, such a change of policy is tremendous news with serious implications. China is the largest gold producer in the world, yet, the demand for precious metals is so high (especially by their central bank) that they are increasing shipments from overseas sources. This is good news for gold investors, but bad news for the dollar. China suddenly opens the gold floodgates (gold is the primary hedge against dollar collapse) while at the same time openly discussing the liquidation of their U.S. Treasury reserves? This is not a coincidence.

Another factor of some weight is the issue of weak spending power within China. Some argue that China’s low interest rates are creating a savings shortfall for Chinese consumers, making their move towards a consumption based economy difficult. What they don’t realize though is that this is yet another reason for the Chinese government to dump T-bonds and create a surge in the Yuan’s value. This would be an ideal method for increasing the buying power of the Chinese consumer:

http://www.bloomberg.com/news/2010-08-06/china-rates-seen-robbing-consumers-to-help-banks-as-5-growth-risk-looms.html

Whether or not China’s goal is to help global banks deliberately destroy the dollar, they have the perfect alibi: The U.S. government demanded that China let the Yuan rise in value, China’s new consumer based economy needs a stronger Yuan if they are to survive, and the U.S. dollar is no longer a safe investment anyway. I’ll say it again; China is now ready to dump the dollar at anytime.

Housing Market Threatens Dollar: Remember Fannie Mae and Freddie Mac? You know, the mortgage agencies which hold $5 Trillion in sinking real estate securities? The companies that our Treasury has promised a never-ending bailout to? Well, they are back again. Fannie Mae has asked for yet another bailout after continued shortfalls. I have lost track of how many bailouts this makes:

http://www.marketwatch.com/story/fannie-taps-treasury-again-after-quarterly-loss-2010-08-05

These bailouts drag directly on our national debt, and are costing the American taxpayer billions. Why do Freddie and Fannie still need money? Because the housing market is still falling apart! The Treasury and Barack Obama recently admitted that they had “underestimated” the number of homeowners who were still behind on their mortgage payments by two months or more even after receiving government help through the HAMP program:

http://www.reuters.com/article/idUSTRE67553520100807?type=politicsNews

Nearly 20% of homeowners who received government aid are re-defaulting on their mortgages or are near re-default. The government originally reported that the number was only 7.7%. I remember well when the skewed numbers were released and the stock market rallied in jubilee at the success of the HAMP measures. It seemed to me that the government numbers did not jive at all with the rising rate of foreclosures. According to the Obama Administration and Treasury officials, it was an “error” on the fault of Fannie Mae. I suspect it was not error at all, but a deliberate effort to artificially pump up the so called recovery, just as the Labor Department has done in the past with unemployment statistics.

What does housing have to do with the Dollar? First, the Treasury’s commitment to Fannie and Freddie has placed the U.S. taxpayer at the edge of an endless debt vacuum. As long as real estate continues to crumble, as long as people continue to lose their jobs and default on their mortgages, we will have to continue bailing out Fannie and Freddie. This creates the potential for trillions of dollars of debt that will be monetized by the Federal Reserve, putting even more strain on the dollar. Second, the further into debt our country goes, the more tempted other countries will be to back out of U.S. Treasury investment. Currently, the vast majority of Treasury purchases by foreign buyers are short term, maturing in a matter of weeks. The U.S. cannot sustain itself on short term investment. I believe that our nation’s debt issues including the endless fallout from the mortgage crisis will cause a detrimental loss of faith in the dollar and I believe this will occur soon.

States Will Ask For Their Own Bailouts: States have accumulated over $2.4 Trillion in municipal debt (official number) over the past two years alone:

http://www.newsmax.com/Headline/debt-state-governments-local-trillion-federal-rich-states-poor-states/2010/08/01/id/366260

Local bond debts now take up at least 22% of our country’s GDP. These figures do not include the states’ $3 Trillion in pension obligations, which means we are looking more along the lines of 50% of our national GDP tied up in state debt. This has caused some Federal programs to be implemented while others are diminished. For instance, $14 billion has been taken from ‘future’ 2013 food stamp programs to help pay for teachers and school lunch programs now:

http://www.cleveland.com/open/index.ssf/2010/08/food_stamps_or_teachers_congre.html

How this works, I’m not really sure. It sounds very similar to the government method of “borrowing” from future Social Security accounts to pay for other programs today. It’s not surprising that Social Security is now (officially) in the red, and it is guaranteed that my generation will not see a penny of it when we retire (Retire?! Ha! I crack myself up!):

http://www.washingtontimes.com/news/2010/aug/5/social-security-red-first-time-ever/

The point is, not only California and Illinois, but many other states as well, are on the verge of municipal default. Some agencies still rate municipal debt very high, but they also rated subprime mortgages very high, and look what happened! No one in their right mind wants to touch municipal bonds today, and this will invariably lead to insolvency in cities and states, I believe we will see this begin before the year is out.

The response will be predictable; states will ask for Federal assistance to the tune of billions, leading eventually to trillions. States did receive some bailout funds up until December of last year, but it was nowhere near the capital they needed to survive. States are also rapidly losing revenues due to lower property taxes, lower consumer activity, etc. They have nowhere else to turn except a new Federal bailout specifically designated for municipal debt (unless the states want to actually grow some courage and assert 10th Amendment rights, taking back full control of their economies).

Again, the issue is and always has been DEBT. No government in the world has the ability to truly solve debt problems with more debt. There is always a price in making the attempt, and the price is usually steep. In our case, the price is the destruction of our currency. State debts will translate to Federal debts, which will translate to fiat creation and monetization, which will translate to loss of dollar faith, which will translate to loss of the dollar, period.

Turning Point For The Dollar, And For Us…

If you feel like you are looking out over the ocean at the towering black anvil cloud of an approaching tempest, that’s because you are. There are always indicators. The air electrifies, the waters whip and swell, the atmosphere grows heavy. Economics is the same way. After a time, you begin to feel the intensity of the financial stratum. The imbalances of the markets crackle, and thunderous roar of the typhoon grows near.

I and many other researchers hear this sound in terms of the U.S. dollar. The potential for a monetary breakdown has arrived.

I find there is persistent confusion amongst analysts as to what constitutes inflation. In my humble opinion, any event which causes the dollar to devalue and prices to rise is inflation. This does not necessarily require “overprinting” of physical money to take place, though I do believe overprinting is happening behind closed doors. The dollar can be compromised in many ways, not just through runaway fiat creation. Any loss of our world reserve status will result in a major devaluation. Any extended dumping of U.S. T-bonds by other countries will result in major devaluation. The endless accumulation of national debt without the backing of foreign capital will result in major devaluation. All of these problems are active in our economy right now. The end result; simultaneous inflation and deflation, and they don’t cancel each other out!

Some people regard this kind of information as “fear mongering”, or “doom and gloom”. Fear mongering suggests an exaggeration or even fabrication of facts in order to frighten the reader towards some particular end. It’s supposed to somehow benefit the fear monger. Nothing written above is an exaggeration, only a relay of the cold hard reality we face as a society, and frankly, I gain nothing by frightening anyone with these facts, not even notoriety, since I report under a pen-name. At bottom, if someone is terrified by the truth, that is their problem, not mine. The accusation does make me grin sometimes…

I have even come across a few people in the survivor and preparation field who seem strangely bothered by our efforts. The behavior is puzzling, but I suspect that some see the realm of collapse information as their own personal domain, one they would like to keep to themselves. And some, perhaps, feel that we are dwelling too much on the activators of collapse, when we should just make a few preparations and then go on with our day.

I and other researchers do what we do because we want others to be aware and organized. We give you the difficult data because we want you to stay informed and up to date on the latest developments, developments we feel you have a right to know about and the strength to take. Our goal is to fill the void of information that the MSM has left in its wake. There is a difference between paranoia, and vigilance. The paranoid only see threats in truth, threats they feel they can do nothing about. The vigilant see opportunities, ways of using the truth to deal with the dangers ahead. By keeping track of economic developments, the vigilant are far more mentally prepared than any survivalist who chooses to ignore them.

The gravity of the coming currency crisis is a crucial issue. According to the data, it is no longer a question of ‘if’ but ‘when’ it will reveal itself completely. We aren’t dealing with hypotheticals here, we are dealing with eventualities. The sooner the American public accepts this, the sooner we can confront the trouble head on.

How's your food storage?

2010-08-15T12:06:00.000-06:00

Moscow, Russia (CNN) -- A quarter of Russian crops have been lost in the recent drought, leaving many farms on the brink of bankruptcy, Russian President Dmitry Medvedev said Thursday.

The government should prevent increases in the price of grain and fodder, which will eventually affect the prices of food products like flour, bread, meat, and milk, Medvedev said at a government agriculture meeting in the southern Russian region of Rostov.

"Right now, everybody is of course thinking about it -- farmers as well as officials responsible for agriculture," Medvedev said in comments broadcast on Russian state television. "But we also understand that regular people, too, are thinking about what will happen after this extremely tough summer, how it will affect the prices on staples food."

He said government authorities should closely monitor food prices on a daily basis, "otherwise there will always be someone who would want to capitalize on this situation. There are such cases already."

Large parts of Russia have suffered this summer from excessive heat, drought, and a spate of wildfires that have also created stifling smoke and smog. Hundreds have died in the combined disasters.

Alexander Frolov, who heads the Russian meteorological service Roshydromet, said this week that virtually no rain is forecast in Russia this month.

The situation is so bad in some regions that there is "no reason" to start planting winter crops, Frolov said.

Roshydromet forecasts a 30 percent drop in Russia's harvests due to the drought, he said.

Russian Prime Minister Vladimir Putin has already announced a ban on grain exports that will begin August 15 and could last until December 31, based on uncertainty over this year's farm production.

Some regions won't be sowing winter grain at all this year, he said.

Thursday, Medvedev lifted the state of emergency in three of seven Russian regions most affected by wildfires. The Emergency Situations Ministry said the number of areas covered by the fires has decreased 25 percent in the past day.

The fires burning in the remaining four regions of western and central Russia are still intense, however, with tens of thousands of firefighters deployed there.

Medvedev ordered the Emergency Situations Ministry to take addition precautions to protect "strategic sites" from the fires.

Ready to be serfs again? Then fight.

2010-08-12T08:49:00.000-06:00

THE FIATOCRACY

Peter Souleles B. Com. LLB.

7 August 2010

"It has become appallingly obvious that our technology has exceeded our humanity."
The words of Einstein rang true then and ring even truer today as the world's "fiatocracy" employs mechanical and electronic printing presses to produce currencies that are backed only with the promise of economic and financial oblivion, and a moral bankruptcy which will culminate in wars with uncertain outcomes.

Capitalism, communism, socialism and fascism are marketed, financed and modified by the invisible puppeteers who manipulate these -isms as tools for the furtherance of their control agenda as they see fit depending on time, place and circumstances. In the meantime the ignorant masses are divided by these -isms and in the process of clinging to them they are conquered through the use of force, propaganda, addictions, bribery, blackmail or debt.

If you have any doubt, then consider the hefty campaign contributions from certain industries to congressmen who go on to work for them after retirement. Read insightful pieces about how "think tanks" pay (bribe) academics for "independent" research and writings. Look at how many White House lynchpins become Goldman Sachs kingpins or vice-versa. Finally look at the depth, quality and diversity of opinion in news reporting. Everything of course is according to the letter of the law but not according to the Spirit of America.

All these activities need to be financed and if gold is demanded as payment there will be limits. If on the other hand the ignorant masses are happy to accept fiat money as representing value, there will be no end to their schemes. They will be as happy as the Indians who accepted trinkets for their land in centuries gone past. For all our modern day sophistication we are in reality even greater fools than they were.

In 1966 Greenspan wrote an essay titled Gold and Economic Freedom but somehow went on to practice voodoo economics as Chairman of the Federal Reserve. Now I wonder what convinced him to change his tune? Choose from the list above.

Like the Gods of Olympus who toy with the mortal hero or the lion which plays with an antelope before devouring it, so too the fiatocracy's puppeteers play with us until their control agenda is achieved.

So where does that leave society?

Over 40 million people in the USA are reliant on food stamps yet in July men in suits paid 600 million sterling pounds for 240,100 tonnes of cocoa beans. Let the plebeians eat cake.

137,698 men and women filed for bankruptcy last month in the USA whist the average taxable bonus on Wall Street rose to $123,850 in 2009. Let them eat more cake.

Men in suits and with degrees argue whether we are headed for deflation or hyperinflation without understanding that the unemployed are doomed under either scenario. Let them eat cake as well.

A bankrupt US Government can borrow money for 10 years at 2.95% whilst struggling businesses seeking small commercial and industrial loans of about $500,000 were paying 3.5% more than the federal funds rate back in May according to the Fed's own data. And that's IF they could get the loan.

Moreover, banks could hand over toxic assets to Messrs Bernanke and Geithner in exchange for low cost cash which they would re-invest with the Fed at a profit whilst people were stuck with their toxic mortgages and underwater homes. Moreover they are made to feel the full heat of foreclosure on the one hand whilst being teased with tortuous modification processes on the other.

Excluding the USA, California, the 7th largest economy in the world spends 45% more on prisons than on universities and to balance its budget for the fiscal year 2010-2011 it reportedly would have to free 168,000 prison inmates and permanently close 240 university and college campuses.

U.S. politicians rudely point the finger at China and have made threats against her for years in relation to currency manipulation, yet the greater currency manipulator of the two is the USA which has abused her reserve currency status to the point of bringing herself and the rest of the world to the edge of a vortex more devastating that the universe's Black Hole. Get ready for more philanthropic schemes by the Fed in the days and weeks ahead.

Warren Buffet and Bill Gates recently hosted a dinner for 40 billionaires worth a combined $230 billion and extracted pledges to donate at least 50 per cent of their wealth to good causes. This gesture (if it isn't riddled with tax free foundations for compounding wealth and merely providing bread and circuses for the restless mob) may well replicate the spirit with which the ancient Athenian aristocracy undertook communal obligations which today the state carries out with great inefficiency and even greater losses. This cake is being baked so let's wait. The worry nevertheless remains that this might be a transitory period during which the USA will be "ruled" by Corporations dressed as Foundations.

The examples go on and on and are far too numerous to mention. The danger lies in the perception (if not the fact) that the wealthy have been able to eat their cake as well as have it. The masses are being screwed by paper at every turn. Paper currencies that lose value daily, paper investments that shrivel and die and paper mortgages that bind them to seriously devalued houses and unbearable debt.

The ordinary man has few options. Those options are gold and silver and the reduction and/or the destruction of his debt either by paying it off or through bankruptcy.

There is still just enough freedom and a never ending stack of fiat currencies available to buy gold and silver, but not for long. Over abundant paper of every colour and nationality will eventually pursue stores of value with which to see out the economic winter ahead.

How will you get through winter? By buying the ultimate financial insurance of history or by burning worthless fiat paper in your fireplace? The date of this winter can be decades or just a few minutes away. Knowing the time and date is not relevant. Being prepared is relevant. If the great unravelling is to take place after we are gone, then even more reason why we should prepare our children.

The mythical King Midas was in fact the first producer of fiat. He was granted the wish of turning everything that he touched into gold. But when even food and drink turned to gold he begged for this ability to cease. The story is not just about greed, it is also about fiat currencies, because even gold in never ending quantities would be just as useless as a store of value as paper has become. The magic of course is that gold and silver never have and never will be abundant resources either through mining or alchemy.

The greater portion of humanity is still entranced by paper currencies at the cost of dulling its intellect and burning its future. Some things are hard to change. As a good friend keeps saying, "the sun does not set nor does it rise, for it is the earth that is moving." Well that may be true but try telling the whole world to give up the use of a totally mistaken expression let alone the totally destructive belief in fiat currencies.

The U.S. still has a small but increasingly smaller window of opportunity to recalibrate its vision which must be focused on its youth and not its enemies. It must focus on trickle up economics and new definitions for economic growth. It must miniaturize many of the unsustainable expectations of its citizenry whilst compensating through greater efficiency and quality. Greater productivity must lead to fewer working hours rather than more crass consumption and lesser marginal utility.

Thus the biggest lie that man has ever told, that paper is as good as if not better than gold, continues to haunt humanity's outcomes. Even the smallest truth however eventually wins out over the biggest lie. So too, the day will come once again when an ounce of gold will be worth far, far more, than a suitcase full of paper currency.

In the meantime, just get some gold and silver, place them with a safe repository and let time and human folly do the rest.

Cash may be king but it's not the real thing for its tail has a sting.

If fiat triumphs in the end, you can be sure that humanity has well and truly been defeated.

Clinton needs to go down as one of the worst presidents prior to Obama. With this, and with the Community Reinvestment Act, he laid the groundwork for the problems we are facing today.

2010-08-12T08:41:00.000-06:00

Wall Street Plays Uncle Sam Like A Fiddle In Matters Of Finance

Robert Lenzner, 08.11.10, 5:50 PM ET

When the late great John Weinberg was co-managing partner of Goldman Sachs, he shrewdly blocked arch competitor JPMorgan from killing Glass-Steagall to be able to compete directly with Goldman. Weinberg told me how he'd go to Washington and convince Sen. Chris Dodd, D-Conn., or his staff to make sure some amendment JPMorgan had connived to get attached to a non-finance bill would somehow mysteriously disappear in the wee hours before a vote was taken.

There was no Weinberg around in 1999 to stop the Clinton administration and Congress from overwhelmingly axing the law that had prevented a serious meltdown on Wall Street for seven decades by separating commercial banking from investment banking. Sen. Robert Kerrey, D-Neb., spoke for the 90 senators who changed the rules of the game for all time, (90 for, eight against) when he said, without understanding what dangerous excesses he and his brethren had unleashed: "The concerns that we will have a meltdown like 1929 are dramatically overblown," he said.

Indeed, Sen. Byron Dorgan, D-N.D., warned, "I think we will look back in 10 years time and say we should not have done this but we did because we forgot the lessons of the past, and that which is true in the 1930s is true in 2010. Dorgan gets the Weinberg Memorial prize for his foresight.

So was unleashed the race to emulate Goldman Sachs and make billions trading complicated derivative contracts that by their very nature represented huge dollops of leverage or borrowed funds. These footings in the trillions, as we have learned, were often hidden from view in off-balance sheet accounts and even transferred out temporarily at the close of each calendar quarter so as to snooker shareholders, directors, rating agencies and regulators.

In 2008 that the likes of Citigroup, Bank of America, Lehman, Merrill Lynch, Fannie Mae, Freddie Mac, WAMU and others were all probably insolvent in that their liabilities vastly outweighed their assets. The powers-that-be in Washington had to launch the greatest bailout in history. That esteemed student of financial history, Barrie A. Wigmore, an economic historian who learned the ways of the world at Goldman Sachs, believes the government had at risk to save Wall Street amounts equal to 97% of GDP that's many trillions.

Those trillions, Wigmore suggests in a research study published by Research in Economic History (Volume 27) were also equal to 59% of all private sector, nonfinancial debt. That's a lot of what I call a transfusion and Wigmore calls, far too politely, "remediation."

The bottom line: The bailouts, including transfusions for Fannie Mae, Freddie Mac, the Federal Home Loan Mortgage Corp. and AIG, were five times what Uncle Sam used to bail out the financial system in the 1930s.

What have we learned of the obvious need by Uncle Sam to draft rules and regulations to make sure this cornucopia will never be necessary again?

First, that Lehman Bros., Bank of America, Citigroup and probably others were busy as bees at the end of each fiscal period rearranging their balance sheets so that no one would be the wiser of their truly terrible financial condition.

You might well ask yourself if the hiding of all this debt from public view--even if approved by weak-willed accountants, wasn't a form of fraud related to Enron's hiding of tens of billions of debt that made it look healthy when it was under water. What we have learned is that the shareholders of the nation's largest financial institutions never knew the true safety of their holdings. Shouldn't someone, Richard Fuld, the disgraced CEO of Lehman, or Angelo Mozillo of Countrywide Financial, be asked to serve some jail time?

Our legislators like Sen. Charles Schumer and others have let the public down by being beholden to Wall Street. They tossed out the provision to limit the amount of debt taken on by a bank to 15 times its capital. The wimpy regulators in Basel, Switzerland, who were supposed to mandate far greater capital for banks, limped in with a puny 3% requirement--and mark this absurdity well--gave the powers-that-be in finance seven years--seven bloody, long years--to make this mark.

You want to scream bloody murder? The potentates of private equity, a handful of wealthy men, were able to defeat the attempt to raise the tax on their 20% share of profits from the capital gains rate to ordinary income. This is one of the most shameful outcomes of the whole attempt to get Wall Street to pay the freight of the government largesse. It underscores who is in control of the cash tap.

What's to come? Private negotiations between regulators and Wall Street's lobbyists on a myriad of matters, all out of the public eye, all probably non-transparent, like the footnotes on the derivative contract risks. StreetTalk has even learned of the back-alley attempts to block Elizabeth Warren from assuming leadership of the Consumer Finance reform.

The scorecard doesn't look too onerous for all of the Street. Its comeuppance is more due to economic measures than to re-regulation.

Suckers! We've got to realize that the old European families that control a large segment of Europe's economies don't need our help.

2010-08-12T08:32:00.000-06:00

Watchdog panel cites global impact of US bailout

Aug 12, 6:20 AM (ET)

By MARCY GORDON

WASHINGTON (AP) - The $700 billion U.S. bailout program launched in response to the global economic meltdown had a far greater impact overseas than other countries' financial rescue plans did on the U.S., according to a new report from a congressional watchdog.

Billions of dollars in U.S. rescue funds wound up in big banks in France, Germany and other nations. That was probably inevitable because of the structure of the Treasury Department's program, the Congressional Oversight Panel says in a new report issued Thursday.

The U.S. program aimed to stabilize the financial system by injecting money into as many banks as possible, including those with substantial operations overseas. Most other countries, by contrast, focused their efforts more narrowly on banks in their nations that usually lacked major U.S. operations.

But the report says that if the U.S. had gotten more data on which foreign banks would benefit the most, the government might have been able to ask those countries to share some of the cost.

"There were no data about where this money was going," panel chair Elizabeth Warren said in a conference call with reporters on Wednesday. "The American people have a right to know where the money went."

An example: Major French and German banks were among the biggest beneficiaries of the U.S. rescue of American International Group Inc., yet the American government shouldered the entire $70 billion risk of pumping capital into the crippled insurance titan. The report compares that with the $35 billion that France spent on its overall financial rescue program and the $133 billion that Germany spent.

Much of the $182 billion in federal aid to AIG - the biggest of the government rescues - went to meet the company's obligations to its Wall Street trading partners on credit default swaps, a form of insurance against default of securities. The partners included French banks Societe Generale, which received $11.9 billion in AIG money, and BNP Paribas, which got $4.9 billion, and Germany's Deutsche Bank, $11.8 billion.

Of the 87 banks and financial entities that indirectly benefited from the U.S. aid to AIG, 43 are foreign, according to the report. In addition to France and Germany, they include banks based in Canada, Britain and Switzerland.

In addition to AIG, many of the U.S. banks and automakers that received billions in bailout aid derive a large proportion of their revenue from operations outside the U.S., the report noted.

The watchdog panel was created by Congress to oversee the Treasury Department rescue program that came in at the peak of the financial crisis in the fall of 2008. It has said it's unclear whether U.S. taxpayers will ever fully recoup the cost of the AIG bailout. The Congressional Budget Office estimates that taxpayers will lose $36 billion.

Although the law creating the U.S. rescue program called for Treasury to coordinate its actions with similar efforts by foreign governments, "the global response to the financial crisis unfolded on an ... informal, country-by-country basis," the new report says. "Each individual government made its own decisions based on its evaluation of what was best for its own banking sector and for its own domestic economy."

The U.S. program wound up injecting capital into around 700 banks, while all other governments combined aided fewer than 50, according to the oversight panel.

At the same time, the report suggests that the Treasury program, known as the Troubled Asset Relief Program, or TARP, may have played a constructive role.

"It appears that the existence of the TARP might have served to enhance the negotiating position of the U.S. government (at least in a limited way), as it demonstrated the willingness of U.S. officials to be aggressive and forceful in committing a significant amount of resources to confront a deepening crisis," the report says.

Treasury Department spokesman Mark Paustenbach said the report "shows that Treasury worked effectively with its overseas partners in a number of ways to address the global financial crisis."

The report says the financial crisis revealed the need for an international plan "to handle the collapse of major, globally significant financial institutions."

When will we realize that we are broke? Oh wait, that's California that's broke and the Federal Government that is broke and ...

2010-08-12T08:28:00.002-06:00

State Controller John Chiang said Tuesday that without a state budget, California's government would be unable to pay its bills in late August (or maybe early September). That means issuing IOUs to some people. Possible dates for IOUs could be either Aug. 27 or Aug. 31, when big payments to schools are due, according to this schedule on the controller's website.

This announcement, in the upside down world of California's badly broken budget politics, felt almost like good news. With lawmakers and the governor making little progress on the budget -- and showing little interest in making that little progress -- the threat of IOUs seemed to provide hope that there's a deadline out there, somewhere in the near future, that might force these guys to pass a budget.

Or maybe it won't. Democratic legislative leaders and Gov. Schwarzenegger have all raised the possibility that there may not be a budget agreement this summer -- or even this fall -- if their demands aren't met. Given the intransigence, maybe the controller should try issuing IOUs sooner rather than later, as a test of whether a failure to pay the state's bills might be a spur to real budget action.

Riots already ... and we are not to the bad stuff yet.

2010-08-11T11:03:00.000-06:00

Crowd waiting for housing vouchers gets rowdy
By Mike Morris

The Atlanta Journal-Constitution

12:26 p.m. Wednesday, August 11, 2010

A crowd of people hoping to get federal housing assistance became unruly Wednesday morning with reports of fights breaking out in the crowd.

Thousands of people were lined up at the Tri-Cities shopping center, hoping to apply for a voucher from the East Point Housing Authority that will give them a discount on their rent.

People began lining up at the shopping center two days ago, and by Wednesday morning the crowd had grown to over 1,000 people. East Point police, some wearing riot helmets, were patrolling the area. Firefighters and EMTs were attending to people who were overheating in the sun. College Park police and firefighters were also assisting in crowd control.

Felecia McGhee told the AJC she arrived around 6:30 a.m. Wednesday. She said the major problem began when people started breaking into the line and officials started moving the areas where they were handing out applications. She said she saw at least two small children trampled when the crowd rushed the building where the applications were to be handed out.

"It's a real mess out here," she said.

Channel 2 Action News reporter Mike Petchenik said fights were breaking out and police had to stop people who were storming the door.

Channel 2 reporter Tom Jones said, “There are thousands, I mean, thousands of people here. I’ve seen people fall out from the heat.”

No injuries were reported but an East Point police officer was treated for heat-related problems.

By late morning the crowd had thinned considerably and people were walking up and getting their applications without delay.

A sign on the door of the office explained that only applications were being handed out.

"The housing authority will be issuing applications Wednesday, August 11, starting at 9 a.m. Everyone in line by 1 p.m. on the 11th will receive an application. ... No Section 8 vouchers are available at this time. There are no public housing units available at this time. You're applying for the waiting list only."

The Housing Choice Voucher Program, called Section 8, subsidized the rents of low-income families living in apartments and houses that are privately owned. The federal program makes up the difference in rent that the poor can afford and the fair market value for each area.

The federal government has specific standards for its subsidized properties but at the same time landlords are assured an income.

Only families with incomes no more than half the median income for the area qualify. The median income for the East Point area is less than $32,000, according to Census data. It is up to the renter to find a place that meets HUD standards, which includes being 90 percent to 110 percent of the “local fair market rent.”

Staff writer Rhonda Cook contributed to this article.

I laugh otherwise I'd cry.

2010-08-10T21:49:00.000-06:00

Who’s Scoffing Now?

by David Galland, Managing Editor, The Casey Report

A couple weeks ago, the family and I watched Dirty Jobs, an altogether entertaining show from the Discovery Channel. In the episode we watched the host, Mike Rowe, serve as a mechanic in the military. There were a couple of things that caught my eye.

The first was that, using nothing more than a cleverly arranged array of blocks and tackle, five members of the mechanics group were able to easily muscle a well-stuck 5-ton Humvee from deep sand. We humans are, indeed, a creative and intelligent species.

The second thing was the strict adherence to protocol, with everyone acting almost robotic in their issuance of commands and responses, and surgical in their use of equipment. Even so, this slavish adherence to “the book” is understandable, given that the soldiers operate in extremely difficult, dangerous, and often chaotic circumstances.

Therefore, I had to raise an eyebrow the next day. when BBC reported that of $9 billion allocated to the U.S. military to be used in Iraq reconstruction projects, fully $8.7 billion has gone missing. Proving, once again, that no matter how well plans are laid or how tightly “management” might think they are controlling things, gaps in process can open up that are wide enough to drive a Humvee through – a Humvee full of cash, in this particular case.

Similarly, we are led to believe that the Treasury and the Fed, having applied the right combination of monetary and fiscal blocks and tackles on the well-stuck economy, have freed the economy from its quagmire. In this case, the biggest sovereign debt crisis in history.

In support of that contention, the following appeared in Bloomberg, a steady cheerleader for the administration and its friends on Wall Street.

Barack Obama

Timothy F. Geithner

It’s kind of ironic, I find, that the very same people who are quickest to scoff when hearing the phrase “This time it’s different” – namely the professional investing class – apparently see nothing to worry about in the idea that the world’s largest debtor can run the world’s largest deficits… and do so at historically low interest rates.

To which I would comment, “Trust your eyes.” If it seems as though the situation is untenable, it very likely is. The only real question in my mind is, how long can this fiction persist? To that I don’t have an answer, but I suspect that when the truth of the situation is revealed – possibly by the roundabout path of seeing one or more of the large Asian economies come unglued – things will get far uglier, far faster, than most people suspect.

After all, for things not to “be different this time around,” the mountain of unpayable sovereign debt must be resolved in a currency crisis. To believe otherwise is to believe in Easter Bunnies and in the proposition that, like the military, the U.S. government can meet every challenge – the former through a concentration of force, the latter by bankrupting future generations.

I can’t speak for what you’re seeing in your neighborhood or hearing from your customers or friends, but everyone I talk to says that, at best, things are holding the line at “bad,” but, for the most part, are not getting significantly worse. No one has told me that things are actually improving.

That my ground level perception may be the correct one seems to be confirmed by the latest consumer confidence readings – which just fell to a 5-month low, the wrong direction for a recovering economy.

Yet, in stark contrast to what my eyes and ears are telling me, the cheerleading for a robust recovery in the mainstream media is becoming almost deafening… just as you would expect in the months leading up to an important U.S. election.

While it may just be inherent stubbornness, we here at Casey Research remain steadfastly bearish, for no other reason than that none of the big-picture economic challenges have actually been solved.

Which is to say that we are the ones scoffing at the idea that this time is different – it’s not. In support of that contention, look no further than Bud Conrad’s chart below, from the March edition of The Casey Report. As you can see, the world’s two largest economies, the U.S. and Japan, are solidly in the danger zone and likely past the point of no return.

Depending on your ability and willingness to take risks, you may wish to stay especially liquid – or trade the volatility that is inevitable as the train periodically looks like it’s about to leave the tracks (in time, it will). You can do that by buying the VIX index (there are ETFs for that) or by buying good assets (gold, gold stocks, deep-value stocks) on the dips and selling on the rallies.

Of course, some people will buy into the idea that the crisis really is behind us, deficits and debt be damned. Others, including yours truly, believe the markets are being played like marionettes by the administration and its allies ahead of the November election.

In time, I strongly suspect, we the people are going to wake up and find that our government has spent trillions of dollars in its attempt to put in the fix and, as has been the case with the military’s Iraq reconstruction efforts, 96% of the money will have simply vanished.

How to survive the economic mess ...

2010-08-10T21:44:00.000-06:00

Economy in for a Long Dark Period - Here's How to Survive

By: Chris Blasi | Wed, Aug 4, 2010

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The success of the multi-year machinations of the U.S. Government and the Federal Reserve's attempts to manage the fiscal crisis can best be summarized in a single word - and that word is ephemeral - yes, ephemeral! This beautifully succinct word, ephemeral, is defined as "lasting for only a short period of time and leaving no permanent trace." Yes, indeed, what better word is there to describe the Government's so-called rescue plan than ephemeral - here today and gone tomorrow - and without a trace of lasting benefit!
While I tend to be short on words and to the point, as my previous articles* will attest, trying to achieve both accuracy and brevity on this subject was difficult to achieve but what follows should provide a reasonably fair and complete assessment.

Myriad of Statistical Measurements are Being Manipulated and Massaged

There have been a myriad of statistics presented by analysts attempting to quantify the short- and long-term impact of the economic and fiscal policies deployed over the last couple of years. Gauges, such as the contribution to GDP expansion in relation to government spend, earnings growth of publically traded companies, the status of bank balance sheets, etc., have all been factored into some sort of scorecard for the state of the economy. In the segregated and insulated world of government policy makers, Fed officials, well-connected bankers and other sundry insiders, these manipulated and massaged statistical measurements have been designed to serve as the basis for public pronouncements as to how we are to see the world around us. Unfortunately, due to a dearth of inquisitive and competent financial journalists, the alliance of powers at the global economic helm have been free to make erroneous and unchallenged declarations such as the sighting of "green shoots", or an "officially declared" emergence from recession, or "officially documented" resumption of sustained economic growth. In the real and tangible world, however, the statistics don't support reality.

The Blind Begin to See

Many of the economists who relied upon deceptive government-generated economic statistics to tout a questionable recovery are now becoming increasingly pessimistic as a consequence of mounting evidence of collapsing consumer confidence, punk retail sales, and a fierce resumption of housing's descent. They are adjusting their forecasts down and some are even suggesting that normal economic activity will not resume until 2015 or beyond. What remains to be seen, however, is if a nation that is so massively indebted, top to bottom, will be recognizable after such a prolonged period in the tank.

America's Socio-Economic Transition is in its Final Stage

What has emerged from the financial crisis, and the officially sanctioned choosing of winners and losers, is a clear picture of the evolving two-tier global social order. Now that those beneficiaries of official favor have succeeded in off-loading their losing wagers onto the general public, there is no longer any urgency on behalf of Washington or the Fed to alleviate the suffering of those unfairly saddled with the burden of payment. What will be implemented are schemes that require further surrender of individual liberty and the extinguishing of any prospect for building personal wealth in exchange for worthless promises of government supplied sustenance and protection. In place by 2015 will not be renewed economic growth in the traditional sense, but an economy that has devolved into a confluence of the worst elements typically associated with socialist Europe and Central/South American banana republics.

Preservation of Wealth Today is a Prudent Course of Action

Simplistic investment axioms passed off as wealth management, such as "buy and hold equities" and "real estate never goes down" (see chart below), have failed miserably for the past decade. Preservation of wealth until the storm passes, in lieu of squandering hard earned dollars chasing yesterday's investment themes, appears to be the more prudent course of action. In the not too distant future, once the unmitigated misallocation of capital is reckoned with and artificially supported sectors of the economy are vanquished, t here will be great opportunities to be realized. The key to survival through this long dark period is proper positioning of one's capital now, surveying matters with a strategic mindset, and great patience.

Gold and Silver - The Ultimate Refuge

Although derided as useless by those with a vested interest in preserving the privileges accorded those who steal wealth and gain power via a fiat monetary system, gold and silver have historically served as a refuge when such a counterfeit system is threatened with degradation or collapse. Our mirage of a money system is facing a challenge to its viability right now. Should the Feds irredeemable paper scraps experience further loss of purchasing power, or global repudiation, gold and silver holdings will come through such a debacle intact and still be in possession of intrinsic value tradable for goods and services globally.

Conclusion

The model portfolio has always included a measured position in gold and silver (to learn precisely how much please visit http://www.munknee.com/2010/07/how-much-bullion-would-equity-investors-need-to-hold-to-insure-against-inflation/ ) and such an allocation should be regarded as a long term store of wealth and not as a position for short or intermediate trade.
Given that we are hurtling headlong into what the Chinese would call "interesting times," it makes sense to grab hold of something that has been here before and has consistently come out intact - physical gold and silver.
*Following are hyperlinks to two of my previous articles on the economy and the merits of owning gold which I urge you to read:
a) http://www.safehaven.com/article/17328/gold-price-sizzles-as-the-us-economy-fizzles and
b) http://www.safehaven.com/article/17038/if-1-1-still-equals-2-then-gold-will-explode

Its replacement . . .

2010-08-10T21:41:00.002-06:00

The New Push for a Global Currency

by Llewellyn H. Rockwell, Jr.
by Llewellyn H. Rockwell, Jr.
Recently by Llewellyn H. Rockwell, Jr.: Down With the Rich, Again?

You surely didn't think that the governing elites would let this economic crisis pass without pushing some cockamamie scheme for control. Well, here is the cloud no bigger than a man's hand, a revival of a 60-year-old idea of a global paper currency to fix what ails us.
The IMF study that calls for this is by Reza Moghadam of the Strategy, Policy, and Review Department, "in collaboration with the Finance, Legal, Monetary and Capital Markets, Research and Statistics Departments, and consultation with the Area Departments." In other words, this paper shouldn't be ignored.
It's a long-term plan, but the plan has the unmistakable stamp of Keynes: "A global currency, bancor, issued by a global central bank would be designed as a stable store of value that is not tied exclusively to the conditions of any particular economy.... The global central bank could serve as a lender of last resort, providing needed systemic liquidity in the event of adverse shocks and more automatically than at present."
The term bancor comes from Keynes directly. He proposed this idea following World War II, but it was rejected mostly for nationalistic reasons. Instead we got a monetary system based on the dollar, which was in turn tied to gold. In other words, we got a phony gold standard that was destined to collapse as gold reserve imbalances became unsustainable, as they did by the late 1960s. What replaced it is our global paper money system of floating exchange rates.

But the elites never give in, never give up. The proposal for a global currency and global central bank is again making the rounds. What problem is being addressed? What is so desperately wrong with the world that the IMF is floating the idea of a world currency? In a word, the problem is hoarding. The IMF is really annoyed that "in recent years, international reserve accumulation has accelerated rapidly, reaching 13 percent of global GDP in 2009 – a threefold increase over ten years."
You see, monetary policy isn't supposed to work this way. In their ideal world, the central bank releases reserves and these reserves are lent out, leading to a boom in consumption and investment and thereby global happiness forever (never mind the hyperinflation that goes along with it). But there is a problem. The current system is nationally based and so the economic conditions of one country turn out to have an influence on the borrowing and lending markets. Without borrowers and lenders, the money gets stuck in the system.

This is a short history of the last two years. By now, if the Fed had its way, we would be awash in money. Instead the reserves are stuck in the banking system. It's like the whole of the population of the United States has suddenly been consumed by the moral advice: neither a borrower nor a lender be.
And why? Well, there are two reasons. Borrowers are just a bit nervous right now about the long term. They are watching balance sheets day by day, consumed with a weird sense of reality that had gone out the window during the boom times. Meanwhile, the bankers are just a bit risk averse, happier to keep the reserves in the vault than toss them to the winds of fate. They have the bank examiners breathing down their necks right now, and lending doesn't pay well, not with interest rates being suppressed down to the zero level.
Under these conditions, yes, hoarding seems like a pretty good idea. What's more, we should be very grateful indeed for this retrenchment. The idea of plunging back into another bubble seems rather shortsighted.
The IMF has a problem with this practice, though it doesn't dwell on it. The problem is that this practice of maintaining high reserves is putting a damper on consumption and investment, prolonging the recession. The simple-minded solution coming from the high-minded eggheads at the IMF is to find some system, any system, that would push the money from the vaults into the hands of the spending public.

The rationale for the global currency and global central bank is that the reserves could always find a market in a globalized system, and would not therefore be so tied to the exigencies of a nationally based banking and monetary system.
An academic paper can wax eloquent for hundreds of pages about the advantages of a global system. It will lead to more stability, efficiency, and less politicization of money and credit. And truly, there is a point here: a real gold standard is always tending towards a global currency system. Different national currencies are merely different names for the same thing.
But there is a key difference. Under a gold standard, the physical metal is the limit and the market is the master. Under a global paper system, the paper provides no limit whatsoever and the politicians are the masters. So there is no sense of talking about the glories of globalization in the current context. A world paper currency and world central bank would heighten the moral hazard and lead to a global inflationary regime such as we've never seen. There would be no escape from political control at that point.
Every proposal of a drastic solution such as this always comes with a warning of some equally drastic consequence of failing to adopt the proposal. In this case, the IMF actually raises questions about the survivability of the dollar itself. "There has been a long-running debate speculating on whether the dollar could collapse," says the paper. It raises the worry that if a run on the dollar materializes, central banks could attempt to race each other to dump it permanently.
But, the paper points out, many people wonder whether "good alternatives to the dollar exist." And for this reason, it might be a good idea to cobble together such an alternative sooner rather than later.
There is probably more truth in that statement than most people want to grant. But the right alternative is not yet another and more global experiment in paper money inflation. God forbid. If we want an alternative to the dollar, there is one that could appear before our eyes if only we would let it happen. Private currencies traders the world over could, on their own, give rise to a new currency rooted in gold and traded by means of digital media. On many occasions over the last 20 years, such a system nearly came to be. But guess what? The government cracked down and stopped it. The governing elites have decided that there will be no currency reform unless it comes from the marble palaces of the monetary elites.

The death of the dollar.

2010-08-10T21:40:00.001-06:00

The Death of the Dollar

By Vasko Kohlmayer

Nothing can save our financial system in the long run. It is doomed to collapse. This is inevitable, because our government controls and manages its very foundation -- the dollar.

The federal government began its takeover of the dollar in 1913 when it established the Federal Reserve Banking System. Prior to that, the dollar was a real store of value. In the period from 1783 to 1913, there was a long period of currency stability with virtually no inflation. If you saved one dollar in 1800, your great-grandchild could buy roughly the same amount of goods with the same dollar one century later.

In 1913, five dollars could get you the following:

15 pounds of potatoes, 10 pounds of flour, 5 pounds of sugar, 5 pounds of chuck roast, 3 pounds of round steak, 3 pounds of rice, 2 pounds each of cheese and bacon, and a pound each of butter and coffee ... two loaves of bread, 4 quarts of milk and a dozen eggs.

In 2010, five dollars barely gets you two pounds of cut chicken meat.

Since the establishment of the Federal Reserve in 1913, the dollar has shed more than 90 percent of its value. The loss of value has been especially pronounced since 1971, when Richard Nixon took the dollar off the last vestiges of the gold standard. In that year, the dollar became a pure fiat currency, grounded in nothing but the whims of politicians and technocrats. The consequences have been disastrous. One thousand 1971 dollars would buy only $185 worth of goods today. This represents a loss of some 80 percent in purchasing power.

The dollar has already entered its terminal phase. The word "doom" is written across it for anyone with the eyes to see. Sad to say, there is no way to reverse its downward slide. With more than $13 trillion in public debt and some $100 trillion in unfunded mandates, our federal government has assumed far more obligations than it can ever make good on. Worse still, these figures are growing larger every year.

To put it bluntly, our federal government is flat-out bankrupt. Currency disintegration is always the unavoidable result of government bankruptcy. The dollar -- which has been weakening for many decades -- will at some point go into a sudden death spin.

The only question is when. It may happen six months from now or six years from now. The timeframe is impossible to predict, but we can now be certain that happen it will. No one -- not even the federal government -- can escape the numbers. And the numbers are hideous. One hundred trillion-plus is a killer.

Under normal circumstances, the dollar would have collapsed already, given how impossibly indebted our government is. Some people are puzzled by its continued survival. They say this is just another sign that we live in a crazy world. But there is nothing crazy about it. The dollar is still alive because there is no ready alternative.

Doomed though it may be in the long term, big-time holders of U.S. dollars keep desperately hanging on because they have nowhere else to go. Where else could China invest its nearly one-trillion-dollar reserves? There is no easy option. So China keeps propping America's federal debt by purchasing Treasury notes and thus keeping the dollar afloat. It is a bad deal for China and a fortuitous one for the U.S., at least for the time being. But things cannot go on like this forever. Eventually, something will give in, and the whole gargantuan house of debt will come crashing down. When that happens, things will get ugly.

Some people may say this situation has been brought about by reckless fiscal and budgetary policies rather than by the government's management of the currency. But the ability of government to run deficits is directly tied to its power to manage money.

It is very difficult for politicians to run large deficits if the currency is anchored in something intrinsically real and valuable -- let's say gold. This is because when they post large budget shortfalls under a gold standard, people naturally ask them, "Where in the world are you going to get all the gold to pay for all this spending?" And since politicians do not know how to make gold, they are forced to admit: "We are going to get it from you, the people, of course. Where else could it come from?"

As you can imagine, such answers do not usually go well with the voting public. The restrictive quality that real money exerts on the profligacy of politicians is often referred to as "the golden handcuffs."

As it is now, most people do not think that they will have to pay for the spending incurred by their representatives in Congress. They think that deficits are something that does not concern them directly. They somehow assume that if the government needs more money, it can simply issue more bonds. But this way of living is unsustainable, and sooner or later, the inflow from abroad will stop. Then we will all pay for our government's extravagance by the disintegration of the currency.

Traumatic as it may be, we should not be surprised by this. It has to end this way. This result became ineluctable the moment the American people gave government control over their money. Let's hope that we will learn from our mistakes. Let's hope that when the present monetary regime finally unwinds, we will have the wisdom to lay a more solid foundation for our money than the whims of politicians.

Ouch! The Fed just confirms it.

2010-08-10T20:40:00.002-06:00

FOMC Announcement - 8/10

The FOMC Announcement:
(Their statement inset, my translation outset.)

Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months.

We never had a recovery. The Government borrowed a scadload of money and blew it to avoid recognizing what was a severe recession; as a consequence they reported at worst a 2% drawdown annualized, but this is fraudulent - the real drawdown has exceeded 10% now for more than two years.

Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

Everyone's broke. Congratulations.

Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract.

Business is broke too. That claimed "record balance sheet cash" is of course offset by debt, and coverage ratios are worse now in terms of assets than any time in the last 50 years. That's not improving either.

Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.

We believe. Don't you?

Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The economy is going through deflation and our attempts to stop it have failed.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

There's no growth, the economy is contracting at 10% per year and is likely to continue to do so for the foreseeable future. We know this and we also know that at some point the government's ability to borrow and spend in order to fraudulently report "growth" will disappear. Of course we won't tell you that up front, because then Grandma will (correctly) surmise that her Social Security and Medicare will disappear (and she's rather likely to be unhappy.)

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.¹ The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.

I said there is no recovery! We can't shrink the balance sheet but we can try to monetize Treasury Debt. Of course there is this tiny problem with that Fannie and Freddie paper - it's got huge embedded losses in it. We won't bother talking about the blatantly-unconstitutional act of allocating revenue that we just said we're going to do - and we hope Scott Garrett doesn't call us on it (again.)

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

We suck and we know it. Ain't it grand that you let us get away with this crap?

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.

The criminal cabal.

Voting against the policy was Thomas M. Hoenig, who judges that the economy is recovering modestly, as projected. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limits the Committee's ability to adjust policy when needed. In addition, given economic and financial conditions, Mr. Hoenig did not believe that keeping constant the size of the Federal Reserve's holdings of longer-term securities at their current level was required to support a return to the Committee's policy objectives.

And the one man with a brain.....

PS: To Mr. Hoenig: Don't get in any private planes. Nor take any late-night walks. Nor go bird hunting with anyone named "Cheney." And for God's sake, don't stand up in the bathtub. (Yes, that's sarcasm, if you're incapable of understanding it as-written.)

No matter how things change, they really stay the same. Then it was Yankees and today its Bankers (all in New York ... interesting?)

2010-08-10T09:13:00.000-06:00

The Origins of Nullification

Today, August 10, 2010, 3 hours ago
Tenth Amendment

by Thomas J. DiLorenzo, LewRockwell.com

The defenders of centralized governmental power (a.k.a. tyranny) despise the Jeffersonian idea that the citizens of the states have a right to nullify what they believe to be unconstitutional federal laws. They hate it so much that they falsify history whenever they are forced to discuss it when it becomes news, as it has in recent months. Their favorite falsehood is the myth that nullification was the idea of U.S. Senator John C. Calhoun, the principal architect of South Carolina’s nullification of the federal “Tariff of Abominations” in 1832. This tariff, sponsored by Henry Clay, raised the average tariff rate to 45% with tariffs on some items exceeding 100%. Since almost all of the items covered by the tariff were manufactured in the Northern states, only Northern manufactures would benefit from them by charging higher prices once international competition was prohibited by the tariff on imports. South Carolinians, Virginians, and other Southerners correctly believed that the tariff was a break with the constitutional compact that outlawed discriminatory taxation. They were correct to interpret the Tariff of Abominations as an attempt by the neo-Puritanical New England “Yankees” to use the power of the central state to plunder them (and all consumers for that matter). That was a trend they sought to nip in the bud with their nullification law.

The defenders of this particular form of legal plunder usually heap the worst calumny imaginable on Calhoun, a former vice president of the United States and one of America’s most brilliant political theorists (read his Disquisition on Government), by associating him with slavery and nothing but slavery. The not-so-veiled implication is that nullification was some kind of white supremacist plot. Associating nullification with Calhoun and only Calhoun, and then relentlessly smearing him, is nothing more than a dishonest diversionary tactic on the part of the defenders of consolidated or centralized governmental power, the purpose of which is censorship of all discussion of the nullification of unconstitutional federal laws.

The idea of nullification was actually popular among the American colonists, long before Calhoun’s time, but is most closely associated with Thomas Jefferson and James Madison, authors of the Kentucky and Virginia Resolves of 1798. Jefferson authored the Kentucky Resolve at the request of the Kentucky legislature as a way of nullifying the hated Sedition Act that was being enforced by President John Adams. This law essentially outlawed free political speech in America.

As soon as the Federalist Party gained power it outlawed free speech, in clear violation of the First Amendment of the U.S. Constitution. The spark that ignited this totalitarian impulse was an editorial by the grandson of Benjamin Franklin, Benjamin Franklin Bache, editor of the Philadelphia Aurora newspaper. Bache was a follower of Jefferson and his Democratic-Republican Party, and was outspokenly opposed to the Federalist program of protectionist tariffs, central banking, corporate welfare, high taxes, and a large public debt. In an editorial he called John Adams “old, querulous, bald, blind, crippled, toothless Adams.” Federalists responded in kind. Noah Webster called the Democratic-Republicans “the refuse, the sweepings of the most depraved part of mankind . . .”

Abigail Adams is said to have gone berserk over Bache’s characterization of her husband, and she and the Federalist newspapers began calling for Bache’s punishment. The result was the Alien and Sedition Acts. The Sedition Act was enacted on July 14, 1798, and made it a crime to publish “false, scandalous, and malicious writing against the government or its officials.” Of course, the government itself would solely decide what constituted improper and illegal speech, as was the case in the Soviet Union and all other totalitarian states during the twentieth century. The law was written so as to expire on the day that John Adams left office so that it would only be used against Jefferson’s Democratic-Republican Party.

Many of Jefferson’s followers resented the ostentatious displays of king-like grandeur that the Adams’s were known for. For example, according to the Wikipedia entry on the Alien and Sedition Acts, in July of 1798 President John Adams and his wife Abigail were making their way back home to Braintree, Massachusetts in elaborate carriages as part of a parade, with canons firing to celebrate their entry into every city and town along the way. A man named Luther Baldwin was sitting in a pub in Newark, New Jersey where, upon hearing the canon fire, said “There goes the president and they are firing at his arse.” He also said that he didn’t care if “they fired through his arse.” For this he was sent to prison and assessed fines and court costs.

In November of 1798, a man named David Brown put up a liberty pole in Dedham, Massachusetts with the words, “No Stamp Act, No Sedition Act, No Alien Bills, No Land Tax [referring to Hamilton’s national property tax], Downfall to the Tyrants of America; Peace and Retirement to the President; Long Live the Vice President [Jefferson].” For this he was fined and sentenced to eighteen months in prison.

Several dozen newspaper writers who were supporters of Jefferson were arrested under the Sedition Act for criticizing the government. In addition, Federalist party mobs often attacked newspapers and newspaper editors who were sympathetic to the Democratic-Republican Party or who criticized John Adams. Federalist Roger Griswold, a congressman from Connecticut, attacked fellow Congressman Mathew Lyon of Vermont by beating him with a hickory cane on the floor of the House of Representatives after Lyon criticized the Federalists as being “in opposition to the interests and opinions of nine-tenths of their constituents.”

After Lyons wrote a newspaper article suggesting that Adams had “an unbounded thirst for ridiculous pomp, foolish adulation, and selfish avarice,” the Adams administration convened a grand jury and indicted Lyons. After walking the Revolutionary War veteran through the town of Vergennes, Vermont in shackles, he was imprisoned. He ran for reelection from prison and won handily.

All of this is what motivated Thomas Jefferson to author the Kentucky Resolve of 1798, accompanied by Madison’s Virginia Resolve, which was almost identical (See William J. Watkins, Jr., Reclaiming the American Revolution: The Kentucky and Virginia Resolutions and Their Legacy). Section One of Jefferson’s Kentucky Resolve reads as follows:

Resolved, that the several States composing the United States of America, are not united on the principles of unlimited submission to their General Government; but that by compact under the style and title of a Constitution For the United States and of amendments thereto, they constituted a General Government for special purposes, delegated to that Government certain definite powers, reserving each State to itself, the residuary mass of right to their own self Government; and that whensoever the General Government assumes undelegated powers, its acts are unauthoritative, void, and of no force . . . . That the Government created by this compact was not made the exclusive or final judge of the extent of the powers delegated to itself; since that would have made its discretion, and not the Constitution, the measure of its powers; but that as in all other cases of compact among parties having no common Judge, each party has an equal right to judge for itself, as well as of infractions as of the mode and measure of redress.

Madison’s Virginia Resolve, in turn, declared that “in case of deliberate, palpable, and dangerous exercise of other powers, not granted by the said compact [i.e., the Constitution], the States who are parties thereto, have the right and are duty bound, to interpose for arresting the progress of the evil, and for maintaining within their respective limits, the authorities, rights and liberties appertaining to them.”

With Jefferson’s election as president, the Sedition Act ended at midnight on March 3, 1801, the moment Jefferson became president. Upon assuming the office, Jefferson ended all ongoing prosecutions and pardoned those who had been convicted under the Sedition Act.

South Carolina’s nullification of the Tariff of Abominations in 1832 was not even the second example of the principle of nullification being implemented. Far from it. After President Jefferson enacted a trade embargo in response to British theft of American ships and the kidnapping of American sailors, New England legislatures nullified the embargo act by quoting Jefferson himself. For example, on February 5, 1809, the Massachusetts legislature declared that the embargo was “not legally binding on the citizens of the state” and denounced the law as “unjust, oppressive, and unconstitutional” (See James J. Kilpatrick, The Sovereign States). All of the New England states (where the shipping industry was concentrated), plus Delaware, officially nullified the embargo act.

When the War of 1812 broke out (also the work of Henry Clay as much as anyone), the New England Federalists essentially seceded from the union by not participating in the war. Their political vehicle was nullification. As stated by the Connecticut state assembly:

[I]t must not be forgotten that the state of Connecticut is a FREE SOVEREIGN and INDEPENDENT State; that the United States are a confederated and not a consolidated Republic. The Governor of this State is under a high and solemn obligation, ‘to maintain the lawful rights and privileges thereof, as a sovereign, free and independent State,’ as he is ‘to support the Constitution of the United States,’ and the obligation to support the latter imposes an additional obligation to support the former. The building cannot stand, if the pillars upon which it rests, are impaired or destroyed.

This statement by the Connecticut state assembly echoed Jefferson’s states’ rights interpretation of the Constitution, as beautifully stated in the Kentucky Resolve. This places modern-day “conservatives” and “neo-conservatives” in a conundrum: They would like to nullify “Obamacare” and much of the other socialistic legislation that is being passed, and the movement in favor of state nullification as the vehicle for doing so is gaining more and more momentum by the day (see the Web site of the Tenth Amendment Center). But to embrace nullification is to associate oneself with the Jeffersonian compact theory of the state that was overthrown at gunpoint by the Lincoln administration, after several generations of nationalist/consolidationist/Yankee politicians failed to do so through the normal, non-violent political process. As Jefferson clearly stated in the Kentucky Resolve, the states are free, independent, and sovereign. They therefore have a right of secession as well as nullification. Jefferson himself wrote frequently in favor of a states’ right of secession. Indeed, the Declaration of Independence was nothing if it was not a declaration of secession from the British Empire.

An easy prediction is that the neocons will in fact advocate nullification as long as the Democrats are in power. But when they reassume power they will revert back to their cornerstone ideology of Lincoln idolatry, centralization, militarization, censorship, spying, torturing, endless warmongering, and denunciation of nullification and all other forms of the American tradition of states’ rights, otherwise known as federalism.

Thomas J. DiLorenzo [send him mail] is professor of economics at Loyola College in Maryland and the author of The Real Lincoln; Lincoln Unmasked: What You’re Not Supposed To Know about Dishonest Abe and How Capitalism Saved America. His latest book is Hamilton’s Curse: How Jefferson’s Archenemy Betrayed the American Revolution – And What It Means for America Today.

Copyright © 2010 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

We have to undo nearly a century of federal mismanagement.

2010-08-09T23:10:00.000-06:00

1913 Was a Very Bad Year

By J.B. Williams

Prior to 1913, there was no federal income tax. The states had rights and representation in Washington, D.C., there was no Federal Reserve Bank, and the federal government lived under the enumerated powers afforded within the U.S. Constitution. What a difference one year can make...

Almost a hundred years later, it's clear that the policies established in 1913 must be revoked in order to restore power to the people and the states. But can the American people stuff the genie back in to the bottle?

The history of the U.S. tax system can be summed up in one paragraph...

Prior to the enactment of the income tax, most citizens were able to pursue their private economic affairs without the direct knowledge of the government. Individuals earned their wages, businesses earned their profits, and wealth was accumulated and dispensed with little or no interaction with government entities.

Passage of the 16^th Amendment to the Constitution would forever change life in America, and not for the better.

The 16^th: The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.

It's hard to imagine how the aforementioned amendment could have been written any broader, or why 36 states would agree to such an open-ended federal power to strip citizens of their rightful earnings via taxation without representation and with literally no boundaries or limits to how far the federal government could ultimately go in their effort to buy the votes of some with the assets of others.

Since 1913, the federal tax code has been used as a primary tool of leftist social engineering, in which the people have been forced to fund a government they no longer recognize and no longer support. The U.S. Congress has a mere 11% approval rating today, and the executive branch is supported only by the 28% of citizens who benefit personally from the robbing of fellow citizens.

The states are now fiscal dependents of the federal government, and the federal government is a twenty-trillion-pound ape trampling through the rose garden of American life. Nobody seems to have any clue how to rein it all in.

Further, thanks to the 17^th Amendment, also passed in 1913, the states no longer have representation in Washington, D.C. Once again, what seemed like a simple sentence and a good idea to some at the time has since been used by the federal government to eliminate states' sovereignty and rights.

The 17^th: The Senate of the United States shall be composed of two Senators from each state, elected by the people thereof, for six years[.]

The year 1913 gave birth to today's interpretation of the abused "supremacy clause" -- a wholly anti-American notion that the federal government has unlimited, "supreme" power over the states and the people. Without states' representation in D.C. due to the 17^th Amendment, the Fed is free to run wild...and running wild it is.

Prior to the passage of the 17^th, the U.S. Senate was the legislative body that represented the interests of the states, namely state sovereignty and states' rights. The 17^th eliminated both by eliminating state's representation and reducing the Senate to just an extension of the people's House of Representatives.

The Senate was elected by each state legislature and obligated to serve each state's interest as a result. Unlike the House of Representatives -- in which local representatives known by local voters are elected by their neighbors to represent the will of constituents in their home districts -- members of the Senate, who are not known or accessible to most voters in the state, also represent the will of constituents they don't know and with whom they are no longer in touch. The distance leaves the state itself unrepresented.

As a result, the federal government is now engaged in running roughshod over state sovereignty and rights as a daily event. The recent situation in Arizona, where the Feds sued the state for attempting to enforce existing immigration laws that the Feds refuse to enforce, is but one glaring example of federal tyranny made possible by the 17^th Amendment.

The Federal Reserve

On the heels of the banking Panic of 1907, Democrats were elected into full control of both congressional chambers. With full control over the legislative process, they wasted no time shifting the focus of the federal government from the "enumerated powers" to federal power and social engineering.

Financial panics and bank runs were all too common during the 19^th and early 20^th centuries. Some were more severe than others, but most followed the same general pattern. The misfortunes of a prominent speculator would undermine public confidence in the financial system. Panic-stricken investors would then scramble to cut their losses. And because it wasn't uncommon for speculators to double as bank officials, worried depositors would rush to withdraw their money from any bank associated with a troubled speculator.

The Federal Reserve System was established to provide a stabilizing factor to occasional extreme volatility in the financial markets, usually caused by overreaching speculative trading by only a handful of eager investors.

The new system emerged from a private-sector investment by then 70-year-old J.P. Morgan, which stalled the growing run on banks caused by the financial trouble of the New York Knickerbocker Trust. J.D. Rockefeller stepped in to help out, along with a few other well-heeled financiers.

Just as Obama and Democrats are doing today, Democrats tried to saddle Republican President Teddy Roosevelt with the blame for the banking panic.

One person who didn't seek advantage in the crisis was William Jennings Bryan, the Democrats' perennial presidential candidate. In an impromptu speech to the assembled crowd at the Binghamton, New York train station, he came to the defense of President Theodore Roosevelt, a Republican. "I notice," said Bryan, "that one of the officers of the bank that just closed its doors yesterday attributed it to President Roosevelt. That is not the reason. Don't blame the Sheriff, but the horse thief."

It wasn't the federal government that stopped the run on banks; it was private investors. But the formation of the Federal Reserve System that followed would once again give the federal government power it could not be trusted to hold.

From that moment forward, it would not be private investors who bailed out failing banks, but American taxpayers. Even worse, there would be no end to the printing of money and accumulation of public debt once the federal government via the Federal Reserve had what would be treated as a bottomless well from which to draw cash.

Beginning in 2001, the Bush administration tried for seven years to convince Congressional Democrats, including Barney Frank and Christopher Dodd, that there was impending trouble with Fannie Mae and Freddie Mac, but to no avail.

It was the Federal Reserve and American taxpayers who would be held accountable for the misdeeds of Democratic incompetency and a refusal to address the growing mortgage problem until there were no good options left.

In the end, the Obama administration would drive the nation from $10 trillion in debt to $14 trillion in just their first two years in office, with trillions more in unfunded social spending aimed at propping up the failing labor unions that will keep them in political power.

The year 1913 was one of the worst years in American history, as the people thereafter became fiscally responsible for the unethical actions of a few in banking and government. The states lost their representation in the Senate, state sovereignty, and rights, while the Fed grabbed "supreme powers" and the Federal Reserve became the arm of government that would sink the nation in a mountain of debt.

In 2010, Democrats now control both Houses of Congress, the White House, the press, and the courts. What happened in 1913 is nothing compared to what Democrats have in store for America now.

Before the people and the states can control this nation again, they will have to undo all the damage done in 1913 which allowed further damage to be done during FDR's Raw Socialism Deal.

The 1^st, 2^nd, and 10^th Amendment initiatives underway in the states today are necessary due to the events of 1913. Reverse 1913 and most of the problem is easily solved.

Sources

http://www.ustreas.gov/education/fact-sheets/taxes/ustax.shtml

http://www.bos.frb.org/about/pubs/panicof1.pdf

Pension plans.

2010-08-09T16:07:00.000-06:00

Since I've said "I told you so" a few times of late, this time I'll just do this.....

Unfunded pension liabilities are approximately $2.5 trillion, compared to the reported amount of $493 billion.

Unfunded liabilities for health and other benefits are $558 billion, compared to the reported $537 billion.

Thus, total unfunded liabilities for all benefit plans are an estimated $3.1 trillion — nearly three times higher than the plans report.

If you need this translated, it's very simple:

You're not going to get the money you think you were promised.

If you're a government employee and are counting on some sort of pension plan, get over it.

The money does not exist.

It cannot be acquired.

If you scream about "But the state constitution says we're protected!" I will simply remind you that it is easier to change a State Constitution than it is make money that doesn't exist magically appear.

To put this into context, the shortfall is double the annual Federal Budget deficit - at today's bloated amounts. It is five times the average federal budget deficit during Bush's administration.

Again: You're not going to get the money, and most of it isn't, as is commonly believed, in the form of medical benefits - it's in direct cash pension compensation.

You were lied to by the plan administrators.

They (intentionally) used ridiculously-rosy projections of "gains" in their portfolios.

Their "projections" are outrageously unsound, as is their accounting.

Your public-sector unions lied to you too. They led you to believe that you could have the equivalent of a free lunch and that these plans could be funded and would pay. You can't and they can't.

Now you can get angry at "the people" all you want. The fact of the matter is that the people who BS'd you aren't the public - they're your so-called "union representatives" and the so-called "pension managers", all of whom you hired and who report to you, not to the taxpayer.

More than two years ago I wrote a couple of Tickers on this subject and warned you that you were going to get hosed - severely. That the funds you think are there are not and would not be.

If you are a state or local government employee and thought I was some sort of nut a couple of years ago when I was warning you that you had better start both raising hell and socking back your own funds, you better read this report - and then get VERY angry, as you've now lost two more years of time with which you could have been trying to do something about securing your own retirement.

The programs you believed would protect it will not be there when you expect them to be.

Period.

Spot on. Not sure if I agree with his priorities but what he reports on is true.

2010-08-09T15:57:00.000-06:00

What collapsing empire looks like

By Glenn Greenwald

As we enter our ninth year of the War in Afghanistan with an escalated force, and continue to occupy Iraq indefinitely, and feed an endlessly growing Surveillance State, reports are emerging of the Deficit Commission hard at work planning how to cut Social Security, Medicare, and now even to freeze military pay. But a new New York Times article today illustrates as vividly as anything else what a collapsing empire looks like, as it profiles just a few of the budget cuts which cities around the country are being forced to make. This is a sampling of what one finds:

Plenty of businesses and governments furloughed workers this year, but Hawaii went further -- it furloughed its schoolchildren. Public schools across the state closed on 17 Fridays during the past school year to save money, giving students the shortest academic year in the nation.

Many transit systems have cut service to make ends meet, but Clayton County, Ga., a suburb of Atlanta, decided to cut all the way, and shut down its entire public bus system. Its last buses ran on March 31, stranding 8,400 daily riders.

Even public safety has not been immune to the budget ax. In Colorado Springs, the downturn will be remembered, quite literally, as a dark age: the city switched off a third of its 24,512 streetlights to save money on electricity, while trimming its police force and auctioning off its police helicopters.

There are some lovely photos accompanying the article, including one showing what a darkened street in Colorado looks like as a result of not being able to afford street lights. Read the article to revel in the details of this widespread misery. Meanwhile, the tiniest sliver of the wealthiest -- the ones who caused these problems in the first place -- continues to thrive. Let's recall what former IMF Chief Economist Simon Johnson said last year in The Atlantic about what happens in under-developed and developing countries when an elite-caused financial crisis ensues:

Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or -- here's a classic Kremlin bailout technique -- the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk -- at least until the riots grow too large.

The real question is whether the American public is too apathetic and trained into submission for that to ever happen.

UPDATE: It's probably also worth noting this Wall St. Journal article from last month -- with a subheadline warning: "Back to Stone Age" -- which describes how "paved roads, historical emblems of American achievement, are being torn up across rural America and replaced with gravel or other rough surfaces as counties struggle with tight budgets and dwindling state and federal revenue." Utah is seriously considering eliminating the 12th grade, or making it optional. And it was announced this week that "Camden [New Jersey] is preparing to permanently shut its library system by the end of the year, potentially leaving residents of the impoverished city among the few in the United States unable to borrow a library book free."

Does anyone doubt that once a society ceases to be able to afford schools, public transit, paved roads, libraries and street lights -- or once it chooses not to be able to afford those things in pursuit of imperial priorities and the maintenance of a vast Surveillance and National Security State -- that a very serious problem has arisen, that things have gone seriously awry, that imperial collapse, by definition, is an imminent inevitability? Anyway, I just wanted to leave everyone with some light and cheerful thoughts as we head into the weekend.