Ben Bernanke's zero-interest rate policy (ZIRP) and command-economy efforts to maintain mispricing of risk, debt and assets are destroying capital and capitalism. No wonder his policies have failed so miserably.
To understand why Federal Reserve Chairman Ben Bernanke's efforts to restart economic "growth" have failed so completely and miserably, we need to compare the present with the end of the Great Depression. There is a wealth of irony in the Chairman's supposed expertise on the Great Depression, as his policies have backfired on "fixing" the Great Recession.
Rather than "fix" the economic malaise by re-inflating the credit-boom bubble, he has only increased the systemic vulnerability to a much greater crash.
This is akin to an "expert" on World War I recommending a bigger, stronger more costly Maginot Line as the "solution" to military vulnerability.
In the Great Depression, excessive speculation built on systemic fraud and embezzlement led to the implosion of a vast credit bubble.
The "solution" touted then and now by saviors of the Status Quo was to "save" the financial sector and debtors by substituting Federal spending (with the money being borrowed via the full faith and credit of the U.S.A.) for collapsing private borrowing and spending.
This "solution" failed because it refused to address the real problem, which was over-indebtedness in service of mal-investment. People lost faith in the system for good reason--it was fraudulent and opaque, and thus mispriced risk. If you can't price risk or assets, then it's insane to either borrow or invest.
The "solution" to the Great Depression was massive Federal debt and spending on World War II--but the "solution" had a key characteristic that is almost universally ignored.
Depression-era calls to bulldoze homes to be rebuilt and destroy grain so it could be regrown were rightly dismissed as mal-investment on a vast scale. But war is more or less an equivalent "consumer" via destruction. Hundreds of ships were built and then sunk, thousands of aircraft were built and then shot down or lost, and monumental mountains of provisions and supplies were manufactured and then either consumed or lost to enemy submarines, bad weather, rot and a host of other causes.
At the end of the war, most of the leftover goods manufactured--ships, tanks, aircraft, munitions, etc.--were mothballed or scrapped.
Despite this staggering waste, the war spending launched a long boom. How did it work this magic? One, it constructed new plant; unlike the Keynesian calls to bulldoze houses so they could be rebuilt, the war investment created factories that could then be converted to produce consumer goods. More importantly, the war spending created a vast pool of private capital--what we call savings. As resources were diverted to the war effort, rationing limited both the manufacture and availability of consumer goods. Meanwhile, tens of millions of people were put to work, either in the Armed Forces or in the war manufacturing sector, and most had few opportunities to spend money. Industrialists also piled up war profits.
Though extend-and-pretend policies did not write off the overhang of debt that had depressed the economy and destroyed the markets ability to properly price risk and assets, this gargantuan pool of private capital simply overwhelmed the remaining debt overhang.
Third, trust in the system was restored: the Federal government had effectively "won the war" by printing money and drawing upon the nation's vast surplus of energy and labor, and the manufacturing and financial sectors had been brought to heel by the extraordinary demands of the war and by legislation that had responded to financial fraud and over-reach.
Recall that the root of "capitalism" is capital. Capitalism requires two fundamentals--capital to invest and open markets for goods and services that openly price risk, assets, hedges and goods.
Note that debt is not listed. Debt is not essential to capitalism. Indeed, if we explore the roots of modern capitalism in the 14th and 15th centuries, we find that commercial credit and hedges were the key ingredients, not debt. Lacking sufficient coinage to handle the rising volume of trade, merchants settled accounts at the great trading fairs in Europe.
Long, risky trade voyages were hedged with the equivalent of options and limited stock companies that distributed risk for a price. Leverage was limited by the transparency and appetite for risk.
Compare that with Bernanke's policies, all of which severely punish savers (i.e. the accumulation of capital) and reward leverage and debt. By lowering interest rates to zero, Bernanke has imposed the opposite of the World War II experience of forced savings--he has made cash into trash and pushed everyone into risk assets.
By making credit dirt-cheap and backstopping financial-sector losses (i.e. institutionalizing moral hazard), Bernanke has destroyed the market's ability to discipline mal-investment and openly price risk and assets.
World War II launched a boom precisely because private capital accumulation/savings were enforced; when the war ended, there was a vast pool of capital available for investment and consumption.
Bernanke's policy is to punish capital accumulation and reward leveraged debt expansion. Rather than enforce the market's discipline and transparent pricing of risk, debt and assets, Bernanke has explicitly set out to re-inflate a destructive, massively unproductive credit bubble.
This is why Bernanke has failed so completely, and why he will continue to fail. He is not engaged in capitalism, he is engaged in the destruction of capital, investment discipline and the open pricing of risk, debt and assets.
When the next "credit event" sweeps round the Fed's Maginot Line of encouraging mal-investment and masking fraud and rolls up the entire financial sector's defenses against mispriced risk and credit, Bernanke will be inside the over-run HQ, wondering how his "brilliant" policies could have failed so spectacularly.
I did a search on Google for "economic collapse" and "2011." I got over 7 million hits.
I read a short piece on the probability of social collapse. The author argues that complex systems require more energy. At some point, there is not enough energy to sustain the system. Then it collapses.
This argument is implicitly based on the second law of thermodynamics, which teaches that energy moves from kinetic (stored) energy to dissipated energy, never to return. The system moves from complex back to simple. It moves from low entropy to high entropy. It moves from order to disorder.
The argument became popular briefly in 1983 when far-left gadfly and perpetual co-author Jeremy Rifkin co-authored a book titled Entropy: A New World View. He argued that the world's economy is running out of energy, so the environment cannot sustain economic growth, and therefore the U.S. government must intervene to stop economic growth. He surely called on the correct institution to stop economic growth. No other institution comes close in this specialization.
You can buy a used copy of this book on Amazon for a penny. It's overpriced.
I wrote a book refuting Rifkin in 1988, Is the World Running Down?You can read it free here.
First, the argument from entropy must always define the system under consideration. Energy may be obtainable from outside the system at some price. Second, the argument must also make estimates regarding the rate of entropic decay within the system. Any discussion of a collapse should be specific on these two factors. It must also specify why there must be a tipping point, as distinguished from erosion, as when a room cools. Water freezes at zero degrees centigrade. But why is society like water?
In his great book, Human Action, Ludwig von Mises argued that it is always a conceptual error to explain social arrangements and their outcomes in terms of the categories of physical science. Human action is not the equivalent of physics. Inanimate objects do not act. They are acted upon. So, Mises argued, the social theorist should discuss society in terms of the outcomes of responsible individuals who seek to better their condition. Modern economics is universally taught in terms of pseudo-physics. There is a funny line that gets to the point. "A good economist is reincarnated as a physicist. A bad economist is reincarnated as a sociologist." Bad as sociology is, I would rather be a sociologist explaining economics, such as Max Weber, than a disappointed would-be physicist, such as Paul Samuelson. Weber read and respected Mises' great essay, "Economic Calculation in a Socialist Society." Samuelson dismissed Austrian economics. He was the first influential economist to promote the idea of economic science as a subdivision of thermodynamics.
SOCIETY AND INCREASING COMPLEXITY
The essence of society is an increase in efficiency, based on (1) an increase of capital, (2) an increase in the division of labor, (3) an increase in specialization, and (4) a better use of decentralized knowledge. As societies advance, they increase in complexity. This is the very essence of social order.
The crucial social question is not "more complexity vs. less complexity." The question is the origin of the complexity.
Why is this question important? Because of the cause of increasing complexity: increasing capital. This is what funds the production process. It does so by adding complexity, meaning specialization. This capital must be replaced constantly by new investing. If the replacement capital is withdrawn, the specific capital market declines. It does not collapse.
Similarly, if the market for the output of specific capital collapses, the specific capital market collapses. But why should a final market collapse? Because of a collapse in final demand. Usually, this is because of a widespread overnight change in taste. But this is very rare. People at the margin change their tastes. Existing users do not. The iPhone may replace the Blackberry, but this will take years.
It pays entrepreneurs to forecast such changes in final demand. If a capital market is really free, then entrepreneurs can buy and sell. The capital markets will adjust. There is no collapse of the markets. Some rise; some fall. (This is the economists' version of the only known law of sociology: "Some do. Some don't,")
The less free any capital market – the more government intervention – the more likely a collapse. This is why the origin of social complexity is so important.
The free market makes far better use of knowledge in society than central planning does. This was F. A. Hayek's argument in his crucial 1945 essay on knowledge in society. It appears as chapter 4 of his book, Individualism and Economic Order (1948). He argued that the lure of profit induces people who possess accurate and highly specific knowledge to make it available to others who can put it to good use in serving customers.
KEYNESIAN CENTRAL PLANNING
The main economic problem we face today is the widespread use of Keynesian central planning by government bureaucrats and central bankers. Keynesianism has increased the level of government subsidies to various parts of the economy. This has made economic systems more fragile. They are being tinkered with by committees of government experts. Here, we can have something that resembles collapse. The best case in recent history is the USSR. But the Keynesian system is not Soviet-like in its intensity. It is a middle-of-the-road policy. It can lead to serious economic disruptions, and it has. But to speak of outright economic collapse is misleading.
The free market compensates for bad policies. Better (profit-seeking) knowledge is constantly being substituted by individuals for poor (bureaucratic) knowledge. This process happens at the margin, "little by little, line upon line." This means that economic losses produce individual allocation responses that benefit customers.
Warfare produces collapse. Liberty doesn't.
All talk about all large, complex systems using too much energy, which in turn causes an unexpected collapse, is inherently statist. It implies that the free market has created a self-destructive social order. It implies that liberty of association and the right of contract have created a sociaty-wide accident waiting to happen.
Keynesianism creates very large accidents that are waiting to happen. Keynesian black swans are very large and fly very high. It is best to stay out from under them.
But there are few signs outside of fractional reserve banking that Keynesianism has created a society at the edge of collapse. There is too much freedom remaining for that to happen, short of biological warfare or an EMP.
NETFLIX AND NET GAINS
To see what I am getting at, let us take the recent collapse of the stock price of Netflix. In July 2011, it hit $300. Shortly thereafter, Netflix announced a new policy. It was going to divide its services into two companies. One company would deliver DVDs by mail. The other would deliver streaming video. Previously, a subscriber got both.
That decision popped what had been a speculative bubble. Investors in July 2011 thought that Netflix was unbeatable, unstoppable, the wave of the future. Today, the whole world knows that Netflix had a flawed business model, and it is unlikely ever to recover to its high-flying days of July 2011. Netflix shares bottomed in late December at $68. The company lost 75% of its capitalized value. That, by any investor's standard, is a collapse. Netflix investors got dumped on by a black swan. Its recent recovery to $90 was good news for those few who bought at $68. It is not good news for those who bought in July and held.
This was a replay of the company Netflix displaced, Blockbuster. Begun in 1985, Blockbuster at its peak in 2009 employed 60,000 people. It went bankrupt in 2010. I would call that a collapse.
The company had been under long-term competition from Netflix. It rented DVDs in a store setting. Its venture into DVDs by mail, in imitation of Netflix, was a disaster. Today, the corporate shell that remains faces walk-in competition from Red Box. Red Box installs DVD kiosks in high-traffic stores like Wal-Mart. It's great for these stores, because people have to come into the stores twice within 24 hours. The kiosks take up space that was not previously used to sell anything, usually along a wall on the exit side of the registers. The square footage is maybe six square feet. There is no fire insurance to pay. Red Box rents high-rental recent DVDs that are the bulk of Blockbuster's revenue.
So, Blockbuster was doomed by its inability to respond to competition. It had its money tied up in real estate. The delivery of the product no longer depends on real estate. But it could not get out of its leases. The commercial real estate market has collapsed.
Has this had any effect on customers? Hardly any. Customers switched. Some (like me) canceled their DVD rental subscription. They keep the streaming video service. Others did the reverse.
Red Box seems to be doing well. If I want a specific DVD, I can get it by driving five minutes. I can use the Web to check to see if it's in the kiosk. It will cost me $1 to rent. The big cost is the time I take and the gasoline. I'll probably ask my wife to pick it up. Or I can rent it when I buy my veggie Subway sandwich, also sold in Wal-Mart, which I buy at least twice a week. Then the marginal cost is my time spent in front of the kiosk: minimal. Netflix will never get me back. Blockbuster did not have me for at least 13 years.
So, the free market allows collapses in response to changing customer demand. But most customers are not harmed. The social order becomes more complex. Because the transition is governed by profit and loss, society comes closer to meeting customer demand. Society experiences a net gain.
BANK SHARES
People think bankers are smart. They are smart. They skin the investors by skimming off enormous bonuses. I call this "skim and skin." They are also incompetent as managers of depositors' assets. But they do very well personally.
I wrote a story on this recently. To see how the shares of the world's largest banks have done, click here.
Incredible, isn't it? Yet the poor schnooks who held onto bank shares after 2007 have yet to catch on to the game bankers play. We still see stories in the financial media about rallies in bank shares. This sucks in the suckers.
The largest banks are in need of huge infusions of capital. Consider just Europe's banking system. We read this in Business Week. The requirement for the end of 2012 is in the range of two trillion euros, or at least $2.7 trillion.
Banks in France, the U.K., Ireland, Germany and Spain have announced plans to shrink by about 775 billion euros ($1.06 trillion) in the next two years to reduce short-term funding needs and comply with tougher regulatory capital requirements, according to data compiled by Bloomberg.
This will exacerbate the looming recession. But the banks are trapped. They need massive infusions of new capital. If they do not get this, they will be forced to sell assets. To whom?
"Asset sales are impractical in the current environment," said Simon Maughan, head of sales and distribution at MF Global UK Ltd. in London. "Every bank is selling, and no bank is buying. It just won't work. Beyond that, the magnitude of the cuts the banks are talking about is nowhere near the likely required amount of deleveraging. They need to reduce hundreds of billions more to adjust to the new world order. There has to be a recapitalization."
Who would be silly enough to offer banks the hundreds of billions of dollars in capital that they need in order to decrease their vulnerability? Only politicians. But large governments are running huge deficits, except for Germany. Who would be so silly as to loan governments money? Bankers. And so it goes.
Could there be a true banking collapse? Only if the European Central bank refuses to inflate. Will the ECB inflate? Of course. It's #1 unofficial assignment is to save the largest banks.
Bank share prices indicate in what bad shape the West's banking system really is. Everywhere, bankers have promoted bubbles, made huge losses for investors, and have lived high on the hog through government bailouts. This is not going to change. The bankers are running the show. They pocket the profits, leave little for shareholders, and call for bailouts by the government whenever their bonuses are threatened. The politicians comply.
Why should anyone expect this to change? It is not in the interest of senior managers of large banks to change it. They can deal with regulation. This stifles competition. But they will not tolerate free market competition.
EROSION, NOT COLLAPSE
Bank shares have collapsed. Bankers' bonuses have not. This is how the system works.
We will see government bailouts whenever banks are threatened with bankruptcy (bank + rupture). The central banks will always intervene, even if politicians stand on the sidelines. Politicians are not in the loop to be told what is happening. They don't want to know. This is why Congress resists auditing the Federal Reserve System. "It's none of Congress' business," says Bernanke implicitly. Congress meekly agrees.
The system will not be reformed until the Great Default arrives, i.e., when the Federal Reserve finally refuses to buy government debt. We are years away from that day.
We hear of an economic collapse as being imminent. But this ignores the ability of the Federal Reserve to keep bailing out big banks. Congress may resist the next bailout request, but it will not resist a request by the FDIC to make money available. It is politically acceptable to fund the FDIC. It is politically imperative. The voters depend on the guarantee by the FDIC. They will resist another TARP. They will not resist a bailout of the FDIC.
CONCLUSION
We will see a continual erosion of productivity. The banks will refuse to lend. The government will continue to absorb $1.3 trillion a year of capital. The public does not care. It senses that this cannot go on, but it has gone on so long that politicians can always kick the can. So, this is what they do. Nobody loses his seat in Congress because of this.
Erosion, not collapse, is in our future. But this erosion at some point will start increasing much faster than Keynesians expect. This will be our "Greek moment."
The Savior State has pulled out all the stops to prop up the Status Quo. Its gargantuan borrowing and spending have fixed nothing. Contraction is replacing expansion as the new normal.
For the past 67 years, Americans have been conditioned to expect expansion and more of everything: more income, more stuff, more opportunity, more benefits, more medical care, more government entitlements, and so on.
As a result, Americans have habituated to permanent expansion.
The concept that contraction - less of everything - is the new normal simply doesn't register; it is rejected, denied, or decried as a great tragedy. The notion that it is simply reality does not compute with a populace habituated to permanent "growth" that is at worst interrupted by brief recessions.
U.S. politicians have learned that Soaring Rhetoric (TM) about "morning in America," "the New Frontier," "hope" and other ritualistic appeals to permanent expansion win elections, while accurate descriptions of reality lose elections.
The voting public's demand for "permanent good news" promising permanent expansion has spawned a feedback loop of officially sanctioned manipulated statistics and media spin (a.k.a. propaganda) that expands with every administration, even as the real economy visibly weakens. Though the Obama Administration has perfected the techniques of presenting "permanent good news," the divergence of the real economy and the official "story" that "we've returned to permanent expansion" is widening.
The real story is the "expansion" has cost the taxpayers trillions of dollars in new debt and trillions of dollars of backstops, shadow purchases and money-printing by the Federal Reserve. Roughly speaking, $6 trillion in additional Federal borrowing has been blown to simply keep the Status Quo from imploding, and around $13 trillion in guarantees, backstops, asset purchases, and losses made good have been issued to keep the Status Quo's financial sector afloat and in charge.
By any credible, unmanipulated measure, for example, the number of people with full time employment or household income, the economy has yet to recover to 2007 levels.
This reality must be denied, both by the power-obsessed politicos who fear the truth like vampires fear garlic-garlanded crosses, and by voters who fear a reduction in their personal share of the swag.
Humans habituate quickly to a wide range of conditions and expectations, but once they've settled into the new habitat, they are resistant to new conditions. Needless to say, humans prefer a future in which there will be more of everything over one with less of everything, as permanent expansion means there will be few if any troublesome cost-benefit analyses, hard choices or painful triage, and little need to adjust to new realities.
Changing conditioning is difficult and often arduous. Americans have been conditioned for three generations to expect the Savior State to "do something" during downturns to "make it right." The idea that systemic problems are now beyond the reach of the Federal government does not compute; there must be something the government can do to "fix" everything.
This notion that the Central State is effectively omniscient and all-powerful is central to the belief system of Americans now. The concept that the government cannot fix the problem, or that government central-planning has made the problem worse, is anathema to everyone conditioned to believe government intervention will "save the day."
The basic reality is the Federal government has already pulled out all the stops in the past four years to "make the economy recover," and all its unprecedented actions have accomplished is to maintain the Status Quo via unsustainably gargantuan borrowing, spending and backstopping.
If we scrape away the rhetoric and bogus statistics, at heart the current fantasy that the U.S. has "decoupled" from the global economy and will remain an island of "permanent prosperity" in a sea of recession boils down to this belief: the Federal government "won't let us stay in recession." In other words, it's within the power of the Central State to make good every loss, guarantee every debt, maintain the Empire, solve every geopolitical challenge and find technological or military solutions to potential energy shortages. All we need is the "will" to force the government to use its essentially unlimited power to "fix everything."
A people conditioned to this expectation will have great difficulty accepting that their government has already done everything possible, and that these stupendous debt-based expenditures are simply not sustainable going forward. Some problems are not fixable by more government intervention; indeed, government intervention in the marketplace is like insulin: the system begins to lose sensitivity to Central State manipulation and intervention.
2012 is looking like the year that the American public will have to face up to the fact that the Central State's massive efforts to "fix the economy" have failed, and that Central State support of the Status Quo cannot fix what's broken.
We will have to habituate to contraction, and the belief in a god-like Savior State with unlimited powers and money will fade as the economy's systemic illnesses - extreme concentrations of power and wealth, corruption, financial leverage, excessive debt and so on - reassert themselves.
All that has happened for four long years is systemic problems were papered over to benefit the Status Quo. Everything that is broken awaits real repair.
Constant State and Central Bank intervention and manipulation is not the foundation of a free, transparent market--it is perception management in service of Elite control and looting.
You can fool Mother Nature for awhile, but not over the long-term. That's the theme of the week. Every day I will take a look at a segment of American life that is currently based on the supposition that we can dodge reality essentially forever.
Correspondent Chad D. recently summarized the profound lack of authenticity in the American experience:
Have you noticed that Americans often don't experience REAL things: REAL food, Real water, REAL relationships, REAL money, REAL freedom, REAL peace of mind, REAL living, REAL leaders, etc. I know you've gotten flack for your extensive use of "simulacrum," but it's so true. Most Americans have no idea what REAL is.
Thank you, Chad. Let's ask just how real our financial markets really are. We can start our inquiry with this thought experiment: where would the stock, bond and commodity markets be if all Central State and Central Bank intervention and manipulation were prohibited?
Where would the stock market be if the Plunge Protection Team (PPT) didn't manipulate the stock market via massive purchases of ES S&P 500 futures contracts? These massive purchases are always executed in sparsely traded pre-markets, maximizing the ramp-up effect, which then triggers momentum chasing buys from high-frequency trading machines.
Voila, ramp-and-camp Mondays, which studies have found account for the majority of the market's gains last year.
Remove ramp-and-camp Mondays triggered by massive PPT futures purchases, and where would the unmanipulated market be?
What if unemployment statistics were unmanipulated, i.e. the number of people in the workforce didn't magically decline by millions every year? What if the bogus "Birth-Death Model" was banned as mere fantasy job creation? Where would the unmanipulated market be then?
Where would bond market yields be if the Federal Reserve were unable to print money to buy hundreds of billions of dollars of mortgage and Treasury bonds?
We can also shed light on the difference between a real free market and a simulacrum of a "free market" by asking: does anyone seriously believe the stock market would be higher if all market intervention and manipulation by the Central State and Central Bank (and their proxies) ceased?
We can extend this by asking: what if public companies were banned from issuing "beat by a penny" pro forma earnings and other accounting tricks?
What if the "shadow banking system" was outlawed, and all assets and liabilities were transparent? Does anyone seriously believe the fragile financial system that depends on shadow banking for its dodges and profits would survive transparency and marked-to-market accounting?
Americans have no real experience of free, transparent financial markets or of rigorously transparent accounting by their Central State, the Federal Reserve, public corporations or the financial sector. They have been presented facsimiles of accurate statistics and accounting, and simulacra of transparent markets.
Average Americans are responding to this systemic destruction of truth and fact by exiting the stock market--and that is just the start. As I described in When Belief in the System Fades (March 12, 2008), the Elites benefitting from the Status Quo depend on the active participation and complicity of millions of citizens.
When those participants' faith in the Status Quo's fairness and transparency declines below a critical threshold, then they withdraw or limit their participation, and the system enters a self-reinforcing death spiral.
To go back to the key question: does anyone seriously believe the stock market would be this high if the Central State and Bank and their proxies weren't constantly intervening in the market and manipulating data?
Intervening in supposedly "free markets" for the purposes of perception management and political spin ("everything's great because the market is up!") is ultimately an attempt to fool Mother Nature. The Powers That Be have succeeded in manipulating markets since 2007, but reality (Mother Nature) eventually shreds the phony facade of perception management.
As the European attempts to fool Mother Nature (i.e. unmanipulated markets that are free to discover price and price risk) disintegrate, does anyone seriously think the PPT can prop up the U.S. stock market with its usual pre-market manipulations?
When Mother Nature reasserts reality, the frauds, scams and facades will shred like tissue in a hurricane. Maybe that process of reverting to reality is finally about to begin.
When I first began the process of launching the Alternative Market Project, the idea and scope were rooted in analytical papers I had written years before on aspects of centralization versus decentralization, and globalization versus localization. Back then, I saw these conflicting economic systems as mutually generative. That is to say, the further we as a society are pushed towards collectivist or feudalist economic structures, the more we naturally or unconsciously gravitate towards independent and open markets. The problem today is that independent markets have been artificially and quite deliberately removed from the public view. As I have said in the past, centralization is a powerful tool for elitists, because it allows them to remove all choice from a system until the only options left to the people are those that the establishment desires. Though we deeply long for free and vibrant trade unhindered by corporate oligarchy, we are told that such a thing does not exist, and that we must make due with the corrupt ramshackle economy we have been given. I say, this is simply not so…
The great lie that drives the fiat global financial locomotive forward is the assumption that there is no other way of doing things. Many in America believe that the U.S. dollar (a paper time-bomb ready to explode) is the only currency we have at our disposal. Many believe that the corporate trickle down dynamic is the only practical method for creating jobs.
Numerous others have adopted the notion that global interdependency is a natural extension of “progress”, and that anyone who dares to contradict this fallacy is an “isolationist” or “extremist”. Much of our culture has been conditioned to support and defend centralization as necessary and inevitable primarily because they have never lived under any other system. Globalism has not made the world smaller; it has made our minds smaller.
By limiting choice, we limit ingenuity and imagination. By narrowing focus, we lose sight of the much bigger picture. This is the very purpose of the feudal framework; to erase individual and sovereign strength, stifle all new or honorable philosophies, and ensure the masses remain completely reliant on the establishment for their survival, forever tied to the rotting umbilical cord of a parasitic parent government.
Perhaps the only ray of sunshine to be seen through the storm clouds of the current economic crisis is the exposure of globalism as an inherently flawed methodology. The ongoing implosion in the EU has reached a tipping point, as far as I am concerned, and the parade of absurdity involved in the unionization and “harmonization” of Europe is now center stage; its full frontal economic nudity under the hot white lights of the unforgiving financial microscope.
With the latest S&P downgrade of multiple EU nations, including France, Italy, Austria, and Spain, there can be no doubt that interdependency has led to ruin. Despite French president Nicholas Sarkozy’s insistence that the S&P downgrade “changes nothing”, the fact is, the EU has just been dealt a death blow. Higher borrowing costs tend to spark a violent cycle of credit decay in countries with extreme debt to GDP ratios. Even if France slides through the barrage relatively unscathed, smaller peripheral countries orbiting the EU will not. Greece, for instance, has just announced that talks surrounding the repayment of treasury bonds held by starry eyed investors have fallen apart:
http://www.usatoday.com/money/world/story/2012-01-13/greek-debt-talks/52530542/1
This means that instead of the 50% “haircut” which buyers of Greek debt were already facing, markets may instead be saddled with a full-on 100% default.
Only AAA rated countries have the ability to support the fund and its guarantees. After the downgrades of France and Austria, the number of AAA rated countries in the EU has dwindled to four, led by Germany. To be clear, Germany does not have the capacity to carry the EFSF and the bailouts of multiple nations upon its shoulders, leaving the fund to flounder, and eventually, self destruct.
The EU experiment is over. It may take some time for the world to recognize it, but it has indeed failed.
Across the ocean, the situation has not improved. The news of the European downgrade came right on the heals of an announcement by Barack Obama that the government must raise the U.S. national debt limit yet again, by no less than $1.2 Trillion! Sadly, the negative effects of America’s own recent credit troubles have only been subdued by the more immediate turmoil in Europe. It is simply a matter of time before attentions turn back to the frail American debt issue:
http://www.reuters.com/article/2012/...80B20P20120113 This debt limit increase should be viewed with quite a bit of vitriol by the American public, especially when one understands that a considerable amount of taxpayer dollars (the precise amount is still not fully known) went into bailout funds for the EU which are now in jeopardy of being derailed.
If American taxpayers are going to foot the bill for the corruption of banks and governments, then we might as well foot the bill here at home, however, because of the sick rationale of globalism and interdependency, we are instead paying for the corruption of banks and governments across the Atlantic while our traitorous president demands even more money to be swiftly misallocated.
Madness? No. This is not madness. This is hardcore fraud, and economic subjugation. This, my friends, is financial warfare, and right now, we are losing…
While some may applaud the fall of the EU as a victory, I would recommend looking a few moves ahead of the game to see where we are really headed. Yes, the EU is a perfect example of the feebleness of centralization, but it is also an expendable piece on the grand globalist chess board, just like the U.S. dollar. Already, IMF mascots like Christine Lagarde and MSM pundits have begun suggesting that the EU is failing not because of centralization, but because the union is not centralized ENOUGH! Only a few months ago, Angela Merkel of Germany obstructed the institution of EU Bonds because the move would collectivize the debts of EU members and remove elements of sovereign control. I guarantee that policies of national sovereignty like those in Germany will soon become the scapegoat for collapse of Europe in the near future.
The purpose behind a European disaster is not to break up the EU, but to consolidate power even further. Indeed, plans have already been suggested by centralists which involve a “reformation” of more powerful European nations into a tighter and more totalitarian framework. The Council On Foreign Relations, a globalist think tank and political puppeteer group, of course agrees with this plan, and has promoted the concept on numerous occasions:
The Financial Times' Wolfgang Münchau argues that the split of the eurozone from the larger EU was inevitable and essential. The summit demonstrated that a "monetary union cannot coexist with a group of permanent non-members in a unified legal framework," he writes. For the eurozone to survive, the greater EU must be reconstituted or destroyed, Münchau explains. Indeed, Britain's decision not to take part in the fiscal union is paving the way for a new Europe unhindered by half-hearted British engagement, says Der Spiegel's Roland Nelles. He contends that Europe is "on the path towards becoming a federal country." http://www.cfr.org/eu/new-fiscal-union-europe/p26731
As we have discussed many times over the years, the subversive and sometimes subtle debasement of the dollar is in fact a deliberate program designed by international financiers to force the American public to accept loss of sovereignty and centralize economic authority into the hands of an elite few. The situation in Europe is no different in this regard. Both cultures are being strong-armed through the removal of options and funneled into a waiting net like so much oblivious trout. So, the question must be asked; how do we fight back?
Could a political groundswell be used to supplant corrupt leadership and stall the coming avalanche? No. Even with a clean sweep of all branches of government and the election of a presidential candidate with considerable economic insight (like Ron Paul), the damage has already been done. Would a complete shutdown of the Federal Reserve and a repudiation of all debts accrued through its underhanded financial practices make a dent? A good start, but still not enough. What about a complete reversal of current spend and borrow practices by our government and a fast track plan for the reconstruction of America’s industrial base? That would be great, but American industry took decades to dismantle, and it will take decades to rebuild, so again, no dice in the short to medium term.
The fact is, the U.S. is going to see some very hard economic years ahead, regardless of any top down political solution. Those who are waiting and hoping for a knight in shining armor to ride into Washington D.C. and save them are going to be sorely disappointed. Those who shrug off the threat of fiscal breakdown as a “long term” affair will likely find time quickly slipping away while they clamor for bureaucracy to finally work in their favor. As a movement keenly aware of the threat at hand and the culprits behind it, the Liberty Movement should be doing far more than it is now to stem the tide, and that work begins with decentralization.
Decentralization is an activist strategy which does not rely on top down intervention, but instead, focuses on concrete bottom up community building and organization without the hindrances of traditional power structures. In terms of economics, it means a complete break with the corrupt system and the institution of our own free markets. This process is only as difficult as we make it for ourselves.
The essentials of an independent life are food, water, shelter, property, trade, and safety. The means to attain these essentials have been relegated to instruments which central banks and other elitist entities administer and control. However, that control is and always has been an illusion, an illusion we could walk away from anytime we wish. This is done through localizing the production of essentials. Changing the way we look at trade is the key. A few simple rules, if followed in a determined fashion, make this change a reality:
1) Provide Essentials For Yourself Whenever Possible: Some essentials can be covered even when you are alone. If you have access to property, can grow your own food, and have water collection capability, then you are far ahead of the average American in many respects. With modern technology, including space and energy saving methods, self sustainability is possible even in urban surroundings. The goal here is to do for yourself whatever you can, whenever you can, making you less vulnerable to mainstream economic chaos. The more insulated you are, the better equipped you will be to help build or participate in an alternative market.
2) Network Or Die: Some essentials cannot be provided by one’s self. Organization and networking in order to construct mutually beneficial trade groups is not only necessary, but inevitable in the face of economic collapse. One way or another, every American who wishes to survive will one day have to get up off their couches, leave their houses, and begin working with other people. Either they will see the wisdom in preempting collapse and start networking now, or, they will start networking after collapse out of desperation. Better to start now, and save ourselves the heartache…
3) Trade Skills, Not Dollars: Use paper currency while it still has some value, but simultaneously, wean yourself off of it through barter of goods and services. See how many essentials you can fully provide without the use of dollars and without purchases through corporate chains. Think of this as going financially “off-grid”. What systems do you depend on that ultimately harm you? How many of those systems can you decouple from now? Private trade makes independent living attainable by localizing your means of procurement to your own two hands, instead of to a paycheck doled out by a corporation.
4) Use Commodities, Dump Dollars: Precious metals are the only practical currency exchange available for broad use in a decentralized market. Fiat coupons, digital currencies, sticks and shells, etc., will not work. The inherent rarity of PM’s, combined with their tangibility, and inability to be artificially reproduced, makes them the ideal currency alternative to fiat. Digital currencies, reliant on an internet which may not exist in the manner we know it today, are a tremendous waste of time. Any trade dependent on a system outside of local control is not free trade. Metals place true free trade, at a local level, within reach. Even in a highly developed barter market, currency will play an important role, and PM’s should not be discounted.
5) Become Your Own Industry: As decentralization takes root in a local economy, the need for jobs and for goods will not disappear. In fact, it will become a priority. Entrepreneurship will be the engine that drives any legitimate resurgence of the U.S. economy, but this business mindset will have to take on a localized focus. I have heard it argued that America will never be able to rebuild if trade and industry are reduced to local efforts. On the contrary, thousands of cities and counties acting at a local level to reintroduce micro-industrial economies would far surpass the limited and centralized bumblings of the corporate industrial framework. The more insulated and self contained each community becomes, the stronger the whole of the country will be in the long term. The next industrial revolution, if there ever is another, will come about through city, county, and state centric industries designed to feed the prosperity of the residents within those communities, instead of siphoning away wealth and diminishing available essentials as the modern corporate system is engineered to do.
6) Internalize State Commerce: When enough citizens within each state finally wake up to the dangers of municipal default, federal encroachment on state lands and resources, and the weakness of interdependency on federal subsidies, they will begin to look for ways to plug the fiscal leaks they have ignored for so long. Decentralization truly finds its home within the structure of the states, and the powers afforded them through the 10th Amendment. At bottom, states have the ability legally as well as economically to become the ultimate decentralized systems, being that they are Constitutionally mandated to take such measures anyway.
Resource rich states will likely be the first to undertake decentralization in the midst of economic collapse. Oil, minerals, farm capacity, timber, coal, etc, should be the solid ground upon which states and their citizens set foundation, and states should utilize these resources with the intent to enrich their citizens FIRST, through increased employment and local independent business incentives. This would be a far cry from the corporate pirate ship plundering that goes on in states today, and far more financially sound.
While there are numerous concerns and great tribulations to be confronted and solved in our age of bedlam, from the rise of police states, to political treason, to expanding wars abroad, first and foremost, we must surmount the problem of economic collapse, or all else will be lost. Economic collapse is the trigger by which all other tyranny is made viable. It is the rationalization that will be used to convince the public that the loss of freedom is a “crucial tradeoff” for increased safety. The more centralized we as a nation become, the more centralized the world becomes, the less likely we will be to weather the tidal wave of collapse. The more decentralized we become, the more localized and independent our communities, the less we will be affected by destabilization, the more successful we will be as a people, the less rationalization the government will have to diminish our freedoms, and the greater leverage we will have if they try to diminish them anyway.
The path is clear; we decentralize, we localize, and we do it now, or, we lose our country, our cultural identity, and our legacy. If all other options have been stolen away from us, then we must have the courage to create our own...
Next Financial Crisis "Lehman Moment' Is Coming Fast
Next Financial Crisis "Lehman Moment' Is Coming Fast
Shah Gilani writes: It seems that my Thursday edition of Wall Street Insights & Indictments was warmly received by the bullish crowd, many of whom reached out to me to thank me for my optimism.
I'm sorry to burst your bubbles, but I am not a raging bull (but thank you for asking).
In fact, I'm still bearish.
There's a big difference between being bullish and playing all stocks (and other asset classes) from the long (that means "buy") side, and judiciously buying select momentum stocks with fat dividend yields, which is what I was recommending on Thursday.
I was talking about taking the path of least resistance, which I identified as "upward," based on equity activity through year-end and so far in 2012. You've heard the old adage "the trend is your friend." Well, that's what I was talking about. The trend has been up.
I'm bearish because I'm afraid of a European meltdown and a "hard landing" in China.
But there's a huge danger in missing what could be the beginning of a real bull market.
So, it makes sense to start putting on solid positions and even speculating here and there. But I am not all in - not yet. However, the time is coming. But, that is also the problem.
I'm fearful that a crash is coming, and maybe soon. If we get one, and everything flushes out and we get a capitulation bottom amidst a global panic sell-off, then I'll be all in, all the way, for the long-term. I'm talking about loading the boat up with stocks and commodities and enjoying a generational ride that will last for maybe 10 years, or more.
What keeps me up at night now, however, is the echo of 2007. I call where we are now 2007.2. If we are facing 2007.2, then 2008.2 will follow with a vengeance.
I'm guessing the breakdown could come in the first or second quarter of this year (although it could also take as long as 18 months to develop, which would only make it 10-times as bad when it does come).
Think about what I'm about to lay out for you, and ask yourself, what if he's right?
In the spring of 2007, U.S. Treasury Secretary Henry Paulson, when addressing problems surfacing in the subprime mortgages arena said things "appear to be contained." Fed Chairman Ben Bernanke said: "We believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited."
Comforting words, right?
Then, speaking to members of the Federal Reserve Bank of Chicago in May of 2007, Bernanke said, "Importantly, we see no serious broader spillover to banks or thrift institutions from the problems in the subprime market."
Comforting words, right?
Even before two Bear Stearns hedge funds imploded in June of 2007, the Fed Chairman was touting the virtues of derivatives and the widespread sale of mortgage-backed securities when he stated, "The key thing to remember is that these losses are not just held by American banks, as the bad loans were in Japan (referring to Japan's lost decade), but they are dispersed."
Comforting words, right?
Then, on August 9, 2007, after one Bear fund was shut down and the other fund temporary propped by an injection of some $3.2 billion from Bear itself, and the seemingly contained fallout from subprime and AAA mortgages hitting "dispersed" banks in Europe, the European Central Bank's (ECB) Website quietly announced that the ECB would provide as much funding as banks might wish to borrow at only 4%.
What was happening was that European banks weren't lending to each other. The commercial paper market was at a standstill, and there was no short-term funding facility open wide enough to finance their longer-term mortgage positions. And they couldn't sell their positions because after the Bear funds imploded, there were no buyers for mortgage bonds, even the super-senior AAA tranches many European banks and all the big American banks were holding.
Two hours later, 49 banks borrowed three-times what they were usually asking to borrow. And by the time trading closed in the United States on that same day, gold had spiked higher, as had safe-haven U.S. treasuries.
Of course, the equity markets were doing their own thing and were rising that summer, nearing new all-time highs (which they would reach in September 2007).
It took another year before we got our "Lehman moment."
But, boy did it hurt.
Fast-Forward to Now....
We're being told by the Fed that our banks are in good shape. We're being told by bank CEOs that they are in good shape and their European exposure is limited. We're being told that there won't be any significant hit to our economy from events in Europe. We're being told that there won't be any significant spillover because European debts are dispersed and banks have derivatives hedges.
These are all lies.
Exactly like what happened in 2007, banks in Europe aren't lending to each other. The commercial paper market over here is closed to them. That's why the ECB announced it would effectively execute unlimited three-year term repos at 1%. And, by the way, they are taking just about anything for collateral, really.
Did 49 banks step up like in 2007? No, in 2007.2 (meaning now) some 500 banks stepped up and took $620 billion (489 billion euros) the following day. And they've been adding to that.
What's happening to gold in 2007.2? After selling off as part of the initial risk-on grab for equities a couple of months ago, it's rising again, and fairly quickly.
What about safe-haven bonds? U.S. bonds have been rising rapidly in price as investors clamor for safety. The 10-year closed Friday at a 1.87% yield, only 20 basis points from its all-time low yield, which it saw in September as European woes were strangling global markets.
How panicked is a lot of smart money? Yields on German and U.S. short-duration bills are less than zero. That means investors have bid up the price of these short-term safe government instruments that the premium they are paying is greater than their yield. Put another way, people are paying to place their money in safe government securities.
Comforting, right?
No, it's not.
Talk about concentration build-up. First of all, most U.S. banks and most European banks are still sitting on tons of mortgage-backed securities that they can't unload. And the U.S. housing market isn't getting any better, nor is Spain's, Ireland's, or China's.
Sure, foreclosures are down lately. But that's because of foreclosure moratoriums resulting from lawsuits. There are estimated to be 10 million homes for sale and over 11 million homeowners holding onto upside-down mortgages. What's going to happen when banks get on with foreclosing and start dumping houses again? It's about to happen.
All that nonsense about dispersed risks - don't believe it. There is no dispersion that matters because all the big banks in the U.S. and Europe and plenty of others hold the same asset mixes, the same duration mortgage pools, and the same sovereign debts.
But in the place where things are smoldering and there's kindling everywhere, European banks are buying more of their sovereign's toxic debts to stave off a collapse of the prices of the debts already on their books. It amounts to a crazy leveraging up on the same bet that sovereign debts will pay off 100 cents on the dollar.
And where are they getting the money to buy more of this crap? From the ECB, which is printing it against the backstop of the same countries who need banks to buy their constantly rolled-over debts.
It's musical chairs, and sooner or later the music is going to stop. Greece looks like it will be the first one standing, or in this case, falling down. Portugal could be next, or Spain, or Italy.
Greece has more than $1.26 trillion (1 trillion euros) of public sector debt outstanding. Do you think that a real default isn't going to crush a lot of banks? Wake up. And if you think that Greece defaulting (or even forcing a 50% haircut on private investors, that would be banks, folks) wouldn't spill over into other countries and across the globe... wake up.
Talks in Greece over private investors taking a 50% haircut - meaning they will only get 50 cents on the dollar on the 100 cents they lent out previously and the other 50% they are giving up will be replaced with longer-term bonds yielding less interest - aren't going well. Most analysts and even central bankers believe the haircut needs to be closer to 75% than 50%. Comforting words to be spoken while negotiations are ongoing, right?
Ah, then there's that little downgrade thing that happened on Friday after European markets were closed. Just because the downgrade of the U.S. from AAA to AA+ didn't cause our borrowing costs to rise doesn't mean it isn't going to happen in Euroland.
It will happen. Downgrades will trigger new capital calls as margin requirements will increase to offset the lower quality of collateral, we're talking about the same collateral folks, the same sovereign bonds. It's an increasing pile, make that pyre, and it's going to self-ignite.
We have a big week ahead; we have Citigroup Inc. (NYSE: C), Goldman Sachs Group Inc. (NYSE: GS), and Bank of America (NYSE: BAC) reporting fourth-quarter numbers. We have housing starts (homebuilders are up 60% since their October lows) and new home sales. And Spain and Italy are auctioning off bonds on Thursday.
Our markets have risen nicely. And on Friday, after selling off hard on the S&P downgrade news, they rallied back impressively. I tell you, it's 2007.2.
Stocks are going one way, and credit markets are signaling trouble ahead.
Sovereign debt has replaced subprime as the powder keg. That makes the brewing storm infinitely more powerful than the subprime dust-up was. It's a question of how long before we get the Lehman moment.
We've survived, even thrived, on a series of "liquidity puts," which is what I call all central banks' stimulus and "free and easy" money thrown at banks to keep them afloat. In a politically charged 2012, that could change.
Keep this in mind. If we're facing 2007.2, then 2008.2 is coming right around the corner. It's just a matter of time.
That's why I say play the equity market diligently; we could scrape higher for a while, as we did in 2007. But, when the fat lady sings, it's going to be deafening.
And everyone knows the opera isn't over until the fat lady sings.
Daily Bell: What's happening with the EU? How about the euro? Give us some insight into living in the United Kingdom on this front.
David Icke: Oh, my goodness me, it's bloody hell. I have been campaigning against the European Union for a long, long, long, long time, even before I got into this stuff. It's one of the great totalitarian tiptoe stepping-stones to the world government. Once upon a time, humans lived in tribes and the tribes decided what happened in the tribe. Then we came to a pivotal time, when the tribes were pulled together under what we call nations and now there are a few people at the center of the nation who are dictating to all the former tribes.
Now in Europe we are massively into the next stage, which is to pull the nations together under a centralized bureaucratic dictatorship. The European Union is the Soviet Union under another name. The only real difference is what they want to create. They have this farce, this joke called a European parliament, which has no power whatsoever, and they say that therefore the European Union is democratic because we have a parliament. But we have people with no power. The real power is in Brussels and in the dark-suited, appointed bureaucrats in the bureau under another name, the European Commission.
One of the things I have been pointing out now for the best part of 20 years is they obviously want a world government, they want a world central bank, they want a world army, they want a world currency and they want a microchipped population. So if you look at the world currency, what they were faced with were vast numbers of national currencies. So in the totalitarian tiptoe stepping-stone, they needed to get rid of those currencies if they were going to have their single electronic currency, which is what they want. I call this technique problem-reaction-solution. They need to have a constant series of problems, to which they can offer solutions to advance the agenda. This is why there is constant chaos and problems in the world – because that's what's needed to generate and justify the solutions that will transform society. 9/11 of course, is a classic example.
The euro was never, never going to be an end in itself. The end in itself is a single, global, electronic currency. The euro is a stalking horse, which is mucked up, all those former individual currencies of Europe, like the Guilder, the Franc, the Deutsche Mark, the Lira, and has pulled them under one currency which has created quite a situation, it's a bit like the Titanic and they've done it on purpose. The story of the Titanic says it sank because the hole was not compartmentalized into watertight compartments; thus when one compartment filled, then the next compartment and the next. When you have national currencies, there usually is some kind of firewall to some extent, that you're controlling your currency, but with the euro, when one country is in trouble with the euro, then that immediately knocks onto the other compartment or other countries and they start getting effected by it. It's all been calculated. The euro will end and I am not saying it's going to end tomorrow, but it is in the plan to end. They want to replace it with electronic currency and in order to replace it they have to make sure it doesn't work.
When you are trying to change society in fundamental ways, if society is working and what you want to change is working, you are going to get big-time resistance to the change, so you have to make sure it's not working so you can justify the change. In my opinion, the euro is being systematically undermined and America is in the final round, too. It's already unfolding in America.
They are bringing what they did to what we call Third World countries, developing world countries to Europe and North America. What I mean by this is that what they did, in theory, was give independence to the former colonies in places like Africa, etc. They decided they were going to massively hike the price of oil, which they did after the Arab-Israeli War in the early 1970s, which was orchestrated by people like Kissinger. They then went to the other oil countries, covertly, and said, 'We are going to hike the price of oil and we'll give you an excuse, but you invest those vastly increased revenues in certain banks in the West,' which the oil countries did. These were the banks that then sent out representatives all over the third world offering them enormous amounts of money in loans to develop their country. Of course, what they did was seek out the most corrupt leaders and the money went to these leaders and did not positively affect the people, but they were left with the debt, which is what we call Third World debt.
Then you have people like the IMF and the World Bank going into those countries and saying, 'Well, you have to have austerity programs, health, education, food and all the rest of it for us to lend you more debt to get you into more financial catastrophe, i.e., control.' And so we have this situation where physical occupation of the former colonies was replaced by financial occupation, and the wars they sold to these countries was part of the deal. 'To bail you out of these debts you can give us your resources. And we're not going to let you forget. You have to let Western corporations come in, you have to sell us you state assets for cents on the dollar, our taxation.' And in this way they took over the Third World.
They are doing that in Europe and in North America. It's exactly the same. They have created a situation where the banks, or those who control the banking system, crash the banking system, creating a banking crisis. They then make it a government crisis by getting the governments, which they also control, to bail out the banks with copious amounts of borrowed and printed money. This then goes from a government crisis to a people crisis because the government says, 'This is what we've done and we have to cut back.' We see what's happening in Spain, in Greece, in Portugal. Now they are doing exactly the same thing to the West as what they did to the Third World countries before, and they are taking them over.
People like Zbigniew Brzezinski, who was a major insider, Jimmy Carter's former National Security Advisor, co-founder of the Trilateral Commission with David Rockefeller – he has written in books, going back to 1970, that what was coming was a technotronic society. Instead of elected people running countries and deciding things, Technocrats would – experts, bankers and academics. And now, because of what happened in Europe (problem-reaction-solution), we now have Technocrats in charge of the economies in Europe and in Greece. The Technocrat Prime Minister of Italy has a whole technocrat bunch in his cabinet now, a man named Mario Monty, who is the European President of the Trilateral Commission. We have this guy in Greece, Lucas Papademos, Prime Minister of Greece, who's a banker. And Brzezinski predicted all this because he knew it was coming.
So anyone who is doing their homework is seeing this whole agenda unfold, in the most blatant way, and what they they have secured for Italy and Greece is what they want for every other country. There is no democracy. There are training organizations – there's one in Britain that operates worldwide called Common Purpose – that train the bureaucrats, the administrators and the police administrators and the police hierarchy in leadership and in management. Talk about preparing for the post-industrial, post-democratic society because places like Common Purpose are fronts for the same organizations, the same networks. So they are preparing people for this because that's what they want.
PEOPLE, WAKE UP! This is much bigger than you think, even for most of the people who realize that there is something going on.
Daily Bell: We mentioned the word Zionism to Mr. Icke and received a complex answer having to do with how he uses the term Rothschild Zionism because he finds the word Zionism insufficient. This gives us the opportunity to re-emphasize a point we've been making for some time: What is taking place (in our view) is at root a criminal conspiracy, not a religious one.
One of the reasons that "normal" people are often so confused by what's going on is that those trying to expose what's taking place often continue to use the word Zionism, or even worse, Jewry, to describe the current situation.
The current criminal conspiracy is evidently and obviously a medley of different organizations and groups. It includes corporate, military and religious entities, including the Vatican, which is not Jewish so far as we know. In fact, try to pin down who and what is a "Jew" and like Alice, one descends into a rabbit hole.
There is plenty of controversy over Jewishness and whether or not most Jews are related to a tribe that CONVERTED to Judaism centuries ago. If this is the case, then the over-riding qualification for being Jewish is that one's mother, too, was Jewish. This, of course, only begs the question!
Here is another way of figuring out what is going on. Strip away the central banking and financial elements of the conspiracy and see what you are left with. The New World Order, without its financial component, would rely on various kinds of promotional majik, Illuminism, New Age religion and a number of other spiritual practices and prophetic symbols. Would this be sufficient to drive forward the conspiracy to create a one-world government?
To ask the question is to answer it. No.
What is driving global governance is the multi-hundred-trillion-dollar purse of central banking, which those at the top of the one-world conspiracy seem to control. Without money (funding) and mercantilist strategies, the New World Order is nothing but a "pipe dream."
Money is the "mother's milk" of conspiracy (to paraphrase an old chestnut). To pretend that the religious paraphernalia is paramount makes little sense to us. What matters is the money, and keeping it flowing.
That's why, at its heart, the conspiracy is a criminal one that USES religion, black majik and other elements of human spirituality to confuse the issue. In aggregate, we'd argue, these are a kind fear-based promotion, a set of dominant social themes. They are akin to the Masonic symbolism used by NWO types.
We've called this a "signaling compulsion." The idea is to intimidate, but intimidation is not necessarily a belief structure. We don't believe the top people necessarily believe in Illumism or free-Masonry. They USE these elements much as they use the Jewish religion itself (and other religions as well).
These people PLAY with belief systems in our view. Even now they're setting up a war between Islam and the West. One can see the pieces of the puzzle being put into place. Religion is a tool for these people. To constantly harp on the idea that these people are OF religion seems to us a kind of naive perspective.
It is also a confusing one. We've offered this exercise before. Try to explain the Italian mafia from a religious point of view.
Tell people that ROMAN CATHOLICS engaged in the exploitation of Italian-American neighborhoods. Tell people that ROMAN CATHOLICS were responsible for intimidating small businessmen into paying protection money, etc.
See how the explanation collapses? See how weird it gets? Now tell people that ORGANIZED CRIME was responsible for mid-20th century exploitation of Italian-Americans.
Suddenly ... clarity!
We can't stress it enough. By explaining that what is going on in the world is "Zionist," one perhaps opens the door to confusion. What is a Zionist? Why are Zionists doing these things? Who is an Illuminated one? Why are they using black majik to gain their goals? Etc.., etc.
Strip away the mumbo-jumbo and one ends up with an impossibly wealthy group of people that hires within its cultural nexus just as the Italian mafia did (and does). This group works in concert with enablers and associates of all races and creeds, and from elements of Western military, religious and political groups.
It's a big mafia. it uses the techniques of organized crime. It even has deniers around the world who, like J. Edgar Hoover did for the Italian mafia, maintain that it doesn't exist!
But it does. The New World Order is a vast criminal conspiracy. In fact, those at the very top of this criminal conspiracy probably like nothing more than a good expose about how Jews are responsible for everything that is wrong with the world. Immediately, the individual or group involved is labeled "anti-Semitic." Case closed.
We know it's not popular in the alternative media as it is currently constituted to make the point that what is taking place is multi-generational CRIMINAL CONSPIRACY. (We know even Mr. Icke may disagree with this.) But look ... the motivating force of the New World Order is MONEY not RELIGION. There are people and organizations involved from every part of the globe. That's how big it is.
And that's why we should be clear. At the very heart of the current conspiracy, the driver is MONEY. Central bank, fiat/monopoly money.
And what surrounds the extraordinary privilege of controlling this counterfeit global currency is murder, mayhem and malevolence. These are the attributes of sociopathic people intent on retaining their grip on power.
Murder, mayhem and malevolence. The signifiers of organized crime.
The interminable extension by the US Federal Reserve on the 0% rate into 2014 represents history in the making. It is the adoption of pure heresy in monetary policy, making it mainstream. Worse, it forces foreign central banks to adopt the same destructive policy in the Competing Currency War. Once upon a time, the highest priests from the central bank would admit in a guiding tone that accommodation on interest rates must be temporary. Nowadays it is engrained in the market mindset and permanent in monetary policy. The chronic 0% means the entire financial and monetary system is totally irreparably broken. The old pendulum where the tilt was toward bonds during recession, then toward stocks during recovery, that is all gone, shattered by the endless financial crisis. One must incorporate a new thinking, that the entire financial and monetary system is totally irreparably broken, then adapt in fierce defense. Larry Fink of Blackrock private equity firm made news today by suggesting that 0% bond yields offer no return on investment. How true! He did not offer any accurate reflection of reality that the financial structures are broken, nor that all attempts at remedy were flimsy and misdirected. He gave the ALL IN signal for buying stocks in 2012, thus putting on the risk trade. The immediate ancillary signal is to back up the truck and load up with GOLD also.
Many are the messages behind the 0%. Other nations have been criticized for its adoption. But when the United States is the adoptive parent custodian, it is supposedly all good. So Orwell lives, and the ghost of Goebbels floats. Stimulus is a ruse, as destruction of working capital is the constant refrain in a tragic opera. The unintended consequences abound, but mostly not perceived or comprehended well. Few even in the financial community are aware of the powerful leverage mechanisms that enforce the artificially low interest rate. Introduce the Interest Rate Swap contract, whose devices were deployed to the tune of $8 trillion worth in the early months of 2011. The public was told the USGovt debt downgrade at the hands of Standard & Poors was contradicted. Nonsense!! The Interest Rate Swap went to work overtime, and the S&P executives were forced out of their leather chairs and marbled offices for their insolence. While Europe is embroiled in austerity, the United States is besieged by central bank apologies for failure disguised less and less with each passing month and each dismissed speech.
The solution is Gold & Silver investments, as all things paper will lose value either from erosion or theft in fraud. The MFGlobal case is far from finished. We have seen this Madoff movie before, but few recognize its sequel starring Jon Corzine and similar supporting cast. The transfers of money immediately before the MFG bust indicates up to $108 billion of money might have been stolen, not $1.2 billion or even $600 million. The Madoff losses are also triple the official $50 billion figure. The crime scene looks like a parallel. The protection is Gold & Silver, and certainly not with futures contracts spewed or tethered from the tainted COMEX arena. The next wave will feature the Gold investors painted as financial terrorists. Refer to the New York Times article with FBI contributors. This is highly disturbing to anyone who holds the Constitution in hallowed terms.
HIDDEN MESSAGE OF PERENNIAL 0% RATE
The 0% official Fed Funds rate has been almost three full years in entrenched policy, when originally promised as temporary. No exit strategy here. Greenspan once stated that it should never be held fixed so low for more than six to nine months. He implied the system would be broken otherwise, subjected to pressures that would distort the valuation mechanisms beyond repair. My view is that extending 0% as monetary policy into year 2014, five years of accommodation, is a gross admission of failure.
Bernanke constantly apologizes for stimulus having failed, for an economy unable to recover. The main effect of 0% policy is sustenance of the surprising weakness, draining capital from the system, and improperly pricing the debt which is at high risk. The reality is that the USEconomy is stuck in harsh deep recession of minus 3% to minus 5% GDP. The reality is that the USGovt debt burden is stuck in fast escalation at well over $1 trillion annually, while demand for the debt securities is vanishing. What remains is the Quantitative Easing, a bizarre term to give respect to abject monetary hyper inflation by any other name. The heavy hidden reliance upon monetary inflation devices has become a fixture in the financial landscape. Its marquee banner reads failure.
JAPAN CRITICIZED FOR ZIRP AND QE
United States is vulnerable to much worse criticism than Japan. For many years, the cracks and criticism, laced with disrespect, have been lodged at Japan for their lost decade. The US on the other hand, had a Stolen Decade of Prosperity in 1990. Harken back to the pilfered Fort Knox gold treasure, the absent inspections from independent audits, the vacating of the fort and its replacement with nerve gas, long after the futures contracts and 0% gold lease rate was installed that enabled a few $trillion in illicit Wall Street profits, tucked away in untouchable offshore accounts. The Japanese demonstrated how the 0% rate is permanent, the Zero Interest Rate Policy fixed once installed. They still have it. The little powerhouse in Asia cannot move out of the zero percent corner. They have advantages like trade export surplus, a vast industrial sector, and nationalist mindset that abhors outsourcing. Ironically, the 0% rate was enforced in Japan by mandatory postal union pension support of government bonds, and other pension systems directed toward government bonds. In the United States, the dependence has been on hidden usage of the printing press, secretive QE programs with deceptive cloud cover like Operation Twist. The USGovt will soon resort to forcible investment of pension funds and possibly bank certificates of deposit.
So the Japanese resorted to political pressure offset by industrial strength. The US resorted to the machinery of the monetary press exclusively, during endless empty chatter about job growth and business creation, with little knowledge of how to accomplish either. While Japan had 0% stuck as policy with trade surplus, the US has 0% stuck with QE hyper monetary inflation dependence under the dark specter of monstrous annual deficits that tack on an extra $1.3 to $1.5 trillion each year. The American powerhouse, exaggerated in size due to hedonics, imputations, and debt paper shuffling, overridden by numerous $trillion frauds committed with impunity, also cannot move of the zero percent corner. Japan had no added weight from war costs. So the US debt burden is much greater, owing to the export of freedom and Orwellian principles on truth, coupled with fascist principles on aggression.
STIMULUS IS A RUSE, EXCEPT FOR SPECULATION
That 0% rate called stimulus is like calling bank aid a grand assist to the homeowners. It is like calling mortgage contracts protective of individual rights. It is like calling the Fannie Mae nationalization an exercise to continue the American Homeowner dream. It is like calling NAFTA the bond in worker alliances. It is like calling the Chinese low cost solution good for the cost structure and American consumer. It is like more of the parade of propaganda deceptions and lies, like Green Shoots of USEconomic expansion, Exit Strategy from 0%, and delayed QE3. The constant in US political economics is unspeakable deception and colossal ruin amidst chapters of mammoth frauds. The only stimulus from 0% is the continued leaning toward more Wall Street jobs and not factory jobs. Businesses struggle with oppressive federal regulations, poor domestic demand, rising costs, and a pool of unqualified potential workers. They borrow less and less as the months and quarters pass. Despite the favored leaning toward speculation in the financial sector, even investment banks are shedding jobs by the thousands. The nation has lost the concept of capitalism, business formation, capital creation, during a grotesque economic deterioration process in full bore swing. Laws are more directed toward confiscating wealth and forcibly sharing it than creating it, that is when not focused on efforts to censor information.
SYSTEMATIC DESTRUCTION OF CAPITAL
The fixture of 0% as monetary policy carries with it an admission that money is worthless. No directive by the flailing discredited US central bank could say it better. Money has no cost because it is not worth anything, being paper in basis and backed by no collateral. The deep storage gold does not count on the USDept Treasury balance sheets, a thin fig leaf to cover the absent genitalia of the once sturdy Uncle Sam. The 0% policy serves as a monkey wrench in the machinery. See the bank owned housing that cannot exit inventory status, encouraged by sub-4% mortgage rates. Imagine ultra-low mortgage rates that cannot bring about either clearance of inventory or a market recovery. The latest travesty is the upcoming dissolution of Fannie Mae itself. What miracle they might conjure up to make its rotten ramparts and acidic paper and corrupt core go away. Fannie will be buried at sea (of liquidity).
The cast of economists cannot comprehend the heavy cost of 0% in the widespread systematic destruction of capital. Take the small company whose costs are rising. It must close down the marginal elements of the business, and turn off the equipment, lay off the workers. The costs rise from the rising price of commodities, from metals to energy to lumber to cement, even executive lunches. The material costs rise from basic hyper monetary inflation, the ugly side to the unilateral USFed paper factory output. Business equipment, from computers to communications to widget makers to packaging devices, they are slowly turned off and retired. The essence of retired capital and its broad capital destruction is a foreign concept to economists. They still believe the USEconomy will enjoy the benefits of continued 0% stimulus. How wrong, how backwards, how tragic!! The 0% policy destroys capital and furthers the deterioration process. The gains to US exports are a drop in the bucket. The outsourcing continues apace, even with the dynamos Cisco Systems and General Electric.
UNINTENDED CONSEQUENCES
A repeated message since so important. Focus on suppressed long-term interest rates and their damaging consequences. The US leaders boast of benefits from ultra-low interest rates. They believe that Americans are better off than the Europeans who are in shock from rising rates, a flash of reality during a debt crisis. Take the time to review some powerful consequences of interest rates kept low for years, in violation of permission to rise at least to the prevailing price inflation rate. Suppressing the 10-year bond yield has dire consequences. Some but not all of them appear unintended. The power centers want unlimited easy money for sure. But in doing so, they permit some horrendous developments like feeding a cancer.
Savers are given nothing in interest yield, slowing the economy with asset erosion
Banks are encouraged to continue holding their home inventory, which makes impossible any housing market clearance and recovery
Big banks will continue their USTreasury Bond carry trade schemes to replenish capital instead of business capital formation in partnership with the business sector
Investment banks are encouraged to continue their speculation and machinations, rather than to invest in factories, plant and equipment which would produce jobs
The USFed further expansion of its balance sheet to buy toxic assets instead of serving as a foster agent to the banking intermediary system
The USGovt is not discouraged from deficit reduction, since it believes it has unlimited time for remedy, thus assuring massive inflation, debt default, and systemic failure
The free money helps to conceal in vast turnover the toxic paper held under the USGovt roof, as in Fannie Mae, and other fraudulent mills such as MFGlobal lookalikes in the sovereign debt securities and their related derivatives.
ALTERNATE NEMESIS TO AUSTERITY
The Europeans are dealing with austerity measures in government budgets. The sovereign debt securities remain a constant problem, although in recent weeks the bond yields have come down to manageable levels, like below 6% in Italy and Spain. Few economists and bank analysts seems to realize that austerity plans put in place result in lower economic activity, more job cuts, fewer large scale projects, and thus higher deficits down the road. The austerity plans are Poison Pills, one and all, designed perhaps to enable installation of unelected Goldman Sachs technocrats in prime minister posts. The Greek situation is testimony, as budget cuts and massive amputations have resulted in worse fiscal deficits. So bring on more of the same!! The plague in the United States is of an opposite type. The budgets are unrestrained, notwithstanding the endless chatter in the USCongress and White House. War cost cuts will be resisted, my ongoing call. The Super Committee was a gross failure in full view, an aborted maneuver to install a Politburo but with a cleaner nameplate. The US financial theater does not urgently call on budget reduction, or eradication of waste, or fewer foreign embassies and air bases, or related prudence and discipline, in order to win creditor approval and to maintain integrity. The integrity is all lost while foreign creditors have jumped ship. Instead, the urgent calls within the hollowed (not hallowed) Untied States are for continued 0% policy in order to make the mammoth gargantuan debts and fraudulent toxic paper coverup more cost-free. What incredible opposites exist in Europe and the North America!! The US controls the global reserve currency, having turned its printing press into a well-oiled national shrine.
ULTIMATE JET ASSIST FOR GOLD
Back in 2003, the gold community made it well-known that the negative real rate of interest was the underlying jet asset kick starter ignition system for the Gold bull market. Take the baseline interest rate, subtract the baseline price inflation rate, and arrive a the real rate of interest. At 2% or 3% for long-term interest rates, at 8% or 10% for accurate honestly measured price inflation, the real rate of interest is calculated in the minus 5% to minus 7% range. Money is not only free for Wall Street speculators, it has negative cost to smart investors who devote their valuable funds to gold, silver, oil, metals, and other commodity resources, realizing full well that these hard assets will rise in value fast from the negative real cost of money. The USEconomy is mired in quicksand, not just mud. The mis-calculation of inflation in the adjustment to the Gross Domestic Product is also a travesty in sixth grade arithmetic. Take the nominal GDP to measure the economic size, subtract the true CPI as measured by the superb Shadow Govt Statistics gurus, and arrive at a chronic recession of minus 3% to minus 5% for four years running. That explains the absent job growth. Take the payroll tax withholding series to see the steady decline in national income, not easily masked.
GOLD & SILVER READY TO SOAR
Check out the obvious reversal pattern on the Gold chart in full view. It has a 200-point potential rise, which would take the Gold price to 1950. All solutions discussed are bogus and founded in funny money output, new debt, toxic bond redemption, and cost-free recapitalization of banks. No more liberated gold bullion like from Libya via mercenary wars on the horizon. Its 144 metric gold tonnes proved useful to the London and Wall Street Boyz. Syria aint got no gold to release. When the 1750 defended flank is overrun, the rise in the Gold price will be rapid. It will capture global attention again, enough to dismiss once more the vacuous shill self-serving nitwit calls for Gold's demise.
Check out the obvious reversal pattern on the Silver chart in full view. It has a 7-point potential rise, which would take the Silver price to 42 per ounce. The large gap between 32 and 40 has been filled halfway, the next half to be filled in the following several weeks, possibly very quickly. When the 35 defended flank is overrun, the rise in the Silver price will be rapid, more rapid than Gold since the gap will offer little resistance. The rise will capture global attention again, enough to dismiss once more the vacuous shill self-serving nitwit calls for Silver's demise and relegation to an industrial metal.
THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.
Greece is the epicenter of a drama that threatens to unwind with all the intrigue and subterfuge of ancient Greek myths and tragedies.
As with the legend of Icarus, big, and now bigger, transnational banks provoked the gods with their wax-and-feather financial fabrications to create the appearance of soaring wealth. Now that they have flown too close to the sun and their wings have melted, these banks are being brought to earth by the obligations and consequences imposed by their fabrications.
Rather than take responsibility, these banks seek to appease the gods by sacrificing taxpayers. In fact, if one looks closely, these banks aspire to be gods themselves. They clothe themselves in their indispensability and shield themselves from accountability with tales about how many innocent citizens will be hurt if they don’t get their next bailout. It is as if they say, “We are above the law… We are the law.” Mathematics, legal enforcement, restraint, humility all must fall under the sword of their hubris.
In the end, just as with a Greek tragedy or a Yeats poem, this center cannot hold and things fall apart. When one abuses the laws and principles of mathematics and capitalism, claiming to be a faithful servant, consequence and accountability eventually catch up. The breaking point inexorably nears. Citizens are beginning to think, voice, and act: “We can do without the false idols that call themselves banks. In fact, we need them to be dissolved for us to survive and thrive.”
Reality is the revenge of the gods.
Not just about fairness: Everything unwinds
This is not just about fairness anymore; it is about the exposure of central, global illusions that affect everyone, not just banks. For the last three plus decades, debt-fueled “growth” has instilled a life sense that everyone gets rich, values always go up, and no one has to pay. If those illusions evaporate than those citizens complicit in this failed fantasy may actually join forces with the realists (those who knew it was a scam all along) to produce unified citizen revolt. Hell hath no fury like the people spurned and lied to, even if many had some responsibility in welcoming and fanning those lies.
The implicit deal was this: We will collude so everyone gets rich going forward. We will collude so no one has to pay if there is any unwinding. (But, hey, it’s a new era, and that’s not going to happen!) Open default breaks the illusion, and austerity breaks up the collusion. This is why default has to be hidden, deferred, restructured. It is not just about chaos around party/counterparty risk (in particular, cascading claims that are not backed by anything). It is not even just about finance. It’s about all the other things that will unwind, culturally, politically, and psychologically, if Greece defaults and sets into motion the necessity of someone actually paying up. In short, recognition of reality has disastrous consequences for the status quo and its control myths.
The infinite growth meme unwinds: The cancerous economic obsession with infinite growth in a finite world is already unwinding, but will hit full force with cascading defaults. It is one thing to have a “slowdown,” and another to have your economic brakes lock up on you and your gears slammed into reverse. About the only thing that seems to be growing currently is the number of people partially employed or permanently unemployed. As a humorous aside, the situation is getting so pronounced that quality of life might actually have to replace quantity of possessions as the cultural indicator of the good life, and what would that do to the economy?
Politicians’ power of the purse unwinds: Greek politicians, like many other Western politicians, will do almost anything to get re-elected. The easiest way to do this is to pay people off, particularly government workers and constituents, in the form of generous benefits or pet projects. What happens if your tax base will not support this? You sell your political soul, defer, and/or hide the true costs of your largesse behind undisclosed derivative deals with Goldman Sachs that eventually put your entire country’s sovereignty in jeopardy. As a result, Greece’s former prime minister, George Papandreou, is now out after a very short term in favor of a unity government. Shady deals funded unsustainable perks that not only inflated popular expectations but created catastrophic debt and risk.
Guaranteed entitlements unwind: So now that the illusion of infinite growth is being exposed, the corresponding ballooning entitlements that enticed the larger public to become complicit in the illusion are becoming unglued. It would take almost a decade of gross national product to pay off the U.S. unfunded liabilities for Social Security, Medicare, and Medicaid, which exceed the staggering sum of 100 trillion dollars.
Retirement and health benefits cannot be paid out of fake prosperity and “notional” (i.e. imaginary) values. They require real services and products and an accepted public medium of exchange. (I will leave off the argument as to what constitutes “real” and “accepted” since even fiat currencies are dubious in this regard.) People will be forced to adjust their expectations and adapt their realities. With public and private pension plans also complicit in derivative scams to fund benefits, it will be no surprise if many pensions simply declare themselves bankrupt in the next decade.
The maximum profit mandate unwinds: We have reached such heights in our hysteria about growth and our psychological addiction to more-more-more, that we have seen stock prices fall, even with record revenues, if the corresponding company doesn’t meet expectations of even higher growth and revenue. It is getting to the point where a company cannot simply have a solid year and just pay out its dividends and maintain its good health. Instead companies have to be ever hopped-up on economic steroids and cost-cutting (i.e. shipping jobs to virtual slave labor in China) so as to not fall short of expectations.
These steroidal practices are destroying the companies and the means by which consumers can afford products and services. A relentless short-term focus serves no one in the end. “Maximum” less and less corresponds with “optimum,” because present assets can be cannibalized or revaluated to give short-term boosts to numbers, creating medium- and long-term systemic and foundational deficits that destroy the health of a company and its surrounding society. Hopefully the idea and practice of optimum profit will replace maximum profit as the Great Unwinding continues.
The central question:
The central question, obscured by all the hand wringing and crocodile tears is simply this: Why should public citizens who have no stake in private enterprises, who received no profits or dividends, who had nothing to do with creating losses, be forced to pay for private losses? The only legitimate answer is, “They shouldn’t.” Period. Anything that does not acknowledge this tenet is not functioning capitalism, and if it is functioning capitalism it cannot violate this tenet.
Yet we witness apologist expert after expert excusing this fatal breach in capital practice as “regrettable but necessary to save the system.” They seem not to have noticed that the system has already killed itself by violating its own foundational laws and principles. If anything, current conventional practice might be accurately described as an all-out anti-capitalist assault on democratic free enterprise.
So now the follow-up question is easy to answer: “Why are we paying for something we did not buy and had no hand in creating?” The answer: We no longer have functioning capitalism. Call it what you want— corporate socialism, crony capitalism, cancer capitalism, plutocracy, kleptocracy, oligarchy, neofeudalism— the system we have now is the equivalent of an individual going up to a complete stranger on the street and shaking that stranger down for “protection money” to pay for the individual’s underwater house mortgage.
As this simple fact grips the population, and people wake up to the present economic reality, there will be increasingly organized moves toward civil disobedience and alternative economy. “Cannot pay” will merge with “will not pay” since the only way to re-establish health and integrity in a corrupted economic system is to starve the cancers that have taken it over. This has already started with Occupy Wall Street, strategic defaults, and riots in Greece.
So if someone asks you, seeking to appeal to your fear, self-interest, and need for approval, if you are willing to “be responsible for bringing down the global system,” your answer should be an emphatic, “Yes.” “Are you asking if I want to bring down fraud, theft, abuse and the cancer that global finance has become for me, my neighbors, my children, and my children’s children? Are you asking me if I want to replace the current broken system with something that serves actual people? Not only, ‘yes,’ but ‘heck, yes.’
The Empire of Debt has only one end-point: a death spiral. It is evil and must be dismantled.
Ethics has no place in the Empire of Debt. The financialized Status Quo is careful to limit the language used to describe the situation in Greece to the subtexts of "obligations" and "avoiding chaos."
The reality being masked is that debt is now more important than people. The suffering of the people of Greece is presented as a footnote to the financial play being staged; when the suffering is noted, it is presented with a peculiar set of unspoken subtexts:
1. Looky-loo detachment of the "gosh, look at that wrecked car, are there any bodies?" sort. People slow down to look at car crashes, and they revel in videos of riots with the same detached fascination with mayhem that doesn't involve them. Tsk tsk, how awful, etc.
2. They're reaping what they sowed, "they made their bed, now they have to sleep in it," i.e. the suffering of Greek non-Elites is the richly deserved consequences of their government overborrowing.
This begs further investigation. In the normal course of affairs in corrupt kleptocracies, various Elites siphon off most of the swag and the commoners get just enough shreds to buy their complicity. In other words, it may well be that the entire populace of Greece benefited handsomely from the massive State borrowing, but it also may well be that the private-sector Greeks received little of the swag. In this case, they don't "deserve" to be forced into debt-serfdom by their Euroland overlords.
The ethics of debt, at least in the officially sanctioned media, boils down to: nobody made them borrow all those euros, and so their suffering is just desserts.
What's lost in this subtext is the responsibility of the lender . Yes, nobody forced Greece to borrow 200 billion euros (or whatever the true total may be), but then nobody forced the lenders to extend the credit in the first place.
Consider an individual who is a visibly poor credit risk . He would like to borrow money to blow on consumption and then stiff the lender, but since he cannot create credit, he has to live within his means.
Now a lender comes along who can create credit out of thin air (via fractional reserve banking) and offers this poor credit risk $100,000 in collateral-free debt at low rates of interest. Who is responsible for the creation and extension of credit? The borrower or the lender? Answer: the lender.
In other words, if the lender is foolish enough to extend huge quantities of credit to a poor credit risk, then it's the lender who should suffer the losses when the borrower defaults.
This is the basis of bankruptcy laws--or used to be the basis. When an over-extended borrower defaults, the debt is cleared, the lender takes the loss/writedown, and the borrower loses whatever collateral was pledged. He is left with the basics to carry on: his auto, clothing, his job, and so on. His credit rating is impaired, and it is now his responsibility to earn back a credible credit rating.
The debt is discharged and the borrower must live within his means without relying on credit. But he is also free of the burdens of servicing the debt.
If the lender is forced into insolvency due to the losses, then so be it: lenders that cannot differentiate between good and bad credit risks should go under and disappear: that's what happens in a competitive, transparent capitalist economy. Fools who create credit and extend it to poor credit risks must be eliminated from the system as quickly as possible lest they destroy more capital in the future.
The potential for loss and actually bearing the consequences from irresponsible extensions of credit was unacceptable to the banking cartel, so they rewrote the laws . Now student loans in America cannot be discharged in bankruptcy court; they are permanent and must be carried and serviced until death. This is the acme of debt-serfdom.
The global banking cartel has declared Greece's debts to be permanent and its people debt-serfs . More precisely, some privately held debt will be written down, but certainly not all of it, and the debt owed to the European Central Bank cannot be written down a single euro: Greece must pay the interest on the full debt, whatever the costs to its people.
We might ask why the fully-financialized Status Quo of financial and political Elites so carefully insures no shadow of ethics passes over the Greek debt crisis: If they did, it would become obvious that when debt becomes more important than people, the system is evil and should be dismantled.
Yes, evil, as in evil empire: the Empire of Debt that now dominates the global economy is intrinsically evil and cannot be salvaged; the only way to rid the planet of its parasitic, pervasive evil is to dismantle it, all of it, everywhere.
Europe is a good place to start . The only way to dismantle the evil Empire of Debt is to stop obeying its commands: Greece should not pay a single euro on any of its debts, starting with debt owed to the Evil Empire of Debt's favorite tool, the Troika of the EU (European Union), the ECB and the IMF.
We are constantly told default and exit from the debtors' prison of the euro would lead to chaos . Unfortunately for the Evil Empire of Debt and its Eurozone army of lackeys, toadies and apparatchiks, this claim is demonstrably false. Thanks to Pater Tenebrarum of the always excellent Acting Man financial blog, we have access to a 53-page report from Variant Perception that completely dismantles the fear-mongering claims of Apocalypse for the Greeks should their government default on its debts.
Once the debt has been renounced, Greece will have to live within its means, i.e. the goods and services produced by their economy. I think a critically important point has been lost in all the fear-mongering: the value of the goods and services produced by an economy remain the same whether they are valued in euros, gold, dollars, bat guano or any other open-market measure of value.
What will impoverish Greece is paying interest on the mountain of debt . If we value total Greek output of goods and services at 100 quatloos, and this economic activity generates a surplus of 10 quatloos, the Greek people can decide to consume that 10 quatloos, invest it or some mix of the two.
If they have to pay 10 quatloos in interest, then there is no capital left to invest in productive assets. As the existing productive assets degrade, wear out and become obsolete, then the goods and services produced will decline, along with the surplus generated. This sets up a positive feedback loop, i.e. a death spiral: as production of value declines, so too does the surplus available to invest in productive assets.
This is why the only way forward is default and exit from the debtors' prison of the euro. The only way forward is to value people more than debt, and to dismantle the evil Empire of Debt.
If we understand risk cannot be eliminated, it can only be transferred, then we will understand why the current financial trickery in Europe and elsewhere is doomed to fail.
The entire global economy's fundamental financial instability can be traced back to one simple rule of Nature: risk cannot be eliminated, it can only be transferred to others or masked. And when it is transferred to others or masked, then the causal feedback between risk and consequence is severed.
Once risk has been disconnected from consequence, then it is impossible to discover the price of capital and risk. Once capital and risk have been mispriced, then the inevitable result is misallocation of capital and a positive feedback loop of self-referential, self-reinforcing risk.
Once the causal negative feedback of the real world--consequence--is no longer available to those taking on risk, then only positive feedback remains. Positive feedback inevitably leads to runaway reactions that self-destruct.
This can be illustrated by imagining yourself in a casino where a consortium will guarantee your losses up to $1 million. We call the disconnect of risk from the resulting gain/loss "moral hazard," and to understand the ramifications of moral hazard, we need only compare the actions of two gamblers in the casino: one is using his own money, the other has none of his own capital at risk, and his losses will be covered up to $1 million.
How much risk will you take on in gaming if you can lose $1 million without any loss to yourself? Obviously, we will accept enormous risks because if we win the high-risk bet, the gain will be ours to keep. Low-risk bets yield low returns but high-risk bets yield high returns.
If our losses will be transferred to others, then why waste time betting on low-risk, low-return "red" at the roulette wheel? Let's bet on single numbers because the payoff will be astronomical.
If we actually score a few high-risk "wins," this success feeds our risk appetite. This is a positive feedback loop: our wins reinforce our risk appetite, while negative feedback (the losses from losing bets) no longer register--they have been eliminated from our calculations of risk and gain.
This positive feedback eventually leads us to make stupendously large bets. Eventually, we bet $1 million on a high-risk play and lose. We are wiped out, but oh well, it was fun while it lasted. If we were especially disciplined and clever, we squirreled away some of our winnings in our own account: we kept the gain and the consortium took all the losses.
The risk didn't vanish, it was simply transferred to others who now bear the cost of the unfettered risk being played with abandon. The consortium who financed the no-risk gambling spree now has to absorb the $1 million in loss. If the consortium masked its own risk by presenting a phantom financial security to the casino, then the casino will have to absorb the loss.
In effect, the risk was transferred to the entire system. Since the consortium is made up of many investors, and the casino has many investors, then the risk and loss was effectively spread over many participants. The $1 million loss, catastrophic to any one player, is effectively distributed to everyone in the system.
When losses are trivial compared to the size of the system, then this distribution of transferred risk results in a modest loss to all participants.
But let's suppose the player with the $1 million backstop was extraordinarily successful with insanely high-risk bets, and he built the $1 million stake into $100 million, which he then rolled into several stupendous bets.
He loses, because the risk of gambling hasn't been elminated, it has only been masked and transferred to others. Now the consortium faces a loss 100 times its guaranteed backstop, and since its capital is only $10 million, it is also wiped out and leaves the casino with $90 million in uncollectible debt.
If the casino needs that $90 million to pay its own speculative debts, then it too will be wiped out.
This is how one player who manages to mask or transfer risk to others can bring down entire systems. The risk only appears trivial and manageable at the start, but since the negative feedback of consequence (reality) has been eliminated from the players' perspective, then risk piles up in a self-reinforcing positive feedback.
Since the system itself has disconnected risk from consequence with backstops, guarantees and illusory claims of financial security, then it is has lost the essential feedback required to adapt to changing circumstances. As the risk being transferred to the system rises geometrically, the system is incapable of recognizing, measuring or assessing the risk being transferred until it is so large it overwhelms the system in a massive collapse/default.
The consortium has only two ways to create the illusion of solvency when the punter's $100 million bet goes bad: borrow $100 million from credulous possessors of capital or counterfeit it on a printing press. These are precisely the strategies being pursued by central banks and states around the globe. BUt since risk remains disconnected from gain/loss, then capital and risk both remain completely mispriced.
Risk is being transferred to the entire global financial system at a fantastic rate, because counterfeiting money or borrowing it on this scale to cover losses creates new self-reinforcing feedbacks of risk.
As long as risk is being masked or transferred to others who don't reap the gain, they only reap the losses, then the system is doomed to self-reinforcing instability and eventual collapse.
The only solution is to enforce the causal connection between risk and consequence: those who took the risk have to absorb all the loss. Since risk cannot be eliminated, it can only be masked or transferred, then all the tricks that are being played out in Europe, China, Japan and the U.S. are only enabling risk to pile ever higher in the system itself.
At some unpredictable stick/slip point, the accumulated risk will cause the system to implode like a supernova star.
It's like a ride in an amusement park and when you go on it you think it's real, because that's how powerful our minds are. The ride goes up and down, round and round, it has thrills and chills, and it's very brightly colored and it's very loud. And it's fun for a while. Some have been on the ride a long time and they begin to question: Is this real, or is this just a ride? And others have remembered and they come back to us and they say: Hey, don't be afraid ever, because this is just a ride. And we kill those people.
Shut him up, I've got a lot invested in this ride, shut him up. Look at my furrows of worry, my big bank account, and my family. This has to be real. It's just a ride, but we always kill those good guys who try to tell us that and let the demons run amok. But it doesn't matter because it's just a ride and we can change it anytime we want. No job, no savings money, just a choice right now between fear and love.
- Bill Hicks 1961-1994 (great quick little clip here)
The Playbook
It was always going to be a scary thing when the American Empire decided to turn its sights inward. Americans like to look at “shock and awe” and cheer. They think murder is fun and games. They think we are winning when we lose a little bit more with every new bomb we hurl. They think we are killing “the enemy” when in reality we are killing ourselves. The truth is that all the shadow government in the U.S. (you know the unelected guys that never leave and tell the elected guys what to do) has been doing is what corrupt elites have been doing since the beginning of time. Protecting their commercial interests. While many here in the United States have been lulled back into another complete coma state by the garbage that spews from the television set and a stock market that marches higher every day with no volatility, the shadow government is using this time wisely. They are passing laws such as the NDAA, which as we know allows for the indefinite detention of American citizens without trial. In case you haven’t seen some of the commentary by several Senators on the matter take a quick look for yourself
Joseph Lieberman is one of the most despicable and downright evil Americans to have ever “served” this country.
Beyond the NDAA, TPTB are rushing to silence the thing they fear the most. The internet. As I have said for years now, the internet is the game changer and the reason I believe TPTB cannot win this fight using the same strategies that have been used by immoral control freak elites since the dawn of human civilization. This is because the “playbook” has been exposed. There are many plays in this book, and over the years I have outlined many of them, but the two that they like the most and the ones we need to be most aware of are.
1) Divide and conquer.
2) Problem, reaction, solution.
First to divide and conquer. This is employed mostly within the U.S. on geographic lines. These are represented by the “coasts” and the “heartland.” These different segments of the population are then divided into different political parties, the Republicans (red team) and the Democrats (blue team). As I have demonstrated time and time again, and as is readily apparent if you are paying any attention whatsoever, these particles are identical on all of the major issues although they talk a big game during the election season. As of late, people have started to realize that on the big issues they are the same so here is where the all important “social issues” come into play. TPTB could not be happier than Santorum is doing well in the Republican primaries. Why? He is a big government Republican just like that last thug we had in the White House before the current banker puppet. Santorum is extremely divisive. They LOVE that. He gets people riled up on social issues which then shoves the people reluctantly back into their respective teams like good little proles. Think about it. Santorum’s big issue is birth control. I mean really? Anyone that falls for this game gets what they deserve I suppose, but my role is to show you the game. Remember, it is Ron Paul that doesn’t fit into any mold. Ron Paul is someone that unites rather than divides. He reminds America that we are one culture based on one Constitution (remember Justice Ginsberg publicly stated her disdain for it recently
It is no surprise that shortly after he aired this segment his show was canceled. 1.2 million views already though. Not too shabby.
So now onto Problem, Reaction, Solution. This was employed in the U.S. in 2008 to consolidate power at the top by bailing out the elites and bankrupting the rest of us. People instinctively know this, hence the emergence of the Tea Party movement and then OWS this summer (notice how they used divide and conquer tactics on the population as soon as each of these movements came onto the scene). So as we know back in 2008 the “problem” was financial crisis, the “reaction” was plunging financial markets and total fear on behalf of the population, while the “solution” was bankster bailouts and the a further consolidation at the top. The Federal Reserve now has more power and the Too Big To Fail banks are a bigger part of the financial system than they were before. How’s that for a solution!
In any event, they are not done with this playbook by any means. We need to look to Europe now to see what TPTB have in store for us. This is the consummate problem, reaction, solution game being played for all the marbles. First, you get the problem “spiking interest rates for the peripheral countries.” Then the “reaction,” financial panic and fear. Finally the “solution.” The placement of unelected technocrats as the leaders of Greece and Italy with ties to all the power structure’s institution such as the Trilateral Commission, the Bilderberg group and of course Goldman Sachs. It is like a coup that takes the shadow government from the shadows and puts them in your face. The reason that this is so key is because we are next. They don’t want to roll up everything at once. If they can get Europe safely consolidated then they will move here. That is when interest rates in the U.S. will spike (problem), and we get panic (reaction) and then the solution (bankster technocratic committees in charge and the IMF to the rescue, ie loss of sovereignty). This is the plan and I see it as clear as day.
The Internet
So back to the internet. Just because what I outlined above is the plan it doesn’t mean it will succeed. Although many will disagree, I am 100% convinced that TPTB are way behind schedule and experiencing considerably more problems than they thought in implementing their agenda. I also think the internet is the main reason for their issues. The internet is the printing press on steroids. In fact, it may be the most significant event to have ever happened in the evolution of humanity as a species in the last 5,000 years. What has been done since the days of Babylon is tiny groups of elites have been able to control populations and dominate them via the “playbook.” The other thing they use is advanced technology that they do not share with the public, but that is another topic entirely. In any event, the internet allows us to connect like never before and expose their tactics and criminality in a way that was unimaginable in prior eras. Humanity is using it to connect with one another and we are saying to each other: “hey, my government tells me you are my enemy and I should hate you but you are just like me. You have fears and dreams and all you want is to be happy and live a good life. Maybe my government and your government are actually the problem. We shouldn’t hate each other. We should get rid of the bastards manipulating us.”
That is why they want to censor the internet, but it is too late. The cat is out of the bag and they have lost. However, they will keep trying until they kill themselves because they are not used to losing. Did you catch the recent article from the Wall Street Journal about how the UN is trying take over monitoring the internet. Yep, it’s all right here.
Coming to America: 30,000 Drones
Did you know that a bill passed two weeks ago that allocates $63 billion to the FAA to increase the existence of drones operating in U.S. airspace to 30,000 by the end of the decade. Here is an article on it http://digitaljournal.com/article/319564#ixzz1nD1SasR3.
To all those that say things are “getting better” I say watch what they do not what they say. What the shadow government is doing is scrambling like little rodents to get the police state fully in place for the inevitable unraveling of this sick world they have created and to protect the fruits of the theft they have committed. Watch what they do not what they say. Watch closely.
Quick Market Commentary
I actually can’t believe the nonsense I am hearing lately from people in the financial markets lately. People that know better. People are definitely drinking the kool-aid again in this business. Now I am not saying that means a stock market crash is imminent since they can create all the counterfeit fiat money they want and goose things further. What it does tell me is that something is coming. Could be a bond event. Could be a precious metals explosion. Could be a false flag terror attack followed by war with Iran. I don’t know, but something is coming that will wake people up violently and suddenly. Liquidity always makes people lose their heads because at the end of the day we are herd creatures. Take all of this how you want but I have noticed this change. Go back to sleep America.
U.S. Economy Extend and Pretend is Coming To An End
U.S. Economy Extend and Pretend is Coming To An End
The real world revolves around cash flow. Families across the land understand this basic concept. Cash flows in from wages, investments and these days from the government. Cash flows out for food, gasoline, utilities, cable, cell phones, real estate taxes, income taxes, payroll taxes, clothing, mortgage payments, car payments, insurance payments, medical bills, auto repairs, home repairs, appliances, electronic gadgets, education, alcohol (necessary in this economy) and a countless other everyday expenses. If the outflow exceeds the inflow a family may be able to fund the deficit with credit cards for awhile, but ultimately running a cash flow deficit will result in debt default and loss of your home and assets. Ask the millions of Americans that have experienced this exact outcome since 2008 if you believe this is only a theoretical exercise. The Federal government, Federal Reserve, Wall Street banks, regulatory agencies and commercial real estate debtors have colluded since 2008 to pretend cash flow doesn’t matter. Their plan has been to “extend and pretend”, praying for an economic recovery that would save them from their greedy and foolish risk taking during the 2003 – 2007 Caligula-like debauchery.
]I wrote an article called Extend and Pretend is Wall Street’s Friend about one year ago where I detailed what I saw as the moneyed interest’s master plan to pretend that hundreds of billions in debt would be repaid, despite the fact that declining developer cash flow and plunging real estate prices would make that impossible. Here are a couple pertinent snippets from that article:
“A systematic plan to create the illusion of stability and provide no-risk profits to the mega-Wall Street banks was implemented in early 2009 and continues today. The plan was developed by Ben Bernanke, Hank Paulson, Tim Geithner and the CEOs of the criminal Wall Street banking syndicate. The plan has been enabled by the FASB, SEC, IRS, FDIC and corrupt politicians in Washington D.C. This master plan has funneled hundreds of billions from taxpayers to the banks that created the greatest financial collapse in world history.[/font]
Part two of the master cover-up plan has been the extending of commercial real estate loans and pretending that they will eventually be repaid. In late 2009 it was clear to the Federal Reserve and the Treasury that the $1.2 trillion in commercial loans maturing between 2010 and 2013 would cause thousands of bank failures if the existing regulations were enforced. The Treasury stepped to the plate first. New rules at the IRS weren’t directly related to banking, but allowed commercial loans that were part of investment pools known as Real Estate Mortgage Investment Conduits, or REMICs, to be refinanced without triggering tax penalties for investors.
The Federal Reserve, which is tasked with making sure banks loans are properly valued, instructed banks throughout the country to “extend and pretend” or “amend and pretend,” in which the bank gives a borrower more time to repay a loan. Banks were “encouraged” to modify loans to help cash strapped borrowers. The hope was that by amending the terms to enable the borrower to avoid a refinancing that would have been impossible, the lender would ultimately be able to collect the balance due on the loan. Ben and his boys also pushed banks to do “troubled debt restructurings.” Such restructurings involved modifying an existing loan by changing the terms or breaking the loan into pieces. Bank, thrift and credit-union regulators very quietly gave lenders flexibility in how they classified distressed commercial mortgages. Banks were able to slice distressed loans into performing and non-performing loans, and institutions were able to magically reduce the total reserves set aside for non-performing loans.
If a mall developer has 40% of their mall vacant and the cash flow from the mall is insufficient to service the loan, the bank would normally need to set aside reserves for the entire loan. Under the new guidelines they could carve the loan into two pieces, with 60% that is covered by cash flow as a good loan and the 40% without sufficient cash flow would be classified as non-performing. The truth is that billions in commercial loans are in distress right now because tenants are dropping like flies. Rather than writing down the loans, banks are extending the terms of the debt with more interest reserves included so they can continue to classify the loans as “performing.” The reality is that the values of the property behind these loans have fallen 43%. Banks are extending loans that they would never make now, because borrowers are already grossly upside-down.
You have to admire the resourcefulness of the vested interests in disguising disaster and pretending that time will alleviate the consequences of their insatiable greed, blatant criminality and foolish risk taking. Extending bad loans and pretending they will be repaid does not create the cash flow necessary to actually pay the interest and principal on the debt. The chart below reveals the truth of what happened between 2005 and 2008 in the commercial real estate market. There was an epic feeding frenzy of overbuilding shopping centers, malls, office space, industrial space and apartments. During the sane 1980’s and 1990’s, commercial real estate loan issuance stayed consistently in the $500 billion to $700 billion range. The internet boom led to a surge to $1.1 trillion in 2000, with the resultant pullback to $900 billion by 2004. But thanks to easy Al and helicopter Ben, the bubble was re-inflated with easy money and zero regulatory oversight. Commercial real estate loan issuance skyrocketed to $1.6 trillion per year by 2008. Bankers sure have a knack for doing the exact opposite of what they should be doing at the exact wrong time. They doled out a couple trillion of loans to delusional developers at peak prices just prior to a historic financial cataclysm.
The difference between bad retail mortgage loans and bad commercial loans is about 25 years. Commercial real estate loans usually have five to seven year maturities. This meant that an avalanche of loans began maturing in 2010 and will not peak until 2013. With $1.2 trillion of loans coming due between 2010 and 2013, disaster for the Wall Street Too Big To Fail banks awaited if the properties were valued honestly. A perfect storm of declining property values and plunging cash flows for developers should have resulted in enormous losses for Wall Street banks and their shareholders, resulting in executives losing not only their obscene bonuses but even their jobs. Imagine the horror for the .01%.
The fact is that commercial property prices are currently 42% below the 2007 – 2008 peak. The slight increase in the national index is solely due to strong demand for apartments, as millions of Americans have been kicked out of their homes by Wall Street bankers using fraudulent loan documentation to foreclose on them. The national index has recently resumed its fall. Industrial and retail properties are leading the descent in prices according to Moodys. The master plan of extend and pretend was implemented in 2009 and three years later commercial real estate prices are 10% lower, after the official end of the recession.
Part one of the “extend and pretend” plan has failed. Part two anticipated escalating developer cash flows as the economy recuperated, Americans resumed spending like drunken sailors and retailers began to rake in profits at record levels again. Reality has interfered with their desperate last ditch gamble. Office vacancies remain at 17.3%, close to 20 year highs, as 12.3 million square feet of new space came to market in 2011. Vacancies are higher today than they were at the end of the recession in December 2009. The recovery in cash flow has failed to materialize for commercial developers. Strip mall vacancies at 11% remain stuck at 20 year highs. Regional mall vacancies at 9.2% linger near all-time highs. Vacancies remain elevated, with no sign of decreasing. Despite these figures, an additional 4.9 million square feet of new retail space was opened in 2011. The folly of this continued expansion will be revealed as bricks and mortar retailers are forced to close thousands of stores in the next five years.
It is clear the plan put into place three years ago has failed. Extending and pretending doesn’t service the debt. Only cash flow can service debt.
Now What?
Extending and pretending that hundreds of millions in commercial loans were payable for the last three years is now colliding with a myriad of other factors to create a perfect storm in 2012 and 2013. The extension of maturities has now set up a far more catastrophic scenario as described by Chris Macke, senior real estate strategist at CoStar Group:
“As banks and property owners continue to partake in loan extensions amid a softening economy, commercial banks continue to “delay and pray” that property values will rise. Many loans are piled up and concentrated in this year, and at the same time, the economy is slowing. This dilemma has resulted in the widening of what is commonly termed the “loan maturity cliff,” which is attributed to the so called extend-and-pretend loans. During the market downturn, lenders extended the maturity dates of loans with properties that had current values below their balances. Instead, however the practice has resulted in a race for property values to try to catch up with the loan maturity dates.”The Federal Reserve, Wall Street banks, Mortgage Bankers Association and the rest of the confederates of collusion will continue the Big Lie for as long as possible. They point to declining commercial default rates as proof of improvement. The chart below details the 4th quarter default rates for real estate loans over the last six years. Default rates in the 4th quarter of 2009 peaked for all real estate loan types. Still, today’s default rate is 450% higher than the rate in 2006. A critical thinker might ask how commercial default rates could fall from 8.75% to 6.12% when commercial vacancies have increased and commercial property values have fallen. It’s amazing how low default rates can fall when a bank doesn’t require payments or collateral to back up the loan and can utilize accounting gimmicks to avoid write-offs.
The reality as detailed by honest analysts is much different than the numbers presented by Ben Bernanke and his banker cronies. A recent article from the Urban Land Institute provides some insight into the current state of the market:
Ann Hambly, who previously ran the commercial servicing departments at Prudential, Bank of New York, Nomura, and Bank of America said a wave of defaults is coming in commercial mortgage–backed securities (CMBS). And Carl Steck, a principal in MountainSeed Appraisal Management, an Atlanta-based firm that deals in the commercial real estate space, said property values are still falling.
Noting that CMBS investors booked $6 billion in real losses in 2011 and have already taken on $2 billion more in losses so far this year, Hambly told reporters in a private briefing that “it’s going to take a miracle” for many borrowers to refinance their deals when they come due between now and 2017.
Carl Steck said that lenders who are taking over the portfolios of failed institutions are finding that the values of the loans “are coming in a lot lower than they ever thought they would.” And as a result, he thinks a “fire sale” of commercial loans is just over the horizon.Analysts expect 2012 to be a record-setting year for commercial real estate defaults. Last week delinquencies for office and retail loans hit their highest-ever levels, according to Fitch Ratings. The value of all delinquent commercial loans is now $57.7 billion, according to Trepp, LLC. If you think the criminal Wall Street banks limited their robo-signing fraud to just poor homeowners, you would be mistaken. The fraud uncovered in the commercial lending orbit will dwarf the residential swindle. Research by Harbinger Analytics Group shows the widespread use of inaccurate, fraudulent documents for land title underwriting of commercial real estate financing. According to the report:
This fraud is accomplished through inaccurate and incomplete filings of statutorily required records (commercial land title surveys detailing physical boundaries, encumbrances, encroachments, etc.) on commercial properties in California, many other western states and possibly throughout most of the United States. In the cases studied by Harbinger, the problems are because banks accepted the work of land surveyors who “have committed actual and/or constructive fraud by knowingly failing to conduct accurate boundary surveys and/or failing to file the statutorily required documentation in public records.”
The Wall Street geniuses bundled commercial real estate mortgages and re-sold them as securities around the world. The suckers holding those securities, already staggering from the overabundance of empty office space, will be devastated if it turns out they have no claim to the properties. They will rightly sue the lenders for falsely representing the properties. Mortgage holders in these cases may also turn to their title insurance to cover any losses. It is unknown if the title insurance companies have the wherewithal to withstand enormous claims on costly commercial properties. It looks like that light at the end of the tunnel is bullet train headed our way. One of the fingers in the dyke of the “extend and pretend” dam has been removed by the FASB. The new leak threatens to turn into a gusher.
Andy Miller, cofounder of Miller Frishman Group, and one of the few analysts who saw the real estate crash coming two years before it surprised Bernanke and the CNBC cheerleaders sees a flood of defaults on the horizon. In a recent interview with The Casey ReportMiller details a dramatic turn for the worse in the commercial real estate market he has witnessed in the last few months. His company deals with distressed commercial real estate. This segment of his business was booming in 2009 and into the middle of 2010. Then magically, there was no more distress as the “extend and pretend” plan was implemented by the governing powers. The distressed market dried up completely until November 2011. Miller describes what happened next:
“All of a sudden, right after Thanksgiving in 2011, the floodgates opened again. In the last six weeks we probably picked up seven or eight receiverships – and we're now seeing some really big-ticket properties with major loans on them that have gone into distress, and they're all sharing some characteristics in common. In 2008 and 2009, these borrowers were put on a workout or had a forbearance agreement put into place with their lenders. In 2009, their lenders were thinking, "Let's do a two- or three-year workout with these guys. I'm sure by 2012 this market is going to get a lot better." Well, 2012 is here now, and guess what? It's not any better. In fact I would argue that it's still deteriorating.” Why the sudden surge in distressed properties coming to market in late 2011? It seems the FASB finally decided to grow a pair of balls after being neutered by Bernanke and Geithner in 2009 regarding mark to market accounting. They issued an Accounting Standards Update (ASU) that went into effect for all periods after June 15, 2011 called Clarifications to Accounting for Troubled Debt Restructurings by Creditors Essentially, if a lender is involved in a troubled debt restructuring with a debtor, including a forbearance agreement or a workout, the property MUST be marked to market. Andy Miller understands this is the beginning of the end for “extend and pretend”:
“I believe it's a huge deal because it means you don't have carte blanche anymore to kick the can down the road. After all, kicking the can down the road was a way to avoid taking a big hit to your capital. Well, you can't do that anymore. It forces you to cut through the optical illusions by writing this asset to its fair market value.” Ben Bernanke and the Wall Street banks are running out tricks in their bag of deception. Wall Street banks created billions in profits by using accounting entries to reduce their loan loss reserves. They’ve delayed mortgage foreclosures for two years to avoid taking the losses on their loan portfolios. They’ve pretended their commercial loan portfolios aren’t worth 50% less than their current carrying value. Bernanke has stuffed his Federal Reserve balance sheet with billions in worthless commercial mortgage backed securities. The Illusion of Recoveryis being revealed as nothing more than a two bit magician’s trick. In the end it always comes back to cash flow. The debt cannot be serviced and must be written off. Thinking the American consumer will ride to the rescue is a delusional flight of the imagination.Apocalypse Now – The Future of Retailers & Mall Owners
When I moved to my suburban community in 1995 there were two thriving shopping centers within three miles of my home and a dozen within a ten mile radius. Seventeen years later the population has increased dramatically in this area, and these two shopping centers are in their final death throes. The shopping center closest to my house has a vacant Genuardi grocery store(local chain bought out and destroyed by Safeway), vacant Blockbuster, vacant Sears Hardware, vacant Donatos restaurant, vacant book store, and soon to be vacant Pizza Pub. It’s now anchored by a near bankrupt Rite Aid and a Dollar store. This ghost-like strip mall is in the midst of a fairly thriving community. Anyone with their eyes open as they drive around today would think Space Available is the hot new retailer. According to the ICSC there are 105,000 shopping centers in the U.S., occupying 7.3 billion square feet of space. Total retail square feet in the U.S. tops 14.2 billion, or 46 square feet for every man, woman and child in the country. There are more than 1.1 million retail establishments competing for every discretionary dollar from consumers.
Any retailer, banker, politician, or consumer who thinks we will be heading back to the retail glory days of 2007 is delusional. Retail sales reached a peak of $375 billion per month in mid 2008. Today, retail sales have reached a new “nominal” peak of $400 billion per month. Even using the highly questionable BLS inflation figures, real retail sales are still below the 2008 peak. Using the inflation rate provided by John Williams at Shadowstats, as measured the way it was in 1980, real retail sales are 15% below the 2008 peak. The unvarnished truth is revealed in the declining profitability of major retailers and the bankruptcies and store closings plaguing the industry. National retail statistics and recent retailer earnings reports paint a bleak picture, and it’s about to get bleaker.
Retail sales in 1992 totaled $2.0 trillion. By 2011 they had grown to $4.7 trillion, a 135% increase in nineteen years. A full 64% of this rise is solely due to inflation, as measured by the BLS. In reality, using the true inflation figures, the entire increase can be attributed to inflation. Over this time span the U.S. population has grown from 255 million to 313 million, a 23% increase. Median household income has grown by a mere 8% over this same time frame. The increase in retail sales was completely reliant upon the American consumers willing to become a debt slaves to the Wall Street bank slave masters. It is obvious we have learned to love our slavery. Credit card debt grew from $265 billion in 1992 to a peak of $972 billion in September of 2008, when the financial system collapsed. The 267% increase in debt allowed Americans to live far above their means and enriched the Wall Street banking cabal. The decline to the current level of $800 billion was exclusively due to write-offs by the banks, fully funded by the American taxpayer.
Credit cards are currently being used far less as a way to live beyond your means, and more to survive another day. This can be seen in the details underlying the monthly retail sales figures. On a real basis, with inflation on the things we need to live like energy, food and clothing rising at a 10% clip, retail sales are declining. Gasoline, food and medicine are the drivers of retail today. The surge in automobile sales is just another part of the “extend and pretend” plan, as Bernanke provides free money to banks and finance companies so they can make seven year 0% interest loans to subprime borrowers. Easy credit extended to deadbeats will not create the cash flow needed to repay the debt. The continued penetration of on-line retailers does not bode well for the dying bricks and mortar zombie retailers like Sears, JC Penny, Macys and hundreds of other dead retailers walking. With gas prices soaring, the economy headed back into recession and the Federal Reserve out of ammunition, Andy Miller sums up the situation nicely:
“Well, I think we're headed into an economy right now where there's just not a lot of upside. Do we think, for example, in the shopping center business, that retail and consumer spending is going to go way up? Certainly not. I think that as times get tougher and unemployment remains high, it's going to have a negative impact on consumer spending. In almost in any city in America right now, it doesn't take a genius to see how much retail space has been constructed and is sitting there empty. Vacancy rates are as high as I've seen them in almost every venue that I visit. I'm very concerned about the retail business, and I think it's extremely dangerous right now.”
The major big box retailers have been reporting their annual results in the last week. The results have been weak and even those whose results are being spun as positive by the mainstream media are performing dreadfully compared to 2007. A few examples are in order:
Home Depot was praised for their fantastic 2011 result of $70 billion in sales and $6.7 billion of income. The MSM failed to mention that sales are $7 billion lower than 2007, despite having 18 more stores and profit exceeded $7.2 billion in 2007. Sales per square foot have declined from $335 to $296, a 12% decline in four years.
Target made $2.9 billion on revenue of $67 billion in 2011. [/font][FONT='Arial','sans-serif']$953 million of this profit was generated from their credit card this year versus $744 million last year because they reduced their loan loss reserve by $260 million. Target is supposedly a retailer, but 33% of their bottom line comes from a credit card they desperately tried to sell in 2009. They have increased their store count from 1,600 to 1,800 since 2007 and their profit is flat. Sales per square foot have declined from $307 to $280 since 2007.
J.C. Penney is a bug in search of a windshield. Their sales have declined from $20 billion in 2007 to $17 billion in 2011 despite increasing their store count from 1,067 to 1,114. Their profits have plunged from $1.1 billion to a loss of $152 million. Their sales per square foot have plunged by 14% since 2007. Turning to a former Apple marketing guru as their new CEO will fail. Everyday low pricing is not going to work on Americans trained like monkeys to salivate at the word SALE.
The death spiral of Sears/Kmart is a sight to see. As the anchor in hundreds of dying malls across the land, this retail artifact will be joining Montgomery Ward on the scrap heap of retail history in the next few years. Its eventual bankruptcy and liquidation will leave over 4,000 rotting carcasses to spoil our landscape. The one-time genius and heir to the Warren Buffett mantle – Eddie Lampert – has proven to be as talented at retailing as his buddy Jim Cramer is at picking stocks. He has managed to decrease sales by $10 billion, from $53 billion to $43 billion in the space of four years despite opening 247 new stores. That is not an easy feat to accomplish. At least he was able to reduce profits from $1.5 billion to $133 million and drive the sales per square foot in his stores down by 15%.
Widely admired Best Buy has screwed the pooch along with the other foolish retailers that have massively over expanded in the last decade. They have increased their domestic sales from $31 billion to $37 billion, a 19% increase in four years. This increase only required a 444 store expansion, from 873 stores to 1,317 stores. A 51% increase in store count for a 19% increase in sales seems to be a bad trade-off. Their chief competitor – Circuit City – went belly-up during this time frame, making the relative sales increase even more pathetic. The $6 billion increase in sales resulted in a $100 million decline in profits and a 13% decrease in sales per square foot since 2007. It might behoove the geniuses running this company to stop building new stores.
The retailer that committed the greatest act of suicide in the last decade is Lowes. Their act of hubris, as Home Depot struggled in the mid 2000’s, is coming home to roost today. They increased their store count from 1,385 to 1,749 over four years. This 26% increase in store count resulted in an increase in sales from $47 billion to $49 billion, a 4% boost. Profitability has plunged from over $3 billion to under $2 billion over this same time frame. They’ve won the efficiency competition by seeing their sales per square feet fall by an astounding 21% over the last four years. I’ve witnessed their ineptitude as they opened four stores within 10 miles of each other in Montgomery County, PA and cannibalized themselves to death. The newest store, three miles from my house, is a pleasure to shop as there is generally more staff than customers even on a Saturday afternoon. This beautiful new store will be vacant rotting hulk within three years.
Do the results of these retail giants jive with the retail recovery stories being spun by the corporate mainstream media? When you see some stock shill on CNBC touting one of these retailers, realize he is blowing smoke up your ass. These six struggling retailers account for over 1.1 billion square feet of retail space in the U.S. One or more of them anchor every mall in America. Wal-Mart (600 million square feet in the U.S.) and Kohl’s (82 million square feet) continue to struggle as their lower middle class customers can barely make ends meet. The perfect storm is developing and very few people see it coming. Extend and pretend has failed. Americans are tapped out. Home prices continue to fall. Energy and food prices continue to rise. Wages are stagnant. Job growth is weak. Middle and lower class Americans are using credit cards just to pay their basic living expenses. The 99% are not about to go on a spending binge.
As consumers reduce consumption, retailers lose profits and will be forced to close stores. It is likely that at least 150,000 retail stores will need to close in the next five years. Less stores means less rent for mall developers. Less rent means the inability to service their debt as the value of their property declines with the outcome of ]Ghost Malls haunting your community. Maybe good old American ingenuity will come to the rescue as we convert ghost malls into FEMA prison camps for uncharged Ron Paul supporters, Obamacare death panel implementation centers, TSA groping educational facilities, housing for the millions kicked out of their homes by the Wall Street .01%ers, and bomb shelters for the imminent Iranian invasion.
Debt default means huge losses for the Wall Street criminal banks. Of course the banksters will just demand another taxpayer bailout from the puppet politicians. This repeat scenario gives new meaning to the term shop until you drop. Extending and pretending can work for awhile as accounting obfuscation, rolling over bad debts, and praying for a revival of the glory days can put off the day of reckoning for a couple years. Ultimately it comes down to cash flow, whether you’re a household, retailer, developer, bank or government. America is running on empty and extending and pretending is coming to an end.
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