Mexico’s Take Over Of California: Complete By 2014?

Mexico’s Take Over Of California: Complete By 2014?

By Joe Guzzardi

In March, April and May, I wrote a series of columns about the sorry condition of California’s GOP (here, here and here). I also handicapped the party’s dismal prospects for winning any of the three most critical elections—either of the two U.S. Senate seats currently held by Democrats Barbara Boxer and Dianne Feinstein or the 2010 governor’s race to replace termed-out Republican incumbent Arnold Schwarzenegger.

Although Boxer will also run in 2010 for re-election, California is in such dire straits that all eyes will be on the governor’s contest. That shapes up as a probable match between Republican political novice Meg Whitman versus either of two Democratic veterans, Feinstein or the omnipresent former governor and current Attorney General Jerry Brown.

But since early spring when I gave my first assessment, California’s political sands have shifted. And with the change, a Republican has suddenly vaulted into the forefront of the state’s politics.

In fact, although it’s way early, I make State Senator Abel Maldonado the odds-on pick in 2014 to become California’s governor.

For immigration reform patriots, that’s much more bad news than it is good news. While Maldonado is indeed a Republican—technically—he points to his migrant farm worker parents as the reason for his fierce illegal immigration advocacy.

How a relatively obscure state representative from Santa Maria will become California’s first Hispanic governor since Romualdo Pacheco, Jr., in 1875 is an interesting tale. [Senator Abel Maldonado Has Made A Name for Himself, by Steve Chawkins and Patrick McGreevy, Los Angeles Times, February 22, 2009]

Maldonado will pull it off with a combination of luck and skill.

Specifically, this is how he’ll do it:

In a stroke of good fortune for Maldonado, Lt. Governor John Garamendi recently announced that he was abandoning his moribund gubernatorial effort to run instead for the congressional seat about to be vacated when Ellen Tauscher leaves for Washington DC to serve as Undersecretary of State for Arms Control and International Security. [Ellen Tauscher Is Off to the State Department for Sure, by Anne Schroeder Mullens,, March 19, 2009]

That means Schwarzenegger must appoint Garamendi’s replacement. And, as it happens, Republican Schwarzenegger owes Republican Maldonado a favor.

During Schwarzenegger’s bitter dispute with the state legislature to close California’s $40 billion budget deficit (via higher taxes and more debt), Maldonado infuriated his conservative Republican colleagues when he sided with the governor.

But at the same time, Maldonado ingratiated himself, not only with Schwarzenegger, but also with California’s Democrats and independents eager to end the impasse.

Step one in Maldonado’s ascent, then, will take place in a few weeks when Schwarzenegger appoints him to replace Garamendi.

Suddenly, Maldonado will emerge from relative political obscurity to become a key player who, because of his Mexican immigrant background, will be hyped to the max by California’s adoring MainStream Media.

Step two will occur in November 2010 when either Feinstein or Brown easily defeat the Republican candidate—presumably Whitman.

By 2014—the next year the gubernatorial election rolls around—several things will have evolved, all of which play in Maldonado’s favor.

  • California’s overall economic health will remain on life support—horrible news for an incumbent hoping for another term.
  • Feinstein will be 81, Brown 76 but Maldonado only 47. In age-obsessed California that creates a huge edge for Maldonado. According to census data, in 2014 the average age of California’s Hispanics will be about 30. Ask yourself this simple question: will those young Hispanics vote for the fossilized white incumbent or the polished Maldonado who can appeal to their ethnic roots?
  • California’s demographics will have shifted even more dramatically toward Hispanic domination. The state’s population will be about 40 percent Hispanic—the largest voting bloc.
  • Add to Feinstein and Brown’s age and demographic negatives is that they have knocked around California politics for nearly four decades. If voters of all stripes aren’t sick of them by 2014, then I don’t know what.

Maldonado has been building toward his political ascendancy since 2000.

As a freshman state assemblyman he accepted an invitation from then-presidential candidate George W. Bush to give a Spanish-language speech to the Republican presidential convention aimed at wooing Hispanic voters. (Vainly, of course).

And in 2008, again addressing the Republican convention, Maldonado closed with these words (translated from Spanish):

John McCain and my father would be good amigos. Ladies and gentlemen, que viva the immigrant story.”

Maldonado’s bracero father, it is worth noting, has lived in California as a permanent resident for more than forty years without becoming a citizen.

In his own words, Maldonado calls himself the future of this party” and claims that the GOP needs more Latinos to be its public face.

“If we don’t change, we’re going to go back to the old ways, and we’re going to continue to lose,” said Maldonado, who faulted the party’s hard line against illegal immigration. “They don’t get it on illegal immigration,” he said.

Republican old-timers who may disagree with Maldonado “can beat me up all they want,” he told reporters at a luncheon while he was surrounded by erstwhile allies who, since his support of Schwarzenegger’s budget compromise, now view him as an enemy. [GOP Withering Away in California Heat? by Alex Isenstadt, Politico.Com, April 14, 2009]

Another Maldonado bonus: his campaign will attract a broader base of non-Hispanic California voters, who cannot support other would-be Hispanic candidates like the sleazy Los Angeles Mayor Antonio Villaraigosa, but can stomach the vastly smoother, more intelligent Maldonado.

Last but certainly not least, Maldonado will play his immigrant success story to the hilt. His family’s strawberry farm is a 6,000-acre multi-million dollar business that ships produce worldwide.

By the time Maldonado reaches the governor’s mansion, Mexico’s takeover of California—what remains of it—will be complete.

Thousands of educated, wage-earning Californians like me move away every month. Moving in are under-educated, low earning but needy aliens.

Maldonado’s family succeeded. But the vast majority of immigrant newcomers fail.

For those optionless Californians left behind, the picture will not be pretty.

By 2014, Hispanics could control state politics, both the legislature and the governor’s seat.

Whatever token resistance now exists to defeat illegal immigrant measures like driver’s licenses for aliens or reduced access to health care will vanish. Don’t expect Maldonado to get religion once he becomes California’s chief executive.

Of course, none of this is inevitable. As Peter Brimelow recently pointed out, the GOP has so completely failed to mobilize its base in California that in 2008 John McCain actually failed to carry the white vote there. But there is no sign that Republican strategists are going to get the message.

California’s tragedy has been a long time coming. Immigration reform patriots have predicted the state’s demise for years.

Still, for this California native, watching it actually happen is unbearably sad.

Joe Guzzardi [email him] is a California native who recently fled the state because of over-immigration, over-population and a rapidly deteriorating quality of life. He has moved to Pittsburgh, PA where the air is clean and the growth rate stable. A long-time instructor in English at the Lodi Adult School, Guzzardi has been writing a weekly column since 1988. It currently appears in the Lodi News-Sentinel.

California Is Dying—And It’s The Canary In America’s Immigration Coal Mine

California Is Dying—And It’s The Canary In America’s Immigration Coal Mine

By Donald A. Collins

Did you happen to catch Governor Terminator talking about Judgement Day in California? Mr. Schwarzenegger went on the tube this past week to tell us that “We can only spend what we have. That is the harsh but simple reality,” he said in the rare midyear appearance before a joint Legislature session. “Our wallet is empty, our bank is closed and our credit is dried up.”[Schwarzenegger sees opportunity in budget crisis, By Juliet Williams, Associated Press, June 2, 2009,]

Earlier talk of a Federal bailout was judged a poor idea by many, including the Washington Post in a May 24 editorial, just as General Motors went into bankruptcy with billions of our tax dollars as an inducement.

And just now, in responding to the Governor’s urgent message for cutting costs, the California Senate passed a bill to give driver’s licences to illegal aliens.

As if losing an average of almost 600,000 jobs a month in the US should mean we make it easier for the illegal aliens to stay here and to get to jobs American citizens don’t have.

But then, of course, our helpful Federal government is bowing to strong business pressure and allowing over 100,000 legal aliens a month to come here to the US on various brands of work visas.

How many to California? Well here’s a bit of basic demography.

Since the 1965 changes in our immigration laws, we have added huge numbers of immigrants and their children to our national population. In 1970 California’s population was about 20 million. Today, that population is estimated at about 37 million. Of those, the Center for Immigration Studies estimates about 10 million are legal (7 million) and illegal (3 million) immigrants. 35% of all Californians are persons of Hispanic origin, principally Mexicans. Over 8 million Californians were born outside the USA.

Just on the sheer numbers alone, it is not hard to see why California is now bankrupt.

I am a long-time San Francisco Democrat, now transplanted to Washington D.C. So recently I wrote Congresswoman Nancy Pelosi to ask why we didn’t fix our broken immigration system. This was her June 5, 2009 email reply?

“I have long called for comprehensive immigration reform to address the growing disconnect between our nation’s immigration policy and the reality on the ground in cities and communities across our country. Our immigration system needs to honor the promise of America and recognize the enormous contributions immigrants make to our nation. We must enact immigration reform that is humane and honors our American tradition of being a nation of immigrants and a land of opportunity for all. At the same time, we must secure our borders, enforce our laws, and ensure the safety of the American people.

While immigration reform remains an unsolved challenge for our nation, we must recognize that America was built by immigrants, and the immigrant community continues to make significant contributions to our nation. The debate on immigration reform must be framed by our nation’s rich tradition of respect for our shared immigrant heritage. Please be assured that I will keep your comments in mind as I work with President Obama, leadership and the committees of jurisdiction to develop a strategy to advance immigration legislation that promotes our core American values.”

Can you imagine such chutzpah? You know her “comprehensive immigration reform” simply means “amnesty” for the 20 million illegal aliens here now and encouraging many more later. We know the fiasco that the 1986 immigration reform legislation proved to be.

And believe me House Speaker Pelosi is not alone. Senator Charles Schumer (D-NY) recently held very unbalanced hearings on “comprehensive immigration reform” which failed to give time to those opposed to the massive giveaway of American citizenships.

But it really gets much worse if one is trying to calculate the fiscal effect on California–and project what this means for America.

Folks, California is the biggest example of the famous canary in the coal mine theory ever. Remember, until 1986 in the U.K., canaries were regularly used in coal mines as an early warning system. The birds died in the presence of toxic gases. Because canaries tend to sing much of the time, they provided both a visual and audible cue.

California is certainly getting toxic budgetary news. It is killing the economy and all that this once-vaunted state had to offer in the way of education and environment, making it the envy of the world. The decline I have personally observed is obvious to so many I talk to, yet this fiscal death notice to California which has counterparts in other states, does not seem to worry other Americans—yet.

Fortunately, thanks to a careful and exhaustive research report by Steve Camarota, Director of Research at the Center for Immigration Studies, entitled “Immigrants in the United States, 2007: A profile of America’s Foreign-Born Population” we learn that:

“Of adult immigrants, 31 percent have not completed high school, compared to 8 percent of natives. Since 2000, immigration increased the number of workers without a high school diploma by 14 percent, and all other workers by 3 percent.

“The proportion of immigrant-headed households using at least one major welfare program is 33 percent, compared to 19 percent for native households.

“The poverty rate for immigrants and their U.S.-born children (under 18) is 17 percent, nearly 50 percent higher than the rate for natives and their children.

“34 percent of immigrants lack health insurance, compared to 13 percent of natives. Immigrants and their U.S.-born children account for 71 percent of the increase in the uninsured since 1989.”

All this means more public costs, more demands on government resources.

How long will this madness continue? California Governor Pete Wilson tried long ago to get help from our Federal Government, but those elected officials knew better than to try to buck the industrial-military complex that now rules our former Republic. Those worthies (notice in what high regard our Congress is rated in the polls) handle immigration like a political popularity contest where the more cheap labor you support importing, the more money flows to re-elect you from the coffers of business.

Result: Just take a look at the bloated California budget. And then we learn that the City of Oakland, California will be soon joining San Francisco in giving all residents including illegal aliens ID cards. That can only serve to add to that city’s nearly $100 million deficit, as public services will now flow to illegal aliens and their anchor babies.

Of course the California voters don’t want to pay to fix this mess. In the May special election, voters rejected all five budget-related measures placed on the ballot by Schwarzenegger and legislative leaders. Revenue has continued to plummet as residents have reduced spending and unemployment has soared to 11 percent.

I predict that as matters get worse—and they surely will–Californians and all Americans will finally wake up to the fact that unchecked immigration, wanton use of the public trough and loss of expected public services will cause a revolt by voters.

But for now too many are sitting on their hands, fat, dumb and perhaps apprehensive but unwilling to take part in the political rough and tumble. Sad that corrective action will likely not happen before devastation to our culture, our traditions, our comity and the prosperity we have enjoyed.

California has had many recent internal signs of overuse and unsustainability. For example, the fish resources of the state have precipitously declined and the commercial salmon fishing season is now closed, while when reasonable new regulations to save the salmon have been proposed, Terminator Schwarzenegger has sided with the farmers who keep degrading the free water they abuse, so that renewal of this great resource is imperilled.

California is the Big Canary. It’s dying—and Americans had better take notice.

Donald A. Collins [email him] is a freelance writer living in Washington DC, and is Co-Chair of the Federation for American Immigration Reform’s (FAIR) National Advisory Board. His view are his own.

Salvaging Sotomayor: More Race Denial From NYT’s Kristof

Salvaging Sotomayor: More Race Denial From NYT’s Kristof

By Steve Sailer

That the Supreme Court may overrule President Obama’s Supreme Court nominee Sonia Sotomayor in the crucial Ricci case continues to stimulate the Race & IQ Strawman-Stomping Reflex among MSM commentators.

Since I’m one of the few journalists who have bothered to explain exactly how the civil rights doctrine of disparate impact inevitably works to foster Ricci-style discrimination against whites on a mass scale, I’ve recently been attacked by name in The New Republic, Slate, Bloggingheads, and Marginal Revolution.

And then there are the two New York Times columnists, David Brooks and Nicholas D. Kristof, who devote many column inches to debunking caricatures of what few journalists other than me dare to say.

For example, Kristof punditized Saturday in the NYT (Rising Above I.Q. June 6, 2009):

“In the mosaic of America, three groups that have been unusually successful are Asian-Americans, Jews and West Indian blacks—and in that there may be some lessons for the rest of us. … These three groups may help debunk the myth of success as a simple product of intrinsic intellect, for they represent three different races and histories. “

Who actually advocates a “myth of success as a simple product of intrinsic intellect”?

I don’t even say that!

Everybody knows that a strong work ethic matters.

The controversial questions are about whether you should be allowed to even mention the existing cognitive differences between groups when discussing, say, the Ricci case.

And, if you are allowed to bring up the racial gaps in intelligence, must we then all assume for purposes of public policy that they can somehow be made to vanish quickly?

Or will we get kicked to the curb like James D. Watson for expressing doubts?

Of course, Kristof’s emphasis upon the importance of hard work would logically suggest that Non-Asian Minorities (NAMs) ought to work harder. But Kristof, who presumably likes his job at the NYT and wishes to keep it, won’t say that. So he ends up repeating by rote irrelevant talking points about spending more on education:

“What’s the policy lesson from these three success stories?

It’s that the most decisive weapons in the war on poverty aren’t transfer payments but education, education, education. For at-risk households, that starts with social workers making visits to encourage such basic practices as talking to children. “

Exactly how do these conclusions follow from Kristof’s premises?

Did the Czar send social workers around to encourage Jewish mothers to talk to their children?

In reality, although the highest average income groups in America—Jews, Asian Indians, and Scots (not Scots-Irish)—tend to have the most education, there are also numerous American ethnic groups that tend to make more money than their educational levels might suggest. (For example, Cubans, Israelis, Lebanese Christians, Armenians, Italians, and Greeks.)

Furthermore, it’s not uncommon for African-Americans to be more ambitious about acquiring academic credentials than is optimal for them. It’s clear, for example, that too many blacks attempt law school: 43% of blacks who enter law school never pass the bar exam. That over-optimism exacts a high toll in tuition and wasted years among black college graduates.

Moreover, it’s obtuse of Kristof to cite Asians, American Jews, and West Indians as examples of the importance of hard work relative to IQ since all three stand out in terms of IQ. American Jews average about 10 points higher and Northeast Asians about 5 points higher than gentile whites. The Bell Curve’s analysis of the huge National Longitudinal Study of Youth database reported that children of black immigrants score five points higher on the military’s IQ entrance test than children of American-born blacks.

It would be more persuasive if Kristof were instead to focus on groups with unexceptional average IQs who still do well enough in America. For example, Filipino-Americans only rarely reach the very highest levels of prominence—’s Michelle Malkin might be the most famous Filipino-American on Wikipedia’s list of famous Filipino-Americans—but, they’ve carved out a niche for themselves by being law-abiding, well-mannered, and specializing in burgeoning medical careers, such as nursing and drawing blood.

Studying Filipino-Americans would be particularly useful because they show the paradoxical benefit of not being constantly targeted by diversity outreach. Nobody much cares that Filipinos are more likely to become nurses than, say, lawyers, but African-Americans are constantly lured in over their heads by affirmative action.

Kristof says:

“West Indian blacks, those like Colin Powell whose roots are in the Caribbean, are one-third more likely to graduate from college than African-Americans as a whole, and their median household income is almost one-third higher. “

There’s no question that West Indian-Americans stand out disproportionately among successful blacks in the U.S. For example, Obama’s Attorney General Eric Holder is a Bajan—a person whose ancestry traces back to Barbados, the most affluent and educated West Indian island. Although 12,200 web pages describe Holder as the “first African-American Attorney General,” Nation News of Barbados reported last summer that Holder “was born in New York and was raised in what was essentially a West Indian enclave in Queens…”

For some reason, Holder forgot to mention that fact in his February speech demanding that Americans stop being “a nation of cowards” and spend each February out of our “race-protected cocoons” having a National Dialogue on Race. Indeed, Holder’s father, a Barbadian immigrant, and his mother, the daughter of Barbadian immigrants, strove to cocoon him away from African-American culture while he was growing up.

Still, it’s not clear that West Indian-Americans having a one-third higher household income on average than African-Americans is all that impressive. Many West Indians are concentrated in New York City and other metropolises with high costs of living, and so few live in cheap small towns in the South. When housing prices finally collapse in New York, it’s likely that West Indians will wind up defaulting at high rates.

Kristof asserts:

“Richard Nisbett cites each of these groups in his superb recent book, Intelligence and How to Get It. Dr. Nisbett, a professor of psychology at the University of Michigan, argues that what we think of as intelligence is quite malleable and owes little or nothing to genetics. “I think the evidence is very good that there is no genetic contribution to the black-white difference on I.Q.,” he said, adding that there also seems to be no genetic difference in intelligence between whites and Asians. As for Jews, some not-very-rigorous studies have found modestly above-average I.Q. for Ashkenazi Jews, though not for Sephardic Jews. Dr. Nisbett is somewhat skeptical, noting that these results emerge from samples that may not be representative.”

Don’t you love how this is phrased to appeal to ignorant New York Times readers’ ample self-regard? Well, sure, lowbrows may think that Jews tend to be smart, and, well, yes, I guess the social science research does support this stereotype … but us smart sophisticates all know that the “samples that may not be representative”—so there!

Kristof continues:

“In any case, he says, the evidence is overwhelming that what is distinctive about these three groups is not innate advantage but rather a tendency to get the most out of the firepower they have. A common thread among these three groups may be an emphasis on diligence or education, perhaps linked in part to an immigrant drive. “

The concept of “immigrant drive” is the kind of thing that passes for Deep Thought without much thinking ever being devoted to it:

  • First, in cases where “immigrant drive” really does exist, it’s in large part a selection effect: the more intelligent and/or energetic tend to immigrate.
  • Second, there are giant examples of foreign countries where America is clearly not skimming the cream: most importantly, Mexico, whose well-educated seldom end up in America. There’s little evidence of educational “immigrant drive” among Mexican-Americans. Fourth generation Mexican-Americans have only a six percent college graduation rate.
  • Third, it’s ridiculous to attribute the high levels of achievement observed among young Jews in 2009 to “immigrant drive.” Most of them are third to sixth generation Americans.
  • Fourth, do Jews in America show more “immigrant drive” than do the small number of Jews back home in Russia? I wouldn’t be surprised if Jews in Russia are more likely to become billionaires than Jews in America.
  • Fifth, do Chinese in America show more “immigrant drive” than Chinese back in long-booming Guangdong? Maybe, maybe not. It’s not obvious.
  • Sixth, so that leaves West Indian-Americans, who have traditionally been more enterprising than either African-Americans or West Indians.

Remember the recurrent segment on the 1990s Fox comedy sketch show In Living Color called “Hey Mon with the Hedleysabout a hard-working West Indian family? The comic point was to express African-American incredulity over West Indian families’ high rates of moonlighting at multiple poorly-paid service jobs. For example, Damon Wayans complains about his daughter wanting to marry an American doctor who has only one job, explaining, “I never loved your mother. I just married her because she had six jobs.”

Kristof continues some more:

“Among West Indians, the crucial factors for success seem twofold: the classic diligence and hard work associated with immigrants, and intact families. The upshot is higher family incomes and fathers more involved in child-rearing.”

In other words, the greater success of West Indian-Americans over African Americans is due less to education than to hard work and monogamy.

That’s plausible, although there’s an explanation for these behavioral differences that Kristof won’t touch: the most successful West Indian-Americans, such as Colin Powell, Eric Holder, and Malcolm Gladwell, tend to come from the islands’ mulatto middle class.

As the final chapter in Gladwell’s bestseller Outliers about his mother’s Jamaican family implies, the West Indian middle class worked hard for generations to keep their posterity as “light and bright” as possible by discouraging their daughters from socializing with boys from the darker agricultural and working classes.

Look, if Kristof were actually serious about cultural explanations for the low average levels of achievement by Non-Asian Minorities, then he would recommend a policy of making it clear to them that we aren’t accepting excuses anymore—especially not the pervasive discrimination rationalization.

If we actually want to get a message through to low-achieving minorities, the obvious place to start would be for the Supreme Court to overturn Sonia Sotomayor’s vote in the Ricci case—and for the Senate to reject Sotomayor over that case.

I shall await Kristof’s column advocating these simple, practical, cost-saving steps.

But I won’t be holding my breath.

[Steve Sailer (email him) is movie critic for The American Conservative. His website features his daily blog. His new book, AMERICA’S HALF-BLOOD PRINCE: BARACK OBAMA’S "STORY OF RACE AND INHERITANCE", is available here.]

Stealing European American Wealth & Incomes

Stealing European American Wealth & Incomes

by Donald Miller

The collapse of the Obama spending machine has a long way to go yet, especially with regard to pilfering the earnings and savings of European Americans. There are many ways Obama & Bernanke can confiscate your income and wealth to establish a multiracial nation.


To understand some of this, it may be necessary for you to review the history of the great gold confiscation of 1933:

The Gold Confiscation Of April 5, 1933
From: President of the United States Franklin Delano Roosevelt
To: The United States Congress
Dated: 5 April, 1933
Presidential Executive Order 6102

Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates By virtue of the authority vested in me by Section 5(b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled

An Act to provide relief in the existing national emergency in banking, and for other purposes~’,

in which amendatory Act Congress declared that a serious emergency exists,

I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section to do hereby prohibit the hoarding gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations and hereby prescribe the following regulations for carrying out the purposes of the order:

Section 1. For the purpose of this regulation, the term ‘hoarding” means the withdrawal and withholding of gold coin, gold bullion, and gold certificates from the recognized and customary channels of trade. The term “person” means any individual, partnership, association or corporation.

Section 2. All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following …


There are fundamentally only three ways to repay the Obama-Bernanke indebtedness—I disregard massive inflation because it would take too long to be effective and, if it happened too quickly, we’d begin to understand the Weimar Republic (1919-1933) really well and up close:

The Weimar Republic had some of the most serious economic problems ever experienced by any Western democracy in history. Rampant hyperinflation, massive unemployment and a large drop in living standards were primary factors. In 1923–1929 there was a short period of economic recovery, but the Great Depression of the 1930s led to a worldwide recession. Germany was particularly affected because it depended heavily on American loans. In 1926, about 2 million Germans were unemployed – this rose to around 6 million in 1932. Many blamed the Weimar Republic. This was made apparent when political parties on both right and left wanting to disband the Republic altogether made any democratic majority in Parliament impossible.


The federal government could claim a partial ownership interest in the trillions of dollars locked up in tax-deferred accounts. It could make such a claim on either of two notions, an overriding interest in speeding up the velocity of money, or that it has a shared ownership of the money in a tax-deferred account based on the tax-deferral feature itself—something like the user of an easement claiming an interest in the entire property traversed by the easement user.

It wouldn’t be hard to get bank compliance, they would just be required to transfer the electronic cash in your tax-deferred account to the Treasury and have an appropriately valued Treasury note electronically inserted in the place of the electronic cash. Thus your tax-deferred account would be converted from an asset of yours to a debt instrument masquerading as a new asset.


The federal government could claim a larger or total ownership interest in all natural resources and extracted materials like wood, water, minerals, oil, thermal energies, marble, sand, coal, and so on. A plausible case could be easily made that ownership of all extracted materials is the property of the federal government—that would be a flip of the power to tax or license extractions in a big way.


The federal government could claim a larger interest in all or some real property (land, houses, factories, malls, and so on) as something it could mortgage to foreign countries’ financial institutions (China, Japan, etc.) or huge domestic financial institutions. This could generate a lot of new cash if the promise was ownership free and clear of certain classes of American real property—a no-risk situation if there ever was one—in the event of default.

In a sense, the Kelo decision by the USSC a couple of years ago paved the way for such a mortgaging project by marrying it to a species of eminent domain.

Kelo v. City of New London, 545 U.S. 469 (2005) was a case decided by the Supreme Court of the United States involving the use of eminent domain to transfer land from one private owner to another to further economic development. The case arose from the condemnation by New London, Connecticut, of privately owned real property so that it could be used as part of a comprehensive redevelopment plan. The Court held in a 5-4 decision that the general benefits a community enjoyed from economic growth qualified such redevelopment plans as a permissible “public use” under the Takings Clause of the Fifth Amendment.

The decision was widely criticized. Many of the public viewed the outcome as a gross violation of property rights and as a misinterpretation of the Fifth Amendment, the consequence of which would be to benefit large corporations at the expense of individual homeowners and local communities. Some in the legal profession construe the public’s outrage as being directed not at the interpretation of legal principles involved in the case, but at the broad moral principles of the general outcome.

Pleasant dreams in our brave new world.

Depression 2009 The Largest Train Wreck in Economic History – Nouriel Roubini 2009 U.S. GDP Forecasting 40% Home Mortgage Failures?

Depression 2009 The Largest Train Wreck in Economic History

Economics / Great Depression II Jan 06, 2009 – 10:52 AM

By: Darryl_R_Schoon


Diamond Rated - Best Financial Markets Analysis ArticleChange is a constant whether perceived or not; but only when we see it do we believe it has occurred. Then, it is too late.

The phrase, speculative bubble, is used to describe the financial tumescence that characterizes the often manic unfounded rise of asset values. The phrase, however, is inadequate for it fails to convey the destructive aftermath that follows; for such purposes, train wreck, is a better description. In 2009, the largest train wreck in economic history is about to occur.

Unfounded manic speculation, e.g. the 2002-2007 real estate bubble, is not new. Similar manic speculation occurred in internet stocks in the 1990s, radio stocks in the 1920s, as it did in railroad stocks in the 19th century and in tulip bulbs in the 17 th century. Manic speculation is as human as the markets.


The first stock exchange in the world was the Amsterdam Stock Exchange, established in 1602. Amsterdam was also the site of the world first speculative bubble, Tulip Mania, which appeared shortly thereafter, 1621-1636

This is from Wikipedia’s recounting of Tulip Mania: :

.. traders signed contracts before a notary to purchase tulips at the end of the season (effectively futures contracts). Thus the Dutch, who developed many of the techniques of modern finance, created a market for durable tulip bulbs.

Short selling was banned by an edict of 1610, which was reiterated or strengthened in 1621 and 1630, and again in 1636. Short sellers were not prosecuted under these edicts, but their contracts were deemed unenforceable…

As the flowers grew in popularity, professional growers paid higher and higher prices for bulbs with the virus [a tulip-specific virus that caused more spectacular colored tulips] . By 1634, in part as a result of demand from the French, speculators began to enter the market.

In 1636, the Dutch created a type of formal futures markets where contracts to buy bulbs at the end of the season were bought and sold. Traders met in “colleges” at taverns and buyers were required to pay a 2.5% “wine money” fee, up to a maximum of three florins, per trade.

Neither party paid an initial margin nor a mark-to-market margin, and all contracts were with the individual counterparties rather than with the exchange. No deliveries were ever made to fulfill these contracts because of the market collapse in February 1637…

The contract price of rare bulbs continued to rise throughout 1636. That November, the contract price of common bulbs without the valuable mosaic virus also began to rise in value. The Dutch derogatorily described tulip contract trading as windhandel (literally “wind trade”), because no bulbs were actually changing hands. However in February 1637, tulip bulb contract prices collapsed abruptly and the trade of tulips ground to a halt.

It is clear that today’s “complex and sophisticated” markets are not as unique as some would believe. What is new, however, are the circumstances and consequences of the current collapse. Today, financial markets are a global phenomena; and so, too, will be the consequences.

The invention of the stock market in Amsterdam in 1602 combined with the issuance of the Bank of England’s credit-based paper money in 1694 was to change the course of human history for the next three hundred years. That epoch is now ending.

The world that credit gave rise to is collapsing as is its credit-based foundation, turning like the proverbial carriage into a pumpkin at midnight, as the hoped for financial fairy tale turns instead into a nightmare of defaulting debt in 2009.

The collapse of global markets and global trade is a sign we have reached the end of this epoch. The current financial collapse is the beginning of its end. When it is over, so, too, will be the era it spawned. Human history moves in waves. Another is about to begin.


Last year during the Christmas holidays, Martha and I toured the Bank of England’s museum on Threadneedle Street in The City of London, the original cistern of the global well of paper-based credit. Last year, the mood in London was still hopeful. It is no longer.

This Christmas holiday, we followed the trail of John Law from Amsterdam to Paris to Venice . John Law, a Scottish banker and economic theoretician was well acquainted with Amsterdam ‘s financial markets before introducing paper money and subsequent financial ruin to the nation of France on his way to escape, exile and eventual burial in Venice .

It is perhaps appropriate than John Law is buried in the Chiesa di San Moisè; a church in Venice now surrounded by fashionable stores such as Gucci, Fendi, Valentino, Prada, and Versace, luxury retailers who profited handsomely from the excesses of the recent global bubble.

But just as the speculative bubble of Tulip Mania presaged today’s markets, the story of John Law has particular relevance to the current collapse. The combination of financial markets and paper money is a volatile mixture and none was ever so destructively volatile as John Law’s introduction of paper money to the financial markets of France .

John Law believed it was not necessary that money possess intrinsic value such as did gold or silver, money could be fiat, paper notes issued by government edict, an idea resembling those later promoted by American economist Milton Friedman.

John Law’s disastrous experiment with paper money combined with his role in the Mississippi Land Company, a stock bubble on the scale of Tulip Mania, eventually transformed France and much of Europe into an economic wasteland leading eventually to the overthrow of the French nobility.

John Law’s destructive influence on France has been exceeded, however, by today’s extraordinary über- mixture of central bank credit-based paper money, excessive risk and leverage and the globalization of markets—a volatile mixture whose fragility, extreme size and combustibility are now about to destroy the 300 year old world built on debt and paper money.


In November 2006, Professor Antal Fekete addressed the 2007 class of MBA students at the University of Chicago , the then bailiwick of Milton Friedman, the well-known academic apologist for fiat currencies.

Professor Fekete was to deliver a scathing rebuttal of Friedman’s theories. The professor, a long-time proponent of the gold standard and its role in monetary affairs, believed that John Maynard Keynes on the left and Milton Friedman on the right had given intellectual comfort to policies responsible for today’s monetary problems—the elimination of gold from the international monetary system.

But Professor Fekete did not deliver his address criticizing Friedman. The day before he was to speak, Milton Friedman passed away. Instead of criticizing Friedman, Professor Fekete instead warned the students about the fragility of today’s paper markets, markets that had become an extraordinary inverse pyramid of derivatives (then $480 trillion, now $668 trillion) and potential defaults built on irredeemable promises.

The students gave little thought to the Professor’s warnings. They had prepared too long for their chance at the brass ring offered by Wall Street investment banks, the wealthy moneychangers in the temple of fiat currencies.

As about-to-be graduates of the prestigious MBA program at the University of Chicago , the students had much to expect upon graduation. When the Professor delivered his remarks, the August 2007 credit contraction was still nine months in the future; close, but still well outside the world of possibilities the students believed real.

One student asked:“Even if you’re right, won’t the markets self-correct?”

To the true-believers in paper money, paper markets and paper profits, self-correction was the accepted ideological panacea to whatever the markets would do.

That student never expected that the coming self-correction would wipe away his expected future. That instead of a large starting salary with significant bonuses at Lehman’s, Bear Stearns, Merrill Lynch, or Morgan Stanley, he instead would be wondering how he could repay his student loans when the bank he believed would be his future home had collapsed or merged with another institution to avoid insolvency.

At the time, such possibilities appeared improbable if not outright impossible. Today, they have become the precursors of what is yet to be. A world so at odds with yesterday, that few can imagine what will happen next.

Dmitry Orlov is one of the few that can do so.


Dmitry Orlov, author of Reinventing Collapse; The Soviet Example and American Prospects (New Society Publishers, 2008), watched the collapse of the Soviet Union in the 1990s and predicted a similar crisis would later occur in America .

Buckminster Fuller had also predicted the collapse of the Soviet Union and America in 1981— the twilight of the world’s power structures— in his book, The Critical Path (St. Martin’s Press, 1981). Both nations crippled by excessive debt brought on by excessive military spending (what Bucky called killingry ) were fading behemoths whose passing would make way for a better world.

Orlov writes:

Having given a lot of thought to both the differences and the similarities between the two superpowers – the one that has collapsed already, and the one that is collapsing as I write this – I feel ready to attempt a bold conjecture, and define five stages of collapse, to serve as mental milestones as we gauge our own collapse-preparedness and see what can be done to improve it…

Stage 1: Financial collapse. Faith in “business as usual” is lost. The future is no longer assumed to resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.

Stage 2: Commercial collapse. Faith that “the market shall provide” is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm…

Stage 1 in Orlov’s scenario is well underway. The vast majority of investment and commercial banks are now insolvent, propped up and still in business only because of recently granted government guarantees designed to prevent workers from realizing their life savings are in imminent danger.

In Orlov’s Stage 1, savings and access to capital are lost. In modern economies, capital, i.e. credit-based paper, has been substituted for real money, gold and silver. Credit-based paper money is no more real money than an image/belief in god is GOD. Savings, in mature credit-based economies as the US and UK are now virtually non-existent.

Capital is but thinly disguised credit and credit is now rapidly disappearing, a condition that will be fatal for those addicted to its continuing presence, e.g. corporations, governments and workers, especially in the US , UK , Europe , etc. New loan activity has fallen 91 % year to year. The consequences will be unprecedented and extraordinary.

In 2009, the economic train wreck now in motion will occur. It will not be a one time event. It will be a successive series of protracted crisis in conjunction with continuing breakdowns in access to credit, goods and services, an escalating and cascading series of pre vio usly unimaginable events.

In today’s monetarily debased markets, credit has become essential for all commercial activity. This dream of bankers is the nightmare of producers and savers. Credit becomes compounding debt which becomes bankers’ profits also resulting in increasing defaults and bankruptcies. Modern economics is not rocket science. It’s an abomination on the economic body of mankind.

Stage 2 in Orlov’s scenario will follow in the wake of Stage 1. Stage 2 is closer today than it was yesterday. The end game predicted by some will now become the reality for all. The predicted events have no basis in recent memory for those who will be affected.

The three hundred year old world founded on credit-based paper money is ending. The world’s central banks which substituted paper for gold are finding themselves unable to solve the problems their fiat money has created. The consequences are far greater than people can imagine—a limitation that will not prevent them from happening.


We who have grown up in the world of credit and debt have no memory or real understanding of the role that gold played in monetary affairs prior to the substitution of central bank credit-based paper for sound money. When the connection was cut between gold and money, few understood the consequences, consequences which are now upon us.

Uncle Milton and Uncle John
Gave much thought to what was wrong
But their bright ideas about the public purse
Have now made things so much worse

Discussion of the monetary role of gold and silver has been expunged from discussion in today’s universities. One of the world’s great economic thinkers whose writings consistently predicted today’s collapse, Ludwig von Mises of the Austrian School of Economics was never accorded a paid position in an American university.

Although given the status of a visiting professor by New York University , Mises was not paid a salary and had to depend on outside assistance in order to survive. That far lesser teachers were salaried in America is an indication why today most American economists are unable to adequately explain or solve our economic problems.


The influence of the US military-industrial complex over academic discourse, while exceedingly effective, has come at a considerable cost to the nation. President Dwight D. Eisenhower warned of this possibility in his Farewell Speech to the nation in 1961. Freedom and intellectual inquiry are not unrelated—nor are tyranny and blind obedience.

Professor Fekete’s intended address at the University of Chicago was titled Where Friedman Went Wrong and included the following quote from Professor Walter E. Spahr, Chairman of the Department of Economics at NYU from 1927 to 1956:

What is the meaning of a gold standard and a redeemable currency? It represents integrity. It insures the people’s control over the government’s use of the public purse. It is the best guarantee against the socialization of a nation. It enables a people to keep the government and banks in check. It prevents currency expansion from getting ever farther out of bounds until it becomes worthless. It tends to force standards of honesty on government and bank officials. It is the symbol of a free society and an honorable government. It is a necessary prerequisite to economic health. It is the first economic bulwark of free men.

Professor Spahr’s eloquent words are a timely reminder of the importance of the gold standard and do much to explain how we have arrived at our current circumstances. The gold standard is the constraint upon bankers and government that would have prevented the disaster that is now upon us; and, now in 2009, it is too late to undo what they have done.

Professor Spahr understood that the essential role of gold in monetary systems is to prevent bankers and government from overstepping the bounds of sound governance and prudent banking, bounds, which if undone, will bring ruin to the nation and to its people.

When President Nixon severed the ties between the US dollar and gold—as encouraged to do so by Milton Friedman—the very fears of men such as Spahrs and Fekete were set in motion. Now, three decades later, the results are in.

Financial markets are frozen, global trade is slowing rapidly, governments have debased their now fiat currencies and the collective excesses of government and bankers have brought the world to the edge of another Great Depression.

The warnings of those such as Spahr and Fekete were not heeded. Indeed, they were not even heard. The suppression of open dialogue and issues contrary to the purposes of corporate, banking and government interests carried over into colleges and universities as well as the media. It has cost America dearly.

Only When Freedom Is Lost Do The Reasons For Its Absence Become Clear

For those interested in the critical role of the gold standard, Professor Fekete will be giving a series of lectures March 27, 28 and 29 in Hungary . The gold standard as well as the backwardation of gold and silver and the coming depression will be discussed. For information, contact . I will also give a talk at the conference.


I was fortunate to have met Marshall Thurber in law school in 1966, a friendship that has lasted far longer than my abbreviated tenure at law school. I am especially fortunate that Marshall later became a close friend and important supporter of Buckminster Fuller and his work.

In November, during a discussion about the current crisis which was predicted by Fuller more than 25 years ago, Marshall recommended I read Fuller’s final book, Grunch Of Giants (Design Science Press, 1983).

Out of print and offered at the time through Amazon at a collector’s price of $199, Marshall offered to send me his original signed draft if the book was not readily available. Fortunately, Marshall then directed me to the website of the Buckminster Fuller Institute where its price was $17.95, see .

I finished reading Fuller’s extraordinary work, Grunch Of Giants , on Christmas Day as Martha and I crossed the Alps . At this time I will refrain from a personal recapitulation as the work stands on its own and readers are easily capable of reaching their own conclusions. Nonetheless, Grunch of Giants confirmed for me the greatness and breadth of Fuller’s vision.

After reading Grunch of Giants I could not help but see the clear distinction between two diametrically opposed visions/versions of our world: At one end of the spectrum is John Law’s “Scarcity Theory of Value” and at the other is Buckminster Fuller’s “False Assumptions of Scarcity”

The two assumptions and theories are diametrically opposed in intent and consequence and do much to explain the difference between today’s world of crisis (confirming John Law’s theories on scarcity) and tomorrow’s possible promise (Buckminster Fuller’s belief in abundance)


Because of Marshall Thurber ‘s friendship with Buckminster Fuller, I am aware of Fuller’s belief in “Universal Emergence Through Emergency”. It is increasingly clear that today’s crisis is rapidly approaching that of an emergency—the prerequisite for Universal Emergence.

Let us stand aside and help its birth. A new and better world is on its way. Gold and silver will help in the interim.

By Darryl Robert Schoon

Nouriel Roubini 2009 U.S. GDP Forecasting 40% Home Mortgage Failures?

Housing-Market / US Housing Jan 08, 2009 – 12:52 PM

By: Andrew_Butter

Housing-Market Diamond Rated - Best Financial Markets Analysis ArticleIF Nouriel Roubini’s 2009 GDP forecast for USA is right, THEN could 40% of home mortgages fail? It’s been a long time since I saw two guys so eager to lose their jobs, Hank Paulson and George Bush could hardly be held back, they were positively skipping out of the door; I wonder why?

Last week Dr. Nouriel Roubini’s newsletter (RGE Monitor) predicted a peak to trough in US housing of 38% to 44% with a bottom not before mid 2010.

That’s the first time I saw Roubini put a number on house prices. My projection three months ago said (low-case) peak to trough 32% with a bottom mid 2010 ( Fixing the U.S. Housing Market and House Prices).

So “SNAP!” – more or less.

But my projection of 32% was based on 3% nominal GDP growth in 2009 (I don’t do GDP I just do real estate prices, I look up the GDP projections), but things are looking worse now. Of course Roubini is the most pessimistic, that’s why they call him “Dr. Doom”.

If Roubini is right in that nominal GDP growth will be -5.4% in 2009 (-3.4% real and -2% inflation) then my model says that house-prices will fall 15% in 2009 (peak to end of 2009 = 35%).

What happens in 2010 will depend on the economy, and no one is talking about that. Roubini hints that the recession could be over by 2010; so for the sake of argument let’s say 2% nominal GDP growth in 2010 (what’s real and what’s inflation doesn’t matter for my model).

In that case my model says the bottom will be some time after mid 2010 with a total peak to trough of 40%. That’s all assuming that long-term interest rates stay low.

So “SNAP!” and ” SNAP!”… using Roubini’s numbers for the economy my model delivers mid-range of his projection. Time for mutual admiration perhaps?


RGE don’t explain their methodology so it’s hard to say if that’s two independent views or the same model done twice.

Just for the record, the core of my model is a valuation and in any coherent valuation you are obliged to explain the methodology (I do).

That’s unless you are using Zimbabwe Valuation Standards, or the “Bean Counter’s Big Surprise Valuation Standards” mandated under US GAAP and IFRS. But then RGE’s price forecast is an “economic” prediction, and for that, well apparently, anything goes.

I can’t help wondering if the current mess might have something to do with economists (and bean counters) thinking they have the inside edge on doing valuations for assessing capital adequacy of banks with debt secured by real estate? Isn’t that a bit like hiring an (expensive) dentist to clean your drains?

Nah…can’t be that, Allan Greenspan is a genius and a GREAT ECONOMIST, I know that because he said so himself.

And if you can’t understand that “froth” means the “biggest property bubble in history” you should be working minimum wage as a security guard, if you can get a job at all!

Anyway, back to the point, I suspect we are independent since RGE’s logic appears to be based on inventory (housing starts and foreclosures) and uptake. My model ( Value of Housing Markets in USA and UK Past, Present, and Future) is based on International Valuation Standards and 100+ years of data and does not need to know anything about starts, foreclosures, or sales; rather these are predicted by the model.

It’s an important distinction, if price is affected by starts, foreclosures, and sales then the logical strategy to “rescue” house prices (and the bonds that depend on them – i.e. fix the mess), is to cut starts and foreclosures and to encourage sales by getting Fannie and Freddie to lend irresponsibly.

Or in the words of that Great American Poet…”do it to me one more time…BABY”. That appears, at least to the untrained observer, to be the current strategy.

But the valuation model says “NO, that won’t do anything to prices”.

For the valuation model, price is independent of starts, foreclosures or sales, in fact it’s price that drives those variable, and that’s driven by nominal GDP, long-term interest rates and the inevitability of Farrell’s Rule with the only possible way out of the loop being to implement “Surprise-Free Valuation Standards” (as was argued in UK Housing Market Will Not Bottom Before 2012) .

Not that there is anything wrong with economic theories, just they often confuses cause with effect which has the tendency to send people in the wrong direction, like when Allan Greenspan pushed down interest rates so that we could all enjoy a “bit of froth”. And very tasty froth it was too! Thanks Allan.

Here’s why:

Logically price drives starts (I’ve done development, you don’t start when prices are in a hole unless you have a theory and an inside track to a banker (preferably a bent one), that much I know).

So I think it’s safe to assume that the logic in RGE’s argument is that if starts are falling then the market knows something. Well no contest there; I say price drives starts too; just I get to starts via price rather than the other way around…cause and effect.

You can say what you like about foreclosures but my view is that they are driven by either price or GDP (which in turn drives my model – i.e. there could be cross correlation), and that if foreclosures are to some extent, driving price down (the conventional wisdom amongst economists), then the effect is part of a feedback loop ( The U.S. Housing Market Economic Double Negative Feedback Loop) .

Sure sales can be driven by irresponsible lending, but only if the trajectory of price is upwards ( Time for Selective Buying of Mortgaged Backed Securities?) .

Now the trajectory is down, that’s a different ball game. Sure also, constraints on lending slow sales, but the valuation model seems to suggest this doesn’t do anything to price when prices are falling (people just don’t move).

It’s a small point but what that says is that bailing out distressed mortgages and getting Fannie and Freddie to be irresponsible again won’t affect prices, but it might affect GDP in the long term (negatively).

Predicting Foreclosures

In October I put up a chart based on combining some data that I found on the FT website on foreclosures by State, with some other data I trawled up on GDP growth by State.

I thought it might help resolve the point about foreclosures. This showed that there was a relationship between foreclosures (by State) and GDP growth per State (65% R-Squared or so). ( The U.S. Housing Market Economic Double Negative Feedback Loop) .

Basically foreclosures shoot up when GDP growth goes down below 1%. If average GDP growth goes down to -3.4% (real) it looks like we may be having the fun of accelerating foreclosures some time soon (which, now that GDP has started to tank, seems to be happening – ummm….could the two be related?)

So cause and effect, either (a) falling GDP drives foreclosures (b) foreclosures drive GDP down (c) there is a feedback loop or (d) foreclosures and GDP are independent and a 65% R-Squared is just a chance occurrence?

My view is (a) with a bit of (c).

So by how much?

Well I know that you are not “supposed” to project outside the data, but just for a bit of fun I tracked back the best fit regression line to minus 3.4% GDP Growth.

Umm…oh dear I hope either the regression line that predicts foreclosures from GDP or GDP from foreclosures (or a bit of both) doesn’t mean that at minus 3.4% GDP foreclosures will pop up to 40%.

Or if that’s the story I hope that Nouriel Roubini is wrong about his GDP projections!

He’s been wrong before, he must have been; he’s an economist after all! Didn’t he say the crunch would happen before 2005, in which case perhaps his -3.4% GDP growth won’t happen before 2012…whew!!!

But maybe not…oh dear oh dear, and just for a bit of froth! There again it’s non-recourse debt so all those people pushed into negative equity can just jingle their way out of the hole. Thank God for that! Oh but oops…I almost forgot, what about the securities?

Don’t worry we will get the Chinese and the SWF’s to bail us out, no problem! And if that fails there is always the grandchildren.

Right now house prices in USA are under-valued (below the long-term equilibrium line), but unless there is REAL CHANGE they will keep going down as increasingly jingle-mail becomes the only option.

So HAPPY TIMES… 40% to 44% peak to trough and (perhaps) 40% foreclosure on home mortgages, here we come!

Yup I think that Cowboy George deserves a long rest, and although the new guy is possibly the first US President in a long time that anyone felt like dancing in the streets about, I must say, last time I saw him on TV he did seem to have a look like “darn…what have I let myself in for?”

It’s one thing to run a brilliant election campaign; it’s another to run the can of worms that the US Government has evolved into.

The numbers on inflation, the real size of the government’s liabilities, and the “efficiency” with which money is funneled out of the back door to special interests; these are all manipulated by a shadowy tribe of vampires. And the hastily concocted “Stimulus Plan” just plays into their hands.

Right now there is only one number in USA that the manipulators of power can’t (presently) get their hands on. That’s how much people will pay for a house in a free and open market.

For years Fannie and Freddie distorted that number (they were set up so people could afford to own homes, their effect was to radically increase the price of housing – figure that one out), but eventually that proved to be an unsustainable scam. Ask the Master Scammer Mr. Madof, he knows, eventually every scam runs out of money.

Fannie and Freddie “temporarily” ran out of money, sure they were dressed up as instruments of the Free Market, maybe before 1987 when they changed the accounting rules for measuring inflation they were, but from that point they became instruments of crony capitalism that sucked all the blood out of America.

If CHANGE is really the objective then in Washington nothing changes, the words are the same, “FOLLOW THE MONEY”. And make sure it’s counted properly.

Forget about US GAAP and IFRS, there is only one tool that properly values assets and liabilities, a silver stake that can tear out the heart of the vampires.

It’s called International Valuation Standards.

IF you really want “CHANGE”, THEN use that tool.

By Andrew Butter

Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

Copyright © 2009 Andrew Butter

Baby Boomers- Your Generation’s Crisis Has Arrived

Baby Boomers- Your Generation’s Crisis Has Arrived

Politics / Credit Crisis 2009 Feb 10, 2009 – 01:36 PM

By: James_Quinn


Diamond Rated - Best Financial Markets Analysis Article“There is a mysterious cycle in human events. To some generations, much is given. Of other generations, much is expected. This Generation has a rendezvous with destiny.” Franklin Roosevelt – 1936

President Roosevelt was correct. The generation he was speaking to was already dealing with the worst financial crisis in the history of the United States, the Great Depression. By 1945, over 400,000 of this generation had lost their lives. Another 600,000 men were wounded. Much was expected and much was sacrificed. Every generation has a rendezvous with destiny.

The generation that won World War II passed the ultimate test and proceeded to produce the next generation, the Baby Boom Generation. Their rendezvous with destiny is underway. Will it be a rendezvous with history that results in World War III, the collapse of the Great American Republic, dictatorship, or a return to the original Constitutional principles upon which this country was founded? Many of you are probably thinking the idea of WW III, collapse or dictatorship is crazy. I’d respond with the wisdom of Kramer from the classic Seinfeld show.

Jerry:             “Oh you’re crazy”

Kramer:         “Am I? Or am I so sane that you just blew your mind?”

Jerry:             “It’s impossible”

Kramer:         “Is it? Or is it so possible your head is spinning like a top?”

Jerry:             “It can’t be”

Kramer:         “Can’t it? Or is your entire world just crashing down all around you?”

As a student of history I’m drawn to the concept of cycles. It is comforting to think that history has recurring patterns and a natural rhythm. Trying to figure out why the major events in history occurred is complex, challenging and fascinating. When I read an updated 1997 article by Doug Casey in December on John Mauldin’s site called Foundations of Crisis , I was blown away. Mr. Casey had read the book The Fourth Turning by William Strauss and Neil Howe and made some forecasts of what would happen in the next few years. They were eerily accurate, including an airliner being purposefully crashed into a government building to trigger a crisis. After reading this article I’ve been trying to wrap my arms around the implications of their theory and the possible consequences for the United States. I know that an individual can learn from the past. I’ve always thought that poet George Santayana’s quote, “Those who cannot remember the past are condemned to repeat it”, is profound and worth studying.

The crucial issue is whether societies as a whole are capable of learning from the past or are they condemned to the inevitable cycle of history. Can an individual change the course of history? Was World War II inevitable, even if Adolph Hitler had been killed during World War I? Is there anything that can be done to avert the cyclical crisis that seems to arrive on a consistent basis throughout history? Is our destiny already preordained? Mr. Strauss and Mr. Howe wrote the following words in 1997 :

Based on historical patterns, America will hit a once-in-a-century national crisis within the decade…’like winter,’ the crisis or ‘fourth turning’ cannot be averted. It will last 20 years or so and bring hardship and upheavals similar to previous fourth turnings, such as the American Revolution, the Civil War, the Great Depression and World War II. The fourth turning is a perilous time because the result could be a new ‘golden age’ for America or the beginning of the end. It all will begin with a ‘sudden spark’ that catalyzes a crisis mood around the year 2005.

I don’t have a preconceived notion of our country’s destiny, but I’m getting a bad feeling about the track we are on. The last thing in the world I want to see is my three boys being forced into a war caused by a bunch of clueless 60 year old political hack morons in Washington DC fulfilling their destiny to cause the once in a century national crisis. Based on the foolish actions of most politicians in Washington over the last thirty years, I fear for the future of our country. I don’t think the politicians in Washington comprehend the state of affairs. I sense the mood of the country turning. Fear, anger and disillusionment are the prevalent themes. Change is coming, but it is not the change that Barack Obama campaigned for. It will be forced upon us by circumstances beyond any one person’s control. While we are hurtling towards our summit with destiny, Congress continues its path of pork barrel spending, short term solutions, party politics, and condemning our children and grandchildren to a lower standard of living. The “leaders” of this country are using the tried and true method of using fear to ram through their $900 billion tax on future generations. President Bush used the same fear tactics to launch his invasion of Iraq. I see a similar success story with the coming stimulus package. Maybe the coming crisis will ultimately lead to Great Leaders rising to the occasion.


Strauss and Howe believe that history is marked by 80 to 100 year cycles which match the lifespan of most human beings. These cycles are discernible by four generations of 20 to 25 years that show remarkable consistency over history. I’m sure this theory will anger the individualists out there. They are not saying that everyone within a generation acts alike, but are shaped by joint experiences and time period in history. According to Strauss and Howe:

Turnings last about 20 years and always arrive in the same order. Four of them make up the cycle of history, which is about the length of a long human life. The first turning is a High , a period of confident expansion as a new order becomes established after the old has been dismantled. Next comes an Awakening , a time of rebellion against the now-established order, when spiritual exploration becomes the norm. Then comes an Unraveling , an increasingly troubled era of strong individualism that surmounts increasingly fragmented institutions. Last comes the Fourth Turning , an era of upheaval, a Crisis in which society redefines its very nature and purpose.

They are able to trace these turnings back to 1500 with remarkable consistency. They have broken U.S. history into the following cycles of history: Revolutionary Cycle (1701-1791), Civil War Cycle (1792-1859), Great Power Cycle (1860-1942), and the Millennial Cycle (1943-2???). Within these cycles are four distinct generations, that have a consistent persona because their parents had similar views, they listened to the same music, read the same books, were taught the same curriculum, were bombarded with the same marketing messages, and experienced the same set of unique experiences. Even though every Baby Boomer is not alike, the sheer size of this generation of 76 million people has left a dramatic imprint on history. The shared experiences of this cohort are clearly visible as they have marched through the cycle of history. The four typical generations within a cycle as described by Strauss and Howe are:


A Prophet (or Idealist) generation is born during a High , spends its rising adult years during an Awakening , spends midlife during an Unraveling , and spends old age in a Crisis . Prophetic leaders have been cerebral and principled, summoners of human sacrifice, wagers of righteous wars. Early in life, few saw combat in uniform. Late in life, most prophets come to be revered as much for their words as for their deeds.


A Nomad (or Reactive) generation is born during an Awakening , spends its rising adult years during an Unraveling , spends midlife during a Crisis , and spends old age in a new High . Nomadic leaders have been cunning, hard-to-fool realists, taciturn warriors who prefer to meet problems and adversaries one-on-one.


A Hero (or Civic) generation is born during an Unraveling , spends its rising adult years during a Crisis , spends midlife during a High , and spends old age in an Awakening . Heroic leaders are considered to have been vigorous and rational institution-builders, busy and competent in old age. All of them entering midlife were aggressive advocates of technological progress, economic prosperity, social harmony, and public optimism.


An Artist (or Adaptive) generation is born during a Crisis , spends its rising adult years in a new High , spends midlife in an Awakening , and spends old age in an Unraveling . Artistic leaders have been advocates of fairness and the politics of inclusion, irrepressible in the wake of failure.

This concept of 100 year cycles consisting of four generations is very logical to me. It all seems so theoretical and quaint until you realize that if they are right, we have just entered The Fourth Turning, a period of upheaval, crisis and enormous societal and possibly worldwide change. This is not a normal cyclical recession and bear market. There are much larger forces at work. Washington politicians are so consumed with their short-term election politics, power plays, enrichment of supporters, and letting lobbyists write our laws, they are incapable of seeing the real gathering storm that is about to engulf them. They go about their day to day horse trading and fooling the public with rhetoric, while a crisis of epic proportions is looming just over the horizon.


The recent song by the group Five for Fighting called 100 Years reflects the 100 year cycle that all humans live through.

15 there’s still time for you
Time to buy and time to lose
15, there’s never a wish better than this
When you only got 100 years to live
I’m 33 for a moment
Still the man, but you see I’m a they
A kid on the way
A family on my mind
I’m 45 for a moment
The sea is high
And I’m heading into a crisis
Chasing the years of my life

The lyrics heading into a crisis couldn’t be truer today. We are only on this earth for 100 years. Why shouldn’t every person want to leave the earth a better place than they were born into? Instead, the world has periods of advancement and periods of regression, periods of peace and periods of war, periods of awakening and periods of crisis.

The last 150 years in American history as segmented by Strauss and Howe is charted below. Each generation experiences the four turnings at a different time in their lives. An appreciation of past turnings may give us clues to what will befall our country in the next 20 years.

Great Power Saeculum
Missionary Generation Prophet (Idealist) 1860–1882 The indulged home-and-hearth children of the post-Civil War era. They came of age as labor anarchists, and campus rioters. In the 1930s and ‘40s, their elder elite became the “Wise Old Men” who enacted a “New Deal” (and Social Security) for the benefit of youth, led the global war against fascism, and reaffirmed America’s highest ideals during a transformative era in world history.
Lost Generation Nomad (Reactive) 1883–1900 The Third Great Awakening was a period of religious activism in American history from the late 1850s to the 1900s. It affected pietistic Protestant denominations and had a strong sense of social activism. It gathered strength from the postmillennial theology that the Second Coming of Christ would come after mankind had reformed the entire earth.
G.I. Generation (aka Greatest Generation) Hero (Civic) 1901–1924 As young adults, their uniformed corps patiently endured depression and heroically conquered foreign enemies. In a midlife subsidized by the G.I. Bill, they built gleaming suburbs, invented miracle vaccines, plugged “missile gaps,” and launched moon rockets.
Silent Generation Artist (Adaptive) 1925–1942 Grew up as the suffocated children of war and depression. They came of age just too late to be war heroes and just too early to be youthful free spirits. Instead, this early-marrying Lonely Crowd became the risk-averse technicians and professionals—as well as the sensitive rock ‘n rollers and civil-rights advocates—of a post-crisis era in which conformity seemed to be a sure ticket to success.
Millennial Saeculum
Baby Boom Generation Prophet (Idealist) 1943–1960 Basked as children in Dr. Spock permissiveness, suburban conformism, Sputnik-era schooling, Beaver Cleaver friendliness, and Father Knows Best family order. They came of age rebelling against the worldly blueprints of their parents. Youth pathologies worsened—and SAT scores began a 17-year slide. In the early 1980s, many young adults became self-absorbed “yuppies” with mainstream careers but perfectionist lifestyles. Entering midlife (and national power), they are trumpeting values, touting a “politics of meaning,” and waging scorched-earth Culture Wars.
13th Generation (aka Generation X) Nomad (Reactive) 1961–1981 Survived a “hurried” childhood of divorce, latchkeys, open classrooms, devil-child movies, and a shift from G to R ratings. They came of age curtailing the earlier rise in youth crime and fall in test scores—yet heard themselves denounced as so wild and stupid as to put The Nation At Risk . In jobs, they embrace risk and prefer free agency over loyal corporatism. Politically, they lean toward pragmatism and non-affiliation, and would rather volunteer than vote.
Millennial Generation Hero (Civic) 1982–200? As abortion and divorce rates ebbed, the popular culture began stigmatizing hands-off parental styles and recasting babies as special. Child abuse and child safety became hot topics, while books teaching virtues and values became best-sellers. Today, politicians define adult issues (from tax cuts to deficits) in terms of their effects on children.
New Silent Generation Artist (Adaptive) 200?– This generation is the first to be born in a digital world and is currently in grade school. This new generation is being molded from the outset to be unique, with a focus on advanced second-hand interactive learning techniques. The result being Gen Z children are exposed to an environment that is heavy on stimuli, and weaker in interpersonal relationships.

Sources: Wikipedia & The Fourth Turning


The American High in the 20th century began in1946 with unconditional victory in World War II. According to Strauss and Howe:

A HIGH brings a renaissance to community life. With the new civic order in place, people want to put the Crisis behind them and feel content about what they have collectively achieved. Any social issues left unresolved by the Crisis must now remain so. The need for dutiful sacrifice has ebbed, yet the society continues to demand order and consensus. The recent fear for group survival transmutes into a desire for investment, growth, and strength–which in turn produces an era of commercial prosperity, institutional solidarity, and political stability. The big public arguments are over means, not ends.

The mood of the country after World War II was joyous. America was left as the sole global power. Its industrial power was unsurpassed. Europe, Japan and the Soviet Union lay in shambles. The country settled into a period of prosperity and conformity. America was brimming with confidence.

We were confident that our democratic principles could be spread throughout the world. The American High lasted from the Truman presidency through the Kennedy presidency. As the youthful President Kennedy took office in 1961, anything was possible. We could put a man on the moon, defeat communism, and eradicate poverty. The symbol of this period would be the Disney World ride Carousel of Progress, a sterile world inhabited by animatronic people. This time period also gave life to the Baby Boom Generation. Their mouseketeers ears and Leave it to Beaver lives of the 1950′s were brought to an abrupt confidence shattering end with the assassination of John F. Kennedy in 1963.


The Fourth Awakening of the great American Republic began in 1964. This episode is known as the Conscious Revolution. Strauss and Howe describe these phases in history:

An AWAKENING arrives with a dramatic challenge against the High’s assumptions about benevolent reason and congenial institutions. The outer world now feels trivial compared to the inner world. New spiritual agendas and social ideals burst forth, along with utopian experiments seeking to reconcile total fellowship with total autonomy. The prosperity and security of a High are overtly disdained though covertly taken for granted. A society searches for soul over science, meanings over things. Youth-fired attacks break out against the established institutional order. As these attacks take their toll, society has difficulty coalescing around common goals. People stop believing that social progress requires social discipline. Public order deteriorates, and crime and substance abuse rise.

The upheaval of the 1960′s took the country by surprise. The Vietnam War, assassination of Bobby Kennedy and Martin Luther King, campus riots, Kent State massacre, drug use, and promiscuous sex marked a vivid departure from the High. The older establishment was outraged by the personal liberation youth culture. Baby Boomers rebelled against everything their parents stood for. The Cultural Revolution was shocking to the older generation. Previous Awakenings in U.S. History were religiously based. The 1960′s and 1970′s were a tumultuous period that tore the fabric of American life apart. Instead of being led by mainstream religions, this Awakening was led by a Baby Boom generation that had been coddled and spoiled by their parents. Instead of turning to religion, they turned to self actualization. They became the self absorbed “Me Generation”.

The New Age teenage hippies of the 1960′s grew into selfish adults, more concerned by their professional careers, obtaining a Harvard MBA, acquiring the biggest McMansion, and graduating from a 200 Series BMW to a 300 Series BMW. As the country moved out of the 1970′s into a new era, individualism and ego enrichment became the dominant themes. The end of this Awakening period in 1984 was marked by the classification of the then 25 to 35 year old Baby Boom Generation as Yuppies. Young upwardly mobile professionals were characterized accurately in the movie The Big Chill, the novel Bonfire of the Vanities by Tom Wolfe and the TV show Thirtysomething . These were not flattering portrayals.


The latest Unraveling period in U.S. history began during the presidency of Ronald Reagan. His theme of “Morning in America” convinced most of the country that a new era of prosperity would lead to all boats rising. Strauss and Howe describe the traits during these periods:

An UNRAVELING begins as a society-wide embrace of the liberating cultural forces set loose by the Awakening. People have had their fill of spiritual rebirth, moral protest, and lifestyle experimentation. Content with what they have become individually, they vigorously assert an ethos of pragmatism, self-reliance, laissez faire, and national (or sectional or ethnic) chauvinism. While personal satisfaction is high, public trust ebbs amid a fragmenting culture, harsh debates over values, and weakening civic habits. The sense of guilt (which rewards principle and individuality) reaches its zenith. As moral debates brew, the big public arguments are over ends, not means. Decisive public action becomes very difficult, as community problems are deferred. Eventually, cynical alienation hardens into a brooding pessimism. The approaching specter of public disaster ultimately elicits a mix of paralysis and apathy.

The period between 1984 and 2001 was a period of peace and prosperity. President Reagan cut taxes, Paul Volcker defeated inflation, the Soviet Union collapsed, the stock market went up 1,000%, and MBA yuppies elevated to senior management positions on Wall Street. This interlude echoed the High of 1946 to 1964. The self involved Baby Boom Generation kept busy accumulating stuff. Their personal satisfaction is what mattered most. Gordon Gekko, the John Thain of his generation, uttered the words in the movie Wall Street that reflect the mood of the 1980′s. “Greed, for lack of a better word, is good.”

The 1990′s were dominated by cultural wars. The Republican Party and Democratic Party debate become extremely partisan. Public deliberations became harsh. Moral certitude was exuded by all sides of every issue. Hard driving overachieving narcissistic yuppies wearing Brooks Brothers suits and Rolex watches dominated corporate America. As twenty-eight-year-old Rob Lewis, a yuppie profiled in Newsweek , noted, yuppies were often willing to sacrifice “marriage, families, free time, relaxation.” He added, “Our marriages seem like mergers, our divorces like divestitures.”

The internet was going to change the world. Fraudulent IPOs were rolled out to the unsuspecting public. Day traders could get rich without working. Government did what it does best, spend money and defer all tough decisions to the distant future. A tough unpopular decision deferred is the path to reelection for a professional politician. The unwillingness to work together towards solutions that would insure that future generations weren’t left with the debts of the Baby Boom Generation, led to the current crisis being worse than it needed to be. As yuppies dashed down the streets of New York City, beating away on their crack-berries, on a sunny cool Fall morning, little did they know that their materialistic egotistical frenzied lives were about to change forever. With the tragic murder of 3,000 Americans in the Saudi led terrorist attacks of September 11, 2001, the Fourth Turning had arrived.


We know how this Crisis period in our history began. We don’t know how it will end. Previous crisis periods in American history included The American Revolution (1773-1794), The Civil War (1860-1865), and the twin crisis of The Great Depression and World War II (1929-1945). All three period included wrenching highly destructive total wars. Will our current crisis period result in World War III?

Strauss and Howe describe the commonalities of most crisis periods:

A CRISIS arises in response to sudden threats that previously would have been ignored or deferred, but which are now perceived as dire. Great worldly perils boil off the clutter and complexity of life, leaving behind one simple imperative: The society must prevail. This requires a solid public consensus, aggressive institutions, and personal sacrifice. People support new efforts to wield public authority, whose perceived successes soon justify more of the same. Government governs, community obstacles are removed, and laws and customs that resisted change for decades are swiftly shunted aside. A grim preoccupation with civic peril causes spiritual curiosity to decline. Public order tightens, private risk-taking abates, and crime and substance abuse decline. Families strengthen, gender distinctions widen, and child-rearing reaches a smothering degree of protection and structure. The young focus their energy on worldly achievements, leaving values in the hands of the old. Wars are fought with fury and for maximum result.

Every crisis period has been initiated by a catalyst. The passage of the Stamp Acts started the American Revolution, the election of Abraham Lincoln sparked the Civil War and the Stock Market Crash of 1929 initiated the Depression/WW II crisis. If history is our guide, the Iraq and Afghan Wars will not be the only wars during this crisis epoch. Many challenges lie ahead. I don’t think the majority of Americans are ready to meet these challenges.

Winter Has Arrived

Strauss & Howe wrote the following words in 1997:

America feels like it’s unraveling. Though we live in an era of relative peace and comfort, we have settled into a mood of pessimism about the long-term future, fearful that our superpower nation is somehow rotting from within. The America of today feels worse, in its fundamentals, than the one many of us remember from youth, a society presided over by those of supposedly lesser consciousness. We yearn for civic character but satisfy ourselves with symbolic gestures and celebrity circuses. We perceive no greatness in our leaders, a new meanness in ourselves. Each new election brings a new jolt, its aftermath a new disappointment.

The Prophet Generation is the elder statesmen as we begin this secular crisis. George W. Bush was born in 1946. He is the eldest of the Prophet/Baby Boom Generation. Barack Obama was born in 1961 at the very end of the Baby Boom Generation. These two men have or will lead the United States through most of this crisis stage. George Bush and his cohort of neo-conservatives and their drastic overreaction to the terrorist attacks of 9/11, have set the stage for the most dangerous crisis in U.S. history. A Crisis always results in the appearance of strong leaders. George Washington, Abraham Lincoln, and Franklin Roosevelt rose to the occasion during our previous Crisis episodes. Strong does not always mean wise, thoughtful or right. George Bush exhibited strong leadership during his tenure. Wisdom and thoughtfulness were not two of his better traits. Barack Obama is a smart man and has exhibited some strong leadership skills in his initial weeks in office. He has also exhibited an ability to exaggerate threats to get what he wants. Will he rise to the level of Washington, Lincoln or Roosevelt?

On the day George Bush took office, he inherited an annual budget surplus that was the result of gridlock in Washington and PAYGO restrictions on Congressional spending. The National Debt stood at $5.7 trillion and our unfunded future liabilities for Social Security, Medicare and Medicaid stood at $20 trillion. We had not been at war for nine years. Today, our National Debt is $10.7 trillion, poised to rocket above $13 trillion in the next year. Our unfunded liabilities now total $53 trillion as President Bush signed a prescription benefit plan expansion that added $8 trillion to our grandchildren’s burden. Since 9/11 almost 5,000 Americans have died in battle, with 50,000 Americans wounded. We’ve spent $800 billion, so far, on a war that didn’t need to be fought. Untold thousands of Iraqi and Afghan civilians have been killed or wounded, despite the fact that none of the 9/11 terrorists were from Iraq or Afghanistan. Fifteen of the nineteen hijackers were from our “staunch ally”, Saudi Arabia.

The acts of a terrorist organization consisting of less than 2,000 members resulted in actions by an American President that resulted in declining American moral influence throughout the world, increased terrorism around the world, budget deficits that threaten the very existence of our capitalistic system, and an American public that is angry, disillusioned and confused. Doug Casey in 1997 described the future actions of George Bush to a tee. “ The Boomers in Elderhood will be dogmatic, harsh, puritanical, and quite willing to burn down the barn in order to destroy whatever rats they see.”

Domestically, the period from 2001 to 2008 could be described as “Boomers Gone Wild”. Boomers in their 40′s and 50′s now dominate society, as they have assumed the positions of power in government and business. Based on what they have accomplished so far, I truly fear for what comes next. After 9/11, President Bush urged Americans to spend to defeat terrorism, while Alan Greenspan lowered interest rates to historically low levels. This was like waving a red cape in front of a bull. The materialistic, self actualizing, individualistic Boomers went on the grandest borrowing and spending spree in the history of the world. Their mission: Save the world from terrorism by buying a 6,000 sq ft McMansion, the largest HDTV, the biggest Hummer, and most expensive Rolex. Boomers running Wall Street were happy to oblige with loans and complex derivatives to finance the Mardi Gras like celebration of capitalism.

The aftermath of the eight years of partying is, not surprisingly to some, the greatest hangover in the history of the world. There are 19 million vacant homes, 10% of all homes in the U.S. are in foreclosure, 20 million homeowners are underwater with their mortgage, $30 trillion of consumer wealth has be obliterated, the savings rate dropped below zero, consumer debt levels are at historic levels, and the banking system is insolvent. The Boomer economists, like Paul Krugman, are sure they have the answers (they don’t) and the current bank bailout tab has already reached $9.7 trillion. You have to hand it to Americans, we truly believe bigger is better. If this is the easy part of the twenty year crisis, I’m not looking forward to the hard part.

Winter of Our Discontent

We enter 2009 and the Presidency of Barack Obama with citizens pessimistic about the future of our country. The public has lost faith in government, financial institutions, and religious institutions. Distrust of politicians, bankers, CEO’s, financial advisors, and moral leadership is well founded. The popular culture of over hyping public figures and then tearing them down has led to everyone and everything being discredited. The personal and public choices that will be required in the next few years will be harsh. Moral courage and leadership is what is needed. As I watch the likes of Barney Frank, Nancy Pelosi, Rush Limbaugh, and Sean Hannity work their rhetorical magic, it is clear that we have a major deficit in wisdom, courage and leadership. Instead of analyzing how we got here and how we want the country to be in ten years, when this crisis has past, we are focused only on specific right wing or left wing agendas and how to position ourselves for the next election cycle. The short sightedness of our current leadership will lead to the next more dangerous phase of this crisis.

Congress will pass a stimulus bill with wave pools, Frisbee golf courses, digital TV coupons, tax incentives to borrow money and buy houses and cars, and billions more of pork in the next week. The bill is being sold as an infrastructure bill despite the fact that only 5% of the bill is for infrastructure. President Obama will sign it. The second helping of TARP will be dished out to banks, insurance companies, automakers, and people who bought more house than they could afford. It is tough to predict what will happen in the next week, let alone the next decade. Here is my best guess:

  1. The stimulus bill will grow to $900 billion (this is how Senators & Representatives compromise) and be passed on party lines, with virtual Democratic Senators Specter and Collins showing their true colors and providing the deciding votes. President Obama will use fear tactics, convincing the non-thinkers that inhabit most of America that not passing this bloated pig of a bill will result in a permanent Depression. I’d love to find out which economists told him this would happen. Every dime of this stimulus package will be borrowed from foreign countries and be paid for by increased taxes on future generations. An unfunded tax decrease or spending increase is a tax increase for our children and grandchildren.
  2. Timothy Geithner, our TurboTax expert Treasury Secretary, will introduce the sixth variation of the TARP program since we were told it had to be done to save the world from collapse. It will not do what needs to be done. Smoke and mirrors will not pay off debt. The bankrupt financial institutions and corporations (Citigroup, Bank of America, General Motors, Chrysler) must be put into receivership and their shareholders wiped out. Good banks should take over from bad banks. Corporations with sound management and viable business plans should prosper. Corporations that sell every product at a loss, financed by its subsidiary at a further loss, must go out of business.
  3. We are in the midst of a Global recession. Every country in the world is decreasing their interest rates, trying to devalue their currency, protecting domestic businesses, and subsidizing domestic employment. Every politician on the planet is playing to their constituents with protectionist rhetoric and actions. There are Buy American clauses in the stimulus package. French President Sarkozy has been ratcheting up protectionist ideas. Calling your biggest lender a currency manipulator months before you will need to borrow an additional $2 trillion is probably not a bright idea. Our new Treasury Secretary did just that last week. Protectionist measures will lead to retaliation and a worsening global economy.
  4. The Federal Reserve has doubled their balance sheet in the last year. They’ve done this by printing $1 trillion. They will double their balance sheet again if that is what it takes to generate inflation. They have bought toxic assets from banks but will not reveal the banks or assets they’ve bought, to the public. They work for taxpayers, not vice versa. Pundits on CNBC casually say that the Fed can just print money and everything will be OK. Their words prove that the Federal Reserve System is just the BIGGEST PONZI SCHEME ever perpetrated on the U.S. public by bankers in conspiracy with government. The Federal Reserve chairman Bernanke did not see this crisis coming. He thought we had a strong housing market, when any impartial observer, such as Robert Shiller, proved that we were three standard deviations too high. Mr. Bernanke will succeed in igniting inflation. He will not see it coming and as a political animal, will not pull the punch bowl away before the party gets going. Inflation will get out of control within three years.
  5. The annual deficit for 2009 will exceed $2 trillion. The government bean counters haven’t realized that people without jobs don’t pay taxes and companies with no profits don’t pay taxes. When you bring in less tax income, increase spending, and send out tax rebates to all Americans, deficits tend to rise. In the next two years the National Debt will exceed $15 trillion. GDP is headed in the opposite direction and will drop below $14 trillion in 2009. At this rate of increase, we’ll be approaching the debt to GDP ratio of 120% reached during WW II by the end of the Obama Presidency. This increase in debt combined with the enormous printing of dollars by the Federal Reserve will drive the value of the dollar down. The only question is whether it will go down slowly or violently.
  6. The U.S. has been dependent on Japan, China, and the Oil exporting countries to purchase our debt in the last ten years. Japan has entered recession and will need to stimulate their economy. Social unrest is growing as factories shut down in China. The government has begun domestic stimulus programs and will need more. Oil revenues have dropped 70% in the last year for the oil exporting countries. With their own domestic issues and U.S. Treasuries yielding 3% to 3.5% and U.S. annual funding needs of $2 trillion, demand is likely to wane. The only possibility is dramatically higher rates. High interest rates devastate a heavily indebted country.
  7. Oil prices below $40 a barrel will lead to a deepening of this crisis in the not too distant future. At these prices it is no longer profitable to develop alternative fuels and search for new supply. Rigs are being shutdown, deepwater projects cancelled, shale and oil sands projects being delayed, and natural gas exploration dramatically scaled back. The fact remains that the world has reached peak oil supply. The Saudi wells are 50 years old and are depleting rapidly. Mexico’s Cantarall oil field is in rapid decline and Mexico, the supplier of 12% of U.S. supply, will become a net importer in five years. The drastic decline in oil revenue will further exacerbate social unrest in a country on our border. The complete lack of a comprehensive energy plan will result in oil prices exceeding $200 a barrel in the next five years. Politicians will blame oil companies and the Arab countries, further alienating us from the world.
  8. The Military Industrial Complex will grow stronger. We have no intentions of leaving Iraq and we will double our presence in Afghanistan. The Defense (should be called Offense) budget will increase. We will be told that the Russian threat is growing. We will be told that China has aggressive intentions and that Iran threatens the Middle East. The public will go along because they don’t think for themselves. We will be told that the Defense industry generates American jobs. As the government identifies false threats, they will take away more rights and liberties in the name of protecting us. It will be gradual and almost unnoticeable to the Average American, but it is happening. A stronger more powerful Military will want to prove itself. They will be itching for action. When you are a hammer, everything looks like a nail.
  9. Boomer leaders are always sure, and often wrong. They are dogmatic and cocky. They utter the words catastrophe, without specifying what will happen if you don’t follow their plan. They say that we will enter a permanent decline if we don’t spend our way out of a situation that was caused by spending too much. Boomer followers are so shallow and self involved that they will put reason aside and believe that we can spend our way out of this. The easy sound bite solution is what they are looking for. The word sacrifice does not exist in their vocabulary. The well being of future generations is of no interest to them. The day trading, house flipping, BMW driving Boomers are looking for the next big thing. The danger is that the next big thing could be a major war. They are too old to fight, but they are not too old to send others to their death.
  10. The stimulus package and TARP 6 plan will be implemented. The economy will not improve. By the Fall, Obama and the Democratic led Congress will push through trillions more in spending. The dollar will continue to fall versus gold. As the deficits grow and foreigners buy less and less of our debt, interest rates will rise. Oil will gradually rise as long as no external event causes it to spike. Protectionism will increase, leading to declining world trade. When we have not pulled out of this downturn in 2010, people will realize we are in a Depression and politicians have lied to them again. Social unrest will grow. Riots are likely to break out in poor urban areas. Governments always react to internal strife by seeking an external threat.
  11. The external threat could be anything. Russia could invade Ukraine. Israel could attack Iran. When oil reaches $200 a barrel, disputes over drilling rights in the Arctic with Russia or China could cause a confrontation. Oil is the lifeblood of our society. If major shortages occur in the U.S. it would bring the country to a grinding halt. The panic would be so drastic that our Leaders will use every means at their disposal to get more oil. With the most powerful military on the planet at their disposal, and itching for a fight, our Leaders will manufacture a reason to go to war in order to secure oil supplies. The problem with waging a major war is that you need troops to sacrifice. The volunteer army will not do. When the government tries to reinstitute the draft, the fabric of this country will be torn to shreds. This will be where I get off this merry-go-round ride.
  12. In ten years my sons will be 25, 22, and 20. They will not be sacrificing their lives for oil, bankers, corrupt politicians, and Defense industry CEOs. If I see the future developing as I fear, I will move my family out of this country to a place where individual liberties are respected, sound fiscal policy is practiced, and people can live in peace. I don’t know if that place exists, but I’ll be looking.

The good news is that every modern Crisis has been followed by a new High. Of course, in every modern U.S. Crisis we had a strong leader. Will Barack Obama be that strong leader? If no strong wise leader emerges, could we follow the path of the Roman Empire? Can we as individuals change the course of history? I don’t know the answers to these questions. It is up to each of us to analyze the facts and act accordingly. A recent song by The Fray, You Found Me, asks the question we will all need to answer.

Where were you?

When everything was falling apart

By James Quinn

James Quinn is a senior director of strategic planning for a major university. James has held financial positions with a retailer, homebuilder and university in his 22-year career. Those positions included treasurer, controller, and head of strategic planning. He is married with three boys and is writing these articles because he cares about their future. He earned a BS in accounting from Drexel University and an MBA from Villanova University. He is a certified public accountant and a certified cash manager.

U.S. and European Economies Accelerating Decent into Marxism

U.S. and European Economies Accelerating Decent into Marxism

Economics / Credit Crisis 2009 Jun 05, 2009 – 12:45 PM

By: Ty_Andros


Diamond Rated - Best Financial Markets Analysis ArticleFingers of Instability, Part III:
The Banks
Command Performance
Wealth Creation
Descent into Marxism!

IntroductionThe descent into MARXISM is accelerating at a startling rate. Public servants and blind ideologues are stopping at nothing to achieve CREEPING CONTROL over the private sector of the United States of America. As the US economy continues to plummet, the mainstream media continues to talk about GREEN shoots and recovery to get the sheeple, er … people to FEEL GOOD long enough to get their plans ENSHRINED in law. Once passed, never repealed, and essential to your future security.

I refer to nationalization of the health care system and something called the American Clean Energy and Security Act of 2009. A nice title to garner support from the functionally illiterate products of the public schools who can neither think logically, nor have any knowledge of history or any interest in the facts behind the headlines. The resulting outcomes are EXACTLY the opposite of its title, as it moves the United States further and further from energy security. Only the most HOPEFUL can believe the government can solve their healthcare and energy problems. You can expect costs to increase 100 to 1,000% once they have worked their SOLUTIONS.

Look no further than Fannie Mae, Freddie Mac, AIG, the Post Office, Medicare, Medicaid and social security to see what healthcare and the energy industry will become, because consuming more than you produce increasingly expands into these areas of the economy. These are known in China as “STATE OWNED ENTERPRISES” since they are permanent wards of the state, never profitable, can’t compete in the marketplace except through mandates of market share, and only kept open to provide employment to avoid civil unrest or to reward a primary constituency. It is a good description of what’s unfolding in Amerika, er … America.

Who pays for this? Not the government, not Congress, not the President: you do! I predict GM and Chrysler will NEVER make a penny of profit again and the cars they make will sell only because they will pass laws and regulations forcing you to purchase them, rather than that be of your own choosing. Why compete if the owners of the company can just pass a law and force market share to themselves? You can look for this to increasingly unfold as Chrysler and GM continue making cars that MANY DO NOT WANT. Politics is clearly at work as revelations that all the Chrysler dealers who supported the GOP were the ones that GOT THE AXE! Illinois politics on a national level.

Radical environmentalists are IN CONTROL of the federal government, and US domestic oil and gas production is under full scale assault from our overlords (and their campaign supporters) in Washington, D.C. America exports hundreds of billions of dollars a year for imported oil. This was a prime issue in the last election in which BOTH parties PROMISED to allow domestic energy development. A case of amnesia has descended and now the prospects for keeping more of those exported dollars at home creating domestic resources and jobs is UP IN SMOKE. While they were at it, they have brought the domestic mining industry to a virtual halt as well, TO PROTECT YOU.

Can you imagine ANY public servant not believing in maximizing domestic production of energy, FUELS and natural resources for domestic use? What do you think we will do when the dollar is worthless and we have to buy these supplies in something other than dollars? Do you think we will be secure then? Do you think wind, solar and biofuels will substitute? Traditional domestic power generation is also being prohibited from development and new nuclear, coal and oil generation is on the cusp of being regulatory casualties and virtually OUTLAWED.

The existing energy industry is about to have their profits confiscated through the above mentioned legislation and their capital REDIRECTED to primary supporters of the Administration and Congress, into industries such as ethanol and green energy, which will NEVER produce more than they consume in capital. This is misallocation of precious capital to MALINVESTMENTS which will NEVER pay for themselves or turn a profit. Who pays for this? Not Congress. The public, aka “you” do!

They call this WISDOM in Washington and the DEATH of common sense on MAIN STREET, unless you have been brainwashed by the mainstream media, public schools and CRONY capitalists who are SET TO FEED at the public trough, aka YOUR WALLET. You know who they are as they appear with politicians and sing the siren song of GLOBAL WARMING, a hoax on the uninformed and functionally illiterate who fall for this new version of the “TAXMAN in DISGUISE”!

The Banks

The banking system is as INSOLVENT as it was last week, last month, last year and two years ago. Eviscerating FASBY 157 did not change the losses sitting on their balance sheets or the lack of dealing with them. Most, if not all, of the PROFITS from the first quarter came from a little accounting sleight of hand that lets you record a profit when the value of outstanding bond issues declines (issued debt from the bank). For example, let’s say a Citigroup bond is priced at 70 on January 1, 2009, and on April 1, the bond is trading at 63, a loss of 10% for the bondholder; but Citigroup gets to record a PROFIT of an equal amount, because if they bought the debt back on April 1, they would have paid less to their lender. Of course they DID NOT buy the bond back, which would have actually been a profit, but they get to BOOK the profits anyway. NO MATTER in the eyes of the accounting regulators, it still counts.

The stress tests were and are a joke. When they did not fall into the areas of solvency which the 19 banks desired, they just argued their way to values they could accept. The regulators are obviously CONTROLLED by those that they regulate. NO NEWS in that supposition. Let’s look at lobbying and CAMPAIGN contributions from a recent Wall Street Journal article leading up to the political pressure on the Financial Accounting Standards Board until they changed the rules in late April;

Congress Helped Banks Defang Key [Accounting] Rule!

This is a partial list of fiscally and morally bankrupt lawmakers and financial industry associations colluding to FOOL the public as to the solvency of the financial institutions. The total lobbying expense ($27,571,656) and CAMPAIGN ($285,851) is $27,857,507, which is a cheap price indeed to mask trillions of dollars of losses and their fiscal and moral bankruptcies. All are Benedict Arnolds, public servants and the Oligarch industry trade groups. It is just amazing how thoroughly controlled the beltway is by the banksters, er …bankers. In addition, everyone talks about the capital ratios and tangible equity levels. They are a joke, as in January, HUNDREDS of BILLIONS of OFF BALANCE SHEET toxic assets fall back onto BIG BANK balance sheets, instantly puncturing the illusions now being put into the headlines.

Take look at these unfolding categories of lending distress which are from the New York Times:

These loans are at record “all time highs” in terms of defaults and are not going to be turning around any time soon. In fact, all categories of credit deterioration can be expected to accelerate into the fall, as the federal government SUCKS the life out of the private sector with their borrowing requirements. This means less ability for the private sector to access, roll over and service credit. The belief that the worst is over for the banks is a fairy tale.

Whoever is buying their debt and equity is just the latest patsy. When they realize they have been DUPED by the US Treasury, the Fed and the Administration, watch what will unfold when HOPE turns to FEAR. Credit availability is crumbling, so credit cannot roll over. Look for acceleration in defaults throughout the rest of the year.

Deflation looms as nails in the coffins of lenders and borrowers:

The Fed and Treasury could care less about the borrowers (other than lip service), but the lenders own them. You can expect massive new amounts of money to be shoveled to them, in one way or another, in plain sight or hidden from view in off-balance-sheet transactions, of which it has been reported there are over $9 Trillion already.

In today’s Wall Street Journal, prominent analysts and Moody’s Credit Rating Agencies said:

“I’m an optimist by nature, but it’s perplexing because there are still problems out there,” said William Mutterperl, a lawyer at Reed Smith LLP in New York and a former vice chairman at PNC Financial Services Group Inc. “No one has suggested foreclosures are going down, and I don’t think anyone is saying loan quality is getting any better.”

Analysts at Moody’s Investors Service warned Tuesday that U.S. banks with debt that is rated by the Moody’s Corp. unit face about $470 billion in losses through next year. If the economy continues to suffer, those losses could swell to $640 billion, and Moody’s would likely accelerate its bank-debt downgrades.

“In such a scenario, absent continuation, and likely deepening, of U.S. government capital and liquidity support programs for the banking industry, numerous banks would be insolvent,” the Moody’s analysts wrote.

One executive at a New York bank said investors seem to be embracing any tidbit of good news, while ignoring red flags about banks’ ill health. He compared the industry with an intensive-care patient who has stabilized but remains critical. “A bucket of cold water will be thrown in people’s faces,” the executive said.

Additionally, household wealth and income HAS collapsed:

Throughout the G7, the insolvency is also percolating along: Spain, the UK, Germany and others hide behind their respective government regulators. Losses are just piling up day after day with NO RECOGNITION of the deteriorating COLLATERAL values or that of their secured and unsecured lending.

Look at Spain, which virtually HAS NOT recognized falling real estate mortgage values. I could not figure out how they dodged the bullet. Now it’s clear: they took it and NEVER REPORTED THE LOSSES. You can’t make this stuff up. It’s called regulatory forbearance, and it is now a virus THROUGHOUT Europe, as banksters and G7 public servants COLLUDE to fool and hide these issues from the public. Money printing is the only thing that can save these banks, borrowers and lenders and it will be done, by hook or by crook. Inflation is the only escape… When the true story is known about the moral and fiscal bankruptcy of the G7 financial and public servants’ actions during this time, the consequences will be a “Crack-up Boom”.

Command Performance

As investors around the world question the new Administration and Congress about their plans for funding the legislation they are implementing, Treasury Secretary Tim Geithner is in Beijing for a hastily-scheduled meeting with the Chinese. The Chinese are very good at math, having invented it thousands of years ago. Every investor in the world who holds dollars or treasury securities – both IOU’s – must be concerned. The Gang up on the hill in D.C. have shown no intention of changing their spending or legislative assault on the US economy, the dollar or the bond markets, purposely driving investors off a cliff. They are immoral, fiscally- and mentally-bankrupt public servants and their elite constituents and crony capitalists.

Treasury Secretary Geithner is not there for a polite tea party. He is being called on the carpet to clearly lay out Washington, D.C. spending and printing plans. I am sure they did not like the message, or his attempt to speak to them the way he does to the DUMBED-DOWN American electorate. He spoke at Beijing University about the virtues of risk-free securities known as Treasury Bills and Notes. When he finished his speech, the attendees LAUGHED! This is a very bad turn of events for the bozos in D.C. Basically he said: don’t worry, we will get responsible AFTER we print the money. I don’t think they laughed after that message.

Most people know of Professor Nouriel Roubini and his accurate diagnosis of the unfolding financial industry implosion. Years ago he was looked at as some nut, today he is recognized as some sort of seer, and here is what he sees now:

“If we’re going to finance budget deficits by printing money, we may have high inflation, even risk of hyperinflation in some countries. That’s what happened in Germany in the 1920s during the Weimar Republic. We are having large budget deficits and increasing the public debt, we don’t know whether it’s going to be $5 trillion or $10 trillion of more debt. But there are only a few ways of resolving that debt problem: either you default on it as countries like Argentina did; or you use the inflation tax to wipe out the real value of the debt; or you have to raise taxes and cut government spending. And given the size of the deficits, over time that’s going to be a painful political choice to make.” ~ Nouriel Roubini, May 24, 2009

It’s no choice at all for the fools on Capitol Hill as they say “we got the votes”, and now it is time for them to implement their perceived mandates for “change”, regardless of the COST. In addition to the budget deficits which will double the ON BALANCE SHEET borrowing, nobody is talking about the OFF BALANCE SHEET LIABILITIES which are mushrooming higher like a nuclear blast! Let’s take a look at the other inescapable issues and their costs if properly accounted for:

The recognized “cash based” numbers are set to double over the next four years, but the bigger columns of numbers are widely understood as the REAL extent of the liabilities by readers of this letter, as I have been reporting them for years along with many others. EVERYONE pretends they are not there, including the Chinese and all other Dollar holders. But these off balance sheet liabilities and accounting fictions are not limited to the US. This picture is woven throughout the fabric of the G7 and the EU to varying extents.

The venerable Art Cashin of UBS notes:

“On May 27th Moody’s said it had no plans to reduce America’s coveted AAA debt rating. But on the same day John Taylor, a professor at Stanford University and the creator of the Taylor rule on monetary policy, wrote in the Financial Times that the American government “is now the most serious source of systemic risk.”

Let’s look at the NEW run rate for borrowing by the US government:

It dwarfs the past deficits, and the Administration says they will address it AFTER a recovery has taken hold. If you believe that, I have a bridge to sell you, because there will be no recovery as the stimulus plan is a PERMANENT expansion of government, not a stimulus bill. Year over year, US government revenues have declined 34% through April. 50 cents of every Dollar spent is going to be borrowed. Try that with your personal finances. It’s absurd. So they will borrow the money and send you, foreign lenders and Dollar holders, the bill.

What do you think will happen if Treasury Bonds and Notes, as well as the Dollar, decline 20% in the next 6 months? What do you think foreign holders will do when confronted with these potential losses? The answer is self evident. I said it in the last newsletter: the US economy will be buried by the beltway, legislatively, over the next 6 to 8 weeks, thus guaranteeing a HYPERINFLATIONARY depression as incomes collapse, borrowing skyrockets, and the printing press is the only avenue of escape.

The debts and future liabilities are unpayable and it will end as has every other fiat currency and credit system since history began, through the soft defaults of the printing press. The idea that you can store wealth in worthless coupons called G7 money is false. You can store wealth in money as long as it exhibits these following functions.

Real Money has five functions, as:

  1. A Medium of exchange
  2. A Store of value
  3. A Measure of value
  4. A Standard of value
  5. No one else’s liability

Imitation money has three definitions:

  1. A Medium of exchange
  2. Someone else’s liability
  3. Supply which can be printed on paper at virtually no cost or created with a keystroke

The Chinese and many others ATTEMPT to store wealth in IMITATION money. You and they can’t. The Zimbabwe-ization of the G7 is unfolding right in front of us….

Wealth Creation

The deindustrialization of the US economy commenced just after the Korean War. At that time, America was the greatest industrial power in the world and over 30% of GDP was from manufacturing. Today, that percentage has declined to less than 10% and the wealth creation from those activities now comes from MISSTATED inflation masquerading as growth. The following was sent to me in an email. I do not know who wrote it, but it is true:


John Smith started the day early having set his alarm clock (MADE IN JAPAN) for 6 a.m.

While his coffeepot (MADE IN CHINA) was perking, he shaved with his electric razor (MADE IN HONG KONG).

He put on a dress shirt (MADE IN SRI LANKA), designer jeans (MADE IN SINGAPORE) and tennis shoes (MADE IN KOREA).

After cooking his breakfast in his new electric skillet (MADE IN INDIA) he sat down with his calculator (MADE IN MEXICO) to see how much he could spend today. After setting his watch (MADE IN TAIWAN) to the radio (MADE IN INDIA) he got in his car (MADE IN GERMANY) filled it with gas (FROM SAUDI ARABIA) and continued his search for a good paying AMERICAN JOB.

At the end of yet another discouraging and fruitless day checking his computer (MADE IN MALAYSIA), John decided to relax for a while. He put on his sandals (MADE IN BRAZIL), poured himself a glass of wine (MADE IN FRANCE) and turned on his TV (MADE IN INDONESIA), and then wondered why he can’t find a good paying job in AMERICA.

And now he’s hoping he can get help from a president (MADE IN KENYA), Mr. Obama (Originally Born African Managing Americans).

Thank you, Mr. or Ms. Anonymous. Wealth is created when you produce more than you consume and accumulate capital and savings to invest in future production, and it has DIED in the G7. Real wealth creation from small business and entrepreneurs is moving toward extinction in the US, replaced by the printing press and BORROWING. It could not be recovered even if we wanted it to be, as American labor, corporate tax and regulatory policies are locally and globally uncompetitive. On top of which, the current Administration and Congress do not understand that the private economy must GROW to create rising incomes. Growth in government is not growth as politicians believe. If the government spends +12 % of GDP on new programs and the GDP contracts at -6%, then if the spending does not occur, the actual rate of economic decline is negative – 18 % (the Commerce Department measures government spending growth and calls it GDP growth even if the money is borrowed, an illusion of growth). An ever expanding leviathan government creates not one dime of new wealth or income taxes…only private sector jobs and businesses do…

Descent into Marxism!

I couldn’t resist passing this article on to all TedBits readers this from PRAVDA out of Moscow commenting on the rapid slide of Amerika, er … America into Marxism. The irony is PRICELESS:

Of course it’s all true and that is the saddest part of this…..

In conclusion:

The G7 economy is essentially still descending into an inflationary depression. The quantitative easing is flowing directly into financial and commodity markets seeking shelter from the unfolding blizzard of printed money of all stripes: Dollars, UK Pounds, Yen, Swiss Francs, and soon Euros. Today, Chancellor Angela Merkel of Germany BLASTED the G7 central banks for their policies of money printing. Kind of like the pot calling the kettle black, since the German banks are maybe the most insolvent and highly leveraged in the world. Trillions will need to be printed to rescue them before this crisis has passed.

In congressional testimony today, Fed Chair Ben Bernanke said the Federal Reserve WILL NOT monetize the debt, setting the stage for a showdown with the FOOLS on Capitol Hill and the President. His term is up in January, and he either buckles or he will be replaced by someone who will monetize it: i.e., Larry Summers, Chair of the President’s Council of Economic Advisors.

What happens when they do monetize the debt further? Contrary to his assertions… Be very afraid. This is slated to happen in the next 6 months as Treasury borrowing is set to explode to over $2 Trillion and many multiples of this number in the G7. Many of these auctions are bound to fail unless long-term interest rates skyrocket or quantitative easing is DRAMATICALLY accelerated.

The pickup in the housing markets has been halted by the backup in mortgage rates, so expect them to reaccelerate to the downside. Foreclosures are picking up as the foreclosure moratoriums end. Massive new supply and more expensive money will do this.

Incomes continue to plummet on all levels: Federal, State, Municipal, Corporate and individual, insuring the increasing distress in the Bond, banking, and financial communities. You can expect the insolvencies to accelerate as well as the defaults on the borrowing of all of the above.

Marc Faber is interviewed on and reports: Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

The only way to stem the Dollar’s and Bond’s decline would be a flight to quality from a huge down move in stocks to create a perceived FLIGHT to quality. Be on the lookout for the groups (plunge protection team) monetizing the stock markets to quit doing so. They have largely accomplished the re-inflation of bank stocks to attract new patsies to FUND their unfolding insolvencies. It’s done and possibly so is the rally.

The bright side to this is VOLATILITY is set to rise again and “Volatility is Opportunity” in all markets. Investments with the potential to thrive in rising and falling markets should be considered. Just keep in mind that the G7 will “print the money”; on that you can be sure….

I will be doing several presentations on the unfolding “Crack-up Boom” and inflationary depression at FREEDOMFEST, July 9th through the 11th. I urge you to attend. You can find information at I will be meeting with people upon request. Just call me and let’s get together… Hope to see you there; last year was exciting.

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By Ty Andros
Copyright © 2009 Ty Andros

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U.S. Housing Mortgage Market Meltdown, More Pain To Come

U.S. Housing Mortgage Market Meltdown, More Pain To Come

Housing-Market / US Housing May 31, 2009 – 01:24 PM

By: Mike_Shedlock


Diamond Rated - Best Financial Markets Analysis ArticleT2 Partners has a phenomenal series of charts on the housing crisis stating Why There Is More Pain To Come.

The report is 69 pages almost all of them loaded with charts. I took a liberal selection below, adding plenty of comments, but please take a look at the original article for many additional charts. All charts below are from the article. Quotes from the article in italics. My comments are in plain text.

Case Shiller vs. Lawler

Nearly everyone is familiar with Case Shiller. I suspect most have not heard of Lawler. Interestingly there is a feud of sorts between the two as noted by the Wall Street Journal article Outlook for Home Prices Clouded by Spat Over Historical Trends.

Yale University economist Robert Shiller has often dazzled audiences with a chart showing home prices from 1890 to present. Someone even used Mr. Shiller’s chart to make a YouTube video that puts its viewer on a roller-coaster ride over peaks and valleys in home pricing. It’s a bumpy ride.

Now another economist, Thomas Lawler, says Prof. Shiller’s chart is “bogus.” Mr. Lawler says Mr. Shiller cobbled together data that are inconsistent and sometimes unreliable. Mr. Shiller defends his work and accuses Mr. Lawler of making “wild allegations.”

No one has found a precise way to measure changes in house prices. Because no two homes are exactly alike, changes in the price of one won’t necessarily be matched even by apparently similar homes nearby, much less those hundreds of miles away.

But that doesn’t stop analysts from extrapolating from what may be dubious data. In a March 30 report, T2 Partners LLC, a New York hedge-fund manager, drew on the Shiller chart to conclude that on average U.S. home prices need to drop another 13% to get back in line with the long-term trend.

Mr. Lawler has created an adjusted version of the Shiller chart, backing up his view that house prices already are nearing a bottom in much of the country. A T2 partner called Mr. Lawler’s critique “valid.”

I guess we need to define “nearing a bottom”. We also need to look at concentrations of houses. Does it matter much if home prices are bottoming across vast sections of the farm belt with low density houses if the big cities are still declining rapidly?

Certainly we are closer to a bottom than two years ago but I am betting the bottom is still years away although the rate of decline is slowing.

Mortgage Debt vs. Equity

Americans Have Borrowed Heavily Against Their Homes Such That the Percentage of Equity in Their Homes Has Fallen Below 50% for the First Time on Record Since 1945.

Gorged In Debt

Over the Past 30 Years, We Have Become a Nation Gorged in Debt – To The Benefit of Financial Services Firms.

Think that leverage is coming back? I don’t. The Effect of Household Deleveraging on Housing, Consumption and the Stock Market is going to be far greater than most realize. This bubble will not be reblown, just as the Nasdaq bubble was not reblown after the tech crash.

Peak Credit and her twin sister Peak Earnings have arrived.

Surge of Toxic Mortgages

It took a decade to blow the bubble. It is going to take more than a few years to clear it.

Fannie Mae and Freddie Mac Account for 56% of Mortgages

Private Label Mortgages (Those Securitized by Wall St.) Are 15% of All Mortgages, But Are 51% of Seriously Delinquent Mortgages.

Mortgage Delinquencies as Percentage of Loans

Nearly 8% of Mortgages on 1-to-4-Family Homes Were Delinquent or in Foreclosure as of Q4 2008.

This number is bound to get much worse, and/or taxpayer bailouts get much bigger given that job losses are over 500,000 for months on end. Moreover, Fitch estimates 75 percent of the modifications now being done through the administration’s Making Home Affordable program will re-default in six months to a year. Please see More Prime Foreclosures; More Re-Defaults for details.

Subprime Resets

Here’s the good news:
The Wave of Resets from Subprime Loans Is Mostly Behind Us.

Alt-A Mortgage Resets

Here’s the bad news:
There Are $2.4 Trillion of Alt-A Mortgages and Their Resets Are Mostly Ahead of Us.

Option Arm Oiginations

About $750 Billion of Option ARMs Were Written, Nearly All at the Peak of the Bubble.

Option ARMs by State

California accounts for 58% of all Option ARMs. Think Wells Fargo, a big option ARM player is going to come out of this glowing? Warren Buffett does. I don’t. Place your bets.

Option Arms Index vs. Fannie Mae 30 yr Index

Beginning in March 2005, High-FICO-Score Borrowers Opted for an Above-Market-Rate Option ARM in Exchange for the Low Teaser Rate

Option ARM Delinquencies

Delinquencies of Securitized Option ARMs Are Soaring

Cal Sales vs. Home Equity Loans

Think new car sales are going to come soaing back with rising unemployment and tightening loan standards? Think again.

Case Shiller vs. NAR Median Sales Price vs. OFHEO Index

Home Prices Are in an Unprecedented Freefall

Bubble Market Declines

The bubble markets (where most people live), have taken a brutal beating.

24% of Homeowners With a Mortgage Owe More Than the Home Is Worth, Making Them Far More Likely to Default

Shiller Lawler Trendlines

Home Prices Need to Fall Another 5-10% to Reach Trend Line

Whether you believe Shiller or Lawler, home prices still need to fall to reach the trendlines. Moreover there has never been a bubble correction in history that stopped right at the trendline.

Change In Nonfarm Payroll Employment

There have been job losses every month since December 2007. Moreover, there is no letup in sight as Continuing Claims Approach 6.8 Million, 17th Consecutive New Record.

The dip in initial claims from the March peak of roughly 650,000 is not accelerating very fast, if indeed at all. Those looking for a recovery in jobs soon are going to be disappointed.

Economists expect to see unemployment by 10% at the end of the year. I expect to see it at 9.8%+- by August and approaching 11% by the end of the year. Bear in mind the “stress-free tests” conducted by the Fed had an adverse scenario of 10.3% at the end of 2010.

Declines in Jobs vs. Past Recessions

The Decline from Peak Employment Now Exceeds the Past Five Recessions.

Total Bank Losses

Total Losses Are Now Estimated at $2.1-$3.8 Trillion – And Less Than Half of This Has Been Realized To Date.

Losses & Writedowns vs. Capital Raised

Institutions Have Been Able to Raise Capital to Mostly Keep Up With Writedowns, But This Will Likely Not Continue.

What can’t be paid back will be defaulted on. Consumers with no job have no chance of paying back those debts. Many others who could, won’t (because it is in their best interest to walk away). The Alt-A and Option ARM defaults are going to be massive.

Think this leads to inflation? Think again.

By Mike “Mish” Shedlock

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at .

© 2009 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

The Great Crash Not Over, Stocks Bear Market Rally Built on Sand

The Great Crash Not Over, Stocks Bear Market Rally Built on Sand

Stock-Markets / Stocks Bear Market Jun 06, 2009 – 10:12 AM

By: Global_Research


Diamond Rated - Best Financial Markets Analysis ArticleA recovery is supposed to be in the works in the midst of increased savings, declining debt balances on credit cards, more bankruptcies, higher unemployment and new wave of foreclosures. Consumer participation in GDP is down from 72% to 70.4%. Bank and other financial firms’ balance sheets are what they say they are and we have a stock market bear rally built on sand just as we had in 1931. And, lest we forget, bogus government statistics calculated to confuse professionals and investors alike.

What an upside down world. How do you make money when you are losing money? Wait until late July and in August when the second quarter earnings are released by financial firms. They won’t be pleasant reading. The market rally and much of the earnings are simply fraud. Wall Street and investors simply shrug their shoulders and look away. They know but they do not want to know. Ever present in the scams is the SEC, which has never seen a major firm they did not like. Acting on violations only when forced too at large firms and perpetually pursuing the small and medium sized brokers and brokerage firms and newsletter writers. Then there is the veracity of our government for which few have any respect, trust or confidence.

Our treasury department woefully short of revenues has the privately owned Federal Reserve monetizing sovereign debt because they cannot sell it all, some $300 billion in Treasuries and $750 billion in Agency debt as the Fed monetizes an additional $1.5 trillion in bank owned CDOs, collateralized debt obligations, so as to remove them from bank balance sheets so they can purchase Treasuries to compete the daisy chain of fraud. Ten-year Treasury note yields as a result have traded up to 3.84% from 2.35% just five months ago. Foreigners are sellers as an avalanche of Treasuries hit the street. The demand for Treasury funds over the next few years will be colossal. If government raises taxes the economy will fall further. As we forecast earlier the Fed could monetize $2.5 and $4 trillion in Treasuries and other toxic waste by the end of the calendar year. Incidentally, there is not a remote chance that the Fed will ever be able to withdraw funds from the system and every professional has to know that. The result is a collapsing dollar and higher gold and silver prices in anticipation of higher inflation. This year the dollar could easily break 71.18 on the USDX, the dollar index, versus six major weighted currencies. That would again cause, as it did from 11/07 to 6/08, countries and foreign businesses to reject taking dollars in trade. Such an event is in our crystal ball. Propaganda and smoke and mirrors won’t work this time.

Earlier this week our Secretary of the Treasury was booed, jeered and laughed at during a speech to students at Beijing University. That is what minds outside of the box think of our monetary policy. He said trust me, they said no. Needless to say, this was little reported in the mainstream media. The people representing the money powers that control our nation are viewed as an international disgrace. Foreigners recognize the financial Mafia that runs America, but most Americans are clueless to who the real power running America is.

We have heard much about the 40 to 60 times deposit ratios used by banks in the 2003 thru present period. Normally that ratio is 8 to 10 to one dollar on deposit. We painfully remember the subprime and ALT-A loans and the totally unqualified that received them. Then the loans that Fannie Mae and Freddie Mac should have never approved and finally the asset backed securities and collateralized debt obligation bonds foisted on professionals at AAA when they were in fact BBB.

What has not been publicized was the SEC position under pressure from the elitists on Wall Street during the easy money period and the steep yield curve to exempt brokerage houses from the net capital rule. That as well led to leverage of 40 to 60 to one. If the banks could do it they wanted to be able to do it too to compete. That decision ultimately led to five failures. Even a mitigating gold standard could not have surmounted lack of regulation. After almost 50 years in the markets and a former brokerage house owner we know financial institutions should never be allowed to self regulate. If we have financial regulation we cannot have regulators who are friend s with the people they regulate. No revolving door between Wall Street and the regulator. The same goes for the revolving door between Wall Street and banking and Washington, particularly in the Treasury Department. Real interest rates will always rise in a period of monetary and fiscal profligacy similar to what we are now experiencing as a result of unbridled leverage.

Keynesians will tell us such financial discipline is not possible in the real world, but of course it is. They just want to perpetually break the rules. There is no such thing as a self-regulating monetary policy. Distortion reigns instead of a slightly expansive classical free-market model. Markets can be far more rational then they are presently if the players are not allowed to run wild, as we have seen since 2002. In addition a privately owned Federal Reserve should never be allowed to exist never mind take on government responsibilities, such as financial regulation, which is currently contemplated. The Fed has always subordinated monetary policy to the desires of Wall Street and banking and at times has bowed to political expediency. The Fed is responsible for every recession and depression we have had since 1913. The great market distortions are all a product of Fed decisions. The Fed is now using adversity to expand its empire, taking on the responsibilities of government when it should not be allowed too. Its power to print money and credit has to be ended. No more papering over their mistakes or willful arrangements with Wall Street and banking. Who caused the dotcom boom and the housing bubble, they did.

As we predicted long end interest rates are already telling us that their policies are flawed as Treasuries fall in value and yields rise, a reflection of coming inflation, as the same time the dollar is falling and gold and silver are rising. The Fed is in a box and they cannot get out. From a fiscal perspective we have had five administrations that have created tremendous fiscal debt. The damage done by the last two administrations was horrendous. Don’t forget as interest rates rise on debt service the debt gets larger and larger. These higher rates are already limiting any housing recovery and we see rates moving higher; at least to 4% on the 10-year Treasury note. That would translate into a 30-year fixed rate mortgage of about 5-1/2%. That rate will disqualify many borrowers as unsold inventory increases via further foreclosures that will last into 2012. That means further price declines. That will further destabilize the banking system. The unsold housing inventory in lenders hands and the value of CDO and ABS bonds will fall as well.

The answer is elimination of the Fed. Its powers would be returned to the Treasury, which would have to be transparent and the revolving door between Treasury and Wall Street and banking closed. The Treasury would have to run a tight ship limiting money and credit creation to 5% and by raising interest rates. The crisis has to be addressed eventually and the longer it takes the worse it will be. The power to run Washington by Wall Street and banking has to end. The connection has to be broken. Treasury and Congress have to start acting responsibility and the financial service sector will have to accept lower profits, lower bonuses and a smaller industry.

Credit default swaps have to be settled and banned and all derivatives regulated. There has to be a permanent cap on leverage at banks and brokerage houses of 10 to one and their underlying financial bases have to be changed and closely monitored. If we do not make these changes the financial system as we now see it is doomed.

Within 2-1/2 years Treasury short-term debt will be $16.6 trillion, or 110% of GDP. This is close to 1`21% of GDP attained after WWII, as Thomas Jefferson said, “Loading up the nation with debt and leaving it for the following generations to pay is morally irresponsible.” This is the kind of society we have today. This year foreigners will have to buy $862 billion treasuries, up from $724 billion. We don’t see that happening so the Fed will have to buy $1.5 trillion worth, perhaps more.

Legislation to give Congress greater oversight of the Federal Reserve has been severely watered down on the Senate floor in private negotiations between Sen. Charles Grassley (R-IO), the top ranking Republican on the Finance Committee, who wanted more oversight and Richard Shelby (R-AL).

The Grassley Amendment intended to give the Comptroller General of the Government Accountability Office power to audit any action taken by the Fed – the third undesignated paragraph of Section 13 of the Federal Reserve Act, which would be almost everything that the Fed has done on an emergency basis to address the financial crisis, encompassing its massive expansion of opaque buying and lending.

Handwritten into the margins, however, is the amendment that watered it down “with respect to a single and specific partnership or corporation.” With that qualification, the Senate severely limited the scope of the oversight. Richard Shelby was fully responsible for this course of action. Actions will be limited to specific companies. This modified version does not allow the GAO to look at all taxpayer risk. It in no way threatens the Fed’s monopoly on monetary policy and their secret independence. The list of Fed actions that can be probed are listed but they still could be knocked out in committee. They are:

1. Actions related to Bear Stearns and its acquisition by JP Morgan Chase, including:

a. Loan To Facilitate the Acquisition of The Bear Stearns Companies, Inc. by JPMorgan Chase & Co. (Maiden Lane I)

b. Bridge Loan to The Bear Stearns Companies Inc. Through JPMorgan Chase Bank, N.A.

2. Bank of America — Authorization to Provide Residual Financing to Bank of America Corporation Relating to a Designated Asset Pool (taken in conjunction with FDIC and Treasury)

3. Citigroup — Authorization to Provide Residual Financing to Citigroup, Inc., for a Designated Asset Pool (taken in conjunction with FDIC and Treasury)

4. Various actions to stabilize American International Group (AIG), including a revolving line of credit provided by the Federal Reserve as well as several credit facilities (listed below). AIG has also received equity from Treasury, through the TARP, which would also be captured in amendment #1020.

a. Secured Credit Facility Authorized for American International Group, Inc., on September 16, 2008

b. Restructuring of the Government’s Financial Support to American International Group, Inc., on November 10, 2008 (Maiden Lane II and Maiden Lane III)

c. Restructuring of the Government’s Financial Support to American International Group, Inc., on March 2, 2009

5. TALF — finally, amendment #1020 would expand GAO’s authority to oversee the TARP, including the joint Federal Reserve-Treasury Term Asset-Backed Securities Loan Facility (TALF)

*Neither* Amendment #1021 nor #1020 would include short-term liquidity facilities:

1. Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility
2. (AMLF)
3. Commercial Paper Funding Facility (CPFF)
4. Money Market Investor Funding Facility (MMIFF)
5. Primary Dealer Credit Facility and Other Credit for Broker-Dealers (PDCF)
6. Term Securities Lending Facility (TSLF)

Section 404 of the Sarbanes-Oxley legislation has been a bonanza for accounting firms. It has caused a high proportion of major foreign companies to de-list themselves from the NYSE and it has erected an artificial barrier to the globalization of capital markets. Thus, it isn’t all bad as depicted by corporate America.

The size of the commercial paper market, a vital source of short-term funding for daily operations of many companies, fell $3.6 billion to $1.245 trillion, from $1.248 trillion the previous week. Asset-backed CP outstanding fell 8.3 billion to $557.4 billion after falling $8.7 billion the prior week. The top was $2.2 trillion.

Mortgage rates surged 0.38%. The 30-year fixed rate was 5.29% up from 4.91%.

Sales were weaker than expected at 63% of the 30 retailers tracked by Thomson Reuters. The S&P retailers index fell 2.5%. May same store sales fell 4.8%.

The International Council of Shopping Centers forecast a 3 to 4 percent drop in June same store sales, down from 4.6% in May.

Freight traffic on railroads continued down for the week of 5/23 yoy, off some 21.5%, but up 4.9% week-on-week. Loadings were down 16.4% in the West and 28% in the East. Farm products fell 4.8% and metallic ores fell 59.7%.

Trailers or containers fell 19.1% yoy, and container volume fell 19.1% yoy, as trailer traffic fell 37.2%.

Year-to-date carloads are off 19.3% ytd and trailers and containers 16.8%. Total volume was down 18.2%.

Something that should be remembered is that in 1930 government bonds were used massively for capital safety. In 1931, investors had doubts and started switching to gold, which ran up in price forcing interest rates higher. This is what is happening today.

In 1930, there was no shortage of bank reserves and that carried into 1931. There were excess reserves and interest rates were very low.

The financial atmosphere in 1928-29 was the same as it was here in 2005 and 2006. It was a new era, nothing could possibly go wrong. The Fed refused to reign in cheap money and credit. Commercial paper rates were 1.25% and excess reserves increased four-fold. In the late summer of 1931 gold began its run. History is about to repeat itself.

Fed Chairman Ben Bernanke deliberately lied to Congress this week. The Fed and the NY fed pumped credit aggressively after the 1929 crash and for the remainder of the 1930s. The exception was 1932 when gold took its big run. Bernanke denied this and it is an historical fact. He also duplicitously told Congress the Fed will not monetize debt, but that is exactly what he is doing. Ben is part of the fascist propaganda machine. Tell a lie long enough and big enough and everyone will believe it. This can be called Fed speak. Big Brother would have been very proud of Ben and his fellow Illuminists.

Dick Cheney attempted to win support for harsh interrogation of ‘suspected terrorists’ by controlling the information Congress would receive on the matter, a report says.

In 2005, the former US vice president directed ‘at least four’ related briefings with Congressmen during which he would produce ‘an impassioned defense’ of ‘enhanced interrogation techniques’ — the former administration’s euphemism for torture, The Washington Post reported on Wednesday.

“This is a really important issue for the security of the United States,” one official quoted Cheney as having told the lawmakers.

Officials, attending the meeting from the Central Intelligence Agency (CIA), with whom the program is associated, would also try quelling the Congressmen’s concerns about the program saying the agency owed half of its information on alleged ‘terrorists’ to the methods.

The former top gun has produced an ‘overrated’ account of the security gains of the former administrations ‘anti-terror’ campaign.

He has claimed that the Bush administration’s trademark ‘war on terror’ was likely to have saved “violent death of thousands, if not hundreds of thousands, of people” – an achievement which resembles that of World-War-II intelligence heroes.

The paper quoted Sen. Lindsey O. Graham (R-S.C.) as confirming Cheney’s leading role in selling the program. “His office was ground zero. It was his office you dealt with at the end of the day.”

Two more Iranian families accuse Blackwater, now known as Xe, of murdering their husbands and fathers in Baghdad and covering it up. Azhar Abdullah Ali, 33, a father of three, was a security guard for the Iraqi Media Network when Blackwater mercenaries killed him and two others on Feb. 7, 2007, according to the federal complaint. The family of Rahim Khalaf Sa’adoon claims drunken Blackwater mercenary Andrew Moonen killed Sa’adoon on Christmas Eve, “for no reason,” as Sa’adoon guarded the vice president of Iraq. The security guard family’s complaint states: “The Sabah Salman Hassoon, Azhar Abdullah Ali, and Nibrass Mohammed Dawood are but one of a staggering number of senseless deaths that directly resulted from Xe-Blackwater’s misconduct,” according to the complaint.
Sa’adoon left two young children and his wife.
Named as defendants are Erik Prince, Prince Group, EP Investments LLC, EP Investments LLC, Greystone, Total Intelligence, The Prince Group LLC, Xe, Blackwater Worldwide, Blackwater Lodge and Training Center, Blackwater Target Systems, Blackwater Security Consulting, and Raven Development Group.
Both families seek punitive damages for war crimes, wrongful death, assault and battery, spoliation of evidence, and negligence. They are represented by Susan Burke with Burke O’Neil of Philadelphia.

Nonmanufacturing activity lost ground at a slightly slower pace in May, amid signs the sector may be preparing for recovery.

The Institute for Supply Management, a private research group, reported Wednesday that its NMI/PMI index stood at 44.0 from 43.7 in April and 40.8 in March.

That reading was below the 45.0 expected by economists. The ISM also said that its May business activity/production index came in at 42.4, from 45.2 in April.

The ISM report, which is comprised mainly of the service sector activities that make up the bulk of U.S. economic activity, arrives at a time when economic data are suggesting the recession may no longer be getting worse.

Factory orders rose in April less than expected, a barometer of capital spending by businesses plunged, and inventories fell an eighth straight month.

Orders for manufactured goods increased 0.7%, following a downwardly revised 1.9% decline in March, the Commerce Department said Wednesday. Originally, factory orders were seen dropping by 0.9% in March.

Economists had forecast overall April factory goods orders would rise by 1.0%. The report underscored the weakness of a sector that, while showing signs of improvement, is still limping.

Non-defense capital goods orders excluding aircraft decreased 2.4% in April after sliding 1.4% in March. Those bookings are seen as a yardstick for capital spending by businesses. Demand for durable goods were revised down to an increase of 1.7% in April. Last week, Commerce, in an early estimate, said durables surged 1.9% in April. Durables are expensive goods made to last at least three years, such as cars. Durables fell 2.2% in March.

Non-durable goods factory orders decreased 0.1%, after falling by 1.6% in March. A sign of future factory demand fell, down for seven straight months. Unfilled orders decreased 1.2% in April, after dropping 1.7% in March.

Business spending was atrocious in the first quarter of this year. Outlays fell by 36.9% January through March, after dropping 21.7% in the fourth quarter. The economy in those six months was dreary, with gross domestic product down 6.3% in the fourth quarter and 5.7% during the first quarter. Nearly half of that 5.7% drop was caused by U.S. businesses liquidating inventories to adjust for receding demand. The factory data Wednesday showed manufacturers’ inventories in April dropped 1.0%, after falling 1.2% in March.

More liquidation could be in the offing. The latest Commerce Department report on business inventories showed the inventory-to-sales ratio was a relatively high 1.44 in March. The gauge indicates how well firms are matching supply with demand. It measures how long in months a firm could sell all current inventory. A year earlier, the I/S ratio was 1.28.

The government now has an equity stake in auto lender GMAC Financial Services after providing $12.5 billion in aid to keep loans flowing to buyers of GM and Chrysler cars, the Treasury Department said Tuesday.

The Treasury holds a 35.4 percent stake in GMAC, after exchanging an $884 million loan it made to General Motors Corp. for that equity under an earlier agreement.

GM filed for Chapter 11 bankruptcy protection Monday, a historic move designed to remake the automaker as a smaller and leaner company, that also made the federal government its principal owner with a 60 percent stake.

The government has a vested interest in seeing GMAC, Chrysler and GM succeed in order to recoup the billions in aid it has doled out to the companies. Analysts have suggested the federal support for GMAC will help make it a lending powerhouse that will give GM and Chrysler a big advantage over their competitors — including U.S. rival Ford Motor Co. — which hasn’t taken government aid.

Mortgage rates rose sharply last week, and the volume of mortgage applications filed fell a seasonally adjusted 16.2% compared with the previous week, the Mortgage Bankers Association said Wednesday.

Applications were up an unadjusted 14.4% for the week ended May 29 from the comparable week in 2008, according to the Washington-based MBA’s survey, results for which were adjusted to account for the Memorial Day holiday.

The latest survey, which covers half of all U.S. retail residential mortgage applications, mirrored a similar pattern for mortgage filings seen in the week ended May 22. See full story.

Yields on Treasury notes, a key benchmark for setting mortgage rates, spiked a week ago. See Bond Report.

The most recent week-to-week drop in overall mortgage application volumes stemmed from a 24.1% decrease in refinancing activity among homeowners, the data showed. Filings seeking mortgages to purchase homes were up a seasonally adjusted 4.3%. The MBA’s four-week moving average for all mortgages was down a seasonally adjusted 9.0%. Refinancings made up 62.4% of all mortgage applications last week, down from 69.3% the previous week. Applications for adjustable-rate mortgages accounted for 3% of all activity, up from 2.6%. Interest rates charged on 30-year fixed-rate mortgages averaged 5.25% last week, up from 4.81% the previous week — the largest week-to-week jump since October 2008.

Points to obtain the rate averaged 1.02, down from 1.28 the week before. A point represents 1% of the total mortgage amount, charged as prepaid interest.

The average rate on 15-year fixed-rate mortgages came to 4.8% last week, up from 4.44% the week before, with points decreasing to 1.10 from 1.16.

And one-year ARMs averaged 6.61%, up from 6.55%, with points increasing to 0.15 from 0.12

Arthur Samberg, once the world’s biggest hedge-fund manager, said a federal insider-trading investigation is forcing him to shut Pequot Capital Management Inc. more than two decades after starting its first fund.

“With the situation increasingly untenable for the firm and for me, I have concluded that Pequot can no longer stay in business,” Samberg wrote in a letter to clients yesterday. Pequot oversees $3.47 billion, according to a May 15 regulatory filing, down from $4.3 billion in November and $15 billion in 2001, when it was the top-ranked hedge-fund firm by assets.

The U.S. Securities and Exchange Commission in January resumed a probe into whether Samberg’s funds illegally profited in 2001 by trading on inside information about Microsoft Corp., people familiar with the matter said at the time. That was about a year after the agency told Samberg and Morgan Stanley Chief Executive Officer John Mack they wouldn’t be accused of wrongdoing related to insider trading.

California is paying out so much for jobless benefits and collecting so little in payroll taxes that its unemployment insurance fund could be $17.8 billion in debt by the end of 2010, according to a new report from the state Employment Development Department.

This latest fiscal crisis won’t immediately affect the 1.1 million Californians now collecting benefits because the state is using an interest-free federal loan to cover their checks. But the state is supposed to repay that loan and restore its unemployment fund to solvency by 2011 – and right now, policymakers aren’t sure exactly how to do that, or at what cost. “The deficit that California looks like it is facing is staggering,” said Bud Bridger, fiscal officer for the unemployment insurance program.

To rebalance the system and pay back the federal loan, lawmakers must raise payroll taxes on employers, reduce benefits for recipients, or both.

In 2009 and 2010, the state expects to pay out $29 billion in benefits. It will collect just $11 billion. Counting the small positive balance that was in the fund at the end of 2008, the result is a $17.8 billion deficit at the end of 2010.

Upon further review, April Factory Orders were revised lower, to -1.9% from -0.9%.

Under the FASB’s new rules, companies can exclude non-temporary losses from net income. That’s on top of other things it already excludes.

By the comprehensive income benchmark, S%P 500 companies had combined losses in their previous four quarters of about $200 billion.

The gulf between net and comprehensive income usually isn’t as wide as it is now. General Electric CO. reported 2008 net income of $17.4 billion and a $12.8 billion comprehensive loss. Citigroup Inc.’s $48.2 billion comprehensive loss was $20.5 billion wider than the bank’s net loss.

The financial-services industry is taking steps to delay an accounting rule

that would force banks and others to bring some of their off-balance-sheet vehicles back onto their books next year, which could force some to raise additional capital.

Citigroup disclosed that it “will seek authorization from investors to increase its outstanding common shares to as much as 60 billion, from a current limit of 15 billion.”

The government’s approach to the bankruptcies of General Motors Corp. and Chrysler LLC illustrates how this new, unstated policy works: Bondholders are told to give up legal rights, and cash, as part of a government-mandated tradeoff that favors a politically connected special-interest group.

The big threat is that this policy will extend to all bonds, including Treasury and municipal debt, not just corporate obligations.

Rising yields on long-term Treasury debt is a signal that the Federal Reserve should being raising interest rates, said Thomas Hoenig, the president of the Kansas City Federal Reserve district bank on Wednesday…”I suggest strongly that we need to be alert to the markets’ message and begin in earnest to bring monetary policy into better balance before inflation forces get out of hand,” Hoenig said.

The number of U.S. workers filing new claims for jobless benefits fell slightly as expected last week while total claims dropped for the first time since the start of the year, a fresh signal that the worst of the labor-market downturn has passed.
Still, the figures point to another sizable drop in payrolls, in excess of 500,000, when May employment data are released Friday.

Initial claims for jobless benefits fell 4,000 to 621,000 in the week ended May 30, the Labor Department said in its weekly report Thursday. The previous week’s figure was revised up slightly.

Economists surveyed by Dow Jones Newswires had expected initial claims would fall by 3,000.

The four-week average of new claims, which aims to smooth volatility in the data, rose 4,000 to 631,250. Meanwhile, the tally of continuing claims – those drawn by workers for more than one week in the week ended May 23 – slid 15,000 to 6,735,000, the first decline since Jan. 3. The unemployment rate for workers with unemployment insurance was 5%, unchanged from the previous week, which was revised down.

Not adjusted to reflect seasonal fluctuations, Illinois reported the largest jump in new claims during the May 23 week, 3,881, due to layoffs in the trade, service and manufacturing sectors.

North Carolina reported the largest decrease, 3,952, due to fewer layoffs in the construction, furniture and transportation industries

Productivity grew at a solid pace last quarter despite a steep contraction in output, suggesting companies have responded quickly to the recession by shedding workers and cutting hours. Non-farm business productivity rose 1.6%, at an annual rate, in the first quarter, the Labor Department said in revised figures released Thursday. That was double the first estimate of a 0.8% rise.

Economists in a Dow Jones Newswires survey had expected the revised data to show a 1.2% increase. Productivity, which is defined as output per hour worked, slid 0.6% in the fourth quarter of 2008.

Unit labor costs – a key gauge of inflationary pressures – rose 3% last quarter, at an annual rate, largely in line with expectations. They were up just 2.2% from one year ago, an indication that wage inflation remains contained.

Over the long run, productivity is key to improved living standards by spurring rising output, employment, incomes and asset values.

There’s a downside to that type of efficiency, though. Labor markets will likely remain under pressure in the near term as firms cut back on labor in response to, or anticipation of, weak demand. The May employment report, due Friday, is expected to show another monthly drop in payrolls in excess of 500,000, though that decline wouldn’t be quite as severe as the first four months of the year.

Non-farm business output tumbled 7.6% during the first quarter, at an annual rate, the Labor Department said Thursday. That was on the heels of a 8.8 plunge the previous quarter. Hours worked declined 9% last quarter, the biggest drop since 1975.

Productivity in the manufacturing sector slid 2.7% last quarter. Manufacturing output fell a record 21.7% and hours worked tumbled 19.5%, which was also a record. Hourly compensation in the nonfarm business sector increased 4.6% last quarter. Real compensation, adjusted for inflation, jumped 7.1%

The Federal Deposit Insurance Corp., unable to get U.S. banks to sell toxic loans in a government program, plans to sell hard-to-price assets seized from failed lenders using guaranteed debt financing.

A test auction of illiquid bank assets, planned this month, was delayed yesterday after lenders raised capital without needing to sell bad loans, the agency said. The FDIC will instead use debt guarantees as an incentive for buyers of assets when lenders are in receivership, the agency said.

“If the FDIC can sell bad assets of failed banks, they will be a winner and it gives opportunities for the private sector as well,” said Ralph “Chip” MacDonald, a partner specializing in financial services at law firm Jones Day in Atlanta.

The Obama administration unveiled the two-part Public- Private Investment Program on March 23 as a centerpiece of its effort to shore up the financial system by removing illiquid assets. It would be funded by $75 billion to $100 billion from the

Treasury’s Troubled Asset Relief Program.

Since the program was announced, U.S. banks have raised capital through stock sales and by converting preferred shares, and as of yesterday the total reached almost $100 billion, according to data compiled by Bloomberg.

“Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system,” FDIC Chairman Sheila Bair said yesterday in a statement in Washington.

President Obama’s push for healthcare reforms gets a boost today from a new study by Harvard University researchers that shows a sizable increase over six years in bankruptcies caused in part by ever-higher medical expenses.

The study found that medical bills, plus related problems such as lost wages for the ill and their caregivers, contributed to 62% of all bankruptcies filed in 2007. On the campaign trail last year and in the White House this year, Obama had cited an earlier study by the same authors showing that such expenses played a part in 55% of bankruptcies in 2001.

Medical insurance isn’t much help, either. About 78% of bankruptcy filers burdened by healthcare expenses were insured, according to the survey, to be published in the August issue of the American Journal of Medicine.

With companies in no mood to hire, the U.S. unemployment rate jumped to 9.4 percent in May, the highest in more than 25 years. But the pace of layoffs eased, with employers cutting 345,000 jobs, the fewest since September.

If laid-off workers who have given up looking for new jobs or have settled for part-time work are included, the unemployment rate would have been 16.4 percent in May, the highest on records dating to 1994. Our calculation shows U6 to be 20.4% based on the 1980 formula which does not include the Birth/Death ratio.

Even with layoffs slowing, companies will be reluctant to hire until they feel certain that economic conditions are improving and that any recovery will last.

Since the recession began in December 2007, the economy has lost a net total of 6 million jobs.

As the recession — which is now the longest since World War II — bites into sales and profits, companies have turned to layoffs and other cost-cutting measures to survive the fallout. Those include holding down workers’ hours and freezing or cutting pay.

The average work week in May fell to 33.1 hours, the lowest on records dating to 1964. The number of people out of work six months or longer rose to more than 3.9 million in May, triple the amount from when the recession began.

Construction companies cut 59,000 jobs, down from 108,000 in April. Factories cut 156,000, on top of 154,000 in the previous month. Retailers cut 17,500 positions, compared with 36,500 in April. Financial activities cut 30,000, down from 45,000 in April. Even the government reduced employment — by 7,000 — after bulking up by 92,000 in April as it added workers for the 2010 Census.

Education, health care, leisure and hospitality were among the industries adding jobs in May.

The deepest job cuts of the recession came in January when 741,000 jobs disappeared, the most since 1949.

Federal Reserve Chairman Ben Bernanke repeated his prediction this week that the recession will end this year, but again warned that any recovery will be gradual.

Many economists believe the jobless rate will hit 10 percent by the end of this year. Some think it could rise as high as 10.7 percent by the second quarter of next year before it starts to make a slow descent. The post-World War II high was 10.8 percent at the end of 1982.

Ripple-effects from General Motors Corp.’s filing for bankruptcy protection — the fourth largest in U.S. history — could muddy the outlook, some analysts said. GM said earlier this week it will close nine factories and idle three others indefinitely as part of its restructuring. The closings, which will take place through the end of 2010, will cost up to 20,000 workers their jobs.

Government auditors would be allowed to examine the Federal Reserve’s response to the financial crisis – a move many believe would threaten the Fed’s independence – under an amendment adopted by the oversight committee of the US House of Representatives.

The amendment, proposed by congressman Dennis Kucinich, is subject to referral to the House financial services committee as well as approval in the Senate, and may never be law.

But it highlights the growing pressure in Congress for greater scrutiny of giant Fed lending and asset purchase programmes put in place to fight the financial crisis. The possibility of greater scrutiny could deter private sector companies from participating in some Fed programmes, reducing their effectiveness.

The Kucinich amendment goes far beyond legislation recently signed into law by Barack Obama, US president, which gives auditors access to Fed programmes that are blended with government bail-out funds.

It would give the Government Accountability Office authority to audit the Fed’s entire activities, including its commercial paper programme, primary dealer loans, term auction facility, foreign exchange swaps and asset purchases.

The Fed declined to comment on the amendment. But Ben Bernanke, Fed chairman, has told Congress’s joint economic committee he will “resist any attempt to dictate to the Federal Reserve how to make monetary policy”.

Mr Bernanke has said he views the Fed’s loan and asset purchase programmes as an extension of core monetary policy in extreme circumstances – a strategy he calls “credit easing”.

But critics, including within the US central bank, say its operations have crossed the line between fiscal and monetary policy, which is murky when interest rates are close to zero.

Some current and former senior Fed officials fear these actions invited a Congressional backlash against Fed independence, which is now emerging.

At the House budget committee this week, Democratic representative Lloyd Doggett told Mr Bernanke: “the Fed . . . seems to have sprung into action through the back door as a way for some to avoid another request to the Congress for public funds through the front door.”

In addition to pressure for more Fed disclosure, there has been talk of a renewed effort to strip the regional Fed presidents of votes at the federal open market committee.

The US Federal Reserve on Thursday damped expectations that it was preparing to prop up the market for distressed bubble-era securities backed by mortgages.

Hopes that the Fed would in the coming months start providing financing to investors seeking to buy residential mortgage-backed securities (RMBS) – many of which have lost their triple A credit ratings – have pushed prices on these assets higher in recent months.

William Dudley, president of the Federal Reserve Bank of New York, said on Thursday that a decision had not been made. “We have not made a final decision on whether it is doable and, if it is doable, whether it is worth the cost,” he said.

Mr. Dudley, who took over from Tim Geithner in January, has overseen the implementation of the $1,000bn term “asset-backed securities loan facility” (Talf), a key plank in the US government’s efforts to plug the hole left by the collapse of the asset-backed securities markets.

So far, the Talf has been used to finance the purchases of securities backed by loans to consumers, such as car and credit card loans. The Talf lends money to investors such as hedge funds on favourable terms, which encourages the purchases. This week, Talf financed 13 deals worth $16.4bn.

“We’re not back yet to the $200bn annual rate of issuance [for consumer loan-backed securities] before the crisis and we don’t expect to get there, but we are making a good start,” M.r Dudley said, stressing that the “securitisation markets are still significantly impaired”.

Now, the Fed is working to extend the Talf into more complex areas, such as loans backed by commercial property and also purchases of existing mortgage-backed securities, part of the pool of toxic assets that have contributed to billions of dollars of writedowns.

Funding purchases of toxic assets presents huge administrative hurdles because each security has to be analysed. Mr Dudley said many of these securities were no longer rated triple A, which may make them too risky. His comments on residential mortgage-backed securities are believed to also apply to commercial mortgage-backed securities. Although most of these are rated triple A, a wave of downgrades is anticipated soon by Standard and Poor’s.

It is in the commercial mortgage market – used to fund office blocks and shopping centres – that the Talf is most needed, however.

The 9.4 percent May unemployment rate is based on 14.5 million Americans out of work. But that number doesn’t include discouraged workers, people who gave up looking for work after four weeks. Add those 792,000 people, and the unemployment rate is 9.8 percent.

–The official rate also doesn’t include “marginally attached workers,” or people who have looked for work in the past year but stopped searching in the past month because of barriers to employment such as child care, poor health or lack of transportation. Add those 1.4 million people, and the unemployment rate would be 10.6 percent.

–The official rate also doesn’t include “involuntary part-time workers,” or the 2.2 million people like Noel who took a part-time job because that’s all they could get, plus those whose work hours dropped below the full-time level. Once those 9.1 million workers are added to the unemployment mix, the rate would be 16.4 percent.

All told, nearly 25 million Americans were either unemployed, underemployed or had given up looking for a job in May.

The ranks of involuntary part-timers has increased by 4.9 million in the past year, according to a May study by the Federal Reserve Bank of Cleveland. Many economists now predict unemployment won’t peak until 2010. And since employers generally increase the hours of existing workers before hiring new ones, workers could be looking for full-time jobs for some time.

Even so, one economist said the increase in involuntary part-timers might have a silver lining. Gary Burtless, a senior fellow in economic studies at the Brookings Institute, said employers are likely cutting back everyone’s hours instead of laying off people.

The Federal Reserve’s latest weekly money supply report Thursday shows seasonally adjusted M1 rose by $12.2 billion to $1.602 trillion, while M2 rose $30.8 billion to $8.358 trillion.

Rumor has it that JPMorgan Chase has big loan problems in the Middle East.

Russian President Dmitry Medvedev says Russia and China should consider switching to domestic currencies without using the US dollar, as China has done with Brazil and Belarus, using currency swaps. Russian – Chinese trade in 2008 was $50 billion.

Yes, there were 345,000 jobs lost in May, but the Birth/Death ratio added 220,000 jobs out of thin air. The true number of jobs lost was 565,000.

Payrolls in construction fell 59,000 versus a fall of 108,000 in April as the government stimulus package takes hold. Services lost 120,000 and manufacturing 156,000 versus 154,000 in April.

The Economic Cycle Research Institute’s US Future Inflation

Gauge designed to anticipate cyclical swings in the rate of inflation, rose to 79.8 in May from 78.1 in April. This is exactly as we predicted, the affect of monetization.

The annualized growth rate climbed to a minus 26.9% from 33.8%.

As long as China continues to both run a trade surplus and manipulate its currency it has little choice but to put the proceeds in the Treasury market.

The Fed has hired lobbyist Linda Robertson as it seeks to counter skepticism in Congress about the Fed’s growing power over the US financial system. She previously headed the Washington lobbying office for Enron. She was also an adviser to all three of Clinton’s administration’s Treasury Secretaries.

The Fed is in deep trouble and we hope we were responsible for part of it.

On Thursday, the Fed reported holding 1.114 trillion in securities: held outright of which only $18 billion were T-bills, $540 billion were T-notes, $80 billion were Agency securities and $437 billion were mortgage backed bonds. The worse the Treasury market performs the longer the Fed becomes. The Fed is in deep trouble because as time goes on at least $2.5 trillion more will be added; perhaps by the end of the year.

Benefit spending soars to new high: The recession is driving the safety net of government benefits to a historic high, as one of every six dollars of Americans’ income is now coming in the form of a federal or state check or voucher.

Benefits, such as Social Security, food stamps, unemployment insurance and health care, accounted for 16.2% of personal income in the first quarter of 2009, the Bureau of Economic Analysis reports.

That’s the highest percentage since the government began compiling records in 1929.  [More than 30s]

In all, government spending on benefits will top $2 trillion in 2009 — an average of $17,000 provided to each U.S. household, federal data show.

The Treasury said it will sell $127B of bills, notes and bonds next week – $35B in 3s, $19B in 10s and $11B of 30s, $31B in three-month bills and $31B in six-month bills.

South Korea’s National Pension Service, the country’s largest investor, said it will maintain its U.S. government bond holdings even as it cuts the percentage they comprise.

“We are planning to reduce the weightings of American Treasuries, but that doesn’t mean we will be selling Treasuries because our fund size is growing,” National Pension said in a statement in response to questions from Bloomberg News. “We don’t have a specific plan to sell Treasuries.”

The Fed monetized $7.49B of 2s and 3s on Thursday. After abstaining for about a week, the Fed has conducted back-to-back monetizations.

While most key economic indicators are decreasing at a slower rate, the year-over-year contractions in truck tonnage accelerated because businesses are right-sizing their inventories, which means fewer truck shipments. The absolute dollar value of inventories has fallen, but sales have decreased as much or more, which means that inventories are still too high for the current level of sales. Until this correction is complete, freight will be tough for motor carriers.

NYSE data released yesterday shows that Goldman Sachs again is dominating program trading.  For the week of May 26 to 29, Government Sachs traded 741.7m shares for its own account, 13.5m for customer facilitation, and 115.4m as agent.  This is approximately 7–1 proprietary to customer.

California is paying out so much for jobless benefits and collecting so little in payroll taxes that its unemployment insurance fund could be $17.8 billion in debt by the end of 2010, according to a new report from the state Employment Development Department.

Unemployment insurance is funded primarily by a payroll tax that costs employers up to $434 per employee, per year. That formula hasn’t been changed since 1985.

The decision, which would make it hard for Americans in London to open bank accounts and trade shares, is being discussed by executives at Britain’s banks and brokers who say it could become too expensive to service American clients. The proposals, which were unveiled as part of the president’s first budget, are designed to clamp-down on American tax evaders abroad. However bank bosses say they are being asked to take on the task of collecting American taxes at a cost and legal liability that are inexpedient.

A decision by Falls Police to use a Taser to obtain a DNA sample from a suspect in an armed robbery, shooting and kidnapping is not unconstitutional.

Ron Paul’s audit the Fed bill is now up to 186 cosponsors!

That means over 40% of the entire House of Representatives is currently signed onto HR 1207.

And thanks to your hard work, Representative Steve Scalise is one of the 186 proud cosponsors.

Not only has over forty percent of the House cosponsored HR 1207, but Barney Frank has even promised Ron Paul that he will hold hearings in the House Financial Services Committee.

When these hearings occur in a few months, Ron wants to have a majority of House members on board . . . so there will be no stopping Audit the Fed.

It is amazing what we’ve been able to accomplish in the House on the back of tireless grassroots efforts.

But now it is time to start thinking about the next step.

Pretty soon we will be turning our attention to the Senate, where we are certain to face a more difficult fight. There, corporate lobbyists and Beltway insiders wield even more powerful influence.

Many Senators are already bought and sold by Wall Street bankers and their Federal Reserve flunkies.

And the Banking Lobby is already pumping piles of cash into Senate campaign coffers in a preemptive stand against Federal Reserve transparency.

Fortunately, Campaign for Liberty has been developing a grassroots program and a massive marketing campaign to counter the banksters’ efforts.

And we’re almost ready to launch.  But it won’t be cheap, and we can’t afford to run out of gas before the job is done and Audit the Fed is passed.

Can you chip in $25 to help counter the millions of Wall Street dollars and corporate contributions ?

If you can afford more, every extra dollar will be poured into our campaign to pass Audit the Fed in the Senate.

As we close in on 50% support for Audit the Fed in the House of Representatives, the time is nearing to officially unleash the Ron Paul R3volution on the Senate.

If you can, please click here to make a contribution to help Campaign for Liberty launch our Audit the Fed program in the Senate.

In Liberty,

John Tate


P.S. Unlike the Federal Reserve, Campaign for Liberty cannot just print money out of thin air.  Can you chip in $20 today to help us restore sound money by Auditing the Fed?

Global GeoPolitical Realignment and the Decline of the USA as a Superpower

Global GeoPolitical Realignment and the Decline of the USA as a Superpower

Politics / Iraq War Mar 10, 2007 – 02:09 AM

By: Mike_Whitney

Politics The United States has been defeated in Iraq. That doesn’t mean that there’ll be a troop withdrawal anytime soon, but it does mean that there’s no chance of achieving the mission’s political objectives. Iraq will not be a democracy, reconstruction will be minimal, and the security situation will continue to deteriorate into the foreseeable future.


The real goals of the invasion are equally unachievable. While the US has established a number of military bases at the heart of the world’s energy-center; oil output has dwindled to 1.6 million barrels per day, nearly half of post-war production. More importantly, the administration has no clear strategy for protecting pipelines, oil tankers and major facilities. Oil production will be spotty for years to come even if security improves. This will have grave effects on oil futures; triggering erratic spikes in prices and roiling the world energy markets. If the contagion spreads to the other Gulf States, as many political analysts now expect, many of the world’s oil-dependent countries will go through an agonizing cycle of recession/depression.

America’s failure in Iraq is not merely a defeat for the Bush administration. It is also a defeat for the “unipolar-model” of world order. Iraq proves that that the superpower model cannot provide the stability, security or guarantee of human rights that are essential for garnering the support of the 6 billion people who now occupy the planet. The mushrooming of armed groups in Iraq, Afghanistan and, now, Somalia foreshadows a broader and more violent confrontation between the over-stretched American legions and their increasingly adaptable and lethal enemies. Resistance to the imperial order is on the rise everywhere.

The United States does not have the resources or the public support to prevail in such a conflict. Nor does it have the moral authority to persuade the world of the merit of its cause. The Bush administration’s extra-legal actions have galvanized the majority of people against the United States. America has become a threat to the very human rights and civil liberties with which it used to be identified. There’s little popular support for imprisoning enemies without charges, for torturing suspects with impunity, for kidnapping people off the streets of foreign capitals, or for invading unarmed sovereign nations without the approval of the United Nations. These are fundamental violations to international law as well as commonly held principles of human decency.
The Bush administration defends its illegal activities as an essential part of the new world order; a model of global governance which allows Washington to police the world according to its own discretion. The vast majority of people have rejected this model and polls clearly indicate declining support for US policies nearly everywhere. As former Jimmy Carter National Security Advisor, Zbigniew Brzezinski noted:

“American power may be greater in 2006 than in 1991, (but) the country’s capacity to mobilize, inspire, point in a shared direction and thus shape global realities has significantly declined. Fifteen years after its coronation as global leader, America is becoming a fearful and lonely democracy in a politically antagonistic world.”

The United States is a nation in a state of irreversible decline; its foundational principles have been abandoned and its center of political power is a moral swamp. The Bush presidency represents the ethical low point in American history.

The U.S. now faces a decades-long struggle which will engulf the Middle East and Central Asia leading to the steady and predictable erosion of America’s military, political and economic power.

This is not the “new century” that Bush and his fellows envisioned.

There are still dead-enders within the Bush administration who believe that we are winning the war. Vice President Dick Cheney has celebrated the “enormous success” of the Iraqi occupation, but he finds himself increasingly isolated in his views. Reasonable people agree that the war has been a strategic and moral catastrophe. The US has paid a heavy price for its recklessness; losing over 3,000 servicemen while seriously undermining its standing in the world. A small cadre of Iraqi guerillas has demonstrated that it can frustrate the efforts of best-equipped, best-trained, high-tech military in the world. They have made Iraq an ungovernable quagmire which, by the standards of asymmetrical warfare, is the very definition of success.

But what if Bush’s plans had succeeded? What if his dark vision of “victory” had been realized and the US was able to subjugate the Iraqi people, control their resources, and create an “Arab façade” through which the administration could carry out its policies?

Is there any doubt that Bush would quickly march on Tehran and Damascus? Is there any doubt that Guantanamo and other CIA “black sites” around the world would increase in number and size? Is there any doubt that global warming, peak oil, nuclear non proliferation, poverty, hunger and AIDS would continue to be brushed aside by Washington’s corporatists and banking elites?

Is there any doubt that success in Iraq would further strengthen a tyrannical system that limits the decision-making on all the issues of global importance, even the very survival of the planet, to a small fraternity of well-heeled plutocrats and gangsters?

The “new world order” promises despotism not democracy.

Many people believe that America has undergone a silent coup and has been taken over by a cabal of political fantasists and war-mongers. But this is only partially true. The US has a long history of covert activity, black-ops, and other clear violations to international law. Perhaps, we are reluctant to accept the truth because it’s easier to stick our heads in the sand and let the marauding continue.

The truth is there’s a straight line from the founding of this country to the killing fields of Baghdad. That line may be interrupted by periods of enlightenment and peace, but it is still an unbroken stripe from the Continental Congress to Abu Ghraib, from Bunker Hill to Falluja, from Valley Forge to Guantanamo Bay. It all grows from the same root.

The United States now faces mounting resistance from all corners of the earth. Russia, China, and the Central Asian countries have joined together in the Shanghai Cooperation Organization (SCO) to fend off US-NATO influence in the region. And in Latin America, an alliance of leftist governments has formed (Mercosur) under the leadership of Hugo Chavez. Africa still remains politically fragmented and open to western exploitation, although ham-fisted interventions in Somalia, Nigeria and Sudan suggest that the empire will face escalating resistance there as well.

These new coalitions are an indication of the massive geopolitical changes that are already underway. The world is realigning in reaction to Washington’s aggression. We can expect to see these groups continue to strengthen as the administration pursues its resource war through force of arms. That means that the “old order” — the United Nations, NATO and the transatlantic Alliance — will come under greater and greater strain until relations are eventually cut off.

The UN has already become irrelevant through its blind support of US policy in the Middle East. Its silence during Israel’s destructive rampage through Lebanon, as well as its failure to acknowledge Iran’s “inalienable rights” under the terms of the Nuclear Nonproliferation Treaty (NPT) has exposed the UN as a “rubber stamp” for US-Israeli belligerence. An attack on Iran will be the end of the UN, an institution that held great promise for the world, but now merely provides cover for an elite-western agenda. On balance, the UN facilitates more wars than it stops. It won’t be missed.

Afghanistan holds the key for understanding what’s in store for the EU, NATO and the transatlantic Alliance. There is no possibility of success in Afghanistan. If the men who planned the invasion had a grasp of the country’s history they would have known how the war would progress. They would have realized that Afghanis traditionally take their time to fight back; (Eric Margolis predicted that the real war would not take place until 4 to5 years after the initial invasion) measuring the strength of their enemy and garnering greater public support. Then they proceed with deliberate steps to rid their country of the invaders. These are fiercely nationalistic and independent people who have fought occupation before and know what it takes to win.

We are mistaken to think that the war in Afghanistan is merely a Taliban (or worse still) “terrorist” insurgency. The present conflict represents a general uprising of Pushtun nationals who seek to end foreign occupation. They know first-hand that US-NATO policy has strengthened the warlords, expanded the drug trade, reduced security, and increased terrorism. According to the Senlis Council Report, the occupation has triggered “a humanitarian crisis of starvation and poverty… US policies in Afghanistan have re-created a safe-haven for terrorism that the 2001 invasion aimed to destroy.”

The Afghan armed resistance is resourceful and intractable and has a growing number of recruits to swell its ranks. Eventually, they will prevail. It’s their country and they’ll be there long after we’ve gone.

An America defeat in Afghanistan could be the straw that breaks NATO’s back. The administrations’ global schema depends heavily on support from Europe; persuading the predominantly white, western nations to join the battle and secure pipeline corridors and landlocked energy supplies throughout Central Asia. Failure in Afghanistan would send tremors through Europe’s political landscape and give rise to a generation of anti-American politicians who will seek to dissolve relations between the two traditional allies. But a breakup seems inevitable. After all, Europe has no imperial aspirations and its economies are thriving. They don’t need to invade and occupy countries to get access to vital resources. They can simply buy them on the open market.

As Europeans begin to see that their national interests are better served through dialogue and friendship, (with suppliers of resources in Central Asia and Russia) then the ties that bind Europe to America will loosen and the continents will drift further apart.

The end of NATO is the end of America as a global power. The present adventurism is not sustainable “unilaterally” and without the fig-leaf of UN cover. America needs Europe, but the chasm between the two is progressively growing.

It is impossible to predict the future with any degree of certainty, but the appearance of these coalitions strongly suggests a new world order is emerging. It is not the one, however, that Bush and the neoconservatives anticipated. America’s involvement in Iraq and Afghanistan will continue to prevent it from addressing brush-fires in Latin America and Russia, further strengthening US rivals and precipitating macroeconomic changes that could crush the American middle class. The likelihood of a major economic retrenchment has never been greater as the administrations’ reckless defense spending, lavish tax cuts, and trade deficit have set the stage for the US dollar to be dethroned as the world’s “reserve currency”. The three pillars of American imperial power — political, economic and military — rest on the crumbling foundation of the US greenback. If the dollar falls, as many currency traders now expect, then foreign (baskets of) currencies will rise, and America will slip into a deep recession/depression.

America’s military and economic unraveling is likely to take a decade or more depending on the situation in Iraq. If the Bush administration is able to exert control over Middle East oil, then the dollar will continue to be linked to vital resources and American supremacy will persist. If, however, conditions on the ground deteriorate, then Central Banks around the world will decrease their dollar holdings, Americans will face hyper-inflation at home, and the US will lose its grip on the global economic system. The Bush administration must, therefore, ensure that oil continues to be denominated in USDs and that the world economy remains in the hands of western elites, banking giants and corporatists.

The chances for success in Iraq are gradually diminishing. The US has shown that it is incapable of establishing security, providing basic social services, or keeping the peace. The guerilla war continues to intensify while the over-extended US military has been pushed to the breaking point. We expect the occupation of Iraq to be untenable within 5 years if present trends continue.

America’s military and economic unraveling will undoubtedly be painful, but it may generate greater parity among the nations, which would be a positive development. The superpower model has been an abysmal failure. It has wreaked havoc on civil liberties at home and spread war and instability across the world. The present system needs a major shakeup so that power can be more evenly distributed according to traditional democratic standards. America’s decline presents a unique opportunity to restore the Republic, restructure the existing global-paradigm, and begin to build consensus on the species-threatening challenges which face us all.

Western Democracies Have Evolved Into Tyrannical Governments

Western Democracies Have Evolved Into Tyrannical Governments

Politics / New World Order Feb 04, 2008 – 03:44 AM

By: Joel_S_Hirschhorn

Politics Best Financial Markets Analysis ArticlePerhaps a global political apocalypse has already arrived.

Activists and dissidents should understand that evil forces and tyrannical governments have evolved. Just as human knowledge and science expand, so do the strategies and instruments used by rulers, elites and plutocrats. By learning from history and using new technology they have smarter tools of tyranny. The best ones prevent uprisings, revolutions and political reforms. Rather than violently destroy rebellious movements, they let them survive as marginalized and ineffective efforts that divert and sap the energy of nonconformist and rebellious thinkers. Real revolution remains an energy-draining dream, as evil forces thrive.


Most corrupt and legally sanctioned forms of tyranny hide in plain sight as democracies with free elections. The toughest lesson is that ALL elections are distractions. Nothing conceals tyranny better than elections. Few Americans accept that their government has become a two-party plutocracy run by a rich and powerful ruling class. The steady erosion of the rule of law is masked by everyday consumer freedoms. Because people want to be happy and hopeful, we have an epidemic of denial, especially in the present presidential campaign. But to believe that any change-selling politician or shift in party control will overturn the ruling class is the epitome of self-delusion and false hope. In the end, such wishful thinking perpetuates plutocracy. Proof is that plutocracy has flourished despite repeated change agents, promises of reform and partisan shifts.

The tools of real rebellion are weak. Activists and dissidents look back and see successful rebellions and revolutions and think that when today´s victims of tyranny experience enough pain and see enough political stink they too will revolt. This is wrong. They think that the Internet spreads information and inspiration to the masses, motivating them to revolt. This is wrong. They await catastrophic economic or environmental collapse to spur rebellion. This too is wrong.

Why are these beliefs wrong? Power elites have an arsenal of weapons to control and manipulate social, political and economic systems globally: corruption of public officials that make elections a sham; corporate mainstream media that turn news into propaganda; manipulation of financial markets that create fear for the public and profits for the privileged; false free trade globalization that destroys the middle class; rising economic inequality that keep the masses time-poor and financially insecure; intense marketing of pharmaceuticals that keep people passive; and addictive consumerism, entertainment and gambling that keep people distracted and pacified.

The biggest challenge for dissidents and rebels is to avoid feel-good therapeutic activism having virtually no chance of removing evil and tyranny. Idealism without practicality tactics without lofty goals, and symbolic protests pose no threat to power elites. Anger and outrage require great strategic thinking from leaders seeking revolution, not mere change. And social entrepreneurs that use business and management skills to tackle genuine social problems do nothing to achieve political reforms. To the extent they achieve results they end up removing interest in overthrowing political establishments that have allowed the problems to fester.

What is the new tool of tyranny? Technological connectivity achieved through advanced communications and computer systems, especially the rise of wireless connectivity. The global message to the masses is simple: Buy electronic products to stay plugged in. Connectivity may give pleasure, but it gives even more power to elites, rulers and plutocrats. It allows them to coordinate their efforts through invisible cabals, to closely monitor everything that ordinary people and dissidents do, and to cooperatively and clandestinely adjust social, financial and political systems to maintain stability and dominance.

In this dystopian world all systems are integrated to serve upper class elites and the corporate state, not ordinary people. When ordinary people spend their money to be more shackled to connectivity products, they become unwitting victims of largely invisible governmental and corporate oppressive forces. They are oblivious that their technological seduction exacerbates their political and economic exploitation. Though some 70 percent believe the country is on the wrong track, they fail to see the deeper causes of the trend. And if Americans were really happy and content with their consumer culture, then why are they stuffing themselves with so many antidepressants, sleeping pills and totally unhealthy foods? In truth, the vast majority of people are in denial about the rotten system they are trapped in (aka The Matrix). They are manipulated to keep hope alive through voting, despite the inability of past elections to stop the slide into economic serfdom.

Increasingly, the little-discussed phenomenon of economic apartheid ensures that elites live their lavish lives safely in physically separated ways. Concurrently, economic inequality rises, as the rich extract unusually high fractions of global wealth. When the rich get richer, the powerful get stronger. Does some economic prosperity trickles down to the poorest people? Perversely, the middle class is moved into the lower class. In this new physics of evil, wealth transfer is not from the rich to the poor, but from the middle class in wealthier countries to the poor in developing nations, where a few new billionaires join the global plutocracy.

Some data on economic inequality: The after-tax income of the top 1 percent of Americans rose 228 percent from 1979 through 2005, while middle class income remained flat over the last 4 decades. The richest 0.01 percent of earners made 5.1 percent of all income in 2005, up more than 300 percent from just 1.2 percent in 1960. Bad economic times like the present just exacerbate inequality. Even as most Wall Street companies lost billions in the sub-prime mortgage debacle after they had already made billions, they gave obscene bonuses to their employees: the average topped $180,000 for 2007, tripling the $61,000 in 2002. Scholars used to predict that high levels of economic inequality like we have today would lead to rebellion. But there are now insufficient tools and paths for rebellion, because the plutocracy has eliminated them. Instead, citizens are offered elections whose outcomes can be controlled and subverted by the ruling class.

The New World Order is getting what it wants: a stable two-class system, with the lower class serving the elitist upper class. The paradox is that along with rising economic inequality and apartheid is mounting consumerism and materialism that is used to pacify, distract and control the masses. That´s where easy credit and cheap products from low-wage nations are critical. The poor can have cell phones, 24-7 Internet access and increasingly cars, while the bejeweled upper class travel in private jets and yachts, vacation on private islands, and have several gated mansions maintained by servants and guarded by private police. We have a technologically advanced form of medieval society. It is working in the US and China and most other places. Elections just mask economic tyranny and slavery.

The ruling class knows how to maintain stability. Keep the masses distracted, fearful, brainwashed, insecure, and dependent on government and business sectors for survival. Train people to see themselves as relatively free consumers. Maintain the myth that ordinary people can become wealthy and join the ruling class, which theoretically is not impossible, but of no statistical significance for the masses.

There are no easy paths to restore power to the people. But here are three strategies worth considering.

First, the real power of the masses is as consumers, not as voters, workers, activists, or Internet users. Weakened unions, globalization, technology, and illegal immigration have sapped the power of workers. National economies, especially the US, depend on consumers. Suspensions in discretionary consumer spending used as a political weapon could force reforms. But curbing personal spending and saving money has become a rare form of civil disobedience. Consumers buy stuff when they want it, not when they can afford it. Rulers have replaced chains with debt and no political leader in a very long time has championed economic rebellion.

Second, because they are more a tool of tyranny than rebellion, the masses should stop giving credibility and legitimacy to faux democracies by boycotting elections. Plutocrats cleverly equate patriotism and good citizenship with voting while at the same time ensuring that no genuine change agents can succeed even if elected. All election results can be subverted by the forces of corruption. Those promising change, like Barack Obama, do not pose a lethal threat to forces of evil and corruption. Sadly, refusing to vote in corrupt political systems is another worthy but unpopular form of civil disobedience. The compulsion to vote is a political narcotic that sustains democratic tyranny.

Third, people must seek forms of direct democracy that give them political power. National ballot measures and initiatives are needed to make laws, impose spending mandates and recall elected officials. A most important tool is constitutional conventions outside the control of status quo preservationists to obtain systemic reforms that governments will never provide, as explained for the US at No greater example of ruling class power exists than the absence of massive public demands for using what the Founders gave Americans in Article V: the convention option to circumvent and fix the federal government that – amazingly – has never been used, and that no presidential candidate has supported, including constitutional champion Ron Raul.

By Joel S. Hirschhorn