But there are troubling signs that Obama has joined the ranks of the deficit hawks and is planning a policy-reversal that will pitch the economy into a nosedive. Here’s what he said on his tour through Asia:

“I think it is important to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”

So it’s true. Obama has aligned himself with the faux-prophets and dollar demagogues who think that the end is nigh. But trimming the deficits now (when they should be expanding) will lead to a viscous cycle of debt deflation that will push-down asset prices, increase defaults, force more layoffs, slow consumer spending, lower earnings and send the economy into a downward spiral. The president is paving the way to a double-dip recession, a slump that could be worse than the first.

Has Obama perused the jobless figures lately? Has he noticed the Fed shoving more than a $1 trillion under the collapsing housing market with no sign of improvement? Has anyone told our blinkered accountant-in-chief that the entire financial system is propped-up with $11.4 trillion of dodgy scaffolding that could buckle in the first big gust?

Obama has either taken leave of his senses or he’s spending too much time listening to the cheerless Jeremiahs on the Internet. He needs break their spell and seek the counsel of the experts who get paid to crunch the numbers—real economists. Cutting government spending and raising taxes–the two ways that deficits are paid off–is the fast-track to disaster. Don’t go there.

If Obama needs more proof that the economy is still flatlining, he should thumb through Fed chair Ben Bernanke’s speech to the Economic Club of New York which was delivered on Tuesday. The presentation was a sobering snapshot of lingering depression with precious few glimmers of light. Here’s an excerpt:

The flow of credit remains constrained, economic activity weak, and unemployment much too high. Future setbacks are possible….How the economy will evolve in 2010 and beyond is less certain….

Access to credit remains strained for borrowers who are particularly dependent on banks, such as households and small businesses. Bank lending has contracted sharply this year, and the Federal Reserve’s Senior Loan Officers Opinion Survey shows that banks continue to tighten the terms on which they extend credit for most kinds of loans…

Household debt has declined in recent quarters for the first time since 1951. For their part, many small businesses have seen their bank credit lines reduced or eliminated, or they have been able to obtain credit only on significantly more restrictive terms. The fraction of small businesses reporting difficulty in obtaining credit is near a record high, and many of these businesses expect credit conditions to tighten further.

The demand for credit also has fallen significantly…. Because of weakened balance sheets, fewer potential borrowers are creditworthy, even if they are willing to take on more debt. Also, write-downs of bad debt show up on bank balance sheets as reductions in credit outstanding. Nevertheless, it appears that, since the outbreak of the financial crisis, banks have tightened lending standards by more than would have been predicted by the decline in economic activity alone.

Many securitization markets remain impaired, reducing an important source of funding for bank loans. In addition, changes to accounting rules at the beginning of next year will require banks to move a large volume of securitized assets back onto their balance sheets. Unfortunately, reduced bank lending may well slow the recovery by damping consumer spending, especially on durable goods, and by restricting the ability of some firms to finance their operations.

The best thing we can say about the labor market right now is that it may be getting worse more slowly.¹

Is this really Bernanke speaking, or is the Fed chief channeling Roubini?

Okay, so credit is tight. Consumers aren’t borrowing and banks aren’t lending. Unemployment is rising and deflation is pushing down asset prices while the burden of personal debt is rising in real terms. Bleak, bleak, bleak. The only sign of improvement is that “things are getting worse more slowly”. Now that’s encouraging.

What the economy needs is a hefty dose of stimulus aimed at job creation and strengthening demand. Only the government can provide sufficient resources to rev up economic activity and put people back to work. Unfortunately, the TARP bailout soured the public on deficit spending due to the shabby (and possibly criminal) way it was handled. That will make it harder to do what is necessary. The political support for more stimulus on Capital Hill has vanished. But, without it, another hard landing is certain.

Despite rumors in the media, stimulus works. It speeds up recovery, minimizes unemployment and stops asset prices from overshooting on the downside. Here’s an excerpt from a scholarly analysis of stimulus:

Where tried, fiscal policy was effective in the 1930s…. The details of the results differ, but the overall conclusions do not. They show that where fiscal policy was tried, it was effective.

Our estimates of its short-run effects are at the upper end of those estimated recently with modern data….This is, in fact, what one should expect if one believes that the effectiveness of fiscal policy is greatest when interest rates are at the zero bound, leading to little crowding out of private spending. It is what one should expect when households are credit constrained by a dysfunctional banking system. Given similar circumstances in 2008, this underscores the advantages of using 1930s data as a source of evidence on the effects of current policy.²

Stimulus works in multiple ways. It also helps increase inflation expectations which is necessary to get people spending again. In a deflationary environment, consumers shut-down and stop spending. The Fed tries to spur economic activity by convincing people that the dollars they hold will be worth less tomorrow. That’s why Bernanke keeps pointing out that the Fed will keep rates at zero indefinitely. Regrettably, only the goldbugs take him seriously, which is why gold prices have zoomed to the stratosphere. Personal savings rates are still rising. There’s been a sharp drop-off in consumption. Bernanke’s psychological experiment has flopped. The masses still believe we’re in recession. Without a gigantic fiscal expansion to jolt the economy out of its lethargy, the severe contraction could drag on for a decade or more. We’re becoming Japan.

Obama’s deficit cutting plan is madness. It offers no hope at all. It draws from the half-baked theories of amateur economists on the Net who think that massive liquidation and years of bitter retrenchment and high-unemployment are the path to recovery. They’re wrong.

1. Fed Chairman Ben Bernanke Speech Before Economic Club of New York.
2. Miguel Almunia, Agustin S. Bénétrix, Barry Eichengreen, Kevin O’ Rourke, and Gisela Rua, “The effectiveness of fiscal and monetary stimulus in depressions,” 18 November 2009, Vox.

President Barack Obama plans to announce in next year’s State of the Union address that he wants to focus extensively on cutting the federal deficit in 2010 – and will downplay other new domestic spending beyond jobs programs, according to top aides involved in the planning.

The president’s plan, which the officials said was under discussion before this month’s Democratic election setbacks, represents both a practical and a political calculation by this White House.¹

Er, now who exactly is telling Obama that raising taxes or cutting spending in the middle of a severe economic contraction is a good idea?

This clip from Politico tells us more about the people surrounding Obama, than it tells us about Obama himself. Clearly, his chief lieutenants are just as committed to savaging Medicare, Medicaid and Social Security as their GOP counterparts. This is obvious by the way they’ve handled the fiscal stimulus. Where are the jobs programs, the boost to Green Technology, the massive infrastructure rebuild?

Nowhere. Because the industry-reps and bank lobbyists who fill out the Obama roster adhere to the same pro-business credo as the members of Team Bush, that is, that all public assets and resources should be strip-mined from their rightful owners and transferred to the robber barons at the top of the economic food-chain. There’s no way that Geithner, Summers and the rest of the Wall Street insiders would ever dream of rebuilding the public safety net they’ve been trying to destroy for the last decade or more. That’s not in their interests at all.

The administration’s announcement is tantamount to a stealth-attack on Social Security in the name of “fiscal responsibility”. It’s another public relations ploy intended to enrich the parasite class by stealing crusts of bread from penniless retirees. Surely, there must have been a quid pro quo between the two-year Illinois senator and his political backers about how they planned to deal with “entitlements problem”. In other words, Obama must have given the green light to the party bosses who wanted to purloin the last few farthings in the Social Security trust fund.

So, how will Obama’a attack on Social Security etc. effect the so-called “jobless recovery”?

For one thing, it makes a double-dip recession unavoidable. After all, (according to Goldman Sachs) last quarter’s surge in GDP to 3.5% was entirely a result of government stimulus. Take away the stimulus, and the economy slips right back into to recession. Is that what Obama wants, another stretch of negative growth, plunging economic activity, lower demand and higher unemployment? Why? To satisfy the GOP “deficit hawks”?

All the hand-wringing over deficits is just more gibberish from the same people who brought us the Iraq War. The deficits are about as big a problem as the fictional WMD, maybe less. Here’s a clip from an article by Marshall Auerback which sheds a bit of light on the deficit fiasco:

Large deficits are not the problem…. Let’s all take a deep breath here: Whilst the dollar index has fallen some 15% from the high sustained earlier this year, it is still above the lows sustained at the height of the credit crisis reached about a year ago. Secondly, there seems to be a fear that the current fall in the dollar could well engender inflation, and create a panicked response from policy makers where the Fed actually does raise rates and the Treasury begins to reduce government spending. Given high prevailing debt levels and the weak state of the consumer’s personal balance sheet, this would be an unmitigated disaster.

It is true that excessive government deficit spending can be inflationary, and could therefore cause some impact on exchange value of dollar. But this can’t be viewed in some sort of vacuum. The size of the deficit is irrelevant in itself. There is no meaning in the terms ‘large deficit’ or ’small deficit.’ You have to relate them to the extent of labor and capital underutilization, which is a human measure of the aggregate demand deficiency. The fact that labor underutilization is now in excess of 16 per cent in the US (combined unemployment, underemployment and hidden unemployment) and capacity utilization is in the 60-65 per cent range rather than 90 per cent range sends one very clear message — the deficit is not large enough.

So the correct policy response is to spend until we get to full employment. That is the only consequence of excessive deficits — insolvency is not possible. Your social security check will never bounce in a country issuing debt in its own freely floating non-convertible currency.²

The best way to restore economic well-being is to increase the fiscal stimulus, expand the deficits and put the country back to work. There’s no chance of inflation until unemployment drops to roughly 5%, which could be a decade away. And don’t believe the doomsayers about the dollar either. It’s a bunch of malarkey. Check this out:

As I have shown in two recent papers, even very large currency depreciations in developed economies have no effect on inflation unless they are caused by policies that attempt to hold an economy’s unemployment rate below its equilibrium level. With US unemployment currently at 10 percent, there is no chance that inflation will rise in the near term. Whether inflation rises in the longer run will depend on whether US monetary and fiscal policy stimulus is withdrawn appropriately as the economy recovers (and tighter macroeconomic policies would tend to support the dollar).³

The dollar is dropping because the Fed is doing everything in its power to push it downwards. “It’s the policy, stupid.” A falling dollar increases exports and speeds up recovery. But once the Fed stops printing money via quantitative easing, (which is set for the end of 1st Q 2010) watch out. The dollar will rebound. Here’s an excerpt from an article in the Economist:

This dollar declinism is overblown. It exaggerates the scale of the slide and misunderstands its cause. Much of the recent weakness simply reverses the earlier safe-haven flight to dollars, a sign of investors’ optimism about riskier assets rather than their fears about America’s currency. On a trade-weighted basis the dollar today is close to where it was before Lehman failed. Yields on Treasuries have not risen and spreads on riskier dollar assets continue to shrink. If investors were growing leerier of dollars, the opposite should have occurred.⁴

When the financial crisis broke out two years ago, investors around the world flocked to the dollar for safety. Now that the crisis has (somewhat) abated, those same investors are less risk-adverse, which means they are putting that money in other assets (stocks, bonds, commodities). Naturally, that is weakening the dollar, but it is not a sign of impending collapse. And while it is true that the greenback faces stiff headwinds in the long-term–due to the US’s deteriorating fiscal situation–the dollar is in no immediate danger of losing its position as the world’s reserve currency. That will take a decade or more.

The growing fear about the dollar and the deficits is understandable given the amount of money that is being hurled at the financial system. But that shouldn’t dissuade reasonable people from doing what needs to be done. The dollar and the deficits are NOT the issue. The issue is jobs, jobs, jobs. Here’s an excerpt from an article by Henry Liu which sums it up perfectly:

An economy that has collapsed under the burden of excessive debt cannot recover until such debt has been extinguished. And debt can only be extinguished by wealth creation, not by creating more debt with easy credit. And wealth can only be created by employment and not by financial manipulation.⁵

Bingo. The Fed is bailing out unproductive speculators, while tossing the “creators of the nation’s wealth,” the workers, a few table scraps. That’s why we need a different policy which focuses on jobs programs, fiscal stimulus, and more deficit spending so households can rebuild their tattered balance sheets and the “engine of global growth” (the US middle class) can be re-energized. We don’t need more belt-tightening, as Obama seems to think. That is precisely the wrong approach.

Henry Liu again: “Thus we have financial profit inflation with price deflation in a shrinking economy. What we will have going forward is not Weimar Republic type price hyperinflation, but a financial profit inflation in which zombie financial institutions turning nominally profitable in a collapsing economy.”

Right again. The soaring stocks and commodities prices prove that central bank policies can create asset bubbles even during periods of severe deflation. (like now) Fed chair Ben Bernanke’s policies have had no material effect on households, consumers or workers. This is why credit contraction is in its 8th straight month and jobless claims continue to mushroom.

Bernanke–a disciple of Milton Friedman–has taken the monetarist “trickle down” approach throughout, which is why stocks are surging even though the broader economy is still flat on its back. The Fed chief is doing what he’s always done, stimulate demand by creating more bubbles. Only this time it’s not working because liquidity is unable to flow through the clogged credit system. The administration needs to bypass the credit system altogether and provide direct relief via state aid, tax cuts and jobs programs to jump-start the economy and reduce the widening output gap. What’s needed is more stimulus and an aggressive reform agenda aimed at putting the country back to work. Here’s Paul Krugman:

“It’s truly amazing, and depressing, how completely deficit-phobia has swept the field in Washington. The economy remains in deeply dire straits… Yet the respectable thing, all of a sudden, is to claim that we can’t possibly afford to spend any more money on job creation.

History says differently… Other advanced countries have been substantially deeper in debt without either defaulting or having runaway inflation…

I’d be a little more forgiving of the nonsense if all the people screaming about the deficit were sincere. And some are. But many, if not most, are perfectly happy to incur huge unfunded liabilities for the wars they want to fight, and/or to eliminate inheritance taxes for the heirs of multimillionaires. It’s only deficits incurred to help working Americans that get them all moralistic.

The point is that the economy desperately needs more help — and yes, we can afford to provide it.”⁶

Yes, we can afford it. We just need to shrug off the deficit hawks and the dollar demagogues and provide the necessary resources to get the job done. It’s that simple.

Here’s more from Marshall Auerback:

The Administration … must free themselves from the discredited dogmas of neo-liberalism and channel the spirit of FDR’s bold experimentation. We need less deficit terrorism. Fiscal policy must be much more oriented to personal balance sheets, not bank balance sheets. We need to turn around the private sector and begin to produce more tax revenue, so that the large deficits would be short-lived.

If we continue down the current path, we slow recovery and court large budget deficits for many years to come. Far better to spend now to create jobs and get the private sector growing again.⁷

Economists know what it will take to put the country back to work; debt relief, loan modifications, wage growth and full employment. But it will require a fundamental shift in ideology; a rejection of neoliberalism and a strong commitment to rebuild the middle class. Obama can either help in that process or follow the beggarly path to early retirement. So far, there’s no reason to be hopeful.

1. politico.com.
2. Marshall Auerback, “The US Dollar – Don’t just do something, stand there!” newdeal2.0.
3. Joseph Gagnon, “Who’s Afraid of a Falling Dollar,” Baseline Scenario.
4. ”The Diminishing Dollar,” The Economist.
5. Federal Reserve Power Unsupported by Credibility; part 1 “No Exit” Henry Liu.
6. Paul Krugman, “Fiscal Perspective,” New York Times.
7. Marshall Auerback, “New Agenda for America: How to Start Anew,” newdeal 2.0.

There’s little chance that the financial system will suddenly implode or that the country will be overtaken by Zimbabwe-type hyperinflation. But the economy will undergo a low-grade depression, a period of sluggishness and retrenchment that drags on for, what seems like, an eternity. This is what typically happens when crises are extended by keeping terminally-ill banks on life-support instead of putting them out of their misery. Capital that could have been used for jobs and productive activity, ends up vanishing down a rathole.

Regrettably, the post-Lehman economy can’t be explained simply in terms of the extremes. Neither “robust recovery” nor “economic Armageddon” accurately describe present conditions. The truth lies somewhere in between, in that vast gray-area where economic indicators conflict with each other and where the best compass is an analyst who knows how to interpret the data. Edward Harrison is a banking and finance specialist who runs the Credit Writedowns website. He posts articles daily and has a solid grip on some very difficult topics. Here’s a recent entry on consumer credit which, paradoxically, appears to be expanding and shrinking at the same time. Here’s how Edward Harrison sums it up:

Nonrevolving credit is now increasing along with GDP…. On the other hand, revolving credit is getting crushed…. Bottom line: “In Q3, banks are lending again (think cash for clunkers) because nonrevolving debt is up. That’s also why GDP is up. But, revolving credit lines (credit card lines) are being cut.¹

See how subtle distinctions can make a big difference? In this case, it looks like government programs (cash for clunkers) have actually helped to keep credit flowing into the economy through even though the banks are still cutting back in other areas. That means that Obama’s stimulus has helped to slow the pace of household deleveraging making a crash in personal consumption is less likely. Although some will argue that this merely kicks the can down the road–since households will eventually have to reduce their red ink by either paying off their debts or defaulting–it does make a short-term recovery more probable, which is the objective. Whether that’s enough to keep the economy from tipping back into recession, is left to be seen.

In another article, Harrison demonstrates his talent as a capable and insightful analyst. He focuses on the root of our economic problem (debt) and presents a likely scenario of how things will play out. Here’s an excerpt:

The issue was and still is overconsumption i.e. levels of consumption supported only by increase in debt levels and not by future earnings. This is the core of our problem–debt… specifically an overly indebted private sector….”

When debt is the real issue underlying an economic downturn, the result is a period of stagnation and short business cycles as we have seen in Japan over the last two decades.

This is what a modern-day depression looks like–a series of W’s where uneven economic growth is punctuated by fits of recession. A recession is merely a period of recalibration after businesses get ahead of themselves by overestimating consumption demand and are then forced to cut back by making staff redundant, paring back inventories and cutting capacity. Recessions can be overcome with the help of automatic stabilzers like unemployment insurance to cushion the blow. Depression is another event entirely.²

Harrison describes an economy that is set to bounce along the bottom for years to come. He cites Gluskin Sheff’s David Rosenberg, who adds that “Depressions are marked by balance sheet compression” whereas “Recessions are typically characterized by inventory cycles.” And, since, “Depressions often are marked by… debt elimination, asset liquidation and rising savings rates” stimulus is not as effective.

This is razor-sharp analysis. By explaining exactly what’s going on, it’s possible to anticipate what will happen in the future. As Harrison points out, the Fed has already revealed how it plans to fight deflation, by opening up the liquidity faucet and pumping up asset prices. This is the rationale behind Bernanke’s zero-percent interest rates, multi-trillion dollar lending facilities, and quantitative easing (QE) programs. Increase asset prices; that’s the whole ball-o-wax.

Edward Harrison again:

As for the recent asset-based economic reflation, be under no illusion that these measures ‘solve’ the problem. The toxic assets are still impaired and banks are still under-capitalized. But the increased asset value and the end of huge writedowns has underpinned the banks and led to a rise in the broader market in a feedback loop that has been far greater than I could have imagined at this stage in the economic cycle.

Okay, so what’s next?

This is where Harrison separates himself from the pack and shows his ability to grasp the complexity of the economy-policy dynamic. His prediction is less-satisfying, but more realistic than many others:

A lot of the economic cycle is self-reinforcing …. So it is not completely out of the question that we see a multi-year economic boom. Higher asset prices, lower inventories, fewer writedowns all lead to higher lending capacity, higher cyclical output, more employment opportunities and greater business and consumer confidence. If employment turns up appreciably before these cyclical agents lose steam, you have the makings of a multi-year recovery. This is how every economic cycle develops. This one is no different in this regard.

So, could a momentum-shift and boatloads of liquidity produce a “multi-year recovery” in spite of nagging structural problems and the massive build-up of personal debt?

Yes. But even though a rebound is economically feasible, Harrison does not think it is probable. He believes that “the government prop for the economy” is going to be removed. In other words, the Congress will not approve a second round of stimulus; the opposition to deficit-spending is just too great. Without more stimulus to maintain the current level of activity, the economy will slide back into recession.

So, get ready for the next leg down; rising unemployment, soaring foreclosures, tumbling stock markets, and growing political unrest. Liquidate, liquidate, liquidate. The Bluedogs and Republican obstructionists are determined to drag the economy back into depression. Onward!

1. Edward Harrison, “Consumer Credit Down, but does it show deleveraging?” Credit Writedowns.
2. Edward Harrison, “The Recession is over, but the Depression has just begun,” Credit Writedowns.

Gross inequalities exist in the U.S.:

Top 1% own 38.1%
Top 96-99% own 21.3%
Top 90-95% own 11.5%
Bottom 40% of population has 0.2% of all wealth.

In the language of the founding fathers, citizens “owned” property, which implies one was not indebted to a creditor.¹ But, such stark inequality, which effectively undermines the ability of markets to function at equilibrium, has to a great extent been normalized in the minds of many — a system in which modern indentured servitude is seen as the path to prosperity, despite that over the past thirty years, as Americans have had to take out loans to make up the difference for falling wages, the standard of living in the US has fallen dramatically. The distribution of wealth represents a system in which rent is owed by the people to finance capital. Recently, a Goldman Sachs International adviser argued in favor of the finance industry’s extravagant compensation and his company’s plans for a near-record year in pay. He argues the spending will boost the economy.

“We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all,” said Brian Griffiths, formerly a special adviser to then British Prime Minister Margaret Thatcher, at a panel discussion in London’s St. Paul’s Cathedral. Discussed was the question, “What is the place of morality in the marketplace?”

Goldman Sachs Group Inc., based in New York, put aside $16.7 billion for compensation and benefits in the first nine months of 2009, an increase of 46 percent when compared with a year earlier. This total is enough to pay each worker $527,192 for the period in question. In many states, the nation is suffering from Depression level unemployment, whilst government figures drastically understate true levels by half. 100,000 teachers, also, have been laid off, and class sizes have exploded to more than 40 students per class. Over one million US students are homeless. Foreclosures are at a record high.²

The bailout programs were designed in such a way, that the destination of the money cannot be accounted for, according to Elizabeth Warren, the Harvard law professor who oversaw the bailout for Congress. Instead of taking the saner approach of the taxpayer purchase of all major US banks, since total market capitalization of all major US banks was less than $300 billion or less than a tenth of the amount given away, we’ve insured the major financial institutions at the cost of stability for the taxpayer. Now, should there be any future volatility in the markets, the taxpayer owns shares in the companies.

Instead of a corporate bailout, the banks should have been forced to write-down the value of the mortgages they, according to the FBI, illegally filed, and negotiated a new loan at a lesser price for the homeowners. The power of monetary policy ought to be shifted to the Treasury for the payment of public goods and services and the cost of credit for people should be minimized.

The federal budget deficit is $1.4 trillion, and the federal debt $12 trillion with annual interest rate payments of $450 billion each year. No coherent debate about how to alleviate these problems has been brought to the public. The US debt altogether is $70 trillion.

Since last October the taxpayer has bore witness to the largest transfer of wealth in, perhaps, the history of man, with potentially $23.7 trillion going to banks and financial institutions after the socialization of their risk on illegal sub-prime mortgages and credit default swaps. The FBI concluded that 80% of all sub-prime criminal fraud began with the lenders.³ There is an old proverb: “The creditor becomes the lenders slave.”

Carrol Quigley, a mentor of former President Bill Clinton, had this to say about finance-capital’s motives:

The Power of financial capitalism [has a] far reaching plan, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.

This system was to be controlled in a feudalistic fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences.

The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks, which were themselves private corporations.

Each central bank sought to dominate its government by its ability to control treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence co-operative politicians by subsequent rewards in the business world.⁴

In short, the motives of these firms were and are to expand market share and make profits for the shareholders.

Due to the breakdown in trade, pointedly demonstrated by a ghost fleet larger than the US and British fleets combined anchored east of Singapore, also the largest group of ships in the history of maritime travel without crew, no cargo and no destination, the concept of deglobalization has been floated around. Whereas the definition offered by Quigley points towards a collection of impotent localities unable to exercise sovereignty, other more positive definitions exist, such as that offered by Walden Bello.⁵

He envisages deglobalization as a process that enables production for domestic markets to become central to the economy rather than production where labor is cheap for export markets. Subsidies should be encouraged for projects at the level of the city-state, state and at the national level if this can be done at a reasonable economic and environmental cost with an agenda of preserving community and creating abundant, inelastic resources. Trade policy including quotas and tariffs should protect local economies from predatory corporate-subsidized commodities and their artificially low prices. Equitable income distribution and urban land reform creating a vibrant internal market would kickstart parts of the economy and make available capital for local financial resources for investment. Investment should emphasize not growth, but, rather the quality of life. Environmentally congenial technology in both agriculture and industry would be a massive, New Deal style endeavor, and funds for such projects should be diffused equitably, as opposed only to the energy cartel. Economic decision-making ought not be left to technocrats, but instead to Congress and the Treasury — in other words, those agencies accountable to the public. Questions include what industries to develop or phase out, what proportion of the government budget to devote to agriculture, etc. Markets should refer to a mixed economy of community cooperatives, private enterprise, state enterprise, and no transnational corporations. To replace the transnational corporation, networks of free associations with demarcations or firewalls between local associations may develop.

Despite an unresponsive Washington, overextended budget and rampant corruption which seems hopeless, there are still ways in which our economic problems can be stabilized indefinitely. During the Civil War, for example, English bankers exercised an astonishing amount of influence over Lincoln’s government, just as Wall Street determines Congresses policies today. The North needed money to fund the war, and the bankers lent them money at impossible-to-repay interest rates of 24 to 26 percent. Lincoln noted that this would bankrupt the North and requested that Colonel Dick Taylor of Illinois search for a solution. Taylor informed the President that under the Constitution the US had the power to solve its financing problem by printing its money as a sovereign government. Taylor said:

Just get Congress to pass a bill authorizing the printing of full legal tender treasury notes … and pay your soldiers with them and go ahead and win your war with them also. If you make them full legal tender … they will have the full sanction of the government and be just as good as any money; as Congress is given that express right by the Constitution.⁶

And so Lincoln funded the war by printing paper notes supported by the credit of the government. These legal-tender U.S. Notes, otherwise known as “Greenbacks,” represented receipts for labor and goods sold to the United States. Soldiers and suppliers received them as pay and they were tradable for goods and services of a value equivalent to their service to the community. The period of the Greenback was also one of large-scale economic expansion. During this period, the steel industry was launched and the continental railroad system was initiated; farm machinery and cheap tools were bankrolled, free higher education was offered, government support was provided to the sciences, the Bureau of Mines was organized, and labor productivity was increased by 50 to 75 percent.

The Greenback was not the lone currency used to bankroll these projects, but it was key to the process. Such growth, moreover, would not have been achieved by money borrowed at the rates London was demanding.

Lincoln’s presidency represents an era in which the government recognized its power to issue a national currency, despite being opposed by powerful special interests. Believed to have been published in the London Times in 1865, the following report sums of the establishment spirit of times in regard to the monetary issue:

If that mischievous financial policy which had its origin in the North American Republic during the late war in that country, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.

Eventually a private institution was put in charge of the technocratic printing of money within the country. The Federal Reserve is a privately-owned central bank bequeathed the power in 1913 to print Federal Reserve Notes or dollar bills and lend them to the government. Since that date, the government has suffered an increase in debt which today stands at $11 trillion.

About this system, Henry Ford noted: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

California’s current economic woes portend a fate that awaits the rest of the country. The Golden State is currently attempting to solve its $26 billion budget deficit through massive cuts in public funding. California’s residents, making up the world’s eighth largest economy, have refused further tax hikes, and Democratic leaders have refused further cuts in services or auctioning of public assets. California should not pay for the crisis with increased taxes or decreased services or public parks.⁷

In the meanwhile, the state has begun paying the State’s bills with IOU’s.

Such was the idea, in fact, that helped the colonies emerge from under a pile of British debt back in the 18th century, a time during which they lacked the silver and gold used in the Old World for conducting trade. The Massachusetts Assembly then proposed a different kind of paper money, a “bill of credit” representing the government’s “bond”; in other words, an IOU. The new fiat currency was backed by no more than “full faith and credit” of the government.

Following such a model, the Federal Reserve’s current Quantitative Easing Program could potentially represent the correct monetary policy in a time of high unemployment and threat of inflation or deflation. Historically, Quantitative Easing has resulted in hyperinflation and currency devaluation, but this does not necessarily need to lead to a doomsday scenario. According to Paul Krugman, a weaker dollar might serve as benefit for the U.S.:

Although there has been a lot of doom saying about the falling dollar, that decline is actually both natural and desirable. America needs a weaker dollar to help reduce its trade deficit, and it’s getting that weaker dollar as nervous investors, who flocked into the presumed safety of U.S. debt at the peak of the crisis, have started putting their money to work elsewhere. But China has been keeping its currency pegged to the dollar — which means that a country with a huge trade surplus and a rapidly recovering economy, a country whose currency should be rising in value, is in effect engineering a large devaluation instead. And that’s a particularly bad thing to do at a time when the world economy remains deeply depressed due to inadequate overall demand.⁸

One reason why China has yet to let their currency rise against a weakening dollar is due to their being more concerned about sustaining consistent demand than weaknesses with the greenback.

According to the Economist:

The simplest explanation for the currency’s decline is based on risk aversion. On the days when risky assets fall, the dollar tends to go up. When risky assets rise, the dollar falls. The dollar has fallen fairly steadily since March, a period which has seen stockmarkets enjoy a phenomenal rally. Domestic American investors may be driving the relationship, repatriating funds in 2008 when they were nervous about the state of financial markets and sending the money abroad again this summer because of a perception that the global economy is reviving.⁹

Many concern themselves with record deficits, creating headwinds for more stimulus, which might be useful were it printed through Congress or another public entity within the government concerned with the well-being of citizens. Japan, however, has deficits twice the size of GDP and bond yields hovering below 2 percent. The Japanese are staving off deflation. On the other hand, US deficits represent 12 percent of GDP. The dollar does not need to be crushed by deficits even much greater than this. Nonetheless, as soon as the government stops spending money and running up the deficit, unemployment will soar, banks and business already tottering on the brink will default, foreclosures will go up, and the economy will slip further into Depression. Important to note, is that the US economy, unlike Japan, is nearly 50 percent based in the financial and service sector. It also boasts the world’s reserve currency.¹⁰

Currently, to be sure, consumer credit is decreasing at a year-over-year rate of 5 percent, whilst savings are up and spending is down. Unemployment sits at U6 20 percent. The nation is suffering record foreclosures, delinquencies, bankruptcies, and defaults are sucking credit from the system. Should the Federal Reserve terminate Quantitative Easing, there would be no way to increase jobs or spending.

This line of reasoning suggests that the debate about the fall of the dollar is misdirected, and that the jugular of the issue lies in wage growth and full employment. One way in which these two issues can be resolved is by printing up the two trillion in another stimulus, which, regrettably, would amount to another bailout, unless, of course, the public money creation model was followed.

The nation’s only state-owned bank, the Bank of North Carolina, was created 90 years ago, in 1919, as a result of a populist movement across the northern plains. The movement, led by the Nonpartisan league, created an industrial program, out of which both the Bank of North Dakota and a state-owned mill were created. The funding and deposit model is what truly makes the bank unique, for the bank functions as the depository for all state collections and fees, has a captive deposit base, and pays a competitive rate to the state treasurer. From those funds the banks then pays those deposits back to North Dakota as loans. Therefore, it invests back into the state in economic development type of activities.

The bank employs certain programs designed to spur growth in certain sectors of the economy, be it agricultural or economic development programs useful in the state or energy, as well as education in the form of student loan financing. Certain loan programs with low interest rates promote activity along certain lines. The bank even promotes the movement of cash to disaster loan programs meant to aid businesses, enabling the state to act quickly should it need.

The bank all on its own, however, is not the sole reason the state has avoided such the hardships of other states. Rather, the bank’s choice to stay away from subprime lending and inability to get into the derivatives markets and put on swaps and callers and caps and credit default swaps. The bank also provides a dividend back to the state: approximately half of what it makes goes to the state general fund. Over the last 12 years, the bank has contributed a third of a billion dollars to this general fund to alleviate taxes or to aid in funding public sector type of needs. This in a state of 650,000 people.

And how has the current crisis affected the state of North Dakota? According to bank president Eric Hardmeyer:

“The State of North Dakota does not have any funding issues at all. We in fact are dealing with the largest surplus we’ve ever had. So our concern is how do we spend it wisely and make sure we save it for the future.”¹¹

Corruption in New York City and Washington DC amounts to a collusion between the political and corporate centers of power; in a word, corporatism. Representatives of finance capital are funded in elections, and quite often money talks to get certain cronies elected. When the numbers are considered, this is surely the case in the last presidential election. The expansion of Bush’s militarist and economic policies on the part of Obama is an argument in favor of the idea that the US political system is composed of one party with two factions, whose policies overlap on issues important for the aforementioned top 1-10 percent. There is very little debate carried out in the public forum and a general trajectory of centralized power continues.

The Federal Reserve enables money to be printed at near-zero interest. Along with the Treasury Department, the Federal Reserve controls the purse strings of the US. Taxation and Debt have reached such crippling levels that the majority of citizens are dispirited, hopeless, and exhausted. We should all take a breather: debts that can’t be repaid, won’t. The system of taxation and debt is an old one and has been effective in keeping people in line.

The world’s economic and financial superstructure is, at present, very weak. Policies in Washington and the movement of volume for volatility on behalf of the major financial institutions hint that this is desired by the movers of money. Thankfully, through the internet many more people today are aware that crises, more often than not, do not arise by mysterious and trans-human social forces, but from insatiable greed.

HR1207 and SB604, bills in Congress to audit and investigate the Federal Reserve, have helped to further inform people of the heretofore secretive nature of policy making in these two institutions. In democratic and open societies, nothing less than total transparency are deserved by the people. The job of monetary policy belongs to the Treasury under the Constitution. A firewall between Wall Street and Washington is the next step.

The credit crisis and the breakdown of our economic and financial institutional infrastructure began two years ago. The system of so much fraud and corruption has been kept functioning through cheap money and interest rates, as well as bailouts and stimulus packages. A majority of citizens in the US do not comprehend the problems we all face. The Uberclass, as Griffith’s comment at the top of this article reflects, exist outside the realm of traditional morals and laws and maintain a malfunctioning system or status quo.

Meanwhile, the US is held captive by its creditors, while the state, due to deindustrialization and financialization, stark inequality, a minor tax revolt, and lavish spending will experience inability to pay its debts to foreign creditors and respond to future crises at home or abroad.

But some of the solutions above remind us that there is still a world of hope out there.

What is desirable is a centrifugal system in which the exchange of goods and services follows a decentralizing or peripheral trajectory. Under the current system, centripetal forces attract goods, services and therefore wealth and power to the center, in this case not Marx’s industry, but instead creditors’s industry.

1. U.S. Wealth Distribution: 10% of US Citizens own 70.9% of all US Assets. Daily Paul, October 18.
2. Caroline Binham. Goldman Sachs’s Griffiths Say Inequality Helps All, October 21. Bloomberg.
3. Carl Herman. 2009 US Economy: largest transfer of wealth to financial/political elite in global history, October 20. Examiner.
4. Carrol Quigley. Tragedy and Hope: A History of the World in our Time. The Macmillan Company.
5. Waldon Bello. The Virtues of Deglobalization. Global Research, October 25.
6. Ellen Brown. Revive Lincoln’s Monetary Policy: An Open Letter to President Obama. April 8, 2009.
7. Ellen Brown. California Dreamin’: How the State Can Beat It’s Budget Woes, July 8 2009.
8. Paul Krugman, “The Chinese Disconnect,” New York Times.
9. ”Down with the Dollar,” The Economist, Oct, 2009.
10. Mike Whitney, Dollar Collapse Update: “Obama Demands Pay in Euros.” Global Research, October 25.
11. Josh Harkinson. How the Nation’s Only State-Owned Bank Became the Envy of Wall Street. Mother Jones, March 27.

When Lehman Bros flopped last year, markets went into freefall. A sharp correction turned into a full-blown panic. The bubble burst and trillions of dollars in credit vanished in a flash. Trading in exotic debt-instruments stopped overnight. A global sell-off ensued. Markets crashed. For a while, it looked like the whole system might collapse.

The Fed’s emergency intervention pulled the system back from the brink, but the economy is still wracked with deflation. Billions in toxic waste now clog the Fed’s balance sheet. The dollar has fallen like a stone.

When the financial system blows up and credit is sucked down a capital-hole, the economy goes into a downward spiral. Businesses slash inventory and lay off workers, workers have to cut back on spending and credit. That creates less demand for products, which leads to more lay offs. This is the vicious circle policymakers try to avoid. That’s why Fed chair Ben Bernanke wheeled out the heavy artillery and launched the most aggressive central bank intervention in history.

The Fed dropped rates to zero, but its Quantitative Easing (QE) program (which monetizes the debt) actually pushes rates even lower to roughly negative 2 percent.

Bernanke has underwritten every sector of the financial system with government guarantees. He has provided full-value loans for dodgy collateral which is worth only a fraction of its original value. The market can no longer operate without the Fed. The Fed IS the market, which is why it is foolish to talk about a “recovery”. The idea of recovery implies a free-standing system based on supply and demand. But, for now, the government provides the demand, which is why there is no market and no recovery. Analysts at Goldman Sachs sum it up like this:

How much of the rebound in real GDP was due to the fiscal stimulus, and where do we stand in terms of the effects of stimulus thus far? Although precise answers are impossible at this juncture, several aspects of the report are consistent with our estimates that the fiscal package enacted in mid-February as the American Recovery and Reinvestment Act (ARRA) would have accounted for virtually all of the growth reported for the third quarter.

Positive growth is an illusion created by government spending. The economy is still flat on its back. Consumer spending and credit are in sharp decline. Unemployment is steadily rising (although at a slower pace) and wages are flatlining with a chance of falling for the first time in 30 years. Deflationary pressures are building. The talk of a “jobless recovery” is intentionally misleading. Jobs ARE recovery; therefore a jobless recovery merely points to asset-inflation brought on by erratic monetary policy. Surging stocks shouldn’t be confused with a genuine recovery.

The Fed faces stiff headwinds ahead. Low interest rates can have unintended consequences. The “cheapness” of the greenback has made the dollar the funding currency for the carry trade. Investors are borrowing low cost dollars and using them to purchase higher interest assets elsewhere. The process, which is rapidly escalating, is fraught with peril as economist Nouriel Roubini points out in an article in the Financial Times:

Since March there has been a massive rally in all sorts of risky assets… and an even bigger rally in emerging market asset classes (their stocks, bonds and currencies). At the same time, the dollar has weakened sharply, while government bond yields have gently increased but stayed low and stable…

But while the US and global economy have begun a modest recovery, asset prices have gone through the roof since March in a major and synchronized rally….Risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals.

So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fueling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates…

Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing…

…This policy feeds the global asset bubble it is also feeding a new US asset bubble…. The reckless US policy that is feeding these carry trades is forcing other countries to follow its easy monetary policy….This is keeping short-term rates lower than is desirable…. So the perfectly correlated bubble across all global asset classes gets bigger by the day.

But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate… the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.¹

Everyone who watches the market has noticed the inverse correlation of stocks to the dollar. When the dollar fades, stocks soar. And when the dollar strengthens, stocks plunge. Eventually, the dollar will reverse-course and stage a comeback, probably when Bernanke stops his printing operations. That will trigger the next severe correction which will burst bubbles across all asset classes.

Bernanke’s success in reflating sagging asset prices has depended entirely on interest rate manipulation and liquidity injections. There’s been no effort to patch household balance sheets, increase production, or strengthen overall demand. It’s a clever trick by a master illusionist, but it has its costs. When the dollar rallies, markets will crash. And Bernanke will mainly be responsible.

1. Nouriel Roubini, “The Mother of all Carry Trades Faces an Inevitable Bust,” Financial Times.

We are all living at the thin sharp point of always more, always bigger, always better, always new, improved and disposable. That much should be obvious, even though it is not. We want our homes to be worth more today than yesterday, we demand it to be so. Prices must always fall, wages must always rise, and our wealth must always increase. We must have more than our parents and we must ensure more again for our children. Standing still is failure. Going backwards is unthinkable. This is simply impossible to sustain, we all know it, but we carry on regardless. Impossibleism.

It’s a math problem, or more correctly, it is our collective ignorance of natural forces, and the tyranny of arithmetic behind them. In our civilized hubris, certainty is something malleable, something which we can and will in time conquer. A war on 2+2=4. The inevitable as the enemy. Invisible, exponential terrorists whose design it is to take away our cherished free markets, destroy our twin towers of freedom and democracy, and bust us all back to the dark ages before cars, coke, and plasma TV’s. Absolutely nobody alive today wants that.

According to the International Monetary Fund (IMF), world output “collapsed” by 1.1% in 2009. That data point the official manifestation of what everybody already knew — that our world was in trouble and we were living with less. The value (in US dollars) of everything produced on our small blue planet in 2009 was about 60 trillion dollars — give or take a fish in Indonesia or the occasional bribe in Saudi Arabia. The American GDP is about 14 trillion dollars, where a ham sandwich is about five bucks — for purposes of scale. A contraction in production was both cause and effect of a serious economic “meltdown”, one which has squeezed our societies and cultures in fundamental and dramatic ways. It was, and is, a catastrophe. 1.1 % it turns out, is a lot.

The IMF forecast for 2010 is much rosier, as they predict a “return to growth” of about 3.1%. The consensus is that this is a good thing of course, growth being the only acceptable state of affairs, and by any measure. Absolutely nobody wants contracting production of stuff, nor do they want piddling increments of same. No, we all alive today want increasing production of stuff and nothing less, Amen. The only caution the IMF reserves is that our recovery is weak, and we must all be on our guard lest it slip back or sideways. And again, Amen to that.

In fact, it won’t be long before we just simply assume, as we had before, that growth is the natural order of things and forget completely the lessons of the great economic collapse. We will expect that growth is constant, and pay no heed to the annual IMF reports, just so much wallpaper in their dull, never changing prognosticating. A constant line of 2% growth our just reward for taming the earth and making it our own. Sustainable growth as many economists say, sustainable in the “we can keep this sucker moving” kind of way, not in the antithetic “can we keep this up?” heretical kind of way.

So we have a 60 trillion dollar world and it isn’t good enough it appears. We want a bigger world, a better world, and 2% a year should give it to us. That’s 2% compounded of course — we want our 2 % added to our current amount of stuff, and we want this to happen every 365 times the earth rotates on its axis — per annum, once a year. In 2010, we will be expecting to produce about 1.8 trillion dollars worth of “wealth” above and beyond the 60 trillion we have now (my apologies to economists who normally demand footnotes and qualifiers for this kind of thing. You get the point regardless). Maybe another 1.2 trillion or so the year after. We couldn’t be happier when our world GDP grows to 63 trillion USD’s in just two years. Good, sustainable progress we all can believe in, the effects of which we intuitively know will make us all healthier, happier, and richer. A lot of us anyway, or at least those of us who matter.

What is a 63 trillion dollar world going to look like? More jobs, more cars, more I Pods and I Phones. More people perhaps, more food we would expect, more industries and factories and technology. More of everything: poverty, stress, and Hollywood plastic. Three trillion doesn’t seem much against sixty, and it seems manageable. Certainly compared to a 120 trillion dollar world, which would be twice the amount of productivity we are churning out today. It’s much harder to imagine that. Spend a day out in the workaday world we all inhabit, and we can see what 60 trillion dollars looks like. Spend the same day trying to picture a 120 trillion dollar world… and it confounds the senses.

Of course, it is easy to forget that our current world is powered by the resources of the planet, and once reminded it makes for perfect common sense. More cars, industry, and flip flops require more coal, iron, and oil. It is reasonable to consider that a 3 trillion dollar increase in production worldwide will require additional stuff dug, scraped, or pumped out of the ground. This is concerning to many, as there is common understanding that raping the earth is morally and ethically to be avoided. We do it anyway of course, depending on our children to figure out a way to fix the imbalance for us. But a 120 trillion dollar world? Twice the oil pumped at twice the rate, twice the fish killed at twice the rate, twice the consumption with twice the debt. What about a 240 trillion dollar world? Four times the wealth, based on four times the resources our current world is built upon. Four times the rate and amount of extraction and consumption of oil than today. 85 billion barrels of oil in 2008, 340 billion barrels of oil consumed every day in a 240 trillion dollar world. And rising by design.

Impossible.

Impossibleists want unrestrained sustainable growth in the face of its inevitable impossibility. It is a mystery how they think this way, knowing as they surely do that eventually the bill will come due, and the engine will run out of gas — literally. Think about it — growth that never stops, ever. Even with limitless resources, it is simple intuition that eventually, somewhere, sometime…. But of course we don’t have infinite resources, another intuitive understanding even though it seems to us every day that we do. We know we don’t. Impossibleists will not reconcile these two basic intuitions, that all growth must eventually end, and that all resources must eventually tap out.

Impossibleism is a form of insanity, a shared delusional neurosis. It’s a party game of trick or treat all humans are invited to, a game where treats are redeemed by us in the present, and tricks are reserved for the ghosts of future people we will not know, and of whom we do not care. Not our children, nor theirs. The legacy of Impossibleism is the certain destruction of the future, the hope of the Impossibleist that he will not have to face the damned.

Pop quiz. How long will it take, at 2% annual growth compounded, to turn our 60 trillion dollar world into a 120 trillion dollar world? 35 years. If we do exactly what we plan to do, and everything goes swimmingly, and we have sustainable growth of 2% a year, our children will have a 120 trillion dollar world to deal with, and most of us alive today will live to see it. Children today of ten years of age will be alive and drowning in a 240 trillion dollar world, which by deliberate and calculated design will arrive in a single lifetime of 70 years. It’s a tyrannical feature of unflinching math called “doubling time”, a feature of exponential growth hidden in plain view.

The future ghosts are not just real, they are alive today and are our very own children. We have met — and love, and cherish, and protect — the very people we are cashing in the chits on, on whom we are knocking out the jams. Think about it, we are nurturing the very people — people who carry our names, our genes, and paradoxically our dreams — who will watch and live in and deal with a world four times larger than our own. We ourselves will breathe our last on a small blue planet that has to produce twice as much as today’s planet.

Progress, as we all define it, is impossible to sustain. Why? Leave the dogmas, politics, and bullshit aside and do the math. That’s why.

Impossibleism.

Michael Yates: Corporate America began to wage what turned out to be a one-sided war against working people in the mid-to late-1970s, when it became apparent that the post-World War Two “Golden Age” of U.S. capitalism was over. As profit rates fell, businesses began to develop a strategy for restoring them. This strategy had many prongs, and one of them was ideological, that is, a struggle for “hearts and minds,” to use a military term now being applied to Afghanistan. The presumed failure of Keynesian economics, marked by the simultaneous existence of escalating inflation and unemployment, gave the ideological struggle its foundation. Maybe there had been too many restrictions placed on the market, and these restrictions (minimum wages, health and safety regulations, laws facilitating union organizing in labor markets; public assistance in the form of money grants, housing subsidies, and the like; restrictions on the flow of money internationally) had led to results opposite those that liberal Keynesians had thought most likely. If these complex arguments could be tied to simple cliches, like “get the government off our backs,” “the unions have gotten too powerful” (with always a hint that they are too radical thrown into the argument), and “welfare queens” (with that always popular whiff of racism), they could provide ideological cover for what was really a matter of corporate economics, namely the making of money.

This ideological attack bore fruit quickly. President Carter appointed Paul Volcker to chair the Federal Reserve Board of Governors, and Volcker, under the guise of fighting inflation, immediately began to snuff the life out of working class communities by forcing interest rates up to nearly 20 percent. Today, Volcker is treated like a hero by Democrats and above reproach (though ignored by President Obama’s more right-wing economic advisors), which shows just how far to the right economic discourse has moved. What Carter began, Reagan completed, firing the Air Traffic Controllers and putting the nail in labor’s coffin. Behind the scenes in all of this and growing in strength for the next twenty years (funded by wealthy business leaders) or so were the right-wing think tanks you mention. Just as retired generals go to work for military contractors and defeated politicians become lobbyists, government economic advisors get jobs at Heritage or the American Enterprise Institute or the Cato Institute. The staffs of these ideological centers churn out endless position papers and studies, which find their way into our newspapers and the offices of our congresspersons. A gigantic network of professors, journalists, politicians, lobbyists, and, today, a television network (Fox) bombard us with right-wing propaganda. That all of this has been successful is seen by the fact that the shibboleths of neoliberalism—such as the needs for privatization of public entities, the free reign of markets, the obviousness of the success of welfare reform, the evils of raising the minimum wage—are all commonplaces today.

While the public now knows that something is rotten, I am not sure that neoliberal ideas are so under attack that they will lose their sway. I think that the tenacity of these ideas owes something to the lack of an ideological alternative, which, in turn, is due to the abject failure of organized labor to provide one. For example, we need universal health care. Labor, however, has not consistently argued in favor of this or supported it at all. Now Congress is poised to enact healthcare legislation that might well be worse than the profit-driven system we have all come to hate. Labor should refuse to support this legislation, but I doubt it will. Then, when the new healthcare plans fail to deliver the goods, the right-wing will be lying in wait, ready to pounce and say, “See, we told you so. The government always makes things worse.” In other words, until there is a radical ideology to replace right-wing thinking, the latter is unlikely to lose its drawing power.

Fred Magdoff: Although these institutions were very successful, along with a number of other forces, in shaping public attitudes toward the economy, the reality of the current severe economic conditions are causing many, including some economists, to rethink their views of how “efficiently” markets function in the real world (as opposed to their ideological make-believe world) and that some different approaches may be needed. People seem to understand that the “big players” played a major role in the crisis, but most of the anger has been placed on the outrageous salaries of the top echelon. Of course, this is just “chump change” compared to the massive amounts at that are transferred to the wealthy through the speculative casino that our economy has become.

　
MW: Socialism has a huge public relations problem. Wouldn’t you agree that socialism has been effectively discredited in the U.S. media and that, even now–with unemployment soaring at 10 percent and more than 300,000 foreclosures per month–the average American worker still believes in the virtues of capitalism? How do you explain this phenomenon?

Michael Yates: Part of my answer here can be seen in my response to your first question. Socialism has, indeed, been discredited here, partly due to its rejection by its natural supporter, namely the labor movement. The CIO expelled in the late 1940s and early 1950s the left-wing forces who built the great industrial unions. When it did this, it abandoned the worker-centered ideology that might have laid the basis for support here for at least the kind of social democracy we find in the Scandinavian nations. This left the ideological field to the enemies of social democracy and socialism. Of course, we cannot ignore the long and inglorious history of police-state repression of those persons and organizations that championed socialism. Our government has never hesitated to arrest, imprison, and even kill the enemies of capitalism. So it has been dangerous to be a radical here, though not so much today when radical ideas aren’t taken seriously and there are no powerful radical organizations left. Suppose that after the Second World War, the left in the labor movement had grown, and the left-led unions had continued to successfully organize workers and win good collective bargaining agreements. Suppose that they had built upon their impressive worker education programs, made inroads in the South, and fought hard against U.S. imperialism and the Cold War. We might have a much different political terrain on which to fight today.

Two other factors that must be considered in the attachment of the working class to capitalism are racism and imperialism. In the past, employers routinely pitted white workers against black, and one weapon they used was to associate black workers (and the civil rights movement) with communism (It was interesting to note in this connection the attempts to make Obama out to be a radical socialist). The claim that black union supporters were reds helped to solidify white support for capitalism. By the same token, anti-imperialist struggles in the poor nations of the world (often former colonies of the rich countries) were typically led by political radicals. These could be made out to be anti-American, and then those in the United States who allied themselves with these struggles could also be labeled anti-American, despite the fact that they might also be supportive of policies that would benefit working people. The schools and the media could be counted out not to try to set anyone straight on any of this.

Now, having said this, I must also say that to the extent that left forces in the United States identified themselves uncritically with the former Soviet Union and its extremely undemocratic political system, they sometimes played into the hands of those opposed to socialism. And I must also admit that socialist forces were, at their strongest, never powerful enough here to force their best ideals permanently into the consciousness of the working class majority. Finally, in the past, the success of capitalism in the United States allowed for some sharing of the wealth with workers, and this, too, made people less willing to entertain radical ideas.

Old and deeply ingrained ideas die hard, and unless there are forces at work to develop new ones and unless there is at least widespread experimentation with new ways to organize production and distribution, little is likely to change, even in the face of economic catastrophe, such as so may working men and women are facing right now. Quite the contrary, workers might be persuaded that actions detrimental to their long-term self-interest need to be taken, such as, for example, draconian measures against immigrants.

Fred Magdoff: There is no question that the term socialism has a public relations problem. But while it’s true that most people don’t fully understand the basic workings of the capitalist system nor what socialism is, there are indications that many people are ready to talk about alternatives—and that includes socialism. The positive public response to Michael Moore’s movie, Capitalism, is one indication. But a Rasmussen poll last spring found that only 58% of American’s say that capitalism is better than socialism. For adults under 30, 37% preferred capitalism and 33% preferred socialism. It’s not clear what the poll results really mean. But it does indicate that people are willing to hear about and talk about alternatives to capitalism.
　
MW: In a chapter titled “Neoliberlism” you focus on the disparity of wealth in the US today. Here’s an excerpt:

By 2006 the top 1 percent of households received close to a quarter of all income and the top 10 percent got 50 percent of the income pie. In 2006, the 400 richest Americans had a collective net wealth of $1.6 trillion, more than the combined wealth of the bottom 150 million people. This degree of income and wealth inequality was last seen just before the beginning of the Great Depression. (pg 50)

Let’s ignore the moral issue for now, and focus on the supply/demand question. Is it possible for an economy to produce sufficient demand when more and more of the wealth and income goes to the upper 5 or 10 percent of the population? (isn’t this proof that capitalism is inherently crisis-prone?)

Michael Yates: If a certain amount of output is produced, an equal amount of income is generated. So, conceptually, there could be enough demand to buy the output, no matter that the incomes generated are getting more unequally distributed. It certainly has been the case that the rich people now getting such a large share of the pie spend gobs of money. And rich foreigners spend a great deal of money in the United States as well. However, the rich also save a lot of money (the more they get, the more they save), and this money does not enter immediately into the spending flow. Working people, on the other hand, can be counted on, by virtue of the limited income that they command, to spend all of their income. Therefore, the more income the rich have, the more savings there will be, and, unless some way is found to convert all this saving into spending on newly-produced goods and services, the more likely it is that there will be a crisis caused by not enough spending (and its corollaries of unsold goods and services and unemployed labor). If we understand that growing inequality is the normal trajectory of capitalist economies, a trajectory only mitigated by the power of organized working people to win a bigger share of the pie for themselves and to compel the government to intervene in the marketplace on their behalf, then it is correct to say that capitalist economies are crisis-prone for this reason alone.

Growing inequality also creates other potential problems for the system. Sometimes it can generate a political crisis, a crisis of legitimacy so to speak. The rich exert tremendous political power, and this power grows as those at the top command a larger and larger share of a society’s income. To the rest of us, the game looks increasingly rigged, with us having little chance to improve our circumstances through individual efforts. More inequality also has harmful social and economic consequences that we don’t normally think of. Recent research has shown that if we compare two entities (two states in the United States, for example) with equal average incomes but different degrees of inequality, then the place with more unequal incomes will also have higher rates of infant mortality, arrest and imprisonment, school dropouts, low infant birth weights, and many other measures of social well-being. Growing inequality actually kills some of us, makes some of us sicker, and puts some of us in jail.

I want to add an important point. To say that capitalist economies are crisis-prone, because of a tendency toward income inequality or whatever other reason, is not the same as saying that these economies are on their deathbeds, no matter how severe a crisis may be. It is possible for an economy to exist in a crisis or a prolonged period of slow growth (stagnation) without it being ready to collapse. In the end, it is political struggle, that is, class struggle, that truly destabilizes an economy and generates conditions in which it is possible to imagine the birth of a new system.

Fred Magdoff: It is one of the many contradictions of the system. If ordinary folk are paid well they can buy a lot of stuff and help keep the system going. So from the point of view of the system as a whole, higher paid workers would help the economy. However, there is only one driving force for individual capitalists–and that’s to make as much money as possible. What might be better for the overall economy can be of no concern to the individual trying to maximize profits. For an analogy, let’s take a look at ocean fishing. Almost every fish species is being fished to the point at which the population crashes. It would make sense for all of the companies operating the large trawlers to cooperate and fish less in order to preserve the resource on which they depend. So what’s good for their long-term future is sacrificed as each individually tries to maximize their catch and therefore profits.

MW: Here’s another excerpt from the book: “In 2006, the financial sector employed about 6 percent of the workers but ‘produced’ 40 percent of the profits of all domestic firms.”(pg 56) A few paragraphs later you add that, “Making money without actually making something turned out to be the largest growth sector of the U.S. economy from the early 1980s to the present crisis.”

This seems to imply that as manufacturing and other parts of the “real” economy have become less lucrative, the trading of paper assets has become Wall Street’s new profit-center, the Golden Goose. What impact has the “financialization” of the economy had on ordinary working people?

Michael Yates: I think that an answer here has two parts. First, it was the neoliberal “revolution” begun in the 1970s that did immense harm to working people. For example, unionization rates began to fall dramatically in the 1980s, as Reagan began his “magic of the marketplace” assault on the working class. Real wages (the purchasing power of our paychecks) began to stagnate in the 1970s and are not much higher today than then. Relatively high-wage public employment began to endure a long period of privatization, which also damaged working class living standards. The move toward “free trade” did workers here no good, as manufacturing began to flee our shores for low-wage havens abroad. None of these things had to do with financialization per se.

Second, however, once the neoliberal attack on working class living standards took hold and incomes began to flow upward, those with a great deal more money began to look for ways to put this money to work. The corporations that they owned also had higher profits, and they did the same. The United States has always had a robust financial sector, though in the past, it was not the tail that wagged the dog as far as our system of production and distribution was concerned. Neoliberalism brought with it a deregulation of international movements of money and goods and services. [It is important to note that we see neoliberalism as a political response to capital’s quest for restored profits beginning in the mid-1970s when the post-Second World War two economic boom ended and the slow growth (stagnation) common to mature capitalist economies reasserted itself.] These, in turn, required a certain amount of financial innovation, to reduce, for example, the risks of fluctuations in currency exchange rates and sharp changes in political conditions that could threaten investments. From these innovations came still more, until finance began to take on a life of its own. And while neoliberalism and direct corporate actions inside workplaces did reduce costs and raise profits, they did not create nearly enough capital spending opportunities (investment) to absorb the growing individual savings and business profits. Finance of one kind or another then began to be seen as a place to dispose of surplus and make still more money. Leveraged buyouts, stock market speculations, real estate “investments,” all took off from the 1980s on, absorbing money that could not find enough opportunities in the real economy of production. As these things happened, financial “innovation” exploded, with all of the alphabet soup of financial instruments we describe in our book.

This explosion of finance proved detrimental to working people in a number of ways. Leveraged buyouts inevitably resulted in the hollowing out of what were often perfectly viable businesses. Companies were saddled with debt, assets were stripped and sold, and workers were furloughed by the tens of thousands. The inflation of asset values gave rise to the notion that it was the job of managers to increase the share price of their businesses—in any way possible. Businesses came to be thought of as mere collections of assets rather than entities that produced things. Asset inflation gave rise to asset speculation and the development of ever more complex financial instruments, all leading sooner or later to financial bubbles and the inevitable bursting of the bubbles. As we have seen, the bursting of financial bubbles has had tremendously negative impacts on working people: shuttered workplaces and unemployment to name but the primary ones. The last bubble, in real estate markets, was harmful to workers not only after it burst but also as it was developing. In the aftermath of the dot.com bubble, Alan Greenspan, former Chairman of the Fed Board of Governors, directed Fed policy to pressure interest rates down to very low levels. This helped to push loose money into real estate. As house prices began to rise, banks and brokers started to encourage working people to do two things: borrow money against the appreciated value of their homes and buy homes, either as first-time buyers or as purchasers of more expensive homes (after selling old ones). Working people were eager to do both because they saw houses as sources of cash to compensate for stagnating household incomes and as a form of wealth that could help secure them against the hazards of ill health, lost pensions, or college-age children needing money for school. Working class households began to take on large amounts of debt, making themselves more vulnerable, even as they thought they were making wise financial decisions. Ironically, those who saw their incomes rise so high because of neoliberalism were now, in effect, loaning money to those who didn’t fare so well. As banks accumulated mortgages, farsighted Wall Street swindlers saw golden opportunities to develop a slew of new financial instruments based upon the packaging and repackaging of mortgages into new and exotic instruments. Greenspan played their shill, arguing that they had uncovered the secret of hedging infallibly against risk. From here it was but a short step to the criminal schemes of Countrywide and a host of other financial institutions. The billions of dollars made were used not only to finance a new gilded age of revoltingly lavish consumption but to corral the most tractable politicians money could buy.

Fred Magdoff: Financialization of the economy created the possibilities for people to take on more and more debt—credit cards, new cars, 2nd mortgages, etc. It was the selling of a lifestyle way beyond people’s ability to pay for it plus the easy access of loans that created the bind that many people find themselves in today. In essence, it allowed people to live beyond their means. They were encouraged to take on debt as their house values seemed headed up forever, and the great rise in foreclosures and bankruptcies is the unfortunate result of the financialization of the economy. Also, those people who had retirement money in individual accounts or with pension systems and thought that they had become very wealthy, now found themselves with much less to rely upon.

MW: In the last couple of decades, consumer debt has skyrocketed, as you note, “doubling from 1975 to 2005, to 127 percent of disposable income.” (pg 60) Have we gone as far as we can without deleveraging and paying down debts? What happens to a credit-dependent economy when the consumer can no longer increase his/her debt-load? Is this just the beginning of a decades-long down-cycle?

Michael Yates: Certainly no entity—not a person, a family, a business, even a government— can take on rising levels of debt (relative to income) indefinitely. Sooner or later, the piper has to be paid. Working-class consumers took on large amounts of debt, to compensate in part for stagnating wages and incomes, and, it is important to note, to pay for health problems and other household traumas. This meant that the burden of the debt rose, since income wasn’t rising as fast as the debt, and also because the interest rates charged on credit cards and subprime mortgages were so high. We at Monthly Review have been decrying the rise of consumer debt for many years, and we said that the debt chickens would come home to roost sooner of later. I must say that I was surprised that debt could be broadened and deepened for so long. The ingenuity of creditors in extending loan periods and devising so many new forms of debt has to be admired for its audacity. Then, the ways in which these debts were packaged and sold so that more debt could be extended was truly breathtaking. Unfortunately, consumers ultimately couldn’t pay and all hell broke loose. Now, with so much unemployment, workers are truly strapped. They will not be borrowing so much or spending so much anytime soon. [One interesting recent development is that, as some households have defaulted on debts or simply stopped making payments, consumer spending has showed a bit of an upward tick!] So the question arises: what spending will fuel a sustained recovery? It won’t likely be consumer spending. Capital spending was stagnating to begin with and was the root cause of the crisis. There are no new “epoch-making” innovations on the horizon that would generate the amounts of investment that were brought forth by the automobile. U.S. exports seem a very unlikely demand support. That leaves the government. In a capitalist economy, especially one like the United States with its lack of a history of generally accepted public spending, it seems very unlikely that public spending will make up for shortfalls in aggregate demand. Already, there are widespread entreaties (and not just from the far right) urging the federal government to wind down in spending programs—well before, I might add, the economy has recovered. As we see it, the United States is, indeed, in for a long period of stagnation, a “down cycle” as you put it.

Fred Magdoff: This is one of the major constraints on the system. The economy is in a process that economists call “deleveraging,” which is just another way of referring to somehow getting rid of debt. Some are able to pay off what they owe, a few are able to renegotiate down some of their debt, many are losing their homes, and some are going bankrupt. Until this works its way out, and a lot of debt is shed one way or another, there will be a drag on the “consumer” portion of the purchases. This is particularly significant to the U.S. economy because it is so dependent on consumer purchases—in 2007, these absorbed approximately 70% of the goods and services produced.

MW: The ABCs of the Economic Crisis: What Working People Need to Know is as lucid and compelling summary of the financial crisis as any I have read. In the closing chapter you state that capitalism is undergoing a “crisis of legitimacy” and that “the system can never deliver what is needed for us to realize our capacities and enjoy our lives… That “instead of private gain” the purpose of society and the economy is “to serve the needs of people, by providing the necessities of life for all, without promoting excessive consumption (consumerism) while protecting earth’s life support systems.”

All of the things that which kept capitalism in check–progressive taxation, crucial regulations, and the power of unions–have either been reversed, repealed or greatly eroded. More and more people are beginning to see the greed which governs the system, and it scares them. But is the country really ready for structural change or will the vision of an economy which “serves the needs of its people” be dismissed as “pie-in-the-sky” Utopianism?

Michael Yates: Well, first thank you Mike for the kind words. They are much appreciated. Typically, the best we have been able to hope for from the public in the United States has been an amorphous populism; people are willing to say that the system is corrupt and that it is biased in favor of the rich. But proposals for change, much less a radical transformation of the economic system, are rare commodities. I think things would be different, however, if we had a real labor movement, one that was rooted in communities, broad in its composition, and not afraid to have principles and stand by them come hell or high water. This should be the lesson that progressives learned from the right-wing. The talking heads of Fox may seem insane to us, but they and their intellectual gurus almost never deviate from the set of reactionary principles with which they began to transform the “common sense” of the nation. We suggest at the end of our book that we ought to ask ourselves if a return to the pre-economic crisis status quo is what we want. In the best of times, there is plenty of unutilized labor, a degraded environment, poverty, dead-end jobs, and much more that is not so desirable. So we chose a number of alternative outcomes to what we have now that we think have mass appeal, from universal healthcare to basic food guarantees. However, as you say, these might well, and I think will cause people to react with a pie-in-the-sky indifference. What might make working men and women stand up and take notice would be for these goals to have a mass-based advocate, one that would make these goals matters of rigid principle and begin to fight for them through mass actions. We might think that the right-wing ideologues we see on television are insane. Yet, come hell or high water, they stick to their guns. Their political and economic adherents have wielded tremendous power for a long period of time, and even today when they seem to be losing their grip on the national “common sense,” they can still mobilize the faithful. The left needs to take a lesson from this. More particularly, the labor movement must take a firm and rigid stand on issues like national health care, food security, environmental degradation, full employment, good and cheap housing, U.S. war-making and imperialis, racism, and a host of others. Then it must educate members rigorously and constantly about such principles. Most importantly, it must begin to actively fight to achieve them, activating its millions of members and allies, wherever it can find them. It is through action, bold and unafraid, that people’s minds will get changed and a new “common sense” developed.

Having said this, I think it is clear that the labor movement, as currently constituted, is not up to the tasks at hand. Too many unions are moribund, stuck in the failed labor-management cooperation mind set of the past and run by people too old and infirm to do much of anything. So, not only will we have to have a worker-led opposition to the status quo, fighting to change it radically, but this opposition will have to be built on a new basis. There are some hopeful signs, such as the development of community-based worker centers, mainly in immigrant communities. These may be models for the labor movement of the future.

Fred Magdoff: Just getting what should be the most reasonable reforms through Congress is a major effort, which usually fails or is corrupted in the process. Look what’s happening with health care “reform.” Even if a “public option” is finally part of the bill, it will be a bill that helps some people, but is primarily a boon to the health care industry, which will get a lot of new revenue. It’s not a bill designed with the single purpose in mind: how can we supply medical care for everyone at reasonable cost. Rather it’s a bill designed with significant input from the for-profit sector that will end up supplying them with extra profits. It is clear that government-run systems (and there are a variety of ways to do this) are far cheaper and more efficient and can actually cover everyone. SO, it seems as though piecemeal reform is a) very difficult to obtain and b) can be reversed as the power of the wealthy increases. A system is needed that can break the power of the wealthy and create a real political and economic democracy in order to be able to meet the basic needs for all the people.

I don’t want to just end the [Iraq] war, but I want to end the mind-set that got us into war in the first place.
– Presidential candidate Barack Obama, January 31, 2008

Behind the ostensible government sits enthroned an invisible government owing no allegiance and acknowledging no responsibility to the people.
– Theodore Roosevelt (1882-1945), 26th US president

If we are strong, our character will speak for itself. If we are weak, words will be of no help.
– John F. Kennedy (1917-1963), 35th US President

If the Nuremberg laws were applied, then every post-war American president would have been hanged.
– Noam Chomsky, linguist and political expert

Barack H. Obama was a good presidential candidate but, so far, in crucial areas, he has been a somewhat disappointing president.

In November 2008, Democratic presidential candidate Barack H. Obama, and the first black American to have that chance, got to the U.S. presidency on the coattails of a despised Bush-Cheney administration. Indeed, it was a relief for a majority of Americans to have Senator Obama replace “facts-do-not-matter” George W. Bush as president of the United States. His Republican opponent, Sen. John McCain was little more than a Bush-retread. It was therefore unavoidable that such an election would generate big expectations that things would change for the better. As a matter of fact, candidate Obama’s electoral slogans were “Yes we can” and “change we can believe in”.

Because President Obama is America’s first black President, he is symbolically the culmination of Martin Luther King’s Civil Rights movement. Because of that, many have hesitated to criticize him or his administration. But his record, so far, speaks for itself. In two central areas, defense and the economy, his performance has been, at best, lackluster. In fact, Obama’s performance in these areas has betrayed a lot of highly held expectations.

He seems to have been ill prepared for such a big time job. It is true that the function of president of the United States, as the country becomes more and more a militaristic empire and less and less a democratic republic, is most demanding. Possibly, nobody can be qualified and prepared enough for such a challenge.

In Obama’s case, he was promoted from being a junior senator with a limited staff (one secretary and a few assistants), and no real administrative experience, to running the huge U.S. government with its three trillion dollar budget. And, moreover, he had not had the time or the wisdom to build around him a strong enough “brain-trust” to intellectually control the agenda. Rather the agenda seems to have been imposed upon him. It can be said that he asked for it when, after moving into office, his first move was to keep at their job key Bush appointees to implement the all-too-important defense and economic policies. As it is said in French “Plus ça change, plus c’est pareil” (The more things change, the more they remain the same!)

In Obama’s case, the disappointment is not only a question of poor performance due to a lack of depth, formation or experience. It is a question of promises not kept and of vision betrayed. The disappointment is palpable in polls. His job approval rating hovers around 50 percent (only 45 percent of adults), while only 43 percent of Americans say they would vote to reelect him, and 48 percent say they would vote for someone else. Obama’s performance has reinforced the cynicism and disillusion felt by many voters and their uneasy feeling that most politicians are either corrupt, incompetent, deceitful or hypocrites, or all of the above. In such an environment, it appears to many that voting has become a waste of time. Voter turnout in the U.S., already one of the lowest in the world, may take a turn for the worse if confidence is not restored soon. On that score, the 2010 turnout should be watched closely, especially among young disillusioned voters.

As far as foreign wars are concerned, Obama’s record is less than positive. Although there has been a timid beginning of troop withdrawals in Iraq—notwithstanding the promises—in Afghanistan, things have taken a turn for the worse. Indeed, President Obama has only made things worse in that remote part of the world, by accelerating the killing and by illegally upgrading the killing in Pakistan with the Pentagon’s drones. This is dangerous politics because this open-ended military adventure is all too reminiscent of the Vietnam quagmire that destroyed President Johnson, mired the last days of President Nixon’s term, and tarnished America’s reputation in the world.

Similarly in financial matters. Under Obama, the causes of the 2007-2009 financial crisis have not been clearly identified, let alone corrected or eradicated. Instead, they have been swept under the rug and covered with tax money bailouts and an orgy of newly created money. In fact, just as for defense, President Obama has delegated his economic and financial policies to the troika of Bernanke-Geithner-Summers, just as President Clinton had delegated the same responsibility to the troika of Greenspan-Rubin-Summers, and just as President G. W. Bush had done with the troika of Bernanke-Paulson-Geithner. We cannot help but detecting a pattern here.

It must be recorded that the Bernanke-Geithner-Summers team was deeply involved in the financial deregulation that led to the securization banking crisis and to the subprime mortgage crisis. When one considers the trillions of dollars in public money that have been used to camouflage the large N. Y. banks’ bad debts, it is obvious that the Obama administration has adopted the old political technique of pandering to the rich with the blind support of the poor. (N.B.: The top 23 Wall Street banks and financial firms are expected to hand out a record $140 billion in bonus compensation during this year of 2009—$10 billion more than the previous record year of 2007. It has since been announced that the seven largest bailed out banks may see their bonus plans scaled down, and the Obama admistration should get the benefit of the doubt for this small and possibly symbolic step toward public morality.)

Such practically unconditional bailouts of “too-big-to-fail” banks can be seen as some plush state socialism for the rich, coupled with harsh and unregulated market capitalism for the poor, saddled as they are with unlimited home foreclosures and personal bankruptcies.

The epicenter of the unprecedented banking salvage operation has been the Federal Reserve System, sort of a parallel government with the power to impose hidden taxes. Even more than the Treasury’s generous Troubled Asset Relief Program (TARP) of purchasing preferred equity in troubled banks, and other similar Treasury plans, the bulk of the banking bailouts came from the Federal Reserve system. The list of the Fed’s bailout programs is very long and very complicated and remains mostly off screen, because it is mostly camouflaged within a super-easy monetary policy.

The U.S. Fed is a sort of semi-private central bank that often caters to private banking interests at the expense of the public good. Many Americans realize that the Fed is as much a creator of financial crises as it is an instrument to fight them. In fact, the Fed is presently busy preparing the next big financial crisis, i.e., the collapse of the bond market two or three years from now. That could explain why the remote and mysterious semi-private Fed is the least popular of all American federal institutions, and why grass roots efforts to submit it to a public audit are gaining momentum.

In fact, the U.S. Fed is an institution that has gone much further than the U.S. Treasury in socializing the large N.Y. banks’ losses and in privatizing their huge profits in the hands of profiteers, at a time, especially after the Sept. 15 (2008) demise of Lehman Brothers, when many of them were technically insolvent.

Thus, by buying large amounts of toxic and unmarketable assets from the large N.Y. banks and from large insurers, such as the huge American International Group (AIG), at close to zero cost to them, and by creating new deposits in exchange, and by paying interest on such bank deposits, the Fed has in effect transferred all or most of the seigniorage of money creation from the public to the private sector. Everybody holding U.S. dollars has paid a huge hidden tax imposed by the Fed to salvage the large “too-big-to-fail” N.Y. banks. Sooner or later, somebody will have to calculate that hidden tax and make it public. Most likely, this could only be done if the Fed were to be thoroughly audited, which it has so far staunchly refused.

All and all, and where it counts the most, in matters of wars and peace and in economic matters, things have hardly changed under the new Obama administration. It is likely that an even more pugnacious McCain administration would have been worse, considering Sen. McCain’s public declarations and pronouncements. Nevertheless, this is poor consolation to those who had high expectations and who were led to believe that President Obama’s election would really bring fundamental change.

When you read the headlines about “pay czar crackdowns” and “clawbacks” and “reining in pay,” you should know that this whole Wall Street psychological operation is being run by the same man who sold us the Iraq war!

Here’s an example of misleading coverage from ABC News:

Bank of America Chief Executive Ken Lewis, who has announced he will leave the company by the end of the year, will receive no more pay for 2009 and will have more than $1 million of his prior pay clawed back, according to a deal Feinberg struck.

Poor Ken Lewis. The Economic Hitman, a.k.a. Mr. Bank of America, the poor guy has to work for the rest of the year for “no pay.” Oh, these strict new regulations! Well, you see, there is a missing part to this oh so popular media meme. Here’s a headline that should be written, “Ken Lewis to Pocket $70 million”… yep, poor Ken Lewis. He has to wait until the end of the year to receive $70 mill. If there were such a thing as law in this land, instead of getting $70 million at the end of the year, he would be getting a prison sentence.

This is a tragic comedy of Shakespearean proportions.

Due to these psychological operations, the average American is so thoroughly propagandized that most are yet to realize that a weapon more powerful than an atomic bomb has hit the US.

An economic deathblow has been struck, and the “republic” lay in ruins.

No one sounded the alarm loud enough to get through the propaganda system. The political process and mainstream media are so thoroughly dominated that the people remain passive as the noose is tightened around their neck, it is as if an entire population has been sentenced to a slow death.

Trillions of dollars have vanished, we know who was involved, and yet, there is no investigation. While paid-off “lawmakers” battle over every aspect of the healthcare bill — a bill that will once again screw most Americans in favor of more corporate profits and huge salaries and bonuses for the top executives of the companies who are sponsoring these puppet “politicians” — these “lawmakers” seem to have forgotten about $23 trillion. No, not $23 billion, we are talking $23 trillion taxpayer dollars!

Actually, Shakespearean proportions look rather small in comparison. $23 trillion is New God money.

The Bush Regime took down the US population. With Paulson leading, the financial crisis became the last ultimate act. The greatest theft of all time, trillions vanish. The entire power structure goes off the grid, off the balance sheet, into the dark.

It reminds me of Dostoevsky, “but enough; I don’t want to write more from the underground.”

There is also a correlation between stock prices and the dollar which should be considered. As equities have soared, the dollar has plunged. That’s because investors have become less risk-adverse than they were after Lehman Bros. collapsed. Now they have resumed speculation. Still, the S&P 500 is up over 60 percent since March 9, (which prices in a full three year recovery) which is “too much too fast.” According to John Hussman, “90% of stocks (are) suspended above their 50- and 200-day moving averages for as sustained a period as we have now observed.” (Hussman Funds Weekly Market Comment) That suggests that stocks are wildly overbought and that the market will soon correct, perhaps, violently.

Also, there is no shortage of investors and central banks willing to buy US debt which supports the greenback. Consider this report in last week’s Bloomberg:

Investors can’t get enough Treasuries even as the U.S. budget deficit climbs beyond $1 trillion, the government sells a record amount of debt and the dollar declines to the weakest level since August 2008.

Foreign buyers increased their holdings for a fourth consecutive month in August, to an all-time high of $3.45 trillion, according to Treasury Department data released Oct. 16. U.S. demand is being spurred by a rising savings rate and concern the economic recovery may falter. Fixed-income funds have attracted 18 times more money than stock funds this year, according to data compiled by Morningstar Inc. and Bloomberg.

Long-term, it is likely to be tough-sledding for the dollar, as government spending increases and fiscal deficits keep piling up. But in the short-term, investors believe that deflation is the biggest problem facing the economy. The surge in US Treasuries proves that point.

The notion that the dollar will crash, has become an article of faith among doomsayers, Libertarians, survivalists, leftists and goldbugs. (I’m as guilty as anyone) But is the theory supported by the facts?

First of all, “crash” is an ambiguous term. I take it to mean a plunge in the value of the currency to a hyper-inflationary range. What we are seeing now, however, is the Fed managing the value of the dollar downward to increase exports and reduce the real value of household and financial sector debt. That is not a crash; it is a planned demolition with the intention of improving the US’s position vis-a-vis its main trading partners. It is a type of currency warfare which is making the dollar more competitive at the expense of people who save. It’s exactly what Bernanke wants.

All the Zimbabwe talk is pure nonsense.

The reserve currency system is inherently unfair and invites all kinds of abuses. It gives the United States greater access to credit and elevates the dollar above all the other currencies. The dollar should be dethroned as the de facto international currency so that there can be greater parity between the currencies.

Those who believe that a “dollar crash” will bring the government to its senses or change the system, are mistaken. It won’t happen. Real structural change requires political activism and a vision of a system that is more equitable then the one presently in place. There’s no substitute for hard work.

The debate has revealed a deep division over the causes and remedies, with Anglo-Franco American (AFA) politicians, columnists and economists on one side and their Asian-German (AG) counterparts on the other. In general terms the AFA spokespeople put the blame for the crises on external factors, or more specifically they point their finger at the positive trade surpluses, dynamic export sectors and high investment rates in productive sectors and low levels of consumption in the AG countries as the cause of ”unbalances” or “disequilibrium” in the world economy.¹

In contrast, the AG countries reject this argument which speaks to prejudicial external practices. They emphasize the internal “imbalances” within the AFA countries, which has weakened their international, commercial and financial position.

In this paper, I am going to argue that both internal economic policies and external empire building strategies of the AFA countries have been the driving force for global imbalances. The structural differences between the two regions and the differences in class structure and economic configurations in each bloc precludes any easy or immediate solution. On the contrary, for the foreseeable future, the conflict between dynamic emerging export powers and the declining western bloc is likely to intensify, leading to greater trade conflicts and possible military confrontations.

The AFA charges against China’s commercial ‘imbalances’ conflates trade with the West with Beijing’s relations with the rest of the world. China has balanced trade or even trade deficits with Asian, African, Middle Eastern and Latin American countries. Moreover, the AFA countries have trade imbalances with other regions including the Middle East and Germany. Even if the AFA countries curtailed imports from China, it is most likely that other Asian countries would replace them, including Vietnam, South Korea, Taiwan, Bangladesh and India. The resulting trade deficits of the AFA would remain about the same.

The AFA countries blame China’s “undervalued” currency, and claim that Beijing authorities manipulate the exchange rate to under price exports and beat out competitors (namely producers within the AFA). Yet China’s currency has been revalued steadily upward over 20% the past five years, and yet the AFA still run a deficit, suggesting that their domestic producers have still not been able to compete with Chinese manufacturers.² More recently AFA writers have complained about low interest rates set by the Chinese government as a “subsidy” to its exporters. Yet AFA interest rates are at zero percent or even negative, to no avail. Moreover, the AFA have provided over 1.5 trillion in bailout funds and over 1.3 billion in stimulus spending – a subsidy five times greater than China’s stimulus package, without improving their trade balance. What is telling, given the sectoral allocations, of each regime’s bailout – subsidy – stimulus packages, China has fully recovered and is growing at 8% by mid 2009, while the AFA continue to wallow in negative territory and continue running up trade deficits. This points to the centrality of internal factors, namely, the economic sectors which receive the state subsidies and how they invest it and as a result how their decisions affect trade balances.

The AFA charge that China’s low cost labor, its exploitation of workers accounts for trade imbalances. Yet an increasing percentage of China’s exports are based on technological advances, not cheap labor. This is because low labor cost competitors are emerging in Asia.

The AFA complain that China over emphasizes its ‘export’ strategy at the expense of producing for the domestic market. Yet nearly half of China’s exports to the US are made by US owned multi-nationals who have invested, subcontracted and co-produced with Chinese counterparts. In other words, US internal policy, the deregulation of capital flows, has facilitated the movement of US manufactures abroad resulting in a decline of local production, an increase in imports and greater trade deficits.

Internal Causes of Trade Deficits (and Unbalanced World Economy)

The most obvious and striking correlation with the growth of AFA trade imbalances is the growth and dominance of the financial sector.³ The financialization of the AFA economies and Wall Street’s CEOs dominant role in the strategic economic positions of the state is transparent to the mass of the people and has even been acknowledged by most private economists and academics. Trade deficits increased in direct proportion to the growing political and economic power of the financial sector. In large part, this was due to the transfer of capital from manufacturing to financial services, leading to the decline of the manufacturing sector’s investments in innovations and competitive management strategies. The financial sector’s, high salaries, bonuses and quick returns attracted most of self-styled “best and the brightest”. MBA graduates multiplied while advanced engineering school graduates diminished. Advanced skilled worker training programs disappeared while low skill retail sales recruitment grew.

The problem was that financial services did not, could not replace the overseas earnings which formerly accrued to the country through manufacturing sales. Least of all in the highly regulated financial markets of China, Japan, India and the rest of Asia, where banking was subordinated to the expansion of manufacturing — namely financing industries targeted by state officials. The dominance of finance capital and the related sectors of real estate and insurance, led to a highly polarized class structure: in which billionaire and millionaire investment bankers presided at the top and an army of low paid service workers (retail employees, cleaners and sweepers, etc.) immigrant and non-union workers occupied the bottom. Presently income inequalities in the US exceed those of any other “advanced” capitalist country. The inequalities in Manhattan exceed those of Guatemala. The growing concentration of wealth is accompanied by decline of median wages over the past three decades. As a result the purchasing power of US workers is declining, thus reducing the demand for locally produced quality goods. The purchase of imported cheap textiles, shoes and other accessories results. The result was a decline in local saving and domestic investment in manufacturing leading to a decline in competitiveness. Moreover, the competition among financial lenders furthered consumer spending and greater individual indebtedness at a time when manufacturing exports were declining, starved of investments.

Most manufacturing firms transformed themselves into financial corporations, channeling investment funds in sectors not earning foreign exchange. Worst of all in pursuit of higher profits, manufacturers turned into commercial vendors, closing down plants and sub-contracting production to China and other Asian countries and importing final products into the US creating the trade imbalances. The large scale relocation of US multi-nationals abroad further exacerbated the trade imbalances.

The key role of the state in creating domestic imbalances leading to global disequilibrium is a result of the financial sector’s takeover of the state,and the deregulation of financial markets. The result was the long term promotion of an economic policy, in which the central bank (the Federal Reserve) and Treasury encouraged the growth of finance ,real estate and insurance sectors over manufacturing. The finance based strategy was justified by a large army of academics and publicists who spoke of a “post industrial”, or “service” or “information” economy as a “higher stage”, rather than a perversely unbalanced, unsustainable and unjust economy.

Financial supremacy coincided with the growing militarization of US foreign policy. Throughout the last thirty years, US overseas economic expansion was gradually eclipsed by the growing reliance on military intervention, and the build-up of military bases in hundreds of sites. As financialization weakened the productive capacity of US manufacturing exporters’ efforts to capture markets, US policymakers increased their reliance on the supremacy of military power. The channeling of billions into military spending drained resources from efforts to upgrade the competitiveness of US civilian industry and was a major factor-in its declining share of export markets. The end result of militarization was a loss of export earnings and the growth of trade deficits.

If we combine the three great internal imbalances in the AFA economics, but especially in the US, the financialization of the economy, the militarization of foreign policy and the concentration of wealth at the top, we can best understand why the US has such a huge and growing trade deficit.

China Export Driven Strategy

China’s emphasis on an export driven strategy and the resultant growing class inequalities is largely a result of the class composition of the state and its social structure. In other words internal factors are the driving force of its pursuit of trade surpluses. What is ironic is that some of the AFA critics, who rightly point to the internal ‘imbalances’ in China, overlook similar problems in the West. Namely, no mention is made of the absence of a national health plan in the US, the growth of inequalities and declining mass purchasing power – even as they point to these deficiencies in China. What Western advocates of greater social welfare in China do not discuss, is the capitalist class power, privilege and profits which hinder greater mass consumption. Least of all do they discuss the motor force for lifting working class and peasant living conditions, namely the class struggle. Instead they rely on technocratic appeals to Chinese elites for greater social spending.

The Chinese state has evolved into a powerful machine for manufacturing goods and billionaires. Today China has the highest growth, the highest rate of exploitation and the greatest class inequalities in Asia. Increasing wages to stimulate local consumption means reducing profits, anathema to all capitalists including Chinese. Increasing public spending on universal health coverage especially for the 700 million uninsured peasants and rural workers means higher taxes on the rich, including the families and colleagues of the governing elite. In contrast, producing for export markets does not require increasing domestic consumer power, on the contrary it requires lower wages.

A shift from an export-driven to a domestic market driven strategy, requires not only a ‘change in policy’ but a deep shift in class power, from the current capitalist class and its state backers to the workers and peasants. To realize large scale, long term commitments of public revenues to social services for the rural poor and higher wages for exploited workers requires sustained popular mobilizations, uprisings, strikes to secure the independent trade unions and peasant associations necessary to secure a shift in state allocations toward domestic consumption.

China’s “imbalances” are largely internal, social and political. An imbalance of social power between an all powerful capitalist state and a repressed powerless mass of workers and peasants; an imbalance in income between a super-rich banking, real estate, manufacturing export elite and a low paid working class and subsistence peasantry;an imbalance between a highly organized state linked by family, ideology and economic interests to the capitalist class and a dispersed, fragmented and isolated mass of working people.

China’s ruling class, its outward billion dollar investments in western capitalist enterprises via its sovereign wealth funds, its billion dollar investments in overseas extractive enterprises, is driven by the mass of capital accumulated that is extracted via intense levels of labor exploitation and the elimination of state funded pensions, health plans and education. China’s role as an emerging imperial power is rooted in the imbalance between global power and social welfare decay.

The fact that western capitalist writers, policymakers and their academic camp followers point to the same social imbalances in China as its domestic working class critics should not obscure a basic point. The Wall Street critics are defending the AFA financial elite against China’s export industrialists’ greater productivity; while the domestic working class critics are criticizing the capitalists and the state for their high rates of exploitation and concentration of wealth.

The key to reducing imbalances in world trade is reducing socio-economic inequalities within each region. The US requires a profound shift from a finance dominated economy to a manufacturing economy, where finance, high tech and higher education is directed to creating a competitive, productive economy based on skilled labor. The link at the top between Wall Street and the Pentagon must be replaced by a link from below between the industrial working class, low paid service workers and public sector employees and professionals.

The structural transformation of the US economy is necessary but not sufficient. If US efforts to pursue a military driven empire persist, this will divert resources away from domestic and overseas economic priorities. Military driven empires alienate trading partners, have high costs and low returns, isolate economic investors and traders from productive partnerships and are destructive of domestic and overseas civilian productive facilities.

The way out of the massive imbalances is for the US to engage in a large scale, long term domestic structural transformations – namely de-financialization and de-militarization. But the political and economic forces benefiting from the current configuration are deeply entrenched, in control of both major parties and dominate the mass media and its message. Yet, despite their profound institutional power they suffer several fatal flaws. In the first instance they have created unsustainable global imbalances, which will sooner or later lead to a collapse of the dollar and renewed and more virulent and costly financial bubbles. Secondly, the free market which is the main ideological prop of the deregulated financial power elite is totally discredited as evidenced by the single digit support and trust of Wall Street. Thirdly, military driven empire building has run its course: after nine years of war in Afghanistan the vast majority of the US public has sent a message to the political elite of both parties, the White House and Congress, that its time to shift from funding failed overseas adventures to solving the problem of 20% under and unemployed Americans (30 million), the 100 million or 33% of Americans with no or costly and inadequate health coverage. No amount of media and political pundit scapegoating of China for our own self-induced “imbalances” can divert American opinion from their direct experiences with our own internal inequalities and policy failures.

1. Martin Wolf, “Why China must do more to rebalance its economy” Financial Times, September 23, 2009, p 11. See also Financial Times, October 3, 4, 2009. p 3 and Financial Times, September 21, 2009 p 9.
2. Financial Times, October 9, 2009 p 1.
3. Gerald Davis, Managed by the Markets: How Finance Re-Shaped America (New York: Oxford University Press 2009).

It appears as though the savior may be riding in on a pale horse.

According to a September 5 New York Times article, banks like Credit Suisse and Goldman Sachs are exploring new investment schemes that involve buying up life insurance policies from sick and elderly people, bundling them into huge securities, and selling shares in the securities to investors.

Buying shares is essentially a bet–that the people whose insurance policies on which the securities are based will die “on time” or earlier than expected. According to the Times, “The earlier the policyholder dies, the bigger the return–though if people live longer than expected, investors could get poor returns or even lose money.”

Just when it seemed impossible for Wall Street–still counting the trillions in taxpayer dollars it received in a government bailout to save it from collapse–to sink any lower, greed came to the rescue with the development of a grim new market.

As Karl Marx and Frederick Engels wrote in the Communist Manifesto, “The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere.”

Now, the financial crisis has driven capitalists to the nursing and retirement homes, and to the bedsides of the sick and dying.

The credit rating agency DBRS–whose Senior Vice President Kathleen Tillwitz informed the Times that “our phones have been ringing off the hook with inquiries”–is studying how to rate pools of life insurance policies. The main challenge is figuring out how to pool people together. As the Times wrote:

The solution? A bond made up of life settlements would ideally have policies from people with a range of diseases–leukemia, lung cancer, heart disease, breast cancer, diabetes, Alzheimer’s. That is because if too many people with leukemia are in the securitization portfolio, and a cure is developed, the value of the bond would plummet.

If the sub-prime mortgage market boom is any indication, an increased demand for existing life insurance policies spurred by increased securitization would lead to widespread abuse and fraud–with policy originators faced with the same incentives that encouraged mortgage brokers to deceive borrowers with “teaser” interest rates that ballooned several years into repayment.

In this case, the victims would be the elderly, the sick, and those who depend on life insurance benefit payouts in the case of the death of a loved one.

A further element of instability would be added if life insurance-backed securities take off–the likely proliferation of illegal “stranger-owned life insurance” or “STOLI” policies.

A STOLI is a policy created when a broker or investor convinces someone, usually a senior citizen, to take out a life insurance policy, with the promise to sell it quickly for a one-time payment. According to Reuters, “The death benefits are immediately transferred to investors, usually hedge funds.”

The securitization of life insurance policies would likely lead to an increase in the number of illegal STOLIs, once the banks exhaust the possibilities of buying up existing, legitimate policies to package into securities. In turn, insurance companies would have an incentive to crack down on this practice to avoid paying death benefits to the investors, leaving the market prone to crisis.

Other challenges for a credit rating agency like DBRS include figuring out what “would happen if health reform passed, for example, and better care for a large number of Americans meant that people generally started living longer? Or if a magic-bullet cure for all types of cancer was developed?” These eventualities, while prolonging and improving the lives of millions, would be bad for investors’ bottom line.

The “potential risk for investors,” the Times continued, is that “some people could live far longer than expected. It is not just a hypothetical risk. That is what happened in the 1980s, when new treatments prolonged the life of AIDS patients. Investors who bought their policies on the expectation that the most victims would die within two years ended up losing money.”

According to an ABC News story:

The industry for selling life insurance [policies to investors] first sprang up during the AIDS epidemic of the late 1980s. “Companies loved AIDS because it was a predictable death sentence,” says Gloria Wolk, a life-settlement expert who learned about the practice while volunteering at AIDS services clinics. “The shorter and more certain the life expectancy, the higher the returns promised to investors and the greater the lump sum offered to patients. It was a grim mix of free-market capitalism and human mortality.”

Wolk nevertheless said she “saw the industry make a huge difference in the lives of terminally ill patients and their families”–by providing victims with funds to pay for the exorbitant health care and other costs associated with dying from AIDS, while it was ignored by a government run by Ronald Reagan.

The only conceivable defense of the practice of bundling life insurance policies into securities and selling them to investors to profit from the deaths of policyholders is that it enables those who sell their policies to get more than they would if they simply sold policies back to the insurance company.

But this option is only attractive because health care costs in the U.S. place quality care out of reach–for the nearly 50 million people without health insurance, and for tens of millions more who are insured, but can’t afford the co-pays and deductibles that pile up when they get sick or injured.

Similarly, for the elderly whose retirement savings have been eroded by the current crisis, the inadequacy of Social Security, and by the long-term shift from defined-benefit pension plans to 401(k)s based on the stock market, the main reason most would be tempted to sell their life insurance policies is that our government neglects to provide a decent standard of living for elderly workers who have outlived their usefulness to the exploiting class.

In other words, the market for securities backed by life insurance policies depends on the absence of universal single-payer health care for all and the lack of a sufficient social safety net for senior citizens.

Almost as disturbing as first-tier financial institutions betting on death is the matter-of-fact reporting of the New York Times.

The Times article, titled “Wall Street Pursues Profit in Bundles of Life Insurance,” ignores completely the question of the morality of human beings gambling on the lives of others, indexing the sick based on the nature of their affliction and when it is likely to kill them, and crossing their fingers that no cure for cancer is discovered. This is a brilliant illustration of Marx’s assertion that capitalism “has left no other bond between [people] than naked self-interest, than callous “cash payment.”"

It says a lot about capitalist society’s brutality and indifference to human life that the newspaper of record could cover this story without pause, going no deeper than the pros and cons from the perspective of investors–while “Ads by Google” accompany the story, inviting readers to “sell your life insurance policy” and “find low cost life insurance.”

Nor does the Times question the logic of devoting massive wealth to a market that creates no new value in the form of goods or services, and is of no use to anyone but the few who will profit from it.

According to the Times article, there are $26 trillion in life insurance policies in the U.S, and “some in the industry predict the market [for life-insurance-backed securities] could reach $500 billion.” That sum is nearly three times the total of all the budget shortfalls of every state government for fiscal year 2010.

A just society based on human need would use that $500 billion to preserve and expand essential services that are on the chopping block as states balance their budgets.

A just society based on human need would devote those resources not to betting on death, but providing top quality care to the sick, researching new cures and treatments (and making them available to all), and ensuring that the elderly live the last years of their lives in dignity and security.

According to the economic “experts,” the U.S. economy is beginning to “recover.” But the very nature of the recovery–a return to big bonuses and salaries for Wall Street executives alongside deepening and sustained unemployment, cuts in social services and health care “reform” that amounts to a massive government handout to the health insurance industry–demolishes any idea that the U.S. is not a class society.

It is time to build the socialist alternative. Our lives and dignity depend on it.

Even if the stock market can be shored up by more government borrowing for “stimulus” spending, it’s a temporary reprieve, because nothing can bring back the consumer purchasing power that was lost when the banks stopped pumping money into the economy through out-of-control mortgage lending. We simply no longer have the job base for people to earn the income they need to live.

The underlying cause of the crisis is in fact the debt-based monetary system, whereby the U.S. ruling class long ago sold out our nation and its people to the international banking cartel of which the Rockefeller and Morgan interests have been the chief representatives for over a century. It was lending on a previously unheard of scale for overpriced assets to people and businesses unable to repay that created the bubbles that burst in 2008, not only in the housing market but also in such areas as commercial real estate, equities, commodities, and derivatives. It was an explosion that reverberated throughout the world.

The Obama administration’s response to the crisis has been to print Treasury bonds both for the financial system bailouts and the sputtering Keynesian stimulus that so far has gone substantially into military infrastructure. This bond bubble is what I have referred to as “Obama’s Last Picture Show.”

Government debt is fundamentally inflationary. For a generation, the U.S. dollar has been inflating at an increasing rate, with the economy being kept in a growth posture by selling our debt instruments abroad or allowing foreigners holding dollars to purchase property and other assets on our own soil. The website EconomyinCrisis.org reports that in 2007, the most recent year for which data are available, “foreign entities spent $267.8 billion to acquire or establish U.S. businesses.”

Foreigners are spending their dollars as fast as possible, because they are now plummeting in value. It’s increasingly clear that sooner rather than later, the dollar will be dumped by foreign purchasers of bonds, particularly China, and possibly even the oil-producing nations.

These nations know full well that bonds denominated in dollars can never be completely repaid, even if the bonds can be rolled over into fresh debt. It’s this dynamic that is dragging the U.S. economy to the cliff, because real economic growth stopped long ago when our manufacturing jobs were exported. This is because most of the growth since Ronald Reagan was elected president in 1980 has been only on paper through financial bubbles. This included the dot.com bubble of the Clinton years that blew up in 2000-2001.

Now, after the Treasury bond bubble of 2009, there is nothing left in America to inflate. With so many jobs gone, the American family home was the last thing of value we owned.

So the air is going out of the tires. Americans who are struggling to work for a living are passive spectators as their jobs, savings, health insurance, pensions, and homes continue to erode in value or even disappear. Last Sunday the Washington Post reported a massive crisis in state and local government pensions. Reporter David Cho wrote, “The financial crisis has blown a hole in the rosy forecasts of pension funds that cover teachers, police officers and other government employees, casting into doubt as never before whether these public systems will be able to keep their promises to future generations of retirees.”

So what, if anything, can be done about it?

Well, the first thing an intelligent physician does is diagnose the disease. Thomas Greco, in his new book The End of Money and the Future of Civilization (Chelsea Green: 2009) , outlines the increasingly familiar story of how things got so bad, and he tells it as well as anyone has ever done. His style is precise and sometimes academic. Behind it, though, is a passion for truth and the type of rock-solid integrity that refuses to sugar-coat a very bitter pill.

More than that, Greco writes about how to change what has gone wrong. His credentials as an engineer, college professor, author, and consultant are impeccable. His book is among the most important written in this decade. It is truly a book that can alter the world and, if taken seriously, give large numbers of people a practical way to survive the gathering catastrophe.

But unlike most commentators, what Greco offers is not another phony prescription for what the financiers and government should do for us, whether through “restarting” lending or another round of stimulus spending. Rather it’s what we should do for ourselves, and could do much better, if we understood what to do and if big banking and big government just got out of the way.

As I said, at the root is the monetary system, whose failure cannot be understood without a history lesson. So Greco writes about the struggle between banking and democracy that took place in the 1790s when the ink on our new national constitution was barely dry.

It was Alexander Hamilton, the first secretary of the treasury, who compromised the new nation, through what he admitted was “corruption,” by giving the wealthy speculators in Revolutionary War bonds the benefit of federally-sponsored redemption and then by establishing the First Bank of the United States. This early drift toward elitist rule was opposed by Thomas Jefferson, James Madison, and others who figured in the creation of what later became the Democratic Party.

Greco writes: “While Jefferson favored a stronger union than that which emerged under the Articles of Confederation, he was vehemently opposed to the reconstruction of monarchic government on the American continent.” Hamilton had said frankly that the British monarchy was the best system of government known to man. Part of the monarchic system was the Bank of England, which Hamilton copied when setting up the First Bank.

But Jefferson, who repudiated Hamilton’s elitist platform, was elected president in what was then called “The Revolution of 1800.” Congress refused to renew the Bank’s charter by a single vote when it was up for renewal in 1811.

But the Second Bank of the United States was chartered in 1816 due to the government debt left behind from the War of 1812 against Great Britain. Thus was set up what became known as the “Bank War.”

It was President Andrew Jackson who dethroned the bankers from power by pulling government funds out of the Second Bank in 1833. Greco writes that in Jackson’s view: “The ‘Bank War’ was a contest for rulership—would the United States be governed by the people through their elected president and representatives, or by an unelected financial elite through their central bank instrument?”

The modern takeover began in earnest during the Civil War when Congress passed the National Banking Acts in 1863-64 which mandated use of government bonds as bank lending reserves, thereby creating a direct linkage between bank profits and the debt the government was starting to load on the shoulders of taxpayers.

The nation’s fate was sealed with the passage of the Federal Reserve Act in 1913. The deal was that the bankers would control the currency, and thereby the nation’s economy, while the government would be provided with an unlimited amount of inflated dollars to fight its wars.

The bookkeeper’s trick of creating money out of thin air, charging interest for its use, then forcing it down the throats of weaker nations by threat of violence, is what has allowed the Anglo-American empire, since the founding of the Bank of England in 1696, gradually to conquer the world. Though President Woodrow Wilson signed the Federal Reserve Act into law, he saw what that action meant. Greco cites Wilson as writing: “There has come about an extraordinary and very sinister concentration in the control of business in the country…. The great monopoly in this country is the monopoly of big credits.”

Among other ill effects, the system has ruined the value of the currency. The inflation caused by large issues of bank-created loans is seized upon by the government which goes along because inflation reduces the cost of its deficits. Investors buy Treasury bonds denominated in Federal Reserve Notes then watch their value evaporate over time. In fact Federal Reserve Notes have lost over 95 percent of their value since they were first introduced.

Moreover, it’s additional inflation caused by bank-generated interest that drives up the costs of goods and services, forcing everyone in the economy to try to defend themselves by raising their prices to the max. Greco spells this out too, which almost every economist in the world, with the exception perhaps of Australia’s James Cumes, overlooks.

Bank interest has other tragic effects. It was high interest rates, for instance, that destroyed the Idaho potato industry. A farmer from that region told me at a conference a few years ago that when interest rates skyrocketed in the early 1980s, he asked the president of one of the Federal Reserve Banks why they did it. The answer was they were “ordered” to raise interest rates by the international banking system.

Make no mistake, it’s the banking system, facilitated by the Fed, not unwary borrowers, who brought on the collapse of 2008.

Now, in 2009, the bankers, mainly those in the U.S., have so shattered the world economy by debt mounted on debt that there may be no reprieve except the creation of a slave society based on rule by the rich over the masses of whatever peons should happen to survive the downturn and its tragic effects on employment, health, the food and water supply, and even our ability to cope with climate change.

The political establishment, expressing itself in pronouncements by organizations like the Council on Foreign Relations, see a future, not of economic democracy or increased financial pluralism, but consolidation of world currencies into a small number overseen at the top by the world’s financial oligarchy. Citing the writings of Benn Steil, the CFR’s Director of International Economics, Greco writes: “The ostensible plan is to reduce global exchange media to three—one each for Europe, the Americas, and Asia. One might reasonably suppose that at a later stage, those three would be combined into one currency also under the control of the global banking elite.”

Greco concludes: “The New World Order is upon us.”

With ample justification, he even goes apocalyptic, citing The Book of Revelation in demonstrating the import on a spiritual plane of the elitist takeover: “And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand or in their foreheads: And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.” (Revelation 13: 16-17)

But is it really the end, or is there a new world waiting to be born? Greco thinks so. He speaks of the end of an era when unlimited economic growth fed by massive influxes of debt-based money is no longer sustainable. He writes: “That our global civilization cannot continue on its current path seems evident….But I think our collective consciousness is beginning to change. We are becoming aware of limits and are reaching that part of our evolutionary program that says, ‘Stop!’”

Part of the awareness of how to stop must focus on the institutions responsible for the crisis. Greco praises Ron Paul for calling out the Federal Reserve in the 2008 presidential campaign. He cites a statement Paul made to Federal Reserve Chairman Alan Greenspan in a 2004 hearing where Paul told Greenspan that the power of the Fed “challenges the whole concept of freedom and liberty and sound money.” Thus Paul and other monetary reformers, though largely ignored by the mainstream media and political establishment, have made it clear that change must start with what really lies at the bottom of elite control: how money is made and who makes it.

Unfortunately, few progressive economists, including Paul Krugman, Joseph Stiglitz, and Robert Reich comprehend the monetary causes of today’s disasters. Instead of demanding reforms that would make money the proper servant of a sustainable economy, most call for more stimulus spending; i.e., more government debt, along with “reform” of a financial system that is corrupt down to its very DNA.

So do we really need the bankers’ fake currency, today backed by nothing but a federal deficit of $12 trillion and growing by the day?

Greco says we don’t, and this is what his book about. But it’s not about doing without the necessities of life, or heading for the hills with a gun and backpack. Nor is it about important efforts at macro-level monetary reform like those of the American Monetary Institute, Congressman Dennis Kucinich, or advocates for a basic income guarantee. Rather it’s about individuals, groups, and communities taking control of the monetary system at the grassroots level and creating an entirely new basis for trade than bank-owed debt.

Greco writes about “a new paradigm approach to the exchange function.” The solution, he says, “is to provide interest-free credit to producers within the process of mutual credit clearing. That is the process of offsetting purchases against sales within an association of merchants, manufacturers, and workers. It will eventually include everyone who buys and sells, or makes and receives disbursements of any kind.”

Greco is one of the world’s leading experts in describing alternative or complementary currencies. These are self-regulating systems that facilitate “reciprocal exchange,” not using government legal tender but which are still allowed under the currency laws so long as taxes are not evaded.

Greco discusses the large and growing worldwide “LETS” movement—Local Exchange Trading Systems, like the Ithaca HOURS system in Ithaca, New York. He describes the Swiss WIR Bank, the longest-running credit clearing system in the world, with over 70,000 members. He writes about the national and international barter exchanges that involve over 400,000 businesses trading at an annual level of $10 billion.

Greco also describes the world-famous Mondragon Cooperatives from the Basque region of Northern Spain. Started by a Roman Catholic priest in 1941, the Mondragon system, he says, is “the hub of what is probably the most successful and progressive social cooperative economy in modern history.”

He also tells the inspiring story of the Argentine trading clubs—the trueques—which, when used with “provincial bonds” issued by regional governments, rescued that country during the 2001 economic collapse brought on by the collusion between the Argentine government and the International Monetary Fund.

Credit clearing is not new. Greco traces it to the medieval European fairs. These exchanges are like banking clearing houses. The world’s largest is the automated clearing house—ACH—operated by the Federal Reserve.

But as Greco points out: “The clearing process need not be restricted to banks; it can be applied directly to transactions between buyers and sellers of goods and services. The LETS systems that have proliferated in communities around the world use the credit clearing process, as do commercial trade exchanges. Credit clearing systems are, in essence, clearing houses—but their members are businesses and individuals instead of banks.”

Alternative currency and trading systems, says Greco, are the wave of the future. Even though most only mount up to partial local successes, they show what can be done. Greco likens these efforts to the Wright Brothers’ first flight that covered 120 feet. They show, he says, that the potential exists for local, regional, then national and international money-free exchanges that eventually could be joined by a single web-based trading platform. This could eventually get rid of the corruption of debt-money altogether.

Chapter 16 of the book is about “A Regional Economic Development Plan Based on Credit Clearing” that shows the potential. Greco writes, “The credit clearing exchange is the key element that enables a community to develop a sustainable economy under local control and to maintain a high standard of living and quality of life.”

This would be a real revolution. What can governments do to help? Perhaps only by removing, as Greco recommends, the privileged position of bank debt-money as legal tender. Instead, let bank money compete with market-based alternative currencies and credit exchanges, if it can.

Greco’s book is a how-to-do-it manual that updates and expands on his previous books, Money and Debt: A Solution to the Global Crisis, New Money for Healthy Communities, and Money: Understanding and Creating Alternatives to Legal Tender. Greco also operates a website that offers advice and support to worthwhile community initiatives.

My own view is that no one should wait to see who takes the lead in creating the monetary and credit-clearing systems of the future. The time is now. There is no more reason to delay. If the people of the world do not join together in this kind of action, they can likely kiss their economic future and perhaps their livelihoods good-bye. The controllers of the world, those with the big money, the ones who run the banking systems, who own the global corporations, and who finance politicians like Obama, the Bushes, and the Clintons, are now poised in their blindness to extinguish the light of democracy on the planet for good.

Greco is implying that the power of the elite is not only dated but illusory. Thus the way to proceed is not just to oppose them. If they are opposed, they’ll do what they always do, which is to roll out the SWAT teams, the military in the streets, the tear gas, the sound cannon, the concentration camps, the Patriot Acts, the torture chambers, because that is all they know, and it’s what they do best.

The money monopoly translates into a monopoly on violence on an ascending scale. We know that the U.S. sells more weapons abroad than any other nation, and we know that it is war above all that makes the bankers rich.

So let them have their weapons and wars. With all due respect to those brave enough to protest, it’s time for people simply to walk away and set up their own economic and monetary systems as a prelude to a rebirth of humanity as ethical beings in sustainable communities of choice.

The keys, says Greco, are simple: “Promote the establishment of private complementary exchange systems—and use them. Buy from your friends and neighbors wherever possible. Contribute your time, energy, and money to whatever moves things in the right direction.”

Greco also recommends that the unit of exchange for alternative currencies be based on the value of commodities—not necessarily gold or silver, which bankers and governments manipulate, but those commodities readily available within a trading system. State and local governments should do everything possible to protect, encourage, nourish, and participate in these systems.

The irony is that what may appear on the surface to be technical changes in how the exchange of goods and services takes place can have such profound effects. The answer is that systems of exchange reflect entirely different perceptions of the world. Bank-money exchange reflects and creates a system of elite control and human slavery. Reciprocal credit exchange reflects and creates a democratic system on a level monetary playing field.

The difference points to the fact that such reform is, above all, a spiritual endeavor. Thomas Greco has devoted decades to this quest and is one of its foremost visionaries. In an Epilogue he writes: “We will either learn to put aside sectarian differences, to recognize all life as one life, to cooperate in sharing earth’s bounty, and yield control to a higher power—or we will find ourselves embroiled in ever-more destructive conflicts that will leave the planet in ruins and avail only the meanest form of existence for the few, if any, who survive.”

It’s a vision we can all strive to embrace.

Ironically, the Fed’s original plan for the TALF would have involved a $20 billion loan from the Treasury levered 10 to 1 to provide up to $200 billion in funding support for applicants. In other words, the Fed was planning to borrow money, to lend to people (investment banks and hedge funds) who were borrowing money to lend to people who were borrowing money (consumer credit cards, mortgages, car loans etc). Read that sentence again to fully appreciate how utterly fouled up the credit system really is. The Fed and Treasury are like private equity hucksters overseeing an inherently corrupt and immoral system. Michael Moore is right.

Fortunately, Bernanke’s plan to rebuild securitization has no chance of succeeding. The system can’t be restored because it required conditions which no longer exist; a strong currency, mega-surplus capital, and credulous investors who were unaware of the implicit risks of illiquid assets. Today, the dollar is wobbly, money is tight, and the pool of dupes ready to be fleeced has been greatly reduced. The notion that Wall Street can better perform the tasks traditionally left to highly-regulated banks, has also been called into question and rightly so. Unfortunately, the largest banks in the country — which have transformed themselves into investment casinos — don’t have the ability to return to the more conservative model of long-term lending to qualified applicants. They are stuck in a post-Glass Steagall mold, incapable of turning a profit on conventional loans to consumers and businesses. There’s a glaring need for some opportunistic entrepreneur (Warren Buffet?) to step into the breach and create a bank where depositors feel comfortable leaving their life savings knowing their bank is at least a notch-or-two above a Monte Carlo roulette table.

Bernanke will not give up the hope of resuscitating securitization because the financial mandarins who employ the Fed chief see it as an exportable model which will give them greater control over the global financial system. This is not taken lightly by the powers behind the curtain. The beauty of securitization is its utter simplicity; it simply transfers the authority to generate credit (money) from highly-regulated banks to rogue players in the shadow banking system. By borrowing short to invest in dodgy long-term assets, fund managers and PE smarties are able to expand credit to unimaginable levels, skimming off fat bonuses and salaries for themselves while the monster bubble limps slowly towards earth.

This is the system that Bernanke is trying to electroshock back into consciousness, albeit with negligible results. The Fed is essentially pumping blood into a corpse hoping for some fleeting sign of life. But dead is dead. Capitalism requires capital. This is the disturbing truth behind securitization — which was not developed to allocate resources to productive activity more efficiently but to allow credit expansion on smaller and smaller chunks of capital, further enriching a handful of well-connected speculators. This is the sole function of off-balance sheets operations and unregulated derivatives — to conceal the abysmal lack of capital that supports the debt. When trillions of dollars in complex debt-instruments, derivatives contracts, and loans to unqualified applicants are stacked atop a tiny scrap of capital, disaster is inevitable.

Bernanke is now busy sifting through the rubble trying to reassemble Wall Street’s Golden Goose for one-last wild credit fling, but with no luck. So far, he’s come up snake-eyes, which is probably best for everyone.

As a theorist of the Elliot Wave, Prechter grounds his forecasts upon a mathematical pattern that tracks impulses of social mood. Everything else is symptomatic.

The background theory of the Elliott Wave is different from the kind of thinking that expects a straight-line series of effects from causes. Instead, the Elliott Wave returns us to pre-modern intuitions of cycles. It must have been clear to anyone caught up in the recent Bear market rally that pure stubbornness had taken hold of buyers. On Prechter’s account, that stubbornness is about to change sides.

If the humming engine of human history rides a geometry of social mood, then downtimes cannot be caused by anything that uptimes do — although consequences of downtimes can be altered by the preparations that uptimes make. As social mood descends into the seventh circle of hell, there will be every temptation to blame the descent itself upon uptime actors. Yet all blaming will miss an important point.

What could the natural purpose of downtime be? In the bullish 1978 book, Elliott Wave Principle, Prechter and A.J. Frost argue that the up and down waves of social mood provide “the most efficient method of achieving both fluctuation and progress in a linear movement” (26). If social mood adjusts the mode of our approach to reality, then we see things differently and engage them differently when we are up. But that means there are things to learn when we are down, too.

On the fractal model of the Elliott Wave, we experience smaller fluctuations of mood within a series of larger patterns. In his bearish book of 2002, Conquer the Crash, Prechter argues that we are on the cusp of a very large degree downward drift. We will be learning hard lessons the hard way, and largely because that’s what down moods are good for. Such lessons will be meant to last more than a lifetime, and we are the generation fated to carry these lessons forward.

We will shortly see which lessons from the high times have any worth in the valley of our shadows. Old man winter is a rock hard grader. There can be no bonus points for students who do not use the warm months to prepare. Get ready for some serious grade deflation.

To begin thinking about the political future that would correspond with Prechter’s crash assumptions, we could turn our clocks back to Franklin Roosevelt’s presidency or the less-remembered panic of 1837. Unlike Roosevelt, who was able to transform depression politics into a winning streak, Democrat Martin Van Buren was not able to win even a second term against the mood of 1840. He was ousted by the “log cabin” Whig candidate William Henry Harrison, who promptly died of pneumonia.

Illness is a fateful consequence of down moods according to Prechter’s systematic theory of Socionomics. Looked into your local flu clinic lately?

Perhaps the most reliable guide to downtime politics will be found in the life—and the curiously timed death—of Huey Long, who argued that American politics had better deliver a Christmas tree after every election if politicians wanted people to prefer the ballot box as their form of political change. Depression politics killed the messenger but not the message. If the Constitution survives the coming crash, it will earn its keep through tangible benefits.

Returning to the crash of 1835 to 1842, I choose to think about Emerson, who opened 1836 with the essay “Nature.” If you want to maintain order in your mind and spirit the thing to do is take long walks in the woods. Interesting how Ken Burns turns our attention this very week to the conservation system expressed in our national parks. There is an American mecca, and it boasts a jobs program that can’t be outsourced.

Reading Emerson’s 1836 text as a downtime crammer gets more interesting when we see that Chapter 2 is about “Commodity.” How poor can we be, Emerson asks, so long as we live upon the earth? “Nature, in its ministry to man,” he writes, “is not only the material, but is also the process and the result.” We live in the arms of a “divine charity.” Commodity cuts a path to Beauty so long as we nurture the inwardness of the work we do. Emerson pulls Thoreau aside in 1837. “Do you keep a journal?” As the nation falls into panic, Thoreau began to write.

On the model of nature that was so important to Emerson and Thoreau during that great depression, I think about a big tree. Part of the tree puts out leaves, reaching up, showing off. We have been through a great leafing time together.

Another part of the tree works ever in the dark, quietly pushing downward in solitary, unforeseeable effort. Of course the deepest roots could blame the highest leaves for making all the dark work necessary. But that would be like blaming Wall Street for the collective turn we are about to make.

Then there is the ugly stuff, the kind of thing that Thoreau went to jail over. As downtime invites the spiritualist to dig deeper within, it also kicks up real dust. Never before have the tools of conflict been so lethally arrayed. Remember the Alamo? That was 1836. Over in Alabama, the Creek nation was driven off its land, again. In Florida, federal troops at Ft. Defiance drew “first blood” in the Seminole War.

If Prechter is right for the right reasons, then in about two more years it should be clear enough to everyone why the peace movement must prevail. Surely, that would be a lesson worth learning once and for all.

In the article, Paul argues “Prosperity can never be achieved by cheap credit… If that were so, no one would have to work for a living. Inflated prices only deceive one into believing that real wealth has been created.”

“The economic crisis has changed everything,” Congressman Paul contends.

His book critiques the inequities of a highly managed economy. Further, his house resolution 1204, Audit the Fed or the Fed Transparency Act, politicizes the issue of monetary policy, which has, since 1913, fallen under the category of technocracy, whereby policy makers decide interest rates, printing practices, etc.

It’s as if we believe that money can be grown on trees, and we don’t stop to realize that if it did grow on trees, it would take on the value of leaves in the fall, to be either mulched or bagged and put in a landfill. That is to say, it would be worthless… When we unplug the Fed, the dollar will stop its long depreciating trend, international currency values will stop fluctuating wildly, banking will no longer be a dice game, and financial power will cease to gravitate toward a small circle of government connected insiders.¹

Paul is correct in asserting that cheap credit and low interest rates have exacerbated the current crisis, however, used for democratically oriented projects such as production, cheap credit can be a publicly run social utility. In the context of crony-capitalism, it does lower the banks cost of funds and increase their profits. Since the repeal of the Glass-Steagall Act in 1999, banks have evolved into high-risk investment houses that trade financial instruments like interest rate derivatives and mortgage-backed securities, to name but two of many. These virtually free and abundant funds by the Fed enable banks to pay depositors zilch on their savings.

While U.S. taxpayer money goes to funding credit lines for some of the world’s largest corporations and even citizens of other countries, as is the case with New Zealand, they find their own credit line dried up, with small businesses going under and foreclosures surmounting. The New Deal took a lion’s share of governmental authority out of the legislative branch and put it in the Executive branch. The Executive Branch and its subsidiary departments and agencies write bills congress passes, handing them to sponsors. Special Interests have functioned in much the same way. On the other hand, The New Deal created services such as food stamps, welfare and unemployment, without which the approximately 25% of Americans currently without work would have starved this year or be on the brink of starvation.

No credence ought to be handed to Ben Bernanke, who submits the recession is over. The recession is not over, and many critical New Deal agencies and programs face abolition or privatization.

Congressman Paul, an extreme libertarian, remarked recently that government healthcare is not a right. He believes in small government, a relevant argument. On the other hand, we ask who the regulator in such an order would be? As Larry Flynt recently noted, in these times corporations don’t run the government; they are the government. Now that corporations wield the joystick of many crucial government institutions, departments, agencies and organizations, it is crucial that the U.S state be given counter-means determined and overwhelmingly influenced by the populace. Government is not the enemy, indeed big government is not the enemy, for government is merely a tool by which means are realized. For example, over the last year the government has been used as a tool by Wall Street in order to enrich massive multi-nationals, in most cases foreign multi-nationals.

Paul is a critic of Obama’s health plan, which he calls a “magnanimous gift to the health insurance industry.” He notes that the insurance industry has lobbied for decades for mandated coverage. Though pre-existing conditions would have to be covered, it is a small price for the insurance industry to have to pay for increasing their client pool to 100% of the American people. Under the plan, the insurance industry has immunity from all lawsuits, just as Swine Flu vaccine makers, such as Baxter, received immunity from lawsuits stemming from degenerative health conditions caused by their vaccines.

Taxes and fines will see to it that all Americans have to buy into the health care program. Paul ponders a world in which citizens buy memberships to certain hospitals or clinics as if it were a gym. And then bemoans the difficulty for doctors to make house calls. Alternative medical practices are wholesale disadvantaged when the health insurance plan is required. Indeed, alternative health care practices are suppressed. The only options the government has, he says, are force and favors, when attempting to “solve” social issues.

Paul argues that there have been doctors and medicine long before there was health insurance, and the current debate in America is a misnomer, for it nexuses intimately the concepts of health care and insurance.²

Under a free government, people have the right to life. This includes the right to healthcare as a means to furthered life. Therefore, all peoples deserve a universal, diverse healthcare system based on citizen choice and free, well-paid providers. The healthcare discussions in the US, however, represent the degree to which the government does not represent the people, but, instead powerful interest groups.

Desperate to resolve this issue, an issue resolved by the rest of the industrialized world, Americans support Obama in his push to pass the healthcare bill. Due analysis, nonetheless, unveils the bill as a means of protecting and increasing the profits of the insurance companies.

A keystone attribute of the health care bill is the “individual mandate,” which makes a REQUIREMENT of buying the health insurance. Senate Committee chairman Max Baucus (D-Mont) has proposed a $3,800 fine on Americans who fail to purchase health insurance.

The ailing economy, with real unemployment around 20-or-so percent, has left approximately 50 million Americans uninsured. Moreover, around 50% of the population has only two weeks of savings to their name. How is it a good idea to burden the taxpayer more?

Former Assistant Secretary Treasury, Paul Craig Roberts, states “these proposals are like solving the homeless problem by requiring the homeless to purchase a house.”

Obama: “we’ll provide tax credits” for “those individuals and small businesses who still can’t afford the lower-priced insurance available in exchange.” For those without incomes, a tax credit is not much help.

Medicare, currently, is even too expensive for most Americans, as $100 per month is deducted from the covered persons Social Security check. Moreover, retired persons on Medicare who enjoy no other significant income must pay $4,500 per year in premiums, allowing them coverage which still leaves more than half the prescription medicines out-of-pocket. Oft they pay more. Despite the premiums, payments to doctors and other healthcare providers has fallen alongside coverage for policy holders.

In the midst of government bankruptcy and a tax revolt, adding more public expenditures to the system will in the end benefit insurance companies, and use mandated private coverage as a safety net for curtailing public expenses Medicare and Medicaid.³

In the background, the white noise in the corporate media champions a jobless recovery, as though it were a good thing! But, due to the widening gap between reality and the propaganda, Americans are growing more and more skeptical of their government and media, portending some sort of tipping point in the near-future. Their need now be an emphasis put on organization. People must be able to feed themselves and their neighbors, and means to equitable ends must be pondered and acted upon. The economy may very well move sideways for some time now, in anticipation of the 2010 elections, as the market makers and manipulators attempt to keep the makeup of congress and the senate favorable to their elitist agenda. Nonetheless, things will deteriorate, especially as the U.S. population grows more disgruntled at the disconnect between their interests and the motives of their representatives.

In August, unemployment rose in 27 states. California and Nevada reached record levels of unemployment. Officially, there unemployment rates are 12.2 percent and 13.2 percent, (un)respectively. To be sure, real unemployment numbers of those two states sit at around 27 percent and 28 percent. Conservatively, the U.S. has lost about 6.9 million jobs since the crisis started in December 2007, the most of any downturn since the Great Depression.

Having exacerbated the problem by not implementing controls a la the Glass-Steagall Act, President Obama continues to give lip service to the notion of tighter controls and regulatory measures. He maintains that international cooperation stopped our “economic freefall,” when, in reality, market manipulation and bayonnet economics has slowed the collapse, a trend most likely continued in anticipation of 2010 elections.

Obama recommended a new agency to oversee consumer products, including mortgages and credit cards. There are a myriad of other ways to abate market imbalances. For instance, allowing the bankrupt banks to fail, instead of bailing them out in a socialism-for-the-rich-capitalism-for-the-poor economic system. The bailout money could have easily and unquestioningly paid off all mortgages in the U.S. I repeat, all mortgages. A 1% Tobin Tax on all financial transactions would be a form of taxation on the derivatives and other markets outside of the real economy which provides no productive service; consumers pay, in California for example, a 10 percent tax on everything they buy. That is, the sales tax. Why ought not the uberclass pay something similar?

Obama also suggested new ways for the government to dissolve failed companies and oversee the inherent systemic risks of behemoth financial institutions. Why not allow a truly centrifugal, extremely-regional free-market of free associations amongst individuals allow for creativity and diversity to rule the exchange of goods and services? The United States, indeed each state, must turn its economy inwards to build up for domestic demand if Americans intend to avert systemic collapse within the decade, more likely two and a half years. Deglobalization results in neo-serfdom when the multinational can oversee impotent municipal-associations.⁴ At the end of empire, corruption is endemic and, considering the allocation of wealth as it is, functions as a propaganda measure. How demeaning it is for Americans to see absolute disregard of their well-being. This is dangerous: for monumental levels of corruption and nefariousness, as more and more people are forced to markets still thriving such as military and security, are being normalized in the collective brain.

When Bank of America agreed to buy Merril Lynch last year as markets were crashing using taxpayer money, without telling us the terms of the deal, Merril Lynch paid their employees 3.6 billion in bonuses to make sure bonuses were paid before the deal with Bank of America went through, the biggest payout in their history. This according to Max Keiser and Stacy Herbert. Bank of America approved the bonuses. Bank of America claimed to not be paying out such bonuses and were recently fined by

the FCC 33 million dollars. Thankfully, Judge Jed. S Rakoff has stepped in and demanded a hearing.

Bank of America and Merril Lynch have conceded no wrong-doing.

Rakoff: The settlement “suggests a rather cynical relationship between the parties. The FCC gets to claim that its exposing wrongdoing on the park of Bank of America in a high-profile merger, the bank’s management gets to that they have been coerced into an onerous settlement by overzealous regulators.” Regulators have been in the pockets of these investment banks doing absolutely nothing over the last twenty years to reign in their corporate, oligopolists’ jubilee.

All parties were in violation of the law in a terroristic manner. As Keiser notes, this is financial terrorism, at the expense of shareholders, stakeholders and any sense of human rights and truth.

August numbers show that bank loans from bailed out parties were down 4.4 percent, despite Geithner maintaining in congress they were increasing lending. Derivatives contracts are being stacked up again, and the banks once “too big to fail” are bigger.⁵

Economics is a highly ideological and compartmentalized field. It’s paradigm has done much damage to this planet and human social order, justifying make believe economic relationships and associations. Justifying a free-market which hasn’t existed… since the paleolithic. Ok, perhaps the end of the 18th century. Paleolithic. This crisis is not a normal cycle, but instead a power play by the sentient commanding heights to consolidate not wealth or money, but power. Debts are often not repaid. These debts held by the industrialized west will not be repaid. There needs to be a jubilee a la the Roman Jubilee. We must get rid of the debts or else the economy will never catch up: Permanent Depression.

Government can certainly be a tool to actualize a more just and fair modern order, however the movement of minds is the most useful tool. In a time of disintegration, persons ask the what’s, why’s, and who’s; and so now such persons are more prone to experiencing the earthquake of enlightenment.

There are many virtues to the concept of a free-market, for it does not escape easily the imagination of most typical thinkers. The concept, after all, has been theorized and discussed for centuries. A highly decentralized free-market colored by creativity inspiring diversity runs against the centralizing and Luciferean forces of history, which, in our day and age, enjoy a power that goes a long way.

1. ”End the Fed, Save the Dollar.”
2. ”Health Care Reform is more Corporate Wealthfare.”
3. ”The Health Care Deceit.”
4. ”California, Nevada Reach Record Unemployment Levels“; “Obama Says Financial Regulations Must Be Strengthened Globally.”
5. Truth About Markets, featuring Max and Stacy

The liberty of a democracy is not safe if the people tolerate the growth of private power to the point where it becomes stronger than the democratic state itself. That in its essence is fascism — ownership of government by an individual, by a group or any controlling private power.

Franklin D. Roosevelt (1882-1945), 32nd and longest-serving US president

This great and powerful force—the accumulated wealth of the United States—has taken over all the functions of Government, Congress, the issue of money, and banking and the army and navy in order to have a band of mercenaries to do their bidding and protect their stolen property.

Senator Richard Pettigrew, Triumphant Plutocracy, 1922

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.

Thomas Jefferson, (1743-1826), 3rd US President, 1802

The U.S. national debt clock is clicking and it is fast approaching the $12 trillion mark, all the while the Fed (less a central bank than the banks’ Bank) is printing new money like crazy and lending it to its client banks at close to zero interest rates (i.e. at negative interest rates). What is wrong with this picture? It simply means that most Americans are losing big at this game, but a handful of mega-banks and their affiliates are raking in tremendous amounts of money in easily made profits.

Indeed, the Federal Reserve’s balance sheet has more than doubled since August 2007, going from $870 billion to more than $2 trillion. It is expected to keep growing as banks avail themselves of the cheap funds the Fed made available to them. The Fed, indeed, has the unique ability to create new dollars (paper currency) for the accounts of assets (good or bad) that it buys from banks, the Treasury, or other entities. This increases the monetary base (the sum of currency plus total banking reserves), and banks through their lending can expand this money supply even further.

And the Fed has been extraordinarily generous to the banks, the largest of them are in fact owners of the twelve regional Fed banks.

In fact, the Fed has broken practically every central banking rule in order to provide cheap funds to the banks. First, it has pushed the fed funds rate to close to zero so banks could have credit at close to zero cost to them. Second, it has expanded the range and quality of assets it stood ready to accept as collateral for its loans to the banks, so much so that it can be said that the U.S. Fed is presently creating new money backed by the shakiest of assets, some being called “toxic waste.” This is reminiscent of the eighteenth century (beginning in 1789) practice of the French revolutionary government of creating new money (the assignats) backed by the seized properties of the Catholic Church.

Let’s summarize quickly the numerous ways the Fed (and to a certain extent, the U.S. Treasury) have found to channel cheap funds to the banks and to brokers. In September 2008, some investment banks, such as Goldman Sachs and J.P. Morgan, officially became commercial banks in order to profit from the Fed’s new generosity.

• The Term Auction Facility (TAF);
• The Primary Dealer Credit Facility (PDCF);
• The Foreign Exchange Swap programs (the currency swap lines);
• The Commercial Paper Funding Facility (CPFF);
• The Term Asset-Backed Securities Loan Facility (TALF);
• The Agency debt, Agency mortgage-backed securities (MBS) and Treasury purchase programs;
• The Treasury’s $700 billion Troubled Asset Relief Program (TARP);
• The payment of interest on the banks’ excess reserves at the Fed.

The last disposition is worthy of attention. Because of the easy and cheap lending to the banks, the latter piled up tremendous amounts of excess reserves at the Fed, reaching more than $700 billion. Normally, banks would quickly lend these non-interest paying excess reserves to the economy. But, in October 2008, the Fed got imaginative and obtained the authority to pay interest on the banks’ reserves, including excess reserves, at a risk-free rate (the IOER rate). Since then, the banks have been earning interest on their excess reserve holdings, and therefore had little inclination to lend those reserves out to creditworthy but nevertheless risky borrowers in the rest of the economy. With this practice, the circle has been closed, and the Fed was able to provide needed funds to the banks, at close to zero cost, and enable them to rid themselves of their bad investments, without risking creating inflation. That’s quite a banking salvage operation that will be studied by economists in detail in the future.

Indeed, it was well understood after the onset of the financial crisis in August 2007, that public capital would be needed to refinance the American banking system. Private capital was too risk adverse to do that. What was less understood was the fact that the Bush administration, and now the Obama administration that continues this policy, intended to provide this capital at close to no cost to the banks and with very scant conditions.

But who really paid and has continued to pay for this imaginative recapitalization of American banks, and who profits the most?

First of all, of course, bank profits, specially those profits by big international banks, have exploded. Bank stocks have followed suit with tremendous gains. That’s why I say the stock market rally since March 5 (2009) has been a liquidity-driven rally, engineered by the Fed.

And it is easy to see why banks raked in so much money: They have been borrowing funds at close to zero cost to themselves and either were paid by the Fed to leave these funds unused or they have used them, with leverage through their hedge fund like activities, to buy interest-paying assets in the U.S. or abroad. In essence, the large “too big to fail” have been allowed to make various trading bets with the cheap public capital provided by the Fed. They gorged themselves with near free public money and used it to enrich themselves, and very little to finance the real economy.

One profitable trade, among others, that large international banks and other operators are found to embrace is a form of arbitrage: They borrow and sell the currency of the country that has the lowest possible short-term funding costs and invest the proceeds in countries whose currency and asset markets yield the most. This has the consequence of depreciating further the currency with low interest rates and of appreciating the other currencies.

During the 1990s, the Japanese economy was in the doldrums. Its short-term interest rates, just as in the U.S. today, were close to zero. International banks and hedge funds would then borrow yens in Japan, sell them for dollars or euros and invest the proceeds in high-yielding financial assets in the U.S. or in Europe. Provided the interest rate environment does not change suddenly, this sort of “carry trade” is an easy way to make money. The result, however, is a more depressed currency than necessary for the low interest rate country and more imported inflation as the price of imported goods (oil, food, commodities…) increases.

The U.S. is presently in that predicament. The U.S. Fed and Treasury have abandoned the U.S. dollar and the large international banks have depressed it further at the same time they fill their coffers. That is why we can say that, besides the profitable carry currency trade that banks and other operators employ to dump the U.S. dollar on foreign exchange markets, this currency will remain under pressure for as long as the spread of short-term interest rates favors other currencies and as long as the spread of expected inflation rates and of expected economic growth remain stable. Paradoxically, longer-term interest rates have only increased marginally. This is because banks and other Fed borrowers, when they do not leave their low interest-paying excess reserves dormant at the Fed, can buy risk-free Treasury bonds. This has the consequence of depressing longer-term interest rates and of boosting stock market prices, even as inflation expectations are on the rise.

What is to be understood is that the weak dollar is the direct consequence of the Fed’s extraordinary cheap money policy. To summarize, the average American household is being hit from all sides with this policy. First, if it is a net creditor (as most retirees are), its savings are earning paltry returns (most likely negative after inflation and taxes). Second, the U.S. dollar keeps falling in value, raising the cost of traveling abroad and of everything that is imported. Third, real incomes fall with rising prices as the purchasing power of stable or declining money incomes contracts. Fourth, the exploding public debt will translate sooner or later into higher taxes, thus reducing private disposable incomes. All in all, the standard of living of most people falls.

Don’t get me wrong. I do not question the need to inject liquidity into the banking system after the onset of the financial crisis in August 2007. What I question is the way this was done and how the public interest was sacrificed in favor of narrow private interests. Indeed it was done in the worst possible social way, with private gains and social costs. They (the Bush and Obama administrations) recapitalized the banks to the benefit of a small class of bankers, while taxing the entire population in a multitude of ways to finance the public subsidy.

There were other ways to attain the same end without taxing the many for the benefit of a few. The U.S. Treasury and the U.S. Fed, both under the Bush administration and the Obama administration discarded these solutions. That’s where the scandal lies. But since it is likely that only a handful of senators and congressmen understand what has happened, I would not be too confident in expecting that there would ever be a public investigation of the scandal, beginning with Congress auditing the Federal Reserve’s subsidized banking loans to large banks and its lack of needed regulatory activities. Kudos, however, to the Manhattan Chief U.S. District Court Judge who has ordered the Fed to make public its lending records.

Similarly, at least, some timid steps are being taken in the U.S. and in Europe to impose some limits or restrictions on the discretionary and exorbitant bankers’ bonuses. This comes a bit late, and we shall see if this is merely some political window-dressing to deflect criticism or if it is a structural step to curb oligopolistic and abusive banking practices.

Same joke as last week, I am NOT talking about the lynch mob-like crowd scene on the National Mall that was literally choreographed by and for Fox “News” last week on Sept. 12, but the current, equally valid, environmental protesters being pre-harassed by the Pittsburgh PD in advance of this Thursday’s G20 Summit.

Quick reminder: This week economically devastated working class Pittsburgh hosts this year’s annual “G20 Summit.” Leaders of the world will dine on fine foods, couch their agendas in terms that sound magnanimous, size up the new American president, and, if possible, discern the best way to be on America’s best side. Let’s face it, even though China and India are doing blockbuster business in the way of catching up, the US is still the driving economy of the planet. For now.

The G20 Summit is the US’s turn to hang with the best of the rest. The G20 are the countries with the 19 biggest economies in the world plus the European Union en bloc. Long ago and far away, the group used to be a much more exclusive “G6,” also the even luckier sounding “G7,”and, after some entourage adjustment, the more sporty “G8.” Full disclosure: in an earlier feverish bid for inclusiveness back in ’99 they shot all the way up to the sonorous “The G33,” but backed off down to awkward sounding “G22,” which didn’t quite have the ring to it, so two more nations were jettisoned, and there you have it.

Working together, these nations’ economies control about 85% of all the money in the entire world. And their meetings have long attracted world class protests, but not in Rustbelt Pittsburgh, thus the crackdown. Racist posturing, propagandist pandering and mounds of trash on the National Mall to denigrate the president in as vulgar terms as possible = good clean fun for loyal Americans. Groups of environmentalist protesters staging street theater to try to draw attention to the catastrophe unfolding as we ignore Global Warming = clearly anti-American who thus need to be surveilled, and have their vans unlawfully searched and seized.

A lot of environmentalists hope to set the stage at the Summit for the UN Climate Change Conference in Copenhagen. It’ll be the first time in a long time that the rest of the world could possibly look to an American president in hopes of leadership in dealing with the pollutions that are poisoning the planet. Previously the Bush presidency played the bad boy and had scorned calls for stricter regulations on carbon emissions. At one point, in typical Bush fashion, he even mocked the assembled body and laughingly called himself, “the world’s polluter.”

Much of the world is wondering, with the rightwing holding Obama to the ropes, will there be hope for any environmental progress? The cultural warfare we’re engaged in as a nation over health care is just the warm-up for the battle we’ll see the Right put up when America tries to adjust our self-destructive addiction to pollution. Already the rightwing/Big Oil cabals are engineering the next set of protests Tea Party type Americans will be suckered into. Already they are working to challenge the president in so many ways that he can’t accomplish much beyond working to defend himself. As Yogi Berra once said, it’s déjà vu all over again.

Just as had happened in 1993 when Clinton came to power, like they had successfully done to Carter over a decade earlier, the right wing organized an all-out assault on the democratic president’s agenda in health care and energy. In Clinton’s case the onslaught took down both his plans for universal health care and energy consumption tax to regulate us off of fossil fuels.

The rest of the world has been waiting for us to join in the effort to keep the planet from choking itself to death. But they could be waiting a long time more if the Right has anything to do with it and it looks like they do. Just as the rest of the civilized world realized long ago that, as Tory MP Tony Benn so delightfully phrased in the Michael Moore movie, Sicko, “If you can find money to kill people, you can find money to help people.” It’s such a basic principle of human, one could even say Christian dignity, and still, look how not-far health care reform has gotten since the Right kicked up the noise machine. Here’s what’s next.

Oil corporations have already practiced staging Astroturf fake energy protests, in Houston no less, where oil company workers were shipped in for the protests, paid their company wages for being there and actual protesting citizens were kept out; and then the event was billed as a spontaneous citizens’ uprising at the American Petroleum Institute’s Energy Citizen event.

And as phony as that is, I just imagine Glen Beck will soon be leading the charge for a December 7th Club or something like that to ‘drop the bomb’ on Obama’s energy policies. And the rest of the world will keep watching while America continues to over-pollute, over-consume, underfund our education, over-fill our prisons, over-export war and weapons, undercut our own health care and overly congratulate ourselves for our freedom.

Meanwhile, while we weren’t looking, we’re losing another war. As of Monday, Sept. 21, 2009, TV news anchors and commentators talk about Afghanistan as if America’s chances are already over. The Taliban have virtually regained control of the country and if we want the control back, it’s going to take four times the manpower and four decades to do it. The president of Afghanistan, Hamid Karzai, had heartily concurred in the call for more troops. You remember Karzai, the former Unocal employee we installed in power within months of Sept. 11th 2001? The guy who recently claimed a reelection victory in an election widely recalled as a fraud. That Karzai. Well, Karzai still has that all that Unocal pipeline project to protect; so you can bet when it comes to getting an army to fight off Taliban, he would much rather borrow ours than create his own.

Currently the best estimates say that if we had the political will to send in 600,000 troops and to have generations of them stay there for 40, count ‘em, 40 years, then we might make some headway. Sounds like a mighty big amount of political will. But these days, most Americans barely have the political will to get out of bed in the morning, unless, of course, they’re being fueled on hatred of all things Obama. So, here’s the silver lining in all this:

That Afghanistan War is likely to go down the tubes too, once the Right Realize they can hate him for that as well. Iraq was Bush’s war to lose, and lose it he did, but Obama is likely to have Afghanistan taken away from him. When right-wingers can claim to be patriotic by calling for an end to “the Awful President’s Illegal War,” then you’ll know peace will soon be at hand.

Even when presented with facts that challenge this gigantic delusion, being frightened, hypnotized, addicted, and brainwashed, we reject them. The irony is that the delusion is so grandiose, that one like me who challenges it, runs the risk of seeming to be a grandiose crazy individual.

Our reigning economic falsehood is that our market economy whose principal goal is short term private profit, is the best that humans can create, is the best for everybody, and is in every respect unchallengeable. Moreover, THERE IS NO ALTERNATIVE. Thus, we cannot have and cannot even consider

• Serious measures to deal with the needs of our damaged planet home.
• Socialism in any form.
• Extensive public hiring and public works.
• Caring for ourselves and for each other using the powers of our government.
• Directly giving people who want to work, employment to meet our vast unmet needs.
• Mondragon type cooperative businesses.
• The immorality of a system based on selfish, short term, private greed and absence of caring.
• Medicare for everybody or a VA-type public Hospital and doctor available for everybody.
• Any health care system that does not provide some private persons with a generous private profit making opportunity from our accidents and illnesses .
• Solutions to the ever increasing disparity between the rich and the poor.

Our President and his economic advisors are imprisoned by this reigning market falsehood. It embodies the further falsehoods that our market economy is basically stable, contains no systemic defects, contains no laws of motion or dynamics or anti-social tendencies, and that its minor aberrations can be managed by unlimited expenditures of our tax dollars or by borrowing. The fact that systemic defects caused our “capitalism to hit the fan”¹ in 1980 are simply ignored. Thus our President and our government by exhaustive efforts to restore bank lending, seek to create a new credit bubble to replace the housing bubble that crashed. Their stated rationale is that the banks will lend, businesses and individuals will borrow, and that ultimately new jobs will be created. They seek also to maintain and restore the many forms of collateralized debt obligations free of any new regulation. They ignore the basic truth that our economy can be re-started only by directly creating jobs providing enough earned income so that citizen employees can afford to purchase the products of their labor. Moreover, our governmental leaders urge that we must restore “growth” of our existing economy, with its inevitable growth of our emissions of carbon into the atmosphere, of pollution, and our depletion of the planet’s finite resources of oil, soil, and fresh water. As a consequence:

* We are ignoring a basic rule of arithmetic that even “reasonable” growth of 3% per year leads to doubling within an unexpectedly short time. (To get the doubling time simply divide the number 70 by the percentage rate of growth. Thus 70 divided by 3 gives us a doubling time of 35 years. A 4% growth rate would have a doubling time of 17.5 years. A 6% growth rate would give a doubling time of about 12 years. Such doubling continues over and over again so long as the growth rate continues.) Do we really want to double our carbon emissions and consequent global warming? Do we really want to double the consumption of oil, soil and fresh water? Do we really want to double the population of the planet? Is not any talk of growth idiotic? We need a sustainable, stable economy with zero growth.

* We are frightened and uneasy. We are acting irrationally in street marches and in public hearings. We do have to fear fear itself. We have no FDR who promises to meet our needs. We have a presiding eloquent Black Herbert Hoover and not a Black FDR. There are no plans on the shelf for any plausible solutions, and no leaders or academicians promoting them.

* We, of the political left, right and center, with good reason, are worried about how we and our children will pay for all of this vast expenditure of public tax dollars. We worry whether there will be the disastrous inflation experienced by Argentina a few years ago, deflation even worse than the Great Depression of our grandfathers, or, for us, both at the same time.

Then there are the many falsehoods that accompany the extension of this reigning falsehood, our “good” market economy abroad to foreign countries, an extension that we used to call Imperialism:

* Does anybody really believe that our own sons and daughters in the military, and Afghanistan and Pakistan civilian men women and children are being killed or wounded every day as a part of our effort to help them or to bring them Democracy?

* Does anybody really believe that the Honduran military Generals trained in our School for the Americas, financed by loans and grants from our government, using a plane that we financed, landing on the way out at a US military base in Nicaragua, acted without U.S. consent in deposing democratically elected President Manuel Zelaya?

* Does anybody really believe that we are getting out of Iraq when we replace every soldier withdrawn with a hired Blackwater mercenary soldier, and when we are building 4 large permanent military bases in Iraq, and the most lavish US Embassy building in Asia?

* Do we really need 800 military installations in 45 foreign countries staffed with 240,000 military personnel?

Then there is the deepest secret of all, so well hidden in our gigantic delusion, that almost nobody is aware of it. It is the secret Ponzi-like scheme of our private bankers that produces an almost unimaginable annual private profit for them at our expense. This secret private money creating scheme involves the following characteristics:

   1. Congress in 1913 delegated the power to create our money supply to the private bankers that constitute the Federal Reserve system. Congress does not use its power to coin our money. Private bankers create 95% of our money supply simply out of thin air. The privately owned “Federal” Reserve Bank simply writes a check out of thin air and issues the money to a private bank. The private bank then loans this money to a private or governmental borrower who promises to repay with interest. The promise to repay becomes an “asset” of the lending bank that it then uses to make many other loans under what is called “fractional reserve banking.” It is thus a fact that 95% or more of our money is based on debt. All existing money thus equals the total of all public and private debt.

   2. Our government instead of using its Constitutional power to issue money directly to meet governmental needs (as Lincoln did to finance the Northern side of the Civil War) borrows money to meet its needs from private bankers and pays private bankers interest on what it borrows. Repayment is promised from our tax dollars.

   3. Over time, the annual profits for the owners of private banks have compounded enormously. We cannot know how much because the private bankers secured a federal law making it unlawful to audit the activities of the Federal Reserve Banks. One can estimate the annual profit by simply multiplying a probable average interest rate times the total money supply since all money is debt. Is it reasonable to assume that the rate of return is at least 3 %? The total money supply was recently estimated to be $50 Trillion. 3% x $50 Trillion gives private bankers an annual gross profit of $1.5 Trillion per year. This profit compounded over the decades produces an unimaginable stash of total wealth for the owners of the private banks.

   4. The private banks use this immense secret stash of wealth to control our government and to override our votes on every issue that is important to banks. Thus it is accurate to say that we have a government of, by and for private bankers. It is also accurate to say that every aspect of the reigning gigantic delusion about our capitalism, including the Imperialism of defending and promoting capitalism abroad, partially set forth above, serves the interests and the profits of private bankers.

   5. These private bankers, having the authority to create money out of thin air have created too much money in the recent past and caused inflation, and are now creating too little money and thus are causing our current depression.

In the 1990s, Professor Jared Diamond wrote his book Collapse where he studied four civilizations that had perished in the past and two that survived. The two that survived, managed to overcome their prevailing falsehoods, their Conventional Wisdoms. The four fallen civilizations could not and did not. The question for all of us is: Do we have what it takes to overcome our gigantic delusion? Or will our democratic civilization fall into a new dark age where the only law is the Law of the Jungle?

1. See University of Massachusetts Professor Rick Wolff’s You Tube video, “Capitalism Hits the Fan.”

In 2008, poverty reached 13.2% of the population, its highest level in 11 years, the result of millions losing jobs during the first year of the gravest economic crisis since the 1930s. For blacks, the figure was nearly double at 24.7%, and 31% of all Americans were impoverished for at least two months between 2004 and 2007, years of economic expansion.

At year-end 2008, even by the Bureau’s conservative measures, 39.8 million people were impoverished, the highest level since 1960, and 17.1 million lived in extreme poverty at below one-half the official threshold. In addition, for the first time since the 1930s, median household income failed to increase over a 10-year period from 1999 – 2008.

The Census Bureau states that it “presents annual estimates of median household income and poverty by state and other smaller geographic units based on data collected in the American Community Survey (ACS)” covering population areas of 20,000 or more. The Bureau’s Small Area Income and Poverty Estimates (SAIPE) program also produces yearly figures “for states and all counties, as well as population and poverty estimates for school districts.” It uses data from a variety of sources, including surveys, administrative records, inter-censal population estimates, and personal income data published by the Bureau of Economic Analysis.

Critics maintain that official government figures way understate the gravity of today’s crisis, and the Bureau says:

“The official poverty thresholds were developed more than 40 years ago and have been criticized for not taking into account rising (or since the 1970s inflation-adjusted falling) standards of living, expenses such as child care that are necessary to hold a job, variations in medical costs across population groups (that have skyrocketed nationally and are now unaffordable for millions), and geographic differences in the cost of living.”

In addition, income and poverty estimates are pre-tax and exclude non-cash benefits, usually employer-provided. Disposable personal income, after income, payroll, sales, property and other taxes, reveals a far higher poverty level than the Census Bureau reports and a much graver crisis for growing millions as the economic decline deepens.

The Bureau reported that 2008 median (inflation adjusted) household income fell 3.6%, the largest single-year decline on record to the lowest level since 1997 and falling as conditions continue to worsen.

The plight of the poor and impoverished shows up in numerous other reports that paint a darker picture than the Census Bureau and suggest much worse ahead:

* an unprecedented, growing disparity between the very rich and other income groups;

* economists Thomas Piketty and Emmanuel Saez’s research showing the top 1% of households got two-thirds of the national income growth during the last recovery, a larger share than at any time since the 1920s;

* wages losing ground to inflation;

* millions of children dependent on school lunches for a hot meal;

* the Economic Policy Institute estimates one-quarter of all children living in poverty by year-end 2009;

* the continued erosion of employer and government-provided benefits, including at the state and local levels; the growing uninsured crisis is discussed below;

* greater numbers of households unable to meet expenses, even with two working members;

* added duress from state budget cutbacks;

* record numbers of food stamp recipients;

* persistent and growing hunger and homelessness; and

* job losses and higher unemployment continuing for many more months, with some analysts projecting record high numbers before peaking.

A September 11 story in Time magazine by Kissinger Associates’ Joshua Ramo highlights the problem. Titled, “Jobless in America: Is Double-Digit Unemployment Here to Stay,” it quotes Larry Summers’ remarks last July before the Peterson Institute for International Economics about the disturbing rate of job losses. He suggested something strange was happening, unpredicted by experts:

“I don’t think that anyone fully understands this phenomenon,” he said. Will job losses mount longer than expected? At the “recession’s” end, will low numbers of new ones follow, and will double-digit unemployment persist and remain common?

Without saying it, Summers wondered if America’s economic model was broken and, if so, how to fix it. Or can it be fixed? According to the Peterson Institute’s Jacob Kirkegaard, “It is entirely possible that what started as a cyclical rise in unemployment could end up as an entrenched problem.”

Summers earned his reputation as an employment theorist. He now believes that earlier unemployment views are “importantly wrong. I thought if you could have areas where there was long-term substantial unemployment, then that raised some questions about the functioning of markets.”

In 1986, he wrote an article titled, “Hysteresis and the European Unemployment Problem.” Hysteresis is the Greek word for late, referring to what happens when something snaps and can’t be fixed. It’s an idea economists deplore applying to economies, preferring instead to cite normal business cycle ups and downs. Yet in 1986, Summers argued that Europe’s unemployment might be chronic and persist in times of growth.

Today’s situation is another matter, coming at a time of changing economic landscape, perhaps suggesting that hysteresis is confronting America, and many lost jobs aren’t coming back, especially better paying ones. That’s Kirkegaard’s view in saying growth won’t put Americans back to work, and new jobs created will be of poorer quality than old ones.

So what can be done? Unlike in the 1930s, machines now do much of the work that people did on infrastructure projects. And it’s a lot harder converting white-collar workers to blue-collar ones. Moreover, Summers’ own research concludes that the traditional Western economic model won’t alleviate the jobs crisis. So what will?

Summers won’t say it, but short of a total remake of “free market” economics, likely nothing. And perhaps that’s America’s future: growing millions consigned to a permanent underclass, while an elite few at the top grow richer, until one day “hysteresis” snaps the system in a disruptive convulsion, the old model passes from the scene, and nothing is the same again.

More Evidence of Economic Duress in the Latest Federal Research Report on Consumer Credit

On September 8, the Federal Reserve reported that total consumer credit fell by a record $21.6 billion in July (the sixth consecutive monthly decline) and year-over-year by $2.47 trillion or 10.4%. According to Bernard Baumohl, The Economic Outlook Group’s chief global economist:

“It is one more important sign that consumers are not going to be contributing very much to the economy for the balance of this year and probably for (at least) a good part of next year.” Shrinking credit’s impact on consumption indicates an economy in decline. It shows up in growing poverty, falling incomes, and greater duress for growing millions, sure to be reflected in the Bureau’s 2009 report.

Continued Erosion of Health Care Coverage

In 2008, the Bureau also collected data on health insurance coverage, putting the number of uninsured at 46.3 million last year (15.4% of the population), an increase of 682,000 over 2007. It was the eighth consecutive year that fewer workers got employer-provided coverage, and those with insurance had to pay more of the cost.

Other estimates are far grimmer. Some, including the Congressional Budget Office, place the current uninsured total at about 50 million, and a May 2009 Todd Gilmer/Richard Kronick study estimated that 191,670 more lose coverage monthly, 2.3 million annually at the present rate, and an expected 6.9 million more Americans (over 2007) will lack it by year-end 2010 if the present trend continues.

Add to these the underinsured. According to the American Public Health Association, at least another 25 million are at great risk if they face a serious health problem not covered by their present plan. In addition, Families USA estimates about 90 million Americans had no health insurance during some portion of 2007 or 2008. The Henry J. Kaiser Family Foundation reported that over 80% of the uninsured come from working families, and the Agency for Healthcare Research and Quality estimated that 27% of under aged-65 year old Americans lack coverage.

Still other estimates project up to 60 million uninsured if the commonly reported U-3 unemployment rate hits 10%, and the Urban Institute sees around 66 million without coverage by 2019, given the present trend of rising costs forcing employers increasingly to cut back.

Bureau data show that coverage weakened across most sectors of the population, including full-time workers and the middle class, the result of economic decline and years of employers putting a greater burden on their workforce.

Since at least 2001, the percent of workers with employer-provided insurance has steadily eroded, and it’s the main reason behind growing numbers of uninsured and underinsured. In 2008, 61.9% of the below-age 65 population had job-provided coverage, down from 67% in 2001 and falling due to cost cutting, continued job losses, and the trend to lower-paying ones.

In addition, holding a job no longer guarantees coverage. Plans offered have been greatly eroded, and medical expenses today are the leading cause of personal bankruptcies. America is the world’s only industrialized country denying its citizens universal coverage, yet spends on average more than double what the other 30 OECD countries spend, and delivers less because of unaffordable private insurance and overpriced drugs.

Nothing being debated in Washington addresses this, so whatever legislation emerges will make a dysfunctional system worse with the American public betrayed by “a slick-talking street hustler” — what analyst Bob Chapman calls Obama, or according to James Petras, “the greatest con man in recent history.” Make that plural with Congress under Democrat or Republican leadership because both parties are beholden to the corporate interests that own them and are indifferent to growing public needs.

Since taking office in January, Obama kept reform off the table, made progressive change a nonstarter, and achieved the impossible by governing worse than George Bush on virtually all of his domestic and foreign policies. Along with looting the federal Treasury, wrecking the economy, selling out to Wall Street, and continuing imperial wars, Obamacare is the centerpiece of his failed agenda and a betrayal of the public’s trust.

On September 9, he presented his vision to a joint congressional session, reassuring providers that their interests are secure. Rejecting universal single-payer coverage, he said it “makes more sense to build on what works and fix what doesn’t, rather than try to build an entirely new system from scratch.” And while favoring a “public option,” he assured private insurers that it’s not a deal-breaker, guaranteeing that no final plan will include one because enough votes can’t be gotten in the Senate.

Key also is the lowering of costs by:

* cutting hundreds of billions in Medicare and Medicaid benefits as a prelude to eliminating or greatly gutting these programs with perhaps Social Security and other social gains to follow;

* placing caps on what tests and treatments doctors can provide;

* putting “medical expert” gatekeepers in charge of deciding the most cost-effective care, thus preventing doctors from prescribing what’s best for their patients and denying people the right to make their own health care choices if their cost exceeds what Washington will allow;

* taxing so-called “Cadillac” plans (mostly covering state employees, municipal union members, and other working Americans, not just the super-rich) to encourage employers to provide fewer benefits, thus placing a greater burden on workers; forcing everyone to have insurance; and placing a surtax on non-compliers with incomes of between 100 – 300% of the poverty level under the Baucus Senate plan;

* creating a “deficit trigger” to reduce the growth of Medicare and Medicaid spending if anticipated savings aren’t met; and

* making everyone more responsible for their own care by forcing them to cover more of the cost in return for less coverage when they need it most.

Numerous details remain hidden from the public, but the goal of Obamacare is clear. It’s a scheme to ration care; charge people more for it; enrich private insurers, PhRMA, and large hospital chains; mandate insurance for everyone; and penalize non-compliers.

It’s up to public outrage to stop it.