Saturday, June 18, 2011

Eisenhower's worst fears came true. We invent enemies to buy the bombs

Editor's NOTE:

The only claim made by Jenkins that is not factually correct is that the US spends 5.5%  of GDP on "Defense."  The number is closer to 8% when all the supplemental war related budget bills and the cost of all the "black" budgetary items are included. The United States is spending in excess of a trillion dollars per year on the military/security complex which represents roughly 40% of the entire annual budget. No other country on earth is doing this. It is unsustainable. If not ended, the country itself will not survive.

Dr. J. P. Hubert

Britain faces no serious threat, yet keeps waging war. While big defence exists, glory-hungry politicians will use it

By Simon Jenkins

June 17, 2011 "The Guardian" - - Why do we still go to war? We seem unable to stop. We find any excuse for this post-imperial fidget and yet we keep getting trapped. Germans do not do it, or Spanish or Swedes. Britain's borders and British people have not been under serious threat for a generation. Yet time and again our leaders crave battle. Why?

Last week we got a glimpse of an answer and it was not nice. The outgoing US defence secretary, Robert Gates, berated Europe's "failure of political will" in not maintaining defence spending. He said Nato had declined into a "two-tier alliance" between those willing to wage war and those "who specialise in 'soft' humanitarian, development, peacekeeping and talking tasks". Peace, he implied, is for wimps. Real men buy bombs, and drop them.

This call was echoed by Nato's chief, Anders Fogh Rasmussen, who pointed out how unfair it was that US defence investment represented 75% of the Nato defence expenditure, where once it was only half. Having been forced to extend his war on Libya by another three months, Rasmussen wanted to see Europe's governments come up with more money, and no nonsense about recession. Defence to him is measured not in security but in spending.

The call was repeated back home by the navy chief, Sir Mark Stanhope. He had to be "dressed down" by the prime minister, David Cameron, for warning that an extended war in Libya would mean "challenging decisions about priorities". Sailors never talk straight: he meant more ships. The navy has used so many of its £500,000 Tomahawk missiles trying to hit Colonel Gaddafi (and missing) over the past month that it needs money for more. In a clearly co-ordinated lobby, the head of the RAF also demanded "a significant uplift in spending after 2015, if the service is to meet its commitments". It, of course, defines its commitments itself.

Libya has cost Britain £100m so far, and rising. But Iraq and the Afghan war are costing America $3bn a week, and there is scarcely an industry, or a state, in the country that does not see some of this money. These wars show no signs of being ended, let alone won. But to the defence lobby what matters is the money. It sustains combat by constantly promising success and inducing politicians and journalists to see "more enemy dead", "a glimmer of hope" and "a corner about to be turned".

Victory will come, but only if politicians spend more money on "a surge". Soldiers are like firefighters, demanding extra to fight fires. They will fight all right, but if you want victory that is overtime.

On Wednesday the Russian ambassador to Nato warned that Britain and France were "being dragged more and more into the eventuality of a land-based operation in Libya". This is what the defence lobby wants institutionally, even if it may appal the generals. In the 1980s Russia watched the same process in Afghanistan, where it took a dictator, Mikhail Gorbachev, to face down the Red Army and demand withdrawal. The west has no Gorbachev in Afghanistan at the moment. Nato's Rasmussen says he "could not envisage" a land war in Libya, since the UN would take over if Gaddafi were toppled. He must know this is nonsense. But then he said Nato would only enforce a no-fly zone in Libya. He achieved that weeks ago, but is still bombing.

It is not democracy that keeps western nations at war, but armies and the interests now massed behind them. The greatest speech about modern defence was made in 1961 by the US president Eisenhower. He was no leftwinger, but a former general and conservative Republican. Looking back over his time in office, his farewell message to America was a simple warning against the "disastrous rise of misplaced power" of a military-industrial complex with "unwarranted influence on government". A burgeoning defence establishment, backed by large corporate interests, would one day employ so many people as to corrupt the political system. (His original draft even referred to a "military-industrial-congressional complex".) This lobby, said Eisenhower, could become so huge as to "endanger our liberties and democratic processes".

I wonder what Eisenhower would make of today's US, with a military grown from 3.5 million people to 5 million. The western nations face less of a threat to their integrity and security than ever in history, yet their defence industries cry for ever more money and ever more things to do. The cold war strategist, George Kennan, wrote prophetically: "Were the Soviet Union to sink tomorrow under the waters of the ocean, the American military-industrial complex would have to remain, substantially unchanged, until some other adversary could be invented."

The devil makes work for idle hands, especially if they are well financed. Britain's former special envoy to Kabul, Sherard Cowper-Coles, echoed Kennan last week in claiming that the army's keenness to fight in Helmand was self-interested. "It's use them or lose them, Sherard," he was told by the then chief of the general staff, Sir Richard Dannatt. Cowper-Coles has now gone off to work for an arms manufacturer.

There is no strategic defence justification for the US spending 5.5% of its gross domestic product on defence or Britain 2.5%, or for the Nato "target" of 2%.

These figures merely formalise existing commitments and interests. At the end of the cold war soldiers assiduously invented new conflicts for themselves and their suppliers, variously wars on terror, drugs, piracy, internet espionage and man's general inhumanity to man. None yields victory, but all need equipment. The war on terror fulfilled all Eisenhower's fears, as America sank into a swamp of kidnapping, torture and imprisonment without trial.

The belligerent posture of the US and Britain towards the Muslim world has fostered antagonism and moderate threats in response. The bombing of extremist targets in Pakistan is an invitation for terrorists to attack us, and then a need for defence against such attack. Meanwhile, the opportunity cost of appeasing the complex is astronomical. Eisenhower remarked that "every gun that is made is a theft from those who hunger" – a bomber is two power stations and a hospital not built. Likewise, each Tomahawk Cameron drops on Tripoli destroys not just a Gaddafi bunker (are there any left?), but a hospital ward and a classroom in Britain.

As long as "big defence" exists it will entice glory-hungry politicians to use it. It is a return to the hundred years war, when militaristic barons and knights had a stranglehold on the monarch, and no other purpose in life than to fight. To deliver victory they demanded ever more taxes for weapons, and when they had ever more weapons they promised ever grander victories. This is exactly how Britain's defence ministry ran out of budgetary control under Labour.

There is one piece of good news. Nato has long outlived its purpose, now justifying its existence only by how much it induces its members to spend, and how many wars irrelevant to its purpose it finds to fight. Yet still it does not spend enough for the US defence secretary. In his anger, Gates threatened that "future US leaders … may not consider the return on America's investment in Nato worth the cost". Is that a threat or a promise?

Only the “Crazies” Get the Bank Giveaway Right

Editor's NOTE:

This is a fantastic article by Professor Hudson. He has diagnosed the problem in clear and concise language.

Dr. J. P. Hubert

Free money creation to bail out financial speculators, but not Social Security or Medicare

By Michael Hudson

June 17 2011 "Information Clearing House" --Financial crashes were well understood for a hundred years after they became a normal financial phenomenon in the mid-19th century. Much like the buildup of plaque deposits in human veins and arteries, an accumulation of debt gained momentum exponentially until the economy crashed, wiping out bad debts – along with savings on the other side of the balance sheet. Physical property remained intact, although much was transferred from debtors to creditors. But clearing away the debt overhead from the economy’s circulatory system freed it to resume its upswing. That was the positive role of crashes: They minimized the cost of debt service, bringing prices and income back in line with actual “real” costs of production. Debt claims were replaced by equity ownership. Housing prices were lower – and more affordable, being brought back in line with their actual rental value. Goods and services no longer had to incorporate the debt charges that the financial upswing had built into the system.

Financial crashes came suddenly. They often were triggered by a crop failure causing farmers to default, or “the autumnal drain” drew down bank liquidity when funds were needed to move the crops. Crashes often also revealed large financial fraud and “excesses.”

This was not really a “cycle.” It was a scallop-shaped a ratchet pattern: an ascending curve, ending in a vertical plunge. But popular terminology called it a cycle because the pattern was similar again and again, every eleven years or so. When loans by banks and debt claims by other creditors could not be paid, they were wiped out in a convulsion of bankruptcy.

Gradually, as the financial system became more “elastic,” each business recovery started from a larger debt overhead relative to output. The United States emerged from World War II relatively debt free. Downturns occurred, crashes wiped out debts and savings, but each recovery since 1945 has taken place with a higher debt overhead. Bank loans and bonds have replaced stocks, as more stocks have been retired in leveraged buyouts (LBOs) and buyback plans (to keep stock prices high and thus give more munificent rewards to managers via the stock options they give themselves) than are being issued to raise new equity capital.

But after the stock market’s crash of 2000 and the Federal Reserve flooding the U.S. economy with credit after 9/11, 2001, there was so much “free spending money” that many economists believed that the era of scientific money management had arrived and the financial cycle had ended. Growth could occur smoothly – with no over-optimism as to debt, no inability to pay, no proliferation of over-valuation or fraud. This was the era in which Alan Greenspan was applauded as Maestro for ostensibly creating a risk-free environment by removing government regulators from the financial oversight agencies.

What has made the post-2008 crash most remarkable is not merely the delusion that the way to get rich is by debt leverage (unless you are a banker, that is). Most unique is the crash’s aftermath. This time around the bad debts have not been wiped off the books. There have indeed been the usual bankruptcies – but the bad lenders and speculators are being saved from loss by the government intervening to issue Treasury bonds to pay them off out of future tax revenues or new money creation. The Obama Administration’s Wall Street managers have kept the debt overhead in place – toxic mortgage debt, junk bonds, and most seriously, the novel web of collateralized debt obligations (CDO), credit default swaps (almost monopolized by A.I.G.) and kindred financial derivatives of a basically mathematical character that have developed in the 1990s and early 2000s.

These computerized casino cross-bets among the world’s leading financial institutions are the largest problem. Instead of this network of reciprocal claims being let go, they have been taken onto the government’s own balance sheet. This has occurred not only in the United States but even more disastrously in Ireland, shifting the obligation to pay – on what were basically gambles rather than loans – from the financial institutions that had lost on these bets (or simply held fraudulently inflated loans) onto the government (“taxpayers”). The government took over the mortgage lending guarantors Fannie Mae and Freddie Mac (privatizing the profits, “socializing” the losses) for $5.3 trillion – almost as much as the entire national debt. The Treasury lent $700 billion under the Troubled Asset Relief Plan (TARP) to Wall Street’s largest banks and brokerage houses. The latter re-incorporated themselves as “banks” to get Federal Reserve handouts and access to the Fed’s $2 trillion in “cash for trash” swaps crediting Wall Street with Fed deposits for otherwise “illiquid” loans and securities (the euphemism for toxic, fraudulent or otherwise insolvent and unmarketable debt instruments) – at “cost” based on full mark-to-model fictitious valuations.

Altogether, the post-2008 crash saw some $13 trillion in such obligations transferred onto the government’s balance sheet from high finance, euphemized as “the private sector” as if it were the core economy itself, rather than its calcifying shell. Instead of losing on their bad bets, bad loans, toxic mortgages and outright fraudulent claims, the financial institutions cleaned up, at public expense. They collected enough to create a new century’s power elite to lord it over “taxpayers” in industry, agriculture and commerce who will be charged to pay off this debt.

If there was a silver lining to all this, it has been to demonstrate that if the Treasury and Federal Reserve can create $13 trillion of public obligations – money – electronically on computer keyboards, there really is no Social Security problem at all, no Medicare shortfall, no inability of the American government to rebuild the nation’s infrastructure. The bailout of Wall Street showed how central banks can create money, as Modern Money Theory (MMT) explains. But rather than explaining how this phenomenon worked, the bailout was rammed through Congress under emergency conditions. Bankers threatened economic Armageddon if the government did not create the credit to save them from taking losses.

Even more remarkable is the attempt to convince the population that new money and debt creation to bail out Wall Street – and vest a new century of financial billionaires at public subsidy – cannot be mobilized just as readily to save labor and industry in the “real” economy. The Republicans and Obama administration appointees held over from the Bush and Clinton administration have joined to conjure up scare stories that Social Security and Medicare debts cannot be paid, although the government can quickly and with little debate take responsibility for paying trillions of dollars of bipartisan Finance-Care for the rich and their heirs.

The result is a financial schizophrenia extending across the political spectrum from the Tea Party to Tim Geithner at the Treasury and Ben Bernanke at the Fed. It seems bizarre that the most reasonable understanding of why the 2008 bank crisis did not require a vast public subsidy for Wall Street occurred at Monday’s Republican presidential debate on June 13, by none other than Congressional Tea Party leader Michele Bachmann – who had boasted in a Wall Street Journal interview two days earlier, on Saturday, that she

voted against the Troubled Asset Relief Program (TARP) “both times.” … She complains that no one bothered to ask about the constitutionality of these extraordinary interventions into the financial markets. “During a recent hearing I asked Secretary [Timothy] Geithner three times where the constitution authorized the Treasury’s actions [just [giving] the Treasury a $700 billion blank check], and his response was, ‘Well, Congress passed the law.’ …With TARP, the government blew through the Constitutional stop sign and decided ‘Whatever it takes, that’s what we’re going to do.’”

Clarifying her position regarding her willingness to see the banks fail, she explained:

I would have. People think when you have a, quote, ‘bank failure,’ that that is the end of the bank. And it isn’t necessarily. A normal way that the American free market system has worked is that we have a process of unwinding. It’s called bankruptcy. It doesn’t mean, necessarily, that the industry is eclipsed or that it’s gone. Often times, the phoenix rises out of the ashes.
There were easily enough sound loans and assets in the banks to cover deposits insured by the FDIC – but not enough to pay their counterparties in the “casino capitalist” category of their transactions. This super-computerized financial horseracing is what the bailout was about, not bread-and-butter retail and business banking or insurance.

It all seems reminiscent of the 1968 presidential campaign. The economic discussion back then between Democrat Hubert Humphrey and Republican Richard Nixon was so tepid that it prompted journalist Eric Hoffer to ask why only a southern cracker, third-party candidate Alabama Governor George Wallace, was talking about the real issues. We seem to be in a similar state in preparation for the 2012 campaign, with junk economics on both sides.

Meanwhile, the economy is still suffering from the Obama administration’s failure to alleviate the debt overhead by seriously making banks write down junk mortgages to reflect actual market values and the capacity to pay. Foreclosures are still throwing homes onto the market, pushing real estate further into negative equity territory while wealth concentrates at the top of the economic pyramid. No wonder Republicans are able to shed crocodile tears for debtors and attack President Obama for representing Wall Street (as if this is not equally true of the Republicans). He is simply continuing the Bush Administration’s policies, not leading the change he had promised. So he has left the path open for Congresswoman Bachmann to highlight her opposition to the Bush-McCain-Obama-Paulson-Geithner giveaways.

The missed opportunity

When Lehman Brothers filed for bankruptcy on September 15, 2008, the presidential campaign between Barack Obama and John McCain was peaking toward Election Day on November 4. Voters told pollsters that the economy was their main issue – their debts, soaring housing costs (“wealth creation” to real estate speculators and the banks getting rich off mortgage lending), stagnant wage levels and worsening workplace conditions. And in the wake of Lehman the main issue under popular debate was how much Wall Street’s crash would hurt the “real” economy. If large banks went under, would depositors still be safely insured? What about the course of normal business and employment?

Credit is seen as necessary; but what of credit derivatives, the financial sector’s arcane “small print”? How intrinsic are financial gambles on collateralized debt obligations (CDOs, “weapons of mass financial destruction” in Warren Buffett’s terminology) – not retail banking or even business banking and insurance, but financial bets on the economy’s zigzagging measures. Without casino capitalism, could industrial capitalism survive? Or had the superstructure become rotten and best left to “free markets” to wipe out in mutually offsetting bankruptcy claims?

Mr. Obama ran as the “candidate of change” from the Bush Administration’s war in Iraq and Afghanistan, its deregulatory excesses and giveaways to the pharmaceuticals industry and other monopolies and their Wall Street backers. Today it is clear that his promises for change were no more than campaign rhetoric, not intended to limit a continuation of the policies that most voters hoped to see changed. There even has been continuity of Bush Administration officials committed to promoting financial policies to keep the debts in place, enable banks to “earn their way out of debt” at the expense of consumers and businesses – and some $13 trillion in government bailouts and subsidy.

History is being written to depict the policy of saving the bankers rather than the economy as having been necessary – as if there were no alternative, that the vast giveaways to Wall Street were simply “pragmatic.” Financial beneficiaries claim that matters would be even worse today without these giveaways. It is as if we not only need the banks, we need to save them (and their stockholders) from losses, enabling them to pay and retain their immensely rich talent at the top with even bigger salaries, bonuses and stock options.

It is all junk economics – well-subsidized illogic, quite popular among fundraisers.

From the outset in 2009, the Obama Plan has been to re-inflate the Bubble Economy by providing yet more credit (that is, debt) to bid housing and commercial real estate prices back up to pre-crash levels, not to bring debts down to the economy’s ability to pay. The result is debt deflation for the economy at large and rising unemployment – but enrichment of the wealthiest 1% of the population as economies have become even more financialized.

This smooth continuum from the Bush to the Obama Administration masks the fact that there was a choice, and even a clear disagreement at the time within Congress, if not between the two presidential candidates, who seemed to speak as Siamese Twins as far as their policies to save Wall Street (from losses, not from actually dying) were concerned. Wall Street saw an opportunity to be grabbed, and its spokesmen panicked policy-makers into imagining that there was no alternative. And as President Obama’s chief of staff Emanuel Rahm noted, this crisis is too important an opportunity to let it go to waste. For Washington’s Wall Street constituency, the bold aim was to get the government to save them from having to take a loss on loans gone bad – loans that had made them rich already by collecting fees and interest, and by placing bets as to which way real estate prices, interest rates and exchange rates would move.

After September 2008 they were to get rich on a bailout – euphemized as “saving the economy,” if one believes that Wall Street is the economy’s core, not its wrapping or supposed facilitator, not to say a vampire squid. The largest and most urgent problem was not the inability of poor homebuyers to cope with the interest-rate jumps called for in the small print of their adjustable rate mortgages. The immediate defaulters were at the top of the economic pyramid. Citibank, AIG and other “too big to fail” institutions were unable to pay the winners on the speculative gambles and guarantees they had been writing – as if the economy had become risk-free, not overburdened with debt beyond its ability to pay.

Making the government absorb their losses – instead of recovering the enormous salaries and bonuses their managers had paid themselves for selling these bad bets – required a cover story to make it appear that the economy could not be saved without the Treasury and Federal Reserve underwriting these losing gambles. Like the sheriff in the movie Blazing Saddles threatening to shoot himself if he weren’t freed, the financial sector warned that its losses would destroy the retail banking and insurance systems, not just the upper reaches of computerized derivatives gambling.

How America’s Bailouts Endowed a Financial Elite to rule the 21st Century

The bailout of casino capitalists vested a new ruling class with $13 trillion of public IOUs (including the $5.3 trillion rescue of Fannie Mae and Freddie Mac) added to the national debt. The recipients have paid out much of this gift in salaries and bonuses, and to “make themselves whole” on their bad risks in default to pay off. An alternative would have been to prosecute them and recover what they had paid themselves as commissions for loading the economy with debt.

Although there were two sides within Congress in September 2008, there was no disagreement between the two presidential candidates. John McCain ran back to Washington on the fateful Friday of their September 26 debate to insist that he was suspending his campaign in order to devote all his efforts to persuading Congress to approve the $700 billion bank bailout – and would not debate Mr. Obama until that was settled. But he capitulated and went to the debate. On September 29 the House of Representatives rejected the giveaway, headed by Republicans in opposition.

So Mr. McCain did not even get brownie points for being able to sway politicians on the side of his Wall Street campaign contributors. Until this time he had campaigned as a “maverick.” But his capitulation to high finance reminded voters of his notorious role in the Keating Five, standing up for bank crooks. His standing in the polls plummeted, and the Senate capitulated to a redrafted TARP bill on October 1. President Bush signed it into law two days later, on October 3, euphemized as the Emergency Economic Stabilization Act.

Fast-forward to today. What does it signify when a right-wing cracker makes a more realistic diagnosis of bad bank lending better than Treasury Secretary Geithner, Fed Chairman Bernanke or other Bush-era financial experts retained by the Obama team? Without the bailout the gambling arm of Wall Street would have collapsed, but the “real” economy’s everyday banking and insurance operations could have continued. The bottom 99 percent of the U.S. economy would have recovered with only a speed bump to clean out the congestion at the top, and the government would have ended up in control of the biggest and most reckless banks and AIG – as it did in any case.

The government could have used its equity ownership and control of the banks to write down mortgages to reflect market conditions. It could have left families owning their homes at the same cost they would have had to pay in rent – the economic definition of equilibrium in property prices. The government-owned “too big to fail” banks could have been told to refrain from gambling on derivatives, from lending for currency and commodity speculation, and from making takeover loans and other predatory financial practices. Public ownership would have run the banks like savings banks or post office banks rather than gambling schemes fueling the international carry trade (computer-driven interest rate and currency arbitrage) that has no linkage to the production-and-consumption economy.

The government could have used its equity ownership and control of the banks to provide credit and credit card services as the “public option.” Credit is a form of infrastructure, and such public investment is what enabled the United States to undersell foreign economies in the 19th and 20th centuries despite its high wage levels and social spending programs. As Simon Patten, the first economics professor at the nation’s first business school (the Wharton School) explained, public infrastructure investment is a “fourth factor of production.” It takes its return not in the form of profits, but in the degree to which it lowers the economy’s cost of doing business and living. Public investment does not need to generate profits or pay high salaries, bonuses and stock options, or operate via offshore banking centers.

But this is not the agenda that the Bush-Obama administrations chose. Only Wall Street had a plan in place to unwrap when the crisis opportunity erupted. The plan was predatory, not productive, not lowering the economy’s debt overhead or cost of living and doing business to make it more competitive. So the great opportunity to serve the public interest by taking over banks gone broke was missed. Stockholders were bailed out, counterparties were saved from loss, and managers today are paying themselves bonuses as usual. The “crisis” was turned into an opportunity to panic politicians into helping their Wall Street patrons.

One can only wonder what it means when the only common sense being heard about the separation of bank functions should come from a far-out extremist in the current debate. The social democratic tradition had been erased from the curriculum as it had in political memory.

Tom Fahey: Would you say the bailout program was a success? …

BACHMANN: John, I was in the middle of this debate. I was behind closed doors with Secretary Paulson when he came and made the extraordinary, never-before-made request to Congress: Give us a $700 billion blank check with no strings attached.

And I fought behind closed doors against my own party on TARP. It was a wrong vote then. It’s continued to be a wrong vote since then. Sometimes that’s what you have to do. You have to take principle over your party.

Proclaiming herself a libertarian, Ms. Bachmann opposes raising the federal debt ceiling, Pres. Obama’s Medicare reform and other federal initiatives. So her opposition to the Wall Street bailout turns out to lack an understanding of how governments and their central banks can create money with a stroke of the computer pen, so to speak. But at least she was clear that wiping out bank counterparty gambles made by high rollers at the financial race track could have been wiped out (or left to settle among themselves in Wall Street’s version of mafia-style kneecapping) without destroying the banking system’s key economic functions.

The moral

Contrasting Ms. Bachmann’s remarks to the panicky claims by Mr. Geithner and Hank Paulson in September 2008 confirm a basic axiom of today’s junk economics: When an economic error becomes so widespread that it is adopted as official government policy, there is always a special interest at work to promote it.

In the case of bailing out Wall Street – and thereby the wealthiest 1% of Americans – while saying there is no money for Social Security, Medicare or long-term public social spending and infrastructure investment, the beneficiaries are obvious. So are the losers. High finance means low wages, low employment, low industry and a shrinking economy under conditions where policy planning is centralized in hands of Wall Street (Editor's bold emphasis throughout) and its political nominees rather than in more objective administrators.

Friday, June 17, 2011

Wall Street and the Fed’s stranglehold on America

By Jerry Mazza
Intrepid Report
Posted on June 17, 2011

A few days ago, I came upon a New York Times article, Obama Seeks to Win Back Wall St. Cash. The lead-in read, “A few weeks before announcing his re-election campaign, President Obama convened two dozen Wall Street executives, many of them longtime donors, in the White House’s Blue Room.” It wasn’t just to say hello.

Nominally, Obama wanted to get their thoughts on how to fast-track the “economic recovery.” Then he “opened the floor for an hour on touchy issues like hedge fund regulations and the national deficit.” The real deal was making nice to the Streeters he had recently called “fat cats” and whose claws were still out, as if they weren’t ready to swallow this mouse in a gulp before they gave him a dime for lunch.

Coincidentally, I had just finished reading A Study of the Federal Reserve and Its Secrets by the iconic Eustace Clarence Mullins. I thought, had Obama, Harvard lawyer and constitutional scholar, not examined this landmark book and how Wall Street bankers turned former Princeton President Woodrow Wilson into their man. They promised to buy him the presidential election to push, then sign the Federal Reserve Act on December 23, 1913 (when most of the congressional elves had escaped to play with Santa at home). In fact, the bill had been planned and written in secrecy in a private railroad car over 10 days on Jekyll’s Island in Georgia.

The train had sped away from Hoboken, New Jersey, leaving a crowd of chagrined newspapermen waiting for their scoop in the station. The passengers of that mysterious car were almost all bankers, as were for Obama in his Blue Room. Present back then were Frank Vanderlip, president of National City Bank of New York; Henry P. Davidson, senior partner of J. P. Morgan Company; and Charles D. Norton, president of Morgan’s First National Bank of New York. These heavy hitters invited Mr. Paul Moritz Warburg of M. M. Warburg of Hamburg, Germany, the chief German representative of the European banking family, the Rothschilds.

Mr. Warburg would end up being the central author of the entire document that we know today as the Federal Reserve Act. As a partner of Kuhn, Loeb and Company Bank of New York, he knew how the congressmen who were against the formation of A central banking system in the U.S. felt, and he knew they blamed the engineered money panic of 1907 on the New York banking bigwigs and Wall Street speculators. So Warburg threw in Federal along with Reserve Act to give a false sense the U.S. government was involved.

This was contrary to the reality that: 1. the Federal Reserve System would be owned by private bankers (shareholders); 2. that, shortly, said bankers would gain control of the issuing of the nation’s money; 3. the bankers would use the credit of the United States and its people to involve both in foreign events, read wars. Unfortunately, all too soon, all three of those goals were realized. When their initial document was realized, they called in Senator Carter Glass to present the Federal Reserve Act in Congress.

And so the demon was born, despite opposition from Congressman Charles Lindbergh, Sr., of Minnesota, who warned that this document was creating a central banking system. Moreover, this type of banking system had the power to create recessions, depressions, inflation, boom and bust a nation’s economy. And if you know anything about American history since then, it’s done them all. To involve us in the Bolshevik revolution, World War I, the 1929 stock market crash, the two depressions of 1931 and 1937, World War II, and left the US post 9/11 in the War on Terror, in a series of booms and busts, recessions and depressions.

What’s more, the Federal Reserve Act was unconstitutional. The Constitution strictly provides that the U.S. government should both print and coin its own money. It shouldn’t pass that off to this second party, the Federal Reserve, which will print out money in the form of notes payable to them, acting as the lender of our money’s credit to us with interest. Many congressmen saw the outcome, but somehow it was influenced with enough cash spread about to influence the Federal Reserve Act’s passage. The national banks kicked in over $5 million for a propaganda fund to sell and pass the bill. In that time, the Republicans were against the bill, and the Democrats were for it.

As with our time, many congressmen, especially faced with a holiday, did not have the time to read the entire bill by signing day, December 23, 1907. The bill was built around the old fractional lending Ponzi scheme, inherited from the 16th century goldsmiths. For every $10 you had, only $1 dollar (or 10 percent) was needed to be put aside for reserve. They realized that of the gold put into their safes for safekeeping only about 10 to 20 percent was out at any given time. So they could really lend the rest with impunity and collect the interest on all of it. And in effect, this would allow them and subsequently the Fed to generate money out of air, millions, billions, trillions eventually.

The same principle was used without gold and not by goldsmith banks, but with central banks using reserve numbers that could create money out of air from debt. Debt became money by the stroke of a pen, today the keystroke of a computer, to finance wars, revolutions, inflation, deflation, recessions or depressions. Added to gold, the situation had a double whammy for manipulation. The possibilities were endless for contracting or expanding wealth for the effects above. And so it has gone these past 104 years.

In one case among legion, the third paragraph of page 138, written by Emmanuel Goldweiser, director of research for the Federal Reserve Board in 1936, we find: “In the summer of 1936, banks had excess reserves. The Board repeated this action in the spring of 1937, thus ushering in the serious reaction of 1937–38.” Mullins writes, “Immobilizing reserves was the equivalent to extinguishing them, insofar as the available supply of money and credit was concerned, and, as Governor Eccles had testified, extinguishing reserves meant wiping out a basis for issuing money and credit, tightening up the money market, and ushering a business depression.” In fact, the Atlantic Monthly noted, “there was a contraction of credit of two billion dollars.” And so, the board played money and debt god with America’s economic life. Mullins provides a book full of examples, like and far worse than this.

Today, there are 12 central banks, New York being the fountainhead because it’s in the center of the financial fountain raining down or capping money. The board members are in the employ of the Federal Reserve and not the U.S. government. So their fidelity is to those who pay them. These are private credit monopolies for the benefit of themselves and their foreign customers and domestic speculators, not to mention swindlers. These 12 private credit monopolies were foisted on this country in deceit and disloyalty by bankers who came from Europe. They have created a history of financed crime for Americans and people around the world.

So I ask, what is Obama expecting to get on the cuff from the sons and grandsons of these bankers and their companies? They blunted all his efforts to get any real regulation on the books, concerning their fraudulent debt products (CDOs, CDSs, CISs, etc.), or for derivatives and speculation, having suspended the number of items that can be speculated on, and the amount of money that can be speculated with to corner markets on essential products: primarily food items and oil.

They own the bonds and stocks. They pass the laws through their minions that the president signs through his gratitude for their support, just as Wilson did more than a century ago and Obama is seeking to now. Bottom line, the Federal Reserve investors’ increase in their assets went from $143 million dollars in 1913 to 45 billion dollars in 1949 (at the time of Mullins’ writing), yielding a profit of $44,857,000,000. Another 62 years of financial profit adjusted for inflation yields considerably more. Do the math. It boggles my mind as it did Mullins.’

Thus Mullins quotes Bernard Baruch on Page, 156, that “Whatever its leadership, the Federal Reserve Board is committed to tightening its financial dictatorship over the United States. Bernard Baruch testified before Congress that: ‘We have not had a free or competitive economy since the First World War.’ Governor Marriner Eccles testified that we should not see our money market free from the money power’s control in our lifetime.

“The latest statement was made by Governor Mencius Syzmczak of the Federal Reserve Board, who was appointed by Boss Kelly of Chicago to that office. [He] stated in Time Magazine in 1950 that: ‘The more we can accomplish by means of monetary, credit and fiscal policies, the less need there will be for the authoritarian harness of rationing and other direct controls . . . ’”

Mullins responds on Page 157: “The dictatorship cannot be exercised without the control of money and credit. If Congress actually had retained its sovereignty and refused to let Woodrow Wilson and Carter Glass [as in Glass Steagall] hand over the sovereign right of coinage and the issue of our money to private bankers in 1913, the American people today would not stand on the brink of slavery. The Federal Reserve System has been the death of our Constitution, and the end of our liberties. The Federal Reserve Board of Governors, chosen by and working for the powerful international bankers have inflicted catastrophe after catastrophe upon our people. They involved us into two World wars; they have planned and executed two of the worst economic depression we have ever suffered. The American people have been kept in ignorance of the forces working against them. The love of liberty, the innate self-reliance, and the uncompromising individualism of the native American must assert itself against the tyranny of the Federal Reserve Board if we are to renew the American Republic.” Those words are as true today as when he wrote them in 1949.

But Mr. Obama, are you listening? You are sleeping with the devil, to paraphrase the title of Robert Baer’s excellent book on the U.S. and Saudi oil interests. It applies more than equally with the Federal Reserve Board and its Wall Street banksters. You and every American interested in the future of this country should read Mullins’ tract. Know that the concessions of transparency, ethics, and any sense of the common good are not to be gotten amongst the banksters of this world.

As Mullins wrote, “The Federal Reserve System is not Federal; it has no reserves; and it is not a system but rather, a criminal syndicate. It is the product of syndicalist activity of an international consortium of dynastic families comprising what the author terms “The World Order” The Federal Reserve System is a central bank operating in the United States. Although the student will find no such definitions of a central bank in the textbooks of any university, the author has defined a central bank as follows: it is the dominant financial power of the country which harbors it. It is entirely private-owned, although it seeks to give the appearance of a governmental institution. It has the right to print and issue money, the traditional prerogative of monarchs. It is set up to provide financing for wars. It functions as a money monopoly having total power over all the money and credit of the people.”


Eustace Clarence Mullins, populist American political writer, artist, biographer, was a friend of the great American poet, Ezra Pound, who originally asked Mullins to write this amazing book, suggesting a course of research and paying him ten dollars a week. The central theme of Mullin’s book is how the Federal Reserve allows bankers to monetize debt, that is to create money out of air by simple book entry, and thus to create enormous leverage over everyone else.

Eustace Clarence Mullins, Jr., was born on March 9, 1923 and died in February 2, 2010, at age 87. He lived to see 9/11, the War on Terror, the crashes of 2008–2009, and the wars that followed, which created the largest national debt in history, reviving his worst dream for America, their financing by the Fed and the banksters. He was educated at Washington and Lee University, New York University, the University of North Dakota and the Institute of Contemporary Arts in Washington, D.C.

Mullins was a researcher at the Library of Congress in 1950. Shortly after his first book came out in 1952, he was discharged by the Library of Congress. As a nascent author of many books, he befriended the great American poet Ezra Pound, who encouraged him to write Mullins on the Federal Reserve, considering it a great discovery of the age. In 1983, Mullins updated his book with its present title, The Secrets of the Federal Reserve.

Ezra Pound, who was arrested for his anti-war, anti-usury activities, wrote his Pisan Cantos in a steel cage in the American Disciplinary Training Center, shades of Guantanamo, in 1945, sleeping on a concrete floor, looking as he said to his muse, la bella Luna. He was brought in by Italian partisans to the allies who locked him up, charging him with speechifying for the fascists, as he knocked usury, credit, and bankers, which was labeled “treason” and “anti-Semitic;” not “free speech” as Pound wrote back, pleading his case to US courts. Nevertheless, he still won a coveted Bolingen Prize for poetry in 1948.

A nervous breakdown brought him a pup tent, light, typewriter, cot, some books, a return to his work on Confucius’ Analects. It revived his memories of old times, Paris, Joyce, Hem, Stein, and Eliot. In 1958, he was declared insane, incapable of standing trial and sent to live with his daughter Mary in Tyrol, soon returning to Rapallo, Venice, crazy [as a fox] but free to publish Cantos 110 thru 116 of his epic work. Turning into Odysseus Pound, the 20th Century’s stellar poet, hero of the universe, he wrote . . .

“I have brought the great ball of crystal;

Who can lift it?

Can you enter the great acorn of light?

But the beauty is not the madness

Tho’ my errors and wrecks lie about me.

And I am not a demigod,

I cannot make it cohere.”

In fact, can any of us make the crimes of the banksters and the Fed “cohere” with America’s ideals for life, liberty and the pursuit of happiness?

Thursday, June 16, 2011

Stock Prices Have Fallen For Six Weeks In A Row

By: The Economic Collapse Blog

Well, it's official. U.S. stock prices have fallen for six weeks in a row. So will next week make it seven? The last time stocks declined for seven weeks in a row was back in May 2001 when the "dot-com" bubble was bursting. At this point, the Dow has declined by approximately 5 percent since the beginning of June. Things don't look good. So exactly what is going on here? Well, it is undeniable that the recent mini-bubble in stocks has been too good to be true. The S&P 500 had surged nearly 30 percent since last September. Much of this has been fueled by the Federal Reserve's latest round of quantitative easing, but now that is coming to an end in a few weeks and investors are a bit spooked. Meanwhile, wars and revolutions are sweeping the Middle East, Japan is dealing with the damage caused by the tsunami and by Fukushima, Europe is trying to figure out how to bail out Greece again and the U.S. debt crisis is continually getting worse. In addition, wave after wave of bad economic news is certainly not helping the mood on Wall Street. In many ways, a "perfect storm" is developing and many are now extremely concerned about what the rest of 2011 is going to bring for Wall Street.

QE2 is slated to conclude at the end of June, and many investors are deeply disappointed that it does not appear that we are not going to see QE3 right away. Many fear that the end of quantitative easing will pop the current mini-bubble in stocks and commodities. At the moment, financial markets are more jittery than they have been in a long time.

Frank Davis, director of sales and trading with LEK Securities, says that there is a lot of pessimism on Wall Street right now....

"There's a lot of emotion in this market at the moment, and the conversations among traders are nearly all leaning toward the bear side"

So what are some of the signs that this downturn on Wall Street may turn into a full-blown crash?

Well, according to the Wall Street Journal, junk bonds are being sold off at an alarming rate right now. Does the following quote from the Journal remind anyone of 2008 at least a little bit?....

A steep decline in prices of bonds backed by subprime mortgages has spread through the riskiest segments of the credit markets, ending rallies in high-yield corporate bonds and commercial real-estate debt.

Also, many of the big Wall Street banks are already laying off workers. In a previous article I wrote about the potential for Wall Street to go into "panic mode", I noted that Goldman Sachs, Bank of America, JPMorgan Chase and Morgan Stanley are all laying people off or are considering staff cuts.

The truth is that the big banks on Wall Street are not nearly as stable as most people think that they are. Moody's recently warned that it may downgrade the debt ratings of Bank of America, Citigroup and Wells Fargo.

Another major story on Wall Street right now is oil. OPEC recently announced that oil production levels will not be raised, even though the price of oil has been hovering around $100 a barrel.

World oil supplies are very tight right now. In fact, the globe actually consumed 5 million barrels per day more oil than it produced during 2010. This was possible because the difference was apparently made up by drawing down reserves.

But if oil supplies are this tight already, what is going to happen if a major war (as opposed to all of the minor wars that are already happening) erupts in the Middle East?

The world is sitting on the edge of a financial disaster.

It is important to keep in mind that Europe is also in far worse financial condition than it was just prior to the financial collapse of 2008.

It is being reported that German finance minister Wolfgang Schaeuble is convinced that a "full-blown" financial meltdown by Greece is a very real possibility. The cost of insuring Greek debt has soared to a brand new record high, and officials all over Europe are in panic mode.

But financial problems are not just happening in Greece. The largest bank in France has just cut in half the amount of cash that customers can withdraw from ATMs each week.

Most Americans don't spend much time thinking about the financial condition of Europe, but the truth is that what happens in Europe is going to play a major role in the months and years ahead.

Of course most Americans already know that the U.S. government is a financial mess.

As the "debt ceiling deadline" of August 2nd draws closer, the U.S. government has been raiding retirement funds in order to stay under the debt limit.

Many investors are quite nervous about what may happen if the U.S. government actually does start defaulting on debt on August 2nd.

Others claim that the U.S. government is already in default.

The only Chinese agency that gives credit ratings on sovereign debt says that the U.S. government "has already been defaulting" and the Chinese government has been repeatedly warning that the U.S. needs to get its finances in order.

In any event, this debt ceiling drama will get resolved one way or another.

The bigger question is this....

How is the U.S. government going to respond when the next financial crash happens?

Back in 2008, the Federal Reserve and the U.S. government took unprecedented steps to prop up Wall Street.

But can they really do that again if we see another major crash in 2011 or 2012?

Many believe that things will be totally different this time around. Just check out what Jim Rogers recently told CNBC....

"The debts that are in this country are skyrocketing," he said. "In the last three years the government has spent staggering amounts of money and the Federal Reserve is taking on staggering amounts of debt.

"When the problems arise next time…what are they going to do? They can’t quadruple the debt again. They cannot print that much more money. It’s gonna be worse the next time around."

Jim Rogers is right about that.

The next time we see a collapse on the scale of 2008 it is going to be a much bigger mess.

Global financial markets are extremely vulnerable right now and there are a whole host of potential "tipping points" which could push them over the edge.

The Federal Reserve and the U.S. government more or less used up all of their ammunition on the 2008 crisis.

If we see another collapse in 2011 or 2012 there is not going to be much of a safety net available.

The entire world financial system is simply swamped with way too much debt. The world has never seen anything even remotely close to the gigantic mountains of debt that have been accumulated around the world today.

The current global financial system is not sustainable. More crashes are inevitable. A lot of people are going to get steamrolled.

Hopefully you will not be one of them.

12 More Signs That Society Is Collapsing

By Economic Collapse Blog

June 16, 2011 "Economic Collapse Blog" --- What we are now witnessing is the slow motion unraveling of America. Our economy is dying, the American people have lost faith in the government and in almost all of our other major institutions, and our society is collapsing. Most Americans don't understand why all of this is happening, but most of them do realize that something has fundamentally changed. Earlier this year, McDonald's held a "National Hiring Day" and a million Americans showed up to apply for jobs. Only 62,000 of them were hired. That means only 6.2% of the applicants got jobs. So what are we supposed to tell the 93.8% that didn't get hired? Are they supposed to have any hope for the future when they can't even get a minimum wage job at McDonald's? When I was a teenager, I went over to McDonald's one day, filled out an application and was instantly hired. My, how things have changed. Now we have millions upon millions of young people that are staring directly into a very bleak future. The level of frustration in this country is rising to frightening levels and large numbers of people are already showing that they will stoop to anything in order to survive.

In a recent article entitled "18 Signs The Collapse Of Society Is Accelerating" I focused primarily on the chaos that has been erupting in many of our urban areas. But the truth is that, as you will see below, there are signs that society is collapsing coming out of very rural areas as well. This phenomenon cannot just be pinned down to one area of the country or to one group of people. From coast to coast people are already starting to lose it and the economic collapse has only just begun.

The cold, hard reality of the matter is that what we are experiencing right now is rip-roaring prosperity compared to what is coming down the road.

So if people will behave this wildly now, what is our society going to look like someday when there are millions of Americans that have not had anything to eat for several days?

That is something to think about.

History has shown us that when people are really, really hungry they will do just about anything.

But right now we are not even close to that point and yet people all across America are going crazy.

The following are 12 more signs that society is collapsing....

#1 In my previous article, I detailed how the "mob robbery" phenomenon in Chicago is spinning wildly out of control. Well, just this morning, the brother of Billy Corgan (the front man for the Smashing Pumpkins) was mugged and had his iPod stolen by a mob of teens while he was riding a Red Line train in Chicago.

Things have gotten so bad that now even The Wall Street Journal is taking notice of the rash of "mob robberies" that have been happening in Chicago. The following is how a new article in the Journal described one of the recent attacks....

In another incident last Saturday evening, Krzysztof Wilkowski, after shopping on Michigan Avenue, was sitting on his scooter a couple of blocks away checking his phone for a restaurant when he got whacked in the face with a baseball.

At first, he said, he thought it was a prank, but then he looked up and saw 15 to 20 young men approaching. "My first reaction was, 'I'm about to get robbed, what do I do?' " Mr. Wilkowski recalled in an interview.

The 34-year-old insurance company employee from a Chicago suburb grabbed the keys from his ignition and held tight to his phone. A few of the attackers dragged him off his scooter and pulled him onto Chicago Avenue where they punched him, hit him with his helmet and tried to grab his phone.

#2 Sadly, "mob robberies" are not just happening in Chicago. The following is a video of a mob robbery that took place in Stockton, California....
This next video is an Associated Press video report about how police have become extremely concerned about the "flash mobs" that have been plaguing Philadelphia lately.....

This is a very, very disturbing trend. Once these videos go up on YouTube, other groups of young people "copycat" them all over the country.

The next 10 signs are from some of my readers. In response to my previous article that discussed how society is collapsing, a number of people left comments that described what is happening in their particular areas. Sometimes so many dozens of comments get left that some real gems get overlooked. The following is a sampling of what my readers have been sharing about how society is collapsing where they live....

#3 Golden Child (Third Richest County In America):

About a month ago I was robbed in broad daylight walking to the store on a picture perfect 75 degree sunny day at 1 PM by two high school dropout teenagers on the path in my nice suburban town which is located in third richest county in America! A few months before that I was beaten unconscious by random drunk young people on the path near my home that I woke up in the hospital getting stitches in my face. This will be one dangerous summer for places all across America.

#4 Chris (Fargo, North Dakota):

I live in Fargo,ND and we have been having a rash of crime lately. In the past 6 months we have had multiple gas station robberies, bank robberies, and the latest, a shooting at one of our three movie theaters.

#5 Sue (Ogden, Utah):

I am a teacher in Ogden, Utah and this last winter I had a second grade student tell me that if I didn’t tell him how old I was that he was going to “shoot me in the back of my head.” He was suspended from school because that is a threat of violence, but nothing changed. His parents are active gang members.

#6 Heather (Columbus, Ohio):

I live close enough to Columbus, OH to follow the news there. (Thankfully far enough away not to be regularly affected by it.) Every day there is a new report of a violent crime. I believe we are up to 70 or so murders on the year. 10 years ago this wasn’t the case. I could (and did) walk into the worst part of the city and be safe as long as I was vigilant. I wouldn’t try that for the world now. I used to be a bank teller there and there’d be maybe 1 robbery a month throughout the city. It’s at least one a week now, probably more than that. And it’s no longer the downtown banks that are getting robbed–it’s the suburban ones.

#7 The Baroness (Atlanta):

I live in Atlanta Georgia. Everyday there are signs. Today’s headlines are: Babysitter kills toddler, 2 shot outside teen party, Brick thrown from I-75 overpass and several more.

#8 Gas Panic (Unknown):

The first, a 21 year old pizza delivery girl who was held with a knife to her throat while making a delivery. They took all the money she had on her and even took the time to search her car! The second was a 30 year old woman who told me she was walking down the street and was solicited by a pimp telling her she could “make good money”. After she told him to get lost, he stabbed her in the back of the arm. She needed over twenty stitches and showed me the wound.

#9 NS (Fairbanks, Alaska):

Even in Fairbanks, Alaska, there has been similar “mob robbing” going on. Yes, it is spreading everywhere.

#10 Katherine (Unknown):

I’ve also seen a huge increase in theft, vandalism, sexual assault, and violence just in the past couple of years. This is in a city that used to make the list in top places to live in the U.S. year after year.

#11 Doktryn (Richmond, California):

I live in Richmond California aka the city with the 2nd highest murder rate next to New Orleans, aka the city where the probability of you being killed is 5x higher. It is getting very serious out here, and luckily I don’t live in the rough part, however I go to the rough part to try to witness and preach. People are walking zombies. At any point their lives can be taken but the fact is, this is all they know. It is completely hopeless and when you wrote about “American Hellholes” I live in one. Richmond, CA is a post-industrial warzone. I work in the manufacturing industry, and I got here not long ago, but if you just drive through the city, the boarded up homes and abandoned warehouses tell the tale of how a deindustrialized city quickly turns to a battlefield.

#12 I Will Survive (Rural America):

In my area we have been able to sleep well enough and always known our neighbors – up until a few months ago I did not lock my cars or my home most of the time – there was no need. That has changed, neighbors are now siphoning gas out of cars from desperation, and stealing scrap lumber, metal, livestock, produce and anything else they can get their hands on to sell or eat. Over the last year or so the police departments of some areas have started taking these seriously and actually investigated and caught a few. They are sometimes groups of people working together to amass resources to sell. We now keep a vigilant eye on our little flock of chickens and we have a colony of rabbits as well. We no longer “free range” them on our property at all – the risk of theft is too high if others know we have them. We keep any resources away from the road on the back side of our property – we also keep two German Shepherd Dogs for guarding our property. Living in the country is NOT what it used to be.


Sadly, this is just the beginning.

This is just the tip of the iceberg.

As the economy collapses, the chaos is going to get a lot worse.

I wish that wasn't true, but this is the world we live in now.

The recent article I did about the "economic hell" that American families are going through right now got a huge response, but honestly what we are experiencing right now is not even worth comparing to how nightmarish things are going to be when our economic system fully collapses.

We have been on the biggest debt binge that the world has ever seen. Our debt-fueled prosperity has enabled us to enjoy an unprecedented standard of living. But the largest debt bubble in the history of the world is going to pop, and when it does the party is going to be over.

You better get ready.