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Video: Keiser Report: Suicide Vest of Borrowing (E818)

Check Keiser Report website for more: http://www.maxkeiser.com/ In this episode of the Keiser Report, Max Keiser and Stacy Herbert ask whether or not this...

The U.S. Government Is Borrowing About 8 Trillion Dollars A Year

Michael Snyder RINF Alternative News I know that headline sounds completely outrageous. But it is actually true. The U.S. government is borrowing about 8 trillion dollars...

UK borrowing £500m higher than 2012

UK govt. borrowing hits £12b in June, up £500m on last year UK government public sector borrowing has increased to £12.4 billion in June, up...

Local Law Enforcement Borrowing Federal Drones for Surveillance

Daily flight logs from Customs and Border Protection (CBP) obtained by the Electronic Frontier Foundation reveal that the federal department has been busy loaning...

Vince Cable calls for more borrowing

British Business Secretary Vince Cable has urged Chancellor George Osborne to change his economic course by borrowing more in order to stimulate growth in the economy.

Writing in the New Statesman, Cable criticized Osborne for sticking to his plans at current time of economic crisis and sluggish growth.

The Liberal Democrat called for extra borrowing and warned that the coalition’s resistance on the issue may no longer be the right approach.

He also said that the Chancellor’s deep cuts to capital spending have had adverse “economic consequences”.

“The IMF argued last May that the risk of losing market confidence as a result of a more relaxed approach to fiscal policy, particularly the financing of more capital investment by borrowing, may have diminished relative to the risk of public finances deteriorating as a consequence of continued lack of growth," he wrote.

The Chancellor, however, has so far rejected calls for a change in fiscal policy, arguing that abandoning the discipline of spending cuts and borrowing for growth “would not undermine the central objective of reducing the structural deficit.”

British Prime Minister David Cameron also dismissed Cable’s suggestions, saying that increasing government expenditure or cutting taxes would not help Britain’s struggling economy.

Earlier in February, credit ratings agency Moody’s downgraded the British government’s bond rating from the top AAA to AA1 due to Britain’s rising debt and slowing growth.

MOS/HE

11 black men jailed for killing under controversial 'guilty by association' law

Some of the young black men jailed for the killing of Abdul Hafidah under joint...

CNN Celebrates ‘Joy’ of McCain a Day After His Genocidal Threat

Professional truth-teller and self-appointed Russian counter-propagandist Jake Tapper had Arizona Sen. John McCain on his State of Union show (CNN, 9/10/17) for a chummy...

GOP Leaders Hate Trump

Donald Trump is president today because he was seen as a doer not a talker. Among the most common compliments paid him in 2016...

Congress approves $15.25bn natural disaster aid package & raises US debt ceiling

The US Senate has approved a $15.25 billion relief package for areas affected by hurricanes and...

Trump's New Venezuela Sanctions Will Do More Harm Than Good

The Trump administration announced new, unprecedented sanctions against Venezuela on Friday that are designed to cut off financing to Venezuela. The Trump team pretends...

Trump blames Congressional GOP leaders for debt ceiling ‘mess’

US President Donald Trump has chastised Republican leaders in Congress, implying that efforts to increase the...

10yrs after financial crisis, another crash is ‘almost inevitable,’ economist Steve Keen tells RT

Ten years on from the start of the global financial crisis, one of only a...

Canada’s Mining Industry, Foreign Policy and Neoliberalism in Africa

While few Canadians could find Zambia on a map, the Great White North has significant influence over the southern African nation. A big beneficiary of...

Illinois approves first budget in 2yrs as 'junk' credit status looms

Lawmakers approved the first full-year budget in Illinois since 2015, after overriding the governor’s veto of...

Illinois threatened with 'junk' credit rating scrambles to solve budget crisis

Published time: 3 Jul, 2017 21:08 Edited time: 3 Jul, 2017 21:08 Illinois lawmakers are rushing...
video

Video: Political Chameleon: Theresa May accused of stealing other parties’ ideas

UK Prime Minister is being blamed for borrowing ideas of her opponents. RT LIVE http://rt.com/on-air Subscribe to RT! Via Youtube

‘Deadly mess’: Ohio sues 5 pharma companies over opioid crisis

Ohio is suing five drug manufacturers for their role in causing the state’s unprecedented addictions crisis,...

The Rhetoric of Regime Change

by Kim Petersen and B.J. Sabri / May 21st, 2017 From the end of WWII until the present, the United States has been borrowing, inventing,...

Jeremy Corbyn’s Electoral Vision: Labour’s Leaked Manifesto

It is unfortunate that policies otherwise deemed middle of the road and social democratic tend to be seen in Britain as offspring of a...

Claims and counterclaims over ‘dark money’ trail leading from HSBC to the Tories

Accusations the Conservative Party received “dark money” to fund its election campaign from a struggling...

You Pay Your Fair Share. Shouldn’t Wall Street?

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Talking About My Generation–So We Don’t Have to Talk About the Rich

The main economic story of the last four decades is the massive upward redistribution of income that has taken place. The top 1 percent’s...

America Digs Its Own Afghan Grave

Afghanistan has long been called the “graveyard of empires,” the site of failed invasions. But the U.S. – in its...

The Fed's Interest Rate Hike Will Prevent People From Getting Jobs

(Photo: Greg Dunlap; Edited: LW / TO) This month the Federal Reserve Board raised interest rates for the third time in the last year and...

Treasury urges Congress to raise US debt limit to avoid default

Published time: 9 Mar, 2017 22:36Edited time: 10 Mar, 2017 11:06 The US national debt will reach...

Trump's Budget Draft Takes Axe to Low Income Housing Funds

Should the Trump administration's plan to slash 14 percent from the national housing budget come to fruition, people will indeed be "dying on the...

Budget predictions: Chancellor to keep purse strings tight in last pre-Brexit financial statement

Chancellor Philip Hammond is expected to keep the strings to the British state purse pretty...

Hammond expected to build up Brexit cushion in budget statement

Published time: 5 Mar, 2017 16:27 The incoming budget statement is expected to announce good news...

Confronting the Unprecedented Chaos of Trumpland, Fatherhood Edition

When I crack the newspaper on some future morning to find that Donald Trump has signed an executive order which offends the very fabric...

Brexit could give £8bn extra spending money to UK government – IFS

Britain could see a Brexit dividend of up to £8 billion (US$10 billion), the Institute for Fiscal Studies (IFS) has said. In its Green Budget,...

Britain in line for decade of austerity & highest tax burden in 30 years,...

As the UK faces another decade of austerity, Britain’s tax burden is to hit its...

A Timely Book for the Trump Era

Pivot to AsiaAmerica is no longer a superpower and every American election produces presidents with no idea where the problems lie: The reality is that...

MPs question Osborne’s meetings as chancellor with new employer BlackRock

Former Tory Chancellor George Osborne had five meetings with US financial giant BlackRock, for whom...

Canada’s Household Debt Crisis: Blame Capitalism!

Canadian capitalism is in crisis, with household debt reaching a record high 166.9 per cent of disposable income and about 208 per cent of...

The Reason the Fed is Raising Rates, and Why It Won’t Work 

Photo by DonkeyHotey | CC BY 2.0 Why is the Fed creating incentives for US corporations to destroy themselves? Why is the Fed pushing insurance...

Market Shock 2017

We are now approaching the final mania in markets. The Dow seems to be on its last swansong. Investors have been determined to take...

Will Obsolete Systems Be Replaced With The $1 Trillion Infrastructure Plan?

To stimulate the economy, create new jobs and generate new GDP requires an injection of new money. Borrowing from the bond markets or off-balance-sheet...

Why EU Must End in Tears

The latest consequence of economic mismanagement in Europe was the failed attempt at constitutional reform in Italy this week. The Italian people have had enough...

Autumn Statement exposes £122bn black hole in post-Brexit budget

Philip Hammond’s first Autumn Statement as Tory chancellor pointed to bleak times ahead, as cost...

Hammond’s first post-Brexit Autumn Statement points to bleak times ahead

Philip Hammond’s first Autumn Statement as Tory chancellor, and the first since the Brexit referendum,...

Our Gandalf the Grey

“Our movement is about replacing a failed and corrupt political establishment with a new government controlled by you, the American people. The establishment has...

Trump’s Awesome Opportunity

Come January, President-elect Donald Trump — the self-described “king of builders” — will be faced with a unique re-modeling opportunity that’s nearly exclusive to...

The system is rigged for another market crash

(RINF) - Since Donald Trump’s victory on election night we have seen the worst bond crash in 15 years.  Global bond investors have seen...

#NotMyPrince: ‘Anti-colonial’ Twitter campaign rejects Prince Harry’s Caribbean tour

Prince Harry is facing anti-monarchy protesters during his trip to the Caribbean, where the hashtag...

What Mises Would Say

Last week, Austria issued a 70-year bond, the longest dated sovereign in the Eurozone. (Italy had issued a 50-year bond on October 4.) Austria’s...

Tory deficit targets in tatters as leaked Treasury papers expose £16bn ‘black hole’

A leaked Treasury document reveals the government faces a black hole of up to £16...

Nuclear Annihilation

Twenty-five years is a long time to get back to where you started, but two-and-a-half decades after the collapse of the Soviet Union, it...

From Higher Education to Water Treatment, Financialization Is Harming Our Economy

An empty classroom at Junior High School 50 in Brooklyn in June 23, 2016. Public schools around the nation have all seen...

Prop. 51 Versus a State-Owned Bank: How California Can Save $10 Billion on...

(RINF) - School districts are notoriously short of funding – so short that some California districts have succumbed to Capital Appreciation Bonds that will cost...

Obama Re-imposes Neoliberalism in Latin America

President Obama’s chief “accomplishment” in Latin America was not restoring diplomatic ties to Cuba; it was his administration’s “regime change” strategy re-imposing...

Hammond praises Osborne’s economic legacy… then tears up Tory manifesto

Chancellor Philip Hammond sang the praises of his predecessor George Osborne at the Conservative Party...

Cutting immigration matters more to Brits than single market access, poll finds

British people don’t care about Europe’s single market as much as they care about keeping...

I’m a Bernie Sanders Voter: Here’s Why I’ll Vote Trump

By Eric Zuesse Sometimes, things in politics are the opposite of the way they seem. The Presidential contest between the ‘liberal’ Hillary Clinton’ and the...

The Looming Smash-Up of the World’s Economy

Ambrose Evans-Pritchard has written an article on a United Nations report on debt and default. He is a Keynesian. He worries about deflation. Deflation is...

Cost of US post-9/11 wars approaching $5trn – report

The US spent $4.79 trillion on wars in the Middle East and on the ‘War on...

‘Extremist’ children under 10 referred to UK de-radicalization programs daily

Efforts to stem Islamic and far-right extremism in the UK have led to children under the age of 10 being referred to government de-radicalization...

The Black Horse of the Apocalypse

Revelation 6:5 When the Lamb opened the third seal, I heard the third living creature say, “Come!” I looked, and there before me was...

China’s Pivot to World Markets, Washington’s Pivot to World Wars, and the Debacle...

China and the United States are moving in polar opposite directions: Beijing is rapidly becoming the center of overseas investments in high tech industries,...

Could Trump Hurt Both Parties?

Hillary Clinton, Queen of Chaos, Queen of War, Golden Goldman Girl, for all practical purposes, is now the official bipartisan candidate of US neocons...

Australian government faces “test” over Chinese bid for electricity grid

Via WSWS. This piece was reprinted by RINF Alternative News with permission or license. Mike Head A debate has broken out in Australia’s political and media...

Revealing the Real Rate of Inflation

The grim reality is that real inflation is 7+% per year. This week, I’ve noted that Consumer Prices Have Soared 160% Since 2001while under-the-radar declines...

Schoolboy questioned after teachers mistake his T-shirt for ISIS propaganda

An eight-year-old schoolboy was questioned by British authorities after his teachers mistook a slogan on his T-shirt for Islamic State propaganda. The child, from a...

Is Labour leadership challenger Owen Smith just copying Corbyn’s ideas?

Labour leadership hopeful Owen Smith is just borrowing policies that Jeremy Corbyn has already pledged...

The Effects of Government-Issued Money: Road to Hyperinflation or Cure for Debt Deflation?

Fifteen years after embarking on its largely ineffective quantitative easing program, Japan appears poised to try the form recommended by Ben Bernanke...

Japan’s “Helicopter Money” Play

Fifteen years after embarking on its largely ineffective quantitative easing program, Japan appears poised to try the form recommended by Ben Bernanke in his...

America Needs an Old-Fashioned Depression

Describing what he called the “crack-up boom”, Ludwig von Mises, the great Austrian economist, said: The boom cannot continue indefinitely. There are two alternatives. Either...

IMF Disavows Neoliberalism

The IMF finally acknowledged that neoliberalism’s boom-and-bust cycles stifle growth in developing countries. Pictured: IMF chief Christine Lagarde. (Photo: the Telegraph) According to the International...

Helicopter Money

The Cleveland Fed’s Loretta Mester is a clueless apparatchik and Fed lifer, who joined the system in 1985 fresh out of Barnard and Princeton and has imbibed in...

Pennsylvania approves $1.3bn bailout

Pennsylvania lawmakers have approved a financial bailout after a yearlong stalemate over the state’s beleaguered budget....

A Modest Proposal: An Irish AIPAC

Noting the remarkable success of the American Israel Public Affairs Committee in influencing U.S. government policies, Daniel C. Maguire offers...

Clinton superdelegate & long-time congressman found guilty on 22 counts in corruption trial

Representative Chaka Fattah, one of Hillary Clinton’s superdelegates, was found guilty on over 20 separate federal...

Congress, Obama call for a Financial Control Board for Puerto Rico

Via WSWS. This piece was reprinted by RINF Alternative News with permission or license. Rafael Azul On June 11, US President Barack Obama devoted his weekly...

The Five Stages of Central Bankers’ Failure

Central bankers must accept the complete and utter failure of their policies if we are to move forward. Central bankers are now in the denial...

On the News With Thom Hartmann: Los Angeles Is Considering Taxing Millionaires to Help...

In today's On the News segment: Los Angeles is considering taxing millionaires to help homeless people; global unemployment is expected to overtake...

We’re in the Eye of the Global Financial Hurricane

The only “growth” we’re experiencing are the financial cancers of systemic risk and financialization’s soaring wealth/income inequality. The Keynesian gods have failed, and as a...

Trump, Debt, and Money Printing

During a lengthy interview on CNBC the week before last, Donald Trump, fresh from becoming the presumptive Republican nominee, came as close as any major...

Saudi Crisis Deepens (Part 1)

Saudi oil resources are not inexhaustible. Pictured: King Salman. (Photo: AWD News) Perceptions can be very deceiving when it comes to Saudi Arabia, especially since...

47 Percent Of Americans Cannot Even Come Up With $400 To Cover An Emergency...

Michael Snyder (RINF) - If you had to make a sudden visit to the emergency room, would you have enough money to pay for it...

Don’t Know Much About Economy–but WaPo Likes Kasich Anyway

Washington Post portrayal of the “not apocalyptic” John Kasich. (photo: Chip Somodevilla/Getty) The Washington Post gave high marks to Ohio Governor John Kasich after he...

Taking on Predatory Payday Lenders in Florida

If you don't have a bank account -- and millions of American's don't -- how do you cash a check or pay...

Post-Brexit Britain will need open borders to stave off economic turmoil – report

Britain will need to allow in large numbers of migrants from the European Union every...

NYT Promotes Study by Private Pension Company That Says Not to Trust Public Pensions

“Bankruptcy,” declares a New York Times photo. (photo: Joshua Lott/Reuters) Reputable newspapers try to avoid the self-serving studies that industry groups put out to try...

Tory cuts may be killing pensioners, Oxford study suggests

Conservative government cuts are killing vulnerable and poor elderly people, a new study has found,...

The Financial System Is A Larger Threat Than Terrorism

Paul Craig Roberts (RINF) - In the 21st century Americans have been distracted by the hyper-expensive “war on terror.” Trillions of dollars have been added...

Behind the Facade: America, The Bankrupt Hegemon

Fantasy and fairy tales can go only so far when it comes to the true condition of anything or anyone. Sooner or later the...

Donald Trump Is Right – Here Are 100 Reasons Why We Need To Audit...

Michael Snyder (RINF) - When one of our major politicians gets something exactly right, we should applaud them for it.  In this case, Donald Trump’s...

Portuguese government prepares second austerity package

Paul Mitchell Less than three months after it came to power with the support of the Left Bloc (BE) and Communist Party (PCP), the Portuguese...

The State of Our Economy: What It Needs vs. What Washington Is Willing to...

The economy is likely to continue to grow at a weak pace in 2016, just as it did in 2015 and 2014. (Photo: US...

The Trouble with For-Profit Healthcare: Even the Insured Face Mountains of Debt

New data outlines 'wide range of consequences and sacrifices' made by insured Americans who face burdensome medical bills by Deirdre Fulton For one in five Americans, just...

America’s Vampire Aristocracy

Eric Zuesse On January 2nd, America’s NBC News bannered “Arab Spring Cleric Nimr al-Nimr Among 47 Executed by Saudi Arabia,” and, one-third of the way...

The Federal Reserve Board and the Presidential Candidates

Some of the folks watching the Republican presidential debates were struck by the fact that Donald Trump was apparently unfamiliar with the concept of...

An End to the Right’s Reign In Spain?

Spain’s woes began with the American banking crisis of 2007-08, which crashed Spain’s vast real estate bubble and threatened to bring down its financial...

Portugal: The Left Takes Charge

Portugal is the victim of the great 2008 international banking crisis, which saw speculators drove up the price of borrowing beyond what the country’s...

Britain’s Government Sponsored National Housing Ponzi Scheme

When it comes to housing policy in the UK, the Conservatives are a one-trick pony. They have form. It is designed around dividing the...

No Payoff for Netanyahu

Israeli Prime Minister Benjamin Netanyahu came to Washington to collect his payoff for being disgruntled over the agreement limiting Iran’s nuclear program, which was signed by...

We Have Never Seen Global Trade Collapse This Dramatically Outside Of A Major Recession

By Michael Snyder (RINF) - If you have been watching for the next major global economic downturn, you...

The U.S. Government Is Spending 400,000 Dollars On A Single Helmet

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Economist Magazine Cover Foreshadows A False Flag Event That Will Happen In November?

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Monsanto’s ‘Hand of God’: Planned Obsolescence of the Indian Farmer 

The mantra of global agribusiness companies is that they care about farmers. They also really care about humanity and want to help to feed...

Greece Implodes

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In The Month Of September 2015 We Officially Enter The Danger Zone

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Bernie Sanders versus Obama & the Clintons: The Big Difference

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The Fed Is Bluffing About a 2015 Rate Hike

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Americans Have $11.85 Trillion in Household Debt. How Did We Get Here?

Household debt is now $11.85 trillion, and it has more to do with stagnant wages than unnecessary spending. In past decades, the more the...

Poll that suggests majority of UK voters back austerity rubbished by economists

Economists have dismissed the findings of a poll that suggests a majority of British voters continue to back austerity as ideologically framed tripe. They...

‘Puerto Rico Is an Artificial Economy’ – CounterSpin interview with Ed Morales on Puerto...

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Most of the World’s Banks

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UK Conservative budget heralds ever deeper austerity

Via WSWS. This piece was reprinted by RINF Alternative News with permission or license. By Julie Hyland Conservative Chancellor George Osborne unveiled his second budget in four...

Can Greece and EU Make Amends?

Exclusive: The after-shocks from the Wall Street crash of 2007-08 continue to rattle international stability, with Greece now rejecting never-ending demands for more belt-tightening...

Chicago teachers’ union blocks fight against layoffs, offers to impose pay freeze

Via WSWS. This piece was reprinted by RINF Alternative News with permission or license. By Kristina Betinis The contract covering about 28,000 teachers and paraprofessionals in the...

2 Things That Are Happening Right Now That Have Never Happened Outside Of A...

By Michael Snyder (RINF) - If we are not heading into a recession, why does our economy continue to act as if that is precisely...

Is The Stock Market Overvalued?

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Greece edges towards collapse as troika demands new austerity plan

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The Debt To GDP Ratio For The Entire World: 286 Percent

Did you know that there is more than $28,000 of debt for every man, woman and child on the entire planet?  And since close to 3 billion of those people survive on less than 2 dollars a day, your share of that debt is going to be much larger than that.  If we took everything [...]

The post The Debt To GDP Ratio For The Entire World: 286 Percent appeared first on The Economic Collapse.

The 90,000 Square Foot, 100 Million Dollar Home That Is A Metaphor For America

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Bank of England overstated March UK debt sales to overseas investors by 200%

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Politics, Financial Fraud and the “Big Three” Credit Ratings Agencies

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Another Ponzi Roll Over of US Treasury Debt

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How to Protect Public Revenues From the Next Meltdown

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Can Malaysia withstand the next financial crisis?

As developed economies of the world still continue their struggle to recover from the global financial crisis in 2008, the lack of confidence in global economic stability has placed greater demand on emerging markets to cushion themselves for the next crash. While woefully unsustainable debt levels deepen and weak regulatory oversight persist, the lack of tangible reforms creates an imperative for countries like Malaysia to stay ahead of the curve.

This was the theme of the Perdana Leadership Foundation’s sixth CEO Forum held in Kuala Lumpur last week, where more than thirty panelists analyzed the shaky state of the global economy and offered insights into Malaysia’s strengths and vulnerabilities, as well as the country’s susceptibility to external economic turbulence. In addition to market-related vulnerabilities, panelists also identified inter-religious anxieties between communities as factors that could put national unity and political stability at risk. 

Tan Sri Dato’ Dr. Lin See Yan, a trustee of the Tan Sri Jeffrey Cheah Foundation, identified how high fences built to withstand economic shocks and de-risk the financial system are seldom designed for all possibilities. He branded the European Union as the weakest link in the global financial system, noting that the bloc’s debt problems kept growing, austerity has proven to be counter productive, the euro currency remains overvalued, and the European Central Bank (ECB) has stagnated in the midst of its bond-buying strategy.

Lin also noted the possibility of another crisis originating from within the United States due to vulnerabilities posed by the country’s ballooning $17 trillion debt levels, the growing housing bubble, and the persistence of trading high-risk financial products backed by complex securitizations. He also raised concerns over recent data on the Chinese economy, which has shown a decline in fixed asset investments, raising speculation about whether or not the Chinese authorities would introduce a stimulus package. 

Tan Sri Azman Yahya, executive chairman of Symphony Life, believes that growth in China will continue to be on the upswing despite concerns of deceleration, even without significant investment, by virtue of Beijing’s prudent economic reforms. China has already announced at the recent G20 meeting of finance ministers that it will not make major policy adjustments in the form of stimulus despite slightly lower growth indicators. Reforms will be prioritized to stabilize employment and contain systemic risks such as widespread default. 

High government deficits, unprecedented government and private sector debt levels, and low household savings are deeply worrying trends in mature economies, according to Yahya, who claims that eventual tapering by the US Federal Reserve to cease quantitative easing (QE) measures could trigger a loss of confidence in the US dollar, causing an offloading and crash of US securities capable of tanking global markets. 

Yahya identified the risks posed by the lack of tangible financial sector reforms, the unsustainable US debt bubble, the growing loss of confidence in the US dollar, and surmised that the next crisis may strike within five years. He identified the high growth levels of Asia-Pacific countries as a buffer to crises emanating from stagnate western economies, noting how China’s middle class is set to expand to one billion by 2025, while growth will be increasingly be powered by consumption. 

Panelists at the forum generally agreed that the Asia-Pacific region is in a far healthier state today in comparison to the 1997 crisis, as China’s growth strategy moves away from the investment-driven template to more sustainable consumption-led expansion. Countries in the ASEAN region are also cooperating at higher levels. Analysts agree that Malaysia has proven to be fairly resilient and adept at crisis management, as it managed to navigate through treacherous economic periods while retaining consistently healthy growth levels over the past two decades. 

The country defied the IMF’s economic orthodoxy and introduced capital control measures during the 1997 Asian financial crisis to counter the short selling of the Malaysian ringgit by currency speculators, which triggered dramatic depreciation and rapid falls in stock market capitalization. Malaysia recovered faster than its neighbors and consolidated its banking system, putting buffers in place by introducing broader market regulations and strengthening banks to withstand shocks. 

During the global financial crisis in 2008, triggered by the bursting of the US housing bubble and the subsequent collapse of large financial institutions trading toxic mortgage-related financial products, the country found itself better prepared. The way the crisis struck in 1997 took Malaysian policymakers totally off guard. The country’s economy was highly stable and experiencing growth at 8 percent; loans were being repeatedly prepaid and Malaysia was stepping in rescue Thailand after attacks on the baht.

The current scenario also demands that countries expect the unexpected. The general consensus among panelists the Perdana forum was that a new financial crisis could present itself at some point within the next eighteen months to five years, with the potential for several mini-crises to bubble up and trigger recessionary depression. It is nearly impossible to accurately pinpoint when the next crisis will hit, but there are numerous flashpoints to consider.

In addition to vulnerabilities stemming from uncontrolled derivative trading and speculative hot money flows, debt and bubbles loom. During the 2008 crisis, insolvent private banks and lending institutions were deemed too-big-to-fail, but today, central banks are on the road to inheriting that status. Debt levels have ballooned to unprecedented levels driven by QE and low interest rates. Stagnate wages and easy credit has goaded consumers to keep borrowing to maintain consumption.

Both the United States and the United Kingdom are experiencing high unemployment levels and dramatic income inequality, giving rise to greater levels of social unrest while the stock markets of both countries have performed above par – surpassing the highs of pre-crisis levels. The sharp ascent of share prices, which has been heralded as proof of an economic recovery, does not correlate with rising activity in the productive economy or with per capita income.

The distinguished economist Ha-Joon Chang has referred to these developments as ‘the biggest stock market bubble in modern history.’ It is clear that share prices do not reflect real economic activity. The core of the problem is that successive rounds of QE have increased liquidity rates and fuelled asset bubbles rather than being channeled into productive assets.

Panelists addressed how many of the new jobs being created in mature economies are low-wage positions that offer little career mobility. The broad appeal of protest campaigns organized by fast-food workers to demand a living wage is a testament to the strains on ordinary people who are unable to meet the cost of living. Americans are pessimistic about their nation’s economic recovery policies because many find themselves facing more trying domestic circumstances.

Tun Dr. Mahathir Mohamad attended the Perdana forum to give the closing keynote address, where he likened the implementation of solutions to avert economic crises to a medical doctor treating a patient, stressing the need to understand the systemic contradictions of the global financial system. Dr. Mahathir denounced fractional reserve banking practices, which result in banks lending far greater amounts of money than they actually possess in cash reserves, and the leveraging practices taken advantage of by currency speculators and hedge funds.

The former Malaysian prime minister accused Europe and the US of being in a state of denial as to how markets are manipulated, primarily because the political classes themselves benefit from speculation. Dr. Mahathir believes that the role of the financial sector is overemphasized in national economies and advised greater market regulation. Governments must be ready to step in to limit the abuses of the banking system, according to Mahathir, who characterized the inherent inequality of the modern age as one where 99 percent of people are beholden to the ultra-wealthy 1 percent, citing the slogan popularized by the Occupy Wall Street protest movement.

Mass protest movements demanding accountability from Wall Street have remained potent because the underlying conditions that generated the crisis have not been addressed in any meaningful way. Instead of steering monetary policies in a sensible direction and broadening regulatory oversight to identify risky financial products and prevent predatory speculation, the banking lobby has strong-armed western politicians into accepting a growth model where short-term profits for the few take precedence over long-term investments in productive assets for the many.

Elsewhere in the world, the economic power and political autonomy of BRICS countries and their plans to establish a development bank to finance infrastructure growth throughout the developing world offers a far more sustainable investment model. To offset the risks of future crises, it is imperative to find the political courage to reduce the importance of the non-productive financial sector in national economies in favor of investments into productive assets that create infrastructure and job opportunities.

Panelists at the Perdana forum argued that even if measures are taken to bolster productive assets, financial and economic crises may strike in unexpected ways: resulting from cyber threat vulnerabilities, sudden geopolitical instability, conflicts over resources and the pricing of resources, and complications that can result from the use of non-traditional currencies.

Malaysia is considered a safe investment destination due to its political stability and imperviousness to natural disasters; the country’s competent young workforce is eager to enter innovative service sector positions, a major asset in contrast to other Asian countries struggling to maintain population growth. To meet the present development aspirations, it is necessary for the country to protect against both external and internal crises.

The Malaysian leadership faces a difficult balancing act on all fronts. It must do more to improve inter-communal harmony without rolling back civil liberties. Despite the country’s strong performance legitimacy, trust and confidence in the government and the integrity of institutions remains low due to endemic corruption. There is a need for a comprehensive social safety net system to address rising income inequality on a needs-basis.

Simultaneously, economic circumstances demand that developing countries remove energy and social subsidies in order to increase efficiency and become a more attractive destination for capital. Navigating through the crises ahead will require bold leadership. Malaysia will be in a better position to withstand turbulence if it takes meaningful steps to reduce income disparities and pursues inclusive social policies that will restore grassroots trust in the leadership.

This article appeared in the September 29, 2014 print edition of The Malaysian Reserve newspaper.

Nile Bowie is an independent journalist and political analyst based in Kuala Lumpur, Malaysia. His articles have appeared in numerous international publications, including regular columns with Russia Today (RT) and newspapers such as the Global Times, the Malaysian Reserve and the New Straits Times. He is a research assistant with the International Movement for a Just World (JUST), a Malaysian NGO promoting social justice and anti-hegemony politics. He can be reached at [email protected].

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Historic Sino/Russian Trade Deal Signed

Historic Sino/Russian Trade Deal Signed

by Stephen Lendman

New York Times editors ate crow. They did so without admitting it. Hours earlier they approved copy headlining "China and Russia Fail to Reach Deal on Gas Plan."

It was when Russian officials said it was 98% complete. Finalizing it looked imminent. On May 21, it was signed, sealed and delivered as promised.

A follow-up Times article was was woefully dishonest. It suppressed what readers need to know. 

It headlined "China and Russia Are Said to Reach Major Gas Deal."

Close to reaching it should have been reported the previous day. Times editors tolerate no favorable Sino/Russian reports.

Its correspondents write as ordered. Doing so features misinformation rubbish. Vital truths are buried. It's longstanding editorial policy.

On May 21, The Times falsely claimed "it was not immediately clear if the accord was an actual contract with details of prices and terms, or if it was a memorandum of understanding that would signal the need for further negotiations."

Itar Tass claimed otherwise. It reported facts, not fiction. It said:

"Russia's Gazprom and China's CNPC have stricken a deal on natural gas supplies to China." 

"The document has been signed in the presence of Russian President Vladimir Putin and Chinese leader Xi Jinping."

"Gazprom CEO Alexei Miller reported that the contract has been concluded for $400 billion for 30 years."

"In the gas contract for China, the sides envisaged granting preferential mineral extraction tax regimes, said Gazprom CEO."

Xinhau confirmed Itar Tass' report. It headlined "China, Russia ink long-awaited gas deal," saying:

It's finalized. "China and Russia on Wednesday inked the long-awaited gas deal in Shanghai, ending the decade-long natural gas supply talks between the two neighbors."

Official documents "were signed at a ceremony attended by Chinese President Xi Jinping and Russian President Vladimir Putin."

"The deal...fully embodied the principle of mutual trust and mutual benefit of China and Russia…"

It "accelerate(s) the economic and social development in Russia's far east region, and also diversify the export of the major oil and natural gas exporter."

Both countries established "a comprehensive energy cooperation partnership." They pledged stronger economic and financial ties.

They're natural partners. They promised wide-ranging cooperation. They'll increasingly trade in their own currencies. 

They'll bypass dollar transactions. They'll weaken it in the process. Other countries are doing the same thing. More on this below.

The Moscow Times headlined "China and Russia Sign Gazprom Supply Agreement," saying:

They "signed a long-awaited natural gas supply deal on Wednesday…(It) secur(es) the world's top energy user a major new source of the clean-burning fuel and open(s) a market to Moscow as Europeans look elsewhere for their energy."

The deal "represents a major (Putin) triumph as he seeks to forge new partnerships in Asia while customers in Europe attempt to reduce their reliance on Russian gas in the wake of the crisis in Ukraine." 

RT International headlined "Russia and China seal historic $400 gas deal."

"Ten years of talks ended positively. Both countries "signed a historic gas deal…(It'll) provide the world's fastest growing economy with the natural gas it needs to keep pace for the next 30 years."

It's the largest Gazprom deal ever. No other contractual arrangement approaches it. No other bilateral one anywhere.

Potentially it could nearly double in size. It depends on China's future needs.

Voice of Russia headlined "Russia, China sign contract on gas supplies worth $400 bln over 30 years."

Agreement was finalized at 4:00AM Wednesday Shanghai time. "All the fundamental issues were resolved."

Sino/Russian ties stress unity. They're stronger than ever in modern times. They're deepening. They expanding.

Gazprom and related trade deals strengthen them.

Russia will supply China with around 38 billion cubic million meters of natural gas annually. For the next 30 years.

It bears repeating. It may nearly double in size ahead. Depending on China's internal needs.


(1) Russia's Energy Minister Alexander Novak and China's National Energy Administration director Wu Xinxiong signed a Memorandum of Understanding on delivering Russian gas to China.

(2) Gazprom CEO Alexei Miller and China National Petroleum Corporation head Zhou Jiping signed a "purchase and sale contract" to supply China's needs for the next 30 years.

Putin said implementation begins on May 22. Doing so "makes it possible to begin the next project with our Chinese partners, namely to begin working on the Western supply route."

He referred to supplying gas from Western Siberian resources. 

Secondly, he said, it's "possible for us to realize our plans to develop Russia's gas industry by connecting the Eastern and Western parts of extraction with the appropriate infrastructure."

"If need be, supplies can be diversified from the West to the East and from the East to the West."

Other increased trade deals were agreed on. In technological, industrial, and commercial sectors. In military hardware. 

Growing Sino/Russian trade lessens reliance on increasingly undependable Western sources. It gives them less access to Eastern markets.

The President of Russia's web site headlined "Vladimir Putin and President Xi Jinping witnesses the signing of agreements on gas supplies from Russia to China via the Eastern Route.

Putin and Xi Jinping "signed a Joint Declaration of the Russian Federation and the People’s Republic of China on the new stage of comprehensive partnership and strategic cooperation between the two countries."

They "witnessed the signing of a package of intergovernmental, interdepartmental and commercial documents on cooperation in the economy, trade, energy and the humanitarian areas."

They issued a joint statement. "(A)mbitious goals" were agreed on, it said. "(L)ong-term milestones" were established.

"(I)mportant bilateral documents" were signed. "Relations between Russia and the People’s Republic of China are developing successfully and have reached a new level of comprehensive partnership and strategic cooperation," it stressed.

"(S)pecial attention (was on) economic issues. China is Russia's leading foreign trade partner."

A Sino/Russian Investment Committee was established. Its mandate is expanding economic and financial ties.

It's "diversifying trade." It's "reducing…dependence on global economic" conditions.

It's promoting cooperation in "technology-intensive areas." They include industrial, commercial, banking and military areas.

They're increasing bilateral ruble/renminbi trade. It bears repeating. Doing so bypasses dollar transactions. It weakens dollar strength.

Economist John Williams sees its reserve currency days ending. "I don't see what will save it at this point," he said.

"Now we are to the point that the dollar has been ignored for years."  

"The federal deficit has been ignored for years. That's where we are on the brink of disaster with, and that is what has to be addressed now, and that's not happening."  

"The way I see it, the dollar could go to zero in terms of its purchasing power."  

"You don’t want to have your assets in US dollars."

Williams sees continuing US decline. Economic conditions are much weaker than reported, he said.

Inflation-adjusted growth is way overstated. Official government data is fabricated. Consumers are "strapped." 

"Median household income, net of inflation, is as low as it was in 1967."  

"The average guy is not staying ahead of inflation. For decades, you could get consumption from the future by borrowing more money and expanding your debt."  

"That all blew apart in 2007 and 2008. Now, you don't have the ability to borrow money the way you used to, and without that, there is no way consumption can grow faster than the rate of inflation." 

"There is no way you can have positive sustainable growth in the economy without the consumer being healthy."  

"It's just not going to happen." Another plunge is coming, said Williams. Exponentially rising debt is out-of-control.

America's solvency is threatened. Global markets are concerned. US economic conditions are weak. They're heading south.

Doing so harms dollar strength. So does money printing madness. "As the renewed downturn gains wider acceptance or wider recognition, that will intensify the selling pressure," Williams believes.

"When someone starts selling, it’s going to be a race for the door, and I am looking for a dollar selling panic to be the trigger for the onset of hyperinflation," he said.

He sees US deficits exploding. "It's going to do bad things to the banking system," he added.

"The Fed is going to have to come in and prop up the system until it falls apart."

It remains to be seen if he's right. Billions worldwide hope so. US imperial wars require massive funding.

Inability to do so prevents them. Peace may replace permanent conflicts. Perhaps when most needed. 

Perhaps in time to prevent disaster. The fullness of time will tell.

Stephen Lendman lives in Chicago. He can be reached at [email protected] 

His new book as editor and contributor is titled "Flashpoint in Ukraine: US Drive for Hegemony Risks WW III."


Visit his blog site at sjlendman.blogspot.com. 

Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network.

It airs three times weekly: live on Sundays at 1PM Central time plus two prerecorded archived programs. 


http://www.progressiveradionetwork.com/the-progressive-news-hour 

More on the Belgium Treasury Purchase

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Are Private Banks Unconstitutional?

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Are Public Banks Unconstitutional? No. Are Private Banks? Maybe.

The movement to break away from Wall Street and form publicly-owned banks continues to gain momentum. But enthusiasts are deterred by claims that a state-owned bank would violate constitutional prohibitions against “lending the credit of the state.”

California’s constitution is typical. It states in Section 17: “The State shall not in any manner loan its credit, nor shall it subscribe to, or be interested in the stock of any company, association, or corporation . . . .”

The language sounds prohibitive, but what does it mean? Hundreds of state and local government entities extend the credit of the state. State agencies make student loans, small business loans, and farm loans. State infrastructure banks explicitly leverage the credit of the state. Legally, state and local governments are extending their credit to private banks every time they deposit their revenues in those banks. When money is deposited, it becomes the property of the bank by law. The depositor becomes a creditor with an IOU or promise to be repaid. The state or local government has thus lent its money to the bank.

How can these blatant extensions of the state’s credit be reconciled with the constitutional prohibitions against the practice?

North Dakota’s constitution has particularly strong language. Article 10, Section 18, provides:

The state, any county or city may make internal improvements and may engage in any industry, enterprise or business, not prohibited by article XX of the constitution, but neither the state nor any political subdivision thereof shall otherwise loan or give its credit or make donations to or in aid of any individual, association or corporation except for reasonable support of the poor, nor subscribe to or become the owner of capital stock in any association or corporation.

Yet this prohibition has not prevented the state from establishing its own bank. Currently the nation’s only state-owned depository bank, the Bank of North Dakota has been a stellar success and has been going strong ever since 1919. In Green vs. Frazier, 253 U.S. 233 (1920), the US Supreme Court upheld the bank’s constitutionality against a Fourteenth Amendment challenge and deferred to the state court on the state constitutional issues, which had been decided in the state’s favor.

In the nineteenth century, Mississippi, Arkansas, Florida, Kentucky, and Indiana all had their own state-owned banks. Some were extremely successful (Indiana had a monopoly state-owned bank). These banks, too, withstood constitutional challenge at the US Supreme Court level.

Were the prohibitions against “lending the credit of the state” simply ignored in these cases? Or might that language have meant something else?

The Constitutional Ban on “Bills of Credit”: Colonial Paper Money

Constitutional provisions against lending the state’s credit go back to the mid-nineteenth century. California’s is in its original constitution, dated 1849. There was then no national currency, and the National Bank Act had not yet been passed.

Several decades earlier, the states had been colonies that issued their own currencies in the form of paper scrip. Typically called “bills of credit”, these paper bills literally involved the extension of the colony’s credit. They were credit vouchers used by the colony to pay for goods and services, which were good in trade for an equivalent sum in goods or services in the marketplace.

Prior to the constitutional convention in the summer of 1787, the colonies exercised their own sovereign power over monetary matters, including issuing their own paper money. After the collapse of the Continental currency during the Revolutionary War, largely due to counterfeiting by the British, the framers were so afraid of paper money that they expressly took that power away from the colonies-turned-states, and they failed to expressly give it even to the federal government. Article I, Section 10, of the U.S. Constitution provides:

No State shall . . . coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; . . . .

Congress was given the power “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.” But language authorizing Congress to “emit Bills of Credit” was struck out after much debate.

The Supreme Court ruled in the Legal Tender Cases after the Civil War that the power to coin money implied the power to print money under the Necessary and Proper Clause, legitimizing the Greenbacks issued by President Lincoln. But in 1850, no state government had the power to extend its own credit in the form of bills of credit or paper money, and whether the federal government had that power was a subject of debate.

However, the expanding economy needed a source of freely-expandable currency and credit, and when local governments could not provide it, private banks filled the void. They issued their own “bank notes” equal to many times their gold holdings, effectively running their own private printing presses.

Was that constitutional? No. The Constitution nowhere gives private banks the power to create the national money supply – and today, private banks are where virtually all of our circulating money supply comes from. Congress ostensibly delegated its authority to issue money to the Federal Reserve in 1913; but it did not delegate that authority to private banks, which have only recently admitted that they do not lend their depositors’ money but actually create new money on their books when they make loans. In the Bank of England’s latest Quarterly Bulletin, it states:

Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

This broad exercise of the money power by private banks is nowhere to be found in our federal or state constitutions, but courts have managed to get around that wrinkle. In Constitutional Law in the United States, Emlin McClain summarizes the case law like this:

A state cannot, even for the purpose of borrowing money, exercise the sovereign power of emitting paper currency (Craig v. Missouri). But this prohibition does not interfere with the power of a state to authorize banks to issue bank notes in the form of due-bills or of similar character, intended to pass as currency on the faith and credit of the bank itself, and not of the state which authorizes their issuance.

The anomalous result is that state-chartered banks are able to issue credit that passes as currency, while state governments are not. But so the cases hold, and they apply to public banks as well as private banks.

Public Banks Held Constitutional

John Thom Holdsworth wrote in Money and Banking (1937) that in the mid-nineteenth century, “several of the states established banks owned entirely or in part by the state. There was some question as to the right of these state institutions to issue circulating notes, but the Supreme Court held that such notes were not ‘bills of credit’ within the meaning of the constitutional prohibition.”

In Briscoe v. Bank of Kentucky, 36 U.S. 257 (1837), the Court observed that the charter of the challenged Kentucky state bank contained “no pledge of the faith of the state for the notes issued by the institution. The capital only was liable; and the bank was suable, and could sue.” The Court “upheld the issuance of circulating notes by a state-chartered bank even when the Bank’s stock, funds, and profits belonged to the state, and where the officers and directors were appointed by the state legislature.”

The Court narrowly defined the sort of “bill of credit” prohibited by Article 1, Section 10, as a note issued by the state, on the faith of the state, designed to circulate as money. Since the notes in question were redeemable by the bank and not by the state itself, they were not “bills of credit” for constitutional purposes. The Court found that the notes were backed by the resources of the bank rather than the credit of the state. Moreover, the bank could sue and be sued separate from the state.

These cases are still good law. A state bank – or city bank or county bank – is not in violation of state constitutional prohibitions against lending the credit of the state.

Other Ways to Avoid Constitutional Challenge

In light of those Supreme Court cases, it hardly seems necessary for a city to become a chartered city before establishing its own publicly-owned bank; but that is another way to circumvent this debate. The California Constitution gives cities the power to become charter cities; and while General Law Cities are bound by the state constitution, cities organized under a charter have broad autonomy. They can bypass large swaths of state law, including asserting their independence from the state’s supposed restrictions on lending.

For county-owned banks, the case is not as clear. In California, Government Code 23005 forbids counties from giving their “credit to or in aid of any person or corporation. An indebtedness or liability incurred contrary to this chapter is void.” But the US Supreme Court rulings validating state banks should be equally applicable to county banks; and in any case, enabling legislation can be crafted to allow public banks at any level of government.

There is another way to bypass this whole legal debate: by pursuing the initiative and referendum process pioneered in California. It allows state laws to be proposed directly by the public, and the state’s Constitution to be amended either by public petition (the “initiative”) or by the legislature with a proposed constitutional amendment to the electorate (the “referendum”). In California, the initiative is done by writing a proposed constitutional amendment or statute as a petition, which is submitted to the Attorney General along with a modest submission fee. The petition must be signed by registered voters amounting to 8% (for a constitutional amendment) or 5% (for a statute) of the number of people who voted in the most recent election for governor.

Before sufficient signatures could be collected, a widespread educational campaign would need to be mounted; but just informing the public on this little-understood subject could be worth the effort. Recall the words of Henry Ford:

It is well enough that the 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.

When enough people understand that private banks rather than governments create our money supply, imposing interest and fees that constitute an enormous unnecessary drain on the economy and the people, we might wake up to a new day in banking, finance, and the return of local economic sovereignty.

______________________________

Ellen Brown is an attorney, founder of the Public Banking Institute, and a candidate for California State Treasurer running on a state bank platform. She is the author of twelve books, including the best-selling Web of Debt and her latest book, The Public Bank Solution, which explores successful public banking models historically and globally.

 

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How to Shrink Inequality

Some inequality of income and wealth is inevitable, if not necessary. If an economy is to function well, people need incentives to work hard and innovate.

The pertinent question is not whether income and wealth inequality is good or bad. It is at what point do these inequalities become so great as to pose a serious threat to our economy, our ideal of equal opportunity and our democracy.

We are near or have already reached that tipping point. As French economist Thomas Piketty shows beyond doubt in his “Capital in the Twenty-First Century,” we are heading back to levels of inequality not seen since the Gilded Age of the late 19th century. The dysfunctions of our economy and politics are not self-correcting when it comes to inequality.

But a return to the Gilded Age is not inevitable. It is incumbent on us to dedicate ourselves to reversing this diabolical trend. But in order to reform the system, we need a political movement for shared prosperity.

Herewith a short summary of what has happened, how it threatens the foundations of our society, why it has happened, and what we must do to reverse it.

What has Happened

The data on widening inequality are remarkably and disturbingly clear. The Congressional Budget Office has found that between 1979 and 2007, the onset of the Great Recession, the gap in income—after federal taxes and transfer payments—more than tripled between the top 1 percent of the population and everyone else. The after-tax, after-transfer income of the top 1 percent increased by 275 percent, while it increased less than 40 percent for the middle three quintiles of the population and only 18 percent for the bottom quintile.

The gap has continued to widen in the recovery. According to the Census Bureau, median family and median household incomes have been falling, adjusted for inflation; while according to the data gathered by my colleague Emmanuel Saez, the income of the wealthiest 1 percent has soared by 31 percent. In fact, Saez has calculated that 95 percent of all economic gains since the recovery began have gone to the top 1 percent.

Wealth has become even more concentrated than income. An April 2013 Pew Research Center report found that from 2009 to 2011, “the mean net worth of households in the upper 7 percent of wealth distribution rose by an estimated 28 percent, while the mean net worth of households in the lower 93 percent dropped by 4 percent.”

Why It Threatens Our Society

This trend is now threatening the three foundation stones of our society: our economy, our ideal of equal opportunity and our democracy.

The economy. In the United States, consumer spending accounts for approximately 70 percent of economic activity. If consumers don’t have adequate purchasing power, businesses have no incentive to expand or hire additional workers. Because the rich spend a smaller proportion of their incomes than the middle class and the poor, it stands to reason that as a larger and larger share of the nation’s total income goes to the top, consumer demand is dampened. If the middle class is forced to borrow in order to maintain its standard of living, that dampening may come suddenly—when debt bubbles burst.

Consider that the two peak years of inequality over the past century—when the top 1 percent garnered more than 23 percent of total income—were 1928 and 2007. Each of these periods was preceded by substantial increases in borrowing, which ended notoriously in the Great Crash of 1929 and the near-meltdown of 2008.

The anemic recovery we are now experiencing is directly related to the decline in median household incomes after 2009, coupled with the inability or unwillingness of consumers to take on additional debt and of banks to finance that debt—wisely, given the damage wrought by the bursting debt bubble. We cannot have a growing economy without a growing and buoyant middle class. We cannot have a growing middle class if almost all of the economic gains go to the top 1 percent.

Equal opportunity. Widening inequality also challenges the nation’s core ideal of equal opportunity, because it hampers upward mobility. High inequality correlates with low upward mobility. Studies are not conclusive because the speed of upward mobility is difficult to measure.

But even under the unrealistic assumption that its velocity is no different today than it was thirty years ago—that someone born into a poor or lower-middle-class family today can move upward at the same rate as three decades ago—widening inequality still hampers upward mobility. That’s simply because the ladder is far longer now. The distance between its bottom and top rungs, and between every rung along the way, is far greater. Anyone ascending it at the same speed as before will necessarily make less progress upward.

In addition, when the middle class is in decline and median household incomes are dropping, there are fewer possibilities for upward mobility. A stressed middle class is also less willing to share the ladder of opportunity with those below it. For this reason, the issue of widening inequality cannot be separated from the problems of poverty and diminishing opportunities for those near the bottom. They are one and the same.

Democracy. The connection between widening inequality and the undermining of democracy has long been understood. As former Supreme Court Justice Louis Brandeis is famously alleged to have said in the early years of the last century, an era when robber barons dumped sacks of money on legislators’ desks, “We may have a democracy, or we may have great wealth concentrated in the hands of a few, but we cannot have both.”

As income and wealth flow upward, political power follows. Money flowing to political campaigns, lobbyists, think tanks, “expert” witnesses and media campaigns buys disproportionate influence. With all that money, no legislative bulwark can be high enough or strong enough to protect the democratic process.

The threat to our democracy also comes from the polarization that accompanies high levels of inequality. Partisanship—measured by some political scientists as the distance between median Republican and Democratic roll-call votes on key economic issues—almost directly tracks with the level of inequality. It reached high levels in the first decades of the twentieth century when inequality soared, and has reached similar levels in recent years.

When large numbers of Americans are working harder than ever but getting nowhere, and see most of the economic gains going to a small group at the top, they suspect the game is rigged. Some of these people can be persuaded that the culprit is big government; others, that the blame falls on the wealthy and big corporations. The result is fierce partisanship, fueled by anti-establishment populism on both the right and the left of the political spectrum.

Why It Has Happened

Between the end of World War II and the early 1970s, the median wage grew in tandem with productivity. Both roughly doubled in those years, adjusted for inflation. But after the 1970s, productivity continued to rise at roughly the same pace as before, while wages began to flatten. In part, this was due to the twin forces of globalization and labor-replacing technologies that began to hit the American workforce like strong winds—accelerating into massive storms in the 1980s and ’90s, and hurricanes since then.

Containers, satellite communication technologies, and cargo ships and planes radically reduced the cost of producing goods anywhere around the globe, thereby eliminating many manufacturing jobs or putting downward pressure on other wages. Automation, followed by computers, software, robotics, computer-controlled machine tools and widespread digitization, further eroded jobs and wages. These forces simultaneously undermined organized labor. Unionized companies faced increasing competitive pressures to outsource, automate or move to nonunion states.

These forces didn’t erode all incomes, however. In fact, they added to the value of complex work done by those who were well educated, well connected and fortunate enough to have chosen the right professions. Those lucky few who were perceived to be the most valuable saw their pay skyrocket.

But that’s only part of the story. Instead of responding to these gale-force winds with policies designed to upgrade the skills of Americans, modernize our infrastructure, strengthen our safety net and adapt the workforce—and pay for much of this with higher taxes on the wealthy—we did the reverse. We began disinvesting in education, job training and infrastructure. We began shredding our safety net. We made it harder for many Americans to join unions. (The decline in unionization directly correlates with the decline of the portion of income going to the middle class.) And we reduced taxes on the wealthy.

We also deregulated. Financial deregulation in particular made finance the most lucrative industry in America, as it had been in the 1920s. Here again, the parallels between the 1920s and recent years are striking, reflecting the same pattern of inequality.

Other advanced economies have faced the same gale-force winds but have not suffered the same inequalities as we have because they have helped their workforces adapt to the new economic realities—leaving the United States the most unequal of all advanced nations by far.

What We Must Do

There is no single solution for reversing widening inequality. Thomas Piketty’s monumental book “Capital in the Twenty-First Century” paints a troubling picture of societies dominated by a comparative few, whose cumulative wealth and unearned income overshadow the majority who rely on jobs and earned income. But our future is not set in stone, and Piketty’s description of past and current trends need not determine our path in the future. Here are ten initiatives that could reverse the trends described above:

1) Make work pay. The fastest-growing categories of work are retail, restaurant (including fast food), hospital (especially orderlies and staff), hotel, childcare and eldercare. But these jobs tend to pay very little. A first step toward making work pay is to raise the federal minimum wage to $15 an hour, pegging it to inflation; abolish the tipped minimum wage; and expand the Earned Income Tax Credit. No American who works full time should be in poverty.

2) Unionize low-wage workers. The rise and fall of the American middle class correlates almost exactly with the rise and fall of private-sector unions, because unions gave the middle class the bargaining power it needed to secure a fair share of the gains from economic growth. We need to reinvigorate unions, beginning with low-wage service occupations that are sheltered from global competition and from labor-replacing technologies. Lower-wage Americans deserve more bargaining power.

3) Invest in education. This investment should extend from early childhood through world-class primary and secondary schools, affordable public higher education, good technical education and lifelong learning. Education should not be thought of as a private investment; it is a public good that helps both individuals and the economy. Yet for too many Americans, high-quality education is unaffordable and unattainable. Every American should have an equal opportunity to make the most of herself or himself. High-quality education should be freely available to all, starting at the age of 3 and extending through four years of university or technical education.

4) Invest in infrastructure. Many working Americans—especially those on the lower rungs of the income ladder—are hobbled by an obsolete infrastructure that generates long commutes to work, excessively high home and rental prices, inadequate Internet access, insufficient power and water sources, and unnecessary environmental degradation. Every American should have access to an infrastructure suitable to the richest nation in the world.

5) Pay for these investments with higher taxes on the wealthy. Between the end of World War II and 1981 (when the wealthiest were getting paid a far lower share of total national income), the highest marginal federal income tax rate never fell below 70 percent, and the effective rate (including tax deductions and credits) hovered around 50 percent. But with Ronald Reagan’s tax cut of 1981, followed by George W. Bush’s tax cuts of 2001 and 2003, the taxes on top incomes were slashed, and tax loopholes favoring the wealthy were widened. The implicit promise—sometimes made explicit—was that the benefits from such cuts would trickle down to the broad middle class and even to the poor. As I’ve shown, however, nothing trickled down. At a time in American history when the after-tax incomes of the wealthy continue to soar, while median household incomes are falling, and when we must invest far more in education and infrastructure, it seems appropriate to raise the top marginal tax rate and close tax loopholes that disproportionately favor the wealthy.

6) Make the payroll tax progressive. Payroll taxes account for 40 percent of government revenues, yet they are not nearly as progressive as income taxes. One way to make the payroll tax more progressive would be to exempt the first $15,000 of wages and make up the difference by removing the cap on the portion of income subject to Social Security payroll taxes.

7) Raise the estate tax and eliminate the “stepped-up basis” for determining capital gains at death. As Piketty warns, the United States, like other rich nations, could be moving toward an oligarchy of inherited wealth and away from a meritocracy based on labor income. The most direct way to reduce the dominance of inherited wealth is to raise the estate tax by triggering it at $1 million of wealth per person rather than its current $5.34 million (and thereafter peg those levels to inflation). We should also eliminate the “stepped-up basis” rule that lets heirs avoid capital gains taxes on the appreciation of assets that occurred before the death of their benefactors.

8) Constrain Wall Street. The financial sector has added to the burdens of the middle class and the poor through excesses that were the proximate cause of an economic crisis in 2008, similar to the crisis of 1929. Even though capital requirements have been tightened and oversight strengthened, the biggest banks are still too big to fail, jail or curtail—and therefore capable of generating another crisis. The Glass-Steagall Act, which separated commercial- and investment-banking functions, should be resurrected in full, and the size of the nation’s biggest banks should be capped.

9) Give all Americans a share in future economic gains. The richest 10 percent of Americans own roughly 80 percent of the value of the nation’s capital stock; the richest 1 percent own about 35 percent. As the returns to capital continue to outpace the returns to labor, this allocation of ownership further aggravates inequality. Ownership should be broadened through a plan that would give every newborn American an “opportunity share” worth, say, $5,000 in a diversified index of stocks and bonds—which, compounded over time, would be worth considerably more. The share could be cashed in gradually starting at the age of 18.

10) Get big money out of politics. Last, but certainly not least, we must limit the political influence of the great accumulations of wealth that are threatening our democracy and drowning out the voices of average Americans. The Supreme Court’s 2010 Citizens United decision must be reversed—either by the Court itself, or by constitutional amendment. In the meantime, we must move toward the public financing of elections—for example, with the federal government giving presidential candidates, as well as House and Senate candidates in general elections, $2 for every $1 raised from small donors.

Building a Movement

It’s doubtful that these and other measures designed to reverse widening inequality will be enacted anytime soon. Having served in Washington, I know how difficult it is to get anything done unless the broad public understands what’s at stake and actively pushes for reform.

That’s why we need a movement for shared prosperity—a movement on a scale similar to the Progressive movement at the turn of the last century, which fueled the first progressive income tax and antitrust laws; the suffrage movement, which won women the vote; the labor movement, which helped animate the New Deal and fueled the great prosperity of the first three decades after World War II; the civil rights movement, which achieved the landmark Civil Rights and Voting Rights acts; and the environmental movement, which spawned the National Environmental Policy Act and other critical legislation.

Time and again, when the situation demands it, America has saved capitalism from its own excesses. We put ideology aside and do what’s necessary. No other nation is as fundamentally pragmatic. We will reverse the trend toward widening inequality eventually. We have no choice. But we must organize and mobilize in order that it be done.

[This essay appears in the current edition of “The Nation.”]

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Wall Street Greed: Not Too Big for a California Jury

Sixteen of the world’s largest banks have been caught colluding to rig global interest rates.  Why are we doing business with a corrupt global banking cartel?

United States Attorney General Eric Holder has declared that the too-big-to-fail Wall Street banks are too big to prosecute.  But an outraged California jury might have different ideas. As noted in the California legal newspaper The Daily Journal:

California juries are not bashful – they have been known to render massive punitive damages awards that dwarf the award of compensatory (actual) damages.For example, in one securities fraud case jurors awarded $5.7 million in compensatory damages and $165 million in punitive damages. . . . And in a tobacco case with $5.5 million in compensatory damages, the jury awarded $3 billion in punitive damages . . . .

The question, then, is how to get Wall Street banks before a California jury. How about charging them with common law fraud and breach of contract?  That’s what the FDIC just did in its massive 24-count civil suit for damages for LIBOR manipulation, filed in March 2014 against sixteen of the world’s largest banks, including the three largest US banks – JP Morgan Chase, Bank of America and Citigroup.   

LIBOR (the London Interbank Offering Rate) is the benchmark rate at which banks themselves can borrow. It is a crucial rate involved in over $400 trillion in derivatives called interest-rate swaps, and it is set by the sixteen private megabanks behind closed doors.

The biggest victims of interest-rate swaps have been local governments, universities, pension funds, and other public entities. The banks have made renegotiating these deals prohibitively expensive, and renegotiation itself is an inadequate remedy. It is the equivalent of the grocer giving you an extra potato when you catch him cheating on the scales. A legal action for fraud is a more fitting and effective remedy. Fraud is grounds both for rescission (calling off the deal) as well as restitution (damages), and in appropriate cases punitive damages.

Trapped in a Fraud

Nationally, municipalities and other large non-profits are thought to have as much as $300 billion in outstanding swap contracts based on LIBOR, deals in which they are trapped due to prohibitive termination fees. According to a 2010 report by the SEIU (Service Employees International Union):

The overall effect is staggering. Banks are estimated to have collected as much as $28 billion in termination fees alone from state and local governments over the past two years. This does not even begin to account for the outsized net payments that state and local governments are now making to the banks. . . .

While the press have reported numerous stories of cities like Detroit, caught with high termination payments, the reality is there are hundreds (maybe even thousands) more cities, counties, utility districts, school districts and state governments with swap agreements [that] are causing cash strapped local and city governments to pay millions of dollars in unneeded fees directly to Wall Street.

All of these entities could have damage claims for fraud, breach of contract and rescission; and that is true whether or not they negotiated directly with one of the LIBOR-rigging banks.

To understand why, it is necessary to understand how swaps work. As explained in my last article here, interest-rate swaps are sold to parties who have taken out loans at variable interest rates, as insurance against rising rates. The most common swap is one where counterparty A (a university, municipal government, etc.) pays a fixed rate to counterparty B (the bank), while receiving from B a floating rate indexed to a reference rate such as LIBOR. If interest rates go up, the municipality gets paid more on the swap contract, offsetting its rising borrowing costs. If interest rates go down, the municipality owes money to the bank on the swap, but that extra charge is offset by the falling interest rate on its variable rate loan. The result is to fix borrowing costs at the lower variable rate.

At least, that is how they are supposed to work. The catch is that the swap is a separate financial agreement – essentially an ongoing bet on interest rates. The borrower owes both the interest onits variable rate loan and what it must pay on its separate swap deal. And the benchmarks for the two rates don’t necessarily track each other. The rate owed on the debt is based on something called the SIFMA municipal bond index.  The rate owed by the bank is based on the privately-fixed LIBOR rate.

As noted by Stephen Gandel on CNNMoney, when the rate-setting banks started manipulating LIBOR, the two rates decoupled, sometimes radically. Public entities wound up paying substantially more than the fixed rate they had bargained for – a failure of consideration constituting breach of contract. Breach of contract is grounds for rescission and damages.

Pain and Suffering in California

The SEIU report noted that no one has yet completely categorized all the outstanding swap deals entered into by local and state governments.  But in a sampling of swaps within California, involving ten cities and counties (San Francisco, Corcoran, Los Angeles, Menlo Park, Oakland, Oxnard, Pittsburgh, Richmond, Riverside, and Sacramento), one community college district, one utility district, one transportation authority, and the state itself, the collective tab was $365 million in swap payments annually, with total termination fees exceeding $1 billion.

Omitted from the sample was the University of California system, which alone is reported to have lost tens of millions of dollars on interest-rate swaps. According to an article in the Orange County Register on February 24, 2014, the swaps now cost the university system an estimated $6 million a year. University accountants estimate that the 10-campus system will lose as much as $136 million over the next 34 years if it remains locked into the deals, losses that would be reduced only if interest rates started to rise. According to the article:

Already officials have been forced to unwind a contract at UC Davis, requiring the university to pay $9 million in termination fees and other costs to several banks. That sum would have covered the tuition and fees of 682 undergraduates for a year.

The university is facing the losses at a time when it is under tremendous financial stress. Administrators have tripled the cost of tuition and fees in the past 10 years, but still can’t cover escalating expenses. Class sizes have increased. Families have been angered by the rising price of attending the university, which has left students in deeper debt.

Peter Taylor, the university’s Chief Financial Officer, defended the swaps, saying he was confident that interest rates would rise in coming years, reversing what the deals have lost. But for that to be true, rates would have to rise by multiples that would drive interest on the soaring federal debt to prohibitive levels, something the Federal Reserve is not likely to allow.

The Revolving Door

The UC’s dilemma is explored in a report titled “Swapping Our Future: How Students and Taxpayers Are Funding Risky UC Borrowing and Wall Street Profits.” The authors, a group called Public Sociologists of Berkeley, say that two factors were responsible for the precipitous decline in interest rates that drove up UC’s relative borrowing costs. One was the move by the Federal Reserve to push interest rates to record lows in order to stabilize the largest banks. The other was the illegal effort by major banks to manipulate LIBOR, which indexes interest rates on most bonds issued by UC.

Why, asked the authors, has UC’s management not tried to renegotiate the deals? They pointed to the revolving door between management and Wall Street. Unlike in earlier years, current and former business and finance executives now play a prominent role on the UC Board of Regents.

They include Chief Financial Officer Taylor, who walked through the revolving door from Lehman Brothers, where he was a top banker in Lehman’s municipal finance business in 2007. That was when the bank sold the university a swap related to debt at UCLA that has now become the source of its biggest swap losses. The university hired Taylor for his $400,000-a-year position in 2009, and he has continued to sign contracts for swaps on its behalf since.

Investigative reporter Peter Byrne notes that the UC regent’s investment committee controls $53 billion in Wall Street investments, and that historically it has been plagued by self-dealing. Byrne writes:

Several very wealthy, politically powerful men are fixtures on the regent’s investment committee, including Richard C. Blum (Wall Streeter, war contractor, and husband of U.S. Senator Dianne Feinstein), and Paul Wachter (Gov. Arnold Schwarzenegger’s long-time business partner and financial advisor). The probability of conflicts of interest inside this committee—as it moves billions of dollars between public and private companies and investment banks—is enormous.

Blum’s firm Blum Capital is also an adviser to CalPERS, the California Public Employees’ Retirement System, which also got caught in the LIBOR-rigging scandal. “Once again,” said CalPERS Chief Investment Officer Joseph Dear of the LIBOR-rigging, “the financial services industry demonstrated that it cannot be trusted to make decisions in the long-term interests of investors.” If the financial services industry cannot be trusted, it needs to be replaced with something that can be.

Remedies

The Public Sociologists of Berkeley recommend renegotiation of the onerous interest rate swaps, which could save up to $200 million for the UC system; and evaluation of the university’s legal options concerning the manipulation of LIBOR. As demonstrated in the new FDIC suit, those options include not just renegotiating on better terms but rescission and damages for fraud and breach of contract. These are remedies that could be sought by local governments and public entities across the state and the nation.

The larger question is why our state and local governments continue to do business with a corrupt global banking cartel. There is an alternative. They could set up their own publicly-owned banks, on the model of the state-owned Bank of North Dakota. Fraud could be avoided, profits could be recaptured, and interest could become a much-needed source of public revenue. Credit could become a public utility, dispensed as needed to benefit local residents and local economies.

__________________

Ellen Brown is an attorney, founder of the Public Banking Institute, and a candidate for California State Treasurer running on a state bank platform. She is the author of twelve books, including the best-selling Web of Debt and her latest book, The Public Bank Solution, which explores successful public banking models historically and globally.

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The Global Banking Game Is Rigged, and the FDIC Is Suing

Ellen Hodgson Brown  RINF Alternative News Taxpayers are paying billions of dollars for a swindle pulled off by the world’s biggest banks, using a form of...

The Global Banking Game Is Rigged, and the FDIC Is Suing

Taxpayers are paying billions of dollars for a swindle pulled off by the world’s biggest banks, using a form of derivative called interest-rate swaps; and the Federal Deposit Insurance Corporation has now joined a chorus of litigants suing over it. According to an SEIU report:

Derivatives . . . have turned into a windfall for banks and a nightmare for taxpayers. . . . While banks are still collecting fixed rates of 3 to 6 percent, they are now regularly paying public entities as little as a tenth of one percent on the outstanding bonds, with rates expected to remain low in the future. Over the life of the deals, banks are now projected to collect billions more than they pay state and local governments – an outcome which amounts to a second bailout for banks, this one paid directly out of state and local budgets.

It is not just that local governments, universities and pension funds made a bad bet on these swaps. The game itself was rigged, as explained below. The FDIC is now suing in civil court for damages and punitive damages, a lead that other injured local governments and agencies would be well-advised to follow. But they need to hurry, because time on the statute of limitations is running out.

The Largest Cartel in World History

On March 14, 2014, the FDIC filed suit for LIBOR-rigging against sixteen of the world’s largest banks – including the three largest US banks (JPMorgan Chase, Bank of America, and Citigroup), the three largest UK banks, the largest German bank, the largest Japanese bank, and several of the largest Swiss banks. Bill Black, professor of law and economics and a former bank fraud investigator, calls them “the largest cartel in world history, by at least three and probably four orders of magnitude.”

LIBOR (the London Interbank Offering Rate) is the benchmark rate by which banks themselves can borrow. It is a crucial rate involved in hundreds of trillions of dollars in derivative trades, and it is set by these sixteen megabanks privately and in secret.

Interest rate swaps are now a $426 trillion business. That’s trillion with a “t” – about seven times the gross domestic product of all the countries in the world combined. According to the Office of the Comptroller of the Currency, in 2012 US banks held $183.7 trillion in interest-rate contracts, with only four firms representing 93% of total derivative holdings; and three of the four were JPMorgan Chase, Citigroup, and Bank of America, the US banks being sued by the FDIC over manipulation of LIBOR.

Lawsuits over LIBOR-rigging have been in the works for years, and regulators have scored some very impressive regulatory settlements. But so far, civil actions for damages have been unproductive for the plaintiffs. The FDIC is therefore pursuing another tack.

But before getting into all that, we need to look at how interest-rate swaps work. It has been argued that the counterparties stung by these swaps got what they bargained for – a fixed interest rate. But that is not actually what they got. The game was rigged from the start.

The Sting

Interest-rate swaps are sold to parties who have taken out loans at variable interest rates, as insurance against rising rates. The most common swap is one where counterparty A (a university, municipal government, etc.) pays a fixed rate to counterparty B (the bank), while receiving from B a floating rate indexed to a reference rate such as LIBOR. If interest rates go up, the municipality gets paid more on the swap contract, offsetting its rising borrowing costs. If interest rates go down, the municipality owes money to the bank on the swap, but that extra charge is offset by the falling interest rate on its variable rate loan. The result is to fix borrowing costs at the lower variable rate.

At least, that is how it’s supposed to work. The catch is that the swap is a separate financial agreement – essentially an ongoing bet on interest rates. The borrower owes both the interest onits variable rate loan and what it must pay out on this separate swap deal. And the benchmarks for the two rates don’t necessarily track each other. As explained by Stephen Gandel on CNN Money:

The rates on the debt were based on something called the Sifma municipal bond index, which is named after the industry group that maintains the index and tracks muni bonds. And that’s what municipalities should have bought swaps based on.

Instead, Wall Street sold municipalities Libor swaps, which were easier to trade and [were] quickly becoming a gravy train for the banks.

Historically, Sifma and LIBOR moved together. But that was before the greatest-ever global banking cartel got into the game of manipulating LIBOR. Gandel writes:

In 2008 and 2009, Libor rates, in general, fell much faster than the Sifma rate. At times, the rates even went in different directions. During the height of the financial crisis, Sifma rates spiked. Libor rates, though, continued to drop. The result was that the cost of the swaps that municipalities had taken out jumped in price at the same time that their borrowing costs went up, which was exactly the opposite of how the swaps were supposed to work.

The two rates had decoupled, and it was chiefly due to manipulation. As noted in the SEUI report:

[T]here is . . . mounting evidence that it is no accident that these deals have gone so badly, so quickly for state and local governments. Ongoing investigations by the U.S. Department of Justice and the California, Florida, and Connecticut Attorneys General implicate nearly every major bank in a nationwide conspiracy to rig bids and drive up the fixed rates state and local governments pay on their derivative contracts.

Changing the Focus to Fraud

Suits to recover damages for collusion, antitrust violations and racketeering (RICO), however, have so far failed. In March 2013, SDNY Judge Naomi Reece Buchwald dismissed antitrust and RICO claims brought by investors and traders in actions consolidated in her court, on the ground that the plaintiffs lacked standing to bring the claims. She held that the rate-setting banks’ actions did not affect competition, because those banks were not in competition with one another with respect to LIBOR rate-setting; and that “the alleged collusion occurred in an arena in which defendants never did and never were intended to compete.”

Okay, the defendants weren’t competing with each other. They were colluding with each other, in order to unfairly compete with the rest of the financial world – local banks, credit unions, and the state and local governments they lured into being counterparties to their rigged swaps. The SDNY ruling is on appeal to the Second Circuit.

In the meantime, the FDIC is taking another approach. Its 24-count complaint does include antitrust claims, but the emphasis is on damages for fraud and conspiring to keep the LIBOR rate low to enrich the banks. The FDIC is not the first to bring such claims, but its massive suit adds considerable weight to the approach.

Why would keeping interest rates low enrich the rate-setting banks? Don’t they make more money if interest rates are high?

The answer is no. Unlike most banks, they make most of their money not from ordinary commercial loans but from interest rate swaps. The FDIC suit seeks to recover losses caused to 38 US banking institutions that did make their profits from ordinary business and consumer loans – banks that failed during the financial crisis and were taken over by the FDIC. They include Washington Mutual, the largest bank failure in US history. Since the FDIC had to cover the deposits of these failed banks, it clearly has standing to recover damages, and maybe punitive damages, if intentional fraud is proved.

The Key Role of the Federal Reserve

The rate-rigging banks have been caught red-handed, but the greater manipulation of interest rates was done by the Federal Reserve itself. The Fed aggressively drove down interest rates to save the big banks and spur economic recovery after the financial collapse. In the fall of 2008, it dropped the prime rate (the rate at which banks borrow from each other) nearly to zero.

This gross manipulation of interest rates was a giant windfall for the major derivative banks. Indeed, the Fed has been called a tool of the global banking cartel. It is composed of 12 branches, all of which are 100% owned by the private banks in their districts; and the Federal Reserve Bank of New York has always been the most important by far of these regional Fed banks. New York, of course is where Wall Street is located.

LIBOR is set in London; but as Simon Johnson observed in a New York Times article titled The Federal Reserve and the LIBOR Scandal, the Fed has jurisdiction whenever the “safety and soundness” of the US financial system is at stake. The scandal, he writes, “involves egregious, flagrant criminal conduct, with traders caught red-handed in e-mails and on tape.” He concludes:

This could even become a “tobacco moment,” in which an industry is forced to acknowledge its practices have been harmful – and enters into a long-term agreement that changes those practices and provides continuing financial compensation.

Bill Black concurs, stating, “Our system is completely rotten. All of the largest banks are involved—eagerly engaged in this fraud for years, covering it up.” The system needs a complete overhaul.

In the meantime, if the FDIC can bring a civil action for breach of contract and fraud, so can state and local governments, universities, and pension funds. The possibilities this opens up for California (where I’m currently running for State Treasurer) are huge. Fraud is grounds for rescission (terminating the contract) without paying penalties, potentially saving taxpayers enormous sums in fees for swap deals that are crippling cities, universities and other public entities across the state. Fraud is also grounds for punitive damages, something an outraged jury might be inclined to impose. My next post will explore the possibilities for California in more detail. Stay tuned.

______

Ellen Brown is an attorney, founder of the Public Banking Institute, and a candidate for California State Treasurer running on a state bank platform. She is the author of twelve books, including the best-selling Web of Debt and her latest book, The Public Bank Solution, which explores successful public banking models historically and globally.

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In a nearly $13 billion settlement with the US Justice Department in November 2013, JPMorganChase admitted that it, along with every other large US bank, had engaged in mortgage fraud as a routine business practice, sowing the seeds of the mortgage meltdown. JPMorgan and other megabanks have now been caught in over a dozen major frauds, including LIBOR-rigging and bid-rigging; yet no prominent banker has gone to jail. Meanwhile, nearly a quarter of all mortgages nationally remain underwater (meaning the balance owed exceeds the current value of the home), sapping homeowners’ budgets, the housing market and the economy. Since the banks, the courts and the federal government have failed to give adequate relief to homeowners, some cities are taking matters into their own hands.

Gayle McLaughlin, the bold mayor of Richmond, California, has gone where no woman dared go before, threatening to take underwater mortgages by eminent domain from Wall Street banks and renegotiate them on behalf of beleaguered homeowners. A member of the Green Party, which takes no corporate campaign money, she proved her mettle standing up to Chevron, which dominates the Richmond landscape. But the banks have signaled that if Richmond or another city tries the eminent domain gambit, they will rush to court seeking an injunction. Their grounds: an unconstitutional taking of private property and breach of contract.

How to refute those charges? There is a way; but to understand it, you first need to grasp the massive fraud perpetrated on homeowners. It is how you were duped into paying more than your house was worth; why you should not just turn in your keys or short-sell your underwater property away; why you should urge Congress not to legalize the MERS scheme; and why you should insist that your local government help you acquire title to your home at a fair price if the banks won’t. That is exactly what Richmond and other city councils are attempting to do through the tool of eminent domain.

The Securitization Fraud That Collapsed the Housing Market

One settlement after another has now been reached with investors and government agencies for the sale of “faulty mortgage bonds,” including a suit brought by Fannie and Freddie that settled in October 2013 for $5.1 billion. “Faulty” is a euphemism for “fraudulent.” It means that mortgages subject to securitization have “clouded” or “defective” titles. And that means the banks and real estate trusts claiming title as owners or nominees don’t actually have title – or have standing to enjoin the city from proceeding with eminent domain. They can’t claim an unconstitutional taking of property because they can’t prove they own the property, and they can’t claim breach of contract because they weren’t the real parties in interest to the mortgages (the parties putting up the money).

“Securitization” involves bundling mortgages into a pool, selling them to a non-bank vehicle called a “real estate trust,” and then selling “securities” (bonds) to investors (called “mortgage-backed securities” or “collateralized debt obligations”). By 2007, 75% of all mortgage originations were securitized. According to investment banker and financial analyst Christopher Whalen, the purpose of securitization was to allow banks to avoid capitalization requirements, enabling them to borrow at unregulated levels.

Since the real estate trusts were “off-balance sheet,” they did not count in the banks’ capital requirements. But under applicable accounting rules, that was true only if they were “true sales.” According to Whalen, “most of the securitizations done by banks over the past two decades were in fact secured borrowings, not true sales, and thus potential frauds on insured depositories.” He concludes, “bank abuses of non-bank vehicles to pretend to sell assets and thereby lower required capital levels was a major cause of the subprime financial crisis.”

In 1997, the FDIC gave the banks a pass on these disguised borrowings by granting them “safe harbor” status. This proved to be a colossal mistake, which led to the implosion of the housing market and the economy at large. Safe harbor status was finally withdrawn in 2011; but in the meantime, “financings” were disguised as “true sales,” permitting banks to grossly over-borrow and over-leverage. Over-leveraging allowed credit to be pumped up to bubble levels, driving up home prices. When the bubble collapsed, homeowners had to pick up the tab by paying on mortgages that far exceeded the market value of their homes. According to Whalen:

[T]he largest commercial banks became “too big to fail” in large part because they used non-bank vehicles to increase leverage without disclosure or capital backing. . . .

The failure of Lehman Brothers, Bear Stearns and most notably Citigroup all were largely attributable to deliberate acts of securities fraud whereby assets were “sold” to investors via non-bank financial vehicles.  These transactions were styled as “sales” in an effort to meet applicable accounting rules, but were in fact bank frauds that must, by GAAP and law applicable to non-banks since 1997, be reported as secured borrowings.  Under legal tests stretching from 16th Century UK law to the Uniform Fraudulent Transfer Act of the 1980s, virtually none of the mortgage backed securities deals of the 2000s met the test of a true sale.

. . . When the crisis hit, it suddenly became clear that the banks’ capital was insufficient.

Today . . . hundreds of billions in claims against banks arising from these purported “sales” of assets remain pending before the courts.

Eminent Domain as a Negotiating Tool

Investors can afford high-powered attorneys to bring investor class actions, but underwater and defaulting homeowners usually cannot; and that is where local government comes in. Eminent domain is a way to bring banks and investors to the bargaining table.

Professor Robert Hockett of Cornell University Law School is the author of the plan to use eminent domain to take underwater loans and write them down for homeowners. He writes on NewYorkFed.org:

[In] the case of privately securitized mortgages, [principal] write-downs are almost impossible to carry out, since loan modifications on the scale necessitated by the housing market crash would require collective action by a multitude of geographically dispersed security holders. The solution . . . Is for state and municipal governments to use their eminent domain powers to buy up and restructure underwater mortgages, thereby sidestepping the need to coordinate action across large numbers of security holders.

The problem is blowback from the banks, but it can be blocked by requiring them to prove title to the properties. Securities are governed by federal law, but real estate law is the domain of the states. Counties have a mandate to maintain clean title records; and legally, clean title requires a chain of “wet” signatures, from A to B to C to D. If the chain is broken, title is clouded. Properties for which title cannot be established escheat (or revert) to the state by law, allowing the government to start fresh with clean title.

New York State law governs most of the trusts involved in securitization. Under it, transfers of mortgages into a trust after the cutoff date specified in the Pooling and Servicing Agreement (PSA) governing the trust are void.

For obscure reasons, the REMICs (Real Estate Mortgage Investment Conduits) claiming to own the properties routinely received them after the closing date specified in the PSAs. The late transfers were done throu gh the fraudulent signatures-after-the-fact called “robo-signing,” which occurred so regularly that they were the basis of a $25 billion settlement between a coalition of state attorneys general and the five biggest mortgage servicers in February 2012. (Why all the robo-signing? Good question. See my earlier article here.)

Until recently, courts have precluded homeowners from raising the late transfers into the trust as a defense to foreclosure, because the homeowners were not parties to the PSAs. But in August 2013, in Glaski v. Bank of America, N.A., 218 Cal. App. 4th 1079 (July 31, 2013), a California appellate court ruled that the question whether the loan ever made it into the asset pool could be raised in determining the proper party to initiate foreclosure. And whether or not the homeowner was a party to the PSA, the city and county have a clear legal interest in seeing that the PSA’s terms were complied with, since the job of the county recorder is to maintain records establishing clean title.

Before the rise of mortgage securitization, any transfer of a note and deed needed to be recorded as a public record, to give notice of ownership and establish a “priority of liens.” With securitization, a private database called MERS (Mortgage Electronic Registration Systems) circumvented this procedure by keeping the deeds as “nominee for the beneficiary,” obscuring the property’s legal owner and avoiding the expense of recording the transfer (usually about $30 each). Estimates are that untraceable property assignments concealed behind MERS may have cost counties nationwide billions of dollars in recording fees. (See my earlier article here.)

Counties thus have not only a fiduciary but a financial interest in establishing clean title to the properties in their jurisdictions. If no one can establish title, the properties escheat and can be claimed free and clear. Eminent domain can be a powerful tool for negotiating loan modifications on underwater mortgages; and if the banks cannot prove title, they have no standing to complain.

The End of “Too Big to Fail”?

Richmond’s city council is only one vote short of the supermajority needed to pursue the eminent domain plan, and it is seeking partners in a Joint Powers Authority that will make the push much stronger. Grassroots efforts to pursue eminent domain are also underway in a number of other cities around the country. If Richmond pulls it off successfully, others will rush to follow.

The result could be costly for some very large banks, but they have brought it on themselves with shady dealings. Christopher Whalen predicts that the FDIC’s withdrawal of “safe harbor” status for the securitization model may herald the end of “too big to fail” for those banks, which will no longer have the power to grossly over-leverage and may have to keep their loans on their books.

Wall Street banks are deemed “too big to fail” only because there is no viable alternative – but there could be. Local governments could form their own publicly-owned banks, on the model of the state-owned Bank of North Dakota. They could then put their revenues, their savings, and their newly-acquired real estate into those public utilities, to be used to generate interest-free credit for the local government (since it would own the bank) and low-cost credit for the local community. For more on this promising option, which has been or is being explored in almost half the state legislatures in the US, see here.

_____________

Ellen Brown is an attorney, president of the Public Banking Institute, and a candidate for California State Treasurer running on a state bank platform. She is the author of twelve books including the best-selling Web of Debt and her latest book, The Public Bank Solution, which explores successful public banking models historically and globally.

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Bernanke at Brookings

Bernanke at Brookings

by Stephen Lendman

On January 31, he stepped down as Fed chairman. Janet Yellen replaced him. He's entering a new world of million-dollar book deals. He'll make $100,000 a pop speeches. 

Expect appointments to corporate boards. CEOs value his rainmaking services. 

On February 3, Brookings headlined "Federal Reserve Chairman Ben Bernanke to Join Economic Studies at Brookings."

He's a "Distinguished Fellow in Residence." He's affiliated with the Hutchins Center on Fiscal and Monetary Policy (HCFMP). On January 16, Brookings launched it. 

Its board of trustees vice chair Glenn Hutchins contributed $10 million in seed money. He co-founded the multi-billion dollar private equity firm Silver Lake Partners. Guess what type policies HCFMP will endorse. 

"We are proud to welcome chairman Bernanke into the Brookings family," said president Strobe Talbot. He's Clinton's former deputy secretary of state. He was directly involved in some of his worst policies.

Brookings' agenda is brazenly imperial. It's pro-corporate. It's anti-populist. It feigns concern about inequality. It supports government of, by and for privileged elites alone. Expect Bernanke to fit right in.

His Fed tenure was deplorable. He betrayed the public trust. His record attests to his wickedness. 

His agenda was ruthlessly anti-populist. He did more to thirdworldize America for profit than any of his predecessors. 

He handed Wall Street crooks multi-trillions of dollars. He facilitated the greatest wealth transfer in history. He created a protracted Main Street Depression. No end in sight looms.

Noted investor Jeremy Grantham's commentaries are refreshing. He cuts to the heart of issues. He pulls no punches doing so.

He titled an earlier commentary "Night of the Living Fed: Something Unbelievably Terrifying."

He highlighted "runaway commodities, (zombi) banks back to life, homes destroyed, families evicted, and currency wars."

He blamed Bernanke. "If I were a benevolent dictator," he said, he'd limit the Fed solely to maintaining price stability. 

He'd make sure the economy got enough liquidity to function normally. He's "force (the Fed) to swear off manipulating asset prices through artificially low rates and asymmetric promises."

He referred to the Greenspan/Bernanke put. He'd eliminate "immoral hazard." It's immoral behavior. It's outsized excess. It's grand theft.

It bails out large investors. Doing so encourages imprudent risks. Winning is guaranteed. Regulatory checks are absent. Anything goes is policy.

Things persist "under the guise of 'saving the system,' " said Grantham. Money manipulators have things their way.

Fed chairmen are tools of monied interests. They know who butters their bread. They return favors manyfold. Greenspan did from August 1987 through January 2006.

Bernanke exceeded his worst policies. He did so from February 1, 2006 through January 31, 2014. 

Both chairmen qualify as maestros of misery. They created bubble financial conditions. America's 1% profited hugely. They did so at the expense of most others.

Virtually all global assets are overpriced. Bubble conditions exist. Grantham compared them to Einstein's definition of insanity. The madness of repeating the same mistakes. Expecting a different outcome doesn't work.

Last spring, Grantham compared Fed policy to beating a donkey. He called it the 1% growing economy. "(H)e keeps beating it until it either turns into a horse or drops dead from too much beating," said Grantham.

"We've been conned." We're manipulated to believe "debt is everything." In 1982, it was one-and-a-quarter times GDP.

It's nearly triple that amount now. It has nothing to do with long-term growth. It's an "accounting world. It's paper," said Grantham.

"The real world is the quantity and quality of your people, and the quality and quantity of capital spending."

"Are you building new machines? Are you being inventive?" Are you educating a new generation properly?

"We're in this death grip that only paper things matter." Vital issues go unaddressed. Wealth keeps getting transferred "from the poor to the rich."

Interest rates are outrageously now. They're practically zero. Speculators benefit. Ordinary people lose out. 

Retirees are deprived of vital income. Financial interests are served at the expense of the real economy.

During his tenure as Fed chairman, Bernanke handed speculators over $20 trillion. Most was practically interest free. They took full advantage.

Money printing madness defines Fed policy. Helicopter Ben dropped none on Main Street. In 2002, his helicopter money speech said:

"The US government has a technology, called a printing press (today its electronic equivalent)." 

It "allows it to produce as many US dollars as it wishes at essentially no cost."

Most circulating money is bank-generated credit. It's created out of thin air. It's when banks extend loans.

When old ones are repaid faster than new ones, money supply shrinks. QE is supposed to reverse things.

Things haven't worked out this way. Key is where Fed money goes. Dropping it on Main Street stimulates economic growth.

Handing it to Wall Street crooks parks it in their reserve accounts. It's not used for lending.

Former Reagan budget director David Stockman said it "stayed trapped in the canyons of Wall Street." He called it "high grade monetary heroin."

It's "kill(ing) the patient." It's "legalized bank robbery." It's recklessly out-of-control.

It "inflate(d) yet another unsustainable bubble." They all burst. No exceptions. This time isn't different.

Money printing madness and bailouts reflect "the single most shameful chapter in American financial history," said Stockman.

Bernanke operated by Abraham Maslow's maxim. "(I)f the only tool you have is a hammer, every problem looks like a nail," he said.

QE continues. It's slowing. Yellen can rev it up full bore any time. It's self-defeating. It contracts the money supply. It's by sucking up collateral needed to create credit.

It constrains economic growth. It doesn't create jobs. It solely benefits Wall Street. Banksters made out like bandits. Speculators profited hugely. They did so at the expense of Main Street. 

Financial warfare rages. America and other societies are affected. Ordinary people are hurt most. Hard times keep getting harder.

QE works when used constructively. Money injected responsibly into the economy creates growth. It creates jobs. When people have money they spend it.

A virtuous cycle of prosperity follows. America once was sustainably prosperous. Today it’s in decline. It's heading for third world status. It's more kleptocracy than democracy.

Money power in private hands assures trouble. Ellen Brown explained more. Up to 40% of "everything we buy goes (for) interest."

It goes to "bankers, financiers and bondholders." A third or more of national wealth shifts from Main Street to Wall Street. 

Complicit politicians let it happen. They do so for generous benefits derived. Greed is the national pastime. So is looting America for profit.

Most people think paying bills and credit card charges on time avoids interest charges. Not so, says Brown. 

"Tradesmen, suppliers, wholesalers and retailers all along the chain of production rely on credit to pay their bills."

Their costs pass on to consumers. Unwittingly they pay. Ordinary people make wealthy ones richer. They do so at their own expense. What better argument for public banking than that.

Borrowing from public banks eliminates or greatly reduces interest rate charges. It works at federal, state and local levels.

Public banks don't have to earn profits. They're not beholden to Wall Street or shareholders. They're self-sustaining. They can lend for their own needs. They can do it for businesses, farmers and consumers.

The more loans roll over, the more debt-free money is created. If used productively for growth, it's virtually inflation-free. As long as new money produces goods and services, price stability follows.

Economies flourish. All boats are lifted. Millions of high-pay/good benefit jobs can be created. Homes become more affordable. Foreclosures end. So do out-of-control speculation, booms and busts.

Private savings, pensions, and investments become secure. So do Social Security, Medicare and other vital social programs. They can be in perpetuity.

Surpluses replace deficits. Sustained prosperity follows. It's not pie in the sky. It happened before. It can happen again. 

Good policies achieve good results. Bad ones wreck things for most people. Hard times get harder. Current conditions reflect Exhibit A.

They didn't happen by accident. Bernanke's Fed bears full responsibility. Economist Steve Keen commented on his legacy.

"It certainly won't be as he expected," said Keen. He'll likely "be blamed for causing the 'Great Recession...' "

He blamed his predecessors "for causing the Great Depression."

"His finger-pointing doesn't get any more blatant than" praising Milton Friedman on his 90th birthday. It was in 2002.

"I would like to say to Milton and Anna (Schwartz): Regarding the Great Depression. You're right. We did it. We're very sorry. But thanks to you, we won't do it again."

He's done it and then some. The worst is yet to come. 

"(I)f Ben had truly learned from both his analysis of the data and 'Milton and Anna (Schwartz), then you'd think that surely he would have ensured that the rate of growth of M1" would never drop "to or below zero, wouldn't you?"

That's exactly what happened. America's money supply is lower than when he became Fed chairman. He has no control over whether banks choose to make loans.

Doing so increases money supply growth. Holding back shrinks it. "So on Ben's own theory of what caused the Great Depression, he could quite easily be found guilty," said Keen.

Crisis conditions occurred on his watch. His policies were "the very things he said the Fed got wrong in the late 1920s."

He wrote his own legacy. It won't change now. He's ideologically over-the-top. He's responsible for more human wreckage than any of his predecessors.

He caused epidemic levels of poverty, unemployment and deprivation. He engineered the greatest wealth heist in world history. 

He debauched the dollar. He created multiple market bubbles.
He created worse crisis conditions than in 1929.

Market analyst Yves Smith calls him Greenspan on steroids. He'll be remembered as the economy wrecker of last resort.

He's unapologetic. Debt pyramiding doesn't work. Money printing madness reflects grand theft. Accountability isn't Bernanke's long suit.

He's off to greener pastures. He's cashing in for services rendered. He'll be well rewarded for enriching Wall Street. Banksters take care of their own.

Stephen Lendman lives in Chicago. He can be reached at [email protected] 

His new book is titled "Banker Occupation: Waging Financial War on Humanity."

http://www.claritypress.com/LendmanII.html

Visit his blog site at sjlendman.blogspot.com. 

Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network.

It airs Fridays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.


http://www.progressiveradionetwork.com/the-progressive-news-hour

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From Austerity to Abundance: Why I Am Running for California Treasurer

Governor Jerry Brown and his staff are exchanging high-fives over balancing California’s budget, but the people on whose backs it was balanced are not rejoicing. The state’s high-wire act has been called “the ultimate in austerity budgets.”

Welfare payments, health care for the poor, and benefits for the elderly and disabled have been slashed. State workers have been downsized. School districts in need of cash have been reduced to borrowing through “capital appreciation bonds” bearing 300% interest. In one notorious case, the Santa Ana school district actually borrowed at 1,000% interest. And the governor acknowledges that California still faces a “wall of debt” amounting to $28 billion. Some analysts put it much higher than that.

At the end of the 20th century, California was ranked the sixth largest economy in the world. By 2012, it had slipped to number twelve. It is coming back up, in part because European countries are falling further into recession; but California’s poverty rate remains the highest in the country. More than eight million Californians struggle to meet their daily needs, and one in four children lives in poverty. Income inequality is higher in the nation’s most populous state than in almost any other.

California cannot solve its budget problems by slashing services that have already been cut to the bone or raising sales taxes that hurt the poor far more than the rich. We are fighting over a pie that remains too small. The pie itself needs to be expanded – and it can be.

How? By reclaiming that portion that is now siphoned off in interest and bank fees.  When tallied up at every stage of production, interest has been calculated to claim one-third of everything we buy.

How can that money be recaptured?  By owning the bank.

The approach was pioneered in North Dakota, the only state to escape the 2008 banking crisis. North Dakota has the lowest unemployment rate in the country, the lowest foreclosure rate, the lowest default rate on credit card debt, and no state debt at all. It is also the only state to own its own bank.

In the fall of 2011, a bill for a feasibility study for a state-owned bank passed both houses of the California legislature. The Public Banking Institute, which I founded and chair, was instrumental in helping to get the bill as far as it got.  But it died when Jerry Brown vetoed it.  His rationale was that we already have a banking committee, and that the matter could be explored in-house. Needless to say, however, we have heard no more about it since.

I am therefore running for California State Treasurer on a state bank platform, along with Laura Wells, who is running for Controller. We are throwing our bonnets in the ring for the opportunity to show the Governor or his successor that a state-owned bank can be our ticket to returning California to the abundance it once enjoyed.

I was a recipient of that abundance myself. I got my undergraduate degree at UC Berkeley in the 1960s, when tuition was free; and my law degree at UCLA Law School in the 1970s, when tuition was $700 a year.  Today it is $13,000 and $45,000 annually, respectively, for in-state students.  In the 1960s, the governor of California was Jerry Brown’s father Pat Brown, a New Deal visionary who believed that investment in education, infrastructure and local business was an investment in the future.  Our goal is to revive that optimistic vision in 2014.

We are running on the endorsement of the Green Party – along with Luis Rodriguez for governor and David Curtis for secretary of state – because Green Party candidates take no corporate money. Candidates who take corporate money – and that means nearly all conventional candidates – are beholden to large corporate interests and cannot properly represent the interests of the disenfranchised 99%.

The North Dakota Model: Banking that Supports Rather Than Exploits the Local Economy

California’s revenues are currently parked in those very largest of corporations, Wall Street banks. These out-of-state banks use our giant asset pool for their own speculative purposes, and the funds are at risk of confiscation in the event of a “bail-in.”

In North Dakota, by contrast, all of the state’s revenues are deposited by law in the state-owned Bank of North Dakota (BND). The BND is set up as a DBA of the state (“North Dakota doing business as the Bank of North Dakota”), which means all of the state’s capital is technically the bank’s capital. The bank uses its copious capital and deposit pool to generate credit for local purposes.

The BND is a major money-maker for the state, returning a sizable dividend annually to the treasury. Every year since the 2008 banking crisis, it has reported a return on investment of between 17 percent and 26 percent. The BND also provides what is essentially interest-free credit for state projects, since the state owns the bank and gets the interest back. The BND partners with local banks rather than competing with them, strengthening their capital and deposit bases and allowing them to keep loans on their books rather than having to sell them off to investors. This practice allowed North Dakota to avoid the subprime crisis that destroyed the housing market in other states.

Consider the awesome potential for California, with its massive capital and deposit bases. California has over $200 billion stashed in a variety of funds identified in its 2012 Comprehensive Annual Financial Report (CAFR), including $58 billion managed by the Treasurer in a Pooled Money Investment Account currently earning a meager 0.264% annually. It also has over $400 billion in its pension funds (CalPERS and CalSTRS).

California’s population of 37 million is more than 50 times that of North Dakota. In 2010, the BND had about $4,500 in deposits and $4,200 in loans per capita.  Multiplying 37 million by $4,200, a State Bank of California could, in theory, generate $155.4 billion in credit for the state; and this credit would effectively be interest-free free, since the state would own the bank.

What could California do with $155 billion in interest-free credit? One possibility would be to refinance its ominous “wall of debt” at 0%. A debt that is interest-free can be rolled over indefinitely without cost to the taxpayers.

Another possibility would be to fund public projects interest-free. Eliminating interest has been shown to reduce the cost of public projects by 35% or more.

Take, for example, the San Francisco Bay Bridge earthquake retrofitting boondoggle, which was originally slated to cost about $6 billion. Interest and bank fees wound up adding another $6 billion to the overall cost to taxpayers. Funding through its own bank could have saved the state $6 billion or 50% on this project.

Then there is the state’s bullet train fiasco, which has been beset with delays, cost overruns, and funding issues. As with the Bay Bridge, costs are projected to double as a result of compounding interest on long-term bonds, imposing huge hidden costs on the next generation of taxpayers. By funding the bullet train through a state-owned bank, its costs, too, could be reduced by 50%.

The Challenge of a “Jungle Primary”

As voters become increasingly disillusioned with big-corporate-money candidates, the third party option is gaining traction. According to a recent Gallup poll, in 2013 42% of Americans identified themselves as political independents, significantly outpacing Democrats at 31% and Republicans at 25%.

The growing threat posed by independent and third-party candidates may explain why it is getting harder and harder to run as one. In California we now have Proposition 14, the Top Two primary, sometimes called the “Louisiana primary” or “jungle primary.” It might better be named the Incumbents’ Benevolent Protection Act.

Proposition 14 requires statewide and congressional California candidates, regardless of party preference, to participate in a nonpartisan blanket primary, with only the top two candidates advancing to the general election.  Incumbents and heavily-funded candidates have historically reaped the benefits of this arrangement. Third party candidates are liable to get knocked out in the first round in June, eliminating them from the November elections.

But the new system does have the advantage that anyone can vote for any candidate in the June primary; so if we can mobilize voters, we have a shot.

There is, however, another new hurdle imposed by Proposition 14. In place of the 150 signatures-in-lieu-of-filing-fee needed earlier, we now need 10,000 signatures – either that or $2,800. But we’re hoping to turn that requirement, too, to advantage, by using it to build the people power and energy necessary to take the June 3, 2014 primary.  If you would like to sign a petition or donate, click here.

There is another way to balance a state budget, one that leads to prosperity rather than austerity. California can stimulate its economy and the job market, restore low-cost higher education, build 21st-century infrastructure, preserve the environment, and relieve the state’s debt burden, by establishing a bank that is owned by the people and returns its profits to the people.

__________________

Ellen Brown is an attorney, president of the Public Banking Institute, and author of twelve books including the bestselling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her 200+ credit blog articles are at EllenBrown.com. She is currently running for California State Treasurer on the Green Party ticket.

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by Stephen Lendman

For Lynne, husband Ralph, their children, other family members, and legions of worldwide supporters, New Year's day 2014 is special.

It's reason to celebrate. On December 31, Lynne wrote from Carswell federal prison as follows:

"My Dears:

Well, the impossible takes a little longer!!!!!!!!!!!!!!!!!!!!!!!

We learned this morning that the US Attorney’s office has made the motion for my compassionate release and that the Order was on Judge Koeltl’s desk.  

Since on the last go-round, he stated in Court that he would treat it 'favorably.' We are now just waiting expectantly.

The wonderful thing is that Ralph is here in Ft Worth for a visit and will bring me back to NYC with him.  

We don’t know when but the rules state that the warden has 2 days to let me go after he receives the order so it could be as early as Friday or a few days more. 

Whatever it is, I can’t stop crying tears of Joy!!  

I can’t stop thinking of all the marvelous people worldwide who made this happen. You know because each of you played an integral role. 

My daughter Z is already lining up Sloan Kettering, and we will have to see if there is a probation qualification attached to the Order and how it will affect me.  

After that, Ralph will start making arrangements to rent Yankee Stadium for the Welcome Home...Smile.

So If this reaches you before midnight tonight, raise a glass of bubbly to the joy of all of us that the old girl is OUT!!

Love Struggle,

Lynne"

On December 31, the US Attorney's Office for the Southern District of New York filed a motion before federal Judge John Koeltl. 

He requested Lynne be re-sentenced to time served. Doing so means she's eligible for immediate release. Judge Koeltl complied, saying:

Lynne’s "terminal medical condition and very limited life expectancy constitute extraordinary and compelling reasons that warrant the requested (sentencing) reduction." 

"It is further ordered that the defendant shall be released from the custody of the Federal Bureau of Prisons as soon as her medical condition permits, the release plan is implemented, and travel arrangements can be made."

She'll be home within a few days at most. Her husband Ralph is in Fort Worth, TX near Carswell federal prison. 

They'll return to New York together. They'll do it joyously. They'll do it despite Lynne's wrongful imprisonment. They'll do it despite her grave medical condition.

She's dying. She has Stage Four cancer. Previous articles explained. Others addressed Judge Koeltl.

He originally sentenced Lynne to 28 months in prison. It shouldn't have been 28 seconds. Lynne never should have been prosecuted in the first place. In passing sentence Judge Koeltl said:

"She has represented the poor, the disadvantaged and the unpopular, (and she had) enormous skill and dedication (earning little money for doing it)." 

"It is no exaggeration to say that Ms. Stewart performed a public service not only to her clients but to the nation."

He cited hundreds of supportive letters. Former Attorney General Ramsey Clark sent one. So did law professors, former prosecutors, retired judges, and former clients.

On April 9, 2002, Lynne was wrongfully and maliciously indicted. At issue was decades of representing clients prosecutors wanted convicted. Bogus charges included:

  • "conspiring to defraud the United States; 

  • conspiring to provide and conceal material support to terrorist activity; 

  • providing and concealing material support to terrorist activity; and 

  • two counts of making false statements." 

On February 10, 2005, she was convicted on all counts. Jurors were intimidated to do so. Trial proceedings mocked fairness. Kangaroo court justice followed.

On October 17, 2006, Lynne was sentenced to 28 months imprisonment.

On November 17, 2009, a US Court of Appeals for the Second Circuit three-judge panel upheld Lynne's conviction.

They wrongfully accused her of "knowingly and willfully making false statements." They redirected her case to Judge Koeltl. They pressured him to re-sentence. 

They lied demanding enhancements for terrorism, perjury, and abuse of Lynne's position as a lawyer.

On November 19, 2009, Lynne was jailed in New York awaiting re-sentencing.

On July 15, 2010, Judge Koeltl imposed 10 years. A packed courtroom of Lynne's supporters heard him. 

A collective gasp, a few shrieks and sobs followed his re-sentencing. Husband Ralph called it "a death sentence."

Lynne addressed the court as follows:

"I'm somewhat stunned, Judge, by the swift change in my outlook. We will continue to struggle on to take all available options to do what we need to do to change this." 

"I feel like I let a lot of my good people down. Over the last eight months, prison has diminished me. Daily I confront the prospect of death." 

Judge Koeltl ignored the American Bar Association's Model Code of Judicial Conduct. Its preamble calls for:

  • "An independent, fair and impartial judiciary." It called it "indispensable to our system of justice;" 

  • "Judges...at all times (ensuring) the greatest possible public confidence in their independence, impartiality, integrity, and competence;"

  • "establish(ing) standards (of) ethical conduct (including) overarching principles of judicial ethics" (and fairness), consistent with constitutional requirements, statutes, other court rules, and decisional law, and with due regard for all relevant circumstances."

Lynne's lynching showed America's true face. Police state justice rules. It has final say. Fundamental rights don't matter. Guilt by accusation suffices.

Koeltl wasn't finished punishing Lynne. She petitioned for compassionate release. She qualifies in all respects. America's 1984 Sentencing Act grants them "for extraordinary and compelling reasons."

None rise to the level of life threatening illness. Ramsey Clark said Lynne "meets every legal, rational and humane criterion."

Her attorneys argued accordingly. On August 9, 2013, Judge Koeltl denied her. He did so disgracefully.

In sentencing Lynne in 2006, he said he didn't want to impose a death sentence. He didn't want Lynne to die in prison. 

He called her character "extraordinary." She's "a credit to her profession," he said.

Longterm imprisonment would be unjust, he added. It would be "unreasonable." He cited "the somewhat atypical nature of her case." He noted no "evidence that (anyone) was harmed."

It didn't matter. In July 2010, he re-sentenced Lynne to 10 years. On August 9, 2013, he denied her compassionate release request.

At the time, her attorney Jill Shellow said his ruling "is hardly the end of this fight."

Lynne re-petitioned for compassionate release. She wants the right to die at home. She calls prison "a strange and loveless place."

"I want to be where all is familiar - in a word, home," she said. Months passed without resolution. 

She never lost hope. On New Year's eve it came. Jill Shellow informed Lynne. She'll return to New York. 

She'll get expert medical care prison authorities denied her. It may be too late to save her. Her cancer metastasized. 

It spread to her lungs, lymph nodes, bones, shoulder and left arm pit. Other parts of her body are vulnerable. 

She may have only months to live. Whether expert medical care makes a difference remains to be seen.

On New Year's day 2014, Lynne's impending release awaits. She'll be home within days. She'll be reunited with loved ones.

Supporters will greet her. Yankee Stadium isn't big enough to hold them. After over four years of wrongful imprisonment, Lynne will be free at last.

Borrowing from Martin Luther King's "I Have a Dream" speech perhaps says it best," saying:

"Free at last. Free at last. Thank God almighty (Lynne's) free at last."

Stephen Lendman lives in Chicago. He can be reached at [email protected] 

His new book is titled "Banker Occupation: Waging Financial War on Humanity."

http://www.claritypress.com/LendmanII.html

Visit his blog site at sjlendman.blogspot.com. 

Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network.

It airs Fridays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

http://www.progressiveradionetwork.com/the-progressive-news-hour


http://www.dailycensored.com/lynne-stewart-coming-home/

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December 23rd, 2013, marks the 100th anniversary of the Federal Reserve, warranting a review of its performance.  Has it achieved the purposes for which it was designed?

The answer depends on whose purposes we are talking about.  For the banks, the Fed has served quite well.  For the laboring masses whose populist movement prompted it, not much has changed in a century.

Thwarting Populist Demands

The Federal Reserve Act was passed in 1913 in response to a wave of bank crises, which had hit on average every six years over a period of 80 years. The resulting economic depressions triggered a populist movement for monetary reform in the 1890s.  Mary Ellen Lease, an early populist leader, said in a fiery speech that could have been written today:

Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street. The great common people of this country are slaves, and monopoly is the master. . . . Money rules . . . .Our laws are the output of a system which clothes rascals in robes and honesty in rags. The parties lie to us and the political speakers mislead us. . . .

We want money, land and transportation. We want the abolition of the National Banks, and we want the power to make loans direct from the government. We want the foreclosure system wiped out.

That was what they wanted, but the Federal Reserve Act that they got was not what the populists had fought for, or what their leader William Jennings Bryan thought he was approving when he voted for it in 1913. In the stirring speech that won him the Democratic presidential nomination in 1896, Bryan insisted:

[We] believe that the right to coin money and issue money is a function of government. . . . Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank and that the government ought to go out of the banking business. I stand with Jefferson . . . and tell them, as he did, that the issue of money is a function of the government and that the banks should go out of the governing business.

He concluded with this famous outcry against the restrictive gold standard:

You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.

What Bryan and the populists sought was a national currency issued debt-free and interest-free by the government, on the model of Lincoln’s Greenbacks. What the American people got was a money supply created by private banks as credit (or debt) lent to the government and the people at interest. Although the national money supply would be printed by the U.S. Bureau of Engraving and Printing, it would be issued by the “bankers’ bank,” the Federal Reserve. The Fed is composed of twelve branches, all of which are 100 percent owned by the banks in their districts. Until 1935, these branches could each independently issue paper dollars for the cost of printing them, and could lend them at interest.

1929: The Fed Triggers the Worst Bank Run in History

The new system was supposed to prevent bank runs, but it clearly failed in that endeavor. In 1929, the United States experienced the worst bank run in its history.

The New York Fed had been pouring newly-created money into New York banks, which then lent it to stock speculators. When the New York Fed heard that the Federal Reserve Board of Governors had held an all-night meeting discussing this risky situation, the flood of speculative funding was retracted, precipitating the 1929 stock market crash.

At that time, paper dollars were freely redeemable in gold; but banks were required to keep sufficient gold to cover only 40 percent of their deposits. When panicked bank customers rushed to cash in their dollars, gold reserves shrank. Loans then had to be recalled to maintain the 40 percent requirement, collapsing the money supply.

The result was widespread unemployment and loss of homes and savings, similar to that seen today. In a scathing indictment before Congress in 1934, Representative Louis McFadden blamed the Federal Reserve. He said:

Mr. Chairman, we have in this Country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks . . . .

The depredations and iniquities of the Fed has cost enough money to pay the National debt several times over. . . .

Some people think that the Federal Reserve Banks are United  States  Government  institutions.  They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.

These twelve private credit monopolies were deceitfully and disloyally foisted upon this Country by the bankers who came here from Europe and repaid us our hospitality by undermining our American institutions.

Freed from the Bankers’ “Cross of Gold”

To stop the collapse of the money supply, in 1933 Roosevelt took the dollar off the gold standard within the United States. The gold standard had prevailed since the founding of the country, and the move was highly controversial. Critics viewed it as a crime. But proponents saw it as finally allowing the country to be economically sovereign.

This more benign view was taken by Beardsley Ruml, Chairman of the Federal Reserve Bank of New York, in a presentation before the American Bar Association in 1945. He said the government was now at liberty to spend as needed to meet its budget, drawing on credit issued by its own central bank. It could do this until price inflation indicated a weakened purchasing power of the currency. Then, and only then, would the government need to levy taxes—not to fund the budget but to counteract inflation by contracting the money supply. The principal purpose of taxes, said Ruml, was “the maintenance of a dollar which has stable purchasing power over the years. Sometimes this purpose is stated as ‘the avoidance of inflation.’”

It was a remarkable realization. The government could be funded without taxes, by drawing on credit from its own central bank. Since there was no longer a need for gold to cover the loan, the central bank would not have to borrow. It could just create the money on its books. Only when prices rose across the board, signaling an excess of money in the money supply, would the government need to tax—not to fund the government but simply to keep supply (goods and services) in balance with demand (money).

Ruml’s vision is echoed today in the school of economic thought called Modern Monetary Theory (MMT). But after Roosevelt’s demise, it was not pursued. The U.S. government continued to fund itself with taxes; and when it failed to recover enough to pay its bills, it continued to borrow, putting itself in debt.

The Fed Agrees to Return the Interest

For its first half century, the Federal Reserve continued to pocket the interest on the money it issued and lent to the government. But in the 1960s, Wright Patman, Chairman of the House Banking and Currency Committee, pushed to have the Fed nationalized. To avoid that result, the Fed quietly agreed to rebate its profits to the U.S. Treasury.

In The Strange Case of Richard Milhous Nixon, published in 1973, Congressman Jerry Voorhis wrote of this concession:

It was done, quite obviously, as acknowledgment that the Federal Reserve Banks were acting on the one hand as a national bank of issue, creating the nation’s money, but on the other hand charging the nation interest on its own credit—which no true national bank of issue could conceivably, or with any show of justice, dare to do.

Rebating the interest to the Treasury was clearly a step in the right direction. But the central bank funded very little of the federal debt. Commercial banks held a large chunk of it; and as Voorhis observed, “[w]here the commercial banks are concerned, there is no such repayment of the people’s money.” Commercial banks did not rebate the interest they collected to the government, said Voorhis, although they also “‘buy’ the bonds with newly created demand deposit entries on their books—nothing more.”

Today the proportion of the federal debt held by the Federal Reserve has shot up, due to repeated rounds of “quantitative easing.” But the majority of the debt is still funded privately at interest, and most of the dollars funding it originated as “bank credit” created on the books of private banks.

Time for a New Populist Movement?

The Treasury’s website reports the amount of interest paid on the national debt each year, going back 26 years. At the end of 2013, the total for the previous 26 years came to about $9 trillion on a federal debt of $17.25 trillion. If the government had been borrowing from its own central bank interest-free during that period, the debt would have been reduced by more than half. And that was just the interest for 26 years. The federal debt has been accumulating ever since 1835, when Andrew Jackson paid it off and vetoed the Second U.S. Bank’s renewal; and all that time it has been accruing interest. If the government had been borrowing from its central bank all along, it might have had no federal debt at all today.

In 1977, Congress gave the Fed a dual mandate, not only to maintain the stability of the currency but to promote full employment.  The Fed got the mandate but not the tools, as discussed in my earlier article here.

It may be time for a new populist movement, one that demands that the power to issue money be returned to the government and the people it represents; and that the Federal Reserve be made a public utility, owned by the people and serving them. The firehose of cheap credit lavished on Wall Street needs to be re-directed to Main Street.

__________________________

Ellen Brown is an attorney, president of the Public Banking Institute, and author of twelve books including the bestselling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her blog articles are at EllenBrown.com. She is currently running for California State Treasurer on the Green Party ticket.

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Timothy Alexander Guzman, Silent Crow News – A major economic crisis is looming in the Caribbean.  Puerto Rico, a US Commonwealth will be the center of attention in the world of finance in the coming months ahead.  Puerto Rico’s economy has been in a recession since 2006 and its bonds are close to junk status.  Puerto Rico is facing an alarming economic downturn that is clearly unsustainable.  The economy is headed for a major collapse, one not seen since the great depression, this time it could be far worse.  Puerto Rico has $70 billion in debt and an underfunded government pension system that will be eventually face cuts which only adds to more economic uncertainties for the population.  Unemployment levels are at 14.7 percent and a mass migration of the Puerto Rican people to the United States in search of better opportunities has taking hold.  Puerto Rico’s economy is dependent upon the United States government and its corporations, which many are pharmaceutical conglomerates.  It is politically and socially a “Colonial Possession” of the United States since the Spanish-American war of 1898.  However, Puerto Rico is not alone.  The United States has other colonial possessions namely Guam, American Samoa in the Pacific and the U.S. Virgin Islands.  France and Great Britain also has “Colonial Possessions” or “Overseas Territories” in a number of regions throughout the world.  Puerto Rico is no exception to the rule; it is a colony that has been exploited politically and economically for more than a century under US rule.

Puerto Rico’s economy is in a dire situation. As of October 2013, the official number of people who are unemployed is at 14.7 percent, perhaps a lot higher if you count those that have dropped out of the labor force because they are no longer looking for employment opportunities.  The Public debt is currently at $70 Billion and increasing daily. Early this month an article written by Justin Velez-Hagan who is executive director of The National Puerto Rican Chamber of Commerce for Forbes magazine titled ‘Default: Puerto Rico’s Inevitable Option’ describes what lead to Puerto Rico’s debt crises:

With triple tax exemption (federal, state, and local), combined with higher-than-average yields, Puerto Rican bonds became so popular in recent years that it was able to rack up $70 billion of debt now held by institutional investors and mutual funds alike. The debt-to-GDP ratio is now nearly 70% and growing, not including pension obligations, which raises the ratio to over 90%. With a per capita debt load of $19,000 and growing, Puerto Ricans shoulder almost 4 times the burden of U.S. leader Massachusetts which carries a deficit of $5,077 per citizen

Puerto Rico’s debt is 4 times larger than Massachusetts who Velez-Hagan acknowledges as the most indebted state per citizen with $19,000. The Washington Post also sounded alarm bells concerning Puerto Rico’s economic crises. In ‘Puerto Rico, with at least $70 billion in debt, confronts a rising economic misery’ Michael A. Fletcher describes what the commonwealth faces with cuts to pensions and government jobs and a rise in taxes all across the board including small and big businesses causing a migration of Puerto Ricans to major US cities:

The economy here has been in recession for nearly eight years, crimping tax revenue and pushing the jobless rate to nearly 15 percent. Meanwhile, the government is burdened by staggering debt, spawning comparisons to bankrupt Detroit and forcing lawmakers to severely slash pensions, cut government jobs and raise taxes in a furious effort to avert default.

The implications are serious for Americans outside Puerto Rico both because a taxpayer bailout would be expensive and a default would be far more disruptive than Detroit’s record bankruptcy filing in July. Officials in San Juan and Washington are adamant that a federal bailout is not on the table, but the situation is being closely monitored by the White House, which recently named an advisory team to help Puerto Rican officials navigate the crisis.

The island’s problems have ignited an exodus not seen here since the 1950s, when 500,000 people left for jobs on the mainland. Now Puerto Ricans, who are U.S. citizens, are again leaving in droves.  They are choosing the uncertainty of the job market in Orlando or New York City or Philadelphia over what they view as the certainty that their dreams would be crushed by the U.S. territory’s grinding economic problems.

Bloomberg Businessweek also published an article with concerns affecting the “Muni-Bond Market” that can rattle Wall Street’s Mutual Fund companies. ‘Puerto Rico’s Borrowing Binge Could Rock the Muni-Bond Market’ stated the facts:

The island’s plight affects almost anyone with a mutual fund invested in the municipal-bond market. Exempt from local, state, and federal taxes in the U.S., Puerto Rican bonds are held by 77 percent of muni funds, according to research firm Morningstar (MORN). About 180 funds, including ones run by OppenheimerFunds, Franklin Templeton Investments (BEN), and Dreyfus (BK), have 5 percent of their assets or more in Puerto Rican bonds.

General-obligation bonds, or GOs, which account for about 15 percent of the commonwealth’s public debt, carry the lowest investment-grade rating from Moody’s Investors Service (MCO) and S&P. A downgrade could force many mutual funds to sell part of their Puerto Rican holdings, flooding the market. “Puerto Rico could represent a systemic issue for the municipal-bond market,” says Carlos Colón de Armas, an economist and former official of the Government Development Bank, which conducts the island’s capital-markets transactions. “We are now in a situation where the bonds are trading like junk. I think the ratings agencies have been careful not to lower the GOs further, to avoid creating havoc in the muni-bond market.”

The Obama administration is sending a team of economic advisors according to Bloomberg News last month “With a $70 billion debt load and a substantially underfunded government pension system, the island has fueled market speculation it may need a bailout from Washington.” The report also stated what was on the agenda:

Most of the group’s work will focus on improving Puerto Rico’s management of federal funds to ensure officials are getting the amounts they are entitled to and putting them to effective use, according to the officials.  “There is less here than some people think,” said Jeffrey Farrow, who served as the Clinton White House’s liaison on Puerto Rican affairs. “This is pretty straightforward and an extension of what they have been doing in the past, but more intense, formalized and public.”

The first team of officials was scheduled to be from the Environmental Protection Agency and the Health, Education and Housing and Urban Development departments, officials said.  Puerto Rico’s education, health and housing departments are among of the biggest recipients of federal funding and have also been responsible for past Puerto Rico budget shortfalls.

The EPA’s intervention may stem from concerns regarding the ability of the Puerto Rico Electric Power Authority to comply with new federal air quality regulations that take effect in 2015.

The Environmental Protection Agency (EPA) is one of the agencies participating under Washington’s request. Washington has required that the Puerto Rico government and the Puerto Rico Electric Power Authority (PREPA) comply with new federal air quality regulations by 2015. The online news source Caribbean Business reported back on July 11th, 2013 ‘PREPA falling behind on 2015 EPA Deadline’ that Puerto Rico is in a race to meet Washington’s air-quality standards by 2015:

A high-ranking regulatory official is concerned that the Puerto Rico Electric Power Authority (Prepa) isn’t moving fast enough to comply with strict federal air-quality standards taking effect in two years, as industry sources told CARIBBEAN BUSINESS that key decisions on the compliance process won’t be taken until next spring.  Prepa plans to either close or convert most of its oil-firing units to natural gas to comply with the new air-quality standards, but it won’t select a liquefied natural gas (LNG) supplier and decide on a method to deliver the gas to north-coast plants until March 2014, according to industry sources. That means the final contracts would probably not be enacted and finalized until the fourth quarter of 2014, they added.

Meanwhile, Prepa has an agreement with Texas-based Excelerate Energy to construct an offshore LNG terminal to feed the massive Aguirre powerplant in Guayama. A formal application with the Federal Energy Regulatory Commission was filed in April and the project remains in the permitting phase. Excelerate officials have said they expect the facility to be in service in early 2015, but that outlook depends on getting timely federal approval on its environmental impact statement and several permits.

Puerto Rico’s plan to convert most of its oil-firing units to natural gas will have an impact on its economy. Puerto Rico Electric Power Authority (PREPA) does not have the economic capacity to invest in the construction of new plants that would supply natural gas. “While the cash-strapped public utility can’t afford to build its own plants, there is interest from large energy companies to construct new generation units through public-private partnerships (P3s)” the report stated. “That is especially the case because the move to natural gas isn’t just about compliance, but about bringing down power costs.” Caribbean Business said that Edgardo Fábregas, a former member of PREPA’s board confirmed that the public utility is considering a plan to construct a gas-fired plant “The former Prepa board member said the public utility was considering a longer-term plan to construct, through a P3 initiative, a massive natural gas-fired plant, probably on the site of Arecibo’s Cambalache plant, which is rarely used.” The report also said that Fábregas admitted to the costs associated with the project:

To do a project right, building a plant that could “flex up or down” rapidly and would have the capacity to power the entire north coast, would cost $7 billion, and take six years to build. The project would allow for the elimination of the Palo Seco and San Juan plants, Fábregas said. “We have to move to natural gas as soon as we can, but at the end of the day, you have to renew your system. I understand the cost and time implications involved, but if we don’t start, we will never finish,” he added.

According to Robert Bryce, a senior fellow with the Center for Energy Policy and the Environment at the Manhattan Institute for Policy Research, a conservative think tank based in New York City produced a report called ‘The High Cost of Renewable-Electricity Mandates’. He wrote about the effects of Washington’s new air-quality proposal:

Motivated by a desire to reduce carbon emissions, and in the absence of federal action to do so, 29 states (and the District of Columbia and Puerto Rico) have required utility companies to deliver specified minimum amounts of electricity from “renewable” sources, including wind and solar power. California recently adopted the most stringent of these so-called renewable portfolio standards (RPS), requiring 33 percent of its electricity to be renewable by 2020.  Proponents of the RPS plans say that the mandated restrictions will reduce harmful emissions and spur job growth, by stimulating investment in green technologies.

But this patchwork of state rules—which now affects the electricity bills of about two-thirds of the U.S. population as well as countless businesses and industrial users—has sprung up in recent years without the benefit of the states fully calculating their costs.  There is growing evidence that the costs may be too high—that the price tag for purchasing renewable energy, and for building new transmission lines to deliver it, may not only outweigh any environmental benefits but may also be detrimental to the economy, costing jobs rather than adding them.  The mandates amount to a “back-end way to put a price on carbon,” says one former federal regulator. Put another way, the higher cost of electricity is essentially a de facto carbon-reduction tax, one that is putting a strain on a struggling economy and is falling most heavily, in the way that regressive taxes do, on the least well-off among residential users.

To be sure, the mandates aren’t the only reason that electricity costs are rising—increased regulation of coal-fired power plants is also a major factor—and it is difficult to isolate the cost of the renewable mandates without rigorous cost-benefit analysis by the states.

The new mandate is called Renewable Portfolio Standards (RPS) that automatically “require electricity providers to supply a specified minimum amount of power to their customers from sources that qualify as “renewable,” a category that includes wind, solar, biomass, and geothermal.” The report clarified what the results of the new energy plan would bring:

The federal Environmental Protection Agency (EPA) is similarly bullish on the state programs. The RPS rules are designed “to stimulate market and technology development,” the agency says, “so that, ultimately renewable energy will be economically competitive with conventional forms of electric power. States create RPS programs because of the energy, environmental, and economic benefits of renewable energy.”[4]

Although supporters of renewable energy claim that the RPS mandates will bring benefits, their contribution to the economy is problematic because they also impose costs that must be incorporated into the utility bills paid by homeowners, commercial businesses, and industrial users. And those costs are or will be substantial. Electricity generated from renewable sources generally costs more—often much more—than that produced by conventional fuels such as coal and natural gas. In addition, large-scale renewable energy projects often require the construction of many miles of high-voltage transmission lines. The cost of those lines must also be incorporated into the bills paid by consumers.

What Edgardo Fábregas forgets to mention is that Bryce’s analysis on the price of producing electricity through renewable energy sources can be astronomical. It is an amazing prediction given by the EPA under the Obama administration’s directives. It is important to note that the major players in the RPS programs are connected to Wall Street and major banks that includes Goldman Sachs who is one of President Obama’s major campaign contributors. Author and journalist Matt Taibbi wrote an article on the history of Goldman Sachs and the US government’s relationship for Rolling Stone magazine called ‘The Great American Bubble Machine’. Taibbi explains how Goldman Sachs would benefit from Washington’s air-quality mandates:

The new carbon credit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won’t even have to rig the game. It will be rigged in advance.

Here’s how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy “allocations” or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the “cap” on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison’s sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.

One other important factor to consider regarding Puerto Rico’s energy demands in the future is the supply of natural gas. Puerto Rico is hoping to secure a steady supply of natural gas from the United States for the next 100 years. “A key part of the plan is to secure a long-term LNG contract with the U.S., which has the most economical prices in the world, the result of a boon in U.S. natural gas exploration, which has unearthed a supply that experts say will last a century” according to the Caribbean Business report.  In the 2012 State of the Union Address, US President Barack Obama said “We have a supply of natural gas that can last America nearly 100 years, and my administration will take every possible action to safely develop this energy.” F. William Endahl, a research associate at Global Research wrote a ground breaking report, ‘The Fracked-up USA Shale Gas Bubble’ wrote that the 100 year supply of natural gas is in fact an inaccurate prediction:

In a sobering report, Arthur Berman, a veteran petroleum geologist specialized in well assessment, using existing well extraction data for major shale gas regions in the US since the boom started, reached sobering conclusions. His findings point to a new Ponzi scheme which well might play out in a colossal gas bust over the next months or at best, the next two or three years. Shale gas is anything but the “energy revolution” that will give US consumers or the world gas for 100 years as President Obama was told.

Berman wrote already in 2011, “Facts indicate that most wells are not commercial at current gas prices and require prices at least in the range of $8.00 to $9.00/mcf to break even on full-cycle prices, and $5.00 to $6.00/mcf on point-forward prices. Our price forecasts ($4.00-4.55/mcf average through 2012) are below $8.00/mcf for the next 18 months. It is, therefore, possible that some producers will be unable to maintain present drilling levels from cash flow, joint ventures, asset sales and stock offerings.” [16]

Berman continued, “Decline rates indicate that a decrease in drilling by any of the major producers in the shale gas plays would reveal the insecurity of supply. This is especially true in the case of the Haynesville Shale play where initial rates are about three times higher than in the Barnett or Fayetteville. Already, rig rates are dropping in the Haynesville as operators shift emphasis to more liquid-prone objectives that have even lower gas rates. This might create doubt about the paradigm of cheap and abundant shale gas supply and have a cascading effect on confidence and capital availability.” [17]

What Berman and others have also concluded is that the gas industry key players and their Wall Street bankers backing the shale boom have grossly inflated the volumes of recoverable shale gas reserves and hence its expected supply duration. He notes, “Reserves and economics depend on estimated ultimate recoveries (EUR) based on hyperbolic, or increasingly flattening, decline profiles that predict decades of commercial production. With only a few years of production history in most of these plays, this model has not been shown to be correct, and may be overly optimistic….Our analysis of shale gas well decline trends indicates that the Estimated Ultimate Recovery per well is approximately one-half the values commonly presented by operators.” [18] In brief, the gas producers have built the illusion that their unconventional and increasingly costly shale gas will last for decades.

However, Caribbean Business says that “Prepa has invited several suppliers to bid on a project to supply the north-coast plants with natural gas. It is spelling out its gas needs at its Palo Seco and San Juan plants, letting the energy companies decide the best way to supply the natural gas” and that “Prepa has made some progress on its natural gas conversion plan, which energy experts say is the only way to bring down the high cost of electricity.” Allowing energy companies decide how to supply gas would add to the price in the long run. Russia Today recently reported that “fracking technology” is causing major environmental problems within the United States. Since 2008, the state of Texas has been experiencing more earthquakes than ever before:

Between 1970 and 2007, the area around the Texas town of Azle (pop. 10,000) experienced just two earthquakes. The peace and quiet began to change, however, at the start of 2008, when 74 minor quakes were reported in the region. Now an increasing number of people, including scientists, are speculating that natural gas production by fracking – a process that forces high pressure water and chemicals into rock in order to extract natural gas reserves – is the culprit. The problem, however, is proving the claims.

Cliff Frolich, earthquake researcher at the University of Texas, said waste water injection wells from fracking could be responsible for the recent spate of earthquake activity. “I’d say it certainly looks very possible that the earthquakes are related to injection wells,” he said in an interview with KHOU television.

Frolich left room for doubt when he said thousands of such wells have operated in Texas for decades with no quakes anywhere near them. Frolich co-authored a 2009 study on earthquake activity near Cleburne, just south of Azle, which concluded: “The possibility exists that earthquakes may be related to fluid injection.” A recent government study lent credence to Frolich’s findings.

There have been Anti-fracking protests around the world. Fracking or “hydraulic fracturing” is a water-intensive process where millions of gallons of water, sand, and chemicals combined are injected underground with intensive pressure to fracture rocks that surround an oil or gas well. This process then releases extra oil and gas from the rock which flows into the well. “Fracking Technology” is proving to be environmentally dangerous for the health and safety of communities located in close proximity to these well sites. It causes many problems for the air we breathe and long-term environmental damage. For example, water can become contaminated from the toxins fracking has caused. It is an environmental hazard.

EPA rules and regulations also have the potential to impose a “carbon tax option” for states according to The Hill, A Washington D.C. based daily newspaper reported last month that Brookings Institution economist Adele Morris said that a carbon excise tax can be imposed on states:

Morris, a carbon tax supporter, argues that a carbon excise tax could be part of the “menu of specific approaches” that the agency gives states that will craft plans to meet the federal guidelines. Morris suggests that the EPA could “allow states to adopt a specific state-level excise tax or fee on the carbon content of fuels combusted by the power plants regulated under this rule.”

In other words, an excise tax associated with renewable energy supplies can be added only leading to higher energy costs for households, businesses and major industries. It would also allow Puerto Rico to contribute to the environmental degradation because of its future demands of natural gas which has no guarantee of supplies for the next 100 years. It is a recipe for disaster for both the economy and the environment.

 Will new EPA rules bankrupt farmers?

It is estimated that Puerto Rico imports at least 85% of the food supply from the United States according to the Latin American Herald Tribune. ‘Puerto Rico Imports 85 Percent of Its Food’ stated that “Puerto Rico imports 85 percent of the food its residents consume due to the lack of competitiveness among companies in this U.S. commonwealth, Agriculture Secretary Javier Rivera told Efe.” Agriculture Secretary Rivera admits that the majority of food is imported from the United States even though Puerto Rico has the capability to produce its own food, but cannot compete with US food suppliers. Rivera continued “Although we have the technical capacity, we’re not able to produce competitively” Why? “The secretary attributed the drop in production to the high operating costs of growing food on the island, which are, in turn, a result of high labor costs, as well as rising energy and fertilizer prices. Rivera acknowledged that therefore many farmers – of which there are fewer than 2,000 on the island, according to recent statistics – have come to depend on government subsidies to stay in business.” With new EPA regulations, remaining farmers will bear higher-energy costs because of the EPA’s new federal air quality regulations that will start in 2015. Agriculture on the island would be affected and farmers would be economically bankrupt when energy prices begin to rise.

From the 1929 Great Depression to the Recession of 2014

Looking back to the 1930’s, Puerto Rico was in economic despair due to the effects of the Great Depression. In 1940, the Popular Democratic Party (PPD) under the leadership of Washington’s puppet governor Luis Munoz Marin came to power with 37.9% of the vote compared to 39.2% of the Republican-Socialist coalition. The PPD also won the 1944 elections with 64.8% of the vote. The PPD was determined to transform Puerto Rico’s economy from an Agricultural farm-based to an export-driven modern industrial economy.

The US and Puerto Rico governments wanted to fast track the urbanization in many areas from a rural society to a modern, industrial urban center that would resemble New York City’s economy. For a short period of time, the project did increase living wages, improved housing conditions, health care and education. It also led to equitable land reforms,. At the same time the plan increased unemployment rates because many Puerto Ricans were unqualified for the types of jobs the new Industrial economy provided. It increased the migration levels to the United States, namely New York, New Jersey and Pennsylvania.

Puerto Rico became more dependent on U.S. markets and created more public and private debts. The most important aspect of US economic and political control of Puerto Rico was the cultural transformation of the population. It became what sociologist call “Americanization”. They were subjected to American culture, media, laws, and even its foods under Washington’s economic and social plan. In ‘Economic History of Puerto Rico: Institutional Change and Capitalist Development’ by James L. Dietz, professor of economics and Latin American studies at California State University wrote:

Industrialization and the accompanying decline of agriculture after the late 1940s did nothing to expand and make permanent the relative autonomy of the early 1940s. Instead, the PPD program had just the opposite result: it laid the foundation for increased dominance by U.S. capital from the 1950s to the present. The PPD’s goal of eventual political independence, after the attainment of social justice and a solution to the island’s economic problems, faded further into the future and eventually disappeared altogether. It may be that Munoz and the PPD never really were committed to independence, as many have suggested, but it is more likely that, as the PPD’s redirection of the economy under Munoz’s leadership tied its destiny ever closer to that of the United States, what they had became what they wanted as what they had wanted slipped further and further from their grasp

In ‘How an Economy Grows and why it Crashes’ author and economist Peter Schiff stated that “The evidence supporting these claims is largely emotional. What is far more certain is that the government’s monopoly control of public projects and services almost always leads to inefficiency, corruption, graft, and decay.” Puerto Rico’s economy was under US control then as it is now. Dietz says that “From 1941 to 1949, the government followed a program of land reform, control over and development of infrastructure and institutions, administrative organization, and limited industrialization through factories owned and operated by the government.” Comparing to what Peter Schiff said the Puerto Rican government’s control of certain economic sectors led to numerous “inefficiencies” and “Decay.” The bleak economic growth of Puerto Rico did not improve through a program called ‘Operacion Manos a la Obra’ or ‘Operation Bootstrap’ in English. It was known as “Industrialization by Invitation” to attract foreign investment. It failed in the long-run. Dietz further wrote:

“Yet Operation Bootstrap made it difficult for Puerto Ricans to improve their standard of living through their own efforts, since it put control over that process in the hands of U.S. firms, whose interests did not necessarily coincide with those of the majority on the island. It is likely that no one consciously intended such results from a development program that seemed so promising, but Puerto Rico’s colonial relation with the United States prevented, or at a minimum made more difficult, a more independent existence for the economy and society”

Puerto Rico’s dependence on the US mainland became evident as the years went by, but right from the beginning of World War II, Puerto Rico’s economy suffered.  “The war shut Puerto Rico off from its primary export market and source of imported goods, and meanwhile, there were no war industries to absorb surplus labor; consequently, unemployment increased” according to Dietz.  Today, Puerto Rico is suffering from a recession that started in 2006. In another report by Caribbean Business ‘PR reverses growth forecast, now predicts another year of recession’ and stated the dire predictions by the government of Puerto Rico, “The Puerto Rico government has dropped expectations for economic growth this fiscal year as the island struggles to pull out of a marathon downturn dating back to 2006. The Planning Board said Friday it is now projecting that the economy will shrink by 0.8 percent in fiscal 2014, dropping its previous forecast for razor-thin growth of 0.2 percent.” Puerto Rico’s economy will continue to decline as the US economy continues with its own economic problems. It will become more difficult as time progresses for Puerto Rico.

The Collapsing US Dollar and the Fall of Rome   

The US Dollar as a the world’s reserve currency is in its last stages because the US owes trillions of dollars in household, corporate and financial debt and future underfunded welfare liabilities.  The demand for U.S. dollars kept prices and interest rates low. It allowed the U.S. government to acquire the economic power it needed to dominate the world economically. It allowed the Federal Reserve Bank to print dollars unconditionally. Although the US dollar is still dominate with more the 50% of foreign currency reserves in the world, a gradual transition for other currencies is coming in the near future. The dollar will eventually lose its value. Interest rates on every loan and credit card will rise.

This is a recipe for disaster, because if a country such as Puerto Rico cannot produce its own food and is dependent on a foreign source that is the most indebted nation in world history with more than $17 trillion dollars in debt which continues to increase each passing day is a serious problem for Puerto Rico’s future. Tyler Durden of zerohedge.com provided a chart in 2012 to show the fiscal danger the United States faces in the near future. Durden explains:

We present the following chart showing total US Federal debt/GDP as well as Deficit/(Surplus)/GDP since inception, or in this case as close as feasible, or 1792, which appears to be the first recorded year of historical fiscal data. We can see why readers have been so eager to see the “real big picture” – the chart is nothing short of stunning.

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Congressional Budget Deal Betrayal

Congressional Budget Deal Betrayal

by Stephen Lendman

Days ahead of adjourning until January, bipartisan complicity struck a deal no responsible government would accept.

House Budget Committee Chairman Paul Ryan (R. WI) and Senate Budget Committee Chairwoman Patty Murray (D. WA) were involved.

On Tuesday, Obama thanked them for doing so. He asked for swift congressional action "so (he) can sign it into law and our economy can continue growing and creating jobs without more Washington headwinds."

He's mindless of the harm it causes. Throughout his tenure, he's waged war on social justice. 

He wants America's resources earmarked for militarism, homeland repression, and generous corporate handouts.

Monied interests benefit enormously. Ordinary people are systematically denied. Budget terms hit them harder. More on that below.

Obama called Tuesday's agreement "a good first step." He lied saying it'll grow the economy and strengthen the middle class. 

He wrecked both throughout his tenure. He wants ordinary people hit harder going forward. He wants them increasingly on their own out of luck.

Budget terms replace a small portion of harmful sequester cuts. It's far too little to matter. Around $1.2 trillion over 10 years was agreed on. Well over $1 trillion remains. Expect lots more added later.

Cuts target vital social programs too important to lose. Deficit savings come mostly at the expense of Medicare providers. They've been hit hard before. They're targeted again.

Doctors and hospitals lose another 2% of their income. Doing so amounts to over $120 billion over 10 years. Social Security and Medicaid were spared.

Federation of American Hospitals president Chip Kahn criticized the deal, saying:

"America’s hospitals have grave concerns about the Murray-Ryan proposed budget agreement and urge Members of Congress to oppose it."

"The budget agreement threatens access to critical health care services for seniors by trading off Medicare cuts for increases in government and defense spending today." 

"Rather than providing relief to the arbitrary Medicare sequester cuts, this agreement maintains the current cuts and extends these cuts into the future." 

"It sustains bad budget policy under the guise of solving real mandatory spending issues facing this country."

Last spring, American Medical Association president Dr. Jeremy Lazarus said:

"Over the last 12 years, Medicare payments to physicians increased only 4%, while the cost of providing care jumped 20%." Budget cuts make it harder for patients to get care, he added. 

"One in five Medicare patients already (face) difficulties in finding a doctor to take them. If you cut their pay, this access problem will only get worse."

Federal law triggers annual Medicare cuts. Congress blocked a 29% provider cut last January. It blocked others over the past decade.

Deficit reduction is too meager to matter. A short explanation said:

"The budget proposal saves $28 billion over ten years by requiring the President to sequester the same percentage of mandatory budgetary resources in 2022 and 2023 as will be sequestered in 2021 under current law."

So-called mandatory budget resources refers mostly to Medicare providers. Budget deal terms are for two years. Government remains funded through September 30, 2015.

Cuts are about $63 billion in mostly domestic programs. FY 2014 spending increases to $1.012 trillion. In FY 2015, it's higher at $1.014 trillion.

This year's spending reflected compromise. Months earlier, Senate members passed a $1.058 trillion budget. House members approved $967.

Current fiscal year military spending is $520.5 billion. Generous off-budget add-ons and black budgets add tens of billions more.

Domestic programs are allocated $491.8 billion. Around $63 billion in new spending over the next two years provides somewhat more for Pentagon priorities than domestic ones.

Most sequester cuts are delayed. They'll continue annually through FY 2024. They'll be more later than now. Expect new cuts in the interim.

Social America is on the chopping block for elimination. Social Security, Medicare and Medicaid are prime targets. Expect stiff cuts later on.

Current ones affect Medicare providers. They hit newly hired federal workers. They'll pay more into their pension fund. 

Washington will contribute less. Effectively their pay is cut. It comes when inflation is far more than officially reported. Current federal employees aren't affected.

Military retirees under age 62 face a 1% cost-of-living (COLA) cut. They'll get less than they expected and deserve.

Selected government fees rise. Air travel got more expensive. One-way increases from $2.50 to $5.60. For round trips, it's $11.20. 

It's for TSA security. It's more illusion than reality. It enriches well-connected providers. They profit hugely. 

Scamming people to falsely believe they're safer pays well. Profiteers will earn more going forward. They'll do so at travelers' expense.

A dozen or more other cuts are imposed. They save a billion here, a  few billion there. Combined they decrease government services. 

They do so when increasing vital domestic ones should be prioritized. Regressive policies head them the wrong way.

Agreement terms don't raise the debt limit. The Congressional Budget Office (CBO) estimates it'll be reached between March and June.

In October, Congress agreed to suspend the borrowing limit until February 7, 2014. Emergency Treasury measures let Washington keep doing it short-term. 

They include suspending pension payments. Neither party said how they'll resolve the debt ceiling as next February approaches. Political brinksmanship may repeat. 

Congress never failed to raise it. Since 1940, they did so 79 times. It lets the Treasury borrow more money. It's needed to pay federal obligations on time.

In theory, the debt ceiling is supposed to control federal spending. In reality, it does nothing of the sort. Expect another increase before Washington runs out of money next year.

Democrats largely support the budget deal. So do most House Republicans.  Speaker John Boehner said:

"While modest in scale, this agreement represents a positive step forward by replacing one-time spending cuts with permanent reforms to mandatory spending programs that will produce real, lasting savings."

Some Republicans oppose it. Senator Rand Paul (R. KY) said "undoing tens of billions of this modest spending restraint is shameful and must be opposed."

Americans for Prosperity is a Koch Brothers affiliated group. AFP president Tim Phillips said:

"The American people demanded, and were promised, reasonable spending limits. Politicians choosing to go back on their promise will be held accountable for their actions." 

"Republicans should once again stand firm in upholding the modest sequestration spending cuts."

Budget terms delivered a lump of coal for Christmas. Around 1.3 million longterm jobless workers are affected. Their unemployment benefits expire yearend.

Republicans, Democrats and Obama agreed. They won't be extended. They'll be cut off. So will another 3.6 million unemployed in the first and second 2014 quarters.

By summer next year, nearly five million needy people will be dumped. They'll be ignored. So will their families.

Tax cuts for rich elites went untouched. So did generous corporate handouts. In 2014, they'll get lower tax rates. It's separate from the budget deal. It keeps America's war machine well funded. 

Vulnerable unemployed workers are on their own. It comes during protracted Main Street Depression conditions. 

Real unemployment tops 23%. Fake numbers conceal reality. So-called recovery is a convenient illusion.

Leaving five million unemployed workers and their families on their own any time is reprehensible. Doing it when hard times keep getting harder is unconscionable.

Doing it while generously funding corporate interests and war profiteering exceeds harshness. 

Imagine! The world's richest country doesn't care. Popular interests go begging. Others benefitting wealth, power and privilege matter most.

Budget deal duplicity continues force-fed austerity. Obama's tenure reflects multiple rounds of social spending cuts. Vital programs were slashed.

Medicare was hard hit. More cuts are planned. Other vital programs are targeted. They face major cutbacks or elimination altogether. 

Food stamp recipients were hit at the worst possible time. America's hungry face less help ahead. Homeless people are entirely on their own.

America's most disadvantaged face harder than ever hard times. Budget priorities increasingly ignore them. 

Millions needlessly suffer. Bipartisan duplicity force feeds misery. Obama mandates it. So do most congressional members. Washington wages financial war on its most disadvantaged. 

Neoliberal harshness is official policy. So is destroying America's social contract. I don't care defines Washington's agenda. Profiles in courage are sorely lacking.

Waging war on living standards reflects race to the bottom priorities. America was never beautiful. It's worse than ever in modern times.

Institutionalized inequality defines immorality. Future prospects look grim. America appears headed for third world status. 

Disproportionate wealth and poverty extremes reflect it. So do millions of hungry children. 

Leaving them on their own ill-nourished bears testimony to callous indifference. Bipartisan complicity assures it.

Stephen Lendman lives in Chicago. He can be reached at [email protected] 

His new book is titled "Banker Occupation: Waging Financial War on Humanity."

http://www.claritypress.com/LendmanII.html

Visit his blog site at sjlendman.blogspot.com. 

Listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network.

It airs Fridays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

http://www.progressiveradionetwork.com/the-progressive-news-hour


http://www.dailycensored.com/congressional-budget-deal-duplicity/

Raw Deal

About the only good thing that can be said about the budget deal just patched together by House Republican budget chair Paul Ryan and Senate Democratic budget chair Patty Murray is that the right-wing Heritage Foundation and the Koch brothers’ Americans for Prosperity oppose it.

But that doesn’t mean it’s a good deal for the country. In fact, it’s a bad deal, for at least three reasons:

First, it fails extend unemployment benefits for 1.3 million jobless who will lose them in a few weeks. These people and their families are still caught in the worst downturn since the Great Depression.

Almost three Americans are jobless for every job that’s available – a ratio worse than it was at the bottom of the last downturn.

Moreover, the nation still harbors an unprecedented number of long-term unemployed. In past recessions emergency benefits continued until the rate of long-term employment hovered around 1 percent or less. But the current level of long-term unemployed is 2.6 percent.

The second reason this deal is bad is it contributes to the nation’s savage inequality. The deal doesn’t close a single tax loophole for wealthy, and it doesn’t restore food stamps to the poor.

Third, the deal makes no fiscal sense. It’s topsy-turvy: The deal contains no short-term stimulus, and does nothing about the long-term deficit.

Although the deal overrides the dread “sequester” that mindlessly cuts domestic spending (except for Social Security, Medicare, and Medicaid), it doesn’t put an end to the sequester. It merely postpones the sequester for two years.

The deal does remove the treat of another government shutdown January 15, when the stopgap spending resolution that reopened the government in October runs out. But it doesn’t prevent another standoff over the debt ceiling next March when the borrowing authority of the government is exhausted.

I can understand why Republican leaders like this deal. They don’t want to risk another government shutdown, given how badly they got burned by the last one earlier in the fall. As the midterm elections loom, they’d rather keep attention focused on whatever they can find that’s wrong with the Affordable Care Act – or, more accurately, whatever trumped-up charge they and their megaphones at Fox News and yell radio can bring against the Act.

But America would do better with another temporary spending resolution than with this raw deal.

On hearing of the deal yesterday, President Obama said, “that’s the way the American people expect Washington to work.” Sadly, he was not being ironic.

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December 23rd marks the 100th anniversary of the Federal Reserve. Dissatisfaction with its track record has prompted calls to audit the Fed and end the Fed. At the least, Congress needs to amend the Fed, modifying the Federal Reserve Act to give the central bank the tools necessary to carry out its mandates.

The Federal Reserve is the only central bank with a dual mandate. It is charged not only with maintaining low, stable inflation but with promoting maximum sustainable employment. Yet unemployment remains stubbornly high, despite four years of radical tinkering with interest rates and quantitative easing (creating money on the Fed’s books). After pushing interest rates as low as they can go, the Fed has admitted that it has run out of tools.

At an IMF conference on November 8, 2013, former Treasury Secretary Larry Summers suggested that since near-zero interest rates were not adequately promoting people to borrow and spend, it might now be necessary to set interest at below zero. This idea was lauded and expanded upon by other ivory-tower inside-the-box thinkers, including Paul Krugman.

Negative interest would mean that banks would charge the depositor for holding his deposits rather than paying interest on them. Runs on the banks would no doubt follow, but the pundits have a solution for that: move to a cashless society, in which all money would be electronic. “This would make it impossible to hoard cash outside the bank,” wrote Danny Vinik in Business Insider, “allowing the Fed to cut interest rates to below zero, spurring people to spend more.” He concluded:

. . . Summers’ speech is a reminder to all liberals that he is a brilliant economist who grasps the long-term issues of monetary policy and would likely have made an exemplary Fed chair.

Maybe; but to ordinary mortals living in the less rarefied atmosphere of the real world, the proposal to impose negative interest rates looks either inane or like the next giant step toward the totalitarian New World Order. Business Week quotes Douglas Holtz-Eakin, a former director of the Congressional Budget Office: “We’ve had four years of extraordinarily loose monetary policy without satisfactory results, and the only thing they come up with is we need more?”

Paul Craig Roberts, former Assistant Secretary of the Treasury, calls the idea “harebrained.” He is equally skeptical of quantitative easing, the Fed’s other tool for stimulating the economy. Roberts points to Andrew Huszar’s explosive November 11th Wall Street Journal article titled “Confessions of a Quantitative Easer,” in which Huszar says that QE was always intended to serve Wall Street, not Main Street.  Huszar’s assignment at the Fed was to manage the purchase of $1.25 trillion in mortgages with dollars created on a computer screen. He says he resigned when he realized that the real purpose of the policy was to drive up the prices of the banks’ holdings of debt instruments, to provide the banks with trillions of dollars at zero cost with which to lend and speculate, and to provide the banks with “fat commissions from brokering most of the Fed’s QE transactions.”

A Helicopter Drop That Missed Its Target

All this is far from the helicopter drop proposed by Ben Bernanke in 2002 as a quick fix for deflation. He told the Japanese, “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” Later in the speech he discussed “a money-financed tax cut,” which he said was “essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.” Deflation could be cured, said Professor Friedman, simply by dropping money from helicopters.

But there has been no cloudburst of money raining down on the people. The money has gotten only into the reserve accounts of banks. John Lounsbury, writing in Econintersect, observes that Friedman’s idea of a helicopter drop involved debt-free money printed by the government and landing in people’s bank accounts. “He foresaw the money entering the economy through bank deposits, not through bank reserves which was the pathway available to Bernanke. . . . [W]hen Ben Bernanke fired up his helicopter engines he took the only path available to him.”

Bernanke created debt-free money and bought government debt with it, returning the interest to the Treasury. The result was interest-free credit, a good deal for the government. But the problem, says Lounsbury, is that:

The helicopters dropped all the money into a hole in the ground (excess reserve accounts) and very little made its way into the economy.  It was essentially a rearrangement of the balance sheets of the creditor nation with little impact on the debtor nation.

. . . The fatal flaw of QE is that it delivers money to the accounts of the creditors and does nothing for the accounts of the debtors. Bad debts remain unserviced and the debt crisis continues.

Thinking Outside the Box

Bernanke delivered the money to the creditors because that was all the Federal Reserve Act allowed. If the Fed is to fulfill its mandate, it clearly needs more tools; and that means amending the Act.  Harvard professor Ken Rogoff, who spoke at the November 2013 IMF conference before Larry Summers, suggested several possibilities; and one was to broaden access to the central bank, allowing anyone to have an ATM at the Fed.

Rajiv Sethi, Barnard/Columbia Professor of Economics, expanded on this idea in a blog titled “The Payments System and Monetary Transmission.” He suggested making the Federal Reserve the repository for all deposit banking. This would make deposit insurance unnecessary; it would eliminate the need to impose higher capital requirements; and it would allow the Fed to implement monetary policy by targeting debtor rather than creditor balance sheets. Instead of returning its profits to the Treasury, the Fed could do a helicopter drop directly into consumer bank accounts, stimulating demand in the consumer economy.

John Lounsbury expanded further on these ideas. He wrote in Econintersect that they would open a pathway for investment banking and depository banking to be separated from each other, analogous to that under Glass-Steagall. Banks would no longer be too big to fail, since they could fail without destroying the general payment system of the economy. Lounsbury said the central bank could operate as a true public bank and repository for all federal banking transactions, and it could operate in the mode of a postal savings system for the general populace.

Earlier Central Bank Ventures into Commercial Lending

That sounds like a radical departure today, but the Fed has ventured into commercial banking before. In 1934, Section 13(b) was added to the Federal Reserve Act, authorizing the Fed to “make credit available for the purpose of supplying working capital to established industrial and commercial businesses.” This long-forgotten section was implemented and remained in effect for 24 years. In a 2002 article on the Minneapolis Fed’s website called “Lender of More Than Last Resort,” David Fettig noted that 13(b) allowed Federal Reserve banks to make loans directly to any established businesses in their districts, and to share in loans with private lending institutions if the latter assumed 20 percent of the risk. No limitation was placed on the amount of a single loan.

Fettig wrote that “the Fed was still less than 20 years old and many likely remembered the arguments put forth during the System’s founding, when some advocated that the discount window should be open to all comers, not just member banks.” In Australia and other countries, the central bank was then assuming commercial as well as central bank functions.

Section 13(b) was eventually repealed, but the Federal Reserve Act retained enough vestiges of it in 2008 to allow the Fed to intervene to save a variety of non-bank entities from bankruptcy. The problem was that the tool was applied selectively. The recipients were major corporate players, not local businesses or local governments. Fettig wrote:

Section 13(b) may be a memory, . . . but Section 13 paragraph 3 . . . is alive and well in the Federal Reserve Act. . . . [T]his amendment allows, “in unusual and exigent circumstances,” a Reserve bank to advance credit to individuals, partnerships and corporations that are not depository institutions.

In 2008, the Fed bailed out investment company Bear Stearns and insurer AIG, neither of which was a bank. Bear Stearns got almost $1 trillion in short-term loans, with interest rates as low as 0.5%. The Fed also made loans to other corporations, including GE, McDonald’s, and Verizon.

In 2010, Section 13(3) was modified by the Dodd-Frank bill, which replaced the phrase “individuals, partnerships and corporations” with the vaguer phrase “any program or facility with broad-based eligibility.” As explained in the notes to the bill:

Only Broad-Based Facilities Permitted. Section 13(3) is modified to remove the authority to extend credit to specific individuals, partnerships and corporations. Instead, the Board may authorize credit under section 13(3) only under a program or facility with “broad-based eligibility.”

What programs have “broad-based eligibility” is not clear from a reading of the Section, but it isn’t individuals or local businesses. It also isn’t state and local governments.

No Others Need Apply

In 2009, President Obama proposed that the Fed extend its largess to the cash-strapped cities and states battered by the banking crisis. “Small businesses and state and local governments are having serious difficulty obtaining necessary financing from debt markets,” Obama said. He proposed that the Fed buy municipal bonds to cut their rising borrowing costs.

The proposed municipal bond facility would have been based on the Fed program to buy commercial paper, which had almost single-handedly propped up the market for short-term corporate borrowing. Investors welcomed the muni bond proposal as a first step toward supporting the market.

But Bernanke rejected the proposal. Why? It could hardly be argued that the Fed didn’t have the money. The collective budget deficit of the states for 2011 was projected at $140 billion, a drop in the bucket compared to the sums the Fed had managed to come up with to bail out the banks. According to data released in 2011, the central bank had provided roughly $3.3 trillion in liquidity and $9 trillion in short-term loans and other financial arrangements to banks, multinational corporations, and foreign financial institutions following the credit crisis of 2008. Later revelations pushed the sum up to $16 trillion or more.

Bernanke’s reasoning in saying no to the muni bond facility was that he lacked the statutory tools.. The Fed is limited by statute to buying municipal government debt with maturities of six months or less that is directly backed by tax or other assured revenue, a form of debt that makes up less than 2% of the overall muni market.

The Federal Reserve Act was drafted by bankers to create a banker’s bank that would serve their interests. It is their own private club, and its legal structure keeps all non-members out.  A century after the Fed’s creation, a sober look at its history leads to the conclusion that it is a privately controlled institution whose corporate owners use it to direct our entire economy for their own ends, without democratic influence or accountability.  Substantial changes are needed to transform the Fed, and these will only come with massive public pressure.

Congress has the power to amend the Fed – just as it did in 1934, 1958 and 2010. For the central bank to satisfy its mandate to promote full employment and to become an institution that serves all the people, not just the 1%, the Fed needs fundamental reform.

___________________

Ellen Brown is an attorney, president of the Public Banking Institute, and author of twelve books, including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her blog articles are at EllenBrown.com.

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The Debt Matrix: Consumption and Modern-Day Slavery

“Home life ceases to be free and beautiful as soon as it is founded on borrowing and debt”

Henrik Ibsen

Timothy Alexander Guzman, Silent Crow News – According to Oxford Dictionary the term Slave is defined as a person who is the legal property of another and is forced to obey them” as in the case of the United States during the 18th and 19th centuries where slavery was a legalized institution.  Oxford dictionary also defines slavery as “a person who works very hard without proper remuneration or appreciation” as in today’s world of a person working for a company or corporation where their efforts are usually under appreciated.  It also describes a slave as “a person who is excessively dependent upon or controlled by something” or “a device, or part of one, directly controlled by another”.  Debt can be an instrument used to control an individual or a nation for that matter.  In this case, an individual is dependent upon “Credit” to buy products.  Then the credit becomes a debt that has to be repaid.  It becomes a “control mechanism” as the creditor becomes the “Slave Owner” and the debtor becomes the “Slave”.  What is the point?   In today’s world of unlimited credit, consumers become modern-day slaves to their creditors.  What is the difference between slavery in 18th century America with imported African slaves and the America of 2013?  There is no difference besides the physical abuse of the African slaves by their owners.  In America, consumers suffer psychological abuse by its creditors.  As long as an individual remains in debt bondage, that person will have to repay that debt until the day that person literally dies in most cases.

Black Friday is the day that starts the most important holiday for big name retailers and Wall Street speculators and that is Christmas.  It is the shopping season that investors, economists and corporations pay close attention to as they measure consumer confidence and the profits they reap from consumer spending.  Major retailers and corporations such as Wal-Mart expect to make profits.  Wall Street expects consumers to spend on Black Friday through the Christmas holidays following the Federal Reserve’s continued policies of Quantitative Easing (QE).  Economists across the spectrum predict that the new Federal Reserve chairwoman Janet Yellen will continue to buy US bonds indefinitely continuing Ben Bernanke’s current policies.  All the while consumers continue to accumulate debt.  Black Friday was marked with chaos followed by violence as mobs of consumers’ raided shopping centers and malls for discounts and sales on numerous products including flat screen televisions, toys, clothing and other goods they most likely don’t need.  Regardless of the economic situation, consumers will continue to buy.  Granted, Christmas is about giving your loved ones gifts in a traditional sense.  It is also about spending time with the family.  It is supposed to be a joyous holiday for families, but the American population is mired in debt ranging from credit cards, mortgages, student loans and auto loans.  Earlier this month Bloomberg reported that U.S. households increased their debt levels by continuing to borrow at unprecedented levels:

Consumer indebtedness rose $127 billion to $11.28 trillion, the biggest increase since the first quarter of 2008, according to a quarterly report on household debt and credit released today by the Fed district bank. Mortgage balances climbed $56 billion, student loans increased $33 billion, auto loans were up $31 billion and credit-card debt rose by $4 billion.

“We observed an increase of household balances across essentially all types of debt,” Donghoon Lee, senior research economist at the New York Fed, said in a statement. “With non-housing debt consistently increasing and the factors pushing down mortgage balances waning, it appears that households have crossed a turning point in the deleveraging cycle.”

Consumerism has taking hold in America.  The population continues to stampede at malls and in some cases injuring and even killing individuals.  In 2008, a Wal-Mart worker was trampled to death in Long Island, New York by a stampede of hungry consumers looking for bargains.  There were also several people injured during the incident.  This Black Friday proved to be more of the same as shoppers filled shopping malls.  Some malls experienced violent crowds pushing and fighting with each other over items that were on sale.  It is absolutely mind boggling to see average people become violent over products sold at major retail stores.  Morality is in decline in America.

Regardless of debt the American public faces, it seems that shopping is the only thing that matters.  As debt increases it becomes harder for them to repay.  Can the American people ever awaken from their dystopian nightmare of mass consumption of products they don’t need?  They are accumulating large amounts of debt thanks to the Federal Reserve Bank’s printing of unlimited cheap money with incredibly zero to low interest rates.  Although, many do buy their basic necessities such as food and clothing, buying the latest products that includes video games and other computer gadgets are turning consumers into life-long debt slaves that will continue to pay their credit card companies with “interest” until the debt is paid.  That can take a long period of time since interest rates are tied to credit cards and other revolving loan payments.  According to the Federal Reserve Bank (who continues endless money printing) and other government institutions, the average US household owes between $7,000 and $15,112 on credit cards.  The average mortgage debt is at $146,215 and student loans’ reaching the $1 trillion mark is at $31,240.  The total amount of debt the United States owes to its creditors namely China is at $17 Trillion and steadily increasing as the Federal Reserve Bank continues to buy its own US bonds.

Debt Slavery is the new modern-day slavery as millions continue to buy products on credit becoming perpetual servants of mega corporations and international banks.  How?  As you buy with credit cards or loans, the “interest rates” attached to the purchases made is the bond that ties you and the corporate interests or bankers for eternity.  The debt people get into is difficult to escape as interest rates accumulate over time it becomes extremely difficult to repay since it keeps adding up.  In the 2009 film called ‘The International’ with Clive Owen and Naomi Watts which was actually inspired by the BCCI (Bank of Credit and Commerce International) scandal in real life had an interesting scene involving an Italian politician named Umberto Calvini, who is a weapons manufacturer who explains to Eleanor Whitman (Watts) and Louis Salinger (Owens) that IBBC was interested in buying a missile guiding system that his factory produces then later assassinated.  He explained that the true value was not conflicts but the debt it produces:

Calvini: “No, this is not about making profit from weapon sales.  It’s about control.”

Eleanor: “Control the flow of weapons, control the conflict?”

Calvini: “No. No No. The IBBC is a bank. Their objective isn’t to control the conflict, it’s to control the debt that the conflict produces. You see, the real value of a conflict – the true value – is in the debt that it creates. You control the debt, you control everything.  You find this upsetting, yes?  But this is the very essence of the banking industry, to make us all, whether we be nations or individuals, slaves to debt.”

It was an interesting scene coming out of Hollywood, which by every standard is a propaganda machine.  Debt is serious business especially for banks and corporations.  .

With all of the problems the American public faces with the prospect of a future war on Iran will impact the world’s economy.  With 100 million people out of work in the United States and a reduction in food stamps and inflation hitting food prices, there is much concern.  Celebrities’ personal lives still dominate headlines in the main stream media.  The ‘War on Terror’ has taken away civil liberties and the ‘War on Drugs’ has increased the prison population.  High-crime rates in major cities remain problematic. With the rollout of 7000 drones in 2015, endless wars, a looming dollar collapse, and endless Pharmaceutical commercials that keep people heavily drugged are serious problems for the American public.  Yet, shopping on Black Friday resulting in violence and chaos among uneasy crowds seems to be the norm.

The media and corporate advertisements have turned the American population into a “Slave” state of mind. Many people in the United States are accumulating debt at levels never seen in its 237 years of its existence.  It is a lesson to the world in what NOT to do.  An economy that is consumer based with credit is a disaster in the making because that debt only becomes unmanageable in the long run, especially when the people have no means to repay its debt obligations.  An economy based on consumerism leads to moral decay.  When people become ingrained in consumption disregarding the debt they inherit, they become immune to the realities around them.  When the situation becomes intense with a coming dollar collapse and a possible war in the Middle East, reality will sink in.  Then when the necessities such as food and shelter become scarce the people will begin to panic and lose control over their own lives.  Who knows what people in America will be capable of, but then again as you saw what happened on Black Friday, it is a reminder of how people react when products they don’t really need are on sale.  Imagine how they will react in times of economic despair.

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Public Banking in Costa Rica: A Remarkable Little-known Model

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So says political activist Scott Bidstrup, who writes:

For the last decade, I have resided in Costa Rica, where we have had a “Public Option” for the last 64 years.

There are 29 licensed banks, mutual associations and credit unions in Costa Rica, of which four were established as national, publicly-owned banks in 1949. They have remained open and in public hands ever since—in spite of enormous pressure by the I.M.F. [International Monetary Fund] and the U.S. to privatize them along with other public assets. The Costa Ricans have resisted that pressure—because the value of a public banking option has become abundantly clear to everyone in this country.

During the last three decades, countless private banks, mutual associations (a kind of Savings and Loan) and credit unions have come and gone, and depositors in them have inevitably lost most of the value of their accounts.

But the four state banks, which compete fiercely with each other, just go on and on. Because they are stable and none have failed in 31 years, most Costa Ricans have moved the bulk of their money into them.  Those four banks now account for fully 80% of all retail deposits in Costa Rica, and the 25 private institutions share among themselves the rest.

According to a 2003 report by the World Bank, the public sector banks dominating Costa Rica’s onshore banking system include three state-owned commercial banks (Banco Nacional, Banco de Costa Rica, and Banco Crédito Agrícola de Cartago) and a special-charter bank called Banco Popular,  which in principle is owned by all Costa Rican workers. These banks accounted for 75 percent of total banking deposits in 2003.

In Competition Policies in Emerging Economies: Lessons and Challenges from Central America and Mexico (2008), Claudia Schatan writes that Costa Rica nationalized all of its banks and imposed a monopoly on deposits in 1949. Effectively, only state-owned banks existed in the country after that.  The monopoly was loosened in the 1980s and was eliminated in 1995. But the extensive network of branches developed by the public banks and the existence of an unlimited state guarantee on their deposits has made Costa Rica the only country in the region in which public banking clearly predominates.

Scott Bidstrup comments:

By 1980, the Costa Rican economy had grown to the point where it was by far the richest nation in Latin America in per-capita terms. It was so much richer than its neighbors that Latin American economic statistics were routinely quoted with and without Costa Rica included. Growth rates were in the double digits for a generation and a half.  And the prosperity was broadly shared. Costa Rica’s middle class – nonexistent before 1949 – became the dominant part of the economy during this period.  Poverty was all but abolished, favelas [shanty towns] disappeared, and the economy was booming.

This was not because Costa Rica had natural resources or other natural advantages over its neighbors. To the contrary, says Bidstrup:

At the conclusion of the civil war of 1948 (which was brought on by the desperate social conditions of the masses), Costa Rica was desperately poor, the poorest nation in the hemisphere, as it had been since the Spanish Conquest.

The winner of the 1948 civil war, José “Pepe” Figueres, now a national hero, realized that it would happen again if nothing was done to relieve the crushing poverty and deprivation of the rural population.  He formulated a plan in which the public sector would be financed by profits from state-owned enterprises, and the private sector would be financed by state banking.

A large number of state-owned capitalist enterprises were founded. Their profits were returned to the national treasury, and they financed dozens of major infrastructure projects.  At one point, more than 240 state-owned corporations were providing so much money that Costa Rica was building infrastructure like mad and financing it largely with cash. Yet it still had the lowest taxes in the region, and it could still afford to spend 30% of its national income on health and education.

A provision of the Figueres constitution guaranteed a job to anyone who wanted one. At one point, 42% of the working population of Costa Rica was working for the government directly or in one of the state-owned corporations.  Most of the rest of the economy not involved in the coffee trade was working for small mom-and-pop companies that were suppliers to the larger state-owned firms—and it was state banking, offering credit on favorable terms, that made the founding and growth of those small firms possible.  Had they been forced to rely on private-sector banking, few of them would have been able to obtain the financing needed to become established and prosperous.  State banking was key to the private sector growth. Lending policy was government policy and was designed to facilitate national development, not bankers’ wallets.  Virtually everything the country needed was locally produced.  Toilets, window glass, cement, rebar, roofing materials, window and door joinery, wire and cable, all were made by state-owned capitalist enterprises, most of them quite profitable. Costa Rica was the dominant player regionally in most consumer products and was on the move internationally.

Needless to say, this good example did not sit well with foreign business interests. It earned Figueres two coup attempts and one attempted assassination.  He responded by abolishing the military (except for the Coast Guard), leaving even more revenues for social services and infrastructure.

When attempted coups and assassination failed, says Bidstrup, Costa Rica was brought down with a form of economic warfare called the “currency crisis” of 1982. Over just a few months, the cost of financing its external debt went from 3% to extremely high variable rates (27% at one point).  As a result, along with every other Latin American country, Costa Rica was facing default. Bidstrup writes:

That’s when the IMF and World Bank came to town.

Privatize everything in sight, we were told.  We had little choice, so we did.  End your employment guarantee, we were told.  So we did.  Open your markets to foreign competition, we were told.  So we did.  Most of the former state-owned firms were sold off, mostly to foreign corporations.  Many ended up shut down in a short time by foreigners who didn’t know how to run them, and unemployment appeared (and with it, poverty and crime) for the first time in a decade.  Many of the local firms went broke or sold out quickly in the face of ruinous foreign competition.  Very little of Costa Rica’s manufacturing economy is still locally owned. And so now, instead of earning forex [foreign exchange] through exporting locally produced goods and retaining profits locally, these firms are now forex liabilities, expatriating their profits and earning relatively little through exports.  Costa Ricans now darkly joke that their economy is a wholly-owned subsidiary of the United States.

The dire effects of the IMF’s austerity measures were confirmed in a 1993 book excerpt by Karen Hansen-Kuhn  titled “Structural Adjustment in Costa Rica: Sapping the Economy.” She noted that Costa Rica stood out in Central America because of its near half-century history of stable democracy and well-functioning government, featuring the region’s largest middle class and the absence of both an army and a guerrilla movement. Eliminating the military allowed the government to support a Scandinavian-type social-welfare system that still provides free health care and education, and has helped produce the lowest infant mortality rate and highest average life expectancy in all of Central America.

In the 1970s, however, the country fell into debt when coffee and other commodity prices suddenly fell, and oil prices shot up. To get the dollars to buy oil, Costa Rica had to resort to foreign borrowing; and in 1980, the U.S. Federal Reserve under Paul Volcker raised interest rates to unprecedented levels.

In The Gods of Money (2009), William Engdahl fills in the back story. In 1971, Richard Nixon took the U.S. dollar off the gold standard, causing it to drop precipitously in international markets. In 1972, US Secretary of State Henry Kissinger and President Nixon had a clandestine meeting with the Shah of Iran. In 1973, a group of powerful financiers and politicians met secretly in Sweden and discussed effectively “backing” the dollar with oil. An arrangement was then finalized in which the oil-producing countries of OPEC would sell their oil only in U.S. dollars.  The quid pro quo was military protection and a strategic boost in oil prices.  The dollars would wind up in Wall Street and London banks, where they would fund the burgeoning U.S. debt. In 1974, an oil embargo conveniently caused the price of oil to quadruple.  Countries without sufficient dollar reserves had to borrow from Wall Street and London banks to buy the oil they needed.  Increased costs then drove up prices worldwide.

By late 1981, says Hansen-Kuhn, Costa Rica had one of the world’s highest levels of debt per capita, with debt-service payments amounting to 60 percent of export earnings. When the government had to choose between defending its stellar social-service system or bowing to its creditors, it chose the social services. It suspended debt payments to nearly all its creditors, predominately commercial banks. But that left it without foreign exchange. That was when it resorted to borrowing from the World Bank and IMF, which imposed “austerity measures” as a required condition. The result was to increase poverty levels dramatically.

Bidstrup writes of subsequent developments:

Indebted to the IMF, the Costa Rican government had to sell off its state-owned enterprises, depriving it of most of its revenue, and the country has since been forced to eat its seed corn. No major infrastructure projects have been conceived and built to completion out of tax revenues, and maintenance of existing infrastructure built during that era must wait in line for funding, with predictable results.

About every year, there has been a closure of one of the private banks or major savings coöps.  In every case, there has been a corruption or embezzlement scandal, proving the old saying that the best way to rob a bank is to own one.  This is why about 80% of retail deposits in Costa Rica are now held by the four state banks.  They’re trusted.

Costa Rica still has a robust economy, and is much less affected by the vicissitudes of rising and falling international economic tides than enterprises in neighboring countries, because local businesses can get money when they need it.  During the credit freezeup of 2009, things went on in Costa Rica pretty much as normal. Yes, there was a contraction in the economy, mostly as a result of a huge drop in foreign tourism, but it would have been far worse if local business had not been able to obtain financing when it was needed.  It was available because most lending activity is set by government policy, not by a local banker’s fear index.

Stability of the local economy is one of the reasons that Costa Rica has never had much difficulty in attracting direct foreign investment, and is still the leader in the region in that regard.  And it is clear to me that state banking is one of the principal reasons why.

The value and importance of a public banking sector to the overall stability and health of an economy has been well proven by the Costa Rican experience.  Meanwhile, our neighbors, with their fully privatized banking systems have, de facto, encouraged people to keep their money in Mattress First National, and as a result, the financial sectors in neighboring countries have not prospered.  Here, they have—because most money is kept in banks that carry the full faith and credit of the Republic of Costa Rica, so the money is in the banks and available for lending.  While our neighbors’ financial systems lurch from crisis to crisis, and suffer frequent resulting bank failures, the Costa Rican public system just keeps chugging along.  And so does the Costa Rican economy.

He concludes:

My dream scenario for any third world country wishing to develop, is to do exactly what Costa Rica did so successfully for so many years. Invest in the Holy Trinity of national development—health, education and infrastructure.  Pay for it with the earnings of state capitalist enterprises that are profitable because they are protected from ruinous foreign competition; and help out local private enterprise get started and grow, and become major exporters, with stable state-owned banks that prioritize national development over making bankers rich.  It worked well for Costa Rica for a generation and a half.  It can work for any other country as well.  Including the United States.

The new Happy Planet Index, which rates countries based on how many long and happy lives they produce per unit of environmental output, has ranked Costa Rica #1 globally.  The Costa Rican model is particularly instructive at a time when US citizens are groaning under the twin burdens of taxes and increased health insurance costs. Like the Costa Ricans, we could reduce taxes while increasing social services and rebuilding infrastructure, if we were to allow the government to make some money itself; and a giant first step would be for it to establish some publicly-owned banks.

_______________________________

Ellen Brown is an attorney, president of the Public Banking Institute, and author of twelve books, including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her blog articles are at EllenBrown.com.

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The Growing Rift With Saudi Arabia Threatens To Severely Damage The Petrodollar

The number one American export is U.S. dollars.  It is paper currency that is backed up by absolutely nothing, but the rest of the world has been using it to trade with one another and so there is tremendous global demand for our dollars.  The linchpin of this system is the petrodollar.  For decades, if you have wanted to buy oil virtually anywhere in the world you have had to do so with U.S. dollars.  But if one of the biggest oil exporters on the planet, such as Saudi Arabia, decided to start accepting other currencies as payment for oil, the petrodollar monopoly would disintegrate very rapidly.  For years, everyone assumed that nothing like that would happen any time soon, but now Saudi officials are warning of a "major shift" in relations with the United States.  In fact, the Saudis are so upset at the Obama administration that "all options" are reportedly "on the table".  If it gets to the point where the Saudis decide to make a major move away from the petrodollar monopoly, it will be absolutely catastrophic for the U.S. economy.

The biggest reason why having good relations with Saudi Arabia is so important to the United States is because the petrodollar monopoly will not work without them.  For decades, Washington D.C. has gone to extraordinary lengths to keep the Saudis happy.  But now the Saudis are becoming increasingly frustrated that the U.S. military is not being used to fight their wars for them.  The following is from a recent Daily Mail report...

Upset at President Barack Obama's policies on Iran and Syria, members of Saudi Arabia's ruling family are threatening a rift with the United States that could take the alliance between Washington and the kingdom to its lowest point in years.

Saudi Arabia's intelligence chief is vowing that the kingdom will make a 'major shift' in relations with the United States to protest perceived American inaction over Syria's civil war as well as recent U.S. overtures to Iran, a source close to Saudi policy said on Tuesday.

Prince Bandar bin Sultan told European diplomats that the United States had failed to act effectively against Syrian President Bashar al-Assad and the Israeli-Palestinian conflict, was growing closer to Tehran, and had failed to back Saudi support for Bahrain when it crushed an anti-government revolt in 2011, the source said.

Saudi Arabia desperately wants the U.S. military to intervene in the Syrian civil war on the side of the "rebels".  This has not happened yet, and the Saudis are very upset about that.

Of course the Saudis could always go and fight their own war, but that is not the way that the Saudis do things.

So since the Saudis are not getting their way, they are threatening to punish the U.S. for their inaction.  According to Reuters, the Saudis are saying that "all options are on the table now"...

Saudi Arabia, the world's biggest oil exporter, ploughs much of its earnings back into U.S. assets. Most of the Saudi central bank's net foreign assets of $690 billion are thought to be denominated in dollars, much of them in U.S. Treasury bonds.

"All options are on the table now, and for sure there will be some impact," the Saudi source said.

Sadly, most Americans have absolutely no idea how important all of this is.  If the Saudis break the petrodollar monopoly, it would severely damage the U.S. economy.  For those that do not fully understand the importance of the petrodollar, the following is a good summary of how the petrodollar works from an article by Christopher Doran...

In a nutshell, any country that wants to purchase oil from an oil producing country has to do so in U.S. dollars. This is a long standing agreement within all oil exporting nations, aka OPEC, the Organization of Petroleum Exporting Countries. The UK for example, cannot simply buy oil from Saudi Arabia by exchanging British pounds. Instead, the UK must exchange its pounds for U.S. dollars. The major exception at present is, of course, Iran.

This means that every country in the world that imports oil—which is the vast majority of the world's nations—has to have immense quantities of dollars in reserve. These dollars of course are not hidden under the proverbial national mattress. They are invested. And because they are U.S. dollars, they are invested in U.S. Treasury bills and other interest bearing securities that can be easily converted to purchase dollar-priced commodities like oil. This is what has allowed the U.S. to run up trillions of dollars of debt: the rest of the world simply buys up that debt in the form of U.S. interest bearing securities.

This arrangement works out very well for the United States because we can wildly print money and run up gigantic amounts of debt and the rest of the world gobbles it all up.

In 2012, the United States ran a trade deficit of about $540,000,000,000 with the rest of the planet.  In other words, about half a trillion more dollars left the country than came into the country.  These dollars represent the number one "product" that the U.S. exports.  We make dollars and exchange them for the things that we need.  Major exporting countries (such as Saudi Arabia) take many of those dollars and "invest" them in our debt at ultra-low interest rates.  It is this system that makes our massively inflated standard of living possible.

When this system ends, the era of cheap imports and super low interest rates will be over and the "adjustment" to our standard of living will be excruciatingly painful.

And without a doubt, the day is rapidly approaching when the petrodollar monopoly will end.

Today, Russia is the number one exporter of oil in the world.

China is now the number one importer of oil in the world, and at this point they are actually importing more oil from Saudi Arabia than the United States is.

So why should Russia, China and virtually everyone else continue to be forced to use U.S. dollars to trade oil?

That is a very good question.

In fact, China has been making a whole lot of noise recently about the fact that it is time to start becoming less dependent on the U.S. dollar.  The following comes from a recent CNBC article authored by Michael Pento...

Our addictions to debt and cheap money have finally caused our major international creditors to call for an end to dollar hegemony and to push for a "de-Americanized" world.

China, the largest U.S. creditor with $1.28 trillion in Treasury bonds, recently put out a commentary through the state-run Xinhua news agency stating that, "Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated."

For much more on all of this, please see my previous article entitled "9 Signs That China Is Making A Move Against The U.S. Dollar".

But you very rarely hear anything about this on the evening news, and most Americans do not understand these things at all.  The fact that the U.S. produces the de facto reserve currency of the planet is an absolutely massive advantage for us.  According to John Mauldin, this advantage allows us to consume far more wealth than we actually produce...

What that means in practical terms is that the United States can purchase more with its currency than it produces and sells. In theory those accounts should balance. But the world's reserve currency, for all intent and purposes, becomes a product. The world needs dollars in order to conduct its trade. Today, if someone in Peru wants to buy something from Thailand, they first convert their local currency into US dollars and then purchase the product with those dollars. Those dollars eventually wind up at the Central Bank of Thailand, which includes them in its reserve balance. When someone in Thailand wants to purchase an imported product, their bank accesses those dollars, which may go anywhere in the world that will take the US dollar, which is to say pretty much anywhere.

And as Mauldin went on to explain in that same article, a significant amount of the money that we ship out to the rest of the globe ends up getting reinvested in U.S. government debt...

That privilege allows US citizens to purchase goods and services at prices somewhat lower than those people in the rest of the world must pay. We can produce electronic fiat dollars, and the rest of the world accepts them because they need them to in order to trade with each other. And they do so because they trust the dollar more than they do any other currency that is readily available. You can take those dollars and come to the United States and purchase all manner of goods, including real estate and stocks. Just this week a Chinese company spent $600 million to buy a building in New York City. Such transactions happen all the time.

And there is one other item those dollars are used to pay for: US Treasury bonds. We buy oil and all manner of goods with our electronic dollars, and those dollars typically end up on the reserve balance sheets of other central banks, which buy our government bonds. It's hard to quantify the exact amount, but these transactions significantly lower the cost of borrowing for the US government. On a $16 trillion debt, every basis point (1/10 of 1%) means a saving of $16 billion annually. So 5 basis points would be $80 billion a year. There are credible estimates that the savings are well in excess of $100 billion a year. Thus, as the debt grows, the savings also grow! That also means the total debt compounds at a lower rate.

Unfortunately, this system only works if the rest of the planet has faith in it, and right now the United States is systematically destroying the faith that the rest of the world has in our financial system.

One way that this is being done is by our reckless accumulation of debt.  The U.S. national debt is now 37 times larger than it was 40 years ago, and we are on pace to accumulate more new debt under the 8 years of the Obama administration than we did under all of the other presidents in U.S. history combined.  The rest of the world is watching this and they are beginning to wonder if we are going to be able to pay them back the money that we owe them.

Quantitative easing is another factor that is severely damaging worldwide faith in the U.S. financial system.  The rest of the globe is watching as the Federal Reserve wildly prints up money and monetizes our debt.  They are beginning to wonder why they should continue to loan us gobs of money at super low interest rates when we are beginning to resemble the Weimar Republic.

The long-term damage that we are doing to the "U.S. brand" far, far outweighs any short-term benefits of quantitative easing.

And as Richard Koo has brilliantly demonstrated, quantitative easing is going to cause long-term interest rates to eventually rise much higher than they normally should have.

What all of this means is that the U.S. government and the Federal Reserve are systematically destroying the financial system that has enabled us to enjoy such a high standard of living for the past several decades.

Yes, the U.S. economy is not doing well at the moment, but we haven't seen anything yet.  When the monopoly of the petrodollar is broken, it is going to be absolutely devastating.

And as I wrote about the other day, when the next great economic crisis strikes it is going to pull back the curtain and reveal the rot and decay that have been eating away at the social fabric of America for a very long time.

Just check out what happened in Detroit recently.  The new police chief was almost carjacked while he was sitting in a clearly marked police vehicle...

Just four months on the job, Detroit’s new police chief got an early taste of the city’s hardscrabble streets.

While in his patrol car at an intersection on Jefferson two weeks ago, Police Chief James Craig was nearly carjacked, police spokeswoman Kelly Miner confirmed today.

Craig said he was in a marked police car with mounted lights when a man quickly tried to approach the side of his car. Craig, who became police chief in June, retold the story Monday during a program designed to crack down on carjackings.

Isn't that crazy?

These days, the criminals are not even afraid to go after the police while they are sitting in their own vehicles.

And this is just the beginning.  Things are going to get much, much worse than this.

So let us hope that this period of relative stability that we are enjoying right now will last for as long as possible.

The times ahead are going to be extremely challenging, and I hope that you are getting ready for them.

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The Obama administration and the mainstream media continue to insist that we are in the midst of an "economic recovery", but that is a total joke.  Does the chart posted below look like a recovery to you?...

Americans are leaving the labor force in droves.  If the labor force participation rate was at the same level that it was when Obama first became president, the official unemployment rate would be up around 10 percent and everyone would be wondering when the "economic depression" would finally end.

It is funny how our perceptions of reality are so greatly shaped by what our televisions tell us to think.

Below I have posted a chart of the "inactivity rate" of U.S. men in the 25 to 54-year-old age group.  As you can see, the percentage of men in their prime working years that are not employed and not considered to be unemployed either has been rising steadily...

We have millions upon millions of men just sitting around and doing essentially nothing.  Not that women are doing so much better.  In fact, the labor force participation rate for women is at a 24 year low.

Some people may be tempted to think that all of this is happening because more Americans are choosing to stay home and raise children.  But that is not the case at all.  In fact, in a previous article I showed that the marriage rate in the U.S. is at an all-time low and the birth rate for young women in this country is also at an all-time low.

People are not staying home because of family obligations.  Rather, people are staying home because there aren't enough jobs available.

And when Americans that are actually employed do lose their jobs, it is taking them a very, very long time to find another one.  Just check out the following chart...

Once again, I must ask - does that look like a "recovery" to you?

Obama can say the word "recovery" as much as he would like, but that does not make it a reality.

So is anyone out there actually doing well?

Yes, as I have talked about frequently, some pockets of the country are doing quite nicely.  In fact, government workers (think Washington D.C.) and finance workers (Wall Street, etc.) are tied for the lowest rates of unemployment in the nation (3.9 percent).

But for almost everyone else, things are very hard right now and poverty continues to grow.

Just today, I came across a recent study that discovered that nearly half of all public students in the United States come from low income homes.

That is an incredible number.

But this is just the beginning of our problems.  Our debt continues to grow by leaps and bounds and our big banks are engaging in extraordinarily reckless behavior.  As Richard Russell recently discussed, it is only a matter of time before this entire house of cards comes tumbling down...

In this whole process, debt has been created to an extent never seen before in history.  So far, the debt has been managed with super-low interest rates and borrowing.  But the compounding process goes on, and the debt mountain continues to grow.  So, to be brief, I see the theme of today as the “haves” doing whatever they have to -- to remain in power.

The dangers in the background for the haves are the possibilities that (1) interest rates will begin to advance, and (2) inflation will rise and be so visible that even the common man will recognize it, and begin to protest, or even revolt and (3) the whole debt structure will rise so high that it will topple over of its own weight and take down the entire world economy with it.

So as bad as things are today, the truth is that they are far, far better than what is eventually coming.

If you want to get a glimpse of the future of the U.S. economy, just check out what has happened to Greece...

Greeks are on average almost 40 percent poorer than they were in 2008, data indicated, laying bare the impact of a brutal recession and austerity measures the government may be forced to extend into next year.

Gross disposable incomes fell 29.5 percent between the second quarters of 2008 and 2013, statistics service ELSTAT said on Tuesday. Adding in cumulative consumer price inflation over the same period takes the decline close to 40 percent.

As you can see from the charts posted above, our economy has never even come close to getting back to the level that we were at before the last financial crisis.

And now the next wave of the economic collapse is approaching.

Right now, Spain has an unemployment rate that is above 26 percent and Greece has an unemployment rate that is above 27 percent.

We will eventually be heading up toward those levels.

As millions of good paying jobs continue to be shipped overseas, and as technology continues to eliminate millions of our jobs, the unemployment situation in this country will continue to grow even worse.

And whenever the next great financial crisis inevitably strikes, that will greatly accelerate our employment problems.

If you can move toward becoming more independent of the "system", now would be a good time to do so.  The job that you have today may not be there next month or next year.

We are moving into the greatest period of economic instability in U.S. history.

Get ready for it while you still can.

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Guest Post: What A Republican Civil War Means For Gold

Submitted by John Rubino via The Dollar Collapse blog,

In one sense, the past couple of weeks’ debt ceiling debate was just one more in a long line of annoying-but-otherwise-pointless pieces of bad political theater. But in another sense it was a turning point, one that may have put the democrats completely in charge. Consider:

In a system with two viable parties, each side has to pretend to be more reasonable than it really is in order to attract just enough moderate votes to win the next election. So democrats pay lip service to fiscal responsibility and deficits – occasionally even signing bills like welfare reform that they find repugnant – when they’d much rather spend their days indiscriminately tossing other people’s money at new entitlement programs. Republicans, meanwhile, pretend to empathize with people they privately view as prey when they’d rather be cutting taxes and invading places that have oil.

We only rarely get to see the major parties’ true selves because the 20% of voters in the middle are turned off by displays of naked avarice, and in a two-party system elections go to whoever carries a majority of that block.

That’s why the latest debt ceiling debacle is such a big deal. Government shutdowns and related turmoil have become a standard bargaining chip lately, without affecting the make-up of either party. But this time the main conflict was not between republicans and democrats, but between mainstream, log-rolling, back-scratching, career-politician republicans and a handful of representatives and senators elected with Tea Party – i.e., highly ideological – support. The latter have no interest in raising the debt ceiling under any circumstances and see a government shutdown as a positive end in itself. Defunding Obamacare was just the excuse.

They got rolled, of course, as regular republicans chose to raise the debt ceiling without condition (as everyone always knew they would). But the cost of reopening the government is a republican civil war with only two likely outcomes: 1) The two groups stay in the big tent but challenge each other in primaries and intrigue over committee seats, etc., making a united, coherent policy front impossible and handing the next few elections to the democrats. 2) The Tea Party/libertarian republicans leave and either join the existing libertarian party or start one of their own, siphoning just enough votes from republicans in future elections to keep the democrats in charge.

Already, it has started. See this from today’s Bloomberg:

Republican Civil War Erupts: Business Groups v. Tea Party

A battle for control of the Republican Party erupted today as an emboldened Tea Party is moving to oust senators who voted to reopen the government, and business groups began mobilizing to defeat allies of the small-government movement.

“We are going to get engaged,” said Scott Reed, senior political strategist for the U.S. Chamber of Commerce. “The need is now more than ever to elect people who understand the free market and not silliness.” The chamber spent $35.7 million on federal elections in 2012, according to the Center for Responsive Politics, a Washington-based group that tracks campaign spending.

Meanwhile, two Washington-based groups that finance Tea Party-backed candidates said today they’re supporting efforts to defeat Mississippi Senator Thad Cochran, who voted this week for the measure ending the 16-day shutdown and avoiding a government debt default. Cochran, a Republican seeking a seventh term next year, faces a challenge in his party’s primary by Chris McDaniel, a state legislator.

McDaniel, who announced his candidacy today, “is not part of the Washington establishment and he has the courage to stand up to the big spenders in both parties,” Matt Hoskins, executive director of the Senate Conservatives Fund, said in a statement supporting him. Read more

Once the civil war costs the republicans control of the House of Representatives (November 4, 2014), the democrats will be relieved of the need to fool the middle about their commitment to fiscal sanity. The incoming Clinton administration and its congressional majorities will ramp up domestic spending and finance it with higher taxes, more borrowing and way more money printing. Janet Yellen (the perfect Fed chair for this transition) will expand QE and make it permanent. The Fed’s balance sheet will grow in trillion-dollar chunks as it buys up all the bonds issued by the government and the mortgage packagers and pretty much anybody else with paper to sell.

The resulting tidal wave of hot money will swamp emerging markets and drive Europe and Japan crazy, but the democrats won’t care because they’ll be favored by 20 points in the polls and in any event will be too busy hiring more staff to handle the upcoming legislative season to listen to non-believers. Oh, and they’ll counter any dissent with capital controls and stepped-up surveillance.

Could there be a better environment for gold? Not at first glance. But then almost the same could have been said two years ago when the Fed started buying $85 billion of bonds each month and bubbles began to form in stocks and houses. Some of that cash certainly should have found its way into precious metals. Instead the result was an epic correction. So logic isn’t necessarily our best guide here.

Still, the republican implosion/democrat ascendance comes after a two-year precious metals correction (during which China, India, and Russia bought something like 4,000 tons of gold, an amount greater than Germany’s entire gold reserves). So coming when it does, the combination of democrat dominance, an even more accommodating Fed and a growing shortage of Western gold to be shipped East…well, at the risk of being wrong again, this really does look like precious metals paradise.

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Empire Building, the Debt Ceiling, the Budget Deficit and the “Samson Solution”

Introduction

            US and world political and economic leaders are faced with what they describe as a ‘systemic catastrophe’:  the inability to pay global creditors, including domestic and foreign banks, investors and governments, who hold $16.7 trillion in US Treasury notes.  There is a related crisis: the government cannot secure passage of a budget to finance its military and civilian agencies and activities, including large-scale payments to military contractors, the financing of business, agriculture and banking operations and social programs.  The raising of the debt-ceiling is central to the functioning of the financial ruling class as it extracts hundreds of billions of tax dollars in interest payments from the US Treasury.  Raising the debt ceiling allows the State to keep borrowing and pay its billionaire creditors.  In turn, as long as the US Treasury has liquidity, it remains a ‘safe haven’ for investors thus providing guaranteed profits.  In addition, as long as the dollar remains the principle currency for global transactions, it allows the US Treasury to print money at will and to borrow at a lower cost – at the expense of its competitors and adversaries.

             Financing the budget deficit requires borrowing, which involves the sale hundreds of billions of dollars worth of US government bonds through Wall Street – but at a cost to the taxpayer.  The common denominator is that the entire edifice of finance capital and all of its support structures depend on debt financing by the State.  By borrowing and then taxing its citizens the Treasury extracts wealth from the vast majority of Americans.

            To understand the fight to raise the debt ceiling and to pass a deficit budget it is necessary to analyze the long-term, large-scale sources of State debt.

Imperial Wars, the Ascendancy of Finance Capital and the Debt Crisis

            The ever-increasing debt and the constant raising of the debt ceiling is a result of long-term, large-scale military spending to build the US Empire.  The imperial enterprise has generated a huge deficit:  the cost/benefit ratio has been overwhelmingly negative.  Contrary to militarist propaganda, the empire has not been ‘self-financing’:  Wars and occupation in Iraq , Afghanistan and elsewhere have cost the US taxpayers trillions of dollars, not off-set by incoming imperial plunder or domestic economic expansion.

            Parallel to the cost of wars and occupations, the rise of finance capital has largely resulted from the pillage of the US Treasury.  Huge bailouts, low interest loans, large-scale interest payments on bonds, subsidies and tax exemptions have created a financial ruling class based on maintaining a debt-laden, interest-paying State, which meets its obligations to the creditors while it privatizes (and eliminates) social programs.  The result is a ‘poor indebted State’ and a rich and prosperous Wall Street.  Wall Street stands to gain trillions with the privatization of the multi-billion dollar health (Medicare) and retirement plans (Social Security): this will form an integral component of the “Grand Bargain” to raise the debt ceiling.

Who are the Beneficiaries of Raising the Debt Ceiling?

            The principle and immediate beneficiaries of increasing the debt ceiling are the wealthy, bond-holders and the medium and long-term beneficiaries are the military-intelligence-empire-builders who can continue to secure over $700 billion in annual budget allocations.  The principle strategic losers from raising the debt ceiling will be the hundreds of millions of beneficiaries of social programs like Social Security, Medicare and Medicaid and their family members.  As part of the ‘Grand Bargain’ struck by the Democratic President and Republican Congress – between $1.3 trillion and $1.4 trillion in social cuts will take effect over the next ten years, according to the Congressional Budget Office.  The cuts in Social Security will occur by raising the age of eligibility for full benefits to 70 years, resulting in a loss of $120 billion, as many older retired workers would be expected to die before drawing a single payment while millions of Americans  will be forced to delay retirement and work an extra five years.

Secondly, the earliest age of eligibility for partial benefits will increase from 62 to 64 years – resulting in an additional loss of $144 billion dollars from workers.

Thirdly, the cost of living index would be reduced – a ten- year loss of $112 billion dollars.

Fourthly, the calculation for initial benefits would discard the wage-based method for a so-called “price-index”, resulting in American workers losing another $137 billion dollars over 10 years.  In sum, workers’ social security benefits would be reduced by more than half a trillion dollars – an enormous transfer of wealth to the billionaire creditors, investors and empire builders – all in the name of ‘debt reduction’.

The cuts in MEDICARE and MEDICAID would result in an even more retrograde class polarization.  The ‘Grand Bargain’ could lead to additional losses of over $419 billion dollars.

The biggest cost to the workers will come in the form of an increase in their  monthly premium  for physician services (MEDICARE Part B) from the current 25%  to 35%, resulting in a loss of $241 billion dollars.  The second biggest loss to workers will result from raising the age of eligibility for MEDICARE from 65 to 67 years costing workers an additional S125 billion dollars.  The third loss for workers will be a $53 billion hit  from restricting the use of MEDIGAP insurance – supplementary policies that cover MEDICARE cost sharing requirements.

Further cuts of $187 billion in MEDICAID– the medical plan for the poor and disabled– would result when the federal government shifts its direct funding to block grants to the states that would severely cut services for the poor – a plan first proposed during the Clinton Administration with regard to welfare funding.

Once these reactionary cuts in basic social programs are in place, the beneficiaries, who are able, will be forced to buy alternative supplementary private medical insurance and private retirement plans, while the poor will go without.  The running down of public social services by Wall Street has been a deliberate, cynical strategy to cause popular discontent paving the way for the gradual privatization of services: adding costs, eliminating options and limiting medical treatment, surgery and procedures, especially for the elderly.  The privatization of Social Security, MEDICARE and MEDICAID, will maximize insecurity while minimizing services and lead to untreated and under-treated illness, greater suffering and economic distress.  Bi-partisan Congressional –White House agreements via the “Great Bargain” to raise the debt ceiling will widen and deepen inequalities in the United States .

In sum, “the Grand Bargain” will cause American workers to lose over $1.119 trillion dollars over the next 10 years, leading to a sharp decline in life expectancy, access to health care, living standards and quality of life.

The Samson Solution

            Given the harsh terms, which accompany the “Grand Bargain” to raise the debt ceiling, it would be better if no agreement were reached.  The financial elite is counting on the ‘Grand Bargain’ to leverage their debt collection over the lives and welfare of hundreds of millions of Americans.  It would be better to shake the pillars and pull down this Temple of Mammon (the ‘Samson Solution’) making them pay a price!

            The ‘shock and awe’ induced by default would shake the very foundations of the financial pillage of the US Treasury and the taxpayers; default would seriously undermine the financial basis for imperial wars, spying, torture and death squads.  The entire empire building project would crumble.

            True, in the short-run, the workers and middle class would also suffer from a default.  But the discredit of the ruling political parties, the political elite and Wall Street, could lead to a new political alignment, which would fund social programs by, in David Stockman’s phrase, “soaking the rich” – raising corporate taxes by 50%, imposing a financial transaction tax of 5%, uncapping the social security tax and collecting taxes on overseas US multi-nationals’ profits.  Additional billions would be saved by ending imperial wars, closing bases and canceling military contracts.  Tax reform, imperial dismantlement and increased domestic investment in productive activity would generate domestic growth leading to a budget surplus, extending MEDICARE to all Americans, reducing the age of retirement to 62 and providing a living wage for all workers!

Republicans Have Done Real Damage to the Economy

Republicans believe that a bad economy works for them at election time. The thinking is that the public will turn on Democrats for not making things better. So they do what they can to make the economy bad. But maybe they went too far this time. This hostage-taking episode has done real, serious, lasting damage to the economy on top of the ongoing damage Republicans have been doing. Will the public still blame Democrats, or will they finally see what is going on here?

The Damage Last Time

Look what happened the last time (2011) Republicans threatened to force the country to default on its debts.

The 2011 hostage-taking hit jobs. In Debt-Ceiling Deja Vu Could Sink Economy Bloomberg reported that, "Growth in nonfarm payrolls decelerated to an average 88,000 a month during the three months of the debt-ceiling impasse, compared with an average of 176,000 in the first five months of 2011." Consumer confidence plunged to a 31-year low. The Conference Board's consumer confidence index fell from 59.2 to 44.5.

In November, 2012, the Bipartisan Policy Center released a "Debt Limit Analysis" estimating the costs of the 2011 hostage-taking:

The Government Accountability Office (GAO) issued a report detailing additional costs to taxpayers as a result of the 2011 debt limit increase

  • A substantial cost to taxpayers stemmed from elevated interest rates on U.S. securities issued in 2011 prior to when the debt limit was increased in August
  • GAO conducted an economic analysis to estimate the resulting change in interest rates
  • For Fiscal Year 2011, GAO estimated additional interest costs to taxpayers of $1.3 billion

The cost of the event to the federal government, however, continues to accrue because many of the bonds issued during that period remain outstanding

  • BPC extended GAO's methodology to analyze the long-term cost to taxpayers stemming from the elevated interest rates
  • Estimate of the ten-year cost to taxpayers of the 2011 debt limit standoff = $18.9 billion
  • To put this in perspective, the Congressional Budget Office (CBO) estimates that the "Doc Fix" to prevent the scheduled 27% cut to Medicare physician payments for 2012 cost $18 billion over ten years

That is serious damage. And, of course, the 2011 fight resulted in a downgrading of the US credit rating.

(See also: Think Progress, CHARTS: How The Debt Ceiling Debacle Hurt The Economy)

The Damage This Time

In this hostage fight the immediate damage is much worse than 2011. Consumer confidence, for example, has plunged even more dramatically than during the last debt-ceiling hostage-taking. But these measurements were taken only a week into the fight.

Standard & Poor's ratings agency has done some early calculations of the damage and says, "the shutdown has shaved at least 0.6% off of annualized fourth-quarter 2013 GDP growth, or taken $24 billion out of the economy." Note the words "at least." This is an early estimate and does not count direct costs to government and costs to government contractors.

The NY Times today summarizes some of the damage from this hostage-taking, in Gridlock Has Cost U.S. Billions, and the Meter Is Still Running,

Containers of goods idling at ports. Reduced sales at sandwich shops in downtown Washington. Canceled vacations to national parks and to destinations abroad. Reduced corporate earnings forecasts. Higher interest payments on short-term debt.

Even with the shutdown of the United States government and the threat of a default coming to an end, the cost of Congress's gridlock has already run well into the billions, economists estimate. And the total will continue to grow even after the shutdown ends, partly because of uncertainty about whether lawmakers might reach another deadlock early next year.

One example of the damage from this fight – just one,

Residential real estate, which has been one of the brightest points of the recovery, suffered. An index of sentiment among home builders fell in October from a month earlier, according to data released on Wednesday from the National Association of Home Builders. The decline was greater than analysts had expected. One cause for the decline is that the approval process for government-backed mortgages has slowed with the shutdown.

The Damage From Cutting Instead Of Investing

Republicans have forced the country into an austerity mode, instead of an invest and job-creation mode. Everything is being cut, so that the billionaires and their giant corporations can have lower taxes. Aside from the sequester cuts there have been trillions in other cuts.

Paul Krugman writes about this ongoing damage today in a blog post, What A Drag, estimating that just two of the cuts we have experienced (not counting other cuts and the sequester) have cut "about $200 billion of fiscal contraction at an annual rate, or 1.25 percent of GDP, probably with a significant multiplier effect."

That's just those two pieces of Republican damage to our economy. Looking at the overall effect of austerity on our economy,

"Add this to the effects of sharp cuts in discretionary spending and the effects of economic uncertainty, however measured, and I don't think it's unreasonable to suggest that extortion tactics may have shaved as much as 4 percent off GDP and added 2 points to the unemployment rate."

Damage: 4% off GDP and 2% added to unemployment.

The Sequester Damage

Then there is the ongoing economic damage done by the sequester cuts. Republicans hail the sequester's cuts as a great victory, an accomplishment in their ongoing fight to destroy government, but in reality the cuts are costing jobs and hitting the economy.

The 2013 job-loss from the sequester cuts is estimated at only 800,000 jobs, but the 2014 job loss is estimated to be 1.6 million.

These job-loss and slow-growth numbers do not include the ripple effect into the larger economy, nor the longer-term cost to our economy from the cuts to scientific research, education, child nutrition and other cuts.

And these cuts don't even save the government money! One example of the costs of the sequester cuts comes from the effect of cuts in the Meals On Wheels program. Because of the cuts, many elderly end up in hospitals with malnutrition-related problems, and/or are forced into nursing homes because they can no longer live at home. Aside from the cruelty and resulting human suffering (not considered a "cost") this costs money from government services including Medicare and Medicaid.

The Ongoing Damage From Obstruction

Republicans have been obstructing ... everything. The ongoing economic damage has been just incredible but because it gradually worsens things the public is not as aware as they should be. There are two obstructions taking place. In the Senate Republicans have been filibustering every bill, every nominee ... everything. In the House the "Hastert Rule" prevents the majority of the Congress from being able to vote. By preventing bills from coming up for a vote if they might be passed by a majority that includes Democrats and some "RINO" Republicans, anything that could help the country and economy is blocked.

So along with the series of manufactured crises there is a constant, ongoing drag because people have come to believe government will generally continue to hamper rather than boost economic progress. They see no jobs programs coning down the pike, see the infrastructure crumbling, and see the corporate/billionaire-favoring trade deals killing jobs.

Krugman again, from his blog post, What A Drag,

The now widely-cited Macroeconomic Advisers report estimated the cost of crisis-driven fiscal policy at 1 percentage point off the growth rate for three years, or roughly 3 percent now. More than half of this estimated cost comes from the "fiscal drag" of falling discretionary spending, with the rest coming from a (shaky) estimate of the impacts of fiscal uncertainty on borrowing costs.

The Damage Next Time

So what will the damage be next time, and how can we fight it? Yesterday's "deal" only puts off the fight for a few months. With more of this on the horizon companies will be hesitant to hire or invest. Consumers will remain wary and distrustful.

Republicans still have one power: the power to destroy. And they will use that power until we take it away from them.

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

Michael Snyder
American Dream
October 18, 2013

The U.S. national debt is 36 times larger than it was just 40 years ago.  That is not a misprint.  That is actually the truth.  We are literally destroying the future of America, but most Americans don’t really seem to care.  In fact, the most hated politicians in America are the Tea Party politicians that recently tried to take a stand against the out of control borrowing that the federal government has been doing.  Pew Research has just released a new survey that shows that the popularity of the Tea Party is at an all-time low

Image: US Dollars.

So while many Americans may say that they theoretically want something to be done about the national debt, when push comes to shove they don’t actually mean that.  You see, the reality of the matter is that about 128 million Americans get money from the federal government every month.  That accounts for the majority of all government spending.  Anyone who tries to take those goodies away is going to be hated.  So we are going to continue down this crazy path until the system completely crashes someday.

The “deal” that was just made in Congress does nothing to reduce our spending or control the growth of our debt.  It just kicks the decisions about government spending and the debt ceiling down the road for a few months.

In fact, the agreement on the debt ceiling did not actually place any limits on how much the federal government can borrow over the next few months.  It just temporarily suspended enforcement of the debt ceiling.  So the federal government could technically go out and borrow trillions of dollars during the next few months and nobody could do anything about it.

Let’s hope that does not happen.

And of course the “debt deal” contained all kinds of pork that will benefit certain politicians that were instrumental in putting together the deal.

When are the American people finally going to get sick and tired of this kind of thing?

Meanwhile, our debt problem continues to get even worse.  The following are 33 stats that prove that SOMETHING desperately needs to be done about the national debt…

#1 The U.S. national debt is on pace to more than double during Obama’s eight years in the White House.  In other words, under Barack Obama the United States will accumulate more debt than it did under all of the other presidents in U.S. history combined.

#2 During fiscal year 2013, the U.S. Treasury paid off $7,546,726,000,000 in maturing U.S. government debt and issued $8,323,949,000,000 in new debt.  In fiscal year 2014 those numbers will be even larger.

#3 In September, the average rate of interest on the government’s marketable debt was 1.981 percent.  In January 2000, the average rate of interest on the government’s marketable debt was 6.620 percent.  If we got back to that level today, it would collapse our entire financial system.

#4 Between 2008 and 2012, the ratio of government debt to government income increased from 4.0 to 6.6.

#5 Between 2008 and 2012, U.S. government debt grew by 60.7 percent, but U.S. GDP only grew by a total of about 8.5 percent during that entire time period.

#6 Since 2007, the U.S. debt to GDP ratio has increased from 66.6 percent to 101.6 percent.

#7 A revised IMF policy paper entitled “An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How?” projects that U.S. government debt will rise to about 400 percent of GDP by the year 2050.

#8 At this point, the federal government hands out money to approximately 128 million Americans every single month.  In case you were wondering, that is about 41.3 percent of the population of the entire country.

#9 Back in 1980, the U.S. national debt was less than one trillion dollars.  Today, it is rapidly approaching 17 trillion dollars.

#10 Since the year 2000, the size of the U.S. national debt has grown by more than 11 trillion dollars.

#11 During Barack Obama’s first four years in the White House, the amount of new debt accumulated by the federal government breaks down to approximately$50,521 for every single household in the United States.

#12 The United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain.

#13 At this point, the United States government is responsible for about a third of all the government debt in the entire world.

#14 According to the U.S. Treasury, foreigners hold approximately 5.6 trillion dollars of our debt.

#15 The amount of U.S. government debt held by foreigners is about 5 times larger than it was just a decade ago.

#16 If the federal government used GAAP accounting standards like publicly traded corporations do, the real federal budget deficit for 2011 would have been 5 trillion dollars instead of 1.3 trillion dollars.

#17 As I noted recently, if the U.S. national debt was reduced to a stack of one dollar bills it would circle the earth at the equator 45 times.

#18 How much money is one trillion dollars?  If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

#19 If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.

#20 If you started paying off just the new debt that the U.S. has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 189,000 years to pay it off.

#21 The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first established in 1913.

#22 If Bill Gates gave every single penny of his entire fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.

#23 The federal government is stealing close to 100 million dollars from our children and our grandchildren every single hour of every single day.

#24 Historically, the interest rate on 10 year U.S. Treasuries has averaged 6.68 percent.  If the average interest rate on U.S. government debt rose to that level today, the U.S. government would find itself spending more than a trillion dollars per year just on interest on the national debt.

#25 Federal spending on entitlement programs has been increasing six times faster than population growth has.

#26 Overall, the federal government runs nearly 80 different “means-tested welfare programs“, and almost all of them are experiencing explosive growth.

#27 According to a Government Accountability Office report that was released earlier this year, Obamacare is going to cause the federal debt to rise by $6.2 trillion.

#28 If you can believe it, today more than 70 million Americans are on Medicaid, and it is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.

#29 As I have written about previously, the number of Americans on Medicare is projected to grow from a little bit more than 50 million today to 73.2 million in 2025.

#30 Medicare is facing unfunded liabilities of more than 38 trillion dollars over the next 75 years.  That comes to approximately $328,404 for each and every household in the United States.

#31 It is being projected that the number of Americans on Social Security will rise from about 62 million today to more than 100 million in 25 years.

#32 Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years.

#33 Boston University economist Laurence Kotlikoff is warning that the U.S. government is facing a gigantic tsunami of unfunded liabilities in the coming years that we are counting on our children and our grandchildren to pay.  Kotlikoff speaks of a “fiscal gap” which he defines as “the present value difference between projected future spending and revenue”.  His calculations have led him to the conclusion that the federal government is facing a fiscal gap of 222 trillion dollars in the years ahead.

Our financial situation is clearly not even close to sustainable.  We are heading for an inevitable collapse, but in the aftermath of the “deal” in Congress, Barack Obama declared that all Americans “need to stop focusing on the lobbyists, and the bloggers, and the talking heads on radio”.  Apparently he does not want you reading articles like this or listening to radio programs that are warning about the dangers of our national debt.

At the same time, the U.S. government continues to waste money in some of the most bizarre ways imaginable.  It is almost as if they don’t even care that they are destroying the future of our children and our grandchildren with their incredibly reckless spending.

And of course the mainstream media is very much on the side of the big spenders.  In recent weeks, those that identify themselves with the Tea Party have been endlessly called names on the big mainstream news networks even though they are just about the only ones that are trying to pull us back from the path to self-destruction that we are on.

The big mainstream news networks have portrayed those that identify with the Tea Party as idiots and morons, but the truth is that studies have found that Tea Partiers are better educated, more scientifically literate and have higher incomes than the general population.

The real idiots and morons are the ones that want us to continue down this road to financial oblivion.  We have accumulated the largest mountain of debt in the history of the world, and unless something dramatic is done, America is not going to have any kind of a future.

This article was posted: Friday, October 18, 2013 at 5:35 am

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Gold Spikes 3% After Debt Ceiling Rises & U.S. Downgrade

Today’s AM fix was USD 1,308.50, EUR 959.87 and GBP 813.09 per ounce.
Yesterday’s AM fix was USD 1,278.25, EUR 944.75 and GBP 797.71 per ounce.

Gold fell $1.80 or 0.14% yesterday, closing at $1,279.50/oz. Silver slid $0.06 or 0.28% closing at $21.27. Platinum climbed $14.80 or 0% to $1,395.20/oz, while palladium rose $7.25 or 1% to $712.55/oz.

Gold prices jumped $36 in 15 minutes and it surged as high as $1,321 per ounce or as much as 3.6% at one stage. Silver jumped by an even greater margin, by 5.1%, and rose as high as $22.18/oz.

Gold rose for the first time in four days after U.S. lawmakers reached an agreement to increase the debt ceiling and increasingly important Chinese credit ratings agency, Dagong Global Credit Rating Co. cut its credit rating for the U.S.

This led to short covering and some safe haven demand for gold as the dollar fell against all major currencies.

Gold in USD and Debt Ceiling - Quarterly, 1933-2013 (Bloomberg)
Gold in USD and Debt Ceiling - Quarterly, 1933-2013 - (Bloomberg)

The smart money is scooping gold bullion up at these depressed levels. Gold is down 23% this year despite robust demand from central banks and especially from India and China.

Global sales of bullion bars and coins gained 78% in the second quarter, according to the World Gold Council, showing that demand actually accelerated.

The U.S. government has avoided default but remains essentially insolvent and its appalling fiscal state has deteriorated once again due to the debt ceiling being raised above $16.7 trillion. Although the U.S. national debt has already surged well above that and as of writing, the U.S. National Debt is actually nearly $16.97 trillion and rising at roughly $1 trillion every year.

It is worrying that the recent debate has again been superficial and revolves around the theatre and political chicanery of the Republicans versus the Democrats and the usual partisan support for opposing ‘teams’ rather than the substantive issue of America’s likely insolvency and the fact that the actual national debt is actually between $100 trillion and $200 trillion and there is little sign of political or economic will to tackle this fundamentally important issue.

The U.S. is engaged in fiscal and monetary policies that are akin to a Banana Republic.

In addition to electronically creating out of nothing $85 billion every month to buy its own debt in the form of bonds, the U.S. is also borrowing more money than it is authorized to borrow, from itself again.

The extra $264 billion or so in borrowing — the difference between the actual real time $16.964 trillion national debt and the $16.7 trillion debt limit — was lent to themselves - by one section of government to another - in recent weeks.  Treasury Secretary, Jack Lew, ex COO of Citigroup Bank, has been using “extraordinary measures” since the U.S. ran out of money a few months ago and has been using government retirement programmes to make up the difference.

This is a form of shell game or confidence trick used to perpetrate what is a dangerous accounting practice that tends to end in tears.


Gold and Silver in USD and Debt Ceiling - Quarterly, 2000-2013 - (Bloomberg)

These unusual, some would say fraudulent, accounting practices and the fact that the U.S. is borderline insolvent, contrary to copious amounts of denial globally, are extremely dollar bearish and gold and silver bullish.

The risks posed to the dollar, but also to the pound, euro, yen and other electronic and fiat currencies is why we remain confident that both precious metals will reach real (inflation adjusted) record highs in the coming months.

Silver will likely continue to outperform after its most recent period of under performance.

JP Morgan Chase has issued letters to its business account holders notifying them that as of November 17 the bank will limit all cash transactions, including deposits, withdrawals and ATM usage, to $50,000 per month, and will prohibit all outgoing international bank wires.

Chase Bank has moved to limit cash withdrawals while banning business customers from sending international wire transfers. This has caused speculation that the bank is preparing for a looming financial crisis in the United States by imposing capital controls.

Some have suggested the drastic measures were designed to push business clients into more costly premium business accounts. Bank officials confirmed yesterday that the new capital limits apply to all business account holders but could not say why the measures came about and whether they were bank driven, due to profit motives or government regulations.


Gold in USD and Debt Ceiling, 2011 - (Bloomberg)

The bank will stop processing any outgoing international bank wire, and that any monthly cash transactions in excess of the new $50,000 limit will be subject to penalties and fees.

JP Morgan is embattled after a series of scandals including allegations of manipulation in many markets including LIBOR, foreign exchange, oil and energy markets and of course in the gold and silver markets.

It has received some enormous ‘slap on the wrist’ fines as it attempts to clear up the mess created by the London Whale trading scandal. The bank will pay $100 million to the U.S. Commodity Futures Trading Commission (CFTC), conceding "reckless" behavior led to the trading debacle that generated about $6 billion in losses.

There remains the real risk of capital controls and it will be important to own gold bullion in the event of capital controls.

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33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

The U.S. national debt is 36 times larger than it was just 40 years ago. That is not a misprint. That is actually the...

33 Stats That Prove That SOMETHING Desperately Needs To Be Done About The National...

Tea Party SignThe U.S. national debt is 36 times larger than it was just 40 years ago.  That is not a misprint.  That is actually the truth.  We are literally destroying the future of America, but most Americans don’t really seem to care.  In fact, the most hated politicians in America are the Tea Party politicians that recently tried to take a stand against the out of control borrowing that the federal government has been doing.  Pew Research has just released a new survey that shows that the popularity of the Tea Party is at an all-time low.  So while many Americans may say that they theoretically want something to be done about the national debt, when push comes to shove they don’t actually mean that.  You see, the reality of the matter is that about 128 million Americans get money from the federal government every month.  That accounts for the majority of all government spending.  Anyone who tries to take those goodies away is going to be hated.  So we are going to continue down this crazy path until the system completely crashes someday.

The “deal” that was just made in Congress does nothing to reduce our spending or control the growth of our debt.  It just kicks the decisions about government spending and the debt ceiling down the road for a few months.

In fact, the agreement on the debt ceiling did not actually place any limits on how much the federal government can borrow over the next few months.  It just temporarily suspended enforcement of the debt ceiling.  So the federal government could technically go out and borrow trillions of dollars during the next few months and nobody could do anything about it.

Let’s hope that does not happen.

And of course the “debt deal” contained all kinds of pork that will benefit certain politicians that were instrumental in putting together the deal.

When are the American people finally going to get sick and tired of this kind of thing?

Meanwhile, our debt problem continues to get even worse.  The following are 33 stats that prove that SOMETHING desperately needs to be done about the national debt…

#1 The U.S. national debt is on pace to more than double during Obama’s eight years in the White House.  In other words, under Barack Obama the United States will accumulate more debt than it did under all of the other presidents in U.S. history combined.

#2 During fiscal year 2013, the U.S. Treasury paid off $7,546,726,000,000 in maturing U.S. government debt and issued $8,323,949,000,000 in new debt.  In fiscal year 2014 those numbers will be even larger.

#3 In September, the average rate of interest on the government’s marketable debt was 1.981 percent.  In January 2000, the average rate of interest on the government’s marketable debt was 6.620 percent.  If we got back to that level today, it would collapse our entire financial system.

#4 Between 2008 and 2012, the ratio of government debt to government income increased from 4.0 to 6.6.

#5 Between 2008 and 2012, U.S. government debt grew by 60.7 percent, but U.S. GDP only grew by a total of about 8.5 percent during that entire time period.

#6 Since 2007, the U.S. debt to GDP ratio has increased from 66.6 percent to 101.6 percent.

#7 A revised IMF policy paper entitled “An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How?” projects that U.S. government debt will rise to about 400 percent of GDP by the year 2050.

#8 At this point, the federal government hands out money to approximately 128 million Americans every single month.  In case you were wondering, that is about 41.3 percent of the population of the entire country.

#9 Back in 1980, the U.S. national debt was less than one trillion dollars.  Today, it is rapidly approaching 17 trillion dollars.

#10 Since the year 2000, the size of the U.S. national debt has grown by more than 11 trillion dollars.

#11 During Barack Obama’s first four years in the White House, the amount of new debt accumulated by the federal government breaks down to approximately $50,521 for every single household in the United States.

#12 The United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain.

#13 At this point, the United States government is responsible for about a third of all the government debt in the entire world.

#14 According to the U.S. Treasury, foreigners hold approximately 5.6 trillion dollars of our debt.

#15 The amount of U.S. government debt held by foreigners is about 5 times larger than it was just a decade ago.

#16 If the federal government used GAAP accounting standards like publicly traded corporations do, the real federal budget deficit for 2011 would have been 5 trillion dollars instead of 1.3 trillion dollars.

#17 As I noted recently, if the U.S. national debt was reduced to a stack of one dollar bills it would circle the earth at the equator 45 times.

#18 How much money is one trillion dollars?  If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

#19 If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.

#20 If you started paying off just the new debt that the U.S. has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 189,000 years to pay it off.

#21 The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first established in 1913.

#22 If Bill Gates gave every single penny of his entire fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.

#23 The federal government is stealing close to 100 million dollars from our children and our grandchildren every single hour of every single day.

#24 Historically, the interest rate on 10 year U.S. Treasuries has averaged 6.68 percent.  If the average interest rate on U.S. government debt rose to that level today, the U.S. government would find itself spending more than a trillion dollars per year just on interest on the national debt.

#25 Federal spending on entitlement programs has been increasing six times faster than population growth has.

#26 Overall, the federal government runs nearly 80 different “means-tested welfare programs“, and almost all of them are experiencing explosive growth.

#27 According to a Government Accountability Office report that was released earlier this year, Obamacare is going to cause the federal debt to rise by $6.2 trillion.

#28 If you can believe it, today more than 70 million Americans are on Medicaid, and it is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.

#29 As I have written about previously, the number of Americans on Medicare is projected to grow from a little bit more than 50 million today to 73.2 million in 2025.

#30 Medicare is facing unfunded liabilities of more than 38 trillion dollars over the next 75 years.  That comes to approximately $328,404 for each and every household in the United States.

#31 It is being projected that the number of Americans on Social Security will rise from about 62 million today to more than 100 million in 25 years.

#32 Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years.

#33 Boston University economist Laurence Kotlikoff is warning that the U.S. government is facing a gigantic tsunami of unfunded liabilities in the coming years that we are counting on our children and our grandchildren to pay.  Kotlikoff speaks of a “fiscal gap” which he defines as “the present value difference between projected future spending and revenue”.  His calculations have led him to the conclusion that the federal government is facing a fiscal gap of 222 trillion dollars in the years ahead.

Our financial situation is clearly not even close to sustainable.  We are heading for an inevitable collapse, but in the aftermath of the “deal” in Congress, Barack Obama declared that all Americans “need to stop focusing on the lobbyists, and the bloggers, and the talking heads on radio”.  Apparently he does not want you reading articles like this or listening to radio programs that are warning about the dangers of our national debt.

At the same time, the U.S. government continues to waste money in some of the most bizarre ways imaginable.  It is almost as if they don’t even care that they are destroying the future of our children and our grandchildren with their incredibly reckless spending.

And of course the mainstream media is very much on the side of the big spenders.  In recent weeks, those that identify themselves with the Tea Party have been endlessly called names on the big mainstream news networks even though they are just about the only ones that are trying to pull us back from the path to self-destruction that we are on.

The big mainstream news networks have portrayed those that identify with the Tea Party as idiots and morons, but the truth is that studies have found that Tea Partiers are better educated, more scientifically literate and have higher incomes than the general population.

The real idiots and morons are the ones that want us to continue down this road to financial oblivion.  We have accumulated the largest mountain of debt in the history of the world, and unless something dramatic is done, America is not going to have any kind of a future.

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Austerity drive lives on after shutdown

The government shutdown is over, but the drive for austerity endures. President Obama, early Thursday morning, signed a bill passed by both chambers of Congress...

‘There are no winners’: Obama says shutdown and threat of default damaged US reputation

Published time: October 17, 2013 17:01
US President Barack Obama speaks about the reopening of government following a shutdown in the State Dining Room of the White House in Washington, DC, October 17, 2013 (AFP Photo / Saul Loeb)

US President Barack Obama speaks about the reopening of government following a shutdown in the State Dining Room of the White House in Washington, DC, October 17, 2013 (AFP Photo / Saul Loeb)

As the US government went back to work for its first fully operational day in over two weeks, President Barack Obama addressed the nation Thursday morning from the White House, chastising Republican lawmakers who led the country so close to default.

Hours after authorizing a deal that allowed the US government to open back up for business, Obama laid into those congressional Republicans who allowed the country’s economic reputation to be severely tarnished by turning a legislative stalemate into a national crisis.

Obama said the Wednesday night deal allowed the government to re-open while also momentarily raising the debt ceiling, in turn ensuring “the first default in more than 200 years will not happen.”

The government shutdown, triggered October 1 by a budget dispute in Congress, shuttered several federal agencies and sent hundreds of thousands of government employees home on furlough, while lawmakers were urged to come to a compromise. Had Congress failed to reach an agreement on raising the debt ceiling, Obama warned previously, the consequences would “catastrophic.”

Discussing the reopening of the government Thursday, Obama said the US economy had been set back significantly during the weeks of the shutdown and has lost much ground as a result of the crisis.

There’s been a lot of discussion lately on the politics of this shutdown, but let’s be clear: there are no winners here,” said the president. “These last few weeks have inflicted completely unnecessary damage on our economy. We don’t know yet the full scope of the damage, but every analyst out there believes it slowed our growth.”

And while the debt ceiling agreement reached late Wednesday in conjunction with a budget deal saved the country from default, Obama said the lack of leadership in Congress and the subsequent stalemate had hurt the American economy nevertheless.

Just the threat of default, of America not paying all the bills that we owe on time, increased our borrowing costs, which adds to our deficit,” Obama said.

The president added it was “not a surprise” that Americans are “completely fed up with Washington,” and insisted “there was no economic rationale for all of this.”

Over the past four years, our economy has been growing, our businesses have been creating jobs and our deficits have been cut in half. We hear some members who pushed for the shutdown say they were doing it to save the American economy, but nothing has done more to undermine our economy these past three years then these kinds of tactics,” Obama said.

He also said the tactics used by House Republicans had emboldened America’s competitors and depressed “our friends who look to us for steady leadership.”

Nevertheless, Obama insisted in his address “that the full faith and credit of the United States remains unquestioned.”

But to all my friends in Congress,” said the president, “understand that how business is done in this town has to change. Because we’ve all got a lot of work to do on behalf of the American people and that includes the hard work of regaining their trust. Our system of self-government doesn’t function without it.”

The stalemate at the start of the month occurred after Republicans refused to approval a budget plan that would include the president’s Affordable Care Act, or Obamacare as it commonly known, a health insurance mandate that has managed to become one of the most controversial elements of Obama’s two terms in office.

As the Republicans finally caved in late Wednesday, House Speaker John Boehner (R-Ohio) told reporters, “We fought the good fight,” adding, “We just didn’t win.”

Addressing the differences between his own Democratic Party and the GOP, Obama urged lawmakers on both side of the aisle Thursday to no longer let partisan issues polarize Congress to such a degree that catastrophe occurs.

I understand we will not suddenly agree on everything now that the cloud of crisis has passed. Democrats and Republicans are far apart on a lot of issues, and I recognize there are folks on the other side who think my policies are misguided. That’s putting it mildly. That’s okay. That’s democracy. That’s how it works. We can debate those differences, vigorously, passionately, in good faith, through the normal democratic process. And some times, we’ll be just two far apart to forget an agreement. But that should not hold back our efforts in areas where we do agree. We shouldn’t fail to act on areas that we do agree or could agree just because we don’t think it’s good politics. Just because the extremes in our party don’t like the word “compromise.” I will look for willing partners wherever I can to get important work done. And there’s no good reason why we can’t govern responsibly, despite our differences, without lurching from manufactured crisis to manufactured crisis,” Obama said.

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