By Max Rugemer | Saturday, November 6th, 2010 at 6:44 am
The Democrats are trying the Weimar Republic approach of the 1930s to solve their destruction of the US economy. The Federal Reserve announced plans to buy $600 billion in United States treasuries this week. This strategy, under the current buzzwords of quantitative easing, is risky:
…. starting in 2009, the Fed embarked on what it called quantitative easing — a fancy term for creating money out of thin air. Over a little more than a year, it bought more than $1.7 trillion in assets, mainly U.S. Treasury and agency debt.
Today, U.S. bank reserves are close to $1 trillion — an enormous amount compared with the normal $4 billion to $8 billion.
On Tuesday, with the economy struggling and many Fed officials still worried about the specter of deflation, the Fed embarked on a second round of quantitative easing, dubbed QE2. The plan is to spend $600 billion to buy even more government debt….
Another term for the shell game that the Fed is playing with our collective worth is monetizing the debt:
The shell game that the Fed is currently playing does not change the basic equation: Money is being printed out of thin air so that it can be used to buy US government debt.
The idiocy of what the Federal Reserve is doing isn’t receiving enough media coverage. Germans are qualifed better than anyone else to comment because they made this mistake during the Weimar Republic & suffered horribly for it.
Finance Minister Schaeuble sharply criticizes US Federal Reserve move
….The US plan, called quantitative easing, aims to put more money into the pockets of companies, consumers and homeowners but some financial analysts have expressed fears that it could lead to excessive inflation and an intensification of currency imbalances.
Schaeuble said he would not let Germany’s opposition to the Fed’s action get pushed to the back burner and that the issue would be addressed during the G20 summit in South Korea next week.
“I wish the Americans every success in dealing with their big problems effectively and swiftly,” he said. “But if they look at the successes that Germany has had they will see that more and more deficits is not the way to do it.”
Europe’s largest economy, Germany is enjoying a strong recovery from the global economic crisis and has resisted calls for scaling back its austerity measures and lowering taxes….
Unbridled printing of dollars is the biggest risk to the global economy, an adviser to the Chinese central bank said in comments published on Thursday, a day after the Federal Reserve unveiled a new round of monetary easing.
China must set up a firewall via currency policy and capital controls to cushion itself from external shocks, Xia Bin said in a commentary piece in the Financial News, a Chinese-language newspaper managed by the central bank.
“As long as the world exercises no restraint in issuing global currencies such as the dollar — and this is not easy — then the occurrence of another crisis is inevitable, as quite a few wise Westerners lament,” he said….
The Federal Reserve launched a fresh effort on Wednesday to support the struggling U.S. economy, committing to buy $600 billion in government bonds despite concerns the programme could do more harm than good….
Sixteen percent of Americans are actually out of work, according to Atlanta Federal Reserve chief Dennis Lockhart. That figure compares with the official July jobless rate reported by the government as 9.4 percent.
Speaking to the Chamber of Commerce in Chattanooga, Tennessee on Wednesday, Lockhart explained the discrepancy:
The real US unemployment rate is 16 percent if persons who have dropped out of the labor pool and those working less than they would like are counted, a Federal Reserve official said Wednesday.
“If one considers the people who would like a job but have stopped looking — so-called discouraged workers — and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent, said Atlanta Fed chief Dennis Lockhart.
Sean Hannity reports:
The situation may be even worse than the estimate by Lockhart, according to our own research. The U. S. Bureau of Labor Statistics calculates the unemployment rate each month based on interviews with 60,000 households including 110,000 individuals (out of a population of 307,297,404 at the time of this writing). These folk respond to interviews with “2,200 highly trained and experienced Census Bureau employees.”
As a result of a fixed set of questions, the respondents are divided into three groups:
People with jobs are employed.
People who are jobless, looking for jobs, and available for work are unemployed.
People who are neither employed nor unemployed are not in the labor force.
Those “not in the labor force” include all children under sixteen, adults attending school, homemakers, retired persons, those institutionalized in prisons or asylums, and the incapacitated.
Certainly there is wiggle room in estimates extrapolated from small sample size, especially in the hands of politically motivated bureaucrats who are in a position to “massage the data.” Moreover, the survey counts everyone who helped a few hours in a family business without pay as employed. And what even Lockhart has not taken into account is the fact that the census does not distinguish foreigners with legal status and illegal aliens, a demographic that is “in country” specifically for jobs. The percentage of deserving United States citizens who are unemployed is obviously higher than even the 16% figure, when employed aliens are subtracted from the mix.
Add to this these facts:
Our population is on average aging, with the number of retired persons increasing and the proportion of workers decreasing.
Our national debt obligations (to China and others) are growing exponentially from interest owed.
Our national debt is growing in an unpredictable way from the government spending spree into the incalculable trillions.
Productivity and tax revenues are overall declining.
One must conclude that our feckless government has plunged the nation into an almost inescapable downward economic spiral.
By Jay Printz | Monday, March 23rd, 2009 at 5:52 pm
I think we are headed for a major problem, and after reading the article, I am more convinced than ever!!!! Hang onto your hats folks, it’s going to be a helluva rough ride. From EarthFrisk comes this warning:
Obama Just Created the Depression of 2009
Obama just put the nail in the economic coffin of the United States. He did it with sleight of hand once again using the big news of the day (AIG bonus ‘crisis) to hide his real move which was to absolutely 100% destroy the economy of the United States. This is that serious….
We are about to see massive inflation… Even Obama supporters can’t be so blind as to not see what he is doing? Surely even they can see that this path to marxism will not be a pretty one. Watch this and prepare.
We have been betrayed by the media. They put life altering and nation altering news on page 20, hiding the truth of what was just done to our nation….
I guarantee you we will now be descending more and more into the abyss of socialism and marxism. On March 19, 2009 Obama had the Treasury invest 1 trillion dollars that we do not have. The fed created this out of thin air in an imitation of Germany in the 1920s and 30s.
ALERT: Price of Gold up $80 almost immediately, everyone is abandoning he dollar and we are about to be slammed like a third world nation….
Glenn Beck tries to explain it here:
“This is the fall of America. The media is helping by hiding the fact that Obama just turned America into Weimar Germany in 1932.”
Speculation based on misinformation characterizes what has become known as “the Kanjorski meme.” So here is a timeline of the events to set the record straight.
Last September, years of bad economic policy encouraged by Congress exacerbated by inept oversight caught up with the financial markets in the United States. Between the failure of Lehman Brothers on September 14 and the heavy institutional withdrawals from money market funds on September 18, a severe loss of liquidity occurred in the financial markets. To stem the tide of withdrawals from money market funds, the US Treasury Department announced a guarantee program for money market funds on September 19.
On September 21, the New York Postcarried an alarming article based on word-of-mouth reports from unnamed sources:
ALMOST ARMAGEDDON
MARKETS WERE 500 TRADES FROM A MELTDOWN
September 21, 2008
The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post….
According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.
Felix Salmon of Portfolio.comhas recently observed that these were mostly institutional investors that were selling. It should also be noted that this wasn’t a pure loss. It was selling, which implies that at some attractive lower price, there would be buyers. That’s the way the market works. Also, the only documented source for the figure of $500 billion, or 12% of the money markets, is a newspaper article that doesn’t name attribution.
The current kerfuffle began on January 27, 2009 when Democratic U.S. Rep. Paul E. Kanjorski (PA-11) appeared on the morning television show Washington Journal on C-SPAN. The video and transcript are included in our earlier post here. On television, Kanjorski asserted that the US had faced the loss of $550 billion in two hours, with the implication that this numerical information came from then Treasury Secretary Paulson and Federal Reserve Chairman Bernanke.
How The World Almost Came To An End At 2PM On September 18
….Democratic Representative Kanjorski explains how the Federal Reserve told Congress members about a “tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars.” According to Kanjorski, this electronic transfer occurred over the period of an hour or two. And it gets worse. Kanjorski paraphrases the … disclosure by Bernanke and Paulson….
Some other blogs picked up the story from Zero Hedge. But it went mostly unnoticed until Rush Limbaugh played the video clip on his radio show on February 10th, and the Kanjorski meme went viral. Also on Tuesday, February 10, the MSNBC show Countdown with Keith Olbermann discussed Kanjorski’s televised interview. The Shamokin, PA News Itemdiscussed Kanjorski’s rising notoriety:
Kanjorski hits the spotlight
For the last 24 years, Rep. Paul E. Kanjorski has toiled in Washington, D.C. in relative obscurity, known best to his constituents who have elected him their representative 13 times….
Jan. 27: Kanjorski spends half an hour on “Washington Journal,” the morning television program of C-SPAN, the cable network whose main mission is airing the official proceedings of the House and Senate.
The C-SPAN appearance gained Kanjorski spinoff air time. His statement that the national and world financial markets came close to a major meltdown in September was picked up Tuesday by the MSNBC program, “Countdown with Keith Olbermann.”….
Kanjorski said all the attention is partly a benefit of his seniority.
“I’ve been preparing 24 years … that if the problem ever did occur, I’d be able to be a major participant in it,” he said. “And it so happened that it did occur in September and I became very active in it. Now that role has just continued to grow.”
He’s also looking, he said, to be more of a crusader….
After that “talk show Tuesday,” the blogs were abuzz with the subject, but by then there was enough misinformation extant to cause problems. Then Treasury Secretary Paulson and Federal Reserve Chairman Bernanke actually visited Capitol Hill on September 23 and September 24, but in his C-SPAN interview, Kanjorski recalled the date incorrectly as September 15. So when he said that the crisis occurred the previous Thursday, bloggers who didn’t do due diligence pegged the crisis on September 11, which gave rise to a whole plethora of Islamic jihad theories.
Here’s one example of how the meme started from the popular Mudville Gazette, which supplies the incorrect conclusion about the date as parenthetical information:
Rep. Paul Kanjorski of Pennsylvania explains what former Treasury Secretary Paulson and Fed Chairman Bernanke told congress in a closed door session in September 2008 .
“On Thursday [Thursday was September 11th] at about 11 o clock in the morning The Federal Reserve noticed a tremendous draw down of money market accounts in the USA to the tune of $550 Billion dollars in a matter of an hour or two. Money was being removed electronically.” says Kanjorski.
Whooah! Why are we just now hearing about this? Where’s the media? Why wasn’t there an official statement?
This was a Financial Terrorist Attack on the seventh anniversary of 9/11. Aren’t the American people entitled to know who was behind the run on the banks?
Why was this kept from the American people before the most important election in US history?…
Once those two much-visited blogs used the incorrect date, the problem multiplied as other bloggers wrote derivative posts. Sixteen days after the actual C-SPAN interview, the Scranton, PA Times-Tribunediscussed the rising furor in the Blogosphere:
Kanjorski: Economy teetered near collapse
Thursday, February 12, 2009
U.S. Rep. Paul E. Kanjorski is telling anyone who will listen lately the nation and world came within hours of economic collapse in September.
….Mr. Kanjorski’s Jan. 27 appearance on C-SPAN’s morning Washington Journal program is now rocking the blogosphere….
In essence, Mr. Kanjorski said there was an “electronic bank run.” ….
What actually happened? Transcripts of testimony before congressional committees and subcommittees are a matter of public record.
The US Department of the Treasury maintains a list of all the official appearances by Treasury Department spokespersons on its “Press Room” website. Then secretary Henry M. Paulson, Jr. made only two appearances on Capitol Hill in September 2008, a 9/23 visit to the Senate Banking Committee and a 9/24 visit to the House Financial Services Committee. The only statements from those transcripts relevant to the Kanjorski allegations are given below. The testimony before both houses of congress is almost identical. In the second transcript, I have italicized the two words that are different.
….last week our credit markets froze — even some Main Street non-financial companies had trouble financing their normal business operations. If that situation were to persist, it would threaten all parts of our economy….
We have … taken a number of powerful tactical steps to increase confidence in the system, including a temporary guaranty program for the U.S. money market mutual fund industry….
….We saw market turmoil reach a new level last week, and spill over into the rest of the economy.
….last week our credit markets froze up — even some Main Street non-financial companies had trouble financing their normal business operations. If that situation were to persist, it would threaten all parts of our economy….
We have … taken a number of powerful tactical steps to increase confidence in the system, including a temporary guaranty program for the U.S. money market mutual fund industry…. We saw financial market turmoil reach a new level last week, and spill over into the rest of the economy.
Ben S. Bernanke, Chairman of the Board of Governors of the Federal Reserve System, also visited Capitol Hill on the exact same two days as Paulson. His first visit, on September 23, was also before the Senate Banking Committee. His second visit, on September 24, was to a joint committee from both houses. This is the only testimony during that timeframe that could be characterized as remarks to both senators and representatives.
September 23, 2008
….While perhaps manageable in itself, Lehman’s default was combined with the unexpectedly rapid collapse of AIG, which together contributed to the development last week of extraordinarily turbulent conditions in global financial markets. These conditions caused equity prices to fall sharply, the cost of short-term credit–where available–to spike upward, and liquidity to dry up in many markets. Losses at a large money market mutual fund sparked extensive withdrawals from a number of such funds….
Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress. Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy….
While perhaps manageable in itself, Lehman’s default was combined with the unexpectedly rapid collapse of AIG, which together contributed to the development last week of extraordinarily turbulent conditions in global financial markets. These conditions caused equity prices to fall sharply, the cost of short-term credit–where available–to spike upward, and liquidity to dry up in many markets. Losses at a large money market mutual fund sparked extensive withdrawals from a number of such funds….
Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress. Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy….
There is no question that last September was a turbulent period for the financial markets. But it was a result of years of bad legislation by Congress and failure of our regulatory institutions to do their jobs. It was also a result of a pervasive American culture of living beyond our means. The excesses simply caught up with us. We do not need Islamic jihad to do us in, when we are so profligate and careless ourselves.
Our economy provides the means for all of us to have the necessities of a good and decent life — wholesome food, warm and comfortable clothing, safe and adequate housing. But when we stretch beyond our income to acquire large cracker box McMansions, drive gas guzzling sport utility vehicles, and constantly try to outspend and impress our peers, we get into trouble. We are simply experiencing a very severe correction that is a logical result of our rampant materialism.
Other reports:
Testimony Concerning Turmoil in U.S. Credit Markets by Chairman Christopher Cox, U.S. Securities and Exchange Commission, Before the Committee on Banking, Housing, and Urban Affairs, United States Senate — September 23, 2008
UPDATE (Thursday, February 19): The Zero Hedge post cited in the above article includes an update referencing a video that purports to substantiate Kanjorski’s claims.
Update – for all who claim that Kanjorski is yapping with a few screws loose upstairs, take a look at this clip…. This is archived footage from the September 24 House Financial Services hearing at which both Paulson and Bernanke are present. Kanjorski asks Paulson this very question, and states to Paulson, that the information came originally from him. Now, Kanjorski may be anything but not senile as he is merely repeating facts that Paulson tells him. And Paulson does not refute the facts.
The assertion is basically that Kanjorski wouldn’t have said the information came from Paulson in the subcommittee hearing if it were not true, and that it must be true because Paulson did not contradict Kanjorski. But that is, in fact, no proof of anything. I didn’t bother to mention this in the original article, because I didn’t think anyone would be illogical enough to buy into it, but apparently some people have. So I add the following….
I was well aware of this update to the Zero Hedge post when I wrote the original post. So I checked it out thoroughly before I published.
Note the technique that Kanjorski used. Kanjorski made the $550 billion assertion, and told Paulson that the information came from him (Paulson). But there is no record of Paulson actually saying that. The way Congress works, while Kanjorski had the floor, Paulson could not interrupt and correct him. All are bound by strict “rules of order.” So the comment “Paulson does not refute the facts” has no evidentiary value relevant to the credibility of Kanjorski’s assertion.
When Paulson finally got a chance to speak, he wisely didn’t waste time going back to that. He used every second of his speaking time to advance his own purpose. He didn’t need to correct Kanjorski for the people who count, because there is an accurate record of what was said — the Congressional Record — which is published and available to the public.
Nor would it have been prudent for Paulson to correct Kanjorski. Paulson is a reasonably class act academic, while Kanjorski is a grandstanding politician. No percentage for Paulson in getting into a dogfight with him. The educated Paulson, although more highly qualified professionally than Kanjorski, a political hack from a coal-mining district, is a political appointee who will be replaced. Kanjorski is rather securely elected from a congressional district somewhat gerrymandered to include the heavy Democratic population centers along PA Route 11 and Interstate 80, among them Scranton and Wilkes-Barre.
If a newspaper repeated Kanjorski’s intentional or unintentional mistake as fact, they could get sued. So they would either check the Congressional Record, or if lazy, just leave the subject alone or repeat the remarks in quotes by Kanjorski (which is what they did). Therefore Paulson did not have to worry about this misinformation propagating as legitimate news. Unfortunately, most blogs are a lot sloppier, and so less credible.
When you want to find out what really happened, you can go through the Congressional Record for the day of the session. Go to this page to select the year that contains the day you want to study — Congressional Record Index
From there you can go to a specific year by selecting “Browse the Congressional Record by Day of Session” and inputting a year. For the present discussion, that’s 2008, and the index for 2008 is here — Congressional Record: Browse 2008-2009
Scroll down to September 23 and 24 for 2008 and you will find that there are 30 records of testimony for those two days. To be sure of your ground, it is necessary to scan all of them. If Paulson quoted the $550 billion figure, it would be in there somewhere.
Now this is difficult and tedious to do, because the PDF is lousy to work with. But I went through them, isolated the relevant testimony, and included links to it for all four complete testimonies in my article. I scrupulously reproduced the wording that had a bearing on the subject, and documented my work all round with hyperlinks.
I had already used Zero Hedge as an example of a blog that propagated the story based on Kanjorski’s TV interview without vetting it. I didn’t bother to dispute their update material at the end of the post because I didn’t want to excoriate them any more than necessary and because it didn’t further the point of my original article.
By Max Rugemer | Wednesday, February 11th, 2009 at 11:47 am
I have suspected for a long time and I openly told people in the fall of 2008 that certain entities were trying to harm the economy in order to ensure that Obama would get elected in the November elections. If you watched the stock markets in the months before the election of 2008, you saw these massive declines at the end of the day almost every day. These declines were by entities selling massive amounts of stock in what clearly looked like an attempt to sink the stock markets each day in time for the prime time news each night.
Now we have confirmation that there was a massive “run on the banks” by some unknown entity on September 18, 2008 in an effort to affect the election. Democratic Representative Paul Kanjorski (PA-11), Capital Market Subcommittee Chair in the US House of Representatives, describes this stealth bank panic in the video below (transcript follows).
I suspect there was an economic coup d’état in September of 2008 by extremely wealthy Liberals and Democrats and we simply were not smart enough to see it happen right in front of us. I also suspect that the plan succeeded in getting Obama elected but is now completely out of control.
Transcript
It’s because of the misconceptions out there that things were done that are misunderstood. We did not give the $700 billion dollars for the purpose of lending money. That was never in the program. It was misconstrued initially and put together with the suggestion by the Secretary of the Treasury that we would be buying what we called “dirty assets” — defective mortgages and securities that were held in these banks — that the government would find a way to create a market, buy them in, take them off the balance sheets of the banks so that the banks could continue to function normally…. I supported that, but also part of the bill, we gave the jurisdiction and authority to the Secretary of the Treasury to make investments in banks. He had very wide authority because quite frankly, we’re not the experts on the Hill as to how to solve this problem. And the problem is a multi-faceted problem, so we gave great flexibility to the Secretary of the Treasury to act….
I was there when the Secretary and the Chairman of the Federal Reserve came those days and talked with members of Congress about what was going on…. Here’s the facts, and we don’t even talk about these things. On Thursday [September 18] at about eleven o’clock in the morning, the Federal Reserve noticed a tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars was being drawn out in the matter of an hour or two. The Treasury opened up its window to help. They pumped a hundred and five billion dollars in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn’t be further panic out there, and that’s what actually happened.
If they had not done that, their estimation was that by 2 o’clock that afternoon, five-and-a-half trillion dollars would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed. Now we talked at that time about what would happen if that happened. It would have been the end of our economic system and our political system as we know it.
And that’s why, when they made the point we’ve got to act and do things quickly we did. Now Secretary Paulson said, “Let’s buy out these sub-prime mortgages.” That’s when he came to Congress. But he said, “Give us latitude and large authority to do many things as we decide necessary. And give us seven hundred billion dollars to do that.”
Shortly after we enacted our bill with those very broad powers. The U.K. came out and said, “No, we don’t have enough money to buy toxic assets. Instead, we’re going to put our money into banks so that their equity grows and they’re not bankrupt.” And so the U.K. started that process and that’s true. It was much cheaper to put more money in banks as equity investment than to start buying their bad assets, because it became early determined that we’d probably have to spend three or four trillion dollars of taxpayer’s money to buy these bad assets. And we didn’t have… we only had seven hundred billion dollars. So Paulson made a complete switch, went in and started putting money in buying securities and reinvesting in the banks of the United States. Why? Because if you don’t have a banking system you don’t have an economy. And although we did that, it wasn’t enough money, and as fast as we did that, the economy has been falling, and the reason last week… We’re really no better off today than we were three months ago because we’v had a decrease in the equity positions of banks because other assets are going sour by the moment….
The market was 500 trades away from Armageddon on Thursday, traders inside two large custodial banks tell The Post.
Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level – a 22 percent decline! – while the clang of the opening bell was still echoing around the cavernous exchange floor.
According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.
The panicked selling was directly linked to the seizing up of the credit markets – including a $52 billion constriction in commercial paper – and the rumors of additional money market funds “breaking the buck,” or dropping below $1 net asset value.
The Fed’s dramatic $105 billion liquidity injection on Thursday (pre-market) was just enough to keep key institutional accounts from following through on the sell orders and starting a stampede of cash that could have brought large tracts of the US economy to a halt….
The mainstream media outlets just cannot resist hyping the news. Following the failure of the financial bailout legislation in Congress, the stock market declined as expected — by 6.98%. Here are the comparison figures at the Monday close:
It was not spectacular. In the context of history, it was not even in the top ten market downturns. For an excellent review of the top ten, see The Dow’s Worst Days, a slide presentation by Forbes.
The following information compiled by American Funds puts this in perspective, showing the frequency of declines in the Dow Jones Industrial Average since 1900. Clearly, they are regular cyclical occurrences. It is also obvious that, even without the bailout fiasco, we were way overdue for a 20% bear market just in the normal run of things.
A history of declines (1900–December 2007)
Type of decline
Average frequency
Average length
Last occurrence
Routine
(–5% or more)
About 3 times a year
47 days
November 2007
Moderate
(–10% or more)
About once a year
113 days
November 2007
Severe
(–15% or more)
About once every 2 years
216 days
October 2002
Bear Market
(–20% or more)
About once every 3-1/2 years
332 days
October 2002
The operative verb here is DECLINED. Yes, the stock market DECLINED in “paper value.” There are just as many factories, homes, hospitals, oil refineries, roads and bridges, grocery stores, train stations, etc. in the United States now as there were this morning. And all these real assets have just as much real value to the American people as now as they did this morning — to manufacture our goods, shelter our families, provide our health care, produce our fuel, facilitate transportation, broker our food supply, and transport our products.
So how do the news outlets describe what happened?
You have got to love this. Can’t you just see all the financial reporters frantically searching through their thesauruses for new and different ways to say DECLINE? Their challenge is to inject a gripping emotional narrative into the facts of the day, so as to compete for ratings with their competitor news outlets.
Unfortunately, they do not serve the public well in doing this. Thank goodness for Lou Dobbs! He got it exactly right on his television programLou Dobbs Tonight this evening. He asked:
Do you believe today’s Congressional vote against the Wall Street bailout is a victory for the American people and a rejection of the attempted extortion by corporate and political elites?
At latest reading, over 80% of the American people see it that way. Lou went on to say that it would be better to lose money than to sacrifice our principles. But let’s put the losses in perspective. Today the market lost $1.2 Trillion dollars in “paper value.” The numbers went down, and eventually they will go back up, and the so-called “loss” will just be a statistic, a memory.
The alternative would have taken more than half that amount in real productivity — $700 Billion dollars — out of the pockets of ordinary Americans and given it to the power brokers, real value robbed from the people that they would never see again. And for what? To buy a bailout that nobody was sure would work, and that House Republican Minority Leader John Boehner described as a “mud sandwich.”
The $700 Billion bailout of the US financial markets — Emergency Economic Stabilization Act of 2008 — has just failed in the House of Representatives, with 133 Republicans and some intelligent Democrats holding the line against financial socialism. The bill needed a simple majority of the 435 members to pass — 218 votes. The final vote was 228 to 205 against passage, thirteen votes short.
The Dow Jones Industrial Index is dropping steadily, but it is not in free fall. It is experiencing a sell-off, but not a panic. There may be as much as a 20% drop, but then the market will correct itself, as investors holding a large cash allocation in their portfolios begin to see buying opportunities.
And that is the way that the free market system is supposed to work. Assets should be valued based on a market consensus of their utility to the American enterprise, and should not be artificially propped up by government interference. The misguided social engineering practiced by successive Democratic regimes with our tax money got us into this mess. Mercifully, enough of our congressmen decided that throwing another $700 Billion of our good money after the untold trillions of bad investments was not a solution.
The difference between the Great Depression and the present situation is the increased financial sophistication of the American public as a whole. In 1929 investment in the stock market was the province of the very wealthy. Today, almost every American has a stake, in their college savings and retirement accounts. While many do this investing through funds with companies like T. Rowe Price, Equitable, Fidelity, and Templeton, many also purchase stock in companies they like or buy municipal and corporate bonds. They understand that the market will fluctuate.
In comparing the present crisis to the Great Depression as a rationale for the proposed bailout, Fed Chairman Ben Bernanke and United States Treasury Secretary Henry Paulson failed to take into account the difference in the collective financial intelligence of the citizenry between then and now. They only looked at mathematical models for asset pricing. But the free market is driven as much by ideas and expectations as it is by monetary data. That is its strength.
Most Americans understand this. The savvy electorate screamed in outrage at the prospect of being soaked another $700 Billion to pay for the past mistakes of Congress under the duress of a phoney manufactured crisis. And a majority of their congressmen, every single one of them facing elections in just five short weeks, did the sensible thing and defeated this outrageous scam.
Thaddeus McCotter, R-Mich., said the bill posed a choice between the loss of prosperity in the short term or economic freedom in the long term. He said once the federal government enters the financial market place, it will not leave. “The choice is stark,” he said.
Malicious mental manipulation of the American public has created a climate of fear in which power brokers can destroy the legacy of our founding fathers without fear of reprisal from the electorate. Thoughout the last several presidential election cycles, with the complicity of both political parties, our government deliberately mandated disasterous fiscal policy that brought us to the brink of ruin, and is now using that looming danger as an excuse to implement what amounts to a fiscal dictatorship.
And a bi-partisan mess it is. Thinking citizens in both major political parties stand aghast at the spectacle. Writing at a moderate Democratic weblog, The Confluence, life-long Democrat “Lady Boomer” writes in astonishment at the parties’ role reversal:
Senator McCain and the Republicans are still rallying to prevent another blank check without accountability being foisted on US citizens. And Frank is still telling us to write the check. Me to Democratic Party leadership: Trust you? I don’t even know you anymore.
Speaking from a different part of the political spectrum, Representative Thaddeus McCotter (R-MI) expressed his dismay in an official press release:
…the public will be outraged a month before the election; principled House Republicans will view any internal whip count as a political dead pool…
There is a H.L. Mencken quotation that captures the essence of this year’s politics: “The whole aim of practical politics is to keep the populace alarmed, and hence clamorous to be led to safety, by menacing it with an endless series of hobgoblins, all of them imaginary.” ….
The Barton Bulletin notes the irony — The Financial Arsonists: Now They Want You To Believe They Are Putting Out The Fire…That They Started.
Mathematical Model of Our Economy
Ben Shalom Bernanke is the incumbent Chairman of the Board of Governors of the United States Federal Reserve. While he was a Professor of Economics at Princeton University, his academic research focused on the economic and political causes of the Great Depression. Together with New York University Professor of Economics Mark Gertler, he developed a mathematical model of the financial flow in a free market economy called the “Accelerator Model.” This work was first published in a 1989 peer review journal article — Agency Costs, Net Worth and Business Fluctuations, American Economic Review, 79, March 1989, 14-31. Senior economist John Mason offers a very understandable explanation:
The situation we are in now is related to what economists call “the accelerator model”…. On the up-side, the accelerator model helps explain … the “mania” portion of a bubble…. The problem with manias…and panics…is that they are cumulative. That is, they build on themselves.
The “accelerator model” in modern terms has a feedback mechanism in it that can create cumulative movements in asset prices. The particular channel this feedback mechanism works through is individual wealth. As the economy expands, asset prices rise. As asset prices rise, the wealth of individuals increases and they spend more out of this increased wealth. This additional spending raises asset prices further, credit grows to support this increase, and this leads to another round in which wealth grows further…an so on and so on….
But, the “accelerator model” works on the downside as well. The downside result has often been referred to as “deleveraging” or as a period of “debt deflation.” Here, as the economy slows or asset prices dip, the wealth of individuals declines. People reduce their spending and asset prices fall further. As asset prices decline, credit is tightened and this exacerbates the drop. This, obviously, is cumulative in behavior….
A recent program on National Public Radio documented how well this model predicted the inevitable results of our government’s fiscal policy — Bernanke’s 1980s Computer Model Predicts Crisis:
After the recent two weeks of tumult in the American economy, consumers couldn’t be blamed for wishing they had a crystal ball that could help them see into the uncertain future….
The closest alternative to a crystal ball, in the real world, is a computer model of the economy. Back in the 1980s, one such model was created by none other than Ben Bernanke, who’s now at the center of the crisis as the chairman of the Federal Reserve.
Bernanke’s computer model is called the “financial accelerator.” It’s now in the office of Mark Gertler, an economics professor at New York University, who worked on it with Bernanke decades ago….
An economy is never static. However, in the absence of malicious interference with the free market, the unavoidable acceleration and deceleration can be manifest like the gentle wave cycles of the ocean under calm skies, with each rolling crest followed by a shallow trough, gently rocking the boats of enterprise that sail thereon. What violent storm roiled this economy into a turbulent maelstrom that sank the crafts of commerce?
The Community Reinvestment Act … is a United States federal law that requires banks and savings and loan associations to offer credit throughout their entire market area…. The purpose of the CRA is to provide credit, including home ownership opportunities to under-served populations and commercial loans to small businesses….
For those looking for a real start to today’s financial meltdown and government rescue, you need to go back — way back — to 1977, and the Jimmy Carter presidency.
It was then, for the best and purest of reasons, that well-meaning Democratic members of Congress brought the Community Reinvestment Act into being.
The main idea, as the late Democratic Sen. William Proxmire said on the Senate floor in 1977, was “to eliminate the practice of redlining by lending institutions.”….
“Redlining” meant denying a mortgage to those who did not qualify under normal financial guidlines, and had the overall effect of lower home ownership rates among blacks and minorities. This legislation effectively forced financial institutions to give credit to folk who were poor risks.
2. Roughly forty percent of all US mortgages are funded by two finance firms chartered by Congress, privately owned by shareholders but exempt from state and local taxes to motivate investment. These are The Federal Home Loan Mortgage Corporation (Freddie Mac) and The Federal National Mortgage Association (Fannie Mae). They were placed under the regulation of the U.S. Department of Housing and Urban Development (HUD) in 1992, with a mandate to buy a percentage of mortgages from “underserved markets.”
During his eight years as president, beginning in January 1993, Bill Clinton aggressively pushed the subprime loans by relaxing the rules to qualify for a mortgage and forcing banks to compete in this riskier environment — How A Clinton-Era Rule Rewrite Made Subprime Crisis Inevitable:
While President Carter in 1977 signed the Community Reinvestment Act, which pushed Fannie and Freddie to aggressively lend to minority communities, it was Clinton who supercharged the process. After entering office in 1993, he extensively rewrote Fannie’s and Freddie’s rules.
In so doing, he turned the two quasi-private, mortgage-funding firms into a semi-nationalized monopoly that dispensed cash to markets, made loans to large Democratic voting blocs and handed favors, jobs and money to political allies. This potent mix led inevitably to corruption and the Fannie-Freddie collapse.
Despite warnings of trouble at Fannie and Freddie, in 1994 Clinton unveiled his National Homeownership Strategy, which broadened the CRA in ways Congress never intended….
In 1995, President Bill Clinton’s HUD agreed to let Fannie and Freddie get affordable-housing credit for buying subprime securities that included loans to low-income borrowers. The idea was that subprime lending benefited many borrowers who did not qualify for conventional loans….
Banks typically back prime loans with customers’ deposits. But subprime lenders often rely on money from Wall Street investors , who buy packages of loans as investments called mortgage-backed securities….
So at this point the speculation is really triggered, as Wall Street risk-takers pour money into junk mortgage bonds. Was this altruism toward “underserved markets” or a cynical attempt by Democrats to buy the minority vote with taxpayer money?
3. In the wake of the Great Depression, and based on “lessons learned,” Congress enacted legislation to control speculation. In particular, the Glass-Steagall Act of 1933
provided for regulation of interest rates in savings accounts, and
prohibited a bank holding company from owning other financial companies
Eventually, two of these safeguards were removed. The regulation of savings account interest was repealed in 1980. The restrictions on speculation by bank holding companies were removed in 1999 by a bi-partisan Congressional effort supported by President Bill Clinton. So now the bank holding companies, the underpinning of our economy, could invest heavily in other financial ventures that were exposed to the junk mortgage bonds, a recipe for disaster.
4. Despite urgent warnings from Republicans, Congressional Democrats escalated the funding of subprime loans in the 2004-2005 timeframe — Subprime Loans Labeled ‘Affordable’:
In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending.
Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more “affordable” loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing….
The agency neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans, creating a market for more such lending….
In November 2000, Clinton’s HUD hailed “new regulations to provide $2.4 trillion in mortgages for affordable housing for 28.1 million families.” It made Fannie and Freddie take part in the biggest federal expansion of housing aid ever.
Soon after taking office, Bush … proposed what the New York Times called “the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.”
The plan included a new regulator for Fannie and Freddie, one that could boost capital mandates and look at how they managed risk.
Even after regulators in 2003 uncovered a scheme by Fannie and Freddie executives to overstate earnings by $10.6 billion to boost bonuses, Democrats killed reform.
“Fannie Mae and Freddie Mac are not facing any kind of financial crisis,” said Rep. Frank, then-ranking Democrat on the Financial Services Committee….
In 2005, then-Fed Chairman Alan Greenspan told Congress: “We are placing the total financial system of the future at substantial risk.”
That year, Sen. John McCain, one of three sponsors of a Fannie-Freddie reform bill, said: “If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system and the economy as a whole.”
Sen. Harry Reid — now Majority Leader — accused the GOP of trying to “cripple the ability of Fannie Mae and Freddie Mac to carry out their mission of expanding homeownership.”
The bill went nowhere….
Overstepping the Constitution
Using the threat of financial disaster for ordinary Americans as leverage, the government has pushed the limits of authority. Writing for Bloomberg Markets, Steve Matthews says:
Bernanke, a longtime scholar of the 1929-to-1933 panic, now has the unwelcome task of trying to keep a new financial calamity from turning into a full-blown depression. What started as a meltdown in the market for subprime mortgages has turned into a worldwide credit and economic crisis. Bernanke, now the Fed chairman, has responded with the most-aggressive expansion of the Fed’s power in its 95-year history. Since last August, Bernanke, 54, has twice cut interest rates by 75 basis points, made Federal Reserve loans available to investment firms for the first time since the 1930s, lowered the rates at which banks can borrow from the Fed and launched an unprecedented rescue of Bear Stearns Cos., the struggling investment bank. …. To prevent a wider crisis, the Fed risked the U.S. government’s money by lending $29 billion backed by Bear’s risky mortgage-backed securities. The loan was an incentive to JPMorgan Chase & Co. to buy the 85-year-old bank….
Bernanke’s rate cuts were followed by the release on March 31 of a sweeping proposal by U.S. Treasury Secretary Henry Paulson to revamp government supervision and regulation of the financial system. Paulson endorsed the Fed’s moves to stabilize the economy and proposed the central bank be given a permanently expanded role as watchdog over the entire financial system, including commercial and investment banks, insurance companies, hedge funds and mutual funds. “The Fed would have the authority to go wherever in the system it thinks it needs to go for a deeper look to preserve stability,” Paulson told the press.
At a press briefing in Miami on April 7, Paulson said the plan–which would abolish the Securities and Exchange Commission–may take several years to implement, and the Democrats, who control Congress, say no quick action is likely. Even so, Bernanke’s Fed has already grabbed some of the power the Treasury proposes to give it by inserting itself into the back offices of the investment banks….
The Bernanke Fed may have already seized too much power and has abandoned historical principles, says Paul Volcker, who was Fed chairman from 1979 to ’87. “The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers,” Volcker, 80, told the Economic Club of New York… “A direct transfer of mortgage and mortgage-backed securities of questionable pedigree from an investment bank to the Federal Reserve seems to test the time-honored central bank mantra….”
The Power To Destroy
“The power to tax is the power to destroy.” The money to buy all this worthless paper is coming from the productive members of society. Very few of you, dear readers, would take your hard-earned money — your children’s college fund or your retirement savings — and buy these junk bonds. But the government is going to forcibly take it from your pocket and buy them for you. They will either do this by taxing you, or by printing more money. The net result is the same — to rob you of your productivity and reward the irresponsible and the unscrupulous. The question is why?
Cloward-Piven Strategy
The Cloward-Piven Strategy is detailed in two excellent articles by Jim Simpson.
The Cloward-Piven Strategy — When things go bad all the time, despite the best efforts of all involved, I suggest to you something else is at work — something deeper, more malevolent.
I submit to you that it is not a mistake, the failure is deliberate!
There is a method to the madness, and the method even has a name: the Cloward-Piven Strategy. It was first elucidated in the 1960s by a pair of radical leftist Columbia University professors, Richard Andrew Cloward and Frances Fox Piven:
The strategy of forcing political change through orchestrated crisis…. …the “Cloward-Piven Strategy” seeks to hasten the fall of capitalism by overloading the government bureaucracy with a flood of impossible demands, thus pushing society into crisis and economic collapse.
Barack Obama and the Strategy of Manufactured Crisis — This article irrefutably ties Barack Obama to the most odious leftist movements in the United States today. Furthermore, it presents conclusive evidence that Obama not only knows of, but has participated in promotion of the Left’s apocalyptic strategy: that of manufactured crisis. Jim Simpson has prepared a definitive flow chart showing the organizations with which Obama was involved and their contribution to the socialization of America.
The Delphi Technique
The method used for the mental manipulation of the US citizenry to implement the downfall of liberty is called the Delphi Technique. An alert lady named Lynn M Stuter wrote a very good description of the Delphi Technique in 1996. In her article she is discussing the liberal takeover of the American education system, but her generic words apply equally to the present situation:
The Delphi Technique — What Is It?
The Delphi Technique was originally conceived as a way to obtain the opinion of experts without necessarily bringing them together face to face. In recent times, however, it has taken on an all new meaning and purpose. In Educating for the New World Order by B. Eakman, the reader finds reference upon reference for the need to preserve the illusion that there is “…lay, or community, participation (in the decision-making process), while lay citizens were, in fact, being squeezed out.” The Delphi Technique is the method being used to squeeze citizens out of the process, effecting a left-wing take over of the schools.
A specialized use of this technique was developed for teachers, the “Alinsky Method” (ibid, p.123). The setting or group is, however, immaterial; the point is that people in groups tend to share a certain knowledge base and display certain identifiable characteristics (known as group dynamics). This allows for a special application of a basic technique.
The change agent or facilitator goes through the motions of acting as an organizer, getting each person in the target group to elicit expression of their concerns about a program, project, or policy in question. The facilitator listens attentively, forms “task forces,” “urges everyone to make lists,” and so on. While s/he is doing this, the facilitator learns something about each member of the target group. S/He identifies the “leaders,” the “loud mouths,” as well as those who frequently turn sides during the argument — the “weak or noncommittal”.
Suddenly, the amiable facilitator becomes “devil’s advocate.” S/He dons his professional agitator hat. Using the “divide and conquer” technique, s/he manipulates one group opinion against the other. This is accomplished by manipulating those who are out of step to appear “ridiculous, unknowledgeable, inarticulate, or dogmatic.” S/He wants certain members of the group to become angry, thereby forcing tensions to accelerate. The facilitator is well trained in psychological manipulation. S/He is able to predict the reactions of each group member. Individuals in opposition to the policy or program will be shut out of the group.
The method works. It is very effective with parents, teachers, school children, and any community group. The “targets” rarely, if ever, know that they are being manipulated. Or, if they suspect this is happening, do not know how to end the process.
The desired result is for group polarization, and for the facilitator to become accepted as a member of the group and group process. S/He will then throw the desired idea on the table and ask for opinions during discussion. Very soon his/her associates from the divided group begin to adopt the idea as if it were their own, and pressure the entire group to accept the proposition.
This technique is a very unethical method of achieving consensus on a controversial topic in group settings. It requires well-trained professionals who deliberately escalate tension among group members, pitting one faction against the other, so as to make one viewpoint appear ridiculous so the other becomes “sensible” whether such is warranted or not….
Does any of this sound familiar? It is no accident that this manufactured financial crisis was thrust upon us in the run-up to the presidential election, when the citizenry is ideologically divided. And who is the most famous organizer in the United States today? Why, as it happens, Barack Obama. He is, in fact, a sincere student of Saul Alinsky’s Book Rules for Radicals.
The Last Word
Lest any of our readers think that this makes me a Republican sympathizer, I believe that the only way our country could possibly be saved now would be for every voter to write in the name of Ron Paul for President. He is the only person who still seems to understand what the American political experiment was all about.
That is not a practical solution, however. In a last-ditch effort to keep the decline and fall of the late United States as slow as possible, we shall have to vote for the McCain/Palin ticket. And that is for one reason, and one reason only. He is the better choice of the two for preserving our right to keep and bear arms. And the Second Amendment is that part of the Bill of Rights that gives us the means to keep all the others.
The practitioners of mental manipulation depend on a divide-and-conquer strategy. To that end, they have carefully conditioned the American public to think of themselves as Democratic or Republican, and to invest their free franchise, financial support, and effort into one or the other of the two major political parties.
But there is absolutely nothing in our Constitution about political parties. Political parties and political influence are the factors that created this mess. What is needed to save our country is for all of our citizens to stop thinking of themselves as Democrats or Republicans, and to think of themselves as Americans — as Americans who would, if necessary, be willing to take the family hunting gun down from its pegs over the fireplace mantle, and go risk their lives on the village green at Lexington or by the rude bridge at Concord.
On the evening of September 18th 2008, the American democratic system was replaced by a financial dictatorship.
What was billed as a “Federal Bailout” was nothing less than a bloodless coup. The Wall Street Gang had taken over the White House and control of Washington. Congress promised not to resist, and pledged to pass legislation as demanded.
Warning that America’s financial system was perilously close to collapse unless immediate action was taken, economic martial law was declared.
The American people were told that from this day forward, they would be responsible for paying off the bad debt from any failing private financial enterprise deemed “too big to fail.”
Treasury Secretary Henry Paulson, spearheading the coup, sought unrestricted authority to spend the nation’s money as he saw fit. The first order of business by the Economic Czar was to take trillions of dollars of bad debt from crumbling investment banks and insurance companies and transfer it to the backs of already debt-burdened citizens….
While the transfer of “toxic instruments” from private firms to the national debt will enrich those companies that once had owned them, the measures taken will do nothing to keep the sinking US economy from going under.
The biggest casualty, besides indentured American servants held responsible for paying off the debt, is the US dollar. The greenback’s getting slaughtered on the foreign exchanges and gold prices, the safe-haven commodity, are once again soaring….
In order to assess the credibility of Celente’s current article, you may consider two articles from the Winter Issue 2008 of his organization’s journal. The full articles are available by paid subscription only, so we offer the synopses.
Economic 9/11
Just as the Twin Towers collapsed from the top down, so too will the US economy from an Economic 9/11. When the high-stake speculators, banks, brokerages, and buyout firms that leveraged billions with millions get hit … everything underneath them will turn to rubble…..
and
The Panic of 08
Failing banks, busted brokerages, toppled corporate giants, bankrupt cities, states in default, foreign creditors cashing out of US securities … whatever the spark, the stage is set for panic in the streets. When the giant firms fall, they’ll crush the man on the street…..
For additional information, you should also read this commentary by Ron Paul, a United States Congressman and one of the most trusted libertarian/Republican spokespersons for the American public:
Commentary: Bailouts will lead to rough economic ride
By Ron Paul
(CNN) — Many Americans today are asking themselves how the economy got to be in such a bad spot.
For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.
Unfortunately, the government’s preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention….
Instead of looking at a recession, we might very well be looking at a complete economic meltdown more global in nature rather than national, something that most of us never have seen.
The problems include a very weak American dollar; a trade deficit that will come to roughly $700 billion at year-end; the cost of foreign oil that has literally tripled over the past two years; possible trade wars with countries like China, which own sizable portions of our bond markets; a ballooning Federal budget that has gone from $2.1 trillion to $3.6 trillion in just eight years – a whopping growth of 75% (!); a national debt of $9.6 trillion, closing fast on $10 trillion with a debt ceiling placed at $10.6 trillion and which cost the American taxpayer $230 billion in interest alone last year; untold numbers of jobs that are being outsourced to foreign nations through Free Trade acts adding long-term pressure to unemployment; a nation which has maxed out on credit-card debt; millions of Americans losing their homes due to the subprime lending debacle; and last but not least tens of millions of baby-boomers now coming close to retirement, which will dry-up America’s tax base while adding huge amounts to Social Security and Medicare outlays….
By Terry ODonnell | Wednesday, July 9th, 2008 at 8:47 pm
The New York Times has an interesting piece about Fed Chariman Bernanke’s speech to a Virginia gathering regarding re-adjustment (again) of subprime lending practices.
I am not certain how I feel about most of what he said, but the following sentence stood out from all the rest, and sent a chill down my spine:
“…our efforts today are concentrated on helping the financial system return to more normal functioning…”
Did I miss something? Was the financial system not functioning “normally” when the greedy, arrogant, short-sighted SOBs on Wall Street stole a couple of trillion dollars of other people’s equity and sent three of the largest economies in the world scrambling for the exits? Of course it was! The same people have been doing things like this for years.
It was not a bunch of Disney characters who helped Enron cook its books. In addition to Arthur Anderson, Enron was aided, abetted, and in at least one case instructed, by some of the largest financial houses in the country in avoiding regulations so that it could hide its losses and misstate its earnings. There is a whole litany of such abuses both before and after Enron. My point is that the financial system was functioning “normally” when all of that was going on, and the money changers were stealing us blind.
Now, I don’t want to rain on Mr. Bernanke’s parade, but might I be so bold as to suggest that the last thing we need is for the financial system to “return to more normal functioning”? Besides, it’s too late. There is just not that much left to steal.
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Funny Money
