Third Party & Independents Archives

September 12, 2008

Conspiracy to Defraud Tax Payers

The growing number of government loan guarantees and bailouts of failed corporations and financial institutions is nothing short of a conspiracy between elected politicians and wealthy special interest power brokers to steal tax payer’s dollars without representation. More than 230 years ago, Americans engaged in a Revolutionary War for this very same crime of government. Wimpy Americans today are more obsessed with race and gender of their elected officials than being ripped off by them.

American voters truly do not understand what is happening here. Hundreds of billions of dollars of tax payer's money have been committed by your elected officials to cover for the incompetence and mismanagement of private corporations, while the managers of those corporations waltz away with 100's of millions of dollars reward for their failures in managing those corporations to the point of bankruptcy and insolvency.

In March the International Herald Tribune wrote:

Bear Stearns had made a fortune in mortgage-backed securities but faced a possible collapse after those investments soured. Wall Street plunged as fears spread about whether other big firms were in jeopardy.

"When you go through a period like this," [U.S. treasury secretary Hank] Paulson said, "policy makers need to balance various consequences."

That bailout will cost tax payers not only the 29 Billion Dollars in loan guarantees, an unfunded mandate adding to the national debt, but much, much more. FSK explains the additional cost this way:
The Federal Reserve recently bailed out Bear Stearns. The Federal Reserve printed $29 billion in new money and gave it to JP Morgan Chase to finance the buyout. (Technically, it was a loan, but at a negative real interest rate of 2.5%, it's essentially a gift.)

According to the Federal Reserve, in February 2008, the M2 money supply was $7.57 trillion. Dividing $29 billion by $7570 billion is 0.38%. All outstanding dollars lost 0.38% of their value when the Federal Reserve printed $29 billion in new money. If you had $10,000 in a checking account, you personally paid $38 to finance the bailout.

The above statement is slightly inaccurate. The US has a fractional reserve banking system. When the Federal Reserve prints $29 billion in new money, that technically causes $290 billion of inflation. For each dollar created by the Federal Reserve, the financial industry then creates nine more dollars, through the power of fractional reserve banking. Viewed this way, the Federal Reserve caused $290 billion of inflation when it bailed out Bear Stearns. Using this calculation, all outstanding dollars lost 3.8% of their value when the Federal Reserve printed new money to bail out Bear Stearns.

The cost of the Federal Reserve isn't free. Everyone else pays the cost as inflation.

While one can argue about the precision of FSK's multiplier effect, there is no logical or true argument to be made that the unfunded mandate adds significantly to the inflation rate of all American consumers who happen to be the one's on the hook for the original $29 Billion.

But, this is peanuts. Your politician has only just begun to fleece you and your children's paycheck tax deductions. Then comes the Big Mama, Fannie Mae and Freddie Mac. These two private corporations, whose executives and shareholders who sold their shares at enormous profits prior to the government takeover, walked away with billions which your politicians have now elected to replace with up to $100 billion for each of these corporations. This $200 billion dollar potential liability is to underwrite the bad debt and worthless paper of the corporations which not long ago was used to demonstrate how solvent they were.

Using FSK's multiplier inflation effect, Americans are out not only up to $200 billion dollars, but, another half trillion to 1 trillion dollars in inflation effect as they go about purchasing food, health insurance, gasoline, clothing, and all manner of other consumer items. As your politician votes to authorize the printing of more money to increase the money supply to cover all this spending and borrowing against future tax hikes, they are robbing your future wages and those of your children for the rest of their work lives. More on that in a moment.

Now, the Big Three auto makers, in fact all auto makers, even foreign auto makers and parts companies, are driving up to the Federal cash window for $25 billion dollars more of your tax dollars with the threat that they won't build fuel efficient cars if your politician doesn't pony up the cash. And make no mistake, your politician is going authorize this.

Lehman Brothers financial corporation is also going belly up and begging for some other corporation to buy it out. So far, no takers. No takers means Congress will pony up to bail its investors out as well and allow its CEO and other execs to walk away with hundreds of millions of tax payer dollars used for the bail out.

Congress views such theft of your tax dollars as an investment in their future reelection, ironically. They count on you and me, the voters, to keep our heads in the sand and pulling that habitual Party lever on election day to reelect our politician thinking it is the other politicians who are at fault. Dumb us.

'But this isn't going to effect us', many voters will argue; John McCain is going to be elected and he won't raise taxes. Even Obama says he will give 95% of Americans a tax cut of $1000. Au contraire, mon ami! If you are less than 50 years old, your taxes will be rising dramatically years before you retire. And if you are 25 years old, your taxes will be greatly elevated for the rest of your work life. Here is what your politician won't tell you in their lying newsletters sent to your mailbox.

Take a look at the graph below of interest payments on our national debt. Bear in mind, these payments MUST be made each year to prevent the United States government from entering bankruptcy, causing a deep depression. federal Interest payments graph

The Congressional Budget Office has this to say about the graph above: "Net interest payments began to increase in 2004 and CBO projects they will continue rising for at least the next five years, and, under plausible scenarios, could continue rising indefinitely."

The White House in Oct. of 2007 issued an audaciously false statement saying: "Deficit Declining Towards 2012 Surplus". The Bush administration has lied about deficits and debt every year since 2003 when the promise was made to cut the deficit in half. The fact is, the 2008 deficit will be near 1/2 trillion dollars with these bailouts and loan guarantees for failing management of corporations included. And Sen. John McCain insists that the government must cut taxes and prevent the previous Bush Administration tax cuts from expiring.

No matter how one cuts this pie, there are far more people at the table than pie to feed them all. Across the board cuts in federal spending will send millions of Americans into a struggle for food, housing, clothing, and medical care. But, even with across the board spending cuts, such cuts as would balance the budget under a McCain administration would never, EVER, get by the Democratic Congress for the same reason: too many Americans would be severely hurt and harmed.

Yet, Sen. McCain endorsed the bail out of Freddie Mac and Fannie Mae, indicating that not doing so would hurt and harm too many Americans as the economy contracted further as a result. Sen. McCain's position is contradictory. He supports adding to deficits and debt to bail out corporations to prevent too much economic harm befalling Americans. Yet, he insists he will cut government spending for programs that will financially harm millions of Americans and their children depending upon such spending for school meals, housing, transportation, and health care.

Obama's promises to be fiscally responsible by raising taxes on the wealthy and cutting taxes for everyone making under $250,000 per year, plus spending cuts, don't add up to a balanced budget either. But, the President is not the primary culprit in all this debt and rising taxes for decades into the future. That culprit is your Congressman and Congresswoman, who have abdicated their responsibility in managing the nation's economic future, in exchange for the prospect of getting reelected by voters this year and every election year, by letting them eat cake and let their children pay for it when they enter the work force.

The Double Whammy: Opportunity Cost ! Opportunity cost is the measure of cost of options B and C which one cannot select as a result of choosing option A. In concrete terms, this means that because Congress chose to deficit spend in the past, Americans paying today the $480 billion dollars in interest on the national debt this year cannot choose to spend that $480 billion on other things like education, health care, roads and bridge maintenance, or even invading Pakistan to get Bin Laden and his band of murderers with that money. America is poised to receive a brutal lesson in opportunity cost in the decade ahead.

The skyrocketing national debt, without any doubt whatsoever, will result in higher interest rates for taxpayers paying the interest on that debt, and higher inflation of consumer costs as a result of the U.S. treasury printing money to pay the interest on that debt, and for all the rest of the deficit spending for entitlement programs and defense spending. It is a double whammy that is going to further erode the buying power of what net pay one does get after taxes for the decades to come.

The opportunity cost of inflating prices for consumable goods, higher taxes on future earnings, the interest on the national debt coming out of our paychecks, and the unfunded obligations of Social Security and Medicare for increasing millions of retirees, are going to result in ever smaller pay checks, less buying power per dollar, and less and less government assistance for struggling American workers and their children. But, hey, we are just ignorant and under educated voters. We can't be expected to carry the responsibility for the actions of our politicians. We elect them to be responsible.

And logic flies out the window.

We the voters are responsible for what our politicians are doing to us. The founding fathers and leaders after them gave us the vote for the express purpose of voting out corrupt, incompetent, and abusive politicians who use their power to harm us, the people. And the current lot of politicians are harming us with unimaginable billions upon billions of tiny cuts such that we financially bleed to death slowly as they build their wealth to survive the future, the rest of us will suffer and die from.

It has always been up to us, the voters. The sooner we awaken to this fact of democracy, the sooner we can stop them from stealing our futures away from us.

Posted by David R. Remer at September 12, 2008 06:23 PM
Comments
Comment #262904

Now we can add as yet unknown billions for Hurricane Ike. There is no end to the deficits and debt and wasteful, pork barrel, and special interest spending by these politicians. They have no ability to prioritize what is essential to the welfare of the American people and this nation’s future, and what is not.

Onward to bankrupting America in the new century.

Posted by: David R. Remer at September 13, 2008 04:21 AM
Comment #262908

David, What would be your solution to this mess the political machine has gotten us as a nation into? Simply voting for candidate A or B wont solve this financial mess. Fiscal responsibility seems like a phrase that they enjoy using in Washington but apparently have no idea what it means. To quote the movie Princess bride in respect to them ” you keep using that word, I do not think it means what you think it means”

It almost seems like another Boston tea party is what is needed, but in the current environment, participants would be sent to Guantanamo as terrorists.

Posted by: NapaJohn at September 13, 2008 07:21 AM
Comment #262909

“We can’t be expected to carry the responsibility for the actions of our politicians. We elect them to be responsible.”

And the absurdity of it is all too prevalent. This is the unfortunate normalcy at which abject complacency has steered us toward. However, not all the blame can be centered on our citizens who, being groomed for generations by popular talking heads (which happen upon telling the truth only by accident), and being time-poor by way of an ever more demanding service industry, beholden to wake each day because they are chained to debts of the present for want of a better future, are rendered by these and many more modern hinderances unimagined by our ancestors almost entirely incapable of any meaningful participation with self governeance. Common Sense is literally the new oxymoron, and yet the most pitiable evil exacted at large is not the denial of the theatre, but the entrallment of its entertainment value.

So spectacular, so inconceivable the deception, that in the act of dissecting it, one feels nearly certifiable. Just what is it anyway? Well, the housing “bubble” we’ve just witnessed is a clear glimpse enough for some people. It needs more plainly said though, that our society (America, its government, AND it’s will) is experiencing a reality bubble. We got here by roundly overlooking human history. “America wins, always” — such stupidity is navigatable only in the oceans of imperialism, and its port is tyranny. The question is not whether we will or will not emmulate the fall of the Roman Empire, as I beleive we are already well under way, rather whether or not it was a good or bad thing to have happened. And also, can we affect the course by commandeering the wheel, or do we do what is proven to work (at least in the short term) and abandon ship?

I would like to believe in a collective conscious; were it to be the accepted reality, we could all tune in and realise why terms like revolution, civil war (another oxymoron), and insurgency are flying out of fingertips and tapping keyboards, filling the internet with a last gasp of reasoning before the horrors begin. One of the many parallels we can draw between our first revolutionary days and the present, is that as sure as the sun will rise tomorrow, only the spilling of blood in sufficient quantities can injure the pride right out of us, and emplore people to seek harmony for his fellow man, not just for himself and his beneficiaries. More disgraceful than wanton greed is widespread indifference to it. Avert your eyes from the ugly man, and he may become unseen enough to pick your wallet.

Anyway David, I’m beginning to feel insulted whenever someone refers to me as a “taxpayer”. Why don’t we cut the nonsense and start calling ourselves “debtpayers”. If we’re going to continue this folly, we may as well get it right. We should rename the U.S. treasury department to simply Accounting, yet it would remain a cruel joke still. We could call Wall Street the Academy of Thieves, Congress, the Ministry of Corruption, the Executive Branch could be better described as the Department of the Media, the Pentagon should be renamed “The Secretary’s Fort”, and so on. The Federal Reserve is neither federal nor reserved in its function. This private bank is what really decides how much money our successors immediately owe us for our expenditures in global adventurism. The real “tax” is the rate of interest. Inflation is unending, since we seem to believe that we can feed ourselves by eating our own arms and legs. Why bother valuing assets when we can just print them into existence?

So, where does it all lead? We are living the test that our founding fathers foresaw. The evaporation of liberty is upon us, and our one true decision now is not with which presidential candidate to vote into the office. It has more to do with whether or not that office, and our representatives, still serve the sovereign United States, and when the time comes that they do not, whether or not we can treat them from within. Think about that. Did treating with King George III and the House of Lords have any effect whatever on how they treated “their colonies”? No. Blood was doomed to spill then, just as blood will spill again. There are more than 300 million people living here today, and the interests this time reach out across the globe. This will be a goliath crisis of free will versus world government. The revolutionists of the past simply turned their backs to their government, and struck a new course. They later paid in blood and they won. That was then, and we live in another world today.

I do not fear the consequences of repeating the gallant acts of our ancestors. I fear the consequences of acquiescence, though it only delays the inevitable. Still, it’s immoral to leave this terrible decision to our children and theirs. Unfortunately, millions of cowards are happy to do just that. You can’t hope to protect your families for long by hiding and pleading, you’ll have to do them the honor of fighting for them. That is precisely why our founding fathers thought it so important that the public be armed. These are the dreadful days that they hoped would never come.

I used to think that theism was the greatest evil in the world. I’ve come to realise though, that it is only a tool used by evil men. There are good people who believe in gods and miracles, yet they can be exploited the same as any other person if only they fear death. In the end, it doesn’t matter whether you belive in god, magic, or weird science: do you have the constitution to sacrifice lives for love and peace? We must literally guard these things with our lives. That is the price of sharing the world with irradicable evil, WHEREVER it lives.

Posted by: willc at September 13, 2008 07:33 AM
Comment #262910

I couldn’t agree more! Our government has been taken over by special interests that have bled it dry. I blame campaign financing for a big part of it. We need an amendment to the constitution to make all campaign adds illegal.

Corporations used to ask to be deregulated, so they can make more money. Now they just want the government to give them money. Not only that but CEO’s have been given a free ride by their boards and stockholders. It would seem they just rape a company and then move on to another company, with no care for the future of the company because they won’t be there a year from now.

The car manufacturers just got done with a big law suit with California who was trying to get them to make more efficient cars. They spent millions of dollars on this law suit while at the same time Honda and Toyota were taking market share from them left and right, because they make more efficient cars! Now we are suppose to give them mountains of money to make more efficient cars. IT’S CRAZY!

Posted by: Mike the Cynic at September 13, 2008 08:27 AM
Comment #262912

wow will nice post. I also am beginning to see the seeds of a revolution. It is only a matter of time before the people revolt unless there is a dramatic change in Washington. Even then it may be too late for this great country. I am a lover not a fighter, but it has gotten rather bad in D.C. I don’t know what the solution is, I wish I did.


Continuing as we are as a nation though is akin to the definition of insanity; doing the same thing over and over and expecting different results. I am ashamed of my reps. in Washington. My hope is that the Republican party is greatly diminished in the next few elections and a third party begins its ascension. I think the libertarian party would replace them nicely as the yen to the lefts yang.


I can see it now the two big parties The greens on the left and the Libertarians on the right (not trying to cast the party as akin to the repubs.)and the Republicans being the third, small party fighting for a voice. But that’s just my opinion I could be wrong.

Posted by: NapaJohn at September 13, 2008 09:08 AM
Comment #262913

David

I was listening to NPR this morning. They were speaking with a financial expert about Lehman Bros. He said that execs of the other big investment firms have contacted the fed and are expressing the idea that they should bailout Lehman.

The fed has opened a pandora’s box of financial irresponsibility by taking care of Bear Stearns. How do they justify taking care of Bear Stearns but not Lehman Bros? I have heard mention that WaMu and Merrill Lynch are suffering the same symptoms and may be next in line. Where does this end? Is any of this responsible? To my eyes this is looking more and more like the wealthy covering the mistakes and wrongdoings of the wealthy with my money. They are protecting their assets at our expense. As I have stated before I can see the big picture of Fannie and Freddie and put aside fundamental concerns for them. But my fundamental concerns based around principles of right and wrong are telling me that the rest of this picture stinks and reeks of financial cronyism at my expense. I can not visualize how continuing in this fashion can be good for our long term outlook. Seems to me the piper has to be paid sooner or later. It also seems to me that I will be the one paying the piper while the fed and their wealthy friends comfortably sit back and light up their cigars with my fifty dollar bill which they extorted to cover their financial malfeasance.

Posted by: RickIL at September 13, 2008 10:44 AM
Comment #262914

Mike C

Now we are suppose to give them mountains of money to make more efficient cars. IT’S CRAZY!

I agree Mike. We should not have to pay for their lack of insight. There is something fundamentally wrong with the taxpayer having to pay for the mistakes of every financial giant that is lacking in foresight and the ability to manage for their future responsibly. It seems that now days the only people who have to act responsibly are the consumers of this country. We get to pay for the products and pay for the mistakes the corporations make in the process of delivering those products by way of taxpayer funded bailouts and subsidies. Crazy bulls*&t is what it is.

Posted by: RickIL at September 13, 2008 10:55 AM
Comment #262917

I agree a lot with most that is said but I think the fundamental analysis of the Bear bailout is incorrect.

The fed did not print money, they are the responsible for a loan. Not all securities that the fed backed as part of the 29billion will fail. Even subprime portfolios are returning 50% of capital to holders. So at worse this could create a 15 billion liability for the fed.

You also have no understanding of how the dollar is valued. The corrolation between printing an additional dollar and the value of the dollar are not linear. If that where the case than why has the dollar increased ~6% since the bailout? Also inflation has slowed since the bailout. Our current bout of inflation was not driven by an increase in money supply or labor cost pressure bur by rising commodity and energy prices.

I agree completely that all levels of government spend entirely too much money. I also agree that too many corporations are bailed out. Fannie and Freddie had to be saved. If they failed you would see property values drop by 40% from current levels, more debt would have to be written off by all banks; foreclosures would sky rocket and the FDIC would go bankrupt trying to make whole all those who had deposits at banks that failed. It was a whole lot cheaper to save fanny and freddie than to let them fail. But by no means should there CEO’s and executives received anything more than unemployment.

The libertarian movement, of which I align with for the most part, must get of the kick of gold and the fiat money system being an issue. Have you seen the price of gold lately? It has dropped by over 20% since July while the dollar has risen by 6%.

The global economy and financial system is to complex and interdependent on cross-border transactions and counter-party risk to boil it all down to replacement of the fiat system with gold.

The blame lies with the easy money policy of the Greenspan fed and the underpricing of risk by all parties involved in the mortgage and housing mess. This includes home owners who financed with exotic mortgages that they did not understand and could’t afford; the bond rating agencies who blessed this trash; the I banks who created the securities and sold them and the fed who sat back and watch it all happen.

Posted by: DCC at September 13, 2008 11:25 AM
Comment #262920

DCC

You seem to have a grasp of the economy, without having a partisan bone to pick.

I tried to find an answer to a statement by Stephen Daughtery in the red column. The comment is #262880, near the bottom of the posting entitled “Liberals on Palin” I would apreciate your take on Freddie Mac & Fannie Mae.

Posted by: Oldguy at September 13, 2008 11:49 AM
Comment #262931

Napajohn, without writing a book, the answer is to decouple non-profit government from the for profit world. That is half the answer. The other half is decentralization. Moving back to local banks, state banks, and local producers and manufacturers, where practicable.

I understand the economies of scale, and what they have been used for in creating oligopolies and cartels. The monolithic nature of our banking system is what threatens our nation. Enhancing local industry and production while maintaining globalization of information exchange could be a big part of the solution to saving our economic future.

If a local company or bank or service fails, the nation is not threatened. If a monolithic corporation with dependencies tentacled throughout the fabric of our economy like Freddie Mac or Fannie Mae, fail, the whole future of the nation is threatened.

Of course decoupling private industry from non-profit government is the other half of the equation by my way of assessing the problem. When politicians become agents of the corporations who underwrite their reelection, the American people and the future of the nation is placed in serious jeopardy. Because we do know that the ONLY priority of any corporation is profit, and that priority subjugates the politician’s responsibility to place the people and the nation as the top priority.

There’s more, but, this is, as I see it, the core of the solution. No non-profit organization in this country is allowed to operate in deficit in perpetuity, except the federal government. That has to be halted. And no corporation has the best interests of the consumers, the American people, and the future of the nation as their primary goal and responsibility. If they did, they would not have any investors. The incestuous coupling of these two worlds has to end if our future is to have a chance of successful duration.

Posted by: David R. Remer at September 13, 2008 02:33 PM
Comment #262932

willc, I am hard pressed to find fault with your analysis. I would only add that one of the fundamental differences between the U.S. and all other nations overtaking us, is a nationally standardized educational system.

Ignorance is being elevated and exhalted as a virtue in this country, and the costs of it are mounting. Democracy, if it is to succeed and survive, absolutely DEMANDS that the people receive a common education which arises from the empirically testable and verifiable, and which elevates and exalts critical reasoning as the skeletal foundation for the body politic.

Democracy as envisioned by our founders had the people in the decision making seat and the politicians doing their bidding. What we have today has been turned entirely on its head and no longer deserves the noble title of a democratic republic. We as a people either retake our democratic republic for our own governance, or suffer the increasingly costly failures of those who would keep us ignorant, stupid, and pliant in order that they may prosper at our expense.

Posted by: David R. Remer at September 13, 2008 02:45 PM
Comment #262933


The current condition began at the end of WWII. The United states found itself in a unique position, virtually no economic competition.

It was at this time that the alliance between the government, both Democrats and Republicans, and the corporations set about the task of convincing the people that there could never be another substantial economic down turn, especially another Great Depression. In addition, they began the process of convincing the people that hedonistic mass consumption was moral.

The corporate/government alliance was so successful that today we have a populace that is for the most part, spoiled rotten. Not only do the people realize that they are fortunate to have been born in America, many Americans believe that we are better than other people in the world and by virtue of that, more privledged more deserving.

Today, the government is trapped by it’s own conspiracy with the corporations. The government politicians have no choice but to bail out these corporations. They must at all cost prevent an economic downturn that could become a deep recession or a depression. Why? Have you ever seen a spoiled rotten child throw a temper tantrum in a store or resturant? A lot of screaming and kicking, sometimes even punching or kicking their parent to get what they want. Now imagine an entire nation of spoiled kids chanting drill, drill, drill, or kill, kill, kill the politicians.

Vote for Obama, he will straighten things out.

Vote for McCain, he will straighten things out.

Vote for a Republican or a Democrat, vote for continuation while you still can. Don’t think or care about anyone or anything but you and yours. If your lucky, you will die before the crap hits the fan.

Posted by: jlw at September 13, 2008 02:53 PM
Comment #262935

NapaJohn, divisiveness is a very large part of how we the people are being made servants to the corporate political system. Third parties only serve to divide us further. America needs a unity that overrides divisive issues and has the consensus to address the challenges of the future and surmount them.

It may be too late for such a unity to come about save for a revolutionary overthrow of this system created by a common sense of having our lives and children’s futures ruined by this system.

Common empirically based education was always the future’s salvation. But, that has now become the target for political division and disunity by the political parties who seek to divide us and remain in office and control by doing so.

China, Japan, India, Malaysia all are economies poised to move past America in growth and dominance in this century, and the one unique difference between them and us, is a national standardized educational system that invests heavily in the future of their citizen’s education based on the empirical sciences and critical analysis which this century’s challenges demand to be met. This type of educational focus shapes the political, economic, and social future of the nation enabling the people to agree upon solutions and meet and master the challenges before them.

I fear it is too late for America to be unified by such an educational system since political interests in this country have already made such an educational system the target for political divisions and suppressing the unity of the American people.

If our history teaches us anything, it is that a unified people pose the greatest threat to those in power. Nearly everything we witness about our government’s political nature can be traced back to this fundamental understanding and explains almost every action of our politicians in part or whole. Their objective is power. And keeping the people divided is how they preserve it for themselves.

Posted by: David R. Remer at September 13, 2008 03:01 PM
Comment #262936

David -
“The other half is decentralization. Moving back to local banks, state banks, and local producers and manufacturers, where practicable.”

That along with lack of oversight is what led to the savings and loan debacle of the 80’s isn’t it?
I am ignorant on economic issues like this so I guess I am asking your viewpoint once again.

Posted by: NapaJohn at September 13, 2008 03:02 PM
Comment #262937

DCC, we had to print the money which we don’t have to pay the near half trillion dollar interest on our national debt this year. CBO’s Herzog announced this week on C-Span that that figure could easily go well past 1/2 trillion for 2009 as a result of the bail outs and difference between assets and liabilities for the loan guarantees.

That is inflationary no matter how you dice it. Printing money to pay one’s debts in a contracting economic environment (diminishing the asset value backing currency valuation) devalues the currency. This is one of the fundamental laws of currency valuation. There is no wishing this law away.

Posted by: David R. Remer at September 13, 2008 03:09 PM
Comment #262940

NapaJohn asked: “That along with lack of oversight is what led to the savings and loan debacle of the 80’s isn’t it?”

Right. Lack of oversight. But, remember that Savings and Loans had already become nationally networked through a variety of information and association networks. In other words, they were no longer locally controlled and regulated by local government representatives of the depositors.

The day the term, “Savings & Loan Association” was coined to describe modern Savings and Loan entities, was the day Savings and Loans ceased to be locally responsible and locally controlled. They went national, and that meant their practices and standards and calculators went national such that when one failed, large numbers failed, since they were all acting in the same manner on the same national information sharing association base.

Decentralization means differing entities act independent of other entities in the same business but differing locales. If one fails, it has little or no impact on the other entities in other locales.

Whether we get around to going back to local food production, local manufacturing, local depositor and loan operations, and local oversight by local representatives before, or after the economic collapse looming in our future, we will be making that journey back toward local industry and more local self-sufficiency. Energy is an industry that could adopt that strategy at this very moment in time. But, it won’t happen because of the national and international players vying for dominance and profits on a global level.

Energy independence truly means locally developed and supplied energy sources and conversion. Listening to the Congressional hearing on energy policy this week on C-Span, it was obvious that concept was being paid lip service only, and the path being established was toward conglomerate federal and international corporatization of the energy future, replete with a resurgence of regional nuclear power plants, growth of coal power production, expansion of oil and gas production, all industries that defy the concept of local energy source development, conversion, and control.

What a monumental shame and damnation of our children’s future. The writing is on the wall and has been glowing in radioactive NEON for decades: “MOVE PAST NUCLEAR AND FOSSIL FUEL ENERGY SOURCES”. But, these corporate owned politicians in Congress value those corporate contributions at election time more than the lessons of history and demands of the educated whose only stake in the game is a cleaner, healthier, and more sustainable energy future for them selves and their children’s future.

Posted by: David R. Remer at September 13, 2008 03:28 PM
Comment #262942

“That is inflationary no matter how you dice it. Printing money to pay one’s debts in a contracting economic environment (diminishing the asset value backing currency valuation) devalues the currency. This is one of the fundamental laws of currency valuation. There is no wishing this law away”

David,

I agree that in theory that the more money supply you create the weaker the currency will be, especially in a contracting economy.

Theory does not always play out they way we expect in a global environment where things are incredibly dynamic and complex.

The dollar has been gaining strength over the last 2 months. Why is that? It is because the US is further along in the contraction cycle than Europe and Asian countries. So relative to the rest of the globe our economy will rebound sooner. What happens when the economy starts to grow? The assets that unpin the dollars value increase making the dollar more attractive vs other currencies and it increases the probability of a rate hike by the fed making the dollar more attractive.

I will say that all things being equal that government deficit spending will put pressure on the dollar. But as you stated in another post deficit spending will lead to higher interest rates and that will make the dollar more attractive and lower inflation by making imports cheaper.

I think the above point shows how the global economy is very dynamic and just because something should happen does not mean it will.

Posted by: DCC at September 13, 2008 03:46 PM
Comment #262945

DCC said: “Why is that? It is because the US is further along in the contraction cycle than Europe and Asian countries.”

I disagree. I think it is because the global economy is also moving in the direction of recession on the heels of our own.

The reality will likely prove to be a combination of both in hindsight with the all the stats in 12 months from now.

I agree theory doesn’t always play out as one expects. But, then, I wasn’t talking theory. I was talking law. Laws are defined very differently from theory. Currency valuation observes certain basic laws, and the most basic is that the value of the currency is proportional to the value of the real convertible assets backing the currency as a promissory note of exchange of goods and services. There is nothing theoretical in this.

Posted by: David R. Remer at September 13, 2008 05:01 PM
Comment #262948

DCC said: “But as you stated in another post deficit spending will lead to higher interest rates and that will make the dollar more attractive and lower inflation by making imports cheaper.”

Isolated, as you phrased it, this is true. But there are attending circumstances to our debt and rising interest rates, which can be best exemplified by Lehman’s plight at this very moment. Lehman is begging to be bought out by other private interests. So far, there are no takers. The reason is very simple. The risk associated with the bargain basement pricing is simply too high to induce offers.

Similarly, the growth of our debt beyond this $53 trillion dollar level, can reach a point in which the the higher interest rates offered as incentive simply don’t justify the risk of lending anymore. This potential can and will be exacerbated if a global protracted recessionary period follows a domino effect, now or in the future.

Look, foreign investors in our government debt are a lot more informed than American citizens. They realize that if America even contemplates defaulting on Social Security and Medicare, that there will be such an exodus of the work force from America as to seriously compromise the faith and credit of America’s economic future and ability to make good on its debt obligations. This will be a result of the losses in economic activity brought on by the upper middle class technologist’s exodus to Australia, Canada, Europe, Brazil, and other places where economic promise and quality of life and cost of living will be dramatically superior to remaining in the U.S. Do not underestimate the the proclivity of Americans to act in their own self-interest and especially the interest of their children’s future.

A mere proposal to breach the contract with Americans on Soc. Sec. and Medicare making up the lion’s share of that 53 Trillion debt, will set trigger an exodus that will grow and grow as the proposal becomes fact. Therefore, America’s credit worthiness depends very much on its ability to reenergize its economy, keep faith with entitlement obligations without bankrupting the U.S. treasury. No small feat and foreign investors are eying this situation very carefully, and discussing the options and forecasts these days. This is one of the reasons the world fears McCain’s election and prefers an Obama victory. An Obama presidency will keep faith with the entitlement promises. McCain may not.

7.3 million Americans already have chosen to live overseas on a permanent basis. They are upper middle class and wealthy by and large, if not dependent upon military stations for employment.

It is a global economy, and Americans would do well to spend more time listening to the world and what it is saying about America than listening to comedic quasi-political entertainment shows like Oprah and SNL. Myopia can be very, very dangerous to a nation’s health and well being.

News International and BBC international discussion programs can be a real eye opener for Americans trusting in a future which has long ago departed from the fundamentals that made this nation great in the first place.

Posted by: David R. Remer at September 13, 2008 05:26 PM
Comment #262949

When David said “these corporate owned politicians in Congress value those corporate contributions at election time more than the lessons of history
Í think you were very much understating the situation. Our politicians are in an unbelievably giant need for money. I heard on NPR this morning that as to date the advertising dollars have doubled this election. That’s right the politicians have spent twice what was spent 4 years ago. And 4 years ago they set unbelievable records for spending. So over and over we get politicians that are indebted to corporations before they get elected. We need desperate measures. That’s why I say we need an amendment to the constitution to make all campaign ads illegal. Of course since the MSM gets all the money that will never happen.

Posted by: Mike the Cynic at September 13, 2008 05:34 PM
Comment #262956

Mike the Cynic, your comment appears to overlook the obvious flaw in your proposal. The fact that these very same politicians have the power to initiate, or not initiate, a constitutional amendment that would cut themselves off from the corporate trough. A minor point of some significance, wouldn’t you say?

Only if this current lot of politicians are removed from office in record numbers regardless of Party as a result of voter’s demand for an end to the legal bribery of government by corporate and wealthy special interests, will improvement on this front be possible. Or, a violent overthrow of this government, whichever comes first.

The latter is less likely however, due to Americans today equating their politicians with the great constitutional design for government which these politicians no longer observe. Never was that the case in years following the founding of this nation. Then, Americans did not trust politicians at all, but instead put their faith in the checks and balances of the design of government inherent in the Constitution, its Bill of Rights, amendments, and decisions of the Supreme Court.

If only that were true of Americans today. We would not fear for our future, nor reelect 90% of incumbents at times when public approval of their performance rests at less than 20%.

Posted by: David R. Remer at September 13, 2008 06:31 PM
Comment #262958

David

53 Trillion will never be financed at any rate. You are very correct in that the interest rate would never be able to offset the risk.

I do not believe, even with such an incompetent government, that those future liabilities will even come to fruition. As much as I hate the thought of a public health care system there is going to come a day when we have no choice but to move to government supplied health care.

I have first hand knowledge of both sides of the health care system; my wife is responsible for HR at a self-insured hospital. Because of her experience as someone who has to make pay/don’t pay decisions for their plan and because she also has to deal with the ever shrinking insurance and government reimbursement rates that fund her budget, I see the waste and inefficincies of a quasi private health care system. Way to much is spent on administration and too little on care.

We also must stop the charade of thinking that the current US health care market is market driven; people will not make rational economic decisions when a loved one is dying and there is a 1% chance that their loved on will be saved by the $100,000 experimental procedure. They will fight for the procedure.

Our 53 trillion future liability will only be solved via a rational health delivery system with a single payer and modest, incremental cuts to the social security system.

The other part of your argument that is theory and would never happen is the mass exodus of US citizens. Do you think the countries that you mention will let millions of US citizens emigrate to their countries and increase their future liabilities? All western countries face an aging population with the same demographic time bomb that is driving our SS medicare funding issue.

DCC

Posted by: DCC at September 13, 2008 06:42 PM
Comment #262959

DCC asked: “Do you think the countries that you mention will let millions of US citizens emigrate to their countries and increase their future liabilities?”

Sure they will, because they won’t be coming as liabilities, but as assets (technological skills) and with assets (upper middle class savings and cash). What country would deny high tech immigrants with cash reserves available to invest in the country being emigrated to?

I don’t think you thought that one through very well. Our own H1B Visa program is empirical evidence that countries will take our people as assets, not liabilities. Illegal immigrants to this country, under educated, under innoculated, and without regard for sovereignty or law, are liabilities. High tech, engineers, chemists, innovators, designers, and entrepreneurs are not liabilities as immigrants. They are assets. America is living proof of the fact.

Posted by: David R. Remer at September 13, 2008 07:08 PM
Comment #262960

David,

Do you thing that the workers you mention in the target countries will welcome increased competition for their jobs and will allow their governments to import competing labor?

Also, do you think people here in America, particularly the upper middle class, who are not dependent on SS for retirement, will uproot their entire family to escape America? I know I wouldn’t. The little that I expect SS to provide me in retirement is not worth leaving my family and community.

Even if you theory comes to fruition the laws of supply and demand will come into effect and increase the wages of the workers who stay. This could increase their earnings enough to offset any loss is SS payments.

DCC

Posted by: DCC at September 13, 2008 07:19 PM
Comment #262979

DCC, I think along with the techno-professionals, will go a great deal of American business and expertise and entrepreneurial capacity with them which other up and coming economies would welcome, yes. Brazil for example will have a shortage of techno-professionals for decades. India is in some ways like Japan of 30 years ago, hungry for American creativity and entrepreneurial R&D with which they can grow entire industries around employing and elevating ever more and more of their people.

You are looking at the world through the lens of being an American in America. Many other nations like those I mentioned have great human capital awaiting development in the decades to come and that will require the creative techno-professionals like those in America who would leave mid-level positions here even if they still had such positions, for a much greater potential elsewhere for moving to the top or becoming the CEO of their own operation in nations capital rich with American principle and interest payments from our debt.

7.3 million Americans already have uprooted for what they consider greener pastures or better lifestyles elsewhere. That fact speaks for itself. I don’t have a crystal ball on the Middle Class of tomorrow. I do have a basic understanding of what motivates and drives upwardly mobile techno-professionals and it isn’t seeing their careers and quality of life diminishing when better opportunities exist elsewhere.

If remaining on a sinking ship would be your choice, out of loyalty and patriotic duty, good for you. But, migration patterns of populations all over the world including here demonstrate that such patriotism and loyalty are not omnipresent amongst the peoples of the world. Many 10’s of millions move to other countries for better opportunities. We know this because that his precisely how our nation was populated. Doesn’t take a crystal ball to recognize many Americans will seek opportunity elsewhere if such opportunity diminishes here.

Posted by: David R. Remer at September 14, 2008 08:54 AM
Comment #262980

David,

I am one of those technical professionals in the upper-middle class. I have traveled to Brazil, Japan, Honk Kong, Singapore, Philippine, and many countries in Europe on business. I have co-workers in all the about countries. I do understand what is driving the economies of those countries.

My statement about not moving is not out of patriotic duty. I am saying that moving for most people is not just an economic decision.

And yes, American was built on immigration. I think we should continue to market America to educated people all over the world as the place to achieve their economic and personal dreams.

Posted by: DCC at September 14, 2008 10:30 AM
Comment #262981

Until we can’t afford them anymore. But, I disagree that we should be importing expertise instead of home growing it. That is another undermining of our nation’s future. The day is not too far off though that Americans will emigrate instead of immigrate, if our political economic situation continues on this track it has been on for the last 30 or so years.

When was the bailout of Chrysler? Reagan Administration?

We have encouraged our daughter to become trilingual in Japanese and Spanish. She has taken to it quite readily. We have our daughter’s bases covered whatever happens here.

Posted by: David R. Remer at September 14, 2008 10:55 AM
Comment #263002

The deficit spending isn’t accidental, it’s a deliberate political policy to prevent the national government from creating more national institutions. We are probably going to end up with some kind of national health care, so get ready to sit in line behind kvetches, hypochondriacs, and others who will be wasting that funding like they waste the public school funding.

Some private corporations are well run, and dedicated to paying dividends to their shareholders. Lorillard is my favorite this week. They actually date from the colonial era, when a monopoly was granted to another company because the London government didn’t think they could afford to let them go under. Hijinks ensued, then a revolution, then we got the Bank of the United States on Wall Street to pay the debt for the revolution, until Andrew Jackson came along and raised a fuss because he thought the Rothschild’s owned too much of our national debt. Then we went to a local banking system. Is any of this sounding familiar?

The anti-immigration arguments always remind me of the 1882 Chinese Exclusion Act:

http://www.asianamericans.com/ChineseImmigration.htm


History of the Thirty-Ninth Congress of the United States
by William H. Barnes

Mr. Cowan, of Pennsylvania, spoke against the bill. He said: “The identical question came up in my State—the question whether the negro was a citizen, and whether he possessed political power in that State—and it was there decided that he was not one of the original corporators, that he was not one of the freemen who originally possessed political power, and that they had never, by any enactment or by any act of theirs, admitted him into a participation of that power, except so far as to tax him for the support of Government. And, Mr. President, I think it a most important question, and particularly a most important question for the Pacific coast, and those States which lie upon it, as to whether this door shall now be thrown open to the Asiatic population. If it be, there is an end to republican government there, because it is very well ascertained that those people have no appreciation of that form of government; it seems to be obnoxious to their very nature; they seem to be incapable either of understanding it or of carrying it out; and I can not consent to say that California, or Oregon, or Colorado, or Nevada, or any of those States, shall be given over to an irruption of Chinese. I, for my part, protest against it.

http://manybooks.net/pages/barneswh2459624596-8/229.html

Is any of that sounding familiar?

Posted by: ohrealy at September 14, 2008 04:43 PM
Comment #263004

“Makes no difference who you vote for, Government always gets in.”
Democrats and Republicans are different sides on the same coin. The REAL PROBLEM is the size of government. There are over 25 million bureaucrats and other government employees at all levels. There are over 80,000 government entities in the USA alone.
We pay for all this. We pay salaries, benefits, retirement, perks, overhead and more.
Then these fools have the nerve to tell the rest of us, private citizens, what we can and cannot do.
This is NOT Freedom, this is insanity!

Posted by: Bruce at September 14, 2008 05:55 PM
Comment #263016

ohrealy, No! It doesn’t sound familiar at all. The fact that it sounds familiar to you, says something about you, not our current situation.

In our current situation, we LEGALLY immigrate people from all over the world regardless of race, religion, or class. This fact MUST be remembered when discussing ILLEGAL IMMIGRATION. The same difference exists between Legal and Illegal immigration today as exists between the Medical Use of Cocaine or Morphine in the operating room and the illegal sale of these drugs on our children’s school campuses and street corners.

Posted by: David R. Remer at September 15, 2008 04:19 AM
Comment #263018

Bruce said: “The REAL PROBLEM is the size of government.”

No. The REAL PROBLEM is the 10’s of millions of under educated voters who continue to reelect the same politicians and parties over and over again REGARDLESS of how terribly they govern.

That is the real problem. The vote was never needed to keep the King of England King. The vote has always been needed to remove politicians from office when government fails them. 4 out of 5 Americans agree Congress has failed them. Yet, approximately 90% of Congress persons are reelected election after election after election with 5% variation in any given cycle.

That is the real problem. And we are doing the same thing in the corporate world, where Execs bankrupt a corporation or return poor performance and they leave that business to become an exec at another at an even higher compensation package.

Power finds its own ways to remain in power. The vote is the only power the people have to remove such persons from power. And they aren’t educated to understand that purpose and obligation of having the vote. Which is no coincidence or happenstance either.

Posted by: David R. Remer at September 15, 2008 04:27 AM
Comment #263031

I recently was reading about Andrew Jackson’s episodes with the central bank. His depression was also a boom bust cycle based on land speculation.

He put the central bank out of business, creating an immediate depression.

The Fed was created for stability. It has been successful since the Great Depression. Time will tell if it is successful here.

The S and L debacle was created when they were deregulated and allowed to make much riskier loans and essentially become banks. Land flipping became the name of the game. It increased their profits…for a while.

The same issue exists here. It is allowing institutions to become risk ventures. Safety is boring and slow. Given enough time the same cycle will occur again. Size isn’t the issue. It’s stability. If a bank grows through risky investment, it eventually becomes unstable.

Reigning in risk will shrink credit. This will cause a weaker economy. Slow and steady wins the day. There is something in between shutting down credit, and NINJA loans. Responsible credit is what is needed. That comes through regulation.

Posted by: googlumpuugus at September 15, 2008 01:24 PM
Comment #263039

googlumpus, you hit the nail on the head, but, left off the other shoe to drop - national debt.

The national debt will now grow even faster. Rising interest rates due tighter, more risk averse lending, is going to hurt consumers, the financial sector, and tax payers as the service on debt rises, which it now must and will continue to for at least the next year and a half.

As I have been writing since 2006 here, this tumble had no winning exit scenario. All those “glass is half full” folks are losing their arses now that the glass is 2/3 empty. There are realities to be faced, and denying them only intensifies the pain when they have to be faced.

I have been writing this meltdown should not be viewed as a national event, but a global event. As the global liquidity and credit situation worsens, thanks to the U.S., any hopes of exports saving our bacon were going to be a fantasy, and any hopes of foreign investors flocking to provide us low interest loans was also going to be an unrealized fantasy.

We are now looking at stabilization of markets pushed out to a minimum of 2010.

Oh, Yes! McCain is getting DEMOCRATIC RELIGION today saying we MUST HAVE REGULATION! But, Why hire an actor playing the role of Democrat, when you can hire a true Democrat to regulate and oversee greed and unethical behavior?

Yes, Democrats are corrupted by the lobbyists, but, the nature of their lobbyists is dramatically different than Republicans. GOP Lobbyists represent Greed married to Power. Democratic lobbyists represent consumers and workers.

This should be a ‘brain stem required only’ for voters. But, that would assume a functional brain stem, so don’t bank on it.

There is one presidential candidate who predicted all of this and has warned of it for many, many years to the point of being ignored as “The Sky Is Falling” heretic: Ralph Nader.

He is now polling 6% in some states and is on the ballot in 43 States if I recall correctly. And this on a shoe string campaign fund. If only the man had a modicum of charisma, even a smile would be a dramatic improvement. But, his vision of the future at the hands of Dems and GOPs created a frozen cynical expression. Who can blame him, now?

Posted by: David R. Remer at September 15, 2008 04:10 PM
Comment #263047

In JMcC’s case, it would be power married to greed I think. In the meantime, people are arguing for the political candidacy of the anchor baby of some guy whose actual wife sold produce in the street in Kenya to help send him to college in America.

Illegal vs legal only matters in the borderlands. They’re all immigrants here. The “under educated, under innoculated” are taking the lower rungs of our society, and could be uplifting those born here who have previously occupied those positions, if their children could attend better schools. “engineers, chemists, innovators, designers…are assets, which our public education system can’t produce? Better opt for better education instead.

Posted by: ohrealy at September 15, 2008 06:03 PM
Comment #263048

Well, I don’t know if I’m with ya on the sky is falling, but I will concede the glass is at least half empty. Since most of the credit market crunch is based on inflated property values, I don’t think these values will drop more than to half their peak values, and more likely much higher values than that will be the bottom.

We are the consumer market for most of the world, although China and India are rising. This will continue to be true irregardless of our debt. Credit is a matter of money supply and consumer confidence. Clearly we are entering a likely contraction.

Some diminution of trade, and some inflationary devaluation will occur. Hopefully, we don’t enter a protectionist trade war, or real war as political bodies reposition themselves over economic circumstance.

I don’t get too excited about debt, what worries me is transparency and economically sound policy.
As long as we pursue these, we’ll be alright.

Posted by: googlumpuugus at September 15, 2008 06:14 PM
Comment #263086

ohrealy, with rising unemployment above 6%, I don’t think the taking of lower rung jobs from Americans is exactly a positive for the nine million Americans unable to find work and who face a protracted economy in contraction.

2010 is now the earliest estimates for an economic recovery barring a plethora or other potential mishaps in the interim.

I absolutely agree with you, far, far better secular education is part of the answer. I don’t see that coming from a McCain presidency. Do you?

Posted by: David R. Remer at September 16, 2008 10:04 AM
Comment #263087

googlumpus, you obviously have not been tracking the international business news. Markets are down by 3 to 6 percent around the globe, and Central Banks in every major nation with them were scrambling this weekend for options to ameliorate the coattail effect of having depended on those Americans for investments.

Lest you forget, we are the world’s largest debtor nation. Causing investments in the trillions around the globe to go South is not exactly going to endear international investors to float our debt, upon which are very economic survival depends.

You might want to rethink your position on this. Contrary to the Idiot In Chief In Waiting, Dick Cheney, Debt really does matter. Debt blocks opportunity and closes choices one otherwise would have had available in a pinch.

Not to mention the vampiric draining of future wealth building potential from 450 billion dollars interest payments EACH YEAR, substantial percentages of which leave the U.S. never to return.

I do share your concerns over the potential for international hostilities arising out of these economic difficulties. Keep and eye on Russia. They tested the U.S. with the Georgia invasion and occupation, and the U.S. responded by saying with its actions, We Can’t Afford to do anything about it except pay lip service.

If McCain wins, watch Russia move to engage in a whole new arms race cold war now the economic weakness shoe is on the other foot. Putin is in charge and he ain’t delegating international postural decisions as Bush has had to do in deference to his limited education and knowledge base.

Posted by: David R. Remer at September 16, 2008 10:18 AM
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