Can We Avoid Economic Meltdown?
Can We Avoid Economic Meltdown?
The Tribulation Network
Chapter 7
By Dene McGriff
Americans are assaulted every day by bad economic news. The news pundits and economic analysts assure us that these are minor adjustments and that recovery is just around the corner. So is an upturn just around the corner? Will the stock market keep rising to new heights? Will our house prices rebound like they did in the past? Isn’t America blessed with abundant resources and a vibrant economy? Isn’t this down turn just a bump in the road?
Or, has there been a turning point? Is this the end of business as usual in America? Has America begun to slide down a slippery slope with no return to her former greatness? Are we following in Japan’s footsteps – the beginning of a twenty year era of stagflation, a massive drop in housing, and worse than Japan – a sell off of American assets to foreigners who own us? What does this mean for Americans – unemployment, under employment, stagnant wages (inflation adjusted wages haven’t really grown since 1972 anyway), more inflation, doubling gas and food prices, working harder and longer? What happens if the boomers stop spending and start saving?
The whole subject of economics and banking is hard to understand. What isn’t shrouded in mystery are the corporate bandits whose golden parachute packages stagger the imagination—especially, when these guys write down billions of bad debts and then get “corporate welfare” from the Feds (that’s you and me paying taxes).
But it doesn’t have to be that difficult. You recall the story of the king who called all of his scholars together and asked them to explain economics to him. They went out and researched and came back with a book. “Too long and complicated”, said the king. Go back and try again. They came back with a single chapter but the king still didn’t get it so he sent them out on a quest to explain economics simply. After many months they finally came back with a one-page summary. The king was furious – “Off with their heads,” he cried! “Whoever can explain in simple terms I can understand will be my adviser and have half the kingdom.” A young lad in the king’s audience scribbled a sentence on a scrap piece of paper and passed it to a scribe who handed it to the king. The king took the paper. There was one five word sentence, “There is no free lunch.” The king was elated. He finally understood.
It is not that hard. We all know the truth deep down. We don’t become a wealthy productive society by borrowing and spending money we don’t have, to buy things we don’t need. Debt can’t keep climbing out of control indefinitely. Stocks and house prices don’t keep rising at double digit rates year after year. A higher price for a house means no more than a higher price for a loaf of bread. If the price of a loaf of bread or a dozen eggs doubles, it doesn’t mean the house is really “worth” twice as much. All it means is that your money is worth half of what it used to be.
I will attempt to lay it out in simple terms we can all understand. These are subjects I have dealt with over the past three or four years and as a follow up on my last article entitled the “Death of the American Dream.” The answers aren’t as difficult as it seems. And one final thing we will look at is this: If we aren’t profiting from our economic system, who is?
THE BEAR STEARNS BANDITS
But first, let’s look at the scope of the problem. We have no idea how close we came to total collapse. This is but one example from an article that came to my email box today. The Bear Stearns debacle came close to causing a banking crisis not seen since the Great Depression.
“The risks of a systemic collapse have risen to uncomfortable levels. The complete withdrawal of credit from the financial system has led to a series of implosions of hedge funds and other leveraged investment vehicles. At some point - and nobody knows when that point is - the system is not going to be able to withstand further failures. It will not be the sheer volume of failures that brings the system to a standstill; the system is enormous and can sustain huge dollar losses before becoming impaired. The problem is that the global financial system is a case study in chaos theory. This is truly a case where a butterfly flapping its wings in West Africa could lead to a Category Five hurricane thousands of miles away.
“There are an incalculable number of derivative contracts and counterparty relationships on which the stability of the financial system hinges. All it would take is the collapse of the wrong firm or the wrong derivative contract at the wrong time to throw the wrong financial institution into crisis and force the entire system into a death spiral.” (Maudlin’s Outside the Box, “The Risks of Systemic Collapse” by Michael Lewitt, 3/17/08)
So order has been restored for the time being, but let’s look at the long term trends and see if they work going out into the future. Order was restored by the Fed loaning $200 billion to banks in exchange for their mortgage paper and a .75 percent decrease in the Fed Funds Rate. This resulted in a one day bump in the Dow of 420 points only to be followed by a 300 point drop the next day. We are assured that the Fed and an activist government can prevent economic collapse. Can they really? There are certain premises that the government and pundits continually hold out as being self-evident. No one dares to challenge them. They are just declared to be true. Let’s examine them.
Premise 1 - America can continue to borrow and spend indefinitely. The world will support the dollar because it is in their best interest.
America has to borrow $2 billion every single day. Other countries produce products. They save and loan to us. We borrow so we can buy their products. So who really gets ahead on this equation – the country that produces or the people that buy their stuff? We have been importing more than we export. The exporting country uses their income to buy our Treasury Notes believing that the dollar is a reliable investment (or at least has been historically). But lately, the Treasury has been printing money, increasing the supply by an estimated 14 percent per year. This is the definition of inflation – more dollars chasing the same products. This results in a steady devaluation of the dollar against other currencies. For example, the Euro has doubled against the dollar in just the last few years. So what do we do? Pay them back with cheaper dollars. If I buy a car from you for ten thousand dollars and agree to pay you in five years and inflation is running at ten percent, the ten thousand dollars is worth about half as much in real dollars.
Reality check: Do we really think the world is that stupid? Already, foreigners are refusing to buy our Treasury Notes. Why buy a long term bond at 3.5% when inflation is running at 4 percent? That’s a sure way to lose money. If foreigners don’t buy our long term debt, who does and what are the consequences?
When we buy our own debt, that’s called monetizing debt – something the Weimar Republic of Germany did after World War I leading to hyperinflation. People would take a shopping cart of millions of German Marks to buy a single loaf of bread.
Does a nation get rich by borrowing from others and spending? Obviously not! It becomes poor and beholden to others.
Who is bailing out our banks? Middle Eastern oil companies for the most part.
How long can this go on? Indefinitely? No, this is what economists call an “unsustainable trend”.
Premise 2 – America’s miracle economy works because we consume!!!
That makes a lot of sense, right? Since when do we make money by consuming rather than producing? Yet that is what you hear every day on CNBC and Bloomberg. That is what the President, Congress and other politicians tell us. It is our civic duty to go to the mall and spend, spend, spend. The upcoming tax credit will be a gigantic failure if we don’t spend it or pay off credit cards.
Just think about it. What would happen if you decided to not go to work but to just sit home and consume – sit in front of the TV and eat potato chips? What if we ran up our credit cards to the limit or took out a line of credit on our house? I guess it would work for a while – at least until we were fat and bankrupt!
This is another unsustainable trend. Our nation can no more afford to continue to borrow and consume rather than produce any more than you or I could. The problem is, we’re not only consuming but we are doing it by going into debt!
Premise 3 – Intervention works. The Federal Reserve and the government can manipulate the economy to provide liquidity and credit and thus ensure growth.
Here is one of the big problems. In the short term this strategy works. In the long term, it doesn’t. “Provide liquidity” is a fancy word for printing money. Give it away! Drop it from helicopters! Send every man, woman and child a check! Short term, it seems like a great idea, especially for the average Joe. But long term, it creates inflation. Prices keep rising and the value of the dollar keeps falling… but you have more dollars so for a while, it seems good.
The Fed is providing credit to banks so they will have money to loan us. What was the result of easy money and easy credit? First, the dot com bubble on Wall Street. Now, the housing bubble. Now, we are seeing a commodity bubble – crops, metals, oil, etc. Inflation is rampant. In fact, the government is trying to re-inflate the housing bubble by lowering interest rates again, exchanging bad mortgage paper for dollars and by extending credit to Sallie Mae and Freddie Mac (the quasi-governmental mortgage lenders).
THE JAPANESE ECONOMIC COLLAPSE
Intervention works short term, but there are always long term consequences. As I mentioned in my previous article, Japan was the miracle economy of the 1980s, the second largest in the world. Everyone, including the Japanese thought it was unstoppable. In 1990, Japan began a long slow recession that is still going on 18 years later. Their stock market has not recovered (but is still going down). Real estate prices went down as well, and contrary to conventional wisdom, have stayed down (80 percent from their highs). Meanwhile, the Japanese government lowered the prime rate to zero (0 percent), bailed out banks, went into deficit spending (public works rather than imperial wars), and cranked up the printing presses (increased money supply in economic jargon), etc. Japan did absolutely everything our Fed and government is doing but to no effect!
Nothing worked. Japan has suffered deflation for 18 years. But Japan is not America. Japan has trade surpluses. They have savings. The average person had savings to weather the downturn. We Americans have “negative savings” – zero, zilch, nada! We have no home equity, and credit cards are maxed out. How will we weather the coming storm?
ECONOMIC CYCLES
Economies run in cycles, very long cycles. We have had 27 years of expansion, and a lot of that expansion made no sense (dot com and housing bubbles, Savings and Loan crisis, banking credit crisis, etc). Cycles are natural in an imperfect world. Just as there are times of rain and drought, times of expansion and times of contraction, times of cooling and times of warming (woops! Let’s not get into that one).
Nature doesn’t like imbalances, imbalances in trade, in currency exchange rates, in production and consumption. It has a way of balancing out. It is best to let nature take its course. But if the expansion goes on because the government intervenes (which is exactly what all the presidential candidates want to do), don’t be surprised if the contraction (correction) also lasts for 20 or 30 years. In fact, America may never see its former glory.
The more government and central banks meddle in the economy and try and tweak it here and there, the more they postpone the inevitable adjustment. The imbalances in the world economy are greater than ever in the history of mankind, especially where the United States is concerned. Never in the history of man has a single country had the debt and deficits we have. Talk about unsustainable! We borrow more in one day than the GDP of many countries!
Ever since the world went off the discipline of the gold standard, currency values and balance of payments between countries have been getting farther and farther out of whack. The balance is like an earthquake fault line such as the San Andreas fault that needs to slip regularly or the pressure builds up and you have the big one. Recession is the way economies adjust. It is a normal cycle, not a BAD cycle as the government would have us believe. The more we intervene by lowering interest rates, printing money, devaluing currency, or erecting trade barriers, the more cataclysmic the adjustment will be in the end. We are headed toward the perfect economic storm.
Intervention will not work in the long run. The manipulation of the economy by lowering interest rates, borrowing from others, increasing the money supply, devaluing the currency, etc. is not a sustainable trend. It must and will adjust. That adjustment is called a “recession” or “depression” – and a depression is likely to occur if we keep postponing the inevitable.
THE FED’S MANIPULATION – THE DEBTS PERSIST
The Greenspan Fed lowered interest rates to stop the 2001 recession, only to spark the housing bubble. Now the Bernanke Fed is printing money, lowering rates and making credit available to lenders in order to keep the banks from failing. Today (March 18, 2008) the Fed lowered rates by .75% to 2.25%. Will it work? No, it will only postpone the inevitable. These are corporate bailouts, but there isn’t enough money to bail them all out!
They have no idea how much debt is out there. The problem is that they take mortgage loans, car loans and other types of loans, package them as financial instruments called derivatives and sell them at pennies on the dollar. They resell them and resell them. Derivatives amount to $516 trillion dollars (Warren Buffett calls it a DISASTER ready to happen!), many times the GDP of the entire world and once they begin to unravel, they will take the whole economic system with them!
Premise 4 – Deficits don’t matter.
Somewhere along the line, we seem to have accepted the idea that deficits don’t matter. The Federal government is operating on a $3.1 Trillion-Dollar budget. The Iraq and Afghanistan wars are off the books, so to speak – probably amount to another trillion. Unfunded liabilities of Social Security and Medicare, military retirements and other entitlements, not to mention the interest on the national debt, add up to more trillions. Then, the government decides we need to stimulate the economy and give every adult $600 and children $300. Where does that money come from? Who cares! The Iraq War (total cost) will, before it’s over, cost over $3 Trillion-Dollars!
Trade deficits are running just shy of another trillion a year – the difference between what we import and export. Who cares? A trillion here a trillion there. So what?
This simply means that other countries are massing dollars that they can use to come over here and buy whatever they want – land, banks, businesses, etc. We are running twin deficits: budget and trade. The interest alone on this debt will prove crippling in the years to come.
Deficits matter. A country, no matter how big and powerful, can no more run deficits indefinitely than you or I can. It is not sustainable – “economist speak” for you just can’t do it! This is a house of cards. Are the countries that keep loaning us money going to continue to do so when they realize that the interest rate is lower than inflation and the value of the dollar is deflating? The only way for them to make money on the deal is to buy American assets on the cheap.
Think about it. Can you deficit spend? Can your business, city, county or state? Of course not. There has to be an accounting, a balancing of the books! There are consequences! We are talking about loans and money that has to be paid back. It is as simple as that. To try and stiff the lender by paying back with cheap dollars is disingenuous and dishonest.
Premise 5 – We are told to consume rather than save.
Consuming has become our patriotic duty. Our economy is based on 70 percent consuming. We have zero savings and debt galore – all so we can keep buying things.
There is a hidden time bomb out there. I guess most would like to keep buying cheap junk at Wal-Mart; get a newer car, a bigger house. But there comes a time when the old biological clock starts to tick toward retirement; the kids are grown and the house is just too big. You don’t need the boat and trailer any more. You get your first retirement statement from Social Security. Yikes! Fifteen hundred a month – wow! You do a little math and realize that won’t go very far. You look at your other retirements, add up your bills and realize home will be that trailer park on the edge of town. The only hope is to get rid of stuff, downsize the house and start to save as much as you can in the few years you have left.
So do the math. If the baby boomers stop spending everything they earn and start saving, the economy will be in big trouble. Japan, whose population is older than ours, has learned this lesson and saves rather than spends. If the economy is 70 percent consuming and we start to save 10 percent, the GDP goes down by about 6 percent. This would be disastrous but it will happen. Pure demographics alone will slay the economic dragon!
SHAME ON THE MERCHANTS OF THE EARTH!
Premise 6 – Government and business have our best interests at heart!
Okay, I’m sorry. Stop laughing, but the “emperor has no clothes.” There! I said it! I wrote a great chapter in my book “In Search of Babylon” on the Bush tax system. It is no secret that the rich are getting richer and the poor getting poorer when Warren Buffett, who is now the richest man in the world, complains on camera that he has a lower tax rate than his secretary! Government just wants to spend your money! Who benefits from the wars in Iraq and Afghanistan? A little cabal known as the military/industrial complex – Halliburton, Black Water, the makers of jets, humvees, tanks, ammunition, rockets, and those who provide food and supplies. It is estimated that we have spent a trillion dollars (on and off the books) on these wars and someone has made money, not to mention the oil industry (Bush’s old cronies). And, as the recent book, The Three Trillion Dollar War, indicates—it isn’t over yet!
The unmitigated gall and greed of corporate moguls is off the map. What on earth have some CEOs done to deserve hundreds of millions in pay? I used to be a pretty high-priced consultant. My billing rate was $475 an hour! The crazy thing is that clients, even overseas clients (because I was working abroad) paid it! Believe me, I never felt like I was worth that kind of money. Goldman Sacks CEO will receive a bonus of 87 million this year. He only got 55 million last year. Poor boy. That doesn’t even count his regular pay, but it only comes to about a half million dollars per working day. How could he possibly live on so little? The CEO of the average Standard and Poor’s 500 company made $15 million in 2006.
Listen to all the talk about globalization, now that it is dawning on people what this means to the average worker. The point is, the average corporation does not care about the American worker. All they care about is the bottom line. They have already begun to abandon the maquiladoras of Mexico for cheaper labor in Asia. Corporations don’t care about workers. I spent a year working with big employers who had sweat shops in Indonesia, Thailand, Nigeria, etc., to convince companies there was a cost-benefit in providing health care coverage for their workers. The only thing that would convince them was not the family living in squalor sending their 10-year old girls to work on the assembly line, but the fact that it might actually save them some money!
Quit thinking about countries. There are no countries – only global elites that cross national boundaries – corporate entities that have no conscience, no creed – just self-promotion and self-preservation. We were warned by Dwight D. Eisenhower of the power of the corporate elites – the military/industrial complex. But I am not being conspiratorial. These elites control food production, and the production of goods and services at all levels. You believe the news you see on television? Well ABC, CBS, NBC, FOX and CNN are owned by Westinghouse, GE, Disney, Murdock and Time Warner. Yeah, they have your interest in mind and I have a bridge to sell you in Brooklyn! So whether you work for the Federal Government, a school district or a big corporation, they own you.
In order for the elites to control you, they need to employ you, make a debtor out of you so you are beholden to them, own your mortgage, issue you credit cards and then make you feel like you need them to protect you from unseen enemies. Today, there is no Hitler, Stalin, Mao or Ho but terrorists lurking around every corner – or so they have led you to believe.
So when you get on an airplane, you gratefully take off your shoes, your coat, all the baby paraphernalia, liquids, your computer, etc. and shove it through the machine. In George Orwell’s 1984, big brother hammered home the threat every day for without an enemy, it would be impossible to control the masses.
A TRAIN WRECK IS UNAVOIDABLE
We are headed for an implosion, which in our humble opinion, will set up the conditions for the Antichrist to ride in on a white horse and offer solutions. These premises that we hold to be self-evident are lies and fabrications. I can’t believe how stupid and naive we Americans can be to believe the claptrap fed to us by the media and so-called experts. I can’t believe we think we could do nothing but sit in our houses and grow rich. I can’t believe America can’t produce a single viable presidential candidate (other than Ron Paul) who understands these issues. Instead we get candidates that offer more bread and circuses for the masses – bail out people who had no verifiable income and mortgages they knew would go up. And they bail out corporate hacks who should suffer the consequences. Of course, the Federal Reserve bails out banks because the Fed is neither a “federal/governmental” organization – nor does it have “reserves” (just printing presses). It does not serve the people. It serves the banks. It is a banking cartel. They are bailing out banks! Surprise! Surprise!
You have heard the old saying, “the bigger they are the harder they fall?” Many believe that America is just too big to fall, but I would submit that we have run up such catastrophic imbalances, the fall will be in epic proportions. The financial system is built on confidence – confidence in America and the dollar. Once that confidence is lost and foreign creditors start to pull the plug, get out of the dollar, stop buying our debt, the fall will be swift and brutal.
The time has come for all of us to begin to prepare. I have been in the homes of people in Argentina who saw their currency losing value at a double digit pace every day. I saw it in Bolivia, Ecuador, Colombia and Africa. If we sit here blandly thinking we are “rich and have need of nothing”, and this can never happen to us, we are fools. For those of you who are familiar with our website, you know we believe that America is prophetic Babylon and that Revelation 18 refers to commercial Babylon as the consumer nation of all nations and that is true. But, if you look at the goods that are imported, they are all luxury goods – not trinkets from China.
“And the merchants of the earth will weep and mourn over her, for no one buys their merchandise anymore: merchandise of gold and silver, precious stones and pearls, fine linen and purple, silk and scarlet, every kind of citron wood, every kind of object of ivory, every kind of object of most precious wood, bronze, iron, and marble; and cinnamon and incense, fragrant oil and frankincense, wine and oil, fine flour and wheat, cattle and sheep, horses and chariots, and bodies and souls of men.” (Revelation 18:11-13)
The rich, the elites will get richer since they control the capital and the means of production around the world and are in alliances with foreign elites. But the future does not bode well for the average person. A trap is being set and we are in it.
CONCLUSION
I’d like to conclude these insights by quoting from one of Doug’s favorites, Joseph Augustus Seiss, the Lutheran theologian, who in 1865 clearly saw that not only would Babylon the Great be exemplified by a MYSTERY (i.e., Mystery Babylon), which indicates its “spiritual dimension” – but would be manifested by COMMERCE (Revelation 18)—a commerce which, because of the “Merchants of the Earth” who control and feed into it, is being prepared for judgment. . . listen to these prophetic strains and tell me if this is not the Babylon of the last days:
To the credit of Babylon’s worldly greatness, but also as a marked ingredient of what procures her doom, it is said: “Thy merchants were the great men of the earth.” Most people would see no crime in that. What harm is there in buying and selling and getting gain, and in making the weight of fortune felt according to its greatness? Nothing, indeed, if no wrong spirit is under it, and no wrong principles animate the accumulation, or control its management when it is made. But, the son of Sirach hath truly said: “As a nail sticketh fast between the joinings of stones, so doth sin stick close between buying and selling” (Ecclesiasticus 17:1).
And commerce is certainly indicated as the chief vehicle, support, and embodiment of the great defiling wickedness of the last days. In the bushel measure, and under the weighing talent, sits the Woman whom the angel says is Wickedness (Zechariah 5). Nor should it be thought strange that commerce, and the machinery connected therewith, should supply the formative principles of a great and godless apostasy.
Is there a prominent country now on earth in which commerce does not rule, or where things are not all being determined by commercial principles, ideas, and interests? “Have we heard nothing respecting the wondrous results expected from commerce in making nations happy, in bringing men together in ties of amity and brotherhood, in developing the resources of the earth, in making nations conscious of their mutual dependence on each other, and so effecting, by the suggestions of self-interest, a result which the Gospel (it is said) has failed to accomplish. These and suchlike sayings are continually being sounded in our ears. Nor can we say that they are altogether untrue, or that there is no wisdom in them” (B. W. Newton.)
But who that looks with an attentive eye but can see in it the coming forth of a wisdom which is not from above, but which savors of him who said to Jesus, “All these things will I give thee, if thou wilt fall down and worship me.”
Commerce is not necessarily sinful. Exchange on just and right principles may be a thing of beneficence and good, involving nothing against God or his truth. But the tendency is otherwise. The disposition is to concentration and consolidation on selfish principles for selfish ends. The struggle is continually more and more to monopolize, to crush out rivalry and competition, and to enter into world-wide combinations to seize first one interest and then another, till everything is finally swallowed up in one great centralized aristocracy of unbounded wealth, to which all the kings and governments on the earth must truckle. (My Emphasis)
In our day an association of merchants has commanded the riches of the Indian seas, dragged along with it the armies and legislation of England to effect its ends, and enriched itself at the sacrifice of innocent blood, national treasure, and every honorable principle, whilst the good Queen Victoria, helpless in its hands, must submit in royal gratitude to bear for it the title of the Empress of India!
Now – listen to Seiss’ unbelievable prophetic outburst . . .
The eloquence of a Burke, in sentences which shall never die, has given a tongue to a few of the abominations which have accompanied those administrations; but not a moiety of them has been told, as they have added stain upon stain to the escutcheon of England, and dishonored the whole Anglo-Saxon race.
This is but one instance, and one belonging to the babyhood of these great commercial combinations; what then may we not expect when these privileged associations, which control the local exchanges, money markets, and commercial affairs of the nations, have fully consolidated, and a great, united, money aristocracy, takes command of the commerce of the world? These would indeed be “the great men of the earth,” and their rule would be the rule of the earth.
But what sort of a rule would it necessarily be? Would it be God’s kingdom come, and God’s will done, on earth as it is in heaven? So the arguments and oratory of the priests of that interest would seem to say. But, is it so? Can it possibly be so? Look at the root-principle of these commercial compacts. Co-equality of man with man is to them the greatest absurdity. What right, or place, or standing, can a man who has no money have in them?
Wealth is the only ticket of admission, and for that all seats are absolutely reserved. But who would ever think of going among these money-lords and bourse-kings to find saints of God! There are some rich men from whose hearts the Holy Ghost has not been chocked out; but “how hardly shall they that have riches enter the kingdom of God? It is easier for a camel to go through the needle’s eye, than for a rich man to enter into the kingdom of God.” (Mark 10:2-25)
WHEN CORPORATIONS RULE THE EARTH
Seiss continues his amazing insights . . .
It is become an axiom that “corporations have no souls,” and upon this all great moneyed corporations act, though the men who constitute them will find out a different doctrine when they come to the day of judgment. And when it comes to these great and ever magnifying commercial compacts and interests, there is not a law of God or man which is not compelled to yield if found in the way.
Governments are in the hands of commerce and the money-kings; and commerce knows no God but gold, and no law but self-interest and worldly gain. Church is nothing, State is nothing, creed is nothing, Bible is nothing, Sunday is nothing, religious scruples are nothing, conscience is nothing, everything is practically nothing, except as it can be turned or used to the one great end of accumulation and wealth . . . And when once the earth has come to acknowledge the representatives and embodiments of such a system of ideas and rule as its true and only “great men,” there lies couched in this one simple statement a whole world of iniquitous apostasy, which well deserves the doom which makes an end of Great Babylon. Yes, commerce will yet have an account to settle, at which the world shall shake. (Joseph Augustus Seiss, The Apocalypse – An Exposition of the Book of Revelation, 1865 – Chapter 40).
“The kings of the earth who committed fornication and lived luxuriously with her will weep and lament for her, when they see the smoke of her burning, standing at a distance for fear of her torment, saying, ‘Alas, alas, that great city Babylon, that mighty city! For in one hour your judgment has come. And the merchants of the earth will weep and mourn over her, for no one buys their merchandise anymore” (Revelation 18:9-11).
The Tribulation Network
Chapter 7
By Dene McGriff
Americans are assaulted every day by bad economic news. The news pundits and economic analysts assure us that these are minor adjustments and that recovery is just around the corner. So is an upturn just around the corner? Will the stock market keep rising to new heights? Will our house prices rebound like they did in the past? Isn’t America blessed with abundant resources and a vibrant economy? Isn’t this down turn just a bump in the road?
Or, has there been a turning point? Is this the end of business as usual in America? Has America begun to slide down a slippery slope with no return to her former greatness? Are we following in Japan’s footsteps – the beginning of a twenty year era of stagflation, a massive drop in housing, and worse than Japan – a sell off of American assets to foreigners who own us? What does this mean for Americans – unemployment, under employment, stagnant wages (inflation adjusted wages haven’t really grown since 1972 anyway), more inflation, doubling gas and food prices, working harder and longer? What happens if the boomers stop spending and start saving?
The whole subject of economics and banking is hard to understand. What isn’t shrouded in mystery are the corporate bandits whose golden parachute packages stagger the imagination—especially, when these guys write down billions of bad debts and then get “corporate welfare” from the Feds (that’s you and me paying taxes).
But it doesn’t have to be that difficult. You recall the story of the king who called all of his scholars together and asked them to explain economics to him. They went out and researched and came back with a book. “Too long and complicated”, said the king. Go back and try again. They came back with a single chapter but the king still didn’t get it so he sent them out on a quest to explain economics simply. After many months they finally came back with a one-page summary. The king was furious – “Off with their heads,” he cried! “Whoever can explain in simple terms I can understand will be my adviser and have half the kingdom.” A young lad in the king’s audience scribbled a sentence on a scrap piece of paper and passed it to a scribe who handed it to the king. The king took the paper. There was one five word sentence, “There is no free lunch.” The king was elated. He finally understood.
It is not that hard. We all know the truth deep down. We don’t become a wealthy productive society by borrowing and spending money we don’t have, to buy things we don’t need. Debt can’t keep climbing out of control indefinitely. Stocks and house prices don’t keep rising at double digit rates year after year. A higher price for a house means no more than a higher price for a loaf of bread. If the price of a loaf of bread or a dozen eggs doubles, it doesn’t mean the house is really “worth” twice as much. All it means is that your money is worth half of what it used to be.
I will attempt to lay it out in simple terms we can all understand. These are subjects I have dealt with over the past three or four years and as a follow up on my last article entitled the “Death of the American Dream.” The answers aren’t as difficult as it seems. And one final thing we will look at is this: If we aren’t profiting from our economic system, who is?
THE BEAR STEARNS BANDITS
But first, let’s look at the scope of the problem. We have no idea how close we came to total collapse. This is but one example from an article that came to my email box today. The Bear Stearns debacle came close to causing a banking crisis not seen since the Great Depression.
“The risks of a systemic collapse have risen to uncomfortable levels. The complete withdrawal of credit from the financial system has led to a series of implosions of hedge funds and other leveraged investment vehicles. At some point - and nobody knows when that point is - the system is not going to be able to withstand further failures. It will not be the sheer volume of failures that brings the system to a standstill; the system is enormous and can sustain huge dollar losses before becoming impaired. The problem is that the global financial system is a case study in chaos theory. This is truly a case where a butterfly flapping its wings in West Africa could lead to a Category Five hurricane thousands of miles away.
“There are an incalculable number of derivative contracts and counterparty relationships on which the stability of the financial system hinges. All it would take is the collapse of the wrong firm or the wrong derivative contract at the wrong time to throw the wrong financial institution into crisis and force the entire system into a death spiral.” (Maudlin’s Outside the Box, “The Risks of Systemic Collapse” by Michael Lewitt, 3/17/08)
So order has been restored for the time being, but let’s look at the long term trends and see if they work going out into the future. Order was restored by the Fed loaning $200 billion to banks in exchange for their mortgage paper and a .75 percent decrease in the Fed Funds Rate. This resulted in a one day bump in the Dow of 420 points only to be followed by a 300 point drop the next day. We are assured that the Fed and an activist government can prevent economic collapse. Can they really? There are certain premises that the government and pundits continually hold out as being self-evident. No one dares to challenge them. They are just declared to be true. Let’s examine them.
Premise 1 - America can continue to borrow and spend indefinitely. The world will support the dollar because it is in their best interest.
America has to borrow $2 billion every single day. Other countries produce products. They save and loan to us. We borrow so we can buy their products. So who really gets ahead on this equation – the country that produces or the people that buy their stuff? We have been importing more than we export. The exporting country uses their income to buy our Treasury Notes believing that the dollar is a reliable investment (or at least has been historically). But lately, the Treasury has been printing money, increasing the supply by an estimated 14 percent per year. This is the definition of inflation – more dollars chasing the same products. This results in a steady devaluation of the dollar against other currencies. For example, the Euro has doubled against the dollar in just the last few years. So what do we do? Pay them back with cheaper dollars. If I buy a car from you for ten thousand dollars and agree to pay you in five years and inflation is running at ten percent, the ten thousand dollars is worth about half as much in real dollars.
Reality check: Do we really think the world is that stupid? Already, foreigners are refusing to buy our Treasury Notes. Why buy a long term bond at 3.5% when inflation is running at 4 percent? That’s a sure way to lose money. If foreigners don’t buy our long term debt, who does and what are the consequences?
When we buy our own debt, that’s called monetizing debt – something the Weimar Republic of Germany did after World War I leading to hyperinflation. People would take a shopping cart of millions of German Marks to buy a single loaf of bread.
Does a nation get rich by borrowing from others and spending? Obviously not! It becomes poor and beholden to others.
Who is bailing out our banks? Middle Eastern oil companies for the most part.
How long can this go on? Indefinitely? No, this is what economists call an “unsustainable trend”.
Premise 2 – America’s miracle economy works because we consume!!!
That makes a lot of sense, right? Since when do we make money by consuming rather than producing? Yet that is what you hear every day on CNBC and Bloomberg. That is what the President, Congress and other politicians tell us. It is our civic duty to go to the mall and spend, spend, spend. The upcoming tax credit will be a gigantic failure if we don’t spend it or pay off credit cards.
Just think about it. What would happen if you decided to not go to work but to just sit home and consume – sit in front of the TV and eat potato chips? What if we ran up our credit cards to the limit or took out a line of credit on our house? I guess it would work for a while – at least until we were fat and bankrupt!
This is another unsustainable trend. Our nation can no more afford to continue to borrow and consume rather than produce any more than you or I could. The problem is, we’re not only consuming but we are doing it by going into debt!
Premise 3 – Intervention works. The Federal Reserve and the government can manipulate the economy to provide liquidity and credit and thus ensure growth.
Here is one of the big problems. In the short term this strategy works. In the long term, it doesn’t. “Provide liquidity” is a fancy word for printing money. Give it away! Drop it from helicopters! Send every man, woman and child a check! Short term, it seems like a great idea, especially for the average Joe. But long term, it creates inflation. Prices keep rising and the value of the dollar keeps falling… but you have more dollars so for a while, it seems good.
The Fed is providing credit to banks so they will have money to loan us. What was the result of easy money and easy credit? First, the dot com bubble on Wall Street. Now, the housing bubble. Now, we are seeing a commodity bubble – crops, metals, oil, etc. Inflation is rampant. In fact, the government is trying to re-inflate the housing bubble by lowering interest rates again, exchanging bad mortgage paper for dollars and by extending credit to Sallie Mae and Freddie Mac (the quasi-governmental mortgage lenders).
THE JAPANESE ECONOMIC COLLAPSE
Intervention works short term, but there are always long term consequences. As I mentioned in my previous article, Japan was the miracle economy of the 1980s, the second largest in the world. Everyone, including the Japanese thought it was unstoppable. In 1990, Japan began a long slow recession that is still going on 18 years later. Their stock market has not recovered (but is still going down). Real estate prices went down as well, and contrary to conventional wisdom, have stayed down (80 percent from their highs). Meanwhile, the Japanese government lowered the prime rate to zero (0 percent), bailed out banks, went into deficit spending (public works rather than imperial wars), and cranked up the printing presses (increased money supply in economic jargon), etc. Japan did absolutely everything our Fed and government is doing but to no effect!
Nothing worked. Japan has suffered deflation for 18 years. But Japan is not America. Japan has trade surpluses. They have savings. The average person had savings to weather the downturn. We Americans have “negative savings” – zero, zilch, nada! We have no home equity, and credit cards are maxed out. How will we weather the coming storm?
ECONOMIC CYCLES
Economies run in cycles, very long cycles. We have had 27 years of expansion, and a lot of that expansion made no sense (dot com and housing bubbles, Savings and Loan crisis, banking credit crisis, etc). Cycles are natural in an imperfect world. Just as there are times of rain and drought, times of expansion and times of contraction, times of cooling and times of warming (woops! Let’s not get into that one).
Nature doesn’t like imbalances, imbalances in trade, in currency exchange rates, in production and consumption. It has a way of balancing out. It is best to let nature take its course. But if the expansion goes on because the government intervenes (which is exactly what all the presidential candidates want to do), don’t be surprised if the contraction (correction) also lasts for 20 or 30 years. In fact, America may never see its former glory.
The more government and central banks meddle in the economy and try and tweak it here and there, the more they postpone the inevitable adjustment. The imbalances in the world economy are greater than ever in the history of mankind, especially where the United States is concerned. Never in the history of man has a single country had the debt and deficits we have. Talk about unsustainable! We borrow more in one day than the GDP of many countries!
Ever since the world went off the discipline of the gold standard, currency values and balance of payments between countries have been getting farther and farther out of whack. The balance is like an earthquake fault line such as the San Andreas fault that needs to slip regularly or the pressure builds up and you have the big one. Recession is the way economies adjust. It is a normal cycle, not a BAD cycle as the government would have us believe. The more we intervene by lowering interest rates, printing money, devaluing currency, or erecting trade barriers, the more cataclysmic the adjustment will be in the end. We are headed toward the perfect economic storm.
Intervention will not work in the long run. The manipulation of the economy by lowering interest rates, borrowing from others, increasing the money supply, devaluing the currency, etc. is not a sustainable trend. It must and will adjust. That adjustment is called a “recession” or “depression” – and a depression is likely to occur if we keep postponing the inevitable.
THE FED’S MANIPULATION – THE DEBTS PERSIST
The Greenspan Fed lowered interest rates to stop the 2001 recession, only to spark the housing bubble. Now the Bernanke Fed is printing money, lowering rates and making credit available to lenders in order to keep the banks from failing. Today (March 18, 2008) the Fed lowered rates by .75% to 2.25%. Will it work? No, it will only postpone the inevitable. These are corporate bailouts, but there isn’t enough money to bail them all out!
They have no idea how much debt is out there. The problem is that they take mortgage loans, car loans and other types of loans, package them as financial instruments called derivatives and sell them at pennies on the dollar. They resell them and resell them. Derivatives amount to $516 trillion dollars (Warren Buffett calls it a DISASTER ready to happen!), many times the GDP of the entire world and once they begin to unravel, they will take the whole economic system with them!
Premise 4 – Deficits don’t matter.
Somewhere along the line, we seem to have accepted the idea that deficits don’t matter. The Federal government is operating on a $3.1 Trillion-Dollar budget. The Iraq and Afghanistan wars are off the books, so to speak – probably amount to another trillion. Unfunded liabilities of Social Security and Medicare, military retirements and other entitlements, not to mention the interest on the national debt, add up to more trillions. Then, the government decides we need to stimulate the economy and give every adult $600 and children $300. Where does that money come from? Who cares! The Iraq War (total cost) will, before it’s over, cost over $3 Trillion-Dollars!
Trade deficits are running just shy of another trillion a year – the difference between what we import and export. Who cares? A trillion here a trillion there. So what?
This simply means that other countries are massing dollars that they can use to come over here and buy whatever they want – land, banks, businesses, etc. We are running twin deficits: budget and trade. The interest alone on this debt will prove crippling in the years to come.
Deficits matter. A country, no matter how big and powerful, can no more run deficits indefinitely than you or I can. It is not sustainable – “economist speak” for you just can’t do it! This is a house of cards. Are the countries that keep loaning us money going to continue to do so when they realize that the interest rate is lower than inflation and the value of the dollar is deflating? The only way for them to make money on the deal is to buy American assets on the cheap.
Think about it. Can you deficit spend? Can your business, city, county or state? Of course not. There has to be an accounting, a balancing of the books! There are consequences! We are talking about loans and money that has to be paid back. It is as simple as that. To try and stiff the lender by paying back with cheap dollars is disingenuous and dishonest.
Premise 5 – We are told to consume rather than save.
Consuming has become our patriotic duty. Our economy is based on 70 percent consuming. We have zero savings and debt galore – all so we can keep buying things.
There is a hidden time bomb out there. I guess most would like to keep buying cheap junk at Wal-Mart; get a newer car, a bigger house. But there comes a time when the old biological clock starts to tick toward retirement; the kids are grown and the house is just too big. You don’t need the boat and trailer any more. You get your first retirement statement from Social Security. Yikes! Fifteen hundred a month – wow! You do a little math and realize that won’t go very far. You look at your other retirements, add up your bills and realize home will be that trailer park on the edge of town. The only hope is to get rid of stuff, downsize the house and start to save as much as you can in the few years you have left.
So do the math. If the baby boomers stop spending everything they earn and start saving, the economy will be in big trouble. Japan, whose population is older than ours, has learned this lesson and saves rather than spends. If the economy is 70 percent consuming and we start to save 10 percent, the GDP goes down by about 6 percent. This would be disastrous but it will happen. Pure demographics alone will slay the economic dragon!
SHAME ON THE MERCHANTS OF THE EARTH!
Premise 6 – Government and business have our best interests at heart!
Okay, I’m sorry. Stop laughing, but the “emperor has no clothes.” There! I said it! I wrote a great chapter in my book “In Search of Babylon” on the Bush tax system. It is no secret that the rich are getting richer and the poor getting poorer when Warren Buffett, who is now the richest man in the world, complains on camera that he has a lower tax rate than his secretary! Government just wants to spend your money! Who benefits from the wars in Iraq and Afghanistan? A little cabal known as the military/industrial complex – Halliburton, Black Water, the makers of jets, humvees, tanks, ammunition, rockets, and those who provide food and supplies. It is estimated that we have spent a trillion dollars (on and off the books) on these wars and someone has made money, not to mention the oil industry (Bush’s old cronies). And, as the recent book, The Three Trillion Dollar War, indicates—it isn’t over yet!
The unmitigated gall and greed of corporate moguls is off the map. What on earth have some CEOs done to deserve hundreds of millions in pay? I used to be a pretty high-priced consultant. My billing rate was $475 an hour! The crazy thing is that clients, even overseas clients (because I was working abroad) paid it! Believe me, I never felt like I was worth that kind of money. Goldman Sacks CEO will receive a bonus of 87 million this year. He only got 55 million last year. Poor boy. That doesn’t even count his regular pay, but it only comes to about a half million dollars per working day. How could he possibly live on so little? The CEO of the average Standard and Poor’s 500 company made $15 million in 2006.
Listen to all the talk about globalization, now that it is dawning on people what this means to the average worker. The point is, the average corporation does not care about the American worker. All they care about is the bottom line. They have already begun to abandon the maquiladoras of Mexico for cheaper labor in Asia. Corporations don’t care about workers. I spent a year working with big employers who had sweat shops in Indonesia, Thailand, Nigeria, etc., to convince companies there was a cost-benefit in providing health care coverage for their workers. The only thing that would convince them was not the family living in squalor sending their 10-year old girls to work on the assembly line, but the fact that it might actually save them some money!
Quit thinking about countries. There are no countries – only global elites that cross national boundaries – corporate entities that have no conscience, no creed – just self-promotion and self-preservation. We were warned by Dwight D. Eisenhower of the power of the corporate elites – the military/industrial complex. But I am not being conspiratorial. These elites control food production, and the production of goods and services at all levels. You believe the news you see on television? Well ABC, CBS, NBC, FOX and CNN are owned by Westinghouse, GE, Disney, Murdock and Time Warner. Yeah, they have your interest in mind and I have a bridge to sell you in Brooklyn! So whether you work for the Federal Government, a school district or a big corporation, they own you.
In order for the elites to control you, they need to employ you, make a debtor out of you so you are beholden to them, own your mortgage, issue you credit cards and then make you feel like you need them to protect you from unseen enemies. Today, there is no Hitler, Stalin, Mao or Ho but terrorists lurking around every corner – or so they have led you to believe.
So when you get on an airplane, you gratefully take off your shoes, your coat, all the baby paraphernalia, liquids, your computer, etc. and shove it through the machine. In George Orwell’s 1984, big brother hammered home the threat every day for without an enemy, it would be impossible to control the masses.
A TRAIN WRECK IS UNAVOIDABLE
We are headed for an implosion, which in our humble opinion, will set up the conditions for the Antichrist to ride in on a white horse and offer solutions. These premises that we hold to be self-evident are lies and fabrications. I can’t believe how stupid and naive we Americans can be to believe the claptrap fed to us by the media and so-called experts. I can’t believe we think we could do nothing but sit in our houses and grow rich. I can’t believe America can’t produce a single viable presidential candidate (other than Ron Paul) who understands these issues. Instead we get candidates that offer more bread and circuses for the masses – bail out people who had no verifiable income and mortgages they knew would go up. And they bail out corporate hacks who should suffer the consequences. Of course, the Federal Reserve bails out banks because the Fed is neither a “federal/governmental” organization – nor does it have “reserves” (just printing presses). It does not serve the people. It serves the banks. It is a banking cartel. They are bailing out banks! Surprise! Surprise!
You have heard the old saying, “the bigger they are the harder they fall?” Many believe that America is just too big to fall, but I would submit that we have run up such catastrophic imbalances, the fall will be in epic proportions. The financial system is built on confidence – confidence in America and the dollar. Once that confidence is lost and foreign creditors start to pull the plug, get out of the dollar, stop buying our debt, the fall will be swift and brutal.
The time has come for all of us to begin to prepare. I have been in the homes of people in Argentina who saw their currency losing value at a double digit pace every day. I saw it in Bolivia, Ecuador, Colombia and Africa. If we sit here blandly thinking we are “rich and have need of nothing”, and this can never happen to us, we are fools. For those of you who are familiar with our website, you know we believe that America is prophetic Babylon and that Revelation 18 refers to commercial Babylon as the consumer nation of all nations and that is true. But, if you look at the goods that are imported, they are all luxury goods – not trinkets from China.
“And the merchants of the earth will weep and mourn over her, for no one buys their merchandise anymore: merchandise of gold and silver, precious stones and pearls, fine linen and purple, silk and scarlet, every kind of citron wood, every kind of object of ivory, every kind of object of most precious wood, bronze, iron, and marble; and cinnamon and incense, fragrant oil and frankincense, wine and oil, fine flour and wheat, cattle and sheep, horses and chariots, and bodies and souls of men.” (Revelation 18:11-13)
The rich, the elites will get richer since they control the capital and the means of production around the world and are in alliances with foreign elites. But the future does not bode well for the average person. A trap is being set and we are in it.
CONCLUSION
I’d like to conclude these insights by quoting from one of Doug’s favorites, Joseph Augustus Seiss, the Lutheran theologian, who in 1865 clearly saw that not only would Babylon the Great be exemplified by a MYSTERY (i.e., Mystery Babylon), which indicates its “spiritual dimension” – but would be manifested by COMMERCE (Revelation 18)—a commerce which, because of the “Merchants of the Earth” who control and feed into it, is being prepared for judgment. . . listen to these prophetic strains and tell me if this is not the Babylon of the last days:
To the credit of Babylon’s worldly greatness, but also as a marked ingredient of what procures her doom, it is said: “Thy merchants were the great men of the earth.” Most people would see no crime in that. What harm is there in buying and selling and getting gain, and in making the weight of fortune felt according to its greatness? Nothing, indeed, if no wrong spirit is under it, and no wrong principles animate the accumulation, or control its management when it is made. But, the son of Sirach hath truly said: “As a nail sticketh fast between the joinings of stones, so doth sin stick close between buying and selling” (Ecclesiasticus 17:1).
And commerce is certainly indicated as the chief vehicle, support, and embodiment of the great defiling wickedness of the last days. In the bushel measure, and under the weighing talent, sits the Woman whom the angel says is Wickedness (Zechariah 5). Nor should it be thought strange that commerce, and the machinery connected therewith, should supply the formative principles of a great and godless apostasy.
Is there a prominent country now on earth in which commerce does not rule, or where things are not all being determined by commercial principles, ideas, and interests? “Have we heard nothing respecting the wondrous results expected from commerce in making nations happy, in bringing men together in ties of amity and brotherhood, in developing the resources of the earth, in making nations conscious of their mutual dependence on each other, and so effecting, by the suggestions of self-interest, a result which the Gospel (it is said) has failed to accomplish. These and suchlike sayings are continually being sounded in our ears. Nor can we say that they are altogether untrue, or that there is no wisdom in them” (B. W. Newton.)
But who that looks with an attentive eye but can see in it the coming forth of a wisdom which is not from above, but which savors of him who said to Jesus, “All these things will I give thee, if thou wilt fall down and worship me.”
Commerce is not necessarily sinful. Exchange on just and right principles may be a thing of beneficence and good, involving nothing against God or his truth. But the tendency is otherwise. The disposition is to concentration and consolidation on selfish principles for selfish ends. The struggle is continually more and more to monopolize, to crush out rivalry and competition, and to enter into world-wide combinations to seize first one interest and then another, till everything is finally swallowed up in one great centralized aristocracy of unbounded wealth, to which all the kings and governments on the earth must truckle. (My Emphasis)
In our day an association of merchants has commanded the riches of the Indian seas, dragged along with it the armies and legislation of England to effect its ends, and enriched itself at the sacrifice of innocent blood, national treasure, and every honorable principle, whilst the good Queen Victoria, helpless in its hands, must submit in royal gratitude to bear for it the title of the Empress of India!
Now – listen to Seiss’ unbelievable prophetic outburst . . .
The eloquence of a Burke, in sentences which shall never die, has given a tongue to a few of the abominations which have accompanied those administrations; but not a moiety of them has been told, as they have added stain upon stain to the escutcheon of England, and dishonored the whole Anglo-Saxon race.
This is but one instance, and one belonging to the babyhood of these great commercial combinations; what then may we not expect when these privileged associations, which control the local exchanges, money markets, and commercial affairs of the nations, have fully consolidated, and a great, united, money aristocracy, takes command of the commerce of the world? These would indeed be “the great men of the earth,” and their rule would be the rule of the earth.
But what sort of a rule would it necessarily be? Would it be God’s kingdom come, and God’s will done, on earth as it is in heaven? So the arguments and oratory of the priests of that interest would seem to say. But, is it so? Can it possibly be so? Look at the root-principle of these commercial compacts. Co-equality of man with man is to them the greatest absurdity. What right, or place, or standing, can a man who has no money have in them?
Wealth is the only ticket of admission, and for that all seats are absolutely reserved. But who would ever think of going among these money-lords and bourse-kings to find saints of God! There are some rich men from whose hearts the Holy Ghost has not been chocked out; but “how hardly shall they that have riches enter the kingdom of God? It is easier for a camel to go through the needle’s eye, than for a rich man to enter into the kingdom of God.” (Mark 10:2-25)
WHEN CORPORATIONS RULE THE EARTH
Seiss continues his amazing insights . . .
It is become an axiom that “corporations have no souls,” and upon this all great moneyed corporations act, though the men who constitute them will find out a different doctrine when they come to the day of judgment. And when it comes to these great and ever magnifying commercial compacts and interests, there is not a law of God or man which is not compelled to yield if found in the way.
Governments are in the hands of commerce and the money-kings; and commerce knows no God but gold, and no law but self-interest and worldly gain. Church is nothing, State is nothing, creed is nothing, Bible is nothing, Sunday is nothing, religious scruples are nothing, conscience is nothing, everything is practically nothing, except as it can be turned or used to the one great end of accumulation and wealth . . . And when once the earth has come to acknowledge the representatives and embodiments of such a system of ideas and rule as its true and only “great men,” there lies couched in this one simple statement a whole world of iniquitous apostasy, which well deserves the doom which makes an end of Great Babylon. Yes, commerce will yet have an account to settle, at which the world shall shake. (Joseph Augustus Seiss, The Apocalypse – An Exposition of the Book of Revelation, 1865 – Chapter 40).
“The kings of the earth who committed fornication and lived luxuriously with her will weep and lament for her, when they see the smoke of her burning, standing at a distance for fear of her torment, saying, ‘Alas, alas, that great city Babylon, that mighty city! For in one hour your judgment has come. And the merchants of the earth will weep and mourn over her, for no one buys their merchandise anymore” (Revelation 18:9-11).
posted by shummer60 at Wednesday, March 26, 2008
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