What is the Transition? Part 6

You know that thing about time accelerating? As of today, nearly one-fifth of 2013 is in the past!

The Age of Truth

If truth does set us free, then far greater freedom is on the way due to the accelerating emergence of truth. The controllers of the major systems on our planet react to both, that is, they react to the emerging truth by repeated attempts to squelch free expression on the internet and on the streets, and by well-funded propaganda and disinformation campaigns; and they combat emerging freedom by surveillance cameras (1.6 million in the UK alone!), repudiation of laws that protect individual freedom, complete tracking of people’s electronic activities, drone surveillance, and so forth. All under the rubrics of national security, public safety, copyright protection, and so forth. In the US, it appears that this is likely to get worse:

     CIA Head Sworn In On Draft Constitution WITHOUT Bill of Rights

One problem with a discussion of the emergence of truth: On this planet, at this time, when the light of truth shines, it reveals a lot of lies. Many have come to see lies as standard operating procedure, so lies are accelerating in their frequency and boldness. This is a problem for two reasons: lies generally have consequences, victims, that is, they often do damage; and much that goes on in our world is based on trust, for example, when you buy something, you trust that it will work as advertised, and the vendor who sells it to you trusts that your form of payment has value. What is the general consequence of an increasing breakdown in trust resulting from increased lying?

Some lies are easy—once they are exposed. Horsemeat being sold as beef all over Europe comes to mind. Though this fish thing will be tougher to sort out:

     New Study Shows 59% of “Tuna” Sold in the U.S. Isn’t Tuna

Other lies are more tricky because either there is a powerful constituency that supports the lie, or most people want it to be true even if it isn’t, or both. That is the category of lie described in the first major post on this site, The financial system is based on twelve promises that are lies, which described the lies at the foundation of what is called our financial system; and how the recognition of just one of those lies—the lie that real estate prices always goes up—came within hours of dissolving the world’s current financial system.

Governments lie so often now that more and more people assume that anything the government bothers to comment about in public is a lie. It would help their case if they weren’t so obvious, though sometimes one has to do at least the amount of digging that would be required on a standard reading comprehension test to uncover them.

There is a great example of a “policy lie,” and likely the often-associated “lying to keep one’s job,” at this link. It’s of interest here because we used the government’s own database to show the truth of this topic in Part 1. The post reports on a US Geological Survey study that says more people will die from earthquakes during this century than the last. But it is known from repeated examples that it is USGS policy to say that earthquakes are not increasing. So the article dutifully states that it isn’t because earthquakes are increasing that more people will die, but rather because of increasing population density in seismically vulnerable buildings. But the article blows its own policy case. They state that there were seven catastrophic earthquakes in the Twentieth Century, so that’s one every fourteen years. And then they state, and I quote: “Four catastrophic earthquakes have already struck since the beginning of the 21st century.” So that’s one every three years! So the “population density in vulnerable buildings” took a threefold leap right around the year 2000?! Nice try. This is science by policy–and keeping one’s salary or grant money flowing–rather than science by data. Such “science” is unfortunately all too common in our world.

So why does the USGS have a policy that can be easily shown to be a lie using their own database? For one, I’m sure they are correct in thinking that most people are not going to actually go look at the data, so they can say what they want about it and most people will believe it: “It’s from the government. It’s from a scientist. It must be true. What’s on TV?” For another, governments seem to think that keeping people calm is a high priority. Perhaps they correctly believe that they get to stay in power longer when the people are calm. But as each of their lies is uncovered, what they derided as “conspiracy theory” becomes conspiracy fact and they have an accelerating loss of credibility.

The same applies to billionaires. If you see or hear about them saying an investment is bad or good, assume that they are talking their book.  In other words, if they say in public that some investment is fabulous, it means that they own a boatload of it and now want to get rid of it, selling it to anyone who will listen.  And if they deride an investment, they are trying to knock down its price so they can buy more of it cheaper. George Soros was caught doing this with respect to gold twice in just over a year.  Twice he made somewhat nebulous but definitely negative public comments about gold. In both cases, in the quarter following his comment, his hedge fund strongly increased their position in gold as its dollar price fell. These purchases are only revealed well after the fact, so they can’t be uncovered in real time. But if a billionaire bothers to hit the airwaves with investment commentary, assume that they are talking their book. One exception to this idea is Jim Rogers, but he is unusual.

Over the last six weeks, we found out more about the world’s Too Big to Jail treatment of banker crime. In the US, first the Assistant Attorney General said right on TV that he didn’t prosecute the big banks because he worried about the economic fallout:

     Assistant Attorney General Admits On TV That In The US Justice Does Not Apply To The Banks

And then the Attorney General himself, Eric “Place” Holder, admitted the same in testimony before the US Congress:

     Eric Holder: Some Banks Are So Large That It Is Difficult For Us To Prosecute Them

Holder: But I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large.

So, big money gets a free pass from what is supposed to be the Department of Justice.

There are entire industries that live by lies:

The tobacco industry is famous for it.

The nuclear power industry, creators of vast quantities of waste that will be deadly toxic for thousands of years, has in recent years been trying to characterize itself as “green”! And there were people who are supposedly environmentalists who fell for it. It took the catastrophe at Fukushima to take at least some of the wind out of their sails.

And the oil industry is a barrel of laughs along these lines. Let’s take the case of alcohol fuel, aka ethanol. Everyone in the US now “knows”–because it was covered this way by both the liberal and the conservative press, so people think it must be true—that it takes more energy to produce ethanol than one can get from the end product. And it drives up the price of food for everyone. And it wrecks engines. So ethanol is bad.

Would it surprise you to find out that all of that “information” is vigorously and continuously disseminated by the American Petroleum Institute in a well-financed campaign to malign ethanol? That it is based on a series of studies by a single person, Cornell Professor David Pimentel (more “science”!) who is the only investigator who claims that ethanol has a negative return on energy invested and whose faulty calculations are strongly at odds with other investigators? That Brazil’s conversion from gasoline to ethanol turned the country from a struggling importer of expensive energy to a net exporter of same? That the oiligarchy regime of Bush and Cheney implemented the ethanol program in a way that was sure to make ethanol look bad? That Henry Ford wanted all cars and trucks to be powered by ethanol, not gasoline, but that a ruthless campaign by John D. Rockefeller made that impossible? Including the fact that Rockefeller funded groups who created Prohibition of alcohol as a drink in the US not because he was against people drinking alcohol but because he wanted to bankrupt the major alcohol distillers in the US (he succeeded) so he could supply oil as the transport fuel of choice? That there are farmers across the globe who distill their own ethanol on their farm and successfully run all of their machinery with it? That alcohol is clean-burning, creating no particulate pollution? So again now, what is it that we “know” about ethanol and how inferior it is to petroleum fuel? Have the engines in all of the cars in Brazil been destroyed because they are burning ethanol? It turns out that, using permaculture, it is possible to become energy independent without driving up the cost of food for anyone. In the late 1970s, PBS funded a nine-part series by David Blume on precisely how to do that. They broadcast the first two episodes. All of their oil company donors said that if they continued airing the series, those oil companies would pull all funding forever. PBS folded under the pressure, even to the point of destroying all copies of the tapes, none of which exist today.

In real estate, it’s always a good time to buy. (I was planning to do a post with that as the title, but I don’t have to, Jim Quinn of the Burning Platform did that, and he did an outstanding job):

     IT’S ALWAYS THE BEST TIME TO BUY

If prices are rising, it is claimed that they will always rise forever. If prices are falling, then they said to be a great bargain.  Some blogs refuse to report the exaggerations that are alleged to be statistical reports from the US National Association of Realtors. At the end of every year, the NAR quietly revises the data it reported for the past year. For several years running, they have “adjusted” the number of existing home sales down by around 800,000 per year. So they report big, increasing, “better than expected” numbers all year, only to quietly admit the truth after each year is done. (The use of “better than expected” when reporting dismal statistics in news headlines deserves a post of its own, but let’s agree to pass on that.) You’ve probably all seen the monthly headlines generated by the NAR. But have you ever seen a headline about the NAR annual revisions? Certainly not in the mainstream media.

When you see some headline like “Highest New Home Sales in Three Years,” just remember this next chart. Yes, the highest level in three years. But this is a market trying to lift its face out of the mud:

NewHomeSales

Here is Jim Quinn’s comment on that chart:

The media, NAHB, and certain bloggers look at this chart and declare that new home sales are up 20% from 2011 levels. Sounds awesome. I look at this chart and note that 2011 was the lowest number of new home sales in U.S. history. I look at this chart and note that new home sales are 75% below the peak in 2005. I look at this chart and note that new home sales are lower today than at the bottom of every recession over the last fifty years. I look at this chart and note that new home sales are lower today than they were in 1963, when the population of the United States was a mere 189 million, 40% less than today’s population. Do you see any signs of a strong housing recovery in this chart?

OK, when one includes existing homes sales, the picture is a little better, here’s the chart of mortgage applications for purchase of a home in the US:

MortgageAppsToBuy

So that’s back to 1997 levels. But Jim Quinn correctly notes this:

JP Morgan, Blackrock, Citi, Bank of America, and dozens of other private equity firms have partnered with Fannie Mae and Freddie Mac, using free money provided by Ben Bernanke, to create investment funds to buy up millions of distressed properties and convert them into rental properties, further reducing the inventory of homes for sale and driving prices higher. Only the connected crony capitalists on Wall Street are getting a piece of this action.

So what just happened? Through a well-orchestrated bubble followed by a continuing foreclosure fest, shown here:

Foreclosures

residential real estate ownership in the US is being transferred from Main St to Wall St., facilitated by free money from the US Federal Reserve. Here’s the ownership percentage of regular people in the housing stock in the US:

housholdrealestateequity

So that number has dropped from 80% to 43%. How does that trend look to you? Do you think all of this government real estate assistance, said to be for the benefit of regular people, is for regular people or for Wall St? And this is the system that most people hope remains intact.

And speaking of free money from the Federal Reserve, and indeed, all central banks, the next time you see meek and mild Ben Bernanke on TV telling you he’s doing it all for you, remember who gets free money from him and who does not. The big banks get free money. You and I do not. But, if you are a citizen of the US, you might think, well at least he’s giving money to American banks. But that’s less than half true. Much of Ben’s “quantitative easing” (i.e., the fashionable cover term for money printing) has gone directly into the coffers of European banks via their American branches. Why? The US Federal Reserve is a private corporation among whose major shareholders are large European banking families. And the European banks have a lot of bad loans and their depositors are wising up and withdrawing their deposits:

     Euro-Land Banks In Trouble

A recent study by Ernst & Young has revealed that euro-land banks in the aggregate now hold € 918 billion (US $1.23 trillion) in non-performing loans…

Of course we’ve all heard from the European politicians that everything has been fixed in Europe, though even a cursory look shows that to be a lie.

So Ben Bernanke is printing up US Dollars to bail out European banks. He testified to Congress in 2011 that he was not and would not bail out European banks. But those who track the Fed’s money printing have demonstrated that what was called QE2 (Quantitative Easing 2) did not show up on the balance sheet of US banks, it showed up on the balance sheets of the American branches of large European banks, and this has continued. The benefit to the European banks is shown here in green, correlated with the amount of money printing the Fed has done shown as the black line:

EuropeanBankCashFeed

That chart is from:

     Fed Injects Record $100 Billion Cash Into Foreign Banks Operating In The US In Past Week

And speaking of lying, there is a law against what the Federal Reserve is doing. The law says the Fed can’t buy Treasury Bonds directly from the US Treasury. There’s a reason for this: when the Fed prints up new money to buy US Treasury bonds, which is the borrowing of the Government of the US, it’s called “monetizing the debt,” a clear Ponzi scheme where one hand borrows and the other hand prints to enable the borrowing. There’s a law against this because many countries have gone down the tubes once they traveled that road of money printing. Their currency value ultimately went to zero. So what does the Fed do to circumvent the law? They have one of the big NY banks buy the Bonds from the Treasury and then they buy the Bonds from the big NY bank three days later. So the Fed circumvents the law and NY banks get nice commissions and the US Congress gets more free money.  And your income and savings are worth less and less.

     Fed Buys Back 30 Year Bond Auctioned Off Last Thursday

And the politicians and economists who support money printing claim they are Keynesians, that is, that they follow the principles of economist John Maynard Keynes. But they cherry-pick Keynes work, only using that which supports what they want to do anyway, ignoring the rest. Here is a quote from Keynes:

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. … Those to whom the system brings windfalls… become “profiteers” who are the object of the hatred…. the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Does that sound like someone who thought money printing was a good idea? Clearly, politicians think all this underhanded dealing is justified:

     Berlusconi: “Bribes Are Necessary – They Are Not Crimes”

This section could go on for days, but let’s stop, though I would like to mention that I think it is advisable that people give consideration to those things derided by  powermongers and their minions in the press as “conspiracy theory.” Many things that the mainstream attempted to relegate to this scrap heap have turned out to be true (here’s a link to an account of 33 of them).

Just one example: Many supposed conspiracies are rejected under the heading that too many people would have to know about it and that this large number of people could never keep it secret. This whole rejection methodology was blown out of the water with the LIBOR scandal where at least dozens of traders at several major banks conspired over decades to manipulate the interest rates on which trillions of dollars of contracts are based. Testimony has been given in the US and the UK that people told the central banks of their respective countries about this manipulation as early as 2008 and the central banks did worse than nothing: The Bank of England is said to have encouraged the practice. Clearly the profit motive was enough to keep this conspiracy operating and quiet for decades. So when you hear that price fixing takes place, with or without government collusion, in fossil fuels, pharmaceuticals, stocks markets, precious metals markets, and so forth, it actually appears to be irrational now to think that price fixing is not taking place. When there is big money to be made, there is big price manipulation in play. All this stuff about “free markets” is a thick, giant smokescreen designed by to increase the power of those who already have it but who crave even more.

However, between insider whistleblowers and great investigative researchers (typically outside the mainstream media that is primarily a compliant tool of those in power), using internet communication as a conduit, discovery and dissemination of truth is clearly on a meteoric rise.

This trend is strongly supported, in my view, by the accelerating increase in the number of people who recognize that individual inner work is beneficial and necessary. People who do the work to identify and become independent of lies they once blindly accepted as true, who continue working to understand the ways in which they fall for illusion, become acceleratingly tough to trick! We will take a look at this and other fabulous developments in Part 7.

Slings and Arrows

To be or not to be, that is the question:
Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles
And by opposing, end them.
Shakespeare, Hamlet

Sometimes slings and arrows feel very difficult indeed. But sometimes, and I guess some would say always, they are our friends, as they help to end pernicious cycles. Our increasingly-being-shown-as-notorious financial system is experiencing its end-of-cycle as its lies and chief liars are exposed, as major world banks have been shutting down public access to their systems for days at a time, as criminal hackers have figured out how to pilfer billions from the accounts of high net worth individuals at banks, etc.

We documented the base-level lies in The financial system is based on twelve promises that are lies. But each and every week now, more of the operational lies of the system are revealed.

Matt Taibbi of Rolling Stone reported on a court case showing that the big banks have for decades criminally deceived participants in the municipal bond market, robbing cities, towns, hospitals, etc. of interest payments due to them: The Scam Wall Street Learned From the Mafia.

Too bad that cities and towns are going broke, the banksters must get their bonuses. And their posh offices. Drive around any city in the industrialized world. Who has the largest and fanciest buildings, whose buildings dominate the skylines? Banks and insurance companies. Check it out. But I digress. Back to the latest slings and arrows.

Everyone has probably heard about the LIBOR scandal where the big banks–and it is looking like most or all of them–colluded in criminal fashion to manipulate interest rates. The LIBOR rate is used to calculate the interest rates on myriad types of loans including mortgages, business loans, credit card rates, etc. It is used as the basis for hundreds of trillions of dollars worth of derivatives. The top executives at Barclay’s were the first to be caught, but now RBS has been fined, and Deutsche Bank is under investigation. Others will follow. And the fired CEO of Barclay’s, Bob Diamond, has publicly stated that he was told to manipulate LIBOR by the guy who is second in command at the Bank of England, Paul Tucker. How long before we find out the US Federal Reserve was giving out the same kinds of orders for illegal acts?

And speaking of investigations, how about Spain investigating the top executives of  Bankia, headquarters pictured here, I kid you not:

Photo from Mike Krieger’s site.

A year ago, when they were selling stock in the bank to the public, these executives touted Bankia’s greatness. They stated two months ago that everything was fine, in fact profitable, at Bankia. Within a few weeks, it was determined that the bank needed a $19 billion bailout.

And it looks like JP Morgan has been caught pulling an Enron, manipulating the electric power market in California and the Midwest: JPMorgan’s Role in Power Market Comes Under Scrutiny.

The Vatican can’t resist joining the financial criminality party, assisted, of course, by JP Morgan: Catholic Church Fears Growing Vatican Bank Scandal.

We also have the mystery of large banks shutting their systems to any public access. RBS, one of the biggest UK banks, had a major “system outage” for days that halted the processing of just about everything including credit and debit cards, ATMs, payroll checks, account balance inquiries, i.e., everything! See: As RBS’ ATM “Glitch” Enters Fifth Day, The Bailed Out Bank Issues A Statement.

And yesterday the largest bank in Russia stopped all public access to its systems, so no credit or debit cards swipes would work, no on-line transactions, etc.: RBS ‘Glitch’ Goes Airborne As Biggest Russian Bank Halts All Credit, Debit Card Operations.

RBS gave a potentially plausible explanation of their outage in testimony to the UK Treasury: RBS gives more detail on IT failure train wreck.

However, it seems suspicious that the biggest bank in Russia also had to shut out the public. Perhaps it had something to do with criminal hackers figuring out how to initiate wire transfers from the accounts of high net worth individuals at 60 banks! Haven’t heard of that one? It broke in the news about two weeks ago and was promptly “disappeared” from many websites. As of this minute, the story is still currently available at the Times of India: Cyber criminals may have siphoned off 2 billion euros from 60 banks. From the article:

The study highlighted a highly sophisticated, multi-tiered, global financial fraud ring that is comprised of at least a dozen groups using active and passive automated transfer systems to steal high value amounts from high balance accounts.

“This fraud empire, dubbed Operation High Roller, has impacted every class of financial institution: credit union, large global bank and regional bank, using smaller and less detectable automated transactions,” McAfee said in a statement.

Could it be that these banks recognize that they are being hacked, and their accounts drained, and they have no way to stop it other than preventing all public access to their systems? And why did coverage of this story virtually disappear? That’s an easy one: When criminal hackers hear that a class of juicy targets is hackable, it’s like pouring blood into water near sharks, they all want a piece of the action.  And we can’t have depositors getting nervous about their deposits when the whole system is based on confidence.

Perhaps the problem isn’t hacking. But then how could these large bank systems, famous for their redundancies, backups, and all-around bulletproofness, fail in such catastrophic ways? Could it be that the Sun has decided to make a statement or two about who really runs this sector of the universe? Did 18 M-class solar flares over three days cause glitches in these systems? (Eighteen (18) M-Class Flares Within Last 72 Hours) Followed by an X-class solar flare? (Sunspot Region 1515 Fires Off X-Class Flare) Or are their systems based on MS-Windows? (Joke. Sort of.)

Either way, I have to wonder how people with their savings in electronic accounts feel about that. The system is based on lies. The people who run it are pulling continuous criminal capers, and it looks like they have been doing so for decades. Hackers have figured out how to drain accounts electronically. And the Sun may even be contributing to bank computer mayhem, with NASA admitting that the Sun will be ramping up its activity into mid-2013.

We think it best to consider all of these as indications of a system that is in something beyond peril. It is going down. It will fail. It’s only a matter of time. The pace of slings and arrows impacting the system is accelerating.

Let’s recall that people value money because it is a medium of exchange through which a wild variety of good and services can be exchanged in some comparable way; and a store of value providing one way to save the energy expended in work today to meet needs at some future time. Our current paper currencies (Dollar, Euro, Pound, Yen, etc.) are masters of exchange, but are cascading toward failure as stores of value. Some who have studied the history of money say–and I have no way to verify this–that the longest reigning currency regime based on unbacked paper lasted 41 years. Well, the world went fully into unbacked paper currency in 1971. Add 41 years and you get 2012. Can we set a new record? Perhaps. But the system is showing so many signs of being in its death throes, why take the chance?

People keeping their savings in the banking/brokerage system reminds me of the old Eddie Murphy comedy routine where he asks about movies like Poltergeist and Amityville Horror, “When there’s a ghost in the house, why don’t white people just leave the house?” If profanity offends you, don’t go to the link.

We have all been warned. Over and over. And the warnings are increasingly clear and loud. But we can take arms against this sea of troubles, at least for ourselves. And if we do, we’ll be in a position to help when the slings and arrows end this financial system.

Where there are things to be done, the end is not to survey and recognize the various things, but to do them.
Aristotle, Nicomachean Ethics

How The Powers That Be become The Powers That Were

In a word: TRUTH! Truth in plain sight for all to see.

Here’s an article about the head of the IMF (International Monetary Fund), Christine Lagarde, talking tough to Greeks, telling them to pay their taxes:

It’s payback time: don’t expect sympathy – Lagarde to Greeks

And of course she wants the Greeks to pay their taxes, and everyone else too–because she doesn’t pay any taxes at all on her salary and benefits package, which is worth way more than $500,000 per year:

Christine Lagarde, scourge of tax evaders, pays no tax

And if people didn’t pay exorbitant taxes, there wouldn’t be any IMF at all.

But if there weren’t any IMF, then that would be one less conduit for funneling tax money from hardworking people to banksters. Hmmm, can’t have that.

******************

Hat tips to the UK GuardianZero Hedge, and to Clif High for his repeated use of the phrase “The Powers That Were.”

The financial system is based on twelve promises that are lies, Part 2

In yesterday’s Part 1, we covered these lies:

Lie #1: Real estate always goes up.

Lie #2: It’s best to use Other People’s Money.

Lie #3: We can buy cheap goods from countries with cheap labor, and yet keep our much-higher salaries and benefits.

Lie #4: Government pension and medical programs will deliver on their promises.

Lie #5: Your money is in the bank

Lie #6: Your money is in your brokerage account.

Lie #7: It is OK for financial institutions to use huge leverage.

Lie #8: The government guarantees it.

Today, we’ll cover the final four:

Lie #9: Government bonds are safe.

Most people are told, and believe, that the big culprit in the Great Depression of the 1930s was the stock market crash. This is an intentional re-writing of history. At least 10 times more money was lost when governments defaulted on their bonds in the early 1930s. These defaults were the source of thousands of bank failures, which led to untold numbers of farm, business, and personal financial failures, so the actual losses were far larger than the “10 times” cited above.

Who re-wrote that history and why? Governments, and the academic henchmen they support through direct employment or research grants. Governments and these hired academics conveniently ignore these government bond defaults because they want you to have full trust in government bills and bonds. Again, why? Because these bonds underpin the entire financial regime. When a bank claims to have capital, much of that capital is in the form of government bills and bonds. Same for insurance companies, pension funds, brokerages, etc.

And why did governments default on their bonds in the 1930s? Because they borrowed more than they could pay back. Sound familiar? Let’s forget about the incomprehensible trillions for now. Let’s just treat the US government like a household.

Monthly Income:       $1,900.
Monthly Expenses:   $3,000.

Monthly Borrowing to meet current expenses: $1,100.

So if this household went to their bank and said, “Look, I know I’ve been borrowing 60% more than I make each month to meet my expenses, and that I’m adding $1,100 to what I owe you each and every month, but you know, I really need that money.” How long do you think the bank would keep lending them a new $1,100 each month? Money that gets spent as soon as it has been borrowed.

Convert those hundreds to trillions and you have a good picture of US fiscal finances. Japan is doing far worse. The UK is similar to the US. Despite the evidence of history, people treat governments as if they are eternal, as if they will never fall. That they’ll pay back what they owe someday. History looks askance at that idea as well, as we have seen from the 1930s.

And for those who think that the alleged economic recovery is going to make these numbers better for the US, that this “recovery” is real, think again: The borrowing that the US has been doing for the last three years is equal to almost 10% of GDP, that is, it’s almost 10% of all the spending on goods and services that happens in the US each year. And they are claiming that the economy is growing at about 2% per year, which is itself an over-estimate. So what would happen if they stopped this borrowing and spending of 10% of the economy? The math is easy, and it’s called a severe depression, with the economy shrinking big time every year and so the government would have lower income from taxes and higher expenses for unemployment, food stamps, etc., putting them even further in the hole.

So, aren’t the people who usually buy treasury bills and bonds getting antsy about all this? Some clearly are, including “small players” like China. So the US, Japanese, and UK governments are doing what they call quantitative easing. Since this is a system steeped in lies, they don’t just say “printing money,” they have to come up with a BS term for it. (And they aren’t entirely stupid about that. Ask a few people what quantitative easing is. Most don’t know.) So the central bank of each country prints up money to buy the bonds and bills issued by the treasury when the treasury needs to borrow more money. The US Federal Reserve bought about two-thirds of the bonds sold by the US Treasury in 2011, so they covered two-thirds of the borrowing with newly printed money. If our household above had done that, its inhabitants would soon be in jail for counterfeiting, but that’s a topic for another day.

And one might think that governments can simply raise taxes to pay for these gargantuan debts. That might be true if the people weren’t already up to their eyeballs in debt. Historically, when all the debt in a country gets near three times their Gross Domestic Product, the country groans under this unsustainable debt load and has events like the Great Depression of the 1930s. According to Lacy Hunt, former member of the Federal Reserve Board (and I only cite that credential so you don’t think these numbers come from some deranged blogger), that total debt ratio is now 3.6 times GDP in the US, after peaking at 3.8x in 2009. Think the Eurozone is any better? They are at 4.5x! The UK is at 4.7x. And Japan is at 5x! (From Strategic Investment Conference – Dr. Lacy Hunt)

According to Boston University Prof. Kotlikoff, a guy who is enough of an insider that his work is sometimes published by the US Federal Reserve, when you consider all the future spending commitments of the US Government: “US government liabilities (official debt plus the present value of projected future non-interest spending) exceed government assets (the present value of projected future taxes) by $211 trillion, roughly 14 times GDP.” (From Shattering the American dream: The US government’s Ponzi scheme) In other words, unpayable doesn’t even begin to describe the situation.

So, it is clear that government bonds are a fraud. At some point, the holders of these bonds will not get back their capital and their expected interest payments, as the buyers of Greek government bonds recently found out. The only way these bonds are being kept afloat is by newly printed money. It’s a scheme, a Ponzi scheme, where new money has to be brought in to satisfy earlier investors. Such schemes always fail. This one will as well. You can take that to the bank. But as I think you can tell, we don’t recommend that. Taking it to the bank, that is. Because the bank–at least if it’s a large one–is part of the scheme. And so are your insurance companies, pension plans, etc. Take action accordingly.

Lie #10: Derivatives reduce risk in the system

Derivatives, famously called “weapons of financial mass destruction,” are a big topic, but it’s an important topic to understand because, when the derivatives implode, the whole financial regime will implode. We will do our best to keep it simple and sort of brief. If the description of this lie makes your mind fog, move on to Lies #11 and #12. They are easier to understand, and not to be missed.

A derivative is a financial instrument, a contract, whose value is derived from the value of some underlying asset. Examples of derivatives that have functioned well for years are agricultural futures, where a farmer and a grain buyer agree in the Spring on the price of a railroad car of oats for delivery in December. Both enter the contract to make their pricing in December predictable, removing some of the risk of running their businesses.

But the banksters couldn’t leave it alone. They created derivatives to insure against just about every conceivable financial eventuality. But they sell this insurance without setting aside the reserves typically required for writing insurance policies. Such reserves are normally required to cover the flow of insurance claims that inevitably arise. They sell these instruments to entities who are trying to reduce some financial risk they face, like currency movements, interest rate changes, a default on some bonds they own, etc. Some of the modern derivatives are so complex that, when the parties to a derivative contract have ended up in court, the court ruled that the 600-page contract that defined the derivative didn’t sufficiently cover all the contingencies! These derivatives are sold by the big banks and insurance companies to all sorts of financial entities from corporations to school systems to hedge funds. The school systems are trying to reduce risk; the hedge funds use derivatives as a casino bet. Since the instruments are complex, the banks charge big fees for access to these contracts.

This is now so out of hand that there are over $700 trillion worth of derivative contracts out there in the world. Yes, that’s more than 10 times the size of the world economy. These are insurance policies that obviously cannot be paid if the claims come in. And when the claims come in, the big writers of these insurance policies, the big banks, will be understood, for yet another reason, to be entirely bankrupt. And that money everyone thought they had in the bank will be gone, vaporized. When all that money is vaporized, there will be no money coming from your ATM, no ability to withdraw some from the bank, no paychecks (the checks will bounce), no ability to pay bills, no tax payments going to governments, etc.

So instead of derivatives reducing risk, which is what their proponents claim that they do, derivatives have concentrated risk in the very large banks, which puts the entire system at risk for the sake of large bankster profits.

So why is it inevitable that the derivative market will implode? After all, while no one denies that there are over $700 trillion of derivatives, and no one claims to have anywhere near that amount of money available, the banksters claim they will never have to pay up on that insurance. Here’s their reasoning:

  1. The things they write insurance for won’t ever happen, at least not to any extent that will have a big impact on anyone. And how do they know this? Because they have based their insurance on mathematical models designed by very fancy mathematicians and physicists. But the problem is this: their models are based on data from a small sampling of history. The data rarely even includes data from the era of the Great Depression. So here’s what happened in 2007-2009: some derivatives were based on pools of mortgages. These models assumed, because that’s what they saw in the historical data, that real estate prices always go up. As soon as real estate prices started going down in mid-2006, the payments on these mortgage-backed derivatives came due. And the banksters didn’t have the money to pay up. We all know how it ended, some failed, and the governments bailed out the rest. So when just one very small slice of the derivative payments came due, payments the banks and our beloved central banks said would never come due, the entire system was threatened. The rest of the derivatives in the world are based on similarly inadequate models. They will prove especially inadequate as the world faces the accelerating change that is apparent to so many of us. It is impossible that these mathematical models can account for events that have never happened on the planet before, or that only happen once every several thousand years.
  2. The banksters claim that, even though they may have written contracts for $100 trillion, their book of contracts is balanced, that it is hedged. By this, they mean that, if Spain defaults on its debts, that they have contracts that say that it will and contracts that say that it won’t. They will lose money on one set of contracts and make an equal amount of money on the other contracts. While multiple cases have shown this claim of being hedged to be an outright lie, it has a deeper underlying problem. Let’s say JP Morgue has a bunch of customers who want to buy insurance against a default by Spain. That would be a very unbalanced position for the Morgue. So they go to Bankrupt of America and buy protection against Spain defaulting. Now they think they are hedged, balanced. But there are less than a dozen banks in the world handling the vast majority of this $700 trillion in insurance. Remember AIG in 2008? They were a big writer of mortgage-pool-related insurance in 2007. They were not hedged. They were unable to pay. That inability to pay would have taken down several other institutions who thought they were covered because of insurance they had purchased from AIG. AIG needed a government bailout of $185 billion or the other banks would have gone under. So all it takes is one of those banks to make an error, to not be hedged, to not be able to pay up, and suddenly each of the others is also going under. This is where the concept of the Too Big To Fail banks has come in. All of them are so interconnected that if one fails, they all fail.

So then you might say, well won’t there just be another bank bailout by the governments? Two problems with that. First, no one can come up with anywhere near $700 trillion to fix a cascading failure of the mega-banks. If they printed that much money, the money you currently have would be seen by all to be worthless. Think wheelbarrows of money, hyper-inflation. Second, as we have seen, people have less and less trust in government finances. A large part of the temporary system fixes done in 2008-2009 were not the actual printing of money, they were guarantees. But if everyone understands that a government providing a guarantee is broke, then what is that guarantee worth? Bupkas. Nada. Nothing.

But this is, in fact, what the TBTF banks are counting on: they have a gun to the head of the governments, saying “you have to cover our backs on this huge and very profitable game or we’ll take down your system.”

So when the derivatives implode, all the electronic money in the world will be known to be either gone (fully imploded system) or worthless (tens or hundreds of trillions gets printed up, making all currency worth a tiny fraction of their current purchasing power).

Lie #11: Central banks protect the interests of their country and its citizens

Let’s just get right to the truth about this lie: Central banks protect the interests of large commercial banks. And not all banks. Just the really large ones. The central banks we are speaking of are the international ones, namely the Bank for International Settlements and the European Central Bank; and the national central banks such as the US Federal Reserve, the Bank of England, the Bank of Japan, etc.

Whenever you find it difficult to understand an action by a central bank, apply the principle in the previous paragraph and that action almost invariably makes complete sense. Everything else that central banks say and do is window dressing, secondary at best to their prime directive. Central banks were founded to protect the interests of the large banks, to keep the game of those banks going, and that is what they do.

And what is that game? Being able to create money from thin air and charge for the privilege.

So are central bankers, people like Ben Bernanke, liars? Or have they drunk the Kool Aid so deeply that they believe their own nonsense? The evidence points to the idea that both are true.

This topic is covered in great detail by many on the web, so I won’t recap it here. Please e-mail if you would like more detailed information on this.

Lie #12: Your paper/electronic currency is a reliable store of value.

For most people in the industrialized world, money means two things: a little bit of physical cash on hand, and more money than that in one or more accounts with financial institutions. This reflects the reports on world money supply: maybe as much as 1% of money is actual physical bills and coins, the rest is stored electronically.

This has a big implication, one not readily recognized by most. Every electronic representation of money is a promise by someone to pay up if that money is requested for possession or use. In other words, that money is owed to you. While you may consider it to be cash in your account, it is actually a debt, owed by the bank or money market fund, to you.

Everyone knows that, in the 19th Century, for example, money was backed by gold or silver. You could go to a bank and convert national paper currency for gold or silver coins. Because this restricted the ability of countries to wage war, that right was persistently eroded starting with world War I until it was abolished entirely in 1971.

So what backs up the money now? It is the ability and willingness of those who owe you money to pay up on demand. And the confidence of all who use the currency that they can exchange that currency for goods and services of real value.

Ability and willingness to pay: If the party who owes you money goes belly up or is unwilling to pay you, you are out of luck. That money you thought you had? Well, you don’t have it. In the case of complete bankruptcy, the money no longer exists, it went to money heaven. In the case of a bank, there is a government guarantee that, up to a certain amount, even if the bank goes under, the government will make good up to that guaranteed amount. Such guarantees were put in place in the 1930s after million lost their money due to bank failures.

Confidence: Everyone has heard of situations where people lost confidence in a national currency. The poster child is the Weimer Republic in Germany, with it infamous photos of people carting around wheelbarrows full of currency. And there have been such losses of confidence in Brazil, Argentina, Turkey, Zimbabwe, Viet Nam, and many others. In these cases, governments printed so much currency that it became a “hot potato,” where people wanted to exchange currency for something real as soon as possible because the currency was known to be losing value by the hour.

People can also lose confidence in a currency when a government is known to be going under, perhaps because they are losing a war.

People say that such fiat money, that is, money by the command of a government, is a medium of exchange and a store of value. It certainly is a medium of exchange for goods and services. Until it isn’t. And it isn’t when people lose all confidence in that fiat money as a store of value. Then it becomes that “hot potato.”

And it is somewhat surprising that people still regard it as a store of value. Since the inception of the US Federal Reserve in 1913, the US Dollar has lost, by the US government’s own statistics, 95% to 99% of its value, depending on what method is used for that calculation. People think that a loss of value over that much time is meaningless to them, allowing them to think, for example, that they were real estate geniuses for owning a house in the USA from 1971 to 1997, during which time that real estate “went up so much” in value. Most of that apparent gain was from currency debasement. People hear stories of how their great grandparents paid five cents for a loaf of bread and think that price increases for bread over time are normal. They are not! When money was backed by metals, prices for goods often stayed stable over many decades, with price fluctuations reflecting real changes in supply and demand in the economy, not politician-supplied increases in the supply of fiat currency.

Why have people come to accept increases in the money supply as necessary, and price inflation of 2% to 3% per year as normal, even as “low inflation”? Because it is key to the functioning of a financial regime where money is debt. When all money is debt, the borrower typically has to pay interest to the lender. On most of the money out there, namely that 99% of it that is stored in electronic accounts, people want some payback, interest payments, on their deposits. So let’s just say that, on average, 3% interest is due on all of the money out there. So every borrower, think banks as an example, who are borrowing from you because you have deposited money with them, has to come up with at least 3% more money every year to keep paying interest owed. So what happens if the economy doesn’t grow by at least 3% and there isn’t an increase of the money supply by 3%? It means that some borrowers will not be able to pay the interest they owe. And some of them will go bankrupt. Meaning that the money deposited with them might go to money heaven, disappear, subtracting a lot of money from the system. And this is a system where the amount of money in circulation must grow by that 3% every year or the system starts to go in reverse: instead of the supply of money growing, it starts contracting because of bankruptcies.

So now, do you see why those who run the financial regime go into a complete panic when the economy doesn’t grow? Why they start printing more money every time the economy and, thus the supply of money, shrinks? This is a crucial concept. An economy based on money that is debt must grow. Always. Infinitely. This is why politicians and central bankers repeat the word growth like a mantra. But ultimately, economies are based, at least for now, on finite resources. So how can they grow to infinity? This is the fatal flaw in a system where money equals debt: it must always grow. Which means it must always, as our economies are currently configured, consume more physical resources, especially fossil fuel energy. A steady-state economy is not acceptable when money is debt. It must grow and gobble up more of the resources of the planet. Forever. Which of course is impossible, at least until alchemy is a common skill. But the politicians like to ignore this and just keep chanting growth, growth, growth.

And all things economic obey the Law of Cycles. Things are created, they flourish, and then they pass away, making room for the new. To retain their power, the entrenched elite are trying to subvert that law.

WHY ARE THINGS THIS WAY?

Simply, for the guaranteed profit of a few at the expense of the many. This too is a topic for another day, but that’s the accurate and brief description that fits the facts.

WHAT THEN MUST WE DO?

We could go on and on about other fatal flaws of this financial regime that threaten its existence. The coming disruption from the US Dollar’s loss of reserve currency status. The unfairness of bailing out and supporting the banksters who are engaged, by any human standard, in blatant criminal activity. The subversion of the rule of law as government and its agencies are purchased by the banksters. About the accounting lies that allow financial feces to be counted on corporate balance sheets as shining light.

And you may not agree that the chickens will come home to roost on all twelve lies above. But recall that the financial regime almost fell from the demise of just one of its minor lies, the lie that real estate always goes up in value. Other lies above are for more fundamental to the regime, much more foundational in nature.

And it is because of the foundational nature of the lies that reform of the current system is impossible. Tweaking the rules will not address fundamental flaws.

So what then must we do? We will address that topic in our next article.

Many thanks.
Thundering Heard