Tuesday, October 7, 2008

The Death of the American Dream

video "Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies." Groucho Marx “It is an old maxim and a very sound one, that he that dances should always pay the fiddler. Now, sir, in the present case, if any gentlemen, whose money is a burden to them, choose to lead off a dance, I am decidedly opposed to the people’s money being used to pay the fiddler…all this to settle a question in which the people have no interest, and about which they care nothing. These capitalists generally act harmoniously, and in concert, to fleece the people, and now, that they have got into a quarrel with themselves, we are called upon to appropriate the people’s money to settle the quarrel.” Abraham Lincoln, January 11, 1837 (lifted from TrueBlueLiberal.com) I've never been much of a conspiracist, but this time I might be willing to make an exception. So let's see. The guy who worked for Goldman Sachs for 32 years (CEO for the last 8 years - and China expert having made over 70 trips there) and was recompensed over $1 billion for this fine performance, quits to accept the position of Secretary of the Treasury for Dumbya (I'm putting that name in italics because it's a little bit too obvious to almost everyone now that he was never dumb or deaf or out of it in the least (just a useful, clever stooge)) who needed someone (in 2006 for some reason or other) with inside knowledge to explain to the inquisitive (and newly impressed) citizens of the USA exactly what happened to teh moneys. Being a big fan of Klein's Shock Doctrine, I think the other shoe has dropped. What better smokescreen to raise when the situation gets dicey for those with the billion-dollar payouts (okay, hundreds of millions anyway)? It's those idiots at the bottom who caused all the trouble! (Pay no attention to the Alan Greenspan lookalike behind the curtain - It surely wasn't his steady hand on the tiller that caused all that extra money to bubble through the system for so long, thereby tempting the poverty-stricken on Wall Street to think up neato ways (abetted by the newly created (by whom?) deregulation rage) to leverage it for a nice profit - oh noooooooo.) There are plenty of bad guys, actually, to pin this on, so keep your eyes peeled (and your mind engaged). It's party time! Oh, you can damn the Rothschilds/Rockefellers They're grand and just fine by me As long as they share the take they get With the rules revoked, living by the sea. (Okay, the meter could use some work, but you get the drift.) It looks like Great Britain is nationalizing their troubled banks, and Dumbya (not so dumb now is he?) has come out in favor of (WTF?) planning their economies around this emergency. Just "shows to go ya, don't it?" (stolen from a show tune!) Let the big boys cause enough of a mess and even King Georgie will climb aboard the Socialist Express (not straight talk in the slightest!). And John McCain (whose varying explanations of his POW experience have now been quantified and found lacking) came out this evening in the Presidential debate with a brand new thought: to let the Secretary of the Treasury fix the mortgage problem by buying up the bad mortgages and thus lowering payments so that people will not lose their homes. Will wonders never cease (or campaigns)? This is a political course of action for Rethuglican McCain that I doubt he ever could have thought would pass his lips before he fell irrevocably behind the smooth guy. He can't come up with liberal ideas fast enough now. Although the ones like doubling the child credit and giving a $5000 insurance credit did serve to remind the audience exactly who he continued to be. And not a whisper about his first choice for Treasury Secretary (hint: rhymes with Bam! Bam!)*. And then we have the image of a:

grisly banner was held aloft . . . at a demonstration on Wall Street. Its graphic message advised denizens of the street to “Jump!” It was a frightful reminder of perhaps the most widely believed legend about the Great Depression of the 1930s; that the sudden collapse of the economy filled the sky with the falling bodies of suicidal stockbrokers. As a matter of fact, there were very few such suicides. But the myth captured a deeper truth. Except for the Civil War, no event in American history proved more traumatic. It left scars that are with us today. During the last few weeks, we’ve all grown reluctantly accustomed to comparing the current financial meltdown to 1929. Forebodings that this financial crisis may soon enough descend into a more widespread economic disaster are everywhere. Yet almost nobody is willing to use the word “depression.” We talk instead of a “slowdown” or “recession,” words that somehow fail to do justice to the specter that haunts the nation. This taboo persists in the face of ominous signs to the contrary: an ever-accelerating rate of unemployment and home foreclosures, a credit freeze that touches everyone from major manufacturers to ordinary consumers, the accordion-like contraction of businesses from automobile plants in Detroit to software makers in Silicon Valley, the rapid erosion of the dollar’s value in world money markets, and so on. All of this resembles, at least in broad outline, the liquidity crisis that was prelude to the Great Depression. Still we avoid that word, and for reasons that are all too understandable.

To begin with, there is the profound matter of confidence. A market economy can’t function without it. Franklin Roosevelt is perhaps best remembered for gently chiding and reassuring his fellow citizens that they had nothing to fear but fear itself. He was speaking into that interstitial zone of our public life where psychology meets economic policy. Today, too, maintaining or restoring confidence is at a premium. It is a measure of just how bad things are that bankers and public officials whose demeanor is normally professionally upbeat have been as grimly candid as they have been about the seriousness of the situation. Raising the prospect of depression, however, goes too far.

Or has it? Are we not part way (or most of the way - you measure, I don't want to) Down the Road to Serfdom? (Emphasis marks and some editing are mine. - Ed.)
Threatening an imminent economic collapse, Treasury Secretary Hank Paulson and Fed Chairman Ben Shalom Bernanke have bamboozled Congress into enacting the most brazen confiscatory scheme ever concocted by government. The scheme would have American taxpayers fork over $700 billion of their cash to help recapitalize some of the country's biggest banks – the same banks that recently larded their bigwigs with $62 billion in bonuses. Sensing a pushback by the world's dollar-surplus regions – Asia and the Mideast – to finance the largest debtor economy, the U.S. government will now plunder its own countrymen to keep capital running "uphill." As with most statist remedies, it is being marketed as a boon for Main Street, tantalizing its inhabitants with the prospect of profits wafting westward from those malodorous Wall Street investments. However, Congress has inured the Treasury from accountability and legal recourse, giving Paulson dictatorial power over the nation's financial sector. Rather than let this bloated segment of the economy shrink and consolidate, Paulson and his successor will extend it unlimited life support, bloodletting everything else, in a final ruin of the nation. The problem that is vexing the financial system, we are told, is the pile of mortgage-backed securities held by financial institutions. These have lost value as the underlying assets – the actual homes – have plummeted in value. But this is a fraud. This precipitating event no more caused the financial fiasco than the murder of someone named Ferdinand provoked World War I, as taught in elementary school. Remember the war? Not just the current and future wars, but the one that gave us the fiat monetary system: the war in Vietnam. Prior to that calamity the world operated under the Bretton Woods monetary system, a post-World War II arrangement that pegged all currencies to the dollar and made only the dollar convertible to gold, thereby ensuring the dollar's reserve currency status. During the 1950s, the system seemed invulnerable as U.S. gold reserves exceeded foreign liabilities by threefold. By 1970, however, as the U.S. inflated its money supply to fund the Southeast Asian conflict, the monetary position of the U.S. reversed, with foreign liabilities exceeding gold reserves fivefold. When France demanded gold for dollars at the statutory rate of $35/oz., President Nixon shut the gold window for good. As a result, currencies went from a fixed to a floating (and pegged) rate system in 1973. It has vexed economists ever since. This system of fiat currencies has given peculiar leverage to the U.S. dollar. As the world's reserve currency, the dollar has preserved faith in its purchasing power among its holders, including foreign central banks. This faith and willingness to buy U.S. low-yield debt instruments such as Treasuries has enabled the U.S. public and private sectors to go on the largest borrowing binge the world has ever seen, manifesting in the gargantuan twin deficits of budget and trade. These imbalances would never have occurred under a gold standard. Credit would have been constrained by statutory levels of gold reserves in the banking system, instead of being created out of thin air by the 40-1 leverage levels granted by the SEC in 2004 to the five now defunct investment banks. Also, the huge influx of imported goods would have halted due to inflationary pressures in the exporting countries . . . . Instead of relying on the equilibrium produced by [gold's] automaticity, the superpower has to resort to 'bashing' its trading partners, which it treats as enemies." So here we are: a phony monetary system, $3 trillion wasted on wars, and a citizenry mired in debt. And what does Congress do? It adds more debt – a trillion dollars, just for starters, since once starting down this slippery slope, it won't be able to stop. It then gives the Treasury the green light to buy securities that are trading as low as 20 cents on the dollar at the hold-to-maturity value, i.e., par! Not surprisingly it has engaged in a media blitz to "sell" this boondoggle, convincing the taxpayer that this bucket of dross will one day turn to platinum. Sensing that working stiffs are a little perturbed about the fleecing, it has leapt to the offense: "No, this is not a bailout of Wall Street. This is a rescue plan for Main Street." By embracing the mortgage waste dump, U.S. citizens are supposedly saving jobs and retirement dreams. They are told that interest-free car loans will stream from dealerships and refi windows will again beckon, even to those with homes worth half the value of mortgage paper. With Congress granting the Treasury (along with an "oversight" board) almost unlimited power over the country's financial landscape, the U.S. has terminated its democracy and is well on the Road to Serfdom. As Friedrich Hayek explained in 1944, "Economic control is not merely control of a sector of human life that can be separated from the rest; it is the control of the means for all our ends. And whoever has sole control of the means must also determine which ends are to be served, which values are to be rated higher and which lower – in short, what men should believe and strive for." Farewell, America.
Thus speaks Ann Berg, who has spent a 30-year career in commodities and capital markets as a trader, consultant, and writer. While a commodity futures trader and Director of the Chicago Board of Trade, she advised foreign governments, NGOs (the United Nations, World Bank), think tanks (Catalyst Institute), and multinational and foreign corporations on a variety market-related issues. She was also a frequent conference speaker at international derivatives markets forums. In recent years, she has contributed articles to several commodities/capital markets publications, including Futures Magazine, Traders Source, Financial Exchange, and The Financial Times editorial page. But this has never happened before. Right? Not so fast!
In the late 1980s and early 1990s, a huge asset bubble grew up in Asia, as "hot money" -- foreign investment looking to cash in on higher interest rates in those emerging markets -- flooded the region. Japanese housing prices flew through the roof, totally unmoored from the laws of supply and demand. Countries like Thailand, Malaysia, Singapore and South Korea saw growth rates of up to 12 percent, but it wasn't real growth; as Paul Krugman noted in 1994, it was the effect of tons of new capital flowing in, not real increases in productivity, that created what was then known as the "Asian miracle." When it all came crashing down in 1997 -- the "Asian Financial Crisis" -- trillions of dollars in paper wealth were wiped out and poverty rates spiraled.
Right. I'd like to argue with this reasoning, but the other just smells tooooo strongly of rat. * Phil Gramm Suzan

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