"We are facing an unprecedented emergency," [Toyota] President Katsuaki Watanabe told a year-end news conference. "This is a crisis unlike the crises of the past." ~ Toyota sees "unprecedented" crisis by Chang-Ran Kim, Reuters, 12/22/08
"When the bond market crashes [expected timing: 'any day now'], it’s going to be 15 on the Richter scale. It’s going to be enormous. It’s far more dangerous than the stock market crashing. When the bond market crashes, the hyperinflation starts." ~Bob Moriarty of 321gold.com, interviewed by The Gold Report
- Introduction -
The tone and direction for the coming year seem clear enough: ominous, and downward. Down for living standards; down for levels of employment; down for world trade; down for investment portfolios and retirement funds; down for the prosperity and even the physical safety of the lower and middle classes in the United States and around the world.
Levels of freedom are headed downward also, as the power elite worldwide use the time-honored method of responding to a crisis – any crisis – as a tool to increase their own power. From ancient Rome to Hitler's Germany, from the U.S. Civil War to modern Zimbabwe, from the Great Depression to the terrorist events of 9/11/2001, crisis has worked so reliably as an excuse for power-grabs that one wonders why tyrants haven't thought of creating crises in order to increase and consolidate their power.
Thank goodness for small favors! What a nightmare it would be if tyrants (and their central bankers) ever did catch on to such an obvious tool.
- 1 -
The Landscape Darkens as the Storm Begins
As predicted in this space last year (and earlier; for instance in March of 2007, well before the meltdown began in August of that year), an epic and global financial crash is now underway. Worldwide, stock market investors have lost about $32 trillion in wealth in the last year, per Eric Fry of Agora Financial. Throw in the losses in real estate, bonds, and commodities, and the total loss might exceed $60 trillion, reports Kurt Kasun, who adds: "This is beyond rescue. It is virtually impossible to overstate the dire consequences resulting from the severity of the declines recently experienced in almost all asset classes--from both a technical and fundamental viewpoint."
The consequences have indeed been dire, and they aren't over yet. Major financial institutions and other businesses are failing in large numbers, retailers were slammed with dramatically lower consumer spending this critical holiday season, unemployment is skyrocketing, the mortgage crisis continues, housing sales and prices continue falling, and many state, county, and city governments are in serious financial trouble and responding with higher taxes and fees at the worst possible time for an increasingly impoverished public. Concern over the solvency of U.S. debt and thus the dollar itself is being voiced, and with good reason, especially since the falling U.S. dollar is the core of most other nations' currency reserves. Even a simple list of major casualties in the field of finance is stunning:
"Bear Stearns, Fannie Mae, Freddie Mac, Lehman Bros., AIG, Washington Mutual, Citigroup etc., in the US and Northern Rock and Bradford and Bingley in the UK all collapsed, were merged or fell into government ownership. In the space of a few weeks the once proud US investment banking industry ceased to exist as standalone operations, being either merged or converted into commercial banks." ~ William R. Thomson, The World Turned Upside Down
- 2 -
How the Experts Missed the Obvious
The global financial crisis now underway is larger and deeper than any in living memory; it will be talked about for millennia, assuming mankind survives that long. Yet most economists and talking heads in the lamestream media, including print as well as television, failed to see it coming, just as they missed the call on the housing and dot-com bubbles. Paul Krugman confessed last week on the NY Times Opinion page that ". . . the failure [of economists] to see the most obvious bubble of my lifetime remains a puzzle."
It may be a puzzle to Krugman, but the answer is simple: Most economists and paid commentators are Keynesians (see also this video on the results of Keynesian policy; 7 min 29 sec) who believe in government economic intervention (i.e., control via taxation, regulation and spending) combined with central banks and fiat currencies. In short, Keynesianism consists largely of central planning (the lynchpin of the old Soviet Union and Red China under Mao, although Keynesianism allows for a semi-market economy) combined with heavy taxation and epic levels of unrestrained counterfeiting, with the wealth thus extracted from citizens being spent on more central planning and, in the case of the United States in particular, on war and on maintenance of an empire; for example, on our 750+ foreign military bases (see also here) around the planet. The wealth thus drained from the lower and middle classes flows to favored corporations, government agencies, and other special interests. Overall, the wealth extracted from citizens is redirected to those who already have wealth and power, for they control the system. What little does flow to the lower and middle classes (Social Security, Medicare, "free" education, welfare payments, etc.) has the added benefit, from the elite's point of view, of making the great mass of citizens ever-more dependent upon the State; eventually, the helpless, infantilized citizenry looks to the State for nearly everything.
No wonder Keynesians have been so clueless: Those mechanisms and their side-effects arethe cause of the present crisis.
Why, then, do so many economists and commentators hold Keynesian views? Because those same mechanisms are also the core of the elite's wealth and power, and since the elite control the major broadcast and print media and most universities, any economist or paid commentator who does not champion the Holy Trinity of government intervention, central banking, and fiat currency is shut out of the system. Gary North describes the process, especially in regards to academia, in a reality-based horror story titled How Academic Guilds Police Higher Education.
I have previously described the effect of misperceiving reality due to inaccurate mental frameworks in Blinding by Paradigm. Such misperception is especially common, and highly destructive, in regards to politics and the nature of coercive government itself.
As a paradigm, Keynesian economics is on a par with the divine right of kings: an idea (or set of ideas) so shockingly dishonest and out of synch with reality that it clearly exists only as rationalization for thuggery, theft, and fraud. No wonder those who see the world (or at least describe the world to others) in terms of this paradigm so often miss the obvious. Getting things right is not the purpose of this paradigm; the purpose is keeping things right – that is, keeping the powerful in power and the masses in their place.
One bright spot in the current storm is that intelligent and honest commentators such as Congressman Ron Paul, investor Jim Rogers, and economist Peter Schiff are getting more respect and exposure as a result of having been consistently right on where we were headed (links are to videos). All three of these men, in particular, have been repeatedly interviewed on national television lately and the point has often been made that they predicted the current crisis years in advance while most other commentators were denying or downplaying the problems and sometimes literally laughing at the men who we now know were right.
There is no mystery to how Paul, Rogers, and Schiff saw the future with such clarity: they simply used a more accurate paradigm for understanding human action and the markets. Such (largely) Austrian-oriented bears as these three are likely to continue their dour "winning" streaks, because 2009 looks to be even harsher and scarier than 2008.
- 3 -
Yet Again, a Crisis Becomes an Excuse for Tyranny and Corruption
Government response to the financial crisis has mainly consisted of throwing taxpayer money at the problem in Keynesian fashion – no surprise – although not even I imagined we would see trillions of dollars being created and given to the culprits as a means of allegedly "saving" the system. This is not mere Keynesianism; it is Keynesianism on steroids and crystal meth.
It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can't be repaid. However, this is precisely what we are planning on a national level. ~ Peter Schiff, There's No Pain-Free Cure for Recession, 12/27/08
Nearly everything the federal government, the president-elect, and the Federal Reserve have done or have announced plans to do runs counter to what is necessary to recover from today's unfolding disaster. Actual and proposed actions consist almost entirely of short-term pseudo-fixes, jaw-dropping thefts from American taxpayers, and shameless, outright power-grabs. All of this will make the problem worse, prolonging and deepening the pain. Similar Keynesian policies have failed and caused harm in Japan since the 1990s, and such measures greatly prolonged the pain after the American stock market crash of 1929. Both Hoover and FDR threw taxpayer money and centralized control at the problem, turning what could have been a short, sharp downturn into a 17-year disaster so horrifying it was quickly labeled "the Great Depression." Not until after WWII (during which rationing was imposed for gasoline, sugar, butter, meat, and other things) did America return to anything one might call "prosperity."
Of course, not everyone is hurting today; just as a relatively few people and businesses get rich off the horrors of war and terrorism (and as government power grows with war and terrorism as an excuse), today's financial destruction has become an incredible windfall for some, as suggested earlier. One can almost hear the excited gibbering of the power elite: "A Crisis, hooray! Thank the Dark Powers that Be! Let us make the most of this precious gift, for the People are never so pliant, so willing to give us their wealth and power, as when a lovely-scary Crisis is at hand!"
And so, as mentioned, the U.S. government and its monopoly-chartered central bank have created trillions of new dollars, handing most of it to the banksters and other key players who helped create this crisis in the first place.
Give that last sentence a moment's thought: a small group of people gave trillions of your dollars – not that you have that much money – to, well, mostly to crooks and failed businessmen. No one asked your permission, and now suddenly you and your children and grandchildren, and probably even their grandchildren, are in debt for an unpayable, galactic-sized pile of money – money you did not borrow or spend, but which others did – in your name!
This dizzying largess has put American taxpayers on the hook for another $8.5 trillion (in addition to our previous national debt) so far – with much more to come, including President-elect Obama's "stimulus" plans, recently estimated at $850 billion and growing. In case you were wondering: Yes, this is serious money. The entire Gross Domestic Product of the United States is roughly $13.5 trillion (before this year's financial meltdown) and the insanely bloated federal budget is less than $3 trillion.
The bailouts have thus already cost us about three times the annual Federal budget, and more than half of the nation's entire annual economic output. Actually, given the precipitous and continuing drop in our GDP, $8.5 trillion might soon be our entire annual output.
- 4 -
The Hyperinflation Express
Has such massive creation of money from thin air ever been done before? Yes, many times, and you might be curious to know how it typically works out. The answer is, basically: Not so good. Here's a WikiPedia link on the topic of "a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services" – their definition (and mine) of the cause of hyperinflation. In every case, hyperinflation has been a disaster to the people it was inflicted upon, with the level of harm roughly correlated to the speed and amount of money creation. The Wiki article includes a long list of examples, and you would not want to have lived through any of them; poverty, hunger, violence, and even revolution are common side-effects. Partial or total destruction of the middle class is another typical result of hyperinflation.
Isn't the destruction of wealth we have seen of late deflationary? Well, yes and no (it's a complex question), but consider Eric deCarbonnel's description of hyperinflation's onset in Germany's WeimarRepublic, with interesting detail on the path and timing of the disaster:
"As an example of deflation leading to hyperinflation, consider the case of the WeimarRepublic. In 1920, Germany experienced a deflationary collapse, with the average citizen finding it harder and harder to get enough money for necessities. Banks, short of money, could not honor checks, and businesses were strapped for cash to buy materials and meet payroll. Fearing a collapse that would throw millions of workers out on the street, the German government desperately printed money in an attempt to re-inflate the economy. During this period, despite the government's money printing, the mark actually gained in value against foreign currencies, so that prices of imported goods fell by some 50%.
"Eventually, as a result of the money supply's rapid expansion, the nation's massive foreign debt, and the shrinking economy, German citizens lost all confidence in their currency, and the WeimarRepublic experienced one of the worst cases of hyperinflation in modern economic history. Billions of hoarded marks came out of hiding and entered the marketplace. The chart below tells the rest of the story." [Bold added]
Note the highlighted, penultimate sentence in that last paragraph. Then consider that unlike the German mark of the 1920s, today's U.S. dollar is both the primary reserve currency for the entire planet and has been used as a store of wealth around the world for decades by everyone from Columbian drug lords to Siberian peasants. According to at least one recent estimate, "two thirds of all dollar money balances are held overseas."
That has already begun to change, but the trickle of dollar repatriation is about to become a tsunami. Other nations (China, Russia, Iran, and Venezuela to name only four) are increasingly strident in their calls for ending the world's "dollar standard" and are making plans to begin trading among themselves in, well, anything other than dollars. The concerns being voiced go well beyond the diminishing value of the dollar itself and include anger from an increasingly wide understanding that the United States has long abused its position as issuer of the world's reserve currency to defraud other nations and to unfairly enrich itself. Imagine being on the receiving end of U.S. Treasury Secretary John Connolly's famous 1971 comment to European financial ministers: "The dollar is our currency, but your problem." 1971 was the fateful year when Nixon took us completely off the gold standard, thus defaulting on promised gold payments to every nation in the world. Only our military and economic superpower status allowed us to get away with such behavior.
Times have changed, and blowback from that long-standing arrogance and malfeasance is about to hit these shores with staggering force. In addition to the inflationary effect of today's reckless dollar creation for "bailouts," "stimulus," and other nonsense, we can expect a tidal wave of existing, long-sequestered dollars to arrive from overseas as people throughout both hemispheres trade their dollars for something – anything – that might actually hold its value. Adding fuel to this dollar repatriation will be a widespread desire to help destroy the hated dollar system itself, including the aggressive, oversized American military that both feeds upon and helps prop up that system.
Some percentage of these foreign dollars will be spent on gold and silver, the only common forms of money that cannot be printed into worthlessness or otherwise defaulted on. The precious metals market is extremely small relative to other investment categories. As investors flee to the safety of precious metals, it won't take much to send prices of those metals to the moon. Or, heck, to Alpha Centauri.
It is worth noting that the United States has already endured hyperinflation twice, once during the Revolutionary War when our fiat "continental currency" lost so much value that the phrase "not worth a continental" entered the American lexicon, and then again during the Civil War. Fortunately for those who benefit from inflationary policy, most U.S. public schools apparently don't find the topic worthy of discussion--yet another reason to get government entirely out of the schooling business.
The "massive and rapid increase in the amount of money" that we have witnessed in the last six months is sure to continue, if only because the predicted federal budget deficit is expanding at near lightspeed, with some estimates – for just the deficit, not the budget as a whole – topping $1.5 trillion per year. And what about all those trillions already created recently? Don't ask; it's apparently easier to pretend they don't exist. For that matter, don't even ask who got the money – Bloomberg News tried and failed to get the Fed "to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral." After asking politely, Bloomberg filed suit to force the issue, invoking the Freedom of Information Act, but to no avail. The result, so far, is that you, the American taxpayer, have the right (oops! – the "obligation") to pay that $2 trillion (plus billions in interest), but not the right to know where your money went.
That would seem to clear up who is actually In Charge in these United States, and it sure isn't "we the people"--who overwhelming and vocally opposed an early $700 billion portion of this bailout orgy. Congress initially responded to all that citizen opposition by rejecting the proposal but then quickly made an about-face, tacking on an extra $150 billion in pork in the bargain. Apparently, the people who are really In Charge 'splained the situation to the lackeys in Congress (in which term I am including the Senate), who did as they were told – by those who actually matter. In any case, oversight of any kind has been conspicuously lacking during this massive redirection of wealth from taxpayers to private "bankstas" and other favored groups.
We do know who the $700 billion TARP money went to, but this particular $700 billion was given with no strings attached, and the banks that received these billions are not interested in providing any sort of accounting of how they are spending the taxpayers' money. (For a look at where about $200 billion has gone so far--not how the favored institutions have spent the money, but which institutions got the money--see the list and link at the end of this column. I highly recommend spending a moment with this list; seeing such enormous numbers written out in full for dozens of banks and other financial firms has real impact).
Nor are the banks using this ocean of new cash to ramp up loans to individuals or businesses – instead a severe credit crunch is in the news. Bonuses of breath-taking size – many larger than what most families earn in a lifetime – have continued at many of the firms being bailed out, which is to say that the same people who helped create this mess are being hugely rewarded at taxpayer expense. In normal times, the people responsible for such a disaster – especially given that outright fraud at several levels seems fundamental to the whole problem – would be hauled into court on criminal charges, not handed millions of dollars in free money from the taxpayers.
When blatant theft, corruption, and contempt for the rule of law become this visible at the highest levels of government and finance, you know that things have gone way beyond "normal" and are deep in the danger zone. The America we knew is disintegrating, and the public treasury is being looted by those in charge as the walls come down. Worse behavior, and not only in the financial realm, is on the way.
- 5 -
At the Edge of a Fractal Break
"What seems to spook people now is the possibility that everybody in charge of everything is a fraud or a crook. Legitimacy has left the system." ~ James Howard Kunstler, Legitimacy Dwindles
Fractals "appear similar at all levels of magnification" (quoting the linked WikiPedia article) – as, for example, does corruption and other psychopathic behavior at various levels of U.S. politics, from your town hall to the upper echelons of the federal government. Levels of theft and corruption, and of blatant, visible disdain for the rule of law, have largely been within traditional limits – what might be termed a "standard pattern" – for most of this nation's history. The rot has been ever-present but sufficiently limited and disguised that Americans could pretend otherwise; our extremely high living standards certainly helped in that regard.
All of that is now coming to an end. A fractal break is occurring.
The theft and corruption aren't going away, but instead increasing exponentially. The pattern is visibly changing, and the common perception of the United States as a prosperous, safe, and free society where the rule of law (and, far more importantly, actual justice) is the expected and mostly-real norm is rapidly dying. America is dying with it, for America is more an idea than a set of land boundaries or government institutions; America was explicitly created as a haven for human liberty.
We never got it right, of course: our early slavery and genocide hardly fit with the ideals of liberty, and especially since 1913, our federal government has grown like a cancer to a size previously unthinkable. So perhaps it is no surprise that the whole enterprise is now collapsing, with government power increasingly drowning individual freedom in a tidal wave of police-state and coercive-socialist tyranny. The America of Henry David Thoreau, of Mark Twain, of Walt Whitman, of Thomas Jefferson and Tom Paine and the millions more who brought this nation into being and kept it alive in their hearts and, to a large extent, on the ground, for so long – that America, the real America, the "asylum for mankind" that Paine wrote about so eloquently – that America is gone, fading already into myth and legend, gone soon even from living memory as the last citizens who remember America's dying embers wink out from this world, one by one.
In their place: a new citizenry, molded by government schooling and control and constant statist propaganda, clamoring now for a strongman to take control – preferably (according to a recent popularity contest) a strongman with winning smiles and a vague message of "change" and "hope." This new strongman wants the Bush war-and-torture team to stay on and has already done much else to suggest that "change" was indeed mostly a slogan, but, thankfully for the power elite, hope springs eternal. Meanwhile, the U.S. Army has already begun "homeland tours" and plans to have "20,000 uniformed troops inside the United States by 2011 trained to help state and local officials respond to a nuclear terrorist attack or other domestic catastrophe, according to Pentagon officials," reports the Washington Post. Along the same lines, Marines have joined the California Highway Patrol on at least one DUI checkpoint (on a positive note, a few citizens actually complained). Between all that and the Halliburton-built gulag of detention camps on American soil (here's the KBR press release on the topic, from 1/24/2006) and the various police-state laws, executive orders, and repressive new federal agencies (TSA and Homeland Security, especially) imposed on us in the last seven or eight years, the United States is looking more like a continent-wide prison camp than a free nation. These are disturbing times, even frightening times, for anyone who favors love and freedom.
America is dead. Nothing to see here, citizen. Move along.
- - - - -
By now, you will not be surprised to learn that the mildest predictions I find even slightly credible for the coming year are those labeled by the mainstream as extreme or frightening: for example, here is Fortune Magazine on 8 Really, Really Scary Predictions. The subtitle is "Dow 4,000. Food shortages. A bubble in Treasury notes. Fortune spoke to eight of the market's sharpest thinkers and what they had to say about the future is frightening."
"Really, really scary?" Nah. I'll see your "Dow 4,000" and raise you . . . . But I'm getting ahead of myself. Part II of this column, including predictions, will follow sometime next week.
Citizens South Banking Corporation GastoniaNC $20,500,000
First PacTrust Bancorp, Inc. Chula VistaCA $19,300,000
HopFed Bancorp HopkinsvilleKY $18,400,000
Bank of Commerce Holdings ReddingCA $17,000,000
1st FS Corporation HendersonvilleNC $16,369,000
Valley Financial Corporation RoanokeVA $16,019,000
LSB Corporation North AndoverMA $15,000,000
OakValley Bancorp Oakdale CA $13,500,000
First Community Corporation LexingtonSC $11,350,000
First Litchfield Financial Corporation Litchfield CT $10,000,000
Central Bancorp, Inc. SomervilleMA $10,000,000
Coastal Banking Company, Inc. Fernandina BeachFL $9,950,000
Southern Missouri Bancorp, Inc. Poplar Bluff MO $9,550,000
Broadway Financial Corporation Los AngelesCA $9,000,000
Central Federal Corporation Fairlawn OH $7,225,000
Old Line Bancshares, Inc. BowieMD $7,000,000
Fidelity Bancorp, Inc. PittsburghPA $7,000,000
Pacific International Bancorp Seattle WA $6,500,000
FPB Bancorp, Inc. Port St.LucieFL $5,800,000
Northeast Bancorp Lewiston ME $4,227,000
Manhattan Bancorp El Segundo CA $1,700,000
In addition to all that, the MSNBC article states that "Another $40 billion went to bail out insurance giant AIG. The rest is committed to banks, including an additional $20 billion pledged to Citicorp."