"When all think alike, no one is thinking very much." ~ Walter Lippmann
The Year Ahead: 2009
Exclusive to STR
"We are facing an unprecedented emergency," [
"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
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
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
"Bear Stearns, Fannie Mae, Freddie Mac, Lehman Bros.,
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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 are the 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,
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
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
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
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
- 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
"As an example of deflation leading to hyperinflation, consider the case of the
"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
How Deflation Creates Hyperinflation by Eric deCarbonnel
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,
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
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
That would seem to clear up who is actually In Charge in these
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
- 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
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
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
- - - - -
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.
Tracking Treasury's spending of bailout funds
JPMorgan Chase & Co.
Bank of America Corporation
The Goldman Sachs Group, Inc.
Merrill Lynch & Co., Inc.
Capital One Financial Corporation
SunTrust Banks, Inc.
Regions Financial Corp. Birmingham AL $3,500,000,000
Bank of New York Mellon Corporation
KeyCorp Cleveland OH $2,500,000,000
State Street Corporation
Marshall & Ilsley Corporation
Northern Trust Corporation
Popular, Inc. San Juan PR $935,000,000
First Horizon National Corporation
City National Corporation
TCF Financial Corporation
South Financial Group, Inc.
Wilmington Trust Corporation
Sterling Financial Corporation
Valley National Bancorp Wayne NJ $300,000,000
Susquehanna Bancshares, Inc Lititz PA $300,000,000
Citizens Republic Bancorp, Inc.
SVB Financial Group
Trustmark Corporation Jackson MS $215,000,000
Umpqua Holdings Corp.
Washington Federal Inc.
MB Financial Inc.
First Midwest Bancorp, Inc.
Pacific Capital Bancorp
United Community Banks, Inc.
Boston Private Financial Holdings, Inc.
Provident Bancshares Corp.
National Penn Bancshares, Inc. Boyertown PA $150,000,000
Sterling Bancshares, Inc.
Taylor Capital Group
Old National Bancorp Evansville IN $100,000,000
Pinnacle Financial Partners, Inc.
Midwest Banc Holdings, Inc.
Sandy Spring Bancorp, Inc. Olney MD $83,094,000
Columbia Banking System, Inc.
TowneBank Portsmouth VA $76,458,000
Wesbanco Bank Inc.
Bank of the Ozarks, Inc. Little Rock AR $75,000,000
Independent Bank Corporation
Virginia Commerce Bancorp
Southwest Bancorp, Inc.
Superior Bancorp Inc.
Nara Bancorp, Inc.
First Financial Holdings Inc.
Wilshire Bancorp, Inc.
Great Southern Bancorp Springfield MO $58,000,000
Center Financial Corporation
Ameris Bancorp Moultrie GA $52,000,000
The Bancorp, Inc.
Southern Community Financial Corp. Winston-Salem NC $42,750,000
First Community Bankshares Inc.
Capital Bank Corporation
Heritage Commerce Corp.
Cascade Financial Corporation
Eagle Bancorp, Inc.
TIB Financial Corp
State Bancorp, Inc.
Porter Bancorp Inc.
Encore Bancshares Inc.
Bank of Marin Bancorp
Centerstate Banks of Florida Inc.
LNB Bancorp Inc.
HF Financial Corp.
Heritage Financial Corporation
Severn Bancorp, Inc.
Blue Valley Ban Corp
Unity Bancorp, Inc.
Citizens South Banking Corporation
First PacTrust Bancorp, Inc.
Bank of Commerce Holdings
1st FS Corporation
Valley Financial Corporation
LSB Corporation North
First Community Corporation
First Litchfield Financial
Central Bancorp, Inc.
Coastal Banking Company, Inc.
Southern Missouri Bancorp, Inc. Poplar Bluff MO $9,550,000
Broadway Financial Corporation
Central Federal Corporation Fairlawn OH $7,225,000
Old Line Bancshares, Inc.
Fidelity Bancorp, Inc.
Pacific International Bancorp Seattle WA $6,500,000
Northeast Bancorp Lewiston ME $4,227,000
In addition to all that, the MSNBC article states that "Another $40 billion went to bail out insurance giant