Tag Archives: debt

The real pirates of the global pyramid scheme

          Psalm 118:22 – “The stone which the builders refused is become the head stone of the corner.”

     Have you heard about the pirates off the coast of Somalia who are hijacking cargo ships for ransom?  Well we have our own pirates here. Unfortunately for us they are not just armed farmers and unemployed fishermen, but our own private aristocracy.  Right now the citizenry of the world are being held hostage by these pirates who are demanding our governments debase our currencies and productive potential to prop up their poorly designed business models.

            It’s interesting to observe all the “experts”: from the CEOs to the economists all expressing their genuine confusion and frustration at this continuing global financial crisis.  Like Menard Madoff did with 50 billion, collectively there are 3 to 4 trillion in losses still to be realized in the economic decline.  Like any pyramid scheme, the global economy over the last few decades has produced growth from the top down while systematically eroding the economic base.  But any pyramid scheme, like any cancer, must continue to grow or it must cease to exist.  That is because pyramids are not built from the top down, if they were we’d see sky scrapers being build from the top floor down to the foundation. 

            The growth and wealth that have been created over the past decades came as a direct result of the exponential expansion of the outstanding amount of credit and debt in the economy.  As with any pyramid scheme, once continued expansion ceases to bring new capital into the system the system effectively seizes up and collapses under its own gravity.  We can take consolation that in the failure of any pyramid scheme those at the top stand to fall the farthest.  Those at the bottom who bear the weight of the structure have been tapped out, and have been for years… 

            We are at a crossroads; we can either agree to the demands of those who threaten to take all of us down with them, or we need to fight aggressively the global consortium of private banking lead by the controlling interests of the world’s central banks.  Government is the only means that the vast majority of people have to leverage some control over the racket that is the private control of the wealth of nations.  In Somalia, the lack of government allows such pirating to flourish as the only means of economic activity.  In the United States and around the developed world, poor governance has allowed massive inequity and injustice to prosper.  In somewhat biblical language, we are in a period of reaping what has been sown.

            Let’s hope that a renewed citizenry can take up and shoulder the burdens of the obligations of world stewardship.  The rapidly changing demands of human existence on earth shall provide unending challenges to which we can apply our capital resources.  The role of responsible government is to use the material and human capital of its people to work to solve these needs.  As we prepare to plant the seeds of future growth, millions of individual jobs await those prepared to re-build the engines of the economy, however the political will to let bad business fail and support future growth is essential.  Can we as a people adapt as a society without being forced by war, or famine, or disease, or crisis?

            On the back of the dollar bill in your wallet there is a symbol of a pyramid with 13 stacks of gold bars with a giant eye within a circle of light.  In 1971 when the United States effectively began issuing fiat or floating currency the value of that dollar was allowed to shrink little by little as we issued more and more credit and created more and more debt.  In the almost 40 years since then, we have in effect financed our economic growth.  The choice is now ours to either continue to pass on to our children the legacy of social decadence financed through massive debt, or to begin the work of fixing what is broken from the ground up.

eye of the pyramid

eye of the pyramid

The Bail Out: Just say NO!

  Bloomberg reports today that the European Union is contemplating regulating hedge funds: 

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPD_prVa1owQ&refer=home

     Nothing the U.S. Treasury or FED does will mean anything until hedge funds are regulated. The reason we are in this mess to begin with was a long period of artificially cheap credit and lax regulation of entities like hedge funds which use borrowed money and shares to leverage and speculate on anything from stocks to bonds to oil to grain… These are private pools of capital which in their heyday returned double and even triple digit percent gains with little to no regulation or tax.
     We may blame the mortgage crisis for the failure of banks and investment houses, and indeed the mortgage market was a bubble… But the real question is what supported the mortgage bubble? It’s the same thing that supported the tech bubble before it and has supported the commodities bubble since the mortgage bubble burst… Artificially cheap credit and leverage.

     Truly a casino economy in which the investment banks lend money to hedge funds which bet wildly (sometimes leveraging up to 30 times their original capital investment). This drives up the prices of investments in a bull market and drives down investments in a bear market.

     Each time the excesses of easy credit wreak havoc on a segment of investments such as technology stocks, or mortgages, or commodities… The hedge fund capital moves onto the next sector.

     The problem is now that the easy capital has dried up, the investment banks stop dealing the easy credit drug and the hedge funds act like desperate addicts and do anything to get more.  Now the US is being robed to feed the addiction.

     The banks now have the administration demanding free passage of a no strings attached bail out. What this amounts to is the banks asking the government… aka… the taxpayers, for a loan or a mortgage. When you go get a mortgage how much of a down payment do they require? How much interest do they charge? We as taxpayers should demand at least as much from the banks as they would from us as borrowers.

     The same tactics which got us into Iraq are being used again here… Hurry! Don’t think, just re-act. Give us a blank check. Just as Iraq was not responsible for 9-11 and just as the invasion of Iraq was preconceived before 9-11 as a way to reward the military industrial complex. So now this bail out is not going to go to the people who need it, but to reward the banking industry and the hedge funds. It’s a devilish model we’ve seen before… Remove all impediments to greed and let the profit gorging go on to the point of crisis, then create fear and panic in the population and rush them into giving up their money and their freedom as citizens to save those who created the problem and who have already reaped all the rewards.

     It’s corporate capitalism in the good times and corporate socialism in the bad times. Have you ever wondered how capitalism and democracy have been able to co-exist in America? The answer is they haven’t. It’s not real capitalism because the government protects the corporations. It’s not real democracy because the citizens have given up their freedom and become consumers… Locked in a debtor’s prison on the outside world.

     If the government takes on all the risky “toxic” assets of the banks do you think they will in turn wipe out your credit card debt, or your car loans, or your mortgage? Of course not. But they are trying to make you afraid that if you don’t give them your money they will stop giving new loans. My question to the American people is do we really need more loans, more debt, more credit? Show them that it’s really them that are afraid and not US.

     Stand up and say no to this. In the coming months and years economic times are going to be tough enough. We don’t need more debt from the credit-drug pushers. We need the money the government is going to use to bail the banks out to fund our schools, our social security, our new industries, our health care.

     It’s a critical juncture in American history right now and each of us can do what we can to stand up and say no more! Do you want 30 more years of the corruption, the scandals, the wars, the fear…? All in exchange for a credit card to go shopping with. Or do you want a real country where the real engines of American growth… The American workers are able to work and have time to be with their families, can afford to put good healthy food on the table, can afford health care for their children and themselves when they’re sick, can afford to clean up the environment, can afford to give their children an education?

     Do we not realize that if we agree to this bail out we agree to let the next generation of Americans be the first to do worse than their parents? And for what? For fear that we won’t get that extra credit card, or the extra vacation, or that new car.

     If we choose to let the financial version of the invasion of Iraq happen because we are afraid of the financial version of 9-11 we have really learned nothing over these last 8 years. It’s time today to do something.  Speak to people you know, write emails to your senators and congressmen, stand outside with a sign… Anything. But it must be done NOW before this bail out passes through the legislature.

     Don’t let Bush and Cheney get away with another trillion dollars of our money before they leave office. It’s our tax money and we need it more than the banks do.

     http://www.congress.org/congressorg/home/

 

 

 

So here it is…

So call me a conspiracy theorist but here it is:   Why the fuck is the price of oil so damn high?!?  Like some sort of fever it just keeps going higher.  When will it stop and how much more can people take?  Fortunately there is a cure.  Unfortunately, its a long and painful withdrawal process.  From a national addiction to debt fueled by oil can we still change our government as a people? Or are we to remain junkies to the world, a democracy in name only where our own government is our dealer. 

From 1972 until 1978 prices of oil had shot up by almost 50% however that was dwarfed by the next accelerated spike in 1978.  For the next 8 years the price of oil on a nominal basis, which is measured against a constant currency value, drops in measured steps.  However on an inflation adjusted basis the drop is significant and steep.  The reason the two measures diverge during this period is inflation. 

   Let’s face it, the last time oil prices shot up lasted from ’72 to ’86 peaking around ’78.  The below chart is as of April 2008.  The price of oil at that time was $117 a barrel.  Today, June 20th 2008 the price of a barrel of oil is $135.  So what’s next? Does the price of oil come down as fast as it went up? Not so fast, because From 1978 to 1982 the rate of inflation averaged 11% and was as high as almost 15%.  As much as the price of oil will come down following the spike, so much more will everything else begin to cost.

   So here it is… when the price rises in oil come to a stop, don’t celebrate.  Look carefully because by then whatever is saved is lost on price increases elsewhere.  The great unspoken tax, levied through federal interest rate policy and US Treasury money supply controlled increasingly by executive powers which are bailing out the major banks at the expense of the American people.  Watch the money trail and notice who benefits and who suffers as the economy “recovers”. 

   A radical shift is needed which will stop the Fed policies of artificially low interest rates and stem the tide of money which the Treasury has let loose.  Until the government is stopped from bailing out the financial interests behind their politics, the American people will be robbed with a silent tax. 

   Will the cure be worse than the disease? As painful and financially damaging as price increases in the US will be, it is nothing compared with the effects in countries around the world.  The question remains if the US is still strong enough as a nation to take the necessary steps to start curing its national addiction.  Interest rates higher than most people under 30 years old can imagine and years of tough economic times are the cure.  Will the US be able to get clean? Probably.  Will the US be able to stay clean? Probably not, but it’s time to start trying.

inflation adjusted oil prices chart

Crack Economics (originaly posted Sept. 3rd ’07)

Generally, political and social events are preceded by economic ones.  While this may grate against people’s sensibilities that they act as free individuals, there are large systematic forces individuals exist within.  When society is governed rationally and in the service of its citizen, these forces lift individuals up and provide them with the basis to make choices that benefit both society and themselves.  When society is governed poorly these forces serve the ends of those with the power to chose, at the expense of the vast majority who have only the means to serve.

            We may think that grand economic and social movements are forces beyond our control, like laws of nature.  It is this illusion that is perpetuated by those in power as a way to keep the majority convinced of their own impotence.  The fact is that history is not like gravity and current world events are not like the weather.  Society and economics are nothing more than the sum of human activity, and therefore under the control of humanity. 

            As powerful as we believe we are as a people to create and sustain wealth, we are yet nothing in the face of the forces of nature.  As powerful as we believe the leaders of our nation and the world’s economies are, they are nothing in the face of the truth of the economic realities of the individuals upon whose backs the powerful rest.  It is in this context that we should understand the effect economic events will have on society over the coming years. 

The relationship between the U.S. dollar and the price of oil illustrate a larger picture of the nature of our economy and the relationship between the state and its citizens.  Since oil is priced in dollars, a rise in oil prices would be tied to a fall in the U.S. dollar relative to other major currencies.  A weaker dollar means more serviceable national and consumer debt, but it also means higher inflation, more expensive goods from overseas including oil, less buying power for the average American.  As long as the price increases are not too dramatic, nobody seems to notice.  What we had owned is now worth less, but so is what we had owed.

Prices increase to compensate for the loss of value in the dollar. Inflation rises and the cycle continues, effectively transferring the wealth from the citizens to the government.  As the government creates more money, the value of the dollar falls as does the wealth of the individuals; and the government’s debt effectively shrinks in relation to the currencies that hold our debt.  The government in effect is in the business of producing Americans, shares of which are sold to private and foreign investors. 

The owners of this country have a vested interest in devaluing the U.S. dollar just enough to continue to expand the generation of wealth, but not enough to jeopardize their investment.  Individual Americans experience the real value of their money decrease through inflation while the government as a result must take on more and more responsibility.  The government then treats any threat to this economic order as a threat to the national security of its citizens.  It is a deal with the devil in which we implicitly agree to cede our power as citizens over to the government in return for the life we have created for ourselves.    

In 2000, Iraq converted all its oil transactions under the Oil for Food program to euros. The U.S. invasion of Iraq has more to do with the fear of losing control of the universal denomination of oil the US dollar enjoys, than it does with 9-11 and the war on terror.  When the U.S. invaded Iraq in 2003, it returned oil sales from the euro to the USD.  Similarly, Iran planned to begin selling oil denominated in euros in March of 2006.  Wars continue to be fought to protect the transfer of capital from the U.S. middle class to the owners of the U.S. Government’s debt. 

We have been convinced that we have had a healthy and strong economy.  In actuality, what we now have is an economy in which credit functions like a cancer; and where we cannot stop growing our debt because it is the thing that sustains us.  The gradual devaluation of the US dollar since the 1970s has been the means by which we have achieved growth; the true cost of which has yet to be fully realized.

Each economic revolution whether agricultural, industrial, or digital is a form of the reorganization of society in fundamental ways.  While there are powerful economic currents which individuals must navigate, the source of all wealth is still the activity of individual human beings.  While the culture of debt is powerful, the individual always has a basic ability to choose.  Economic events generally precede social and political ones.  We have felt but a momentary fix of the withdrawal that awaits.  It is our national addiction, getting high off a pawned future. In crack economics, you either get clean or die a slow death.

  revolution.jpg