There has been so much conversation over the past few years about the economy, and what is wrong with it, but the questions under public consideration have been all wrong, in my opinion.To ask the right questions is to open our eyes. When we do, we can see clearly that the emperor and all his henchmen are truly naked.
Our economy nearly collapsed after 9/11 – the structural defects we are now suffering were already built-in at that point, but no one in the media gave a fair account of what was going on, then or since.
Instead, all the conversation was focused on how America had to pull together in a time of crisis. President Bush advised everyone to “get their lives back to normal, go out and take a vacation”, etc. In short, spend, spend, spend, like there is nothing at all to worry about. The question we must ask ourselves is, “Why was this meme so essential to the powers that be?” Why was it so important that we go out and spend like 9/11 never happened? The simple answer: because the powers that be had not yet finished cooking up the next stage of their wealth-transfer scheme yet, and they didn’t want their plans derailed by an untimely collapse.
A profound comment was made at the end of the below-referenced interview – In response to the question, “What is your investment model?”, David Stockman replied, “My investing model is ABCD: Anything Bernanke Cannot Destroy: flashlight batteries, canned beans, bottled water, gold, a cabin in the mountains.” Considering this profound statement, please allow me the liberty to explain, as I am able to understand it, the root of this well-recommended attitude towards the public economy. This is the short, short version. I have approached this narrative thematically, avoiding all the intricacies of specific bits of legislation, and particular figures for inflation, unemployment, and trade surplus/deficits. It is therefore an explanation but not a rigorous proof, but it serves the purpose I intend, which is to assist people in grasping the very big picture of what is actually wrong with our economy.
I believe the answer is incredibly simple, and obscenely obvious, if you look back far enough. It is the open secret of the Wall Street and FED insiders, the “market-makers”: Between the 1960s and the early 1980s, a number of profound changes occurred in the business finance paradigm. For the first 200 years of our nation, the value of a business was based purely on its actual value – in other words, what was the value of its annual production, after costs, plus the value of its real property. For “the market” to grow, businesses had to increase in actual value. (The Tortoise, from a fairytale perspective) This was not rewarding enough for the growing power base of the military-industrial complex’s owner-elite. Thus, the purpose was conceived in the 1950s to change the prevailing metric of business value, and Actual Value was subverted to the concept of Market Value in the 1960-1975 period through a slow modification of both public laws and private standards of accounting (welcome, the Hare of economic fairy tales)
This transformation was fueled by concerns, both public and private, regarding increased taxation; debasing of the USD$ by departure from gold-backed status; economic stagnation, and union-instigated wage wars against the manufacturing interests. How much of this maelström of business transformation was purposefully engineered by communist/globalist influences is difficult to discern, but the fact that it occurred in an era of radical communist sentiment across the globe certainly is cause to suspect that there was much collusion in this transformational era. Certainly, a battle for the covert control of America was raging.
After the Oil/Currency wars of 1973~75, and the collapse of political confidence as a result of the Watergate scandal and subsequent resignation of President Nixon, the first modern US economic collapse occurred under President Carter as a result of his progressive monetary policy, which I believe was willfully complicit with the desires of the market makers. Both domestic and global confidence in the United States was shaken in the wake of our unpopular political and financial moves in the 1965-75 period, including a number of our allies, who were already developing alternatives to American products.
This shift away from American products in Europe, coupled with the rise of manufacturing powers in the far east, combined with increasing friction between labor and management in key US industries to create a major dislocation of capital, at the same time the America economy was rapidly losing its momentum to inflationary pressures, beginning in the fall of 1973, created a hat-trick of geopolitical and economic circumstances which turned out to be even more of an event that the bankers and globalists had actually desired. By 1975, the US was experiencing a profound case of “stagflation”, or surging prices at the same time that unemployment is rising, and disposable income is rapidly declining. With the inauguration of President Carter, liberal democrats held both houses and the executive office. 1976 was, in fact, the last election in which the democratic party would possess a veto-proof majority in the House of Representatives.
As a result, the “market makers” decided it was time to push for more aggressive “management” of the various stock markets of the free world to ”protect them from further losses”, and to provide a ready means for obtaining capital for further operations which would replace traditional financing by commercial banks and private capitalists, whose effective due diligence was proving an obstacle to continued funding of weak corporate entities. To this end, President Carter provided loans, grants, and government contracts to protect the interests of the bankers, as well as complicity in changing the laws and regulations which had prevented them from restructuring our economy up to that point in time.
By the time President Reagan took office, most US manufacturers were already mortgaging their actual value to obtain increased market value, so that they could finance their day-to-day operations in the face of increasing labor demands and sinking profitability [the economy was growing increasingly stagnant, yet they were hamstrung by union contracts which demanded mandatory wage and benefit increases year-over-year]. In order to stay in business, they needed much greater capital investment to maintain the appearance of success, and to continue paying large dividends to their preferred-stock holders, a.k.a. the “market makers”.
Through the late 60s and early 70s, that investment had come from investment banks…but by the time of the Carter recession, the investment bankers saw the writing on the wall – profitability was declining and risk was growing exponentially; and so they sought a new pool of money from which to draw, new buyers to sell their risk exposure to, who would not recognize that they were destined to lose their investment. Yes I am saying that, in the 1975-1985 period, the FED and market makers had already undertaken to implement a massive wealth-transfer mechanism – to make a ponzi-scheme out of the stock market.
And so the story was born that, “With soaring inflation and interest rates, the only way for the average American to beat inflation was to invest in the market.” At the same time, we see the genesis of “hedge funds” for the market makers and others ”in the know” such as selected government officials and military budget makers - the hedge fund was nothing but the institutionalization of the contrarian bet, to protect the elites against an unplanned failure of their profit producing ponzi scheme. The hedge fund also served as the shackles to keep the privileged few in lock-step for their mutual preservation, even at the cost of the greater economy, and the US public.
Not so amazingly, by 1980 retail brokerage agents and retail investment vehicles such as “Mutual Funds” were popping up all over. People who had previously never considered entering the stock market (originally referred to as ‘cattle’, as in “drive those cattle to market”) were now investing in droves. An entire business model rapidly evolved, and the IRA was born as tax regulations were amended to complete the new market-based financial model.
This short sightedness was contrived and promoted by those market makers, to contain and solidify their long term plans. Thus, businesses transitioned from delivering an Annual Report, to a sharp focus on Quarterly Earnings reporting…the comprehensive Annual Report became a footnote to the fast-paced market’s interest in “what have you gained for me today?”.
What few investors outside the “inner circle” of market makers realized was that the majority of market “gains” during this period were really driven by the successive waves of new investors entering the market, blindly increasing the general demand for stocks, and thus aggressively inflating their prices. This in turn fueled inflationary pressures in the economy at large, although the Reagan era monetary and fiscal policies kept inflation in check to a reasonable degree until they were abandoned by President Bush Sr. However, the appreciation of actual values for many businesses was non-existent, or in fact negative during the 1979-1991 period. The most notable US losses overall were in the manufacturing and transportation sectors.
As the “new market” ran out of fresh and ignorant subscribers in the late 80s, the market, and the greater economy, again faltered, and finally crashed on “Black Monday” October 19th, 1987. The DJIA lost 508 points, or 22.6% of its value, in just one day. Other markets fared at least as poorly, some much worse - this worldwide financial meltdown was caused by a combination of over-valuation of stocks, illiquidity of numerous large brokerage houses, and a substantial interplay of derivatives-driven selling. The illiquidity was probably the worst instigating factor, but it was the derivatives which determined the depth to which the markets would fall before the final bell sounded.
After this massive one-day loss, confidence was at an all-time low, consumer spending was substantially curtailed, and inflation began to exert greater pressure on both businesses and investors, with inflation mushrooming once Bush’s more liberal economic policies unleashed the massive potential of inflationary forces which had been building up for the past 7 years as the market soared. It was a result of these combined pressures that, by 1989, the exodus of US manufacturing interests had begun in earnest.
The owners of America industry must have understood that if they ever again allowed a free market to prevail, then all of the destruction-in-waiting which they had previously avoided dealing with, would be released. Moving off-shore to escape union-controlled wages, expanding tax liabilities, and losses to inflationary forces was their only real choice – they had painted themselves into a corner where the only alternative was bankruptcy, and the loss of all their personal profits in the preceding 25 years.
The first war with Iraq was the US Government’s attempt to conceal the failure of our new “market-driven economy”, and at the same time to stimulate it with military appropriations and spending. Many believe that it worked. More truthfully, what actually brought us out of the recession of 1990~1993 was the unprecedented surge in computer and internet company stocks as the leading edge of the “internet bubble” began to drive the market - this new computer/internet trend moved the real consumer market, as well as the stock market. The Internet Bubble was the first real growth our economy had seen in 25 years, and it was largely unanticipated by the powers-that-be. The Internet bubble was a consequence of the military R&D investments to private defense contractors during and even before the Regan era, but it had taken a longer period of time to mature and achieve market influence.
This “voodoo economics” policy of stimulating private growth with public money was hoped/planned to work in the same fashion as the 1960s NASA Moon push… and it was intended to prevent the expected stagnation of the late ’80s, but much of the benefits were delayed by 5~10 years, as the business community, and society overall, were not immediately prepared to adopt the new technologies. Thus, the internet bubble was a bit of a surprise to many companies, including companies who should have been leading it [such as IBM and Microsoft], when it finally arrived.
The fact that companies such as IBM, Microsoft, and other industry giants missed the leading edge of the internet bubble should be proof enough for anyone that the “big money” had its head elsewhere. I propose that they missed it because they were busy engineering and rolling out “the new global market” in order to gain access and control of the international pools of capital which they wanted to further fuel their ponzi scheme. Absent this proposed cause, explain how in less than 5 years, the US went from holding trade restrictions against Communist China as a documented totalitarian regime with a clear history of human rights violations, to reinstating their Normal Trade Relations/Most-Favored-Nation (NTR/MFN) status, with the nearly free import/export schedules which that status provided them? Remember Tiananmen Square in 1989? Well Bill Clinton signed a permanent assignment of NTR/MFN for China in December of 2000, without any proof that those violations had ever been resolved.
This unanticipated delay between investment and gains (delay of the internet bubble), which they initially perceived as a failure, fueled an additional shift in the focus of Wall Street insiders and FED cronies in the early 90s: Their desire for a tightly-integrated “control loop” between investor and market was already established, but in the early ’90s they focused quite aggressively on driving consumer spending via the massive expansion of the commercial credit industry. Look at the phenomena of the 1990s objectively – the rise of cheap consumer credit is perhaps the most notable ensign of that era. Examples include massive distribution of unsolicited credit-card offers, low-interest car loans and longer loan terms, “free” credit for college students, increasingly long “same as cash” offers for furniture and appliances, etc.
Again, the market needed a fresh pool of money to tap into, to prop up the over-burdened and increasingly mismanaged TBTF corporations, and to finance their efforts to move their manufacturing off-shore. Finding no additional pools of actual capital, the new push was to get people to commit future capital/earnings to the market. Thus the consumer credit gold-rush had begun. (for reference, a car loan in 1965 would have been for a term of 12-36 months, and charged an 8 to 15% interest rate…by the late 1990s, you could get a 72-month GM “smart buy” loan with a 1.9%APR)
The consumer credit bubble ran cleanly and quietly into the internet bubble, and the US seemed to be happy and profitable for a number of years, but the market makers knew that they would eventually need another source of capital, and so they were working and planning…making preparations for their next campaign in the long-standing war of wealth transfer.
The events of 9/11 proved to be an unanticipated trigger for the already approaching economic failure – the US had already entered a recession in March of 2001, but were it not for the acts of terror, the market makers might have kept the economy looking good until their next play was ready to unveil. And so the housing bubble was born… the market makers had already created new financial products and re-tooled the tax code to drive people towards use of home-equity loans, secured LOCs, and mortgage re-fi’s, as a means for families drowning from a decade steeped in consumer debt to ”recapitalize” themselves…the housing and mortgage bubble was actually an undercover bail-out of the consumer credit industry whose bubble had started 10 years earlier!
But in the wake of 9/11, they decided that they needed even more capital, and so they set out to aggressively suck all the equity out of the residential properties of US homeowners…again to conceal the now endemic economic stagnation, to kick the can down the road another decade and further protect their long-term wealth transfer scheme.
The housing bubble peaked in the summer of 2007, and then went into a rapid and broad decline, which resulted in the crash of the market and the failures of AIG and Lehman Brothers a year later in September 2008. Apparently, the market makers hadn’t yet come up with their next play to keep the captive stock markets of the world working when the housing bubble burst. Perhaps there really isn’t enough wealth left in the hands of private investors to matter, anyway.
Eventually, there would be no more “pools of money” to flush down the toilet of a fundamentally insolvent and increasingly fraudulent equities market – this was plain from the beginning. If they didn’t know this at the start, they figured it out well before our first engagement in Iraq in 1989. Globalizing the financial markets was just another means of dipping into more pools of other people’s money, as the 1980′s Stock Bubble, the 1990′s Consumer Credit and Internet Bubbles, and the 2001-2008 Housing Bubble were. For at least 20 years, the market makers have known what would come, and choose to kick the can down the road. That is all I need say to convict them.
Now, let’s look at what will happen now that there are no bubbles left for the market makers to blow -
If you haven’t ever done so, take a look at the massive deviations between actual value (assets + sales – liabilities) vs. Market Capitalization for many popular stocks – leverage factors of 20 or even 30+ to 1 is not uncommon – any company that isn’t leveraged 10:1 is “not making it” and will never be allowed to go public. In short, the entire market has, for the last 50 years, been captive to a vampire class of GOV/FED/Market insiders whose singular purpose has been to drive all of us “cattle” down the chute to financial Armageddon. Their only excuse? That it was done to prevent or at least delay a massive correction in the markets at some point in the past, and grew into an institutional fixture of the markets. This is total BS.
Those in the know, knew at the beginning, and have been walking us all down the line to this day since before we came off the Gold Standard. Now, there is no “good money” left for them to suck into the game. It has been a massive run of musical chairs, and the music stopped with the 2008 Meltdown. All this “valuation of expectation” (it must be worth a lot because everyone expects it to keep going up), the ratio of financial leverage, and the massive excesses of Market Cap to Actual Value, will be shaken out of the market now that there are no more potential suckers for the global ponzi-scheme know as the stock markets to draw into the game.
In short, the average stock is overvalued by at least 10:1 – this means that if you “ride this to the end”, you should expect no more than 10 cents return for every dollar you have invested in the market. In truth, an event which approaches a 50% market decline will actually become a 100% decline, because at some point all trading will freeze, and those holding equities will never be able to sell them, period. The market will freeze (voluntary cessation of trading, i.e. no buyers), which will then result in a market closure. Once closed on the heels of such a loss event, the markets may never re-open. We have been warned.
From the article which got me off on this rant come the following comments, relating to the crash in 2007~8:
“The run was on investment banks that were really hedge funds in financial drag. The Goldmans and Morgan Stanleys did not really need trillion-dollar balance sheets to do mergers and acquisitions. Mergers and acquisitions do not require capital; they require a good Rolodex. They also did not need all that capital for the other part of investment banking—the underwriting business. Regulated stocks and bonds get underwritten through rigged cartels—they almost never under-price and really don’t need much capital. Their trillion dollar balance sheets, therefore, were just massive trading operations—whether they called it customer accommodation or proprietary is a distinction without a difference—which were funded on 30 to 1 leverage. Much of the debt was unstable hot money from the wholesale and repo market and that was the rub—the source of the panic.
Bernanke thought this was a retail run à la the 1930s. It was not; it was a wholesale money run in the canyons of Wall Street and it should have been allowed to burn out. The banking system, especially the mainstream banking system, was not in peril at all. The toxic securitized mortgage assets were not in the Main Street banks and savings and loans; these institutions owned mostly prime quality whole loans and could have bled down the modest bad debt they did have over time from enhanced loan loss reserves. So the run on money was not at the retail teller window; it was in the canyons of Wall Street. The run was on wholesale money—that is, on repo and on unsecured commercial paper that had been issued in the hundreds of billions by financial institutions loaded down with securitized toxic garbage, including a lot of in-process inventory, on the asset side of their balance sheets.” End Quote
In short, the objective was to reduce a conservative population (self-sufficient savers) into a population of broke, government dependent consumers. It appears to have worked. It worked so well that there are now no stable, market driven economies left in the world.
Unsurprisingly, there is no “good money” left in the world. Every iota of real (wage-created) income that will be earned worldwide for the next 50 years or more is already overshadowed by public and/or private debt, and the figures keep getting worse. There is no such thing as “savings” in today’s world, and the chance that our generation will ever see the potential for real, interest earning savings ever again is right up there with winning the Lotto.
Only those with inside information and access to the “real market” have any hope of actually benefitting from the worlds economies or markets at this point, and even their chances of getting ahead are diminishing. Retail investors (that is, real people like you and I) now represent less than 2% of the stock market’s activity on a given day. Volumes are typically quite low, and most trades are executed by High Frequency Trading (HFT) algorithms. It is the battle of the robots, the “rise of SkyNet” some are calling it. At some level, we all sense this financial dance of death, and thus experience the growing popularity in the belief that a global collapse is coming…
The real questions are, “when will it happen, and how bad will it be?“ I believe we will see the collapse of this global ponzi scheme very soon, most likely this year, in fact. I have already presented my view on how traumatizing this event will be in America, and offer it again for your review now – http://ncrenegade.com/uncategorized/what-is-coming-and-what-we-must-do/. While this essay focuses on what the events and outcome will be like in the US, please bear in mind that much of the world has been sucked into this ponzi scheme, and that the devastation will actually be much worse in Asia and Africa, where much of the population will die in the first year.
And so I close where I began: David Stockman advised, “My investing model is ABCD: Anything Bernanke Cannot Destroy: flashlight batteries, canned beans, bottled water, gold, a cabin in the mountains.” Personally I would add to that list a rifle and a pistol, plenty of ammo, a good cache of fuels and medical supplies, and the company of like-minded individuals.
Warmest regards, in good times and in bad,
~ Those who discard Liberty, do so at their own peril!