How Did The Crisis Happen?

We attempt to analyze and explain how and why we find ourselves in the greatest financial crisis since the Great Depression

NOT a SMIDGEN of Corruption!

  • The odds of winning the Florida lottery are 1 in 22,957,480.
  • The odds of winning the Powerball are 1 in 175,223,510.
  • The odds of winning Mega Millions are 1 in 258,890,850.
  • The odds of a disk drive failing in any given month are roughly one in 36.
  • The odds of two different drives failing in the same month are roughly one in 36 squared, or 1 in about 1,300.
  • The odds of three drives failing in the same month are 36 cubed or 1 in 46,656.
  • The odds of seven different drives failing in the same month (like what happened at the IRS when they received a letter asking about emails targeting conservative and pro-Israeli groups) is 37 to the 7th power = 1 in 78,664,164,096. (That’s over 78 Billion)

In other words, the odds are greater that you will win the Florida Lottery 342 times than having those seven IRS hard drives crashing in the same month.  Unbelievable odds of it being the truth in my opinion.

You decide if you believe the official storyline is the truth…

The Never Ending Recession — Currency Debasement

“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”Napoleon Bonaparte

inflation-purchasing-power-of-dollar-since-1871-log-scale

“A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men … [W]e have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world—no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men.”- Woodrow Wilson

When you consider the implications of allowing a small group of powerful, wealthy, unaccountable men to control the currency of our nation over the last one hundred years, you understand why our public education system sucks. You understand why the government created Common Core curriculum teaches children that 3 x 4 = 13 — as long as you feel good about your answer.

George Carlin was right. The owners of this country (bankers, billionaires, corporate titans, politicians) want more for themselves and less for everyone else. They want an educational system that creates ignorant, obedient, vacuous, obese dullards who question nothing, consume mass quantities of corporate processed fast food, gaze at iGadgets, are easily susceptible to media propaganda and compliant to government regulations and directives. They don’t want highly educated, critical thinking, civil minded, well informed, questioning citizens understanding how badly they have been screwed over the last century. We’re sorry to say, the elites are winning in a landslide.

The government controlled public education system has flourished beyond all expectations of the elites. We’ve become a nation of techno-narcissistic, math challenged, reality TV distracted, welfare entitled, materialistic, gluttonous, indebted consumers of Chinese produced crap. There are more Americans who know the name of Kanye West and Kim Kardashian’s bastard child (North West) than know the name of our Secretary of State (John Kerry). Americans can generate a text or tweet with blinding speed but couldn’t give you change from a dollar bill if their life depended upon it. They are whizzes at buying crap on Amazon or Ebay with a credit card, but have never balanced their checkbook or figured out the concept of deferred gratification and saving for the future. While the ignorant masses are worked into a frenzy by the media propaganda machine over gay marriage, diversity, abortion, climate change, and never ending wars on poverty, drugs and terror, the elite use their complete capture of the financial, regulatory, political, judicial and economic systems to pillage the remaining national wealth they haven’t already extracted.

The financial illiteracy of the uneducated lower classes and the willful ignorance of the supposedly highly educated classes has never been more evident than when examining the concept of Federal Reserve created currency debasement – also known as inflation. The insidious central banker created monetary inflation is the cause of all the ills in our warped, deformed, rigged financialized economic system. The outright manipulation and falsity of government reported economic data is designed to obscure the truth and keep the populace unaware of the deception being executed by the owners of this country. They have utilized deceit, falsification, propaganda and outright lies to mislead the public about the true picture of the disastrous financial condition in this country. Since most people are already trapped in the mental state of normalcy bias, it is easy for those in control to reinforce that normalcy bias by manipulating economic data to appear normal and using their media mouthpieces to perpetuate the false storyline of recovery and a return to normalcy.

This is how feckless politicians and government apparatchiks are able to add $2.8 billion per day to the national debt; a central bank owned by Too Big To Trust Wall Street banks has been able to create $3.3 trillion out of thin air and pump it into the veins of its owners; and government controlled agencies report a declining unemployment rate, no inflation and a growing economy, without creating an iota of dissent or skepticism from the public. Americans want to be lied to because it allows them to continue living lives of delusion, where spending more than you make, consuming rather than saving, and believing stock market speculation and home price appreciation will make them rich are viable life strategies. Even though 90 percent of the population owns virtually no stocks, they are convinced record stock market highs are somehow beneficial to their lives. They actually believe Bernanke/Yellen when they bloviate about the dangers of deflation. Who would want to pay less for gasoline, food, rent, or tuition?

Unless you are beholden to the oligarchs, that sense of stress, discomfort, feeling that all in not well, and disturbing everyday visual observations is part of the cognitive dissonance engulfing the nation. Anyone who opens their eyes and honestly assesses their own financial condition, along with the obvious deterioration of our suburban sprawl retail paradise infrastructure, is confronted with information that is inconsistent with what they hear from their bought off politician leaders, highly compensated Ivy League trained economists, and millionaire talking heads in the corporate legacy media. Most people resolve this inconsistency by ignoring the facts, rejecting the obvious and refusing to use their common sense. To acknowledge the truth would require confronting your own part in this Ponzi debt charade disguised as an economic system. It is easier to believe a big lie than think critically and face up to decades of irrational behavior and reckless conduct.

Submitted by Jim Quinn via The Burning Platform blog

America’s economic myths exposed

Mainstream economists and so-called experts have filled the minds of most Americans with economic myths that are constantly reinforced by the media and repeated on the streets.

Economic MythsThese myths are erroneous at best, sometimes based on half truths. Many of them are just false. We hear and read them every day:

  • “inflation” is caused by rising oil prices;
  • consumption is the most important element for economic growth;
  • low interest rates are helpful to the economy;
  • government expenditures help “stimulate” the economy;
  • there is an energy “crisis,” and many others.

In this article we will examine some of the most common ones and explain the reality behind these myths.

Inflation and Energy Myths

Inflation — or, rather, the general rise in prices – and the increase in energy prices are issues that have always created numerous economic myths. The following are some of the most common ones.

Myth 1: “Dependence on Foreign Oil”

This myth suggests that the problem with oil prices is due to America’s “dependence” on foreign oil.

The high price of oil has nothing to do with its origin; the price of oil is determined in international markets. Even if the United States were to produce 100 percent of the oil it consumes, the price would be the same if the worldwide supply and demand of oil were to remain the same. Oil is a commodity, so the price of a barrel produced in the United States is basically the same as the price of a barrel of oil produced in any other country, but the costs of labor, land, and regulatory compliance are usually higher in the United States than in third-world countries. Lowering these costs would help increase supply. Increasing supply, whether in the United States or elsewhere, will push prices lower.

Importing a product does not mean you “depend” on it. This is like saying that when we “import” food from our local supermarket we “depend” on that supermarket. The opposite is usually true; exporters depend on us, since we are the customers. Also, importing a product usually means buying at lower prices, whereas producing in the United States often means consuming at higher prices. This point is proven when we see the cheap imports we can purchase from China and the higher prices of many of these same products manufactured in the United States. The amazing thing is that the protectionists claim, on the one hand, that America should be “protected” from cheap imports, but when it comes to oil, they say we should be “protected” from “expensive imported” oil.

Most, if not all, of the higher price of oil can be explained by the expansion of the money supply or the debasement of the dollar. The foreign producers are not at fault; our national central bank is the culprit.

Myth 2: “Inflation is caused by rising oil prices.”

False. If the money supply were to remain constant, then an increase in the price of one good, such as oil, would cause a decrease in the price of other goods. If more money is spent on oil, then less money will be available to spend on other goods. This will in turn cause a drop in the demand for other goods, which will subsequently cause a drop in the prices of these goods. The reality is that inflation is always a monetary matter, caused by the increase in the money supply due to the interest-rate-easing policies of central banks.

Myth 3: “Current inflation is being caused by the increased demand of millions of new consumers in China and India.”

At first glance this myth might seem true. Millions of new Asian consumers have entered the market, thus, there is higher demand for most goods, which would apparently cause higher prices. What is being overlooked is that these new consumers are also new producers. In general, most people produce far more than they consume, because most workers have to produce more than what they earn in wages (if not, they lose their jobs). While it is true that demand has risen due to these new consumers, supply has increased even more, due to their increased production. This can clearly be seen by the frequent drop in prices of most goods being manufactured in China. On the other hand, the only way these new workers can increase their consumption beyond what they produce is through credit. Thus we return to the real culprit behind inflation: credit expansion due to central banks’ intervention in the financial markets.Economic Myths

Consumption Myths

These myths were injected into the mainstream mainly by Keynesian economists who were trying to influence public policy.

Myth 4: “Consumption is the most important element of the economy.”

Consumption is indeed important in a free economy: particularly the freedom of consumers to buy their goods in unhampered markets. However, key to long-term economic growth is investment (savings), which is the opposite of consumption. Public policies that promote consumption — such as low interest rates — do so at the expense of savings. Less savings means less investment; an economy that does not save or invest will consume all of its resources and eventually end up bankrupt.

Myth 5: “Excess consumption is a feature of the free-market capitalist system.”

False. Excess consumption is mostly caused by central bank’s artificially low interest rates, which promote lower savings and higher consumption than would naturally occur. Currently, the real interest rates of savings accounts are negative. Thus it makes no economic sense to save. Since these same policies cause price increases, it makes sense to consume as much as you can immediately, before prices rise. Therefore we see that excess consumption is being caused by government policies and not by the capitalist free-market system.

Myth 6: “Federal Reserve interest-rate policy can help the economy.”

It is baffling how most Americans — including many of those who fought so hard against central planning in the 20th century — believe that the financial markets and the economy benefit from the central manipulation and influence conducted by the Federal Reserve.

To maintain a target of low interest rates, the Fed must add liquidity to the money supply by creating money without obtaining additional reserves. This is the infamous creation of money “out of thin air,” which so many have criticized. Many believe that this artificial injection of liquidity creates economic stimuli and promotes growth. However, even though it creates an apparent bonanza, these monetary injections must eventually be “paid back.” This payback happens by means of higher prices, the so-called inflation.

Low interest rates also create a dislocation between the market’s natural interest rate and the interest rate that the Federal Reserve sets. Supply and demand of money — mainly supply of savings and other deposits and demand for credit — is what should set interest rates in a normal unhampered market. Risk, too, should play a role in setting market interest rates.

When the Fed artificially lowers interest rates, it does so below the market rate. A rate below the market rate creates a higher demand for credit; thus people and companies get into debt beyond normal levels. On the other hand, low savings-account rates push people to withdraw money, lowering the market supply of funds. These dislocations are at the root of the eventual credit crisis, which follows the boom period that was caused by artificially low interest rates.

With today’s risky financial crisis, most people would demand a premium to deposit their money in a bank. Further, the current liquidity crunch should mean a lower market supply of money. Both forces should be pushing interest rates up. If the market were unimpeded (that is, if there were no intervention from the Fed), interest rates would be higher, not lower.

These economic myths have plagued the minds of mainstream Americans. Despite an alleged return of pro-free-market forces to the main political parties in the 1980s and ’90s, new myths seem to surface almost every day.

Thanks to the Ludwig von Mises Institute for this article.

 

Roadblocks to Recovery in America

The number one problem in this country is excessive debt, debt at all levels – consumer, business, financial and government.

The bottom line, and despite all the plausible arguments to the contrary, we have too much public and private debt relative to the nation’s gross domestic product (GDP). Worse yet, an increasing portion of this debt is unproductive or even counter-productive.

In simple terms, the purpose of taking on debt is to generate future income. Part of that future income is productive, part of it is used to service and, presumably, pay down the debt. But the debt incurred today, especially at the government level, is taken on solely for the purpose of “propping up” the status quo. It is unlikely we will be able to generate the future income necessary to service this debt.

RoadblockIt is already affecting us. In the last fifteen years, debt-to-GDP ratio has risen from roughly 250 percent to more than one hundred points higher, 360 percent today, and our standard of living is no higher. I define “standard of living” in this case as median household income. We’ve taken on the debt, it’s bought modest gains in GDP, but it has not improved the welfare of the majority of our people.

This isn’t the first time the United States has been here before. We’ve seen three periods of excessive government debt:

In the 1820s and 1830s

Again in the 1860s

The early part of the 20th century

We survived those situations which probably seemed quite impossible at the time. This is really the fourth episode of extreme indebtedness to face our nation. These periods have occurred at very long, irregular intervals. That’s one of the difficulties, people weren’t alive at the time of the prior ones.

The first period of government indebtedness occurred in the 1820s and the 1830s, when we were building our early transportation infrastructure – canals, turnpikes and steamship lines. Initially, there was good value derived from the debt. But then the infrastructure was overbuilt and the credit available was used to finance living beyond our means.

The panic occurred in 1838. The bubble burst and speculative real estate prices collapsed. The economy experienced a difficult time all the way to the American Civil War. But we eventually saved, paid down the debt, and recovered.

The next major episode was in the 1860s – building the railroads. Initially the debt accumulation served a good purpose. Frist, we built what was known as the central route. Then we built northern and southern routes, and a whole host of feeder lines. A host of abuses followed – real-estate and stock market speculation, lavish consumption and living beyond our means. All of the railroads failed except one, and it was the one that was not financed by the government. Government involvement was significant in developing the rail system. Government created the incentives, but the private sector bet on the incentives. Government-manipulated incentives drove over-investment. Government incentives drove over-consumption and speculation.

The most infamous debt related crash occurred in the 1920s. Again, the incentive for the over-speculation was excessive liquidity created by the Federal Reserve. The Federal Reserve was newly established at that time, it had just come into existence in 1913. Interestingly, there were some Federal Reserve officials that were aware that the problem was out of control, but they were drowned out, because everybody was having too much of a good time. The Great Depression followed. The US economy didn’t recover until we entered World War II.

The forced austerity of World War II pushed the saving rate up to 25 percent. We repaid the debt, and this laid the foundation for the post-World War II boom.

The fourth episode has occurred in the last 20 years. Again, the incentives came from the government sector, mainly the Federal Reserve. The federal government also played its hand through two government-sponsored corporations – Fanny Mae and Freddy Mac. The perceived safety these agencies provided in the mortgage business allowed the bundling and “slicing and dicing” of mortgages. This created the façade that the mortgage was safe and secure regardless of how poor the fundamental characteristics of any individual loan were. Of course, that was a false notion, and so we have now had another very difficult time period and we are certainly not getting a normal recovery. The standard of living is continuing to fall, in spite of gains in GDP. We have a much more dramatic monetary and fiscal response, but therein lies the problem. We are not achieving a rise in the saving rate, the austerity that’s needed.

What is $55 trillion between friends?

The WSJ reports that the Commodity Futures Trading Commission said that technical errors at two so-called swaps data repositories, which collect and supply regulators with transaction data, have led the CFTC to misreport the overall size of the swaps market by undercounting its size.Curiously these “glitches” always work in the favor of preserving market calm and confidences?

So how big was the so called undercounting? The answer: as large as $55 trillion!

Regulators aren’t sure how much the repositories are undercounting. One CFTC official familiar with the matter said the discrepancy could be as high as $55 trillion, though another official said the figure is closer to $10 trillion once regulators cancel out certain transactions to prevent double counting.

One just has to laugh: the total US swaps market is what – roughly $400 trillion? So… just add enough notional to that number equal to the GDP of the entire world - or 4 times the size of US GDP – and call it a day. And in this environment somehow the Fed and other central planners are expected to have any clue what they are doing on a day to day basis?

Naturally this discovery makes a mockery of such transparency enhancing initiatives such as Dodd-Frank.

The lack of clarity over the size of the market may undermine a key plank of the 2010 Dodd-Frank law aimed at bringing transparency to the opaque derivatives market. Swaps, which were at the heart of the 2008 financial crisis, are complex financial contracts that allow financial firms and their clients to hedge against risks or bet on an asset’s value.

The CFTC has issued a number of rules to bring transparency to swaps trading so regulators can detect risks that could pose a threat to a firm or the financial system.

It would appear that those rules failed. It gets better:

The CFTC said in a footnote to its weekly swaps report that the largest data repository, the Depository Trust & Clearing Corp., “has informed us that due to a…technical coding issue, the notional values in the interest rate asset class have been understated.” The agency also reported “a processing error” by a separate repository operated by CME Group Inc. A CME spokeswoman didn’t respond to a request for comment. A CFTC official characterized the data problems as “growing pains.”

A technical coding issue with 12 zeroes?

The official said the error also reflects the agency’s chronic lack of resources. Just two employees at the agency are charged with putting together the weekly swaps report and it takes them 12 days to prepare the data for publication compared with three for another report the agency publishes. The agency is reviewing the matter and hopes to have firmer figures by next week’s report, due Thursday.

In a statement, DTCC said: “We notified the CFTC immediately after we uncovered this matter and are working overtime to resolve these issues as soon as possible to ensure that the agency has timely access to the most accurate, highest quality market data.”

Tat’s ok then, after all what’s a little electronic $55,000,000,000,000 shuttling back and forth between insolvent counterpa…. oh hey look, over there everyone, the Fed just tapered!