Monday, April 28, 2008

Signs of the Economic Apocalypse, 4-28-08


Gold closed at 889.70 dollars an ounce Friday, down 2.9% from $915.20 for the week. The dollar closed at 0.6398 euros Friday, up 1.2% from 0.6322 at the close of the previous Friday. That put the euro at 1.5630 dollars compared to 1.5817 the week before. Gold in euros would be 569.23 euros an ounce, down 1.6% from 578.62 at the close of the previous week. Oil closed at 118.52 dollars a barrel Friday, up 1.6% from $116.69 for the week. Oil in euros would be 75.83, up 2.8% from 73.78 at the close of the Friday before. The gold/oil ratio closed at 7.51 Friday, down 4.4% from 7.84 for the week. In U.S. stocks, the Dow closed at 12,891.86 Friday, up 0.3% from 12,849.36 at the close of the previous Friday. The NASDAQ closed at 2,422.93 Friday, up 0.8% from 2,402.97 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.87%, up 16 basis points from 3.71 for the week.

Gold has fallen 12% off its high in mid-March -- all this at a time when other commodities have risen sharply. Oil has risen 7.5 percent in the last two weeks. The gold/oil ratio hasn’t been this low since October of 2005. It’s hard to know what to make of this. It may be that gold is behaving more like a currency at the moment than a commodity, but that begs the question of why. But with the average gold/oil ratio since the end of 2004 being 9.04, this may represent a buying opportunity for gold. The fall in gold may be no more than a correction from the peak of $1000 reached in March, with more rises against the dollar and the euro in store. But we may be expecting too much rationality when comparing two of the most manipulated markets there are. The question is how much oil is there really and how much gold is there? Is there enough real gold to cover all the paper gold circulating? Are we running out of oil, or is there much more underground than the oil companies want us to know? Do we already have technology that could generate cheap clean energy that is being suppressed so that profits can be made and social control maintained?

Even if there is much more oil underground than the peak oil proponents say, the oil market may not correct until it becomes clear that the U.S. or Israel won’t attack Iran. It will be hard to get oil out of the ground and processed and shipped in a regional war. Unfortunately, sabre rattling by the U.S. and Israel have increased in the past week. General Petraeus’s elevation to Centcom commander and Hillary Clinton’s threat to “obliterate” Iran doesn’t bode well. It also doesn’t make sense. Why would the United States threaten a regional power that is the only one who could stabilize Iraq enough to allow the U.S. to draw down troops and save the dollar and the American Empire? Why not cut a deal? There are some in the ruling circles who would like to do just that. So why isn’t it happening? Paul Craig Roberts spells it out:

Why Does the Bush Regime Want to Rule Iraq?

Paul Craig Roberts


The Bush regime has quagmired America into a sixth year of war in Afghanistan and Iraq with no end in sight. The cost of these wars of aggression is horrendous. Official U.S. combat casualties stand at 4,538 dead. Officially, 29,780 U.S. troops have been wounded in Iraq.

On April 17, 2008, AP News reported that a new study released by the RAND Corporation concludes that "some 300,000 U.S. troops are suffering from major depression or post-traumatic stress from serving in the wars in Iraq and Afghanistan, and 320,000 received brain injuries."

On April 21, 2008, reported that an internal e-mail from Gen. Michael J. Kussman, undersecretary for health at the Veterans Administration, to Ira Katz, head of mental health at the VA, confirms a McClatchy Newspaper report that 126 veterans per week commit suicide. To the extent that the suicides are attributable to the war, more than 500 deaths should be added to the reported combat fatalities each month.

Turning to Iraqi deaths, expert studies support as many as 1.2 million dead Iraqis, almost entirely civilians. Another 2 million Iraqis have fled their country, and there are 2 million displaced Iraqis within Iraq.

Afghan casualties are unknown.

Both Afghanistan and Iraq have suffered unconscionable civilian deaths and damage to housing, infrastructure, and environment. Iraq is afflicted with depleted uranium and open sewers.

Then there are the economic costs to the U.S. Nobel economist Joseph Stiglitz estimates the full cost of the invasion and attempted occupation of Iraq to be between $3 trillion and $5 trillion. The dollar price of oil and gasoline have tripled, and the dollar has lost value against other currencies, declining dramatically even against the lowly Thai baht. Before Bush launched his wars of aggression, one U.S. dollar was worth 45 baht. Today the dollar is only worth 30 baht.The U.S. cannot afford these costs. Prior to his resignation last month, U.S. Comptroller General David Walker reported that the accumulated unfunded liabilities of the U.S. government total $53 trillion.

The U.S. government cannot cover these liabilities. The Bush regime even has to borrow the money from foreigners to pay for its wars in Iraq and Afghanistan. There is no more certain way to bankrupt the country and dethrone the dollar as world reserve currency.

The moral costs are perhaps the highest. All of the deaths, injuries, and economic costs to the U.S. and its victims are due entirely to lies told by the president and vice president of the U.S., by the secretary of defense, the national security adviser, the secretary of state, and, of course, by the media, including the "liberal" New York Times. All of these lies were uttered in behalf of an undeclared agenda. "Our" government has still not told "we the people" the real reasons "our" government invaded Afghanistan and Iraq.

Instead, the American sheeple have accepted a succession of transparent lies: weapons of mass destruction, al-Qaeda connections and complicity in the 9/11 attack, overthrowing a dictator and "bringing democracy" to Iraqis.

The great, moral American people would rather believe government lies than to acknowledge the government's crimes and to hold the government accountable.

There are many effective ways in which a moral people could protest. Consider investors, for example. Clearly Halliburton and military suppliers are cleaning up. Investors flock to the stocks in order to participate in the rise in value from booming profits. But what would a moral people do? Wouldn't they boycott the stocks of the companies that are profiting from the Bush regime's war crimes?

If the U.S. invaded Iraq for any of the succession of reasons the Bush regime has given, why would the U.S. have spent $750 million on a fortress "embassy" with anti-missile systems and its own electricity and water systems spread over 104 acres? No one has ever seen or heard of such an embassy before. Clearly, this "embassy" is constructed as the headquarters of an occupying colonial ruler.

The fact is that Bush invaded Iraq with the intent of turning Iraq into an American colony. The so-called government of Maliki is not a government. Maliki is the well paid front man for U.S. colonial rule. Maliki's government does not exist outside the protected Green Zone, the headquarters of the American occupation.

If colonial rule were not the intent, the U.S. would not be going out of its way to force Sadr's 60,000-man militia into a fight. Sadr is a Shi'ite who is a real Iraqi leader, perhaps the only Iraqi who could end the sectarian conflict and restore some unity to Iraq. As such he is regarded by the Bush regime as a danger to the American puppet Maliki. Unless the U.S. is able to purchase or rig the upcoming Iraqi election, Sadr is likely to emerge as the dominant figure. This would be a highly unfavorable development for the Bush regime's hopes of establishing its colonial rule behind the facade of a Maliki fake democracy. Rather than work with Sadr in order to extract themselves from a quagmire, the Americans will be doing everything possible to assassinate Sadr.

Why does the Bush regime want to rule Iraq? Some speculate that it is a matter of "peak oil." Oil supplies are said to be declining even as demand for oil multiplies from developing countries such as China. According to this argument, the U.S. decided to seize Iraq to ensure its own oil supply.

This explanation is problematic. Most U.S. oil comes from Canada, Mexico, and Venezuela. The best way for the U.S. to ensure its oil supplies would be to protect the dollar's role as world reserve currency. Moreover, $3-5 trillion would have purchased a tremendous amount of oil. Prior to the U.S. invasions, the U.S. oil import bill was running less than $100 billion per year. Even in 2006 total U.S. imports from OPEC countries was $145 billion, and the U.S. trade deficit with OPEC totaled $106 billion. Three trillion dollars could have paid for U.S. oil imports for 30 years; $5 trillion could pay the U.S. oil bill for a half century had the Bush regime preserved a sound dollar.

The more likely explanation for the U.S. invasion of Iraq is the neoconservative Bush regime's commitment to the defense of Israeli territorial expansion. There is no such thing as a neoconservative who is not allied with Israel. Israel hopes to steal all of the West Bank and southern Lebanon for its territorial expansion. An American colonial regime in Iraq not only buttresses Israel from attack, but also can pressure Syria and Iran not to support the Palestinians and Lebanese. The Iraqi war is a war for Israeli territorial expansion. Americans are dying and bleeding to death financially for Israel. Bush's "war on terror" is a hoax that serves to cover U.S. intervention in the Middle East on behalf of "greater Israel."

Roberts’s point of view is that of a U.S. nationalist. The problem for U.S. nationalists is that neither faction in the ruling class is really nationalistic. One side is willing to sacrifice U.S. power for Israel, and the other is willing to sacrifice it for global capitalism. The public in the U.S. is starting to realize that neither faction cares about their welfare at all. If they did, as Roberts argues, they would support a strong dollar. That would also benefit the rest of the world that is stuck with the dollar as a reserve currency, and with dollar holding Americans as customers. By supporting a weak dollar (to bail out financial institutions), they have driven commodity prices higher. Mike Whitney explains how it works:

"A Massacre of the World's Poor:" Food Riots and Speculators

Mike Whitney

April 26 /27, 2008

Food riots have broken out across the globe destabilizing large parts of the developing world. China is experiencing double-digit inflation. Indonesia, Vietnam and India have imposed controls over rice exports. Wheat, corn and soy beans are at record highs and threatening to go higher still. Commodities are up across the board. The World Food Program is warning of widespread famine if the West doesn't provide emergency humanitarian relief. The situation is dire. Venezuelan President Hugo Chavez summed it up like this, "It is a massacre of the world's poor. The problem is not the production of food. It is the economic, social and political model of the world. The capitalist model is in crisis."

Right on, Hugo. There is no shortage of food; it's just the prices that are making food unaffordable. Bernanke's "weak dollar" policy has ignited a wave of speculation in commodities which is pushing prices into the stratosphere. The UN is calling the global food crisis a "silent tsunami", but its more like a flood; the world is awash in increasingly worthless dollars that are making food and raw materials more expensive. Foreign central banks and investors presently hold $6 trillion in dollars and dollar-backed assets, so when the dollar starts to slide, the pain radiates through entire economies. This is especially true in countries where the currency is pegged to the dollar. That's why most of the Gulf States are experiencing runaway inflation.

The US is exporting its inflation by cheapening its currency. Now a field worker in Haiti who earns $2 a day, and spends all of that to feed his family, has to earn twice that amount or eat half as much. That's not a choice a parent wants to make. Its no wonder that six people were killed Port au Prince in the recent food riots. People go crazy when they can't feed their kids.

Food and energy prices are sucking the life out of the global economy. Foreign banks and pension funds are trying to protect their investments by diverting dollars into things that will retain their value. That's why oil is nudging $120 per barrel when it should be in the $70 to $80 range.

According to Tim Evans, energy analyst at Citigroup in New York, “There’s no supply-demand deficit". None. In fact suppliers are expecting an oil surplus by the end of this year.

"The case for lower oil prices is straightforward: The prospect of a deep U.S. recession or even a marked period of slower economic growth in the world’s top energy consumer making a dent in energy consumption. Year to date, oil demand in the U.S. is down 1.9% compared with the same period in 2007, and high prices and a weak economy should knock down U.S. oil consumption by 90,000 barrels a day this year, according to the federal Energy Information Administration." ("Bears Baffled by Oil Highs" gregory Meyer, Wall Street Journal)

There's no oil shortage; that's another ruse. Speculators are simply driving up the price of oil to hedge their bets on the falling dollar. What else can they do; put them in the frozen bond market, or the sinking stock market, or the collapsing housing market?

From the Washington Times:

"Farmers and food executives appealed fruitlessly to federal officials yesterday for regulatory steps to limit speculative buying that is helping to drive food prices higher. Meanwhile, some Americans are stocking up on staples such as rice, flour and oil in anticipation of high prices and shortages spreading from overseas. Costco and other grocery stores in California reported a run on rice, which has forced them to set limits on how many sacks of rice each customer can buy. Filipinos in Canada are scooping up all the rice they can find and shipping it to relatives in the Philippines, which is suffering a severe shortage that is leaving many people hungry." (Patrice Hill, Washington Times)

The Bush administration knows there's hanky-panky going on, but they just look the other way. It's Enron redux, where Ken Lay Inc. scalped the public with utter impunity while regulators sat on the sidelines applauding. Great. Now its the Commodity Futures Trading Commission (CFTC) turn; they're taking a hands-off approach so Wall Street sharpies make a fortune jacking up the price of everything from soda crackers to toilet bowls.

"A hearing Tuesday in Washington before the Commodity Futures Trading Commission starts a new round of scrutiny into the popularity of agricultural futures, once a quieter arena that for years was dominated largely by big producers and consumers of crops and their banks trying to manage price risks. The commission's official stance and that of many of the exchanges, however, is likely to disappoint many consumer groups. The CFTC's economist plans to state at the hearing that the agency doesn't believe financial investors are driving up grain prices. Some grain buyers say speculators' big bets on relatively small grain exchanges, especially recently, are pushing up prices for ordinary consumers." ("Call Goes Out to Rein In Grain Speculators", Ann Davis)

The agency doesn't believe financial investors are driving up grain prices!

In earlier generations, the power of the imperial state and the welfare of the U.S. public were tied together. Nor, in fact, is the strength of U.S. based multinational corporations tied to the welfare of the U.S. people. Max Fraad Wolf details how much what he calls multinational enterprises (MNE’s) now operate and profit largely outside the United States and the EU:

One of today’s great debates involves the presence or absence of coming trauma to developing countries/emerging markets, from US and EU economic pain. I do not share the prevailing wisdom that de-coupling/de-linking will smoothly occur. US and Euro Zone slowing will be global in impact. As has always been true, different states will grow- or shrink- at different rates. What interests me, and I humbly submit should interest you, involves the speed and size of de-linking between the American Macro-Economy and our leading multinational enterprises (MNE). The mirror image of this is the growing link between our MNE and other economies. I believe this relationship has quietly been driving much offshore growth and onshore underperformance. US, Japanese Euro Zone MNE investment, sourcing, growth and operational decision looks to be at the center of a form of de-linking. It is also the core of another form of linkage or coupling. America’s corporate engine is increasingly linked to offshore growth. U.S. firm’s are pulling more weight in the foreign wagon and proportionally less of the wagon here at home.

Political pressures from the rise in food prices point to a weakness of globalization. Asian rice producers have been curtailing exports (see for, example, this) so as not to infuriate their own populations who are facing real difficulty from higher rice and other food prices. The curtailed exports lead to even higher prices, which increases the pressure on other countries to cut exports. The rise in the price of food and energy in the United States is leading to a political crisis there as well, which could lead to the uprising against the globalizing elite and the corporations. Protectionism is rising in the importing countries and nationalism is rising in the exporting countries. The agents and beneficiaries of globalization, the multi-national corporations will face challenges in the new environment, according to Wolf:

MNE [Multinational Enterprises] remain largely based in The US, EU and Japan. These firms face three sets of growing problems. First, there are growing protectionist sentiments around the world. Home markets are full of essential consumers who are angry and blame MNE for weak employment and earnings growth. They will be cutting back their essential spending and may politically oppose international openness. Export host nations are filled with growing nationalism artfully exploited by local politicians and domestic competitors. Profit conditions are under pressure around the world. Resource shortages, basic material price spikes and nationalism are placing great pressure on all net input importers. Rising domestic prices, materials costs and zenophobia rarely advantage far flung MNE operation. Export restrictions and protectionist opposition to imports are mounting simultaneously. All of this is to say, the world is becoming more protectionist just as MNE become more dependent on long and vulnerable supply and demand chains…

Second, rising prices of food and basic materials mean rising wage pressures and capital costs. Rapid currency shifts and input cost increases disrupt and alter price structures and profit expectations. Long deferred wage demands grow as food costs rise, energy costs soar and inflation rises. Low cost labor, cheap materials, free trade and easy credit made for great MNE growth and profit. All these pillars are being rattled. Third, the end of the long credit glut is creating harder to come by and more expensive credit. The next few years will see more cautious financing extended at greater cost. Developed world consumers will be pinched by rising food, energy and currency adjusted costs. Developing world consumers are being pressured by food and energy costs. All are vulnerable to the health of MNE balance sheets.

Proof that the health of the U.S. military empire and of its multinational corporations is not at all tied to the welfare of its people comes with some new statistics on reductions in life expectancy in the U.S. during the neoliberal era.

Declining US life expectancy: a consequence of widening inequality

Naomi Spencer

24 April 2008

In yet another confirmation of the destructive effects of inequality on working-class living standards, a new study documents a significant decline in life expectancy in the US from 1983 to 1999, particularly in persistently poor regions of the country.

“The Reversal of Fortunes: Trends in County Mortality and Cross-County Mortality Disparities in the United States,” was co-authored by researchers from Harvard, University of California and the University of Washington. The research, published April 21, found that life spans have shortened for one in five women in the past three decades, with most deaths attributable to diseases that are preventable through early detection and proper treatment.

By virtually every measure, the health of the poor in the America is worsening. In spite of being the wealthiest country in the world, the US ranks at or near the bottom among industrialized nations for indices such as infant mortality, cancer rates, and heart disease.

Obesity—a factor strongly associated with heart problems, diabetes, osteoarthritis, respiratory problems and some forms of cancer—now affects a third of the population. Morbid obesity is most prevalent in the poorest layers of the population, among whom access to lean and fresh foods is limited by income and region and who must instead depend upon cheap, processed and so-called filler foods, heavy in starch and unhealthy fats. Federal data indicate obesity among both adults and children is worsening.

Rates for fatal staphylococcus infections, autism and Alzheimer’s disease also continue to increase, in the face of declining medical research funding and soaring health costs. In recent years, the country has even seen a resurgence of malaria, cholera, tuberculosis, and other ills that plague developing countries.

The number of Americans without health insurance coverage is approaching a fifth of the population, and the frequency of death from entirely preventable and manageable ailments is rising.

At the same time, life expectancy and medical resources available for the most affluent layer of the population continue to improve.

“The Reversal of Fortunes” study was published on PLoS Medicine, the peer-reviewed open-access web journal of Public Library of Science. Drawing upon four decades of National Center for Health Statistics and federal Census Bureau data, researchers found that overall US life expectancy increased from 1961 to 1999—from 67 to 74 years of age for men, and from 74 to 80 years for women. The period of 1961 to 1983 saw a decline in the death rate that the study attributes to reduced prevalence of preventable diseases, mostly heart disease and stroke.

The largest gains in life expectancy during this period were seen in the poorest regions of the country, reflecting economic gains and the impact of Civil Rights reforms, the establishment of Medicare and programs associated with the “war on poverty” of the 1960s, such as food stamps and the development of regional public health infrastructure in Appalachia.

Beginning in the early 1980s, however, the study noted, “The worst-off counties no longer experienced a fall in death rates, and in a substantial number of counties, mortality actually increased, especially for women.” Between 1983 and 1999, researchers found life expectancy either stagnated or dropped for 4 percent of men and 19 percent of women.

Both male and female life expectancies had a statistically significant decline (in 11 and 180 counties, respectively), averaging a loss of 1.3 years.

According to the study, “This stagnation in the worst-off counties was primarily caused by a slowdown or halt in the reduction of deaths from cardiovascular disease coupled with a moderate rise in a number of other diseases, such as lung cancer, chronic lung disease, and diabetes, in both men and women, and a rise in HIV/AIDS and homicide in men.”

The decline in life expectancy was concentrated overwhelmingly in the Deep South and in counties along the Mississippi River; in the Appalachian region of Kentucky, West Virginia and Tennessee; and in the southern portion of the Midwest and into Texas. From 1983 to 1999, above-average life expectancy increases also became more concentrated geographically in the Northeast and Pacific Coast regions, following the pattern of wealth concentration.

The lowering life expectancy is greatly related to the decline of decent-paying jobs and social infrastructure, tax cuts for the wealthy and subsequent under-funding of welfare provisions under the Republican Reagan and Bush administrations. This trend accelerated in the 1990s under the Democratic Clinton administration with the Personal Responsibility and Work Opportunity Reconciliation Act, which effectively ended welfare as an entitlement program and cut access to public health programs for millions of people.

In nine years following the study’s focus window, all of the precipitating factors of the lower life expectancy have been intensified. Social inequality has never been higher, and medical costs consume an increasing proportion of household incomes. At the same time, employer-paid health insurance programs and millions of decent-paying jobs have been slashed. Many families are priced out of health care altogether.

In fact, the federal Centers for Disease Control reported in December that over 40 million people—nearly one in every five US adults—needed but did not receive medical care, prescription medicines, mental health care, dental care or eyeglasses in 2007 because they could not afford them.

According to the Census Bureau, 47 million Americans are uninsured, up from 40 million in 2001; advocacy group Families USA estimates that nearly 90 million people—nearly a third of the population—were uninsured for at least part of last year. Well over 50 million other lower-income Americans are dependent upon the government-funded Medicaid program.

Moreover, in the face of declining real wages and rising premiums, co-payments, and deductibles, many others who have insurance are deterred from seeking out early and preventive treatment.

As a result, broad layers of the working class look to medical care as an unaffordable luxury and a last resort. Diseases such as cancer and heart disease go undetected until they reach more advanced and less curable stages. According to a 2002 report from the Institute of Medicine, uninsured adults are 25 percent more likely to die prematurely than those with private health insurance, because of the lack of regular preventive care and screenings.

A new, state-by-state analysis of the Institute of Medicine data by Families USA estimated that more than 22,000 adults between the ages of 25 and 64 died because they did not have health insurance.

In Louisiana, for example, Families USA found that two working-age adults died each day—over 4,200 from the years 2000 to 2006—because they lacked health coverage. Over that period, 9,900 uninsured New Yorkers died because of lack of health care. In Texas, an estimated 17,700 died over the period; on average, more than seven working-age Texans died prematurely each day in 2006 because they had no insurance.

“Across the United States, in 2006, twice as many people died from lack of health insurance as died from homicide,” the study concluded.

The Reversal of Fortunes: Trends in County Mortality and Cross-County Mortality Disparities in the United States” at the Public Library of Science

Health, United States, 2007” from the CDC’s National Center for Health Statistics

Dying for Coverage,” March-April 2008, by Families USA

The pot is beginning to boil. For a 360 degree view, see this by editors. Food shortages, signs of war, popular unrest, earthquakes, and fireballs: everything, not just the economy, seems to be reaching a crisis point.

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Monday, April 21, 2008

Signs of the Economic Apocalypse, 4-21-08


Gold closed at 915.20 dollars an ounce Friday, down 1.3% from $927.00 for the week. The dollar closed at 0.6322 dollars Friday, down less than 0.1% from 0.6325 at the close of the previous Friday. That put the euro at 1.5817 dollars compared to 1.5810 the week before. Gold in euros would be 578.62 euros an ounce, down 1.3% from 586.34 at the close of the previous week. Oil closed at 116.69 dollars a barrel Friday, up 5.9% from $110.14 for the week. Oil in euros would be 73.78 euros a barrel, up 5.9% from 69.66 at the close of the Friday before. The gold/oil ratio closed at 7.84 down 7.4% from 8.42 for the week. In U.S. stocks, the Dow closed at 12,849.36 Friday, up 4.3% from 12,325.42 at the close of the previous Friday. The NASDAQ closed at 2,402.97 Friday, up 4.9% from 2,290.24 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.71%, up 24 basis points from 3.47 for the week.

Stocks soared last week on higher than expected profits reported by some key corporations.
U.S. Stocks Advance on Earnings; Citigroup, Google Shares Climb

Elizabeth Stanton

April 18 (Bloomberg) -- U.S. stocks rallied, capping the best week since February for the Standard & Poor's 500 Index, after companies from Citigroup Inc. to Google Inc. to Caterpillar Inc. posted results that topped analysts' estimates.

The market, battered last week by General Electric Co.'s disappointing results, climbed today after Citigroup's loss was less than the most pessimistic projections and profits at Google and Caterpillar were boosted by overseas growth. Honeywell International Inc. and Xerox Corp. also advanced on better-than- forecast results. All 10 industry groups in the S&P 500 rose, extending its weekly gain to 4.3 percent.

“People are coming to the realization that, excluding the finance sector, the earnings profile looks pretty good,” said Michael Mullaney, a money manager at Fiduciary Trust Co., which oversees $10 billion in Boston. Google’s results “put a calming effect on the entire market, especially the technology sector.”

The S&P 500 added 24.77, or 1.8 percent, to 1,390.33, its highest level since Feb. 1. The Dow Jones Industrial Average rallied 228.87, or 1.8 percent, to 12,849.36, a three-month high. The Nasdaq Composite Index increased 61.14, or 2.6 percent, to 2,402.97. Four stocks rose for each that fell on the New York Stock Exchange. European shares advanced, while Asia’s benchmark index retreated.

Profits have exceeded analysts’ estimates at 58 percent of the 100 companies in the S&P 500 that released first-quarter results so far. Earnings are forecast to decline an average of 13.7 percent in the January-to-March period, according to estimates compiled by Bloomberg. Sixty-five percent of companies in the index topped analysts’ first-quarter expectations last year, when earnings climbed 10.3 percent.

S&P 500 Rebound

While the S&P 500 has rebounded 9.2 percent from a 19-month low on March 10, the benchmark for American equities is still down 5.3 percent in 2008.
Companies in the index trade for an average 14.8 times estimated profits, the cheapest in 18 years when prices are compared with historical earnings.

Citigroup increased $1.08, or 4.5 percent, to $25.11. The bank said revenue fell 48 percent to $13.2 billion, topping the average estimate of $11.1 billion from analysts surveyed by Bloomberg. The first-quarter net loss of $1.02 a share compared with the $1.66 loss predicted by Merrill Lynch & Co.’s Guy Moszkowksi, Institutional Investor’s top-rated brokerage analyst.

“A lot of people were worried that we’d have a big negative surprise,” Edgar Peters, chief investment officer at PanAgora Asset Management in Boston, which oversees $25 billion, said in a Bloomberg Television interview. “When we didn’t have a big negative surprise, that was a positive surprise.”

Citigroup helped carry the S&P 500 Financials Index to a 1.8 percent advance and extend the gauge’s weekly gain to 5.2 percent. Bank of America Corp., the largest U.S. bank by market value, rallied $1.09 to $38.56. JPMorgan Chase & Co. climbed 64 cents to $45.76.

Sensing the worst has passed, gold fell almost 3% in one day Friday. So does this mean the crisis is over? Of course not. The price of oil soared last week, adding more inflationary pressures. Meanwhile the United States, home to the world’s reserve currency, is mired in two expensive losing wars. And its political class has absolutely no answers for either the wars or the disastrous fiscal situation resulting from them. U.S. political leaders, having grown up like abused children in the past thirty years of right-wing reaction and disaster capitalism-style economic deregulation can’t even ask the right questions. And when one makes even the weakest step towards doing that, he is slapped down hard:

The Obama “mistake”: Breaking the taboo on discussing class in America

Patrick Martin

17 April 2008

Over the past five days, media commentary on the US presidential election campaign has focused on the supposedly disastrous “gaffe” made by Democrat Barack Obama in his comments earlier this month at a San Francisco fundraiser, where he remarked on the mood of anger and bitterness in small-town and rural America, and how this was expressed in various political and ideological forms.

It is worth restating again the offending words, since they have provoked an outpouring of denunciation, distortion and (in the case of Obama’s liberal supporters) lamentation:

“You go into these small towns in Pennsylvania and, like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing’s replaced them. And they fell through the Clinton administration, and the Bush administration, and each successive administration has said that somehow these communities are going to regenerate and they have not. And it’s not surprising then they get bitter, they cling to guns or religion or antipathy to people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.”

It should be noted that Obama made these frank observations at a private meeting with presumably well-off potential contributors, not in a public forum. They came to light only when they were published by the Huffington Post some days later. Obama was attempting to answer a participant at the gathering who asked why his opponent, Hillary Clinton, retained a lead in the polls leading up to the April 22 Democratic primary in Pennsylvania.

Nevertheless, the candidate—more intelligent and observant than the average bourgeois politician—said a mouthful, and perhaps more than he intended. He violated the conventional rules of big business politics in the United States on at least three counts.

First, he touched on the reality of class alienation, noting that millions of working people face increasingly difficult economic circumstances and are bitter over the refusal of the political establishment, in both Democratic and Republican administrations, to help them.

Second, he suggested that working people are not only materially distressed, but also ideologically misled. Popular anger over vanishing jobs and falling wages has been diverted into various blind alleys by right-wing political campaigns over guns, abortion, immigration and trade (the first three mainly from Republicans, the last mainly from Democrats, including Obama himself).

Third (and worst, as far as Obama and his liberal supporters are concerned), he implicitly equated religion with the other nostrums used to misinform and confuse workers.

For this he has been denounced by the Republican presidential candidate John McCain and, even more vociferously, by his Democratic opponent, Hillary Clinton.

Right-wing and pro-Republican pundits have savaged Obama for the alleged slur on religion, while trying as much as possible to ignore the substance of his observations about the economic conditions facing the working class. Commentators like the Wall Street Journal editorial page and New York Times columnist William Kristol denounced Obama as a closet Marxist.

“As political psychoanalysis, this is what they believe in Cambridge and Hyde Park,” the Journal declared. “Guns and God are the opiate of the masses, who are being gulled by Karl Rove and rich Republicans. If only they embraced their true economic self-interest, these pure [presumably the editors meant “poor”] saps wouldn’t need religion and they wouldn’t dislike non-white immigrants.”

The liberal commentators are typified by E. J. Dionne of the Washington Post. They regard what Obama said as true, indeed almost a truism, but believe that to say it is a political blunder. Dionne bemoaned “Obama’s mistake,” but then devoted his column to criticizing Hillary Clinton for her attacks on Obama. “Something doesn’t parse when a Wellesley and Yale Law School graduate whose family made $109 million since 2001 relentlessly assails a former community organizer on the grounds that he is an elitist,” he wrote.

“It has been sickening over the years to watch Republicans, who always rally to the aid of the country’s wealthiest citizens, successfully cast themselves as pork-rind-eating, NASCAR-watching, gun-toting populists,” he concluded.” He did not, however, address the most important question—how this political burlesque has been enabled by the Democratic Party’s drastic shift to the right and abandonment of any program of social reform and wealth redistribution.

An alternate liberal perspective, if anything more reactionary, came from New York Times columnist Bob Herbert, who wrote Tuesday, “Senator Obama fouled up when he linked frustration and bitterness over economic hard times with America’s romance with guns and embrace of religion. But, please, let’s get a grip. What we ought to be worked up about is the racism that still prevents some people from giving a candidate a fair chance because of his skin color.”

Herbert, who is black, faulted Obama for ducking what the columnist regards as the central issue: the endemic racism of the white working class. In his view, racism, not religion, guns, immigration or trade, is the main means of diverting working-class anger and the main obstacle to the success of Obama’s candidacy.

What none of these commentators care to confront is the extraordinary scale of the economic disaster facing millions of working people, not only in the de-industrialized towns of Pennsylvania, Indiana and North Carolina, a focus of the current stage of the presidential campaign, but throughout the country, in large cities and their suburbs as well as rural and small-town America.

It is worth citing in this context the figures reported April 12 by a New York Times economics columnist, Floyd Norris, on the growth of unemployment. Norris examines the contrast between the official unemployment rate and other measures of joblessness, which show a far more difficult position facing working people.

For men aged 25 to 54, the prime working years, the official unemployment rate is 4.1 percent. This figure is artificially low since it does not count people who have given up looking for work. The US Labor Department reported that in March the actual proportion of men 25 to 54 without jobs stood at 13.1 percent. Norris observes, “Only once during a post-World War II recession did the rate ever get that high. It hit 13.3 percent in June 1982, the 12th month of the brutal 1981-82 recession.”

Norris cites another series of Labor Department statistics which calculate jobs lost based on a three-month moving average, a method that evens out fluctuations and suggests the longer-term trend. He notes: “The government breaks down the figures by race, and those figures show that over the last year almost all the jobs lost by men in the 25 to 54 age group have been lost by whites, with most of those losses affecting men ages 35 to 44.”

These figures suggest that while unemployment for black men has been and remains high, the biggest change in the past year has been a sharp increase in jobs lost by white men in the prime working years—precisely those who were the focus of Obama’s remarks in San Francisco.

There is thus a close connection between the semi-hysterical response in the political establishment and the corporate-controlled media to Obama’s statement, and the rapidly deepening economic crisis. The Democratic candidate’s too-candid comment is seen as dangerous, akin to throwing a lighted match on the social power keg that is 2008 America.

It is notable that while the “bitter” flap has roiled the Washington punditry, it has caused little stir in Pennsylvania itself. It has been difficult for bourgeois journalists to find workers who were outraged over being described as “bitter.”

USA Today, reporting from conservative York County, Pennsylvania, found that, “in more than a dozen interviews here, even conservative Republicans couldn’t muster the sort of outrage over Obama’s remarks that Clinton backers were expressing Sunday... nearly everyone allowed that, in fact, many small-town residents are indeed bitter” over the state of the economy. A retired telephone worker told the newspaper, “Hell, yeah, they’re bitter.”

When Clinton sought to use the issue at a forum in Pittsburgh attended by steelworkers, many audience members shouted, “No!” as she declared, referring to Obama, “Many of you, like me, were disappointed by recent remarks he made.” When she continued, saying that voters in Pennsylvania might find these remarks “offensive,” there were further shouts of “No!” according to press accounts.

Of course, Obama didn’t actually propose any solutions to the economic hollowing out of the United States. And Hillary Clinton’s solution is to hire back Alan Greenspan!

Resurrecting Greenspan: Hillary Joins the Vast, Rightwing Financial Conspiracy

Michael Hudson

Apri1 17, 2008

On Monday, March 24, presumably representing Wall Street--as any New York senator must do in view of its dominant financial role in the state's political campaigns--Hillary Clinton proposed that Congress show its bipartisan spirit by appointing an "emergency working group on foreclosures," to be led by none other than Alan Greenspan and earlier Federal Reserve Chairman Paul Volcker, and Clinton Treasury Secretary Robert Rubin. Her idea was for them to come up with a plan to alleviate the subprime and financial crisis. This seems like calling in arsonists to help put out the fire that they and their own constituency had set in the first place. Their lifelong interest, after all, had been to promote deregulation and special tax favoritism for their Wall Street constituency, highlighted by repeal of Glass-Steagall in 1999 under Pres. Clinton. Representing the banking sector and Wall Street (and hence being essentially Republicans in spirit), they were precisely the lobbyists most in favor of anti-labor, pro-creditor policies.

Even the Wall Street Journal expressed surprise. Jon Hilsenrath noted the seeming irony: "In August 1999, as the tech-stock bubble was worsening, Alan Greenspan stood before central-banking colleagues in Jackson Hole, Wyo., and argued it wasn't the central bank's job to prevent asset bubbles. All it could do was clean up the mess after the bubble had burst." On the contrary, the commentator noted, the Fed could have slowed the bubble by raising interest rates and boosting margin requirements on stock trading during the tech bubble. Mr. Greenspan could have heeded the advice of Fed Governor Ed Gramlich to slow and regulate subprime mortgage lending. Instead, Mr. Greenspan's--and Mr. Paulson's--idea was simply to clean up the bubble's debt aftermath by bailing out Wall Street.

Mrs. Clinton's logic, she explained on March 24, was simply that Mr. Greenspan had a "calming influence." Republican Presidential nominee John McCain certainly seemed glad to propose him to head a commission to overhaul the tax code. Barack Obama's spokesman Bill Burton said that her selection of Mr. Greenspan to head her working group featured "the same people who helped to create these problems or have a direct financial industry stake in the outcome." Sen. Obama himself said that her crypto-Republican plan lacked credibility in view of the heavy campaign donations she received from Wall Street financial lobbyists. (As of mid-April he had raised an almost identical sum from this source.)

Elaborating her views three days later, Sen. Clinton made it seem as if it were the job of the financial victims--the mortgage debtors--to solve the mortgage crisis. "In today's economy, trouble that starts on Wall Street often ends up on Main Street ... When there's a run on mortgage-backed securities and the bottom falls out for investment banks, the bottom falls out for families who see the value of their homes--their greatest source of wealth--decline." To cure the problem, she endorsed the spirit of Mr. Paulson's Wall Street bailout, including having the Federal Housing Administration, Fannie Mae and Freddie Mac "buy, restructure and resell these underwater mortgages." This is a far cry from debt forgiveness.

In an early 2008 presidential primary debate, Mrs. Clinton went so far as to cite the Democrats' acquiescence in the Greenspan Commission's 1983 tax shift off the high income brackets onto wage-earners--by increasing F.I.C.A. wage withholding for Social Security as a personal user fee rather than funding it out of the general budget--as a model of the bipartisan spirit she hoped to emulate if elected. She thus reflected the attitude of her husband, when as President, Bill Clinton appointed Mr. Greenspan to a new term as Fed Chairman, saying: "This chairman's leadership has been good, not just for the American economy and the mavens of finance on Wall Street. It has been good for ordinary Americans." Yet it was Greenspan that acted as a kind of economic Karl Rove in crafting anti-labor policies favoring the very rich, above all the Social Security tax-shift onto labor's shoulders to which Mrs. Clinton pointed. He welcomed recession as an excuse to cut taxes, ostensibly to "jump-start" economic growth but actually producing a benefit mainly for wealthy investors and property owners.

In her debate with Sen. Obama on April 16, Senator Clinton once again heaped praise on Mr. Greenspan's "bipartisan" commission that nearly doubled the tax rates that workers had to give up out of their paychecks. A token income-tax cut was offset by F.I.C.A. withholding that, for many workers, now exceeds their income-tax liability. And what certainly must be the most unmitigated gall rivaling even her notorious Yugoslavia-under-sniper-fire gaffe, Mrs. Clinton rejected Senator Obama's policy of raising the F.I.C.A. Withholding rate above the present $92,000 level, all the way up to hedge fund managers making billions of dollars per year. Mrs. Clinton said explicitly that there were fairer and more egalitarian ways to resolve the Social Security and Medicare tax problem.

More egalitarian? What on earth could be MORE fair than starting to reverse the tax shift onto labor that has been occurring ever since the Reagan and Greenspan regimes? And how indeed can deregulation of the financial markets be deemed fair? How indeed did the network news media neglect Hillary's outrageous statement?

A lifelong advocate of deregulation, in 1999 Mr. Greenspan "recommended to a Senate committee that economic regulations should all be 'sunsetted,' that is, given an expiration date." This was the policy into which the Bear Stearns and subprime mortgage crises were plugged. The financial ideology and self-interest of Wall Street has become more important in shaping American policy than the health of the economy at large.

Packaging deregulation as new, more efficient regulation

The Bush Administration's enormous commitment of public funds to support Wall Street prompted columnist Martin Wolf of the Financial Times to announce that the free market was dead. "Remember Friday March 14, 2008," he wrote; "it was the day the dream of global free-market capitalism died. Deregulation has reached its limits." The price for Treasury support would have to be an end to the deregulation that had permitted the debt crisis to reach such unprecedented proportions. As evidence of the new attitude Wolf cited "the remark by Joseph Ackermann, chief executive of Deutsche Bank, that 'I no longer believe in the market's self-healing power.'"

Although more extensive public regulation was the traditional aftermath of financial crisis, the debt bubble has provided the financial sector with unprecedented wealth to translate into political law-making policy to dismantle regulation. Financial lobbyists accordingly anticipate that "the coming fight will rival the storm leading up to the 1999 passage of the Gramm-Leach-Bliley Act [which repealed Glass-Steagall]. That law made it easier for securities firms and banks to be owned by the same company, dropping regulatory barriers in place since the Great Depression. In 1998 and 1999, when Congress was finalizing passage of that law, the financial-services industry spent a combined $417 million on lobbying, according to the Center for Responsive Politics. In 2007, financial-services companies spent more than $402 million on lobbying, led by $138 million from the insurance industry."

The focal point of this lobbying effort has been Mr. Paulson's Treasury working group to draw up a Blueprint for Financial Regulatory Reform. As he explained in his speech on March 31, the Treasury Department's Blueprint for Financial Regulatory Reform had been moving earnestly since June 2007 to "reform" the nation's regulatory structure. He concluded his speech with a paean to the repeal of Glass-Steagall under President Clinton: "We recognize that these ideas will generate some controversy and healthy debate. This is not unlike the circumstances surrounding the 1991 "Green Book," which after a period of constructive discussion resulted in the passage of the Gramm-Leach-Bliley Act, modernizing our financial services industry some eight years later."

Repeal of Glass-Steagall gave the subprime debacle its jump start by removing the Depression-era roadblock from bank merging with brokers. This permitted financial conglomerates to be formed and gave them the ability to securitize (that is package), loans as investments. Vertical financial conglomerates were formed, starting with Citibank's merger with Travelers Insurance, and leading up to the recent intention of Bank of America to acquire the troubled Countrywide Financial, the nation's leading subprime lender.

Rather than seeing this as the source of the subsequent subprime problems as Senators Paul Wellstone and Byron Dorgan did at the time, Mr. Paulson explained, "I am not suggesting that more regulation is the answer." Just the opposite. "A state-based regulatory system is quite burdensome. It allows price controls to create market distortions. It can hinder development of national products and can directly impact the competitiveness of US insurers." The aim is to dismantle what remains of public regulation.

Reflecting the financial interests behind him, Mr. Paulson's solution is to assign overall regulatory authority to the Federal Reserve. The Fed works for its owners, the commercial banking system, and its chairman is appointed by a government that believes in "central bank independence." The result is a financial sector regulated by its own leaders and lobbyists, not by elected officials--seemingly a clear conflict of interest. The lobbyists evidently have decided that the best public relations wrapping is to present deregulation as "simplification," and to claim that "streamlining" it will lower costs to investors and help prevent a loss of "competitiveness" to Europe, especially London. Especially annoying to Wall Street are the Sarbanes rules requiring full disclosure of information, passed in the aftermath of the Enron fraud. Upon taking office, Mr. Paulson claimed that these rules handicapped U.S. financial firms relative to their foreign counterparts. "In November 2006, the Committee on Capital Markets Regulation released a report concluding, 'It is the committee's view that in the shift of regulatory intensity balance has been lost to the competitive disadvantage of U.S. financial markets.'"

The implication is that anything that lowers costs to Wall Street--by rolling back regulatory bureaucracies and reporting requirements such as are called for by the Sarbanes-Oxley legislation--will be passed on to customers. Such presumptions ignore the fact that Wall Street prefers to pay out its profits as bonuses or dividends rather than pass on cost savings. What is passed onto its customers instead is runaway CEO compensation. "Market discipline" has not kept financial markets honest or low-priced. Deceptive subprime practices have made dollar investments a pariah in global financial markets. Investors have lost faith in the nation's investment bankers, mortgage brokers and credit-rating firms, drying up the market for U.S. mortgage-backed securities and leading to their being dumped across the board.

In sum, the mid-March crisis provided an opportunity for Mr. Paulson to pull out the deregulatory plan he proposed when he became Secretary of the Treasury in summer 2006, and paste a "regulatory" cover story on it. Mr. Paulson plan for deregulation anticipates "consolidating banking and insurance regulators and potentially merging the Securities and Exchange Commission with the Commodity Futures Trading Commission, then stripping the combined entity of much of its regulatory authority." A major aim is to prevent any repeat of state attorneys general or other regulators emulating Eliot Spitzer's $1.4 billion in fines against Wall Street companies for their improper behavior and close-down of Arthur Andersen.

Calling the federal power to annul state regulation or that of other agencies "regulation" is dependent on voters not understanding the bait-and-switch act going on. It needs the compliance of New York's Wall Street Democrats, senators, congressmen and presidential candidates, whose campaign funding after all comes mainly from the state's financial sector.

So where are the Democrats on this? Above all, Hillary would seem to be on the hot seat. Where was she at 3 o'clock in the morning on the day that Bill annulled Glass-Steagall?

What seems most remarkable in Mr. Paulson's and Dr. Bernanke's comments is the absence of quantitative discussion of just what the "systemic risk" is. The bailout is to be paid by the non-financial sector, above all labor ("consumers") to "save the system." But just what is the system? It certainly is not industrial production. It is more a faith that compound interest can keep on expanding ad infinitum. The reality is that the exponentially soaring debt overhead threatens to plunge the economy into chronic depression as interest and other financial charges eat further and further into the economy's ability to spend on consumption and tangible capital investment. To ignore this financial dynamic is to turn economics into a junk science.

For the past decade the banking system and its mortgage-broker affiliates have avoided the usual wave of defaults and insolvencies by lending debtors enough money to pay the interest charges. Adding the interest onto the debt in this way is known as a Ponzi scheme. It requires an exponentially growing influx of funds to pay investors and creditors, and hence cannot be sustained for long, because no economy in history has grown at the exponential rates needed to keep up with the debt overhead. This is the basic problem at the core of today's economic policy. It aims to save the "sanctity of debt," that is, the financial sector's claims on the rest of the economy. But this attempt only polarizes the economy between creditors at the top of the pyramid and an increasingly indebted base at the bottom.

A simple example may illustrate the debt treadmill. Consider a little brick home in a suburb of Cleveland, Ohio. There are two economic conditions under which you could own it. Choice One is to own the home free and clear of a mortgage, in an economy that values it at $100,000. Choice Two is to own it in a debt-fueled market that values it at $250,000, requiring the buyer to take on a $100,000 mortgage to afford it. This appears to maximize wealth creation inasmuch as the homeowner has $50,000 more net worth.

But the Choice Two homeowner owns only 60 percent of the property. At 6 percent interest the $100,000 mortgage absorbs $500 a month, not counting amortization payments. This $6,000 annual interest charge--plus $3,000 for self-amortization on the typical 30-year mortgage--absorbs 30 percent of gross income for a homeowner earning $30,000 per year. Net of about $10,000 in wage withholding for FICA and income tax, the homeowner must pay 45 percent of take-home pay even before property taxes, fuel and repairs.

So which homeowner is doing better: Choice Two with higher net worth on paper, or Choice One which is less debt-ridden and whose home therefore is more affordable?

The Federal Reserve's net worth statistics give the impression that all Choice Two has more wealth creation. But most families "own" less and less, and must pay heavier carrying charges that eat into their spending power. By the end of 2007, home equity fell below 50 percent for the U.S. economy on balance--down to 47.9 percent. This means that most Americans now have less of an ownership share in their most basic asset than their bankers. On top of this, they are obliged to place their retirement savings in the hands of money managers whose fees absorb most of the income. Many pension funds are now left with substantial losses on packaged mortgages such as Bear Stearns was selling.

Germany is an example of the Choice One economy. Housing absorbs only about 20 percent of its average household budget, less than half that of most American homebuyers today. Its lower debt and property overhead, along with national health care, helps explain its competitive power in international markets. America, by contrast, is burdened with the high proportion of the cost of labor reflecting the inflation of housing prices that has forced more and more buyers into debt, while the middle class has seen its stagnant wages exacerbated by wage withholding for Social Security and medical insurance. Many have been able to maintain their living standards only by borrowing against their home equity.

Making loans is how banks make their money. As long as the loans are used to bid up property, stock and bond prices, they can claim that they are "responding to the market" by getting homeowners, commercial real estate investors, corporate raiders and financial managers to pledge their assets as collateral for yet new loans in a process that seems to be self-sustaining. But at a point the carrying charges on this indebtedness absorb all the disposable income and corporate cash flow. All it takes to upset the applecart is a major default, embezzlement or fraud.

Real estate reached this state of affairs by summer 2006. Behind the property bubble was an increasing entry price to buying a home--an access price that had to be paid in extra years of the buyer's working life. Traditionally, economists have defined equilibrium pricing as the level at which the rental income just about covered an owner's carrying charges. But as real estate prices exceeded the rents that could be charged to cover debt service, speculators withdrew from the market. It became much less costly to rent than to own. New buyers had to pay for their operating deficits out of income earned elsewhere.

The magic was gone once carrying charges could not be lowered any further. Interest rates had been lowered as far as they could be, down payments had been lowered to near zero, amortization had been lowered to zero (so that the mortgage loan never would be paid off, but simply carried), and fraudulent property assessment had become commonplace. Adjustable-rate mortgages were resetting at higher levels. Fuel costs were rising, increasing operating expenses for electric power and gas. Local property taxes were catching up with soaring real estate prices.

The mortgage market thus was set for a downturn. Every mortgage banker with whom I spoke by 2006 saw it coming. But until the break came, Wall Street managers wanted to get every last added fraction of a percentage point in interest that could be squeezed out. So did fund managers, who are graded every three months against the norm. This short-termism obliges them to follow the herd. They hope to reverse course in a hurry when the break comes, but financial crashes occur much faster than it takes for prices to rise. The business cycle is basically a run-up of real estate mortgage debt growing slowly but ending in a fairly rapid crash.

Bank credit--that is, debt for mortgage borrowers--was created almost without cost as the Federal Reserve held short-term interest rates quite low. An increasingly large debt overhead fueled an asset-price inflation that Alan Greenspan celebrated as "wealth creation." Deregulated banks and other financial institutions packaged and sold mortgage loans to hedge funds, pension funds and other institutions. It seemed that a perpetual motion machine of financial wealth had been found. But it rested on the ability of the underlying "real" economy (production and consumption) to take on more and more debt and pay more and more interest.

The policies proposed by Republicans and Democrats alike treat strapped homeowners as deserving government aid only to the extent of enabling them to go pay the institutions that hold their mortgages. This fig leaf of humanitarian concern for debtors enables the government to provide public credit that ends up in the hands of the super-rich who own and manage the financial and property sector.

But one sees the dominant attitude in the vindictive rhetoric used by Sen. John McCain toward debtors he deems "undeserving" of government aid. He blames insolvent homebuyers for causing the problem for failing to calculate how deeply their adjustable-rate mortgages (ARMS) would eat into their stagnant disposable income or to anticipate how sharply property taxes, heating and electricity prices would rise as the dollar plunges in global markets.

Congress has proposed setting aside millions of dollars to provide mortgage counseling--a sanctimonious blame-the-victim re-education program to convince insolvent debtors at least that they should feel guilty if they walk away from properties worth less than the debts attached to them, as financial professionals do.

The kind of re-education program that really is needed would provide an understanding of the dynamic that threatens to lead to debt peonage. On paper, two thirds of Americans have seen their net worth grow mainly from the rising price of their homes--or more to the point, their land ("location, location, location," magnified by the failure of property taxes to keep up with market prices). As long as mortgage lending was pushing up prices more rapidly than debt was growing all was fine. At the Federal Reserve, Mr. Greenspan took credit for orchestrating this "wealth creation." It was a euphemism for asset-price inflation and debt creation.

It is a far cry from tangible capital formation. Instead of raising labor productivity and living standards, it is a purely mathematical dynamic that governments cannot rescue in the end. It is folly even to try to do so. Yet in March, Sec. Paulson mobilized the credit-creating power of the government's financial and housing agencies to support the price of mortgage securities--and the land valuations that back them. The aim was not to help strapped homeowners but to save creditors who imagined that they could get rich while most of the economy was being driven into debt peonage.

Given this perverse financial plan, it is irresistible not to finish with how Franklin Roosevelt addressed the spirit of today's proposed reforms:

These economic royalists complain that we seek to overthrow the institutions of America. What they really complain of is that we seek to take away their power. Our allegiance to American institutions requires the overthrow of this kind of power. In vain they seek to hide behind the flag and the Constitution. In their blindness they forget what the flag and the Constitution stand for. Now, as always, they stand for democracy, not tyranny; for freedom, not subjection; and against a dictatorship by mob rule and the over-privileged alike.

Today's financial sector would turn this rhetoric of economic democracy on its head. This raises the following question: If FDR were alive and running today, would Hillary and others denounce him as an off-the-wall radical? Would he be out of touch with today's voters? What would they say about his anger? How far would a presidential candidate get who announced at his Inauguration, as Roosevelt did on March 4, 1933, "The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit."

So let's start by discarding the inane propaganda about unmanaged (that is, deregulated) "free" economies, the faith-based belief that self-regulating economic systems exist that must not be "interfered with" by government bureaucrats, formerly known as regulatory agencies, attorneys general and state prosecutors, Congressional oversight committees and what remains of New Deal agencies. This anti-government, anti-regulatory propaganda has been pushed for decades so that public agencies and Congress, supposed to act as representatives of the people, remain only passive spectators to an economy left in private hands for financial profit.

The reality is that all economies are managed, either by the private sector or by government--usually by a combination of the two. Any successful economy engages in forward planning, and any well-balanced economy shapes how "the market" operates. Adam Smith's Wealth of Nations was all about how wise governments should shape--and tax--their markets. America's present-day economic system didn't evolve through natural forces, much less by divine intervention. Its industrial takeoff was subsidized by protective tariffs, internal improvements--that is, public infrastructure spending--and increasingly progressive taxation.

And conversely, the spate of tax laws, fiscal giveaways and Federal Reserve policies that helped inflate the real estate bubble since 2001 were man-made--and shaped specifically by real estate lobbyists and financial promoters. FDR fought the battle against high finance decades ago, explaining:

The royalists of the economic order have conceded that political freedom was the business of the government, but they have maintained that economic slavery was nobody's business. They granted that the government could protect the citizen in his right to vote, but they denied that the government could do anything to protect the citizen in his right to work and his right to live.

This is the dimension missing in today's election campaign. But is not democracy economic as well as political?

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Monday, April 14, 2008

Signs of the Economic Apocalypse, 4-14-08


Gold closed at 927.00 dollars an ounce Friday, up 1.5% from $913.20 for the week. The dollar closed at 0.6325 euros Friday, down 0.5% from 0.6356 at the close of the previous Friday. That put the euro at 1.5810 dollars compared to 1.5734 the week before. Gold in euros would be 586.34 euros an ounce, up 1.0% from 580.40 at the close of the previous week. Oil closed at 110.14 dollars a barrel Friday, up 3.8% from $106.14 for the week. Oil in euros would be 69.66 euros a barrel, up 3.3% from 67.46 at the close of the Friday before. The gold/oil ratio closed at 8.42 Friday, down 2.1% from 8.60 for the week. In U.S. stocks, the Dow Jones Industrial Average closed at 12,325.42 Friday, down 2.3% from 12,609.42 at the close of the previous Friday. The NASDAQ closed at 2,290.24 Friday, down 3.5% from 2,370.98 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.47%, up one basis point from 3.46 for the week.

World economic leaders, meeting in the G7 ministerial level gathering last week, expressed concern about the possibility that a rapid fall in the value of major currencies like the dollar and pound sterling could lead to economic collapse:
G7 fears sudden slide in main currencies

Krishna Guha and Chris Giles

April 13 2008

The Group of Seven industrialised nations has signalled shared concern over the danger of a disorderly slide in the dollar and sterling, following bouts of extreme weakness in the two currencies in recent months.

The warning came in a new sentence of the G7 communiqué, which said “there have been at times sharp movements in major currencies, and we are concerned about their possible implications for economic and financial stability”.

The G7 pledged as before to “monitor exchange markets closely and co-operate as appropriate”.

This is the biggest shift in the G7 language on currencies since the Boca Raton summit in February 2004. It signals the emergence of a new consensus on the risks posed by extreme currency weakness following months of disagreement between economies with appreciating and depreciating currencies.

Up to this point the US had rebuffed pressure from the eurozone to express concern about currency movements. The US government and the Federal Reserve see currency weakness as an essential prop to growth.

But the US government has started to worry more that dollar weakness could run out of control, exacerbating problems in financial markets. The Fed is concerned about the interaction of a weak dollar, global commodity prices and inflation expectations at home.

The US remains unconcerned about the level of the dollar. But it is bothered about the pace of decline.

The UK, meanwhile, also sees benefits from a weaker currency in supporting growth and creating more balance in the economy. But policymakers are concerned that the level of the pound does not slide too far, and are anxious about the risk of a sudden fall.

Officials from one G7 country said the UK was very worried about the potential inflationary consequences of a further big decline in the pound.

Officials in the eurozone and Japan have become increasingly concerned about the effect of currency appreciation on growth.

Eurozone policymakers – with the partial exception of German officials – believe the costs of euro appreciation to growth now outweigh the benefits of downward pressure on inflation.

The eurozone believes the level of exchange rates is a problem, not just the volatility, and hopes the US will eventually come round to this view. But for now European officials have decided to cement the consensus on volatility rather than press publicly for an acknowledgement that exchange rates themselves are out of kilter.

“The words are like a poem, they speak for themselves,” said Jean-Claude Trichet, ECB president.

The G7 stopped well short of threatening to intervene in currency markets. There was no discussion of intervention at the G7 meeting and the prospect of such action still looks remote.

Hank Paulson, US Treasury secretary, remains sceptical of the view that policymakers should try to second-guess market-determined exchange rates. There is no consensus as to the correct exchange rate levels, and Fed and ECB monetary policies are not consistent with an effort to push up the dollar against the euro.

However, some analysts interpreted the new language as an attempt to moderate the pace of currency movements by raising the possibility authorities might intervene in the event of extreme market volatility, even if not to defend any particular exchange rate.

If the strategy succeeds, it could make a sudden collapse in the dollar or pound less likely. But it is also possible traders could see these comments as a minimal response to market movements, and keep pressing the dollar and pound lower. If that happens, the G7 could find its newfound harmony on currencies soon tested.

The rapid rise in food and fuel costs is causing concern in developed countries and riots in poor countries. Food riots have been reported in Haiti, Yemen, Ivory Coast, Senegal, Bolivia, Indonesia, Mexico, Morocco, Guinea, Mauritania, and Cameroon, among other countries in recent weeks. These are some of the world’s poorest countries, so they function as canaries in the coal mine, since a high percentage of people’s income in those countries goes to food. Somewhat less poor countries like Egypt, India, and the Philippines have seen “unrest” over higher food prices. But even in the developed world “discomfort” is being felt and, soon enough, will unrest, then pain will be felt.

The leaders of the world economy reacted in different ways. Again there was a split between the U.S. Treasury Secretary Henry Paulson and the Europeans over what to do. Dominique Strauss-Kahn, the head of the International Monetary Fund leaned towards intervention:

Strauss-Kahn Warns Food-Price Inflation May Trigger Starvation

Christopher Swann

April 12 (Bloomberg) -- Further gains in food prices would be “terrible” for the world’s poor and throw hundreds of thousands of them into starvation, International Monetary Fund Managing Director Dominique Strauss-Kahn said.

Governments throughout Asia, Africa and the Middle East are seeking to combat food inflation and avoid social unrest by curbing exports or lifting import duties on basic food staples such as rice. Global food prices surged 57 percent last month from a year earlier, according to the United Nations, and the World Bank warns civil disturbances may be triggered in 33 countries.

If food inflation keeps accelerating at its current rate “the consequences will be terrible,” Strauss-Kahn told reporters at the IMF’s semi-annual meeting in Washington today. “Hundreds of thousands of people will be starving, leading to a disruption in the economic environment.”

Haitian Prime Minister Jacques Edouard Alexis was voted out of office by the country’s senate today after violent protests over rising food prices, news agencies reported today.

President Rene Preval, who called the no-confidence vote “unjust,” announced a 15 percent cut in the price of rice, which had doubled this week to $70 for a 50-kilogram (110-pound) bag, Agence France-Presse reported. No replacement for Alexis was announced.

Price Outlook

Consumer-price inflation in poor or so-called developing countries will accelerate this year to 7.4 percent, compared with a January forecast of 6.4 percent, the IMF said this week. Food prices will probably remain comparatively high until at least 2015, the World Bank said in a separate report.

“Economic progress made over the last years could be destroyed,” Strauss-Kahn said.

Rice, the staple food for half the world, has surged 96 percent in the past year, reaching a record $21.60 per 100 pounds on April 8. That’s forced China, Egypt, Vietnam and India, which export more than a third of the world’s rice, to curb shipments of the grain. Argentina and Russia have also sought to discourage food exports in a bid to boost domestic supplies.

The head of the United Nations Food and Agriculture Organization advocated price subsidies in poor countries:

Food riots to worsen without global action: U.N.

Robin Pomeroy

Fri Apr 11

ROME (Reuters) - Food riots in developing countries will spread unless world leaders take major steps to reduce prices for the poor, the head of the United Nations Food and Agriculture Organisation (FAO) said on Friday.

Despite a forecast 2.6 percent hike in global cereal output this year, record prices are unlikely to fall, forcing poorer countries' food import bills up 56 percent and hungry people on to the streets, FAO Director General Jacques Diouf said.

"The reality is that people are dying already in the riots," Diouf told a news conference.

"They are dying because of their reaction to the situation and if we don't take the necessary action there is certainly the possibility that they might die of starvation. Naturally people won't be sitting dying of starvation, they will react."

The FAO said food riots had broken out in several African countries, Indonesia, the Philippines and Haiti. Thirty-seven countries face food crises, it said in its latest World Food Situation report.

Some of the worst tensions have been in Haiti where protests at high cost of living descended into riots last week and four people were killed in clashes with security forces. There is concern about rising prices in the Philippines, but it was not clear what incidents FAO was referring to there.

"I am surprised that I have not been summoned to the U.N. Security Council as many of the problems being discussed there would not have the same consequences on peace, security and human rights (without the food crisis)," Diouf said.

Increased food demand from rapidly developing countries such as China and India, the use of crops for biofuels, global stocks at 25-year lows and market speculation are all blamed for pushing prices of staples like wheat, maize and rice to record highs.

While people in richer countries have noticed higher supermarket prices, the effect is far more pronounced in developing countries where 50-60 percent of income goes to food compared with just 10-20 percent in the developed world.

Food Crisis Summit

Diouf called on heads of state and government to attend a food crisis summit at FAO headquarters in Rome on June 3-5.

He said the priority was a "massive seed transfer" -- to ensure farmers in poor countries could buy seeds, fertilizer and feed at prices they could afford.

Other necessary measures include creating financial mechanisms to ensure poorer food importing countries could continue to buy the food they need and give a larger proportion of aid budgets to agriculture, Diouf said.

The comments echoed those of British Prime Minister Gordon Brown, who called this week for a coordinated response to the food crisis which would include reaching a deal on the Doha trade talks and the possible use of market-based risk management instruments to avert food price volatility.

Diouf said it was normal to expect developing countries to put controls on food exports, even if that exacerbated global food prices. The price of rice jumped 40 percent in three days recently when India and Vietnam banned exports, an FAO official said.

"Export bans are a normal reaction for any government that has a prime responsibility to its people," he said.

Expanded crop plantings this year should mean a 2.6 percent increase in cereal output, with wheat up 6.8 percent on last year, FAO has forecast. But with only a small proportion of that reaching the open market, the effect on prices will be negligible as other prices pressure remain, it said.

What did the top economic member of the Bush administration say? What else – food price controls on food in poor countries would be a bad idea. U.S. Treasury Secretary Paulson saw economic danger in helping millions of people avoid starvation and ruin. The economic machine might suffer “distortion,” or there would be “fiscal burdens” (rich people might have to pay some taxes and redistribute some of their income!):
Paulson says food price controls won't work

Sun Apr 13

WASHINGTON (Reuters) - Treasury Secretary Henry Paulson warned on Sunday that governments should resist temptation to try to control soaring food costs through price controls, which he said would likely make the situation worse.

In remarks prepared for delivery to the World Bank's development committee, Paulson said such measures were "generally not effective and efficient" at protecting people likely to suffer the most.

"They tend to create fiscal burdens and economic distortions while often providing aid to higher-income consumers or commercial interests other than the intended beneficiaries," Paulson said.

World Bank President Robert Zoellick warned earlier this month that soaring food and energy prices were a serious concern that threatened to foster social unrest in an estimated 33 countries.
Zoellick called on rich countries including the United States, Japan and European Union to immediately fill a $500 million funding gap at the United Nations World Food Programme to offer food aid to the world's poorest.

Paulson said countries suffering "severe negative shifts in the terms of trade due to higher commodity prices including higher food prices" should focus on policies to control energy use and consider measures to boost agricultural production.

"Governments, however, need to resist the temptation of price controls and consumption subsidies that are methods of protecting vulnerable groups," he said.

The World Bank has similarly advised that, despite the fact that several countries are trying price controls to curb food costs, it is unlikely to be effective in the longer term.

"Income transfers or food assistance for poor people will work more efficiently and sustainably than more general steps at the national level," World Bank economist Don Mitchell said recently.

So the World Bank is now advocating social democracy? Income transfers, food assistance? Apparently Paulson and the Bush adminstration, with their “Shock Therapy” style neoliberalism, are also at odds with institutions controlled by the U.S. establishment.

Speaking of income transfers, if the problem with the world’s credit system began when Americans could no longer pay their bills after years of falling income and rising prices, what better way to solve it than by letting the pay of workers rise?

Want to Save the Economy? Spread the Wealth and Give Workers a Raise

Mike Whitney

Apri1 12 / 13, 2008

Insolvency's dark shadow hangs over Wall Street. One major player, Bear Stearns, has already gone under, and from the looks of it, another investment giant may be on the way down. It's getting ugly out there. The so-called TED spread, which measures the reluctance of banks to lend to each other, has begun to widen ominously suggesting that the money markets think another dead body will be floating to the surface any day now.

The ongoing deleveraging of financial institutions and the persistent downgrading of assets has the Fed in a tizzy. Bernanke has backed himself into a corner by stretching the Fed's mandate to include everyone on Wall Street with a mailing address and a begging bowl. Now he's taken on the even larger task of fixing the plumbing that keeps credit flowing between the various investment banks. Good luck. There's plenty of more pain ahead. The IMF expects the final tally will be $945 billion, that means $3 trillion in lost loans for the banks. Bernanke better pace himself; this mess could last for years.

The US subprime fiasco has spiraled into what the IMF is calling "the largest financial shock since the Great Depression." America's capital markets are on the fritz. The corporate bond market is frozen, the banks are buckling from their losses, and the housing market is in a shambles. No one is buying and no one is lending. Private equity deals are off 75 per cent from last year and no one will touch a mortgage-backed security (MBS) with a ten foot pole. The mighty wheel of modern finance is grinding to a standstill and no one's quite sure how to rev it up again.

The US consumers are feeling the pinch, too. Credit cards are maxed out, student loans overdue, car payments in arrears, and mortgages entering foreclosure. Also, wages haven't kept pace with production and and the home-equity ATM has been shut down. Now that the credit tap has been turned off; the American worker is hurting, but no one is offering a bailout or a even helping hand; just a few table-scraps from Bush's "surplus package". 500 bucks will just about fill the tank of a normal-sized SUV. A new survey from the Pew research Center "Inside the Middle Class-Bad Times Hit the Good Life", shows that working families are in debt up to their ears and that fewer Americans "believe they are moving forward" than anytime in the last half century. The study also shows that most people believe "it's harder to maintain a middle class life style" and that "since 1999, they have not made economic gains." Average families are struggling just to make ends meet.

That's why so many people bought homes when they should have opened savings accounts. They were duped into speculating on housing so they could get a chunk of money. It looked like a good way to overcome stagnant wages and crappy hours. The cheer-leading TV pundits offered assurances that "housing prices never go down". It was all baloney. Now 15 million homeowners are upside-down on their mortgages and the very same experts are scolding workers for fudging the facts on their income disclosure forms. It's all backwards.

No wonder consumer confidence has dropped to record lows. Working people don't need lectures on saving money; they need a raise. The big-wigs at Bear Stearns are still dining on crab-cakes at the Four Seasons while the working folk are just trying to make their way through Greenspan's nuclear winter living on beef jerky and Big Gulps. Where's the justice?

Volumes have been written about the current crisis; subprime-this, subprime that. Everything that can be said about collateralized debt obligations (CDOs) credit default swaps(CDS) and mortgage-backed securities (MBS) has already been said. Yes, they are exotic "financial innovations" and, no, they are not regulated.
But what difference does that make? There's always been snake oil and there have always been snake oil salesmen. Greenspan simply raised the bar a notch, but he's not the first huckster and he won't be the last. What really matters is underlying ideology; that's the root from which this economy-busting hydra sprung. 30 years of trickle down, supply-side gibberish; 30 years of idol worship for the waxy-haired reactionary, Ronald Reagun; 30 years of unrelenting anti-labor, free market, deregulated orthodoxy which inflated the biggest equity-Zeppelin in history.

Now the bubble is hissing out of the blimp and the escaping gas is wreaking havoc across the planet. There are food riots in Haiti, Egypt, and Kuwait. Wherever the local currency is pegged to the falling dollar, inflation is soaring and trouble is brewing. Also, European banks are listing from the mortgage-backed garbage they bought from brokerages in the US and need central bank bailouts to stay afloat. It's just more fallout from the subprime swindle. Finance ministers in every capital in every country are getting ready for a 1930's-type typhoon that could send equities crashing and food and energy prices rocketing into the stratosphere. And it can all be traced back to the wacko doctrines of neoliberalism. These are the theories that guide America's "screw-thy-neighbor" monetary policies and spread financial turmoil to every city and hamlet around the world.

The present stewards of the system are incapable of fixing the problem because they represent the interests of the people who benefit most from the disruptions. Paulson's latest "blueprint" for the financial markets is a good example; a more pro-business, self-serving scheme has never been put to paper. Gary North sums it up in his article "Really Stupid Loans":

"With the Federal Reserve System's latest proposal, presented to the public by Secretary of the Treasury Henry "Goldman Sachs" Paulson, the Fed is asking the United States government to make it the Great Protector of Capital....The new proposals will centralize power over finance in the hands of an agency that is officially run by the government but in fact is run by agents of the largest fractional reserve banks. ...Regulation by tenured staff economists will not make the system less fragile. It will make it more top-heavy and less flexible.."

Some version of this plan will probably pass in the next Congress. No matter whether it does or does not, the direction is the same: toward an economy controlled by the federal government in conjunction with titular private ownership of the means of production, that is, toward fascism." (Gary North, "Really Stupid loans"

The whole point is to put the markets in the Fed's control so that when the next financial crisis arises (from the next swindle) the Fed can bailout the bankers and hedge fund managers without consulting Congress.

Paulson's plan is a power-play; nothing more. The investment Mafia wants to take over the whole financial system lock, stock and barrel. They want to liquidate the SEC and any other government watchdog and put the investment banks, hedge funds and brokerages on the honor system. It's the end of transparency and accountability which, of course, are already in short supply.

Currently, Paulson and Bernanke are expanding the balance sheets of the Government Sponsored Enterprises (GSEs) so that Fannie Mae and Freddie Mac will underwrite 85 per cent of all mortgages while FHA will cover 10 per cent more. The mortgage industry is being nationalized to save banking fellowship while the taxpayer is on the hook for another $4.4 trillion of dodgy loans. Paulson doesn't care if the taxpayer gets stuck with the bill. What bothers him is the prospect that, somewhere along the line, workers will demand higher wages to keep pace with inflation. Then all hell will break loose. Paulson and Co. would rather see the economy perish in a deflationary holocaust than add another farthing to a working person's salary. He and his ilk take class warfare seriously; that's why they are winning. But their strategy also creates problems. When wages don't keep pace with production, demand decreases and the economy falters. That's what's happening now and Paulson knows it. Workers are over-extended and can't buy the things they make. They barely have enough to feed the kids and fill the tank for work. Consumer spending (which is 72 per cent of GDP) is nose-diving at the very same time the Fed's equity bubble is exploding.

Neoliberalism has a twenty-year record of producing the very same economic calamities. Why is this crisis different? Why should the US be spared the same predatory treatment as the many other victims of the global corporate oligarchy? After the Fed's equity bubble bursts, the corporate vultures will swoop down and buy up vital resources and industries for pennies on the dollar.

Economist Michael Hudson anticipated many of the present-day developments in the financial markets in an amazingly prescient interview in CounterPunch in 2003 called "The Coming Financial Reality":

Michael Hudson: "Free enterprise under today's financial conditions threatens to bring about an unprecedented centralization of planning, not in the hands of government but by the financial conglomerates and money managers. Whatever government planning power is destroyed becomes available for them to appropriate, with plenty of vigorish left for the politicians whose campaigns they back and who will "descend from heaven" into high-paying private-sector jobs, Japanese style, after having performed their service for the new regime.

Question: The financial regime is nothing but parasites?

Michael Hudson: "The problem with parasites is not merely that they siphon off the food and nourishment of their host, crippling its reproductive power, but that they take over the host's brain as well. The parasite tricks the host into thinking that it is feeding itself.

"Something like this is happening today as the financial sector is devouring the industrial sector. Finance capital pretends that its growth is that of industrial capital formation. That is why the financial bubble is called 'wealth creation,' as if it were what progressive economic reformers envisioned a century ago. They condemned rent and monopoly profit, but never dreamed that the financiers would end up devouring landlord and industrialist alike. Emperors of Finance have trumped Barons of Property and Captains of Industry." (Michael Hudson, "The Coming Financial Reality", counterpunch, interviewed by Standard Schaefer.)

Bingo. Hudson not only explains how finance capitalism is inserting itself into the governmental power structure but, also predicts that "industrial capital formation" -- which is the production of things that people can really use to improve their lives -- will be replaced with complex debt-instruments and derivatives that add no tangible value to people's lives and merely serve to expand the wealth of an entrenched and increasingly powerful investor class.

Finance capitalism has "devoured landlord and industrialist alike" and created a galaxy of seductive liabilities which masquerade as assets. Derivatives contracts, for example, represent over $500 trillion of unregulated counterparty transactions; a "shadow banking system" completely disconnected from the underlying "real" economy, but large enough to send the world into a agonizing depression for years to come.

The goal should be to dismantle this corrupt Ponzi-system, which merely wraps debt in a ribbon, and rebuild the economy on a solid foundation of productive labor, worker solidarity and and above all the redistribution of income and hence purchasing power away from the system which now flow to the top two or three per cent.

Political power has to be taken from the financial mandarins or the disparity of wealth will continue to grow and democracy will wither. We've already seen our main institutions -- the courts, the congress, the media, and the presidency -- polluted by the steady flow of corporate contributions which only serve the narrow interests of elites.

Henry Liu expands on this idea in his excellent article "A Panic-stricken Federal Reserve":

"In the 1920s, the wide disparity of wealth between the rich and the average wage earner increased the vulnerability of the economy. For an economy to function with stability on a macro scale, total demand needs to equal total supply. Disparity of income eventually will result in demand deficiency, causing over-supply. The extension of credit to consumers can extend the supply/demand imbalance but if credit is extended beyond the ability of income to sustain, a debt bubble will result that will inevitably burst with economic pain that can only be relieved by inflation.....More investment normally increases productivity. However, if the rewards of the increased productivity are not distributed fairly to workers, production will soon outpace demand. The search for high returns in a low demand market will lead to consumer debt bubbles with wide-spread speculation .... Today, outstanding consumer credit besides home mortgages adds up to about $14 trillion, about the same as the annual GDP. "

Voila. A strong economy requires a strong workforce and an equitable distribution of wealth. When money is concentrated in too few hands, the political system atrophies and becomes unresponsive to the needs of its people. That's when the nation's laws and institutions are reshaped to reflect the ambitions of rich and powerful.

The financial system is doing exactly what it was designed to do, it is crumbling from the decades-long trickle-down experiment. Social programs have been gutted, civil infrastructure is in tatters, legal protections have been savaged, and workers rights have been trounced. Is it any wonder why we're embroiled in an unwinnable war and the financial system is on its last legs?

The only way to break the stranglehold of Wall Street's financial Politburo is to level the playing field through greater wealth distribution. That's the best way to rekindle democracy and make America the land of opportunity again. And it all starts with giving America's workers a raise.

Sounds nice, but how would this come about? Stef Zucconi tells us bluntly what we’re up against:

For those of us with a less, um, stochastic view of how the world works and who believe that s*** doesn’t always ‘just happen’, mainstream media accounts of what’s going on in the world are often frustrating and, occasionally, amusing – but only in a very dark way.

The coverage of the state of the British and World economy being the most immediate example that comes to mind.

The British media has recently finally woken up to some key economic trends which have been noticeable for some time now but there has been far too much other, much more important stuff to report on. Those key economic trends include...

· The price of oil is going up lots
· The price of rice is going up lots
· The price of wheat is going up lots
· The price of gold is going up lots
· The value of the dollar is going down lots
· The value of the pound is going down lots
· The availability of retail credit is going down lots

And not only has the British media been rather slow in reporting these movements it is also meticulous about reporting these movements as unconnected events and giving some frankly bollocks explanations as to the causes.

Last night, on Channel 4 News for example, we were treated to appearances from representative jackals from both the World Bank and the IMF; in two scrupulously separated news items, lying through their f****** teeth about why the British/ European/ World economy is going to go t*** up and why people can’t afford food in a growing number of regions of the world.

What neither owned up to is that the underlying reason why all these things are happening is that a massive re-balancing of the world’s already unequal distribution of wealth is now well under way.

Re-balancing is, of course, a euphemism for naked theft.

UK interest rates have just been cut by another 0.25% and even before the cut the media whores were warning people that this cut, as with the previous cuts, would probably not be passed onto ordinary borrowers and that banks would continue to cut back on the volume of mortgages they are lending to people.

Which is all very strange when you think about. Central banks have been creating and pumping money into the global economic system but the stuff is, so we are told, still thin on the ground

Where’s it all going?

I’d suggest a good place to start looking is in the markets that speculate in the price of things none of us can do without. Right now, borrowing made-up money at 5% to punt on and drive up the price of food or oil another 20, 30, 40 or 50% is pretty much a one way bet.

...only your average person hasn’t got the resources or the means to buy their food six months forward. So, they’ll just have to take it up the rear end when the prices rise won’t they?

We are repeatedly told, from cradle to grave, that the cost of the things we need is driven by supply and demand. For example, the price of houses in the UK and the US was driven by population pressure, the increase in the number of households and a failure to build enough new housing.


That’s only half the story – and not the interesting half.

The other key driver for the £ or $ price of a commodity is the supply and demand of the money used to pay for it. And if you can force up the price of something by flooding a market with money, whilst restricting increases in what people earn, you end ******** those people big time

and you can flatten the price of anything just as easily.

The need for housing in the US or UK didn’t suddenly drop overnight.

In the same way that the need for rice or wheat didn’t suddenly leap up overnight either.

There are some very, very evil f****** manipulating both the supply of the essentials of Life and the money used to pay for that supply. Those of us on the demand side are currently at their mercy. A quality that oligarchs are not exactly renowned for.

The only hope of dismantling the “corrupt Ponzi-system” Whitney refers to lies with a more accurate understanding of human nature. One that takes into account the nature of normal humans as well as the nature of the “other human race,” the psychopaths. As Laura Knight-Jadczyk put it,
If the existence of psychopaths and their ability to play us is denied, then their role in government, in business, in the media, in the military, in the police and law, in education, in any place where power is to be had, cannot be understood… Fortunately, researchers such as Łobaczewski, Robert Hare and Paul Babiak are bringing to light the nefarious influence these pathological types play in society. We are beginning to have an understanding of the dynamic between psychopath and non-psychopath, between predator and prey, in individual lives and in society at large.

That is the environment in which we live. If you wish to understand how we are influenced by evil, it is the fact of the existence of the pole of the conscienceless that you must understand. It is the existence of this pole that explains the horrors of human history, not some incurable or permanent predatorial nature at the heart of every human being.

This conscienceless reality continues to exist because the majority of people are ignorant of the facts. They have no knowledge of psychopathy and the role it plays in shaping society. They do not understand that their ideas, their opinions, their thoughts, their dreams, their goals in life are all broadcast out from a group of people who either have no conscience and are incapable of it, or who are willing to do whatever they are asked in order to preserve their own comfort.

To break the rule of the pathocrats, we need knowledge: the knowledge about them and how they work, both on an individual level and on the level of society as a whole. Knowledge, scientific knowledge on psychopathy and ponerology, will permit us to create a pole of conscience that can serve as a counterweight to the pole of the conscienceless. The goal of this knowledge is to eliminate the influence from the other pole by facilitating people to pull themselves out of its field of influence. The 17% or so percent who support the pathocracy would be won away if they were to feel that their security and comfort was bettered served by supporting the other pole.

The goal is not to eliminate physically the psychopaths but to render their manipulations fruitless as more and more people see through them. Knowledge of them and how they manipulate and deceive serves as an inoculation. We can learn to become immune. As this occurs, the weight of the left pole will decrease. If the pathological have no influence, if they can no longer have access to positions of power, gradually, consciencelessness will become nothing but an idea. It will lose its physical manifestations.

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