Tuesday, December 02, 2008

State Sanctioned Theft - When Immorality is Law and Resistance is Crime

By Simon Davies and Donald Hunt
SOTT.net

World stock indexes rebounded strongly last week. The Dow and the Hang Seng were up nearly 10%, the FTSE and DAX were up 13% and the Brazilian Bovespa was up a whopping 17%. Gold pushed passed $800.

In the U.S. retailers reported a better than feared "Black Friday," with sales rising 3% compared to the previous year, although discounts were deep and profit margins low. Black Friday refers to the Friday after the Thanksgiving holiday. It is both the traditional start of the Christmas shopping season and the day that retailers start to make their profits for the year. In recent years it has become a bigger and bigger thing, with families waiting in line outside big box stores and malls the night before waiting to get let in at five in the morning, lured by steep discounts on a few big ticket items. This year with the bad economy it got completely out of hand as a Walmart employee was trampled to death in Long Island when the crowds were let in.

These reports contrast with the predicament of one in ten Americans in nearly half the states who are now relying on food stamps.

The people of Iceland are also in dire straits. The entire banking system has collapsed, Britain has used anti-terror laws to freeze assets and force restitution; the currency has devalued by half, the economy shrunk by 15% causing companies to go bust everyday with thousands of job losses. Naturally the people are calling for a revolution.

In a notionally "free market" system, banks that find themselves in trouble should not be bailed out but allowed to fail - that is what happens to ordinary people, we are never bailed out we become bankrupt with all the attendant horrors of that status. So why is there so much government hand wringing when banks hits the wall? There is a simple solution to this, that there are banks and other corporations that are deemed "too big to fail" which in fact should be allowed to fail and then be broken up and never allowed to rise again. If there were no banks or companies "too big to fail" then bankers would be forced to retain the risk they accumulate as well as the profits. In the current situation that would mean that banks would fail or at least be taken into managed liquidation or administration. This could be achieved and the citizen protected at costs certainly no greater than the current bailouts. But don't expect to see anything so radical on the agenda anytime soon.

Yet, as we discussed last week, it seems that exactly the contrary is likely to arise from the New Bretton Woods system of mega-banks. Many commentators and certainly many US voters have high hopes that Barack Obama is a man who can bring change, who perhaps might even be a "New Dealer" treading in the footsteps of FDR. If Obama really was to implement changes then, like FDR, he will have to break up the 'Great Trusts" starting with the banks.

According to Michael Hudson, all the bailouts to date have been designed to protect claims by the super-wealthy on the surpluses generated by the rest of us. Bad debts are being kept on the books, but they are being transferred in the U.S. to the Treasury and the Fed. Meanwhile, the government's pension fund that insures what private pensions are left, is not being bailed out; and the auto industry is being pushed into bankruptcy precisely so that it can renege on its pension commitments to its workers. Someone is clearly out to get us.

Reality had to raise its ugly head. Barack Obama was elected with overwhelming approval to inaugurate an era of change. And at his November 25th press conference, he said that his decisive victory gave him a mandate to change the direction in which America is moving. But his recent economic and foreign policy appointments make it clear that when he chose "change" as his campaign slogan, he was NOT referring to the financial, insurance and real estate (FIRE) sectors, nor to foreign policy. These are where the vested interests concentrate their wealth and power. And change already has been accelerating here. Unfortunately, its direction has been for the top 1% of America's population to raise their share of the returns to wealth from 37% ten years ago to 57% five years ago and an estimated nearly 70% today.

The change that Mr. Obama is talking about is largely marginal to this wealth, not touching its economic substance - or its direction. No doubt he will bring about a welcome change in race relations, environmental regulations, and a more civil rule of law. And he probably will give wage earners an income-tax break (thereby enabling them to keep on paying their bank debts, incidentally). As for the rich, they prefer not to earn income in the first place. Taxes need to be paid on income, so they take their returns in the form of capital gains. And simply avoiding losses is the order of the day in the present meltdown.

Where losses cannot be avoided, the government will bail out the rich on their financial investments, but not wage earners on their debts...

If you are a billionaire, your first concern is simply to preserve your wealth, to avoid having to take a loss in the value of your financial claims on the economy - claims for repayment of loans and investment, as well as interest and dividends, and enough capital gains to compensate for the price inflation that erodes the spending power of more lowly income-earners.

This year has changed the typical fate of financial wealth in the face of bursting financial bubbles. Traditionally, business booms culminate in a wave of bankruptcies that wipe out bad debts - and the savings that have been invested on the "asset" side of the balance sheet. This year has changed all that. The bad debts are being kept on the books - but transferred from the banks to the federal government, mainly the Federal Reserve and Treasury. The bank bailouts have aimed not so much to protect the banks themselves, but to enable them to pay off on the bad bets they made vis-à-vis the nation's hedge funds and other institutional investors in the derivatives market.

To participate in a hedge fund, one needs to prove that one can afford to lose their money and not be much the worse off for it in terms of actual living conditions. So the $306 billion in federal guarantees of the junk mortgage packages sold by Citibank, and the $135 billion bailout of the insurance contracts written by A.I.G. to protect swap contracts from loss, could have been avoided without much impact on the "real" economy.

In fact, writing down these financial claims ON the economy would have paved the way for writing down its debt burden. If the subprime and other mortgage debts had been permitted to decline to the neighborhood of 22 cents on a dollar they were trading for, this would have made it possible to write down debts to match the price at which mortgage holders had bought these loans for. But the financial overhead of American wealth "saved" in the form of creditor claims on indebted homeowners, industrial companies and junk-insurance companies such as A.I.G. has been protected against erosion by this year's federal bailout program.

Bloomberg has added up these programs and finds that they $7.7 trillion dollars - nearly half an entire year's GDP. By acting to support the market for bad-mortgage loans (but not for real estate itself), the seemingly endless series of Paulson bailouts seeks to keep today's debt overhead intact rather than writing it down. Service charges on this indebtedness will divert peoples' income from consumption to paying creditors. It will help financial investors, not labor or industry. It will keep the cost of living and doing business high, preventing the U.S. economy from working its way out of debt by becoming competitive once again.

With all these trillions of dollars of bailing out the wealthy, one might easily forget to ask what is being left out. For one thing, the government's Pension Benefit Guarantee Corp, whose $25 billion deficit is not bailed out. This year, underfunded corporate pension plans are supposed to "catch up" to full funding so as to protect the PBGC, in accordance with a law passed by Congress two years ago. If underfunded plans don't meet the scheduled 92% coverage for this year, they have to bring their set-asides fully up to the 100% funding level. The stock market plunge has dashed their hopes to do this. The result will be to force many industrial companies into a financial bind.

On the auto front, the Bush Administration has brought pressure to force the big three Detroit companies into bankruptcy as a way to annul their defined-benefit pension plans - with no plans at all bail out money owed to labor by restoring the PBGC to solvency. State and local pension plans are almost entirely unfunded, and are at even more risk as their tax revenues plunge and property tax payments are stopped on housing and commercial buildings that have foreclosed.
All this bailing out of the owners of the FIRE (Finance, Insurance, and Real Estate) sector will most likely effectively bankrupt governments under the current system. Indeed, this is probably one of the main reasons it is being done. Governments will be bankrupt and the biggest financial institutions, those "too big to fail", will have even more control; currencies will collapse from accelerating inflation all conveniently paving the way for the introduction of a new monetary system and a new form of money. As Rob Lee writes,
By the end of next year the US may have near zero interest rates, a fiscal deficit of 8% of GDP or more, and a chronically weak currency. This is a classic recipe for inflation. It is a myth that a weak economy necessarily means low inflation, especially if the size and role of government are expanding. Company failures and low investment weaken the supply side of the economy but improve pricing power for the survivors. Once the credibility of the currency and policy has gone people and businesses seek to protect themselves in real assets. Inflation can rise then very rapidly even in a weak economy.
It may be no coincidence that the only major country not preparing a massive bailout is the one most scarred by memories of hyperinflation, Germany. With banking economists calling for dramatic fiscal stimuli throughout the OECD, "China has announced a stimulus package worth 4 trillion yuan, or roughly $586 billion; Tokyo plans a stimulus worth 5 trillion yen ($53 billion), though it plans only to submit the extra budget to parliament in the new year; Washington has spent or committed trillions of dollars and is expected to come up with another big package -- some economists believe it may be worth upwards of $400 billion -- as soon as President-elect Barack Obama takes over in January and the European Commission has proposed that the 27-country European Union come up with an EU-wide package worth 200 billion euros, or 1.5 percent of EU gross domestic product.

German resistance

German resistance is of course being portrayed by the media as Chancellor Angela Merkel making a big mistake. Merkel says she does not want to get into a "race for billions", but is being accused of not "pulling its weight", a "lack of vision, lack of leadership, and a temptation to free-ride that, if widely mimicked, would truly condemn the world economy to a new great depression"

What is fascinating is to see the economists trying to drive Germany into a corner; Jim O'Neill, chief economist at Goldman Sachs, notes that domestic consumption in export-dependent Germany has barely budged in what will soon be 20 years since the fall of the Berlin Wall. And that is something that should change. "Europe's largest economy should do itself and the rest of the world a favor by raising wages, reducing sales tax, and thereby supporting higher levels of consumption", O'Neill argued in an article in the London Financial Times. O'Neill is of course pressing the Wall Street line that wishes to see every country fall within the trap of a rescue and stimulus package of the type slowly closing around other nations. Maybe Germany has learned from its experiences, not the least of which was the Weimar Republic, and is trying to chart an independent course.

In the United States, much of the bailout activity has been out of the news lately. Remember early in the process where the U.S. Federal Reserve announced that it would lend to institutions besides the banks it usually lent to? We haven't heard much about that lately. But Bill Buckler in his Privateer newsletter reminds us of what has been happening:

We live in astonishing financial times. In its latest reports, the US Fed has let it be known that total Fed lending has climbed above $2 trillion for the first time. That is a rise of 140 percent - or $1.172 trillion - in seven weeks!! The total includes a $788 Billion increase in loans to banks through the Fed and another $474 Billion in other lending, mostly through the central bank's purchase of Fannie and Freddie bonds. Here comes the problem. The Fed has refused to identify the recipients of almost $2 trillion of emergency loans and what the Fed has accepted as collateral!

Bloomberg has sued the Fed under the US Freedom of Information Act, trying to get this information, but the issue is stuck in Federal Court. Somebody out there got this $2 trillion from the Fed but they are not talking. The Fed, in turn, got some financial paper as collateral, but it won't say what it is.
Amid all the money flying around the near collapse of the settlement system for US Treasuries has hardly merited a comment, yet it does not auger well for the future. It is certainly an interesting development when we consider that Timothy Geithner, the next US Treasury Secretary, is chairman of the Bank for International Settlements Committee on Payment and Settlement systems.

The Markets

The markets this week
Previous week's close This week's close Change% change
Gold ($) 791.80819.0027.203.44%
Gold (€)628.96645.5916.632.64%
Oil ($) 49.9354.434.509.01%
Oil (€)39.6642.913.248.18%
Gold:Oil15.8615.050.815.12%
$ / €0.7943 / 1.25890.7883 / 1.2686 0.006 / 0.00970.76% / 0.77%
$ / ₤0.6700 / 1.49250.6507 / 1.5368 0.0193 / 0.0443 2.88% / 2.97%
$ / ¥95.938 / 0.0104 95.400 / 0.0105 0.538 / 0.00010.56% / 0.56%
DOW8,0468,8297839.73%
FTSE3,7814,28850713.41%
DAX4,1274,66954213.13%
NIKKEI7,9118,5126017.60%
BOVESPA31,25136,5965,34517.10%
HANG SENG 12,65913,8881,2299.71%
US Fed Funds 0.50%0.50%0.000.00%
$ 3month 0.01%0.04%0.03300%
$ 10 year 3.20%2.92%0.288.75%


Equality and Freedom

We've been harping on about Capitalism or rather Free Market Capitalism for a while now yet there is more ground to cover. We have all known nothing but two dominant creeds our entire lives, Capitalism and the other charade Soviet 'Communism'. Both are hollow lies, both concentrate wealth and power in the hands of a small minority, both are fundamentally based on theft.

Let us now go back to some roots, to some basic ideas and to some history. Unless you are an adherent of an elitist or racist creed you will agree that we are all born equal, at least in terms of our civil rights. You will also agree that all people should be free. Quite what we mean by "equal" and "free" has been a matter of debate since before Plato. We have broad conceptions that arise within us of "equality" and "freedom" yet when we seek to define how this "equality" or "freedom" might manifest in the material world we encounter disagreement in understanding and precious little implementation. We regard ourselves as being born equal while we are also born with differing attributes which lead us to wish for different 'things' in life, we are born with differing skills that determine what we can put into life. We are born with differences that will determine what we can do with life but these differences do not detract from the fundamental principle that we are all equally entitled to civil and human rights.

When we look around us however, we find precious little evidence to suggest any true equality. We don't mean the fallacious 'equality' that so many organisations campaign for today for what is the benefit of gaining the rights to be a wage slave, to be taxed or to have a meaningless vote. "Freedom" has become a sick joke for we are all prisoners while our jailers laugh all the way to the bank, literally.

We have fine phrases such as "equal before the law" yet we have ample evidence that we are certainly not equal before the law, for otherwise George Bush, Dick Cheney, Tony Blair and thousands of others would be on trial for crimes against humanity. The reality is that we are subject to innumerable laws that restrict us, fine us and otherwise impose upon us for simply trying to live.

In the UK there are fines for leaving the lid of a trash can open, for putting that trash can in the wrong place or leaving it too early for collection, there are speed cameras everywhere, parking fines abound, whatever a resident of that island seeks to do they will find themselves bound by laws at every turn. Yet the people of Britain believe themselves to be free.

Douglas Reed was a noted British journalist and author who became the subject of a vicious smear campaign because he had the temerity to point out the obvious; that there are dark forces at work in the affairs of man who have as their avowed aims the destruction of all that people of conscience hold dear, the enslavement of the planet and all who dwell upon it and the imposition of their godless and faceless rule. He wrote extensively of what he saw taking place around him in the 1930s, 40s and 50s and told it as he saw it in his books, Insanity Fair, From Smoke to Smother, Lest We Regret and Controversy of Zion to name but four. In 1943 in Lest We Regret he described freedom:-
Freedom is a thing of innumerable facets, but split it, and it has but two halves. The first , ...though not the greatest of all, is a man's freedom to roam and know his own country, to enjoy and use a part of [his] native land. The second half is the greater half, because the first half rests on it. It is, freedom from wrongful arrest and wrongful imprisonment.
So it is to Britain, or rather England the "mother of parliaments", that we would like to turn because the roots of much of what we see around the world originated in that small country.

A brief history of resistance

In 1215 England was subject to an uprising among the nobles in a direct challenge to the absolute authority of the king. The upshot was the Magna Carta. The original document was significantly watered down in the years following its signing by King John with the notable exception of the writ of Habeas Corpus ("the fundamental instrument for safeguarding individual freedom against arbitrary and lawless state action."[1] ) which provided in due time the bedrock for that second half of freedom spoken of by Douglas Reed, "freedom from wrongful arrest and wrongful imprisonment". In the decades following Magna Carta the church and the nobility cemented certain freedoms for themselves while leaving the peasantry unrepresented and repressed; most often by the church and nobility themselves. Across Europe, on numerous occasions the peasantry, the common people, sought to wrest elements of freedom from their monarchs, the church and the nobility. The uprisings of the 14th, 15th and early 16th centuries arose from the unremitting pressure upon the poor who were excluded from any share in society or its wealth.

The reasons for these uprisings were those that have driven men to desperation throughout history for they speak of a desire for equality and freedom while labouring under conditions of great economic and social inequality. They are remarkably familiar:-

- The increasing gap between the wealthy and the poor due in great part to the wealth retained by the landed class, the nobility, and the new class of proto-capitalist, the merchant.

- Inflation driven by wars and currency devaluation [2] put pressure on the nobility who resorted to rent rises, theft and thuggery to steal more money from the poor.

- The monarchs and nobility raised taxes and tithes to finance both war and their own expenses.

- Amid this abuse of power there also arose the idea that inequality in property and wealth was against god, that there should be greater equality in society.
One of the most famous of the numerous revolts was the Peasants Revolt or Great Rising in England in 1381. Following the plagues of 1348/49 that ravaged England the shortage of labour gave the peasants some bargaining power which they endeavoured to use to improve their very poor lot. The response of the ruling elite of the time was to enact a law (Statute of Labourers, 1351) fixing wages at the pre-plague level and restricting the ability of peasants to travel. These laws were enforced with widespread severity which, combined with the wealth gap, inflation, taxation and the awakening of ideas of equality, led to the uprising in 1381.

The uprising was ended by the murder of its leaders who were meeting the King and his advisors for negotiations and were therefore subject to the ancient protections afforded to men in such situations and the tricking of the peasants through the outright lies of the King. The surviving leaders were executed.

The structure of land use and holding in England was based on ancient systems that neither the Romans nor the Normans had changed. The idea of title as we know it today did not exist; instead each person has rights and responsibilities relating to the land and those upon it whether they were the lord, the freeholder, the cottager, tenant farmer or squatter. The system gave men the ability to house and feed themselves and their family.

Despite all the inequality within England and the history of the separation of the ruling and ruled, there remained some elements of life based upon the concept of equality for all people had access to common land where they were free to gather wood, forage for food for their animals, and game for their own bellies. Think about that, a man born into poverty had an absolute right to live on common land, to gather fuel from that land and to gather food for himself and his animals and by extension for his family. He had no need to labour for somebody else nor for money for everything that he needed to survive could be found on the common land.

The taking of land through Enclosure prior to the English Civil War was open theft, the primary impediment to which was, strangely, the Star Chamber Court of the King. As the land was steadily stolen the ordinary people often resisted. History records their resistance as rebellion. In all cases the people failed in protection of their rights. The laws of England were used as the means by which theft was enforced, for resistance was grounds for violence against the resisters who were routinely killed while their leaders were hanged and quartered[3].

The merchant class were the first to accumulate capital in England until the Civil War (1642 - 1651) through trade, both domestic and foreign. A key commodity in this wealth creating trade was wool, the price of which rose steeply until the middle of the 17th century. It was this rise in wool prices that drove much of the theft of land so that the land could be used for raising sheep. Thus began an unholy alliance of greed between the ruling elite of the countryside and the merchants. During the war many rural communities took advantage of the weakening of the established order, particularly the fall of the estates of royalists, catholics and the church to recover what was rightfully theirs, namely access to and use of land and its resources of timber, grazing and food[4].

Following the Civil War, despite the illusion that men had fought for greater freedoms, the form of the modern repressive state, particularly the creation of a standing army, took shape and the repression of the ordinary people recommenced as land was steadily expropriated from the ordinary people to the ruling elite.

Two ideas

Two groups of ideas that shape our world today were coalescing during The Enlightenment. One set saw a grand vision of humanity while the other, in two parts, has proven to be absolute evil The former held that, "human beings are perfectible; the right structures of society, at the heart of which is representational government whose power derives from the consent of the governed, facilitate this continual evolution; reason is the means by which ordinary people can successfully rule themselves and attain liberty; the right to liberty is universal, God given, and part of a natural cosmic order, or "natural law"; as more and more people around the world claim their God-given right to liberty, tyranny and oppression will be pushed aside."[5]

The other group of ideas had two parts which were and remain bedfellows, Political Zionism and Communism, together better described by Douglas Reed as the Destructive Principle. The Destructive Prinicpal became publicly manifest in Adam Weishaupt, a German who founded the secret society the Order of the Illuminati in 1776; its avowed aim was the destruction of all nations, monarchs, religions, private property and marriage to bring a New World Order into existence. The creed of the Illuminati is pure psychopathology, a pure, unadulterated pathological evil promoted by a man who was undoubtedly a psychopath. We will be discussing this aspect further next week.

Enclosure - Grand Theft

At the very moment in history when some men's minds were turning to the potential for a better world, and others were turning to evil domination, the expropriation of land, through Enclosure, accelerated in England with arguments of this kind advanced to support the theft of land, "The use of common land by labourers operates upon the mind as a sort of independence ... when the commons are enclosed, the labourers will work every day in the year, their children will be put out to work early, and that subordination of the lower ranks, of society which in the present times is so much wanted, would be thereby considerably secured." More than half the cultivated land of England, before Enclosure, was farmed on the common-field system, and the landless farm labourer was hardly known in the villages of England.[6]

"About a fifth of the total acreage of England was enclosed between 1760 and 1840, and the old village community ... was broken up. Until that time, any man might hope, by his own labour, to acquire property and rise in his village. From that time, we inherit the most unhappy of beings, the landless farm labourer".[7] It is this landless labourer and his family, often then evicted as a further consequence of Enclosure, who became the factory workers of the Industrial Revolution, the men, women and children on whose immense suffering industrial capitalism was built.

Enclosure was justified as a means to improvement. The English countryside and the agriculture practiced on it was said to be in need of reform. The truth was that the expropriation of land from the ordinary people enabled a new form of industrialized agriculture to be practiced which greatly increased the profitability of farming and therefore the wealth of the ruling elite. The ordinary people were reduced to slaves on the land to which they held rights dating from the time of the Druids.

Not only was the theft justified but it was also legal. The process was simple, Douglas Reed again:-

...a petition to Parliament was made bearing the signature of one big landowner for authority to put a fence round some piece of land until then shared by all. The smallholder's only hope of succour was to reach and move the heart of a Parliament packed with great landowners and as distant from and daunting to himself as the Court of the Last Judgment.

In Parliament these petitions were laid before Committees of Members from the districts where Enclosure was proposed - the cronies of the petitioner! Often, petitions affecting the enclosure of thousands of acres, and the fate of hundreds of freemen, were rushed through in a week or two.

The manner in which a large part of England was taken from the many and enclosed by the few was simple and is staggering to look back on. Recent history contains nothing to compare with it. A petition was 'accepted'; that is, the petitioner's friends in Parliament passed it for him. Then, Commissioners, who were appointed by the Enclosers even before they presented their petition to Parliament and were often the lord of the manor's own bailiffs, arrived to put a fence round that 'certain proportion of the land which has been assigned to the lord of the manor in virtue of his rights and the owner of the tithes'. The power of the Commissioners was absolute. This happened in the England in which Pitt was Prime Minister, who declared 'it is the boast of the law of England that it affords equal security and protection to the high and low, the rich and poor'.
That last sentence quoting an English Prime Minister of 200 years ago might just as well have been made today for the same mendacity walks the corridors of power today as walked it then.

The Parliament of the day was a parliament of landlords elected in a corrupt system, many of them being 'elected' through the rotten and pocket boroughs under which, at one point, half (about 200) the members of the House of Commons were elected by just 153 voters (yes, some voters could elect more than one member). Under such a system it is no wonder that the petitions of the ordinary people against the theft of their land rights were buried. Those that resisted were treated as common criminals. Many emigrated while those that stayed became subject to increasingly severe laws against trespass and poaching. At the time when Englishmen, told that they would be enslaved if Napoleon landed in England, fought at Waterloo, "Parliament fixed the penalties for poaching at hard labour, flogging, or transportation. In the year following Waterloo ... a Bill went through Parliament, without debate, which imposed the maximum penalty of transportation for seven years on any person found unarmed but with a net for poaching in enclosed land; and in some of the subsequent years one in seven of all criminal convictions in England were convictions under these Game Laws!"[8]

Not only were the elected members of the House of Commons the landlords and merchants benefiting from the system of legalised robbery but the second house of parliament, the House of Lords, was the shrine of entrenched rights of nobility while the civil administration officials pocketed about £120,000 in fees in fourteen years for assisting the Enclosure Bills through the "legal process". What hope did the ordinary people have?

William Cobbett

There was spirited resistance. William Cobbett was a political activist and journalist who campaigned for political reform in England. Way before his time, he was man who understood the terrible condition of "dense dependent populations incapable of finding their own food, the toppling triumph of machines over men, the sprawling omnipotence of financiers over patriots, the herding of humanity in nomadic masses whose very homes are homeless, the terrible necessity of peace and the terrible probability of war, all the loading up of our little island like a sinking ship; the wealth that may mean famine, and the culture that may mean despair; the bread of Midas and the sword of Damocles. In a word, he saw what we see, but he saw it before it had arrived. Many today cannot see it - even when it is all around them."[9]

The life of William Cobbett is instructive for it exemplifies many aspects of oppression which we seek to shine a light upon today. Cobbett was a moral man who gave his whole life to the battle for those two vital objectives: the freedom of the land, and freedom from wrongful imprisonment. It may not mean much to a modern city dweller, or even perhaps to those who live in the countryside but do not work the land, what an immense loss the loss of ones land is. It is the removal of everything in one go; home, possession, security, income, inheritance and culture. For these English men, women and children dispossessed of everything they knew there was no choice other than to become a member of the new proletariat, depending for subsistence on selling their labour for wages, whether in the city or on the land.

Douglas Reed said this about William Cobbett, "He fought for [freedom] in England, in France during the French Revolution, in America just after the American Revolution, and again in England. ..... he was wooed by a Tory government and offered the editorship of a government newspaper so that he might, for a comfortable salary, laud all that was done by authority and lampoon all who protested."

"He refused, and began to publish the weekly Political Register [in 1802], the most famous independent journal of the next thirty-five years. Sometimes the politicians, sometimes the mob, attacked him. He was fined for criticizing the Government's treatment of Ireland. His windows were smashed."

By 1806 he was a Radical, a vocal proponent of political reform. In 1810 he "angrily protested against the public flogging of British soldiers under a guard of German mercenaries."[10] He was found guilty of treasonous libel, fined a thousand pounds and imprisoned for two years in the infamous Newgate Gaol. In prison, and after he came out, he continued to write, for another seven years, as a fierce and independent critic who could neither be corrupted nor cowed. Notably, he wrote the pamphlet, Paper against Gold warning of the dangers of paper money.

The government, seeking to limit the access of people to news and radical opinion and to generally suppress independent newspapers, heavily taxed all newspapers. This limited circulation of the Political Register so Cobbett changed it from a newspaper to a pamphlet to avoid these taxes. Circulation jumped from just over a thousand to about forty thousand copies a week thus becoming the main journal of the educated working class.

The government, frightened of this voice for change, schemed to charge him with sedition[11] by passing the Power of Imprisonment Act 1817. This act suspended the Habeas Corpus Act of 1679, itself based upon rights enshrined in the Magna Carta. Cobbett fled to America.

England's fight for supremacy against Napoleon in the years leading up to the Battle of Waterloo (1815) had left its finances in a parlous state; Enclosure was proceeding apace, cities and the attendant factories were expanding, the condition of the ordinary people, those people that had "fought for freedom" against Napoleon, was abysmal. The Corn Laws, a tax on imported food, kept food prices high with the inevitable consequences on the ordinary people. In this climate grew an increasing clamour for change, known then as the Radical Movement. The Radicals sought electoral reform and universal sufferage. This made them the enemies of the entrenched order, of the ruling elite, who reacted with ever increasing repression.

The Peterloo Massacre

In August 1819, between sixty thousand and eighty thousand workers, well dressed, highly disciplined and orderly gathered for a meeting in St Peter's Field in Manchester. The authorities arrayed against these peaceful workers 600 elite cavalry, 800 infantrymen, 2 six-pounder artillery guns, 400 militiamen, 400 special police and 120 militia cavalry.

In an attempt to stop the speech of Henry Hunt a famous radical speaker, the militia cavalry rode into the crowd. The ensuing confusion has been used to excuse what happened next but the simple truth is that the crowd was attacked from two sides simultaneously. On one side they were charged by the 600 elite cavalry with sabers drawn while on another by the infantry militia, their only escape route was blocked by the 800 infantrymen.

It is remarkable that only 11 to 15 people died with up to 700 injured. Not content with the slaughter many factory owners fired anybody associated with the meeting while stories abound of the wounded being refused treatment. Women were not spared despite often being dressed in white; of the official 658 casulaties, 168 were women of whom 4 died. The rioting that followed the massacre was used to justify the carnage.

However, unlike other confrontations in this era, there were professional reporters present who faithfully recorded what they saw, they called the event the Peterloo Massacre. This meant that the government was unable to effect a cover up. Despite this, in familiar fashion, the government reaction was even more repression. The speakers and organizers were tried for sedition and jailed. None of the professional soldiers were tried with just four of the militia men tried all of whom were acquitted.

Within one month of reconvening after the massacre parliament passed the Six Acts which treated any political meeting not approved of by the established order as an overt act of treasonable conspiracy. These Acts made meetings of 50 or more subject to license if the meeting was to discuss matters of "church or state" and limited attendees to locals only, thus preventing radical speakers from touring; seditious writing became punishable by fourteen years transportation, essentially a life sentence in Australia; newspaper taxes were increased and broadened to include pamphlets expressing opinions, publishers were required to post a bond; ownership of weapons by the working classes was banned, powers of search, seizure and arrest were granted to magistrates.

As we discussed with regard to the modern Circles of Power, Tony Bunyan summarised with respect to similar circles then, "the ruling class was not monolithic, but comprised several competing and complementary factions. These factions were the merchants, the agricultural capitalists, the small manufacturers and the new industrial [capitalists]. In this period of competitive capitalism it was the merchants and the landed aristocracy who effectively controlled parliament and the state."

"Only later, in the 1830s, when industrial capital became dominant in the economic field, did the [industrial capitalists] begin to challenge the other factions for state power. It was during this struggle between the competing [capitalists] in the 18th and 19th centuries that the foundations of liberal democracy emerged (well prior to an equal voice being accorded to labour). The ideas of neutrality of the state and its institutions were fashioned in this period, less for reasons of democracy than as a means of arbitrating between the warring capitalist factions and combating working class demands."

"In the latter part of the [19th century] capitalism began to move from competitive to the monopoly stage and the twin pillars of its current foundation emerged. One was monopolistic industrial capital and the other centralized bank capital." [12]

Lessons from History

The dreadful history of the ordinary Englishman up until today stands as a testament to the true condition of ordinary people on this planet. The story, which we must leave for the moment, continues with a slow rise in the relative power of ordinary people in England. But it was a rise that was quickly ponerised and misdirected by the same forces that Adam Weishaupt gathered together in his Order of the Illuminati. The ordinary people realised in due course that they held real power but by the time they came to exercise it they themselves had become subject to the thrall and dominance of that great evil, the psychopath, and its attended destruction of good and propagation of evil.

As ordinary people approached the time when they might gain real power under the existing systems the systems changed to move the seats of power always away from them. The outward appearance has remained in the form of parliaments, of Congress, of the judiciary, the police, the military and the other institutions but these have been steadily corrupted and the real seats of power moved ever deeper into the shadows. The role of the intelligence agencies in this move is not to be underestimated.

One aspect of the modern story that we should mention now is the continuation of the great theft that we have described above, Privatisation. Exactly the same argument was put forward for privatisation as for Enclosure, efficiency and improvement. We were told that it was impossible for state enterprises to make the changes necessary to 'modernise'. The fact that within a few short years private ownership achieved many great improvements is held out as proof of the original claim. But nothing could be further from the truth.

Either through their direct labour or indirectly through taxation, generations of our forebears had built the infrastructure, the assets and the systems that made the companies and corporations that provided transport, telephones, water, electricity and numerous other services and resources, many essential to life. With the arrival of Margaret Thatcher in the UK and Ronald Reagan in the US a wave of theft swept the economy. State owned enterprises, many natural monopolies providing essential public services, were packaged up and sold off.

The public were limited to acquiring a small percentage of each company while "professional investors" took the bulk. These professionals were of course the financial powerhouses of the world's financial centers who acquired these essential service companies for their own and their clients gain. Many companies have changed hands, some a number of times, since the original sale, often at many multiples of the original privatization price.

The services that are delivered have in some cases shown a marked improvement while in others they have steadily worsened. The simple truth is that governments could successfully have restructured the companies and made the much needed investments while retaining public ownership. It doesn't matter where you look, whether it is the sale of state housing or of state telecommunications, the tale is the same; the workers and public are far worse off in social as well as monetary terms as a result of privatization while the capitalist elite have made out like the bandits they are.

So you see, dear reader, that there is nothing new under the sun. The theft of our national heritage, our future and the future of our children through 25 years of the privatisation of the infrastructure that was built by our forebears and today through the pillaging of our governments in the form of bank and other corporate bailouts is just another page in the sad annals of history that record, for those prepared to look, the gradual theft of our property, our equality and our liberty. Our rulers have always justified their actions as "improvements" or for our own good while the moral crimes they have committed have been sanctified by the laws that they themselves enact all the while criminalizing resistance to them.

The economic situation we see around us today is no different from the theft of land under the Enclosures. We are bound by laws written by people whose principle motives have been and remain the continuation of the current order from which they and their masters profit; these laws therefore stand not as the bedrock of a just society but as the walls of our prison. Modern law seeks to protect the ruling elites as much today as the laws of historical England, many of which remain in place, protected the thieves of Enclosure. These laws protect our modern thieves and abusers because they have been written by them.

The myriad laws passed under the modern banner of terrorism are not aimed at real terrorists but at us, the ordinary people, while being written by those very forces that we know control and direct the terrorism that they claim to be protecting us from. Just as at 'Peterloo' when we take our displeasure on to the streets we are attacked by armed police for the simple act of holding and expressing views contrary to the established order. In fact we can easily be attacked by the thugs of state in simply going about our daily lives; a fact especially true the poorer a person is.

Today we find ourselves surrounded by the institutions of states built upon principles of theft standing on pillars of law enacted for our repression. We are surrounded by intelligence agencies that track us, watch us and listen to us. We are ensnared in a web of laws that encroach upon our communications and our thoughts. Resistance to the established order, just as in the time of transportation for protecting ones land rights, is punishable with the full weight of the law; a law that is as despotic today as the law of transportation was in the 18th and 19th centuries.

Since 1969 just three clauses of the Magna Carta remain in force in Britain.

Habeas Corpus has been suspended in the US for those that resist the empire, under the Military Commissions Act of 2006. The Habeas Corpus Restoration Act of 2007 which aimed to overturn the Military Commissions Act 2006 was filibustered by Republicans in the Senate and therefore never became law.

Habeas Corpus has been suspended in the UK, as in the US, under the guise of protecting us from terrorism. There is unrelenting pressure in Britain to allow the government to detain anyone it chooses for increasingly long periods without trial and without representation. It should not be forgotten that Britain and the US both have ignominious histories of detaining people without trial for long periods; in the US, the Japanese, in the UK, the Irish.

Whenever Habeas Corpus is suspended we should see it for what it is - the tolling of the bell for freedom. We find ourselves today much as those hapless English found themselves centuries ago; we have been disenfranchised; we are having our "land" in the form of homes, jobs, security, income and inheritance taken from us even as you read this; and we have lost our rights to privacy and to protection from wrongful arrest and imprisonment. We face forces arrayed against us as formidable as any known in history; forces that are preparing, just as those who have come before, to use every tool of repression available to keep us subservient, to keep us ignorant, divided and confused, thereby ensuring our political and economic impotence.

To be continued....

*******

1. Harris v. Nelson, 394 U.S. 286, 290-91 (1969).
2. eg. The Great Debasement of English coin by Henry VIII coupled with inflows of bullion from the New World.
3. Newton Rebellion, June 8th 1608
4. One aspect of the war that has remained cloaked form public attention is the horror visited upon Ireland where Cromwell's New Model Army, the first professional army of modern European history, and those friends of all wars, disease and starvation, were responsible for the death of forty percent of the population.
5. Naomi Wolf, Give me Liberty, 2008
6. Douglas Reed, Lest We Regret, 1943
7. Douglas Reed, op cit
8. Douglas Reed, op cit
9. G.K. Chesterton, William Cobbett, 1925
10. Douglas Reed, Lest We Regret
11. Conduct or language inciting rebellion against the authority of a state (American Heritage Dictionary)
12. Tony Bunyan, The Political Police in Britain, 1976

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Monday, September 01, 2008

Signs of the Economic Apocalypse, 9-1-08

From SOTT.net:

Gold closed at 835.20 dollars an ounce Friday, up 0.9% from $828.10 for the week. The dollar closed at 0.6815 euros Friday, up 0.7% from 0.6769 at the close of the previous week. That put the euro at 1.4674 dollars compared to 1.4774 the week before. Gold in euros would be 569.17 euros an ounce, up 1.5% from 560.51 at the close of the previous Friday. Oil closed at 115.46 dollars a barrel Friday, up 0.8% from $114.57 at the end of the week before. Oil in euros would be 78.68, up 1.5% from 77.55 for the week. The gold/oil ratio closed at 7.23 Friday, unchanged. In U.S. stocks, the Dow closed at 11,543.55 Friday, down 0.7% from 11,628.06 at the close of the previous Friday. The NASDAQ closed at 2,367.52 Friday, down 2.0% from 2414.71 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.81%, down six basis points from 3.87 for the week.

Gold continued its steady rise from the recent lows below $800 an ounce. The dollar also resumed its rise against the euro. The recent rise of the dollar has been attributed to evidence that the rest of the world is entering a recession and that the downturn will not be limited to the United States. It has also been fueled by an export-based mini-recovery in the United States. A recent revision of U.S. GDP (Gross Domestic Product) number showing a 3.5% annualized growth rate in the second quarter of 2008 shows the results of both the growth in exports from the United States and the effects of the tax rebate checks being spent in the economy. Both, however, cannot last, as the checks has already been spent and the dollar is now rising (it was the low dollar that fueled exports).

Eyes Off the Target

Max Wolff

August 29, 2008

On August 28, 2008 the Bureau of Economic Analysis [BEA] released two very widely followed and important reports. Both are backward looking and detail national macro conditions and corporate profits. Gross Domestic Product and Corporate Profits Second Quarter 2008 (Preliminary) are the reports in question. Markets have surged on the good headline news regarding 2Q2008 GDP growth. Indeed the 3.3% reported growth was well ahead of expectations- mine included. The upward revision from the advance estimate was also huge, going from 1.9% to 3.3%. This is an increase of 73%- not too shabby. Of course there was that second report as well, you know corporate profits. There are even a few folks who believe that corporate profits have some relation to where share prices ought to be.

On that first report on GDP, the sources of the quarter over quarter growth are a little troubling. About 90% of the quarterly growth came from falling imports and rising exports. All measures are in falling dollars and rising foreign currencies converted to the dollar. Thus, a very large share of the good news boils down to our declining greenbacks- during the second quarter- and the newfound poverty of American consumers. What do I mean? Our smashed dollar makes our goods cheaper- more exports- and theirs more expensive-fewer imports. Our smashed consumers are buying less- falling imports. More than a little of yesterday's celebration is excitement over our weak currency- which has been strengthening- and our broke consumers- 70% of the US GDP. Export driven GDP gain is ominous given increasing fear of a Euro Zone slowdown and further difficulties in Japan. Import reduction and export growth may not be helped by the recent strengthening of the dollar?

Real exports of goods and services increased 13.2 percent in the second quarter, compared with an increase of 5.1 percent in the first. Real imports of goods and services decreased 7.6 percent, compared with a decrease of 0.8 percent.

· GDP and Corporate Release 28, August 2008- BEA
Beyond celebrating tax rebate checks, local and state government spending, our tanking currency and the poverty of our citizens, there is little to be happy about in the GDP number other than the great headline. The other report from yesterday sheds more and different light on the present situation for assets. Why? Well the corporate profits report speaks to the earnings, growth, dividends and health of the firms who issue and report numbers. Humor me as I assume this is of some passing import to asset valuation and trajectory.

Corporate Profits

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $37.8 billion in the second quarter, compared with a decrease of $17.6 billion in the first quarter.
Current-production cash flow (net cash flow with inventory valuation and capital consumption adjustments) -- the internal funds available to corporations for investment -- decreased $41.3 billion in the second quarter, in contrast to an increase of $10.1 billion in the first.

· 28 August 2008- BEA
Thus, the BEA measure of corporate profits was less robust than the surging GDP headlines might suggest. The relatively weak performance of broadly measured corporate profits indicates the economic weakness many fear. Ironically, the same report banishing recession concerns across trading floors and around water coolers contains warning level indicators about corporate profit and cash flow.

While the GDP revisions are positive, the corporate profit news is not. In addition, the large role for falling dollars has reversed - at least over recent weeks. The pain in consumer wallets looks likely to increase- now that the tax rebates are behind us. Thus, we must conclude that the sources of the growth are fleeting or disturbing. Meanwhile, the last quarter showed accelerating weakness in corporate earnings- particularly non-financials.

It is hard not to think that yesterday's rally has its eyes off the target?


So, while a little good news is always welcome, we’re not out of danger, by any means. The drop in the price of gold this summer has made all currencies seem stronger, but what is really behind it? Market manipulation? Of course! All markets are always manipulated. Only a naïve believer in market fundamentalism should be shocked by that. The question is how effective the manipulations will be, for how long and for whom.

The Building Storm: Gold, the Dollar and Inflation

David Galland

August 24, 2008

One could hardly fail to notice that gold investors have suffered a little more than a “bit of pain” over the past month. More like a good kicking as gold moved down by about 20% from its recent high of $986 on July 15.

Making assumptions is often a bad idea, but I am going to go out on a limb here and make the assumption that those of you with an interest in gold are concerned over the latest setback, the depth of which has surprised even us.

Don’t be.

The evidence to support that statement would fill a telephone book at this point. Starting with the latest U.S. inflation numbers which, even using the government’s own crooked calculations, rang in the last reporting period at 5.6%. Quoting John Williams of ShadowStats.com from a recent email I received from that organization…

Reported consumer inflation continued to surge on both a monthly and annual basis, once again topping consensus expectations. The July CPI-U jumped to a 17-year high of 5.6% in July, while annual inflation for the narrower CPI-W — targeted at the wage-earners category where gasoline takes a bigger proportionate bite out of spending — annual inflation jumped to 6.2%. The CPI-W is used for making the annual cost of living adjustments to Social Security payments. The 2009 adjustment — based on the July to September 2008 period — remains a good bet to top 5%, more than double last year’s 2.3% adjustment for 2008. Such is not good news for federal budget deficit projections.

Based on William’s calculations, which use the same CPI formula used by the Fed prior to the jiggering of the Clinton years, the actual inflation rate is now running at 13.64%.

And on August 19, we learned that the U.S. Producer Price Index rang in at a month-over-month increase of 1.2%, the third month in a row where that leading indicator has topped the 1% mark. Meanwhile, in Europe, the latest numbers put inflation at a 16 year high. And these are not anomalies, but the norm as the inflation tide continues to rise literally around the world.

Dark Clouds

A good analogy to the global currency devaluation is a slow-moving hurricane that, once over warm water, gains energy.

Right now the global inflation is a huge storm, slowly circling off the proverbial coast where it is gathering strength from the hundreds of billions of dollars being fed into it by governments desperate to avoid economic collapse… and from pricing decisions being made by everyone from manufacturers to local shopkeepers looking to cover rising costs.


At this point the skies are dark, the wind is rising, and the torrential rains are beginning to sweep in. The radio is broadcasting warnings to move to higher ground, but the hurricane has yet to hit the shore.

But when it does, it will be a Category 5 and maybe worse.

That’s because, in addition to the straight-up consequences of the government monetary prolificacy and businesses raising prices to try and stay afloat, there is something else feeding power to the storm… something we have been warning about for years now: the rising odds that the global fiat currency system will fail.

Let me add some nuance to that remark.

In recent years, the global financial community, reflexively looking for an alternative to the obviously damaged U.S. dollar, has settled on the euro. But the euro is equally flawed, and maybe even more so, than the U.S. dollar. Now that the trading herd has also come to that conclusion, they are rushing back toward the dollar.

They are doing so not because the U.S. dollar is healthy, but rather because that is all that they know… a heads-or-tails continuum running something along the lines of “If the ‘it’s-not-the-dollar’ play is over, then it must be time to go back into the dollar.”

The euro sinks, the dollar goes up.

And so gold, viewed by these same traders only in terms of its inverse relationship to the dollar, gets hammered.

What they are missing, but not for much longer, is that rushing back into the dollar is akin to heading for the vulnerable coast, and not to the higher ground now proscribed. They are also missing the point that gold’s monetary value is not limited to protecting only against a failure in the U.S. dollar, but against any faltering fiat currency… a moniker that the euro deserves in spades. Not only is it backed by nothing, but it is also backed by no one…


The long-term weakening of currencies won’t end, because the financial crisis hasn’t ended. The only way for governments to prevent the financial crisis from becoming a complete collapse is by pumping money into the system. It now looks like it’s commercial banks’ turn to be bailed out.

When sorrows come

The Economist

Aug 28th 2008

Commercial banks prepare, reluctantly, to take centre stage

Every episode in the credit crunch has had its dramatic flourish. There were the defenestrations at Citigroup and Merrill Lynch late last year; then, in March, the Bear Stearns fiasco; the humbling of UBS; and now Fannie Mae and Freddie Mac, a tale of hubris that might impress Shakespeare himself. What next?

With the tragedy of the mortgage giants still unfolding, another dark drama is entering its second act, and it has rather a lot of players. It concerns America’s commercial banks. “Pretty dismal” was the frank description of their recent performance offered on August 26th by Sheila Bair, head of the Federal Deposit Insurance Corporation (FDIC). That was just after announcing a rise in the number of banks on its danger list, from 90 to 117.

Nine banks have failed so far this year, felled by shoddy lending to homeowners and developers—six more than in the previous three years combined. The trajectory is steep: Institutional Risk Analytics, which monitors the health of banks, expects more than 100 lenders—most, but by no means all, tiddlers—to fold over the next year alone. Alarmingly, the ratio of loan-loss provisions to duff credit is at its lowest level in 15 years.

The FDIC will soon have to replenish its deposit-insurance fund, which collects premiums from banks and stood at around $53 billion before the downturn. One of this year’s failures, IndyMac, has alone depleted the fund’s coffers by one-sixth—and it was no giant. This has pushed the fund’s holdings below a trigger point that requires the FDIC to craft a “restoration” plan within 90 days.


Ms Bair has indicated that banks with risky profiles—which already pay up to ten times more than the typical five cents per $100 insured—will be asked to “step up to the plate” with even higher premiums. This would ensure that safer banks are not unfairly burdened. But it will heap yet more financial pressure on strugglers. Bankers’ groups have already started to protest loudly.

How much will be needed? Possibly far more than the FDIC is letting on, reckons Joseph Mason of Louisiana State University. Extrapolating from the savings and loan crisis of the early 1990s, and allowing for the growth in bank assets, he puts the possible cost at $143 billion.

That would force the FDIC to go cap-in-hand to the Treasury. The need to do so could become even more pressing if nervous savers began to move even insured deposits (those under $100,000) away from banks they perceived to be at risk—which no longer looks fanciful given the squeeze on the fund. Ms Bair’s admission, in an interview with the Wall Street Journal, that the FDIC might have to tap the public purse, albeit only for “short-term liquidity purposes”, will have done little to calm nerves.

It is also sure to reinforce a growing sense that the financial-market crisis has a lot further to run. Risk-aversion, measured by spreads on corporate debt, fell sharply after the sale of Bear Stearns in March but has leapt back in recent weeks as the spectre of systemic meltdown resurfaced. Sentiment towards spicier assets is astonishingly grim: prices of junk bonds and home-equity loans imply a default rate consistent with unemployment of around 20%, points out Torsten Slok, an economist at Deutsche Bank.

Measure for measure

Banks continue to tighten credit, and their own belts—Citigroup has even restricted colour photocopying. What liquidity they have is being jealously hoarded, partly out of distrust of one another, but mostly in anticipation of refinancing requirements on bonds that they issued with abandon in the credit boom. The spread over expected central-bank rates that they charge one another for short-term cash has risen to three times the level that it was in January. Worse, derivatives markets point to a further increase. Another measure of trust, or lack of it, the index of the “counterparty” risk that derivatives dealers pose, is creeping back towards its March peak.

Nor have investors grown any more confident about their ability to price the banks’ toxic mortgage-backed assets: Merrill Lynch’s cut-price sale of collateralised-debt obligations in July has had few imitators. Lehman Brothers has tried unsuccessfully to sell a pile of iffy securities backed by commercial mortgages all summer.

The woes of Fannie Mae and Freddie Mac weigh on these efforts. Bankers feel obliged to advise clients against snapping up distressed securitised assets until the mortgage giants are put on a firmer footing, says one. And banks themselves are exposed: paper issued by the mortgage agencies accounts for roughly half of their total securities portfolios, estimates CreditSights, a research firm. American banks own much of the preferred stock (a hybrid of debt and equity) that the two firms issued. They were attracted by the preference shares’ combination of a low risk weighting and decent yield, says Ira Jersey of Credit Suisse, but have seen their prices tumble on fears that they will be wiped out if the government moves to prop the agencies up. Although only a few regional lenders would be seriously hurt by this, it would add to the pain of many. JPMorgan Chase has just become the first bank to write down its holdings, saying it may lose $600m, or half the value it had put on them. That may start a trend.

Worse, banks have come to rely on issuing their own preference shares to raise capital, and will find that harder if holders of Fannie’s and Freddie’s paper suffer losses. Banks have raised a total of $265 billion of capital since last summer, says UBS. With much of that issuance underwater, investors are understandably wary of throwing good money after bad.

Contagion also spreads through the market for credit-default swaps. Banks have busily written such insurance contracts on Fannie’s and Freddie’s $20 billion of subordinated debt, which sits below senior debt in their capital structures. If the debt’s holders suffer losses in a bail-out, triggering a “credit event”, banks that had sold the swaps would face huge payouts. The amounts involved are “impossible to calculate but far from trivial”, says one sombre analyst. As the bard wrote: “When sorrows come, they come not single spies, but in battalions.”


Fannie Mae and Freddie Mac seem to be the linchpins. A bailout of them would destroy lots of commercial banks, according to The Economist. Max Fraad Wolf has an easy to understand description of what they are and why they are important:

Foreign spigot off for US consumers

Max Fraad Wolff

28/08/08 "ICH" -- - As US public attention shifts from the Olympics to running mates and the celebrity "news" de jour, the infrastructure beneath your house is termite-infested. Just beneath the nicely painted exterior and behind all the new appliances, doubt is boring through the beams, gnawing at the studs.

Alongside falling prices, rising mortgage rates, stricter credit conditions and general malaise, the structure that supports American home ownership is being condemned by market valuation. Fannie Mae and Freddie Mac have nose dived and been downgraded toward a smaller future - and these are more important names for your future than Joe, Sam, Kathy, Mitt, Meg ...

Fannie Mae was created in the depths of the Great Depression to decrease foreclosure and increase home ownership. In 1968, it was re-chartered as a public company, removed from within official government agency status. Freddie Mac, since its inception in 1970, has financed 50 million homes.

Fannie and Freddie mission statements make clear, they exist to facilitate, ease and cheapen home ownership. They do this by acting as liaisons between international capital markets and mortgage seekers. They borrow at preferential rates - based on the implicit/explicit - assurance of the US government. Borrowed funds are used to buy mortgages and bundles of mortgages. They provide credit guidelines and purchase mortgage issued by banks. This reduces banks' risk and provides banks with more cash, more quickly to make more loans at lower costs. These firms, then, exist to facilitate, ease and accelerate bank lending for home purchase.

Fannie and Freddie form a central hub between lenders and investors. After they buy American mortgages, they bundle sell and guarantee repayment. This transforms mortgages into investments for banks, corporations and governments all over the world. Your home mortgage, bundled with many other folks' mortgages, is sold, repackaged and assured by Fannie and Freddie. This reduces risk and assures global savings flow in to support American purchases of homes. International investment is the foundation on which our home ownership was built.

Well over US$1 trillion of our mortgages have been sold to foreign investors this way in the recent past. As you sit down and read this, your mortgage may well be "owned" by a firm, individual or central bank thousands of miles away. This relationship is neither healthy nor sustainable in its present form. Rising defaults, falling dollars and the sheer size of past borrowing are turning people off to American mortgages. The foundation below our houses is shifting.

What we are witnessing is the breakdown of the link between middle-class America and the global financial markets it has over-tapped across the last several decades. Fannie and Freddie were the support infrastructure connecting houses to capital market access. They have been caught with weak financials, swollen balance sheets and escalating default, just like the home owners they assist. The size of their retained mortgage portfolios is truly gigantic.

The extent of the firms' guarantee commitments is global in scope. Sixty-six global central banks buy loans bundled and or backed with Freddie Mac and Fannie Mae involvement. As of June 30, 2007 foreign entities and individuals held over $1.4 trillion in securities of US agencies such as Freddie and Fannie.

Fannie Mae's June 2008 statement declares a gross mortgage portfolio of $750 billion and guarantees of mortgage backed securities and loans of $2.6 trillion. Freddie Mac's June statement details a retained portfolio balance of $792 billion and a total mortgage portfolio balance of $2.2 trillion. These two giants have retained interest in over $1.5 trillion and guaranteed over $4.5 trillion in mortgages, mortgage backed securities and loans. There are $11 trillion in outstanding mortgage liabilities in the US.

The US housing market continues to melt down with dire consequence. In the seven years from 2001 through late 2007, household real estate value increased by $8.873 trillion to $22.495 trillion. It has since fallen by $426 billion. Many claim we are at or a near a bottom. These claims should be viewed with extreme weariness. The housing downturn is not over and it will take a while after it is over to judge the damage.

The search for parallels with today yields little. The closest one finds is the interesting decline in home ownership across the period 1905-1920 followed by a surging rise across the '20s and then collapse across the 1930s. Fannie was born of this collapse, the ideology of The New Deal and sense that government-driven market interventions could broaden home ownership in America. This was a success. Home ownership did grow spectacularly across the period from 1938-2007. It is falling now as Fannie and Freddie flounder.

In 1940, US home ownership stood just below 44%. At the start of 2008 68% of Americans owned their home. Over the decades, Fannie and Freddie changed, middle-class America changed and the global financial realm underwent several revolutions. The last and most transformative revolution involved the rise of securitization and integration of global financial markets.

Securitization involves transforming assets and promises of future payment into financial products for sale to investors. International financial integration tears down the walls between national banking systems and allows savings, loans and payments to be gathered and transferred across international boundaries.

A world of wealth poured into US real estate through securitization and deregulation. This flow was channeled and molded by the actions of Fannie Mae and Freddie Mac. The decline of these firms will have dramatic and long-lasting implications for home mortgage finance. This will impact the price of American homes, the cost and ease of borrowing for home ownership.

Housing prices have further to fall and global savings will likely never be lent to American consumers at recent percentage levels. Across the past few years America has been borrowing over 50% of the world's internationally available savings. The diminishing role of Fannie and Freddie will impact more people, for far longer than presidential running-mate selections. Policy makers and managements in Fannie and Freddie are stuck. Today's consumer strength, their missions and international financial realities no longer align.

We face a housing finance future different from the recent past. Fannie and Freddie will not be able to function in the same way, or to the same extent. The debates about and plans for these firms will touch millions of families through housing prices, finance terms and cost. Fannie and Freddie are much more important than Joe, Sam, Kathy, Mitt, Meg ...


Average people will see the economic troubles as a failure of the system. Not everyone shares that view. For some, things are going right according to plan.

The Ranks of the Ultrawealthy Grow

Tom Herman

Thursday, August 28, 2008

One of the most exclusive clubs in the U.S. has picked up more members.
About 47,000 people had a net worth of $20 million or more in 2004, the latest available year, according to new estimates by the Internal Revenue Service. While that was up only slightly from 46,000 in 2001, it was up 62% from 29,000 in 1998.

The IRS also reported increases in the number of people with a net worth between $10 million and $20 million: 79,000 people qualified for this group in 2004, up from 77,000 in 2001 and 51,000 in 1998.


California had the largest number of residents with a net worth of $1.5 million or more, with 428,000 in 2004. Florida came in second, with 199,000, followed by New York (168,000), Texas (108,000), Illinois (101,000), Pennsylvania (86,000) and Massachusetts (83,000).

This new peek inside the nation's upper crust comes from IRS data posted recently on the agency's Web site. While nobody knows precisely how many millionaires or multimillionaires there are, the IRS figures are considered an important indicator since they're based on federal estate-tax returns, which include extensive details on assets and debts of wealthy people who have died. IRS analysts use data on these returns to estimate the wealth of the living.

The IRS numbers also provide additional insights into wealth in the U.S. beyond what has already been reported in several other studies. Among them was a Federal Reserve Board survey of consumer finances, which focuses on households and was published in 2006. The Fed and IRS data are helpful when read together, says James Poterba, professor of economics at Massachusetts Institute of Technology and president of the National Bureau of Economic Research, the nonprofit research organization best known for tracking the U.S. business cycle. Both sets of data "provide important information," Mr. Poterba says. "They appear to track broadly similar trends in wealth distribution -- but they provide somewhat different perspectives."

Separate IRS data, released earlier this year, showed the nation's top 400 taxpayers by income reported total income of $85.6 billion on their federal income-tax returns for 2005 -- an average of nearly $214 million apiece. Just to make the cutoff to be eligible for this group of 400 required income of at least $100.3 million, up from $74.5 million for 2004. Joel Slemrod, professor of economics at the Ross School of Business of the University of Michigan, dubbed this group "the Fortunate 400."

Some of the IRS's new personal-wealth numbers aren't directly comparable with those in its previous studies because analysts used different net-worth ranges at the lower end. But the top three groups -- starting with a net worth of $5 million -- are the same in these and several previous IRS reports by the Statistics of Income Division. Among the findings in the latest report, which isn't adjusted for inflation:

The total net worth of the 47,000 people in the $20 million-or-more category totaled $2.591 trillion in 2004. That was down from $2.756 trillion held by the top group in 2001 but up sharply from the approximately $1.5 trillion held by those in the top group in 1998.

About 231,000 people had a net worth between $5 million and $10 million in 2004. That was down slightly from 243,000 in 2001.

Of the total income for the $20 million or more group, the biggest single asset category by far was publicly traded stock ($719.28 billion). In second place was closely held stock.

The IRS figures underscore the importance of stock and other business assets for those in the highest echelons of the super rich, says Mr. Poterba of MIT and the National Bureau of Economic Research.


Michael Hudson, in a recent interview by Mike Whitney, agrees that for the super-rich, recent economic policies have not been disastrous at all:
MW: The housing market is freefalling, setting new records every day for foreclosures, inventory, and declining prices. The banking system is in even worse shape; undercapitalized and buried under a mountain of downgraded assets. There seems to be growing consensus that these problems are not just part of a normal economic downturn, but the direct result of the Fed's monetary policies. Are we seeing the collapse of the Central banking model as a way of regulating the markets? Do you think the present crisis will strengthen the existing system or make it easier for the American people to assert greater control over monetary policy?

Michael Hudson: What do you mean “failure”? Your perspective is from the bottom looking up. But the financial model has been a great success from the vantage point of the top of the economic pyramid looking down? The economy has polarized to the point where the wealthiest 10% now own 85% of the nation’s wealth. Never before have the bottom 90% been so highly indebted, so dependent on the wealthy. From their point of view, their power has exceeded that of any time in which economic statistics have been kept.

You have to realize that what they’re trying to do is to roll back the Enlightenment, roll back the moral philosophy and social values of classical political economy and its culmination in Progressive Era legislation, as well as the New Deal institutions. They’re not trying to make the economy more equal, and they’re not trying to share power. Their greed is (as Aristotle noted) infinite. So what you find to be a violation of traditional values is a re-assertion of pre-industrial, feudal values. The economy is being set back on the road to debt peonage. The Road to Serfdom is not government sponsorship of economic progress and rising living standards; it’s the dismantling of government, the dissolution of regulatory agencies, to create a new feudal-type elite.

The former Soviet Union provides a model of what the neoliberals would like to create. Not only in Russia but also in the Baltic States and other former Soviet republics, they created local kleptocracies, Pinochet-style. In Russia, the kleptocrats founded an explicitly Pinochetista party, the Party of Right Forces (“Right” as in right-wing).

In order for the American people or any other people to assert greater control over monetary policy, they need to have a doctrine of just what a good monetary policy would be. Early in the 19th century the followers of St. Simon in France began to develop such a policy. By the end of that century, Central Europe implemented this policy, mobilizing the banking and financial system to promote industrialization, in consultation with the government (and catalyzed by military and naval spending, to be sure). But all this has disappeared from the history of economic thought, which no longer is even taught to economics students. The Chicago Boys have succeeded in censoring any alternative to their free-market rationalization of asset stripping and economic polarization.

My own model would be to make central banks part of the Treasury, not simply the board of directors of the rapacious commercial banking system. You mentioned Henry Liu’s writings earlier, and I think he has come to the same conclusion in his Asia Times articles.

MW:Do you see the Federal Reserve as an economic organization designed primarily to maintain order in the markets via interest rates and regulation or a political institution whose objectives are to impose an American-dominated model of capitalism on the rest of the world?

Michael Hudson: Surely, you jest! The Fed has turned “maintaining order” into a euphemism for consolidating power by the financial sector and the FIRE sector generally (Finance, Insurance and Real Estate) over the “real” economy of production and consumption. Its leaders see their job as being to act on behalf of the commercial banking system to enable it to make money off the rest of the economy. It acts as the Board of Directors to fight regulation, to support Wall Street, to block any revival of anti-usury laws, to promote “free markets” almost indistinguishable from outright financial fraud, to decriminalize bad behavior – and most of all to inflate the price of property relative to the wages of labor and even relative to the profits of industry.

The Fed’s job is not really to impose the Washington Consensus on the rest of the world. That’s the job of the World Bank and IMF, coordinated via the Treasury (viz. Robert Rubin under Clinton most notoriously) and AID, along with the covert actions of the CIA and the National Endowment for Democracy. You don’t need monetary policy to do this – only massive bribery. Only call it “lobbying” and the promotion of democratic values – values to fight government power to regulate or control finance across the world. Financial power is inherently cosmopolitan and, as such, antagonistic to the power of national governments.

The Fed and other government agencies, Wall Street and the rest of the economy form part of an overall system. Each agency must be viewed in the context of this system and its dynamics – and these dynamics are polarizing, above all from financial causes. So we are back to the “magic of compound interest,” now expanded to include “free” credit creation and arbitraging.

The problem is that none of this appears in the academic curriculum. And the silence of the major media to address it or even to acknowledge it means that it is invisible except to the beneficiaries who are running the system.

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Monday, June 16, 2008

Signs of the Economic Apocalypse, 6-16-08

From SOTT.net:

Gold closed at 873.10 dollars an ounce Friday, down 3.0% from $899.00 for the week. The dollar closed at 0.6502 euros Friday, up 2.6% from 0.6340 at the close of the previous Friday. That put the euro at 1.5381 dollars compared to 1.5774 the week before. Gold in euros would be 567.65 euros an ounce, down 0.4% from 569.93 at the close of the previous week. Oil closed at 134.86 dollars a barrel Friday, down 2.2% from 137.84 for the week. Oil in euros would be 87.68 euros a barrel, up 0.3% from 87.38 at the close of the Friday before. The gold/oil ratio closed at 6.47, down 0.8% from 6.52 for the week. In U.S. stocks, the Dow closed at 12,307.35 Friday, up 0.8% from 12,209.81 at the close of the previous Friday. The NASDAQ closed at 2,454.50 Friday, down 0.8% from 2,474.56 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.26%, up 35 basis points from 3.91 for the week.

The dollar rebounded last week, gaining 2.6% against the euro. The dollar’s rise was driven by the new higher interest rate policy signalled by the Federal Reserve Board. Traders responded by driving down 10-year T-Notes, raising the yield by 35 basis points. All this is bad news for the real economy in the United States. Rising interest rates will deepen the recession but the inflationary pressures driving the Fed to raise interest rates are stronger than they have been in decades. 1970s stagflation is back with a vengeance. Or, as the ghost of bubbles past, Alan Greenspan, puts it, now that the financial system has been rescued by cheap money, it’s time to turn off the faucet:
Greenspan sees Fed getting tough on inflation

Chris Aspin and Jason Lange

Fri Jun 13, 5:06 PM ET

MEXICO CITY (Reuters) - Former U.S. Federal Reserve Chairman Alan Greenspan said on Friday the Fed will have to tighten monetary policy to put a brake on inflation, adding that the worst of the credit crisis may have passed.

Growing price pressures have led the U.S. central bank to recently shift to more aggressive anti-inflation rhetoric, and expectations are rising that policymakers will raise benchmark U.S. interest rates within months.

"If you're going to keep inflation rates down ... the Federal Reserve is going to have to put increasing pressure on the money supply and reserves, and as a result we're going to see interest rates rising," Greenspan said via video link to an event in Mexico.

Soaring gasoline prices helped drive up the U.S. consumer price index in May at the fastest rate in six months, the government said on Friday, although "core" prices, excluding food and energy, remained tame.

Greenspan, who attained cult status for his insight into financial markets as head of the U.S. central bank, said weakness in financial markets probably peaked in March but that it was hard to say how long the crisis would last.

"It can struggle along for a while. It could get worse, it could get better," he said.

Federal Reserve officials have recently harshened their tone about inflation, marking an important shift away from an emphasis on the risk that financial turmoil, tighter credit, and a deep housing contraction could tip the U.S. economy into a deep recession.

Fed Chairman Ben Bernanke, together with other senior Fed officials, said this week the bank was watching for any sign that a self-feeding inflationary psychology could take hold. Past inflation spirals have been fueled by workers asking for big increases in pay.

While the Fed is expected to hold rates steady at its upcoming meeting on June 24-25, financial markets now expect policymakers to raise rates as early as their subsequent meeting on August 5. A signal of their intentions could come when they announce their next decision.

Credit Crisis

The credit crunch, which has infected markets globally, erupted last year when the U.S. subprime mortgage sector melted down.

Banks holding mortgage loans that were repackaged into so called "structured finance" securities have since said that those assets are worth billions of dollars less than previously thought.

Greenspan said the financial market problems could continue until the stated value of those assets fully reflect the fall in house prices in the United States.
"Until prices are clarified ... we will be dealing with a not fully functioning financial intermediary system," he said.

He said that convergence could happen "perhaps by the end of this year but maybe not. It may require some going into next year."

Greenspan said market watchers would know the crisis was coming to an end when the gap between three-month London interbank offered rates, or Libor rates, and Overnight Index Swap rates narrowed to about 50 basis points.

The closely-watched spread -- a key gauge of money market stress -- was around 74 basis points on Friday, its lowest since mid-April. It has been consistently above 70 basis points since mid-March.

"The worst is over (for the U.S. economy) if the financial crisis is over," Greenspan said.

No surprise that Greenspan says that the worst is over if the financial crisis is over. For the rest of us, though, the worst is yet to come. Foreclosures are accelerating in the United States:
US foreclosure filings surge 48 percent in May

Alan Zibel

June 13, 2008

Soaring foreclosures are continuing to raise questions about the mortgage industry's claims that lenders are making a dent in the housing crisis.

Foreclosure filings last month were up nearly 50 percent compared with a year earlier. Nationwide, 261,255 homes received at least one foreclosure-related filing in May, up 48 percent from 176,137 in the same month last year and up 7 percent from April, foreclosure listing service RealtyTrac Inc. said Friday.

The latest grim foreclosure news comes as criticism mounts that efforts by government and the mortgage industry to stem the tide of foreclosures aren't keeping up with the rising number of troubled homeowners. Critics say a Bush administration-backed mortgage industry coalition, dubbed Hope Now, is falling far short.

"It's clear that these voluntary efforts in and of themselves cannot really make a dent," said Allen Fishbein, director of credit and housing policy at the Consumer Federation of America. "Government intervention is going to be necessary."

Mark Zandi, chief economist of Moody's Economy.com and an adviser to Republican John McCain's presidential campaign, wrote earlier this week that "the Bush administration's efforts to encourage loan modifications and delay foreclosures are being completely overwhelmed."

A Credit Suisse report from this spring predicted that 6.5 million loans will fall into foreclosure over the next five years, reaching more than 8 percent of all U.S. homes…

The combination of weak housing sales, falling home values, tighter mortgage lending criteria and a slowing U.S. economy has left financially strapped homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't get refinanced into an affordable loan.

Making matters worse, mortgage rates have been rising, reflecting increased concerns about what the Federal Reserve might do to battle inflation. Freddie Mac, the mortgage company, reported Thursday that 30-year fixed-rate mortgages averaged 6.32 percent this week, the highest level in nearly eight months and up sharply from 6.09 percent last week.

According to the RealtyTrac report, one in every 483 U.S. households received a foreclosure filing in May, the highest number since RealtyTrac started the report in 2005 and the second-straight monthly record.

Foreclosure filings increased from a year earlier in all but 10 states. Nevada, California, Arizona, Florida and Michigan had the highest statewide foreclosure rates.

Metropolitan areas in California and Florida accounted for nine of the top 10 areas with the highest rate of foreclosure. That list was led by Stockton, Calif. and the Cape Coral-Fort Myers area in Florida.

Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions. Nearly 74,000 properties were repossessed by lenders nationwide in May, while more than 58,000 received default notices, the company said.

In Nevada, one in every 118 households received a foreclosure-related notice last month, more than four times the national rate. In California, one in every 183 households faced foreclosure.

Rick Sharga, RealtyTrac's vice president of marketing, said foreclosures are unlikely to peak until sometime this fall, as more loans made to borrowers with poor credit records reset at higher levels. "I don't think we've seen the high point," he said.

About 50 to 60 percent of borrowers who receive foreclosure filings are likely to lose their homes, Sharga said. The rest are likely to be able to sell or refinance.

As foreclosed properties pile up, they add to the inventory of homes on the market and drag down home prices. The trend is most dramatic in many parts of California, Florida, Nevada and Arizona, where prices skyrocketed during the housing boom and are now falling precipitously.

Nationwide, one out of every four sales between January and March was a distressed sale, and that figure jumps to more than 50 percent in the hardest-hit areas like Las Vegas, Detroit and distant suburbs of Los Angeles, according to Moody's Economy.com.

In some neighborhoods, lenders are slashing prices dramatically to rid themselves of an unprecedented number of foreclosed properties, sparking bidding wars and multiple offers. While that's a positive for the real estate market, buyers in other parts of the country are still holding back.

"I think a lot of people are waiting to see if we really have hit the bottom," Sharga said.

Lehman Brothers economist Michelle Meyer said in a report Thursday that U.S. home sales are likely to hit bottom at the end of this summer, but said a recovery in sales is likely to be "feeble."

Consumer sentiment continues to plummet:
U.S. Economy: Consumer Prices Rise, Sentiment Slumps

Shobhana Chandra

June 13 (Bloomberg) -- U.S. consumer prices rose more than forecast in May as record oil prices reduced American confidence to the lowest level since Jimmy Carter was in the White House.

The consumer price index increased 0.6 percent, the most since November, after a 0.2 percent gain the prior month, the Labor Department said today in Washington. The Reuters/University of Michigan preliminary index of consumer sentiment fell to 56.7 in June, a reading unseen since 1980, from 59.8 in May.

The slump in confidence may prevent Federal Reserve officials from rushing to raise interest rates to stem the pick- up in inflation. Most economists anticipate Chairman Ben S. Bernanke and his colleagues will wait until next year to boost borrowing costs, according to a monthly Bloomberg News survey.

"The Fed is in a terrible situation here," Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut, said in an interview with Bloomberg Television. "We are certainly in a slow period" and "the Fed is talking tough on inflation."

So-called core prices, which exclude food and energy, increased 0.2 percent in May from April, matching economists' forecasts…

With tough times beginning to hit, it may be a good time to step back a bit and look at the big picture. The following essay, written by Ran Prieur in 2002, offers a useful corrective to standard economic journalism.

The Coming Expansion

Ran Prieur

July 29, 2002

When you hear "the economy," think "corporate rule": A strong economy means strong corporate rule; economic collapse means the collapse of corporate rule. It's not exactly true, and it's false in times and places where corporations are not dominant, but right now it comes a lot closer to the truth than the usual background assumption that what's good for "the economy" is good for people.

I know: A good economy means you can get a job, and in a really good economy you can get such a good job that if you work 70 hours a week for years you can buy a nice house in a nice place where you never have to deal with those disturbing poor people who are too lazy to work 70 hours a week, who you never learned to relate to because you're so busy in the economy, and then you can die lonely and bewildered in your big empty secure house.

Doesn't it make you angry that you need "the economy" to have the alleged privilege of doing what someone tells you to do all day so you don't starve and freeze on the streets? Aren't you infuriated by your humiliating dependence on a system that gives you no participation in power? "Live free or die" is easy to say in an imaginary scenario of security agents kicking down your door, but whenever I suggest that economic collapse is a step in the right direction, I'm accused of being anti-human, of wishing for starvation and death, by people who are effectively saying "Please, please, let us live as frightened powerless dependents, anything to not die."

We are in an ugly, awful situation. Better avert your eyes. Here's a nice parable: For countless thousands of years the people of Earthor lived in happy villages, getting everything they needed through small, consent-based communities where everyone was a friend and everything was out in the open. Then they were conquered by evil giants!

Now, everything the people made, every house and every bit of food, was given to the giants, and the giants allocated it to keep themselves in power: the people who obeyed the giants the best, and did their most evil work, got the most stuff; and the people who refused to labor for the giants at all were harassed and isolated and sometimes outright killed; and most people in the middle were kept always wanting more than they got to keep them always busy.

Now one day a hero rose among the people and said, "Let us kill the giants." But then some sensible-sounding voices said, "Without the giants, who will provide our food?" Actually these were people who worked closely with the giants, and knew that if the system changed they would lose all their stuff. But other people listened to the hero, so the giants had to come kill them all, and everything went back to normal, except the giants got even stronger and meaner.

But then another hero appeared, and by this time the people hated the giants so much that the giant-collaborators couldn't stop them, and they did it -- they killed all the giants! But they had been living under the giants for so long now that they didn't know how to live differently. Some people managed to start awkward consent-based villages with tedious "community meetings" ruined by everyone's emotional problems from living under the giants. But these groups fell apart or were taken over, and soon enough, strangely, they all found themselves once again ruled by evil giants. Except now the giants were subtle and persuasive, and the people loved them, or at least they thought a world without giants was grossly unrealistic, and they blamed their unhappiness on other people.

And so it went. But look! The giants cannot stay the same size and survive. To live they must constantly grow. They even have a saying: "Any evil giant that doesn't grow dies." But now they're getting so big that their bulk is all dead bones cracking under their unimaginable weight, so big that they can do nothing but blunder around clumsily, ravenously consuming everything in reach to grow still bigger. And their hunger has turned half the land of Earthor into gray smoky deserts. Anyone who looks can see it coming: The giants are going to run out of food, and die.

What then? Let's return now to the less deeply nested fantastic world of our own Earth. The giant patterns that command our labor under threat of death or prison, that manage and distribute the products of our labor to keep themselves in place, are breaking down. In the last two weeks the price of "stocks" -- tokens of collaboration with the ruling system -- has fallen hard, minus a few temporary half-recoveries caused by covert buying spikes. The "economy" is dying, and anyone who's been looking has seen it coming for years.

The propaganda industry will blame corporate greed, as if this could have been avoided if corporations weren't greedy and fish didn't swim. In fact, collapse is the only possible result of an economy that survives by taking more from its environment than it gives. In this case the environment is not only the Earth, which is running out of "resources," but the human species, which is running out of willingness to participate in a coercive and disempowering system.

I'm not calling for civilization to fall and kill billions of people in ways other than old age, any more than I'm calling for winter to come and kill a lot of plants. I'm just noticing it coming and declaring that it's perfectly natural. Liberals fantasize about a "soft landing," maybe involving a benevolently oppressive global government implementing a hundred years of strict forced contraception and strict forced resource frugality. What's soft about that? It sounds like going into a cold swimming pool slowly and painfully for 20 minutes instead of just jumping in. We're all going to be dead in a hundred years anyway. Let's some of us die young so all of us don't have to live in some eco-puritan dystopia.

I'm not joking -- I'm just refusing to fetishize dying. We're programmed to think of dying as the ultimate worst thing, as the negation of living, when really it's a normal friendly part of living, and what's negating our living is our fear of dying or physical damage. Our culture whips this fear into an insane frenzy, not just to keep us enslaved, but because our culture is an evil mass consciousness, a vampire that cultivates and feeds on our emotional contractiveness.

Our contractiveness is the same thing as our "progress," our descent on engines of disconnection into an artificial hell of computer spreadsheets and tax laws, pavement and cars that turn the grass under your feet into a mile-a-minute green blur, science that turns your view of the sky into mathematical formulas in windowless rooms. But everything that contracts must expand.

The contraction we call the Roman Empire cut down the forests of Europe. When it finally relaxed, the forests grew back, but the people of Europe only grew back a little before they shrank again -- self-sufficient rural communities devolved into feudal estates, which got sucked into larger and larger centralized nation-states, which are now falling into the vortex of the unprecedented power-sucking abilities of global corporations. We're as deep now as we've ever been, and I'm not sure, but I think we're out of room to go deeper, unless they figure out how to trap our consciousness inside computers.

I think the next time we expand, we're going to follow through. I suspect that humans are smarter now than ever -- that intelligence is the default human condition, and stupidity has to be manufactured, and our intelligence has been growing stronger and stronger, invisibly staying a step behind advances in stupidity-manufacturing techniques, the same way weeds and bacteria have been growing resistant to high-tech poisons. The controlling interests seem to be winning, but the lid's about to blow off, and when it does, those of us who don't die of starvation or disease will see a blossoming of human power like nothing in history.

Here's what I mean by "human power": Right now if you need a place to live, you can't just find a place and live there, no matter how responsible you are. Places are all "owned," and not by people but by contractive patterns using people, by banks and businesses and money-grasping habits of individuals. You have to apply to these alleged "owners," submit to degrading rituals, accept permission to occupy a place, not change it in any important way, and pay a huge monthly sum of money -- a billion rivers of money running from the poor to the rich. And the only thing you get in return, what you're actually tricked into demanding, is to have your power/responsibility reduced even further by depending on the "owners" to make necessary repairs.

When we get our power back, you'll just pick an appropriate place and live there, and build or maintain shelter that fits the skills of you or your group. And in the transition to this, we'll survive by sleeping on each other's couches, by filling up our houses and learning to live in the same space with other people again instead of buying satanic isolation. We'll turn our lawns into vegetable gardens and feed ourselves with our own hands instead of depending on money and supermarkets. Our alleged poverty will lead us to rebuild community and autonomy that were destroyed by our alleged wealth.

Link by link, we will stop depending on and answering to higher powers and begin depending on and answering to the lower powers of our bodies and the Earth. The Earth is us too, and when we get our power back, monoculture farms will be set free to be grassland and forest again, in which humans will live in deep and enduring symbiosis. I'm not saying we'll all be hunter/gatherers, but some of us will, and at the very least that economy is the necessary safety net above which we will try other things.

When we get our power back, the homeless / jobless / moneyless will reach a critical mass where the police can no longer stop us and we know it. If an eagle wants more space, it fights a competitor, and typically neither bird is badly hurt, and both have the experience of engaging the world with their energy. This is not “violence” but a vigorous physical way of resolving conflict; it's not about control or extermination but balance. In all the known universe only civilized authorities do not work this way, do not tolerate physically fighting them or running from them, do not give any options but total submission or death. That's why all of us who have not been killed are full of suppressed rage. And if we channel this rage wisely, we will not exterminate the authorities so they can escape and come back in the form of us; we will hold them in the one position they cannot endure, of living as equals with other life, until they dissolve.

Totalitarian control structures are fascinating: The police not only deny us power -- they deny it to themselves, believing that they lack the authority to compromise because they're "just doing their job" for someone else. But if you look up the chain, no one has any power -- even the highest elite are powerlessly following a script written by a financial balance or a country or a warped sense of "order," a program taking control so it can take more control so it can...

This system is an anti-system, a multilevel negation, built of blocks of lack of power, lack of responsibility, lack of awareness. This raises mind-bending questions: How do you destroy a void? And if nobody has any real power, where does the power go?

I think the answer is that power isn't actually being taken but being blocked, in nonhumans by simply killing them and in humans by socialization that begins in infancy, punishing people for having a will of their own, for being aware, for channeling any bottom-up power, until by age 30 most of us are barely alive, almost as Philip K. Dick wrote: "Not a person but a sort of walking, hiding symptom of their way of life."

But blocked power just keeps building up. It wants to flow up through our cells, our muscles, our blood. If we keep holding it back it's going to explode! That's not good. We need to learn to focus it, like a rocket focuses an explosion to push it into orbit, like a plant focuses growth into the roots before the stalk. The famous biblical line is a mistranslation: The word was used to describe good horses, not their submissiveness but their ability to focus their attention and respond instantly to the slightest cues.The disciplined will inherit the Earth.

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