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Archive for the ‘Money’ Category

What The Lehman Report Proves: Financial Insolvency

Posted by Karl Denninger

Russia, Greece, Chile, and the Narcissism of Harvard Debt Lords

By Damon Vrabel  

Today marks the beginning of a new administration in Chile as Harvard economist and billionaire Sebastián Piñera eked out a narrow victory in January.  Interestingly this is related to the rest of the world as we also see today Greek police, dressed in the Darth Vader costumes used in every country, cracking down hard on their poor countrymen.  They have been robbed by the elite financier/politician tag-teams that roam the world attacking whichever country and currency they choose. 

Since almost every currency is just a debt-based instrument, the tag-teams are quite successful.  Despite the claims of neoclassical economics and the theories of Harvard Business School, having a debt-based currency means that governments are not in charge of their countries.  We are living in a world governed by the bond market, billionaires, and elite financial institutions, not governments.  The future is grim if this isn’t changed.

People who dismiss this will learn the painful lesson in due course.  Most countries, especially the United States, are now stuck under incomprehensible levels of debt just waiting for financiers to attack.  National foreclosure is coming.  Those who paid attention when it happened to southeast Asian countries, Russia, Argentina, Mexico, and others know what is coming.  People who are paying attention now to Greece can see what is coming—the end of cash transactions, the loss of sovereign land, the privatization of resources, massive taxation, the end of support for the lower classes, and an active police state. 

Plutocracy: Government by the Wealthy Few

The Greek protesters are chanting “no sacrifice for plutocracy” while being tear gassed and beaten.  It certainly isn’t the catchiest phrase I’ve ever heard, but it is precisely accurate.  The private sector rich rotate through the public sector so their nexus of power cannot be threatened.  The citizens of Iceland understood this and luckily took their power back by refusing to payoff the fraudulent loans of the foreign financiers.  Why has no other country done this?  Why have no US states, bankrupt for the same reason, done this?  In every situation other than Iceland, the politicians submit to the financiers, put their citizens in austerity, and sick the storm troopers on the poor like a pack of pit bulls. 
The reason they submit is primarily because mega banking institutions control money (see previous article on Wall Street http://canadafreepress.com/index.php/article/20368). 

But politicians also submit because they are willing accomplices.  They increase deficits and participate in the game that builds up the leverage in the first place, which makes a few people very rich. Then when debt deflation or a currency attack occurs, they continue playing the game.  We have seen this in the United States over the last several years as presidents let the near-billionaire Harvard boys Robert Rubin and Hank Paulson setup the game, not to mention the not as rich Ivy Leaguers like Larry Summers and Tim Geithner.  So far trillions have been stripped from the American people.  But we are only at half time.  You will know when the 2nd half has started when you look outside your front window and see the picture from Greece above.

The few politicians and financiers I am talking about have been playing this game together for a long time.  They are bred in a world separate from you and me.  They live in the same elite enclaves, attend the same private prep schools, go to the same Ivy League colleges, business schools, and law schools, and then spread out between New York and Washington DC to continue their self-serving partnership.  Again, I’m talking about a small group, not 95% of the graduates of these institutions. 

A useful indicator for whether someone is part of the select few or not is narcissism.  Are they ruthless overachievers for a paycheck?  Is class status important to them?  Do they have contempt for the average person?  Do they strive to become part of the oligarchic elite in clubs like the Council on Foreign Relations? The answer is yes to all of those questions for some very key names we have seen over the last several years:

Robert Rubin – CFR, Harvard, Goldman, Treasury, Citi
Hank Paulson – CFR, Harvard, Goldman, Treasury
Larry Summers – CFR, Harvard, Treasury, World Bank
Tim Geithner – CFR, Dartmouth, Treasury, Fed, IMF
Jamie Dimon – CFR, Harvard, Chase, Fed

The list could go on for a while.  It includes both the private sector folks getting fabulously rich from our monetary, fiscal, and regulatory policy over the last 30 years, and the government officials who are making the policy.  In fact the officials making the policy ARE the rich private sector few who benefit from it—the definition of plutocracy and oligarchy.

You will not see people on this list who would be true public servants: 

Brooksley Born – tried to stop the Harvard boys under Clinton
William Black – defended the country in the S&L scandal
Janet Tavakoli – explains the public-private fraud better than almost anyone
Eliot Spitzer – could be the modern Teddy Roosevelt going after the plutocrats

People like this are capable of compassion and concern for fellow human beings.  They can see through Ivy League schmarm and are not controlled by a desire to be part of the inside clique.  They do not suffer from narcissism, which is easy to detect as you see them talk on TV (actually Spitzer is narcissistic, but he is the type that wants to fight the establishment narcissists, so he is a real public servant).  If these people ran Treasury, SEC, FDIC, Justice, and other regulatory agencies, we might have a country with a future for the average person.  Instead we only see the connected few in these positions. 

Harvard Economists, Debt Lords, and Billionaires in Government

In the US, the Harvard economists and billionaires who want to run things have to hide behind lawyers and corporate institutions or be appointed to unelected positions like Treasury Secretary because our citizens would never vote for them.  But something has changed in Chile where for decades they voted for public servants who have worked to eliminate poverty but have now put a Harvard economist and billionaire in office. 

How did Sebastián Piñera become a billionaire?  The same way the most powerful people in the world make money—by using debt to suck wealth from the population creating all the value.  He founded credit card company Bancard and helped put the Chilean people in debt to the Anglo banking model.  Will someone like this serve the public interest?

Well, here’s a scary thought experiment:  would Jamie Dimon, CEO of the biggest debt machine in the US and insider on the NY Federal Reserve Board, be a president who cares about you?  Any narcissist who can lecture lower class Americans to pay their debts, the source of his wealth, while his firm is in the process of tripling credit card rates and kicking them out of their homes has no business coming anywhere close to the public sector.  This is the type of guy who now runs Chile.  Of course with Rubin, Paulson, and their protégé Geithner in Treasury, this is also the type of guy who has run the US for several years.

As a fellow Harvard Business School alum, guys like Jamie Dimon and Hank Paulson embarrass and disgust me by furthering the financial empire system beyond reasonable means to keep lining their wallets while impoverishing the American Republic and conquering other nations.  There are more just like them in the select club.  But even worse than these MBAs chasing paychecks is the Harvard economist Larry Summers who creates the economic structure within which the MBAs operate.  He tore down Glass-Steagall and led the free market jihad against any and all regulation in derivatives, which setup the Wall Street structure that brought us to the crash of 2008.  He and his colleague Andrei Shleifer tried to privatize Russia in 1998 and hand it over to the wealthy oligarchs, while Shleifer was personally profiting from insider trades on Russian companies.  Then while he was president of the institution, he had Harvard pay the legal settlement for Shleifer, infuriating other Harvard professors.  Summers also helped put Mexico in debt and reinforce the plutocratic regime there in the peso crisis of 1994. 

These people need to be stopped.  It should be clear by now that Harvard MBAs voraciously pursuing paychecks running mega financial institutions, after Harvard economists have rigged the regulatory system, can do a lot of damage.  The citizens of Iceland have realized this and set the example.  If other countries fail to follow, their populations face a future clash with their police just as Greece is experiencing today.  Why the police agree to make war against their own people in order to protect rich guys is a topic for another article, but it could all be avoided if countries would just reassert their sovereignty. 

• Start phasing out debt-based currencies by creating sovereign ones that are an asset to the people.  Pass usury laws at the same time to prevent banks from jacking up rates to suck up this extra money and creating a financial catastrophe.
• Put people like Born, Black, Tavakoli, and Spitzer in charge.
• Breakup the Wall Street banks.  Also end their cartel by nationalizing the Federal Reserve, thereby passing power back to the states and state-chartered banks.
• Push your state governments to spend asset money into the system (see the Minnesota Transportation Act).  California and Illinois are about to be pushed into Greece’s foreclosure situation.  It does not need to happen if only the governments would do their constitutional duty.

On April 25, 2008, a group of concerned citizens, from across the country, who met on an online forum called Market-Ticker.org decided that it was necessary to start tying to wake people up to the fact they were being robbed. Not only were they being robbed, but the robbery was about to become brutal.

Just a few days after Bear Stearns was forcibly merged into JPMorgan, using YOUR tax dollars, we stood in downtown New York city, with signs and literature, educating the public about what had just happened. We were well-received by many people, but there were almost as many people who thought we were nuts.

After watching this video, and seeing for yourself what has happened since April of 2008, NOW how nuts do you think we are?

It has been a hard road to haul, trying to wake people up. It was hard being ridiculed and laughed at. It was hard seeing friends and loved-ones walking straight into an abyss of perpetual debt and even harder knowing that they were condemnig their children to the same fate.

Along the way, as economic conditions became more obvious, and our government’s role in perpatuating fraud and protecting the guilty at the expense of the innocent became more clear, finally, it appeared the cavalry might have arrived. FedUpUSA owes a debt of gratitute for Rick Santelli’s loss of composure on CNBC TV in February of 2009. What we had failed to accomplish, seemed to occur overnight: people started awakening from their stupor. ‘Tea Parties’ started springing up overnight in response to what can only be described as the cries of a modern-day Paul Revere, people got up off their couches and started taking their message to the streets.

Our work, however, is not over; it has just begun. Unless we address the ROOT of the problem, we cannot hope to derail the fraud and stop the corruption. The root of the problem is, no more and no less, our economic system. Our economic system is based upon a lie. The is that MONEY = DEBT. Our Founding Fathers knew this and proscribed a NON-debt denominated monetary system. This was intended to be money, the quantity of which was controled ONLY by the production of people – their human labors.

Absolutely all the corruption that now exists in our government can be traced back to the nature of our current financial system. Until or unless this system is changed, there is no hope to ever get out of debt.

Thankfully, there are some very smart people who have figured this out – and not only realize the source of the catastrophe we now face, but have come up with a solution:

Freedom’s Vision – In a Nutshell…

“It’s not WHAT backs our money, it’s WHO controls the QUANTITY!”

-Bill Still

Private Central Banks control the production of money in the United States, not our Congress as dictated by the United States Constitution. This has given them the POWER to control our economy and our politicians.

It is critical WHO controls the money system which is different than the banking system.

The system of backing our money with DEBT ensures that the system will fail, we are at or approaching the mathematical limits now. This system is controlled by Bankers, not Congress.

The quantity of money and debt is wildly out of control.

History shows that severe upheaval and “other events,” such as wars, follow such times. It is our intention to break that chain so that those other events do not occur.

Freedom’s Vision is comprised of three parts – Economic Reform, Political Reform, and Future’s Vision.

Our immediate mission is to:

“Enact monetary and political reform capable of transitioning our economy from its current debt and derivative entangled state to a prosperous & sustainable system that works to keep the quantity of money under control for the very long term.

Monetary Reform ends the process of debt backing our nation’s money at the Federal level, it establishes procedures to correctly measure our economy and through transparency coupled with checks and balances works with Congress to ensure that the quantity of money never gets out of control.

While the systems of control are simple and intuitive, the very difficult part is transitioning our economy from its current debt saturated and derivative entangled state to a sustainable and prosperous future.

Significant tax money would be returned to the people used to pay down debt for those who have it, thus deleveraging and providing immediate relief to all citizens. This first step also makes the banks more healthy.

Through the unique procedures contained within, the debts would be brought back to manageable limits on all levels. Derivatives would be untangled. All banks would survive the transition and come out of the transition ready to do meaningful and REAL business.

All businesses would immediately benefit as the economy rapidly, but in a controlled fashion, cleanses away the debt and leverage that is holding us back.

State economies will be cleansed and will take more control over their own destiny through the use of state chartered banks that will provide funding and bank control for that state, enabling low and no interest loans for the needs of the state much as the Bank of North Dakota has since the year 1919.

The dollar system that emerges would look and feel to most people almost exactly as it looks and feels today, but without the problems associated with never ending inflation.

Please follow this link to learn more details about Freedom’s Vision Monetary Reform

Political Reform works to separate special interest money from politics, thus ensuring that long term decision making can be made and that WHO controls the quantity of money remains in the hands of the people.

The short list of benefits can be found here – Benefits of Freedom’s Vision.

Swarm Politics is our method of implementing Freedom’s Vision.

Future’s Vision comes into play as the transition of our economy to Freedom’s Vision is being implemented. This third piece of the puzzle provides long term goals and focus for our nation working towards creating real and meaningful jobs while moving our nation ahead with purpose.

None of these procedures are yet set in stone, there is still much room to improve and work on them. We will be working towards creating actual legal language as we proceed. We need your help to create and enact Freedom’s Vision so that we secure our money, our freedom, our future.

Freedom’s Vision – Securing Our Money, Our Freedom, Our Future!

Could the US EVER pay off its debt? A mathematical perspective

By Debtor’s Prison

Greetings Fellow Inmates,

Today we will take a break from the URC series for a speculative, fun post of Numbers!  We will use one of our three trusty abaci to finally explore a statement we made initially in Count The Money v2.0: “The [US] debt WILL NEVER BE PAID OFF”.    The following is a greatly simplified model, and as such we will properly outline its variables, parameters, equations, simplifications, assumptions, uncertainties, weaknesses and inflection points, as we promised we’d do in the About Us section.   We will then of course weave this “technical” picture into a coherent story.  Please stick with the first half where we lay down the premises of the experiment, we want to make sure you understand the foundations of our thought experiment.   The real cool, mind-bending stuff and results are in the second half.  We promise that even for those NON-technical amongst you, we will provide enough visual support to clearly and vividly illustrate our points.   We will leave the actual equation definitions of our first-ever appendix, in order to not distract the less-math-prone Inmates.

We are setting out to construct a model to attempt to answer the following question.   Given the United States of America’s current TOTAL PUBLIC DEBT SECURITIES and the total size of the US economy, as measured by NOMINAL GDP, what is the likelihood the that United States debt will ever be paid off?  Remember, as we always say, that the TOTAL DEBT SECURITIES (ie, US Treasuries mostly) is not the total amount of debt since the government has many other liabilities that are equally enormous, such as Medicare, Medicaid, GSEs, etc.   So, in any real thorough analysis of the likely evolution of the economy and the debt, these additional liabilities would have to be taken into account.   Clearly, they would make the situation, the current system, even more unsustainable than it already is.    This falls outside the purview of the following model, where we will attempt to demonstrate through simple math that even when just looking at the securities, which are just part of the total debt, the system is already guaranteed to fail.  

OK, on to the basics of the model.    We have split up the exercise into two parts.   In the first experiment, only the INTEREST on the debt securities is paid down.    In the second, the INTEREST is paid down, as well as some PRINCIPAL, with the intent of eventually paying down the debt, as a percentage of total GDP.   In both cases, we assume that NO MORE DEBT IS ISSUED IN EXCESS OF THAT INTENDED TO PAY DOWN INTEREST, or at least until the end of our simulations, in 2333.   This is a very important point, as any deductions, conclusions or recommendations we derive from this model will be predicated upon this assumption.     It is clear a priori that the only chance for the debt to be paid off is if the US starts paying down some of that principal.    This, we will see, can only come from real economic output.

For those of you that are math, reason, logic and rigour junkies such as Ourselves, we strongly urge you at the moment to stroll down to the appendix and read the description of the model before returning to read right here.    It’s a very simple model.   For starters, we assume that there is a fixed interest rate and economic growth.   Of course, this is a far cry from reality, and we will not repeat nor apologize for the simplicity of this model.  It is intended to be simple, it is in fact conservative, since what we are trying to demonstrate is the inherent instability of The System.   And the great thing about the little Excel abacus is that we can make it dynamic, and allow you to play around with it, to really wrap your mind around the absolute ridiculousness of it all.   When you play around with some of the parameters you realize the sheer absurdity of our current system and where it is likely to lead us in the future.   The over-simplifications in the model are of course not trivial and thus impede precise predictive power, but you can say the same about most anything.   The over-simplifications are meant for the simple reason that they illustrate certain key points without the cloudiness of confusion, and because OUR POINT is not to predict the future, but rather clearly demonstrate the nonsensical foundations of our monetary system.   In this purpose, the oversimplifications of the model become marginal, in our humble opinion.

You might also notice that of course the model must be iterative, as a simplified model such as this must clearly be; meaning that the total NOMINAL US GDP and TOTAL US DEBT SECURITIES OUSTANDING (the two main variables in which we are interested) in any given year depend on the values in the preceding year.   This exactly parallels reality, so this model assumption is safe.

Below are the results of our experiment, for a sample CASE STUDY.    You can download the full Excel file here.   We highly recommend you download it, since you can simply play with the parameters, in the RED BOXES, to see the wild outcomes that come out, in other words, you can make ANY SAMPLE CASE you want.   You are encouraged to explore all the embedded functions, check them for consistency, modify them, use them, distribute them, no copyright.    For our purposes we chose as parameters the following: an interest rate of 5% (equivalent to weighted average yield of outstanding US debt securities), and economic growth of 4%.   Of course, we are being somewhat generous given what we expect of the economy, but since our simulation is over 322 years at the max, 40 years at the least, we figure this would be a good “average” value to use over that horizon.    As for the interest rate, we are also being generous, ie “pro”-system-biased, by assuming that the IR will be only 5%, given that we are likely to see SuperInflation and much higher yields in the mid-term future.     So, all in all, we would call these estimates for GDP and DEBT safe, pheasible and conservative ballparks.  Remember, this is the base case we are going to work with where annual GDP growth = 4% and the yield on US bonds is 5%

The following chart shows the result of a case study with the preceding parameters.   Notice that the chart is divided in two parts, the left when ONLY INTEREST IS PAID, and the right, where INTEREST AND PRINCIPAL are paid.   In the second case, in which we assume that principal is paid down, we show that parameter in another RED BOX, as % of GDP.      Notice that for both parts, we calculate the ratio of DEBT/GDP and of GDP/DEBT.   In our CASE STUDY, we assume that the US designates 2% of its annual real economic output to pay down principal on the debt.   

We can notice several things.   Let’s start in the case where the US only pays down its INTEREST.   Then we see that by 2020, the total DEBT/GDP ratio will be 0.90.   By 2050, 1.20 (ie, the total DEBT outstanding is 20% larger than the size of the total US economy).   By 2333, the total DEBT will be 78 times larger than the economy!     In the case where the US uses 2% of its annual GDP to pay down PRINCIPAL, in addition to the interest, then we see that it is actually WORSE.   Up until 2050, things look pretty similar, but they begin to diverge about 2100.   In this case, by 2200, the total DEBT will be 297 times larger than the economy.    Then, in 2207, the GDP goes negative!  Clearly this is a sheer absurdity and the model has “broken down”, partly indicating a “systemic failure”, since remember that THEY do want us to believe that the system works in such simple fashion and there aren’t any nefarious Invisible Hands lurking around. 

Now, why exactly does the GDP go negative? Well, that happens because the debt NEVER stops growing (at least in this base case we are working with now), so at some point the interest payments on the debt become so large that even if we only pay 1% of the interest with real economic output, the cost is so large relative to the economy that it eats it all up.   Everyone dead.   Everything approaches zero; somehow our “system” managed to complete eradicate ALL VALUE FROM ALL THINGS.    Let’s look at what happens to our base case (GDP growth = 4%, Yield = 5%) when we only pay INTEREST and where we use different distributions of DEBT and OUTPUT to pay down the principal.   In other words, at some point we will pay some of the interest with mostly new debt, run the spectrum, until we pay for the interest with mostly real output.   Here are the graphic results.

Yikes!  Notice that given our base case, paying for 99% of the interest by issuing new debt, is the only level shown that prevents GDP from turning negative by 2333.   Anything less than that, even 95/5 is bound to result in sharply negative GDP eventually, with increasingly parabolic results.   In all cases, the debt grows parabolically, but such is the nature of compounding interest and we shouldn’t be surprised.    Perhaps you think we are being facetious by extrapolating all the way to 2333, I mean, really, who cares about what happens to their GreatGreatGreatGrandchildren?   So, let’s take a smaller-window view into the exact same thing, and selfishly look only until 2050.

Very interesting.   For starters we notice that of course, the discrepancy is not as huge.   When we change from paying for the interest with almost all NEW DEBT all the way to paying for the interest with almost ALL REAL OUTPUT, the outcomes are largely the same.    Between 2030 and 2042, the TOTAL US PUBLIC DEBT will surpass the size of the economy.    Big surprise.  

Alright, so it has now been unequivocally shown that in this simple base case, the US can NEVER be paid off if they limit themselves to paying only the interest.   We believe that this statement of course applies to all debt, anywhere, at any time, but we would welcome some debate on the matter.    Now, let’s see if there is any chance of paying off the debt if the US actually intends to pay principal.

In the CASE STUDY presented in the first chart, we saw that using 2% of GDP to pay down the principal actually resulted in a WORSE economic condition and faster deterioration towards ZERO GDP, or the ELIMINATION OF ALL VALUE.   However, by playing around with the parameters we realize that this is NOT always true.   We found that if the US were to designate 6% of all REAL ECONOMIC OUTPUT to paying down the INTEREST, then the DEBT would be in effect paid off, before GDP hit zero.     Voilá! Using 6% of GDP to pay down interest would result in the DEBT being paid off in 2074, and please look at the Excel file and notice how GLORIOUS it is that after the debt is paid down, the GDP begins to grow parabolically.   Of course!!! This is what SHOULD happen, in a RATIONAL DEBT-FREE world.    Below is a graphical sample of simulations all the way to 2100, using different values for the percentage of GDP assigned to pay down PRINCIPAL.

Wow, many interesting things once again.   Notice that when the US designates ONLY 5% of its GDP to pay down the debt the debt begins to decrease (as does GDP of course), but there is a point in which the debt begins to rise again, and once again runs away.       Why does this happen? Well, as GDP decreases, so does the amount of principal the US is able to pay, at some point, the principal payment becomes LESS than the mounting interest, so debt begins to rise again, never to fall for the rest of time.   At 6% however, this “barrier” is overcome and the debt can in fact be paid down.   So, between 5-6% we have another inflection point.      If 6% is designated, then the debt would be paid off in 1974; if 10% is designated, then it would be paid in 2033, and if 15% is designated the US would be debt free by 2023.  

So what are the chances of this happening?   Slim to none.   All we did was show under what circumstances it would even be possible to pay down the US debt.     So, if reality actually mirrored this greatly simplified model (it doesn’t), if Americans learned to live frugally for an entire generation (they can’t), if the macroeconomic conditions actually maintained the levels of our base case (they won’t), and the US government instituted serious fiscal reforms to bring this about (hahaha), then the US DEBT COULD BE PAID OFF.

Ultimately however, it is important to remember that THEY don’t want the debt to be paid off.   Of course not, that is how they keep us slaves.   But enough about blaming THEM.   It is time to blame OURSELVES.   Here it is, in vivid TechniColor, the sheer absurdity of this House of Cards, this Tower of Basel.   So why do you still participate in this system Inmates? 

“Because I must”  Why? 

“Because I have no other choice”  Why? 

“Because I don’t have enough firepower” Why do you need firepower? 

“Because the system gives me benefits and comforts which I’m happy to pay for?”  Even at the risk of death?

“Because I don’t care enough”  You should.

May your capital be safe and your investments prosperous,

MAAA

—————————-

APPENDIX

Let:

gOD(Y) = gross Outstanding US Debt securities on year (Y),

IR = representative interest rate of total US debt securities, ie, the yield on the weighted average maturity of outstanding US debt ,

INTEREST(Y) = the interest rate cost on year Y, equal to gOD(Y)*IR

GDP(Y) = nominal US GDP on year Y,

GDPchg  = the annual percentage change in nominal US GDP, in decimal units,

DebtPer = percentage of the annual interest cost that will be paid through new debt issuance,

OutputPer = percentage of the annual interest cost that will be paid through real economic output

PrinPer = percentage of nominal US GDP to be used to pay down principal,

PRINCIPAL(Y) = the total principal payment on year Y, equal to PrinPer*GDP(Y)

Then, the model stipulates that:

GDP(Y) = [ GDP(Y-1) – OutputPer*INTEREST(Y-1) – PRINCIPAL(Y-1) ]*[1 + GDPchg];

gOD(Y) = gOD(Y-1) + DebtPer*INTEREST(Y-1) – PRINCIPAL(Y-1) ;

where

GDP(Yi), and gOD(Yi) are the initial conditions, in our case

gOD(2010) = $11.9tr

GDP(2010) = $14.5tr

Captain, We Cannot Withstand Another Attack

Posted by Karl Denninger

Who really governs America? The United States government or the banks? Most believe the government but some say all you have to do is follow the money and you will see that Wall Street is behind it all. 

Always follow the money.    Damon Vrabel, army veteran,  Harvard business school graduate, former Wall Street employ explains:

By Nathan Martin

Many people get all wrapped around the axle about debt to GDP statistics. This is a complete Red Herring as comparing our Federal Government’s debt to the productivity of the nation is exactly the same as comparing your personal debt to the productivity of your neighborhood. They are unrelated.

What is completely related and totally relevant is DEBT to INCOME. In fact, in regards to debt, income is the only thing that really matters. Our Nation’s Income is crashing as shown in this chart expressed in year over year (yoy) change in Billions of dollars:

Our Current Government Receipts rose to approximately $2.5 Trillion and has collapsed to less than $2.2 Trillion, again expressed here in yoy change in Billions:

At the same time that our receipts are falling, our Federal Net Outlays are in an exponential growth phase, spiraling up in a now very out-of-control fashion. This is THE most important chart of the modern era! When this chart begins to roll over, and it will, it will mark the end of the last leg of support for our debt crippled economy:

The combination of rising outlays and falling receipts produces a negative Government Savings rate, clearly not sustainable but on an accelerating downward plummet into the depths of nation changing events that are right on the nearby horizon:

You are being told that the economy is improving, the only “improvement” is the amount being spent by the government. Take a look at the Consumption of Fixed Capital, one of the components of GNP:

Sales are up, REALLY? Below is a chart of Real Final Sales of Domestic Products yoy in Billions. Not only is it not positive, but it is still crashing:

The tell in regards to sales is in the tax collected on sales. State and Local Government Sales Taxes are now down about 5% on a year over year basis:

Here’s the same chart expressed in yoy change in Billions of dollars – no change of path, not even a wiggle or a waiver:

How about Imports and Exports? Aren’t we being told that they are increasing again? Absolutely not the case, again, nothing but collapse. Take a look at Exports of Goods and Services expressed in yoy change in Billions:

Now take a look at the yoy change in Real Imports of Goods and Services:

Historic collapse, take a look at the magnitude of the collapse and how far back those charts go in time. You can talk up the “recovery” all you want, you can call it a “recession” all you want, but lip service does not change what is occurring on those charts and to our debt saturated economy.

We let the Central Bankers take over our money supply and we let them back all our money with debt at their benefit and at our expense. It is time to change that equation around!

Please support Freedom’s Vision by registering for the Swarm, and bee sure to tell your friends. Do it for your country and do it for future generations.

The Last Fight:

Bernanke Repudiates Famous 2002 Speech

Detroit Mayor on Unions “They can’t read, they can’t add, they can’t comprehend”; 33% of Detroit is Vacant Lots or Abandoned Homes

Three cheers to Detroit mayor Dave Bing for his truthful comments about unions: ‘Either they can’t read, they can’t add or they can’t comprehend’

Mayor Dave Bing today criticized leaders of the city’s largest union for foot-dragging on contract negotiations, saying it’s costing the financially strapped city $500,000 a month and could result in more layoffs.

“Either they can’t read, they can’t add or they can’t comprehend,” Bing said at a press conference this morning in his office at City Hall. “It has to be one of the three.

“Everyone is running with a deficit in their budgets. It’s leadership or a lack of leadership that has got us to where we are.”

Bing said he’s ready to impose a contract on the American Federation of State, County and Municipal Employees Council 25 but said the city must follow the law. Both parties are now in fact-finding, a process which could last until July.

Bing has been at odds for months with AFSCME leaders over calls for concessions, including 10 percent pay cuts through 26 furlough days and fringe benefit cuts. The union represents about 3,600 workers such as landscapers, street pavers and crossing guards.

Problems With Bing’s Approach

The big problem with Bing’s approach is that he is not going far enough. He should privatize everything he can. Pussyfooting around with unions is generally a waste of time. The major goal should be to eliminate the unions entirely. The compromise position is the end of defined benefit pension plans coupled with a 33% salary reduction.

Ask for a lousy 10% cut and you end up in court, after months of delays, and all you end up with is a lousy 5% with no headway on the defined benefit issue.

By the way, Bing brought this on himself. Why is it so hard to see the need to privatize landscapers, street pavers and crossing guards? Hells bells, the goal ought to be to privatize the fire department, better yet, to have a volunteer fire department.

Thus, on second thought … Two cheers (not three) to Detroit mayor Dave Bing. He said what needed to be said, but he certainly is not acting like he means business.

33% of Detroit is Vacant Land or Abandoned Homes

Inquiring minds are investigating Mayor Bing’s Plan To Shrink Detroit

Mayor Dave Bing said Wednesday he “absolutely” intends to relocate residents from desolate neighborhoods and is bracing for inevitable legal challenges when he unveils his downsizing plan.

In his strongest statements about shrinking the city since taking office, Bing told WJR-760 AM the city is using internal and external data to decide “winners and losers.” The city plans to save some neighborhoods and encourage residents to move from others, he said.

“If we don’t do it, you know this whole city is going to go down. I’m hopeful people will understand that,” Bing said. “If we can incentivize some of those folks that are in those desolate areas, they can get a better situation.”

Bing’s staff is using its own data and a survey released last weekend by Data Driven Detroit. The block-by-block study of the 139 square-mile city showed that roughly one in three parcels are vacant lots or abandoned homes.

John Mogk, a Wayne State law school professor, said Bing’s on the right track but will face four major challenges: political support; money; creating a bureaucracy to administer the project and legal challenges.

Among the court challenges he sees ahead include the legality of cutting off city services to particular neighborhoods and using eminent domain to relocate residents. In 2006, voters approved a prohibition on government’s ability to take property for economic development.

Talk Is Cheap

Daniel Howes, a Detroit News columnist correctly hammers the talk is cheap message in Bing must put actions behind words

A new tone at City Hall may be refreshing, necessary to steering Detroit out of a ditch deepened by its own digging. But it’s not sufficient without action and the kind of rigorous financial management that should control wild overspending on overtime ($54.3 million last year), that should be more aggressive in collecting $50 million spent to demolish dilapidated buildings.

In other words, talk sounds even cheaper than it is when the numbers are so grim, because the numbers don’t lie. Detroit is operating some $325 million in the red; its tax base is shrinking amid a jobs-killing recession and plunging property values; union concessions, a test of Bing’s mettle, remain undelivered.

Kwame Kilpatrick, no friend to the city’s unions, eliminated some 4,000 jobs during his abbreviated tenure. You, more than six months into a deepening crisis, have cut some 450 slots and reduced pay for salaried appointees by 10 percent, but have so far retreated from promises to take out more.

Another example: Look to Lansing, where a two-term governor in her final year in office steadfastly refuses to exercise the prodigious powers bestowed on her office by legal precedent and the state constitution. Gov. Jennifer Granholm is probably feared by no one, and she has the record to prove it.

Detroit’s crisis, likely to deepen this year, is your opportunity to change the direction of a city whose leaders — elected, appointed and union — have together led Detroiters down an unsustainable path they are unable to finance, much less afford.

But we’re not seeing much. Your spokesman still promises 10-percent pay cuts for union employees in the form of furloughs that don’t come. Your penchant to let your actions speak for themselves (like they did on NBA basketball courts) would be admirable if you had enough actions to let do the talking.

It’s a cliché, but a crisis is a terrible thing to waste. So is the support of folks inside and out of Detroit counting on you to make the difference you can.

The news commentary and columns from the Detroit News are excellent. I have several readers sending me links every day. While I can only give two cheers to Bing, I am in a cheerful mood today, so it’s three cheers for Daniel Howes.

Now if only Mayor Bing would follow through with some tough actions to go with his tough words. A good place to start would be to privatize everything in sight, including the fire department. Complete annihilation is the only thing unions understand, so why not give it to them?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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The Ultimate Ponzi Scheme – FDIC is Backing $5.3 Trillion through the Deposit Insurance Fund that now has a Balance of -$20.8 Billion. FDIC has Cash and Marketable Securities of $66 Billion. Is that Really Enough to Back Every Account for $250,000?

Posted by mybudget360

The FDIC is running the biggest confidence game in the country.  The FDIC is now protecting through the Deposit Insurance Fund (DIF) some $5.3 trillion in deposits in banks across the country.  All of this is secured by an insurance fund that is now in the negative by $20.8 billion.  In the middle of this financial crisis we allowed the government to suddenly up the deposit insurance coverage from $100,000 to $250,000 which on face value seems fantastic.  I mean every average American wants their money to be covered so upping it to $250,000 seems fantastic even though most middle class Americans have nothing close to that and are merely trying to pay their bills from one month to another.  But what if people suddenly pulled their money out of banks similar to what occurred with IndyMac Bank in California?  Think this can’t happen again?  One of the too big to fail banks seems to think this might be coming down the pipeline.  Some interesting information on Citigroup:

“(Prison Planet) A new advisory being sent by America’s third largest bank to its account holders has stoked fears that major financial institutions could be preparing for old fashioned bank runs if the economy takes a turn for the worse.

Originally reported by John Carney over at the Business Insider website, Citigroup is sending the following information to customers along with their bank statements.

“Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change.”

In other words, let us assume many clients decide to withdraw all their funds in a short period of time because people suddenly realize that $250,000 is actually being supported by pure faith.  In addition, average Americans realize that -$20.8 billion will certainly not cover $5.3 trillion in actual deposits that can be redeemed at any given time!  That is the psychology of our current banking system.  As long as people believe the wizard behind the curtain can back up the deposits then all is fine.  This worked as long as assets actually had values that banks claimed were true.  We know that game is over.  In fact, that is why the entire banking system has received roughly $13 trillion in bailouts and backstops.  It really is this fragile.  This is how the deposit insurance fund looks like:

Source:  FDIC

So you would think that people would at least try to diversify their investments since even a minor bank run would cause major damage.  But instead, people have increased their deposits at these banks at a rapid pace:

And I can’t blame them.  What choice is there?  Gamble in the Wall Street rigged casino or put it in the bank.  If we go back to December of 2007 when the crisis started, DIF-Insured deposits have shot up by $1.1 trillion and the actual fund has gone negative because of all the additional bank failures.  This psychology really does remind me of the mania surrounding the housing bubble boom. What if, hypothetically, people decide that one of the too big to fail is suddenly not that big at all, and Americans start withdrawing funds to some other institution.  Worse yet, they take their funds out and put them in a non-DIF insured institution.  Then what?  Or maybe people want the actual cash.  This is what is so troubling.  Just go to any local store and see how much actual cash is being exchanged.  It is all electronic debits and credits.  Insured to $250,000?  On what?  Clearly the U.S. Treasury would step in at this point and flat out start printing money but what use would that be since the dollars you are being paid with would quickly devalue (even more).

I’ve seen a few people dismiss the current negative DIF fund by saying “the FDIC is flush with cash.”  Really?  Let us examine that part of the equation.  From the latest FDIC quarterly bank report:

“In June 2008, before the number of bank and thrift failures began to rise significantly, total assets held by the DIF were approximately $56 billion and consisted almost entirely of cash and marketable securities (i.e. liquid assets). As the crisis has unfolded, liquid assets of the DIF have been to protect depositors of failed institutions and were exchanged for less liquid claims against assets of failed institutions. As of September 30, 2009, although total assets had increased to almost $63 billion, cash and marketable securities had fallen to approximately $23 billion.”

Did you get that?  The FDIC “cash” went from roughly $56 billion in June of 2008 to $23 billion in September of 2009.  And supposedly, they now have “assets” of $63 billion but how much of this is crap mortgages from failed banks like WaMu and IndyMac?  In reality, the FDIC at this point only had $23 billion to back up $5.3 trillion.  But in December of 2009 the FDIC took the radical step to front-load prepaid assessments:

“To provide the FDIC with the funds needed to carry on with the task of resolving failed institutions in 2010 and beyond, but without accelerating the impact of assessments on the industry’s earnings and capital, the FDIC approved a measure to require insured institutions to prepay 13 quarters worth of deposit insurance premiums. These prepayments—about $46 billion—were collected on December 30, 2009. Cash and marketable securities stood at $66 billion on December 31, 2009.”

Now don’t you feel better?  The FDIC took in 13 quarters of prepaid deposit insurance premiums and we now have a combined total of cash and marketable securities of $66 billion.  In other words, one too big to fail going down and good luck with that $250,000 backup really being worth what you would actually think.  This is what surprises me here.  We all know things are actually getting worse with the banking system yet we keep piling on the risk.  In fact, the FDIC has even upped the number of troubled banks on their list:

You know if the FDIC is saying 702 we know it is much higher.  I still stand by my prediction that this crisis will bring down at least 1,000 banks when all is said and done.  I love how the FDIC lists “assisted institutions” as 8 with total assets of nearly $2 trillion.  I wonder who those could be?

The bottom line is, we are playing a very big game of confidence here.  Gallup just ran a poll showing that 19.9 percent of Americans are underemployed.  That number is getting really close to the 25 percent rate of the Great Depression but with part-time employment.  That does a number on the psyche of average Americans.